AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 27, 2004
REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
PG&E CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
CALIFORNIA 4911 94-3234914
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
ONE MARKET STREET, SPEAR TOWER, SUITE 2400
SAN FRANCISCO, CA 94105
(415) 267-7000
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
---------------------
BRUCE R. WORTHINGTON
ONE MARKET STREET, SPEAR TOWER, SUITE 2400
SAN FRANCISCO, CA 94105
(415) 267-7000
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
---------------------
COPY TO:
LESLIE P. JAY, ESQ.
ORRICK, HERRINGTON & SUTCLIFFE LLP
400 SANSOME STREET
SAN FRANCISCO, CALIFORNIA 94111
(415) 392-1122
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this registration statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ____________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT OFFERING PRICE REGISTRATION FEE(1)
---------------------------------------------------------------------------------------------------------------------
6 7/8% Senior Secured Notes due
2008.............................. $600,000,000 $1,000 $600,000,000 $76,020
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
(1) Calculated pursuant to Rule 457(f)(2) of the rules and regulations under the
Securities Act of 1933, as amended.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT EXCHANGE THE OUTSTANDING SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY
THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
PRELIMINARY PROSPECTUS, SUBJECT TO COMPLETION, DATED APRIL 27, 2004
PG&E LOGO
OFFER TO EXCHANGE
$600,000,000 6 7/8% SENIOR SECURED NOTES DUE 2008 FOR
$600,000,000 6 7/8% SENIOR SECURED NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 2004, UNLESS EXTENDED.
---------------------
MATERIAL TERMS OF THE EXCHANGE OFFER:
- We are offering to exchange notes registered under the Securities Act of
1933, as amended, for a like principal amount of notes that we issued in
a private placement that closed on July 2, 2003.
- The terms of the exchange notes are substantially identical to the terms
of the original notes, except that the exchange notes will not contain
transfer restrictions and will not have the registration rights that
apply to the original notes or entitle their holders to additional
interest for our failure to comply with these registration rights. The
terms and conditions of the exchange offer are more fully described in
this prospectus.
- The exchange offer is subject to the conditions that it shall be
permissible under applicable law and Securities and Exchange Commission
policy and that there is no action or proceeding, pending or threatened,
that would impair our ability to proceed with the exchange offer.
- You may withdraw tenders of original notes at any time before the
expiration of the exchange offer. We will exchange all original notes
that are validly tendered and not withdrawn before the expiration of the
exchange offer.
- We will not receive any cash proceeds from the exchange offer.
- There is no existing market for the exchange notes and we do not intend
to apply for their listing on any securities exchange or any automated
quotation system.
- We believe that the exchange of original notes for exchange notes will
not be a taxable event for United States federal income tax purposes.
YOU SHOULD CONSIDER CAREFULLY THE "RISK FACTORS" BEGINNING ON PAGE 9 OF THIS
PROSPECTUS.
------------------------------------------------------------------------------
NONE OF THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES
COMMISSION OR ANY OTHER REGULATORY BODY HAS APPROVED OR DISAPPROVED OF THESE
SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------------------------------------------------
Prospectus dated , 2004
TABLE OF CONTENTS
PAGE
----
Special Note Regarding Forward-Looking
Statements........................... ii
Summary................................ 1
Risk Factors........................... 9
Capitalization.........................
Ratio of Earnings to Fixed Charges..... 21
The Exchange Offer..................... 22
Description of the Notes............... 29
PAGE
----
Certain United States Federal Income
Tax Consequences..................... 72
Plan of Distribution................... 74
Legal Matters.......................... 75
Experts................................ 75
Available Information.................. 75
Where You Can Find More Information.... 75
---------------------
This prospectus incorporates business and financial information about us
that is not included in or delivered with the prospectus. You should rely only
on the information contained or incorporated by reference in this prospectus. We
have not authorized any other person to provide you with different or additional
information. If anyone provides you with different or additional information,
you should not rely on it. You should assume that the information contained or
incorporated by reference in this prospectus is accurate as of the date on the
front cover of this prospectus or the date of the document incorporated by
reference. Our business, financial condition, results of operations and
prospects may have changed since then. We are not making an offer to sell or
exchange the securities offered by this prospectus in any jurisdiction where the
offer, sale or exchange is not permitted.
The information incorporated by reference into this prospectus is available
without charge to holders of the original notes upon written or oral request to
The Office of the Corporate Secretary, PG&E Corporation, One Market Street,
Spear Tower, Suite 2400, San Francisco, California 94105, telephone number (415)
267-7070. In order to obtain timely delivery, such holders must request the
information no later than five business days before the expiration date of the
exchange offer.
When used in this prospectus and unless otherwise specified, the term:
- "NEGT" refers to our unconsolidated subsidiary National Energy & Gas
Transmission, Inc., formerly known as PG&E National Energy Group, Inc.;
- "Utility" refers to our subsidiary Pacific Gas and Electric Company; and
- "we," "our" and "us" refer to PG&E Corporation and its consolidated
subsidiaries.
i
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated herein by reference contain
various forward-looking statements. These forward-looking statements can be
identified by the use of words such as "assume," "expect," "intend," "plan,"
"project," "believe," "estimate," "predict," "anticipate," "may," "might,"
"will," "should," "could," "goal," "potential" and similar expressions. We have
based these forward-looking statements on our current expectations and
projections about future events, our assumptions regarding these events and our
knowledge of facts at the time the statements were made. These forward-looking
statements are subject to various risks and uncertainties that may be outside
our control, and our actual results could differ materially from our projected
results. These risks and uncertainties include, among other things:
WHETHER THE IMPLEMENTATION OF THE UTILITY'S PLAN OF REORGANIZATION IS DISRUPTED
- the timing and resolution of the petitions for review that were filed in
the California Court of Appeal seeking review of the March 16, 2004 and
December 18, 2003 decisions of the California Public Utilities
Commission, or the CPUC, approving the settlement agreement the CPUC
entered into with the Utility and us on December 19, 2003, or the
settlement agreement;
- the timing and resolution of the pending appeals of the confirmation by
the U.S. Bankruptcy Court for the Northern District of California, or
the bankruptcy court, of the Utility's plan of reorganization that
incorporates the settlement agreement, or the Utility's plan of
reorganization;
OPERATING ENVIRONMENT
- unanticipated changes in our or the Utility's operating expenses or
capital expenditures;
- the level and volatility of wholesale electricity and natural gas prices
and supplies, the Utility's ability to manage and respond to the levels
and volatility successfully and the extent to which the Utility is able
to timely recover increased costs related to this volatility;
- the extent to which the Utility's residual net open position (i.e., that
portion of the Utility's electricity customers' demand not satisfied by
electricity that the Utility generates or has under contract, or by
electricity provided under the California Department of Water Resources,
or DWR, power purchase contracts allocated to the Utility's customers)
increases or decreases due to changes in customer and economic growth
rates, the periodic expiration or termination of the Utility's or the
DWR's power purchase contracts, the reallocation of the DWR's power
purchase contracts among the California investor-owned electric
utilities, whether various counterparties are able to meet their
obligations under their power purchase contracts with the Utility or
with the DWR, the retirement or other closure of the Utility's
electricity generation facilities, the performance of the Utility's
electricity generation facilities, the extent to which the Utility
purchases or builds electricity generation facilities, and other
factors;
- weather, storms, earthquakes, fires, floods, other natural disasters,
explosions, accidents, mechanical breakdowns and other events or hazards
that affect demand, result in power outages, reduce generating output,
or cause damage to the Utility's assets or operations or those of third
parties on which the Utility relies;
- unanticipated population growth or decline, changes in market demand,
demographic patterns or general economic and financial market
conditions, including unanticipated changes in interest or inflation
rates, and the extent to which the Utility is able to timely recover its
costs in the face of such events;
- the operation of the Utility's Diablo Canyon power plant, which exposes
it to potentially significant environmental and capital expenditure
outlays, and, to the extent the Utility is unable to increase the
Utility's spent fuel storage capacity by 2007 or find an alternative
depository, the risk that the Utility may be required to close its
Diablo Canyon power plant and purchase electricity from more expensive
sources;
- actions of credit rating agencies;
ii
- significant changes in our or the Utility's relationship with our or its
employees, the availability of qualified personnel and the potential
adverse effects if labor disputes were to occur;
- acts of terrorism;
LEGISLATIVE AND REGULATORY ENVIRONMENT AND PENDING LITIGATION
- the impact of current and future ratemaking actions of the CPUC,
including the outcome of the Utility's 2003 general rate case;
- prevailing governmental policies and legislative or regulatory actions
generally, including those of the California legislature, the U.S.
Congress, the CPUC, the Federal Energy Regulatory Commission, or the
FERC, and the Nuclear Regulatory Commission, or the NRC, with regard to
the Utility's allowed rates of return, industry and rate structure,
recovery of investments and costs, acquisitions and disposals of assets
and facilities, treatment of affiliate contracts and relationships, and
operation and construction of facilities;
- the extent to which the CPUC or the FERC delays or denies recovery of
the Utility's costs, including electricity purchase costs, from
customers due to a regulatory determination that the costs were not
reasonable or prudent or for other reasons;
- how the CPUC administers the capital structure, stand-alone dividend and
capital requirements conditions of the CPUC's decisions permitting the
establishment of holding companies for California investor-owned
electric utilities;
- whether the Utility is in compliance with all applicable rules, tariffs
and orders relating to electricity and natural gas utility operations,
and the extent to which a finding of non-compliance could result in
customer refunds, penalties or other non-recoverable expenses;
- whether the Utility is required to incur material costs or capital
expenditures or curtail or cease operations at affected facilities to
comply with existing and future environmental laws, regulations and
policies;
- the outcome of pending litigation;
COMPETITION
- increased competition as a result of the takeover by condemnation of the
Utility's distribution assets, duplication of the Utility's distribution
assets or service by local public utilities, self-generation by the
Utility's customers and other forms of competition that may result in
stranded investment capital, decreased customer growth, loss of customer
load and additional barriers to cost recovery; and
- the extent to which the Utility's distribution customers switch between
purchasing electricity from the Utility and purchasing electricity from
alternate energy service providers, thus becoming direct access
customers, and the extent to which cities, counties and others in the
Utility's service territory begin directly serving the Utility's
customers or combine to form community choice aggregators.
For additional factors that could affect the validity of our
forward-looking statements, you should read the section of this prospectus
titled "Risk Factors."
You should read this prospectus and the documents that we incorporate by
reference into this prospectus, the documents that we have filed as exhibits to
the registration statement of which this prospectus is a part and the documents
that we refer to under the section of this prospectus titled "Where You Can Find
More Information" completely and with the understanding that our actual future
results could be materially different from what we currently expect. We qualify
all our forward-looking statements by these cautionary statements. These
forward-looking statements speak only as of the date of this prospectus. Except
as required by applicable laws or regulations, we do not undertake any
obligation to update or revise any forward-looking statement, whether as a
result of new information, future events or otherwise.
iii
SUMMARY
This summary may not contain all of the information that may be important
to you in deciding whether to exchange your original notes for exchange notes.
This summary should be read in conjunction with, and is qualified in its
entirety by, the more detailed information and financial statements (including
the accompanying notes) included and incorporated by reference in this
prospectus.
OUR COMPANY
We are an energy-based holding company headquartered in San Francisco,
California that conducts its business principally through the Utility, a public
utility operating in northern and central California. The Utility engages
primarily in the businesses of electricity and natural gas distribution,
electricity generation, electricity transmission and natural gas transportation
and storage.
Our executive offices are located at One Market Street, Spear Tower, Suite
2400, San Francisco, California 94105, and our telephone number is (415)
267-7000.
THE CALIFORNIA ENERGY CRISIS AND THE UTILITY'S CHAPTER 11 PROCEEDING
In 1998, the state of California implemented electricity industry
restructuring and established a framework allowing generators and other power
providers to charge market-based prices for electricity sold on the wholesale
market. The implementing legislation also established a retail electricity rate
freeze and a plan for recovering the Utility's generation-related costs that
were expected to be uneconomic under the new market framework. State regulatory
action further required the Utility to divest a majority of its fossil fuel-
fired generation facilities and made it economically unattractive to retain its
remaining generation facilities. The resulting sales of generation facilities in
turn made the Utility more dependent on the newly deregulated wholesale
electricity market.
Beginning in May 2000, wholesale prices for electricity began to increase.
Since the Utility's retail electricity rates remained frozen, the Utility
financed the higher costs of wholesale electricity by issuing debt and drawing
on its credit facilities. The Utility's inability to recover its electricity
purchase costs from customers ultimately resulted in billions of dollars in
defaulted debt and unpaid bills and caused the Utility to file a voluntary
petition for relief under Chapter 11 of the United States Bankruptcy Code, or
Chapter 11, on April 6, 2001. During its Chapter 11 proceeding, the Utility
retained control of its assets and operated its business as a
debtor-in-possession while subject to the jurisdiction of the bankruptcy court.
THE CPUC SETTLEMENT AGREEMENT
On December 18, 2003, the CPUC approved the settlement agreement that
provided the basis for the Utility's plan of reorganization. Two CPUC
commissioners voted not to approve the settlement agreement (the "dissenting
commissioners"). The settlement agreement was executed by the CPUC, the Utility
and us on December 19, 2003.
The settlement agreement contains a statement of intent that it is in the
public interest to restore the Utility to financial health and to maintain and
improve its financial health in the future to ensure that it is able to provide
safe and reliable electricity and natural gas service to its customers at just
and reasonable rates. The settlement agreement generally ensures that the
Utility will have the opportunity to collect in rates reasonable costs of
providing utility service. The settlement agreement provides that the Utility's
authorized return on equity will be no less than 11.22% per year and, except for
2004 and 2005, the Utility's authorized equity to capitalization ratio will be
no less than 52% until Moody's Investors Service, or Moody's, has issued the
Utility an issuer rating of not less than A3 or Standard & Poor's, or S&P, has
issued the Utility a long-term issuer credit rating of not less than A-. The
settlement agreement also establishes a $2.21 billion after-tax regulatory asset
(subject to certain reductions) and allows for the recognition of an
approximately $800 million after-tax regulatory asset related to generation
assets. The settlement agreement and related decisions by the CPUC provide that
the Utility's revenue requirement will be collected regardless of sales levels
and that the Utility's rates will be timely adjusted to accommodate changes in
costs that it incurs.
CONFIRMATION AND IMPLEMENTATION OF THE PLAN OF REORGANIZATION
On December 22, 2003, the bankruptcy court confirmed the plan of
reorganization, fully incorporating the settlement agreement. On April 12, 2004,
the Utility's plan of reorganization became effective.
On the effective date, the Utility paid approximately $8.4 billion in cash
to holders of allowed claims and deposited approximately $1.8 billion into
escrow accounts for the payment of disputed claims. The Utility paid
approximately $83 million in preferred stock dividends and made sinking fund
payments of approximately $10 million that were in arrears. Funds for these
payments came from the proceeds of the Utility's public offering of
approximately $6.7 billion of first mortgage bonds, $0.3 billion under an
accounts receivable financing facility, $0.8 billion funded by a term loan and
reimbursement agreements, and $2.4 billion from cash on hand. In addition,
approximately $814 million in debt consisting of pollution control bond-related
obligations was reinstated and the Utility paid approximately $93 million in
preferred stock dividends and sinking fund payments that were in arrears.
Although the Utility's operations will no longer be subject to the
oversight of the bankruptcy court, the bankruptcy court will retain jurisdiction
to hear and determine disputes arising in connection with the interpretation,
implementation or enforcement of (i) the settlement agreement, (ii) the
Utility's plan of reorganization, and (iii) the confirmation order. The
bankruptcy court also retains jurisdiction to resolve disputed claims.
In connection with its emergence from Chapter 11, the Utility has received
an issuer credit rating of Baa3 from Moody's and BBB- from S&P.
PENDING PROCEEDINGS
On January 20, 2004, various parties to the CPUC proceedings filed
applications for rehearing of the CPUC's decision approving the settlement
agreement, challenging, among other things, the CPUC's authority to execute the
settlement agreement which by its terms would bind future commissions and
subject the CPUC to the continuing jurisdiction of the bankruptcy court to
enforce the agreement. On March 16, 2004, the CPUC denied these applications for
rehearing. On April 15, 2004, two of these parties, the City and County of San
Francisco and Aglet Consumer Alliance, filed petitions for review of the CPUC's
decisions with the California Court of Appeal. We and the Utility believe that
the issues that have been raised in the petitions will not cause the appellate
court to modify or set aside the settlement agreement and that even if such
action were taken, the settlement agreement should be binding on the parties as
a matter of federal law since it has been embodied in a final federal bankruptcy
confirmation order.
Further, the City of Palo Alto and the dissenting commissioners appealed
the bankruptcy court's confirmation order to the U.S. District Court for the
Northern District of California, or the District Court. On March 30, 2004, the
dissenting commissioners filed a motion in the District Court for a stay of the
implementation of the confirmation order until the District Court can resolve
their appeal. On April 9, 2004, District Court denied the motion, allowing the
plan of reorganization to become effective on April 12, 2004, as described
above.
Under applicable federal precedent, once the plan of reorganization has
been "substantially consummated," any pending appeals of the confirmation order
should be dismissed. If, notwithstanding this federal precedent, the bankruptcy
court's confirmation order or the settlement agreement is subsequently
overturned or modified, our and the Utility's financial condition and results of
operations could be materially adversely affected and our ability to make
payments on our debt could be materially adversely affected.
2
SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
On July 2, 2003, we completed the private placement of $600 million in
aggregate principal amount of our 6 7/8% senior secured notes due 2008, which we
refer to in this prospectus as the "original notes." These original notes were
not registered under the Securities Act of 1933, as amended, or the Securities
Act. Therefore, the original notes are subject to significant restrictions on
resale. Accordingly, when we sold these original notes, we entered into a
registration rights agreement with the initial purchasers that requires us to
deliver to you this prospectus and to permit you to exchange your original notes
for notes which we refer to in this prospectus as the "exchange notes." The
original notes and the exchange notes are collectively referred to in this
prospectus as the "notes." The terms of the exchange notes will be substantially
identical to the terms of the original notes, except that the exchange notes
will not contain transfer restrictions and will not have the registration rights
that apply to the original notes or entitle their holders to additional interest
for our failure to comply with these registration rights. The exchange notes
will be issued under the same indenture under which the original notes were
issued and, as a holder of the exchange notes, you will be entitled to the same
rights under the indenture that you had as a holder of original notes. The notes
will be treated as a single series of notes under the indenture.
Set forth below is a summary description of the terms of the exchange
offer.
EXCHANGE OFFER................ We are offering to exchange up to $600 million
in aggregate principal amount of exchange notes
for a like aggregate principal amount of
original notes. Original notes may be tendered
only in denominations of $1,000.
EXPIRATION DATE............... The exchange offer will expire at 5:00 p.m.,
New York City time, on , 2004, unless
we extend it. We do not currently intend to
extend the exchange offer.
TREATMENT OF ACCRUED
INTEREST...................... Any interest that has accrued on the original
notes before their acceptance or exchange in
this exchange offer will be included in the
interest paid on the exchange notes on the
first interest payment date after the
conclusion of the exchange offer.
CONDITIONS TO THE EXCHANGE
OFFER......................... The exchange offer is subject to the conditions
that:
- it shall be permissible under applicable law
and Securities and Exchange Commission, or
SEC, policy; and
- there is no action or proceeding, pending or
threatened, that would impair our ability to
proceed with the exchange offer.
PROCEDURE FOR EXCHANGING
ORIGINAL NOTES................ If the original notes you wish to exchange are
in book-entry form and registered in the name
of a broker, dealer, commercial bank, trust
company or other nominee, you must contact the
registered holder and instruct it to promptly
tender your original notes for exchange on your
behalf. You must comply with procedures of The
Depository Trust Company, or DTC, for tender
and delivery of book-entry securities in order
to validly tender your original notes for
exchange.
If the original notes you wish to exchange are
registered in your name, you must complete,
sign and date the letter of transmittal and
mail or otherwise deliver it, together with any
other required documentation, to J. P. Morgan
Trust Company, National Association, as
exchange agent, at the address specified under
the heading "The Exchange Offer--Exchange
Agent."
3
Questions regarding the exchange of original
notes or the exchange offer generally should be
directed to the exchange agent at one of its
addresses specified under the heading "The
Exchange Offer--Exchange Agent."
GUARANTEED DELIVERY
PROCEDURES.................... If you wish to exchange your original notes and
you cannot get the required documents to the
exchange agent by , 2004 or you
cannot tender and deliver your original notes
in accordance with DTC's procedures by
, 2004, you may tender your original
notes according to the guaranteed delivery
procedures described under the heading "The
Exchange Offer--Guaranteed Delivery
Procedures."
WITHDRAWAL RIGHTS............. You may withdraw the tender of your original
notes at any time before 5:00 p.m., New York
City time, on , 2004.
ACCEPTANCE OF ORIGINAL NOTES
AND DELIVERY OF EXCHANGE
NOTES......................... We will accept for exchange any and all
original notes that are properly tendered in
the exchange offer before 5:00 p.m., New York
City time, on , 2004, as long as all
of the terms and conditions of the exchange
offer are met. We will deliver the exchange
notes promptly following the expiration date.
RESALE OF EXCHANGE NOTES...... Based on interpretations by the staff of the
SEC, as detailed in a series of no-action
letters issued by the SEC to third parties, we
believe that you may offer for resale, resell
or otherwise transfer the exchange notes
without complying with the registration and
prospectus delivery requirements of the
Securities Act if you are:
- acquiring the exchange notes in the ordinary
course of your business and do not hold any
original notes to be exchanged in the
exchange offer that were acquired other than
in the ordinary course of business;
- not a broker-dealer tendering original notes
acquired directly from us;
- not participating, do not intend to
participate and have no arrangements or
understandings with any person to participate
in the exchange offer for the purpose of
"distributing" (within the meaning of the
Securities Act) the exchange notes; and
- not our "affiliate," within the meaning of
Rule 405 under the Securities Act.
Each broker or dealer that receives exchange
notes in exchange for original notes that were
acquired for its own account as a result of
market-making or other trading activities must
acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act
in connection with any resale of those exchange
notes. Furthermore, any broker-dealer that
acquired any of its original notes directly
from us must be named as a selling noteholder
in connection with the registration and
prospectus delivery requirements of the
Securities Act relating to any resale
transaction.
4
CONSEQUENCES OF FAILURE TO
EXCHANGE...................... If you do not exchange your original notes for
exchange notes, you will not be able to offer,
sell or otherwise transfer the original notes
except:
- in compliance with the registration
requirements of the Securities Act and any
other applicable securities laws;
- under an exemption from the securities laws;
or
- in a transaction not subject to the
securities laws.
Original notes that remain outstanding after
completion of the exchange offer will continue
to bear a legend reflecting these restrictions
on transfer. In addition, upon completion of
the exchange offer, you will not be entitled to
any rights to have the resale of original notes
registered under the Securities Act (subject to
limited exceptions applicable only to certain
qualified institutional buyers). Unless
otherwise required to do so by the terms of the
registration rights agreement, we do not intend
to register under the Securities Act the resale
of any original notes that remain outstanding
after completion of the exchange offer.
CERTAIN TAX CONSIDERATIONS.... We believe that the exchange of original notes
for exchange notes will not be a taxable event
for United States federal income tax purposes.
EXCHANGE AGENT................ J. P. Morgan Trust Company, National
Association is serving as exchange agent for
the exchange offer.
5
SUMMARY DESCRIPTION OF THE EXCHANGE NOTES
The summary below describes the principal terms of the exchange notes. Some
of the terms and conditions described below are subject to important limitations
and exceptions. The "Description of the Notes" section of this prospectus
contains a more detailed description of the terms and conditions of the exchange
notes.
The terms of the exchange notes we are issuing in the exchange offer and
the terms of the original notes are identical in all material respects, except
that the exchange notes will:
- be registered under the Securities Act;
- not contain transfer restrictions; and
- not have the registration rights that apply to the original notes or
entitle their holders to additional interest for our failure to comply
with these registration rights.
A brief description of the material terms of the exchange notes is set
forth below:
SECURITIES OFFERED............ $600,000,000 aggregate principal amount of
6 7/8% Senior Secured Notes due July 15, 2008.
MATURITY...................... July 15, 2008.
INTEREST PAYMENT DATES........ January 15 and July 15 of each year, beginning
July 15, 2004. The first payment date on the
original notes was January 15, 2004. Any
interest that has accrued on the original notes
before their acceptance or exchange in this
exchange offer will be included in the interest
paid on the exchange notes on the first
interest payment date after the conclusion of
the exchange offer.
INTEREST RATE................. 6 7/8% per year.
MANDATORY OFFER TO
REPURCHASE.................... If PG&E Corporation experiences a change of
control, a reorganization event or a spin-off
(in each case, as defined in "Description of
the Notes"), it must offer to repurchase the
exchange notes at 101% of their principal
amount, plus accrued and unpaid interest, if
any, to the date of repurchase. See
"Description of the Notes--Repurchase at the
Option of Holders--Change of Control, Spin-Off
or Reorganization Event."
SECURITY...................... The exchange notes will be secured by a first
priority pledge of approximately 94% of the
common stock of the Utility. The rights of the
holders with respect to 65% of such shares will
be limited. See "Description of the Notes--The
Pledge Agreements."
RANKING....................... The exchange notes will be secured obligations
of PG&E Corporation and will be senior to all
PG&E Corporation's current and future unsecured
indebtedness. The exchange notes will be
secured only by the Utility's common stock and
will not be secured by any other assets of PG&E
Corporation. PG&E Corporation is a holding
company with all of its operations conducted
through the Utility. Thus as a practical
matter, the exchange notes will be effectively
junior to all obligations, including trade
payables and other unsecured debts, of the
Utility. As of April 12,
6
2004, after the consummation of the
transactions completed in connection with the
effective date of the Utility's plan of
reorganization, the exchange notes:
- ranked senior to $280 million of our
convertible subordinated debt; and
- were effectively junior to all obligations
owed by the Utility, which included
approximately $9.8 billion of financial debt
(including rate reduction bonds and
borrowings under an accounts receivable
financing facility).
The exchange notes will not be guaranteed by
the Utility. In addition, under the indenture,
there are no restrictions on the ability of the
Utility to incur additional debt. The exchange
notes also will be effectively subordinated to
all additional indebtedness incurred by the
Utility.
SINKING FUND.................. None.
OPTIONAL REDEMPTION........... We may redeem the notes in whole or in part at
any time on or after July 15, 2006 at the
redemption prices described under "Description
of the Notes--Optional Redemption." In
addition, we may redeem some or all of the
notes at any time prior to July 15, 2006 at a
make-whole premium plus accrued and unpaid
interest, if any, to the redemption date. Prior
to July 15, 2006, we may also redeem up to 35%
of the aggregate principal amount of the notes
at a redemption price of 106.875% with the net
cash proceeds of certain public equity
offerings.
COVENANTS OF THE INDENTURE.... We will issue the exchange notes under an
indenture between us and J. P. Morgan Trust
Company, National Association, as successor
trustee. The indenture contains covenants that
restrict our ability to:
- borrow money;
- pay dividends on or purchase our stock or our
restricted subsidiaries' stock;
- make investments;
- use assets as security in other transactions;
- sell certain assets or merge with or into
other companies; and
- enter into transactions with affiliates.
On the date the exchange notes are issued, our
principal subsidiary, the Utility, will be an
unrestricted subsidiary. In addition, under the
circumstances described under "Description of
the Notes--Certain Covenants--Designation of
Restricted and Unrestricted Subsidiaries," we
are permitted to designate certain of our
current and future subsidiaries as unrestricted
subsidiaries. Our unrestricted subsidiaries
will not be subject to the restrictive
covenants described above. On the date the
exchange notes are issued, there will be no
restrictions on the ability of our unrestricted
subsidiaries to incur debt, all of which would
be effectively senior to the exchange notes.
7
In the event that the notes are assigned a
rating of Baa3 or better by Moody's, and BBB-
or better by S&P and no default has occurred
and is continuing, certain covenants in the
indenture will be terminated. In the event that
the notes are no longer assigned a rating of
Baa3 or better by Moody's or BBB- or better by
S&P after these certain covenants have been
terminated, such covenants will not be
restored. For more details, see "Description of
the Notes--Covenant Termination."
