-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WWNY39RNy1MH+WEbZH2PQXBSufXoYAkmNykEGkdvVtODZZCBc7rg5sER/DByFZHg 5fPelGGdxPhI5CGekXq9Nw== 0000788784-98-000016.txt : 19980817 0000788784-98-000016.hdr.sgml : 19980817 ACCESSION NUMBER: 0000788784-98-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NYSE SROS: PHLX FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUBLIC SERVICE ENTERPRISE GROUP INC CENTRAL INDEX KEY: 0000788784 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 222625848 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09120 FILM NUMBER: 98688141 BUSINESS ADDRESS: STREET 1: 80 PARK PLZ STREET 2: P O BOX 1171 CITY: NEWARK STATE: NJ ZIP: 07101 BUSINESS PHONE: 2014307000 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUBLIC SERVICE ELECTRIC & GAS CO CENTRAL INDEX KEY: 0000081033 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 221212800 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-00973 FILM NUMBER: 98688142 BUSINESS ADDRESS: STREET 1: 80 PARK PLZ STREET 2: PO BOX 570 CITY: NEWARK STATE: NJ ZIP: 07101 BUSINESS PHONE: 2014307000 10-Q 1 PSEG SECOND QUARTER 1998 FORM 10-Q ======================================================================= UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission Registrant, State of Incorporation, I.R.S. Employer File Address, and Telephone Number Identification Number No. - ---------- ------------------------------------------ ---------------- 1-9120 PUBLIC SERVICE ENTERPRISE GROUP 22-2625848 INCORPORATED (A New Jersey Corporation) 80 Park Plaza P.O. Box 1171 Newark, New Jersey 07101-1171 973 430-7000 http://www.pseg.com 1-973 PUBLIC SERVICE ELECTRIC AND GAS COMPANY 22-1212800 (A New Jersey Corporation) 80 Park Plaza P.O. Box 570 Newark, New Jersey 07101-0570 973 430-7000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No The number of shares outstanding of Public Service Enterprise Group Incorporated's sole class of common stock, as of the latest practicable date, was as follows: Class: Common Stock, without par value Outstanding at July 31, 1998: 231,957,608 As of July 31, 1998 Public Service Electric and Gas Company had issued and outstanding 132,450,344 shares of common stock, without nominal or par value, all of which were privately held, beneficially and of record by Public Service Enterprise Group Incorporated. ======================================================================= PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED -------------------------------------------- TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Financial Statements Page ---- Public Service Enterprise Group Incorporated (PSEG): Consolidated Statements of Income for the Three and Six Months Ended June 30, 1998 and 1997......................... 1 Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997....................................... 2 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1998 and 1997......................... 4 Public Service Electric and Gas Company (PSE&G): Consolidated Statements of Income for the Three and Six Months Ended June 30, 1998 and 1997......................... 5 Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997........................................... 6 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1998 and 1997......................... 8 Notes to Consolidated Financial Statements-- PSEG.............. 9 Notes to Consolidated Financial Statements-- PSE&G............. 17 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PSEG.......................................................... 18 PSE&G......................................................... 25 Item 3. Qualitative and Quantitative Disclosures About Market Risk.................................................. 26 PART II. OTHER INFORMATION Item 1. Legal Proceedings....................................... 27 Item 5. Other Information....................................... 29 Item 6. Exhibits and Reports on Form 8-K........................ 31 Signatures -- PSEG.............................................. 32 Signatures -- PSE&G............................................. 32 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED -------------------------------------------- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED STATEMENTS OF INCOME (Millions of Dollars, Except Per Share Data) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ---------------------- ----------------------- 1998 1997 1998 1997 --------- --------- --------- ---------- OPERATING REVENUES Electric ............................................... $ 1,194 $ 946 $ 2,371 $ 1,906 Gas .................................................... 273 324 884 1,058 Nonutility Activities .................................. 90 53 203 91 --------- --------- --------- --------- Total Operating Revenues .......................... 1,557 1,323 3,458 3,055 --------- --------- --------- --------- OPERATING EXPENSES Operation Interchanged Power and Fuel for Electric Generation .... 447 243 933 491 Gas Purchased .......................................... 169 180 560 601 Other .................................................. 327 268 620 517 Maintenance .............................................. 54 70 102 128 Depreciation and Amortization ............................ 163 155 327 305 Taxes (Note 6) Income Taxes ........................................... 90 49 221 153 Transitional Energy Facility Assessment/New Jersey Gross Receipts Taxes ................................. 38 117 87 289 Other .................................................. 18 22 39 42 --------- --------- --------- --------- Total Operating Expenses .......................... 1,306 1,104 2,889 2,526 --------- --------- --------- --------- OPERATING INCOME ......................................... 251 219 569 529 --------- --------- --------- --------- OTHER INCOME AND DEDUCTIONS Settlement of Salem Litigation - Net of Applicable Taxes of $29 ........................................ -- -- -- (53) Other - net ............................................ 2 2 8 4 --------- --------- --------- --------- Total Other Income and Deductions ................. 2 2 8 (49) --------- --------- --------- --------- INCOME BEFORE INTEREST CHARGES AND DIVIDENDS ON PREFERRED SECURITIES ........................ 253 221 577 480 --------- --------- --------- --------- INTEREST CHARGES AND PREFERRED SECURITIES DIVIDENDS Interest Expense ....................................... 116 117 236 227 Allowance for Funds Used During Construction - Debt and Capitalized Interest ................................. (3) (4) (7) (10) Preferred Securities Dividend Requirements of Subsidiaries 18 14 35 29 Net Loss on Preferred Stock Redemptions .................. -- 3 -- 3 --------- --------- --------- --------- Total Interest Charges and Preferred Securities Dividends ...................................... 131 130 264 249 --------- --------- --------- --------- NET INCOME ........................................ $ 122 $ 91 $ 313 $ 231 ========= ========= ========= ========= AVERAGE SHARES OF COMMON STOCK OUTSTANDING (000's) ................................... 231,958 231,958 231,958 232,014 EARNINGS PER SHARE (Basic and Diluted) .................. $ 0.53 $ 0.39 $ 1.35 $ 0.99 ========= ========= ========= ========= DIVIDENDS PAID PER SHARE OF COMMON STOCK ................. $ 0.54 $ 0.54 $ 1.08 $ 1.08 ========= ========= ========= ========= See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED BALANCE SHEETS ASSETS (Millions of Dollars)
(Unaudited) June 30, December 31, 1998 1997 ---------- -------- UTILITY PLANT - Original cost Electric ........................................................... $13,787 $13,692 Gas ................................................................ 2,742 2,697 Common ............................................................. 576 558 ------- ------- Total ......................................................... 17,105 16,947 Less: Accumulated depreciation and amortization .................... 6,761 6,463 ------- ------- Net ........................................................... 10,344 10,484 Nuclear Fuel in Service, net of accumulated amortization - 1998, $297; 1997, $302 .......................................... 206 216 ------- ------- Net Utility Plant in Service .................................. 10,550 10,700 Construction Work in Progress, including Nuclear Fuel in Process - 1998, $31; 1997, $60 ................................... 323 326 Plant Held for Future Use .......................................... 24 24 ------- ------- Net Utility Plant ............................................. 10,897 11,050 ------- ------- INVESTMENTS AND OTHER NONCURRENT ASSETS Long-Term Investments, net of amortization - 1998, $29; 1997, $21, and net of valuation allowances - 1998, $23; 1997, $10 ...... 2,931 2,873 Nuclear Decommissioning and Other Special Funds ..................... 588 492 Other Noncurrent Assets, net of amortization - 1998, $22; 1997, $16, and net of valuation allowances - 1998, $5; 1997, $0 ............. 181 167 ------- ------- Total Investments and Other Noncurrent Assets ................. 3,700 3,532 ------- ------- CURRENT ASSETS Cash and Cash Equivalents .......................................... 115 83 Accounts Receivable: Customer Accounts Receivable ..................................... 510 520 Other Accounts Receivable ........................................ 242 293 Less: Allowance for Doubtful Accounts ............................ 42 41 Unbilled Revenues .................................................. 179 270 Fuel, at average cost .............................................. 249 310 Materials and Supplies, at average cost, net of inventory valuation reserves - 1998, $12; 1997, $12 .................................. 144 142 Prepayments ........................................................ 358 48 Miscellaneous Current Assets ....................................... 29 38 ------- ------- Total Current Assets .......................................... 1,784 1,663 ------- ------- DEFERRED DEBITS (Note 3) Unamortized Debt Expense ........................................... 129 136 OPEB Costs ......................................................... 280 289 Environmental Costs ................................................ 119 122 Electric Energy and Gas Costs ...................................... 73 167 SFAS 109 Income Taxes .............................................. 706 725 Demand Side Management Costs ....................................... 149 116 Other .............................................................. 130 143 ------- ------- Total Deferred Debits ......................................... 1,586 1,698 ------- ------- TOTAL ................................................................ $17,967 $17,943 ======= ======= See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED BALANCE SHEETS CAPITALIZATION AND LIABILITIES (Millions of Dollars)
(Unaudited) June 30, December 31, 1998 1997 ----------- -------------- CAPITALIZATION Common Stockholders' Equity: Common Stock ........................................... $ 3,603 $ 3,603 Retained Earnings ...................................... 1,675 1,623 Foreign Currency Translation Adjustment ................ (27) (15) -------- -------- Total Common Stockholders' Equity ................... 5,251 5,211 Subsidiaries' Preferred Securities: Preferred Stock Without Mandatory Redemption ........... 95 95 Preferred Stock With Mandatory Redemption .............. 75 75 Guaranteed Preferred Beneficial Interest in Subordinated Debentures (Note 8) ................................. 888 513 Long-Term Debt ........................................... 4,614 4,873 -------- -------- Total Capitalization ................................ 10,923 10,767 -------- -------- OTHER LONG-TERM LIABILITIES Accrued OPEB ............................................. 323 289 Decontamination and Decommissioning Costs ................ 43 43 Environmental Costs (Note 4) ............................ 69 73 Capital Lease Obligations ................................ 50 52 -------- -------- Total Other Long-Term Liabilities ................... 485 457 -------- -------- CURRENT LIABILITIES Long-Term Debt due within one year ....................... 646 340 Commercial Paper and Loans ............................... 1,069 1,448 Accounts Payable ......................................... 592 686 Other .................................................... 346 353 -------- -------- Total Current Liabilities ........................... 2,653 2,827 -------- -------- DEFERRED CREDITS Income Taxes ............................................. 3,354 3,394 Investment Tax Credits ................................... 333 343 Other .................................................... 219 155 -------- -------- Total Deferred Credits .............................. 3,906 3,892 -------- -------- COMMITMENTS AND CONTINGENT LIABILITIES (Note 4) ............ -- -- -------- -------- TOTAL ...................................................... $ 17,967 $ 17,943 ======== ======== See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (Millions of Dollars) (Unaudited)
Six Months Ended June 30, ------------------------ 1998 1997 ----- ----- CASH FLOWS FROM OPERATING ACTIVITIES Net income ................................................................... $ 313 $ 231 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and Amortization .............................................. 327 305 Amortization of Nuclear Fuel ............................................... 44 34 Recovery of Electric Energy and Gas Costs - net ............................ 94 15 Unrealized Gains on Investments - net ...................................... (40) (7) Proceeds from Leasing Activities ........................................... (51) 47 Changes in certain current assets and liabilities: Net decrease in Accounts Receivable and Unbilled Revenues ................. 153 142 Net decrease in Inventory - Fuel and Materials and Supplies ............... 59 89 Net decrease in Accounts Payable .......................................... (94) (104) Net increase in Prepayments ............................................... (310) (588) Net change in Other Current Assets and Liabilities ........................ 2 164 Other ...................................................................... 39 (29) ----- ----- Net Cash Provided By Operating Activities ............................... 536 299 ----- ----- CASH FLOWS FROM INVESTING ACTIVITIES Additions to Utility Plant, excluding AFDC ................................... (191) (229) Net decrease (increase) in Long-Term Investments and Real Estate ............. 2 (385) Contribution to Decommissioning Funds and Other Special Funds ................ (61) (28) Other ........................................................................ (24) (56) ----- ----- Net Cash Used In Investing Activities ................................... (274) (698) ----- ----- CASH FLOWS FROM FINANCING ACTIVITIES Net (decrease) increase in Short-Term Debt ................................... (379) 353 Issuance of Long-Term Debt ................................................... 250 476 Redemption of Long-Term Debt ................................................. (203) (358) Redemption of Preferred Stock ................................................ -- (94) Issuance of Preferred Securities ............................................. 375 95 Retirement of Common Stock ................................................... -- (43) Cash Dividends Paid on Common Stock .......................................... (251) (251) Other ........................................................................ (22) (4) ----- ----- Net Cash (Used In) Provided By Financing Activities ..................... (230) 174 ----- ----- Net (Decrease) Increase In Cash And Cash Equivalents ........................... 32 (225) Cash And Cash Equivalents At Beginning Of Period ............................... 83 279 ----- ----- Cash And Cash Equivalents At End Of Period ..................................... $ 115 $ 54 ===== ===== Income Taxes Paid .............................................................. $ 241 $ 84 Interest Paid .................................................................. $ 204 $ 187 See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED STATEMENTS OF INCOME (Millions of Dollars) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ------------------ ------------------- 1998 1997 1998 1997 ------- ------- ------- ------- OPERATING REVENUES Electric ........................................... $ 1,194 $ 946 $ 2,371 $ 1,906 Gas ................................................ 273 324 884 1,058 ------- ------- ------- ------- Total Operating Revenues ...................... 1,467 1,270 3,255 2,964 ------- ------- ------- ------- OPERATING EXPENSES Operation Interchanged Power and Fuel for Electric Generation 447 243 933 491 Gas Purchased ...................................... 169 180 560 601 Other .............................................. 291 246 549 478 Maintenance .......................................... 54 70 102 128 Depreciation and Amortization ........................ 161 154 322 303 Taxes (Note 6) Income Taxes ....................................... 80 46 196 147 Transitional Energy Facility Assessment/New Jersey Gross Receipts Taxes ............................ 38 117 87 289 Other .............................................. 19 20 38 40 ------- ------- ------- ------- Total Operating Expenses ...................... 1,259 1,076 2,787 2,477 ------- ------- ------- ------- OPERATING INCOME ..................................... 208 194 468 487 ------- ------- ------- ------- OTHER INCOME AND DEDUCTIONS Settlement of Salem Litigation - Net of Applicable Taxes of $29 ................................... -- -- -- (53) Other - net ........................................ 3 2 5 4 ------- ------- ------- ------- Total Other Income and Deductions ............. 3 2 5 (49) ------- ------- ------- ------- INCOME BEFORE INTEREST CHARGES AND DIVIDENDS ON PREFERRED SECURITIES .................... 211 196 473 438 ------- ------- ------- ------- INTEREST CHARGES AND PREFERRED SECURITIES DIVIDENDS Interest Expense ................................... 92 101 188 197 Allowance for Funds Used During Construction - Debt (3) (3) (6) (8) Preferred Securities Dividend Requirements of Subsidiaries ............................... 11 11 22 22 ------- ------- ------- ------- Total Interest Charges and Preferred Securities Dividends ................................... 100 109 204 211 ------- ------- ------- ------- NET INCOME .................................... 111 87 269 227 ------- ------- ------- ------- Preferred Stock Dividend Requirements .............. 2 3 5 7 Net Loss on Preferred Stock Redemptions ............ -- 3 -- 3 ------- ------- ------- ------- EARNINGS AVAILABLE TO PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED ........................ $ 109 $ 81 $ 264 $ 217 ======= ======= ======= ======= See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED BALANCE SHEETS ASSETS (Millions of Dollars)
(Unaudited) June 30, December 31, 1998 1997 ------- ------- UTILITY PLANT - Original cost Electric ......................................................... $13,787 $13,692 Gas .............................................................. 2,742 2,697 Common ........................................................... 576 558 ------- ------- Total ....................................................... 17,105 16,947 Less: Accumulated depreciation and amortization .................. 6,761 6,463 ------- ------- Net ......................................................... 10,344 10,484 Nuclear Fuel in Service, net of accumulated amortization - 1998, $297; 1997, $302 ........................................ 206 216 ------- ------- Net Utility Plant in Service ................................ 10,550 10,700 Construction Work in Progress, including Nuclear Fuel in Process - 1998, $31; 1997, $60 ................................. 323 326 Plant Held for Future Use ........................................ 24 24 ------- ------- Net Utility Plant ........................................... 10,897 11,050 ------- ------- INVESTMENTS AND OTHER NONCURRENT ASSETS Long-Term Investments, net of amortization - 1998, $29; 1997, $21, and net of valuation allowances - 1998, $9; 1997, $10 .......... 139 137 Nuclear Decommissioning and Other Special Funds .................. 588 492 Other Noncurrent Assets .......................................... 44 45 ------- ------- Total Investments and Other Noncurrent Assets ............... 771 674 ------- ------- CURRENT ASSETS Cash and Cash Equivalents ........................................ 32 17 Accounts Receivable: Customer Accounts Receivable ................................... 468 488 Other Accounts Receivable ...................................... 226 232 Less: Allowance for Doubtful Accounts .......................... 40 41 Unbilled Revenues ................................................ 179 270 Fuel, at average cost ............................................ 249 310 Materials and Supplies, at average cost, net of inventory valuation reserves - 1998, $12; 1997, $12 ...................... 144 142 Prepayments ...................................................... 354 44 Miscellaneous Current Assets ..................................... 25 37 ------- ------- Total Current Assets ........................................ 1,637 1,499 ------- ------- DEFERRED DEBITS (Note 3) Unamortized Debt Expense ......................................... 128 135 OPEB Costs ....................................................... 280 289 Environmental Costs .............................................. 119 122 Electric Energy and Gas Costs .................................... 73 167 SFAS 109 Income Taxes ............................................ 706 725 Demand Side Management Costs ..................................... 149 116 Other ............................................................ 130 143 ------- ------- Total Deferred Debits ....................................... 1,585 1,697 ------- ------- TOTAL .............................................................. $14,890 $14,920 ======= ======= See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED BALANCE SHEETS CAPITALIZATION AND LIABILITIES (Millions of Dollars)
(Unaudited) June 30 December 31, 1998 1997 ---------- ----------- CAPITALIZATION Common Stockholder's Equity: Common Stock ........................................... $ 2,563 $ 2,563 Contributed Capital .................................... 594 594 Retained Earnings ...................................... 1,365 1,352 ------- ------- Total Common Stockholder's Equity ................... 4,522 4,509 Preferred Stock Without Mandatory Redemption ............. 95 95 Preferred Stock With Mandatory Redemption ............... 75 75 Subsidiaries' Preferred Securities: Guaranteed Preferred Beneficial Interest in Subordinated Debentures (Note 8) ................................. 513 513 Long-Term Debt ........................................... 4,140 4,126 ------- ------- Total Capitalization ................................ 9,345 9,318 ------- ------- OTHER LONG-TERM LIABILITIES Accrued OPEB ............................................. 323 289 Decontamination and Decommissioning Costs ................ 43 43 Environmental Costs (Note 4) ............................ 69 73 Capital Lease Obligations ................................ 50 52 ------- ------- Total Other Long-Term Liabilities ................... 485 457 ------- ------- CURRENT LIABILITIES Long-Term Debt due within one year ....................... 252 118 Commercial Paper and Loans ............................... 955 1,106 Accounts Payable ......................................... 510 608 Other .................................................... 271 268 ------- ------- Total Current Liabilities ........................... 1,988 2,100 ------- ------- DEFERRED CREDITS Income Taxes ............................................. 2,544 2,569 Investment Tax Credits ................................... 324 333 Other .................................................... 204 143 ------- ------- Total Deferred Credits .............................. 3,072 3,045 ------- ------- COMMITMENTS AND CONTINGENT LIABILITIES (Note 4) ............ -- -- ------- ------- TOTAL ...................................................... $14,890 $14,920 ======= ======= See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Millions of Dollars) (Unaudited)
