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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission Registrant, State of Incorporation, I.R.S. Employer
File Address, and Telephone Number Identification
Number No.
- ---------- ------------------------------------------ ----------------
1-9120 PUBLIC SERVICE ENTERPRISE GROUP 22-2625848
INCORPORATED
(A New Jersey Corporation)
80 Park Plaza
P.O. Box 1171
Newark, New Jersey 07101-1171
973 430-7000
http://www.pseg.com
1-973 PUBLIC SERVICE ELECTRIC AND GAS COMPANY 22-1212800
(A New Jersey Corporation)
80 Park Plaza
P.O. Box 570
Newark, New Jersey 07101-0570
973 430-7000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
The number of shares outstanding of Public Service Enterprise Group
Incorporated's sole class of common stock, as of the latest practicable date,
was as follows:
Class: Common Stock, without par value
Outstanding at July 31, 1998: 231,957,608
As of July 31, 1998 Public Service Electric and Gas Company had issued and
outstanding 132,450,344 shares of common stock, without nominal or par value,
all of which were privately held, beneficially and of record by Public Service
Enterprise Group Incorporated.
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<PAGE>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
--------------------------------------------
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Page
----
Public Service Enterprise Group Incorporated (PSEG):
Consolidated Statements of Income for the Three and Six
Months Ended June 30, 1998 and 1997......................... 1
Consolidated Balance Sheets as of June 30, 1998
and December 31, 1997....................................... 2
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1998 and 1997......................... 4
Public Service Electric and Gas Company (PSE&G):
Consolidated Statements of Income for the Three and Six
Months Ended June 30, 1998 and 1997......................... 5
Consolidated Balance Sheets as of June 30, 1998 and
December 31, 1997........................................... 6
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1998 and 1997......................... 8
Notes to Consolidated Financial Statements-- PSEG.............. 9
Notes to Consolidated Financial Statements-- PSE&G............. 17
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PSEG.......................................................... 18
PSE&G......................................................... 25
Item 3. Qualitative and Quantitative Disclosures About Market
Risk.................................................. 26
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................... 27
Item 5. Other Information....................................... 29
Item 6. Exhibits and Reports on Form 8-K........................ 31
Signatures -- PSEG.............................................. 32
Signatures -- PSE&G............................................. 32
<PAGE>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
--------------------------------------------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<PAGE>
<TABLE>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(Millions of Dollars, Except Per Share Data)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -----------------------
1998 1997 1998 1997
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Electric ............................................... $ 1,194 $ 946 $ 2,371 $ 1,906
Gas .................................................... 273 324 884 1,058
Nonutility Activities .................................. 90 53 203 91
--------- --------- --------- ---------
Total Operating Revenues .......................... 1,557 1,323 3,458 3,055
--------- --------- --------- ---------
OPERATING EXPENSES
Operation
Interchanged Power and Fuel for Electric Generation .... 447 243 933 491
Gas Purchased .......................................... 169 180 560 601
Other .................................................. 327 268 620 517
Maintenance .............................................. 54 70 102 128
Depreciation and Amortization ............................ 163 155 327 305
Taxes (Note 6)
Income Taxes ........................................... 90 49 221 153
Transitional Energy Facility Assessment/New Jersey
Gross Receipts Taxes ................................. 38 117 87 289
Other .................................................. 18 22 39 42
--------- --------- --------- ---------
Total Operating Expenses .......................... 1,306 1,104 2,889 2,526
--------- --------- --------- ---------
OPERATING INCOME ......................................... 251 219 569 529
--------- --------- --------- ---------
OTHER INCOME AND DEDUCTIONS
Settlement of Salem Litigation - Net of Applicable
Taxes of $29 ........................................ -- -- -- (53)
Other - net ............................................ 2 2 8 4
--------- --------- --------- ---------
Total Other Income and Deductions ................. 2 2 8 (49)
--------- --------- --------- ---------
INCOME BEFORE INTEREST CHARGES AND
DIVIDENDS ON PREFERRED SECURITIES ........................ 253 221 577 480
--------- --------- --------- ---------
INTEREST CHARGES AND PREFERRED SECURITIES
DIVIDENDS
Interest Expense ....................................... 116 117 236 227
Allowance for Funds Used During Construction - Debt and
Capitalized Interest ................................. (3) (4) (7) (10)
Preferred Securities Dividend Requirements of Subsidiaries 18 14 35 29
Net Loss on Preferred Stock Redemptions .................. -- 3 -- 3
--------- --------- --------- ---------
Total Interest Charges and Preferred Securities
Dividends ...................................... 131 130 264 249
--------- --------- --------- ---------
NET INCOME ........................................ $ 122 $ 91 $ 313 $ 231
========= ========= ========= =========
AVERAGE SHARES OF COMMON STOCK
OUTSTANDING (000's) ................................... 231,958 231,958 231,958 232,014
EARNINGS PER SHARE (Basic and Diluted) .................. $ 0.53 $ 0.39 $ 1.35 $ 0.99
========= ========= ========= =========
DIVIDENDS PAID PER SHARE OF COMMON STOCK ................. $ 0.54 $ 0.54 $ 1.08 $ 1.08
========= ========= ========= =========
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONSOLIDATED BALANCE SHEETS
ASSETS
(Millions of Dollars)
<CAPTION>
(Unaudited)
June 30, December 31,
1998 1997
---------- --------
<S> <C> <C>
UTILITY PLANT - Original cost
Electric ........................................................... $13,787 $13,692
Gas ................................................................ 2,742 2,697
Common ............................................................. 576 558
------- -------
Total ......................................................... 17,105 16,947
Less: Accumulated depreciation and amortization .................... 6,761 6,463
------- -------
Net ........................................................... 10,344 10,484
Nuclear Fuel in Service, net of accumulated amortization -
1998, $297; 1997, $302 .......................................... 206 216
------- -------
Net Utility Plant in Service .................................. 10,550 10,700
Construction Work in Progress, including Nuclear Fuel in
Process - 1998, $31; 1997, $60 ................................... 323 326
Plant Held for Future Use .......................................... 24 24
------- -------
Net Utility Plant ............................................. 10,897 11,050
------- -------
INVESTMENTS AND OTHER NONCURRENT ASSETS
Long-Term Investments, net of amortization - 1998, $29; 1997,
$21, and net of valuation allowances - 1998, $23; 1997, $10 ...... 2,931 2,873
Nuclear Decommissioning and Other Special Funds ..................... 588 492
Other Noncurrent Assets, net of amortization - 1998, $22; 1997, $16,
and net of valuation allowances - 1998, $5; 1997, $0 ............. 181 167
------- -------
Total Investments and Other Noncurrent Assets ................. 3,700 3,532
------- -------
CURRENT ASSETS
Cash and Cash Equivalents .......................................... 115 83
Accounts Receivable:
Customer Accounts Receivable ..................................... 510 520
Other Accounts Receivable ........................................ 242 293
Less: Allowance for Doubtful Accounts ............................ 42 41
Unbilled Revenues .................................................. 179 270
Fuel, at average cost .............................................. 249 310
Materials and Supplies, at average cost, net of inventory valuation
reserves - 1998, $12; 1997, $12 .................................. 144 142
Prepayments ........................................................ 358 48
Miscellaneous Current Assets ....................................... 29 38
------- -------
Total Current Assets .......................................... 1,784 1,663
------- -------
DEFERRED DEBITS (Note 3)
Unamortized Debt Expense ........................................... 129 136
OPEB Costs ......................................................... 280 289
Environmental Costs ................................................ 119 122
Electric Energy and Gas Costs ...................................... 73 167
SFAS 109 Income Taxes .............................................. 706 725
Demand Side Management Costs ....................................... 149 116
Other .............................................................. 130 143
------- -------
Total Deferred Debits ......................................... 1,586 1,698
------- -------
TOTAL ................................................................ $17,967 $17,943
======= =======
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
(Millions of Dollars)
<CAPTION>
(Unaudited)
June 30, December 31,
1998 1997
----------- --------------
<S> <C> <C>
CAPITALIZATION
Common Stockholders' Equity:
Common Stock ........................................... $ 3,603 $ 3,603
Retained Earnings ...................................... 1,675 1,623
Foreign Currency Translation Adjustment ................ (27) (15)
-------- --------
Total Common Stockholders' Equity ................... 5,251 5,211
Subsidiaries' Preferred Securities:
Preferred Stock Without Mandatory Redemption ........... 95 95
Preferred Stock With Mandatory Redemption .............. 75 75
Guaranteed Preferred Beneficial Interest in Subordinated
Debentures (Note 8) ................................. 888 513
Long-Term Debt ........................................... 4,614 4,873
-------- --------
Total Capitalization ................................ 10,923 10,767
-------- --------
OTHER LONG-TERM LIABILITIES
Accrued OPEB ............................................. 323 289
Decontamination and Decommissioning Costs ................ 43 43
Environmental Costs (Note 4) ............................ 69 73
Capital Lease Obligations ................................ 50 52
-------- --------
Total Other Long-Term Liabilities ................... 485 457
-------- --------
CURRENT LIABILITIES
Long-Term Debt due within one year ....................... 646 340
Commercial Paper and Loans ............................... 1,069 1,448
Accounts Payable ......................................... 592 686
Other .................................................... 346 353
-------- --------
Total Current Liabilities ........................... 2,653 2,827
-------- --------
DEFERRED CREDITS
Income Taxes ............................................. 3,354 3,394
Investment Tax Credits ................................... 333 343
Other .................................................... 219 155
-------- --------
Total Deferred Credits .............................. 3,906 3,892
-------- --------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 4) ............ -- --
-------- --------
TOTAL ...................................................... $ 17,967 $ 17,943
======== ========
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions of Dollars)
(Unaudited)
<CAPTION>
Six Months Ended June 30,
------------------------
1998 1997
----- -----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................................... $ 313 $ 231
Adjustments to reconcile net income to net cash flows from
operating activities:
Depreciation and Amortization .............................................. 327 305
Amortization of Nuclear Fuel ............................................... 44 34
Recovery of Electric Energy and Gas Costs - net ............................ 94 15
Unrealized Gains on Investments - net ...................................... (40) (7)
Proceeds from Leasing Activities ........................................... (51) 47
Changes in certain current assets and liabilities:
Net decrease in Accounts Receivable and Unbilled Revenues ................. 153 142
Net decrease in Inventory - Fuel and Materials and Supplies ............... 59 89
Net decrease in Accounts Payable .......................................... (94) (104)
Net increase in Prepayments ............................................... (310) (588)
Net change in Other Current Assets and Liabilities ........................ 2 164
Other ...................................................................... 39 (29)
----- -----
Net Cash Provided By Operating Activities ............................... 536 299
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Utility Plant, excluding AFDC ................................... (191) (229)
Net decrease (increase) in Long-Term Investments and Real Estate ............. 2 (385)
Contribution to Decommissioning Funds and Other Special Funds ................ (61) (28)
Other ........................................................................ (24) (56)
----- -----
Net Cash Used In Investing Activities ................................... (274) (698)
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in Short-Term Debt ................................... (379) 353
Issuance of Long-Term Debt ................................................... 250 476
Redemption of Long-Term Debt ................................................. (203) (358)
Redemption of Preferred Stock ................................................ -- (94)
Issuance of Preferred Securities ............................................. 375 95
Retirement of Common Stock ................................................... -- (43)
Cash Dividends Paid on Common Stock .......................................... (251) (251)
Other ........................................................................ (22) (4)
----- -----
Net Cash (Used In) Provided By Financing Activities ..................... (230) 174
----- -----
Net (Decrease) Increase In Cash And Cash Equivalents ........................... 32 (225)
Cash And Cash Equivalents At Beginning Of Period ............................... 83 279
----- -----
Cash And Cash Equivalents At End Of Period ..................................... $ 115 $ 54
===== =====
Income Taxes Paid .............................................................. $ 241 $ 84
Interest Paid .................................................................. $ 204 $ 187
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Millions of Dollars)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Electric ........................................... $ 1,194 $ 946 $ 2,371 $ 1,906
Gas ................................................ 273 324 884 1,058
------- ------- ------- -------
Total Operating Revenues ...................... 1,467 1,270 3,255 2,964
------- ------- ------- -------
OPERATING EXPENSES
Operation
Interchanged Power and Fuel for Electric Generation 447 243 933 491
Gas Purchased ...................................... 169 180 560 601
Other .............................................. 291 246 549 478
Maintenance .......................................... 54 70 102 128
Depreciation and Amortization ........................ 161 154 322 303
Taxes (Note 6)
Income Taxes ....................................... 80 46 196 147
Transitional Energy Facility Assessment/New Jersey
Gross Receipts Taxes ............................ 38 117 87 289
Other .............................................. 19 20 38 40
------- ------- ------- -------
Total Operating Expenses ...................... 1,259 1,076 2,787 2,477
------- ------- ------- -------
OPERATING INCOME ..................................... 208 194 468 487
------- ------- ------- -------
OTHER INCOME AND DEDUCTIONS
Settlement of Salem Litigation - Net of Applicable
Taxes of $29 ................................... -- -- -- (53)
Other - net ........................................ 3 2 5 4
------- ------- ------- -------
Total Other Income and Deductions ............. 3 2 5 (49)
------- ------- ------- -------
INCOME BEFORE INTEREST CHARGES AND
DIVIDENDS ON PREFERRED SECURITIES .................... 211 196 473 438
------- ------- ------- -------
INTEREST CHARGES AND PREFERRED SECURITIES DIVIDENDS
Interest Expense ................................... 92 101 188 197
Allowance for Funds Used During Construction - Debt (3) (3) (6) (8)
Preferred Securities Dividend Requirements
of Subsidiaries ............................... 11 11 22 22
------- ------- ------- -------
Total Interest Charges and Preferred Securities
Dividends ................................... 100 109 204 211
------- ------- ------- -------
NET INCOME .................................... 111 87 269 227
------- ------- ------- -------
Preferred Stock Dividend Requirements .............. 2 3 5 7
Net Loss on Preferred Stock Redemptions ............ -- 3 -- 3
------- ------- ------- -------
EARNINGS AVAILABLE TO PUBLIC SERVICE
ENTERPRISE GROUP INCORPORATED ........................ $ 109 $ 81 $ 264 $ 217
======= ======= ======= =======
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
(Millions of Dollars)
<CAPTION>
(Unaudited)
June 30, December 31,
1998 1997
------- -------
<S> <C> <C>
UTILITY PLANT - Original cost
Electric ......................................................... $13,787 $13,692
Gas .............................................................. 2,742 2,697
Common ........................................................... 576 558
------- -------
Total ....................................................... 17,105 16,947
Less: Accumulated depreciation and amortization .................. 6,761 6,463
------- -------
Net ......................................................... 10,344 10,484
Nuclear Fuel in Service, net of accumulated amortization -
1998, $297; 1997, $302 ........................................ 206 216
------- -------
Net Utility Plant in Service ................................ 10,550 10,700
Construction Work in Progress, including Nuclear Fuel in
Process - 1998, $31; 1997, $60 ................................. 323 326
Plant Held for Future Use ........................................ 24 24
------- -------
Net Utility Plant ........................................... 10,897 11,050
------- -------
INVESTMENTS AND OTHER NONCURRENT ASSETS
Long-Term Investments, net of amortization - 1998, $29; 1997, $21,
and net of valuation allowances - 1998, $9; 1997, $10 .......... 139 137
Nuclear Decommissioning and Other Special Funds .................. 588 492
Other Noncurrent Assets .......................................... 44 45
------- -------
Total Investments and Other Noncurrent Assets ............... 771 674
------- -------
CURRENT ASSETS
Cash and Cash Equivalents ........................................ 32 17
Accounts Receivable:
Customer Accounts Receivable ................................... 468 488
Other Accounts Receivable ...................................... 226 232
Less: Allowance for Doubtful Accounts .......................... 40 41
Unbilled Revenues ................................................ 179 270
Fuel, at average cost ............................................ 249 310
Materials and Supplies, at average cost, net of inventory
valuation reserves - 1998, $12; 1997, $12 ...................... 144 142
Prepayments ...................................................... 354 44
Miscellaneous Current Assets ..................................... 25 37
------- -------
Total Current Assets ........................................ 1,637 1,499
------- -------
DEFERRED DEBITS (Note 3)
Unamortized Debt Expense ......................................... 128 135
OPEB Costs ....................................................... 280 289
Environmental Costs .............................................. 119 122
Electric Energy and Gas Costs .................................... 73 167
SFAS 109 Income Taxes ............................................ 706 725
Demand Side Management Costs ..................................... 149 116
Other ............................................................ 130 143
------- -------
Total Deferred Debits ....................................... 1,585 1,697
------- -------
TOTAL .............................................................. $14,890 $14,920
======= =======
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
(Millions of Dollars)
<CAPTION>
(Unaudited)
June 30 December 31,
1998 1997
---------- -----------
<S> <C> <C>
CAPITALIZATION
Common Stockholder's Equity:
Common Stock ........................................... $ 2,563 $ 2,563
Contributed Capital .................................... 594 594
Retained Earnings ...................................... 1,365 1,352
------- -------
Total Common Stockholder's Equity ................... 4,522 4,509
Preferred Stock Without Mandatory Redemption ............. 95 95
Preferred Stock With Mandatory Redemption ............... 75 75
Subsidiaries' Preferred Securities:
Guaranteed Preferred Beneficial Interest in Subordinated
Debentures (Note 8) ................................. 513 513
Long-Term Debt ........................................... 4,140 4,126
------- -------
Total Capitalization ................................ 9,345 9,318
------- -------
OTHER LONG-TERM LIABILITIES
Accrued OPEB ............................................. 323 289
Decontamination and Decommissioning Costs ................ 43 43
Environmental Costs (Note 4) ............................ 69 73
Capital Lease Obligations ................................ 50 52
------- -------
Total Other Long-Term Liabilities ................... 485 457
------- -------
CURRENT LIABILITIES
Long-Term Debt due within one year ....................... 252 118
Commercial Paper and Loans ............................... 955 1,106
Accounts Payable ......................................... 510 608
Other .................................................... 271 268
------- -------
Total Current Liabilities ........................... 1,988 2,100
------- -------
DEFERRED CREDITS
Income Taxes ............................................. 2,544 2,569
Investment Tax Credits ................................... 324 333
Other .................................................... 204 143
------- -------
Total Deferred Credits .............................. 3,072 3,045
------- -------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 4) ............ -- --
------- -------
TOTAL ...................................................... $14,890 $14,920
======= =======
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions of Dollars)
(Unaudited)
<CAPTION>
Six Months Ended June 30,
--------------------------
1998 1997
------ --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................................... $ 269 $ 227
Adjustments to reconcile net income to net cash flows from
operating activities:
Depreciation and Amortization .............................................. 322 303
Amortization of Nuclear Fuel ............................................... 44 34
Recovery of Electric Energy and Gas Costs - net ............................ 94 15
Changes in certain current assets and liabilities:
Net decrease in Accounts Receivable and Unbilled Revenues ................. 116 161
Net decrease in Inventory - Fuel and Materials and Supplies ............... 59 89
Net decrease in Accounts Payable .......................................... (98) (86)
Net increase in Prepayments ............................................... (310) (590)
Net change in Other Current Assets and Liabilities ........................ 15 186
Other ...................................................................... 27 (50)
----- -----
Net Cash Provided By Operating Activities ............................... 538 289
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Utility Plant, excluding AFDC ................................... (191) (229)
Contribution to Decommissioning Funds and Other Special Funds ................ (61) (28)
Other ........................................................................ (12) (21)
----- -----
Net Cash Used In Investing Activities ................................... (264) (278)
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in Short-Term Debt ................................... (151) 224
Issuance of Long-Term Debt ................................................... 250 279
Redemption of Long-Term Debt ................................................. (102) (276)
Redemption of Preferred Stock ................................................ -- (94)
Issuance of Preferred Securities ............................................. -- 95
Cash Dividends Paid .......................................................... (256) (259)
Other ........................................................................ -- (8)
----- -----
Net Cash Used In Financing Activities ................................... (259) (39)
----- -----
Net (Decrease) Increase In Cash And Cash Equivalents ........................... 15 (28)
Cash And Cash Equivalents At Beginning Of Period ............................... 17 47
----- -----
Cash And Cash Equivalents At End Of Period ..................................... $ 32 $ 19
===== =====
Income Taxes Paid .............................................................. $241 $137
Interest Paid .................................................................. $193 $161
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
--------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation/Organization
The financial statements included herein have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC). Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. However, in the
opinion of management, the disclosures are adequate to make the information
presented not misleading. These consolidated financial statements and Notes to
Consolidated Financial Statements (Notes) should be read in conjunction with the
Registrant's Notes contained in the 1997 Annual Report on Form 10-K and the
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998. These Notes
update and supplement matters discussed in the 1997 Annual Report on Form 10-K
and the Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.
The unaudited financial information furnished reflects all adjustments which
are, in the opinion of management, necessary to fairly state the results for the
interim periods presented. The year-end consolidated balance sheets were derived
from the audited consolidated financial statements included in the 1997 Annual
Report on Form 10-K. Certain reclassifications of the prior year's data have
been made to conform with the current presentation.
On June 12, 1998, Public Service Enterprise Group Incorporated (PSEG) renamed
certain of its principal non-utility subsidiaries. Enterprise Diversified
Holdings Incorporated was renamed PSEG Energy Holdings Inc. (Energy Holdings);
Community Energy Alternatives Incorporated was renamed PSEG Global Inc.
(Global); Energis Resources Incorporated was renamed PSEG Energy Technologies
Inc. (Energy Technologies) and Public Service Resources Corporation was renamed
PSEG Resources Inc. (Resources).
Note 2. Rate Matters
New Jersey Energy Master Plan
As previously reported, on April 30, 1997, the New Jersey Board of Public
Utilities (BPU) issued its final report regarding Phase II (final Phase II
report) of the Energy Master Plan addressing wholesale and retail electric
competition in New Jersey. In accordance with the final Phase II report, Public
Service Electric and Gas Company (PSE&G) filed a proposal regarding competition
and rates with the BPU on July 15, 1997. The BPU is in the process of reviewing
filings of all New Jersey electric utilities. The decision of the BPU in the
Energy Master Plan proceedings, which include hearings before the Office of
Administrative Law (OAL) (stranded costs and unbundling) and the BPU
(restructuring), including management audit reports, and the legislation
required to implement certain aspects of electric restructuring, if enacted into
law, will establish the industry rules for the future. These actions are
expected to fundamentally change the electric industry in the State by
introducing retail competition to replace the utilities' former monopoly
position and potentially requiring or resulting in the separation or sale of
generation assets and the establishment of generic rules regarding a regulated
utility's relationships with its affiliates.
Also, as previously reported, by Order dated June 25, 1997, the BPU commenced
management audits of all New Jersey electric utilities, with the assistance of
certain consulting firms, under the direction of its own audit staff. The audit
process included, but was not limited to, reviews of electric utility filings in
response to the Energy Master Plan. The management audit process for PSE&G
concluded in December 1997 with a report of the BPU's management consultants
relating to issues of stranded costs, securitization and consumer rate
reductions. A second report on restructuring was filed on February 27, 1998.
These management audit reports were approved for release by the BPU on January
29, 1998 and March 5, 1998, respectively, and are being considered by the BPU as
part of the proceedings discussed below. The BPU can adopt, reject or modify the
audit reports' results in its decision on PSE&G's proposal. PSE&G cannot predict
the extent to which the BPU will rely on the results of these audit reports in
evaluating its proposal.
<PAGE>
The BPU requested the OAL to hold evidentiary hearings regarding stranded
costs and unbundling issues. These hearings concluded on March 18, 1998. The
management audit report released in January 1998 is being considered as part of
this proceeding. Briefs have been filed by the parties in these hearings and an
OAL decision is expected in August 1998.
Hearings at the BPU addressing other restructuring issues such as market
power, functional separation and consumer protection concluded on May 28, 1998.
The management audit report released in March 1998, relating to these issues, is
being considered as part of this proceeding. Briefs have been filed by the
parties in these hearings and a decision is pending.
The BPU has indicated its intent to submit draft legislation to the Governor
by Fall 1998 to provide it requisite authority to implement certain aspects of
wholesale and retail electric competition in New Jersey. Legislative leadership
has indicated its intent to consider passage of a legislative package providing
such authority by year end 1998.
PSEG and PSE&G cannot predict the outcome of these administrative and
legislative proceedings. However, such proceedings could have a material adverse
effect on PSEG's and PSE&G's financial condition, results of operations and net
cash flows.
Non-utility Generation Buydown
As previously reported, PSE&G is seeking to restructure certain of its BPU
approved contracts with Non-utility Generators (NUGs), which are estimated to be
$1.6 billion above assumed future market prices. In June 1998, PSE&G and the
Union County Utilities Authority (UCUA) announced an agreement to amend their
Power Purchase and Interconnection Agreement originally signed in 1990. Under
Federal and State regulations, utilities have been required to enter into
long-term power purchase agreements with NUGs at prices which subsequently
proved to be above market. In accordance with a July 17, 1998 BPU Decision and
Order and based on the Amendment to the Power Purchase and Interconnection
Agreement, PSE&G will pay UCUA a lump sum amount of $7.75 million in exchange
for a $15.6 million savings to ratepayers on a net present value basis. The
payment of $7.75 million by PSE&G will be recovered through the LEAC or
successor mechanisms for recovery of NUG costs, to be determined by the outcome
of the Energy Master Plan proceedings.
Levelized Gas Adjustment Clause (LGAC)
On November 14, 1997, PSE&G filed a petition with the BPU requesting a $45
million annual increase in its LGAC for the period January 1, 1998 to December
31, 1998, which, as filed, would increase a typical residential bill by
approximately 4.8%. On February 18, 1998, the BPU approved a Stipulation agreed
to by the parties in the proceeding providing for an interim increase in annual
LGAC revenues of approximately $31 million, excluding State sales and use tax,
or an increase of 3.5% on a typical residential bill. On June 26, 1998, an Order
was executed by the BPU making the terms of the interim Stipulation final,
without modification.
On July 10, 1998, PSE&G filed a motion with the BPU requesting a $27 million
annual increase in its LGAC for the period October 1, 1998 to September 30,
1999, representing an increase on a typical residential bill of approximately
2.8%. Also included in the revised LGAC rate is an increase in the Remediation
Adjustment Clause (RAC) component, a decrease in the Demand Side Adjustment
Factor (DSAF) and a request to change, on a monthly basis, the over/under
collection component of the LGAC rate for residential customers. On July 28,
1998, the matter was transmitted to the OAL for review. PSE&G cannot predict the
outcome of this proceeding.
<PAGE>
Gas Unbundling Pilot Program
In April 1997, the BPU approved PSE&G's proposal for a residential gas
unbundling pilot program (SelectGas), which allows approximately 65,000
residential natural gas customers, out of a total of 1.4 million residential gas
customers, to participate in the competitive marketplace effective May 1, 1997.
To date, none of these eligible customers have subscribed to the program. On
April 30, 1998, PSE&G filed a report with the BPU on SelectGas and its proposed
refinements for a permanent residential gas unbundling program (Energy Choice).
Under Energy Choice, as proposed, a total of 300,000 residential customers could
be permitted to choose their gas supplier on a first-come, first-served basis.
This expanded program would commence by the later of sixty days after a BPU
order authorizing this program or September 30, 1998. PSE&G's proposal would
permit its remaining residential customers to choose their gas supplier by July
1, 1999 or such alternate date as may be established by the BPU.
Electric Levelized Energy Adjustment Clause (LEAC)/Demand Side
Adjustment Factor (DSAF)
As previously reported, on April 1, 1998, the BPU approved an annualized
increase of $150.8 million in the DSAF component of the LEAC. This increase was
effective for service rendered on or after April 3, 1998. The Division of the
Ratepayer Advocate has appealed the BPU's order seeking to overturn the BPU's
decision. PSE&G cannot predict the outcome of the appeal process but the impact
on PSE&G's future financial condition, results of operations and net cash flows
could be materially adverse if such an appeal is successful.
As previously reported, while PSE&G's proposal in response to the final Phase
II report of the Energy Master Plan provides for a transition period of seven
years with basic tariff rates being capped and the discontinuation of the LEAC
effective December 31, 1998, such proposal provides for recovery of mandated
societal costs, including Demand Side Management (DSM), to be adjusted based on
changes in such costs. At June 30, 1998, PSE&G had an underrecovered balance,
including interest, of approximately $156 million related to electric DSM
programs. Such amount is included in Deferred Debits on PSEG's and PSE&G's
Consolidated Balance Sheets. PSE&G estimates that the underrecovered electric
DSM balance at December 31, 1998 will be approximately $135 million. PSEG and
PSE&G cannot predict the final outcome of DSM and other mandated societal costs
recovery under the Energy Master Plan but inability to recover such amounts
could have a material adverse impact on PSEG's and PSE&G's financial condition,
results of operations and net cash flows. For further discussion of the
potential impact on PSEG and PSE&G of the Energy Master Plan proceedings, see
New Jersey Energy Master Plan.
Remediation Adjustment Charge (RAC)
As previously reported, on August 1, 1997, PSE&G requested that the BPU
approve recovery of $6.8 million through PSE&G's RAC for manufactured gas plant
remediation costs. This request represents an increase in the amount of PSE&G's
recovery of such costs by approximately $2 million over current rate levels. On
October 9, 1997, this matter was transferred to the OAL. The rates were approved
for recovery on June 26, 1998 (see LGAC).
On July 10, 1998, PSE&G filed a motion before the BPU requesting a $1.5
million annual increase in its RAC for the period August 1, 1997 to July 31,
1998, representing an increase on a typical residential bill of approximately
0.03%. On July 28, 1998, the motion was transferred to the OAL for review. PSE&G
cannot predict the outcome of this proceeding.
Order Adopting Auction Standards
On June 16, 1998, the BPU adopted standards applicable to the auction
processes being used by GPU Energy and Rockland Electric Company to divest
themselves of certain of their generating plants. At this time, PSE&G's strategy
is to retain its generation assets. The BPU order adopting these auction
standards indicated that the standards would be reviewed and possibly modified,
if deemed appropriate. If, at some time in the future, PSE&G were to decide or
be required to sell its generation assets, PSE&G would determine whether to seek
such review or modification.
Note 3. Regulatory Assets and Liabilities
Electric Energy and Gas Costs: Recoveries of electric energy and gas costs
are determined by the BPU under the LEAC and LGAC. PSE&G's deferred fuel
balances as of June 30, 1998 and December 31, 1997, respectively, reflect
underrecovered costs as follows:
June 30, December 31,
1998 1997
-------- -----------
(Millions of Dollars)
Underrecovered Electric Energy Costs...... $8 $91
Underrecovered Gas Fuel Costs............. 65 76
------- -------
Total.................................. $73 $167
======= =======
The BPU Order dated December 31, 1996 provides PSE&G the opportunity, but not
a guarantee, during the period January 1, 1997 through December 31, 1998, to
fully recover its December 31, 1996 underrecovered LEAC balance of $151 million
without any change in the current energy component of the LEAC charge.
Management believes that it will recover this amount by December 31, 1998 and
continues to follow deferred accounting treatment for the LEAC.
Note 4. Commitments and Contingent Liabilities
Nuclear Operating Performance Standard (OPS)
PECO Energy Company (PECO Energy), Delmarva Power & Light Company (DP&L) and
PSE&G, three of the co-owners of the Salem Nuclear Generating Station, Units 1
and 2 (Salem) and the Peach Bottom Atomic Power Station, Units 2 and 3 (Peach
Bottom), have agreed to an OPS through December 31, 2011 for Salem and through
December 31, 2007 for Peach Bottom. PSE&G is the operator of Salem and PECO
Energy is the operator of Peach Bottom. Under the OPS, the station operator is
required to make payments to the non-operating owners (excluding Atlantic City
Electric Company) commencing in January 2001 if the three-year historical
average net maximum dependable capacity factor (MDC) (defined below) for that
station, calculated as of December 31 of each year commencing with December 31,
2000, falls below 40%. Any such payment is limited to a maximum of $25 million
per year. MDC is the gross electrical output for a station measured at the
output terminals of its turbine generators during the most restrictive seasonal
conditions, less the station's service load. The parties have further agreed to
forego litigation in the future, except for limited cases in which the operator
would be responsible for damages of no more than $5 million per year.
Year 2000
Many of PSEG's and PSE&G's systems, which include information technology
applications, plant control and telecommunications infrastructure systems, must
be modified due to computer program limitations in recognizing dates beyond
1999. During the six months ended June 30, 1998, $12 million of costs related to
Year 2000 readiness were incurred. Management estimates the total cost of this
effort to approximate $92 million, to be incurred from 1997 through 2001, of
which $37 million is expected to be incurred in 1998. A portion of these costs
is not likely to be incremental to PSEG or PSE&G, but rather, will represent a
redeployment of existing personnel/resources.
PSEG and PSE&G are continuing to work with their supplier base to assess the
Year 2000 status of vendors who provide critical materials and services.
Sufficient information has not yet been received from all critical vendors to
confirm the vendors' preparedness for Year 2000. PSEG and PSE&G are aggressively
pursuing the key vendors who have been unresponsive; however, PSEG and PSE&G are
not yet able to determine whether all of their critical vendors will be able to
meet Year 2000 requirements.
As previously reported, the Nuclear Regulatory Commission (NRC) had proposed
to issue a generic letter which would require all nuclear plant operators to
provide it with information concerning their programs, planned or implemented,
to address Year 2000 computer and systems issues at their facilities. On May 11,
1998, the NRC issued a Generic Letter requiring submission of a written response
within 90 days of the date of the Generic Letter indicating whether or not the
operators have pursued and continue to pursue Year 2000 programs and addressing
the programs' scope, assessment process, plans for corrective actions, quality
assurance measures, contingency plans and regulatory compliance. Additionally,
the Generic Letter requires submission of a written response upon completion of
the operators' Year 2000 program or no later than July 1, 1999 confirming that
their facilities are Year 2000 ready, or will be Year 2000 ready, by 2000 with
regard to compliance with the terms and conditions of their licenses and NRC
regulations. On July 23, 1998, PSE&G provided its written response to the first
requirement noted above, outlining for the NRC its Nuclear Business Unit (NBU)
Year 2000 program and indicating that planned implementation will allow the NBU
to be Year 2000 ready and compliant with the terms and conditions of its
operating licenses and NRC regulations by January 1, 2000.
If PSEG, PSE&G, their domestic and international subsidiaries, the other
members of the Pennsylvania--New Jersey--Maryland Interconnection (PJM) or
PSEG's or PSE&G's critical vendors are unable to meet the Year 2000 deadline,
such inability could have a material adverse impact on PSEG's and PSE&G's
operations, financial condition, results of operations and net cash flows.
Hazardous Waste
Certain Federal and state laws authorize the U.S. Environmental Protection
Agency (EPA) and the New Jersey Department of Environmental Protection (NJDEP),
among other agencies, to issue orders and bring enforcement actions to compel
responsible parties to investigate and take remedial actions at any site that is
determined to present an actual or potential threat to human health or the
environment because of an actual or threatened release of one or more hazardous
substances. Because of the nature of PSE&G's business, including the production
of electricity, the distribution of gas and, formerly, the manufacture of gas,
various by-products and substances are or were produced or handled which contain
constituents classified as hazardous. PSE&G generally provides for the disposal
or processing of such substances through licensed independent contractors.
However, these statutory provisions impose joint and several responsibility
without regard to fault on all responsible parties, including the generators of
the hazardous substances, for certain investigative and remediation costs at
sites where these substances were disposed of or processed. PSE&G has been
notified with respect to a number of such sites and the investigation and
remediation of these potentially hazardous sites is receiving attention from the
government agencies involved. Generally, actions directed at funding such site
investigations and remediation include all suspected or known responsible
parties. Except as discussed below with respect to its Remediation Program, PSEG
and PSE&G do not expect its expenditures for any such site to have a material
effect on their financial conditions, results of operations and net cash flows.
The NJDEP has recently revised regulations concerning site investigation and
remediation. These regulations will require an ecological evaluation of
potential injuries to natural resources in connection with a remedial
investigation of contaminated sites. The NJDEP is presently working with the
utility industry, among others, to develop procedures for implementing these
regulations. These regulations may substantially increase the costs of remedial
investigations and remediations, where necessary, particularly at sites located
on surface water bodies. PSE&G and predecessor companies owned and/or operated
facilities located on surface water bodies, certain of which are currently the
subject of remedial activities. The financial impact of these regulations on
these projects is not currently estimable. PSE&G does not anticipate that the
compliance with these regulations will have a material adverse effect on its
financial position, results of operations and net cash flows.
PSE&G Manufactured Gas Plant Remediation Program (Remediation
Program)
In 1988, NJDEP notified PSE&G that it had identified the need for PSE&G,
pursuant to a formal arrangement, to systematically investigate and, if
necessary, resolve environmental concerns extant at PSE&G's former manufactured
gas plant sites. To date, NJDEP and PSE&G have identified 38 former manufactured
gas plant sites. PSE&G is currently working with NJDEP under a program to
assess, investigate and, if necessary, remediate environmental concerns at these
sites. The Remediation Program is periodically reviewed and revised by PSE&G
based on regulatory requirements, experience with the Remediation Program and
available remediation technologies. The cost of the Remediation Program cannot
be reasonably estimated, but experience to date indicates that costs of
approximately $20 million per year could be incurred over a period of about 30
years and that the overall cost could be material to PSEG's and PSE&G's
financial condition, results of operations and net cash flows.
Note 5. Financial Instruments and Risk Management
PSEG's operations give rise to exposure to market risks from changes in
commodity prices, interest rates, foreign currency exchange rates and prices of
security investments. PSEG's policy is to use derivative financial instruments
for the purpose of managing market risk consistent with its business plans and
prudent business practices.
PSEG
Interest Rate Swap
PSEG entered into an interest rate swap on June 26, 1998 to hedge Enterprise
Capital Trust II's $150 million of Floating Rate Capital Securities, Series B,
due 2028, which were sold to a group of institutional investors in June 1998.
The basis for both the interest rate swap and the Floating Rate Capital
Securities is the quarterly London Interbank Offered Rate (LIBOR). Enterprise
Capital Trust II is a special purpose statutory business trust controlled by
PSEG. This interest rate swap effectively hedges the underlying debt for 10
years at an effective rate of 7.2%.
PSEG Energy Holdings Inc.
Equity Securities
Resources, a wholly-owned subsidiary of Energy Holdings, has investments in
equity securities and partnerships which invest in equity securities. The
aggregate carrying value of Resource's portfolio approximated its fair market
value of $231 million and $185 million as of June 30, 1998 and December 31,
1997, respectively.
PSE&G
Nuclear Decommissioning Trust Funds
Contributions made into the Nuclear Decommissioning Trust Funds are invested
in debt and equity securities. The carrying value of $509 million and $459
million of these funds approximates their fair market value as of June 30, 1998
and December 31, 1997, respectively.