ABSENCE OF A PUBLIC MARKET FOR
THE NOTES..................... The exchange notes will be a new issue of
securities. We cannot assure you that an active
or liquid market will develop for the exchange
notes. See "Plan of Distribution."
LISTING....................... We do not intend to list the exchange notes on
any securities exchange or automated quotation
system.
8
RISK FACTORS
You should carefully consider the risks described below as well as other
information contained or incorporated by reference in this prospectus. The risks
and uncertainties described below are generally applicable to the original notes
as well as the exchange notes. The risks and uncertainties described below are
not the only ones we may face. The following risks, together with additional
risks and uncertainties not currently known to us or that we may currently deem
immaterial, could impair our financial condition and results of operations and
ultimately affect our ability to make payments on the original notes as well as
the exchange notes.
RISKS RELATED TO THE NOTES
AS A HOLDING COMPANY, WE ARE SUBSTANTIALLY DEPENDENT ON THE UTILITY, OUR
REGULATED SUBSIDIARY, TO FUND OUR CASH NEEDS. OUR ABILITY TO GENERATE CASH
DEPENDS ON MANY FACTORS BEYOND OUR CONTROL. REGULATORY CONSTRAINTS COULD LIMIT
THE UTILITY'S ABILITY TO DISTRIBUTE CASH TO US.
We are a holding company with no direct operations and no material assets
other than our own cash and the equity of the Utility and we are substantially
dependent upon the earnings and cash flows of the Utility to meet our
obligations. Since we do not expect to receive any future distributions from
NEGT, our principal sources of cash will be dividends from, and stock
repurchases by, the Utility, reimbursements from the Utility for administrative
and other services we provide to it and proceeds from the purchase of our common
stock by participants in our stock option and retirement plans. While in Chapter
11, the Utility was prohibited from paying any common stock dividends, and
therefore the Utility did not make any distributions on its common stock in
2003, 2002 or 2001.
The Utility expects to achieve the target capital structure provided in the
settlement agreement by the second half of 2005. While we expect that once the
Utility reaches its target capital structure, it will commence distributions to
us, we can provide no assurance as to if or when this will occur or the amount
of any distribution that may be made. Further, the covenants governing the
Utility's debt restrict the Utility's ability to distribute cash to us.
Also, in connection with our becoming a holding company of the Utility, the
CPUC imposed certain conditions relating to the financial integrity of the
Utility, including that:
- the Utility maintain a balanced capital structure consistent with CPUC
determinations;
- the dividend policy of the Utility be established by the Utility's board
of directors as though the Utility were a comparable stand-alone utility
company;
- the Utility not guarantee our or our other subsidiaries' notes,
debentures, debt obligations or other securities without prior written
consent from the CPUC; and
- the capital requirements of the Utility, as determined to be necessary
and prudent to meet its obligation to serve or to operate the Utility in
a prudent and efficient manner, be given first priority by both our and
the Utility's boards of directors.
These conditions could further limit the flexibility of the Utility to declare
or pay a dividend or require us to contribute equity capital to the Utility.
Any one or more of the above factors could cause the Utility to decrease or
cease distributions to us if earnings or cash flows decrease, in order to
preserve the Utility's ability to fund its operations and service its
substantial indebtedness. If regulatory constraints require us to contribute
capital to the Utility or limit the Utility's ability to make distributions to
us, our ability to satisfy our obligations to the noteholders could be adversely
affected.
9
THE NOTES WILL BE EFFECTIVELY SUBORDINATED TO ALL INDEBTEDNESS OF THE
UTILITY.
The notes will not be guaranteed by the Utility. Holders of notes will not
have any claim as a creditor against the Utility, and the indebtedness and all
other liabilities, including trade payables, whether secured or unsecured, of
the Utility will be effectively senior to the claims of noteholders. In
addition, under the indenture, there are no restrictions on the ability of the
Utility to incur additional debt. The notes also will be effectively
subordinated to all additional indebtedness incurred by the Utility. In the
event of a future bankruptcy, liquidation, reorganization or other winding up of
the Utility, holders of its indebtedness and its trade creditors will generally
be entitled to payment of their claims from the assets of the Utility before any
assets are made available for distribution to us. The occurrence of such events
could adversely affect our ability to satisfy our obligations to the
noteholders.
TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH.
OUR SUBSTANTIAL INDEBTEDNESS AND THE SUBSTANTIAL INDEBTEDNESS OF THE UTILITY
COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH AND PREVENT US FROM FULFILLING OUR
OBLIGATIONS UNDER THE NOTES.
We and the Utility have a significant amount of debt. As of April 12, 2004,
we had approximately $880 million of debt outstanding, including the notes, on a
stand-alone basis. As of April 12, 2004, after the consummation of the
transactions completed in connection with the effective date of the Utility's
plan of reorganization, the Utility, together with its consolidated
subsidiaries, had approximately $9.8 billion of financial debt, including rate
reduction bonds and $350 million in borrowings under an accounts receivable
financing facility. The Utility, together with its consolidated subsidiaries,
has established working capital facilities upon which they may draw up to
approximately $1.5 billion, of which only the $350 million included above was
drawn down in cash and $206 million in letters of credit was utilized on the
effective date. In addition, the Utility has a credit facility that provides for
the issuance of up to $620 million in letters of credit, all of which was
utilized on the effective date. Also, substantially all of the Utility's
pre-effective date cash balance was used on the effective date to pay or provide
for the payment of claims in connection with its plan of reorganization.
This substantial indebtedness could have important consequences to holders
of the notes. For example, it could:
- make it difficult for us to satisfy our obligations with respect to the
notes;
- increase our or the Utility's vulnerability to general adverse economic
and industry conditions;
- increase our or the Utility's vulnerability to interest rate increases
for the portion of any of our or the Utility's variable rate debt;
- require us or the Utility to dedicate a substantial portion of our cash
flow from operations to payments on our or the Utility's indebtedness,
thereby reducing the availability of cash flow to fund working capital,
capital expenditures, acquisitions, development efforts and other
general corporate purposes and, with respect to the Utility, cash
distributions to us;
- limit our or the Utility's flexibility in planning for, or reacting to,
changes in our or the Utility's businesses; and
- limit, along with the financial and other restrictive covenants in the
documents governing our and the Utility's indebtedness, among other
things, our and the Utility's ability to borrow additional funds.
We or the Utility may need to refinance all or a portion of our or the
Utility's indebtedness, including the notes and the Utility's first mortgage
bonds and credit facilities, on or before maturity. If a refinancing need arises
and either we or the Utility are unable to refinance or extend outstanding
borrowings on commercially reasonable terms or at all, we or the Utility may
have to:
- reduce or delay capital expenditures planned for replacements,
improvements and expansions;
- sell assets;
10
- restructure debt; and/or
- obtain additional debt or equity financing.
We cannot assure you that we or the Utility could effect or implement any of
these alternatives on satisfactory terms, if at all. If the Utility's cash flows
from operations are insufficient to service the Utility's substantial
indebtedness and fund distributions to us in amounts sufficient to service our
substantial indebtedness, our ability to satisfy our obligations to the
noteholders would be adversely affected.
THE COLLATERAL SECURING THE NOTES MAY BE DILUTED UNDER CERTAIN
CIRCUMSTANCES. IN ADDITION, THE NOTES WILL BE EFFECTIVELY SUBORDINATED TO
CERTAIN OF OUR OBLIGATIONS TO THE EXTENT THESE OBLIGATIONS ARE SECURED BY
COLLATERAL THAT DOES NOT SECURE THE NOTES.
Under the indenture, the collateral that secures the notes is also allowed
to secure a substantial amount of certain types of other indebtedness specified
in the indenture on an equal and ratable basis. In addition, after the notes are
rated Baa3 or better by Moody's and BBB- or better by S&P, additional
indebtedness in an amount of up to 15% of our consolidated tangible assets could
be secured by the collateral securing the exchange notes. Noteholders' rights to
the collateral could be substantially diluted by any increase in the
indebtedness secured by this collateral.
In addition to the collateral securing the notes, the indenture permits
certain of our obligations to be secured by any of our property or assets that
does not secure the notes. See "Description of the Notes--Certain
Covenants--Liens." As a result, to the extent any collateral secures obligations
but does not also secure the notes, the notes will be effectively subordinated
to these obligations with respect to such collateral. In the event of our
bankruptcy, liquidation or reorganization, those assets that do not secure the
notes will not be available to pay our obligations on the notes unless and until
the obligations that are secured by such collateral are paid in full. Lenders
whose obligations are secured by collateral that does not secure the notes may
recover a greater percentage of the amounts owed to them than holders of the
notes.
THE PLEDGE OF THE UTILITY'S COMMON STOCK TO SECURE THE NOTES COULD BE
DECLARED VOID AND, IF THIS HAPPENS, THE VALUE AND LIQUIDITY OF THE NOTES COULD
BE ADVERSELY AFFECTED AND THE RISK THAT HOLDERS OF NOTES MIGHT NOT FULLY RECOVER
THE AMOUNTS OWED UNDER THE NOTES WOULD BE INCREASED.
The notes will be secured by a pledge of approximately 94% of the Utility's
outstanding common stock. With respect to 35% of the shares pledged, the
collateral agent under the indenture governing the notes has the customary
rights of a pledgee of common stock, including the right to foreclose on the
shares. However, with respect to the remaining 65% of the shares pledged, the
collateral agent under the indenture governing the notes does not have the right
to foreclose on the shares, vote the shares, direct or restrict in any way the
voting of the shares by us, compel any disposition of such shares or prevent any
disposition of the shares in a commercially reasonable transaction. Although we
have not sought approval of the CPUC for the pledge of the Utility common stock,
we have received an opinion of counsel that no such approval or other action of
the CPUC was required in making the pledge. This opinion of counsel, however, is
not binding on the CPUC and is not a guarantee of what a particular court would
hold. Rather, the opinion of counsel only represents counsel's reasoned judgment
as to what decision a court should reach if the issues were properly presented
to and considered by the court following applicable legal principles.
Counsel's opinion points out that in at least one recent decision the CPUC
did exercise jurisdiction over a pledge of 100% of the common stock of a public
utility by its non-utility parent. The facts of that case were unusual and,
unlike the current transaction, involved the pledge of 100% of that public
utility's common stock with full rights of foreclosure with respect to all of
those shares and a request for CPUC approval by both the utility and its
non-utility parent.
Moreover, we believe the CPUC's assertion of jurisdiction in that recent
decision is at odds with its own prior decisions and the express terms of the
relevant statute. Nevertheless, it is possible that the CPUC also could seek to
assert its jurisdiction over the pledge of the Utility's common stock. If it
were to do so, and if its action were ultimately upheld by the courts, the
pledge could be declared void and set aside. This could adversely affect the
value and the liquidity of the notes and increase the risk that holders of the
notes might
11
not fully recover the amounts owed under the notes. In addition, if the pledge
is declared void, this would result in an event of default under the indenture.
Even with a valid pledge of the Utility's common stock, foreclosure by the
collateral agent under the indenture governing the notes may be subject to
applicable regulatory requirements, including approval by the CPUC if it were
determined that the foreclosure or the sale of the 35% of the pledged Utility
common stock would constitute a transfer of control of the Utility. California
law gives the CPUC broad discretion to define "control" for these purposes and,
although we believe that the transaction is structured to minimize the risk that
a subsequent foreclosure and sale would constitute such a transfer of control,
such a determination would depend upon the facts and circumstances existing at
the time. Accordingly, the collateral agent's ability to foreclose on and
dispose of the Utility common stock may be restricted or delayed by applicable
regulatory requirements. Any such restriction or delay could adversely affect
the value and the liquidity of the notes and increase the risk that holders of
the notes might not fully recover the amounts owed under the notes.
In addition, any foreclosure that results in a holder of the notes becoming
the beneficial owner of 10% or more of the outstanding voting securities of the
Utility could require the holder and its upstream parents to register as a
holding company under the Public Utility Holding Company Act of 1935, as
amended, or PUHCA, unless an exemption is available. Registration would subject
the holder, as well as us, the Utility and our other subsidiaries, to a
comprehensive regulatory scheme pursuant to which the SEC regulates the
structure, financings, lines of business and internal transactions of public
utility holding companies.
THE TERMS OF OUR INDEBTEDNESS COULD RESTRICT OUR FLEXIBILITY AND LIMIT OUR
ABILITY TO SATISFY OBLIGATIONS UNDER THE NOTES.
We are subject to financial covenants and other restrictions contained in
the indenture evidencing our senior subordinated convertible notes and the
indenture governing the notes. These covenants, as well as covenants that may be
contained in agreements governing our future indebtedness, could limit our
operational flexibility and restrict our ability to borrow additional funds to
finance operations and to make principal and interest payments on the notes.
Additionally, failure to comply with these financial covenants and other
restrictions could result in an event of default under the terms of this
indebtedness or future indebtedness which, if not cured or waived, could result
in this indebtedness becoming due and payable. The effect of these covenants, or
our failure to comply with them, could have a material adverse effect on our
business, financial condition and results of operations and our ability to
satisfy obligations under the notes.
OUR ABILITY TO REPURCHASE NOTES WITH CASH UPON CERTAIN CHANGE OF CONTROL,
SPIN-OFF OR REORGANIZATION TRANSACTIONS MAY BE LIMITED.
In specific circumstances involving certain change of control, spin-off or
reorganization transactions, holders of notes will have the right to require us
to repurchase some or all of their notes. There can be no assurance that we will
have sufficient financial resources at such time or would be able to arrange
financing to pay the repurchase price of the notes in cash. Our ability to
repurchase the notes in such event may be limited by law, by regulation or
administrative rule, by our indentures, by the terms of other agreements
relating to any senior indebtedness and by such indebtedness and agreements as
may be entered into, replaced, supplemented or amended from time to time. We may
be required to refinance our indebtedness in order to make such payments. We may
not have the financial ability to repurchase the notes in cash if payment for
our other indebtedness is accelerated.
DESPITE CURRENT INDEBTEDNESS LEVELS, WE AND THE UTILITY MAY STILL BE ABLE
TO INCUR SUBSTANTIALLY MORE DEBT. THIS COULD FURTHER EXACERBATE CERTAIN RISKS
DESCRIBED IN THESE RISK FACTORS.
We may be able to incur substantial additional debt in the future,
including debt secured by the collateral that secures the notes and debt secured
by collateral that does not secure the notes. In addition, the Utility is
permitted to borrow without any restrictions under the indenture. Adding new
debt to current debt levels could make it difficult for us to satisfy our
obligations with respect to the notes.
12
IF THE NOTES RECEIVE AN INVESTMENT GRADE RATING, WE WILL NO LONGER BE
SUBJECT TO MOST OF THE COVENANTS IN THE INDENTURE.
If at any time the notes receive an investment grade rating from Moody's
and S&P, subject to certain additional conditions, we and our restricted
subsidiaries will no longer be subject to most of the covenants set forth in the
indenture. In the event of termination, the covenants will not be restored, even
if the exchange notes are later rated below investment grade by either or both
of these rating agencies. See "Description of the Notes--Covenant Termination."
THE MARKET PRICE FOR THE EXCHANGE NOTES MAY BE VOLATILE.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of securities
similar to the exchange notes offered hereby. The market for the exchange notes,
if any, may be subject to similar disruptions. Any such disruptions may
adversely affect the value of the exchange notes.
THE EXCHANGE NOTES HAVE NO PRIOR PUBLIC MARKET AND WE CANNOT ASSURE YOU
THAT ANY PUBLIC MARKET WILL DEVELOP OR BE SUSTAINED AFTER THE OFFERING.
Although the exchange notes generally may be resold or otherwise
transferred by holders who are not our affiliates without compliance with the
registration requirements under the Securities Act, they will constitute a new
issue of securities without an established trading market. Although the initial
purchasers of the original notes may make a market in the exchange notes, they
are under no obligation to do so and therefore there can be no assurance that
such a market will develop or, if it does develop, that it will continue. If an
active public market does not develop, the market price and liquidity of the
exchange notes may be adversely affected. Furthermore, we do not intend to apply
for listing of the exchange notes on any securities exchange or automated
quotation system.
Even if a market for the exchange notes does develop, you may not be able
to resell the exchange notes for an extended period of time, if at all. In
addition, future trading prices for the exchange notes will depend on many
factors, including, among other things, prevailing interest rates, our financial
condition and the market for similar securities. As a result, you may not be
able to liquidate your investment quickly or to liquidate it at an attractive
price.
YOU MAY HAVE DIFFICULTY SELLING THE ORIGINAL NOTES WHICH YOU DO NOT
EXCHANGE.
If you do not exchange your original notes for the exchange notes offered
in this exchange offer, you will continue to be subject to the restrictions on
the transfer of your original notes. Those transfer restrictions are described
in the indenture and in the legend contained on the original notes, and arose
because we issued the original notes under exemptions from, and in transactions
not subject to, the registration requirements of the Securities Act. In general,
you may offer or sell your original notes only if they are registered under the
Securities Act and applicable state securities laws, or if they are offered and
sold under an exemption from those requirements. If you do not exchange your
original notes in the exchange offer, you will no longer be entitled to have
those notes registered under the Securities Act except under limited
circumstances described in the registration rights agreement.
In addition, if a large number of original notes are exchanged for exchange
notes issued in the exchange offer, the principal amount of original notes that
will be outstanding will decrease. This will reduce the liquidity of the market
for the original notes, making it more difficult for you to sell your original
notes.
BROKER-DEALERS OR NOTEHOLDERS MAY BECOME SUBJECT TO THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT.
Any broker-dealer that:
- exchanges its original notes in the exchange offer for the purpose of
participating in a distribution of the exchange notes; or
- tenders original notes in the exchange offer that were acquired directly
from us;
13
may be deemed to have received restricted securities and may be required to
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction by that broker-dealer.
Any profit on the resale of the exchange notes and any commission or concessions
received by a broker-dealer may be deemed to be underwriting compensation under
the Securities Act. In addition, any broker-dealer that will receive exchange
notes for its own account in exchange for original notes that were acquired as a
result of market-making activities or other trading activities may be deemed an
"underwriter" within the meaning of the Securities Act. Any such holder will be
required to acknowledge that it will deliver this prospectus in connection with
any resale of these exchange notes.
In addition to broker-dealers, any noteholder that exchanges its original
notes in the exchange offer for the purpose of participating in a distribution
of the exchange notes, or who does not acquire the exchange notes in the
ordinary course of its business or who holds any original notes to be exchanged
in the exchange offer that were acquired other than in the ordinary course of
business, may be deemed to have received restricted securities and may be
required to comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction by that noteholder.
RISKS RELATED TO PG&E CORPORATION
WE COULD BE REQUIRED TO CONTRIBUTE CAPITAL TO THE UTILITY OR BE DENIED
DISTRIBUTIONS FROM THE UTILITY TO THE EXTENT REQUIRED BY THE CPUC'S
DETERMINATION OF THE UTILITY'S FINANCIAL CONDITION.
In approving our formation as the holding company of the Utility, the CPUC
imposed certain conditions, including an obligation by our Board of Directors to
give "first priority" to the capital requirements of the Utility, as determined
to be necessary and prudent to meet the Utility's obligation to serve and to
operate in a prudent and efficient manner. The CPUC later issued decisions in
which it adopted an expansive interpretation of our obligations under this
condition. We and the holding companies of the other major California
investor-owned electric utilities have appealed these decisions and those
appeals are currently pending.
Pursuant to the terms of the settlement agreement, the CPUC is required to
terminate its investigation of whether our or the Utility's past actions during
the energy crisis violated this condition or other holding company conditions.
Nevertheless, as now interpreted by the CPUC, whenever the Utility's financial
health is impaired in the future, we could be required to infuse the Utility
with all types of capital necessary to fulfill its obligation to serve or to
operate in a prudent and efficient manner. These obligations, if ultimately
upheld by the courts, could materially restrict our ability to meet our other
obligations, including payments on the notes.
In addition, there is pending California legislation which, if adopted,
would expressly empower the CPUC to require us to infuse capital into the
Utility of "any type and quantity" deemed necessary by the CPUC. This and other
currently pending legislation, if adopted, would increase the CPUC's control
over us as a holding company of the Utility.
ADVERSE RESOLUTION OF PENDING LITIGATION COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR FINANCIAL CONDITION AND RESULTS OF OPERATION.
We are involved in lawsuits filed by the California Attorney General, the
City and County of San Francisco and a private plaintiff against us alleging
unfair or fraudulent business acts or practices based on alleged violations of
conditions established in the CPUC's holding company decisions caused by our
failure to provide adequate financial support to the Utility during the
California energy crisis. These lawsuits seek significant damages, penalties or
equitable relief. On October 8, 2003, the District Court held that the claims
for damages are property of the Utility's bankruptcy estate, thus removing the
damages claims from the lawsuits. The Attorney General and the City and County
of San Francisco have appealed that decision to the U.S. Court of Appeals for
the Ninth Circuit, or the Ninth Circuit, where it is currently pending. We filed
motions to dismiss the appeals on the ground that the Ninth Circuit lacked
jurisdiction to hear them under certain provisions of the U.S. Bankruptcy Code.
The Ninth Circuit denied our motions in March 2004 and consolidated the two
appeals.
14
We believe that the plaintiffs' allegations are without merit. However,
there can be no assurance that we will prevail in these lawsuits.
RISKS RELATED TO THE UTILITY
IF EITHER OR BOTH OF THE CPUC'S APPROVAL OF THE SETTLEMENT AGREEMENT AND
THE BANKRUPTCY COURT'S CONFIRMATION OF THE UTILITY'S PLAN OF REORGANIZATION ARE
OVERTURNED OR MODIFIED ON APPEAL, OUR AND THE UTILITY'S FINANCIAL CONDITION AND
RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED.
On December 18, 2003, the CPUC approved the settlement agreement and, on
December 22, 2003, the bankruptcy court confirmed the Utility's plan of
reorganization, which fully incorporates the settlement agreement as a material
and integral part of the plan. On March 16, 2004, the CPUC denied applications
for rehearing of the CPUC's decision approving the settlement agreement. On
April 15, 2004, two of these parties, the City and County of San Francisco and
Aglet Consumer Alliance, filed petitions for review of the CPUC's decisions with
the California Court of Appeal. Further, the dissenting commissioners and a
municipality have filed appeals of the bankruptcy court's confirmation order in
the District Court. On April 9, 2004, the District Court denied the motion filed
by the dissenting commissioners to stay the confirmation order.
On April 12, 2004, the Utility's plan of reorganization became effective,
notwithstanding pending appeals and further rights of appeal. If the bankruptcy
court's confirmation of the Utility's plan of reorganization or the settlement
agreement is overturned or modified on appeal, our and the Utility's financial
condition and results of operations, and the Utility's ability to pay dividends
or otherwise make distributions to us, could be materially adversely affected.
This in turn could materially adversely affect our ability to make payments on
the notes.
OUR AND THE UTILITY'S FINANCIAL VIABILITY DEPENDS UPON THE UTILITY'S
ABILITY TO RECOVER ITS COSTS IN A TIMELY MANNER FROM THE UTILITY'S CUSTOMERS
THROUGH REGULATED RATES AND OTHERWISE EXECUTE ITS BUSINESS STRATEGY.
The Utility is a regulated entity subject to CPUC jurisdiction in almost
all aspects of its business, including the rates, terms and conditions of its
services, procurement of electricity and natural gas for its customers, issuance
of securities, dispositions of utility assets and facilities and aspects of the
siting and operation of its electricity and natural gas distribution systems.
Executing the Utility's business strategy depends on periodic CPUC approvals of
these and related matters. The Utility's ongoing financial viability depends on
its ability to recover from its customers in a timely manner the Utility's
costs, including the costs of electricity and natural gas purchased by it for
its customers, in the Utility's CPUC-approved rates and its ability to pass
through to its customers in rates the Utility's FERC-authorized revenue
requirements. During the California energy crisis, the high price the Utility
had to pay for electricity on the wholesale market, coupled with its inability
to fully recover its costs in retail rates, caused the Utility's costs to
significantly exceed its revenues and ultimately caused the Utility to file a
petition under Chapter 11. Even though the settlement agreement and current
regulatory mechanisms contemplate that the CPUC will give the Utility the
opportunity to recover its reasonable and prudent future costs in its rates,
there can be no assurance that the CPUC will find that all of the Utility's
costs are reasonable and prudent or will not otherwise take or fail to take
actions to the Utility's detriment. In addition, there can be no assurance that
the bankruptcy court or other courts will implement and enforce the terms of the
settlement agreement and the Utility's plan of reorganization in a manner that
would produce the economic results that we and the Utility intend or anticipate.
Further, there can be no assurance that FERC-authorized tariffs will be adequate
to cover the related costs. If the Utility is unable to recover any material
amount of its costs through its rates in a timely manner, our and the Utility's
financial condition and results of operations would be materially adversely
affected.
15
THE UTILITY MAY BE UNABLE TO PURCHASE ELECTRICITY IN THE WHOLESALE MARKET
OR TO INCREASE ITS GENERATING CAPACITY IN A MANNER THAT THE CPUC WILL FIND
REASONABLE OR IN AMOUNTS SUFFICIENT TO SATISFY THE UTILITY'S RESIDUAL NET OPEN
POSITION.
The Utility's residual net open position is expected to grow over time for
a number of reasons, including:
- periodic expirations of the Utility's existing electricity purchase
contracts;
- periodic expirations or other terminations of the DWR allocated
contracts;
- increases in the Utility's customers' electricity demands due to customer
and economic growth or other factors; and
- retirement or closure of the Utility's electricity generation facilities.
In addition, unexpected outages at the Utility's Diablo Canyon power plant
or any of its other significant generation facilities, or a failure to perform
by any of the counterparties to the Utility's electricity purchase contracts or
the DWR allocated contracts, would immediately increase the Utility's residual
net open position.
In January 2004, the CPUC adopted an interim decision that would require
the California investor-owned electric utilities to achieve, no later than
January 1, 2008, an electricity reserve margin of 15-17% in excess of peak
capacity electricity requirements and have a diverse portfolio of electricity
sources. These requirements may increase the Utility's residual net open
position. Specific procedures contained in the decision relating to development
and execution of the Utility's procurement plans also may cause its cost of
electricity to increase. The CPUC also continued its target of a 5% limitation
on the reliance by the California investor-owned electric utilities on the spot
market to meet their energy needs.
As existing electricity purchase contracts expire, sources of electricity
otherwise become unavailable or demand increases, the Utility will purchase
electricity in the wholesale market. These purchases will be made under
contracts priced at the time of execution or, if made in the spot market, at the
then-current market price of wholesale electricity. There can be no assurance
that sufficient replacement electricity will be available at prices and on terms
that the CPUC will find reasonable, or at all. The Utility's financial condition
and results of operations would be materially adversely affected if it is unable
to purchase electricity in the wholesale market at prices or on terms the CPUC
finds reasonable or in quantities sufficient to satisfy the Utility's residual
net open position.
Alternatively, the CPUC may require the Utility, or the Utility may elect,
to satisfy all or a part of its residual net open position by developing or
acquiring additional generation facilities. This could result in significant
additional capital expenditures or other costs and may require the Utility to
issue additional debt, which it may not be able to issue on reasonable terms, or
at all. In addition, if the Utility is not able to recover a material part of
the cost of developing or acquiring additional generation facilities in the
Utility's rates in a timely manner, our and the Utility's financial condition
and results of operations would be materially adversely affected.
THE UTILITY'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD BE
MATERIALLY ADVERSELY AFFECTED IF IT IS UNABLE TO SUCCESSFULLY MANAGE THE RISKS
INHERENT IN OPERATING THE UTILITY'S FACILITIES.