Six Months Ended June 30, -------------------------- 1998 1997 ------ -------- CASH FLOWS FROM OPERATING ACTIVITIES Net income ................................................................... $ 269 $ 227 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and Amortization .............................................. 322 303 Amortization of Nuclear Fuel ............................................... 44 34 Recovery of Electric Energy and Gas Costs - net ............................ 94 15 Changes in certain current assets and liabilities: Net decrease in Accounts Receivable and Unbilled Revenues ................. 116 161 Net decrease in Inventory - Fuel and Materials and Supplies ............... 59 89 Net decrease in Accounts Payable .......................................... (98) (86) Net increase in Prepayments ............................................... (310) (590) Net change in Other Current Assets and Liabilities ........................ 15 186 Other ...................................................................... 27 (50) ----- ----- Net Cash Provided By Operating Activities ............................... 538 289 ----- ----- CASH FLOWS FROM INVESTING ACTIVITIES Additions to Utility Plant, excluding AFDC ................................... (191) (229) Contribution to Decommissioning Funds and Other Special Funds ................ (61) (28) Other ........................................................................ (12) (21) ----- ----- Net Cash Used In Investing Activities ................................... (264) (278) ----- ----- CASH FLOWS FROM FINANCING ACTIVITIES Net (decrease) increase in Short-Term Debt ................................... (151) 224 Issuance of Long-Term Debt ................................................... 250 279 Redemption of Long-Term Debt ................................................. (102) (276) Redemption of Preferred Stock ................................................ -- (94) Issuance of Preferred Securities ............................................. -- 95 Cash Dividends Paid .......................................................... (256) (259) Other ........................................................................ -- (8) ----- ----- Net Cash Used In Financing Activities ................................... (259) (39) ----- ----- Net (Decrease) Increase In Cash And Cash Equivalents ........................... 15 (28) Cash And Cash Equivalents At Beginning Of Period ............................... 17 47 ----- ----- Cash And Cash Equivalents At End Of Period ..................................... $ 32 $ 19 ===== ===== Income Taxes Paid .............................................................. $241 $137 Interest Paid .................................................................. $193 $161 See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED -------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Basis of Presentation/Organization The financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. However, in the opinion of management, the disclosures are adequate to make the information presented not misleading. These consolidated financial statements and Notes to Consolidated Financial Statements (Notes) should be read in conjunction with the Registrant's Notes contained in the 1997 Annual Report on Form 10-K and the Quarterly Report on Form 10-Q for the quarter ended March 31, 1998. These Notes update and supplement matters discussed in the 1997 Annual Report on Form 10-K and the Quarterly Report on Form 10-Q for the quarter ended March 31, 1998. The unaudited financial information furnished reflects all adjustments which are, in the opinion of management, necessary to fairly state the results for the interim periods presented. The year-end consolidated balance sheets were derived from the audited consolidated financial statements included in the 1997 Annual Report on Form 10-K. Certain reclassifications of the prior year's data have been made to conform with the current presentation. On June 12, 1998, Public Service Enterprise Group Incorporated (PSEG) renamed certain of its principal non-utility subsidiaries. Enterprise Diversified Holdings Incorporated was renamed PSEG Energy Holdings Inc. (Energy Holdings); Community Energy Alternatives Incorporated was renamed PSEG Global Inc. (Global); Energis Resources Incorporated was renamed PSEG Energy Technologies Inc. (Energy Technologies) and Public Service Resources Corporation was renamed PSEG Resources Inc. (Resources). Note 2. Rate Matters New Jersey Energy Master Plan As previously reported, on April 30, 1997, the New Jersey Board of Public Utilities (BPU) issued its final report regarding Phase II (final Phase II report) of the Energy Master Plan addressing wholesale and retail electric competition in New Jersey. In accordance with the final Phase II report, Public Service Electric and Gas Company (PSE&G) filed a proposal regarding competition and rates with the BPU on July 15, 1997. The BPU is in the process of reviewing filings of all New Jersey electric utilities. The decision of the BPU in the Energy Master Plan proceedings, which include hearings before the Office of Administrative Law (OAL) (stranded costs and unbundling) and the BPU (restructuring), including management audit reports, and the legislation required to implement certain aspects of electric restructuring, if enacted into law, will establish the industry rules for the future. These actions are expected to fundamentally change the electric industry in the State by introducing retail competition to replace the utilities' former monopoly position and potentially requiring or resulting in the separation or sale of generation assets and the establishment of generic rules regarding a regulated utility's relationships with its affiliates. Also, as previously reported, by Order dated June 25, 1997, the BPU commenced management audits of all New Jersey electric utilities, with the assistance of certain consulting firms, under the direction of its own audit staff. The audit process included, but was not limited to, reviews of electric utility filings in response to the Energy Master Plan. The management audit process for PSE&G concluded in December 1997 with a report of the BPU's management consultants relating to issues of stranded costs, securitization and consumer rate reductions. A second report on restructuring was filed on February 27, 1998. These management audit reports were approved for release by the BPU on January 29, 1998 and March 5, 1998, respectively, and are being considered by the BPU as part of the proceedings discussed below. The BPU can adopt, reject or modify the audit reports' results in its decision on PSE&G's proposal. PSE&G cannot predict the extent to which the BPU will rely on the results of these audit reports in evaluating its proposal. The BPU requested the OAL to hold evidentiary hearings regarding stranded costs and unbundling issues. These hearings concluded on March 18, 1998. The management audit report released in January 1998 is being considered as part of this proceeding. Briefs have been filed by the parties in these hearings and an OAL decision is expected in August 1998. Hearings at the BPU addressing other restructuring issues such as market power, functional separation and consumer protection concluded on May 28, 1998. The management audit report released in March 1998, relating to these issues, is being considered as part of this proceeding. Briefs have been filed by the parties in these hearings and a decision is pending. The BPU has indicated its intent to submit draft legislation to the Governor by Fall 1998 to provide it requisite authority to implement certain aspects of wholesale and retail electric competition in New Jersey. Legislative leadership has indicated its intent to consider passage of a legislative package providing such authority by year end 1998. PSEG and PSE&G cannot predict the outcome of these administrative and legislative proceedings. However, such proceedings could have a material adverse effect on PSEG's and PSE&G's financial condition, results of operations and net cash flows. Non-utility Generation Buydown As previously reported, PSE&G is seeking to restructure certain of its BPU approved contracts with Non-utility Generators (NUGs), which are estimated to be $1.6 billion above assumed future market prices. In June 1998, PSE&G and the Union County Utilities Authority (UCUA) announced an agreement to amend their Power Purchase and Interconnection Agreement originally signed in 1990. Under Federal and State regulations, utilities have been required to enter into long-term power purchase agreements with NUGs at prices which subsequently proved to be above market. In accordance with a July 17, 1998 BPU Decision and Order and based on the Amendment to the Power Purchase and Interconnection Agreement, PSE&G will pay UCUA a lump sum amount of $7.75 million in exchange for a $15.6 million savings to ratepayers on a net present value basis. The payment of $7.75 million by PSE&G will be recovered through the LEAC or successor mechanisms for recovery of NUG costs, to be determined by the outcome of the Energy Master Plan proceedings. Levelized Gas Adjustment Clause (LGAC) On November 14, 1997, PSE&G filed a petition with the BPU requesting a $45 million annual increase in its LGAC for the period January 1, 1998 to December 31, 1998, which, as filed, would increase a typical residential bill by approximately 4.8%. On February 18, 1998, the BPU approved a Stipulation agreed to by the parties in the proceeding providing for an interim increase in annual LGAC revenues of approximately $31 million, excluding State sales and use tax, or an increase of 3.5% on a typical residential bill. On June 26, 1998, an Order was executed by the BPU making the terms of the interim Stipulation final, without modification. On July 10, 1998, PSE&G filed a motion with the BPU requesting a $27 million annual increase in its LGAC for the period October 1, 1998 to September 30, 1999, representing an increase on a typical residential bill of approximately 2.8%. Also included in the revised LGAC rate is an increase in the Remediation Adjustment Clause (RAC) component, a decrease in the Demand Side Adjustment Factor (DSAF) and a request to change, on a monthly basis, the over/under collection component of the LGAC rate for residential customers. On July 28, 1998, the matter was transmitted to the OAL for review. PSE&G cannot predict the outcome of this proceeding. Gas Unbundling Pilot Program In April 1997, the BPU approved PSE&G's proposal for a residential gas unbundling pilot program (SelectGas), which allows approximately 65,000 residential natural gas customers, out of a total of 1.4 million residential gas customers, to participate in the competitive marketplace effective May 1, 1997. To date, none of these eligible customers have subscribed to the program. On April 30, 1998, PSE&G filed a report with the BPU on SelectGas and its proposed refinements for a permanent residential gas unbundling program (Energy Choice). Under Energy Choice, as proposed, a total of 300,000 residential customers could be permitted to choose their gas supplier on a first-come, first-served basis. This expanded program would commence by the later of sixty days after a BPU order authorizing this program or September 30, 1998. PSE&G's proposal would permit its remaining residential customers to choose their gas supplier by July 1, 1999 or such alternate date as may be established by the BPU. Electric Levelized Energy Adjustment Clause (LEAC)/Demand Side Adjustment Factor (DSAF) As previously reported, on April 1, 1998, the BPU approved an annualized increase of $150.8 million in the DSAF component of the LEAC. This increase was effective for service rendered on or after April 3, 1998. The Division of the Ratepayer Advocate has appealed the BPU's order seeking to overturn the BPU's decision. PSE&G cannot predict the outcome of the appeal process but the impact on PSE&G's future financial condition, results of operations and net cash flows could be materially adverse if such an appeal is successful. As previously reported, while PSE&G's proposal in response to the final Phase II report of the Energy Master Plan provides for a transition period of seven years with basic tariff rates being capped and the discontinuation of the LEAC effective December 31, 1998, such proposal provides for recovery of mandated societal costs, including Demand Side Management (DSM), to be adjusted based on changes in such costs. At June 30, 1998, PSE&G had an underrecovered balance, including interest, of approximately $156 million related to electric DSM programs. Such amount is included in Deferred Debits on PSEG's and PSE&G's Consolidated Balance Sheets. PSE&G estimates that the underrecovered electric DSM balance at December 31, 1998 will be approximately $135 million. PSEG and PSE&G cannot predict the final outcome of DSM and other mandated societal costs recovery under the Energy Master Plan but inability to recover such amounts could have a material adverse impact on PSEG's and PSE&G's financial condition, results of operations and net cash flows. For further discussion of the potential impact on PSEG and PSE&G of the Energy Master Plan proceedings, see New Jersey Energy Master Plan. Remediation Adjustment Charge (RAC) As previously reported, on August 1, 1997, PSE&G requested that the BPU approve recovery of $6.8 million through PSE&G's RAC for manufactured gas plant remediation costs. This request represents an increase in the amount of PSE&G's recovery of such costs by approximately $2 million over current rate levels. On October 9, 1997, this matter was transferred to the OAL. The rates were approved for recovery on June 26, 1998 (see LGAC). On July 10, 1998, PSE&G filed a motion before the BPU requesting a $1.5 million annual increase in its RAC for the period August 1, 1997 to July 31, 1998, representing an increase on a typical residential bill of approximately 0.03%. On July 28, 1998, the motion was transferred to the OAL for review. PSE&G cannot predict the outcome of this proceeding. Order Adopting Auction Standards On June 16, 1998, the BPU adopted standards applicable to the auction processes being used by GPU Energy and Rockland Electric Company to divest themselves of certain of their generating plants. At this time, PSE&G's strategy is to retain its generation assets. The BPU order adopting these auction standards indicated that the standards would be reviewed and possibly modified, if deemed appropriate. If, at some time in the future, PSE&G were to decide or be required to sell its generation assets, PSE&G would determine whether to seek such review or modification. Note 3. Regulatory Assets and Liabilities Electric Energy and Gas Costs: Recoveries of electric energy and gas costs are determined by the BPU under the LEAC and LGAC. PSE&G's deferred fuel balances as of June 30, 1998 and December 31, 1997, respectively, reflect underrecovered costs as follows: June 30, December 31, 1998 1997 -------- ----------- (Millions of Dollars) Underrecovered Electric Energy Costs...... $8 $91 Underrecovered Gas Fuel Costs............. 65 76 ------- ------- Total.................................. $73 $167 ======= ======= The BPU Order dated December 31, 1996 provides PSE&G the opportunity, but not a guarantee, during the period January 1, 1997 through December 31, 1998, to fully recover its December 31, 1996 underrecovered LEAC balance of $151 million without any change in the current energy component of the LEAC charge. Management believes that it will recover this amount by December 31, 1998 and continues to follow deferred accounting treatment for the LEAC. Note 4. Commitments and Contingent Liabilities Nuclear Operating Performance Standard (OPS) PECO Energy Company (PECO Energy), Delmarva Power & Light Company (DP&L) and PSE&G, three of the co-owners of the Salem Nuclear Generating Station, Units 1 and 2 (Salem) and the Peach Bottom Atomic Power Station, Units 2 and 3 (Peach Bottom), have agreed to an OPS through December 31, 2011 for Salem and through December 31, 2007 for Peach Bottom. PSE&G is the operator of Salem and PECO Energy is the operator of Peach Bottom. Under the OPS, the station operator is required to make payments to the non-operating owners (excluding Atlantic City Electric Company) commencing in January 2001 if the three-year historical average net maximum dependable capacity factor (MDC) (defined below) for that station, calculated as of December 31 of each year commencing with December 31, 2000, falls below 40%. Any such payment is limited to a maximum of $25 million per year. MDC is the gross electrical output for a station measured at the output terminals of its turbine generators during the most restrictive seasonal conditions, less the station's service load. The parties have further agreed to forego litigation in the future, except for limited cases in which the operator would be responsible for damages of no more than $5 million per year. Year 2000 Many of PSEG's and PSE&G's systems, which include information technology applications, plant control and telecommunications infrastructure systems, must be modified due to computer program limitations in recognizing dates beyond 1999. During the six months ended June 30, 1998, $12 million of costs related to Year 2000 readiness were incurred. Management estimates the total cost of this effort to approximate $92 million, to be incurred from 1997 through 2001, of which $37 million is expected to be incurred in 1998. A portion of these costs is not likely to be incremental to PSEG or PSE&G, but rather, will represent a redeployment of existing personnel/resources. PSEG and PSE&G are continuing to work with their supplier base to assess the Year 2000 status of vendors who provide critical materials and services. Sufficient information has not yet been received from all critical vendors to confirm the vendors' preparedness for Year 2000. PSEG and PSE&G are aggressively pursuing the key vendors who have been unresponsive; however, PSEG and PSE&G are not yet able to determine whether all of their critical vendors will be able to meet Year 2000 requirements. As previously reported, the Nuclear Regulatory Commission (NRC) had proposed to issue a generic letter which would require all nuclear plant operators to provide it with information concerning their programs, planned or implemented, to address Year 2000 computer and systems issues at their facilities. On May 11, 1998, the NRC issued a Generic Letter requiring submission of a written response within 90 days of the date of the Generic Letter indicating whether or not the operators have pursued and continue to pursue Year 2000 programs and addressing the programs' scope, assessment process, plans for corrective actions, quality assurance measures, contingency plans and regulatory compliance. Additionally, the Generic Letter requires submission of a written response upon completion of the operators' Year 2000 program or no later than July 1, 1999 confirming that their facilities are Year 2000 ready, or will be Year 2000 ready, by 2000 with regard to compliance with the terms and conditions of their licenses and NRC regulations. On July 23, 1998, PSE&G provided its written response to the first requirement noted above, outlining for the NRC its Nuclear Business Unit (NBU) Year 2000 program and indicating that planned implementation will allow the NBU to be Year 2000 ready and compliant with the terms and conditions of its operating licenses and NRC regulations by January 1, 2000. If PSEG, PSE&G, their domestic and international subsidiaries, the other members of the Pennsylvania--New Jersey--Maryland Interconnection (PJM) or PSEG's or PSE&G's critical vendors are unable to meet the Year 2000 deadline, such inability could have a material adverse impact on PSEG's and PSE&G's operations, financial condition, results of operations and net cash flows. Hazardous Waste Certain Federal and state laws authorize the U.S. Environmental Protection Agency (EPA) and the New Jersey Department of Environmental Protection (NJDEP), among other agencies, to issue orders and bring enforcement actions to compel responsible parties to investigate and take remedial actions at any site that is determined to present an actual or potential threat to human health or the environment because of an actual or threatened release of one or more hazardous substances. Because of the nature of PSE&G's business, including the production of electricity, the distribution of gas and, formerly, the manufacture of gas, various by-products and substances are or were produced or handled which contain constituents classified as hazardous. PSE&G generally provides for the disposal or processing of such substances through licensed independent contractors. However, these statutory provisions impose joint and several responsibility without regard to fault on all responsible parties, including the generators of the hazardous substances, for certain investigative and remediation costs at sites where these substances were disposed of or processed. PSE&G has been notified with respect to a number of such sites and the investigation and remediation of these potentially hazardous sites is receiving attention from the government agencies involved. Generally, actions directed at funding such site investigations and remediation include all suspected or known responsible parties. Except as discussed below with respect to its Remediation Program, PSEG and PSE&G do not expect its expenditures for any such site to have a material effect on their financial conditions, results of operations and net cash flows. The NJDEP has recently revised regulations concerning site investigation and remediation. These regulations will require an ecological evaluation of potential injuries to natural resources in connection with a remedial investigation of contaminated sites. The NJDEP is presently working with the utility industry, among others, to develop procedures for implementing these regulations. These regulations may substantially increase the costs of remedial investigations and remediations, where necessary, particularly at sites located on surface water bodies. PSE&G and predecessor companies owned and/or operated facilities located on surface water bodies, certain of which are currently the subject of remedial activities. The financial impact of these regulations on these projects is not currently estimable. PSE&G does not anticipate that the compliance with these regulations will have a material adverse effect on its financial position, results of operations and net cash flows. PSE&G Manufactured Gas Plant Remediation Program (Remediation Program) In 1988, NJDEP notified PSE&G that it had identified the need for PSE&G, pursuant to a formal arrangement, to systematically investigate and, if necessary, resolve environmental concerns extant at PSE&G's former manufactured gas plant sites. To date, NJDEP and PSE&G have identified 38 former manufactured gas plant sites. PSE&G is currently working with NJDEP under a program to assess, investigate and, if necessary, remediate environmental concerns at these sites. The Remediation Program is periodically reviewed and revised by PSE&G based on regulatory requirements, experience with the Remediation Program and available remediation technologies. The cost of the Remediation Program cannot be reasonably estimated, but experience to date indicates that costs of approximately $20 million per year could be incurred over a period of about 30 years and that the overall cost could be material to PSEG's and PSE&G's financial condition, results of operations and net cash flows. Note 5. Financial Instruments and Risk Management PSEG's operations give rise to exposure to market risks from changes in commodity prices, interest rates, foreign currency exchange rates and prices of security investments. PSEG's policy is to use derivative financial instruments for the purpose of managing market risk consistent with its business plans and prudent business practices. PSEG Interest Rate Swap PSEG entered into an interest rate swap on June 26, 1998 to hedge Enterprise Capital Trust II's $150 million of Floating Rate Capital Securities, Series B, due 2028, which were sold to a group of institutional investors in June 1998. The basis for both the interest rate swap and the Floating Rate Capital Securities is the quarterly London Interbank Offered Rate (LIBOR). Enterprise Capital Trust II is a special purpose statutory business trust controlled by PSEG. This interest rate swap effectively hedges the underlying debt for 10 years at an effective rate of 7.2%. PSEG Energy Holdings Inc. Equity Securities Resources, a wholly-owned subsidiary of Energy Holdings, has investments in equity securities and partnerships which invest in equity securities. The aggregate carrying value of Resource's portfolio approximated its fair market value of $231 million and $185 million as of June 30, 1998 and December 31, 1997, respectively. PSE&G Nuclear Decommissioning Trust Funds Contributions made into the Nuclear Decommissioning Trust Funds are invested in debt and equity securities. The carrying value of $509 million and $459 million of these funds approximates their fair market value as of June 30, 1998 and December 31, 1997, respectively. Note 6. Taxes As previously reported, the New Jersey Gross Receipts and Franchise Tax (NJGRT) was eliminated effective January 1, 1998 and replaced with a combination of the New Jersey Corporate Business Tax which is a State income tax, the State sales and use tax and a Transitional Energy Facility Assessment (TEFA), with no material impact on the financial condition, results of operations and net cash flows of PSEG and PSE&G. The TEFA will be phased out over five years. While under NJGRT, PSE&G was subject to an effective state tax on unit sales equal to approximately 13% of receipts. As a result of such tax reform, after the phase out of the TEFA, the effective state tax rate applicable to PSE&G will be substantially reduced. Interim rates were implemented with regard to the new tax structure effective with service rendered on and after January 1, 1998. The BPU completed its administrative review of the filings of all New Jersey utilities and approved permanent rates for 1998 on July 13, 1998 in a final Order. As a result of the July 13, 1998 BPU Order, utilities are subject to mandated adjustments which will be incorporated into their 1999 rates, pending BPU approval. Therefore, effective January 1, 1998, PSE&G became subject to the New Jersey Corporate Business Tax. Consequently, the effective income tax rate is as follows: Quarter Ended Six Months Ended June 30, June 30, ---------------- ----------------- 1998 1997 1998 1997 ------- ------- ------- ------- Federal tax provision at statutory rate................ 35.0 % 35.0 % 35.0 % 35.0 % New Jersey Corporate Business Tax, net of Federal benefit... 