<PAGE>
Note 6. Taxes
As previously reported, the New Jersey Gross Receipts and Franchise Tax
(NJGRT) was eliminated effective January 1, 1998 and replaced with a combination
of the New Jersey Corporate Business Tax which is a State income tax, the State
sales and use tax and a Transitional Energy Facility Assessment (TEFA), with no
material impact on the financial condition, results of operations and net cash
flows of PSEG and PSE&G. The TEFA will be phased out over five years. While
under NJGRT, PSE&G was subject to an effective state tax on unit sales equal to
approximately 13% of receipts. As a result of such tax reform, after the phase
out of the TEFA, the effective state tax rate applicable to PSE&G will be
substantially reduced. Interim rates were implemented with regard to the new tax
structure effective with service rendered on and after January 1, 1998. The BPU
completed its administrative review of the filings of all New Jersey utilities
and approved permanent rates for 1998 on July 13, 1998 in a final Order. As a
result of the July 13, 1998 BPU Order, utilities are subject to mandated
adjustments which will be incorporated into their 1999 rates, pending BPU
approval.
Therefore, effective January 1, 1998, PSE&G became subject to the New Jersey
Corporate Business Tax. Consequently, the effective income tax rate is as
follows:
Quarter Ended Six Months Ended
June 30, June 30,
---------------- -----------------
1998 1997 1998 1997
------- ------- ------- -------
Federal tax provision at
statutory rate................ 35.0 % 35.0 % 35.0 % 35.0 %
New Jersey Corporate Business
Tax, net of Federal benefit... 5.9 % -- 5.9 % --
Other -- net.................... 1.3 % (0.7)% 0.7 % (0.6)%
------- ------- ------- -------
Effective Income Tax Rate... 42.2 % 34.3 % 41.6 % 34.4 %
======= ======= ======= =======
Note 7. Accounting Matters
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 130, "Reporting Comprehensive
Income" (SFAS 130), which is effective for fiscal years beginning after December
15, 1997. SFAS 130 dictates that all items required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement displayed with the same prominence as other financial
statements. It also requires that an enterprise classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. PSEG and PSE&G adopted SFAS 130 effective January 1, 1998.
The effects of adoption of SFAS 130 are not material for PSEG or PSE&G.
Also in June 1997, the FASB issued SFAS 131, "Disclosures about Segments of
an Enterprise and Related Information" (SFAS 131), which is effective for
financial statements for periods beginning after December 15, 1997. This
Statement need not be applied to interim financial statements in the initial
year of its application. SFAS 131 supersedes SFAS 14, "Financial Reporting for
Segments of a Business Enterprise" and requires that companies disclose segment
data based on how management makes decisions about allocating resources to
segments and measuring their performance. Since SFAS 131 solely revises
disclosure requirements, the adoption of SFAS 131 will not have a material
impact on the financial condition, results of operations and net cash flows of
PSEG or PSE&G.
<PAGE>
In February 1998, the FASB issued SFAS 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" (SFAS 132), which is effective for
financial statements for periods beginning after December 15, 1997. This
statement revises and standardizes disclosure requirements for pension and other
postretirement benefit plans but does not change the measurement or recognition
of those plans. Since SFAS 132 solely revises disclosure requirements, the
adoption of SFAS 132 will not have a material impact on the financial condition,
results of operations and net cash flows of PSEG and PSE&G.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133), which is effective for financial
statements for all fiscal quarters of fiscal years beginning after June 15,
1999. SFAS 133 establishes accounting and reporting standards for derivative
instruments and hedging activities. An entity is to recognize all derivatives as
assets or liabilities on the balance sheet at fair value. Accounting for gains
and losses resulting from changes in the fair value of a derivative depends on
the intended use of the derivative and the resulting designation of that
derivative. PSEG and PSE&G are currently evaluating the impact of SFAS 133.
In April 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities" (SOP 98-5), which is effective for financial statements for fiscal
years beginning after December 15, 1998. SOP 98-5 requires the expensing of the
costs of start-up activities as incurred. Additionally, previously capitalized
start-up costs must be written off as a Cumulative Change in Accounting
Principle. PSEG and PSE&G are currently evaluating the impact, if any, of SOP
98-5.
Note 8. Guaranteed Preferred Beneficial Interest in Subordinated Debentures
The Guaranteed Preferred Beneficial Interest in Subordinated Debentures
includes the monthly guaranteed preferred beneficial interest in PSE&G's
subordinated debentures and the quarterly guaranteed preferred beneficial
interest in PSEG's and PSE&G's subordinated debentures. The balances as of June
30, 1998 and December 31, 1997 of these preferred securities are as follows:
June 30, December 31,
1998 1997
-------- -----------
(Millions of Dollars)
Monthly Guaranteed Preferred Beneficial
Interest in PSE&G's Subordinated Debentures...... $210 $210
Quarterly Guaranteed Preferred Beneficial
Interest in PSE&G's Subordinated Debentures...... 303 303
Quarterly Guaranteed Preferred Beneficial
Interest in PSEG's Subordinated Debentures....... 375 0
------- -------
Total........................................... $888 $513
======= =======
The increase in the Quarterly Guaranteed Preferred Beneficial Interest in
PSEG's Subordinated Debentures since December 31, 1997 is due to the issuance in
January 1998 and June 1998 of $225 million of 7.44% Trust Originated Preferred
Securities, Series A and $150 million of Floating Rate Capital Securities,
Series B, respectively. Additionally, Quarterly Guaranteed Preferred Beneficial
Interest in PSEG's Subordinated Debentures increased as a result of the July
1998 issuance of $150 million of 7.25% Trust Originated Preferred Securities,
Series C by PSEG Capital Trust III.
<PAGE>
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
---------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Notes to Consolidated Financial Statements of PSEG are incorporated by
reference insofar as they relate to PSE&G and its subsidiaries:
Note 1. Basis of Presentation/Organization
Note 2. Rate Matters
Note 3. Regulatory Assets and Liabilities
Note 4. Commitments and Contingent Liabilities
Note 5. Financial Instruments and Risk Management
Note 6. Taxes
Note 7. Accounting Matters
Note 8. Guaranteed Preferred Beneficial Interest in Subordinated
Debentures
Note 6. Taxes
The effective income tax rate is as follows:
Quarter Ended Six Months Ended
June 30, June 30,
--------------- -----------------
1998 1997 1998 1997
------- ------ ------- --------
Federal tax provision at
statutory rate................ 35.0% 35.0% 35.0% 35.0%
New Jersey Corporate Business
Tax, net of Federal benefit... 5.9% -- 5.9% --
Other-- net..................... 1.7% 0.2% 1.8% (0.2)%
------- ------ ------- --------
Effective Income Tax Rate... 42.6% 35.2% 42.7% 34.8%
======= ====== ======= ========
<PAGE>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
--------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Following are the significant changes in or additions to information reported
in the Public Service Enterprise Group Incorporated (PSEG) 1997 Annual Report on
Form 10-K and the Quarterly Report on Form 10-Q for the quarter ended March 31,
1998 affecting the consolidated financial condition and the results of
operations of PSEG and its subsidiaries. This discussion refers to the
Consolidated Financial Statements (Statements) and related Notes to Consolidated
Financial Statements (Notes) of PSEG and should be read in conjunction with such
Statements and Notes.
Results of Operations
Basic and diluted earnings per share of PSEG common stock (Common Stock) were
$0.53 for the quarter ended June 30, 1998, representing an increase of $0.14 or
36% per share from the comparable 1997 period. Basic and diluted earnings per
share were $1.35 for the six months ended June 30, 1998, representing an
increase of $0.36 or 36% per share from the comparable 1997 period.
Public Service Electric and Gas Company's (PSE&G) contribution to earnings
per share of Common Stock for the quarter and six months ended June 30, 1998
increased $0.12 and $0.21 from the comparable 1997 periods, respectively. The
increases for the quarter and six months ended June 30, 1998 were primarily due
to profits realized from energy trading and other wholesale power activities and
decreased operating and maintenance expenses related to the return to service of
PSE&G's Salem Nuclear Generating Station (Salem). For a discussion of commodity
trading, see Item 3. Qualitative and Quantitative Disclosures about Market Risk.
The results of operations for the six months ended June 30, 1998 were further
impacted by the one-time charge to earnings of $55 million or $0.24 per share
recorded in the first quarter of 1997 resulting from the settlement of lawsuits
filed by the co-owners of Salem. The increase for the six months ended June 30,
1998 was partially offset by higher operation expenses, including Year 2000
readiness (see Note 4. Commitments and Contingent Liabilities of Notes) and
depreciation expenses.
PSEG Energy Holdings Inc.'s (Energy Holdings) contribution to earnings per
share of Common Stock for the quarter and six months ended June 30, 1998
increased $0.02 and $0.15 from the comparable 1997 periods, respectively,
primarily due to greater earnings of PSEG Resources Inc. (Resources). Resources'
earnings increased for the quarter and six months ended June 30, 1998 primarily
due to higher income from investments in partnerships. The results of operations
for the six months ended June 30, 1998 were further impacted by a gain resulting
from the exercise of an early buyout option in the first quarter of 1998 by the
lessee in a leveraged lease investment of Resources.
PSE&G -- Revenues
Electric
Revenues increased $248 million or 26% and $465 million or 24% for the
quarter and six months ended June 30, 1998 from the comparable periods in 1997,
respectively, primarily due to an increase in energy trading activity and higher
sales to large industrial customers (see PSE&G -- Expenses -- Interchanged Power
and Fuel for Electric Generation).
These increases were partially offset by a decrease to revenue caused by New
Jersey energy tax reform in 1998 (see Note 6. Taxes of Notes and PSE&G --
Expenses -- Income Taxes). Collection of New Jersey Gross Receipts and Franchise
Tax (NJGRT) was reflected in revenue and expense in 1997. As a result of energy
tax reform, the portion of NJGRT replaced by the New Jersey sales and use tax is
no longer reflected in revenue or expense on the income statement. State sales
and use tax is a liability of the customer, collected by PSE&G and remitted to
the State and is recorded in Tax Collections Payable, which is included in Other
Current Liabilities on the Consolidated Balance Sheets.
<PAGE>
Gas
Revenues decreased $51 million or 16% and $174 million or 16% for the quarter
and six months ended June 30, 1998 from the comparable periods in 1997,
respectively. The decreases were primarily due to lower recovery of fuel costs
and decreased therm sales resulting from milder winter weather in 1998 and
energy tax reform (see PSE&G --Revenues -- Electric above).
PSE&G -- Expenses
Interchanged Power and Fuel for Electric Generation
Interchanged Power and Fuel for Electric Generation increased $204 million or
84% and $442 million or 90% for the quarter and six months ended June 30, 1998
from the comparable 1997 periods, respectively, primarily due to an increase in
energy trading activity. Effective January 1, 1998, the amount included for
Electric Levelized Energy Adjustment Clause (LEAC) under/overrecovery represents
the difference between fuel-related revenues and fuel-related expenses which are
comprised of the cost of generation and interchanged power at the PJM market
clearing price. Effective April 1, 1998, the PJM locational marginal price
replaced the PJM market clearing price. To the extent fuel revenue and expense
flow through the LEAC mechanism, variances in fuel revenues and expenses offset
and thus have no direct effect on earnings.
Gas Purchased
Gas purchased decreased $11 million or 6% and $41 million or 7% for the
quarter and six months ended June 30, 1998 from the comparable 1997 periods,
respectively. The decreases were primarily due to the milder winter weather in
1998. Due to the operation of the Levelized Gas Adjustment Clause (LGAC)
mechanism, variances in fuel revenues and expenses offset and have no direct
effect on earnings.
Operation and Maintenance
Operation and maintenance expenses increased $29 million or 9% and $45
million or 7% for the quarter and six months ended June 30, 1998 from the
comparable 1997 periods, respectively. The increases were primarily due to
higher demand side management recovery, resulting in a greater recognition of
previously deferred expenses, and higher expenses related to information
technology, including Year 2000 readiness. These increases were partially offset
by lower operation and maintenance expenses related to Salem's return to
service. Demand side management costs are currently recoverable through the
demand side adjustment factor of the LEAC, are recorded in both expense and
revenue and therefore, have no direct effect on earnings (see Note 2.
Rate Matters of Notes).
Income Taxes
PSE&G became subject to New Jersey State income tax, effective January 1,
1998, due to energy tax reform in the State of New Jersey (see Note 6. Taxes of
Notes). Income Taxes increased $34 million or 74% and $49 million or 33% for the
quarter and six months ended June 30, 1998 from the comparable 1997 periods,
respectively. These increases are primarily due to the inclusion of State income
tax of $25 million and $56 million for the quarter and six months ended June 30,
1998, respectively. In the quarter ended June 30, 1998, there was an increase of
$9 million in Federal income taxes due to higher pre-tax operating income. For
the six months ended June 30, 1998, there was a decrease of $7 million in
Federal income taxes due to lower pre-tax operating income.
Transitional Energy Facility Assessment (TEFA) / New Jersey Gross
Receipts and Franchise Tax (NJGRT)
TEFA/NJGRT decreased $79 million or 67% and $202 million or 70% for the
quarter and six months ended June 30, 1998 from the comparable 1997 periods,
respectively, due to New Jersey energy tax reform. For 1998, the amount
represents TEFA unit-based taxes while the 1997 amount represents NJGRT
unit-based taxes. The TEFA unit tax rates are approximately 30% of the NJGRT
unit tax rates. See PSE&G --Revenues and Income Taxes, above, and Note 6. Taxes
of Notes for other impacts of New Jersey energy tax reform.
<PAGE>
Year 2000 Expenses -- PSEG and PSE&G
For a discussion of Year 2000 expenses, see Note 4. Commitments and
Contingent Liabilities of Notes.
PSEG Energy Holdings Inc. -- Earnings
Increase (Decrease)
----------------------------------
Quarter Ended Six Months Ended
June 30, June 30,
1998 vs. 1997 1998 vs. 1997
----------------------------------
(Millions of Dollars)
PSEG Resources Inc. (Resources).. $6 $36
PSEG Global Inc. (Global)........ (2) -
PSEG Energy Technologies Inc.
(Energy Technologies).......... - (1)
----- -------
Total........................ $4 $35
===== =======
Energy Holdings' earnings were $14 million and $49 million for the quarter
and six months ended June 30, 1998, respectively, an increase of $4 million and
$35 million, respectively. These increases were primarily due to Resources'
higher income from investments in partnerships and a gain resulting from the
exercise of an early buyout option in the first quarter of 1998 by the lessee in
a leveraged lease.
Liquidity and Capital Resources
PSEG
PSEG is a public utility holding company and as such, has no operations of
its own. The following discussion of PSEG's liquidity and capital resources is
on a consolidated basis, noting the uses and contributions of PSEG's two direct
subsidiaries, PSE&G and Energy Holdings.
Cash generated from PSE&G's operations is expected to provide the major
source of funds for PSE&G's business. Energy Holdings' growth will be funded
through external financings, cash generated from operations and equity capital.
Dividend payments on Common Stock were $1.08 per share and totaled $251
million for the six months ended June 30, 1998. PSE&G paid common dividends of
$251 million to PSEG during the six months ended June 30, 1998 and 1997,
respectively. Due to the growth in Energy Holdings' investment activities, no
dividends on Energy Holdings' common stock were paid or anticipated in the six
months ended June 30, 1998 and 1997 or are anticipated for the remainder of
1998. Energy Holdings paid $6 million of dividends related to its preferred
stock issued to PSEG for the six months ended June 30, 1998. Energy Holdings had
no preferred stock outstanding in the period ended June 30, 1997. Amounts and
dates of such dividends on Common Stock as may be declared in the future will
necessarily be dependent upon PSEG's future earnings, financial requirements and
other factors including the receipt of dividend payments from its subsidiaries.
PSEG and PSE&G, respectively, have issued Deferrable Interest Subordinated
Debentures in connection with the issuance of their respective tax deductible
preferred securities. If, and for as long as, payments on those Deferrable
Interest Subordinated Debentures have been deferred, or PSEG or PSE&G,
respectively, has defaulted on an indenture related thereto or its guarantee
thereof, neither PSEG nor PSE&G, respectively, may pay any dividends on its
common and preferred stock.
As of June 30, 1998, PSEG's capital structure consisted of 48% common equity,
42% long-term debt and 10% preferred stock and other preferred securities.
<PAGE>
As a result of the 1992 focused audit of PSEG's non-utility businesses
(Focused Audit), the New Jersey Board of Public Utilities (BPU) approved a plan
which, among other things, provides that: (1) PSEG will not permit Energy
Holdings' non-utility investments to exceed 20% of PSEG's consolidated assets
without prior notice to the BPU (such investments at June 30, 1998 were
approximately 17% of assets); (2) the PSE&G Board of Directors will provide an
annual certification that the business and financing plans of Energy Holdings
will not adversely affect PSE&G; (3) PSEG will (a) limit debt supported by the
minimum net worth maintenance agreement between PSEG and Capital to $750 million
and (b) make a good-faith effort to eliminate such support over a six to ten
year period from April 1993; and (4) Energy Holdings will pay PSE&G an
affiliation fee of up to $2 million a year to be applied by PSE&G through its
LGAC and its LEAC to reduce utility rates. Beginning in 1995, the debt supported
by such minimum net worth maintenance agreement was limited to $650 million and
the affiliation fee has been proportionately reduced as such supported debt is
reduced. PSEG and Energy Holdings and its subsidiaries continue to reimburse
PSE&G for the cost of all services provided to them by employees of PSE&G.
As a result of PSEG's intent that Energy Holdings and its subsidiaries
provide growth vehicles for PSEG, financing requirements connected with the
continued growth of Energy Holdings, changes to the utility industry expected
from the final outcome of the Energy Master Plan proceedings and potential
accounting impacts resulting from the deregulation of the generation of
electricity, modifications will be required to certain of the restrictions
agreed to by PSEG with the BPU in response to the Focused Audit. Inability to
achieve satisfactory resolution of these matters could impact the future
relative size and financing of Energy Holdings and accordingly, PSEG's future
prospects, including financial condition, results of operations and net cash
flows (see Note 2. Rate Matters of Notes).
PSE&G
For the six months ended June 30, 1998, PSE&G had utility plant additions,
including Allowance for Funds Used During Construction of $196 million, a $41
million decrease from the corresponding 1997 period. The decrease was primarily
due to the replacement of Salem 1 steam generators in 1997. PSE&G expects that
it will be able to generate all of its construction and capital requirements
over the next five years internally, assuming adequate and timely recovery of
costs, as to which no assurances can be given (see Note 2. Rate Matters of
Notes).
PSEG Energy Holdings Inc.
In June and July 1998, PSEG invested $147 million and $145 million, the
proceeds of the sale of Capital Securities and Trust Securities (see External
Financings), in Energy Holdings, which issued to PSEG like amounts of its 4.80%
and 4.875% Cumulative Preferred Stock and made additional equity investments in
Global and Resources.
In April 1998, Resources closed on its investment in the lease of a domestic
gas-fired steam electric generating station to a domestic utility. Resource's
equity investment was approximately $39 million.
In May 1998, Global sold its 50% interests in two domestic cogeneration
plants, resulting in proceeds to Energy Holdings of $70 million, which resulted
in an after-tax gain of approximately $5 million.
In June 1998, Enterprise Group Development Corporation (EGDC) sold its 75%
interest in one of its properties for approximately $5 million, resulting in a
minimal loss which had been previously reserved through a valuation allowance.
In July 1998, Resources purchased a 33.3% interest in a leveraged lease of a
natural gas-fired generating station in the United Kingdom for approximately $40
million.
For a discussion of the source of Energy Holdings' funds, see External
Financings. Over the next several years, Energy Holdings and its subsidiaries
will be required to refinance their maturing debt and provide additional debt
and equity financing for growth. Any inability to obtain required additional
external capital or to extend or replace maturing debt and/or existing
agreements at current levels and interest rates may affect future earnings.
<PAGE>
External Financings
PSEG
On June 30, 1998, PSEG had a $25 million line of credit with a bank with no
debt outstanding under this line of credit. Also, at that date, PSEG had a
committed $150 million revolving credit facility which expires in December 2002
with no debt outstanding under this facility.
In June 1998, Enterprise Capital Trust II, a special purpose statutory
business trust controlled by PSEG, issued $150 million of its Floating Rate
Capital Securities, Series B. Proceeds were lent to PSEG and are evidenced by
its deferrable interest subordinated debentures. PSEG used the proceeds to make
a $147 million preferred equity investment in Energy Holdings. The debentures
and their related indenture constitute a full and unconditional guarantee by
PSEG of the preferred securities issued by the trust. If, and for as long as,
payments on PSEG's debentures have been deferred, or PSEG has defaulted on the
indenture related thereto or its guarantee thereof, PSEG may not pay any
dividends on its Common Stock (see Liquidity and Capital Resources -- PSEG). At
the time of issuance, PSEG's floating rate obligation under its debentures was
swapped for a fixed rate payment resulting in an effective rate of 7.2% (see
Note 5. Financial Instruments and Risk Management of Notes).
In July 1998, Enterprise Capital Trust III, a special purpose statutory
business trust controlled by PSEG, issued $150 million of its 7.25% Trust
Originated Preferred Securities, Series C. Proceeds were lent to PSEG and are
evidenced by its deferrable interest subordinated debentures. PSEG used the
proceeds to make a $145 million preferred equity investment in Energy Holdings.
The debentures and their related indenture constitute a full and unconditional
guarantee by PSEG of the preferred securities issued by the trust. If, and for
as long as, payments on PSEG's debentures have been deferred, or PSEG has
defaulted on the indenture related thereto or its guarantee thereof, PSEG may
not pay any dividends on its Common Stock (see Liquidity and Capital Resources
- -- PSEG).
As previously disclosed, both PSEG and PSE&G have issued a total of
approximately $525 million and $513 million, respectively, of deferrable
interest subordinated debentures which are treated as debt to the issuer for
Federal income tax purposes and as preferred equity for financial accounting and
rating agency purposes. In a case not involving PSEG or PSE&G, the Internal
Revenue Service (IRS) has proposed to disallow interest deductions claimed by
Enron Corp. (Enron) on two issues of similar long-term subordinated debentures.
That issue is now in litigation (Enron Corp. v. Commissioner, Tax Court Docket
No. 6149-98). There can be no assurance that Enron will prevail in this
litigation if it is not settled or, if Enron does prevail, that the IRS
nevertheless may seek to disallow the deductions that PSEG and PSE&G have taken
and will claim for interest paid on such debentures. The annualized interest
expense for these debentures for PSEG and PSE&G together is approximately $82
million. In total for 1994 through 1997, PSEG and PSE&G took approximately $89
million in interest deductions for these debentures, which equates to about $31
million in tax benefits. If challenged by the IRS, PSEG and PSE&G would expect
to vigorously defend the deductibility of the interest payments taken as
deductions on previously filed Federal tax returns. In the event of the
occurrence of a Tax Event as defined in the respective debenture indentures,
such as the receipt of an opinion of counsel that there is a more than
insubstantial risk that interest payable on the debentures will not be tax
deductible, PSEG and PSE&G have the right to redeem the preferred securities and
issue the debentures to the preferred securities holders or to refinance such
obligations as allowed in the respective debenture indentures.
PSE&G
PSE&G has received authority from the BPU, through December 31, 1998, to
opportunistically refinance essentially all of its long-term debt and to refund
up to $250 million of matured debt.
Under its First and Refunding Mortgage (Mortgage), PSE&G may issue new First
and Refunding Mortgage Bonds (Bonds) against previous additions and improvements
and/or retired Bonds provided that its ratio of earnings to fixed charges is at
least 2:1. At June 30, 1998, the coverage ratio under PSE&G's Mortgage was
3.66:1. As of June 30, 1998, the Mortgage would permit up to approximately $3.5
billion aggregate principal amount of new Bonds to be issued against previous
additions and improvements.
In April 1998, $8 million of PSE&G's 7.50% Bonds, Series OO, were purchased
in the open market. On August 3, 1998, the remaining outstanding $234 million of
the Series OO Bonds were redeemed.
In May 1998, PSE&G sold $250 million of its Bonds, Remarketable Series YY,
due 2023, Mandatorily Tendered 2008. The Series YY Bonds will bear interest at
the rate of 6.375% per annum until May 1, 2008. PSE&G also entered into a
Remarketing Agreement with a third party that granted the third party the option
to call and remarket the Series YY Bonds on May 1, 2008 for the remaining term
of the Series YY Bonds. If not called by the third party, the Bonds must be put
by the holders to PSE&G. The proceeds of the sale were used primarily to redeem
PSE&G's Series OO Bonds.
On July 1, 1998, $18 million of PSE&G's 6% Debenture Bonds matured.
To provide liquidity for its commercial paper program, PSE&G has a $650
million revolving credit agreement expiring in June 1999 and a $650 million
revolving credit agreement expiring in June 2002 with a group of commercial
banks, which provide for borrowings of up to one year. On June 30, 1998, there
were no borrowings outstanding under these credit agreements.
The BPU has authorized PSE&G to issue and have outstanding at any one time
through January 2, 1999, not more than $1.3 billion of short-term obligations,
consisting of commercial paper and other unsecured borrowings from banks and
other lenders. On June 30, 1998, PSE&G had $888 million of short-term debt
outstanding, including $124 million borrowed against its uncommitted bank lines
of credit which lines of credit totaled $250 million at June 30, 1998.
PSE&G Fuel Corporation (Fuelco), a wholly-owned subsidiary of PSE&G, has a
$125 million commercial paper program to finance its 42.49% share of Peach
Bottom nuclear fuel, which program is supported by a $125 million revolving
credit facility expiring on June 28, 2001. PSE&G has guaranteed repayment of
Fuelco's obligations under this program. At June 30, 1998, Fuelco had $67
million of commercial paper outstanding under this program.
PSEG Energy Holdings Inc.
At June 30, 1998, PSEG Capital Corporation (Capital), a wholly-owned
subsidiary of Energy Holdings, had total debt outstanding of $596 million,
including $573 million of Medium Term Notes (MTNs) and $23 million of Senior
Notes. In July 1998, $75 million of Capital's 9.00% MTNs matured. As a result of
the Focused Audit, Capital debt is being phased out over a six to ten year
period from April 1993 (see Liquidity and Capital Resources).
As of June 30, 1998, Enterprise Capital Funding Corporation (Funding), a
wholly-owned subsidiary of Energy Holdings, had $300 million and $150 million
revolving credit facilities expiring in July 1999 and November 1998,
respectively, with two groups of banks under which facilities no debt was
outstanding. On June 1, 1998, $83 million of Funding's Series E 9.95% Senior
Notes matured. Funding had $45 million of privately-placed Senior Notes
outstanding as of June 30, 1998. As of June 30, 1998, Funding had $159 million
of total debt outstanding.
Energy Holdings, Resources and Global are subject to restrictive business and
financial covenants contained in existing debt agreements. Energy Holdings is
required to maintain a debt to equity ratio of no more than 2.00:1 and a
twelve-months earnings before interest and taxes to interest (EBIT) coverage
ratio of at least 1.50:1. As of June 30, 1998, Energy Holdings had a
consolidated debt to equity ratio of 1.00:1. For the twelve months ended June
30, 1998, the EBIT coverage ratio, as defined to exclude the effects of EGDC,
was 2.61:1. Compliance with applicable financial covenants will depend upon
future financial position and levels of earnings, as to which no assurance can
be given. In addition, Energy Holdings' ability to continue to grow its business
will depend to a significant degree on PSEG's and Energy Holdings' ability to
obtain additional financing beyond current levels (see Liquidity and Capital
Resources).
Nuclear Operations
As previously reported, PSE&G's Salem Units 1 and 2 (Salem 1 and 2) returned
to service on April 17, 1998 and August 30, 1997, respectively. On June 30,
1998, the Nuclear Regulatory Commission (NRC) closed its Confirmatory Action
Letter (CAL) concerning Salem noting that all commitments of the CAL had been
satisfactorily addressed. For a discussion of the operating performance standard
applicable to Salem, see Note 4. Commitments and Contingent Liabilities of
Notes.
At the July 1998 semi-annual NRC Senior Management Meeting, the NRC removed
Salem 1 and 2 from the NRC Watch List. The NRC noted that plant material
condition, safety culture and management oversight and effectiveness had
substantially improved. The NRC also observed that, while the maintenance
backlog resulting from discovery efforts during the outage remains high, PSE&G
is effectively managing the prioritization and resolution of those items.
Additionally, the NRC noted that PSE&G's management team has instituted robust
safety oversight and self-assessment at the site and that Salem has demonstrated
sustained successful plant performance.
Competitive Environment
Rate Matters
For discussions of the New Jersey Energy Master Plan, non-utility generation
buydown, the LGAC, the Gas Unbundling Pilot Program, the LEAC/Demand Side
Adjustment Factor, the RAC and other rate matters, see Note 2. Rate Matters of
Notes. The outcome of these proceedings could have a material adverse impact on
PSEG's and PSE&G's financial condition, results of operations and net cash
flows.
Federal Energy Regulatory Commission (FERC) Order No. 888 (Order No. 888)
As previously reported, numerous parties, including PSE&G, have filed
petitions for judicial review of Orders No. 888, 888A and 888B before the Courts
of Appeals for the District of Columbia and the Second Circuits. In March 1998,
all of these appeals were consolidated in the Court of Appeals for the District
of Columbia Circuit (D.C. Circuit). On April 30, 1998, the D.C. Circuit entered
an order permitting certain additional parties to intervene and establishing
certain procedural guidelines for the hearing of these appeals.
Pennsylvania--New Jersey--Maryland Interconnection (PJM)
Effective April 1, 1998, PJM implemented locational marginal pricing (LMP)
for congestion costs within the PJM control area pursuant to FERC requirements.
LMP provides for an allocation of congestion costs to transmission users within
the PJM control area. Sufficient data is not yet available to determine whether
LMP will ultimately result in increases or decreases in PSE&G's cost of
Interchanged Power and Fuel for Electric Generation or whether such increases or
decreases will be material.
Currently, the PJM Operating Agreement dictates that energy sold in the PJM
interchange energy market from generation located within the PJM control area
shall not exceed the variable cost of producing such energy. Transactions that
are bid into the PJM pool from generation located outside the PJM control area
are capped at $1,000 per megawatt hour. In the event that all available
generation within the PJM control area is insufficient to cover demand, PJM
could institute emergency purchases from adjoining regions. The cost of such
emergency purchases is dependent upon market conditions and not subject to any
PJM price cap. Certain of the PJM member companies have requested the FERC to
revise the PJM Operating Agreement to allow submission of market based bids to
the PJM interchange energy market. PSEG and PSE&G cannot predict the outcome of
this request or the impact on PSEG's and PSE&G's future financial condition,
results of operations and net cash flows if such request is successful. For
further discussion of price volatility of electricity, see Item 3. Qualitative
and Quantitative Disclosures About Market Risk.
<PAGE>
Future Outlook
PSEG continues to pursue its strategies to grow its business. As previously
reported, more emphasis will be placed on finding opportunities for expansion
outside of traditional utility services and markets. PSE&G's strategy is to size
its electric generation fleet in New Jersey to meet its anticipated needs, while
seeking to increase its value through wholesale trading. PSE&G will also seek to
capitalize on synergies which may exist with its natural gas purchasing and
trading activities. PSE&G's transmission and distribution strategy, both gas and
electric, is to provide cost-effective, high quality service, while considering
opportunities for expansion of this business through business combinations.
Global's strategy is to invest in both generation and transmission and
distribution facilities worldwide with the goal of creating long-term value.
Resources' strategy is to continue focusing on passive investments in the energy
sector worldwide seeking to provide earnings and economic value. Energy
Technologies' strategy is to expand upon the current energy related services it
provides to industrial and commercial customers to create long-term value.
Successful implementation of these strategies, coupled with the restructuring
of the electric industry, could significantly change PSEG's earnings mix. Most
significant among the changes would be the shift in earnings away from the
domestic generation business into the international generation, transmission and
distribution businesses, and to a lesser extent, into the energy services
business.
PSE&G
The information required by this item is incorporated herein by reference to
the following portions of PSEG's Management's Discussion and Analysis of
Financial Condition and Results of Operations, insofar as they relate to PSE&G
and its subsidiaries: Results of Operations; Liquidity and Capital Resources;
External Financings; Nuclear Operations; Competitive Environment and Future
Outlook.
Forward Looking Statements
The Private Securities Litigation Reform Act of 1995 (the Act) provides a
"safe harbor" for forward-looking statements to encourage such disclosures
without the threat of litigation providing those statements are identified as
forward-looking and are accompanied by meaningful, cautionary statements
identifying important factors that could cause the actual results to differ
materially from those projected in the statement. Forward-looking statements
have been made in this report. Such statements are based on management's beliefs
as well as assumptions made by and information currently available to
management. When used herein, the words "will", "anticipate", "estimate",
"expect", "objective", "hypothetical", "potential" and similar expressions are
intended to identify forward-looking statements. In addition to any assumptions
and other factors referred to specifically in connection with such
forward-looking statements, factors that could cause actual results to differ
materially from those contemplated in any forward-looking statements include,
among others, the following: deregulation and the unbundling of energy supplies
and services; an increasingly competitive energy marketplace; sales retention
and growth potential in a mature service territory and a need to contain costs;
ability to obtain adequate and timely rate relief, cost recovery, including the
potential impact of stranded costs, and other necessary regulatory approvals;
Federal and State regulatory actions; costs of construction; operating
restrictions; increased cost and construction delays attributable to
environmental regulations; nuclear decommissioning and the availability of
reprocessing and storage facilities for spent nuclear fuel; licensing and
regulatory approval necessary for nuclear and other operating stations; market
risk; and credit market concerns. PSEG and PSE&G undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise. The foregoing review of factors
pursuant to the Act should not be construed as exhaustive or as any admission
regarding the adequacy of disclosures made by PSEG and PSE&G prior to the
effective date of the Act.
<PAGE>
ITEM 3. QUALITATIVE AND QUANTITATIVE
DISCLOSURES ABOUT MARKET RISK
Commodities
The availability and price of energy commodities are subject to fluctuations
from factors such as weather, environmental policies, changes in demand, changes
in supply and state and Federal regulatory policies. To reduce price risk caused
by market fluctuations, PSE&G enters into physical forward and options contracts
and financial derivatives including forwards, futures, swaps and options with
approved counterparties, to hedge its anticipated demand. These contracts, in
conjunction with owned electric generating capacity, are designed to cover
estimated electric and gas customer commitments. Gains and losses resulting from
physical forward and options contracts and financial derivatives are recognized
as a component of fuel revenue and expense upon maturity of these contracts.
Additionally, PSE&G enters into physical forward and options contracts that are
speculative in nature which are immaterial to PSE&G's market portfolio and do
not have a material impact on PSE&G's financial condition, results of operations
and net cash flows.
PSE&G uses a value-at-risk model to assess the market risk of its commodity
business. This model includes fixed price sales commitments, owned generation,
native load requirements, physical contracts and financial derivative
instruments. Value-at-risk represents the potential gains or losses for
instruments or portfolios due to changes in market factors, for a specified time
period and confidence level. PSE&G estimates value-at-risk across its commodity
business using a model with historical volatilities and correlations. The
measured value-at-risk using a variance/co-variance model with a 97.5 percent
confidence level and assuming a one week horizon at June 30, 1998 was
approximately $18 million. PSE&G's calculated value-at-risk exposure represents
an estimate of potential net losses that could be recognized on its portfolio of
physical and financial derivative instruments assuming historical movements in
future market rates. These estimates, however, are not necessarily indicative of
actual results which may occur, since actual future gains and losses will differ
from those historical estimates based upon actual fluctuations in market rates,
operating exposures, and the timing thereof, and changes in PSE&G's portfolio of
hedging instruments during the year.
PSE&G is generally in a short (or deficit) position when comparing average
on-peak demand to its average expected economic generating capability. As a
result of unseasonably warm weather increasing the demand for electricity,
coupled with scheduled and unscheduled generating plant outages in the Midwest
in June 1998, forward prices of electricity rose to unprecedented high levels
for the summer months of 1998 and 1999. In addition, the volatility factor for
those months increased sharply. The value-at-risk at June 30, 1998 increased by
approximately $11 million from December 31, 1997 due to the large net long (or
surplus) position (created by anticipated economic generation) multiplied by the
increased volatility rate.
As discussed in Results of Operations of Item 2. Management's Discussion and
Analysis, energy trading operations at PSE&G positively impacted the results of
operations for the six months ended June 30, 1998. Other utilities and power
marketers have experienced significant losses in their energy trading operations
during that period. These losses were primarily attributable to counterparty
defaults as a result of extreme market volatility, as noted above.
PSEG is exposed to credit losses in the event of non-performance or
non-payment by counterparties. PSEG has a Risk Management Committee made up of
executive officers and an independent risk oversight function to enhance its
risk management practices. PSEG also has a credit management process which is
used to assess, monitor and mitigate counterparty exposure for PSE&G and Energy
Holdings. In the event of nonperformance or nonpayment by a major counterparty,
there may be a material adverse impact on PSEG's and PSE&G's financial
conditions, results of operations and net cash flows.
There are no other material changes in or additions to the information
reported in the PSEG and the PSE&G 1997 Annual Report on Form 10-K regarding
qualitative and quantitative disclosures about market risk of PSEG, PSE&G and
their subsidiaries.
<PAGE>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
--------------------------------------------
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Certain information reported under Item 3 of Part I of Public Service
Enterprise Group Incorporated's (PSEG) and Public Service Electric and Gas
Company's (PSE&G) 1997 Annual Report on Form 10-K and the Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998 is updated below.
(1) Form 10-K, Pages 19-20. As previously reported, PSE&G has been named as a
potentially responsible party and alleged to be liable for contamination
at the Metal Bank Cottman Avenue Superfund Site, a former non-ferrous
scrap reclamation facility located in Philadelphia, Pennsylvania. PSE&G
estimates that its share of the cost of performing the remedy selected by
the U.S. Environmental Protection Agency (EPA) could be $4 to $8 million.
On June 26, 1998, EPA Region III issued an Administrative Order For
Remedial Design And Remedial Action, Docket No. III-98-082-DC, to thirteen
Respondents including PSE&G, other utilities, and other persons and
entities, ordering the Respondents to implement the remedy selected in the
Record of Decision (ROD) issued by EPA Region III in December, 1997.
Additionally, with respect to this site, on July 1, 1998, the United
States of America moved in the matter entitled United States of America,
et. al., v. Union Corporation, et. al., Civil Action No. 80-1589, United
States District Court for the Eastern District of Pennsylvania, seeking
leave of court to file an amended complaint adding claims under the
Federal Comprehensive Environmental Response, Compensation and Liability
Act of 1980 (CERCLA). PSE&G and one other utility are third party
defendants in the foregoing captioned matter. On July 28, 1998, PSE&G and
seven other utilities named as Respondents in the above-referenced
Administrative Order filed with EPA Region III a Notice of Intent to
Comply With Administrative Order for Remedial Design and Remedial Action,
Metal Bank Cottman Avenue Site, Docket No. III-98-082-DC.