The Utility owns and operates extensive electricity and natural gas
facilities that are interconnected to the U.S. western electricity grid and
numerous interstate and continental natural gas pipelines. The operation of the
Utility's facilities and the facilities of third parties on which it relies
involves numerous risks, including:
- operating limitations that may be imposed by environmental or other
regulatory requirements;
- imposition of operational performance standards by agencies with
regulatory oversight of the Utility's facilities;
- environmental and personal injury liabilities;
- fuel interruptions;
16
- blackouts;
- labor disputes;
- weather, storms, earthquakes, fires, floods or other natural disasters;
and
- explosions, accidents, mechanical breakdowns and other events or hazards
that affect demand, result in power outages, reduce generating output or
cause damage to the Utility's assets or operations or those of third
parties on which it relies.
The occurrence of any of these events could result in lower revenues or
increased expenses, or both, that may not be fully recovered through insurance,
rates or other means in a timely manner, or at all.
ELECTRICITY AND NATURAL GAS MARKETS ARE HIGHLY VOLATILE AND INSUFFICIENT
REGULATORY RESPONSIVENESS TO THAT VOLATILITY COULD CAUSE EVENTS SIMILAR TO THOSE
THAT LED TO THE FILING OF THE UTILITY'S CHAPTER 11 PETITION TO OCCUR.
In the recent past, the commodity markets for electricity and natural gas
have been highly volatile and subject to substantial price fluctuations. A
variety of factors may contribute to commodity market volatility, including:
- weather;
- supply and demand;
- the availability of competitively priced alternative energy sources;
- the level of production of natural gas;
- the price of other fuels that are used to produce electricity, including
crude oil and coal;
- the transparency, efficiency, integrity and liquidity of regional energy
markets affecting California;
- electricity transmission or natural gas transportation capacity
constraints;
- federal, state and local energy and environmental regulation and
legislation; and
- natural disasters, war, terrorism and other catastrophic events.
These factors are largely outside the Utility's control. If wholesale
electricity or natural gas prices increase significantly, public pressure or
other regulatory or governmental influences or other factors could constrain the
willingness or ability of the CPUC to authorize timely recovery of the Utility's
costs. Moreover, the volatility of commodity markets could cause the Utility to
apply more frequently to the CPUC for authority to timely recover its costs in
rates. If the Utility is unable to recover any material amount of its costs in
its rates in a timely manner, our and the Utility's financial condition and
results of operations would be materially adversely affected.
THE UTILITY'S OPERATIONS ARE SUBJECT TO EXTENSIVE ENVIRONMENTAL LAWS, AND
CHANGES IN, OR LIABILITIES UNDER, THESE LAWS COULD ADVERSELY AFFECT ITS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The Utility's operations are subject to extensive federal, state and local
environmental laws. Complying with these environmental laws has in the past
required significant expenditures for environmental compliance, monitoring and
pollution control equipment, as well as for related fees and permits. Moreover,
compliance in the future may require significant expenditures relating to
electric and magnetic fields, or EMFs. The Utility also is subject to
significant liabilities related to the investigation and remediation of
environmental contamination at the Utility's current and former facilities, as
well as at third-party owned sites. Due to the potential for imposition of
stricter standards and greater regulation in the future and the possibility that
other potentially responsible parties may not be financially able to contribute
to cleanup costs, conditions may change or additional contamination may be
discovered, the Utility's environmental compliance and remediation costs could
increase, and the timing of its capital expenditures in the future may
accelerate. If the Utility is unable to recover the costs of complying with
environmental laws in its rates in a timely manner, the Utility's financial
condition and results of operations could be materially adversely affected. In
addition,
17
in the event the Utility must pay materially more than the amount that its
currently has reserved on its balance sheet to satisfy its environmental
remediation obligations and the Utility is unable to recover these costs from
insurance or through rates in a timely manner, our and the Utility's financial
condition and results of operations would be materially adversely affected.
THE UTILITY FACES THE RISK OF UNRECOVERABLE COSTS IF ITS CUSTOMERS OBTAIN
DISTRIBUTION AND TRANSPORTATION SERVICES FROM OTHER PROVIDERS AS A RESULT OF
MUNICIPALIZATION OR OTHER FORMS OF COMPETITION.
The Utility's customers could bypass its distribution and transportation
system by obtaining service from other sources. Forms of bypass of the Utility's
electricity distribution system include the construction of duplicate
distribution facilities to serve specific existing or new customers, the
municipalization of the Utility's distribution facilities by local governments
or districts, self-generation by the Utility's customers and other forms of
competition. Bypass of the Utility's system may result in stranded investment
capital, loss of customer growth or additional barriers to cost recovery. The
Utility's natural gas transportation facilities also are at risk of being
bypassed by interstate pipeline companies that construct facilities in the
Utility's markets or by customers who build pipeline connections that bypass the
Utility's natural gas transportation and distribution system. As customers and
local public officials explore their energy options in light of the recent
California energy crisis, these bypass risks may be increasing and may increase
further if the Utility's rates exceed the cost of other available alternatives.
In addition, technological changes could result in the development of
economically attractive alternatives to purchasing electricity through the
Utility's distribution facilities. Neither we nor the Utility can currently
predict the impact of these actions and developments on the Utility's business,
although one possible outcome is a decline in the demand for the services that
the Utility provides, which would result in a corresponding decline in the
Utility's revenues and our consolidated revenues.
If the number of the Utility's customers declines due to bypass,
technological changes or other forms of competition, and the Utility's rates are
not adjusted in a timely manner to allow it to fully recover its investment and
electricity procurement costs, our and the Utility's financial condition and
results of operations would be materially adversely affected.
THE UTILITY FACES THE RISK OF UNRECOVERABLE COSTS RESULTING FROM CHANGES IN
THE NUMBER OF CUSTOMERS IN ITS SERVICE TERRITORY FOR WHOM THE UTILITY PURCHASES
ELECTRICITY.
As part of California's electricity industry restructuring, the Utility's
customers were given the choice of either continuing to receive electricity
procurement, transmission and distribution services, or bundled service, from
the Utility, or purchasing electricity from alternate energy service providers,
and to thus become direct access customers. The CPUC suspended the right of
end-user customers to become direct access customers on September 20, 2001,
although customers that were then direct access customers have been allowed to
remain on direct access. Separately, the CPUC has instituted a rulemaking
implementing California's Assembly Bill 117, or AB 117, which permits California
cities and counties to purchase and sell electricity for their residents once
they have registered as community choice aggregators. The Utility would continue
to provide distribution, metering and billing services to the community choice
aggregators' customers. Once registration has occurred, each community choice
aggregator would purchase electricity for all of its residents who do not
affirmatively elect to continue to receive electricity from the Utility.
However, the Utility would remain those customers' electricity provider of last
resort. If the Utility loses a material number of customers as a result of
cities and counties electing to become community choice aggregators or the CPUC
allowing customers to migrate to direct access, the Utility's electricity
purchase contracts could obligate it to purchase more electricity than the
Utility's remaining customers require, the excess of which the Utility would
have to sell, possibly at a loss. Further, if the Utility must provide
electricity to customers discontinuing direct access or electing to leave a
community choice aggregator, the Utility may be required to make unanticipated
purchases of additional electricity at higher prices. If the Utility has excess
electricity or it must make unplanned purchases of electricity as a result of
changes in the number of community choice aggregators' customers or direct
access customers, and the CPUC fails to adjust the Utility's rates to reflect
the impact of these actions, our and the Utility's financial condition and
results of operations could be materially adversely affected.
18
THE OPERATION AND DECOMMISSIONING OF THE UTILITY'S NUCLEAR POWER PLANTS
EXPOSE IT TO POTENTIALLY SIGNIFICANT LIABILITIES AND CAPITAL EXPENDITURES.
The operation and decommissioning of the Utility's nuclear power plants
expose it to potentially significant liabilities and capital expenditures,
including those arising from the storage, handling and disposal of radioactive
materials and uncertainties related to the regulatory, technological and
financial aspects of decommissioning nuclear plants at the end of their licensed
lives. The Utility maintains decommissioning trusts and external insurance
coverage to reduce the Utility's financial exposure to these risks. However, the
costs or damages the Utility may incur in connection with the operation and
decommissioning of nuclear power plants could exceed the amount of the Utility's
insurance coverage and other amounts set aside for these potential liabilities.
In addition, as an operator of two operating nuclear reactor units, the Utility
may be required under federal law to pay up to $201.2 million of liabilities
arising out of each nuclear incident occurring not only at the Utility's Diablo
Canyon power plant but at any other nuclear power plant in the United States. If
the Utility cannot recover any material amount of these excess costs or damages
in the Utility's rates in a timely manner, our and the Utility's financial
condition and results of operations would be materially adversely affected.
In addition, the NRC has broad authority under federal law to impose
licensing and safety-related requirements upon owners and operators of nuclear
power plants. In the event of non-compliance, the NRC has the authority to
impose fines or to force a shutdown of the nuclear plant, or both, depending
upon the NRC's assessment of the severity of the situation. Safety requirements
promulgated by the NRC have, in the past, necessitated substantial capital
expenditures at the Utility's Diablo Canyon power plant and additional
significant capital expenditures could be required in the future.
IF THE UTILITY FAILS TO INCREASE THE SPENT FUEL STORAGE CAPACITY AT THE
UTILITY'S DIABLO CANYON POWER PLANT BY THE SPRING OF 2007 AND THERE ARE NO OTHER
AVAILABLE SPENT FUEL STORAGE OR DISPOSAL ALTERNATIVES, THE UTILITY WOULD BE
FORCED TO CLOSE THIS PLANT AND WOULD THEREFORE BE REQUIRED TO PURCHASE
ELECTRICITY FROM MORE EXPENSIVE SOURCES.
Under the terms of the NRC operating licenses for the Utility's Diablo
Canyon power plant, there must be sufficient storage capacity for the
radioactive spent fuel produced by this plant. Under current operating
procedures, the Utility believes that its Diablo Canyon power plant's existing
spent fuel pools have sufficient capacity to enable it to operate until the
spring of 2007. Although the Utility is taking actions to increase the Diablo
Canyon power plant's spent fuel storage capacity and exploring other
alternatives, there can be no assurance that the Utility can obtain the
necessary regulatory approvals to expand spent fuel capacity or that other
alternatives will be available or implemented in time to avoid a disruption in
production or shutdown of one or both units at this plant. As the proposed
permanent spent fuel depository at Yucca Mountain, Nevada will not be available
by 2007, there will not be any available third party spent fuel storage
facilities. If there is a disruption in production or shutdown of one or both
units at this plant, the Utility will need to purchase electricity from more
expensive sources.
ACTS OF TERRORISM COULD MATERIALLY ADVERSELY AFFECT OUR AND THE UTILITY'S
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The Utility's facilities, including its operating and retired nuclear
facilities and the facilities of third parties on which we rely, could be
targets of terrorist activities. A terrorist attack on these facilities could
result in a full or partial disruption of the Utility's ability to generate,
transmit, transport or distribute electricity or natural gas or cause
environmental repercussions. Any operational disruption or environmental
repercussions could result in a significant decrease in the Utility's revenues
or significant reconstruction or remediation costs, which could materially
adversely affect our and the Utility's financial condition and results of
operations.
ADVERSE JUDGMENTS OR SETTLEMENTS IN THE CHROMIUM LITIGATION CASES COULD
MATERIALLY ADVERSELY AFFECT OUR AND THE UTILITY'S FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The Utility is a named defendant in 14 civil actions currently pending in
California courts relating to alleged chromium contamination. The chromium
litigation complaints allege personal injuries, wrongful death
19
and loss of consortium and seek unspecified compensatory and punitive damages
based on claims arising from alleged exposure to chromium contamination in the
vicinity of three of the Utility's natural gas compressor stations. If the
Utility pays a material amount in excess of the amount that it currently has
reserved on its balance sheet to satisfy chromium-related liabilities and costs,
our and the Utility's financial condition and results of operations could be
materially adversely affected.
CHANGES IN, OR LIABILITIES UNDER, THE UTILITY'S PERMITS, AUTHORIZATIONS OR
LICENSES COULD ADVERSELY AFFECT OUR AND THE UTILITY'S FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The Utility's operations are subject to a number of governmental permits,
authorizations and licenses. These permits, authorizations and licenses may be
revoked or modified by the agency that granted them if facts develop that differ
significantly from the facts assumed when they were issued. In addition,
discharge permits and other approvals and licenses are often granted for a term
that is less than the expected life of the associated facility. Licenses and
permits may require periodic renewal, which may result in additional
requirements being imposed by the granting agency. For example, the Utility
currently has seven facilities undergoing FERC license renewal. In connection
with a license renewal, the FERC may impose new license conditions that could,
among other things, require increased expenditures or result in reduced
electricity output and/or capacity at the licensed hydroelectric generation
facility. If the Utility is unable to obtain, renew or comply with these
governmental permits, authorizations or licenses, or the Utility is unable to
recover any increased costs of complying with additional license requirements or
any other associated costs in a timely manner, our and the Utility's financial
condition and results of operations could be materially adversely affected.
RISKS RELATED TO NEGT
IF NEGT AND ITS CREDITORS PREVAIL ON THEIR CLAIM THAT WE ARE REQUIRED TO
COMPENSATE NEGT UNDER AN ALLEGED TAX-SHARING AGREEMENT, WE COULD BE SUBJECT TO
SUBSTANTIAL DAMAGES.
NEGT and its creditors have filed a complaint against us asserting, among
other claims, that NEGT is entitled to be compensated under an alleged
tax-sharing agreement for any tax savings achieved by us as a result of
incorporating losses, deductions and tax credits related to NEGT or its
subsidiaries in our 2002 consolidated federal income tax return. In May 2003,
the Internal Revenue Service, or IRS, returned $533 million in estimated federal
income taxes that we overpaid in 2002. NEGT and its creditors have asserted that
they have a direct interest in certain tax savings achieved by us and are
entitled to be paid at least $414 million of these funds. In addition, the
complaint seeks punitive damages for an alleged breach of fiduciary duty by us
and two of our officers who previously served on NEGT's board of directors, as
well as punitive damages against us under an alleged claim of deceit.
We anticipate continuing to incorporate losses, deductions and certain tax
credits related to NEGT or its subsidiaries in our consolidated federal tax
return in accordance with and as required by the Internal Revenue Code until
these subsidiaries are no longer consolidated with us for federal income tax
purposes. NEGT and its creditors similarly assert that NEGT is entitled to be
compensated for any tax savings resulting from inclusion of these losses and
deductions in our federal tax return and also seek injunctive relief prohibiting
us from taking certain tax positions in the future. While we believe we do not
have any obligation to pay NEGT or any NEGT subsidiary any amount related to the
realization of tax savings, we cannot assure you that NEGT and its creditors
will not be successful in pursuing these claims. Until the dispute is resolved,
we are treating $361.5 million as restricted cash.
WE MAY LOSE THE ABILITY TO OFFSET TAX GAINS BY US OR OUR OTHER SUBSIDIARIES
WITH TAX LOSSES SUSTAINED BY NEGT.
If the bankruptcy court confirms NEGT's plan of reorganization, NEGT will
become deconsolidated from us for tax purposes and we will lose the ability to
offset tax gains by us or our other subsidiaries with tax losses sustained by
NEGT after deconsolidation.
20
RATIO OF EARNINGS TO FIXED CHARGES(1)
Our ratio of earnings to fixed charges for the calendar years indicated are
as follows:
PRO
FORMA
2003 2003 2002 2001 2000 1999
----- ---- ---- ---- ------ ----
Ratio of earnings to fixed charges(2)(3)........... 1.9x 2.0x 3.2x 2.4x (7.0)x 3.0x
---------------
(1) The information in this table should be read in conjunction with, and is
qualified in its entirety by reference to, our consolidated financial
statements included in our and the Utility's Current Report on Form 8-K
filed on March 2, 2004 (including specifically Exhibit 99.1, which
superseded Exhibit 13 to our and the Utility's Annual Report on Form 10-K
for the year ended December 31, 2003) and the pro forma financial
information included in our and the Utility's Current Report on Form 8-K
filed on April 27, 2004.
(2) For the purpose of computing ratios of earnings to fixed charges, "earnings"
represent pre-tax income from continuing operations adjusted for minority
interest in consolidated subsidiaries and equity in income or loss from
subsidiaries accounted for using the equity method plus fixed charges, as
computed, less the pre-tax earnings required to cover the preferred dividend
requirements of subsidiaries. "Fixed charges" include interest, including
amortization of debt issue costs, premiums and discounts, the debt portion
of the allowance for funds used during construction, an estimate of the
amount of interest within rents, and the preferred security requirements of
consolidated subsidiaries.
(3) The ratio of earnings to fixed charges for the year 2000 indicates a ratio
of less than one-to-one. The dollar amount of the deficiency is
approximately $5.6 billion.
21
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
We issued and sold the original notes on July 2, 2003 in a private
placement. In connection with that issuance and sale, we entered into a
registration rights agreement with the initial purchasers of the original notes.
In the registration rights agreement, we agreed to:
- file with the SEC a registration statement by April 27, 2004 relating to
an offer to exchange the original notes for the exchange notes;
- use our commercially reasonable best efforts to cause the registration
statement to be declared effective under the Securities Act by July 1,
2004; and
- commence the exchange offer and keep the exchange offer open for at least
20 business days.
The exchange offer being made by this prospectus is intended to satisfy our
obligations under the registration rights agreement. If we fail to satisfy any
of these obligations, we will be required to pay additional interest to holders
of original notes until we have complied with this obligation.
Once the exchange offer is complete, we will have no further obligation to
register any of the original notes not tendered to us in the exchange offer,
except to the limited extent that certain qualified institutional buyers, if
any, are otherwise entitled to have their original notes registered under a
shelf registration as described under "Description of the Notes--Registration
Rights."
EFFECT OF THE EXCHANGE OFFER
Based on interpretations by the SEC staff set forth in Exxon Capital
Holdings Corporation (available May 13, 1988), Morgan Stanley & Co. Incorporated
(available June 5, 1991), K-III Communications Corporation (available May 14,
1993), Shearman & Sterling (available July 2, 1993), Brown & Wood LLP (available
February 7, 1997) and other no-action letters issued to third parties, we
believe that you may offer for resale, resell and otherwise transfer the
exchange notes issued to you in the exchange offer without compliance with the
registration and prospectus delivery requirements of the Securities Act if:
- you are acquiring the exchange notes in the ordinary course of your
business and do not hold any original notes to be exchanged in the
exchange offer that were acquired other than in the ordinary course of
business;
- you are not a broker-dealer tendering original notes acquired directly
from us;
- you are not participating, do not intend to participate and have no
arrangements or understandings with any person to participate in the
exchange offer for the purpose of distributing the exchange notes; and
- you are not our "affiliate," within the meaning of Rule 405 under the
Securities Act.
If you are not able to meet these requirements, you are a "restricted
holder." As a restricted holder, you will not be able to participate in the
exchange offer, you may not rely on the interpretations of the SEC staff set
forth in the no-action letters referred to above and you may only sell your
original notes in compliance with the registration and prospectus delivery
requirements of the Securities Act or under an exemption from the registration
requirements of the Securities Act or in a transaction not subject to the
Securities Act.
We do not intend to seek our own no-action letter, and there can be no
assurance that the staff of the SEC would make a similar determination with
respect to the exchange notes as it has in such no-action letters to third
parties.
In addition, if the tendering holder is a broker-dealer that will receive
exchange notes in exchange for original notes that were acquired for its own
account as a result of market-making activities or other trading activities, it
may be deemed to be an "underwriter" within the meaning of the Securities Act.
Any such holder will be required to acknowledge in the letter of transmittal
that it will deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of these exchange notes. This prospectus
22
may be used by those broker-dealers to resell exchange notes they receive
pursuant to the exchange offer. We have agreed that we will allow this
prospectus to be used by any broker-dealer in any resale of exchange notes until
, 2004, i.e., 180 days after the date of this prospectus (or such
shorter period during which such broker-dealers are required by law to deliver
such prospectus).
Except as described above, this prospectus may not be used for an offer to
resell, a resale or any other transfer of exchange notes.
Furthermore, any broker-dealer that acquired any of its original notes
directly from us must be named as a selling noteholder in connection with the
registration and prospectus delivery requirements of the Securities Act relating
to any resale transaction.
To the extent original notes are tendered and accepted in the exchange
offer, the principal amount of original notes that will be outstanding will
decrease with a resulting decrease in the liquidity in the market for the
original notes. Original notes that are still outstanding following the
completion of the exchange offer will continue to be subject to transfer
restrictions.
TERMS OF THE EXCHANGE OFFER; EXPIRATION DATE
Upon the terms and subject to the conditions of the exchange offer
described in this prospectus and in the accompanying letter of transmittal, we
will accept for exchange all original notes validly tendered and not withdrawn
before the expiration date. The term "expiration date" means 5:00 p.m., New York
City time, on , 2004, unless we, in our sole discretion, extend the
exchange offer, in which case the term "expiration date" shall mean the latest
date and time to which the exchange offer is extended.
We will issue $1,000 principal amount of exchange notes in exchange for
each $1,000 principal amount of original notes accepted in the exchange offer.
You may tender some or all of your original notes pursuant to the exchange
offer. However, original notes may be tendered only in denominations of $1,000.
The exchange offer is not conditioned upon any minimum aggregate principal
amount of original notes being tendered for exchange. As of the date of this
prospectus, an aggregate of $600 million principal amount of original notes was
outstanding. This prospectus is being sent to all registered holders of original
notes and to others believed to have beneficial interests in the original notes.
There will be no fixed record date for determining registered holders of
original notes entitled to participate in the exchange offer.
We intend to conduct the exchange offer in accordance with the applicable
requirements of the Securities Act and the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC. Holders of original notes do
not have any appraisal or dissenters' rights under law or under the indenture in
connection with the exchange offer. Original notes that are not tendered for
exchange in the exchange offer will remain outstanding and continue to accrue
interest and will be entitled to the rights and benefits their holders have
under the indenture.
We will be deemed to have accepted for exchange validly tendered original
notes when we have given oral or written notice of the acceptance to the
exchange agent. The exchange agent will act as agent for the tendering holders
of original notes for the purposes of receiving the exchange notes from us and
delivering the exchange notes to the tendering holders.
If we do not accept for exchange any tendered original notes because of an
invalid tender, the occurrence of certain other events described in this
prospectus or otherwise, such unaccepted original notes will be returned,
without expense, to the holder tendering them or the appropriate book-entry will
be made, in each case, as promptly as practicable after the expiration date.
We are not making, nor is our board of directors making, any recommendation
to you as to whether to tender or refrain from tendering all or any portion of
your original notes in the exchange offer. No one has been authorized to make
any such recommendation. You must make your own decision whether to tender your
original notes in the exchange offer and, if you decide to do so, you must also
make your own decision as to the aggregate amount of original notes to tender
after reading this prospectus and the letter of transmittal and consulting with
your advisers, if any, based on your own financial position and requirements.
23
EXTENSIONS OF THE EXCHANGE OFFER
If we determine to extend the exchange offer, we will notify the exchange
agent of any extension by oral or written notice.
We reserve the right, in our sole discretion to:
- delay accepting for exchange any original notes; or
- extend or terminate the exchange offer and to refuse to accept original
notes not previously accepted if the exchange offer is not permissible
under applicable law or SEC policy.
Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the exchange offer, we will have no obligation to publish, advertise or
otherwise communicate any public announcement, other than by making a timely
release to a financial news service.
During any extension of the exchange offer, all original notes previously
tendered will remain subject to the exchange offer and we may accept them for
exchange. We will return any original notes that we do not accept for exchange
for any reason without expense to the tendering holder as promptly as
practicable after the expiration or earlier termination of the exchange offer.
PROCEDURES FOR TENDERING
In order to exchange your original notes, you must complete one of the
following procedures by the expiration date:
- if your original notes are in book-entry form, the book-entry procedures
for tendering your original notes must be completed as described below
under "--Book-Entry Transfer;"
- if you hold physical notes that are registered in your name (i.e., not
in book-entry form), you must transmit a properly completed and duly
executed letter of transmittal, certificates for the original notes you
wish to exchange, and all other documents required by the letter of
transmittal, to J. P. Morgan Trust Company, National Association, the
exchange agent, at its address listed below under the heading
"--Exchange Agent;" or
- if you cannot tender your original notes by either of the above methods
by the expiration date, you must comply with the guaranteed delivery
procedures described below under "--Guaranteed Delivery Procedures."
A tender of original notes by a holder that is not withdrawn prior to the
expiration date will constitute an agreement between that holder and us in
accordance with the terms and subject to the conditions set forth in this
prospectus and in the letter of transmittal.
The method of delivery of original notes through DTC and the method of
delivery of the letter of transmittal and all other required documents to the
exchange agent is at the holder's election and risk. Holders should allow
sufficient time to effect the DTC procedures necessary to validly tender their
original notes to the exchange agent before the expiration date. Holders should
not send letters of transmittal or other required documents to us.
We will determine, in our sole discretion, all questions as to the
validity, form, eligibility (including time of receipt), acceptance of tendered
original notes and withdrawal of tendered original notes, and our determination
will be final and binding. We reserve the absolute right to reject any and all
original notes not properly tendered or any original notes the acceptance of
which would, in the opinion of us or our counsel, be unlawful. We also reserve
the absolute right to waive any defects or irregularities or conditions of the
exchange offer as to any particular original notes either before or after the
expiration date. Our interpretation of the terms and conditions of the exchange
offer as to any particular original notes either before or after the expiration
date, including the instructions in the letter of transmittal, will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of original notes for exchange must be
24
cured within such time as we shall determine. Although we intend to notify
holders of any defects or irregularities with respect to tenders of original
notes for exchange, neither we nor the exchange agent nor any other person shall
be under any duty to give such notification, nor shall any of them incur any
liability for failure to give such notification. Tenders of original notes will
not be deemed to have been made until all defects or irregularities have been
cured or waived. Any original notes received by the exchange agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the exchange agent to the tendering holders
or, in the case of original notes delivered by book-entry transfer within DTC,
will be credited to the account maintained within DTC by the participant in DTC
which delivered such original notes, unless otherwise provided in the letter of
transmittal, as soon as practicable following the expiration date.
In addition, we reserve the right in our sole discretion to:
- purchase or make offers for any original notes that remain outstanding
after the expiration date;
- terminate the exchange offer as set forth below under "--Conditions to
the Exchange Offer;" and
- purchase original notes in the open market, in privately negotiated
transactions or otherwise to the extent permitted by applicable law.
The terms of any such purchases or offers could differ from the terms of
the exchange offer.
By signing, or otherwise becoming bound by, the letter of transmittal, each
tendering holder of original notes (other than certain specified holders) will
represent to us that:
- it is acquiring the exchange notes and it acquired the original notes
being exchanged in the ordinary course of its business;
- it is not a broker-dealer tendering original notes acquired directly
from us;
- it is not participating, does not intend to participate and has no
arrangements or understandings with any person to participate in the
distribution (within the meaning of the Securities Act) of the exchange
notes; and
- it is not our "affiliate," within the meaning of Rule 405 under the
Securities Act, or, if it is our affiliate, it will comply with the
registration and prospectus delivery requirements of the Securities Act
to the extent applicable.
If the tendering holder is a broker-dealer that will receive exchange notes
for its own account in exchange for original notes that were acquired as a
result of market-making activities or other trading activities, it may be deemed
to be an "underwriter" within the meaning of the Securities Act. Any such holder
will be required to acknowledge in the letter of transmittal that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of these exchange notes. The letter of transmittal
states that by so acknowledging and by delivering a prospectus, the
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
BOOK-ENTRY TRANSFER
If your original notes are in book-entry form and are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee, you
must contact the registered holder of your original notes and instruct it to
promptly tender your original notes for exchange on your behalf.
The exchange agent will establish an account with respect to the original
notes at DTC promptly after the date of this prospectus. Your book-entry notes
must be transferred into the exchange agent's account at DTC in compliance with
DTC's transfer procedures in order for your notes to be validly tendered for
exchange. Any financial institution that is a participant in DTC's systems may
cause DTC to transfer original notes to the exchange agent's account. The DTC
participant, on your behalf, must transmit its acceptance of the exchange offer
to DTC. DTC will verify this acceptance, execute a book-entry transfer of the
tendered original notes into the exchange agent's account and then send to the
exchange agent confirmation of this
25
book-entry transfer. The confirmation of this book-entry transfer will include
an "agent's message" confirming that DTC has received an express acknowledgement
from the DTC participant that the DTC participant has received and agrees to be
bound by the letter of transmittal and that we may enforce the letter of
transmittal against this participant. Original notes will be deemed to be
validly tendered for exchange only if the exchange agent receives the book-entry
confirmation from DTC, including the agent's message, prior to the expiration
date.