5.9 % -- 5.9 % -- Other -- net.................... 1.3 % (0.7)% 0.7 % (0.6)% ------- ------- ------- ------- Effective Income Tax Rate... 42.2 % 34.3 % 41.6 % 34.4 % ======= ======= ======= ======= Note 7. Accounting Matters In June 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 130, "Reporting Comprehensive Income" (SFAS 130), which is effective for fiscal years beginning after December 15, 1997. SFAS 130 dictates that all items required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement displayed with the same prominence as other financial statements. It also requires that an enterprise classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. PSEG and PSE&G adopted SFAS 130 effective January 1, 1998. The effects of adoption of SFAS 130 are not material for PSEG or PSE&G. Also in June 1997, the FASB issued SFAS 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS 131), which is effective for financial statements for periods beginning after December 15, 1997. This Statement need not be applied to interim financial statements in the initial year of its application. SFAS 131 supersedes SFAS 14, "Financial Reporting for Segments of a Business Enterprise" and requires that companies disclose segment data based on how management makes decisions about allocating resources to segments and measuring their performance. Since SFAS 131 solely revises disclosure requirements, the adoption of SFAS 131 will not have a material impact on the financial condition, results of operations and net cash flows of PSEG or PSE&G. In February 1998, the FASB issued SFAS 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" (SFAS 132), which is effective for financial statements for periods beginning after December 15, 1997. This statement revises and standardizes disclosure requirements for pension and other postretirement benefit plans but does not change the measurement or recognition of those plans. Since SFAS 132 solely revises disclosure requirements, the adoption of SFAS 132 will not have a material impact on the financial condition, results of operations and net cash flows of PSEG and PSE&G. In June 1998, the FASB issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133), which is effective for financial statements for all fiscal quarters of fiscal years beginning after June 15, 1999. SFAS 133 establishes accounting and reporting standards for derivative instruments and hedging activities. An entity is to recognize all derivatives as assets or liabilities on the balance sheet at fair value. Accounting for gains and losses resulting from changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation of that derivative. PSEG and PSE&G are currently evaluating the impact of SFAS 133. In April 1998, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up Activities" (SOP 98-5), which is effective for financial statements for fiscal years beginning after December 15, 1998. SOP 98-5 requires the expensing of the costs of start-up activities as incurred. Additionally, previously capitalized start-up costs must be written off as a Cumulative Change in Accounting Principle. PSEG and PSE&G are currently evaluating the impact, if any, of SOP 98-5. Note 8. Guaranteed Preferred Beneficial Interest in Subordinated Debentures The Guaranteed Preferred Beneficial Interest in Subordinated Debentures includes the monthly guaranteed preferred beneficial interest in PSE&G's subordinated debentures and the quarterly guaranteed preferred beneficial interest in PSEG's and PSE&G's subordinated debentures. The balances as of June 30, 1998 and December 31, 1997 of these preferred securities are as follows: June 30, December 31, 1998 1997 -------- ----------- (Millions of Dollars) Monthly Guaranteed Preferred Beneficial Interest in PSE&G's Subordinated Debentures...... $210 $210 Quarterly Guaranteed Preferred Beneficial Interest in PSE&G's Subordinated Debentures...... 303 303 Quarterly Guaranteed Preferred Beneficial Interest in PSEG's Subordinated Debentures....... 375 0 ------- ------- Total........................................... $888 $513 ======= ======= The increase in the Quarterly Guaranteed Preferred Beneficial Interest in PSEG's Subordinated Debentures since December 31, 1997 is due to the issuance in January 1998 and June 1998 of $225 million of 7.44% Trust Originated Preferred Securities, Series A and $150 million of Floating Rate Capital Securities, Series B, respectively. Additionally, Quarterly Guaranteed Preferred Beneficial Interest in PSEG's Subordinated Debentures increased as a result of the July 1998 issuance of $150 million of 7.25% Trust Originated Preferred Securities, Series C by PSEG Capital Trust III. PUBLIC SERVICE ELECTRIC AND GAS COMPANY --------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Notes to Consolidated Financial Statements of PSEG are incorporated by reference insofar as they relate to PSE&G and its subsidiaries: Note 1. Basis of Presentation/Organization Note 2. Rate Matters Note 3. Regulatory Assets and Liabilities Note 4. Commitments and Contingent Liabilities Note 5. Financial Instruments and Risk Management Note 6. Taxes Note 7. Accounting Matters Note 8. Guaranteed Preferred Beneficial Interest in Subordinated Debentures Note 6. Taxes The effective income tax rate is as follows: Quarter Ended Six Months Ended June 30, June 30, --------------- ----------------- 1998 1997 1998 1997 ------- ------ ------- -------- Federal tax provision at statutory rate................ 35.0% 35.0% 35.0% 35.0% New Jersey Corporate Business Tax, net of Federal benefit... 5.9% -- 5.9% -- Other-- net..................... 1.7% 0.2% 1.8% (0.2)% ------- ------ ------- -------- Effective Income Tax Rate... 42.6% 35.2% 42.7% 34.8% ======= ====== ======= ======== PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED -------------------------------------------- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Following are the significant changes in or additions to information reported in the Public Service Enterprise Group Incorporated (PSEG) 1997 Annual Report on Form 10-K and the Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 affecting the consolidated financial condition and the results of operations of PSEG and its subsidiaries. This discussion refers to the Consolidated Financial Statements (Statements) and related Notes to Consolidated Financial Statements (Notes) of PSEG and should be read in conjunction with such Statements and Notes. Results of Operations Basic and diluted earnings per share of PSEG common stock (Common Stock) were $0.53 for the quarter ended June 30, 1998, representing an increase of $0.14 or 36% per share from the comparable 1997 period. Basic and diluted earnings per share were $1.35 for the six months ended June 30, 1998, representing an increase of $0.36 or 36% per share from the comparable 1997 period. Public Service Electric and Gas Company's (PSE&G) contribution to earnings per share of Common Stock for the quarter and six months ended June 30, 1998 increased $0.12 and $0.21 from the comparable 1997 periods, respectively. The increases for the quarter and six months ended June 30, 1998 were primarily due to profits realized from energy trading and other wholesale power activities and decreased operating and maintenance expenses related to the return to service of PSE&G's Salem Nuclear Generating Station (Salem). For a discussion of commodity trading, see Item 3. Qualitative and Quantitative Disclosures about Market Risk. The results of operations for the six months ended June 30, 1998 were further impacted by the one-time charge to earnings of $55 million or $0.24 per share recorded in the first quarter of 1997 resulting from the settlement of lawsuits filed by the co-owners of Salem. The increase for the six months ended June 30, 1998 was partially offset by higher operation expenses, including Year 2000 readiness (see Note 4. Commitments and Contingent Liabilities of Notes) and depreciation expenses. PSEG Energy Holdings Inc.'s (Energy Holdings) contribution to earnings per share of Common Stock for the quarter and six months ended June 30, 1998 increased $0.02 and $0.15 from the comparable 1997 periods, respectively, primarily due to greater earnings of PSEG Resources Inc. (Resources). Resources' earnings increased for the quarter and six months ended June 30, 1998 primarily due to higher income from investments in partnerships. The results of operations for the six months ended June 30, 1998 were further impacted by a gain resulting from the exercise of an early buyout option in the first quarter of 1998 by the lessee in a leveraged lease investment of Resources. PSE&G -- Revenues Electric Revenues increased $248 million or 26% and $465 million or 24% for the quarter and six months ended June 30, 1998 from the comparable periods in 1997, respectively, primarily due to an increase in energy trading activity and higher sales to large industrial customers (see PSE&G -- Expenses -- Interchanged Power and Fuel for Electric Generation). These increases were partially offset by a decrease to revenue caused by New Jersey energy tax reform in 1998 (see Note 6. Taxes of Notes and PSE&G -- Expenses -- Income Taxes). Collection of New Jersey Gross Receipts and Franchise Tax (NJGRT) was reflected in revenue and expense in 1997. As a result of energy tax reform, the portion of NJGRT replaced by the New Jersey sales and use tax is no longer reflected in revenue or expense on the income statement. State sales and use tax is a liability of the customer, collected by PSE&G and remitted to the State and is recorded in Tax Collections Payable, which is included in Other Current Liabilities on the Consolidated Balance Sheets. Gas Revenues decreased $51 million or 16% and $174 million or 16% for the quarter and six months ended June 30, 1998 from the comparable periods in 1997, respectively. The decreases were primarily due to lower recovery of fuel costs and decreased therm sales resulting from milder winter weather in 1998 and energy tax reform (see PSE&G --Revenues -- Electric above). PSE&G -- Expenses Interchanged Power and Fuel for Electric Generation Interchanged Power and Fuel for Electric Generation increased $204 million or 84% and $442 million or 90% for the quarter and six months ended June 30, 1998 from the comparable 1997 periods, respectively, primarily due to an increase in energy trading activity. Effective January 1, 1998, the amount included for Electric Levelized Energy Adjustment Clause (LEAC) under/overrecovery represents the difference between fuel-related revenues and fuel-related expenses which are comprised of the cost of generation and interchanged power at the PJM market clearing price. Effective April 1, 1998, the PJM locational marginal price replaced the PJM market clearing price. To the extent fuel revenue and expense flow through the LEAC mechanism, variances in fuel revenues and expenses offset and thus have no direct effect on earnings. Gas Purchased Gas purchased decreased $11 million or 6% and $41 million or 7% for the quarter and six months ended June 30, 1998 from the comparable 1997 periods, respectively. The decreases were primarily due to the milder winter weather in 1998. Due to the operation of the Levelized Gas Adjustment Clause (LGAC) mechanism, variances in fuel revenues and expenses offset and have no direct effect on earnings. Operation and Maintenance Operation and maintenance expenses increased $29 million or 9% and $45 million or 7% for the quarter and six months ended June 30, 1998 from the comparable 1997 periods, respectively. The increases were primarily due to higher demand side management recovery, resulting in a greater recognition of previously deferred expenses, and higher expenses related to information technology, including Year 2000 readiness. These increases were partially offset by lower operation and maintenance expenses related to Salem's return to service. Demand side management costs are currently recoverable through the demand side adjustment factor of the LEAC, are recorded in both expense and revenue and therefore, have no direct effect on earnings (see Note 2. Rate Matters of Notes). Income Taxes PSE&G became subject to New Jersey State income tax, effective January 1, 1998, due to energy tax reform in the State of New Jersey (see Note 6. Taxes of Notes). Income Taxes increased $34 million or 74% and $49 million or 33% for the quarter and six months ended June 30, 1998 from the comparable 1997 periods, respectively. These increases are primarily due to the inclusion of State income tax of $25 million and $56 million for the quarter and six months ended June 30, 1998, respectively. In the quarter ended June 30, 1998, there was an increase of $9 million in Federal income taxes due to higher pre-tax operating income. For the six months ended June 30, 1998, there was a decrease of $7 million in Federal income taxes due to lower pre-tax operating income. Transitional Energy Facility Assessment (TEFA) / New Jersey Gross Receipts and Franchise Tax (NJGRT) TEFA/NJGRT decreased $79 million or 67% and $202 million or 70% for the quarter and six months ended June 30, 1998 from the comparable 1997 periods, respectively, due to New Jersey energy tax reform. For 1998, the amount represents TEFA unit-based taxes while the 1997 amount represents NJGRT unit-based taxes. The TEFA unit tax rates are approximately 30% of the NJGRT unit tax rates. See PSE&G --Revenues and Income Taxes, above, and Note 6. Taxes of Notes for other impacts of New Jersey energy tax reform. Year 2000 Expenses -- PSEG and PSE&G For a discussion of Year 2000 expenses, see Note 4. Commitments and Contingent Liabilities of Notes. PSEG Energy Holdings Inc. -- Earnings Increase (Decrease) ---------------------------------- Quarter Ended Six Months Ended June 30, June 30, 1998 vs. 1997 1998 vs. 1997 ---------------------------------- (Millions of Dollars) PSEG Resources Inc. (Resources).. $6 $36 PSEG Global Inc. (Global)........ (2) - PSEG Energy Technologies Inc. (Energy Technologies).......... - (1) ----- ------- Total........................ $4 $35 ===== ======= Energy Holdings' earnings were $14 million and $49 million for the quarter and six months ended June 30, 1998, respectively, an increase of $4 million and $35 million, respectively. These increases were primarily due to Resources' higher income from investments in partnerships and a gain resulting from the exercise of an early buyout option in the first quarter of 1998 by the lessee in a leveraged lease. Liquidity and Capital Resources PSEG PSEG is a public utility holding company and as such, has no operations of its own. The following discussion of PSEG's liquidity and capital resources is on a consolidated basis, noting the uses and contributions of PSEG's two direct subsidiaries, PSE&G and Energy Holdings. Cash generated from PSE&G's operations is expected to provide the major source of funds for PSE&G's business. Energy Holdings' growth will be funded through external financings, cash generated from operations and equity capital. Dividend payments on Common Stock were $1.08 per share and totaled $251 million for the six months ended June 30, 1998. PSE&G paid common dividends of $251 million to PSEG during the six months ended June 30, 1998 and 1997, respectively. Due to the growth in Energy Holdings' investment activities, no dividends on Energy Holdings' common stock were paid or anticipated in the six months ended June 30, 1998 and 1997 or are anticipated for the remainder of 1998. Energy Holdings paid $6 million of dividends related to its preferred stock issued to PSEG for the six months ended June 30, 1998. Energy Holdings had no preferred stock outstanding in the period ended June 30, 1997. Amounts and dates of such dividends on Common Stock as may be declared in the future will necessarily be dependent upon PSEG's future earnings, financial requirements and other factors including the receipt of dividend payments from its subsidiaries. PSEG and PSE&G, respectively, have issued Deferrable Interest Subordinated Debentures in connection with the issuance of their respective tax deductible preferred securities. If, and for as long as, payments on those Deferrable Interest Subordinated Debentures have been deferred, or PSEG or PSE&G, respectively, has defaulted on an indenture related thereto or its guarantee thereof, neither PSEG nor PSE&G, respectively, may pay any dividends on its common and preferred stock. As of June 30, 1998, PSEG's capital structure consisted of 48% common equity, 42% long-term debt and 10% preferred stock and other preferred securities. As a result of the 1992 focused audit of PSEG's non-utility businesses (Focused Audit), the New Jersey Board of Public Utilities (BPU) approved a plan which, among other things, provides that: (1) PSEG will not permit Energy Holdings' non-utility investments to exceed 20% of PSEG's consolidated assets without prior notice to the BPU (such investments at June 30, 1998 were approximately 17% of assets); (2) the PSE&G Board of Directors will provide an annual certification that the business and financing plans of Energy Holdings will not adversely affect PSE&G; (3) PSEG will (a) limit debt supported by the minimum net worth maintenance agreement between PSEG and Capital to $750 million and (b) make a good-faith effort to eliminate such support over a six to ten year period from April 1993; and (4) Energy Holdings will pay PSE&G an affiliation fee of up to $2 million a year to be applied by PSE&G through its LGAC and its LEAC to reduce utility rates. Beginning in 1995, the debt supported by such minimum net worth maintenance agreement was limited to $650 million and the affiliation fee has been proportionately reduced as such supported debt is reduced. PSEG and Energy Holdings and its subsidiaries continue to reimburse PSE&G for the cost of all services provided to them by employees of PSE&G. As a result of PSEG's intent that Energy Holdings and its subsidiaries provide growth vehicles for PSEG, financing requirements connected with the continued growth of Energy Holdings, changes to the utility industry expected from the final outcome of the Energy Master Plan proceedings and potential accounting impacts resulting from the deregulation of the generation of electricity, modifications will be required to certain of the restrictions agreed to by PSEG with the BPU in response to the Focused Audit. Inability to achieve satisfactory resolution of these matters could impact the future relative size and financing of Energy Holdings and accordingly, PSEG's future prospects, including financial condition, results of operations and net cash flows (see Note 2. Rate Matters of Notes). PSE&G For the six months ended June 30, 1998, PSE&G had utility plant additions, including Allowance for Funds Used During Construction of $196 million, a $41 million decrease from the corresponding 1997 period. The decrease was primarily due to the replacement of Salem 1 steam generators in 1997. PSE&G expects that it will be able to generate all of its construction and capital requirements over the next five years internally, assuming adequate and timely recovery of costs, as to which no assurances can be given (see Note 2. Rate Matters of Notes). PSEG Energy Holdings Inc. In June and July 1998, PSEG invested $147 million and $145 million, the proceeds of the sale of Capital Securities and Trust Securities (see External Financings), in Energy Holdings, which issued to PSEG like amounts of its 4.80% and 4.875% Cumulative Preferred Stock and made additional equity investments in Global and Resources. In April 1998, Resources closed on its investment in the lease of a domestic gas-fired steam electric generating station to a domestic utility. Resource's equity investment was approximately $39 million. In May 1998, Global sold its 50% interests in two domestic cogeneration plants, resulting in proceeds to Energy Holdings of $70 million, which resulted in an after-tax gain of approximately $5 million. In June 1998, Enterprise Group Development Corporation (EGDC) sold its 75% interest in one of its properties for approximately $5 million, resulting in a minimal loss which had been previously reserved through a valuation allowance. In July 1998, Resources purchased a 33.3% interest in a leveraged lease of a natural gas-fired generating station in the United Kingdom for approximately $40 million. For a discussion of the source of Energy Holdings' funds, see External Financings. Over the next several years, Energy Holdings and its subsidiaries will be required to refinance their maturing debt and provide additional debt and equity financing for growth. Any inability to obtain required additional external capital or to extend or replace maturing debt and/or existing agreements at current levels and interest rates may affect future earnings. External Financings PSEG On June 30, 1998, PSEG had a $25 million line of credit with a bank with no debt outstanding under this line of credit. Also, at that date, PSEG had a committed $150 million revolving credit facility which expires in December 2002 with no debt outstanding under this facility. In June 1998, Enterprise Capital Trust II, a special purpose statutory business trust controlled by PSEG, issued $150 million of its Floating Rate Capital Securities, Series B. Proceeds were lent to PSEG and are evidenced by its deferrable interest subordinated debentures. PSEG used the proceeds to make a $147 million preferred equity investment in Energy Holdings. The debentures and their related indenture constitute a full and unconditional guarantee by PSEG of the preferred securities issued by the trust. If, and for as long as, payments on PSEG's debentures have been deferred, or PSEG has defaulted on the indenture related thereto or its guarantee thereof, PSEG may not pay any dividends on its Common Stock (see Liquidity and Capital Resources -- PSEG). At the time of issuance, PSEG's floating rate obligation under its debentures was swapped for a fixed rate payment resulting in an effective rate of 7.2% (see Note 5. Financial Instruments and Risk Management of Notes). In July 1998, Enterprise Capital Trust III, a special purpose statutory business trust controlled by PSEG, issued $150 million of its 7.25% Trust Originated Preferred Securities, Series C. Proceeds were lent to PSEG and are evidenced by its deferrable interest subordinated debentures. PSEG used the proceeds to make a $145 million preferred equity investment in Energy Holdings. The debentures and their related indenture constitute a full and unconditional guarantee by PSEG of the preferred securities issued by the trust. If, and for as long as, payments on PSEG's debentures have been deferred, or PSEG has defaulted on the indenture related thereto or its guarantee thereof, PSEG may not pay any dividends on its Common Stock (see Liquidity and Capital Resources - -- PSEG). As previously disclosed, both PSEG and PSE&G have issued a total of approximately $525 million and $513 million, respectively, of deferrable interest subordinated debentures which are treated as debt to the issuer for Federal income tax purposes and as preferred equity for financial accounting and rating agency purposes. In a case not involving PSEG or PSE&G, the Internal Revenue Service (IRS) has proposed to disallow interest deductions claimed by Enron Corp. (Enron) on two issues of similar long-term subordinated debentures. That issue is now in litigation (Enron Corp. v. Commissioner, Tax Court Docket No. 6149-98). There can be no assurance that Enron will prevail in this litigation if it is not settled or, if Enron does prevail, that the IRS nevertheless may seek to disallow the deductions that PSEG and PSE&G have taken and will claim for interest paid on such debentures. The annualized interest expense for these debentures for PSEG and PSE&G together is approximately $82 million. In total for 1994 through 1997, PSEG and PSE&G took approximately $89 million in interest deductions for these debentures, which equates to about $31 million in tax benefits. If challenged by the IRS, PSEG and PSE&G would expect to vigorously defend the deductibility of the interest payments taken as deductions on previously filed Federal tax returns. In the event of the occurrence of a Tax Event as defined in the respective debenture indentures, such as the receipt of an opinion of counsel that there is a more than insubstantial risk that interest payable on the debentures will not be tax deductible, PSEG and PSE&G have the right to redeem the preferred securities and issue the debentures to the preferred securities holders or to refinance such obligations as allowed in the respective debenture indentures. PSE&G PSE&G has received authority from the BPU, through December 31, 1998, to opportunistically refinance essentially all of its long-term debt and to refund up to $250 million of matured debt. Under its First and Refunding Mortgage (Mortgage), PSE&G may issue new First and Refunding Mortgage Bonds (Bonds) against previous additions and improvements and/or retired Bonds provided that its ratio of earnings to fixed charges is at least 2:1. At June 30, 1998, the coverage ratio under PSE&G's Mortgage was 3.66:1. As of June 30, 1998, the Mortgage would permit up to approximately $3.5 billion aggregate principal amount of new Bonds to be issued against previous additions and improvements. In April 1998, $8 million of PSE&G's 7.50% Bonds, Series OO, were purchased in the open market. On August 3, 1998, the remaining outstanding $234 million of the Series OO Bonds were redeemed. In May 1998, PSE&G sold $250 million of its Bonds, Remarketable Series YY, due 2023, Mandatorily Tendered 2008. The Series YY Bonds will bear interest at the rate of 6.375% per annum until May 1, 2008. PSE&G also entered into a Remarketing Agreement with a third party that granted the third party the option to call and remarket the Series YY Bonds on May 