(2)Form 10-K, Page 27 and March 31, 1998 Form 10-Q, Page 24. As previously
reported, in October 1995, PSEG received a letter from a representative of
a purported shareholder demanding that it commence legal action against
certain of its officers and directors with regard to nuclear operations of
Salem and Hope Creek Nuclear Generating Stations (Salem and Hope Creek).
The Board of Directors promptly commenced an investigation and advised the
purported shareholder thereof. While the investigation was pending, the
purported shareholder nevertheless commenced, by complaint filed in
December 1995, a shareholder derivative action against the then incumbent
directors, except Dr. Remick. Similar derivative complaints were filed by
two profit sharing plans and one individual in February and March 1996
against Messrs. Ferland, Codey, Eliason and others. On March 19, 1996, the
Board's investigation was concluded, and the Board determined that this
litigation should not have been instituted and should be terminated. On
July 3, 1996, another individual purported shareholder filed a similar
complaint naming the same defendants as the first derivative lawsuit. The
four complaints generally seek recovery of damages for alleged losses
purportedly arising out of PSE&G's operation of Salem and Hope Creek,
together with certain other relief, including removal of certain executive
officers of PSE&G and PSEG and certain changes in the composition of
PSEG's Board of Directors. On August 21, 1996, all defendants filed
motions to dismiss all four derivative actions, which motions were denied
and attempts to appeal were unsuccessful. Pursuant to a Court Order, on
December 31, 1997, the defendants filed motions for summary judgment to
dismiss two of the cases. In one of the other two cases, separate motions
for partial and complete summary judgment were filed by the defendants on
April 1, 1998. In the fourth case, on April 1, 1998 the defendants filed a
motion for partial summary judgment. On May 21, 1998, the defendants filed
additional motions for complete summary judgment in the third and fourth
cases. All of these motions are pending. By stipulation filed on June 15,
1998, the individual plaintiff in the action filed in March 1996 was
voluntarily dismissed as a plaintiff in the action. The outcome of these
matters cannot be predicted.
(3)Form 10-K, Page 45. As previously reported, in October 1997, Old Dominion
Electric Cooperative (ODEC) filed a complaint at the Federal Energy
Regulatory Commission (FERC) seeking to modify its 1992 agreement with
PSE&G for a ten year sale of 150 megawatts of capacity and energy. On
August 4, 1998, FERC dismissed ODEC's complaint, determining that certain
issues relating to rate "pancaking" for transmission were more
appropriately addressed in the pending FERC docket relating to the PJM
Interconnection and that ODEC had failed to show it was entitled to relief
on the remaining issues. PSE&G cannot predict whether ODEC will appeal
this ruling or the final outcome of these proceedings.
New Matter
On June 25, 1998, a complaint was filed against the directors of PSEG, and
PSEG as a nominal defendant, by the same purported shareholder of PSEG who
instituted the December 1995 shareholder derivative suit, alleging that the
1996, 1997 and 1998 proxy statements provided to shareholders of PSEG were false
and misleading by reason, among other things, of failure to disclose certain
material facts relating to (i) the controls over and oversight of PSEG's nuclear
operations, (ii) the condition of problems at and reserves with respect to
PSEG's nuclear operations, (iii) a demand letter relating to an earlier
shareholder derivative suit, (iv) PSEG's liabilities to the Salem co-owners as a
result of the shutdown of the Salem plants and (v) a shareholder proposal
relating to operations of Salem 1 and 2 which was voted upon at the 1998 annual
meeting of shareholders. The complaint seeks to have declared illegal the 1996,
1997 and 1998 elections of directors of PSEG, the vote upon a stockholder
proposal at the 1998 annual meeting, ratification of the selection of Deloitte &
Touche as PSEG's auditors at those annual meetings, requiring PSEG to conduct a
special meeting of shareholders providing for election of directors following
timely dissemination of a proxy statement approved by the court hearing this
matter, which will include as nominees for election as directors persons having
no previous relationship with PSEG or the current directors and other relief.
PSEG is currently reviewing the complaint. PSEG cannot predict the outcome of
this matter. G.E. Stricklin v. E. James Ferland, et al, United States District
Court for the Eastern District of Pennsylvania, Civil Action No. 98-3279.
In addition, see the following at the pages hereof indicated:
(1)Pages 9 and 10. Proceedings before the New Jersey Board of Public
Utilities (BPU) in the matter of the Energy Master Plan Phase II
Proceeding to investigate the future structure of the Electric Power
Industry, Docket Nos. EX94120585Y, EO97070462 and EO97070463.
(2)Page 9. Proceeding before the BPU in the Matter of the Board's
Determination a Management Audit be Performed on PSE&G, Docket No.
EA97060397.
(3)Page 10. Proceeding before the BPU relating to PSE&G's Levelized Gas
Adjustment Clause (LGAC) filed on November 14, 1997, Docket No.
GR97110839.
(4)Page 11. Proceeding before the Superior Court of New Jersey, Appellate
Division in the matter of the motion of PSE&G to increase the level of the
Electric Demand Side Adjustment Factor, Appellate Docket No.
A-005257-97T2.
(5)Page 11. Proceedings before the BPU relating to the Electric Levelized
Energy Adjustment Clause (LEAC) rate increase to recover Demand Side
Management (DSM) costs, Docket No. ER97020101.
(6)Page 11. Proceedings before the BPU in the Matter of the Electric
Restructuring Plans Filed by Atlantic City Electric Company, Jersey
Central Power & Light Company, D/B/A GPU Energy, Public Service Electric
and Gas Company, and Rockland Electric Company - General Auction Standards
and Review Criteria, Order Adopting Auction Standards, Docket Nos.
EX94120585Y, EO97070457, EO97070460, EO97070463, and EO97070466.
(7)Page 24. Proceedings before the Federal Energy Regulatory Commission
(FERC) relating to competition and electric wholesale power markets.
(Inquiry Concerning the Pricing Policy for Transmission Services Provided
by Utilities Under the Federal Power Act, Docket No. RM93-19.)
(8)Page 24. Proceedings before the United States Court of Appeals, District
of Columbia Circuit, in the matter of appeal of FERC Orders No. 888, 888A
and 888B. (Transmission Access Policy Study Group v. Federal Energy
Regulatory Commission, United States Court of Appeals in the District of
Columbia Circuit, Docket No. 97-1715.)
(9)Page 24. Proceeding before FERC relating to the development by PSE&G and
other regional transmission owners in PJM of a new transmission service
tariff and an Independent System Operator, FERC Docket Nos. OA97-261-000,
et. al.
(10) Page 29. Proceedings before the United States Court of Appeals, District
of Columbia Circuit, in the matter of the DOE's unconditional obligation
to begin spent fuel acceptance by January 31, 1998, Northern States Power
v. Department of Energy, Docket No. 97-1064.
(11) Page 30. Proceedings before FERC relating to a declaratory judgment
action challenging PSE&G's interpretation of the capacity release rules,
Texas Eastern Transmission Corporation, FERC Docket No. RP98-83-000.
ITEM 5. OTHER INFORMATION
Certain information reported under PSEG's and PSE&G's 1997 Annual and March
31, 1998 Quarterly Report to the SEC is updated below. References are to the
related pages of the Form 10-K and the Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998 as printed and distributed.
Discretionary Proxy Voting Authority
New Matter
The SEC has recently amended its proxy rules regarding use of discretionary
voting authority with respect to certain shareholder proposals. If PSEG is not
notified by January 23, 1999 of any proposal intended to be presented for
consideration at the 1999 Annual Meeting of Stockholders, then the proxies named
by PSEG management with respect to the meeting shall have discretionary voting
authority with respect to such proposal if presented at the meeting.
Credit Ratings
Form 10-K, Page 5
During the second quarter of 1998, Standard and Poor's, Moody's and Duff and
Phelps reconfirmed the credit ratings for PSEG and PSE&G as disclosed in the
1997 Form 10-K. Additionally, Moody's changed its outlook from negative to
stable.
Nuclear Fuel Disposal
Form 10-K, Page 12
As previously reported, in accordance with the Nuclear Waste Policy Act
(NWPA), PSE&G has entered into contracts with the Department of Energy (DOE) for
the disposal of spent nuclear fuel. Payments made to the DOE for disposal costs
are based on nuclear generation and are included in Interchanged Power and Fuel
for Electric Generation in the Statements of Income. These costs are being
recovered through the LEAC (see Note 2. Rate Matters of Notes).
DOE construction of a permanent disposal facility has not begun and DOE has
announced that it does not expect a facility to be available until 2010 at the
earliest. Accordingly, legislation which would have the DOE establish a
centralized interim spent fuel storage facility has been introduced in Congress.
In cases brought by PSE&G, 40 other utilities and many state and local
governments, the United States Court of Appeals for the District of Columbia
Circuit reaffirmed DOE's unconditional obligation to begin spent fuel acceptance
by January 31, 1998. In November 1997, the court ruled that the utilities had
fulfilled their obligations under their respective contracts with DOE by
contributing to the Nuclear Waste Fund. The court further ruled that DOE's
argument of unavoidable delay to meet its obligation was without merit. However,
the court did not order DOE to commence spent fuel acceptance by January 31,
1998; instead, it decided that the standard contract provided a potentially
adequate remedy in the form of payment of damages if DOE failed its obligations.
In May 1998 the court denied a petition by PSE&G, 40 other utilities, and many
states and state agencies to order DOE to begin spent fuel acceptance
immediately and declare that the utilities are allowed to escrow their Nuclear
Waste Fund fees until DOE begins spent fuel acceptance. Following this decision,
DOE proposed a settlement of issues related to its failure to meet its
obligation, which the utilities unanimously rejected. PSE&G is continuing to
work with the utility industry to develop a methodology for determining damages
incurred as a result of DOE's failure to meet its obligation and a strategy for
its implementation. PSE&G is presently studying options to recover damages from
DOE. No assurances can be given as to the ultimate availability of a disposal
facility.
Nuclear Operations
Form 10-K, Page 8
On June 8, 1998, the NRC issued its latest Systematic Assessment of Licensee
Performance (SALP) Report for Hope Creek for the period November 10, 1996 to May
16, 1998. In the areas of Operations, Maintenance and Engineering, Hope Creek
was rated Category 2 or "good" performance. In the area of Plant Support, Hope
Creek received a "superior", or Category 1, rating. The NRC noted improved
performance in all functional areas during the period, with marked improvement
in the Plant Support area, particularly concerning security and emergency
preparedness. The NRC also noted that although several human performance issues
associated with procedure violations, attention to detail and work controls were
evident during the fall 1997 outage, operation since then has been nearly
event-free.
On July 29, 1998, the NRC notified PSE&G that Salem 1 and 2 had been removed
from the NRC's Watch List (see Item 2. Management's Discussion and Analysis --
Nuclear Operations).
Form 10-K, Page 10
PECO Energy has advised PSE&G that the NRC held a predecisional enforcement
conference on May 21, 1998 to discuss two apparent violations concerning failure
to maintain the operability of a Peach Bottom Unit 3 emergency core cooling
system pump. On June 11, 1998, the NRC issued an aggregate Level III violation
and a civil penalty of $55,000. PECO will not dispute the violation.
Low Level Radioactive Waste (LLRW)
Form 10-K, Page 12 and March 31, 1998 Form 10-Q, Page 27
As a by-product of their operations, nuclear generating units, including
those in which PSE&G owns an interest, produce LLRW. Such wastes include paper,
plastics, protective clothing, water purification materials and other materials.
LLRW materials are accumulated on site and disposed of at licensed permanent
disposal facilities in Barnwell, South Carolina and Clive, Utah.
PECO Energy has advised PSE&G that on June 18, 1998, the Appalachian States
LLRW Compact Commission unanimously agreed to suspend efforts to site a radwaste
storage facility in Pennsylvania. The Secretary of the Pennsylvania Department
of Environmental Protection had suggested ending the search due to the declining
amounts of radwaste produced by hospitals, nuclear power plants and research
facilities. The other compact members (Delaware, Maryland and West Virginia)
have asked Pennsylvania to make provisions to resume the search if conditions
change.
Other State Regulatory Matters
Form 10-K, Page 4 and March 31, 1998 Form 10-Q, Page 27
As previously reported, on December 3, 1997 one of the interstate pipeline
companies from which PSE&G obtains service filed a declaratory judgment action
with FERC challenging PSE&G's interpretation of the capacity release rules.
Under the interpretation proposed by the interstate pipeline company, PSE&G
would be required to guarantee the performance of Public Service Energy Trading
Company (PSETC) under the transferred agreements. PSE&G disagreed with these
claims and filed a protest challenging the December 3, 1997 filing. On February
11, 1998, FERC ruled in favor of the interstate pipeline company finding that it
was not unreasonable for the pipeline company to refuse to discharge PSE&G under
the circumstances addressed in the order. On April 29, 1998, FERC issued an
order on rehearing in which it denied PSE&G's request for a rehearing. On June
26, 1998, PSE&G filed a petition for review of FERC's order with the U.S. Court
of Appeals, District of Columbia Circuit.
Air Pollution Control
Form 10-K, Page 15
As previously reported, in September 1997, the NJDEP proposed regulations
implementing a memorandum of understanding among 11 Northeastern states and the
District of Columbia, establishing a regional plan for reducing NOx emissions
from utility and large industrial boilers. In June 1998, NJDEP adopted final
regulations implementing a NOx budget program and establishing the formulas for
NOx allocations. The extent of investment in control technologies or operational
changes required to comply with these regulations will be directly related to
the number of allowances PSE&G receives. PSE&G does not expect to receive its
final NOx budget allocation under the rule until early 1999 and thus cannot
access the potential costs at this time, but such costs could be material.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) A listing of exhibits being filed with this document is as follows:
PSEG
- ----------------------
Exhibit Document
Number
- ----------------------
3 Amended and Restated Trust Agreement for Enterprise
Capital Trust II
4a First Supplemental Indenture to Indenture dated as of January 1,
1998 between Public Service Enterprise Group Incorporated and First
Union National Bank, as Trustee, dated June 1, 1998 providing for
the issuance of Floating Rate Deferrable Interest Subordinated
Debentures, Series B (relating to Trust Preferred Securities)
4b Second Supplemental Indenture to Indenture dated as of January 1,
1998 between Public Service Enterprise Group Incorporated and First
Union National Bank, as Trustee, dated July 1, 1998 providing for
the issuance of Deferrable Interest Subordinated Debentures, Series
C (relating to Trust Preferred Securities)
10 Employment Agreement with E. James Ferland, dated June 16, 1998
12 Computation of Ratios of Earnings to Fixed Charges
(PSEG)
27(A) Financial Data Schedule (PSEG)
PSE&G
- ----------------------
Exhibit Document
Number
- ----------------------
10 Employment Agreement with E. James Ferland, dated June
16, 1998
12(A) Computation of Ratios of Earnings to Fixed Charges
(PSE&G)
12(B) Computation of Ratios of Earnings to Fixed Charges plus
Preferred Stock Dividend Requirements (PSE&G)
27(B) Financial Data Schedule (PSE&G)
(B) Reports on Form 8K: None.
<PAGE>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
--------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused these reports to be signed on their respective
behalf by the undersigned thereunto duly authorized.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
(Registrants)
By: PATRICIA A. RADO
----------------
Patricia A. Rado
Vice President and Controller
(Principal Accounting Officer)
Date: August 14, 1998
Amended and Restated
Trust Agreement for Enterprise Capital Trust II
among
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
(as Depositor)
FIRST UNION NATIONAL BANK
(as Property Trustee)
FIRST UNION BANK OF DELAWARE
(as Delaware Trustee)
and
THE ADMINISTRATIVE TRUSTEE NAMED HEREIN
Dated as of June 26, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
Defined Terms
Section 1.01. Definitions............................................... 1
ARTICLE II
Continuation of the Trust
Section 2.01. Name...................................................... 9
Section 2.02. Office of the Delaware Trustee; Principal Place of
Business........................................... 9
Section 2.03. Initial Contribution of Trust Property; Expenses of the
Trust............................................... 9
Section 2.04. Issuance of the Trust Securities.......................... 10
Section 2.05. Purchase of Debentures.................................... 10
Section 2.06. Declaration of Trust...................................... 11
Section 2.07. Authorization to Enter into Certain Transactions.......... 11
Section 2.08. Assets of Trust........................................... 14
Section 2.09. Title to Trust Property................................... 14
ARTICLE III
Payment Account
Section 3.01. Payment Account........................................... 15
ARTICLE IV
Distributions; Redemption
Section 4.01. Distributions............................................. 15
Section 4.02. Redemption................................................ 18
Section 4.03. Subordination of Common Securities........................ 20
Section 4.04. Payment Procedures........................................ 21
Section 4.05. Tax Returns and Reports................................... 21
Section 4.06. Payments under Indenture...................................22
ARTICLE V
Trust Securities Certificates
Section 5.01. Initial Ownership......................................... 22
Section 5.02. The Trust Securities Certificates......................... 22
Section 5.03. Delivery of Trust Securities Certificates................. 22
Section 5.04. Registration of Transfer and Exchange of Preferred
Securities Certificates............................ 23
Section 5.05. Mutilated, Destroyed, Lost or Stolen Trust Securities
Certificates....................................... 23
Section 5.06. Persons Deemed Securityholders............................ 24
Section 5.07. Access to List of Securityholders' Names and Addresses.... 24
Section 5.08. Maintenance of Office or Agency........................... 25
Section 5.09. Appointment of Paying Agent............................... 25
Section 5.10. No Transfer of Common Securities by Depositor............. 26
Section 5.11. Book-Entry Preferred Securities Certificates; Common
Securities Certificate............................. 26
Section 5.12. Definitive Preferred Securities Certificates.............. 26
Section 5.13. Rights of Securityholders................................. 26
ARTICLE VI
Acts of Securityholders; Meetings; Voting
Section 6.01. Limitations on Voting Rights.............................. 27
Section 6.02. Notice of Meetings........................................ 28
Section 6.03. Meetings of Preferred Securityholders..................... 28
Section 6.04. Voting Rights............................................. 29
Section 6.05. Proxies, etc.............................................. 29
Section 6.06. Securityholder Action by Written Consent.................. 29
Section 6.07. Record Date for Voting and Other Purposes................. 29
Section 6.08. Acts of Securityholders................................... 29
Section 6.09. Inspection of Records..................................... 30
ARTICLE VII
The Trustees
Section 7.01. Certain Duties and Responsibilities....................... 31
Section 7.02. Notice of Defaults; Direct Action by Securityholders...... 32
Section 7.03. Certain Rights of Property Trustee........................ 32
Section 7.04. Not Responsible for Recitals or Issuance of Securities.... 34
Section 7.05. May Hold Securities....................................... 34
Section 7.06. Compensation; Indemnity; Fees............................. 34
Section 7.07. Corporate Property Trustee Required; Eligibility of
Trustees........................................... 35
Section 7.08. Conflicting Interests..................................... 35
Section 7.09. Co-Trustees and Separate Trustee.......................... 35
Section 7.10. Resignation and Removal; Appointment of Successor......... 37
Section 7.11. Acceptance of Appointment by Successor.................... 38
Section 7.12. Merger, Conversion, Consolidation or Succession to
Business........................................... 39
Section 7.13. Preferential Collection of Claims Against Depositor or
Trust.............................................. 39
Section 7.14. Reports by Property Trustee............................... 39
Section 7.15. Reports to the Property Trustee........................... 40
Section 7.16. Evidence of Compliance with Conditions Precedent.......... 40
Section 7.17. Statements Required in Officer's Certificate and Opinion
of Counsel......................................... 40
Section 7.18. Number of Trustees........................................ 40
Section 7.19. Delegation of Power....................................... 41
Section 7.20. Voting.................................................... 41
ARTICLE VIII
Dissolution and Liquidation
Section 8.01. Dissolution Upon Expiration Date.......................... 41
Section 8.02. Early Dissolution......................................... 42
Section 8.03. Dissolution............................................... 42
Section 8.04. Liquidation............................................... 42
ARTICLE IX
Mergers, Etc.
Section 9.01. Mergers, Consolidations, Amalgamations or Replacements of
the Trust.......................................... 44
ARTICLE X
Miscellaneous Provisions
Section 10.01. Limitation of Rights of Securityholders................... 45
Section 10.02. Amendment................................................. 45
Section 10.03. Severability.............................................. 47
Section 10.04. Governing Law............................................. 47
Section 10.05. Payments Due on Non-Business Day.......................... 47
Section 10.06. Successors and Assigns.................................... 47
Section 10.07. Headings.................................................. 47
Section 10.08. Reports, Notices and Demands.............................. 47
Section 10.09. Agreement Not to Petition................................. 48
Section 10.10. Trust Indenture Act; Conflict with Trust Indenture Act.... 48
Section 10.11. Acceptance of Terms of Trust Agreement, Guarantee and
Indenture.......................................... 49
<PAGE>
Enterprise Capital Trust II
Certain Sections of this Trust Agreement relating to
Sections 310 through 318 of the
Trust Indenture Act of 1939
Trust Indenture Trust Agreement
Act Section Section
- --------------- --------------
ss. 310(a)(1)............................................................7.07
(a)(2)..........................................................7.07
(a)(3)..........................................................7.09
(a)(4)...................................................2.07(a)(ii)
(b).............................................................7.08
ss. 311(a)...............................................................7.13
(b).............................................................7.13
ss. 312(a)...............................................................5.07
(b).............................................................5.07
(c).............................................................5.07
ss. 313(a)...............................................................7.14
(b).............................................................7.14
(c).............................................................7.14
(d).............................................................7.14
ss. 314(a)...............................................................7.15
(b)...................................................Not Applicable
(c)(1)....................................................7.16, 7.17
(c)(2)....................................................7.16, 7.17
(c)(3)................................................Not Applicable
(d)...................................................Not Applicable
(e)............................................................ 7.17
ss. 315(a).....................................................7.01(a), 7.03(a)
(b)......................................................7.02, 10.08
(c)..........................................................7.01(a)
(d).......................................................7.01, 7.03
(e)...................................................Not Applicable
ss. 316(a).....................................................Not Applicable
(a)(1)(A).............................................Not Applicable
(a)(1)(B).............................................Not Applicable
(a)(2)................................................Not Applicable
(b)...................................................Not Applicable
(c)...................................................Not Applicable
ss. 317(a)(1)..................................................Not Applicable
(a)(2)................................................Not Applicable
(b).............................................................5.09
ss. 318(a)..............................................................10.10
------------------
Note: This reconciliation and tie sheet shall not, for any purpose, be
deemed to be a part of the Trust Agreement.
<PAGE>
AMENDED AND RESTATED TRUST AGREEMENT of Enterprise Capital
Trust II (the "Trust"), dated as of June 26, 1998 among (i) Public Service
Enterprise Group Incorporated, a New Jersey corporation (the "Depositor"), (ii)
First Union National Bank, a national banking association, as trustee (the
"Property Trustee"), (iii) First Union Bank of Delaware, whose address in
Delaware is 1225 King Street, Wilmington, Delaware 19801, as Delaware trustee
(the "Delaware Trustee"), (iv) Fred F. Saunders, an individual whose address is
c/o Public Service Electric and Gas Company, 80 Park Plaza, P.O. Box 570,
Newark, New Jersey 07101 (the "Administrative Trustee") (the Property Trustee,
the Delaware Trustee and the Administrative Trustee are referred to collectively
as the "Trustees"), and (v) the several Holders, as hereinafter defined.
WITNESSETH:
WHEREAS, the Depositor, the Property Trustee, the Delaware
Trustee and the Administrative Trustee have heretofore duly declared and
established a business trust pursuant to the Delaware Business Trust Act by
entering into a Trust Agreement, dated as of December 22, 1997 (the "Original
Trust Agreement"), and by executing and filing with the Secretary of State of
the State of Delaware a Certificate of Trust on December 22, 1997, a form of
which is attached hereto as Exhibit A; and
WHEREAS, the Depositor, the Property Trustee, the Delaware
Trustee and the Administrative Trustee desire to amend and restate the Original
Trust Agreement in its entirety as set forth herein to provide for, among other
things, (i) the issuance of the Common Securities, as hereinafter defined, by
the Trust to the Depositor, (ii) the issuance and sale of the Preferred
Securities, as hereinafter defined, by the Trust pursuant to the Underwriting
Agreement, as hereinafter defined, and (iii) the acquisition by the Trust from
the Depositor of the Debentures, as hereinafter defined.
NOW, THEREFORE, in consideration of the agreements and
obligations set forth herein and for other good and valuable consideration, the
sufficiency of which is hereby acknowledged, each party, for the benefit of the
other party and for the benefit of the Securityholders, as hereinafter defined,
hereby amends and restates the Original Trust Agreement in its entirety and
agrees as follows:
ARTICLE I
Defined Terms
Section 1.01. Definitions. For all purposes of this Trust Agreement, except
as otherwise expressly provided or unless the context otherwise requires:
(a) each term defined in this Article I has the meaning assigned to it in
this Article I and includes the plural as well as the singular;
<PAGE>
(b) each of the other terms used herein that is defined in the Trust
Indenture Act, either directly or by reference therein, has the meaning assigned
to it therein;
(c) unless the context otherwise requires, any reference to an "Article" or
a "Section" refers to an Article or a Section, as the case may be, of this Trust
Agreement; and
(d) the words "herein", "hereof" and "hereunder" and other words of similar
import refer to this Trust Agreement as a whole and not to any particular
Article, Section or other subdivision.
"Act" has the meaning specified in Section 6.08.
"Administrative Trustee" means the individual identified as the
"Administrative Trustee" in the preamble to this Trust Agreement, solely in
his/her capacity as Administrative Trustee of the Trust and not in his/her
individual capacity, or such Administrative Trustee's successor in interest in
such capacity, or any successor trustee appointed as herein provided.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Bankruptcy Event" means, with respect to any Person, the occurrence of any
of the following events:
(a) Such Person, pursuant to or within the meaning of any Bankruptcy Law:
(i) commences a voluntary case or proceeding;
(ii) consents to the entry of an order for relief against it in an
involuntary case or proceeding;
(iii)consents to the appointment of Custodian, as hereinafter
defined, of it or for all or substantially all of its property,
and such Custodian is not discharged within 60 days;
(iv) makes a general assignment for the benefit of its creditors; or
<PAGE>
(v) admits in writing its inability to pay its debts generally as
they become due; or
(b) A court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(i) is for relief against such Person in an involuntary case or
proceeding;
(ii) appoints a Custodian of such Person for all or substantially all
of its properties; or
(iii) orders the liquidation of such Person.
and in each case the order or decree remains unstayed and in effect for 60 days.
"Bankruptcy Laws" means Title 11 of the United States Code, or similar
federal or state law for the relief of debtors. "Custodian" means any receiver,
trustee, assignee, liquidator, sequestrator, custodian or similar official under
any Bankruptcy Law.
"Board Resolution" means (i) a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Depositor to have been duly adopted
by the Depositor's Board of Directors or a committee established thereby and to
be in full force and effect on the date of such certification or (ii) a
certificate signed by the authorized officer or officers of the Depositor to
whom the Depositor's Board of Directors or a committee established thereby has
delegated its authority, and in each case, delivered to the Trustees.
"Book-Entry Preferred Securities Certificates" means certificates
representing Preferred Securities issued in global, fully registered form with
the Clearing Agency as described in Section 5.11.
"Business Day" means a day other than (a) a Saturday or Sunday, or (b) a
day on which banking institutions in The City of New York or the State of New
Jersey are authorized or required by law or executive order to close.
"Certificate Depository Agreement" means the agreement among the Trust, the
Property Trustee and The Depository Trust Company, as the initial Clearing
Agency, dated as of the Closing Date, relating to the Book-Entry Preferred
Securities Certificates, substantially in the form attached hereto as Exhibit B,
as the same may be amended and supplemented from time to time.
<PAGE>
"Clearing Agency" means an organization registered as a "clearing agency"
pursuant to Section 17A of the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder. The Depository Trust Company
will be the initial Clearing Agency.
"Closing Date" means the Time of Delivery as defined in the Underwriting
Agreement, which date is also the date of execution and delivery of this Trust
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Securities Exchange Act of 1934, as amended,
or, if at any time after the execution of this Trust Agreement such Commission
is not existing and performing the duties now assigned to it under the Trust
Indenture Act, then the body performing such duties at such time.
"Common Security" means an undivided beneficial interest in the assets of
the Trust, having a Liquidation Amount of $1,000 and having the rights provided
therefor in this Trust Agreement, including the right to receive Distributions
and a Liquidation Distribution as provided herein.
"Common Securities Certificate" means a certificate evidencing ownership of
Common Securities, substantially in the form attached hereto as Exhibit C.
"Corporate Trust Office" means the principal corporate office of the
Property Trustee located in the State of New Jersey which at the date hereof is
765 Broad Street, Newark, New Jersey 07107.
"Creditor" has the meaning specified in Section 2.03.
"Debenture Event of Default" means an "Event of Default" as defined in the
Indenture with respect to the Debentures.
"Debenture Redemption Date" means "Redemption Date" as defined in the
Indenture with respect to the Debentures.
"Debenture Trustee" means First Union National Bank, a national banking
association, in its capacity as trustee under the Indenture, or any successor
thereto appointed in accordance with the terms and provisions of the Indenture.
"Debentures" means the Depositor's Floating Rate Deferrable Interest
Subordinated Debentures, Series B, issued pursuant to the Indenture.
<PAGE>
"Definitive Preferred Securities Certificates" means certificates
representing Preferred Securities issued in certificated, fully registered form
as described in Section 5.12.
"Delaware Business Trust Act" means Chapter 38 of Title 12 of the Delaware
Code, 12 Del. C. ss. 3801, et seq., as it may be amended from time to time.
"Delaware Trustee" means the entity identified as the "Delaware Trustee" in
the preamble to this Trust Agreement solely in its capacity as Delaware Trustee
of the Trust and not in its individual capacity, or its successor in interest in
such capacity, or any successor trustee appointed as herein provided.
"Depositor" has the meaning specified in the preamble to this Trust
Agreement.
"Distribution Date" has the meaning specified in Section 4.01(a).
"Distributions" means amounts payable in respect of the Trust Securities as
provided in Section 4.01.
"Event of Default" means the occurrence of a Debenture Event of Default
(whatever the reason for such Event of Default and whether it shall be voluntary
or involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body).
"Expiration Date" has the meaning specified in Section 8.01.
"Extension Period" means the period or periods in which, pursuant to the
Indenture, payments of interest on the Debentures are deferred by extending the
interest payment periods thereof.
"Guarantee" means the Guarantee Agreement executed and delivered by the
Depositor to First Union National Bank, a national banking association, as
trustee thereunder, contemporaneously with the execution and delivery of this
Trust Agreement, for the benefit of the Holders of the Preferred Securities, as
amended from time to time.
"Indenture" means the Indenture, dated as of January 1, 1998 between the
Depositor and the Debenture Trustee, as trustee thereunder, as amended on June
1, 1998 and as amended or supplemented from time to time.
"Lien" means any lien, pledge, charge, encumbrance, mortgage, deed of
trust, adverse ownership interest, hypothecation, assignment, security interest
or preference, priority or other security agreement or preferential arrangement
of any kind or nature whatsoever.
<PAGE>
"Like Amount" means (a) with respect to a redemption of Trust Securities,
Trust Securities having an aggregate Liquidation Amount equal to the principal
amount of Debentures to be paid in accordance with the Indenture and (b) with
respect to a distribution of Debentures to Holders of Trust Securities in
connection with a dissolution and liquidation of the Trust, Debentures having a
principal amount equal to the aggregate Liquidation Amount of the Trust
Securities in exchange for which such Debentures are distributed.
"Liquidation Amount" means the stated amount of $1,000 per Trust Security.
"Liquidation Date" means the date on which Debentures are to be distributed
to Holders of Trust Securities in connection with a dissolution and liquidation
of the Trust pursuant to Section 8.04(a).
"Liquidation Distribution" has the meaning specified in Section 8.04(d).
"1940 Act" means the Investment Company Act of 1940, as amended.
"Officers' Certificate" means a certificate signed by the Chairman, the
President, any Vice President, the Treasurer, any Assistant Treasurer, the
Secretary or any Assistant Secretary of the Depositor.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Trust, the Property Trustee or the Depositor or an Affiliate of the
Depositor, but not an employee of any thereof, and who shall be acceptable to
the Property Trustee.
"Original Trust Agreement" has the meaning specified in the recitals to
this Trust Agreement.
"Outstanding", when used with respect to Trust Securities, means, as of the
date of determination, all Trust Securities theretofore executed and delivered
under this Trust Agreement, except:
(a) Trust Securities theretofore canceled by the Administrative Trustee or
delivered to the Administrative Trustee for cancellation;
(b) Trust Securities for which redemption money in the necessary amount has
been theretofore deposited with the Property Trustee or any Paying Agent for the
Holders of such Trust Securities; provided that, if such Trust Securities are to
be redeemed, notice of such redemption has been duly given pursuant to this
Trust Agreement;
<PAGE>
(c) Trust Securities which have been paid or in exchange for or in lieu of
which other Trust Securities have been executed and delivered pursuant to
Section 5.05, other than any such Trust Securities in respect of which there
shall have been presented to the Property Trustee proof satisfactory to it that
such Trust Securities are held by a bona fide purchaser; and
(d) as provided in Section 8.04(c);
provided, however, that in determining whether the Holders of the requisite
Liquidation Amount of the Outstanding Preferred Securities have given any
request, demand, authorization, direction, notice, consent or waiver hereunder,
Preferred Securities owned by the Depositor, any Trustee or any Affiliate of the
Depositor or any Trustee shall be disregarded and deemed not to be Outstanding,
except that (a) in determining whether any Trustee shall be protected in relying
upon any such request, demand, authorization, direction, notice, consent or
waiver, only Preferred Securities which such Trustee actually knows to be so
owned shall be so disregarded and (b) the foregoing shall not apply at any time
when all of the Outstanding Preferred Securities are owned by the Depositor, one
or more of the Trustees and/or any such Affiliate. Preferred Securities so owned
which have been pledged in good faith may be regarded as Outstanding if the
pledgee establishes to the satisfaction of the Administrative Trustee the
pledgee's right so to act with respect to such Preferred Securities and that the
pledgee is not the Depositor or any Affiliate of the Depositor.
"Paying Agent" means the Property Trustee and any co-paying agent appointed
pursuant to Section 5.09.
"Payment Account" means a segregated non-interest-bearing corporate trust
account maintained by the Property Trustee in its trust department for the
benefit of the Securityholders in which all amounts paid to the Property Trustee
in respect of the Debentures or the Guarantee will be held and from which the
Property Trustee or such other Paying Agent shall make payments to the
Securityholders in accordance with Article 4.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Security" means a Floating Rate Capital Security, Series B,
issued by the Trust, and having an undivided beneficial interest in the assets
of the Trust, having a Liquidation Amount of $1,000 and having rights provided
therefor in this Trust Agreement, including the right to receive Distributions
and a Liquidation Distribution as provided herein.
<PAGE>
"Preferred Securities Certificate" means a certificate evidencing ownership
of one or more Preferred Securities, substantially in the form attached hereto
as Exhibit D.
"Property Trustee" means the commercial bank or trust company identified as
the "Property Trustee" in the preamble to this Trust Agreement solely in its
capacity as Property Trustee of the Trust and not in its individual capacity, or
its successor in interest in such capacity, or any successor property trustee
appointed as herein provided.
"Redemption Date" means, with respect to any Trust Security to be redeemed,
the date fixed for such redemption by or pursuant to this Trust Agreement;
provided that each Debenture Redemption Date and the stated maturity of the
Debentures shall be a Redemption Date for a Like Amount of Trust Securities.
"Redemption Price" means, with respect to any Trust Security, the
Liquidation Amount of such Trust Security, plus accumulated and unpaid
Distributions thereon to the Redemption Date.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 5.04.
"Securityholder" or "Holder" means a Person in whose name a Trust Security
or Securities is registered in the Securities Register; any such Person is a
beneficial owner within the meaning of the Delaware Business Trust Act.
"Successor Securities" has the meaning specified in Section 9.01.
"Trust" means the Delaware business trust created and continued hereby and
identified on the cover page to this Trust Agreement.
"Trust Agreement" means this Amended and Restated Trust Agreement, as the
same may be modified, amended or supplemented in accordance with the applicable
provisions hereof, including all exhibits hereto, including, for all purposes of
this Trust Agreement and any such modification, amendment or supplement, the
provisions of the Trust Indenture Act that are deemed to be a part of and govern
this Trust Agreement and any such modification, amendment or supplement,
respectively.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force on
the date on which this Trust Agreement was executed; provided, however, that in
the event the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939 as so amended.
"Trust Property" means (a) the Debentures, (b) any cash on deposit in, or
owing to, the Payment Account and (c) all proceeds and rights in respect of the
foregoing and any other property and assets for the time being held or deemed to
be held by the Property Trustee pursuant to the trusts of this Trust Agreement.
"Trust Security" means any one of the Common Securities or the Preferred
Securities.
<PAGE>
"Trust Securities Certificate" means any one of the Common Securities
Certificates or the Preferred Securities Certificates.
"Underwriting Agreement" means the Underwriting Agreement, dated June 23,
1998 among the Trust, the Depositor and the Underwriters named therein.
ARTICLE II
Continuation of the Trust
Section 2.01. Name. The Trust continued hereby shall be known as
"Enterprise Capital Trust II" as such name may be modified from time to time by
the Administrative Trustee following written notice to the Holders of Trust
Securities and the other Trustees, in which name the Trustees may conduct the
business of the Trust, make and execute contracts and other instruments on
behalf of the Trust and sue and be sued.
Section 2.02. Office of the Delaware Trustee; Principal Place of Business.
The address of the Delaware Trustee in the State of Delaware is One Rodney
Square, 920 King Street, Wilmington, Delaware 19801 or such other address in the
State of Delaware as the Delaware Trustee may designate by written notice to the
Securityholders and the Depositor. The principal place of business of the Trust
is 80 Park Plaza, Newark, New Jersey 07101.
Section 2.03. Initial Contribution of Trust Property; Expenses of the Trust
(a) The Property Trustee acknowledges receipt in trust from the Depositor
in connection with the Original Trust Agreement of the sum of $10, which
constituted the initial Trust Property.
(b) The Depositor shall be responsible for and shall pay for all
obligations (other than with respect to the Trust Securities) and all costs and
expenses of the Trust (including, but not limited to, costs and expenses
relating to the organization of the Trust, the issuance and sale of the
Preferred Securities, the fees and expenses (including reasonable counsel fees
and expenses) of the Trustees as provided in Section 7.06, the costs and
expenses of accountants, attorneys, statistical or bookkeeping services,
expenses for printing and engraving and computing or accounting equipment,
Paying Agent(s), Securities Registrar, duplication, travel and telephone and
other telecommunications expenses and costs and expenses incurred in connection
with the disposition of Trust assets).