All references in this prospectus to deposit or delivery of original notes
shall be deemed to also refer to DTC's book-entry delivery method.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their original notes and (1) whose original
notes are not immediately available or (2) who cannot deliver the letter of
transmittal or any other required documents to the exchange agent prior to the
expiration date or (3) who cannot complete the procedures for book-entry
transfer on a timely basis may effect a tender if:
- the tender is made through an eligible institution;
- before the expiration date, the exchange agent receives from the
eligible institution a properly completed and duly executed notice of
guaranteed delivery, by facsimile transmission, mail or hand delivery,
listing the principal amount of original notes tendered, stating that
the tender is being made thereby and guaranteeing that, within three New
York Stock Exchange, Inc. trading days after the expiration date, a duly
executed letter of transmittal together with a confirmation of
book-entry transfer of such original notes into the exchange agent's
account at DTC, and any other documents required by the letter of
transmittal and the instructions thereto, will be deposited by such
eligible institution with the exchange agent; and
- within three New York Stock Exchange trading days after the expiration
date, the exchange agent receives a confirmation of book-entry transfer
of all tendered original notes into the exchange agent's account at DTC
in the case of book-entry notes, or a properly completed and executed
letter of transmittal and the physical notes, in the case of notes in
certificated form, and all other documents required by the letter of
transmittal.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their original notes according to the
guaranteed delivery procedures described above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, tenders of original notes
may be withdrawn at any time prior to the expiration date.
For a withdrawal to be effective, the exchange agent must receive a written
or facsimile transmission notice of withdrawal at one of its addresses set forth
below under "--Exchange Agent." Any notice of withdrawal must:
- specify the name of the person who tendered the original notes to be
withdrawn;
- identify the original notes to be withdrawn, including the principal
amount of such original notes;
- state that the holder is withdrawing its election to exchange the
original notes to be withdrawn;
- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the original notes were tendered and
include any required signature guarantees; and
- specify the name and number of the account at DTC to be credited with
the withdrawn original notes and otherwise comply with the procedures of
DTC.
We will determine, in our sole discretion, all questions as to the
validity, form and eligibility (including time of receipt) of any notice of
withdrawal, and our determination shall be final and binding on all parties.
26
Any original notes so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the exchange offer, and no exchange notes will be
issued with respect thereto unless the original notes so withdrawn are validly
re-tendered. Properly withdrawn original notes may be re-tendered by following
one of the procedures described above under "--Procedures for Tendering" at any
time prior to the expiration date.
Any original notes that are tendered for exchange through the facilities of
DTC but that are not exchanged for any reason will be credited to an account
maintained with DTC for the original notes as soon as practicable after
withdrawal, rejection of tender or termination of the exchange offer.
CONDITIONS TO THE EXCHANGE OFFER
Despite any other term of the exchange offer, we will not be required to
accept for exchange, or to issue exchange notes in exchange for, any original
notes, and we may terminate the exchange offer as provided in this prospectus
prior to the expiration date, if:
- the exchange offer is not permissible under applicable law or SEC
policy; or
- a pending or threatened action or proceeding would impair our ability to
proceed with the exchange offer.
These conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any of these conditions or may be
waived by us, in whole or in part, at any time and from time to time in our
discretion. Our failure at any time to exercise any of the foregoing rights
shall not be deemed a waiver of the right and each right shall be deemed an
ongoing right which may be asserted at any time and from time to time.
If we determine that the conditions to the exchange offer are not
satisfied, we may:
- refuse to accept and return to the tendering holder any original notes
or credit any tendered original notes to the account maintained within
DTC by the participant in DTC which delivered the original notes, or
- extend the exchange offer and retain all original notes tendered before
the expiration date, subject to the rights of holders to withdraw the
tenders of original notes (see "--Withdrawal of Tenders" above).
In addition, we will not accept for exchange any original notes tendered,
and we will not issue exchange notes in exchange for any of the original notes,
if at that time any stop order is threatened or in effect with respect to the
registration statement of which this prospectus constitutes a part or the
qualification of the indenture under the Trust Indenture Act of 1939.
EXCHANGE AGENT
J. P. Morgan Trust Company, National Association has been appointed as the
exchange agent for the exchange offer. All signed letters of transmittal and
other documents required for a valid tender of your original notes should be
directed to the exchange agent at one of the addresses set forth below.
Questions and requests for assistance, requests for additional copies of this
prospectus or of the letter of transmittal and requests for notices of
guaranteed delivery should be directed to the exchange agent addressed as
follows:
By Registered, Certified Mail or by By Facsimile:
Hand or Overnight Delivery:
Fax number: (214) 468-6494
J.P. Morgan Trust Company, National Attention: Frank Ivins
Association, as Exchange Agent Confirm by telephone: (800) 275-2048
Institutional Trust Services
Attention: Exchanges, Frank Ivins Online:
2001 Bryan Street, 9th Floor
Dallas, Texas 75201 www.jpmorgan.com/bondholder
27
For information call: (800) 275-2048
Delivery to other than the above address or facsimile number will not
constitute a valid delivery.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders for the exchange offer.
These expenses include fees and expenses of the exchange agent and the trustee,
the registration fee, our accounting and legal fees and up to $10,000 of the
legal fees of counsel to the initial purchasers, printing costs, and related
fees and expenses. We will principally solicit tenders for the exchange offer by
mail or overnight courier, although our officers and regular employees may
additionally solicit in person or by telephone or facsimile.
We have not retained any dealer-manager in connection with the exchange
offer and will not pay any brokers, dealers or others soliciting acceptance of
the exchange offer. We, however, will pay the exchange agent reasonable and
customary fees for its services and its reasonable out-of-pocket expenses. We
may also pay brokerage houses and other custodians, nominees and fiduciaries
their reasonable out-of-pocket expenses for sending copies of this prospectus,
letters of transmittal and related documents to holders of the original notes,
and in tendering original notes for their customers.
TRANSFER TAXES
Holders who tender their original notes for exchange will not be obligated
to pay any transfer taxes in connection with the exchange offer.
ACCOUNTING TREATMENT
We will recognize no gain or loss, for accounting purposes, as a result of
the exchange offer. The expenses of the exchange offer and the unamortized
expenses relating to the issuance of the original notes will be amortized over
the term of the exchange notes. The costs of the exchange offer will be expensed
as period costs.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of original notes who do not exchange their original notes for
exchange notes pursuant to the exchange offer will not be able to offer, sell or
otherwise transfer the original notes except in compliance with the registration
requirements of the Securities Act and other applicable securities laws,
pursuant to an exemption from the securities laws or in a transaction not
subject to the securities laws. Original notes not exchanged pursuant to the
exchange offer will otherwise remain outstanding in accordance with their
respective terms and will continue to bear a legend reflecting these
restrictions on transfer. Holders of original notes do not have any appraisal or
dissenters' rights in connection with the exchange offer.
Upon completion of the exchange offer, holders of original notes will not
be entitled to any rights to have the resale of original notes registered under
the Securities Act except to the limited extent that certain qualified
institutional buyers, if any, are otherwise entitled under the registration
rights agreement to have their original notes registered under a shelf
registration. Except for this limited circumstance, we do not intend to register
under the Securities Act the resale of any original notes that remain
outstanding after completion of the exchange offer.
28
DESCRIPTION OF THE NOTES
The Company will issue the exchange notes under the indenture, dated as of
July 2, 2003, between the Company and J. P. Morgan Trust Company, National
Association, as successor trustee. The terms of the exchange notes include those
stated in the indenture and those made part of the indenture by reference to the
Trust Indenture Act of 1939.
The following description is a summary of the material provisions of the
indenture, the pledge agreements and the registration rights agreement. It does
not restate those agreements in their entirety. We urge you to read the
indenture, the pledge agreements and the registration rights agreement because
they, and not these descriptions, define your rights as holders of the exchange
notes. See "Where You Can Find More Information." You can find the definitions
of certain terms used in this description under the subheading "Certain
Definitions." In this description, the term "Company" refers only to PG&E
Corporation and not to any of its subsidiaries.
The registered holder of an exchange note will be treated as the owner of
it for all purposes. Only registered holders will have rights under the
indenture. See "--Book-Entry, Delivery and Form--Depositary Procedures."
BRIEF DESCRIPTION OF THE NOTES
The exchange notes will be:
- general obligations of the Company;
- secured by the outstanding common stock of the Utility owned by the
Company;
- senior to all current and future unsecured Indebtedness of the Company.
As of April 12, 2004, the Company (excluding its subsidiaries) had total
Indebtedness of approximately $880 million of which:
- $600 million would have been represented by the original notes; and
- $280 million would have been contractually subordinated to the original
notes.
The exchange notes will not be guaranteed by the Utility. In addition,
under the indenture, there are no restrictions on the ability of the Utility to
incur additional debt. As a practical matter, the notes will be effectively
subordinated to all Indebtedness of the Utility. In the event of a further
bankruptcy, liquidation, reorganization or other winding up of the Utility,
holders of its indebtedness and its trade creditors will generally be entitled
to payment of their claims from the assets of the Utility before any assets are
made available for distribution to the Company.
As of the issue date of the exchange notes, the Company's principal
subsidiary, the Utility, will be an Unrestricted Subsidiary. As of April 12,
2004, after the consummation of the transactions completed in connection with
the effective date of the Utility's plan of reorganization, the Utility,
together with its consolidated subsidiaries, had approximately $9.8 billion of
financial debt, including rate reduction bonds and $350 million in borrowings
under an accounts receivable financing facility. The Utility, together with its
consolidated subsidiaries, has established working capital facilities upon which
they may draw up to approximately $1.5 billion, of which only the $350 million
included above was drawn down in cash and $206 million in letters of credit was
utilized on the effective date. In addition, the Utility has a credit facility
that provides for the issuance of up to $620 million in letters of credit, all
of which was utilized on the effective date. The Utility generates substantially
all of the Company's consolidated revenues.
The indenture permits the Company and its subsidiaries to incur additional
Indebtedness, including secured pari passu Indebtedness. The indenture does not
impose any limitation on the incurrence by the Company's Unrestricted
Subsidiaries of Indebtedness or by its other subsidiaries of liabilities that
are not considered Indebtedness. See the eighth risk factor under "Risk
Factors--Risks Related to the Notes."
29
PRINCIPAL, MATURITY AND INTEREST
The Company will issue exchange notes with an initial maximum aggregate
principal amount of up to $600 million. The indenture governing the exchange
notes permits the Company to issue additional notes from time to time after this
offering. Any such offering of additional notes will be subject to the Company's
ability to incur indebtedness under the covenant described below under the
caption "--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock." The exchange notes, the original notes and any additional
notes subsequently issued under the indenture will be treated as a single class
for all purposes under the indenture, including, without limitation, waivers,
amendments, redemptions and offers to purchase. Unless the context otherwise
requires, for purposes of this "Description of the Notes" section, reference to
the notes includes the original notes, the exchange notes and any additional
notes actually issued. The Company will issue exchange notes in denominations of
$1,000. The exchange notes will mature on July 15, 2008.
Interest on the exchange notes will accrue at the rate of 6 7/8% per annum
and will be payable semi-annually in arrears on January 15 and July 15. Payments
on the original notes commenced January 15, 2004. The Company will make each
interest payment to the holders of record on the immediately preceding January 1
and July 1. Any interest that has accrued on the original notes before their
acceptance or exchange in this exchange offer will be included in the interest
paid on the exchange notes on the first interest payment date after the
conclusion of the exchange offer.
Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
If a holder of record has given wire transfer instructions to the Company,
the Company will pay all principal, interest and premium, if any, on that
holder's notes in accordance with those instructions. All other payments on
notes will be made at the office or agency of the paying agent and registrar
within the City and State of New York unless the Company elects to make interest
payments by check mailed to the holders at their address set forth in the
register of holders. See "--Book-Entry, Delivery and Form--Depositary
Procedures."
PAYING AGENT AND REGISTRAR FOR THE NOTES
The trustee is currently acting as paying agent and registrar. The Company
may change the paying agent or registrar without prior notice to the holders of
the notes, and the Company or any of its Subsidiaries may act as paying agent or
registrar.
TRANSFER AND EXCHANGE
A holder may transfer or exchange notes in accordance with the indenture.
The registrar and the trustee may require a holder to furnish appropriate
endorsements and transfer documents in connection with a transfer of notes.
Holders will be required to pay all taxes, assessments or similar governmental
charges due on transfer. The Company is not required to transfer or exchange any
note selected for redemption. Also, the Company is not required to transfer or
exchange any note for a period of 15 days before a selection of notes to be
redeemed. See "--Book Entry, Delivery and Form."
SECURITY
Stock Pledges. All obligations of the Company with respect to the notes
are secured by a perfected first-priority security interest in the approximately
94% of the outstanding common stock of the Utility that the Company owns. So
long as no Event of Default has occurred and is continuing, all cash
distributions, cash proceeds and other cash amounts payable in respect of the
stock of the Utility securing the notes will be received by the Company. The
balance of the common stock of the Utility is owned by a subsidiary of the
Utility. With respect to 35% of such common stock pledged for the benefit of the
lenders, the holders have customary rights of a pledgee of common stock,
provided that certain regulatory approvals may be required in
30
connection with any foreclosure on and any exercise of the right to vote such
stock. With respect to the remaining 65%, such common stock has been pledged for
the benefit of the holders, but the holders have no ability to control such
common stock under any circumstances and do not have any of the typical rights
and remedies of a secured creditor. However, the holders do have the right to
receive any cash proceeds received upon a disposition of such common stock.
Under the terms of the Pledge Agreements, until the holders of any
additional Indebtedness have become parties to the Pledge Agreements in
accordance with the terms thereof ("New Senior Secured Debt"), the holders of a
majority of the notes may direct the Collateral Agent with respect to certain
decisions relating to the exercise of remedies under the Pledge Agreements,
including whether to foreclose on the portion of the Collateral representing 35%
of the common stock of the Utility owned by the Company following a default on
the notes. After the holders of any New Senior Secured Debt have become parties
to the Pledge Agreements, the holders of (1) a majority of the outstanding
principal amount of the notes, voting separately as a class; (2) a majority of
the outstanding principal amount of any issuance of New Senior Secured Debt that
the Company has designated as having the right to vote separately as a class,
voting as a class; and (3) a majority of the outstanding principal amount of all
New Senior Secured Debt that has not been so designated, voting separately as a
class, shall direct the Collateral Agent with respect to decisions relating to
the exercise of remedies. Moreover, upon the full and final payment and
performance of all Obligations of the Company secured by the Pledge Agreements,
such agreements shall terminate and the pledged Collateral shall be released.
The Liens on the Collateral with respect to the notes may be released in certain
other circumstances in accordance with the terms of the Pledge Agreements. See
"--Release."
Sufficiency of Collateral. In the event of foreclosure on the Collateral,
the proceeds from the sale of the Collateral may not be sufficient to satisfy in
full the Company's obligations under the notes and any other senior secured
indebtedness. The amount to be received upon such a sale would be dependent on
numerous factors, including but not limited to the fair market value of the
Collateral and the timing and the manner of the sale. By its nature, portions of
the Collateral may be illiquid and may have no readily ascertainable market
value. Accordingly, there can be no assurance that the Collateral can be sold in
a short period of time in an orderly manner. To the extent that third parties
enjoy Liens permitted by the Indenture, such third parties may have rights and
remedies with respect to the assets or property subject to such Liens that, if
exercised, could adversely affect the value of the Collateral. In addition, in
the event of a bankruptcy, the ability of the holders to realize upon any of the
Collateral may be subject to certain bankruptcy law limitations.
The Company has the ability to issue additional notes as part of the same
series of these notes or in one or more different series and certain other
Indebtedness, all of which may be secured by the Collateral with the notes. In
addition, the Company can use the Collateral to secure on an equal and ratable
basis with the notes any Indebtedness incurred pursuant to clause (1) and clause
(13) of the second paragraph of the covenant described below under the caption
"--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock" and to secure other Indebtedness on a junior basis. Following the
Investment Grade Date, the Company may secure additional Indebtedness, whether
or not pursuant to clause (1) and clause (13) of the second paragraph of the
covenant described below under the caption "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock" with the Collateral in an amount
of up to 15% of the Company's Consolidated Tangible Assets. See the fourth risk
factor under "Risk Factors--Risks Relating to the Notes." The notes will be
effectively subordinated to all indebtedness of the Utility.
See also the fifth risk factor under "Risk Factors--Risks Relating to the
Notes."
CERTAIN BANKRUPTCY LIMITATIONS
The right of the Collateral Agent to repossess and dispose of the
Collateral upon the occurrence of an Event of Default would be significantly
impaired by applicable bankruptcy law in the event that a bankruptcy case were
to be commenced by or against the Company prior to the Collateral Agent having
repossessed and disposed of the Collateral. Upon the commencement of a case for
relief under Title 11 of the United States Code, as amended (the "Bankruptcy
Code"), a secured creditor such as the Collateral Agent is prohibited
31
from repossessing its security from a debtor in a bankruptcy case, or from
disposing of security repossessed from the debtor, without bankruptcy court
approval.
In view of the broad equitable powers of a bankruptcy court, it is
impossible to predict how long payments under the notes could be delayed
following commencement of a bankruptcy case, whether or when the Collateral
Agent could repossess or dispose of the Collateral, the value of the Collateral
at the time of the bankruptcy petition or whether or to what extent holders of
the notes would be compensated for any delay in payment or loss of value of the
Collateral. Furthermore, in the event the value of the Collateral is not
sufficient to repay all amounts due on the notes, the holders of the notes would
hold secured claims to the extent of the value of the Collateral to which the
holders of the notes are entitled, and unsecured claims with respect to such
shortfall. The Bankruptcy Code only permits the payment and/or accrual of
post-petition interest, costs and attorneys' fees to a secured creditor during a
debtor's bankruptcy case to the extent the value of the collateral is determined
by the bankruptcy court to exceed the aggregate outstanding principal amount of
the obligations secured by the collateral.
OPTIONAL REDEMPTION
At any time prior to July 15, 2006, the Company may on any one or more
occasions redeem up to 35% of the aggregate principal amount of notes issued
under the indenture at a redemption price of 106.875% of the principal amount,
plus accrued and unpaid interest, if any, to the redemption date, with the net
cash proceeds of one or more Equity Offerings by the Company; provided that:
(1) at least 65% of the aggregate principal amount of notes issued
under the indenture remains outstanding immediately after the
occurrence of each such redemption (excluding notes held by the
Company and its Subsidiaries); and
(2) any such redemption occurs within 120 days of the date of the
closing of such Equity Offering.
At any time and from time to time prior to July 15, 2006, the Company may,
at its option, redeem all or a portion of the notes at the Make-Whole Price plus
accrued and unpaid interest to the redemption date.
Except pursuant to the preceding paragraphs, the notes will not be
redeemable at the Company's option prior to July 15, 2006.
On and after July 15, 2006, the Company may redeem all or a part of the
notes upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest, if any, on the notes redeemed, to the applicable
redemption date, if redeemed during the twelve-month period beginning on July 15
of the years indicated below:
YEAR PERCENTAGE
---- ----------
2006........................................................ 103.438%
2007........................................................ 101.719%
Unless the Company defaults in the payment of the redemption price,
interest will cease to accrue on the notes or portions thereof called for
redemption on the applicable redemption date.
SELECTION AND NOTICE
If less than all of the notes are to be redeemed at any time, the trustee
will select notes for redemption as follows:
(1)if the notes are listed on any national securities exchange, in
compliance with the requirements of the principal national
securities exchange on which the notes are listed; or
(2)if the notes are not listed on any national securities exchange, on
a pro rata basis, by lot or by such method as the trustee deems
fair and appropriate.
No notes of $1,000 or less can be redeemed in part. Notices of redemption
will be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each holder of notes to be redeemed
32
at its registered address, except that redemption notices may be mailed more
than 60 days prior to a redemption date if the notice is issued in connection
with a defeasance of the notes or a satisfaction and discharge of the indenture.
Notices of redemption may not be conditional. If any note is to be redeemed in
part only, the notice of redemption that relates to that note will state the
portion of the principal amount of that note that is to be redeemed. A new note
in principal amount equal to the unredeemed portion of the original note will be
issued in the name of the holder of notes upon cancellation of the original
note. Notes called for redemption become due on the date fixed for redemption.
On and after the redemption date, interest ceases to accrue on notes or portions
of them called for redemption.
MANDATORY REDEMPTION; OPEN MARKET PURCHASES
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the notes. However, under certain circumstances the
Company is required to offer to purchase the notes as set forth below under
"--Repurchase at the Option of Holders." The Company or any of its Subsidiaries
may at any time and from time to time purchase notes in the open market or
otherwise.
COVENANT TERMINATION
Upon the first date upon which the notes are rated Baa3 or better by
Moody's and BBB- or better by S&P (or, if either such entity ceases to rate the
notes for reasons outside of the control of the Company, the equivalent
investment grade credit rating from any other "nationally recognized statistical
rating organization" within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the
Exchange Act selected by Company as a replacement agency) and no Material
Default has occurred and is continuing under the indenture (the "Investment
Grade Date"), the Company and its Restricted Subsidiaries will cease to be
subject to the provisions of the indenture described below, which will be deemed
to be terminated as of and from such date, under the following captions:
- "--Repurchase at the Option of the Holders--Asset Sales,"
- "--Certain Covenants--Restricted Payments,"
- "--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock,"
- "--Certain Covenants--Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries,"
- "--Certain Covenants--Transactions with Affiliates,"
- "--Certain Covenants--Business Activities" and
- "--Certain Covenants--Payments for Consent;"
provided that the provisions of the indenture described below under the
following captions will not be so terminated:
- "--Repurchase at the Option of Holders--Change of Control, Spin-Off or
Reorganization Event,"
- "--Certain Covenants--Liens,"
- "--Certain Covenants--Merger, Consolidation or Sale of Assets" (except
as set forth in that covenant), and
- "--Certain Covenants--Reports."
In the event that the notes are no longer rated Baa3 or better by Moody's or
BBB- or better by S&P after the Investment Grade Date, such terminated covenants
will not be restored. As a result, the notes will be entitled to substantially
less covenant protection from and after the Investment Grade Date.
33
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL, SPIN-OFF OR REORGANIZATION EVENT
If a Change of Control, Spin-Off or Reorganization Event occurs, each
holder of notes will have the right to require the Company to repurchase all or
any part (equal to $1,000 or an integral multiple of $1,000) of that holder's
notes pursuant to an offer by the Company (a "Change of Control Offer") on the
terms described below. In a Change of Control Offer, the Company will offer a
payment in cash (the "Change of Control Payment") equal to 101% of the aggregate
principal amount of notes repurchased plus accrued and unpaid interest, if any,
for the notes repurchased, to the date of purchase. Within 30 days following any
Change of Control or no sooner than 60 days prior to and no later than 30 days
following a Spin-Off or Reorganization Event, as the case may be, the Company
will mail a notice to each registered holder of notes describing the transaction
or transactions that constitute the Change of Control, Spin-Off or
Reorganization Event, as the case may be, and offering to repurchase notes on
the date specified in the notice, which date will be no earlier than 30 days and
no later than 60 days from the date such notice is mailed (the "Change of
Control Payment Date"), pursuant to the procedures described below and in such
notice.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the notes as a result of a Change of Control, Spin-Off or
Reorganization Event. To the extent that the provisions of any securities laws
or regulations conflict with this covenant, the Company will comply with the
applicable securities laws and regulations and will not be deemed to have
breached its obligations under this covenant.
On the Change of Control Payment Date the Company will, to the extent
lawful:
(1) accept for payment all notes or portions of notes properly
tendered pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the Change of
Control Payment in respect of all notes or portions of notes
properly tendered; and
(3) deliver or cause to be delivered to the trustee the notes properly
accepted together with an officers' certificate stating the
aggregate principal amount of notes or portions of notes being
purchased by the Company.
The paying agent will promptly mail to each holder of notes properly
tendered the Change of Control Payment for such notes, and the trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each holder a new note equal in principal amount to any unpurchased portion of
the notes surrendered, if any; provided that each new note will be in a
principal amount of $1,000 or an integral multiple of $1,000.
The Company's future agreements governing its Indebtedness, including one
or more Credit Facilities, may prohibit the Company from purchasing any notes in
the event of a Change of Control, Spin-Off or Reorganization Event, and may also
provide that a Change of Control, Spin-Off or Reorganization Event would
constitute a default or require repayment of the Indebtedness under these
agreements. In the event a Change of Control, Spin-Off or Reorganization Event
occurs at a time when the Company is prohibited from purchasing notes, the
Company could seek the consent of its lenders to the purchase of notes or could
attempt to refinance the borrowings that contain the prohibition. If the Company
does not obtain such a consent or repay those borrowings, the Company will
remain prohibited from purchasing notes. In such case, the Company's failure to
comply with the foregoing provisions would constitute an Event of Default under
the indenture which would, in turn, constitute a default under the Company's
other agreements governing its Indebtedness. See the sixth risk factor under
"Risk Factors--Risks Relating to the Notes."
The provisions described above that require the Company to make a Change of
Control Offer following a Change of Control, Spin-Off, or Reorganization Event,
as applicable, will be applicable whether or not any other provisions of the
indenture are applicable. Except as described above with respect to a Change of
Control, Spin-Off or Reorganization Event, the indenture does not contain
provisions that permit the holders
34
of the notes to require that the Company repurchase or redeem the notes in the
event of a takeover, recapitalization or similar transaction.
The Company will not be required to make a Change of Control Offer upon a
Change of Control, Spin-Off, or Reorganization Event, as applicable, if a third
party makes the Change of Control Offer in the manner, at the times and
otherwise in compliance with the requirements set forth in the indenture
applicable to a Change of Control Offer made by the Company and purchases all
notes properly tendered and not withdrawn under the Change of Control Offer.
The definition of Change of Control includes a phrase relating to the
direct or indirect sale, lease, transfer, conveyance or other disposition of
"all or substantially all" of the properties or assets of the Company and its
Restricted Subsidiaries taken as a whole. Although there is a limited body of
case law interpreting the phrase "substantially all," there is no precise
established definition of the phrase under applicable law. Accordingly, the
ability of a holder of notes to require the Company to repurchase its notes as a
result of a sale, lease, transfer, conveyance or other disposition of less than
all of the assets of the Company and its Restricted Subsidiaries taken as a
whole to another Person or group may be uncertain.
The Change of Control, Spin-Off and Reorganization Event provisions of the
indenture may be waived or modified with the consent of the holders of a
majority in principal amount of the notes then outstanding.
ASSET SALES
The Company will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
(1) the Company (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of the Asset Sale at least
equal to the fair market value of the assets or Equity Interests
issued or sold or otherwise disposed of;
(2) the fair market value is determined by the Company's chief
financial officer and set forth in an officer's certificate
delivered to the trustee; and
(3) at least 75% of the consideration received in the Asset Sale by
the Company or such Restricted Subsidiary is in the form of cash
or Cash Equivalents. For purposes of this provision, each of the
following will be deemed to be cash:
(a) any liabilities, as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet, of the Company or any
Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the notes)
that are transferred to the transferee by operation of law or
assumed by the transferee of any such assets pursuant to an
agreement that releases the Company or such Restricted
Subsidiary from, or fully indemnifies it against, further
liability;
(b) any securities, notes or other obligations received by the
Company or any such Restricted Subsidiary from such transferee
that are, within 60 days, converted by the Company or such
Restricted Subsidiary into cash, to the extent of the cash
received in that conversion; and
(c) Additional Assets received in an exchange of assets
transaction.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company or the applicable Restricted Subsidiary may apply those Net Proceeds
at its option:
(1) to repay Senior Debt or any Indebtedness of a Restricted
Subsidiary and, if the Senior Debt or such Indebtedness repaid is
revolving credit Indebtedness, to correspondingly reduce
commitments with respect thereto;
(2) to acquire all or substantially all of the assets of, or a
majority of the Voting Stock of, another Permitted Business;
35
(3) to make a capital expenditure in a Permitted Business; or
(4) to acquire other long-term assets that are used or useful in a
Permitted Business.