1, 2008 for the remaining term of the Series YY Bonds. If not called by the third party, the Bonds must be put by the holders to PSE&G. The proceeds of the sale were used primarily to redeem PSE&G's Series OO Bonds. On July 1, 1998, $18 million of PSE&G's 6% Debenture Bonds matured. To provide liquidity for its commercial paper program, PSE&G has a $650 million revolving credit agreement expiring in June 1999 and a $650 million revolving credit agreement expiring in June 2002 with a group of commercial banks, which provide for borrowings of up to one year. On June 30, 1998, there were no borrowings outstanding under these credit agreements. The BPU has authorized PSE&G to issue and have outstanding at any one time through January 2, 1999, not more than $1.3 billion of short-term obligations, consisting of commercial paper and other unsecured borrowings from banks and other lenders. On June 30, 1998, PSE&G had $888 million of short-term debt outstanding, including $124 million borrowed against its uncommitted bank lines of credit which lines of credit totaled $250 million at June 30, 1998. PSE&G Fuel Corporation (Fuelco), a wholly-owned subsidiary of PSE&G, has a $125 million commercial paper program to finance its 42.49% share of Peach Bottom nuclear fuel, which program is supported by a $125 million revolving credit facility expiring on June 28, 2001. PSE&G has guaranteed repayment of Fuelco's obligations under this program. At June 30, 1998, Fuelco had $67 million of commercial paper outstanding under this program. PSEG Energy Holdings Inc. At June 30, 1998, PSEG Capital Corporation (Capital), a wholly-owned subsidiary of Energy Holdings, had total debt outstanding of $596 million, including $573 million of Medium Term Notes (MTNs) and $23 million of Senior Notes. In July 1998, $75 million of Capital's 9.00% MTNs matured. As a result of the Focused Audit, Capital debt is being phased out over a six to ten year period from April 1993 (see Liquidity and Capital Resources). As of June 30, 1998, Enterprise Capital Funding Corporation (Funding), a wholly-owned subsidiary of Energy Holdings, had $300 million and $150 million revolving credit facilities expiring in July 1999 and November 1998, respectively, with two groups of banks under which facilities no debt was outstanding. On June 1, 1998, $83 million of Funding's Series E 9.95% Senior Notes matured. Funding had $45 million of privately-placed Senior Notes outstanding as of June 30, 1998. As of June 30, 1998, Funding had $159 million of total debt outstanding. Energy Holdings, Resources and Global are subject to restrictive business and financial covenants contained in existing debt agreements. Energy Holdings is required to maintain a debt to equity ratio of no more than 2.00:1 and a twelve-months earnings before interest and taxes to interest (EBIT) coverage ratio of at least 1.50:1. As of June 30, 1998, Energy Holdings had a consolidated debt to equity ratio of 1.00:1. For the twelve months ended June 30, 1998, the EBIT coverage ratio, as defined to exclude the effects of EGDC, was 2.61:1. Compliance with applicable financial covenants will depend upon future financial position and levels of earnings, as to which no assurance can be given. In addition, Energy Holdings' ability to continue to grow its business will depend to a significant degree on PSEG's and Energy Holdings' ability to obtain additional financing beyond current levels (see Liquidity and Capital Resources). Nuclear Operations As previously reported, PSE&G's Salem Units 1 and 2 (Salem 1 and 2) returned to service on April 17, 1998 and August 30, 1997, respectively. On June 30, 1998, the Nuclear Regulatory Commission (NRC) closed its Confirmatory Action Letter (CAL) concerning Salem noting that all commitments of the CAL had been satisfactorily addressed. For a discussion of the operating performance standard applicable to Salem, see Note 4. Commitments and Contingent Liabilities of Notes. At the July 1998 semi-annual NRC Senior Management Meeting, the NRC removed Salem 1 and 2 from the NRC Watch List. The NRC noted that plant material condition, safety culture and management oversight and effectiveness had substantially improved. The NRC also observed that, while the maintenance backlog resulting from discovery efforts during the outage remains high, PSE&G is effectively managing the prioritization and resolution of those items. Additionally, the NRC noted that PSE&G's management team has instituted robust safety oversight and self-assessment at the site and that Salem has demonstrated sustained successful plant performance. Competitive Environment Rate Matters For discussions of the New Jersey Energy Master Plan, non-utility generation buydown, the LGAC, the Gas Unbundling Pilot Program, the LEAC/Demand Side Adjustment Factor, the RAC and other rate matters, see Note 2. Rate Matters of Notes. The outcome of these proceedings could have a material adverse impact on PSEG's and PSE&G's financial condition, results of operations and net cash flows. Federal Energy Regulatory Commission (FERC) Order No. 888 (Order No. 888) As previously reported, numerous parties, including PSE&G, have filed petitions for judicial review of Orders No. 888, 888A and 888B before the Courts of Appeals for the District of Columbia and the Second Circuits. In March 1998, all of these appeals were consolidated in the Court of Appeals for the District of Columbia Circuit (D.C. Circuit). On April 30, 1998, the D.C. Circuit entered an order permitting certain additional parties to intervene and establishing certain procedural guidelines for the hearing of these appeals. Pennsylvania--New Jersey--Maryland Interconnection (PJM) Effective April 1, 1998, PJM implemented locational marginal pricing (LMP) for congestion costs within the PJM control area pursuant to FERC requirements. LMP provides for an allocation of congestion costs to transmission users within the PJM control area. Sufficient data is not yet available to determine whether LMP will ultimately result in increases or decreases in PSE&G's cost of Interchanged Power and Fuel for Electric Generation or whether such increases or decreases will be material. Currently, the PJM Operating Agreement dictates that energy sold in the PJM interchange energy market from generation located within the PJM control area shall not exceed the variable cost of producing such energy. Transactions that are bid into the PJM pool from generation located outside the PJM control area are capped at $1,000 per megawatt hour. In the event that all available generation within the PJM control area is insufficient to cover demand, PJM could institute emergency purchases from adjoining regions. The cost of such emergency purchases is dependent upon market conditions and not subject to any PJM price cap. Certain of the PJM member companies have requested the FERC to revise the PJM Operating Agreement to allow submission of market based bids to the PJM interchange energy market. PSEG and PSE&G cannot predict the outcome of this request or the impact on PSEG's and PSE&G's future financial condition, results of operations and net cash flows if such request is successful. For further discussion of price volatility of electricity, see Item 3. Qualitative and Quantitative Disclosures About Market Risk. Future Outlook PSEG continues to pursue its strategies to grow its business. As previously reported, more emphasis will be placed on finding opportunities for expansion outside of traditional utility services and markets. PSE&G's strategy is to size its electric generation fleet in New Jersey to meet its anticipated needs, while seeking to increase its value through wholesale trading. PSE&G will also seek to capitalize on synergies which may exist with its natural gas purchasing and trading activities. PSE&G's transmission and distribution strategy, both gas and electric, is to provide cost-effective, high quality service, while considering opportunities for expansion of this business through business combinations. Global's strategy is to invest in both generation and transmission and distribution facilities worldwide with the goal of creating long-term value. Resources' strategy is to continue focusing on passive investments in the energy sector worldwide seeking to provide earnings and economic value. Energy Technologies' strategy is to expand upon the current energy related services it provides to industrial and commercial customers to create long-term value. Successful implementation of these strategies, coupled with the restructuring of the electric industry, could significantly change PSEG's earnings mix. Most significant among the changes would be the shift in earnings away from the domestic generation business into the international generation, transmission and distribution businesses, and to a lesser extent, into the energy services business. PSE&G The information required by this item is incorporated herein by reference to the following portions of PSEG's Management's Discussion and Analysis of Financial Condition and Results of Operations, insofar as they relate to PSE&G and its subsidiaries: Results of Operations; Liquidity and Capital Resources; External Financings; Nuclear Operations; Competitive Environment and Future Outlook. Forward Looking Statements The Private Securities Litigation Reform Act of 1995 (the Act) provides a "safe harbor" for forward-looking statements to encourage such disclosures without the threat of litigation providing those statements are identified as forward-looking and are accompanied by meaningful, cautionary statements identifying important factors that could cause the actual results to differ materially from those projected in the statement. Forward-looking statements have been made in this report. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. When used herein, the words "will", "anticipate", "estimate", "expect", "objective", "hypothetical", "potential" and similar expressions are intended to identify forward-looking statements. In addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements, factors that could cause actual results to differ materially from those contemplated in any forward-looking statements include, among others, the following: deregulation and the unbundling of energy supplies and services; an increasingly competitive energy marketplace; sales retention and growth potential in a mature service territory and a need to contain costs; ability to obtain adequate and timely rate relief, cost recovery, including the potential impact of stranded costs, and other necessary regulatory approvals; Federal and State regulatory actions; costs of construction; operating restrictions; increased cost and construction delays attributable to environmental regulations; nuclear decommissioning and the availability of reprocessing and storage facilities for spent nuclear fuel; licensing and regulatory approval necessary for nuclear and other operating stations; market risk; and credit market concerns. PSEG and PSE&G undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors pursuant to the Act should not be construed as exhaustive or as any admission regarding the adequacy of disclosures made by PSEG and PSE&G prior to the effective date of the Act. ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK Commodities The availability and price of energy commodities are subject to fluctuations from factors such as weather, environmental policies, changes in demand, changes in supply and state and Federal regulatory policies. To reduce price risk caused by market fluctuations, PSE&G enters into physical forward and options contracts and financial derivatives including forwards, futures, swaps and options with approved counterparties, to hedge its anticipated demand. These contracts, in conjunction with owned electric generating capacity, are designed to cover estimated electric and gas customer commitments. Gains and losses resulting from physical forward and options contracts and financial derivatives are recognized as a component of fuel revenue and expense upon maturity of these contracts. Additionally, PSE&G enters into physical forward and options contracts that are speculative in nature which are immaterial to PSE&G's market portfolio and do not have a material impact on PSE&G's financial condition, results of operations and net cash flows. PSE&G uses a value-at-risk model to assess the market risk of its commodity business. This model includes fixed price sales commitments, owned generation, native load requirements, physical contracts and financial derivative instruments. Value-at-risk represents the potential gains or losses for instruments or portfolios due to changes in market factors, for a specified time period and confidence level. PSE&G estimates value-at-risk across its commodity business using a model with historical volatilities and correlations. The measured value-at-risk using a variance/co-variance model with a 97.5 percent confidence level and assuming a one week horizon at June 30, 1998 was approximately $18 million. PSE&G's calculated value-at-risk exposure represents an estimate of potential net losses that could be recognized on its portfolio of physical and financial derivative instruments assuming historical movements in future market rates. These estimates, however, are not necessarily indicative of actual results which may occur, since actual future gains and losses will differ from those historical estimates based upon actual fluctuations in market rates, operating exposures, and the timing thereof, and changes in PSE&G's portfolio of hedging instruments during the year. PSE&G is generally in a short (or deficit) position when comparing average on-peak demand to its average expected economic generating capability. As a result of unseasonably warm weather increasing the demand for electricity, coupled with scheduled and unscheduled generating plant outages in the Midwest in June 1998, forward prices of electricity rose to unprecedented high levels for the summer months of 1998 and 1999. In addition, the volatility factor for those months increased sharply. The value-at-risk at June 30, 1998 increased by approximately $11 million from December 31, 1997 due to the large net long (or surplus) position (created by anticipated economic generation) multiplied by the increased volatility rate. As discussed in Results of Operations of Item 2. Management's Discussion and Analysis, energy trading operations at PSE&G positively impacted the results of operations for the six months ended June 30, 1998. Other utilities and power marketers have experienced significant losses in their energy trading operations during that period. These losses were primarily attributable to counterparty defaults as a result of extreme market volatility, as noted above. PSEG is exposed to credit losses in the event of non-performance or non-payment by counterparties. PSEG has a Risk Management Committee made up of executive officers and an independent risk oversight function to enhance its risk management practices. PSEG also has a credit management process which is used to assess, monitor and mitigate counterparty exposure for PSE&G and Energy Holdings. In the event of nonperformance or nonpayment by a major counterparty, there may be a material adverse impact on PSEG's and PSE&G's financial conditions, results of operations and net cash flows. There are no other material changes in or additions to the information reported in the PSEG and the PSE&G 1997 Annual Report on Form 10-K regarding qualitative and quantitative disclosures about market risk of PSEG, PSE&G and their subsidiaries. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED -------------------------------------------- PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Certain information reported under Item 3 of Part I of Public Service Enterprise Group Incorporated's (PSEG) and Public Service Electric and Gas Company's (PSE&G) 1997 Annual Report on Form 10-K and the Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 is updated below. (1) Form 10-K, Pages 19-20. As previously reported, PSE&G has been named as a potentially responsible party and alleged to be liable for contamination at the Metal Bank Cottman Avenue Superfund Site, a former non-ferrous scrap reclamation facility located in Philadelphia, Pennsylvania. PSE&G estimates that its share of the cost of performing the remedy selected by the U.S. Environmental Protection Agency (EPA) could be $4 to $8 million. On June 26, 1998, EPA Region III issued an Administrative Order For Remedial Design And Remedial Action, Docket No. III-98-082-DC, to thirteen Respondents including PSE&G, other utilities, and other persons and entities, ordering the Respondents to implement the remedy selected in the Record of Decision (ROD) issued by EPA Region III in December, 1997. Additionally, with respect to this site, on July 1, 1998, the United States of America moved in the matter entitled United States of America, et. al., v. Union Corporation, et. al., Civil Action No. 80-1589, United States District Court for the Eastern District of Pennsylvania, seeking leave of court to file an amended complaint adding claims under the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA). PSE&G and one other utility are third party defendants in the foregoing captioned matter. On July 28, 1998, PSE&G and seven other utilities named as Respondents in the above-referenced Administrative Order filed with EPA Region III a Notice of Intent to Comply With Administrative Order for Remedial Design and Remedial Action, Metal Bank Cottman Avenue Site, Docket No. III-98-082-DC. (2)Form 10-K, Page 27 and March 31, 1998 Form 10-Q, Page 24. As previously reported, in October 1995, PSEG received a letter from a representative of a purported shareholder demanding that it commence legal action against certain of its officers and directors with regard to nuclear operations of Salem and Hope Creek Nuclear Generating Stations (Salem and Hope Creek). The Board of Directors promptly commenced an investigation and advised the purported shareholder thereof. While the investigation was pending, the purported shareholder nevertheless commenced, by complaint filed in December 1995, a shareholder derivative action against the then incumbent directors, except Dr. Remick. Similar derivative complaints were filed by two profit sharing plans and one individual in February and March 1996 against Messrs. Ferland, Codey, Eliason and others. On March 19, 1996, the Board's investigation was concluded, and the Board determined that this litigation should not have been instituted and should be terminated. On July 3, 1996, another individual purported shareholder filed a similar complaint naming the same defendants as the first derivative lawsuit. The four complaints generally seek recovery of damages for alleged losses purportedly arising out of PSE&G's operation of Salem and Hope Creek, together with certain other relief, including removal of certain executive officers of PSE&G and PSEG and certain changes in the composition of PSEG's Board of Directors. On August 21, 1996, all defendants filed motions to dismiss all four derivative actions, which motions were denied and attempts to appeal were unsuccessful. Pursuant to a Court Order, on December 31, 1997, the defendants filed motions for summary judgment to dismiss two of the cases. In one of the other two cases, separate motions for partial and complete summary judgment were filed by the defendants on April 1, 1998. In the fourth case, on April 1, 1998 the defendants filed a motion for partial summary judgment. On May 21, 1998, the defendants filed additional motions for complete summary judgment in the third and fourth cases. All of these motions are pending. By stipulation filed on June 15, 1998, the individual plaintiff in the action filed in March 1996 was voluntarily dismissed as a plaintiff in the action. The outcome of these matters cannot be predicted. (3)Form 10-K, Page 45. As previously reported, in October 1997, Old Dominion Electric Cooperative (ODEC) filed a complaint at the Federal Energy Regulatory Commission (FERC) seeking to modify its 1992 agreement with PSE&G for a ten year sale of 150 megawatts of capacity and energy. On August 4, 1998, FERC dismissed ODEC's complaint, determining that certain issues relating to rate "pancaking" for transmission were more appropriately addressed in the pending FERC docket relating to the PJM Interconnection and that ODEC had failed to show it was entitled to relief on the remaining issues. PSE&G cannot predict whether ODEC will appeal this ruling or the final outcome of these proceedings. New Matter On June 25, 1998, a complaint was filed against the directors of PSEG, and PSEG as a nominal defendant, by the same purported shareholder of PSEG who instituted the December 1995 shareholder derivative suit, alleging that the 1996, 1997 and 1998 proxy statements provided to shareholders of PSEG were false and misleading by reason, among other things, of failure to disclose certain material facts relating to (i) the controls over and oversight of PSEG's nuclear operations, (ii) the condition of problems at and reserves with respect to PSEG's nuclear operations, (iii) a demand letter relating to an earlier shareholder derivative suit, (iv) PSEG's liabilities to the Salem co-owners as a result of the shutdown of the Salem plants and (v) a shareholder proposal relating to operations of Salem 1 and 2 which was voted upon at the 1998 annual meeting of shareholders. The complaint seeks to have declared illegal the 1996, 1997 and 1998 elections of directors of PSEG, the vote upon a stockholder proposal at the 1998 annual meeting, ratification of the selection of Deloitte & Touche as PSEG's auditors at those annual meetings, requiring PSEG to conduct a special meeting of shareholders providing for election of directors following timely dissemination of a proxy statement approved by the court hearing this matter, which will include as nominees for election as directors persons having no previous relationship with PSEG or the current directors and other relief. PSEG is currently reviewing the complaint. PSEG cannot predict the outcome of this matter. G.E. Stricklin v. E. James Ferland, et al, United States District Court for the Eastern District of Pennsylvania, Civil Action No. 98-3279. In addition, see the following at the pages hereof indicated: (1)Pages 9 and 10. Proceedings before the New Jersey Board of Public Utilities (BPU) in the matter of the Energy Master Plan Phase II Proceeding to investigate the future structure of the Electric Power Industry, Docket Nos. EX94120585Y, EO97070462 and EO97070463. (2)Page 9. Proceeding before the BPU in the Matter of the Board's Determination a Management Audit be Performed on PSE&G, Docket No. EA97060397. (3)Page 10. Proceeding before the BPU relating to PSE&G's Levelized Gas Adjustment Clause (LGAC) filed on November 14, 1997, Docket No. GR97110839. (4)Page 11. Proceeding before the Superior Court of New Jersey, Appellate Division in the matter of the motion of PSE&G to increase the level of the Electric Demand Side Adjustment Factor, Appellate Docket No. A-005257-97T2. (5)Page 11. Proceedings before the BPU relating to the Electric Levelized Energy Adjustment Clause (LEAC) rate increase to recover Demand Side Management (DSM) costs, Docket No. ER97020101. (6)Page 11. Proceedings before the BPU in the Matter of the Electric Restructuring Plans Filed by Atlantic City Electric Company, Jersey Central Power & Light Company, D/B/A GPU Energy, Public Service Electric and Gas Company, and Rockland Electric Company - General Auction Standards and Review Criteria, Order Adopting Auction Standards, Docket Nos. EX94120585Y, EO97070457, EO97070460, EO97070463, and EO97070466. (7)Page 24. Proceedings before the Federal Energy Regulatory Commission (FERC) relating to competition and electric wholesale power markets. (Inquiry Concerning the Pricing Policy for Transmission Services Provided by Utilities Under the Federal Power Act, Docket No. RM93-19.) (8)Page 24. Proceedings before the United States Court of Appeals, District of Columbia Circuit, in the matter of appeal of FERC Orders No. 888, 888A and 888B. (Transmission Access Policy Study Group v. Federal Energy Regulatory Commission, United States Court of Appeals in the District of Columbia Circuit, Docket No. 97-1715.) (9)Page 24. Proceeding before FERC relating to the development by PSE&G and other regional transmission owners in PJM of a new transmission service tariff and an Independent System Operator, FERC Docket Nos. OA97-261-000, et. al. (10) Page 29. Proceedings before the United States Court of Appeals, District of Columbia Circuit, in the matter of the DOE's unconditional obligation to begin spent fuel acceptance by January 31, 1998, Northern States Power v. Department of Energy, Docket No. 97-1064. (11) Page 30. Proceedings before FERC relating to a declaratory judgment action challenging PSE&G's interpretation of the capacity release rules, Texas Eastern Transmission Corporation, FERC Docket No. RP98-83-000. ITEM 5. OTHER INFORMATION Certain information reported under PSEG's and PSE&G's 1997 Annual and March 31, 1998 Quarterly Report to the SEC is updated below. References are to the related pages of the Form 10-K and the Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 as printed and distributed. Discretionary Proxy Voting Authority New Matter The SEC has recently amended its proxy rules regarding use of discretionary voting authority with respect to certain shareholder proposals. If PSEG is not notified by January 23, 1999 of any proposal intended to be presented for consideration at the 1999 Annual Meeting of Stockholders, then the proxies named by PSEG management with respect to the meeting shall have discretionary