<PAGE>
(c) The Depositor will pay any and all taxes (other than United States
withholding taxes attributable to the Trust or its assets) and all liabilities,
costs and expenses with respect to such taxes of the Trust.
(d) The Depositor's obligations under this Section 2.03 shall be for the
benefit of, and shall be enforceable by, the Property Trustee and any Person to
whom any such obligations, costs, expenses and taxes are owed (a "Creditor")
whether or not such Creditor has received notice hereof. The Property Trustee
and any such Creditor may enforce the Depositor's obligations under this Section
2.03 directly against the Depositor and the Depositor irrevocably waives any
right or remedy to require that the Property Trustee or any such Creditor take
any action against the Trust or any other Person before proceeding against the
Depositor. The Depositor agrees to execute such additional agreements as may be
necessary or desirable in order to give full effect to the provisions of this
Section 2.03.
(e) The Depositor shall make no claim upon the Trust Property for the
payment of such expenses.
Section 2.04. Issuance of the Trust Securities. The Depositor, on behalf of
the Trust and pursuant to the Original Trust Agreement, executed and delivered
the Underwriting Agreement. Contemporaneously with the execution and delivery of
this Trust Agreement, the Administrative Trustee, on behalf of the Trust, shall
execute in accordance with Section 5.02 and deliver to the Underwriters named in
the Underwriting Agreement one or more Book-Entry Preferred Securities
Certificates, registered in the name of the nominee of the initial Clearing
Agency, representing 150,000 Preferred Securities having an aggregate
Liquidation Amount of $150,000,000, against receipt by the Property Trustee of
the aggregate purchase price of such Preferred Securities of $148,554,000, which
amount the Administrative Trustee shall promptly deliver to the Property
Trustee. Contemporaneously therewith, the Administrative Trustee, on behalf of
the Trust, shall execute in accordance with Section 5.02 and deliver to the
Depositor a Common Securities Certificate, registered in the name of the
Depositor, representing 4,640 Common Securities having an aggregate Liquidation
Amount of $4,640,000, and in satisfaction of the purchase price of such Common
Securities the Depositor shall deliver to the Property Trustee the sum of
$4,640,000.
Section 2.05. Purchase of Debentures. Contemporaneously with the execution
and delivery of this Trust Agreement (i) the Administrative Trustee, on behalf
of the Trust, shall purchase $154,640,000 aggregate principal amount of
Debentures from the Depositor, registered in the name of the Property Trustee
and (ii) in satisfaction of the purchase price for such Debentures, the Property
Trustee, on behalf of the Trust, shall deliver to the Depositor the sum of
$153,194,000.
<PAGE>
Section 2.06. Declaration of Trust. The exclusive purposes and functions of
the Trust are (a) to issue and sell Trust Securities and use the proceeds from
such sale to acquire the Debentures, (b) to maintain the status of the Trust as
a grantor trust for United States Federal income tax purposes, and (c) except as
otherwise limited herein, to engage in only those activities necessary,
convenient or incidental thereto. The Depositor hereby appoints the Trustees as
trustees of the Trust, to have all the rights, powers and duties to the extent
set forth herein, and the Trustees hereby accept such appointment. The Property
Trustee hereby declares that it will hold the Trust Property in trust upon and
subject to the conditions set forth herein for the benefit of the
Securityholders. The Administrative Trustee shall have all rights, powers and
duties set forth herein. The Delaware Trustee shall not be entitled to exercise
any powers, nor shall the Delaware Trustee have any of the duties and
responsibilities of the Property Trustee or the Administrative Trustee set forth
herein. The Delaware Trustee shall be one of the Trustees of the Trust for the
sole and limited purpose of fulfilling the requirements of Section 3807 of the
Delaware Business Trust Act.
Section 2.07. Authorization to Enter into Certain Transactions
(a) The Trustees shall conduct the affairs of the Trust in accordance with
the terms of this Trust Agreement. Subject to the limitations set forth in
paragraph (b) of this Section, and in accordance with the following provisions
(i) and (ii), the Trustees shall have the authority to enter into all
transactions and agreements determined by the Trustees to be appropriate in
exercising the authority, express or implied, otherwise granted to the Trustees
under this Trust Agreement, and to perform all acts in furtherance thereof,
including without limitation, the following:
(i) As among the Trustees, the Administrative Trustee shall have the power
and authority to act on behalf of the Trust with respect to the
following matters:
(A) executing and delivering the Trust Securities on behalf of the
Trust;
(B) causing the Trust to enter into, and executing, delivering and
performing on behalf of the Trust, the Certificate Depository
Agreement and such other agreements as may be necessary or
desirable in connection with the purposes and function of the
Trust, including the appointment of a successor depositary;
(C) assisting in registering the Preferred Securities under the
Securities Act of 1933, as amended, and under state securities or
blue sky laws, and qualifying this Trust Agreement as a trust
indenture under the Trust Indenture Act;
<PAGE>
(D) assisting in the listing of the Preferred Securities upon such
securities exchange or exchanges as the Depositor shall determine
and the registration of the Preferred Securities under the
Securities Exchange Act of 1934, as amended, and the preparation
and filing of all periodic and other reports and other documents
pursuant to the foregoing;
(E) to the extent provided in this Trust Agreement, terminating and
liquidating the Trust and preparing, executing and filing the
certificate of cancellation with the Secretary of State of the
State of Delaware;
(F) sending notices or assisting the Property Trustee in sending
notices and other information regarding the Trust Securities and
the Debentures to Securityholders in accordance with this Trust
Agreement; and
(G) taking any action incidental to the foregoing as the
Administrative Trustee may from time to time determine is
necessary or advisable to give effect to the terms of this Trust
Agreement for the benefit of the Securityholders (without
consideration of the effect of any such action on any particular
Securityholder).
(ii) As among the Trustees, the Property Trustee shall have the power, duty
and authority to act on behalf of the Trust with respect to the
following matters:
(A) establishing and maintaining the Payment Account and appointing
Paying Agents (subject to Section 5.09);
(B) receiving payment of the purchase price of the Trust Securities;
(C) receiving and holding the Debentures;
(D) collecting interest and principal payments on the Debentures and
depositing them in the Payment Account;
(E) making Distributions and other payments to the Securityholders in
respect of the Trust Securities;
(F) exercising all of the rights, powers and privileges of a holder
of the Debentures;
(G) sending notices of defaults, redemptions, Extension Periods,
liquidations and other information regarding the Trust Securities
and the Debentures to the Securityholders in accordance with this
Trust Agreement;
<PAGE>
(H) to the extent provided in this Trust Agreement, terminating and
liquidating the Trust, including distributing the Trust Property
in accordance with the terms of this Trust Agreement, and
preparing, executing and filing the certificate of cancellation
with the Secretary of State of the State of Delaware;
(I) after an Event of Default, taking any action incidental to the
foregoing as the Property Trustee may from time to time determine
is necessary or advisable to give effect to the terms of this
Trust Agreement and protect and conserve the Trust Property for
the benefit of the Securityholders (without consideration of the
effect of any such action on any particular Securityholder); and
(J) registering transfers and exchanges of the Preferred Securities
in accordance with this Trust Agreement (but only if at such time
the Property Trustee shall be the Securities Registrar).
(b) So long as this Trust Agreement remains in effect, the Trust (or the
Trustees acting on behalf of the Trust) shall not undertake any business,
activities or transaction except as expressly provided herein or contemplated
hereby. In particular, the Trustees acting on behalf of the Trust shall not (i)
acquire any assets or investments (other than the Debentures), reinvest the
proceeds derived from investments, possess any power or otherwise act in such a
way as to vary the Trust Property or engage in any activities not authorized by
this Trust Agreement, (ii) sell, assign, transfer, exchange, mortgage, pledge,
set-off or otherwise dispose of any of the Trust Property or interests therein,
including to Securityholders, except as expressly provided herein, (iii) take
any action that would cause the Trust to fail or cease to qualify as a grantor
trust for United States Federal income tax purposes, (iv) incur any indebtedness
for borrowed money or issue any other debt, (v) issue any securities or other
evidences of beneficial ownership of, or beneficial interests in, the Trust
other than the Trust Securities, or (vi) take or consent to any action that
would result in the placement of a Lien on any of the Trust Property. The
Administrative Trustee shall defend all claims and demands of all Persons at any
time claiming any Lien on any of the Trust Property adverse to the interest of
the Trust or the Securityholders in their capacity as Securityholders.
(c) In connection with the issue and sale of the Preferred Securities, the
Depositor shall have the right and responsibility to assist the Trust with
respect to, or effect on behalf of the Trust, the following (and any actions
taken by the Depositor in furtherance of the following prior to the date of this
Trust Agreement are hereby ratified and confirmed in all respects):
<PAGE>
(i) preparing for filing with the Commission and executing on behalf
of the Trust a registration statement on Form S-3 in relation to
the Preferred Securities, including any amendments thereto;
(ii) determining the States in which to take appropriate action to
qualify or register for sale all or part of the Preferred
Securities and doing any and all such acts, other than actions
which must be taken by or on behalf of the Trust, and advising
the Trustees of actions they must take on behalf of the Trust,
and preparing for execution and filing any documents to be
executed and filed by the Trust or on behalf of the Trust, as the
Depositor deems necessary or advisable in order to comply with
the applicable laws of any such States;
(iii)preparing for filing and executing on behalf of the Trust an
application to the New York Stock Exchange or any other national
stock exchange or The Nasdaq National Market for listing upon
notice of issuance of any Preferred Securities;
(iv) preparing for filing with the Commission and executing on behalf
of the Trust a registration statement on Form 8-A relating to the
registration of the Preferred Securities under Section 12(b) or
12(g) of the Securities Exchange Act of 1934, as amended,
including any amendments thereto;
(v) negotiating the terms of, and executing and delivering, the
Underwriting Agreement providing for the sale of the Preferred
Securities; and
(vi) taking any other actions necessary or desirable to carry out any
of the foregoing activities.
(d) Notwithstanding anything herein to the contrary, the Administrative
Trustee is authorized and directed to conduct the affairs of the Trust and to
operate the Trust so that (i) the Trust will not be deemed to be an "investment
company" required to be registered under the 1940 Act, or taxed as a corporation
or a partnership for United States Federal income tax purposes (ii) the Trust
will qualify as a grantor trust for United States Federal income tax purposes
and (iii) the Debentures will be treated as indebtedness of the Depositor for
United States Federal income tax purposes. In this connection, the Depositor and
the Administrative Trustee are authorized to take any action, not inconsistent
with applicable law, the Certificate of Trust, as amended from time to time, or
this Trust Agreement, that each of the Depositor and the Administrative Trustee
determines in their discretion to be necessary or desirable for such purposes.
Section 2.08. Assets of Trust. The assets of the Trust shall consist of the
Trust Property.
Section 2.09. Title to Trust Property. Legal title to all Trust Property
shall be vested at all times in the Property Trustee (in its capacity as such)
and shall be held and administered by the Property Trustee for the benefit of
the Securityholders in accordance with this Trust Agreement.
<PAGE>
ARTICLE III
Payment Account
Section 3.01. Payment Account
(a) On or prior to the Closing Date, the Property Trustee shall establish
the Payment Account. All monies and other property deposited or held from time
to time in the Payment Account shall be held by the Property Trustee for the
exclusive benefit of the Securityholders. The Property Trustee shall have
exclusive control of the Payment Account for the purpose of making deposits in
and withdrawals from the Payment Account in accordance with this Trust
Agreement; provided that any Paying Agent shall have the right of withdrawal
with respect to the Payment Account solely for the purpose of making the
payments contemplated under Article 4.
(b) The Property Trustee shall deposit in the Payment Account, promptly
upon receipt, all payments of principal of or interest on the Debentures and any
amounts paid to the Property Trustee pursuant to the Guarantee. Amounts held in
the Payment Account shall not be invested pending distribution thereof.
ARTICLE IV
Distributions; Redemption
Section 4.01. Distributions.
(a) Distributions on the Trust Securities shall be cumulative, and will
accumulate whether or not there are funds of the Trust available for the payment
of Distributions. Distributions shall accumulate from June 26, 1998 and, except
during an Extension Period for the Debentures pursuant to the Indenture, shall
be payable quarterly in arrears and reset on March 31, June 30, September 30 and
December 31 of each year, commencing on September 30, 1998. If any date on which
Distributions are otherwise payable on the Trust Securities is not a Business
Day, then the payment of such Distributions shall be made on the next succeeding
day which 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, 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 this Section 4.01(a) is referred to as a "Distribution Date").
Except as otherwise permitted by Section 4.02(b)(v) hereof, Distributions in
arrears after the quarterly payment date therefor shall accumulate additional
Distributions (to the extent permitted by law) compounded quarterly at the
Distribution Rate (as defined herein). The term "Distributions," as used herein,
shall include any such additional Distributions.
<PAGE>
Within two Business Days after receipt by the Property Trustee of notice of
an Extension Period pursuant to Section 4.01 of the Indenture, the Property
Trustee shall give notice thereof to the Securityholders by first class mail,
postage prepaid.
(b) The Trust Securities represent undivided beneficial interests in the
Trust Property, and, subject to Sections 4.03 and 4.06 hereof, all Distributions
will be made pro rata on each of the Trust Securities. Distributions on the
Trust Securities shall be at a floating rate per annum, reset quarterly,
determined by reference to 3-Month LIBOR, as described herein, plus a margin of
1.22%. "3-Month LIBOR" means the London interbank offered rate for three-month
U.S. dollar deposits and with respect to any Distribution Period will be
calculated by First Union National Bank or any successor appointed by the
Depositor as Calculation Agent, as permitted by the Indenture (the "Calculation
Agent") as follows:
(i) On the second Market Day (as defined below) preceding the
commencement of such Distribution Period (each, a "Determination
Date"), 3-Month LIBOR will be determined on the basis of the
offered rate for deposits of not less than U.S. $1,000,000 for a
period of three months (the "Index Maturity"), commencing on such
Market Day, which appears on the display designated as Page 3750
on the Dow Jones Markets Limited (or such other page as may
replace Page 3750 on that service (or any successor service) for
the purpose of displaying London interbank offered rates of major
banks) ("Telerate Page 3750") as of 11:00 a.m., London time on
such Market Day. If no such offered rate appears, 3-Month LIBOR
with respect to such Distribution Period will be determined as
described in (ii) below.
The term "Distribution Period" means each period beginning
on, and including, the date of original issuance and ending on,
but excluding, the first Distribution Date and each successive
period, so beginning on an Distribution Date and so ending on,
but excluding, the next successive Distribution Date.
(ii) With respect to a Determination Date on which no such offered
rate appears on Telerate Page 3750 as described in (i) above,
3-Month LIBOR shall be the arithmetic mean, expressed as a
percentage, of the offered rates for deposits in U.S. dollars for
the Index Maturity which appears on the display designated as
"LIBO" on the Reuter Monitor Money Market Rates Service (or such
other page as may replace the LIBO page on that service (or any
successor service) for the purpose of displaying London interbank
offered rates of major banks) ("Reuters Screen LIBO Page") as of
11:00 a.m., London time, on such Market Day. If, in turn, such
rate is not displayed on the Reuters Screen LIBO Page at such
time, the Calculation Agent will obtain from each of four
reference banks in London selected by the Calculation Agent (the
"Reference Banks") such bank's offered quotation (expressed as a
percentage per annum) as of approximately 11:00 a.m., London
<PAGE>
time, on such Market Day for deposits in U.S. dollars for the
Index Maturity to prime banks in the London interbank market. If
two or more such quotations are provided as requested, then
3-Month LIBOR for such Maturity Day shall be the arithmetic mean
of such quotations. If, in turn, fewer than two such quotations
are provided as requested, then 3-Month LIBOR for such date will
be obtained from the preceding Market Day for which the Reuters
Screen LIBO Page displayed an offered rate for deposits in U.S.
dollars for the Index Maturity.
(iii)If on any Determination Date, the Calculation Agent is required
but unable to determine 3-Month LIBOR in the manner provided in
paragraphs (i) and (ii) above, 3-Month LIBOR for such
Distribution Period shall be 3-Month LIBOR as determined on the
immediately preceeding Determination Date.
The term "Market Day" means any day on which commercial banks
and foreign exchange markets are open for business (including
dealings in foreign exchange and foreign currency deposits) in
The City of New York and The City of London.
(iv) The Distribution Rate for any Distribution Period will at no time
be higher than the maximum rate then permitted by applicable law.
(v) All percentages resulting from any calculations referred provided
for herein will be rounded to the nearest multiple of 1/100 of 1%
and all U.S. dollar amounts used in or resulting from such
calculations will be rounded to the nearest cent (with one-half
cent or more being rounded upwards).
(vi) During an Extension Period for the Debentures, the rate per annum
at which Distributions on the Trust Securities accumulate shall
be increased by an amount such that the aggregate amount of
Distributions that accumulate on all Trust Securities during any
such Extension Period is equal to the aggregate amount of
interest (including interest payable on unpaid interest at the
rate per annum set forth above, compounded quarterly) that
accrues during any such Extension Period on the Debentures.
(vii)The Calculation Agent shall, as soon as practicable after 11:00
a.m., London time, on each Determination Date, determine the
Distribution Rate and calculate the amount of Distributions
payable in respect of the Distribution Period related to such
Determination Date (the "Distribution Amount"). The Distribution
Amount shall be calculated by applying the Distribution Rate to
the liquidation amount of each Trust Security outstanding at the
commencement of the Distribution Period, multiplying each such
amount by the actual number of days in the applicable
Distribution Period divided by 360 and rounding to the nearest
cent (with one-half cent or more being rounded upwards). The
determination of the Distribution Rate and the Distribution
Amount by the Calculation Agent will (in the absence of willful
<PAGE>
default, bad faith or manifest error) be final, conclusive and
binding on all concerned. None of the Trustees, the Debenture
Trustee, the Calculation Agent, the Trust or the Depositor (or
any of their respective officers, directors, agents,
beneficiaries, employees or affiliates) shall have any liability
to any person for (a) the selection of any Reference Bank or (b)
any inability to retain major banks in the London interbank
market, in the case of the Calculation Agent, which is caused by
circumstances beyond its reasonable control.
(viii) The Calculation Agent will cause the Distribution Rate, the
Distribution Amount in respect of each Trust Security and the
Distribution Date for each Distribution Period to be given to the
Property Trustee, the Debenture Trustee, the Company and each of
the Paying Agents appointed by the Trust in relation to the Trust
Securities, in each case as soon as practicable after the
determination thereof but in no event later than the second
Business Day of the applicable Distribution Period. The Property
Trustee will cause the Distribution Rate, the Distribution Amount
in respect of each Trust Security and the Distribution Date for
each Distribution Period to be given to each Holder of Trust
Securities at the address of such Holder set forth in the
Securities Register with respect to the Trust Securities. So long
as the Trust Securities are represented by global certificates
registered in the name of DTC or its nominees, notices to the
Holders of Trust Securities will be given by delivery of the
notice to DTC for communication by DTC to its participants in
accordance with its customary procedures.
Upon the request of a Holder of a Trust Security, the
Calculation Agent will provide the Distribution Rate then in
effect and, if determined, the Distribution Rate for the next
Distribution Period with respect to the Trust Securities.
(c) Distributions on the Trust Securities shall be made from the
Payment Account by the Property Trustee or any Paying Agent and
shall be payable on each Distribution Date only to the extent
that the Trust has funds then available in the Payment Account
for the payment of such Distributions.
(d) Distributions on the Trust Securities on each Distribution Date
shall be payable to the Holders thereof as they appear on the
Securities Register for the Trust Securities on the relevant
record date, which shall be one Business Day prior to such
Distribution Date; provided, however, that in the event that the
Preferred Securities are not in book-entry-only form, the
relevant record date shall be the 15th day of the last month of
each calendar quarter, whether or not a Business Day.
Section 4.02. Redemption
(a) Upon receipt by the Trust of a notice of redemption of Debentures, the
Trust will call for redemption a Like Amount of Trust Securities at the
Redemption Price on the Debenture Redemption Date and will call for redemption
all Outstanding Trust Securities on the stated maturity date of the Debentures.
<PAGE>
(b) Notice of redemption shall be given by the Property Trustee by
first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days
prior to the Redemption Date to each Holder of Trust Securities to be redeemed,
at such Holder's address appearing in the Securities Register. All notices of
redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the CUSIP number;
(iv) the place or places where Trust Securities Certificates are to be
surrendered for payment of the Redemption Price;
(v) that on the Redemption Date the Redemption Price will become
payable upon each such Trust Security to be redeemed and that
Distributions thereon will cease to accumulate on and after such
date; and
(vi) if less than all of the Outstanding Trust Securities are to be
redeemed, the identification and total Liquidation Amount of the
particular Trust Securities to be redeemed.
(c) The Trust Securities redeemed on each Redemption Date shall be redeemed
at the Redemption Price with the proceeds from the contemporaneous redemption or
payment at maturity of Debentures. Redemptions of the Trust Securities shall be
made and the Redemption Price shall be payable on each Redemption Date only to
the extent that the Trust has funds then available in the Payment Account for
the payment of such Redemption Price.
(d) If the Trust, by action of the Property Trustee, gives a notice of
redemption in respect of any Preferred Securities, then, on the Redemption Date,
subject to Section 4.02(c), the Property Trustee will irrevocably deposit with
the Paying Agent funds sufficient to pay the Redemption Price for the Preferred
Securities being redeemed on such date and will give the Paying Agent
irrevocable instructions and authority to pay the Redemption Price to the
Holders of such Preferred Securities upon surrender of their Preferred
Securities Certificates. 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 as they appear on the
Securities Register for the Trust Securities on the record dates for the related
Distribution Dates. If notice of redemption shall have been given and funds
<PAGE>
irrevocably deposited as required, then upon the date of such deposit, all
rights of Securityholders holding Trust Securities so called for redemption will
cease, except the right of such Securityholders to receive the Redemption Price,
but without interest, and such Trust Securities will cease to be Outstanding. In
the event that any date on which any Redemption Price is payable is not a
Business Day, then payment of the Redemption Price payable on such date will be
made on the next succeeding day which 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, such payment will be made
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 Trust or by the Depositor
pursuant to the Guarantee, Distributions on such Trust Securities will continue
to accumulate, at the then applicable rate, from the Redemption Date originally
established by the Trust for such Trust Securities to the date such Redemption
Price is actually paid, in which case the actual payment date will be the date
fixed for redemption for purposes of calculating the Redemption Price.
(e) If less than all the Outstanding Trust Securities are to be redeemed on
a Redemption Date, then the aggregate Liquidation Amount of Trust Securities to
be redeemed shall be allocated 3% to the Common Securities and 97% to the
Preferred Securities. The particular Preferred Securities to be redeemed shall
be selected by the Property Trustee from the Outstanding Preferred Securities
not previously called for redemption, by such method as the Property Trustee
shall deem fair and appropriate. The Property Trustee shall promptly notify the
Securities Registrar in writing of the Preferred Securities selected for
redemption. If fewer than all of the Trust Securities represented by a Trust
Securities Certificate are redeemed, the Administrative Trustee shall execute
for the Holder a new Trust Securities Certificate representing the unredeemed
Trust Securities. For all purposes of this Trust Agreement, unless the context
otherwise requires, all provisions relating to the redemption of Preferred
Securities shall relate, in the case of any Preferred Securities redeemed or to
be redeemed only in part, to the portion of the Liquidation Amount of Preferred
Securities which has been or is to be redeemed.
Section 4.03. Subordination of Common Securities
(a) Payment of Distributions on, and the Redemption Price of, the Trust
Securities, as applicable, shall be made pro rata based on the Liquidation
Amount of the Trust Securities; provided, however, that if on any Distribution
Date or Redemption Date, a Debenture Event of Default shall have occurred and be
continuing, no payment of any Distribution on, or Redemption Price of, any
Common Security, and no other payment on account of the liquidation of Common
Securities, shall be made unless payment in full in cash of all accumulated and
unpaid Distributions on all Outstanding Preferred Securities for all
<PAGE>
Distribution Periods terminating on or prior thereto, or in the case of payment
of the Redemption Price, the full amount of such Redemption Price on all
Outstanding Preferred Securities then being redeemed, shall have been made or
provided for, and all funds immediately available to the Property Trustee shall
first be applied to the payment in full in cash of all Distributions on, or the
Redemption Price of, Preferred Securities then due and payable.
(b) In the case of the occurrence of any Debenture Event of Default, the
Holder of Common Securities will be deemed to have waived any right to act with
respect to any related Event of Default under this Trust Agreement and such
Debenture Event of Default until the effect of such related Event of Default and
such Debenture Event of Default has been cured, waived or otherwise eliminated.
Until any such Event of Default under this Trust Agreement and 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 Preferred Securities
and not the Holder of the Common Securities, and only the Holders of the
Preferred Securities will have the right to direct the Property Trustee to act
on their behalf.
Section 4.04. Payment Procedures. Payments of Distributions, if the Trust
Securities are held by a Clearing Agency, shall be made to the Clearing Agency
by wire transfer in immediately available funds. Payments of Distributions
pursuant to Section 4.01 in respect of the Common Securities shall be made in
such manner as shall be mutually agreed between the Property Trustee and the
Holder of the Common Securities. Payment of the Redemption Price or Liquidation
Distribution of the Trust Securities and payments of Distributions pursuant to
Section 4.01 in respect of Trust Securities held in certificated form shall be
made in immediately available funds upon surrender of the Trust Securities
Certificate representing such Trust Securities at the Corporate Trust Office of
the Property Trustee.
Section 4.05. Tax Returns and Reports. The Administrative Trustee shall
prepare (or cause to be prepared), at the Depositor's expense, and file all
Federal, State and local tax and information returns and reports required to be
filed by or in respect of the Trust. In this regard, the Administrative Trustee
shall (a) prepare and file (or cause to be prepared or filed) the appropriate
Internal Revenue Service Form required to be filed in respect of the Trust in
each taxable year of the Trust and (b) prepare and furnish (or cause to be
prepared and furnished) to each Securityholder the related Internal Revenue
Service Form 1099 OID, or any successor form or the information required to be
provided on such form. The Administrative Trustee shall provide the Depositor
and the Property Trustee with a copy of all such returns, reports and schedules
promptly after such filing or furnishing. The Trustees shall comply with United
States Federal withholding and backup withholding tax laws and information
reporting requirements with respect to any payments to Securityholders under the
Trust Securities.
<PAGE>
Section 4.06. Payments under Indenture. Any amount payable hereunder to any
Holder of Preferred Securities shall be reduced by the amount of any
corresponding payment such Holder has directly received pursuant to Section 6.07
of the Indenture or pursuant to the Guarantee. Notwithstanding the provisions
hereunder to the contrary, Securityholders acknowledge that any Holder of
Preferred Securities that receives payment under Section 6.07 of the Indenture
may receive amounts greater than the amount such Holder may be entitled to
receive pursuant to the other provisions of this Trust Agreement.
ARTICLE V
Trust Securities Certificates
Section 5.01. Initial Ownership. Upon the creation of the Trust and the
contribution by the Depositor pursuant to Section 2.03 and until the issuance of
the Trust Securities, and at any time during which no Trust Securities are
Outstanding, the Depositor shall be the sole beneficial owner of the Trust.
Section 5.02. The Trust Securities Certificates. The Trust Securities
Certificates shall be issued representing one or more Trust Securities. Trust
Securities Certificates representing fractional interests shall not be issued.
The Trust Securities Certificates shall be executed on behalf of the Trust by
manual signature of the Administrative Trustee or by a facsimile signature of
the Administrative Trustee countersigned by the Securities Registrar. Trust
Securities Certificates bearing the signatures of individuals who were, at the
time when such signatures shall have been affixed, authorized to sign on behalf
of the Trust, shall be validly issued and entitled to the benefits of this Trust
Agreement, notwithstanding that such individuals or any of them shall have
ceased to be so authorized prior to the delivery of such Trust Securities
Certificates or did not hold such offices at the date of delivery of such Trust
Securities Certificates. A transferee of a Trust Securities Certificate shall
become a Securityholder, and shall be entitled to the rights and subject to the
obligations of a Securityholder hereunder, upon due registration of such Trust
Securities Certificate in such transferee's name pursuant to Section 5.04.
Section 5.03. Delivery of Trust Securities Certificates. On the Closing
Date, the Administrative Trustee shall cause Trust Securities Certificates, in
an aggregate Liquidation Amount as provided in Sections 2.04 and 2.05, to be
executed on behalf of the Trust as provided in Section 5.02 and delivered to or
upon a written order of the Depositor signed by its Chairman of the Board, its
President, any Vice President or the Treasurer, without further corporate action
by the Depositor, in authorized denominations. The written order of the
Depositor shall be accompanied by an Officer's Certificate and an Opinion of
Counsel.
<PAGE>
Section 5.04. Registration of Transfer and Exchange of Preferred Securities
Certificates. A registrar appointed by the Depositor (the "Securities
Registrar") shall keep or cause to be kept, at the office or agency maintained
pursuant to Section 5.08, a register (the "Securities Register") in which,
subject to such reasonable regulations as it may prescribe, the Securities
Registrar shall provide for the registration of Trust Securities Certificates
(subject to Section 5.10 in the case of the Common Securities Certificates) and
registration of transfers and exchanges of Preferred Securities Certificates as
herein provided. The Property Trustee shall be the initial Securities Registrar;
any successor Securities Registrar shall be appointed by the Administrative
Trustee.
Upon surrender for registration of transfer of any Preferred Securities
Certificate at the office or agency maintained pursuant to Section 5.08, the
Administrative Trustee shall execute and deliver, in the name of the designated
transferee or transferees, one or more new Preferred Securities Certificates
representing the same number of Preferred Securities dated the date of execution
by the Administrative Trustee. At the option of a Holder, Preferred Securities
Certificates may be exchanged for other Preferred Securities Certificates upon
surrender of the Preferred Securities Certificates to be exchanged at the office
or agency maintained pursuant to Section 5.08. The Securities Registrar shall
not be required to register the transfer of any Preferred Securities that have
been called for redemption or after the Liquidation Date.
Preferred Securities presented or surrendered for registration of transfer
or exchange shall be accompanied by a written instrument of transfer in form
satisfactory to the Administrative Trustee and the Securities Registrar duly
executed by the Holder or such Holder's attorney duly authorized in writing.
Each Preferred Securities Certificate surrendered for registration of transfer
or exchange shall be cancelled and subsequently disposed of by the Securities
Registrar in accordance with its customary practice.
No service charge shall be made for any registration of transfer or
exchange of Preferred Securities, but the Securities Registrar may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer or exchange of Preferred Securities.
Section 5.05. Mutilated, Destroyed, Lost or Stolen Trust Securities
Certificates. If (a) any mutilated Trust Securities Certificate shall be
surrendered to the Securities Registrar, or if the Securities Registrar shall
receive evidence to its satisfaction of the destruction, loss or theft of any
Trust Securities Certificate, and (b) there shall be delivered to the Securities
<PAGE>
Registrar and the Administrative Trustee such security or indemnity as may be
required by them to hold the Securities Registrar and the Trust harmless, then
in the absence of notice that such Trust Securities Certificate shall have been
acquired by a bona fide purchaser, the Administrative Trustee, on behalf of the
Trust shall execute and make available for delivery, in exchange for or in lieu
of any such mutilated, destroyed, lost or stolen Trust Securities Certificate, a
new Trust Securities Certificate of like tenor. In connection with the issuance
of any new Trust Securities Certificate under this Section, the Administrative
Trustee or the Securities Registrar may require the payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
therewith. Any duplicate Trust Securities Certificate issued pursuant to this
Section shall constitute conclusive evidence of an undivided beneficial interest
in the assets of the Trust, as if originally issued, whether or not the lost,
stolen or destroyed Trust Securities Certificate shall be found at any time.
Section 5.06. Persons Deemed Securityholders. Prior to due presentation of
a Trust Security Certificate for registration of transfer, the Administrative
Trustee, the Paying Agent or the Securities Registrar shall treat the Person in
whose name any Trust Securities Certificate shall be registered in the
Securities Register as the owner and Holder of such Trust Securities Certificate
for the purpose of receiving Distributions and for all other purposes
whatsoever, and neither the Trustees, the Paying Agent nor the Securities
Registrar shall be bound by any notice to the contrary.
Section 5.07. Access to List of Securityholders' Names and Addresses. In
the event that the Property Trustee is no longer the Securities Registrar, the
Administrative Trustee or the Depositor shall furnish or cause to be furnished a
list, in such form as the Property Trustee may reasonably require, of the names
and addresses of the Securityholders as of the most recent record date and (a)
to the Property Trustee, quarterly not later than 10 days prior to a
Distribution Date and (b) to the Property Trustee, promptly after receipt by the
Administrative Trustee or the Depositor of a request therefor from the Property
Trustee in order to enable the Paying Agent to pay Distributions in accordance
with Section 4.01 hereof) in each case to the extent such information is in the
possession or control of the Administrative Trustee or the Depositor and is not
identical to a previously supplied list or has not otherwise been received by
the Property Trustee. The rights of Securityholders to communicate with other
Securityholders with respect to their rights under this Trust Agreement or under
the Trust Securities, and the corresponding rights of the Property Trustee shall
be as provided in the Trust Indenture Act. Each Holder, by receiving and holding
a Trust Securities Certificate, shall be deemed to have agreed not to hold the
Depositor, the Property Trustee, the Administrative Trustee or the Delaware
Trustee accountable by reason of the disclosure of its name and address,
regardless of the source from which such information was derived.
<PAGE>
Section 5.08. Maintenance of Office or Agency. The Property Trustee shall
maintain in Newark, New Jersey, an office or offices or agency or agencies where
Preferred Securities may be surrendered for registration of transfer or exchange
and where notices and demands to or upon the Trustees in respect of the Trust
Securities Certificates may be served. The Property Trustee shall give prompt
written notice to the Depositor and to the Securityholders of any change in the
location of the Securities Register or any such office or agency, which shall
initially be at the Corporate Trust Office of the Property Trustee.
Section 5.09. Appointment of Paying Agent. The Paying Agent shall make
Distributions to Securityholders from the Payment Account and shall report the
amounts of such Distributions to the Property Trustee and the Administrative
Trustee. Any Paying Agent shall have the revocable power to withdraw funds from
the Payment Account for the purpose of making Distributions. The Administrative
Trustee may revoke such power and remove the Paying Agent, provided that such
revocation and removal with respect to the sole Paying Agent shall not become
effective until the appointment of a successor. The Paying Agent shall initially
be the Property Trustee, and any co-paying agent chosen by the Property Trustee
and acceptable to the Administrative Trustee and the Depositor. Any Person
acting as Paying Agent shall be permitted to resign as Paying Agent upon 30
days' written notice to the Administrative Trustee and the Depositor, and, if
applicable, the Property Trustee, provided that such resignation with respect to
the sole Paying Agent shall not become effective until the appointment of a
successor. In the event that the Property Trustee shall no longer be the Paying
Agent or a successor Paying Agent shall resign or its authority to act be
revoked, the Administrative Trustee shall appoint a successor that is acceptable
to the Property Trustee (in the case of any other Paying Agent) and the
Depositor to act as Paying Agent (which shall be a bank or trust company and
have a combined capital and surplus of at least $50,000,000). The Administrative
Trustee shall cause such successor Paying Agent or any additional Paying Agent
appointed by the Administrative Trustee to execute and deliver to the Trustees
an instrument in which such successor Paying Agent or additional Paying Agent
shall agree with the Trustees that as Paying Agent, such successor Paying Agent
or additional Paying Agent will hold all sums, if any, held by it for payment to
the Securityholders in trust for the benefit of the Securityholders entitled
thereto until such sums shall be paid to such Securityholders. The Paying Agent
shall return all of such sums remaining unclaimed to the Property Trustee and
upon removal of a Paying Agent such Paying Agent shall also return such sums in
its possession to the Property Trustee. The provisions of Sections 7.01, 7.03
and 7.06 shall apply to the Property Trustee also in its role as Paying Agent,
for so long as the Property Trustee shall act as Paying Agent and, to the extent
applicable, to any other Paying Agent appointed hereunder. Any reference in this
Trust Agreement to the Paying Agent shall include any co-paying agent unless the
context requires otherwise.
<PAGE>
Section 5.10. No Transfer of Common Securities by Depositor. To the fullest
extent permitted by law, any attempted transfer of the Common Securities shall
be void. The Administrative Trustee shall cause each Common Securities
Certificate issued to the Depositor to contain a legend stating "THIS
CERTIFICATE IS NOT TRANSFERABLE". By execution of this Trust Agreement, the
Depositor agrees to the foregoing provisions.
Section 5.11. Book-Entry Preferred Securities Certificates; Common
Securities Certificate.
(a) The Preferred Securities, upon original issuance on the Closing Date,
will not be engraved but will be issued in the form of one or more printed or
typewritten Book-Entry Preferred Securities Certificates, to be delivered to The
Depository Trust Company, the initial Clearing Agency, by, or on behalf of, the
Trust. Such Book-Entry Preferred Securities Certificate or Certificates shall
initially be registered on the Securities Register in the name of Cede & Co.,
the nominee of the initial Clearing Agency.
(b) A single Common Securities Certificate representing the Common
Securities shall be issued to the Depositor in the form of a definitive Common
Securities Certificate.
Section 5.12. Definitive Preferred Securities Certificates. If (a) the
Depositor advises the Trustees in writing that the Clearing Agency is no longer
willing or able to properly discharge its responsibilities with respect to the
Preferred Securities Certificates or the Clearing Agency is no longer registered
or in good standing under the Securities Exchange Act of 1934, as amended, or
other applicable statute or regulation, and the Depositor is unable to locate a
qualified successor within 90 days, (b) the Depositor at its option advises the
Trustees in writing that it elects to terminate the book-entry system through
the Clearing Agency or (c) an Event of Default occurs and is continuing, then
the Administrative Trustee shall issue Definitive Preferred Securities
Certificates. Upon surrender to the Administrative Trustee of the Book-Entry
Preferred Securities Certificates by the Clearing Agency, accompanied by
registration instructions, the Administrative Trustee shall execute and deliver
the Definitive Preferred Securities Certificates in accordance with the
instructions of the Clearing Agency. Neither the Securities Registrar nor the
Trustees shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such instructions.
The Definitive Preferred Securities Certificates shall be printed, lithographed
or engraved or may be produced in any other manner as is reasonably acceptable
to the Administrative Trustee, as evidenced by the execution thereof by the
Administrative Trustee.
<PAGE>
Section 5.13. Rights of Securityholders. The Securityholders shall not have
any right or title to the Trust Property other than the undivided beneficial
interest in the assets of the Trust conferred by their Trust Securities and they
shall have no right to call for any partition or division of property, profits
or rights of the Trust except as described below. The Trust Securities shall be
personal property giving only the rights specifically set forth therein and in
this Trust Agreement. The Trust Securities shall have no preemptive or similar
rights and when issued and delivered to Securityholders against payment of the
purchase price therefor will be fully paid and nonassessable by the Trust. The
Holders of the Trust Securities, in their capacities as such, shall be entitled
to the same limitation of personal liability extended to stockholders of
corporations for profit organized under the General Corporation Law of the State
of Delaware.