Pending the final application of any Net Proceeds, the Company may
temporarily reduce revolving credit borrowings or otherwise invest the Net
Proceeds in any manner that is not prohibited by the indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $30.0 million, the Company will make
an offer (an "Asset Sale Offer") to all holders of notes and to the extent
required, to all holders of other secured Indebtedness that is pari passu with
the notes containing provisions similar to those set forth in the indenture with
respect to offers to purchase or redeem with the proceeds of sales of assets, to
purchase the maximum principal amount of notes (in integral multiples of $1,000)
and such other secured pari passu Indebtedness that may be purchased out of the
Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100%
of principal amount of notes and other secured pari passu Indebtedness to be
purchased or the lesser amount required under agreements governing such other
secured pari passu Indebtedness, plus accrued and unpaid interest, if any, to
the date of purchase, and will be payable in cash. If any Excess Proceeds remain
after consummation of an Asset Sale Offer, the Company may use such Excess
Proceeds for any purpose not otherwise prohibited by the indenture, including
any similar offer to purchase unsecured Indebtedness. If the aggregate principal
amount of notes and other secured pari passu Indebtedness tendered into such
Asset Sale Offer exceeds the amount of Excess Proceeds, the trustee will select
the notes and such other secured pari passu Indebtedness to be purchased on a
pro rata basis. Upon completion of each Asset Sale Offer, the amount of Excess
Proceeds will be reset at zero.
The Asset Sale Offer will remain open for a period of at least 20 Business
Days following its commencement and not more than 30 Business Days, except to
the extent that a longer period is required by applicable law (the "Asset Sale
Offer Period"). No later than five Business Days after the termination of the
Asset Sale Offer Period (the "Asset Sale Payment Date"), the Company will apply
all Excess Proceeds to the purchase of notes and the other secured pari passu
Indebtedness to be purchased (on a pro rata basis, if applicable) or, if notes
and such other secured pari passu Indebtedness in an aggregate principal amount
less than the Excess Proceeds has been tendered, all notes and secured pari
passu Indebtedness tendered in response to the Asset Sale Offer.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent those laws and regulations are applicable in connection with each
repurchase of notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the Asset Sale
provisions of the indenture, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under the Asset Sale provisions of the indenture by virtue of such
conflict.
The paying agent will promptly (but in any case not later than five
Business Days after the Asset Sale Payment Date) mail to each holder of notes
properly tendered the payment for such notes, and the trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each holder
a new note equal in principal amount to any unpurchased portion of the notes
surrendered, if any; provided that each new note will be in a principal amount
of $1,000 or an integral multiple of $1,000.
The Company's future agreements governing its Indebtedness, including one
or more Credit Facilities, may prohibit the Company from purchasing any notes,
and may also provide that certain asset sales would constitute a default or
require repayment of the Indebtedness under these agreements. In the event an
Asset Sale occurs at a time when the Company is prohibited from purchasing
notes, the Company could seek the consent of its lenders to the purchase of
notes or could attempt to refinance the borrowings that contain the prohibition.
If the Company does not obtain such a consent or repay those borrowings, the
Company will remain prohibited from purchasing notes. In such case, the
Company's failure to comply with the foregoing provisions would constitute an
Event of Default under the indenture which would, in turn, constitute a default
under the Company's other agreements governing its Indebtedness.
36
The Asset Sale provisions of the indenture may be waived or modified with
the consent of the holders of a majority in principal amount of the notes then
outstanding.
CERTAIN COVENANTS
As of the Issue Date and as of the date of this prospectus, the principal
subsidiary of the Company, the Utility, was an "Unrestricted Subsidiary." In
addition, under the circumstances described below under the subheading
"--Certain Covenants--Designation of Restricted and Unrestricted Subsidiaries,"
the Company will be permitted to designate certain of its future Subsidiaries as
"Unrestricted Subsidiaries." Unrestricted Subsidiaries will not be subject to
many of the restrictive covenants in the indenture.
RESTRICTED PAYMENTS
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution on account of the Company's or any of its Restricted
Subsidiaries' Equity Interests (including, without limitation, any
payment in connection with any merger or consolidation involving
the Company or any of its Restricted Subsidiaries) or to the
direct or indirect holders of the Company's or any of its
Restricted Subsidiaries' Equity Interests in their capacity as
such (other than dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of the Company or to the
Company or a Restricted Subsidiary of the Company);
(2) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or
consolidation involving the Company) any Equity Interests of the
Company or any direct or indirect parent of the Company;
(3) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness
that is subordinated to the notes, except a payment of interest or
principal at the Stated Maturity thereof; or
(4) make any Restricted Investment
(all such payments and other actions set forth in clauses (1) through (4) above
being collectively referred to as "Restricted Payments"), unless, at the time of
and after giving effect to such Restricted Payment:
(1) no Default has occurred and is continuing or would occur as a
consequence of such Restricted Payment;
(2) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted
Payment had been made at the beginning of the applicable four-
quarter period, have been permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant
described below under the caption "--Incurrence of Indebtedness
and Issuance of Preferred Stock;" and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the Issue Date (excluding Restricted Payments
permitted by clauses (2), (3), (4), (7), (9), (10) and (12) of the
next succeeding paragraph), is less than the sum, without
duplication, of:
(a) 50% of the Consolidated Net Income of the Company for the
period (taken as one accounting period) from the beginning of
the first fiscal quarter commencing after the Issue Date to the
end of the Company's most recently ended fiscal quarter for
which internal financial statements are available at the time
of such Restricted Payment (or, if such Consolidated Net Income
for such period is a deficit, less 100% of such deficit), plus
(b) 100% of the aggregate Net Cash Proceeds and the fair market
value of marketable securities received by the Company (and the
fair market value of any Permitted Business or
37
assets used or useful in a Permitted Business to the extent
acquired in consideration of Equity Interests (other than
Disqualified Stock) of the Company) since the Issue Date as a
contribution to its common equity capital or from the issue or
sale of Equity Interests of the Company (other than Disqualified
Stock) or from the issue or sale of convertible or exchangeable
Disqualified Stock or convertible or exchangeable debt securities
of the Company that have been converted into or exchanged for such
Equity Interests (other than Equity Interests (or Disqualified
Stock or debt securities) sold to a Subsidiary of the Company),
plus
(c) to the extent that any Restricted Investment that was made
after the Issue Date is sold or otherwise liquidated, the cash
plus fair market value of any marketable securities received
upon sale or liquidation of such Restricted Investment (less
the cost of disposition, if any), plus
(d) to the extent that any Unrestricted Subsidiary of the Company
is redesignated as a Restricted Subsidiary after the Issue
Date, the aggregate fair market value of all Investments of the
Company or the Restricted Subsidiary in such Subsidiary as of
the date of such redesignation.
The preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration of the dividend, if at the date of declaration the
dividend payment would have complied with the provisions of the
indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness of the Company or of
any Equity Interests of the Company or any of its Restricted
Subsidiaries in exchange for, or out of the Net Cash Proceeds of
the substantially concurrent sale (other than to a Subsidiary of
the Company) of, Equity Interests of the Company (other than
Disqualified Stock) or with cash in an amount up to the fair
market value of any Permitted Business or assets used or useful
in a Permitted Business to the extent acquired in a substantially
concurrent acquisition in consideration of Equity Interests
(other than Disqualified Stock) of the Company; provided that the
amount of any such proceeds that are utilized for any such
redemption, repurchase, retirement, defeasance or other
acquisition will be excluded from clause (3)(b) of the preceding
paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness or Disqualified Stock of the Company
with the Net Cash Proceeds from an incurrence of Permitted
Refinancing Indebtedness;
(4) the payment of any dividend or other payment or distribution by a
Restricted Subsidiary of the Company to the holders of its Equity
Interests on a pro rata basis;
(5) so long as no Material Default has occurred and is continuing or
would be caused thereby, the repurchase, redemption or other
acquisition or retirement for value in the ordinary course of
business of any Equity Interests of the Company or any Restricted
Subsidiary of the Company held by any existing or former employee
or director of the Company (or any of its Restricted
Subsidiaries) pursuant to any equity subscription agreement,
stock option agreement or similar agreement; provided that the
aggregate price paid for all such repurchased, redeemed, acquired
or retired Equity Interests may not exceed $7.5 million in any
twelve-month period; provided further that any amounts paid by
the Company for any such repurchase, redemption or other
acquisition or retirement will not be counted for purposes of the
foregoing limitation to the extent the Utility has reimbursed the
Company for such payments;
(6) so long as no Material Default has occurred and is continuing or
would be caused thereby, the declaration and payment of dividends
to holders of any class or series of Disqualified Stock of the
Company or preferred stock of Restricted Subsidiaries issued in
accordance with the terms
38
of the indenture to the extent such dividends are included in the
definition of "Fixed Charges;"
(7) any Restricted Payments made in connection with or in
contemplation of a Spin-Off;
(8) following the Utility's confirmed plan of reorganization under
Chapter 11 of Title 11 of the United States Code (the "Utility's
Plan of Reorganization") if the Utility is a Restricted
Subsidiary and so long as no Material Default has occurred and is
continuing or would be caused thereby, the payment of regular
quarterly cash dividends on the Company's common stock after the
Issue Date; provided that such dividends are paid pursuant to the
dividend policy established by the Board of Directors of the
Company and that the Company shall have received the cash used
for such dividends from distributions by the Utility of cash
legally available therefor;
(9) following the Utility's Plan of Reorganization if the Utility is
an Unrestricted Subsidiary and so long as no Material Default has
occurred and is continuing or would be caused thereby, the
payment of regular quarterly cash dividends on the Company's
common stock after the Issue Date; provided that such dividends
are paid pursuant to the dividend policy established by the Board
of Directors of the Company and that the Company shall have
received the cash used for such dividends from distributions by
the Utility of cash legally available therefor (excluding,
however, any distributions of the cash proceeds of material asset
sales outside the ordinary course of business); provided further
that any such distributions by the Utility to the Company or a
Restricted Subsidiary that the Company pays as a dividend
pursuant to this clause (9) will not be included in the
Consolidated Net Income of the Company under clause (3)(a) of the
preceding paragraph;
(10) Investments in the Utility by the Company or a Restricted
Subsidiary out of the Net Cash Proceeds of the substantially
concurrent sale (other than to a Subsidiary of the Company) of
Equity Interests of the Company (other than Disqualified Stock)
or with cash in an amount up to the fair market value of any
Permitted Business or assets used or useful in a Permitted
Business to the extent acquired in a substantially concurrent
acquisition in consideration of Equity Interests (other than
Disqualified Stock) of the Company; provided that the amount of
any such proceeds that are utilized for any such Investments will
be excluded from clause (3)(b) of the preceding paragraph;
(11) so long as no Material Default has occurred and is continuing or
would be caused thereby, any dividends on preferred stock of the
Company; provided that such dividends can be paid under clause
(3) of the preceding paragraph; and
(12) so long as no Default has occurred and is continuing or would be
caused thereby, other Restricted Payments in an aggregate amount
since the Issue Date not to exceed $75.0 million.
The amount of all Restricted Payments (other than cash) will be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any assets or securities that are required to be valued by this
covenant will be determined in good faith by the chief financial officer of the
Company, whose officer's certificate with respect thereto will be delivered to
the trustee and if such fair market value exceeds $75.0 million, by the Board of
Directors of the Company, whose resolution with respect thereto will be
delivered to the trustee. Not later than the date of making any Restricted
Payment, the Company will deliver to the trustee an officer's certificate
stating that such Restricted Payment is permitted and setting forth the basis
upon which the calculations required by this "Restricted Payments" covenant were
computed, together with a copy of any fairness opinion or appraisal required by
the indenture. Any sale of Capital Stock by a Restricted Subsidiary will be
deemed to be an issuance of Capital Stock by the Company.
39
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt), and the Company will not issue any Disqualified Stock and will not permit
any of its Restricted Subsidiaries to issue any shares of preferred stock;
provided, however, that the Company may incur Indebtedness (including Acquired
Debt) or issue Disqualified Stock and any Restricted Subsidiary may incur
Indebtedness (including Acquired Debt) or issue preferred stock, if the Fixed
Charge Coverage Ratio for the Company's most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date on which such additional Indebtedness is incurred or such
Disqualified Stock or preferred stock is issued would have been at least 2.0 to
1, determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred or any
such Disqualified Stock or preferred stock had been issued, as the case may be,
at the beginning of such four-quarter period.
The first paragraph of this covenant will not prohibit the incurrence of
any of the following items of Indebtedness (collectively, "Permitted Debt"):
(1) following the substantial consummation of the Utility's Plan of
Reorganization, the incurrence by the Company and any Restricted
Subsidiary of Indebtedness under one or more Credit Facilities in
an aggregate amount at any one time outstanding under this clause
(1) (with letters of credit being deemed to have a principal
amount equal to the maximum potential liability of the Company
and its Subsidiaries thereunder) not to exceed $500.0 million;
(2) the incurrence by the Company and its Restricted Subsidiaries of
Existing Indebtedness;
(3) the incurrence by the Company of Indebtedness represented by the
notes issued on the Issue Date and the Exchange Notes;
(4) the incurrence by the Company and any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease
Obligations, mortgage financings or purchase money obligations,
in each case, incurred for the purpose of financing all or any
part of the purchase price or cost of construction or improvement
of property, plant or equipment used in the business of the
Company or such Restricted Subsidiary and the incurrence of any
Permitted Refinancing Indebtedness incurred to refund, refinance
or replace any Indebtedness incurred pursuant to this clause (4)
in an aggregate amount (after giving effect to the retirement of
the Indebtedness so refunded, refinanced or replaced) not to
exceed $35.0 million at any one time outstanding;
(5) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange
for, or the net proceeds of which are used to refund, refinance
or replace Indebtedness (other than intercompany Indebtedness)
that was permitted by the indenture to be incurred under the
first paragraph of this covenant or clauses (2), (3) or (5) of
this paragraph;
(6) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the
Company and any of its Restricted Subsidiaries; provided that:
(a) if the Company is the obligor on such Indebtedness, such
Indebtedness must be expressly subordinated to the prior
payment in full in cash of all Obligations with respect to the
notes; and
(b) (i) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person
other than the Company or a Restricted Subsidiary of the
Company and (ii) any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a
Restricted Subsidiary of the Company will be deemed, in each
case, to constitute an incurrence of such Indebtedness by the
Company or a Restricted Subsidiary, as the case may be, that
was not permitted by this clause (6);
40
(7) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations in the normal course of
business and not for speculative purposes, designed to protect
the Company or its Restricted Subsidiary against fluctuations in
interest rates or currency exchange rates with respect to
Indebtedness incurred by the Company or any of its Restricted
Subsidiaries or against fluctuations in the price of commodities
used by that entity at the time;
(8) the Guarantee by the Company or any of its Restricted
Subsidiaries of any Indebtedness that was permitted to be
incurred by another provision of this covenant; provided that in
the event the Indebtedness that is being Guaranteed is
subordinated in right of payment to the notes, then the Guarantee
of that Indebtedness by the Company shall be subordinated in
right of payment to the notes;
(9) the accrual of interest, the accretion or amortization of
original issue discount, the payment of interest on any
Indebtedness in the form of additional Indebtedness with the same
terms, and the payment of dividends on Disqualified Stock or, in
the case of any Restricted Subsidiary, preferred stock, in the
form of additional shares of the same class of Disqualified Stock
or preferred stock will not be deemed to be an incurrence of
Indebtedness or an issuance of Disqualified Stock or preferred
stock for purposes of this covenant; provided, in each such case,
that the amount thereof is included in Fixed Charges of the
Company as accrued;
(10) Indebtedness incurred in respect of workers' compensation claims,
self-insurance obligations, performance, surety and similar bonds
and completion guarantees provided by the Company or a Restricted
Subsidiary in the ordinary course of business;
(11) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument
drawn against insufficient funds in the ordinary course of
business;
(12) the incurrence by the Company of Indebtedness that is
subordinated in right of payment to the notes, and the incurrence
of any Permitted Refinancing Indebtedness incurred to refund,
refinance or replace any Indebtedness incurred pursuant to this
clause (12), in an aggregate amount (after giving effect to the
retirement of any Indebtedness so refunded, refinanced or
replaced) not to exceed $200.0 million at any one time
outstanding; and
(13) the incurrence by the Company or any of its Restricted
Subsidiaries of additional Indebtedness and the incurrence of any
Permitted Refinancing Indebtedness incurred to refund, refinance
or replace any Indebtedness incurred pursuant to this clause
(13), in an aggregate amount (after giving effect to the
retirement of any Indebtedness so refunded, refinanced or
replaced) not to exceed $500.0 million at any one time
outstanding.
For purposes of determining compliance with this "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant, in the event that an
item of Indebtedness (including Acquired Debt) at any time meets the criteria of
more than one of the categories of Permitted Debt described in clauses (1)
through (13) above, or is entitled to be incurred pursuant to the first
paragraph of this covenant, the Company will be permitted to classify (and later
reclassify) in whole or in part in its sole discretion such item of Indebtedness
in any manner that complies with this covenant.
For purposes of determining compliance with any U.S. dollar-denominated
restriction on the incurrence of Indebtedness, the U.S. dollar-equivalent
principal amount of Indebtedness denominated in a foreign currency will be
calculated based on the relevant currency exchange rate in effect on the date
such Indebtedness was incurred, in the case of term Indebtedness, or first
committed, in the case of revolving credit Indebtedness; provided that if such
Indebtedness is incurred to refinance other Indebtedness denominated in the same
foreign currency, and such refinancing would cause the applicable U.S. dollar-
denominated restriction to be exceeded if calculated at the relevant currency
exchange rate in effect on the date of such refinancing, the U.S.
dollar-denominated restriction will be deemed not to have been exceeded so long
as the principal amount of the refinancing Indebtedness does not exceed the
principal amount of the Indebtedness being refinanced. Notwithstanding any other
provision of this covenant, the maximum amount of
41
Indebtedness that the Company may incur pursuant to this covenant will not be
deemed to be exceeded solely as a result of fluctuations in the exchange rate of
currencies.
LIENS
The Company will not, and will not permit any of its Restricted
Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or
become effective any Lien of any kind (other than Permitted Liens) securing
Indebtedness, Attributable Debt or trade payables upon the Collateral, unless:
(a) such Liens secure Indebtedness incurred under clauses (1) or (13) of the
second paragraph of the covenant described under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock," and the lenders become a party to
the Pledge Agreements, or otherwise agree to be bound by the terms thereof, in
connection with the creation of such Liens and, in each case, all payments due
under the indenture and the notes are secured on at least an equal and ratable
basis with the obligations so secured or (b) such Liens secure any other
Indebtedness the outstanding principal amount of which does not exceed at any
time $100.0 million, on a basis that is junior to all payments due under the
indenture and the notes, and the lenders become a party to the Pledge
Agreements, or otherwise agree to be bound by the terms thereof, in connection
with the creation of such Liens; provided that, following the Investment Grade
Date, an aggregate amount of Indebtedness at any time outstanding of up to 15%
of Consolidated Tangible Assets may be secured by Liens on the Collateral on an
equal and ratable basis with, or junior to, the notes.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock
to the Company or any of its Restricted Subsidiaries, or with
respect to any other interest or participation in, or measured by,
its profits, or pay any indebtedness owed to the Company or any of
its Restricted Subsidiaries;
(2) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to the Company or any of
its Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) agreements governing Existing Indebtedness as in effect on the
Issue Date and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or
refinancings ("Refinancings") of those agreements; provided that
such Refinancings are no more restrictive, taken as a whole, with
respect to such dividend and other payment restrictions than
those contained in those agreements on the Issue Date; provided
further that with respect to any Refinancings within six months
of the Stated Maturity of any Existing Indebtedness or prior
Refinancing, such Refinancings may contain restrictions that are
in the reasonable opinion of the chief financial officer of the
Company required by the lenders in order to obtain such
Refinancings and are customary for such Refinancings;
(2) agreements governing Indebtedness of the Utility or any of its
Subsidiaries existing at the time the Utility is designated a
Restricted Subsidiary pursuant to and in accordance with the
terms of the indenture; provided that the encumbrances and
restrictions are not materially more restrictive than is
customary in comparable financings;
(3) the indenture, the notes and the Pledge Agreements;
(4) applicable law or any applicable rule, regulation or order of any
court or governmental authority;
42
(5) any encumbrance imposed pursuant to the terms of Indebtedness
incurred pursuant to clause (4), clause (5) (provided that any
dividend or other payment restrictions contained in such
Permitted Refinancing Indebtedness are no more restrictive, taken
as a whole, than those contained in the Indebtedness being
refinanced) or clause (13) (provided that such Indebtedness is
Indebtedness of the Utility or any of its Subsidiaries) of the
second paragraph of the covenant described under "--Incurrence of
Indebtedness and Issuance of Preferred Stock" above; provided
that such encumbrance is not materially more restrictive than is
customary for comparable financings;
(6) any instrument governing Indebtedness or Capital Stock of a
Person acquired by the Company or any of its Restricted
Subsidiaries as in effect at the time of such acquisition (except
to the extent such Indebtedness or Capital Stock was incurred in
connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or
the properties or assets of any Person, other than the Person, or
the property or assets of the Person, so acquired; provided that,
in the case of Indebtedness, such Indebtedness was permitted by
the terms of the indenture to be incurred;
(7) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(8) Capital Lease Obligations, mortgage financings or purchase money
obligations for property acquired in the ordinary course of
business that impose restrictions on that property of the nature
described in clause (3) of the preceding paragraph;
(9) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by that Restricted
Subsidiary pending its sale or other disposition;
(10) Permitted Refinancing Indebtedness; provided that the
encumbrances or restrictions contained in the agreements
governing such Permitted Refinancing Indebtedness are no more
restrictive, taken as a whole, than those contained in the
agreements governing the Indebtedness being refinanced;
(11) Liens securing Indebtedness otherwise permitted to be incurred
under the provisions of the covenant described above under the
caption "--Liens" that limit the right of the debtor to dispose
of the assets subject to such Liens;
(12) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements, asset sale
agreements, stock sale agreements and other similar agreements
entered into in the ordinary course of business; and
(13) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Company may not, directly or indirectly: (1) consolidate or merge with
or into another Person (whether or not the Company is the surviving corporation)
or (2) sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of the properties or assets of the Company and its Restricted
Subsidiaries taken as a whole (other than in connection with the Spin-Off), in
one or more related transactions, to another Person unless:
(1) either: (a) the Company is the surviving corporation; or (b) the
Person formed by or surviving any such consolidation or merger (if
other than the Company) or to which such sale, assignment,
transfer, lease, conveyance or other disposition has been made is
a corporation organized or existing under the laws of the United
States, any state of the United States or the District of
Columbia;
43
(2) the Person formed by or surviving any such consolidation or merger
(if other than the Company) or the Person to which such sale,
assignment, transfer, lease, conveyance or other disposition has
been made assumes all the obligations of the Company under the
notes, the indenture, the Pledge Agreements (other than in the
case of a Reorganization Event, in which case the Pledge
Agreements will terminate and the Collateral will be released) and
the registration rights agreement pursuant to agreements
reasonably satisfactory to the trustee; provided that in the case
of a lease of all or substantially all of the assets of the
Company and its Restricted Subsidiaries, the Company will not be
released from the obligations to pay the principal of, whether at
maturity or otherwise, and interest on the notes;
(3) immediately after such transaction no Material Default shall have
occurred and be continuing; and
(4) the Company or the Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which
such sale, assignment, transfer, lease, conveyance or other
disposition has been made, will, immediately after such
transaction after giving pro forma effect thereto and any related
financing transactions as if the same had occurred at the
beginning of the applicable four-quarter period, have a Fixed
Charge Coverage Ratio that is equal to or greater than the Fixed
Charge Coverage Ratio of the Company immediately prior to such
transaction.
Notwithstanding the preceding clause (4), (i) any Restricted Subsidiary of
the Company may consolidate with, merge into or transfer all or part of its
properties and assets to the Company and (ii) the Company may merge with an
Affiliate that has no significant assets or liabilities and was formed solely
for the purpose of changing the jurisdiction of organization of the Company to
another state of the United States so long as the amount of the Company's
Indebtedness and the Indebtedness of its Restricted Subsidiaries is not
increased thereby. In addition, following an Investment Grade Date the Company
shall not be required to comply with clause (4).
TRANSACTIONS WITH AFFILIATES
The Company will not, and will not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each, an "Affiliate Transaction"), unless:
(1) the Affiliate Transaction is on terms that are no less favorable
to the Company or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the
Company or such Restricted Subsidiary with an unrelated Person;
and
(2) the Company delivers to the trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in
excess of $25.0 million, an officer's certificate of the chief
financial officer of the Company certifying that such Affiliate
Transaction complies with this covenant; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in
excess of $50.0 million, an opinion issued by an accounting,
appraisal or investment banking firm of national standing as to
the fairness to the holders of such Affiliate Transaction from
a financial point of view or that the terms of the Affiliate
Transaction are no less favorable to the Company or the
relevant Restricted Subsidiary than terms that would have been
obtained in a comparable transaction with an unrelated person
or entity.
44
The following items will not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any (a) employment or indemnification arrangements, (b)
transactions relating to compensation, stock option or other
benefit plans or arrangements, in each case with any employee,
consultant or director of the Company or any of its Restricted
Subsidiaries that is entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business or (c)
any redemption or repurchase of the Capital Stock of the Company
held by employees upon death, disability or termination of
employment;
(2) transactions between or among any of the Company, its Restricted
Subsidiaries and the Utility;
(3) transactions between the Company and any of its Restricted
Subsidiaries, on the one hand, and any Unrestricted Subsidiary if
such transaction: (a) is contemplated by or provided for in a
confirmed plan of reorganization in a bankruptcy proceeding of
NEGT or otherwise necessary to comply with such a plan or in
connection with a court-approved judgment or settlement of
litigation related to a bankruptcy proceeding of NEGT or (b) is
subject to tariff or pricing regulation by the CPUC or the FERC
or similar regulatory agencies or bodies;
(4) any agreement in effect as of the Issue Date or any amendment
thereto (so long as such amendment is not disadvantageous to the
holders in any material respect) or any transaction contemplated
thereby;
(5) transactions with a Person that is an Affiliate of the Company
solely because the Company owns an Equity Interest in, or
controls, such Person;
(6) payment of reasonable directors fees;
(7) sales of Equity Interests (other than Disqualified Stock) to
Affiliates of the Company;
(8) Restricted Payments that are permitted by the covenant described
above under the caption "--Restricted Payments;"
(9) transactions pursuant to or contemplated by a Spin-Off;
(10) any payments or other transactions pursuant to any existing,
substantially similar or customary tax sharing agreement between
the Company and any other Person with which the Company files a
consolidated tax return or with which the Company is or was part
of a consolidated group for tax purposes;
(11) Permitted Investments described in clauses (9) or (10) of the
definition thereof;
(12) the grant of intellectual property licenses by the Company or any
Restricted Subsidiary to an Unrestricted Subsidiary; and
(13) the provision of general corporate administrative, operating and
management services including, without limitation, procurement,
construction, engineering, construction administration, legal,
accounting, financial, tax, management, risk management,
personnel, corporate communications, public and governmental
relations, information technology, administration and business
planning, operating, management, energy trading and price risk
management service, in each case, on terms no less favorable to
the Company or Restricted Subsidiary than cost-based.
DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate
fair market value of all outstanding Investments owned by the Company and its
Restricted Subsidiaries in the Subsidiary properly designated will be deemed to
be an Investment made as of the time of the designation and will reduce the
amount available for Restricted Payments under the first paragraph of the
45
covenant described above under the caption "--Restricted Payments" or Permitted
Investments, as determined by the Company. That designation will only be
permitted if the Investment would be permitted at that time and if the
Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary
to be a Restricted Subsidiary if the redesignation would not cause a Default.
BUSINESS ACTIVITIES
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than Permitted Businesses, except to such extent as
would not be material to the Company and its Subsidiaries taken as a whole.