voting authority with respect to such proposal if presented at the meeting. Credit Ratings Form 10-K, Page 5 During the second quarter of 1998, Standard and Poor's, Moody's and Duff and Phelps reconfirmed the credit ratings for PSEG and PSE&G as disclosed in the 1997 Form 10-K. Additionally, Moody's changed its outlook from negative to stable. Nuclear Fuel Disposal Form 10-K, Page 12 As previously reported, in accordance with the Nuclear Waste Policy Act (NWPA), PSE&G has entered into contracts with the Department of Energy (DOE) for the disposal of spent nuclear fuel. Payments made to the DOE for disposal costs are based on nuclear generation and are included in Interchanged Power and Fuel for Electric Generation in the Statements of Income. These costs are being recovered through the LEAC (see Note 2. Rate Matters of Notes). DOE construction of a permanent disposal facility has not begun and DOE has announced that it does not expect a facility to be available until 2010 at the earliest. Accordingly, legislation which would have the DOE establish a centralized interim spent fuel storage facility has been introduced in Congress. In cases brought by PSE&G, 40 other utilities and many state and local governments, the United States Court of Appeals for the District of Columbia Circuit reaffirmed DOE's unconditional obligation to begin spent fuel acceptance by January 31, 1998. In November 1997, the court ruled that the utilities had fulfilled their obligations under their respective contracts with DOE by contributing to the Nuclear Waste Fund. The court further ruled that DOE's argument of unavoidable delay to meet its obligation was without merit. However, the court did not order DOE to commence spent fuel acceptance by January 31, 1998; instead, it decided that the standard contract provided a potentially adequate remedy in the form of payment of damages if DOE failed its obligations. In May 1998 the court denied a petition by PSE&G, 40 other utilities, and many states and state agencies to order DOE to begin spent fuel acceptance immediately and declare that the utilities are allowed to escrow their Nuclear Waste Fund fees until DOE begins spent fuel acceptance. Following this decision, DOE proposed a settlement of issues related to its failure to meet its obligation, which the utilities unanimously rejected. PSE&G is continuing to work with the utility industry to develop a methodology for determining damages incurred as a result of DOE's failure to meet its obligation and a strategy for its implementation. PSE&G is presently studying options to recover damages from DOE. No assurances can be given as to the ultimate availability of a disposal facility. Nuclear Operations Form 10-K, Page 8 On June 8, 1998, the NRC issued its latest Systematic Assessment of Licensee Performance (SALP) Report for Hope Creek for the period November 10, 1996 to May 16, 1998. In the areas of Operations, Maintenance and Engineering, Hope Creek was rated Category 2 or "good" performance. In the area of Plant Support, Hope Creek received a "superior", or Category 1, rating. The NRC noted improved performance in all functional areas during the period, with marked improvement in the Plant Support area, particularly concerning security and emergency preparedness. The NRC also noted that although several human performance issues associated with procedure violations, attention to detail and work controls were evident during the fall 1997 outage, operation since then has been nearly event-free. On July 29, 1998, the NRC notified PSE&G that Salem 1 and 2 had been removed from the NRC's Watch List (see Item 2. Management's Discussion and Analysis -- Nuclear Operations). Form 10-K, Page 10 PECO Energy has advised PSE&G that the NRC held a predecisional enforcement conference on May 21, 1998 to discuss two apparent violations concerning failure to maintain the operability of a Peach Bottom Unit 3 emergency core cooling system pump. On June 11, 1998, the NRC issued an aggregate Level III violation and a civil penalty of $55,000. PECO will not dispute the violation. Low Level Radioactive Waste (LLRW) Form 10-K, Page 12 and March 31, 1998 Form 10-Q, Page 27 As a by-product of their operations, nuclear generating units, including those in which PSE&G owns an interest, produce LLRW. Such wastes include paper, plastics, protective clothing, water purification materials and other materials. LLRW materials are accumulated on site and disposed of at licensed permanent disposal facilities in Barnwell, South Carolina and Clive, Utah. PECO Energy has advised PSE&G that on June 18, 1998, the Appalachian States LLRW Compact Commission unanimously agreed to suspend efforts to site a radwaste storage facility in Pennsylvania. The Secretary of the Pennsylvania Department of Environmental Protection had suggested ending the search due to the declining amounts of radwaste produced by hospitals, nuclear power plants and research facilities. The other compact members (Delaware, Maryland and West Virginia) have asked Pennsylvania to make provisions to resume the search if conditions change. Other State Regulatory Matters Form 10-K, Page 4 and March 31, 1998 Form 10-Q, Page 27 As previously reported, on December 3, 1997 one of the interstate pipeline companies from which PSE&G obtains service filed a declaratory judgment action with FERC challenging PSE&G's interpretation of the capacity release rules. Under the interpretation proposed by the interstate pipeline company, PSE&G would be required to guarantee the performance of Public Service Energy Trading Company (PSETC) under the transferred agreements. PSE&G disagreed with these claims and filed a protest challenging the December 3, 1997 filing. On February 11, 1998, FERC ruled in favor of the interstate pipeline company finding that it was not unreasonable for the pipeline company to refuse to discharge PSE&G under the circumstances addressed in the order. On April 29, 1998, FERC issued an order on rehearing in which it denied PSE&G's request for a rehearing. On June 26, 1998, PSE&G filed a petition for review of FERC's order with the U.S. Court of Appeals, District of Columbia Circuit. Air Pollution Control Form 10-K, Page 15 As previously reported, in September 1997, the NJDEP proposed regulations implementing a memorandum of understanding among 11 Northeastern states and the District of Columbia, establishing a regional plan for reducing NOx emissions from utility and large industrial boilers. In June 1998, NJDEP adopted final regulations implementing a NOx budget program and establishing the formulas for NOx allocations. The extent of investment in control technologies or operational changes required to comply with these regulations will be directly related to the number of allowances PSE&G receives. PSE&G does not expect to receive its final NOx budget allocation under the rule until early 1999 and thus cannot access the potential costs at this time, but such costs could be material. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) A listing of exhibits being filed with this document is as follows: PSEG - ---------------------- Exhibit Document Number - ---------------------- 3 Amended and Restated Trust Agreement for Enterprise Capital Trust II 4a First Supplemental Indenture to Indenture dated as of January 1, 1998 between Public Service Enterprise Group Incorporated and First Union National Bank, as Trustee, dated June 1, 1998 providing for the issuance of Floating Rate Deferrable Interest Subordinated Debentures, Series B (relating to Trust Preferred Securities) 4b Second Supplemental Indenture to Indenture dated as of January 1, 1998 between Public Service Enterprise Group Incorporated and First Union National Bank, as Trustee, dated July 1, 1998 providing for the issuance of Deferrable Interest Subordinated Debentures, Series C (relating to Trust Preferred Securities) 10 Employment Agreement with E. James Ferland, dated June 16, 1998 12 Computation of Ratios of Earnings to Fixed Charges (PSEG) 27(A) Financial Data Schedule (PSEG) PSE&G - ---------------------- Exhibit Document Number - ---------------------- 10 Employment Agreement with E. James Ferland, dated June 16, 1998 12(A) Computation of Ratios of Earnings to Fixed Charges (PSE&G) 12(B) Computation of Ratios of Earnings to Fixed Charges plus Preferred Stock Dividend Requirements (PSE&G) 27(B) Financial Data Schedule (PSE&G) (B) Reports on Form 8K: None. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED -------------------------------------------- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused these reports to be signed on their respective behalf by the undersigned thereunto duly authorized. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED PUBLIC SERVICE ELECTRIC AND GAS COMPANY (Registrants) By: PATRICIA A. RADO ---------------- Patricia A. Rado Vice President and Controller (Principal Accounting Officer) Date: August 14, 1998 EX-3 2 TRUST AGREEMENT Amended and Restated Trust Agreement for Enterprise Capital Trust II among PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED (as Depositor) FIRST UNION NATIONAL BANK (as Property Trustee) FIRST UNION BANK OF DELAWARE (as Delaware Trustee) and THE ADMINISTRATIVE TRUSTEE NAMED HEREIN Dated as of June 26, 1998 TABLE OF CONTENTS Page ARTICLE I Defined Terms Section 1.01. Definitions............................................... 1 ARTICLE II Continuation of the Trust Section 2.01. Name...................................................... 9 Section 2.02. Office of the Delaware Trustee; Principal Place of Business........................................... 9 Section 2.03. Initial Contribution of Trust Property; Expenses of the Trust............................................... 9 Section 2.04. Issuance of the Trust Securities.......................... 10 Section 2.05. Purchase of Debentures.................................... 10 Section 2.06. Declaration of Trust...................................... 11 Section 2.07. Authorization to Enter into Certain Transactions.......... 11 Section 2.08. Assets of Trust........................................... 14 Section 2.09. Title to Trust Property................................... 14 ARTICLE III Payment Account Section 3.01. Payment Account........................................... 15 ARTICLE IV Distributions; Redemption Section 4.01. Distributions............................................. 15 Section 4.02. Redemption................................................ 18 Section 4.03. Subordination of Common Securities........................ 20 Section 4.04. Payment Procedures........................................ 21 Section 4.05. Tax Returns and Reports................................... 21 Section 4.06. Payments under Indenture...................................22 ARTICLE V Trust Securities Certificates Section 5.01. Initial Ownership......................................... 22 Section 5.02. The Trust Securities Certificates......................... 22 Section 5.03. Delivery of Trust Securities Certificates................. 22 Section 5.04. Registration of Transfer and Exchange of Preferred Securities Certificates............................ 23 Section 5.05. Mutilated, Destroyed, Lost or Stolen Trust Securities Certificates....................................... 23 Section 5.06. Persons Deemed Securityholders............................ 24 Section 5.07. Access to List of Securityholders' Names and Addresses.... 24 Section 5.08. Maintenance of Office or Agency........................... 25 Section 5.09. Appointment of Paying Agent............................... 25 Section 5.10. No Transfer of Common Securities by Depositor............. 26 Section 5.11. Book-Entry Preferred Securities Certificates; Common Securities Certificate............................. 26 Section 5.12. Definitive Preferred Securities Certificates.............. 26 Section 5.13. Rights of Securityholders................................. 26 ARTICLE VI Acts of Securityholders; Meetings; Voting Section 6.01. Limitations on Voting Rights.............................. 27 Section 6.02. Notice of Meetings........................................ 28 Section 6.03. Meetings of Preferred Securityholders..................... 28 Section 6.04. Voting Rights............................................. 29 Section 6.05. Proxies, etc.............................................. 29 Section 6.06. Securityholder Action by Written Consent.................. 29 Section 6.07. Record Date for Voting and Other Purposes................. 29 Section 6.08. Acts of Securityholders................................... 29 Section 6.09. Inspection of Records..................................... 30 ARTICLE VII The Trustees Section 7.01. Certain Duties and Responsibilities....................... 31 Section 7.02. Notice of Defaults; Direct Action by Securityholders...... 32 Section 7.03. Certain Rights of Property Trustee........................ 32 Section 7.04. Not Responsible for Recitals or Issuance of Securities.... 34 Section 7.05. May Hold Securities....................................... 34 Section 7.06. Compensation; Indemnity; Fees............................. 34 Section 7.07. Corporate Property Trustee Required; Eligibility of Trustees........................................... 35 Section 7.08. Conflicting Interests..................................... 35 Section 7.09. Co-Trustees and Separate Trustee.......................... 35 Section 7.10. Resignation and Removal; Appointment of Successor......... 37 Section 7.11. Acceptance of Appointment by Successor.................... 38 Section 7.12. Merger, Conversion, Consolidation or Succession to Business........................................... 39 Section 7.13. Preferential Collection of Claims Against Depositor or Trust.............................................. 39 Section 7.14. Reports by Property Trustee............................... 39 Section 7.15. Reports to the Property Trustee........................... 40 Section 7.16. Evidence of Compliance with Conditions Precedent.......... 40 Section 7.17. Statements Required in Officer's Certificate and Opinion of Counsel......................................... 40 Section 7.18. Number of Trustees........................................ 40 Section 7.19. Delegation of Power....................................... 41 Section 7.20. Voting.................................................... 41 ARTICLE VIII Dissolution and Liquidation Section 8.01. Dissolution Upon Expiration Date.......................... 41 Section 8.02. Early Dissolution......................................... 42 Section 8.03. Dissolution............................................... 42 Section 8.04. Liquidation............................................... 42 ARTICLE IX Mergers, Etc. Section 9.01. Mergers, Consolidations, Amalgamations or Replacements of the Trust.......................................... 44 ARTICLE X Miscellaneous Provisions Section 10.01. Limitation of Rights of Securityholders................... 45 Section 10.02. Amendment................................................. 45 Section 10.03. Severability.............................................. 47 Section 10.04. Governing Law............................................. 47 Section 10.05. Payments Due on Non-Business Day.......................... 47 Section 10.06. Successors and Assigns.................................... 47 Section 10.07. Headings.................................................. 47 Section 10.08. Reports, Notices and Demands.............................. 47 Section 10.09. Agreement Not to Petition................................. 48 Section 10.10. Trust Indenture Act; Conflict with Trust Indenture Act.... 48 Section 10.11. Acceptance of Terms of Trust Agreement, Guarantee and Indenture.......................................... 49 Enterprise Capital Trust II Certain Sections of this Trust Agreement relating to Sections 310 through 318 of the Trust Indenture Act of 1939 Trust Indenture Trust Agreement Act Section Section - --------------- -------------- ss. 310(a)(1)............................................................7.07 (a)(2)..........................................................7.07 (a)(3)..........................................................7.09 (a)(4)...................................................2.07(a)(ii) (b).............................................................7.08 ss. 311(a)...............................................................7.13 (b).............................................................7.13 ss. 312(a)...............................................................5.07 (b).............................................................5.07 (c).............................................................5.07 ss. 313(a)...............................................................7.14 (b).............................................................7.14 (c).............................................................7.14 (d).............................................................7.14 ss. 314(a)...............................................................7.15 (b)...................................................Not Applicable (c)(1)....................................................7.16, 7.17 (c)(2)....................................................7.16, 7.17 (c)(3)................................................Not Applicable (d)...................................................Not Applicable (e)............................................................ 7.17 ss. 315(a).....................................................7.01(a), 7.03(a) (b)......................................................7.02, 10.08 (c)..........................................................7.01(a) (d).......................................................7.01, 7.03 (e)...................................................Not Applicable ss. 316(a).....................................................Not Applicable (a)(1)(A).............................................Not Applicable (a)(1)(B).............................................Not Applicable (a)(2)................................................Not Applicable (b)...................................................Not Applicable (c)...................................................Not Applicable ss. 317(a)(1)..................................................Not Applicable (a)(2)................................................Not Applicable (b).............................................................5.09 ss. 318(a)..............................................................10.10 ------------------ Note: This reconciliation and tie sheet shall not, for any purpose, be deemed to be a part of the Trust Agreement. AMENDED AND RESTATED TRUST AGREEMENT of Enterprise Capital Trust II (the "Trust"), dated as of June 26, 1998 among (i) Public Service Enterprise Group Incorporated, a New Jersey corporation (the "Depositor"), (ii) First Union National Bank, a national banking association, as trustee (the "Property Trustee"), (iii) First Union Bank of Delaware, whose address in Delaware is 1225 King Street, Wilmington, Delaware 19801, as Delaware trustee (the "Delaware Trustee"), (iv) Fred F. Saunders, an individual whose address is c/o Public Service Electric and Gas Company, 80 Park Plaza, P.O. Box 570, Newark, New Jersey 07101 (the "Administrative Trustee") (the Property Trustee, the Delaware Trustee and the Administrative Trustee are referred to collectively as the "Trustees"), and (v) the several Holders, as hereinafter defined. WITNESSETH: WHEREAS, the Depositor, the Property Trustee, the Delaware Trustee and the Administrative Trustee have heretofore duly declared and established a business trust pursuant to the Delaware Business Trust Act by entering into a Trust Agreement, dated as of December 22, 1997 (the "Original Trust Agreement"), and by executing and filing with the Secretary of State of the State of Delaware a Certificate of Trust on December 22, 1997, a form of which is attached hereto as Exhibit A; and WHEREAS, the Depositor, the Property Trustee, the Delaware Trustee and the Administrative Trustee desire to amend and restate the Original Trust Agreement in its entirety as set forth herein to provide for, among other things, (i) the issuance of the Common Securities, as hereinafter defined, by the Trust to the Depositor, (ii) the issuance and sale of the Preferred Securities, as hereinafter defined, by the Trust pursuant to the Underwriting Agreement, as hereinafter defined, and (iii) the acquisition by the Trust from the Depositor of the Debentures, as hereinafter defined. NOW, THEREFORE, in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, each party, for the benefit of the other party and for the benefit of the Securityholders, as hereinafter defined, hereby amends and restates the Original Trust Agreement in its entirety and agrees as follows: ARTICLE I Defined Terms Section 1.01. Definitions. For all purposes of this Trust Agreement, except as otherwise expressly provided or unless the context otherwise requires: (a) each term defined in this Article I has the meaning assigned to it in this Article I and includes the plural as well as the singular; (b) each of the other terms used herein that is defined in the Trust Indenture Act, either directly or by reference therein, has the meaning assigned to it therein; (c) unless the context otherwise requires, any reference to an "Article" or a "Section" refers to an Article or a Section, as the case may be, of this Trust Agreement; and (d) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Trust Agreement as a whole and not to any particular Article, Section or other subdivision. "Act" has the meaning specified in Section 6.08. "Administrative Trustee" means the individual identified as the "Administrative Trustee" in the preamble to this Trust Agreement, solely in his/her capacity as Administrative Trustee of the Trust and not in his/her individual capacity, or such Administrative Trustee's successor in interest in such capacity, or any successor trustee appointed as herein provided. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Bankruptcy Event" means, with respect to any Person, the occurrence of any of the following events: (a) Such Person, pursuant to or within the meaning of any Bankruptcy Law: (i) commences a voluntary case or proceeding; (ii) consents to the entry of an order for relief against it in an involuntary case or proceeding; (iii)consents to the appointment of Custodian, as hereinafter defined, of it or for all or substantially all of its property, and such Custodian is not discharged within 60 days; (iv) makes a general assignment for the benefit of its creditors; or (v) admits in writing its inability to pay its debts generally as they become due; or (b) A court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (i) is for relief against such Person in an involuntary case or proceeding; (ii) appoints a Custodian of such Person for all or substantially all of its properties; or (iii) orders the liquidation of such Person. and in each case the order or decree remains unstayed and in effect for 60 days. "Bankruptcy Laws" means Title 11 of the United States Code, or similar federal or state law for the relief of debtors. "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator, custodian or similar official under any Bankruptcy Law. "Board Resolution" means (i) a copy of a resolution certified by the Secretary or an Assistant Secretary of the Depositor to have been duly adopted by the Depositor's Board of Directors or a committee established thereby and to be in full force and effect on the date of such certification or (ii) a certificate signed by the authorized officer or officers of the Depositor to whom the Depositor's Board of Directors or a committee established thereby has delegated its authority, and in each case, delivered to the Trustees. "Book-Entry Preferred Securities Certificates" means certificates representing Preferred Securities issued in global, fully registered form with the Clearing Agency as described in Section 5.11. "Business Day" means a day other than (a) a Saturday or Sunday, or (b) a day on which banking institutions in The City of New York or the State of New Jersey are authorized or required by law or executive order to close. "Certificate Depository Agreement" means the agreement among the Trust, the Property Trustee and The Depository Trust Company, as the initial Clearing Agency, dated as of the Closing Date, relating to the Book-Entry Preferred Securities Certificates, substantially in the form attached hereto as Exhibit B, as the same may be amended and supplemented from time to time. "Clearing Agency" means an organization registered as a "clearing agency" pursuant to Section 17A of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. The Depository Trust Company will be the initial Clearing Agency. "Closing Date" means the Time of Delivery as defined in the Underwriting Agreement, which date is also the date of execution and delivery of this Trust Agreement. "Code" means the Internal Revenue Code of 1986, as amended. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, as amended, or, if at any time after the execution of this Trust Agreement such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Security" means an undivided beneficial interest in the assets of the Trust, having a Liquidation Amount of $1,000 and having the rights provided therefor in this Trust Agreement, including the right to receive Distributions and a Liquidation Distribution as provided herein. "Common Securities Certificate" means a certificate evidencing ownership of Common Securities, substantially in the form attached hereto as Exhibit C. "Corporate Trust Office" means the principal corporate office of the Property Trustee located in the State of New Jersey which at the date hereof is 765 Broad Street, Newark, New Jersey 07107. "Creditor" has the meaning specified in Section 2.03. "Debenture Event of Default" means an "Event of Default" as defined in the Indenture with respect to the Debentures. "Debenture Redemption Date" means "Redemption Date" as defined in the Indenture with respect to the Debentures. "Debenture Trustee" means First Union National Bank, a national banking association, in its capacity as trustee under the Indenture, or any successor thereto appointed in accordance with the terms and provisions of the Indenture. "Debentures" means the Depositor's Floating Rate Deferrable Interest Subordinated Debentures, Series B, issued pursuant to the Indenture. "Definitive Preferred Securities Certificates" means certificates representing Preferred Securities issued in certificated, fully registered form as described in Section 5.12. "Delaware Business Trust Act" means Chapter 38 of Title 12 of the Delaware Code, 12 Del. C. ss. 3801, et seq., as it may be amended from time to time. "Delaware Trustee" means the entity identified as the "Delaware Trustee" in the preamble to this Trust Agreement solely in its capacity as Delaware Trustee of the Trust and not in its individual capacity, or its successor in interest in such capacity, or any successor trustee appointed as herein provided. "Depositor" has the meaning specified in the preamble to this Trust Agreement. "Distribution Date" has the meaning specified in Section 4.01(a). "Distributions" means amounts payable in respect of the Trust Securities as provided in Section 4.01. "Event of Default" means the occurrence of a Debenture Event of Default (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body). "Expiration Date" has the meaning specified in Section 8.01. "Extension Period" means the period or periods in which, pursuant to the Indenture, payments of interest on the Debentures are deferred by extending the interest payment periods thereof. "Guarantee" means the Guarantee Agreement executed and delivered by the Depositor to First Union National Bank, a national banking association, as trustee thereunder, contemporaneously with the execution and delivery of this Trust Agreement, for the benefit of the Holders of the Preferred Securities, as amended from time to time. "Indenture" means the Indenture, dated as of January 1, 1998 between the Depositor and the Debenture Trustee, as trustee thereunder, as amended on June 1, 1998 and as amended or supplemented from time to time. "Lien" means any lien, pledge, charge, encumbrance, mortgage, deed of trust, adverse ownership interest, hypothecation, assignment, security interest or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever. "Like Amount" means (a) with respect to a redemption of Trust Securities, Trust Securities having an aggregate Liquidation Amount equal to the principal amount of Debentures to be paid in accordance with the Indenture and (b) with respect to a distribution of Debentures to Holders of Trust Securities in connection with a dissolution and liquidation of the Trust, Debentures having a principal amount equal to the aggregate Liquidation Amount of the Trust Securities in exchange for which such Debentures are distributed. "Liquidation Amount" means the stated amount of $1,000 per Trust Security. "Liquidation Date" means the date on which Debentures are to be distributed to Holders of Trust Securities in connection with a dissolution and liquidation of the Trust pursuant to Section 8.04(a). "Liquidation Distribution" has the meaning specified in Section 8.04(d). "1940 Act" means the Investment Company Act of 1940, as amended. "Officers' Certificate" means a certificate signed by the Chairman, the President, any Vice President, the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of the Depositor. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Trust, the Property Trustee or the Depositor or an Affiliate of the Depositor, but not an employee of any thereof, and who shall be acceptable to the Property Trustee. "Original Trust Agreement" has the meaning specified in the recitals to this Trust Agreement. "Outstanding", when used with respect to Trust Securities, means, as of the date of determination, all Trust Securities theretofore executed and delivered under this Trust Agreement, except: (a) Trust Securities theretofore canceled by the Administrative Trustee or delivered to the Administrative Trustee for cancellation; (b) Trust Securities for which redemption money in the necessary amount has been theretofore deposited with the Property Trustee or any Paying Agent for the Holders of such Trust Securities; provided that, if such Trust Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Trust Agreement; (c) Trust Securities which have been paid or in exchange for or in lieu of which other Trust Securities have been executed and delivered pursuant to Section 5.05, other than any such Trust Securities in respect of which there shall have been presented to the Property Trustee proof satisfactory to it that such Trust Securities are held by a bona fide purchaser; and (d) as provided in Section 8.04(c); provided, however, that in determining whether the Holders of the requisite Liquidation Amount of the Outstanding Preferred Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Preferred Securities owned by the Depositor, any Trustee or any Affiliate of the Depositor or any Trustee shall be disregarded and deemed not to be Outstanding, except that (a) in determining whether any Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Preferred Securities which such Trustee actually knows to be so owned shall be so disregarded and (b) the foregoing shall not apply at any time when all of the Outstanding Preferred Securities are owned by the Depositor, one or more of the Trustees and/or any such Affiliate. Preferred Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Administrative Trustee the pledgee's right so to act with respect to such Preferred Securities and that the pledgee is not the Depositor or any Affiliate of the Depositor. "Paying Agent" means the Property Trustee and any co-paying agent appointed pursuant to Section 5.09. "Payment Account" means a segregated non-interest-bearing corporate trust account maintained by the Property Trustee in its trust department for the benefit of the Securityholders in which all amounts paid to the Property Trustee in respect of the Debentures or the Guarantee will be held and from which the Property Trustee or such other Paying Agent shall make payments to the Securityholders in accordance with Article 4. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Preferred Security" means a Floating Rate Capital Security, Series B, issued by the Trust, and having an undivided beneficial interest in the assets of the Trust, having a Liquidation Amount of $1,000 and having rights provided therefor in this Trust Agreement, including the right to receive Distributions and a Liquidation Distribution as provided herein. "Preferred Securities Certificate" means a certificate evidencing ownership of one or more Preferred Securities, substantially in the form attached hereto as Exhibit D. "Property Trustee" means the commercial bank or trust company identified as the "Property Trustee" in the preamble to this Trust Agreement solely in its capacity as Property Trustee of the Trust and not in its individual capacity, or its successor in interest in such capacity, or any successor property trustee appointed as herein provided. "Redemption Date" means, with respect to any Trust Security to be redeemed, the date fixed for such redemption by or pursuant to this Trust Agreement; provided that each Debenture Redemption Date and the stated maturity of the Debentures shall be a Redemption Date for a Like Amount of Trust Securities. "Redemption Price" means, with respect to any Trust Security, the Liquidation Amount of such Trust Security, plus accumulated and unpaid Distributions thereon to the Redemption Date. "Securities Register" and "Securities Registrar" have the respective meanings specified in Section 5.04. "Securityholder" or "Holder" means a Person in whose name a Trust Security or Securities is registered in the Securities Register; any such Person is a beneficial owner within the meaning of the Delaware Business Trust Act. "Successor Securities" has the meaning specified in Section 9.01. "Trust" means the Delaware business trust created and continued hereby and identified on the cover page to this Trust Agreement. "Trust Agreement" means this Amended and Restated Trust Agreement, as the same may be modified, amended or supplemented in accordance with the applicable provisions hereof, including all exhibits hereto, including, for all purposes of this Trust Agreement and any such modification, amendment or supplement, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this Trust Agreement and any such modification, amendment or supplement, respectively. "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force on the date on which this Trust Agreement was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "Trust Property" means (a) the Debentures, (b) any cash on deposit in, or owing to, the Payment Account and (c) all proceeds and rights in respect of the foregoing and any other property and assets for the time being held or deemed to be held by the Property Trustee pursuant to the trusts of this Trust Agreement. "Trust Security" means any one of the Common Securities or the Preferred Securities. "Trust Securities Certificate" means any one of the Common Securities Certificates or the Preferred Securities Certificates. "Underwriting Agreement" means the Underwriting Agreement, dated June 23, 1998 among the Trust, the Depositor and the Underwriters named therein. ARTICLE II Continuation of the Trust Section 2.01. Name. The Trust continued hereby shall be known as "Enterprise Capital Trust II" as such name may be modified from time to time by the Administrative Trustee following written notice to the Holders of Trust Securities and the other Trustees, in which name the Trustees may conduct the business of the Trust, make and execute contracts and other instruments on behalf of the Trust and sue and be sued. Section 2.02. Office of the Delaware Trustee; Principal Place of Business. The address of the Delaware Trustee in the State of Delaware is One Rodney Square, 920 King Street, Wilmington, Delaware 19801 or such other address in the State of Delaware as the Delaware Trustee may designate by written notice to the Securityholders and the Depositor. The principal place of business of the Trust is 80 Park Plaza, Newark, New Jersey 07101. Section 2.03. Initial Contribution of Trust Property; Expenses of the Trust (a) The Property Trustee acknowledges receipt in trust from the Depositor in connection with the Original Trust Agreement of the sum of $10, which constituted the initial Trust Property. (b) The Depositor shall be responsible for and shall pay for all obligations (other than with respect to the Trust Securities) and all costs and expenses of the Trust (including, but not limited to, costs and expenses relating to the organization of the Trust, the issuance and sale of the Preferred Securities, the fees and expenses (including reasonable counsel fees and expenses) of the Trustees as provided in Section 7.06, the costs and expenses of accountants, attorneys, statistical or bookkeeping services, expenses for printing and engraving and computing or accounting equipment, Paying Agent(s), Securities Registrar, duplication, travel and telephone and other telecommunications expenses and costs and expenses incurred in connection with the disposition of Trust assets). (c) The Depositor will pay any and all taxes (other than United States withholding taxes attributable to the Trust or its assets) and all liabilities, costs and expenses with respect to such taxes of the Trust. (d) The Depositor's obligations under this Section 2.03 shall be for the benefit of, and shall be enforceable by, the Property Trustee and any Person to whom any such obligations, costs, expenses and taxes are owed (a "Creditor") whether or not such Creditor has received notice hereof. The Property Trustee and any such Creditor may enforce the Depositor's obligations under this Section 2.03 directly against the Depositor and the Depositor irrevocably waives any right or remedy to require that the Property Trustee or any such Creditor take any action against the Trust or any other Person before proceeding against the Depositor. The Depositor agrees to execute such additional agreements as may be necessary or desirable in order to give full effect to the provisions of this Section 2.03. (e) The Depositor shall make no claim upon the Trust Property for the payment of such expenses. Section 2.04. Issuance of the Trust Securities. The Depositor, on behalf of the Trust and pursuant to the Original Trust Agreement, executed and delivered the Underwriting Agreement. Contemporaneously with the execution and delivery of this Trust Agreement, the Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 5.02 and deliver to the Underwriters named in the Underwriting Agreement one or more Book-Entry Preferred Securities Certificates, registered in the name of the nominee of the initial Clearing Agency, representing 150,000 Preferred Securities having an aggregate Liquidation Amount of $150,000,000, against receipt by the Property Trustee of the aggregate purchase price of such Preferred Securities of $148,554,000, which amount the Administrative Trustee shall promptly deliver to the Property Trustee. Contemporaneously therewith, the Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 5.02 and deliver to the Depositor a Common Securities Certificate, registered in the name of the Depositor, representing 4,640 Common Securities having an aggregate Liquidation Amount of $4,640,000, and in satisfaction of the purchase price of such Common Securities the Depositor shall deliver to the Property Trustee the sum of $4,640,000. Section 2.05. Purchase of Debentures. Contemporaneously with the execution and delivery of this Trust Agreement (i) the Administrative Trustee, on behalf of the Trust, shall purchase $154,640,000 aggregate principal amount of Debentures from the Depositor, registered in the name of the Property Trustee and (ii) in satisfaction of the purchase price for such Debentures, the Property Trustee, on behalf of the Trust, shall deliver to the Depositor the sum of $153,194,000. Section 2.06. Declaration of Trust. The exclusive purposes and functions of the Trust are (a) to issue and sell Trust Securities and use the proceeds from such sale to acquire the Debentures, (b) to maintain the status of the Trust as a grantor trust for United States Federal income tax purposes, and (c) except as otherwise limited herein, to engage in only those activities necessary, convenient or incidental thereto. The Depositor hereby appoints the Trustees as trustees of the Trust, to have all the rights, powers and duties to the extent set forth herein, and the Trustees hereby accept such appointment. The Property Trustee hereby declares that it will hold the Trust Property in trust upon and subject to the conditions set forth herein for the benefit of the Securityholders. The Administrative Trustee shall have all rights, powers and duties set forth herein. The Delaware Trustee shall not be entitled to exercise any powers, nor shall the Delaware Trustee have any of the duties and responsibilities of the Property Trustee or the Administrative Trustee set forth herein. The Delaware Trustee shall be one of the Trustees of the Trust for the sole and limited purpose of fulfilling the requirements of Section 3807 of the Delaware Business Trust Act. Section 2.07. Authorization to Enter into Certain Transactions (a) The Trustees shall conduct the affairs of the Trust in accordance with the terms of this Trust Agreement. Subject to the limitations set forth in paragraph (b) of this Section, and in accordance with the following provisions (i) and (ii), the Trustees shall have the authority to enter into all transactions and agreements determined by the Trustees to be appropriate in exercising the authority, express or implied, otherwise granted to the Trustees under this Trust Agreement, and to perform all acts in furtherance thereof, including without limitation, the following: (i) As among the Trustees, the Administrative Trustee shall have the power and authority to act on behalf of the Trust with respect to the following matters: (A) executing and delivering the Trust Securities on behalf of the Trust; (B) causing the Trust to enter into, and executing, delivering and performing on behalf of the Trust, the Certificate Depository Agreement and such other agreements as may be necessary or desirable in connection with the purposes and function of the Trust, including the appointment of a successor depositary; (C) assisting in registering the Preferred Securities under the Securities Act of 1933, as amended, and under state securities or blue sky laws, and qualifying this Trust Agreement as a trust indenture under the Trust Indenture Act; (D) assisting in the listing of the Preferred Securities upon such securities exchange or exchanges as the Depositor shall determine and the registration of the Preferred Securities under the Securities Exchange Act of 1934, as amended, and the preparation and filing of all periodic and other reports and other documents pursuant to the foregoing; (E) to the extent provided in this Trust Agreement, terminating and liquidating the Trust and preparing, executing and filing the certificate of cancellation with the Secretary of State of the State of Delaware; (F) sending notices or assisting the Property Trustee in sending notices and other information regarding the Trust Securities and the Debentures to Securityholders in accordance with this Trust Agreement; and (G) taking any action incidental to the foregoing as the Administrative Trustee may from time to time determine is necessary or advisable to give effect to the terms of this Trust Agreement for the benefit of the Securityholders (without consideration of the effect of any such action on any particular Securityholder). (ii) As among the Trustees, the Property Trustee shall have the power, duty and authority to act on behalf of the Trust with respect to the following matters: (A) establishing and maintaining the Payment Account and appointing Paying Agents (subject to Section 5.09); (B) receiving payment of the purchase price of the Trust Securities; (C) receiving and holding the Debentures; (D) collecting interest and principal payments on the Debentures and depositing them in the Payment Account; (E) making Distributions and other payments to the Securityholders in respect of the Trust Securities; (F) exercising all of the rights, powers and privileges of a holder of the Debentures; (G) sending notices of defaults, redemptions, Extension Periods, liquidations and other information regarding the Trust Securities and the Debentures to the Securityholders in accordance with this Trust Agreement; (H) to the extent provided in this Trust Agreement, terminating and liquidating the Trust, including distributing the Trust Property in accordance with the terms of this Trust Agreement, and preparing, executing and filing the certificate of cancellation with the Secretary of State of the State of Delaware; (I) after an Event of Default, taking any action incidental to the foregoing as the Property Trustee may from time to time determine is necessary or advisable to give effect to the terms of this Trust Agreement and protect and conserve the Trust Property for the benefit of the Securityholders (without consideration of the effect of any such action on any particular Securityholder); and (J) registering transfers and exchanges of the Preferred Securities in accordance with this Trust Agreement (but only if at such time the Property Trustee shall be the Securities Registrar). (b) So long as this Trust Agreement remains in effect, the Trust (or the Trustees acting on behalf of the Trust) shall not undertake any business, activities or transaction except as expressly provided herein or contemplated hereby. In particular, the Trustees acting on behalf of the Trust shall not (i) acquire any assets or investments (other than the Debentures), reinvest the proceeds derived from investments, possess any power or otherwise act in such a way as to vary the Trust Property or engage in any activities not authorized by this Trust Agreement, (ii) sell, assign, transfer, exchange, mortgage, pledge, set-off or otherwise dispose of any of the Trust Property or interests therein, including to Securityholders, except as expressly provided herein, (iii) take any action that would cause the Trust to fail or cease to qualify as a grantor trust for United States Federal income tax purposes, (iv) incur any indebtedness for borrowed money or issue any other debt, (v) issue any securities or other evidences of beneficial ownership of, or beneficial interests in, the Trust other than the Trust Securities, or (vi) take or consent to any action that would result in the placement of a Lien on any of the Trust Property. The Administrative Trustee shall defend all claims and demands of all Persons at any time claiming any Lien on any of the Trust Property adverse to the interest of the Trust or the Securityholders in their capacity as Securityholders. (c) In connection with the issue and sale of the Preferred Securities, the Depositor shall have the right and responsibility to assist the Trust with respect to, or effect on behalf of the Trust, the following (and any actions taken by the Depositor in furtherance of the following prior to the date of this Trust Agreement are hereby ratified and confirmed in all respects): (i) preparing for filing with the Commission and executing on behalf of the Trust a registration statement on Form S-3 in relation to the Preferred Securities, including any amendments thereto; (ii) determining the States in which to take appropriate action to qualify or register for sale all or part of the Preferred Securities and doing any and all such acts, other than actions which must be taken by or on behalf of the Trust, and advising the Trustees of actions they must take on behalf of the Trust, and preparing for execution and filing any documents to be executed and filed by the Trust or on behalf of the Trust, as the Depositor deems necessary or advisable in order to comply with the applicable laws of any such States; (iii)preparing for filing and executing on behalf of the Trust an application to the New York Stock Exchange or any other national stock exchange or The Nasdaq National Market for listing upon notice of issuance of any Preferred Securities; (iv) preparing for filing with the Commission and executing on behalf of the Trust a registration statement on Form 8-A relating to the registration of the Preferred Securities under Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended, including any amendments thereto; (v) negotiating the terms of, and executing and delivering, the Underwriting Agreement providing for the sale of the Preferred Securities; and (vi) taking any other actions necessary or desirable to carry out any of the foregoing activities. (d) Notwithstanding anything herein to the contrary, the Administrative Trustee is authorized and directed to conduct the affairs of the Trust and to operate the Trust so that (i) the Trust will not be deemed to be an "investment company" required to be registered under the 1940 Act, or taxed as a corporation or a partnership for United States Federal income tax purposes (ii) the Trust will qualify as a grantor trust for United States Federal income tax purposes and (iii) the Debentures will be treated as indebtedness of the Depositor for United States Federal income tax purposes. In this connection, the Depositor and the Administrative Trustee are authorized to take any action, not inconsistent with applicable law, the Certificate of Trust, as amended from time to time, or this Trust Agreement, that each of the Depositor and the Administrative Trustee determines in their discretion to be necessary or desirable for such purposes. Section 2.08. Assets of Trust. The assets of the Trust shall consist of the Trust Property. Section 2.09. Title to Trust Property. Legal title to all Trust Property shall be vested at all times in the Property Trustee (in its capacity as such) and shall be held and administered by the Property Trustee for the benefit of the Securityholders in accordance with this Trust Agreement. ARTICLE III Payment Account Section 3.01. Payment Account (a) On or prior to the Closing Date, the Property Trustee shall establish the Payment Account. All monies and other property deposited or held from time to time in the Payment Account shall be held by the Property Trustee for the exclusive benefit of the Securityholders. The Property Trustee shall have exclusive control of the Payment Account for the purpose of making deposits in and withdrawals from the Payment Account in accordance with this Trust Agreement; provided that any Paying Agent shall have the right of withdrawal with respect to the Payment Account solely for the purpose of making the payments contemplated under Article 4. (b) The Property Trustee shall deposit in the Payment Account, promptly upon receipt, all payments of principal of or interest on the Debentures and any amounts paid to the Property Trustee pursuant to the Guarantee. Amounts held in the Payment Account shall not be invested pending distribution thereof. ARTICLE IV Distributions; Redemption Section 4.01. Distributions. (a) Distributions on the Trust Securities shall be cumulative, and will accumulate whether or not there are funds of the Trust