ARTICLE VI
Acts of Securityholders; Meetings; Voting
Section 6.01. Limitations on Voting Rights.
(a) Except as provided herein and in the Indenture and as otherwise
required by law, no Holder of Trust Securities shall have any right to vote or
in any manner otherwise control the administration, operation and management of
the Trust or the obligations of the parties hereto, nor shall anything herein
set forth, or contained in the terms of the Trust Securities Certificates, be
construed so as to constitute the Securityholders from time to time as partners
or members of an association.
(b) The 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
such Debentures, (ii) waive any past default which may be waived under Section
6.04 of the Indenture, (iii) exercise any right to rescind or annul an
acceleration of the principal of all the Debentures or (iv) consent to any
amendment or modification of the Indenture, where such consent shall be
required, without, in each case, obtaining the prior consent of the Holders of
at least a majority in aggregate Liquidation Amount of all Outstanding Preferred
Securities; provided, however, that where such 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 written consent
of each Holder of Outstanding Preferred Securities. The Trustees shall not
revoke any action previously authorized or approved by a vote of the Holders of
Preferred Securities, except by a subsequent vote of the Holders of Preferred
Securities. The Property Trustee shall notify all Holders of the Preferred
Securities of any notice received from the Debenture Trustee as a result of the
Trust being the holder of the Debentures. In addition to obtaining the consent
of the Holders of the Preferred Securities, prior to taking any of the foregoing
<PAGE>
actions, the Trustees shall, at the expense of the Depositor, obtain an Opinion
of Counsel experienced in such matters to the effect that the Trust will not be
classified as an association taxable as a corporation or partnership for United
States Federal income tax purposes on account of such action and will continue
to be classified as a grantor trust for United States Federal income tax
purposes.
(c) Subject to Section 10.02(c) hereof, if any proposed amendment to the
Trust Agreement provides for, or the Trustees otherwise propose to effect, (i)
any action that would adversely affect in any material respect the powers,
preferences or special rights of the Preferred Securities, whether by way of
amendment to this Trust Agreement or otherwise, or (ii) the dissolution or
liquidation of the Trust, other than pursuant to the terms of this Trust
Agreement, then the Holders of Outstanding Preferred Securities will be entitled
to vote on such amendment or proposal and such amendment or proposal shall not
be effective except with the approval of the Holders of at least a majority in
aggregate Liquidation Amount of the Outstanding Preferred Securities.
Section 6.02. Notice of Meetings. Notice of all meetings of the Preferred
Securityholders, stating the time, place and purpose of the meeting, shall be
given by the Property Trustee pursuant to Section 10.08 to each Preferred
Securityholder of record, at his/her registered address, at least 15 days and
not more than 90 days before the meeting. At any such meeting, any business
properly before the meeting may be so considered whether or not stated in the
notice of the meeting. Any adjourned meeting may be held as adjourned without
further notice.
Section 6.03. Meetings of Preferred Securityholders. No annual meeting of
Securityholders is required to be held. The Administrative Trustee, however,
shall call a meeting of Securityholders to vote on any matter upon the written
request of the Holders of at least 25% of the aggregate Liquidation Amount of
the Outstanding Preferred Securities and the Administrative Trustee or the
Property Trustee may, at any time in their discretion, call a meeting of
Preferred Securityholders to vote on any matters as to which the Preferred
Securityholders are entitled to vote.
Holders of at least 50% of the aggregate Liquidation Amount of the
Outstanding Preferred Securities, present in person or by proxy, shall
constitute a quorum at any meeting of Preferred Securityholders.
If a quorum is present at a meeting, an affirmative vote of the Holders of
at least a majority of the aggregate Liquidation Amount of the Outstanding
Preferred Securities present, either in person or by proxy, at such meeting
shall constitute the action of the Preferred Securityholders, unless this Trust
Agreement requires a greater number of affirmative votes.
<PAGE>
Section 6.04. Voting Rights. A Securityholder shall be entitled to one vote
for each Trust Security in respect of any matter as to which such Securityholder
is entitled to vote.
Section 6.05. Proxies, etc. At any meeting of Securityholders, any
Securityholder entitled to vote thereat may vote by proxy, provided that no
proxy shall be voted at any meeting unless it shall have been placed on file
with the Administrative Trustee, or with such other officer or agent of the
Trust as the Administrative Trustee may direct, for verification prior to the
time at which such vote shall be taken. Pursuant to a resolution of the Property
Trustee, proxies may be solicited in the name of the Property Trustee or one or
more officers of the Property Trustee. Only Securityholders of record shall be
entitled to vote. When Trust Securities are held jointly by several Persons, any
one of them may vote at any meeting in person or by proxy in respect of such
Trust Securities, but if more than one of them shall be present at such meeting
in person or by proxy, and such joint owners or their proxies so present
disagree as to any vote to be cast, such vote shall not be received in respect
of such Trust Securities. A proxy purporting to be executed by or on behalf of a
Securityholder shall be deemed valid unless challenged at or prior to its
exercise, and the burden of proving invalidity shall rest on the challenger. No
proxy shall be valid more than three years after its date of execution.
Section 6.06. Securityholder Action by Written Consent. Any action which
may be taken by Securityholders at a meeting may be taken without a meeting if
Holders of the proportion of the Outstanding Securities required to approve such
action shall consent to the action in writing.
Section 6.07. Record Date for Voting and Other Purposes. For the purposes
of determining the Securityholders who are entitled to notice of and to vote at
any meeting or by written consent, or for the purpose of any other action, the
Administrative Trustee may from time to time fix a date, not more than 90 days
prior to the date of any meeting of Securityholders, as a record date for the
determination of the identity of the Securityholders for such purposes.
Section 6.08. Acts of Securityholders. Any request, demand, authorization,
direction, notice, consent, waiver or other action provided or permitted by this
Trust Agreement to be given, made or taken by Securityholders may be embodied in
and evidenced by one or more instruments of substantially similar tenor signed
by such Securityholders in person or by an agent duly appointed in writing; and,
except as otherwise expressly provided herein, such action shall become
effective when such instrument or instruments are delivered to the
Administrative Trustee. Such instrument or instruments (and the action embodied
therein and evidenced thereby) are herein sometimes referred to as the "Act" of
the Securityholders signing such instrument or instruments. Proof of execution
of any such instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Trust Agreement and (subject to Section 7.02)
conclusive, if made in the manner provided in this Section.
<PAGE>
The fact and date of the execution by any Person of any such instrument or
writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him/her the execution thereof. Where such execution
is by a signer acting in a capacity other than his/her individual capacity, such
certificate or affidavit shall also constitute sufficient proof of his/her
authority. The fact and date of the execution of any such instrument or writing,
or the authority of the Person executing the same, may also be proved in any
other manner which any Trustee receiving the same deems sufficient.
The ownership of Trust Securities shall be proved by the Securities
Register.
Any request, demand, authorization, direction, notice, consent, waiver or
other act of the Securityholder of any Trust Security shall bind every future
Securityholder of the same Trust Security and the Securityholder of every Trust
Security issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof in respect of anything done, omitted or suffered to
be done by the Trustees or the Trust in reliance thereon, whether or not
notation of such action is made upon such Trust Security.
Without limiting the foregoing, a Securityholder entitled hereunder to take
any action hereunder with regard to any particular Trust Security may do so with
regard to all or any part of the Liquidation Amount of such Trust Security or by
one or more duly appointed agents, each of which may do so pursuant to such
appointment with regard to all or any part of such Liquidation Amount.
If any dispute shall arise between the Securityholders and the
Administrative Trustee or among such Securityholders or Trustees with respect to
the authenticity, validity or binding nature of any request, demand,
authorization, direction, consent, waiver or other Act of such Securityholder or
Trustee under this Article VI, then the determination of such matter by the
Property Trustee shall be conclusive with respect to such matter.
Section 6.09. Inspection of Records. Upon reasonable notice to the
Administrative Trustee and the Property Trustee, the records of the Trust shall
be open to inspection by Securityholders during normal business hours for any
purpose reasonably related to such Securityholder's interest as a
Securityholder.
<PAGE>
ARTICLE VII
The Trustees
Section 7.01. Certain Duties and Responsibilities.
(a) The duties and responsibilities of the Trustees shall be as provided by
this Trust Agreement and, in the case of the Property Trustee, also by the Trust
Indenture Act. The Property Trustee, other than during the occurrence and
continuance of an Event of Default, undertakes to perform only such duties as
are specifically set forth in this Trust Agreement and, upon an Event of
Default, must exercise the same degree of care and skill as a prudent person
would exercise or use in the conduct of his/her own affairs. The Trustees shall
have all the privileges, rights and immunities provided by the Delaware Business
Trust Act. Notwithstanding the foregoing, no provision of this Trust Agreement
shall require the Trustees to expend or risk their own funds or otherwise incur
any financial liability in the performance of any of their duties hereunder, or
in the exercise of any of their rights or powers, if they shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured to it. Whether or not therein
expressly so provided, every provision of this Trust Agreement relating to the
conduct or affecting the liability of or affording protection to the Trustees
shall be subject to the provisions of this Section. Nothing in this Trust
Agreement shall be construed to release the Property Trustee from liability for
its own negligent action, its own negligent failure to act, or its own willful
misconduct. To the extent that, at law or in equity, the Administrative Trustee
has duties (including fiduciary duties) and liabilities relating thereto to the
Trust or to the Securityholders, the Administrative Trustee shall not be liable
to the Trust or to any Securityholder for the Administrative Trustee's good
faith reliance on the provisions of this Trust Agreement. The provisions of this
Trust Agreement, to the extent that they restrict the duties and liabilities of
the Administrative Trustee otherwise existing at law or in equity, are agreed by
the Depositor and the Securityholders to replace such other duties and
liabilities of the Administrative Trustee.
(b) All payments made by the Property Trustee or any other Paying Agent in
respect of the Trust Securities shall be made only from the income and proceeds
from the Trust Property. Each Securityholder, by its acceptance of a Trust
Security, agrees that (i) it will look solely to the income and proceeds from
the Trust Property to the extent available for distribution to it as herein
provided and (ii) the Trustees are not personally liable to it for any amount
distributable in respect of any Trust Security or for any other liability in
respect of any Trust Security. This Section 7.01(b) does not limit the liability
of the Trustees expressly set forth elsewhere in this Trust Agreement or, in the
case of the Property Trustee, in the Trust Indenture Act.
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Section 7.02. Notice of Defaults; Direct Action by Securityholers. Within
90 days after the occurrence of any Event of Default actually known to the
Property Trustee, the Property Trustee shall transmit, in the manner and to the
extent provided in Section 10.08, notice of such Event of Default to the
Securityholders, the Administrative Trustee and the Depositor, unless such Event
of Default shall have been cured or waived. If the Property Trustee has failed
to enforce its rights under this Trust Agreement or the Indenture to the fullest
extent permitted by law and subject to the terms of this Trust Agreement and the
Indenture, any Securityholder may institute a legal proceeding directly against
any Person to enforce the Property Trustee's rights under this 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
Securityholder without first instituting a legal proceeding against the Property
Trustee or any other Person. To the extent that any action under the Indenture
is entitled to be taken by the holders of at least a specified percentage of the
principal amount of the outstanding Debentures, Holders of at least the same
percentage of the Liquidation Amount of the Outstanding Preferred Securities may
also take such action in the name of the Trust if such action has not been taken
by the Property Trustee. Notwithstanding the foregoing, if a Debenture Event of
Default relating to the Depositor's failure to pay the principal of or interest
on the Debentures has occurred and is continuing thereby resulting in an Event
of Default hereunder, then each Holder of Preferred Securities may institute a
legal proceeding directly against the Depositor for enforcement of payment to
such Holder, as provided in Section 6.07 of the Indenture.
Section 7.03. Certain Rights of Property Trustee. Subject to the provisions
of Section 7.01:
(a) the Property Trustee may rely and shall be protected in acting or
refraining from acting in good faith upon any resolution, Opinion of Counsel,
certificate, written representation of a Holder or transferee, certificate of
auditors or any other certificate, statement, instrument, opinion, report,
notice, request, consent, order, appraisal, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;
(b) if, other than during the occurrence and continuance of an Event of
Default, (i) in performing its duties under this Trust Agreement, the Property
Trustee is required to decide between alternative courses of action or (ii) in
construing any of the provisions in this Trust Agreement, the Property Trustee
finds the same ambiguous or inconsistent with any other provisions contained
herein or (iii) the Property Trustee is unsure of the application of any
<PAGE>
provision of this Trust Agreement, then, except as to any matter as to which the
Preferred Securityholders are entitled to vote under the terms of this Trust
Agreement, the Property Trustee shall deliver a notice to the Depositor
requesting written instructions of the Depositor as to the course of action to
be taken. The Property Trustee shall take such action, or refrain from taking
such action, as the Property Trustee shall be instructed in writing to take, or
to refrain from taking, by the Depositor; provided, however, that if the
Property Trustee does not receive such instructions of the Depositor within ten
Business Days after it has delivered such notice, or such reasonably shorter
period of time set forth in such notice (which to the extent practicable shall
not be less than two Business Days), it may, but shall be under no duty to, take
or refrain from taking such action not inconsistent with this Trust Agreement as
it shall deem advisable and in the best interests of the Securityholders, in
which event the Property Trustee shall have no liability except for its own
negligent action, its own negligent failure to act or its own willful
misconduct;
(c) the Property Trustee may consult with counsel or other experts of its
selection and the advice or opinion of such counsel or other experts with
respect to legal matters or advice within the scope of such experts' area of
expertise shall be full and complete authorization and protection in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon;
(d) the Property Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Trust Agreement at the request or
direction of any of the Securityholders pursuant to this Trust Agreement, unless
such Securityholders shall have offered to the Property Trustee reasonable
security or indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(e) the Property Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
approval, bond, debenture, note or other evidence of indebtedness or other paper
or document, but the Property Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit; and
(f) the Property Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through its agents or
attorneys and the Property Trustee shall not be responsible for any misconduct
or negligence on the part of any agent or attorney appointed with due care by it
hereunder.
Section 7.04. Not Responsible for Recitals or Issuance of Securities. The
recitals contained herein and in the Trust Securities Certificates shall be
taken as the statements of the Trust, and the Trustees do not assume any
responsibility for their correctness. The Trustees shall not be accountable for
the use or application by the Depositor of the proceeds of the Debentures.
<PAGE>
Section 7.05. May Hold Securities. Any Trustee or any other agent of any
Trustee or the Trust, in its individual or any other capacity, may become the
owner or pledgee of Trust Securities and, subject to Sections 7.08 and 7.13 and,
except as provided in the definition of the term Outstanding in Article I, may
otherwise deal with the Trust with the same rights it would have if it were not
a Trustee or such other agent.
Section 7.06. Compensation; Indemnity; Fees. The Depositor agrees:
(a) to pay to the Trustees from time to time such compensation as shall
have been agreed in writing with the Depositor for all services rendered by them
hereunder (which compensation shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust);
(b) except as otherwise expressly provided herein, to reimburse the
Trustees upon request for all reasonable expenses, disbursements and advances
incurred or made by the Trustees in accordance with any provision of this Trust
Agreement (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to its own negligent action, its own negligent
failure to act or its own wilful misconduct (or, in the case of the
Administrative Trustee, any such expense, disbursement or advance as may be
attributable to his/her gross negligence); and
(c) to indemnify each of the Trustees or any predecessor Trustee for, and
to hold the Trustees harmless against, any and all loss, damage, claims,
liability, penalty or expense including taxes (other than taxes based on the
income of such Trustee) incurred without its own negligent action, its own
negligent failure to act or its wilful misconduct (or, in the case of the
Administrative Trustees, incurred without gross negligence or bad faith),
arising out of or in connection with the acceptance or administration of this
Trust Agreement, including the costs and expenses of defending itself against
any claim or liability in connection with the exercise or performance of any of
its powers or duties hereunder.
No Trustee may claim any Lien or charge on any Trust Property as a result
of any amount due pursuant to this Section 7.06.
The provisions of this Section 7.06 shall survive the termination of this
Trust Agreement.
<PAGE>
Section 7.07. Corporate Property Trustee Required; Eligibility of Trustees
(a) There shall at all times be a Property Trustee hereunder. The Property
Trustee shall be a Person that is eligible pursuant to the Trust Indenture Act
to act as such and has a combined capital and surplus of at least $50,000,000.
If any such Person publishes reports of condition at least annually, pursuant to
law or to the requirements of its supervising or examining authority, then for
the purposes of this Section, the combined capital and surplus of such Person
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. If at any time the Property Trustee
with respect to the Trust Securities shall cease to be eligible in accordance
with the provisions of this Section, it shall resign immediately in the manner
and with the effect hereinafter specified in this Article.
(b) There shall at all times be one or more Administrative Trustees
hereunder. Each Administrative Trustee shall be either a natural person who is
at least 21 years of age or a legal entity that shall act through one or more
persons authorized to bind that entity.
(c) There shall at all times be a Delaware Trustee. The Delaware Trustee
shall either be (i) a natural person who is at least 21 years of age and a
resident of the State of Delaware or (ii) a legal entity with its principal
place of business in the State of Delaware and that otherwise meets the
requirements of applicable Delaware law that shall act through one or more
persons authorized to bind such entity.
Section 7.08. Conflicting Interests. If the Property Trustee has or shall
acquire a conflicting interest within the meaning of the Trust Indenture Act,
the Property Trustee shall either eliminate such interest or resign, to the
extent and in the manner provided by, and subject to the provisions of, the
Trust Indenture Act and this Trust Agreement.
Section 7.09. Co-Trustees and Separate Trustee. Unless an Event of Default
shall have occurred and be continuing, at any time or times, 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 may at the time be located, the
Depositor and the Administrative Trustee (and if more than one Administrative
Trustee, by agreed action of the majority of such Trustees) shall have power (i)
to appoint, and upon the written request of the Administrative Trustee the
Depositor shall for such purpose join with the Administrative Trustee in the
execution, delivery and performance of all instruments and agreements necessary
or proper 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 the extent required by law to act as separate trustee
of any such 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 the
capacity aforesaid, any property, title, right or power deemed necessary or
desirable, subject to the other provisions of this Section. If the Depositor
does not join in such appointment within 15 days after the receipt by it of a
<PAGE>
request so to do, or in case a Debenture Event of Default has occurred and is
continuing, the Property Trustee alone shall have power to make such
appointment. Any co-trustee or separate trustee appointed pursuant to this
Section shall either be (i) a natural person who is at least 21 years of age and
a resident of the United States or (ii) a legal entity with its principal place
of business in the United States that shall act through one or more persons
authorized to bind such entity.
Should any written instrument from the Depositor be required by any
co-trustee or separate trustee so appointed for more fully confirming to such
co-trustee or separate trustee such property, title, right or power, any and all
such instruments shall, on request, be executed, acknowledged, and delivered by
the Depositor.
Every co-trustee or separate trustee shall, to the extent permitted by law,
but to such extent only, be appointed subject to the following terms, namely:
(a) The Trust Securities shall be executed and delivered and all rights,
powers, duties and obligations hereunder in respect of the custody of
securities, cash and other personal property held by, or required to be
deposited or pledged with, the Trustees specified hereunder, shall be exercised,
solely by such Trustees and not by such co-trustee or separate trustee.
(b) The rights, powers, duties and obligations hereby conferred or imposed
upon the Property Trustee in respect of any property covered by such appointment
shall be conferred or imposed upon and exercised or performed by the Property
Trustee or by the Property Trustee and such co-trustee or separate trustee
jointly, as shall be provided in the instrument appointing such co-trustee or
separate trustee, except to the extent that under any law of any jurisdiction in
which any particular act is to be performed, the Property Trustee shall be
incompetent or unqualified to perform such act, in which event such rights,
powers, duties and obligations shall be exercised and performed by such
co-trustee or separate trustee.
(c) The Property Trustee at any time, by an instrument in writing executed
by it, with the written concurrence of the Depositor, may accept the resignation
of or remove any co-trustee or separate trustee appointed under this Section,
and, in case a Debenture Event of Default has occurred and is continuing, the
Property Trustee shall have power to accept the resignation of, or remove, any
such co-trustee or separate trustee without the concurrence of the Depositor.
Upon the written request of the Property Trustee, the Depositor shall join with
the Property Trustee in the execution, delivery and performance of all
instruments and agreements necessary or proper to effectuate such resignation or
removal. A successor to any co-trustee or separate trustee so resigned or
removed may be appointed in the manner provided in this Section.
<PAGE>
(d) No co-trustee or separate trustee hereunder shall be personally liable
by reason of any act or omission of the Property Trustee, or any other trustee
hereunder.
(e) The Property Trustee shall not be liable by reason of any act of a
co-trustee or separate trustee.
(f) Any Act of Holders delivered to the Property Trustee shall be deemed to
have been delivered to each such co-trustee and separate trustee.
Section 7.10. Resignation and Removal; Appointment of Successor. No
resignation or removal of any Trustee and no appointment of a successor Trustee
pursuant to this Article shall become effective until the acceptance of
appointment by the successor Trustee in accordance with the applicable
requirements of Section 7.11.
Subject to the immediately preceding paragraph, any Trustee may resign at
any time with respect to the Trust Securities by giving written notice thereof
to the Securityholders.
Unless an Event of Default shall have occurred and be continuing, any
Trustee may be removed at any time by Act of the Holder of the Common
Securities. If an Event of Default shall have occurred and be continuing, the
Property Trustee or the Delaware Trustee, or both of them, may be removed at
such time only by Act of the Holders of at least a majority in Liquidation
Amount of the Outstanding Preferred Securities, delivered to such Trustee (in
its individual capacity and on behalf of the Trust). The Administrative Trustee
may only be removed by the Holder of Common Securities at any time.
If the instrument of acceptance by the successor Trustee required by
Section 7.11 shall not have been delivered to the Trustee within 30 days after
the giving of such notice of resignation or removal, the Trustee may petition,
at the expense of the Depositor, any court of competent jurisdiction for the
appointment of a successor Trustee.
If any Trustee shall resign, be removed or become incapable of acting as
Trustee, or if a vacancy shall occur in the office of any Trustee for any cause,
at a time when no Event of Default shall have occurred and be continuing, the
Holder of Common Securities, by Act of the Holder of Common Securities delivered
to the retiring Trustee, shall promptly appoint a successor Trustee or Trustees
and the Trust, and the retiring Trustee shall comply with the applicable
requirements of Section 7.11. If the Property Trustee or the Delaware Trustee
shall resign, be removed or become incapable of continuing to act as the
Property Trustee or the Delaware Trustee, as the case may be, at a time when an
Event of Default has occurred and is continuing, the Holders of Preferred
Securities, by Act of the Securityholders of at least a majority in Liquidation
<PAGE>
Amount of the Outstanding Preferred Securities delivered to the retiring
Trustee, shall promptly appoint a successor Trustee or Trustees, and such
successor Trustee shall comply with the applicable requirements of Section 7.11.
If any Administrative Trustee shall resign, be removed or become incapable of
acting as Administrative Trustee at a time when an Event of Default shall have
occurred and be continuing, the Holder of Common Securities shall appoint a
successor Administrative Trustee. If no successor Trustee shall have been so
appointed by the Holder of Common Securities or the Holders of Preferred
Securities and accepted appointment in the manner required by Section 7.11, any
Securityholder who has been a Securityholder of Trust Securities for at least
six months may, on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a successor Trustee.
The Property Trustee shall give notice of each resignation and each removal
of a Trustee and each appointment of a successor Trustee to all Securityholders
in the manner provided in Section 10.08 and shall give notice to the Depositor.
Each notice shall include the name of the successor Trustee and the address of
its Corporate Trust Office if it is the Property Trustee.
Notwithstanding the foregoing or any other provision of this Trust
Agreement, in the event any Administrative Trustee or Delaware Trustee who is a
natural person dies or becomes, in the opinion of the Depositor, incompetent or
incapacitated, the vacancy created by such death, incompetence or incapacity may
be filled by (a) the unanimous act of the remaining Administrative Trustees if
there are at least two of them or (b) otherwise by the Depositor (with the
successor in each case being a Person who satisfies the eligibility requirements
for Administrative Trustee or for the Delaware Trustee, as the case may be, set
forth in Section 7.07).
Section 7.11. Acceptance of Appointment by Successor. In case of the
appointment hereunder of a successor Trustee, the retiring Trustee and each
successor Trustee shall execute and deliver to the Trust and the retiring
Trustee an amendment hereto wherein each successor Trustee shall accept such
appointment and which (a) shall contain such provisions as shall be necessary or
desirable to transfer and confirm to, and to vest in, each successor Trustee all
the rights, powers, trusts and duties of the retiring Trustee and (b) shall add
to or change any of the provisions of this Trust Agreement as shall be necessary
to provide for or facilitate the administration of the trusts hereunder by more
than one Trustee, it being understood that nothing herein or in such amendment
shall constitute such Trustees co-trustees of the same trust and that each such
<PAGE>
Trustee shall be trustee of a trust or trusts hereunder separate and apart from
any trust or trusts hereunder administered by any other such Trustee and upon
the execution and delivery of such amendment the resignation or removal of the
retiring Trustee shall become effective to the extent provided therein and each
such successor Trustee, without any further act, deed or conveyance, shall
become vested with all the rights, powers, trusts and duties of the retiring
Trustee and the Trust; but, on request of the Trust or any successor Trustee,
such retiring Trustee shall duly assign, transfer and deliver to such successor
Trustee all Trust Property, all proceeds thereof and money held by such retiring
Trustee hereunder.
Upon request of any such successor Trustee, the Trust shall execute any and
all instruments for more fully and certainly vesting in and confirming to such
successor Trustee all such rights, powers and trusts referred to in the
preceding paragraphs.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
Section 7.12. Merger, Conversion, Consolidation or Succession to Business.
Any Person into which any of the Trustees may be merged or converted or with
which it may be consolidated, or any Person resulting from any merger,
conversion or consolidation to which such Trustee shall be a party, or any
Person succeeding to all or substantially all the corporate trust business of
such Trustee, shall be the successor of such Trustee hereunder, provided such
Person shall be otherwise qualified and eligible under this Article, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto.
Section 7.13. Preferential Collection of Claims Against Depositor or Trust.
If and when the Property Trustee or the Delaware Trustee shall be or become a
creditor (whether directly or indirectly, secured or unsecured) of the Depositor
or the Trust (or any other obligor upon the Debentures or the Trust Securities),
including under the terms of Section 7.05 hereof, the Property Trustee or the
Delaware Trustee, as the case may be, shall be subject to and shall take all
actions necessary in order to comply with the provisions of the Trust Indenture
Act regarding the collection of claims against the Depositor or Trust (or any
such other obligor).
Section 7.14. Reports by Property Trustee. The Property Trustee shall
transmit to Holders such reports concerning the Property Trustee and its actions
under this Trust Agreement as may be required pursuant to the Trust Indenture
Act at the times and in the manner provided pursuant thereto. If required by
Section 313(a) of the Trust Indenture Act, the Property Trustee shall, within 60
days after each May 31 following the date of this Trust Agreement deliver to
Holders a brief report, dated as of such May 31, which complies with the
provisions of such Section 313(a).
A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Property Trustee with each stock exchange upon which
any Preferred Securities are then listed, with the Commission and with the
Trust. The Trust will promptly notify the Property Trustee when any Preferred
Securities are listed on any stock exchange.
<PAGE>
Section 7.15. Reports to the Property Trustee and the Commission.The
Depositor and the Administrative Trustee on behalf of the Trust shall provide to
the Property Trustee and the Commission, as applicable, such documents, reports
and information as required by Section 314 of the Trust Indenture Act (if any)
and the compliance certificate required by Section 314(a) of the Trust Indenture
Act in the form, in the manner and at the times required by Section 314 of the
Trust Indenture Act.
Section 7.16. Evidence of Compliance with Conditions Precedent. The
Depositor and the Administrative Trustee on behalf of the Trust shall provide to
the Property Trustee evidence of compliance with the conditions precedent, if
any, provided for in this Trust Agreement that relate to any of the matters set
forth in Section 314(c) of the Trust Indenture Act.
Section 7.17. Statements Required in Officer's Certificate and Opinion of
Counsel.
Each Officer's Certificate and Opinion of Counsel with respect to
compliance with a covenant or condition provided for in this Trust Agreement
shall include:
(1) a statement that each Person making such Officer's Certificate or
Opinion of Counsel has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
Officer's Certificate or Opinion of Counsel are based;
(3) a statement that, in the opinion of each such Person, such Person has
made such examination or investigation as is necessary to enable such
Person to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement that, in the opinion of such Person, such covenant or
condition has been complied with; provided, however, that with respect
to matters of fact not involving any legal conclusion, an Opinion of
Counsel may rely on an Officer's Certificate or certificates of public
officials.
Section 7.18. Number of Trustees
(a) The number of Trustees shall be three, provided that the Holder of all
of the Common Securities by written instrument may increase and, if increased,
may decrease the number of Administrative Trustees.
<PAGE>
(b) If a Trustee ceases to hold office for any reason and the number of
Administrative Trustees is not reduced pursuant to Section 7.18(a), or if the
number of Trustees is increased pursuant to Section 7.18(a), a vacancy shall
occur. The vacancy shall be filled with a Trustee appointed in accordance with
Section 7.10.
(c) The death, resignation, retirement, removal, bankruptcy, dissolution,
termination, incompetence or incapacity to perform the duties of a Trustee shall
not operate to dissolve, terminate or annul the Trust. Whenever a vacancy shall
occur, until such vacancy is filled by the appointment of an Administrative
Trustee in accordance with Section 7.10, the Administrative Trustees in office,
regardless of their number (and notwithstanding any other provision of this
Trust Agreement), shall have all the powers granted to the Administrative
Trustee and shall discharge all the duties imposed upon the Administrative
Trustees by this Trust Agreement.
Section 7.19. Delegation of Power
(a) Any Administrative Trustee may, by power of attorney consistent with
applicable law, delegate to any natural person over the age of 21 his/her power
for the purpose of executing any documents contemplated in Section 2.07(a),
including any registration statement or amendment thereto filed with the
Commission, or making any other governmental filing; and
(b) the Administrative Trustees shall have power to delegate from time to
time to such of their number, if there is more than one Administrative Trustee,
or to the Depositor the doing of such things and the execution of such
instruments either in the name of the Trust or the names of the Administrative
Trustees or otherwise as the Administrative Trustees may deem expedient, to the
extent such delegation is not prohibited by applicable law or contrary to the
provisions of the Trust, as set forth herein.
Section 7.20. Voting. Except as otherwise provided in this Trust Agreement,
the consent or vote of the Trustees shall be approved by not less than a
majority of the Administrative Trustees.
ARTICLE VIII
Dissolution and Liquidation
Section 8.01. Dissolution Upon Expiration Date. Unless earlier dissolved,
the Trust shall automatically dissolve on December 22, 2051 (the "Expiration
Date").
<PAGE>
Section 8.02. Early Dissolution. The earliest to occur of any of the
following events is an "Early Dissolution Event" upon the occurrence of which
the Trust shall be dissolved:
(a) the occurrence of a Bankruptcy Event in respect of, or the dissolution
or liquidation of the Depositor or an acceleration of the maturity of
the Debentures pursuant to Section 6.02 of the Indenture;
(b) upon the election of the Depositor to liquidate the Trust and cause
the distribution of a Like Amount of Debentures to the Holders of the
Trust Securities;
(c) the redemption of all of the Trust Securities; and
(d) an order for dissolution of the Trust shall have been entered by a
court of competent jurisdiction.
The election of the Depositor pursuant to Section 8.02(b) shall be made by
the Depositor giving written notice to the Trustees not less than 30 days prior
to the date of distribution of the Debentures. Such notice shall specify the
date of distribution of the 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.
Section 8.03. Dissolution. The respective obligations and responsibilities
of the Trustees and the Trust continued hereby shall terminate upon the latest
to occur of the following: (a) the distribution by the Property Trustee to
Securityholders upon the liquidation of the Trust pursuant to Section 8.04, or
upon the redemption of all of the Trust Securities pursuant to Section 4.02, of
all amounts required to be distributed hereunder upon the final payment of the
Trust Securities; (b) the payment of any expenses owed by the Trust; and (c) the
discharge of all administrative duties of the Administrative Trustee, including
the performance of any tax reporting obligations with respect to the Trust or
the Securityholders.
Section 8.04. Liquidation
(a) If an Early Dissolution Event specified in clause (a), (c) or (d) of
Section 8.02 occurs or upon the Expiration Date, the Trust shall be liquidated
by the Trustees as expeditiously as the Trustees determine to be possible by
distributing, after satisfaction of liabilities to creditors of the Trust as
provided by applicable law, to each Securityholder a Like Amount of Debentures,
subject to Section 8.04(d). If an Early Dissolution Event specified in clause
(b) occurs, the Trust shall be liquidated by the Trustee on the date of
distribution of the Debentures specified by the Depositor in its notice
delivered pursuant to Section 8.02. Notice of liquidation shall be given by the
Property Trustee by first-class mail, postage prepaid, mailed not later than 30
nor more than 60 days prior to the Liquidation Date to each Holder of Trust
Securities at such Holder's address appearing in the Securities Register. All
notices of liquidation shall:
<PAGE>
(i) state the Liquidation Date;
(ii) state that from and after the Liquidation Date, the Trust Securities
will no longer be deemed to be Outstanding and any Trust Securities
Certificates not surrendered for exchange will be deemed to represent
a Like Amount of Debentures; and
(iii)provide such information with respect to the mechanics by which
Holders may exchange Trust Securities Certificates for certificates
evidencing Debentures, or, if Section 8.04(d) applies, receive a
Liquidation Distribution, as the Administrative Trustee or the
Property Trustee shall deem appropriate.
(b) In order to effect the liquidation of the Trust and distribution of the
Debentures to Securityholders, the Property Trustee, either itself acting as
exchange agent or through the appointment of a separate exchange agent, shall
establish such procedures as it shall deem appropriate to effect the
distribution of Debentures in exchange for the Outstanding Trust Securities
Certificates.
(c) Except where Section 8.02(c) or 8.04(d) applies, on or after the
Liquidation Date, (i) the Trust Securities will no longer be deemed to be
Outstanding, (ii) certificates representing a Like Amount of Debentures will be
issued to Holders of Trust Securities Certificates, upon surrender of such
certificates to the Administrative Trustee or its agent for exchange, (iii) the
Depositor shall use its best efforts to have the Debentures listed on the New
York Stock Exchange or such other exchange as the Preferred Securities are then
listed and shall take any reasonable action necessary to effect the distribution
of the Debentures, (iv) any Trust Securities Certificates not so surrendered for
exchange will be deemed to represent a Like Amount of Debentures, accruing
interest at the rate provided for in the Debentures from the last Distribution
Date on which a Distribution was made on such Trust Securities Certificates
until such certificates are so surrendered (and until such certificates are so
surrendered, no payments of interest or principal will be made to Holders of
Trust Securities Certificates with respect to such Debentures) and (v) all
rights of Securityholders holding Trust Securities will cease, except the right
of such Securityholders to receive Debentures upon surrender of Trust Securities
Certificates.
(d) In the event that, notwithstanding the other provisions of this Section
8.04, whether because of an order for dissolution entered by a court of
competent jurisdiction or otherwise, distribution of the Debentures in the
manner provided herein is determined by the Property Trustee not to be
practical, the Trust Property shall be liquidated, and the Trust shall be
<PAGE>
dissolved, by the Property Trustee in such manner as the Property Trustee
determines. In such event, on the date of the dissolution of the Trust,
Securityholders will be entitled to receive out of the assets of the Trust
available for distribution to Securityholders, after satisfaction of liabilities
to creditors of the Trust as provided by applicable law, an amount equal to the
Liquidation Amount per Trust Security plus accumulated and unpaid Distributions
thereon to the date of payment (such amount being the "Liquidation
Distribution"). If, upon any such dissolution, the Liquidation Distribution can
be paid only in part because the Trust has insufficient assets available to pay
in full the aggregate Liquidation Distribution, then, subject to the next
succeeding sentence, the amounts payable by the Trust on the Trust Securities
shall be paid on a pro rata basis (based upon Liquidation Amounts). The Holder
of the Common Securities will be entitled to receive Liquidation Distributions
upon any such dissolution pro rata (determined as aforesaid) with Holders of
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, and no Liquidation Distribution will be paid to the Holders
of the Common Securities unless and until receipt by all Holders of the
Preferred Securities of the entire Liquidation Distribution payable in respect
thereof.
ARTICLE IX
Mergers, Etc.
Section 9.01. Mergers, Consolidations, Amalgamations or Replacements of the
Trust. The Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to any Person, except as described
below or under Article VIII. The Trust may, at the request of the Depositor,
with the consent of the Administrative Trustee and without the consent of the
Holders of the 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 the Trust with respect to the Preferred Securities or (b)
substitutes for the Preferred Securities other securities having substantially
the same terms as the Preferred Securities (the "Successor Securities") so long
as the Successor Securities rank the same as the Preferred Securities rank with
respect to the payment of Distributions and payments upon liquidation and
redemption, (ii) the Depositor expressly appoints a trustee of such successor
entity possessing the same powers and duties as the Property Trustee with
respect to the 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 the Preferred
Securities are then listed, (iv) such merger, consolidation, amalgamation or
<PAGE>
replacement does not cause the 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
the Preferred Securities (including any Successor Securities) in any material
respect, (vi) such successor entity has a purpose substantially similar to that
of the Trust, (vii) prior to such merger, consolidation, amalgamation or
replacement, the Depositor has received an Opinion of Counsel to the effect that
(a) such merger, consolidation, amalgamation or replacement does not adversely
affect the rights, preferences and privileges of the Holders of the Preferred
Securities (including any Successor Securities) in any material respect, and (b)
following such merger, consolidation, amalgamation or replacement, neither the
Trust nor such successor entity will be required to register as an investment
company under the 1940 Act and (viii) the Depositor 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 Guarantee and this Trust
Agreement. Notwithstanding the foregoing, the Trust shall not, except with the
consent of all Holders of the Preferred Securities, merge with or into,
consolidate, amalgamate, 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 the Trust or the
successor entity not to be classified as a grantor trust for United States
Federal income tax purposes.
ARTICLE X
Miscellaneous Provisions
Section 10.01. Limitation of Rights of Securityholders. The death,
incapacity, bankruptcy, dissolution and termination of any Person having an
interest, beneficial or otherwise, in Trust Securities shall not operate to
terminate this Trust Agreement or dissolve, terminate or annul the Trust, nor
entitle the legal representatives or heirs of such Person or any Securityholder
for such Person, to claim an accounting, take any action or bring any proceeding
in any court for a partition or winding-up of the arrangements contemplated
hereby, nor otherwise affect the rights, obligations and liabilities of the
parties hereto or any of them.