PAYMENTS FOR CONSENT
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration to or for the
benefit of any holder of notes for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of the indenture or the notes unless
such consideration is offered to be paid and is paid to all holders of the notes
that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
REPORTS
Whether or not required by the SEC, so long as any notes are outstanding,
the Company will furnish to the trustee within ten business days of the time
periods specified in the SEC's rules and regulations:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q
and 10-K if the Company were required to file such Forms,
including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the
annual information only, a report on the annual financial
statements by the Company's certified independent accountants; and
(2) all current reports that would be required to be filed with the
SEC on Form 8-K if the Company were required to file such reports.
In addition, whether or not required by the SEC, the Company will file a
copy of all of the information and reports referred to in clauses (1) and (2)
above with the SEC for public availability within the time periods specified in
the SEC's rules and regulations (unless the SEC will not accept such a filing)
and make such information available to securities analysts and prospective
investors upon request. The Company has also agreed that, for so long as any
notes remain outstanding, at any time it is not required to file the reports
required by the preceding paragraph with the SEC, it will furnish to the holders
and to securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default:
(1) default by the Company for 30 days in the payment when due of
interest on the notes;
(2) default by the Company in payment when due of the principal of, or
premium, if any, on the notes;
(3) failure by the Company or any of its Restricted Subsidiaries to
comply with the provisions described under the captions
"--Repurchase at the Option of Holders--Change of Control,
Spin-Off or Reorganization Event," "--Repurchase at the Option of
Holders--Asset Sales," or "--Certain Covenants--Merger,
Consolidation or Sale of Assets;"
46
(4) failure by the Company or any of its Restricted Subsidiaries for
60 days after notice to comply with any of the other covenants or
agreements in the indenture;
(5) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by
the Company or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the
Issue Date, if that default:
(a) is caused by a failure to pay principal of, or interest or
premium, if any, on such Indebtedness prior to the expiration
of the grace period provided in such Indebtedness on the date
of such default (a "Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its
Stated Maturity,
and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under
which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $50.0 million or more;
(6) failure by the Company or any of its Restricted Subsidiaries to
pay final judgments aggregating in excess of $50.0 million, which
judgments are not paid, discharged or stayed for a period of 60
days;
(7) (a) except as permitted by the Pledge Agreements, any amendments
thereto or the provisions of the indenture, and other than as a
result of a Reorganization Event, either of the Pledge Agreements
ceases to be in full force and effect or ceases to be effective,
in all material respects, to create the Lien purported to be
created in the Collateral in favor of the holders for 60 days
after notice, (b) the Company challenges the Lien on the
Collateral under the Pledge Agreements prior to the time that the
Collateral is to be released to the Company or (c) the Company
asserts that either of the Pledge Agreements is invalid and
unenforceable, other than in accordance with its terms; and
(8) certain events of bankruptcy or insolvency described in the
indenture with respect to the Company or any of its Significant
Subsidiaries or any group of Restricted Subsidiaries that, taken
as a whole, would constitute a Significant Subsidiary.
In the case of an Event of Default arising from certain events of
bankruptcy or insolvency with respect to the Company, all outstanding notes will
become due and payable immediately without further action or notice. If any
other Event of Default occurs and is continuing, the trustee or the holders of
at least 25% in principal amount of the then outstanding notes may declare all
the notes to be due and payable immediately.
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture. Subject to certain limitations, holders of a majority
in principal amount of the then outstanding notes may direct the trustee in its
exercise of any trust or power. The holders of a majority in aggregate principal
amount of the notes then outstanding by notice to the trustee may on behalf of
the holders of all of the notes (i) waive any existing Default or Event of
Default and its consequences under the indenture except a continuing Default or
Event of Default in the payment of principal of, or interest or premium, if any,
on, the notes and (ii) rescind an acceleration and its consequences, if the
rescission would not conflict with any judgment or decree and if all existing
Events of Default have been cured or waived.
Upon becoming aware of any Default or Event of Default, the Company is
required to deliver to the trustee a statement specifying such Default or Event
of Default. The trustee may withhold from holders of the notes notice of any
continuing Default if it determines that withholding such notice is in their
interest, except a Default relating to the payment of principal of, or interest
or premium, if any, on, the notes.
47
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS
No director, officer, employee, incorporator or shareholder of the Company
or any director, officer, employee or incorporator of any Subsidiary of the
Company, as such, will have any liability for any obligations of the Company
under the notes, the indenture, the Pledge Agreements or for any claim based on,
in respect of, or by reason of, such obligations or their creation. Each holder
of notes by accepting a note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the notes. The waiver
may not be effective to waive liabilities under the federal securities laws and
it is the view of the SEC that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations and the obligations of the Restricted Subsidiaries discharged with
respect to the outstanding notes ("Legal Defeasance") except for:
(1) the rights of holders of outstanding notes to receive payments in
respect of the principal of, or interest or premium, if any, on
such notes when such payments are due from the trust referred to
below;
(2) the Company's obligations with respect to the notes concerning
issuing temporary notes, registration of notes, mutilated,
destroyed, lost or stolen notes and the maintenance of an office
or agency for payment;
(3) the rights, powers, trusts, duties and immunities of the trustee
and the Company's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
In addition, the Company may, at its option and at any time, elect to have
the obligations of the Company released with respect to certain covenants
(including, but not limited to, its obligations to make Change of Control Offers
and Asset Sale Offers) that are described in the indenture ("Covenant
Defeasance") and thereafter any omission to comply with those covenants will not
constitute a Default or Event of Default with respect to the notes. In the event
Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"--Events of Default and Remedies" will no longer constitute an Event of Default
with respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Company must irrevocably deposit with the trustee, in trust,
for the benefit of the holders of the notes, cash in U.S. dollars,
non-callable Government Securities, or a combination of cash in
U.S. dollars and non-callable Government Securities, in amounts as
will be sufficient, in the opinion of a nationally recognized firm
of independent public accountants, to pay the principal of, or
interest and premium, if any, on the outstanding notes on the
Stated Maturity or on the applicable redemption date, as the case
may be, and the Company must specify whether the notes are being
defeased to maturity or to a particular redemption date;
(2) in the case of Legal Defeasance, the Company has delivered to the
trustee an opinion of counsel reasonably acceptable to the trustee
confirming that:
(a) the Company has received from, or there has been published by,
the Internal Revenue Service a ruling; or
(b) since the Issue Date, there has been a change in the applicable
federal income tax law, in either case to the effect that, and
based thereon such opinion of counsel will confirm that, the
holders of the outstanding notes will not recognize income,
gain or loss for federal income tax purposes as a result of
such Legal Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not
occurred;
48
(3) in the case of Covenant Defeasance, the Company has delivered to
the trustee an opinion of counsel reasonably acceptable to the
trustee confirming that the holders of the outstanding notes will
not recognize income, gain or loss for federal income tax purposes
as a result of such Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Covenant
Defeasance had not occurred;
(4) no Default or Event of Default has occurred and is continuing on
the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such
deposit);
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under, any
material agreement or instrument (other than the indenture) to
which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound;
(6) the Company must deliver to the trustee an officer's certificate
stating that the deposit was not made by the Company with the
intent of preferring the holders of notes over any other creditors
of the Company or with the intent of defeating, hindering,
delaying or defrauding any other creditors of the Company; and
(7) the Company must deliver to the trustee an officer's certificate
and an opinion of counsel, each stating that all conditions
precedent relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
SATISFACTION AND DISCHARGE
The indenture will be discharged, and will cease to be of further effect as
to all notes issued thereunder, when:
(1) either:
(a) all notes that have been authenticated, except lost, stolen or
destroyed notes that have been replaced or paid and notes for
whose payment money has been deposited in trust and thereafter
repaid to the Company, have been delivered to the trustee for
cancellation; or
(b) all notes that have not been delivered to the trustee for
cancellation have become due and payable or will become due and
payable within one year by reason of the mailing of a notice of
redemption or otherwise and the Company has irrevocably
deposited or caused to be deposited with the trustee as trust
funds in trust solely for the benefit of the holders, cash in
U.S. dollars, non-callable Government Securities, or a
combination of cash in U.S. dollars and non-callable Government
Securities, in amounts as will be sufficient, without
consideration of any reinvestment of interest, to pay and
discharge the entire indebtedness on the notes not delivered to
the trustee for cancellation for principal, premium, if any,
and accrued interest to the date of maturity or redemption;
(2) no Default or Event of Default has occurred and is continuing on
the date of the deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such
deposit) or will occur as a result of the deposit and the deposit
will not result in a breach or violation of, or constitute a
default under, any other instrument to which the Company or any of
its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(3) the Company has paid or caused to be paid all sums payable by it
under the indenture; and
(4) the Company has delivered irrevocable instructions to the trustee
under the indenture to apply the deposited money toward the
payment of the notes at maturity or the redemption date, as the
case may be.
49
In addition, the Company must deliver an officer's certificate and an
opinion of counsel to the trustee stating that all conditions precedent to
satisfaction and discharge have been satisfied.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the indenture and
the notes may be amended or supplemented with the consent of the holders of a
majority in principal amount of the notes then outstanding (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, the notes), and, subject to certain exceptions, any
existing Default or Event of Default or compliance with any provision of the
indenture or the notes may be waived with the consent of the holders of a
majority in principal amount of the then outstanding notes (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, the notes). Amendments to the Pledge Agreements will be
made in accordance with their terms.
Without the consent of each holder affected, an amendment, supplement or
waiver may not (with respect to any notes held by a non-consenting holder):
(1) reduce the principal amount of notes whose holders must consent to
an amendment, supplement or waiver;
(2) reduce the principal amount of or change the fixed maturity of any
note or alter the provisions with respect to the redemption of the
notes (other than provisions relating to the covenants described
above under the caption "--Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest on
any note;
(4) waive a Default or Event of Default in the payment of principal
of, or interest or premium, if any, on the notes (except a
rescission of acceleration of the notes by the holders of at least
a majority in aggregate principal amount of the notes and a waiver
of the payment default that resulted from such acceleration);
(5) make any note payable in currency other than that stated in the
notes;
(6) make any change in the provisions of the indenture relating to
waivers of past Defaults or the rights of holders of notes to
receive payments of principal of, or interest or premium, if any,
on the notes;
(7) waive a redemption payment with respect to any note (other than a
payment required by one of the covenants described above under the
caption "--Repurchase at the Option of Holders");
(8) make any change in the ranking or priority of any note that would
adversely affect the holder (other than any change resulting from
an amendment to the Pledge Agreements in accordance with their
terms); or
(9) make any change in the preceding amendment and waiver provisions.
In addition, any amendment to, or waiver of, the provisions of the Pledge
Agreements in any manner (i) that adversely affects the rights of the holders of
the notes or (ii) that releases any of the Collateral from the Liens under the
Pledge Agreements (in each case, other than in accordance with the terms of such
documents) will require the consent of the holders of at least 66 2/3% of the
aggregate principal amount of notes then outstanding.
Notwithstanding the preceding, without the consent of any holder of notes,
the Company and the trustee may amend or supplement the indenture, the Pledge
Agreements or the notes to:
(1) cure any ambiguity, defect or inconsistency;
(2) provide for uncertificated notes in addition to or in place of
certificated notes;
(3) provide for the assumption of the Company's obligations to holders
of notes in the case of a merger or consolidation or sale of all
or substantially all of the Company's assets;
50
(4) make any change that would provide any additional rights or
benefits to the holders of notes or that does not adversely affect
the legal rights under the indenture or the Pledge Agreements of
any such holder;
(5) provide for the issuance of additional notes in accordance with
the provisions set forth in the indenture;
(6) comply with requirements of the SEC in order to effect or maintain
the qualification of the indenture under the Trust Indenture Act;
or
(7) evidence and provide for the acceptance and appointment under the
indenture of a successor trustee pursuant to the requirements of
the indenture.
The consent of the holders is not necessary under the indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
THE PLEDGE AGREEMENTS
The Pledge Agreements provide for the pledge by the Company of
approximately 94% of the common stock of the Utility to secure the Company's
obligations under and in respect of the indenture and the notes. Upon the
occurrence of an event of default under the Base Pledge Agreement, the
Collateral Agent is entitled to exercise all the rights, powers and remedies for
the protection and enforcement of its rights with respect to that portion of the
Collateral not to exceed 35% of the common stock of the Utility that is pledged,
including the foreclosure upon and sale of such Collateral. The only remedy
provided to the Collateral Agent with respect to the remaining 65% of the common
stock of the Utility that is pledged pursuant to the Protective Pledge Agreement
is the right to receive proceeds from the sale of such common stock. In each
case, the net proceeds of any sale of the Collateral is distributed ratably
first, to the holders of the senior secured obligations (including the holders
of the notes) based upon the relevant amounts due and payable with respect to
such senior secured obligation and, second, to the holders of junior secured
obligations, if any. In addition, the Pledge Agreements provide that until
holders of any additional Indebtedness have become parties to the Pledge
Agreements in accordance with the terms thereof ("New Senior Secured Debt"), the
holders of a majority of the notes may direct the Collateral Agent with respect
to decisions relating to the exercise of remedies under the Pledge Agreements,
including whether to foreclose on the portion of the Collateral representing 35%
of the common stock of the Utility owned by the Company following a default on
the notes. After the holders of any New Senior Secured Debt have become parties
to the Pledge Agreements, the holders of (1) a majority of the outstanding
principal amount of the notes, voting separately as a class; (2) a majority of
the outstanding principal amount of any issuance of New Senior Secured Debt that
the Company has designated as having the right to separately vote as a class,
voting as a class and (3) a majority of the outstanding principal amount of all
New Senior Secured Debt that has not been so designated, voting separately as a
class, shall direct the Collateral Agent with respect to decisions relating to
the exercise of remedies. Amendments to the pledge agreement necessary to permit
the incurrence of additional Indebtedness secured by the Collateral and to add
additional secured parties thereto may be made without the consent of the
Trustee or the holders of the notes, insofar as the foregoing is not prohibited
under the indenture.
RELEASE
The Liens on the Collateral will be released with respect to the notes:
(1) in whole, upon payment in full of the principal of, accrued and
unpaid interest and premium, if any, on the notes and payment in
full of all other Obligations due and payable at or prior to the
time such principal, accrued and unpaid interest and premium, if
any, are paid;
(2) in whole, upon satisfaction and discharge of the indenture;
(3) in whole, upon a legal defeasance or covenant defeasance as set
forth under the caption "--Legal Defeasance and Covenant
Defeasance;"
51
(4) in part, as to any property constituting Collateral that is sold
or otherwise disposed of by the Company in a transaction permitted
by the indenture and the Pledge Agreements and any then-existing
debt documents evidencing New Senior Secured Debt or junior
secured obligations, at the time of such sale or disposition, to
the extent of the interest sold or disposed of;
(5) if such Collateral constitutes all or substantially all of the
Collateral, with the consent of at least 66 2/3% in principal
amount of the notes (including, without limitation, additional
notes, if any) then outstanding voting as a single class
(including, without limitation, consents obtained in connection
with a tender offer or exchange offer for, or purchase of, notes);
(6) if such Collateral constitutes less than all or substantially all
of the Collateral, with the consent of at least a majority in
principal amount of the notes (including, without limitation,
additional notes, if any) then outstanding voting as a single
class (including, without limitation, consents obtained in
connection with a tender offer or exchange offer for, or purchase
of, the notes); or
(7) upon the occurrence of a Reorganization Event.
Equal and Ratable Lien Sharing by Holders of Notes and Holders of Certain
Other Indebtedness
Notwithstanding (i) anything to the contrary contained in the indenture,
Pledge Agreements, notes or any other instrument governing, evidencing or
relating to any Indebtedness, (ii) the time, order or method of attachment of
any Liens, (iii) the time or order of filing or recording of financing
statements or other documents filed or recorded to perfect any Lien upon any
Collateral, (iv) the time of taking possession or control over any Collateral or
(v) the rules for determining priority under the Uniform Commercial Code or any
other law governing relative priorities of secured creditors:
(1) the Liens will rank equally and ratably with all valid,
enforceable and perfected Liens, whenever granted upon any present
or future Collateral, but only to the extent such Liens are
permitted under the indenture; and
(2) all proceeds of the Pledge Agreements shall be allocated and
distributed equally and ratably as set forth in the Pledge
Agreements.
CONCERNING THE TRUSTEE
If the trustee becomes a creditor of the Company, the indenture limits its
right to obtain payment of claims in certain cases, or to realize on certain
property received in respect of any such claim as security or otherwise. The
trustee will be permitted to engage in other transactions; however, if it
acquires any conflicting interest it must eliminate such conflict within 90
days, apply to the SEC for permission to continue or resign.
The holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
occurs and is continuing, the trustee will be required, in the exercise of its
rights and powers, to use the degree of care of a prudent person in the conduct
of such person's own affairs. Subject to such provisions, the trustee will be
under no obligation to exercise any of its rights or powers under the indenture
at the request of any holder of notes, unless such holder has offered to the
trustee security and indemnity satisfactory to it against any loss, liability or
expense.
BOOK-ENTRY SYSTEM; GLOBAL NOTES
Except as set forth below, the exchange notes will initially be issued in
the form of one or more global notes. Each global note will be deposited with
DTC or the trustee on behalf of DTC and will be registered in the name of DTC or
its nominee. Investors may hold their beneficial interests in a global note
directly through DTC or indirectly through organizations which are participants
in the DTC system.
Unless and until they are exchanged in whole or in part for certificated
notes, the global notes may not be transferred except as a whole by DTC or its
nominee.
52
DTC has advised us as follows:
- DTC is a limited purpose trust company organized under the laws of the
State of New York, a "banking organization" within the meaning of the
New York Banking Law, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the Uniform Commercial Code
and a "clearing agency" registered under the provisions of Section 17A
of the Securities Exchange Act of 1934.
- DTC holds securities that its direct participants deposit with it. DTC
also facilitates the post-trade settlement among direct participants of
sales and other securities transactions in deposited securities through
electronic book-entry transfers and pledges between direct participants'
accounts. This eliminates the need for physical movement of securities
certificates. Direct participants include both U.S. and non-U.S.
securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. DTC is a wholly owned
subsidiary of The Depository Trust & Clearing Corporation, or DTCC.
DTCC, in turn, is owned by a number of DTC's direct participants, all of
which are members of the National Securities Clearing Corporation,
Government Securities Clearing Corporation, MBS Clearing Corporation,
and Emerging Markets Clearing Corporation, also subsidiaries of DTCC,
and by the New York Stock Exchange, Inc., the American Stock Exchange
LLC and the National Association of Securities Dealers, Inc. Access to
the DTC system is available to others, including both U.S. and non-U.S.
securities brokers and dealers, banks, trust companies and clearing
corporations that clear through or maintain a custodial relationship
with a direct participant, either directly or indirectly. DTC has S&P's
highest rating: AAA. The DTC rules applicable to its direct and indirect
participants are on file with the SEC. More information about DTC can be
found at www.dtcc.com.
- Purchases of the exchange notes under the DTC system must be made by or
through direct participants, which will receive a credit for the
exchange notes on DTC's records. The ownership interest of each actual
purchaser of each exchange note, or the beneficial owner, is, in turn,
to be recorded on the direct and indirect participants' record.
Beneficial owners will not receive written confirmation from DTC of
their purchase. Beneficial owners are, however, expected to receive
written confirmations providing details of the transaction, as well as
periodic statements of their holdings, from the direct or indirect
participant through which the beneficial owner entered into the
transaction. Transfers of ownership interests in the exchange notes are
to be accomplished by entries made on the books of direct and indirect
participants acting on behalf of beneficial owners. Beneficial owners
will not receive certificates representing their ownership interests in
exchange notes except in the event that use of the book-entry system for
the exchange notes is discontinued.
- To facilitate subsequent transfers, all exchange notes deposited by
direct participants with DTC are registered in the name of DTC's
partnership nominee, Cede & Co., or such other name as may be requested
by an authorized representative of DTC. The deposit of exchange notes
with DTC and their registration in the name of Cede & Co. or such other
DTC nominee do not effect any change in beneficial ownership. DTC has no
knowledge of the actual beneficial owners of the exchange notes; DTC's
records reflect only the identity of the direct participants to whose
accounts the exchange notes are credited, which may or may not be the
beneficial owners. The direct and indirect participants will remain
responsible for keeping account of their holdings on behalf of their
customers.
- Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by
direct participants and indirect participants to beneficial owners will
be governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time.
Beneficial owners of the exchange notes may wish to take certain steps
to augment the transmission to them of notices of significant events
with respect to the exchange notes, such as redemptions, tenders,
defaults and proposed amendments to the exchange note documents. For
example, beneficial owners of exchange notes may wish to ascertain
whether the nominee holding the exchange notes for their benefit has
agreed to obtain and transmit notices to
53
beneficial owners. In the alternative, beneficial owners may wish to
provide their names and addresses to the registrar and request that
copies of notices be provided directly to them.
- Redemption notices shall be sent to DTC. If less than all of the
exchange notes within a series are being redeemed, DTC's practice is to
determine by lot the amount of the interest of each direct participant
in the series to be redeemed.
- Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or
vote with respect to exchange notes unless authorized by a direct
participant in accordance with DTC's procedures. Under its usual
procedures, DTC mails an omnibus proxy to the issuer as soon as possible
after the record date. The omnibus proxy assigns Cede & Co.'s consenting
or voting rights to those direct participants to whose accounts exchange
notes are credited on the record date (identified in a listing attached
to the omnibus proxy).
- Redemption proceeds, distributions and dividend payments on the exchange
notes will be made to Cede & Co. or such other nominee as may be
requested by an authorized representative of DTC. DTC's practice is to
credit direct participants' accounts upon DTC's receipt of funds and
corresponding detail information from the issuer or the agent, on
payable date in accordance with their respective holdings shown on DTC's
records. Payments by participants to beneficial owners will be governed
by standing instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of the
participant and not of DTC nor its nominee, agent or the issuer, subject
to any statutory or regulatory requirements as may be in effect from
time to time. Payment of redemption proceeds, distributions and dividend
payments to Cede & Co. (or such other nominee as may be requested by an
authorized representative of DTC) is the responsibility of the issuer or
agent, disbursement of the payments to direct participants will be the
responsibility of DTC, and disbursement of such payments to the
beneficial owners will be the responsibility of direct and indirect
participants.
- A beneficial owner shall give notice to elect to have its exchange note
purchased or tendered, through its participant, to the agent, and shall
effect delivery of the exchange note by causing the direct participant
to transfer the participant's interest in the exchange note, on DTC's
records, to the agent. The requirement for physical delivery of the
exchange note in connection with an optional tender or a mandatory
purchase will be deemed satisfied when the ownership rights in the
exchange note are transferred by direct participants on DTC's records
and followed by a book-entry credit of the tendered exchange note to the
agent's DTC account.
- DTC may discontinue providing its services as depositary with respect to
the exchange notes at any time by giving reasonable notice to the issuer
or the agent. Under such circumstances, in the event that a successor
depositary is not selected, exchange note certificates are required to
be printed and delivered.
We may decide to discontinue use of the system of book-entry transfers
through DTC (or a successor securities depositary). In that event, exchange note
certificates will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that we believe to be reliable but we take no
responsibility for the accuracy thereof.
EXCHANGE OF GLOBAL NOTES FOR CERTIFICATED NOTES
A global note is exchangeable for definitive notes in registered
certificated form ("certificated notes") if:
(1) DTC (a) notifies the Company that it is unwilling or unable to
continue as depositary for such global notes or (b) has ceased to
be a clearing agency registered under the Exchange Act, and the
Company fails to appoint a successor depositary;
54
(2) the Company, at its option, notifies the trustee in writing that
it elects to cause the issuance of the certificated notes; or
(3) there has occurred and is continuing an Event of Default with
respect to the notes.
In addition, beneficial interests in a global note may be exchanged for
certificated notes upon prior written notice given to the trustee by or on
behalf of DTC in accordance with the indenture. In all cases, certificated notes
delivered in exchange for any global note or beneficial interests in global
notes will be registered in the names, and issued in any approved denominations,
requested by or on behalf of the depositary (in accordance with its customary
procedures) and will bear the applicable restrictive legend referred to in
"Notice to Investors," unless that legend is not required by applicable law.
EXCHANGE OF CERTIFICATED NOTES FOR GLOBAL NOTES
Certificated notes may not be exchanged for beneficial interests in any
global note unless the transferor first delivers to the trustee a written
certificate (in the form provided in the indenture) to the effect that such
transfer will comply with the appropriate transfer restrictions applicable to
such notes.
SAME-DAY SETTLEMENT AND PAYMENT
The Company will make payments in respect of the notes represented by the
global notes (including principal, premium, if any, interest, if any) by wire
transfer of immediately available funds to the accounts specified by the global
note holder. The Company will make all payments of principal, interest and
premium, if any, with respect to certificated notes by wire transfer of
immediately available funds to the accounts specified by the holders of the
certificated notes or, if no such account is specified, by mailing a check to
each such holder's registered address. The notes represented by the global notes
are expected to be eligible to trade in The Portal(SM) Market and to trade in
DTC's Same-Day Funds Settlement System, and any permitted secondary market
trading activity in such notes will, therefore, be required by DTC to be settled
in immediately available funds. The Company expects that secondary trading in
any certificated notes will also be settled in immediately available funds.
Because of time zone differences, the securities account of a Euroclear or
Clearstream participant purchasing an interest in a global note from a
Participant in DTC will be credited, and any such crediting will be reported to
the relevant Euroclear or Clearstream participant, during the securities
settlement processing day (which must be a business day for Euroclear and
Clearstream) immediately following the settlement date of DTC. DTC has advised
us that cash received in Euroclear or Clearstream as a result of sales of
beneficial interests in a global note by or through a Euroclear or Clearstream
participant to a Participant in DTC will be received with value on the
settlement date of DTC but will be available in the relevant Euroclear or
Clearstream cash account only as of the business day for Euroclear or
Clearstream following DTC's settlement date.
REGISTRATION RIGHTS
The Company and the initial purchasers entered into a registration rights
agreement dated as of July 2, 2003. Pursuant to the registration rights
agreement, the Company agreed to file with the SEC a registration statement on
the appropriate form for the Exchange Offer under the Securities Act with
respect to the Exchange Notes. The registration statement of which this
prospectus is a part constitutes the registration statement that the Company was
required to file pursuant to the registration rights agreement.
Broker-dealers receiving Exchange Notes in the Exchange Offer have a
prospectus delivery requirement with respect to resales of such Exchange Notes.
Under the registration rights agreement, the Company must use its commercially
reasonable best efforts to keep the Exchange Offer registration statement
continuously effective, supplemented and amended to allow such broker-dealers
and other persons, if any, with similar prospectus delivery requirements to use
the prospectus contained in the Exchange Offer registration statement in
connection with the resale of such Exchange Notes until 2004,
i.e., 180 days following the date
55
of this prospectus (or such shorter period during which such broker-dealers are
required by law to deliver such prospectus).
If:
(1) the Company is not permitted to consummate the Exchange Offer
because the Exchange Offer is not permitted by applicable law or
SEC policy; or
(2) any holder of Transfer Restricted Securities that is a "qualified
institutional buyer" as such term is defined in Rule 144A under
the Securities Act notifies the Company within 20 business days
following consummation of the Exchange Offer that:
(a) it is prohibited by law or SEC policy from participating in the
Exchange Offer; or
(b) it may not resell the Exchange Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus
and the prospectus contained in the Exchange Offer registration
statement is not appropriate or available for such resales; or
(c) it is a broker-dealer and owns notes acquired directly from the
Company or an affiliate of the Company,
the Company will file with the SEC a shelf registration statement to cover
resales of the notes by the holders of the notes who satisfy certain conditions
in connection with the shelf registration statement.
Holders reselling notes pursuant to the shelf registration statement will
be required to deliver certain information to be used in connection with the
shelf registration statement within the time periods set forth in the
registration rights agreement in order to have their notes included in the shelf
registration statement. By acquiring Transfer Restricted Securities, a holder
will be deemed to have agreed to indemnify the Company against certain losses
arising out of information furnished by such holder in writing for inclusion in
any shelf registration statement.