available for the payment of Distributions. Distributions shall accumulate from June 26, 1998 and, except during an Extension Period for the Debentures pursuant to the Indenture, shall be payable quarterly in arrears and reset on March 31, June 30, September 30 and December 31 of each year, commencing on September 30, 1998. If any date on which Distributions are otherwise payable on the Trust Securities is not a Business Day, then the payment of such Distributions shall be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, payment of such Distributions shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date (each date on which Distributions are payable in accordance with this Section 4.01(a) is referred to as a "Distribution Date"). Except as otherwise permitted by Section 4.02(b)(v) hereof, Distributions in arrears after the quarterly payment date therefor shall accumulate additional Distributions (to the extent permitted by law) compounded quarterly at the Distribution Rate (as defined herein). The term "Distributions," as used herein, shall include any such additional Distributions. Within two Business Days after receipt by the Property Trustee of notice of an Extension Period pursuant to Section 4.01 of the Indenture, the Property Trustee shall give notice thereof to the Securityholders by first class mail, postage prepaid. (b) The Trust Securities represent undivided beneficial interests in the Trust Property, and, subject to Sections 4.03 and 4.06 hereof, all Distributions will be made pro rata on each of the Trust Securities. Distributions on the Trust Securities shall be at a floating rate per annum, reset quarterly, determined by reference to 3-Month LIBOR, as described herein, plus a margin of 1.22%. "3-Month LIBOR" means the London interbank offered rate for three-month U.S. dollar deposits and with respect to any Distribution Period will be calculated by First Union National Bank or any successor appointed by the Depositor as Calculation Agent, as permitted by the Indenture (the "Calculation Agent") as follows: (i) On the second Market Day (as defined below) preceding the commencement of such Distribution Period (each, a "Determination Date"), 3-Month LIBOR will be determined on the basis of the offered rate for deposits of not less than U.S. $1,000,000 for a period of three months (the "Index Maturity"), commencing on such Market Day, which appears on the display designated as Page 3750 on the Dow Jones Markets Limited (or such other page as may replace Page 3750 on that service (or any successor service) for the purpose of displaying London interbank offered rates of major banks) ("Telerate Page 3750") as of 11:00 a.m., London time on such Market Day. If no such offered rate appears, 3-Month LIBOR with respect to such Distribution Period will be determined as described in (ii) below. The term "Distribution Period" means each period beginning on, and including, the date of original issuance and ending on, but excluding, the first Distribution Date and each successive period, so beginning on an Distribution Date and so ending on, but excluding, the next successive Distribution Date. (ii) With respect to a Determination Date on which no such offered rate appears on Telerate Page 3750 as described in (i) above, 3-Month LIBOR shall be the arithmetic mean, expressed as a percentage, of the offered rates for deposits in U.S. dollars for the Index Maturity which appears on the display designated as "LIBO" on the Reuter Monitor Money Market Rates Service (or such other page as may replace the LIBO page on that service (or any successor service) for the purpose of displaying London interbank offered rates of major banks) ("Reuters Screen LIBO Page") as of 11:00 a.m., London time, on such Market Day. If, in turn, such rate is not displayed on the Reuters Screen LIBO Page at such time, the Calculation Agent will obtain from each of four reference banks in London selected by the Calculation Agent (the "Reference Banks") such bank's offered quotation (expressed as a percentage per annum) as of approximately 11:00 a.m., London time, on such Market Day for deposits in U.S. dollars for the Index Maturity to prime banks in the London interbank market. If two or more such quotations are provided as requested, then 3-Month LIBOR for such Maturity Day shall be the arithmetic mean of such quotations. If, in turn, fewer than two such quotations are provided as requested, then 3-Month LIBOR for such date will be obtained from the preceding Market Day for which the Reuters Screen LIBO Page displayed an offered rate for deposits in U.S. dollars for the Index Maturity. (iii)If on any Determination Date, the Calculation Agent is required but unable to determine 3-Month LIBOR in the manner provided in paragraphs (i) and (ii) above, 3-Month LIBOR for such Distribution Period shall be 3-Month LIBOR as determined on the immediately preceeding Determination Date. The term "Market Day" means any day on which commercial banks and foreign exchange markets are open for business (including dealings in foreign exchange and foreign currency deposits) in The City of New York and The City of London. (iv) The Distribution Rate for any Distribution Period will at no time be higher than the maximum rate then permitted by applicable law. (v) All percentages resulting from any calculations referred provided for herein will be rounded to the nearest multiple of 1/100 of 1% and all U.S. dollar amounts used in or resulting from such calculations will be rounded to the nearest cent (with one-half cent or more being rounded upwards). (vi) During an Extension Period for the Debentures, the rate per annum at which Distributions on the Trust Securities accumulate shall be increased by an amount such that the aggregate amount of Distributions that accumulate on all Trust Securities during any such Extension Period is equal to the aggregate amount of interest (including interest payable on unpaid interest at the rate per annum set forth above, compounded quarterly) that accrues during any such Extension Period on the Debentures. (vii)The Calculation Agent shall, as soon as practicable after 11:00 a.m., London time, on each Determination Date, determine the Distribution Rate and calculate the amount of Distributions payable in respect of the Distribution Period related to such Determination Date (the "Distribution Amount"). The Distribution Amount shall be calculated by applying the Distribution Rate to the liquidation amount of each Trust Security outstanding at the commencement of the Distribution Period, multiplying each such amount by the actual number of days in the applicable Distribution Period divided by 360 and rounding to the nearest cent (with one-half cent or more being rounded upwards). The determination of the Distribution Rate and the Distribution Amount by the Calculation Agent will (in the absence of willful default, bad faith or manifest error) be final, conclusive and binding on all concerned. None of the Trustees, the Debenture Trustee, the Calculation Agent, the Trust or the Depositor (or any of their respective officers, directors, agents, beneficiaries, employees or affiliates) shall have any liability to any person for (a) the selection of any Reference Bank or (b) any inability to retain major banks in the London interbank market, in the case of the Calculation Agent, which is caused by circumstances beyond its reasonable control. (viii) The Calculation Agent will cause the Distribution Rate, the Distribution Amount in respect of each Trust Security and the Distribution Date for each Distribution Period to be given to the Property Trustee, the Debenture Trustee, the Company and each of the Paying Agents appointed by the Trust in relation to the Trust Securities, in each case as soon as practicable after the determination thereof but in no event later than the second Business Day of the applicable Distribution Period. The Property Trustee will cause the Distribution Rate, the Distribution Amount in respect of each Trust Security and the Distribution Date for each Distribution Period to be given to each Holder of Trust Securities at the address of such Holder set forth in the Securities Register with respect to the Trust Securities. So long as the Trust Securities are represented by global certificates registered in the name of DTC or its nominees, notices to the Holders of Trust Securities will be given by delivery of the notice to DTC for communication by DTC to its participants in accordance with its customary procedures. Upon the request of a Holder of a Trust Security, the Calculation Agent will provide the Distribution Rate then in effect and, if determined, the Distribution Rate for the next Distribution Period with respect to the Trust Securities. (c) Distributions on the Trust Securities shall be made from the Payment Account by the Property Trustee or any Paying Agent and shall be payable on each Distribution Date only to the extent that the Trust has funds then available in the Payment Account for the payment of such Distributions. (d) Distributions on the Trust Securities on each Distribution Date shall be payable to the Holders thereof as they appear on the Securities Register for the Trust Securities on the relevant record date, which shall be one Business Day prior to such Distribution Date; provided, however, that in the event that the Preferred Securities are not in book-entry-only form, the relevant record date shall be the 15th day of the last month of each calendar quarter, whether or not a Business Day. Section 4.02. Redemption (a) Upon receipt by the Trust of a notice of redemption of Debentures, the Trust will call for redemption a Like Amount of Trust Securities at the Redemption Price on the Debenture Redemption Date and will call for redemption all Outstanding Trust Securities on the stated maturity date of the Debentures. (b) Notice of redemption shall be given by the Property Trustee by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date to each Holder of Trust Securities to be redeemed, at such Holder's address appearing in the Securities Register. All notices of redemption shall state: (i) the Redemption Date; (ii) the Redemption Price; (iii) the CUSIP number; (iv) the place or places where Trust Securities Certificates are to be surrendered for payment of the Redemption Price; (v) that on the Redemption Date the Redemption Price will become payable upon each such Trust Security to be redeemed and that Distributions thereon will cease to accumulate on and after such date; and (vi) if less than all of the Outstanding Trust Securities are to be redeemed, the identification and total Liquidation Amount of the particular Trust Securities to be redeemed. (c) The Trust Securities redeemed on each Redemption Date shall be redeemed at the Redemption Price with the proceeds from the contemporaneous redemption or payment at maturity of Debentures. Redemptions of the Trust Securities shall be made and the Redemption Price shall be payable on each Redemption Date only to the extent that the Trust has funds then available in the Payment Account for the payment of such Redemption Price. (d) If the Trust, by action of the Property Trustee, gives a notice of redemption in respect of any Preferred Securities, then, on the Redemption Date, subject to Section 4.02(c), the Property Trustee will irrevocably deposit with the Paying Agent funds sufficient to pay the Redemption Price for the Preferred Securities being redeemed on such date and will give the Paying Agent irrevocable instructions and authority to pay the Redemption Price to the Holders of such Preferred Securities upon surrender of their Preferred Securities Certificates. Notwithstanding the foregoing, Distributions payable on or prior to the Redemption Date for any Trust Securities called for redemption shall be payable to the Holders of such Trust Securities as they appear on the Securities Register for the Trust Securities on the record dates for the related Distribution Dates. If notice of redemption shall have been given and funds irrevocably deposited as required, then upon the date of such deposit, all rights of Securityholders holding Trust Securities so called for redemption will cease, except the right of such Securityholders to receive the Redemption Price, but without interest, and such Trust Securities will cease to be Outstanding. In the event that any date on which any Redemption Price is payable is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment will be made on the immediately preceding Business Day, in each case, with the same force and effect as if made on such date. In the event that payment of the Redemption Price in respect of any Trust Securities called for redemption is improperly withheld or refused, and not paid either by the Trust or by the Depositor pursuant to the Guarantee, Distributions on such Trust Securities will continue to accumulate, at the then applicable rate, from the Redemption Date originally established by the Trust for such Trust Securities to the date such Redemption Price is actually paid, in which case the actual payment date will be the date fixed for redemption for purposes of calculating the Redemption Price. (e) If less than all the Outstanding Trust Securities are to be redeemed on a Redemption Date, then the aggregate Liquidation Amount of Trust Securities to be redeemed shall be allocated 3% to the Common Securities and 97% to the Preferred Securities. The particular Preferred Securities to be redeemed shall be selected by the Property Trustee from the Outstanding Preferred Securities not previously called for redemption, by such method as the Property Trustee shall deem fair and appropriate. The Property Trustee shall promptly notify the Securities Registrar in writing of the Preferred Securities selected for redemption. If fewer than all of the Trust Securities represented by a Trust Securities Certificate are redeemed, the Administrative Trustee shall execute for the Holder a new Trust Securities Certificate representing the unredeemed Trust Securities. For all purposes of this Trust Agreement, unless the context otherwise requires, all provisions relating to the redemption of Preferred Securities shall relate, in the case of any Preferred Securities redeemed or to be redeemed only in part, to the portion of the Liquidation Amount of Preferred Securities which has been or is to be redeemed. Section 4.03. Subordination of Common Securities (a) Payment of Distributions on, and the Redemption Price of, the Trust Securities, as applicable, shall be made pro rata based on the Liquidation Amount of the Trust Securities; provided, however, that if on any Distribution Date or Redemption Date, a Debenture Event of Default shall have occurred and be continuing, no payment of any Distribution on, or Redemption Price of, any Common Security, and no other payment on account of the liquidation of Common Securities, shall be made unless payment in full in cash of all accumulated and unpaid Distributions on all Outstanding Preferred Securities for all Distribution Periods terminating on or prior thereto, or in the case of payment of the Redemption Price, the full amount of such Redemption Price on all Outstanding Preferred Securities then being redeemed, shall have been made or provided for, and all funds immediately available to the Property Trustee shall first be applied to the payment in full in cash of all Distributions on, or the Redemption Price of, Preferred Securities then due and payable. (b) In the case of the occurrence of any Debenture Event of Default, the Holder of Common Securities will be deemed to have waived any right to act with respect to any related Event of Default under this Trust Agreement and such Debenture Event of Default until the effect of such related Event of Default and such Debenture Event of Default has been cured, waived or otherwise eliminated. Until any such Event of Default under this Trust Agreement and such Debenture Event of Default has been so cured, waived or otherwise eliminated, the Property Trustee shall act solely on behalf of the Holders of the Preferred Securities and not the Holder of the Common Securities, and only the Holders of the Preferred Securities will have the right to direct the Property Trustee to act on their behalf. Section 4.04. Payment Procedures. Payments of Distributions, if the Trust Securities are held by a Clearing Agency, shall be made to the Clearing Agency by wire transfer in immediately available funds. Payments of Distributions pursuant to Section 4.01 in respect of the Common Securities shall be made in such manner as shall be mutually agreed between the Property Trustee and the Holder of the Common Securities. Payment of the Redemption Price or Liquidation Distribution of the Trust Securities and payments of Distributions pursuant to Section 4.01 in respect of Trust Securities held in certificated form shall be made in immediately available funds upon surrender of the Trust Securities Certificate representing such Trust Securities at the Corporate Trust Office of the Property Trustee. Section 4.05. Tax Returns and Reports. The Administrative Trustee shall prepare (or cause to be prepared), at the Depositor's expense, and file all Federal, State and local tax and information returns and reports required to be filed by or in respect of the Trust. In this regard, the Administrative Trustee shall (a) prepare and file (or cause to be prepared or filed) the appropriate Internal Revenue Service Form required to be filed in respect of the Trust in each taxable year of the Trust and (b) prepare and furnish (or cause to be prepared and furnished) to each Securityholder the related Internal Revenue Service Form 1099 OID, or any successor form or the information required to be provided on such form. The Administrative Trustee shall provide the Depositor and the Property Trustee with a copy of all such returns, reports and schedules promptly after such filing or furnishing. The Trustees shall comply with United States Federal withholding and backup withholding tax laws and information reporting requirements with respect to any payments to Securityholders under the Trust Securities. Section 4.06. Payments under Indenture. Any amount payable hereunder to any Holder of Preferred Securities shall be reduced by the amount of any corresponding payment such Holder has directly received pursuant to Section 6.07 of the Indenture or pursuant to the Guarantee. Notwithstanding the provisions hereunder to the contrary, Securityholders acknowledge that any Holder of Preferred Securities that receives payment under Section 6.07 of the Indenture may receive amounts greater than the amount such Holder may be entitled to receive pursuant to the other provisions of this Trust Agreement. ARTICLE V Trust Securities Certificates Section 5.01. Initial Ownership. Upon the creation of the Trust and the contribution by the Depositor pursuant to Section 2.03 and until the issuance of the Trust Securities, and at any time during which no Trust Securities are Outstanding, the Depositor shall be the sole beneficial owner of the Trust. Section 5.02. The Trust Securities Certificates. The Trust Securities Certificates shall be issued representing one or more Trust Securities. Trust Securities Certificates representing fractional interests shall not be issued. The Trust Securities Certificates shall be executed on behalf of the Trust by manual signature of the Administrative Trustee or by a facsimile signature of the Administrative Trustee countersigned by the Securities Registrar. Trust Securities Certificates bearing the signatures of individuals who were, at the time when such signatures shall have been affixed, authorized to sign on behalf of the Trust, shall be validly issued and entitled to the benefits of this Trust Agreement, notwithstanding that such individuals or any of them shall have ceased to be so authorized prior to the delivery of such Trust Securities Certificates or did not hold such offices at the date of delivery of such Trust Securities Certificates. A transferee of a Trust Securities Certificate shall become a Securityholder, and shall be entitled to the rights and subject to the obligations of a Securityholder hereunder, upon due registration of such Trust Securities Certificate in such transferee's name pursuant to Section 5.04. Section 5.03. Delivery of Trust Securities Certificates. On the Closing Date, the Administrative Trustee shall cause Trust Securities Certificates, in an aggregate Liquidation Amount as provided in Sections 2.04 and 2.05, to be executed on behalf of the Trust as provided in Section 5.02 and delivered to or upon a written order of the Depositor signed by its Chairman of the Board, its President, any Vice President or the Treasurer, without further corporate action by the Depositor, in authorized denominations. The written order of the Depositor shall be accompanied by an Officer's Certificate and an Opinion of Counsel. Section 5.04. Registration of Transfer and Exchange of Preferred Securities Certificates. A registrar appointed by the Depositor (the "Securities Registrar") shall keep or cause to be kept, at the office or agency maintained pursuant to Section 5.08, a register (the "Securities Register") in which, subject to such reasonable regulations as it may prescribe, the Securities Registrar shall provide for the registration of Trust Securities Certificates (subject to Section 5.10 in the case of the Common Securities Certificates) and registration of transfers and exchanges of Preferred Securities Certificates as herein provided. The Property Trustee shall be the initial Securities Registrar; any successor Securities Registrar shall be appointed by the Administrative Trustee. Upon surrender for registration of transfer of any Preferred Securities Certificate at the office or agency maintained pursuant to Section 5.08, the Administrative Trustee shall execute and deliver, in the name of the designated transferee or transferees, one or more new Preferred Securities Certificates representing the same number of Preferred Securities dated the date of execution by the Administrative Trustee. At the option of a Holder, Preferred Securities Certificates may be exchanged for other Preferred Securities Certificates upon surrender of the Preferred Securities Certificates to be exchanged at the office or agency maintained pursuant to Section 5.08. The Securities Registrar shall not be required to register the transfer of any Preferred Securities that have been called for redemption or after the Liquidation Date. Preferred Securities presented or surrendered for registration of transfer or exchange shall be accompanied by a written instrument of transfer in form satisfactory to the Administrative Trustee and the Securities Registrar duly executed by the Holder or such Holder's attorney duly authorized in writing. Each Preferred Securities Certificate surrendered for registration of transfer or exchange shall be cancelled and subsequently disposed of by the Securities Registrar in accordance with its customary practice. No service charge shall be made for any registration of transfer or exchange of Preferred Securities, but the Securities Registrar may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer or exchange of Preferred Securities. Section 5.05. Mutilated, Destroyed, Lost or Stolen Trust Securities Certificates. If (a) any mutilated Trust Securities Certificate shall be surrendered to the Securities Registrar, or if the Securities Registrar shall receive evidence to its satisfaction of the destruction, loss or theft of any Trust Securities Certificate, and (b) there shall be delivered to the Securities Registrar and the Administrative Trustee such security or indemnity as may be required by them to hold the Securities Registrar and the Trust harmless, then in the absence of notice that such Trust Securities Certificate shall have been acquired by a bona fide purchaser, the Administrative Trustee, on behalf of the Trust shall execute and make available for delivery, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Trust Securities Certificate, a new Trust Securities Certificate of like tenor. In connection with the issuance of any new Trust Securities Certificate under this Section, the Administrative Trustee or the Securities Registrar may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Any duplicate Trust Securities Certificate issued pursuant to this Section shall constitute conclusive evidence of an undivided beneficial interest in the assets of the Trust, as if originally issued, whether or not the lost, stolen or destroyed Trust Securities Certificate shall be found at any time. Section 5.06. Persons Deemed Securityholders. Prior to due presentation of a Trust Security Certificate for registration of transfer, the Administrative Trustee, the Paying Agent or the Securities Registrar shall treat the Person in whose name any Trust Securities Certificate shall be registered in the Securities Register as the owner and Holder of such Trust Securities Certificate for the purpose of receiving Distributions and for all other purposes whatsoever, and neither the Trustees, the Paying Agent nor the Securities Registrar shall be bound by any notice to the contrary. Section 5.07. Access to List of Securityholders' Names and Addresses. In the event that the Property Trustee is no longer the Securities Registrar, the Administrative Trustee or the Depositor shall furnish or cause to be furnished a list, in such form as the Property Trustee may reasonably require, of the names and addresses of the Securityholders as of the most recent record date and (a) to the Property Trustee, quarterly not later than 10 days prior to a Distribution Date and (b) to the Property Trustee, promptly after receipt by the Administrative Trustee or the Depositor