Section 10.02. Amendment
(a) This Trust Agreement may be amended from time to time by the Trustees
and the Depositor, without the consent of any Securityholders, to cure any
ambiguity, defect or inconsistency or make any other change which does not
adversely affect in any material respect the interests of any Holder of
Preferred Securities. Any amendments of this Trust Agreement pursuant to Section
10.02(a) shall become effective when notice thereof is given to the
Securityholders.
<PAGE>
(b) Except as provided in Section 10.02(a) and 10.02(c) hereof, any
provision of this Trust Agreement may be amended by the Trustees and the
Depositor with the consent of Holders of at least a majority of the aggregate
Liquidation Amount of the Outstanding Preferred Securities.
(c) In addition to and notwithstanding any other provision in this Trust
Agreement, without the consent of each affected Securityholder (such consent
being obtained in accordance with Section 6.03 or 6.06 hereof), this Trust
Agreement may not be amended to (i) change the method of calculation of, timing
or currency of any Distribution or Liquidation Distribution on the Trust
Securities or otherwise adversely affect the method of payment of any
Distribution or Liquidation Distribution required to be made in respect of the
Trust Securities as of a specified date; (ii) change the redemption provisions
of the Trust Securities; (iii) restrict the right of a Securityholder to
institute suit for the enforcement of any such payment contemplated in (i) or
(ii) above on or after the related date; (iv) modify the first sentence of
Section 2.06 hereof; (v) authorize or issue any beneficial interest in the Trust
other than as contemplated by this Trust Agreement as of the date hereof; (vi)
change the conditions precedent for the Depositor to elect to dissolve the Trust
and distribute the Debentures to Holders of Trust Securities as set forth in
Section 8.02; or (vii) affect the limited liability of any Holder of Preferred
Securities, and, notwithstanding any other provision herein, without the
unanimous consent of the Securityholders (such consent being obtained in
accordance with Section 6.03 or 6.06 hereof), paragraphs (b) and (c) of this
Section 10.02 may not be amended.
(d) Notwithstanding any other provisions of this Trust Agreement, no
amendment to this Trust Agreement shall be made without receipt by the Trust of
an Opinion of Counsel experienced in such matters to the effect that such
amendment will not affect the Trust's status as a grantor trust for United
States Federal income tax purposes or its exemption from regulation as an
"investment company" under the 1940 Act.
(e) Notwithstanding anything in this Trust Agreement to the contrary,
without the consent of the Depositor, this Trust Agreement may not be amended in
a manner which imposes any additional obligation on the Depositor.
(f) In the event that any amendment to this Trust Agreement is made, the
Administrative Trustee shall promptly provide to the Depositor a copy of such
amendment.
(g) In executing any amendment to this Trust Agreement, the Property
Trustee shall be entitled to receive, and (subject to Section 7.01) shall be
fully protected in relying upon, an Opinion of Counsel stating that the
<PAGE>
execution of such amendment is authorized or permitted by this Trust Agreement.
Except as contemplated by Section 7.11, a Trustee may, but shall not be
obligated to, enter into any amendment to this Trust Agreement which affects
such Trustee's own rights, duties or immunities under this Trust Agreement or
otherwise.
Section 10.03. Severability. In case any provision in this Trust Agreement
or in the Trust Securities Certificates shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
Section 10.04. Governing Law. THIS TRUST AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF EACH OF THE SECURITYHOLDERS, THE TRUST AND THE TRUSTEES WITH
RESPECT TO THIS TRUST AGREEMENT AND THE TRUST SECURITIES SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE, WITHOUT
REGARD TO CONFLICT OF LAWS PRINCIPLES.
Section 10.05. Payments Due on Non-Business Day. Except as provided in
Section 4.01(a) hereof, if the date fixed for any payment on any Trust Security
shall be a day which is not a Business Day, then such payment need not be made
on such date but may be made on the next succeeding day which is a Business Day
(except as otherwise provided therein, with the same force and effect as though
made on the date fixed for such payment), and no interest shall accumulate
thereon for the period after such date to the date of payment on such succeeding
day.
Section 10.06. Successors and Assigns. This Trust Agreement shall be
binding upon and shall inure to the benefit of any successor to the Trust or
successor Trustee or both, including any successor by operation of law. Except
in connection with a consolidation, merger or sale involving the Depositor that
is permitted under Article V of the Indenture and pursuant to which the assignee
agrees in writing to perform the Depositor's obligations hereunder, the
Depositor shall not assign its obligations hereunder.
Section 10.07. Headings. The Article and Section headings are for
convenience only and shall not affect the construction of this Trust Agreement.
Section 10.08. Reports, Notices and Demands. Any report, notice, demand or
other communication which by any provision of this Trust Agreement is required
or permitted to be given or served to or upon any Securityholder or the
Depositor may be given or served in writing by deposit thereof, first-class
postage prepaid in the United States mail, hand delivery or facsimile
transmission, in each case, addressed, (a) in the case of a Holder of a
Preferred Security, to such Holder of a Preferred Security as such
Securityholder's name and address may appear on the Securities Register; and (b)
<PAGE>
in the case of the Holder of a Common Security or the Depositor, to Public
Service Enterprise Group Incorporated, 80 Park Plaza, Newark, New Jersey 07101,
Attention: Treasurer, facsimile no.: (973) 596-6309. Such notice, demand or
other communication to or upon a Securityholder or the Depositor shall be deemed
to have been sufficiently given or made, for all purposes, upon hand delivery,
mailing or transmission.
Any notice, demand or other communication which by any provision of this
Trust Agreement is required or permitted to be given or served to or upon the
Trust, the Property Trustee or the Administrative Trustee shall be given in
writing addressed (until another address is published by the Trust) as follows:
(a) with respect to the Property Trustee to First Union National Bank, 765 Broad
Street, Newark, New Jersey 07101, Attention: Corporate Trust Office; (b) with
respect to the Delaware Trustee, to One Rodney Square, 920 King Street,
Wilmington, Delaware 19801 Attention: Corporate Trust Department; and (c) with
respect to the Administrative Trustee, to the address above for notices to the
Depositor, marked "Attention: Administrative Trustee of Enterprise Capital Trust
II c/o Treasurer." Such notice, demand or other communication to or upon the
Trus, the Delaware Trustee or the Property Trustee shall be deemed to have been
sufficiently given or made only upon actual receipt of the writing by the Trust,
the Delaware Trustee or the Property Trustee.
Section 10.09. Agreement Not to Petition. Each of the Trustees and the
Depositor agree for the benefit of the Securityholders that, until at least one
year and one day after the Trust has been terminated in accordance with Article
VIII, they shall not file, or join in the filing of, a petition against the
Trust under any Bankruptcy Laws or otherwise join in the commencement of any
proceeding against the Trust under any Bankruptcy Law. In the event the
Depositor or any of the Trustees takes action in violation of this Section
10.09, the Property Trustee agrees, for the benefit of Securityholders, that at
the expense of the Depositor, it shall file an answer with the bankruptcy court
or otherwise properly contest the filing of such petition by the Depositor or
any of the Trustees, as applicable, against the Trust or the commencement of
such action and raise the defense that the Depositor or Trustee, as applicable,
has agreed in writing not to take such action and should be stopped and
precluded therefrom and such other defenses, if any, as counsel for the Property
Trustee or the Trust may assert. The provisions of this Section 10.09 shall
survive the termination of this Trust Agreement.
Section 10.10. Trust Indenture Act; Conflict with Trust Indenture Act.
(a) This Trust Agreement is subject to the provisions of the Trust
Indenture Act that are required to be part of this Trust Agreement and shall, to
the extent applicable, be governed by such provisions.
<PAGE>
(b) The Property Trustee shall be the only Trustee which is a trustee for
the purposes of the Trust Indenture Act.
(c) If any provision hereof limits, qualifies or conflicts with another
provision hereof which is required to be included in this Trust Agreement by any
of the provisions of the Trust Indenture Act, such required provision shall
control. If any provision of this Trust Agreement modifies or excludes any
provision of the Trust Indenture Act which may be so modified or excluded, the
latter provision shall be deemed to apply to this Trust Agreement as so modified
or excluded, as the case may be.
(d) The application of the Trust Indenture Act to this Trust Agreement
shall not affect the nature of the Trust Securities as equity securities
representing undivided beneficial interests in the assets of the Trust.
Section 10.11 Acceptance of Terms of Trust Agreement, Guarantee and
Indenture. THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST
THEREIN BY OR ON BEHALF OF A SECURITYHOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY
SIGNATURE OR FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE UNCONDITIONAL
ACCEPTANCE BY THE SECURITYHOLDER AND ALL OTHERS HAVING A BENEFICIAL INTEREST IN
SUCH TRUST SECURITY OF ALL THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT AND
AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER TERMS OF THE GUARANTEE AND
THE INDENTURE, AND SHALL CONSTITUTE THE AGREEMENT OF THE TRUST, SUCH
SECURITYHOLDER AND SUCH OTHERS THAT THE TERMS AND PROVISIONS OF THIS TRUST
AGREEMENT SHALL BE BINDING, OPERATIVE AND EFFECTIVE AS BETWEEN THE TRUST AND
SUCH SECURITYHOLDER AND SUCH OTHERS.
PUBLIC SERVICE ENTERPRISE FIRST UNION NATIONAL BANK, as
GROUP INCORPORATED, as Depositor Property Trustee
By: MORTON A. PLAWNER By: FRANK GALLAGHER
----------------- ---------------
Name: Morton A. Plawner Name: Frank Gallagher
Title: Treasurer Title: Vice President
Fred F. Saunders, FIRST UNION BANK OF DELAWARE,
as Administrative Trustee as Delaware Trustee
FRED F. SAUNDERS By: FRANK GALLAGHER
- ---------------- ---------------
Name: Frank Gallagher
Title: Vice President
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
and
FIRST UNION NATIONAL BANK, as Trustee
FIRST SUPPLEMENTAL INDENTURE
Dated as of June 1, 1998
to
INDENTURE
Dated as of January 1, 1998
Floating Rate Deferrable Interest Subordinated Debentures, Series B
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE 1.
DEFINITIONS...............................................2
SECTION 1.01 Definitions.................................2
ARTICLE 2.
THE SERIES B DEBENTURES...................................2
SECTION 2.01 Terms and Form of the Series B Debentures....2
ARTICLE 3.
REDEMPTION................................................5
SECTION 3.01 Redemption; Notice to Trustee...............5
ARTICLE 4.
COVENANT..................................................5
SECTION 4.01 Payment of Expenses of Trust II.............5
ARTICLE 5.
MISCELLANEOUS.............................................5
SECTION 5.01 Confirmation of Indenture...................5
SECTION 5.02 Notices.....................................5
SECTION 5.03 Severability Clause.........................6
SECTION 5.04 No Recourse Against Others..................6
SECTION 5.05 Successors..................................7
SECTION 5.06 Multiple Original Copies of this Indenture..7
SECTION 5.07 Table of Contents; Headings, Etc............7
<PAGE>
FIRST SUPPLEMENTAL INDENTURE, dated as of June 1, 1998, by and between
Public Service Enterprise Group Incorporated, a corporation duly organized and
existing under the laws of the State of New Jersey (the "Company") and First
Union National Bank, a national banking association organized and existing under
the laws of the United States of America, as trustee (the "Trustee") under the
Indenture dated as of January 1, 1998 between the Company and the Trustee.
WHEREAS, the Company executed and delivered the Indenture dated as of
January 1, 1998 to the Trustee to provide for the issuance of its deferrable
interest subordinated debentures (the "Debentures") in series from time to time
as might be determined by the Company and pursuant thereto, the Company has
issued its 7.44% Deferrable Interest Subordinated Debentures, Series A.
WHEREAS, pursuant to an Amended and Restated Trust Agreement dated as of
June 26, 1998 (the "Trust II Agreement"), among the Company, as depositor, First
Union National Bank, as Property Trustee (the "Property Trustee II"), the
Delaware Trustee named therein and the Administrative Trustees named therein,
there has been declared and established Enterprise Capital Trust II, a Delaware
business trust ("Trust II").
WHEREAS, Trust II intends to issue its Trust Securities (as defined in the
Trust II Agreement), including its Floating Rate Capital Securities, Series B,
representing undivided beneficial interests in the assets of Trust II and having
a liquidation amount of $1,000 per security (the "Series B Capital Securities").
WHEREAS, the Company has authorized the issuance of a series of additional
debentures pursuant to Section 2.04 of the Indenture to be designated as the
Company's Floating Rate Deferrable Interest Subordinated Debentures, Series B
(the "Series B Debentures") to be purchased by Trust II with the proceeds of the
Trust Securities, and to provide therefor, the Company has duly authorized the
execution and delivery of this First Supplemental Indenture.
WHEREAS, all things necessary to make the Series B Debentures when duly
issued and executed by the Company and authenticated and delivered hereunder,
the valid obligations of the Company, and to make this First Supplemental
Indenture a valid and binding agreement of the Company, in accordance with its
terms, have been done.
NOW THEREFORE:
Each of the Company and the Trustee, intending to be legally bound hereby,
agrees as follows for the benefit of the other party and for the equal and
ratable benefit of the holders of the Debentures, including the Series B
Debentures:
<PAGE>
ARTICLE 1.
DEFINITIONS
SECTION 1.01 Definitions
The following terms used in this First Supplemental Indenture shall have
the following meanings:
"Debentureholder" or "Holder" means a Person in whose name a Series B
Debenture is registered on the Registrar's books.
"Series B Debentures" means any of the Company's Floating Rate Deferrable
Interest Subordinated Debentures, Series B issued under this First Supplemental
Indenture.
"Series B Guarantee Agreement" means that certain Guarantee Agreement
issued by the Company with respect to the Series B Capital Securities, in which
the Company irrevocably and unconditionally agrees to pay the Guarantee Payments
(as defined in the Guarantee Agreement) to the holders of the Series B Capital
Securities.
"Series B Capital Securities" means the undivided beneficial interests in
the assets of Trust II, having a liquidation amount of $1,000 and having rights
provided therefor in the Trust II Agreement.
"Trust II" means Enterprise Capital Trust II, a Delaware business trust
created by the Trust II Agreement.
"Trust II Agreement" means the Amended and Restated Trust Agreement dated
as of June 26, 1998, among the Company, as Depositor, Fidelity Union National
Bank, as Property Trustee, the Delaware Trustee named therein and the
Administrative Trustees named therein, as the same may be amended and modified
from time to time.
Each of the other terms used in this First Supplemental Indenture that is
defined in the Indenture and not defined herein shall have the meaning assigned
to it in the Indenture.
ARTICLE 2.
THE SERIES B DEBENTURES
SECTION 2.01 Terms and Form of the Series B Debentures
(a) The Series B Debentures shall be designated "Public Service Enterprise
Group Incorporated Floating Rate Deferrable Interest Subordinated Debentures,
Series B." The Series B Debentures and the Trustee's Certificate of
Authentication shall be substantially in the form of Exhibit A attached hereto.
The Series B Debentures shall initially be issued as global Debentures in
accordance with the provisions of Section 2.12 of the Indenture with The
Depository Trust Company as Depositary. The terms and provisions contained in
the Series B Debentures shall constitute, and are hereby expressly made, a part
of this First Supplemental Indenture. The Company and the Trustee, by their
execution and delivery of this First Supplemental Indenture, expressly agree to
such terms and provisions and to be bound thereby.
<PAGE>
(b) The aggregate principal amount of Series B Debentures outstanding at
any time may not exceed $154,640,000 except as provided in Section 2.09 of the
Indenture. The Series B Debentures shall be authenticated and delivered from
time to time upon delivery to the Trustee of the items specified in Section
2.04(d) of the Indenture.
(c) The Stated Maturity Date of the Series B Debentures is June 30, 2028.
(d) The interest rate of the Series B Debentures will be a floating rate
per annum determined quarterly by reference to 3-Month LIBOR, determined as
described herein, plus a margin of 1.22%.
"3-Month LIBOR" means the London interbank offered rate for three-month
U.S. dollar deposits and with respect to any Interest Period (as defined below)
will be calculated by First Union National Bank or any successor appointed by
the Company as Calculation Agent, as permitted by this First Supplemental
Indenture (the "Calculation Agent") as follows:
i. On the second Market Day (as defined below) preceding the commencement
of such Interest Period (each, a "Determination Date"), 3-Month LIBOR will be
determined on the basis of the offered rate for deposits of not less than U.S.
$1,000,000 for a period of three months (the "Index Maturity"), commencing on
such Market Day, which appears on the display designated as Page 3750 on the Dow
Jones Markets Limited (or such other page as may replace Page 3750 on that
service (or any successor service) for the purpose of displaying London
interbank offered rates of major banks) ("Telerate Page 3750") as of 11:00 a.m.,
London time on such Market Day. If no such offered rate appears, 3-Month LIBOR
with respect to such Interest Period will be determined as described in (ii)
below.
The term "Interest Period" means each period beginning on, and including,
the date of original issuance and ending on, but excluding, the first Interest
Payment Date (as defined below) , and each successive period, so beginning on an
Interest Payment Date and so ending on, but excluding the next successive
Interest Payment Date.
ii. With respect to a Determination Date on which no such offered rate
appears on Telerate Page 3750 as described in (i) above, 3-Month LIBOR shall be
the arithmetic mean, expressed as a percentage, of the offered rates for
deposits in U.S. dollars for the Index Maturity which appears on the display
designated as "LIBO" on the Reuter Monitor Money Market Rates Service (or such
other page as may replace the LIBO page on that service (or any successor
service) for the purpose of displaying London interbank offered rates of major
banks) ("Reuters Screen LIBO Page") as of 11:00 a.m., London time, on such
Market Day. If, in turn, such rate is not displayed on the Reuters Screen LIBO
Page at such time, the Calculation Agent will obtain from each of four reference
banks in London selected by the Calculation Agent (the "Reference Banks") such
bank's offered quotation (expressed as a percentage per annum) as of
<PAGE>
approximately 11:00 a.m., London time, on such Market Day for deposits in U.S.
dollars for the Index Maturity to prime banks in the London interbank market. If
two or more such quotations are provided as requested, then 3-Month LIBOR for
such Market Day shall be the arithmetic mean of such quotations. If, in turn,
fewer than two such quotations are provided as requested, then 3-Month LIBOR for
such Market Day will be obtained from the preceding Market Day for which the
Reuters Screen LIBO Page displayed an offered rate for deposits in U.S. dollars
for the Index Maturity.
iii. If on any Determination Date, the Calculation Agent is required but
unable to determine 3-Month LIBOR in the manner provided in paragraphs (i) and
(ii) above, 3-Month LIBOR for such Interest Period shall be 3-Month LIBOR as
determined on the immediately preceding Determination Date.
The term "Market Day" means any day on which commercial banks and foreign
exchange markets are open for business (including dealings in foreign exchange
and foreign currency deposits) in The City of New York and The City of London.
The interest rate for any Interest Period will at no time be higher than
the maximum rate then permitted by applicable law.
All percentages resulting from any calculations referred to herein will be
rounded, if necessary, to the nearest multiple of 1/100 of 1% and all U.S.
dollar amounts used in or resulting from such calculations will be rounded to
the nearest cent (with one-half cent or more being rounded upwards).
The Calculation Agent shall, as soon as practicable after 11:00 a.m.,
London time, on each Determination Date, determine the interest rate and
calculate the amount of interest payable in respect of the Interest Period
related to such Determination Date (the "Interest Amount"). The Interest Amount
shall be calculated by applying the interest rate to the principal amount of
each Series B Debenture outstanding at the commencement of the Interest Period,
multiplying such amount by the actual number of days in the applicable Interest
Period divided by 360 and rounding the resultant figure to the nearest cent
(with one-half cent or more being rounded upwards). The determination of the
interest rate and the Interest Amount by the Calculation Agent will (in the
absence of willful default, bad faith or manifest error) be final, conclusive
and binding on all concerned. Neither the Calculation Agent nor the Company (or
any of their respective officers, directors, agents, beneficiaries, employees or
affiliates) shall have any liability to any person for (i) the selection of any
Reference Bank or (ii) any inability to retain major banks in the London
interbank market, in the case of the Calculation Agent, which is caused by
circumstances beyond its reasonable control.
<PAGE>
All certificates, communications, opinions, determinations, calculations,
quotations and decisions given, expressed, made or obtained for the purposes of
the provisions hereof relating to the payment and calculation of interest on the
Series B Debentures, whether by the Reference Banks (or any of them) or the
Calculation Agent, will (in the absence of willful default, bad faith or
manifest error) be binding on Trust II, the Company, the Trustee, the
Calculation Agent and all of the holders of the Series B Debentures and no
liability will (in the absence of willful default, bad faith or manifest error)
attach to the Calculation Agent in connection with the exercise or non-exercise
by it of its powers, duties and discretion.
(e) The "Interest Payment Dates" for the Series B Debentures are March 31,
June 30, September 30 and December 31 of each year, commencing September 30,
1998. In the event that any date on which interest is payable on the Series B
Debentures is not a Business Day, then payment of interest payable on such date
will be made 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, such payment shall be made
on the immediately preceding Business Day, in each case with the same force and
effect as if made on such date. The Regular Record Date for each Interest
Payment Date for the Series B Debentures shall be the 15th day (whether or not a
Business Day) of the last month of each quarter, provided that if Trust II is
the sole Holder of the Series B Debentures or the Series B Debentures are issued
in book-entry-only form, the Regular Record Date shall be the close of business
on the Business Day next preceding such Interest Payment Date.
Each Series B Debenture shall bear interest from its Issue Date or from the
most recent Interest Payment Date to which interest has been paid or duly
provided for with respect to such Series B Debenture; except that, so long as
there is no existing Defaulted Interest or Extension Period on the Series B
Debentures, any Series B Debenture authenticated by the Trustee between the
Regular Record Date for any Interest Payment Date and such Interest Payment Date
shall bear interest from such Interest Payment Date.
Overdue principal of, and interest on, any Series B Debenture and interest
which has been deferred pursuant to Section 4.01(b) of the Indenture shall bear
interest (to the extent that the payment of such interest shall be legally
enforceable) at a rate per annum equal to the interest rate per annum payable on
such Series B Debenture.
The Calculation Agent will cause the interest rate, the Interest Amount in
respect of each Series B Debenture and the interest payment date for each
Interest Period to be given to the Trustee, the Property Trustee and the Company
as soon as practicable after the determination thereof but in no event later
than the second Business Day of the applicable Interest Period.
(f) The Series B Debentures shall be issuable only in registered form
without coupons and only in denominations of $1,000 and any integral multiple
thereof.
<PAGE>
(g) The maximum Extension Period for the Series B Debentures shall be 20
consecutive quarters.
(h) First Union National Bank shall initially be the Paying Agent for the
Series B Debentures.
(i) First Union National Bank shall initially be the Calculation Agent for
the Series B Debenture. In the event of the resignation or removal of First
Union National Bank as the Calculation Agent, the Company will promptly appoint
a successor Calculation Agent and such successor Calculation Agent shall,
without any further act, deed or conveyance become vested with all of the
authority, rights, duties and obligations of the Calculation Agent with the like
effect as if originally appointed as Calculation Agent.
ARTICLE 3.
REDEMPTION
SECTION 3.01 Redemption; Notice to Trustee
(a) The Series B Debentures are subject to redemption prior to maturity as
provided therein.
(b) Any redemption of the Series B Debentures shall be made in the manner,
upon the terms and with the effect, all as provided in Sections 3.01(c), 3.02,
3.03, 3.04, 3.05 and 3.06 of the Indenture.
ARTICLE 4.
COVENANT
SECTION 4.01. Payment of Expenses of Trust II.
The Company covenants for the benefit of the Holders of the Series B
Debentures to pay all of the costs and expenses of Trust II in accordance with
Section 2.03(b) of the Trust II Agreement and to pay the taxes of Trust II in
accordance with Section 2.03(c) of the Trust II Agreement in order to permit
Trust II to make distributions on and redemptions of the Series B Capital
Securities in accordance with Article IV of the Trust II Agreement.
ARTICLE 5.
MISCELLANEOUS
SECTION 5.01 Confirmation of Indenture
As amended and supplemented by this First Supplemental Indenture, the
Indenture is in all respects ratified and confirmed and the Indenture and this
First Supplemental Indenture shall be read, taken and construed as one and the
same instrument.
SECTION 5.02 Notices
Any notice, request or other communication required or permitted to be
given hereunder shall be in writing and delivered, telecopied or mailed by
first-class mail, postage prepaid, addressed as follows:
<PAGE>
if to the Company:
Public Service Enterprise Group Incorporated
80 Park Plaza, T6B
P.O. Box 570
Newark, New Jersey 07101
Facsimile No. (973) 242-1651
Attention: Treasurer
if to the Trustee:
First Union National Bank
765 Broad Street
Newark, New Jersey 07101
Facsimile No. (973) 430-2117
Attention: Corporate Trust Department
The Company or the Trustee, by giving notice to the other, may designate
additional or different addresses for subsequent notices of communications. The
Company shall notify the holder, if any, of Senior Indebtedness of any such
additional or different addresses of which the Company receives notice from the
Trustee.
Any notice or communication given to a Debentureholder other than Trust II
shall be mailed to the Debentureholder at the Debentureholder's address as it
appears on the Register of the Registrar and shall be sufficiently given if
mailed within the time prescribed.
Failure to mail a notice or communication to a Debentureholder or any
defect in it shall not affect its sufficiency with respect to other
Debentureholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not received by the addressees.
If the Company mails a notice or communication to the Debentureholders, it
shall mail a copy to the Trustee and each Registrar, Paying Agent or
co-Registrar.
SECTION 5.03 Severability Clause
If any provision in this Indenture or in the Series B Debentures shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 5.04 No Recourse Against Others.
No director, officer, employee or stockholder, as such, of the Company
shall have any liability for any obligations of the Company under the Series B
Debentures or this First Supplemental Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. By accepting a
Series B Debenture, each Debentureholder shall waive and release all such
liability. The waiver and release shall be a part of the consideration for the
issue of the Series B Debentures.
SECTION 5.05 Successors.
All agreements of the Company in this First Supplemental Indenture and the
Series B Debentures shall bind its successors and assigns. All agreements of the
Trustee in this First Supplemental Indenture shall bind its successors and
assigns.
SECTION 5.06 Multiple Original Copies of this Indenture
The parties may sign any number of copies of this First Supplemental
Indenture. Each signed copy shall be an original, but all of them together
represent the same agreement. Any signed copy shall be sufficient proof of this
First Supplemental Indenture.
SECTION 5.07 Table of Contents; Headings, Etc
The Table of Contents, Cross-Reference Table and headings of the Articles
and Sections of this First Supplemental Indenture have been inserted for
convenience of reference only, are not to be considered a part hereof, and shall
in no way modify or restrict any of the terms or provisions hereof.
SIGNATURES
IN WITNESS WHEREOF, the undersigned, being duly authorized, have executed
this First Supplemental Indenture on behalf of the respective parties hereto as
of the date first above written.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
By: MORTON A. PLAWNER
-----------------
Name: Morton A. Plawner
Title: Treasurer
FIRST UNION NATIONAL BANK, as Trustee
By: FRANK GALLAGHER
---------------
Name: Frank Gallagher
Title: Vice President
<PAGE>
Exhibit A
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
Floating Rate Deferrable Interest Subordinated Debenture, Series B
No. R-1
Public Service Enterprise Group Incorporated, a New Jersey corporation (the
"Company", which term includes any successor corporation under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
Enterprise Capital Trust II or registered assigns, the principal sum of One
Hundred Fifty-Four Million Six Hundred Forty Thousand Dollars ($154,640,000) on
June 30, 2028, and to pay interest on said principal sum from June 26, 1998 or
from the most recent Interest Payment Date (as defined below) to which interest
has been paid or duly provided for, quarterly in arrears and reset on March 31,
June 30, September 30 and December 31 commencing September 30, 1998 (each, an
"Interest Payment Date") at floating rate per annum determined quarterly by
reference to 3-Month LIBOR, determined as provided in the Indenture, plus a
margin of 1.22% until the principal hereof shall have become due and payable,
and on any overdue principal and (to the extent that payment of such interest is
enforceable under applicable law) on any overdue installment of interest at the
same rate per annum. The amount of interest payable on any Interest Payment Date
shall be calculated by applying the interest rate to the principal amount
outstanding at the commencement of the Interest Period, multiplying such amount
by the actual number of days in the applicable Interest Period divided by 360
and rounding the resultant figure to the nearest cent (with one-half cent or
more being rounded upwards). In the event that any Interest Payment Date is not
a Business Day, then interest will be payable on the next succeeding day which
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, such payment shall be made on the immediately preceding Business
Day, in each case with the same force and effect as if made on such date. The
interest installment so payable, and punctually paid or duly provided for as
provided in the Indenture, shall be paid to the Person in whose name this
Debenture is registered at the close of business on the Regular Record Date for
such interest installment, which shall be the 15th day (whether or not a
Business Day) of the last month of each quarter, provided that if all of the
Series B Debentures (as defined below) are then held by Enterprise Capital Trust
II (the "Trust") or the Series B Debentures are held in book-entry-only form,
the Regular Record Date shall be the close of business on the Business Day next
preceding such Interest Payment Date. Any such interest installment not
punctually paid or duly provided for shall forthwith cease to be payable to the
Holders on such Regular Record Date, and may be paid to the Person in whose name
this Debenture is registered at the close of business on a Special Record Date
to be fixed by the Trustee (as defined below) for the payment of such defaulted
interest, notice whereof shall be given to the Holders of the Series B
Debentures not less than 7 days prior to such Special Record Date, as more fully
provided in the Indenture.
<PAGE>
Payment of the principal of and interest on this Debenture will be made in
such coin or currency of the United States of America as at the time of payment
is legal tender for payment of public and private debts. Payments of interest on
an Interest Payment Date will be made by check mailed to the Holder hereof at
the address shown in the Register or, at the option of the Holder hereof, to
such other place in the United States of America as Holder hereof shall
designate to the Trustee in writing. At the request of a Holder of at least
$10,000,000 aggregate principal amount of Series B Debentures, interest on such
Debentures will be payable by wire transfer within the continental United States
in immediately available funds to the bank account number specified in writing
by such Holder to the Registrar prior to the Regular Record Date.
The principal amount hereof and interest due on the Stated Maturity Date or
a Redemption Date (other than an Interest Payment Date) will be paid only upon
surrender of this Debenture at the principal corporate trust office of First
Union National Bank, Paying Agent, in Newark, NJ, or at such other office or
agency of the Paying Agent as the Company shall designate by written notice to
the Holder of this Debenture.
The indebtedness evidenced by this Debenture is, to the extent provided in
the Indenture, subordinate and subject in right of payment to the prior payment
in full of all Senior Indebtedness, and this Debenture is issued subject to the
provisions of the Indenture with respect thereto. The Holder of this Debenture,
by accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee on his behalf to take such action as may be
necessary or appropriate to acknowledge or effectuate the subordination so
provided and (c) appoints the Trustee his attorney-in-fact for any and all such
purposes. The Holder of this Debenture, by his acceptance hereof, hereby waives
all notice of the acceptance of the subordination provisions contained herein
and in the Indenture by each holder of Senior Indebtedness, whether now
outstanding or hereafter incurred, and waives reliance by each such holder upon
said provisions.
This Debenture is one of a duly authorized series of Debentures of the
Company (herein sometimes referred to as the "Series B Debentures"), specified
in the Indenture, limited in aggregate principal amount to One Hundred
Fifty-Four Million, Six Hundred Forty Thousand Dollars ($154,640,000) issued
under and pursuant to an Indenture dated as of January 1, 1998 executed and
delivered between the Company and First Union National Bank, as trustee (the
"Trustee"), as supplemented by the First Supplemental Indenture dated as of June
1, 1998 between the Company and the Trustee (said Indenture as so supplemented
being hereinafter referred to as the "Indenture"). The Series B Debentures are
initially being issued to the Trust, to be held on behalf of the Trust by its
property trustee (the "Property Trustee"). Concurrently with the issuance of the
Series B Debentures, the Trust is issuing its trust securities, representing
<PAGE>
undivided beneficial interests in the assets of the Trust and having an
aggregate liquidation amount equal to the principal amount of the Series B
Debentures, including the Trust's Floating Rate Capital Securities, Series B
(the "Preferred Securities"). By the terms of the Indenture, Debentures are
issuable in series which may vary as to amount, date of maturity, rate of
interest and in other respects as provided in the Indenture. Reference is made
to the Indenture and all indentures supplemental thereto for a description of
the rights, limitations of rights, obligations, duties and immunities thereunder
of the Trustee, the Company and the Holders of the Debentures. Each term used in
this Debenture which is defined in the Indenture and not defined herein shall
have the meaning assigned to it in the Indenture.
The following redemption provisions shall apply to the Series B Debentures:
Regular Redemption
The Series B Debentures may be redeemed in whole or part at the option of
the Company at any time on or after June 30, 2003 at a redemption price equal to
100% of the principal amount thereof plus accrued and unpaid interest to the
redemption date.
Special Event Redemption
If a Tax Event or an Investment Company Event (each, a "Special Event") has
occurred and is continuing, the Company may redeem the Series B Debentures, in
whole but not in part, at a price equal to 100% of the principal amount thereof
plus accrued and unpaid interest to the redemption date within 90 days following
the occurrence of such Special Event.
"Tax Event" means that the Company shall have received an opinion of
counsel (which may be counsel to the Company 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 Capital Securities, there is more than an insubstantial risk
that (i) the Trust is, or will be, subject to federal income tax with respect to
interest on the Series B Debentures, (ii) interest payable by the Company on the
Series B Debentures is not, or will not be, deductible by the Company for
federal income tax purposes or (iii) the Trust is, or will be, subject to more
than a de minimis amount of other taxes, duties, assessments or other
governmental charges.
<PAGE>
"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 Trust 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 Capital Securities.
At least 30 days but not more than 60 days before the Redemption Date, the
Trustee shall mail or caused to be mailed a notice of redemption by first-class
mail, postage prepaid, to each Holder of Series B Debentures to be redeemed.
In the event of redemption of this Debenture in part only, a new Series B
Debenture or Debentures for the unredeemed portion hereof will be issued in the
name of the Holder hereof upon the cancellation hereof.
In case an Event of Default with respect to the Series B Debentures occurs
and is continuing, the principal of and interest on all of the Series B
Debentures may (and, in certain circumstances shall) be declared, and upon such
declaration shall become, due and payable, in the manner, with the effect and
subject to the conditions provided in the Indenture.
The Indenture contains provisions for defeasance at any time of the entire
indebtedness of this Debenture upon compliance by the Company with certain
conditions set forth therein.
Subject to certain exceptions in the Indenture which require the consent of
every Holder, the Company and the Trustee may amend the Indenture or may waive
future compliance by the Company with any provisions of the Indenture with the
consent of the Holders of at least a majority in aggregate principal amount of
the Debentures of each series affected thereby provided that if the Series B
Debentures are held by the Trust, no such amendment or waiver that adversely
affects the holders of the Preferred Securities shall be effective without the
prior consent of the holders of at least a majority in aggregate liquidation
amount of the outstanding Preferred Securities issued under the Indenture at the
time outstanding. Subject to certain exceptions in the Indenture, without the
consent of any Holder of the Debentures issued under the Indenture, the Company
and the Trustee may amend the Indenture to cure any ambiguity, defect or
inconsistency, to bind a successor to the obligations of the Indenture, to
provide for uncertificated Debentures in addition to certificated Debentures, to
comply with any requirements of the Debentures and the Securities and Exchange
Commission in connection with the qualification of the Indenture under the TIA,
or to make any change that, in the reasonable judgment of the Company, does not
adversely affect the rights of any Holder of the Debentures. Amendments bind all
Holders and subsequent Holders of Debentures.
<PAGE>
No reference herein to the Indenture and no provision of this Debenture or
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and interest on this
Debenture at the time and place and at the rate and in the money herein
prescribed.
So long as an Event of Default with respect to the Series B Debentures has
not occurred and is continuing, the Company shall have the right at any time and
from time to time to extend the interest payment period of the Series B
Debentures for up to 20 consecutive quarters (the "Extension Period"), provided
that no Extension Period shall extend beyond the Stated Maturity Date or
Redemption Date of any Series B Debenture. At the end of the Extension Period,
the Company shall pay all interest then accrued and unpaid (together with
interest thereon at the rate specified on a quarterly basis for the Series B
Debentures, as described in the Indenture, compounded quarterly, to the extent
that payment of such interest is enforceable under applicable law). During such
Extension Period, the Company may not declare or pay any dividend on, redeem,
purchase, acquire or make a liquidation payment with respect to, any of its
capital stock. Prior to the termination of any such Extension Period, the
Company may further extend such Extension Period, provided that such Extended
Interest Payment Period together with all such previous and further extensions
thereof shall not exceed 20 consecutive quarters and shall not extend beyond the
Stated Maturity Date or Redemption Date of any Series B Debenture. At the
termination of any such Extended Interest Payment Period and upon the payment of
all amounts then due, the Company may elect to begin a new Extended Interest
Payment Period, subject to the foregoing restrictions.
Series B Debentures are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, this Debenture
is exchangeable for a like aggregate principal amount of Series B Debentures of
a different authorized denomination, as requested by the Holder surrendering the
same.
As provided in the Indenture and subject to certain limitations therein set
forth, this Debenture is transferable by the Holder hereof upon surrender of
this Debenture for registration of transfer at the office or agency of the
Registrar accompanied by a written instrument or instruments of transfer in form
satisfactory to the Registrar duly executed by the Holder hereof or his attorney
duly authorized in writing, and thereupon one or more new Series B Debentures of
authorized denominations and for the same aggregate principal amount will be
issued to the designated transferee or transferees. No service charge will be
made for any such transfer, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in relation
thereto.
<PAGE>
Prior to presentment for registration of transfer of this Debenture, the
Company, the Trustee, any Paying Agent and any Registrar may deem and treat the
Holder hereof as the absolute owner hereof (whether or not this Debenture shall
be overdue and notwithstanding any notice of ownership or writing hereon made by
anyone other than the Registrar) for the purpose of receiving payment of or on
account of the principal hereof and interest due hereon and for all other
purposes, and neither the Company nor the Trustee nor any Paying Agent nor any
Registrar shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the
interest on this Debenture, or for any claim based hereon, or otherwise in
respect hereof, or based on or in respect of the Indenture, against any
incorporator, stockholder, officer or director, past, present or future, as
such, of the Company or of any predecessor or successor corporation, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the acceptance
hereof and as part of the consideration for the issuance hereof, expressly
waived and released.
This Debenture shall not be valid until an authorized signatory of the
Trustee manually signs and dates the Trustee's Certificate of Authentication
below.
IN WITNESS WHEREOF, the Company has caused this Debenture to be signed
manually or by facsimile by a duly authorized officer and a facsimile of its
corporate seal to be affixed hereto or imprinted hereon.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
By: MORTON A. PLAWNER
-----------------
[SEAL] Name: Morton A. Plawner
Title: Treasurer
Attest: PATRICK M. BURKE
- --------------------------------
[Assistant] Secretary
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Debentures, of the series designated, referred to in the
within-mentioned First Supplemental Indenture.