A holder reselling notes pursuant to the shelf registration statement will
be required to be named as a selling security holder in the related prospectus
and to deliver a prospectus to purchasers, and will be subject to certain of the
civil liability provisions under the Securities Act in connection with such
resales. Holders of notes will also be required to suspend their use of the
prospectus included in the shelf registration statement under certain
circumstances upon receipt of written notice to that effect from the Company.
For purposes of the foregoing, "Transfer Restricted Securities" means each
note until:
(1) the date on which such note has been exchanged by a Person other
than a broker-dealer for an Exchange Note in the Exchange Offer;
(2) following the exchange by a broker-dealer in the Exchange Offer of
a note for an Exchange Note, the date on which such Exchange Note
is sold to a purchaser who receives from such broker-dealer on or
prior to the date of such sale a copy of the prospectus contained
in the Exchange Offer registration statement;
(3) the date on which such note has been effectively registered under
the Securities Act and disposed of in accordance with the shelf
registration statement; or
(4) the date on which such note is sold pursuant to Rule 144 under the
Securities Act or may be sold pursuant to Rule 144(k) under the
Securities Act.
The registration rights agreement provides that:
(1) unless the Exchange Offer would not be permitted by applicable law
or SEC policy, the Company will:
(a) commence the Exchange Offer; and
(b) use its commercially reasonable best efforts to issue on or
prior to 30 business days, or longer if required by the federal
securities laws, after the date on which the Exchange
56
Offer registration statement was declared effective by the SEC,
Exchange Notes in exchange for all notes tendered prior thereto in
the Exchange Offer; and
(2) if obligated to file the shelf registration statement, the Company
will use its commercially reasonable best efforts to file the
shelf registration statement with the SEC on or prior to 30 days
after such filing obligation arises or, if later, by April 27,
2004 (300 days after July 2, 2003) and to cause the shelf
registration statement to be declared effective by the SEC on or
prior to 90 days after the filing deadline.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Restricted Subsidiary of
such specified Person, whether or not such Indebtedness is
incurred in connection with, or in contemplation of, such other
Person merging with or into, or becoming a Restricted Subsidiary
of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person.
"Additional Assets" means:
(1) any property or assets, other than Capital Stock, Indebtedness or
rights to receive payments over a period greater than 180 days,
that are used by or useful to the Company or any of its Restricted
Subsidiaries in a Permitted Business; or
(2) the Capital Stock of an entity that either is already at the time
a Restricted Subsidiary or becomes a Restricted Subsidiary as a
result of the acquisition of that Capital Stock by the Company or
another of its Restricted Subsidiaries.
"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 purposes of this definition, "control,"
as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a Person will be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" have correlative meanings.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights, including by means of a merger, consolidation or similar
transaction; provided that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the
Company and its Restricted Subsidiaries taken as a whole will be
governed by the provisions of the indenture described above under
the caption "--Repurchase at the Option of Holders--Change of
Control, Spin-Off or Reorganization Event," and/or the provisions
described above under the caption "--Certain Covenants--Merger,
Consolidation or Sale of Assets" and not by the provisions of the
Asset Sales covenant; and
(2) the issuance of Equity Interests in any Restricted Subsidiary or
the sale by the Company or a Restricted Subsidiary of their Equity
Interests in any Subsidiary of the Company (other than directors'
qualifying shares).
57
Notwithstanding the preceding, none of the following items will be deemed
to be Asset Sales:
(1) any single transaction or series of related transactions that
involves assets having a fair market value of less than $10.0
million;
(2) a transfer of assets between or among the Company and its
Restricted Subsidiaries;
(3) an issuance of Equity Interests by a Restricted Subsidiary to the
Company or to another Restricted Subsidiary;
(4) the sale or lease of equipment, inventory, accounts receivable or
other assets in the ordinary course of business;
(5) the sale or other disposition of cash or Cash Equivalents;
(6) a Restricted Payment or Permitted Investment that is permitted by
the covenant described above under the caption "--Certain
Covenants--Restricted Payments;"
(7) any sale of Capital Stock of the Company by a Restricted
Subsidiary;
(8) any sale of Capital Stock of NEGT by the Company or any Restricted
Subsidiary required by or provided for in a confirmed plan of
reorganization in a bankruptcy proceeding of NEGT or otherwise
necessary to comply with such a plan or in connection with a
court-approved judgment or settlement of litigation related to
NEGT's bankruptcy proceeding; provided that the Net Proceeds from
any such sale is applied in accordance with the covenant described
above under the caption "--Repurchase at the Option of
Holders--Asset Sales;" and
(9) dispositions in connection with Permitted Liens.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in such
sale and leaseback transaction including any period for which such lease has
been extended or may, at the option of the lessor, be extended. Such present
value shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP.
"Base Pledge Agreement" means the Utility Stock Base Pledge Agreement,
dated as of the Issue Date, among the Company, as pledgor, the trustee and the
Collateral Agent, as pledgee for the benefit of the holders of the notes and the
holders of any additional Indebtedness that become a party thereto pursuant to
the terms thereof, as amended, amended and restated or otherwise modified from
time to time.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Sections 13(d) and
14(d) of the Exchange Act), such "person" will be deemed to have beneficial
ownership of all securities that such "person" has the right to acquire by
conversion or exercise of other securities, whether such right is currently
exercisable or is exercisable only upon the occurrence of a subsequent
condition. The terms "Beneficially Owns" and "Beneficially Owned" have
correlative meanings.
"Board of Directors" means:
(1) with respect to a corporation, the board of directors of the
corporation;
(2) with respect to a partnership, the board of directors of the
general partner of the partnership; and
(3) with respect to any other Person, the board or committee of such
Person serving a similar function.
"Business Day" means each day that is not a Saturday, Sunday or other day
on which banking institutions in New York, New York are authorized or required
by law to close.
58
"Capital Lease Obligation" means, at the time any determination is to be
made, the amount of the liability in respect of a capital lease that would at
that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents
(however designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited);
and
(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality of
the United States government (provided that the full faith and
credit of the United States is pledged in support of those
securities) having maturities of not more than one year from the
date of acquisition;
(3) certificates of deposit and eurodollar time deposits with
maturities of one year or less from the date of acquisition,
bankers' acceptances with maturities not exceeding one year and
overnight bank deposits, in each case, with any domestic
commercial bank having capital and surplus in excess of $200.0
million;
(4) repurchase obligations for underlying securities of the types
described in clauses (2) and (3) above entered into with any
financial institution meeting the qualifications specified in
clause (3) above;
(5) commercial paper having the highest rating obtainable from S&P or
Moody's and in each case maturing within one year after the date
of acquisition;
(6) securities issued by any state of the United States of America or
any political subdivision of any such state or any public
instrumentality thereof maturing within one year of the date of
acquisition thereof and, at the time of acquisition, having a
rating of at least AAA from S&P or at least Aaa from Moody's; and
(7) money market funds substantially all of whose assets constitute
securities of the kinds described in clauses (1) through (6) of
this definition or that have a rating of at least AAA from S&P or
at least Aaa from Moody's.
"Change of Control" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in one
or a series of related transactions, of all or substantially all
of the properties or assets of the Company and its Restricted
Subsidiaries taken as a whole to any "person" (as that term is
used in Sections 13(d) and 14(d) of the Exchange Act);
(2) the adoption of a plan relating to the liquidation or dissolution
of the Company;
(3) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is
that any "person" (as that term is used in Sections 13(d) and
14(d) of the Exchange Act) becomes the Beneficial Owner, directly
or indirectly, of more than 50% of the voting power of the Voting
Stock of the Company;
59
(4) the first day on which a majority of the members of the Board of
Directors of the Company are not Continuing Directors;
(5) the first day on which the Company and its Subsidiaries shall
cease to be the Beneficial Owner, directly or indirectly, of at
least 80% of the common stock or 70% of the Voting Stock of the
Utility;
(6) a Change of Control as defined in the Company's Indenture dated
June 25, 2002 governing the Company's 9.50% convertible
subordinated notes due 2010, as amended, modified or supplemented
from time to time; or
(7) the Company consolidates with, or merges with or into, any Person,
or any Person consolidates with, or merges with or into, the
Company, in any such event pursuant to a transaction in which any
of the outstanding Voting Stock of the Company or such other
Person is converted into or exchanged for cash, securities or
other property, other than any such transaction where the Voting
Stock of the Company outstanding immediately prior to such
transaction is converted into or exchanged for Voting Stock (other
than Disqualified Stock) of the surviving Person constituting a
majority of the outstanding shares of such Voting Stock of such
surviving Person (immediately after giving effect to such
transaction).
"Collateral" means all of the property from time to time in which Liens are
purported to be granted to secure the notes pursuant to the Pledge Agreements.
"Collateral Agent" shall have the meaning given to it in the Pledge
Agreements.
"Consolidated Cash Flow" means, with respect to any specified Person for
any period, the Consolidated Net Income of such Person for such period plus:
(1) an amount equal to any extraordinary loss plus any net loss
realized by such Person or any of its Subsidiaries in connection
with an Asset Sale, to the extent such losses were deducted in
computing such Consolidated Net Income; plus
(2) provision for taxes based on income or profits of such Person and
its Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated
Net Income; plus
(3) Fixed Charges of such Person and its Restricted Subsidiaries for
such period, to the extent that any such Fixed Charges were
deducted in computing such Consolidated Net Income; plus
(4) depreciation, amortization (including amortization of intangibles
but excluding amortization of prepaid cash expenses that were paid
in a prior period) and other non-cash expenses (including
impairment charges recorded in connection with the application of
Financial Accounting Standard No. 142 "Goodwill and Other
Intangibles" but excluding any such non-cash expense to the extent
that it represents an accrual of or reserve for cash expenses in
any future period or amortization of a prepaid cash expense that
was paid in a prior period) of such Person and its Subsidiaries
for such period to the extent that such depreciation, amortization
and other non-cash expenses were deducted in computing such
Consolidated Net Income; plus
(5) unrealized non-cash losses resulting from foreign currency balance
sheet adjustments required by GAAP to the extent such losses were
deducted in computing such Consolidated Net Income; minus
(6) non-cash items increasing such Consolidated Net Income for such
period, other than the accrual of revenue in the ordinary course
of business and any items that represent the reversal of any
accrual or reserve, taken in any prior period for anticipated cash
expenses,
in each case, as determined in accordance with GAAP.
60
"Consolidated Net Income" means, with respect to any specified Person for
any period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that:
(1) the Net Income of any Person that is not a Restricted Subsidiary
or that is accounted for by the equity method of accounting will
be included only to the extent of the amount of dividends or
distributions paid in cash to the specified Person or a Restricted
Subsidiary of the Person; provided that, for the avoidance of
doubt, the Consolidated Net Income of the Company shall not
include any net loss of NEGT;
(2) the Net Income of any Restricted Subsidiary will be excluded to
the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is
not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or
indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary
or its stockholders; and
(3) the cumulative effect of a change in accounting principles will be
excluded.
"Consolidated Tangible Assets" means the total consolidated assets, less
goodwill and intangibles, of the Company and its Subsidiaries, as shown on the
most recent balance sheet of the Company.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who:
(1) was a member of such Board of Directors on the Issue Date; or
(2) was nominated for election or elected to such Board of Directors
with the approval of a majority of the Continuing Directors who
were members of such Board of Directors at the time of such
nomination or election.
"Credit Facilities" means one or more debt facilities or commercial paper
facilities, in each case with banks or other institutional lenders providing for
revolving credit loans, term loans, receivables financing (including through the
sale of receivables to such lenders or to special purpose entities formed to
borrow from such lenders against such receivables) or letters of credit,
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, in each case, as amended, restated,
modified, renewed, refunded, replaced or refinanced in whole or in part from
time to time (and whether or not with the original lender or lenders or another
lender or lenders and whether provided under the original Credit Facility or any
other credit or other agreement or indenture).
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder of the Capital Stock), or
upon the happening of any event, matures or is mandatorily redeemable, pursuant
to a sinking fund obligation or otherwise, or is redeemable at the option of the
holder of the Capital Stock, in whole or in part, on or prior to the date that
is 91 days after the date on which the notes mature. Notwithstanding the
preceding sentence, any Capital Stock that would constitute Disqualified Stock
solely because the holders of the Capital Stock have the right to require the
Company to repurchase such Capital Stock upon the occurrence of a change of
control, spin-off or an asset sale will not constitute Disqualified Stock if the
terms of such Capital Stock provide that the Company may not repurchase or
redeem any such Capital Stock pursuant to such provisions prior to compliance by
the Company with the Change of Control Offer and Asset Sale Offer provisions of
the indenture described above under the caption "--Repurchase at the Option of
Holders" and unless such repurchase or redemption complies with the covenant
described above under the caption "--Certain Covenants--Restricted Payments."
61
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means any public sale of Capital Stock (other than
Disqualified Stock) made for cash on a primary basis by the Company after the
Issue Date.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" means the notes issued in the Exchange Offer pursuant to
the indenture.
"Exchange Offer" has the meaning set forth for such term in the
registration rights agreement.
"Existing Indebtedness" means any Indebtedness of the Company and its
Restricted Subsidiaries (other than any other Permitted Debt) in existence on
the Issue Date, until such amounts are repaid.
"Fixed Charges" means, with respect to any specified Person for any period,
the sum, without duplication, of:
(1) the consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued
(including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease
Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings),
and net of the effect of all payments made or received pursuant to
Hedging Obligations incurred with respect to Indebtedness; plus
(2) the consolidated interest of such Person and its Restricted
Subsidiaries that was capitalized during such period; plus
(3) any interest expense actually paid by the Company or a Restricted
Subsidiary on Indebtedness of another Person that is Guaranteed by
such Person or one of its Restricted Subsidiaries or secured by a
Lien on assets of such Person or one of its Restricted
Subsidiaries; plus
(4) the product of (a) all dividends, whether paid or accrued and
whether or not in cash, on any series of Disqualified Stock of
such Person or such Disqualified Stock or preferred stock of any
of its Restricted Subsidiaries, other than dividends on Equity
Interests payable solely in Equity Interests of the Company (other
than Disqualified Stock) or to the Company or a Restricted
Subsidiary of the Company, times (b) (i) in the case of dividends
that are not deductible for income tax purposes, a fraction, the
numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory
tax rate of such Person, expressed as a decimal, or (ii) one, in
the case of dividends that are deductible for income tax purposes,
in each case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means, with respect to any specified Person
for any four-quarter reference period, the ratio of the Consolidated Cash Flow
of such Person for such period to the Fixed Charges of such Person for such
period. In the event that the specified Person or any of its Restricted
Subsidiaries incurs, assumes, Guarantees, repays, repurchases or redeems any
Indebtedness (other than ordinary working capital borrowings) or issues,
repurchases or redeems any Disqualified Stock or preferred stock subsequent to
the commencement of the applicable four-quarter reference period and on or prior
to the date on which the event for which the calculation of the Fixed Charge
Coverage Ratio is made occurs (the "Calculation Date"), then the Fixed Charge
Coverage Ratio will be calculated giving pro forma effect to such incurrence,
assumption, Guarantee, repayment, repurchase or redemption of Indebtedness, or
such issuance, repurchase or redemption of Disqualified Stock or preferred
stock, and the use of the proceeds therefrom as if the same had occurred at the
beginning of such period.
62
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified Person or any of
its Restricted Subsidiaries, including through mergers or
consolidations and including any related financing transactions,
subsequent to the commencement of the applicable four-quarter
reference period and on or prior to the Calculation Date will be
given pro forma effect as if they had occurred on the first day of
such period including any pro forma expense and cost reductions
that have occurred or are reasonably expected to occur, in the
reasonable judgment of the chief financial officer of the Company
(regardless of whether those cost savings or operating
improvements could then be reflected in pro forma financial
statements in accordance with Regulation S-X promulgated under the
Securities Act or any other regulation or policy of the SEC
related thereto);
(2) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, will be
excluded; and
(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, will be excluded, but
only to the extent that the obligations giving rise to such Fixed
Charges will not be obligations of the specified Person or any of
its Restricted Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issue Date.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, of all or any part of any Indebtedness in any manner including,
without limitation, by way of a pledge of assets or through letters of credit or
reimbursement agreements in respect thereof.
"Hedging Obligations" means, with respect to any specified Person, the
obligations of such Person incurred under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements;
(2) foreign exchange contracts and currency protection agreements;
(3) any commodity futures contract, commodity option or other similar
agreement or arrangement; and
(4) other similar agreements or arrangements.
"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments;
(3) in respect of banker's acceptances or letters of credit (or
reimbursement agreements in respect thereof) or similar
instruments;
(4) representing Capital Lease Obligations;
63
(5) representing the balance deferred and unpaid of the purchase price
of any property, except any such balance that constitutes an
accrued expense or trade payable;
(6) representing the net obligations of such Person under any Hedging
Obligations (the amount of any such obligations to be equal at any
time to the termination value of the agreement or arrangement
giving rise to such obligation that would be payable by such
Person at such time); or
(7) the principal component or liquidation preference of all
obligations of such Person with respect to the redemption,
repayment or other repurchase of any Disqualified Stock or, with
respect to any Restricted Subsidiary, any preferred stock;
if and to the extent any of the preceding items (other than letters of credit,
Hedging Obligations, Disqualified Stock or, with respect to any Restricted
Subsidiary, preferred stock) would appear as a liability upon a balance sheet of
the specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others to the extent secured by a
Lien on any asset of the specified Person (whether or not such Indebtedness is
assumed by the specified Person) and, to the extent not otherwise included, the
Guarantee by the specified Person of any Indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date will be:
(1) the accreted value of the Indebtedness, in the case of any
Indebtedness issued with original issue discount; and
(2) the principal amount of the Indebtedness, together with any
interest on the Indebtedness that is more than 30 days past due,
in the case of any other Indebtedness.
"Investments" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the forms
of loans (including Guarantees or other obligations), advances or capital
contributions (excluding (x) commission, travel and similar advances to officers
and employees made in the ordinary course of business and (y) advances to
customers in the ordinary course of business that are recorded as accounts
receivable on the balance sheet of the lender), purchases or other acquisitions
for consideration of Indebtedness, Equity Interests or other securities,
together with all items that are or would be classified as investments on a
balance sheet prepared in accordance with GAAP. If the Company or any Subsidiary
of the Company sells or otherwise disposes of any Equity Interests of any direct
or indirect Subsidiary of the Company such that, after giving effect to any such
sale or disposition, such Person is no longer a Subsidiary of the Company, the
Company will be deemed to have made an Investment on the date of any such sale
or disposition in an amount equal to the fair market value of the Equity
Interests of and other Investments in such Subsidiary not sold or disposed of in
an amount determined as provided in the final paragraph of the covenant
described above under the caption "--Certain Covenants--Restricted Payments."
"Issue Date" means July 2, 2003, the date of the issuance of the original
notes.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in such asset.
"Make-Whole Amount" means, with respect to a note, an amount equal to the
greater of (1) 1.0% of the principal amount of the note or (2) the excess, if
any, of (a) the present value of (i) all required interest payments due on such
note through July 15, 2006 (excluding any portion of such payments of interest
accrued as of the redemption date) plus (ii) the redemption price of such note
at July 15, 2006 (such redemption price being set forth above under the heading
'--Optional Redemption"), computed using a discount rate equal to the Treasury
Rate plus 50 basis points, over (b) the outstanding principal amount of such
note. "Treasury Rate" is defined as the yield to maturity (calculated on a
semi-annual bond-equivalent basis) at the time of the computation of United
States Treasury securities with a constant maturity (as compiled by and
published in the most recent Federal Reserve Statistical Release H.15 (510),
which has become publicly available at least two business days prior to the date
of the redemption notice or, if such
64
Statistical Release is no longer published, any publicly available source of
similar market data) most nearly equal to the then remaining maturity of the
notes; provided that if the Make-Whole Average Life of such note is not equal to
the constant maturity of the United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given, except that if the Make-Whole Average Life of such note is less than one
year, the weekly average yield on actually traded United States Treasury
securities adjusted to a constant maturity of one year shall be used.
"Make-Whole Average Life" means the number of years (calculated to the nearest
one-twelfth) between the date of redemption and the Stated Maturity of the
notes.
"Make-Whole Price" means the sum of the outstanding principal amount of the
notes to be redeemed plus the Make-Whole Amount of those notes.
"Material Default" means (i) any Default; provided that with respect to a
Default of the type contemplated under clause (4) under the caption "Events of
Defaults and Remedies," if the Company has not received a notice of default from
the holders within 45 days after it provided notice of such Default to the
trustee, then such Default shall no longer be deemed to be a Material Default
until such time, if any, as the Company receives a notice of default in respect
of such Default or (ii) an Event of Default, unless, in either case, such
Default or Event of Default has been cured or waived.
"NEGT" means National Energy & Gas Transmission, Inc., formerly known as
PG&E National Energy Group, Inc, and each of its subsidiaries.
"Net Cash Proceeds" means the proceeds in the form of cash or Cash
Equivalents, including payments in respect of deferred payment obligations to
the extent corresponding to the principal, but not interest, component thereof
when received in the form of cash or Cash Equivalents, net of attorneys' fees,
accountants' fees, underwriters' or placements agents' fees, discounts or
commissions and brokerage, consultant and other fees incurred in connection
therewith and net of taxes paid or payable as a result thereof.
"Net Income" means, with respect to any specified Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends of such specified person,
excluding, however:
(1) any gains and losses, together with any related provision for
taxes on such gains and losses, realized in connection with: (a)
any Asset Sale; or (b) the disposition of any securities by such
Person or any of its Subsidiaries or the extinguishment of any
Indebtedness of such Person or any of its Subsidiaries;
(2) any extraordinary gain or loss, together with any related
provision for taxes on such extraordinary gain or loss; and
(3) any non-cash impairment loss determined in accordance with GAAP
related to the carrying value of goodwill.
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale, including, without limitation, legal, accounting
and investment banking fees, and sales commissions, and any relocation expenses
incurred as a result of the Asset Sale, taxes paid or payable as a result of the
Asset Sale, in each case, after taking into account any available tax credits or
deductions and any tax sharing arrangements, any amounts required to be applied
to the repayment of Senior Debt secured by a Lien on the asset or assets that
were the subject of such Asset Sale, and any reserve for adjustment in respect
of the sale price of such asset or assets established in accordance with GAAP.
65
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither the Company nor any of its Restricted
Subsidiaries (a) provides credit support of any kind (including
any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable as a guarantor
or otherwise, or (c) is the lender;
(2) no default with respect to which (including any rights that the
holders of the Indebtedness may have to take enforcement action
against an Unrestricted Subsidiary) would permit upon notice,
lapse of time or both any holder of any other Indebtedness (other
than the notes) of the Company or any of its Restricted
Subsidiaries to declare a default on such other Indebtedness or
cause the payment of the Indebtedness to be accelerated or payable
prior to its stated maturity; and
(3) as to which the lenders have been notified in writing that they
will not have any recourse to the stock or assets of the Company
or any of its Restricted Subsidiaries.
"Obligations" means any principal and premium, if any, interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization, whether or not a claim for post-filing interest is allowed in
such proceeding), penalties, fees, charges, expenses, indemnifications,
reimbursement obligations, damages, guarantees, and other liabilities or amounts
payable under the documentation governing any Indebtedness or in respect
thereof.
"Permitted Business" means the lines of business conducted by the Company
and its Subsidiaries on the date hereof and any business incidental or
reasonably related thereto or which is a reasonable extension thereof as
determined in good faith by the Company's chief financial officer and set forth
in an officer's certificate delivered to the trustee.
"Permitted Investments" means:
(1) any Investment in the Company or in a Restricted Subsidiary of the
Company;
(2) any Investment in Cash Equivalents;
(3) any Investment by the Company or any Restricted Subsidiary of the
Company in a Person, if as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of the Company; or
(b) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets
to, or is liquidated into, the Company or a Restricted
Subsidiary of the Company;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption
"--Repurchase at the Option of Holders--Asset Sales;"
(5) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of the Company;
(6) any Investments received (a) in satisfaction of judgments or in
compromise of obligations of trade creditors or customers that
were incurred in the ordinary course of business, including
pursuant to any plan of reorganization or similar arrangement upon
the bankruptcy or insolvency of any trade creditor or customer or
(b) as a result of a foreclosure by the Company or any of its
Restricted Subsidiaries with respect to any secured Investment in
default;
(7) guarantees by the Company or any of its Restricted Subsidiaries of
Indebtedness permitted under the covenant described above under
the caption "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock;"
(8) Hedging Obligations permitted to be incurred under the covenant
described above under the caption "--Certain Covenants--Incurrence
of Indebtedness and Issuance of Preferred Stock;"
66
(9) payroll, travel and similar advances to officers, directors or
employees of the Company and any of its Subsidiaries to cover
matters that are expected at the time of such advances ultimately
to be treated as expenses for accounting purposes and that are
made in the ordinary course of business;
(10) loans or advances to employees made in the ordinary course of
business of the Company or such Restricted Subsidiary;
(11) Investments in the Utility if the Company reasonably determines
that such Investments are required to comply with the conditions
set forth by the CPUC in Decision 96-11-017 or Decision 99-04-068
and any decision of the CPUC which imposes a requirement or
condition on the Company affecting the Company's relationship
with the Utility or are otherwise required by law or any
court-approved settlement;
(12) Investments in the Utility required by or provided for in, or
otherwise necessary to satisfy the conditions to effectiveness
of, the Utility's Plan of Reorganization;
(13) Investments in Unrestricted Subsidiaries by the Company or a
Restricted Subsidiary pursuant to agreements in effect on the
Issue Date, as such agreements may be modified or amended;
provided that no such amendment or modification may materially
increase the investment obligations of the Company or applicable
Restricted Subsidiary thereunder;
(14) other Investments in any Person having an aggregate fair market
value (measured on the date each such Investment was made and
without giving effect to subsequent changes in value), when taken
together with all other Investments made pursuant to this clause
(14) that are at the time outstanding, not to exceed $50.0
million;
(15) any Investment in prepaid expenses, negotiable instruments held
for collection and lease, utility and workers' compensation,
performance and other similar deposits;
(16) any Investment or payment required by an investment contract, in
each case as in effect on the Issue Date, and any amendment,
modification, extension or renewal thereof to the extent such
amendment, modification, extension or renewal does not require
the Company or any of its Restricted Subsidiaries to make any
additional Investment or payment in connection therewith; and
(17) any payments to NEGT by the Company or a Restricted Subsidiary
required by or provided for in a confirmed plan of reorganization
in a bankruptcy proceeding of NEGT or otherwise necessary to
comply with such a plan or in connection with a court-approved
judgment or settlement related to an NEGT bankruptcy proceeding.