FIRST UNION NATIONAL BANK, as Trustee
By: FRANK GALLAGHER
---------------
Name:Frank Gallagher
Authorized Signatory
Dated: June 26, 1998
-------------
<PAGE>
ASSIGNMENT FORM
To assign this Debenture, fill in the form below: (I) or (we) assign and
transfer this Debenture to:
______________________________________________________
(Insert assignee's social security or tax I.D. number)
______________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint _____________________________ agent to transfer
this Debenture on the books of the Register. The agent may substitute another to
act for him.
Dated:__________________________ Signature:_________________________________
(Sign exactly as your name appears
on the other side of this Debenture)
Signature Guaranty:___________________
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
and
FIRST UNION NATIONAL BANK, as Trustee
SECOND SUPPLEMENTAL INDENTURE
Dated as of July 1, 1998
to
INDENTURE
Dated as of January 1, 1998
7-1/4% Deferrable Interest Subordinated Debentures, Series C
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE 1.
DEFINITIONS...............................................2
SECTION 1.01 Definitions.................................2
ARTICLE 2.
THE SERIES C DEBENTURES...................................2
SECTION 2.01 Terms and Form of the Series C Debentures....2
ARTICLE 3.
REDEMPTION................................................3
SECTION 3.01 Redemption; Notice to Trustee...............3
ARTICLE 4.
COVENANT..................................................4
SECTION 4.01 Payment of Expenses of Trust III............4
ARTICLE 5.
MISCELLANEOUS.............................................4
SECTION 5.01 Confirmation of Indenture...................4
SECTION 5.02 Notices.....................................4
SECTION 5.03 Severability Clause.........................5
SECTION 5.04 No Recourse Against Others..................5
SECTION 5.05 Successors..................................5
SECTION 5.06 Multiple Original Copies of this Indenture..5
SECTION 5.07 Table of Contents; Headings, Etc............5
<PAGE>
SECOND SUPPLEMENTAL INDENTURE, dated as of July 1, 1998, by and between
Public Service Enterprise Group Incorporated, a corporation duly organized and
existing under the laws of the State of New Jersey (the "Company") and First
Union National Bank, a national banking association organized and existing under
the laws of the United States of America, as trustee (the "Trustee") under the
Indenture dated as of January 1, 1998 between the Company and the Trustee.
WHEREAS, the Company executed and delivered the Indenture dated as of
January 1, 1998 to the Trustee to provide for the issuance of its deferrable
interest subordinated debentures (the "Debentures") in series from time to time
as might be determined by the Company and pursuant thereto, the Company has
issued its 7.44% Deferrable Interest Subordinated Debentures, Series A.
WHEREAS, the Company executed and delivered a supplement to the Indenture
(the "First Supplemental Indenture") dated as of June 1, 1998 providing for the
issuance of its Floating Rate Deferrable Interest Subordinated Debentures,
Series B.
WHEREAS, pursuant to an Amended and Restated Trust Agreement dated as of
July 6, 1998 (the "Trust III Agreement"), among the Company, as depositor, First
Union National Bank, as Property Trustee (the "Property Trustee III"), the
Delaware Trustee named therein and the Administrative Trustees named therein,
there has been declared and established Enterprise Capital Trust III, a Delaware
business trust ("Trust III").
WHEREAS, Trust III intends to issue its Trust Securities (as defined in the
Trust III Agreement), including its 7-1/4% Trust Originated Preferred
Securities, Series C, representing undivided beneficial interests in the assets
of Trust III and having a liquidation amount of $25 per security (the "Series C
Preferred Securities").
WHEREAS, the Company has authorized the issuance of a series of additional
debentures pursuant to Section 2.04 of the Indenture to be designated as the
Company's 7-1/4% Deferrable Interest Subordinated Debentures, Series C (the
"Series C Debentures") to be purchased by Trust III with the proceeds of the
Trust Securities, and to provide therefor, the Company has duly authorized the
execution and delivery of this Second Supplemental Indenture.
WHEREAS, all things necessary to make the Series C Debentures when duly
issued and executed by the Company and authenticated and delivered hereunder,
the valid obligations of the Company, and to make this Second Supplemental
Indenture a valid and binding agreement of the Company, in accordance with its
terms, have been done.
NOW THEREFORE:
Each of the Company and the Trustee, intending to be legally bound hereby,
agrees as follows for the benefit of the other party and for the equal and
ratable benefit of the holders of the Debentures, including the Series C
Debentures:
<PAGE>
ARTICLE 1.
DEFINITIONS
SECTION 1.01 Definitions
The following terms used in this Second Supplemental Indenture shall have
the following meanings:
"Debentureholder" or "Holder" means a Person in whose name a Series C
Debenture is registered on the Registrar's books.
"Series C Debentures" means any of the Company's 7-1/4% Deferrable Interest
Subordinated Debentures, Series C issued under this Second Supplemental
Indenture.
"Series C Guarantee Agreement" means that certain Guarantee Agreement
issued by the Company with respect to the Series C Preferred Securities, in
which the Company irrevocably and unconditionally agrees to pay the Guarantee
Payments (as defined in the Guarantee Agreement) to the holders of the Series C
Preferred Securities.
"Series C Preferred Securities" means the undivided beneficial interests in
the assets of Trust III, having a liquidation amount of $25 and having rights
provided therefor in the Trust III Agreement.
"Trust III" means Enterprise Capital Trust III, a Delaware business trust
created by the Trust III Agreement.
"Trust III Agreement" means the Amended and Restated Trust Agreement dated
as of July 6, 1998, among the Company, as Depositor, Fidelity Union National
Bank, as Property Trustee, the Delaware Trustee named therein and the
Administrative Trustees named therein, as the same may be amended and modified
from time to time.
Each of the other terms used in this Second Supplemental Indenture that is
defined in the Indenture and not defined herein shall have the meaning assigned
to it in the Indenture.
ARTICLE 2.
THE SERIES C DEBENTURES
SECTION 2.01 Terms and Form of the Series C Debentures
(a) The Series C Debentures shall be designated "Public Service Enterprise
Group Incorporated 7-1/4% Deferrable Interest Subordinated Debentures, Series
C." The Series C Debentures and the Trustee's Certificate of Authentication
shall be substantially in the form of Exhibit A attached hereto. The Series C
Debentures shall initially be issued as global Debentures in accordance with the
provisions of Section 2.12 of the Indenture with The Depository Trust Company as
Depositary. The terms and provisions contained in the Series C Debentures shall
constitute, and are hereby expressly made, a part of this Second Supplemental
Indenture. The Company and the Trustee, by their execution and delivery of this
Second Supplemental Indenture, expressly agree to such terms and provisions and
to be bound thereby.
(b) The aggregate principal amount of Series C Debentures outstanding at
any time may not exceed $154,639,200 except as provided in Section 2.09 of the
Indenture. The Series C Debentures shall be authenticated and delivered from
time to time upon delivery to the Trustee of the items specified in Section
2.04(d) of the Indenture.
<PAGE>
(c) The Stated Maturity Date of the Series C Debentures is June 30, 2047.
(d) The interest rate of the Series C Debentures will be 7-1/4% per annum.
(e) The "Interest Payment Dates" for the Series C Debentures are March 31,
June 30, September 30 and December 31 of each year, commencing September 30,
1998. In the event that any date on which interest is payable on the Series C
Debentures is not a Business Day, then payment of interest payable on such date
will be made 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, such payment shall be made
on the immediately preceding Business Day, in each case with the same force and
effect as if made on such date. The Regular Record Date for each Interest
Payment Date for the Series C Debentures shall be the 15th day (whether or not a
Business Day) of the last month of each quarter, provided that if Trust III is
the sole Holder of the Series C Debentures or the Series C Debentures are issued
in book-entry-only form, the Regular Record Date shall be the close of business
on the Business Day next preceding such Interest Payment Date.
Each Series C Debenture shall bear interest from its Issue Date or from the
most recent Interest Payment Date to which interest has been paid or duly
provided for with respect to such Series C Debenture; except that, so long as
there is no existing Defaulted Interest or Extension Period on the Series C
Debentures, any Series C Debenture authenticated by the Trustee between the
Regular Record Date for any Interest Payment Date and such Interest Payment Date
shall bear interest from such Interest Payment Date.
Overdue principal of, and interest on, any Series C Debenture and interest
which has been deferred pursuant to Section 4.01(b) of the Indenture shall bear
interest (to the extent that the payment of such interest shall be legally
enforceable) at a rate per annum equal to the interest rate per annum payable on
such Series C Debenture.
(f) The Series C Debentures shall be issuable only in registered form
without coupons and only in denominations of $25 and any integral multiple
thereof.
(g) The maximum Extension Period for the Series C Debentures shall be 20
consecutive quarters.
(h) First Union National Bank shall initially be the Paying Agent for the
Series C Debentures.
ARTICLE 3.
REDEMPTION
SECTION 3.01 Redemption; Notice to Trustee
(a) The Series C Debentures are subject to redemption prior to maturity as
provided therein.
(b) Any redemption of the Series C Debentures shall be made in the manner,
upon the terms and with the effect, all as provided in Sections 3.01(c), 3.02,
3.03, 3.04, 3.05 and 3.06 of the Indenture.
<PAGE>
ARTICLE 4.
COVENANT
SECTION 4.01. Payment of Expenses of Trust III.
The Company covenants for the benefit of the Holders of the Series C
Debentures to pay all of the costs and expenses of Trust III in accordance with
Section 2.03(b) of the Trust III Agreement and to pay the taxes of Trust III in
accordance with Section 2.03(c) of the Trust III Agreement in order to permit
Trust III to make distributions on and redemptions of the Series C Preferred
Securities in accordance with Article IV of the Trust III Agreement.
ARTICLE 5.
MISCELLANEOUS
SECTION 5.01 Confirmation of Indenture
As amended and supplemented by this Second Supplemental Indenture, the
Indenture is in all respects ratified and confirmed and the Indenture and this
Second Supplemental Indenture shall be read, taken and construed as one and the
same instrument.
SECTION 5.02 Notices
Any notice, request or other communication required or permitted to be
given hereunder shall be in writing and delivered, telecopied or mailed by
first-class mail, postage prepaid, addressed as follows:
if to the Company:
Public Service Enterprise Group Incorporated
80 Park Plaza, T6B
P.O. Box 570
Newark, New Jersey 07101
Facsimile No. (973) 242-1651
Attention: Treasurer
if to the Trustee:
First Union National Bank
765 Broad Street
Newark, New Jersey 07101
Facsimile No. (973) 430-2117
Attention: Corporate Trust Department
The Company or the Trustee, by giving notice to the other, may designate
additional or different addresses for subsequent notices of communications. The
Company shall notify the holder, if any, of Senior Indebtedness of any such
additional or different addresses of which the Company receives notice from the
Trustee.
Any notice or communication given to a Debentureholder other than Trust III
shall be mailed to the Debentureholder at the Debentureholder's address as it
appears on the Register of the Registrar and shall be sufficiently given if
mailed within the time prescribed.
<PAGE>
Failure to mail a notice or communication to a Debentureholder or any
defect in it shall not affect its sufficiency with respect to other
Debentureholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not received by the addressees.
If the Company mails a notice or communication to the Debentureholders, it
shall mail a copy to the Trustee and each Registrar, Paying Agent or
co-Registrar.
SECTION 5.03 Severability Clause
If any provision in this Indenture or in the Series C Debentures shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 5.04 No Recourse Against Others.
No director, officer, employee or stockholder, as such, of the Company
shall have any liability for any obligations of the Company under the Series C
Debentures or this Second Supplemental Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. By accepting a
Series C Debenture, each Debentureholder shall waive and release all such
liability. The waiver and release shall be a part of the consideration for the
issue of the Series C Debentures.
SECTION 5.05 Successors.
All agreements of the Company in this Second Supplemental Indenture and the
Series C Debentures shall bind its successors and assigns. All agreements of the
Trustee in this Second Supplemental Indenture shall bind its successors and
assigns.
SECTION 5.06 Multiple Original Copies of this Indenture
The parties may sign any number of copies of this Second Supplemental
Indenture. Each signed copy shall be an original, but all of them together
represent the same agreement. Any signed copy shall be sufficient proof of this
Second Supplemental Indenture.
SECTION 5.07 Table of Contents; Headings, Etc.
The Table of Contents, Cross-Reference Table and headings of the Articles
and Sections of this Second Supplemental Indenture have been inserted for
convenience of reference only, are not to be considered a part hereof, and shall
in no way modify or restrict any of the terms or provisions hereof.
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the undersigned, being duly authorized, have executed
this Second Supplemental Indenture on behalf of the respective parties hereto as
of the date first above written.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
By: MORTON A. PLAWNER
-----------------
Name: Morton A. Plawner
Title: Treasurer
FIRST UNION NATIONAL BANK, as Trustee
By: FRANK GALLAGHER
---------------
Name: Frank Gallagher
Title: Vice President
<PAGE>
Exhibit A
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
7-1/4% Deferrable Interest Subordinated Debenture, Series C
No. R-1
Public Service Enterprise Group Incorporated, a New Jersey corporation (the
"Company", which term includes any successor corporation under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
Enterprise Capital Trust III or registered assigns, the principal sum of One
Hundred Fifty-Four Million Six Hundred Thirty-Nine Thousand Two Hundred Dollars
($154,639,200) on June 30, 2047, and to pay interest on said principal sum from
July 6, 1998 or from the most recent Interest Payment Date (as defined below) to
which interest has been paid or duly provided for, quarterly in arrears on March
31, June 30, September 30 and December 31 commencing September 30, 1998 (each,
an "Interest Payment Date") at a rate of 7-1/4% per annum until the principal
hereof shall have become due and payable, and on any overdue principal and (to
the extent that payment of such interest is enforceable under applicable law) on
any overdue installment of interest at the same rate per annum. The amount of
interest payable on any Interest Payment Date shall be computed on the basis of
a 360-day year of twelve 30-day months. In the event that any Interest Payment
Date is not a Business Day, then interest will be payable on the next succeeding
day which 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, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date. The interest installment so payable, and punctually paid or duly
provided for as provided in the Indenture, shall be paid to the Person in whose
name this Debenture is registered at the close of business on the Regular Record
Date for such interest installment, which shall be the 15th day (whether or not
a Business Day) of the last month of each quarter, provided that if all of the
Series C Debentures (as defined below) are then held by Enterprise Capital Trust
III (the "Trust") or the Series C Debentures are held in book-entry-only form,
the Regular Record Date shall be the close of business on the Business Day next
preceding such Interest Payment Date. Any such interest installment not
punctually paid or duly provided for shall forthwith cease to be payable to the
Holders on such Regular Record Date, and may be paid to the Person in whose name
this Debenture is registered at the close of business on a Special Record Date
to be fixed by the Trustee (as defined below) for the payment of such defaulted
interest, notice whereof shall be given to the Holders of the Series C
Debentures not less than 7 days prior to such Special Record Date, as more fully
provided in the Indenture.
Payment of the principal of and interest on this Debenture will be made in
such coin or currency of the United States of America as at the time of payment
is legal tender for payment of public and private debts. Payments of interest on
an Interest Payment Date will be made by check mailed to the Holder hereof at
the address shown in the Register or, at the option of the Holder hereof, to
such other place in the United States of America as Holder hereof shall
designate to the Trustee in writing. At the request of a Holder of at least
$10,000,000 aggregate principal amount of Series C Debentures, interest on such
Debentures will be payable by wire transfer within the continental United States
in immediately available funds to the bank account number specified in writing
by such Holder to the Registrar prior to the Regular Record Date.
<PAGE>
The principal amount hereof and interest due on the Stated Maturity Date or
a Redemption Date (other than an Interest Payment Date) will be paid only upon
surrender of this Debenture at the principal corporate trust office of First
Union National Bank, Paying Agent, in Newark, NJ, or at such other office or
agency of the Paying Agent as the Company shall designate by written notice to
the Holder of this Debenture.
The indebtedness evidenced by this Debenture is, to the extent provided in
the Indenture, subordinate and subject in right of payment to the prior payment
in full of all Senior Indebtedness, and this Debenture is issued subject to the
provisions of the Indenture with respect thereto. The Holder of this Debenture,
by accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee on his behalf to take such action as may be
necessary or appropriate to acknowledge or effectuate the subordination so
provided and (c) appoints the Trustee his attorney-in-fact for any and all such
purposes. The Holder of this Debenture, by his acceptance hereof, hereby waives
all notice of the acceptance of the subordination provisions contained herein
and in the Indenture by each holder of Senior Indebtedness, whether now
outstanding or hereafter incurred, and waives reliance by each such holder upon
said provisions.
This Debenture is one of a duly authorized series of Debentures of the
Company (herein sometimes referred to as the "Series C Debentures"), specified
in the Indenture, limited in aggregate principal amount to One Hundred
Fifty-Four Million, Six Hundred Thirty-Nine Thousand Two Hundred Dollars
($154,639,200) issued under and pursuant to an Indenture dated as of January 1,
1998 executed and delivered between the Company and First Union National Bank,
as trustee (the "Trustee"), as supplemented by the Second Supplemental Indenture
dated as of June 1, 1998 and the Second Supplemental Indenture dated July 1,
1998 between the Company and the Trustee (said Indenture as so supplemented
being hereinafter referred to as the "Indenture"). The Series C Debentures are
initially being issued to the Trust, to be held on behalf of the Trust by its
property trustee (the "Property Trustee"). Concurrently with the issuance of the
Series C Debentures, the Trust is issuing its trust securities, representing
undivided beneficial interests in the assets of the Trust and having an
aggregate liquidation amount equal to the principal amount of the Series C
Debentures, including the Trust's 7-1/4% Trust Originated Preferred Securities,
Series C (the "Preferred Securities"). By the terms of the Indenture, Debentures
are issuable in series which may vary as to amount, date of maturity, rate of
interest and in other respects as provided in the Indenture. Reference is made
to the Indenture and all indentures supplemental thereto for a description of
the rights, limitations of rights, obligations, duties and immunities thereunder
of the Trustee, the Company and the Holders of the Debentures. Each term used in
this Debenture which is defined in the Indenture and not defined herein shall
have the meaning assigned to it in the Indenture.
The following redemption provisions shall apply to the Series C Debentures:
Regular Redemption
------------------
The Series C Debentures may be redeemed in whole or part at the option of
the Company at any time on or after June 30, 2003 at a redemption price equal to
100% of the principal amount thereof plus accrued and unpaid interest to the
redemption date.
Special Event Redemption
------------------------
If a Tax Event or an Investment Company Event (each, a "Special Event") has
occurred and is continuing, the Company may redeem the Series C Debentures, in
whole but not in part, at a price equal to 100% of the principal amount thereof
plus accrued and unpaid interest to the redemption date within 90 days following
the occurrence of such Special Event.
<PAGE>
"Tax Event" means that the Company shall have received an opinion of
counsel (which may be counsel to the Company 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 C Preferred Securities, there is more than an insubstantial risk
that (i) the Trust is, or will be, subject to federal income tax with respect to
interest on the Series C Debentures, (ii) interest payable by the Company on the
Series C Debentures is not, or will not be, deductible by the Company for
federal income tax purposes or (iii) the Trust is, or will be, subject to more
than a de minimis amount of other taxes, duties, assessments or other
governmental charges.
"Investment Company Event" means the occurrence of a change in law or
regulation or a change in interpretation or application of law or regulation by
any legislative body, court, governmental agency or regulatory authority (a
"Change in 1940 Act Law") to the effect that the Trust is or will be considered
an "investment company" that is required to be registered under the Investment
Company Act of 1940, as amended, which Change in 1940 Act Law becomes effective
on or after the date of original issuance of the Series C Preferred Securities.
At least 30 days but not more than 60 days before the Redemption Date, the
Trustee shall mail or caused to be mailed a notice of redemption by first-class
mail, postage prepaid, to each Holder of Series C Debentures to be redeemed.
In the event of redemption of this Debenture in part only, a new Series C
Debenture or Debentures for the unredeemed portion hereof will be issued in the
name of the Holder hereof upon the cancellation hereof.
In case an Event of Default with respect to the Series C Debentures occurs
and is continuing, the principal of and interest on all of the Series C
Debentures may (and, in certain circumstances shall) be declared, and upon such
declaration shall become, due and payable, in the manner, with the effect and
subject to the conditions provided in the Indenture.
The Indenture contains provisions for defeasance at any time of the entire
indebtedness of this Debenture upon compliance by the Company with certain
conditions set forth therein.
Subject to certain exceptions in the Indenture which require the consent of
every Holder, the Company and the Trustee may amend the Indenture or may waive
future compliance by the Company with any provisions of the Indenture with the
consent of the Holders of at least a majority in aggregate principal amount of
the Debentures of each series affected thereby provided that if the Series C
Debentures are held by the Trust, no such amendment or waiver that adversely
affects the holders of the Preferred Securities shall be effective without the
prior consent of the holders of at least a majority in aggregate liquidation
amount of the outstanding Preferred Securities issued under the Indenture at the
time outstanding. Subject to certain exceptions in the Indenture, without the
consent of any Holder of the Debentures issued under the Indenture, the Company
and the Trustee may amend the Indenture to cure any ambiguity, defect or
inconsistency, to bind a successor to the obligations of the Indenture, to
provide for uncertificated Debentures in addition to certificated Debentures, to
comply with any requirements of the Debentures and the Securities and Exchange
Commission in connection with the qualification of the Indenture under the TIA,
or to make any change that, in the reasonable judgment of the Company, does not
adversely affect the rights of any Holder of the Debentures. Amendments bind all
Holders and subsequent Holders of Debentures.
<PAGE>
No reference herein to the Indenture and no provision of this Debenture or
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and interest on this
Debenture at the time and place and at the rate and in the money herein
prescribed.
So long as an Event of Default with respect to the Series C Debentures has
not occurred and is continuing, the Company shall have the right at any time and
from time to time to extend the interest payment period of the Series C
Debentures for up to 20 consecutive quarters (the "Extension Period"), provided
that no Extension Period shall extend beyond the Stated Maturity Date or
Redemption Date of any Series C Debenture. At the end of the Extension Period,
the Company shall pay all interest then accrued and unpaid (together with
interest thereon at the rate specified on a quarterly basis for the Series C
Debentures, as described in the Indenture, compounded quarterly, to the extent
that payment of such interest is enforceable under applicable law). During such
Extension Period, the Company may not declare or pay any dividend on, redeem,
purchase, acquire or make a liquidation payment with respect to, any of its
capital stock. Prior to the termination of any such Extension Period, the
Company may further extend such Extension Period, provided that such Extended
Interest Payment Period together with all such previous and further extensions
thereof shall not exceed 20 consecutive quarters and shall not extend beyond the
Stated Maturity Date or Redemption Date of any Series C Debenture. At the
termination of any such Extended Interest Payment Period and upon the payment of
all amounts then due, the Company may elect to begin a new Extended Interest
Payment Period, subject to the foregoing restrictions.
Series C Debentures are issuable only in registered form without coupons in
denominations of $25 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, this Debenture
is exchangeable for a like aggregate principal amount of Series C Debentures of
a different authorized denomination, as requested by the Holder surrendering the
same.
As provided in the Indenture and subject to certain limitations therein set
forth, this Debenture is transferable by the Holder hereof upon surrender of
this Debenture for registration of transfer at the office or agency of the
Registrar accompanied by a written instrument or instruments of transfer in form
satisfactory to the Registrar duly executed by the Holder hereof or his attorney
duly authorized in writing, and thereupon one or more new Series C Debentures of
authorized denominations and for the same aggregate principal amount will be
issued to the designated transferee or transferees. No service charge will be
made for any such transfer, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in relation
thereto.
Prior to presentment for registration of transfer of this Debenture, the
Company, the Trustee, any Paying Agent and any Registrar may deem and treat the
Holder hereof as the absolute owner hereof (whether or not this Debenture shall
be overdue and notwithstanding any notice of ownership or writing hereon made by
anyone other than the Registrar) for the purpose of receiving payment of or on
account of the principal hereof and interest due hereon and for all other
purposes, and neither the Company nor the Trustee nor any Paying Agent nor any
Registrar shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the
interest on this Debenture, or for any claim based hereon, or otherwise in
respect hereof, or based on or in respect of the Indenture, against any
incorporator, stockholder, officer or director, past, present or future, as
such, of the Company or of any predecessor or successor corporation, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the acceptance
hereof and as part of the consideration for the issuance hereof, expressly
waived and released.
<PAGE>
This Debenture shall not be valid until an authorized signatory of the
Trustee manually signs and dates the Trustee's Certificate of Authentication
below.
IN WITNESS WHEREOF, the Company has caused this Debenture to be signed
manually or by facsimile by a duly authorized officer and a facsimile of its
corporate seal to be affixed hereto or imprinted hereon.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
By: MORTON A. PLAWNER
-----------------
[SEAL] Name: Morton A. Plawner
Title: Treasurer
Attest: E. J. BIGGINS, JR.
- --------------------------------
Secretary
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Debentures, of the series designated, referred to in the
within-mentioned Second Supplemental Indenture.
FIRST UNION NATIONAL BANK, as Trustee
By: FRANK GALLAGHER
---------------
Name: Frank Gallagher
Authorized Signatory
Dated: July 6, 1998
<PAGE>
ASSIGNMENT FORM
To assign this Debenture, fill in the form below: (I) or (we) assign and
transfer this Debenture to:
______________________________________________________
(Insert assignee's social security or tax I.D. number)
______________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint _____________________________ agent to transfer this
Debenture on the books of the Register. The agent may substitute another to act
for him.
Dated:__________________________
Signature:_________________________________
(Sign exactly as your name appears on the other side of this Debenture)
Signature Guaranty:___________________
EMPLOYMENT AGREEMENT
AGREEMENT, by and between Public Service Enterprise Group
Incorporated, a New Jersey Corporation ("Enterprise") and E. James Ferland (the
"Executive"), dated as of June 16, 1998.
WHEREAS, the Executive is currently serving as Chairman of the
Board, President and Chief Executive Officer of Enterprise, and as Chairman of
the Board and Chief Executive Officer of its subsidiaries Public Service
Electric and Gas Company ("PSE&G"), a New Jersey corporation, and PSEG Energy
Holdings Inc. ("Energy Holdings"), a New Jersey corporation, all such
corporations hereinafter collectively referred to as the "Company".
WHEREAS, the Executive is willing to commit himself to be
employed by the Company on the terms and conditions herein set forth; and
WHEREAS, the parties desire to enter into this Agreement
setting forth the terms and conditions for the employment relationship of the
Executive with the Company during the Employment Period (as hereinafter
defined):
NOW, THEREFORE, IN CONSIDERATION of the mutual premises,
covenants and agreements set forth below, it is hereby agreed as follows:
1. General.
(a) Employment. The Company agrees to employ the Executive,
and the Executive agrees to be employed by the Company, in accordance with the
terms and provisions of this Agreement during the Employment Period.
(b) Term. The term of the Executive's employment under this
Agreement (the "Employment Period") shall commence as of the date hereof (the
"Effective Date") and shall continue until March 31, 2005. If the Executive
elects to retire prior to March 31, 2005, the Employment Period shall end on the
date of retirement.
2. Position, Duties and Powers of the Executive.
(a) Position. During the Employment Period, the Executive
shall serve as Chairman of the Board and Chief Executive Officer of Enterprise.
(b) Reporting Duties and Powers. During the Employment Period,
the Executive shall report directly to the Board of Directors of Enterprise (the
"Board"). As Chief Executive Officer of Enterprise, he shall be the highest
ranking officer of Enterprise with plenary powers of the supervision and
direction of the business and affairs of Enterprise and its subsidiaries and
affiliates.
(c) End of Employment Period. At the end of the Employment
Period (the "Retirement Date"), the Executive will retire from all offices held
with the Company and shall be entitled to a pension unreduced for early
retirement and calculated in accordance with Section 3(f) hereof (hereinafter
referred to as "Retirement").
(d) Board Membership. The Executive shall continue as a member
of and Chairman of the Board on the first day of the Employment Period through
the end of his current term ending with the Annual Meeting of Stockholders in
2001. Thereafter, the Board shall consider the Executive for re-election to the
Board throughout the Employment Period in accordance with its customary practice
for nominations to the Board, and shall elect him Chairman of the Board if
elected as a director by the shareholders. At the end of the Employment Period,
the Executive may continue as a member of the Board and be considered for
nomination for reelection to the Board thereafter on the same basis as the other
directors who are former CEOs, in accordance with the Board's customary practice
for nominations and its Retirement Policy.
(e) Other Positions. In addition to serving as Chairman and
Chief Executive Officer of Enterprise, the Executive is also presently serving
as President of Enterprise and as Chairman of the Board and Chief Executive
Officer of PSE&G and Energy Holdings. The Executive agrees to serve, if elected,
at no additional compensation in the position of officer or director of any
direct or indirect subsidiary or affiliate of the Company.
(f) Attention. During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote full attention and time during normal business hours
to the business and affairs of the Company and to use his reasonable best
efforts to perform such responsibilities in a professional manner. It shall not
be a violation of this Agreement for the Executive to (i) serve on corporate,
civic or charitable boards or committees, (ii) deliver lectures, fulfill
speaking engagements or teach at educational institutions and (iii) manage
personal investments, so long as such activities do not interfere with the
performance of the Executive's responsibilities as an officer and director of
the Company in accordance with this Agreement.
3. Compensation.
Except as modified by this Agreement, the Executive's
compensation shall be provided in accordance with the Company's standard
compensation and payroll practices as in effect from time to time. The aggregate
of Base Salary, Annual Incentive Compensation and Long-Term Incentives in
paragraphs (a), (b) and (c) below shall be determined based upon competitive
practices for chief executive officers of companies of comparable size and
standing.
(a) Base Salary. The annual rate of base salary payable to the
Executive during the Employment Period (the "Annual Base Salary") shall be
established by the Organization and Compensation Committee of the Board (the
"Compensation Committee"). During the Employment Period, the Annual Base Salary
shall be reviewed by the Compensation Committee for possible increase at least
annually. Annual Base Salary shall not be reduced after any such increase, and
the term "Annual Base Salary" shall thereafter refer to the Annual Base Salary
as so increased.
(b) Annual Incentive Compensation. The Board has established
and intends to continue an annual incentive compensation plan for the benefit of
the officers and other key employees of the Company, including the Executive,
based on competitive practices for companies of comparable size and standing.
The performance objectives for the Executive in respect of such incentive will
be determined by the Compensation Committee in accordance with past practices.
(c) Long-Term Incentives. The Board has established and
intends to continue a long-term incentive plan for the benefit of the officers
and other key employees of the Company, including the Executive, based on
competitive practices for companies of comparable size and standing. Such plan
may, in the judgment of the Compensation Committee, provide for stock options,
stock appreciation rights, restricted stock or stock units, performance stock or
units and/or other type of long-term incentive awards. The type and amount of
equity and any other long-term incentive grants will be determined by the
Compensation Committee from time to time, and awards thereunder shall be payable
to the Executive in accordance with the long-term incentive plan or plans in
effect from time to time.
(d) Stock Award. In consideration of the commitment he will assume
during the Employment Period, the Executive shall be granted an award (the
"Stock Award") with respect to 150,000 shares of the Common Stock without
nominal or par value of Enterprise ("Stock"), effective as of the Effective
Date, the shares of which Stock Award shall be restricted and shall be subject
to the following terms and conditions:
(i) The shares for the Stock Award shall be purchased by
Enterprise or its agent on the open market. In the event any of the
shares of the Stock Award shall be forfeited, Enterprise may apply such
shares for its corporate purposes in its discretion.
(ii) The Executive's right to the Stock Award shall vest in
accordance with the following schedule, provided that the Executive has
remained continuously employed by the Company, or its successor, during
the Employment Period through the dates indicated below:
Date Number of Shares
3/31/2002 60,000
3/31/2003 20,000
3/31/2004 30,000
3/31/2005 40,000
If, during the Employment Period, the Company terminates the
Executive's employment for Cause or the Executive terminates his
employment without Good Reason, including Retirement prior to March 31,
2005, the Executive shall forfeit all right to all shares of the Stock
Award that are not vested as of the Date of Termination. If, during the
Employment Period, the Company shall terminate the Executive's
employment without Cause or the Executive terminates his employment for
Good Reason, or the Executive's Employment terminates by reason of
death or Disability, the Executive's right to receive all shares of the
Stock Award shall vest as of the Date of Termination.
(iii) Shares of the Stock Award will be issued in the name of the
Executive, but will be held by Enterprise for the account of the
Executive together with a stock power that the Executive shall execute
and deliver to Enterprise. The shares shall bear a restrictive legend
indicating that they are subject to the terms, conditions and
limitations of this Agreement.
(iv) Once shares of the Stock Award shall vest, Enterprise shall
promptly issue to the Executive a certificate for such shares without
any legend or restriction (other than may be required by law) and
Enterprise shall return to the Executive or shall destroy the related
stock power previously executed by the Executive.
(v) Shares of Stock held by Enterprise for the account of the Executive
prior to distribution to the Executive may not be sold assigned,
transferred, pledged, hypothecated or otherwise disposed of, except by
will or the laws of descent and distribution. Any attempted sale,
assignment, transfer, pledge, hypothecation or disposition in
contravention of the foregoing shall be null and void and of no effect.
(vi) Except as otherwise provided herein, the Executive shall have all
of the rights of a stockholder with respect to the shares of the Stock
Award issued in his name, including the right to vote the shares, to
receive dividends and other distributions thereon and to participate in
any change in capitalization of Enterprise. In the event of any change
in capitalization resulting in the issuance of additional shares to the
Executive, such shares shall be subject to the same terms, conditions
and restrictions as the shares in respect to which they are issued, and
the Executive shall execute and deliver to Enterprise stock powers in
respect thereto. If the Executive elects to reinvest dividends on the
shares of the Stock Award, or if he shall receive rights or warrants in
respect to any shares of the Stock Award, the shares acquired by
dividend reinvestment or through the exercise of rights may be held,
sold or otherwise disposed of by the Executive, free and clear of any
restrictions created by this Agreement.
(vii) Unless the shares of the Stock Award to be issued to the
Executive have been registered pursuant to a Registration Statement
under the Securities Act of 1933, prior to receiving such shares the
Executive shall represent in writing to the Company that such shares
are being acquired for investment purposes only and not with a view
towards the further sale or distribution thereof and shall supply
Enterprise with such other documentation as may be required by
Enterprise, unless in the opinion of counsel to the Enterprise such
representation, agreement or documentation is not necessary to comply
with the Securities Act of 1933 and the rules and regulations
thereunder.
(viii) Enterprise shall not be required to deliver any shares of the
Stock Award until they have been listed on each securities exchange on
which shares of the Stock are listed or until there has been
qualification under or compliance with such state and federal laws,
rules or regulations that Enterprise may deem applicable. Enterprise
will use its best efforts to obtain such listing, qualification and
compliance.
(ix) The Compensation Committee may make such provisions and take such
steps as it may deem necessary or appropriate for the withholding of
any taxes that the Company is required by law or regulation of any
governmental authority, whether federal, state or local, domestic or
foreign, to withhold in connection with the Stock Award, including, but
not limited to (1) withholding delivery of the certificate for shares
of Stock until the Executive reimburses the Company for the amount it
is required to withhold with respect to such taxes, (2) the canceling
of any number of shares of Stock issuable to the Executive in an amount
necessary to reimburse the Company for the amount it is required to so
withhold, or (3) withholding the amount due from the Executive's other
compensation.
(e) Employee Benefit Programs. During the Employment Period,
(i) the Executive shall be eligible to participate in all savings and retirement
plans, practices, policies and programs to the same extent as other senior
executives of the Company and (ii) the Executive and/or the Executive's family,
as the case may be, shall be eligible for participation in and shall receive all
benefits under welfare benefit plans, practices, policies and programs provided
by the Company, other than severance plans, practices, policies and programs but
including, without limitation, medical, prescription, dental, disability, salary
continuance, employee life insurance, group life insurance, accidental death and
travel accident insurance plans and programs, and, upon retirement, all
applicable retirement benefit plans to the same extent and subject to the same
terms, conditions, cost-sharing requirements and the like, as other senior
executives of the Company, as such plans may be amended from time to time, and
as supplemented hereby. Following a Change in Control (as defined below), no
benefit coverage available to the Executive and/or to his family under any such
plan, practice, policy or program shall be materially reduced without the prior
written consent of the Executive.
(f) Retirement Benefit. During the Employment Period, the
Executive shall participate in PSE&G's Pension Plan, and also in PSE&G's Limited
Supplemental Benefits Plan, Mid-Career Hire Plan, Reinstatement Plan and such
other supplemental executive retirement plans as may be adopted and amended by
the Company from time to time ("SERPs"), such that the aggregate value of the
retirement benefits that he and his beneficiaries will receive at the end of the
Employment Period under all pension benefit plans of the Company and its
affiliates (whether qualified or not) will not be less than the benefits he
would have received had he continued, through the end of the Employment Period,
to participate in such plans, as in effect immediately before the date hereof
and giving effect to the service credits and payment terms set forth in Section
4 of the employment agreement dated April 16, 1986 between PSE&G and the
Executive (the "PSE&G Employment Agreement"), the terms of which Section 4 are
incorporated herein by reference, and a copy of which PSE&G Employment Agreement
is attached hereto. It is agreed that the Stock Award and any dividends or other
distributions in respect of the Stock Award shall not be included in any pension
calculation.
(g) Expenses. The Executive is authorized to incur reasonable
expenses in carrying out his duties and responsibilities under this Agreement.
The Company shall promptly reimburse him for all such expenses in accordance
with the policies of the Company in effect from time to time for reimbursement
of expenses for senior executives, and subject to documentation provided by the
Executive in accordance with such Company policies.
(h) Fringe Benefits. During the Employment Period, the
Executive shall be furnished with such fringe benefits and perquisites as are
customary for the Chairman and Chief Executive Officer of a corporation of the
size and nature of the Company and shall participate in all fringe benefits and
perquisites available to senior executives of the Company on terms and
conditions that are commensurate with his positions and responsibilities at the
Company.
(i) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with Company policy for its
most senior executives as in effect from time to time.
(j) Deferred Compensation. The Executive will retain all of
his rights in any compensation deferred prior to the date hereof in accordance
with the Deferred Compensation Plan, including earnings thereon, and following
the date hereof the obligations of PSE&G to pay such deferred compensation at
the times and in the manner specified in the Deferred Compensation Plan will
continue.
4. Termination of Employment.
(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 4(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" means that (i) the Executive has been unable, for the period, if
any, specified in the Company's disability plan for senior executives, but not
less than a period of 180 consecutive days, to perform the Executive's duties
under this Agreement and (ii) a physician selected by the Company or its
insurers, and acceptable to the Executive or the Executive's legal
representative, has determined that the Executive is disabled within the meaning
of the applicable disability plan for senior executives.
(b) By the Company.
(i) The Company may terminate the Executive's employment
during the Employment Period for Cause or without Cause. For purposes of this
Agreement, "Cause" shall mean (A) willful and continued failure by the Executive
to substantially perform his duties under this Agreement, (B) the willful
engaging by the Executive in gross misconduct which is materially and
demonstrably injurious to the Company, or (C) the conviction of the Executive of
a felony. No act or failure to act on the part of the Executive shall be
considered "willful" unless it is done, or omitted to be done, by the Executive
in bad faith or without reasonable belief that the Executive's action or
omission was in the best interests of the Company. Any act or failure to act
that is based upon authority given pursuant to a resolution duly adopted by the
Board, or the advice of counsel for the Company, shall be conclusively presumed
to be done, or omitted to be done, by the Executive in good faith and in the
best interests of the Company.
(ii) A termination of the Executive's employment for Cause
shall be effected in accordance with the following procedures. The Company shall
give the Executive written notice ("Notice of Termination for Cause") of its
intention to terminate the Executive's employment for Cause, setting forth in
reasonable detail the specific conduct of the Executive that it considers to
constitute Cause and the specific provision(s) of this Agreement on which it
relies. Such notice shall be given no later than 60 days after the act or
failure (or the last in a series of acts or failures) that the Company alleges
to constitute Cause. The Executive shall have 30 days after receiving the Notice
of Termination for Cause in which to cure such act or failure, to the extent
such cure is possible. In the case of a termination under Section 4(b)(i)(A) or
Section 4(b)(i)(B), if the Executive fails to cure such act or failure to the
reasonable satisfaction of the Board, the Company shall give the Executive a
second written notice stating the date, time and place of a special meeting of
the Board called and held specifically for the purpose of considering the
Executive's termination for Cause, which special meeting shall take place not
less than ten and not more than twenty business days after the Executive
receives notice thereof, and the Executive shall be given an opportunity,
together with counsel, to be heard at the special meeting of the Board. The
Executive's termination for Cause shall be effective when and if a resolution is
duly adopted by the affirmative vote of a majority of the Board stating that in
the good faith opinion of the Board, the Executive is guilty of the conduct
described in the Notice of Termination for Cause and that such conduct
constitutes Cause under this Agreement.
(c) Good Reason.
(i) The Executive may terminate his employment for Good Reason
or without Good Reason. For purpose of this Agreement, "Good Reason" shall mean:
(A) any adverse change in the Executive's titles, authority,
duties, responsibilities and reporting lines as specified in Sections
2(a) and 2(b) of this Agreement, or the assignment to the Executive of
any duties or responsibilities inconsistent in any respect with those
customarily associated with the position of Chief Executive Officer of
Enterprise to be held by the Executive pursuant to this Agreement;
(B) the failure by the Board to elect the Executive to the
positions of Chairman and Chief Executive Officer of Enterprise during
the Employment Period;
(C) the failure by the Board to nominate the Executive for
reelection to the Board at any annual meeting of Enterprise's
shareholders during the Employment Period at which the Executive's term
as a director is scheduled to expire, and if elected a director by the
shareholders, to elect the Executive as Chairman of the Board;
(D) the appointment at any time during the Employment Period
of any person other than the Executive to (x) the position specified in
Section 2(a) or (y) any other position or title conferring similar
status or authority;
(E) any reduction in the Executive's salary, target annual
bonus, target long-term incentive or Retirement benefit;
(F) any requirement by the Company that the Executive's
services be rendered primarily at a location or locations other than in
New Jersey;
(G) any purported termination of the Executive's employment by
the Company for a reason or in a manner not expressly permitted by this
Agreement;
(H) any failure by Enterprise to comply with Section 10(c) of
this Agreement; or
(I) any other material breach of this Agreement by the Company
that either is not taken in good faith or, even if taken in good faith,
is not remedied by the Company promptly after receipt of notice thereof
from the Executive;
provided that following a Change in Control which is recommended to the Board by
the Executive, Sections 4(c)(i)(A), (B), (C) and (D) shall not permit the
Executive to terminate his employment for Good Reason so long as during the
remainder of the Employment Period, the Board nominates the Executive as a
director of the surviving parent corporation, his office with the surviving
parent corporation is Chairman, Vice Chairman or President, and his executive
position with the surviving parent corporation is Chief Executive Officer or
Chief Operating Officer; and the provisions of Sections 2(a), (b) and (d) shall
be deemed modified to reflect such offices, positions and duties as are so held
by the Executive.
Following a Change in Control, the Executive's determination that an act or
failure to act constitutes Good Reason shall be conclusively presumed to be
valid unless such determination is decided to be unreasonable by an arbitrator
pursuant to Section 9.
(ii) A termination of employment by the Executive for Good
Reason shall be effectuated by giving the Company written notice
("Notice of Termination for Good Reason") of the termination, setting
forth in reasonable detail the specific acts or omissions of the
Company that constitute Good Reason and the specific provision(s) of
this Agreement on which the Executive relies. Unless the Board
determines otherwise, a Notice of Termination for Good Reason by the
Executive must be made within 60 days after the Executive first has
actual knowledge of the act or omission (or the last in a series of
acts or omissions) that the Executive alleges to constitute Good
Reason, and the Company shall have 30 days from the receipt of such
Notice of Termination for Good Reason to cure the conduct cited
therein. A termination of employment by the Executive for Good Reason
shall be effective on the final day of such 30-day cure period unless
prior to such time the Company has cured the specific conduct asserted
by the Executive to constitute Good Reason to the reasonable
satisfaction of the Executive.
(iii) A termination of the Executive's employment by the
Executive without Good Reason shall be effected by giving the Company
written notice specifying the effective date of termination.
(d) Date of Termination. The "Date of Termination" means the
date of the Executive's death, the Disability Effective Date, the date on which
the termination of the Executive's employment by the Company for Cause or
without Cause or by the Executive for Good Reason is effective, the effective
date specified in a notice of a termination of employment without Good Reason
from the Executive to the Company, or Retirement, as the case may be.
5. Obligations of the Company upon Termination.
(a) Good Reason; Other Than for Cause. If, during the
Employment Period, the Company shall terminate the Executive's employment other
than for Cause, death or Disability, or the Executive shall terminate his
employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in
cash, within 15 days after the Date of Termination, the aggregate of
the amounts set forth in clauses A and B below:
A. The sum of:
(1) the Executive's Annual Base Salary through
the Date of Termination;
(2) the product of (x) the "target" annual bonus
under Section 3(b) (the "Target Bonus") and
(y) a fraction, the numerator of which is
the number of days in the current calendar
year through the Date of Termination, and
the denominator of which is 365; and
(3) any accrued vacation pay;
in each case to the extent not theretofore paid (the sum of
the amounts described in clauses (1), (2) and (3) shall be
hereinafter referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) two and (2)
the sum of (x) the Executive's Annual Base Salary and
(y) the Target Bonus.
(ii) the Stock Award shall vest in accordance with
3(d)(ii);
(iii) any stock awards, other than the Stock Award, stock
options, stock appreciation rights or other equity-based awards that
were outstanding immediately prior to the Date of Termination ("Prior
Equity Awards") shall remain outstanding and shall continue to vest
and/or become exercisable as though the Executive's employment had not
terminated until the later of (x) the third anniversary of the Date of
Termination and (y) 90 days from the date that a stock option or other
award (or portion thereof) first becomes exercisable but in no event
beyond the original term thereof, and the Company shall take all such
actions as may be necessary to effectuate the foregoing;
(iv) for two years after the Executive's Date of Termination
or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall
continue benefits to the Executive and/or the Executive's family at
least equal to those which would have been provided to them in
accordance with the welfare plans, programs, practices and policies
described in Section 3(e) of this Agreement if the Executive's
employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect
to other peer executives of the Company and its affiliated companies
and their families, provided however, that if the Executive becomes
reemployed with another employer and is eligible to receive medical or
dental benefits under another employer provided plan, the medical and
dental benefits described herein shall be secondary to those provided
under such other plan during such applicable period of eligibility.
(v) any compensation previously deferred (other than pursuant
to a tax-qualified plan) by or on behalf of the Executive (together
with any accrued interest or earnings thereon), whether or not then
vested, shall become vested on the Date of Termination and shall be
paid in accordance with the terms of the plan, policy or practice under
which it was deferred;
(vi) the Company shall, at its sole expense as incurred,
provide the Executive with outplacement services suitable to the
Executive's position for a period not to exceed two years with a
nationally recognized outplacement firm; and,
(vii) to the extent not theretofore paid or provided, the
Company shall pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is
entitled to receive under any plan, program, policy, practice, contract
or agreement of the Company and its affiliated companies (other than
medical or dental benefits if the Executive is eligible for such
benefits to be provided by a subsequent employer), including earned but
unpaid stock and similar compensation but excluding any severance plan
or policy (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits").
(b) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause during the Employment Period,
or if the Executive voluntarily terminates employment during the
Employment Period, excluding a resignation for Good Reason, this
Agreement shall terminate without further obligations to the Executive
other than for amounts described in Sections 5(a)(i)(A)(1) and
5(a)(i)(A)(3) and the timely payment or provision of Other Benefits. In
such case, all such amounts shall be paid to the Executive in a lump
sum within 30 days of the Date of Termination.
(c) Death. If the Executive's employment terminates by reason
of the Executive's death during the Employment Period, all Accrued
Obligations as of the time of death shall be paid to the Executive's
estate or beneficiary, as applicable, in a lump sum in cash within 30
days of the Date of Termination and the Executive's estate or
beneficiary shall be entitled to any Other Benefits in accordance with
their terms. In addition, the Stock Award shall vest in accordance with
3(d)(ii). Any Prior Equity Awards shall vest and/or become exercisable,
as the case may be, as of the Date of Termination and the Executive's
estate or beneficiary, as the case may be, shall have the right to
exercise any such stock option, stock appreciation right or other
exercisable equity-based award until the earlier of (A) one year from
the Date of Termination (or such longer period as may be provided under
the terms of any such stock option, stock appreciation right or other
equity-based award) and (B) the normal expiration date of such stock
option, stock appreciation right or other equity-based award.
(d) Disability. If the Executive's employment is terminated by
reason of Disability during the Employment Period, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination, and the Executive shall be entitled
to any Other Benefits in accordance with their terms. In addition, the
Stock Award shall vest in accordance with 3(d)(ii). Any Prior Equity
Awards shall vest immediately and/or become exercisable, as the case
may be, and the Executive shall have the right to exercise any such
stock option, stock appreciation right or other exercisable
equity-based award until the earlier of (A) one year from the Date of
Termination (or such longer period as may be provided under the terms
of any such stock option, stock appreciation right or other
equity-based award) and (B) the normal expiration date of such stock
option, stock appreciation right or other equity-based award.
(e) Retirement. If the Executive's employment terminates at
the expiration of the Employment Period (or at any earlier date at
which the Executive elects to retire under any retirement plan
maintained by the Company), the Executive shall be paid the Accrued
Obligations in a lump sum in cash within 30 days of the Date of
Termination and the Executive shall be entitled to any Other Benefits
in accordance with their terms. Upon the Executive's retirement, unless
the Board otherwise determines, there shall be no acceleration of
vesting of any portion of the Stock Award not yet earned. The Executive
agrees not to retire (except for any Disability) prior to March 31,
2002.
6. Change in Control.
(a) Benefits Upon a Change in Control. Upon the occurrence of
a Change in Control during the Employment Period, the Stock Award shall continue
in effect and vest (or be forfeited) in accordance with provisions of this
Agreement as though no Change in Control had occurred, except that, as
appropriate, the shares of Stock of the Stock Award shall be treated the same as
all other shares of Stock of Enterprise. The Executive's rights upon a
termination of employment that occurs following a Change in Control shall be as
specified in Section 5 generally for termination of employment, except (i) the
amount payable under 5(a)(i)(B) shall be three times the sum of (x) the
Executive's Annual Base Salary and (y) the Target Bonus; (ii) the benefits under
Section 5(a)(iv) shall be provided for three years after the Date of Termination
and the Executive's eligibility (but not the time of commencement of such
benefits) for retiree benefits pursuant to such plans, practices, programs and
policies shall be determined as if the Executive had remained employed until
three years after the Date of Termination and to have retired on the last day of
such period, and (iii) the Executive shall be paid within 15 days after the Date
of Termination, an amount equal to the excess of
(A) the actuarial equivalent of the benefit under the
Company's applicable qualified defined benefit retirement plan
in which the Executive is participating immediately prior to
his Date of Termination (the "Retirement Plan") (utilizing the
rate used to determine lump sums and, to the extent
applicable, other actuarial assumptions no less favorable to
the Executive than those in effect under the Retirement Plan
immediately prior to the Date of this Agreement), any SERPs in
which the Executive participates and, to the extent
applicable, any other defined benefit retirement arrangement
between the Executive and the Company ("Other Pension
Benefits") which the Executive would receive if the
Executive's employment continued for three additional years
beyond the Date of Termination, assuming for this purpose that
all accrued benefits are fully vested, and, assuming that the
Executive's compensation for such deemed additional period was
the Executive's Annual Base Salary as in effect immediately
prior to the Date of Termination and assuming a bonus in each
year during such deemed additional period equal to the Target
Bonus, over
(B) the actuarial equivalent of the Executive's
actual benefit (paid or payable), if any, under the Retirement
Plan, the SERPs and Other Pension Benefits as of the Date of
Termination (utilizing the rate used to determine lump sums
and, to the extent applicable, other actuarial assumptions no
less favorable to the Executive than those in effect under the
Retirement Plan immediately prior to the date of this
Agreement).
(b) Definition. For purposes of this Agreement, a "Change in
Control" shall mean the occurrence of any of the following events after the date
of this Agreement:
(i) any "person" (within the meaning of Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") is or
becomes the beneficial owner within the meaning of Rule 13d-3 under the
Exchange Act (a "Beneficial Owner"), directly or indirectly, of
securities of Enterprise (not including in the securities beneficially
owned by such person any securities acquired directly from Enterprise
or its affiliates) representing 25% or more of the combined voting
power of Enterprise's then outstanding securities, excluding any person
who becomes such a Beneficial Owner in connection with a transaction
described in clause (A) of paragraph (iii) below; or
(ii) the following individuals cease for any reason to
constitute a majority of the number of directors of Enterprise then
serving: individuals who, on the date of this Agreement, constitute the
Board and any new director (other than a director whose initial
assumption of office is in connection with an actual or threatened
election contest, including but not limited to a consent solicitation,
relating to the election of directors of Enterprise) whose appointment
or election by the Board or nomination for election by Enterprise's
stockholders was approved or recommended by a vote of at least
two-thirds (2/3) of the directors then still in office who either were
directors on the date hereof or whose appointment, election or
nomination for election was previously so approved or recommended; or
(iii) there is consummated a merger or consolidation of
Enterprise or any direct or indirect wholly-owned subsidiary of
Enterprise with any other corporation, other than (A) a merger or
consolidation which would result in the voting securities of Enterprise
outstanding immediately prior to such merger or consolidation
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity or any parent
thereof), in combination with the ownership of any trustee or other
fiduciary holding securities under an employee benefit plan of
Enterprise or any subsidiary of Enterprise, at least 75% of the
combined voting power of the securities of Enterprise or such surviving
entity or any parent thereof outstanding immediately after such merger
or consolidation, or (B) a merger or consolidation effected to
implement a recapitalization of Enterprise (or similar transaction) in
which no person is or becomes the Beneficial Owner, directly or
indirectly, of securities of Enterprise representing 25% or more of the
combined voting power of Enterprise's then outstanding securities; or
(iv) the shareholders of Enterprise approve a plan of complete
liquidation or dissolution of Enterprise or there is consummated an
agreement for the sale or disposition by Enterprise of all or
substantially all of Enterprise's assets, other than a sale or
disposition by Enterprise of all or substantially all of Enterprise's
assets to an entity, at least 75% of the combined voting power of the
voting securities of which are owned by stockholders of Enterprise in
substantially the same proportions as their ownership of Enterprise
immediately prior to such sale.
Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have
occurred by virtue of the consummation of any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of Enterprise immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate ownership in
an entity which owns all or substantially all of the assets of Enterprise
immediately following such transaction or series of transactions.
7. Confidential Information; No competition.
(a) The Executive shall hold in a fiduciary capacity for the
benefit of the Company all confidential information, knowledge or data (defined
below) relating to the Company or any of its affiliates or subsidiaries, and
their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). Upon Termination of the Executive's employment, he shall return to
the Company all Company information. After termination of the Executive's
employment with the Company, the Executive shall not, without the prior written
consent of the Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to anyone other
than the Company and those designated by it, except (x) otherwise publicly
available information, or (y) as may be necessary to enforce his rights under
this Agreement or necessary to defend himself against a claim asserted directly
or indirectly by the Company or its affiliates. Unless and until a determination
has been made in accordance with Section 7(d) or Section 9 hereof that the
Executive has violated this Section 7, an asserted violation of the provisions
of this Section 7 shall not constitute a basis for deferring or withholding any
amounts otherwise payable to the Executive under this Agreement.
(b) As used herein, the term "confidential information,
knowledge or data" means all trade secrets, proprietary and confidential
business information belonging to, used by, or in the possession of the Company
or any of its affiliates and subsidiaries, including but not limited to
information, knowledge or data related to business strategies, plans and
financial information, mergers, acquisitions or consolidations, purchase or sale
of property, leasing, pricing, sales programs or tactics, actual or past
sellers, purchasers, lessees, lessors or customers, those with whom the Company
or its affiliates and subsidiaries has begun negotiations for new business,
costs, employee compensation, marketing and development plans, inventions and
technology, whether such confidential information, knowledge or data is oral,
written or electronically recorded or stored, except information in the public
domain, information known by the Executive prior to employment with PSE&G, and
information received by the Executive from sources other than the Company or its
affiliates and subsidiaries, without obligation of confidentiality.
(c) The confidential knowledge, information and data, as
defined in the previous paragraph, gained in the performance of the Executive's
duties hereunder may be valuable to those who are now, or might become,
competitors of the Company or its affiliates and subsidiaries. Accordingly, the
Executive agrees that he will not, for the period of two years from Date of
Termination, directly own, manage, operate, join, control, become employed by,
consult to or participate in the ownership, management, or control of any
business which is in direct competition with the Company and/or its affiliates
and subsidiaries. Further, the Executive agrees that, for two years following
the Date of Termination, he will not, directly or indirectly, solicit or hire,
or encourage the solicitation or hiring of any person who was a managerial or
higher level employee of the Company at any time during the term of the
Executive's employment by the Company by any employer other than the Company for
any position as an employee, independent contractor, consultant or otherwise.
The foregoing agreement of the Executive shall not apply to any person after 6
months have elapsed subsequent to the date on which such person's employment by
the Company has terminated. In the case of any such prohibited activity, the
Executive shall not be entitled to post-employment payments (including any
unpaid installments of the Stock Award), and the Executive shall return or repay
to the Company a portion of any installments of the Stock Award that have vested
in accordance with Section 3(d)(ii) during the two year period immediately
preceding such prohibited activity which is equal to the amount of such
installments paid within such two year period times a fraction, the numerator of
which is the number of months from the commencement of such activity to the date
that is 24 months after the Date of Termination and the denominator of which is
24.
(d) In the event of a breach by the Executive of any of the
agreements set forth in Paragraphs (a), (b) or (c) above, it is agreed that the
Company shall suffer irreparable harm for which money damages are not an
adequate remedy, and that, in the event of such breach, the Company shall be
entitled to obtain an order of a court of competent jurisdiction for equitable
relief from such breach, including, but not limited to, temporary restraining
orders and preliminary and/or permanent injunctions against the breach of such
agreements by the Executive. In the event that the Company should initiate any
legal action for the breach or enforcement of any of the provisions contained in
this Section 7 and the Company does not prevail in such action, the Company
shall promptly reimburse the Executive the full amount of any court costs,
filing fees, attorney's fees which the Executive incurs in defending such
action, and any loss of income during the period of such litigation.
8. Full Settlement.
(a) No Duty to Mitigate; No Reduction. Except as provided in
Section 7(c), and except to the extent that a Court under Section 7(d) or an
arbitrator appointed under Section 9 shall determine to permit an offset in
respect of a violation by the Executive of his obligations under Section 7, the
Company's obligation to make the payments provided for in this Agreement and
otherwise to perform its obligations hereunder shall not be affected by any
set-off, counterclaim, recoupment, defense or other claim, right or action which
the Company may have against the Executive or others. In no event shall the
Executive be obligated to seek other employment or take any other action by way
of mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement and, except as specifically provided in Section
5(a)(iv) and Section 5(a)(vii) with respect to certain medical and dental
benefits, such amounts shall not be reduced whether or not the Executive obtains
other employment.
(b) Non-exclusivity of Rights. Except as provided in Section
7(c), nothing in the Agreement shall prevent or limit the Executive's continuing
or future participation in any plan, program, policy or practice provided by the
Company or any of its affiliated companies for which the Executive may qualify,
nor, subject to Section 12(g), shall anything in this Agreement limit or
otherwise affect such rights as the Executive may have under any contract or
agreement with the Company or any or its affiliated companies. Vested benefits
and other amounts that the Executive is otherwise entitled to receive under the
incentive compensation plans referred to in Section 3(c), the SERPs, or any
other plan, policy, practice of program of, or any contract of agreement with,
the Company or any of its affiliated companies on or after the Date of
Termination shall be payable in accordance with the terms of each such plan,
policy, practice, program, contract or agreement, as the case may be, except as
explicitly modified by this Agreement.
9. Disputes
Except with respect to equitable relief provided for in
Section 7(d), any dispute about the validity, interpretation, effect or alleged
violation of this Agreement shall be resolved by confidential binding
arbitration before one arbitrator to be held in Newark, New Jersey in accordance
with the Employment Dispute Resolution Rules of the American Arbitration
Association and the United States Arbitration Act. Judgment upon the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereover. All costs and expenses incurred by the Company or the Executive or
the Executive's beneficiaries in connection with any such controversy or
dispute, including without limitation reasonable attorney's fees, shall be borne
by the Company as incurred, except that the Executive shall be responsible for
any such costs and expenses incurred in connection with any claim determined by
the arbitrator to have been without reasonable basis or to have been brought in
bad faith. The Executive shall be entitled to interest at the applicable Federal
rate provided for in Section 7872 (f) (2)(A) of the Internal Revenue Code of
1986, as amended (the "Code"), on any delayed payment which the arbitrator
determine he was entitled to under this Agreement.
10. Successors.
(a) No Assignment by Executive. This Agreement is personal to
the Executive and without the prior written consent of Enterprise shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) Successors to Enterprise. This Agreement shall inure to
the benefit of and be binding upon Enterprise and its successors and assigns.
(c) Performance by a Successor to Enterprise. Enterprise will
require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of Enterprise to assume expressly and agree to perform this Agreement in
the same manner and to the same extent that Enterprise would be required to
perform it if no such succession had taken place. As used in this Agreement,
"Enterprise" shall mean Enterprise as hereinbefore defined and any successor to
its business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
11. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of the Executive (whether paid
or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 11) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income and employment taxes
(and any interest and penalties imposed with respect thereto) and Excise Tax
imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 11(c), all
determinations required to be made under this Section 11, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by the Company's independent auditors or such other certified public accounting
firm as may be jointly designated by the Executive and the Company (the
"Accounting Firm"), which shall provide detailed supporting calculations both to
the Company and the Executive. All fees and expenses of the Accounting Firm
shall be borne solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section 11, shall be paid by the Company to the Executive
within 15 days of the receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon the Company and the
Executive. As a result of the uncertainty in the application of Section 4999 of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 11(c) and the Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which he gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested
by the Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 11(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 11(c), the Executive becomes
entitled to receive any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements of Section 11(c))
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to
Section 11(c), a determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
12. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New Jersey applicable to
agreements executed and performed entirely therein. The captions of this
Agreement are not part of the provisions hereof and shall have no force or
effect. This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective successors
and legal representatives.
(b) Notices. All notices and other communications hereunder
shall be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive: 80 Park Plaza
P. O. Box 570
Newark, NJ 07101
If to the Company: 80 Park Plaza
P. O. Box 570
Newark, NJ 07101
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) Invalidity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement. If any provision of this Agreement shall
be held invalid or unenforceable in part, the remaining portion of such
provision, together with all other provisions of this Agreement, shall remain
valid and enforceable and continue in full force and effect to the fullest
extent consistent with law.
(d) Tax Withholding. Notwithstanding any other provision of
this Agreement, the Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) Failure to Assert Rights. Except as provided in Section
4(b)(ii) and 4(c)(ii), the Executive's or the Company's failure to insist upon
strict compliance with any provisions of, or to assert any right under, this
Agreement shall not be deemed to be a waiver of such provision or right or of
any other provision of or right under this Agreement.
(f) No Alienation. The rights and benefits of the Executive
under this Agreement may not be anticipated, assigned, alienated or subject to
attachment, garnishment, levy, execution or other legal or equitable process
except as required by law. Any attempt by the Executive to anticipate, alienate,
assign, sell, transfer, pledge, encumber or charge the same shall be void.
Payments hereunder shall not be considered assets of the Executive in the event
of insolvency or bankruptcy.
(g) Entire Agreement. This Employment Agreement represents the
complete agreement between the Executive and the Company relating to employment
and termination and may not be altered or changed except by written agreement
executed by the parties hereto or their respective successors or legal
representatives. This Agreement supersedes the PSE&G Employment Agreement, dated
April 16, 1986, except Paragraph 4 thereof relating to additional service credit
for retirement purposes which is hereby incorporated by reference in this
Agreement.
IN WITNESS WHEREOF, the Executive and, pursuant to due
authorization from its Board of Directors, the Company have caused this
Agreement to be executed as of the day and year first above written.
E. JAMES FERLAND
----------------
E. James Ferland
PUBLIC SERVICE ENTERPRISE
GROUP INCORPORATED
By: IRWIN LERNER
------------
Irwin Lerner, Chairman
Organization and Compensation Committee
<PAGE>
April 16, 1986
E. James Ferland, President
Northeast Utilities
P. O. Box 270
Hartford, Connecticut 06141
Dear Mr. Ferland:
In conjunction with your employment as President and Chief Operating
Officer of PSE&G effective June 1, 1986 and as Chairman of the Board, President
and Chief Executive Officer commencing July 1, 1986, the agreed terms of
employment are as follows:
1. Your salary shall commence at the annual rate of $375,000 and may
be increased, but shall not be reduced, thereafter during the
three-year period commencing June 1, 1986. In addition, you shall
be entitled to those benefits from time to time available to
officers and employees of PSE&G generally.
2. If you should be discharged without cause during the three-year
period commencing June 1, 1986, PSE&G will pay to you the salary
which would have been payable pursuant to Paragraph 1 above for
the remainder of such three-year period. "Cause" shall mean (i)
the gross dereliction of, and continued failure by you to
substantially perform, your duties with PSE&G (other than any such
failure resulting form your incapacity due to physical or mental
illness), after a written demand for substantial performance is
delivered to you by the Board which specifically identifies the
manner in which the Board believes that you have not so performed
your duties, or (ii) any conduct constituting a felony or moral
turpitude.
3. Your participation in the Management Incentive Compensation Plan
will begin effective June 1, 1986, and any award available to you
with respect to calendar year 1986 shall be prorated to reflect
such effective date; provided that if for any of the periods
indicated below the amount of your award under the Plan as of the
date it is established is less than the amount specified below for
such period, PSE&G shall promptly pay to you as a lump sum in cash
the difference between the amount specified below for such period
and the amount of your award prorated for such period under the
Plan.
Period Amount
June 1, 1986 to December 31, 1986 $29,000
January 1, 1987 to December 31, 1987 $50,000
January 1, 1988 to May 31, 1988 $21,000
4. Your credited service of 22 years at Northeast Utilities shall be
utilized in determining the benefits to which you are and will be
entitled under PSE&G's various benefit plans in a manner as if you
had been a PSE&G employee for that entire 22-year period; except
that you agree to forego until at least June 1, 1996, election of
the option to retire when the sum of your age together with your
credited service (Northeast Utilities and PSE&G combined) equal
eighty. In addition, the amount of your pension or survivorship
benefits from Northeast Utilities shall be deducted from the
pension benefits payable to you or your beneficiary by PSE&G on
account of such service with Northeast.
5. In accordance with our relocation program, PSE&G will compensate
you for all reasonably incurred moving, relocation and temporary
housing expenses (including the reimbursement of any sales
commission on your existing house and including, if you desire,
the purchase of your present house) in conjunction with your
relocation from Connecticut to New Jersey for the purpose of
commencing employment with PSE&G effective June 1, 1986, except
that no payment shall be made for miscellaneous expenses in the
amount of one half a month's salary as provided in such program.
If the foregoing is in accordance with your understanding,
please sign the enclosed copy of this letter and return it to me.
Sincerely,
/s/ HAROLD W. SONN
Agreed to this 21
day of April, 1986
/s/ E. JAMES FERLAND
E. James Ferland
EXHIBIT 12
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
--------------------------------------------
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
12 Months
Ended
YEARS ENDED DECEMBER 31, June 30,
------- ------- ------- ------- -------
1993(B) 1994 1995 1996 1997 1998
------- ------- ------- ------- ------- ------
(Millions of Dollars, where applicable)
Earnings as Defined in
Regulation S-K (A):
Income from Continuing
Operations (C) $549 $667 $627 $588 $560 $642
Income Taxes (D) 296 320 348 297 313 410
Fixed Charges 539 535 549 528 543 558
------ ------ ------ ------ ----- ------
Earnings $1,384 $1,522 $1,524 $1,413 $1,416 $1,610
====== ====== ====== ====== ====== ======
Fixed Charges as Defined in Regulation S-K (E):
Total Interest Expense (F) $471 $462 $464 $453 $470 $481
Interest Factor in
Rentals 11 12 12 12 11 11
Subsidiaries' Preferred
Securities Dividend
Requirements -- 2 16 28 44 52
Preferred Stock Dividends 38 41 34 23 12 9
Adjustment to Preferred
Stock Dividends to state
on a pre-income
tax basis 19 18 23 12 6 5
------ ------ ------ ------ ------ -----
Total Fixed Charges $539 $535 $549 $528 $543 $558
====== ====== ====== ====== ====== =====
Ratio of Earnings to
Fixed Charges 2.57 2.84 2.78 2.68 2.61 2.88
====== ====== ====== ====== ====== =====
(A) The term "earnings" shall be defined as pretax income from continuing
operations. Add to pretax income the amount of fixed charges adjusted to
exclude (a) the amount of any interest capitalized during the period and
(b) the actual amount of any preferred stock dividend requirements of
majority-owned subsidiaries which were included in such fixed charges
amount but not deducted in the determination of pretax income.
(B) Excludes cumulative effect of $5.4 million credit to income reflecting a
change in income taxes.
(C) Excludes income from discontinued operations.
(D) Includes State income taxes and Federal income taxes for other income.
(E) Fixed Charges represent (a) interest, whether expensed or capitalized, (b)
amortization of debt discount, premium and expense, (c) an estimate of
interest implicit in rentals, and (d) preferred securities dividend
requirements of subsidiaries and preferred stock dividends, increased to
reflect the pre-tax earnings requirement for Public Service Enterprise
Group Incorporated.
(F) Excludes interest expense from discontinued operations.
EXHIBIT 12 (A)
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
---------------------------------------
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
12 Months
Ended
YEARS ENDED DECEMBER 31, June 30,
------- ------- ------- ------- -------
1993 1994 1995 1996 1997 1998
------- ------- ------- ------- ------- -----
(Millions of Dollars, where applicable)
Earnings as Defined in
Regulation S-K (A):
Net Income $615 $659 $617 $535 $528 $570
Income Taxes (B) 307 302 326 268 286 364
Fixed Charges 401 408 419 438 450 441
------ ------ ------ ------ ------ ------
Earnings $1,323 $1,369 $1,362 $1,241 $1,264 $1,375
====== ====== ====== ====== ====== ======
Fixed Charges as Defined
in Regulation S-K (C):
Total Interest Expense $390 $396 $407 $399 $395 $386
Interest Factor in
Rentals 11 12 12 11 11 11
Subsidiaries' Preferred
Securities Dividend
Requirements -- -- -- 28 44 44
------- ------- ------- ------- ------- -------
Total Fixed Charges $401 $408 $419 $438 $450 $441
======= ======= ======= ======= ======= =======
Ratio of Earnings to
Fixed Charges 3.30 3.35 3.25 2.83 2.81 3.12
======= ======= ======= ======= ======= =======
(A) The term "earnings" shall be defined as pretax income from continuing
operations. Add to pretax income the amount of fixed charges adjusted to
exclude (a) the amount of any interest capitalized during the period and
(b) the actual amount of any preferred stock dividend requirements of
majority-owned subsidiaries which were included in such fixed charges
amount but not deducted in the determination of pretax income.
(B) Includes State income taxes and Federal income taxes for other income.
(C) Fixed Charges represent (a) interest, whether expensed or capitalized, (b)
amortization of debt discount, premium and expense, (c) an estimate of
interest implicit in rentals, and (d) Preferred Securities Dividend
Requirements of subsidiaries.
EXHIBIT 12 (B)
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
---------------------------------------
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS
12 Months
Ended
YEARS ENDED DECEMBER 31, June 30,
------- ------- ------- ------- -------
1993 1994 1995 1996 1997 1998
------- ------- ------- ------- ------- -----
(Millions of Dollars, where applicable)
Earnings as Defined in
Regulation S-K (A):
Net Income $615 $659 $617 $535 $528 $570
Income Taxes (B) 307 302 326 268 286 364
Fixed Charges 401 408 419 438 450 441
------- ------- ------- ------- ------- -------
Earnings $1,323 $1,369 $1,362 $1,241 $1,264 $1,375
======= ======= ======= ======= ======= =======
Fixed Charges as Defined
in Regulation S-K (C):
Total Interest Expense $390 $396 $407 $399 $395 $386
Interest Factor in
Rentals 11 12 12 11 11 11
Subsidiaries' Preferred
Securities Dividend
Requirements -- -- -- 28 44 44
Preferred Stock Dividends 38 42 49 23 12 9
Adjustment to Preferred
Stock Dividends to
state on a pre-income
tax basis 19 19 24 12 6 7
------- ------- ------- ------- ------- -------
Total Fixed Charges $458 $469 $492 $473 $468 $457
======= ======= ======= ======= ======= =======
Ratio of Earnings to
Fixed Charges 2.89 2.92 2.77 2.62 2.70 3.00
======= ======= ======= ======= ======= =======
(A) The term "earnings" shall be defined as pretax income from continuing
operations. Add to pretax income the amount of fixed charges adjusted to
exclude (a) the amount of any interest capitalized during the period and
(b) the actual amount of any preferred stock dividend requirements of
majority-owned subsidiaries which were included in such fixed charges
amount but not deducted in the determination of pretax income.
(B) Includes State income taxes and Federal income taxes for other income.
(C) Fixed Charges represent (a) interest, whether expensed or capitalized, (b)
amortization of debt discount, premium and expense, (c) an estimate of
interest implicit in rentals, and (d) preferred securities dividend
requirements of subsidiaries and preferred stock dividends, increased to
reflect the pre-tax earnings requirement for Public Service Electric and
Gas Company.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from
SEC Form 10-Q and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000788784
<NAME> PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
<MULTIPLIER>1000000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 10,897
<OTHER-PROPERTY-AND-INVEST> 3,700
<TOTAL-CURRENT-ASSETS> 1,784
<TOTAL-DEFERRED-CHARGES> 1,586
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 17,967
<COMMON> 3,603
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 1,675
<TOTAL-COMMON-STOCKHOLDERS-EQ> 5,251
963
95
<LONG-TERM-DEBT-NET> 4,614
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 1,069
<LONG-TERM-DEBT-CURRENT-PORT> 646
0
<CAPITAL-LEASE-OBLIGATIONS> 50
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 5,279
<TOT-CAPITALIZATION-AND-LIAB> 17,967
<GROSS-OPERATING-REVENUE> 3,458
<INCOME-TAX-EXPENSE> 226 <F1>
<OTHER-OPERATING-EXPENSES> 2,668
<TOTAL-OPERATING-EXPENSES> 2,889
<OPERATING-INCOME-LOSS> 569
<OTHER-INCOME-NET> 8
<INCOME-BEFORE-INTEREST-EXPEN> 577
<TOTAL-INTEREST-EXPENSE> 264 <F2>
<NET-INCOME> 313
35
<EARNINGS-AVAILABLE-FOR-COMM> 313
<COMMON-STOCK-DIVIDENDS> 251
<TOTAL-INTEREST-ON-BONDS> 200
<CASH-FLOW-OPERATIONS> 536
<EPS-PRIMARY> 1.35
<EPS-DILUTED> 1.35
<FN>
<F1> State Income Taxes of $1 and Federal Income Taxes of $4 for Other
Income were incorporated into this line for FDS purposes. In the referenced
financial statements, Total Other Income and Deductions are net of the above
applicable Federal and State income taxes.
<F2>Total interest expense includes Preferred Securities Dividends Requirements.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-Q and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000081033
<NAME> PUBLIC SERVICE ELECTRIC AND GAS COMPANY
<MULTIPLIER>1000000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 10,897
<OTHER-PROPERTY-AND-INVEST> 771
<TOTAL-CURRENT-ASSETS> 1,637
<TOTAL-DEFERRED-CHARGES> 1,585
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 14,890
<COMMON> 2,563
<CAPITAL-SURPLUS-PAID-IN> 594
<RETAINED-EARNINGS> 1,365
<TOTAL-COMMON-STOCKHOLDERS-EQ> 4,522
588
95
<LONG-TERM-DEBT-NET> 4,140
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 955
<LONG-TERM-DEBT-CURRENT-PORT> 252
0
<CAPITAL-LEASE-OBLIGATIONS> 50
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 4,288
<TOT-CAPITALIZATION-AND-LIAB> 14,890
<GROSS-OPERATING-REVENUE> 3,255
<INCOME-TAX-EXPENSE> 200 <F1>
<OTHER-OPERATING-EXPENSES> 2,591
<TOTAL-OPERATING-EXPENSES> 2,787
<OPERATING-INCOME-LOSS> 468
<OTHER-INCOME-NET> 5
<INCOME-BEFORE-INTEREST-EXPEN> 473
<TOTAL-INTEREST-EXPENSE> 204 <F2>
<NET-INCOME> 269
27
<EARNINGS-AVAILABLE-FOR-COMM> 264
<COMMON-STOCK-DIVIDENDS> 251
<TOTAL-INTEREST-ON-BONDS> 153
<CASH-FLOW-OPERATIONS> 538
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Federal Income Taxes for Other Income of $4 was incorporated into this line
item for FDS purposes. In the referenced financial statements, Total Other
Income and Deductions are net of the above applicable Federal and State income
taxes.
<F2>Total interest expense includes Preferred Securities Dividend Requirements.
</FN>
</TABLE>