"Permitted Liens" means:
(1) Liens on assets (other than assets that constitute Collateral)
securing Indebtedness incurred pursuant to clause (1) or (13) of
the second paragraph of the covenant described under the caption
"--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock;"
(2) Liens securing the notes;
(3) Liens existing on the Issue Date;
(4) Liens in favor of the Company;
(5) Liens to secure Indebtedness of any Restricted Subsidiaries;
provided that the Indebtedness is permitted by the terms of the
indenture to be incurred;
(6) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with the Company or any
Restricted Subsidiary of the Company or otherwise becomes a
Restricted Subsidiary of the Company; provided that such Liens
were in existence prior to the contemplation of such merger or
consolidation or such Person becoming a
67
Restricted Subsidiary of the Company and do not extend to any assets
other than those of such Person;
(7) Liens on property existing at the time of acquisition of the
property by the Company or any Restricted Subsidiary of the
Company; provided that such Liens were not incurred in connection
with such acquisition;
(8) Liens to secure Indebtedness (including Capital Lease
Obligations) permitted by clause (4) of the second paragraph of
the covenant entitled "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock;"
(9) Liens securing Permitted Refinancing Indebtedness Incurred to
refinance Indebtedness that was previously so secured; provided
that any such Lien is limited to all or part of the same property
or assets (plus improvements, accessions, proceeds or
distributions in respect thereof) that secured or, under the
written arrangements under which the original Lien arose, could
secure the Indebtedness being refinanced;
(10) Liens securing Hedging Obligations so long as the related
Indebtedness is, and is permitted to be under the indenture,
secured by a Lien on the same property securing such Hedging
Obligation;
(11) Liens to secure the performance of statutory obligations, surety
or appeal bonds, performance bonds or other obligations of a like
nature incurred in the ordinary course of business;
(12) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good
faith by appropriate proceedings promptly instituted and
diligently conducted; provided that any reserve or other
appropriate provision as is required in conformity with GAAP has
been made therefor;
(13) pledges or deposits by such Person under workmen's compensation
laws, unemployment insurance laws and other types of social
security or similar legislation, or good faith deposits in
connection with bids, tenders, contracts (other than for the
payment of Indebtedness) or leases to which such Person is a
party, or deposits to secure public or statutory obligations of
such Person or deposits of cash or United States government bonds
to secure surety or appeal bonds to which such Person is a party,
or deposits as security for contested taxes or import or customs
duties or for the payment of rent, in each case incurred in the
ordinary course of business;
(14) Liens imposed by law, including carriers', warehousemen's and
mechanics' Liens, in each case for sums not yet delinquent or
that are being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted; provided that any
reserve or other appropriate provision as is required in
conformity with GAAP has been therefor;
(15) Liens arising solely by virtue of any statutory or common law
provisions relating to banker's Liens, rights of set-off or
similar rights and remedies as to deposit accounts or other funds
maintained with a depositary institution; provided that (a) such
deposit account is not a dedicated cash collateral account and is
not subject to restrictions against access by the Company in
excess of those set forth by regulations promulgated by the
Federal Reserve Board and (b) such deposit account is not
intended by the Company or any Restricted Subsidiary to provide
collateral to the depositary institution;
(16) easements, rights-of-way, minor survey exceptions, zoning and
similar restrictions and other similar encumbrances or title
defects incurred or imposed, which do not materially interfere
with the ordinary conduct of its business or the business of its
Subsidiaries;
(17) judgment Liens not giving rise to an Event of Default so long as
such Liens are adequately bonded and any appropriate legal
proceedings that may have been duly initiated for the review
68
of such judgment have not been finally terminated or the period
within which such proceedings may be initiated has not expired;
(18) Liens incurred or deposits made in the ordinary course of
business of the Company or any Restricted Subsidiary of the
Company with respect to obligations that do not exceed $10.0
million at any one time outstanding;
(19) Liens consisting of any interest or title of a licensor in the
property subject to a license;
(20) Liens arising from sales or other transfers of accounts
receivable in the ordinary course of business; and
(21) any extensions, substitutions, replacements or renewals of the
foregoing.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Subsidiaries (other than intercompany
Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable), the
principal component or liquidation preference, as the case may be,
of such Permitted Refinancing Indebtedness does not exceed the
principal amount (or accreted value, if applicable), the principal
component or liquidation preference, as the case may be, of the
Indebtedness extended, refinanced, renewed, replaced, defeased or
refunded (plus all accrued interest on the Indebtedness and the
amount of all expenses and premiums incurred in connection
therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the
notes, such Permitted Refinancing Indebtedness is subordinated in
right of payment to, the notes on terms at least as favorable to
the holders of notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and
(4) such Permitted Refinancing Indebtedness is incurred either by (i)
the Company or (ii) by the Subsidiary that is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.
"Pledge Agreements" means, collectively, the Base Pledge Agreement and the
Protective Pledge Agreement.
"Protective Pledge Agreement" means the Utility Stock Protective Pledge
Agreement, dated as of the Issue Date, among the Company, as pledgor, the
trustee and the Collateral Agent, as pledgee for the benefit of the holders of
the notes and the holders of any additional Indebtedness that become a party
thereto pursuant to the terms thereof, as amended, amended and restated or
otherwise modified from time to time.
"Reorganization Event" means a merger of the Company into an Affiliate of
the Company as a result of which the Collateral is released under the terms of
the Pledge Agreements; provided that either (1) the notes are secured on an
equal and ratable basis with any senior secured Indebtedness of such Affiliate
at any time outstanding or (2) the notes are rated Baa3 or better by Moody's and
BBB-- or better by S&P immediately after the consummation of such transaction.
"Restricted Investment" means an Investment other than a Permitted
Investment.
69
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Senior Debt" means
(1) all Indebtedness of the Company or any Restricted Subsidiary
outstanding under Credit Facilities and all Hedging Obligations
with respect thereto;
(2) any other Indebtedness of the Company or any Restricted Subsidiary
permitted to be incurred under the terms of the indenture, unless
the instrument under which such Indebtedness is incurred expressly
provides that it is subordinated in right of payment to the notes;
and
(3) all Obligations with respect to the items listed in the preceding
clauses (1) and (2).
Notwithstanding anything to the contrary in the preceding sentence, Senior
Debt will not include:
(a) any liability for federal, state, local or other taxes owed or
owing by the Company;
(b) any intercompany Indebtedness of the Company or any of its
Subsidiaries to the Company or any of its Affiliates;
(c) any trade payables; or
(d) any Indebtedness that is incurred in violation of the
indenture.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02(w) of Regulation
S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect
on the date hereof; provided that only the Company and its Restricted
Subsidiaries, including without limitation their Investments in Unrestricted
Subsidiaries, will be used for purposes of calculations under Rule 1-02(w) of
Regulation S-X.
"Spin-Off" means the distribution of any business or businesses of the
Utility to the shareholders of the Company, pursuant to a confirmed plan of
reorganization under Chapter 11 of the Bankruptcy Code.
No business of the Utility was distributed to the shareholders of the
Company pursuant to the Utility's plan of reorganization, which became effective
on April 12, 2004.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which the payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and will not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any specified Person:
(1) any corporation, association or other business entity of which
more than 50% of the total voting power of shares of Capital Stock
entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees of the
corporation, association or other business entity is at the time
owned or controlled, directly or indirectly, by that Person or one
or more of the other Subsidiaries of that Person (or a combination
thereof); and
(2) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such
Person or (b) the only general partners of which are that Person
or one or more Subsidiaries of that Person (or any combination
thereof).
"Unrestricted Subsidiary" means any Subsidiary of the Company that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
Board Resolution, but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the
Company unless the terms of any such agreement, contract,
70
arrangement or understanding are no less favorable to the Company or
such Restricted Subsidiary than those that might be obtained at the
time from Persons who are not Affiliates of the Company;
(3) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any direct or indirect obligation
(a) to subscribe for additional Equity Interests or (b) to
maintain or preserve such Person's financial condition or to cause
such Person to achieve any specified levels of operating results;
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of the Company or any of its
Restricted Subsidiaries; and
(5) has at least one director on its Board of Directors that is not a
director or executive officer of the Company or any of its
Restricted Subsidiaries and has at least one executive officer
that is not a director or executive officer of the Company or any
of its Restricted Subsidiaries.
Notwithstanding the foregoing, each of the Utility and NEGT, and each of
their respective direct and indirect subsidiaries shall be deemed to be
Unrestricted Subsidiaries, unless the Company designates one or more of them as
Restricted Subsidiaries in accordance with the terms set forth in the indenture.
Any designation of a Subsidiary of the Company as an Unrestricted
Subsidiary will be evidenced to the trustee by filing with the trustee a
certified copy of a resolution of the Board of Directors giving effect to such
designation and an officer's certificate certifying that such designation
complied with the preceding conditions and was permitted by the covenant
described above under the caption "--Certain Covenants-- Restricted Payments."
If, at any time, any Unrestricted Subsidiary other than the Utility or NEGT, and
each of their respective direct and indirect subsidiaries, would fail to meet
the preceding requirements as an Unrestricted Subsidiary, it will thereafter
cease to be an Unrestricted Subsidiary for purposes of the indenture and any
Indebtedness of such Subsidiary will be deemed to be incurred by a Restricted
Subsidiary of the Company as of such date and, if such Indebtedness is not
permitted to be incurred as of such date under the covenant described under the
caption "--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock," the Company will be in default of such covenant. The Board of
Directors of the Company may at any time designate any Unrestricted Subsidiary
to be a Restricted Subsidiary; provided that such designation will be deemed to
be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of
any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation will only be permitted if (1) such Indebtedness is permitted under
the covenant described under the caption "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock," calculated on a pro forma basis
as if such designation had occurred at the beginning of the four-quarter
reference period; and (2) no Default would be in existence following such
designation.
"Utility" means Pacific Gas and Electric Company, a California corporation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
or Disqualified Stock at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of
each then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect of the Indebtedness or redemption or similar payment in respect of
the Disqualified Stock by (b) the number of years (calculated to the
nearest one-twelfth) that will elapse between such date and the making of
such payment; by
(2) the then outstanding principal amount of such Indebtedness or
principal component or liquidation preference of Disqualified Stock, as the
case may be.
71
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary describes certain United States federal income tax
consequences of the purchase, ownership and disposition of the exchange notes as
of the date hereof. Except where noted, it deals only with purchasers that
acquired the original notes pursuant to the offering at the initial offering
price and who will hold the exchange notes as capital assets within the meaning
of Section 1221 of the Internal Revenue Code of 1986, as amended, or the Code,
and does not deal with specific situations, such as those of dealers in
securities or currencies, financial institutions, life insurance companies,
persons holding notes as part of a hedging or conversion transaction or a
straddle, or persons whose functional currency is not the United States dollar.
Furthermore, the discussion below is based upon the provisions of the Code,
existing and proposed United States Treasury regulations promulgated thereunder,
and current administrative rulings and judicial decisions thereon, all of which
are subject to change, possibly on a retroactive basis, so as to result in
United States federal income tax consequences different from those discussed
below.
PROSPECTIVE HOLDERS SHOULD CONSULT WITH THEIR TAX ADVISORS AS TO THE UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND
DISPOSITION OF THE EXCHANGE NOTES IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, AS
WELL AS THE EFFECT OF ANY STATE, LOCAL OR OTHER TAX LAWS.
As used in this prospectus, the term "United States holder" means a
beneficial owner of an exchange note that is (i) a citizen or resident of the
United States for United States federal income tax purposes, (ii) a corporation
or partnership (or any entity treated as a corporation or partnership for United
States federal income tax purposes) created or organized under the laws of the
United States, any state thereof or the District of Columbia, (iii) an estate
the income of which is subject to United States federal income tax without
regard to its source or (iv) a trust if (x) a court within the United States is
able to exercise primary supervision over the administration of the trust and
one or more United States persons have the authority to control all substantial
decisions of the trust or (y) the trust has a valid election in effect under
applicable United States Treasury regulations to be treated as a United States
holder. If a partnership (including any entity treated as a partnership for
United States federal income tax purposes) is a holder of the exchange notes,
the United States federal income tax treatment of a partner in such a
partnership will generally depend on the status of the partner and the
activities of the partnership. Partners in such a partnership should consult
their own tax advisors as to the particular federal income tax consequences
applicable to them.
A "non-United States holder" is any beneficial holder of an exchange note
that is not a United States holder.
EXCHANGE OFFER
For United States federal income tax purposes, a beneficial owner of an
original note will not recognize any taxable gain or loss on the exchange of the
original notes for exchange notes under the exchange offer, and a beneficial
owner's tax basis and holding period in the exchange notes will be the same as
in the original notes.
UNITED STATES HOLDERS
Stated interest on an exchange note generally will be taxable to a United
States holder as ordinary income at the time it accrues or is received in
accordance with the United States holder's method of accounting for United
States federal income tax purposes.
Upon the sale, exchange, redemption, retirement or other disposition of an
exchange note, a United States holder generally will recognize gain or loss
equal to the difference between the amount realized upon the sale, exchange,
redemption, retirement or other disposition (not including amounts attributable
to accrued but unpaid interest, which will be taxable as ordinary income) and
such United States holder's adjusted tax basis in the exchange note. A United
States holder's adjusted tax basis in an exchange note will, in general, be the
United States holder's adjusted basis in the original note exchanged for the
exchange note, less any principal payments received by such holder. Such gain or
loss will generally be capital gain or loss, and will be long term capital gain
or loss if the exchange note has been held for more than one year. A United
States
72
holder's holding period for an exchange note will include the holding period of
the original note exchanged for the exchange note.
NON-UNITED STATES HOLDERS
Under present United States federal income tax law, subject to the
discussion of backup withholding and information reporting below:
(a) payments of interest on the exchange notes to any non-United
States holder will not be subject to United States federal income, branch
profits or withholding tax provided that:
- the non-United States holder does not actually or constructively own 10%
or more of the total combined voting power of all classes of our stock
entitled to vote;
- the non-United States holder is not a bank receiving interest on an
extension of credit pursuant to a loan agreement entered into in the
ordinary course of its trade or business;
- the non-United States holder is not a controlled foreign corporation
that is related to us (directly or indirectly) through stock ownership;
- such interest payments are not effectively connected with a United
States trade or business;
- the non-United States holder is not a foreign tax exempt organization or
foreign private foundation for United States federal income tax
purposes; and
- certain certification requirements are met. Such certification will be
satisfied if the beneficial owner of the exchange note certifies on IRS
Form W-8BEN or a substantially similar substitute form, under penalties
of perjury, that it is not a United States person and provides its name
and address, and (x) such beneficial owner files such form with the
withholding agent or (y) in the case of an exchange note held through a
foreign partnership or intermediary, the beneficial owner and the
foreign partnership or intermediary satisfy certification requirements
of applicable United States Treasury regulations.
(b) a non-United States holder will not be subject to United States
federal income or branch profits tax on gain realized on the sale,
exchange, redemption, or retirement or other disposition of an exchange
note, unless (i) the gain is effectively connected with a trade or business
carried on by such holder within the United States or, if a treaty applies
(and the holder complies with applicable certification and other
requirements to claim treaty benefits), is generally attributable to a
United States permanent establishment maintained by the holder, or (ii) the
holder is an individual who is present in the United States for 183 days or
more in the taxable year of disposition and certain other requirements are
met.
An exchange note held by an individual who at the time of death is not a
citizen or resident of the United States will not be subject to United States
federal estate tax with respect to a note as a result of such individual's
death, provided that (i) the individual does not actually or constructively own
10% or more of the total combined voting power of all classes of our stock
entitled to vote and (ii) the interest accrued on the exchange note was not
effectively connected with the conduct of a United States trade or business.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, payments of interest and the proceeds of the sale, exchange,
redemption, retirement or other disposition of the exchange notes payable by a
United States paying agent or other United States intermediary will be subject
to information reporting. In addition, backup withholding will generally apply
to these payments if (i) in the case of a United States holder, the holder fails
to provide an accurate taxpayer identification number, or fails to certify that
such holder is not subject to backup withholding or fails to report all interest
and dividends required to be shown on its United States federal income tax
returns, or (ii) in the case of a non-United States holder, the holder fails to
provide the certification on IRS Form W-8BEN described above or otherwise does
not provide evidence of exempt status. Certain United States holders (including,
among others, corporations) and non-United States holders that comply with
certain
73
certification requirements are not subject to backup withholding. Any amount
paid as backup withholding will be creditable against the holder's United States
federal income tax liability provided that the required information is timely
furnished to the IRS. Holders of exchange notes should consult their tax
advisors as to their qualification for exemption from backup withholding and the
procedure for obtaining such an exemption.
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes in exchange for original
notes that were acquired for its own account as a result of market-making
activities or other trading activities may be deemed to be an "underwriter"
within the meaning of the Securities Act. Such broker-dealers must acknowledge
in the letter of transmittal that they will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of these
exchange notes. We have agreed that we will allow this prospectus to be used by
any broker-dealer in any resale of exchange notes for a period of 180 days from
the date the registration statement related to this prospectus is declared
effective. In addition, until , 2004, all broker-dealers effecting
transactions in the exchange notes may be required to deliver a prospectus.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Broker-dealers may sell exchange notes received for their own
account under the exchange offer in transactions:
- in the over-the-counter market,
- in negotiated transactions,
- through the writing of options on the exchange notes, or
- a combination of such methods of resale.
The prices at which these sales occur may be:
- at market prices prevailing at the time of resale,
- at prices related to such prevailing market prices, or
- at negotiated prices.
Broker-dealers may make any such resale directly to purchasers or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer or the purchasers of any
such exchange notes. Any broker-dealer that receives exchange notes for its own
account under the exchange offer and any broker or dealer that participates in a
distribution of such exchange notes may be deemed to be an "underwriter" within
the meaning of the Securities Act. Any profit on any such resale of exchange
notes and any commission or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The letter of
transmittal states that, by acknowledging that it will deliver, and by
delivering, a prospectus, a broker-dealer will not admit that it is an
"underwriter" within the meaning of the Securities Act.
Furthermore, any broker-dealer that acquired any of its original notes
directly from us:
- may not rely on the applicable interpretation of the staff of the SEC's
position contained in Exxon Capital Holdings Corp., SEC no-action letter
(available May 13, 1988) and Morgan, Stanley & Co. Inc., SEC no-action
letter (available June 5, 1991), as interpreted in K-III Communications
Corporation, SEC no-action letter (available May 14, 1993), Shearman &
Sterling, SEC no-action letter (available July 2, 1993), Brown & Wood,
SEC no-action letter (available February 7, 1997) and similar no-action
letters; and
- must also be named as a selling noteholder in connection with the
registration and prospectus delivery requirements of the Securities Act
relating to any resale transaction.
For a period of 180 days from the date the registration statement related
to this prospectus is declared effective, we will promptly send additional
copies of this prospectus and any amendment or supplement to this prospectus to
any broker-dealer that requests such documents in the letter of transmittal. We
have agreed to pay all expenses incident to the exchange offer other than
commissions or concessions of any broker-
74
dealers and will indemnify the holders of the notes (including any
broker-dealers) against some liabilities, including certain liabilities under
the Securities Act.
LEGAL MATTERS
The legality of the exchange notes has been passed on for us by Orrick,
Herrington & Sutcliffe LLP, San Francisco, California.
EXPERTS
The consolidated financial statements and related consolidated financial
statement schedules of PG&E Corporation and subsidiaries and Pacific Gas and
Electric Company and subsidiaries as of December 31, 2003 and 2002, and for each
of the three years in the period ended December 31, 2003 incorporated by
reference in this prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports which are incorporated herein
(which reports express an unqualified opinion and include explanatory paragraphs
relating to (i) PG&E Corporation and the Utility's adoption of new accounting
standards in 2003 to account for asset retirement obligations and financial
instruments with characteristics of both liabilities and equity, (ii) PG&E
Corporation's change in 2003 in the method of reporting hedge transactions,
(iii) PG&E Corporation's adoption of new accounting standards in 2002 relating
to accounting for goodwill and intangible assets, impairment of long-lived
assets, discontinued operations, gains and losses on debt extinguishment, and
certain derivative contracts, (iv) PG&E Corporation's and Pacific Gas and
Electric Company's adoption of new accounting standards in 2003 and 2001 related
to derivatives and certain interpretations of the Derivatives Implementation
Group of the Financial Accounting Standards Board, (v) the revisions of revenues
and expenses of discontinued operations for the years ended December 31, 2002
and 2001, and (vi) the ability of PG&E Corporation and Pacific Gas and Electric
Company to continue as going concerns), and have been so incorporated in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
AVAILABLE INFORMATION
This prospectus is part of a registration statement on Form S-4 that we
filed with the SEC. This prospectus does not contain all of the information in
the registration statement. For further information with respect to us and the
exchange notes offered by this prospectus, you should review the registration
statement. Statements in this prospectus as to the contents of any contract or
other document are not necessarily complete and, where any contract or other
document is an exhibit to the registration statement, we refer you to that
exhibit for a more complete description of the matter involved.
WHERE YOU CAN FIND MORE INFORMATION
We and the Utility each file annual, quarterly and special reports,
information statements and other information with the SEC under File No.
001-12609 and File No. 001-2348, respectively. These SEC filings are available
to the public over the Internet at the SEC's website at http://www.sec.gov. You
may also read and copy any of these SEC filings at the SEC's public reference
room at 450 Fifth Street, N.W., Room 1200, Washington D.C. 20549. Please call
the SEC at 1-800-SEC-0330 for further information on its public reference room.
We have "incorporated by reference" into this prospectus certain
information that we file with the SEC. This means that we can disclose important
business, financial and other information in this prospectus by referring you to
the documents containing this information. All information incorporated by
reference is deemed to be part of this prospectus except to the extent that the
information is updated or superseded by the information contained in this
prospectus (including specifically the consolidated financial statements at and
for the years ended December 31, 2001, 2002 and 2003) or any information filed
with the SEC. Any information
75
that we subsequently file with the SEC that is incorporated by reference, as
described below, will automatically update and supersede any previous
information that is part of this prospectus.
We incorporate by reference the documents listed below and any future
filings (other than information furnished, and not filed, pursuant to Items 9 or
12 in any Form 8-K filing) we or the Utility makes with the SEC under Section
13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934 until the
completion of the exchange offer:
- our and the Utility's Annual Report on Form 10-K for the year ended
December 31, 2003;
- our and the Utility's Current Reports on Form 8-K filed on January 22,
2004, February 3, 2004, February 19, 2004, March 2, 2004 (including
specifically Exhibit 99.1, which superseded Exhibit 13 to our and the
Utility's Annual Report on Form 10-K for the year ended December 31,
2003), March 10, 2004, March 12, 2004, March 16, 2004, March 18, 2004,
March 23, 2004, March 26, 2004, March 31, 2004, April 7, 2004, April 12,
2004, April 12, 2004, April 19, 2004 and April 27, 2004.
You may request a copy of these filings and copies of the indenture and the
other documents which establish the terms of the notes offered hereby at no cost
by writing or contacting us at the following address:
The Office of the Corporate Secretary
PG&E Corporation
One Market Street, Spear Tower
Suite 2400
San Francisco, CA 94105
Telephone: 415-267-7070
Facsimile: 415-267-7268
76
PG&E LOGO
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
We are a California corporation. Section 317 of the California Corporations
Code provides for indemnification of a corporation's directors and officers
under certain circumstances. Our articles of incorporation authorize us to
provide indemnification of any person who is or was our director, officer,
employee or other agent, or is or was serving at our request as a director,
officer, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise, or was a director,
officer, employee or agent of a foreign or domestic corporation which was a
predecessor corporation of us or of another enterprise at the request of the
predecessor corporation through our bylaws, resolutions of our board of
directors, agreements with agents, vote of shareholders or disinterested
directors, or otherwise, in excess of the indemnification otherwise permitted by
Section 317 of the California Corporations Code, subject only to the applicable
limits set forth in Section 204 of the California Corporations Code. Our
articles of incorporation also eliminate the liability of our directors to the
fullest extent permissible by California law. Our board of directors has adopted
a resolution regarding our policy of indemnification and we maintain insurance
which insures our directors and officers against certain liabilities.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits*
EXHIBIT
NUMBER DESCRIPTION
------- -----------
4.1 Indenture dated as of July 2, 2003 between PG&E Corporation
and J. P. Morgan Trust Company, National Association
(formerly Bank One, N.A.), as Trustee (incorporated by
reference to PG&E Corporation's Form 8-K filed July 2, 2003
(File No. 1-12609), Exhibit 4.1).
4.2 Utility Stock Base Pledge Agreement dated as of July 2, 2003
by and among PG&E Corporation, J. P. Morgan Trust Company,
National Association (formerly Bank One, N.A.), and Deutsche
Bank Trust Company Americas (incorporated by reference to
PG&E Corporation's Form 8-K filed July 2, 2003 (File No.
1-12609), Exhibit 4.2).
4.3 Utility Stock Protective Pledge Agreement dated as of July
2, 2003 by and among PG&E Corporation, J. P. Morgan Trust
Company, National Association (formerly Bank One, N.A), and
Deutsche Bank Trust Company Americas (incorporated by
reference to PG&E Corporation's Form 8-K filed July 2, 2003
(File No. 1-12609), Exhibit 4.3).
4.4 Form of 6 7/8% Senior Secured Note due 2008.
4.5 Registration Rights Agreement dated as of July 2, 2003
between PG&E Corporation and Lehman Brothers Inc., as
representative for the initial purchasers of the 6 7/8%
Senior Secured Notes due 2008.
5.1 Opinion of Orrick, Herrington & Sutcliffe LLP.
12.1 Ratio of earnings to fixed charges.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Orrick, Herrington & Sutcliffe LLP (included in
Exhibit 5.1).
24.1 Resolutions of the Board of Directors of PG&E Corporation
authorizing the execution of this registration statement.
24.2 Power of Attorney.
25.1 Form T-1 Statement of Eligibility under Trust Indenture Act
of 1939 of J. P. Morgan Trust Company, National Association.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
---------------
* PG&E Corporation agrees to provide a copy of certain instruments with respect
to long-term debt not registered under the Securities Act of 1933, as amended
(the total amount of which is less than 10% of the total assets of PG&E
Corporation and its consolidated subsidiaries), supplementally to the SEC upon
request.
II-1
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of San Francisco, state of
California, on April 27, 2004.
PG&E CORPORATION
By: ROBERT D. GLYNN, JR.*
------------------------------------
Robert D. Glynn, Jr.
Chairman, Chief Executive Officer
and President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
ROBERT D. GLYNN, JR.* Chairman of the Board of Directors, April 27, 2004
-------------------------------------- Chief Executive Officer and
Robert D. Glynn, Jr. President (Principal Executive
Officer)
PETER A. DARBEE* Senior Vice President and Chief April 27, 2004
-------------------------------------- Financial Officer (Principal
Peter A. Darbee Financial Officer)
CHRISTOPHER P. JOHNS* Senior Vice President and April 27, 2004
-------------------------------------- Controller (Principal Accounting
Christopher P. Johns Officer)
DAVID R. ANDREWS* Director April 27, 2004
--------------------------------------
David R. Andrews
Director April 27, 2004
--------------------------------------
Leslie S. Biller
DAVID A. COULTER* Director April 27, 2004
--------------------------------------
David A. Coulter
C. LEE COX* Director April 27, 2004
--------------------------------------
C. Lee Cox
DAVID M. LAWRENCE* Director April 27, 2004
--------------------------------------
David M. Lawrence, M.D.
MARY S. METZ* Director April 27, 2004
--------------------------------------
Mary S. Metz
BARRY LAWSON WILLIAMS* Director April 27, 2004
--------------------------------------
Barry Lawson Williams
*By: /s/ GARY P. ENCINAS
------------------------------
Gary P. Encinas
attorney-in-fact
II-3
EXHIBIT INDEX
NUMBER DESCRIPTION
------ -----------
4.1 Indenture dated as of July 2, 2003 between PG&E Corporation
and J. P. Morgan Trust Company, National Association
(formerly Bank One, N.A.), as Trustee (incorporated by
reference to PG&E Corporation's Form 8-K filed July 2, 2003
(File No. 1-12609), Exhibit 4.1).
4.2 Utility Stock Base Pledge Agreement dated as of July 2, 2003
by and among PG&E Corporation, J. P. Morgan Trust Company,
National Association (formerly Bank One, N.A.), and Deutsche
Bank Trust Company Americas (incorporated by reference to
PG&E Corporation's Form 8-K filed July 2, 2003 (File No.
1-12609), Exhibit 4.2).
4.3 Utility Stock Protective Pledge Agreement dated as of July
2, 2003 by and among PG&E Corporation, J. P. Morgan Trust
Company, National Association (formerly Bank One, N.A.), and
Deutsche Bank Trust Company Americas (incorporated by
reference to PG&E Corporation's Form 8-K filed July 2, 2003
(File No. 1-12609), Exhibit 4.3).
4.4 Form of 6 7/8% Senior Secured Note due 2008.
4.5 Registration Rights Agreement dated as of July 2, 2003
between PG&E Corporation and Lehman Brothers Inc., as
representative for the initial purchasers of the 6 7/8%
Senior Secured Notes due 2008.
5.1 Opinion of Orrick, Herrington & Sutcliffe LLP.
12.1 Ratio of earnings to fixed charges.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Orrick, Herrington & Sutcliffe LLP (included in
Exhibit 5.1).
24.1 Resolutions of the Board of Directors of PG&E Corporation
authorizing the execution of this registration statement.
24.2 Power of Attorney.
25.1 Form T-1 Statement of Eligibility under Trust Indenture Act
of 1939 of J. P. Morgan Trust Company, National Association.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.