of a request therefor from the Property Trustee in order to enable the Paying Agent to pay Distributions in accordance with Section 4.01 hereof) in each case to the extent such information is in the possession or control of the Administrative Trustee or the Depositor and is not identical to a previously supplied list or has not otherwise been received by the Property Trustee. The rights of Securityholders to communicate with other Securityholders with respect to their rights under this Trust Agreement or under the Trust Securities, and the corresponding rights of the Property Trustee shall be as provided in the Trust Indenture Act. Each Holder, by receiving and holding a Trust Securities Certificate, shall be deemed to have agreed not to hold the Depositor, the Property Trustee, the Administrative Trustee or the Delaware Trustee accountable by reason of the disclosure of its name and address, regardless of the source from which such information was derived. Section 5.08. Maintenance of Office or Agency. The Property Trustee shall maintain in Newark, New Jersey, an office or offices or agency or agencies where Preferred Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Trustees in respect of the Trust Securities Certificates may be served. The Property Trustee shall give prompt written notice to the Depositor and to the Securityholders of any change in the location of the Securities Register or any such office or agency, which shall initially be at the Corporate Trust Office of the Property Trustee. Section 5.09. Appointment of Paying Agent. The Paying Agent shall make Distributions to Securityholders from the Payment Account and shall report the amounts of such Distributions to the Property Trustee and the Administrative Trustee. Any Paying Agent shall have the revocable power to withdraw funds from the Payment Account for the purpose of making Distributions. The Administrative Trustee may revoke such power and remove the Paying Agent, provided that such revocation and removal with respect to the sole Paying Agent shall not become effective until the appointment of a successor. The Paying Agent shall initially be the Property Trustee, and any co-paying agent chosen by the Property Trustee and acceptable to the Administrative Trustee and the Depositor. Any Person acting as Paying Agent shall be permitted to resign as Paying Agent upon 30 days' written notice to the Administrative Trustee and the Depositor, and, if applicable, the Property Trustee, provided that such resignation with respect to the sole Paying Agent shall not become effective until the appointment of a successor. In the event that the Property Trustee shall no longer be the Paying Agent or a successor Paying Agent shall resign or its authority to act be revoked, the Administrative Trustee shall appoint a successor that is acceptable to the Property Trustee (in the case of any other Paying Agent) and the Depositor to act as Paying Agent (which shall be a bank or trust company and have a combined capital and surplus of at least $50,000,000). The Administrative Trustee shall cause such successor Paying Agent or any additional Paying Agent appointed by the Administrative Trustee to execute and deliver to the Trustees an instrument in which such successor Paying Agent or additional Paying Agent shall agree with the Trustees that as Paying Agent, such successor Paying Agent or additional Paying Agent will hold all sums, if any, held by it for payment to the Securityholders in trust for the benefit of the Securityholders entitled thereto until such sums shall be paid to such Securityholders. The Paying Agent shall return all of such sums remaining unclaimed to the Property Trustee and upon removal of a Paying Agent such Paying Agent shall also return such sums in its possession to the Property Trustee. The provisions of Sections 7.01, 7.03 and 7.06 shall apply to the Property Trustee also in its role as Paying Agent, for so long as the Property Trustee shall act as Paying Agent and, to the extent applicable, to any other Paying Agent appointed hereunder. Any reference in this Trust Agreement to the Paying Agent shall include any co-paying agent unless the context requires otherwise. Section 5.10. No Transfer of Common Securities by Depositor. To the fullest extent permitted by law, any attempted transfer of the Common Securities shall be void. The Administrative Trustee shall cause each Common Securities Certificate issued to the Depositor to contain a legend stating "THIS CERTIFICATE IS NOT TRANSFERABLE". By execution of this Trust Agreement, the Depositor agrees to the foregoing provisions. Section 5.11. Book-Entry Preferred Securities Certificates; Common Securities Certificate. (a) The Preferred Securities, upon original issuance on the Closing Date, will not be engraved but will be issued in the form of one or more printed or typewritten Book-Entry Preferred Securities Certificates, to be delivered to The Depository Trust Company, the initial Clearing Agency, by, or on behalf of, the Trust. Such Book-Entry Preferred Securities Certificate or Certificates shall initially be registered on the Securities Register in the name of Cede & Co., the nominee of the initial Clearing Agency. (b) A single Common Securities Certificate representing the Common Securities shall be issued to the Depositor in the form of a definitive Common Securities Certificate. Section 5.12. Definitive Preferred Securities Certificates. If (a) the Depositor advises the Trustees in writing that the Clearing Agency is no longer willing or able to properly discharge its responsibilities with respect to the Preferred Securities Certificates or the Clearing Agency is no longer registered or in good standing under the Securities Exchange Act of 1934, as amended, or other applicable statute or regulation, and the Depositor is unable to locate a qualified successor within 90 days, (b) the Depositor at its option advises the Trustees in writing that it elects to terminate the book-entry system through the Clearing Agency or (c) an Event of Default occurs and is continuing, then the Administrative Trustee shall issue Definitive Preferred Securities Certificates. Upon surrender to the Administrative Trustee of the Book-Entry Preferred Securities Certificates by the Clearing Agency, accompanied by registration instructions, the Administrative Trustee shall execute and deliver the Definitive Preferred Securities Certificates in accordance with the instructions of the Clearing Agency. Neither the Securities Registrar nor the Trustees shall be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be protected in relying on, such instructions. The Definitive Preferred Securities Certificates shall be printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Administrative Trustee, as evidenced by the execution thereof by the Administrative Trustee. Section 5.13. Rights of Securityholders. The Securityholders shall not have any right or title to the Trust Property other than the undivided beneficial interest in the assets of the Trust conferred by their Trust Securities and they shall have no right to call for any partition or division of property, profits or rights of the Trust except as described below. The Trust Securities shall be personal property giving only the rights specifically set forth therein and in this Trust Agreement. The Trust Securities shall have no preemptive or similar rights and when issued and delivered to Securityholders against payment of the purchase price therefor will be fully paid and nonassessable by the Trust. The Holders of the Trust Securities, in their capacities as such, shall be entitled to the same limitation of personal liability extended to stockholders of corporations for profit organized under the General Corporation Law of the State of Delaware. ARTICLE VI Acts of Securityholders; Meetings; Voting Section 6.01. Limitations on Voting Rights. (a) Except as provided herein and in the Indenture and as otherwise required by law, no Holder of Trust Securities shall have any right to vote or in any manner otherwise control the administration, operation and management of the Trust or the obligations of the parties hereto, nor shall anything herein set forth, or contained in the terms of the Trust Securities Certificates, be construed so as to constitute the Securityholders from time to time as partners or members of an association. (b) The Trustees shall not (i) direct the time, method and place of conducting any proceeding for any remedy available to the Debenture Trustee or executing any trust or power conferred on the Debenture Trustee with respect to such Debentures, (ii) waive any past default which may be waived under Section 6.04 of the Indenture, (iii) exercise any right to rescind or annul an acceleration of the principal of all the Debentures or (iv) consent to any amendment or modification of the Indenture, where such consent shall be required, without, in each case, obtaining the prior consent of the Holders of at least a majority in aggregate Liquidation Amount of all Outstanding Preferred Securities; provided, however, that where such consent under the Indenture would require the consent of each holder of Debentures affected thereby, no such consent shall be given by the Property Trustee without the prior written consent of each Holder of Outstanding Preferred Securities. The Trustees shall not revoke any action previously authorized or approved by a vote of the Holders of Preferred Securities, except by a subsequent vote of the Holders of Preferred Securities. The Property Trustee shall notify all Holders of the Preferred Securities of any notice received from the Debenture Trustee as a result of the Trust being the holder of the Debentures. In addition to obtaining the consent of the Holders of the Preferred Securities, prior to taking any of the foregoing actions, the Trustees shall, at the expense of the Depositor, obtain an Opinion of Counsel experienced in such matters to the effect that the Trust will not be classified as an association taxable as a corporation or partnership for United States Federal income tax purposes on account of such action and will continue to be classified as a grantor trust for United States Federal income tax purposes. (c) Subject to Section 10.02(c) hereof, if any proposed amendment to the Trust Agreement provides for, or the Trustees otherwise propose to effect, (i) any action that would adversely affect in any material respect the powers, preferences or special rights of the Preferred Securities, whether by way of amendment to this Trust Agreement or otherwise, or (ii) the dissolution or liquidation of the Trust, other than pursuant to the terms of this Trust Agreement, then the Holders of Outstanding Preferred Securities will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of the Holders of at least a majority in aggregate Liquidation Amount of the Outstanding Preferred Securities. Section 6.02. Notice of Meetings. Notice of all meetings of the Preferred Securityholders, stating the time, place and purpose of the meeting, shall be given by the Property Trustee pursuant to Section 10.08 to each Preferred Securityholder of record, at his/her registered address, at least 15 days and not more than 90 days before the meeting. At any such meeting, any business properly before the meeting may be so considered whether or not stated in the notice of the meeting. Any adjourned meeting may be held as adjourned without further notice. Section 6.03. Meetings of Preferred Securityholders. No annual meeting of Securityholders is required to be held. The Administrative Trustee, however, shall call a meeting of Securityholders to vote on any matter upon the written request of the Holders of at least 25% of the aggregate Liquidation Amount of the Outstanding Preferred Securities and the Administrative Trustee or the Property Trustee may, at any time in their discretion, call a meeting of Preferred Securityholders to vote on any matters as to which the Preferred Securityholders are entitled to vote. Holders of at least 50% of the aggregate Liquidation Amount of the Outstanding Preferred Securities, present in person or by proxy, shall constitute a quorum at any meeting of Preferred Securityholders. If a quorum is present at a meeting, an affirmative vote of the Holders of at least a majority of the aggregate Liquidation Amount of the Outstanding Preferred Securities present, either in person or by proxy, at such meeting shall constitute the action of the Preferred Securityholders, unless this Trust Agreement requires a greater number of affirmative votes. Section 6.04. Voting Rights. A Securityholder shall be entitled to one vote for each Trust Security in respect of any matter as to which such Securityholder is entitled to vote. Section 6.05. Proxies, etc. At any meeting of Securityholders, any Securityholder entitled to vote thereat may vote by proxy, provided that no proxy shall be voted at any meeting unless it shall have been placed on file with the Administrative Trustee, or with such other officer or agent of the Trust as the Administrative Trustee may direct, for verification prior to the time at which such vote shall be taken. Pursuant to a resolution of the Property Trustee, proxies may be solicited in the name of the Property Trustee or one or more officers of the Property Trustee. Only Securityholders of record shall be entitled to vote. When Trust Securities are held jointly by several Persons, any one of them may vote at any meeting in person or by proxy in respect of such Trust Securities, but if more than one of them shall be present at such meeting in person or by proxy, and such joint owners or their proxies so present disagree as to any vote to be cast, such vote shall not be received in respect of such Trust Securities. A proxy purporting to be executed by or on behalf of a Securityholder shall be deemed valid unless challenged at or prior to its exercise, and the burden of proving invalidity shall rest on the challenger. No proxy shall be valid more than three years after its date of execution. Section 6.06. Securityholder Action by Written Consent. Any action which may be taken by Securityholders at a meeting may be taken without a meeting if Holders of the proportion of the Outstanding Securities required to approve such action shall consent to the action in writing. Section 6.07. Record Date for Voting and Other Purposes. For the purposes of determining the Securityholders who are entitled to notice of and to vote at any meeting or by written consent, or for the purpose of any other action, the Administrative Trustee may from time to time fix a date, not more than 90 days prior to the date of any meeting of Securityholders, as a record date for the determination of the identity of the Securityholders for such purposes. Section 6.08. Acts of Securityholders. Any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Trust Agreement to be given, made or taken by Securityholders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Securityholders in person or by an agent duly appointed in writing; and, except as otherwise expressly provided herein, such action shall become effective when such instrument or instruments are delivered to the Administrative Trustee. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Securityholders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Trust Agreement and (subject to Section 7.02) conclusive, if made in the manner provided in this Section. The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him/her the execution thereof. Where such execution is by a signer acting in a capacity other than his/her individual capacity, such certificate or affidavit shall also constitute sufficient proof of his/her authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which any Trustee receiving the same deems sufficient. The ownership of Trust Securities shall be proved by the Securities Register. Any request, demand, authorization, direction, notice, consent, waiver or other act of the Securityholder of any Trust Security shall bind every future Securityholder of the same Trust Security and the Securityholder of every Trust Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustees or the Trust in reliance thereon, whether or not notation of such action is made upon such Trust Security. Without limiting the foregoing, a Securityholder entitled hereunder to take any action hereunder with regard to any particular Trust Security may do so with regard to all or any part of the Liquidation Amount of such Trust Security or by one or more duly appointed agents, each of which may do so pursuant to such appointment with regard to all or any part of such Liquidation Amount. If any dispute shall arise between the Securityholders and the Administrative Trustee or among such Securityholders or Trustees with respect to the authenticity, validity or binding nature of any request, demand, authorization, direction, consent, waiver or other Act of such Securityholder or Trustee under this Article VI, then the determination of such matter by the Property Trustee shall be conclusive with respect to such matter. Section 6.09. Inspection of Records. Upon reasonable notice to the Administrative Trustee and the Property Trustee, the records of the Trust shall be open to inspection by Securityholders during normal business hours for any purpose reasonably related to such Securityholder's interest as a Securityholder. ARTICLE VII The Trustees Section 7.01. Certain Duties and Responsibilities. (a) The duties and responsibilities of the Trustees shall be as provided by this Trust Agreement and, in the case of the Property Trustee, also by the Trust Indenture Act. The Property Trustee, other than during the occurrence and continuance of an Event of Default, undertakes to perform only such duties as are specifically set forth in this Trust Agreement and, upon an Event of Default, must exercise the same degree of care and skill as a prudent person would exercise or use in the conduct of his/her own affairs. The Trustees shall have all the privileges, rights and immunities provided by the Delaware Business Trust Act. Notwithstanding the foregoing, no provision of this Trust Agreement shall require the Trustees to expend or risk their own funds or otherwise incur any financial liability in the performance of any of their duties hereunder, or in the exercise of any of their rights or powers, if they shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Whether or not therein expressly so provided, every provision of this Trust Agreement relating to the conduct or affecting the liability of or affording protection to the Trustees shall be subject to the provisions of this Section. Nothing in this Trust Agreement shall be construed to release the Property Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct. To the extent that, at law or in equity, the Administrative Trustee has duties (including fiduciary duties) and liabilities relating thereto to the Trust or to the Securityholders, the Administrative Trustee shall not be liable to the Trust or to any Securityholder for the Administrative Trustee's good faith reliance on the provisions of this Trust Agreement. The provisions of this Trust Agreement, to the extent that they restrict the duties and liabilities of the Administrative Trustee otherwise existing at law or in equity, are agreed by the Depositor and the Securityholders to replace such other duties and liabilities of the Administrative Trustee. (b) All payments made by the Property Trustee or any other Paying Agent in respect of the Trust Securities shall be made only from the income and proceeds from the Trust Property. Each Securityholder, by its acceptance of a Trust Security, agrees that (i) it will look solely to the income and proceeds from the Trust Property to the extent available for distribution to it as herein provided and (ii) the Trustees are not personally liable to it for any amount distributable in respect of any Trust Security or for any other liability in respect of any Trust Security. This Section 7.01(b) does not limit the liability of the Trustees expressly set forth elsewhere in this Trust Agreement or, in the case of the Property Trustee, in the Trust Indenture Act. Section 7.02. Notice of Defaults; Direct Action by Securityholers. Within 90 days after the occurrence of any Event of Default actually known to the Property Trustee, the Property Trustee shall transmit, in the manner and to the extent provided in Section 10.08, notice of such Event of Default to the Securityholders, the Administrative Trustee and the Depositor, unless such Event of Default shall have been cured or waived. If the Property Trustee has failed to enforce its rights under this Trust Agreement or the Indenture to the fullest extent permitted by law and subject to the terms of this Trust Agreement and the Indenture, any Securityholder may institute a legal proceeding directly against any Person to enforce the Property Trustee's rights under this Trust Agreement or the Indenture with respect to Debentures having a principal amount equal to the aggregate Liquidation Amount of the Preferred Securities of such Securityholder without first instituting a legal proceeding against the Property Trustee or any other Person. To the extent that any action under the Indenture is entitled to be taken by the holders of at least a specified percentage of the principal amount of the outstanding Debentures, Holders of at least the same percentage of the Liquidation Amount of the Outstanding Preferred Securities may also take such action in the name of the Trust if such action has not been taken by the Property Trustee. Notwithstanding the foregoing, if a Debenture Event of Default relating to the Depositor's failure to pay the principal of or interest on the Debentures has occurred and is continuing thereby resulting in an Event of Default hereunder, then each Holder of Preferred Securities may institute a legal proceeding directly against the Depositor for enforcement of payment to such Holder, as provided in Section 6.07 of the Indenture. Section 7.03. Certain Rights of Property Trustee. Subject to the provisions of Section 7.01: (a) the Property Trustee may rely and shall be protected in acting or refraining from acting in good faith upon any resolution, Opinion of Counsel, certificate, written representation of a Holder or transferee, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) if, other than during the occurrence and continuance of an Event of Default, (i) in performing its duties under this Trust Agreement, the Property Trustee is required to decide between alternative courses of action or (ii) in construing any of the provisions in this Trust Agreement, the Property Trustee finds the same ambiguous or inconsistent with any other provisions contained herein or (iii) the Property Trustee is unsure of the application of any provision of this Trust Agreement, then, except as to any matter as to which the Preferred Securityholders are entitled to vote under the terms of this Trust Agreement, the Property Trustee shall deliver a notice to the Depositor requesting written instructions of the Depositor as to the course of action to be taken. The Property Trustee shall take such action, or refrain from taking such action, as the Property Trustee shall be instructed in writing to take, or to refrain from taking, by the Depositor; provided, however, that if the Property Trustee does not receive such instructions of the Depositor within ten Business Days after it has delivered such notice, or such reasonably shorter period of time set forth in such notice (which to the extent practicable shall not be less than two Business Days), it may, but shall be under no duty to, take or refrain from taking such action not inconsistent with this Trust Agreement as it shall deem advisable and in the best interests of the Securityholders, in which event the Property Trustee shall have no liability except for its own negligent action, its own negligent failure to act or its own willful misconduct; (c) the Property Trustee may consult with counsel or other experts of its selection and the advice or opinion of such counsel or other experts with respect to legal matters or advice within the scope of such experts' area of expertise shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (d) the Property Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Trust Agreement at the request or direction of any of the Securityholders pursuant to this Trust Agreement, unless such Securityholders shall have offered to the Property Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (e) the Property Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, approval, bond, debenture, note or other evidence of indebtedness or other paper or document, but the Property Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit; and (f) the Property Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through its agents or attorneys and the Property Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. Section 7.04. Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Trust Securities Certificates shall be taken as the statements of the Trust, and the Trustees do not assume any responsibility for their correctness. The Trustees shall not be accountable for the use or application by the Depositor of the proceeds of the Debentures. Section 7.05. May Hold Securities. Any Trustee or any other agent of any Trustee or the Trust, in its individual or any other capacity, may become the owner or pledgee of Trust Securities and, subject to Sections 7.08 and 7.13 and, except as provided in the definition of the term Outstanding in Article I, may otherwise deal with the Trust with the same rights it would have if it were not a Trustee or such other agent. Section 7.06. Compensation; Indemnity; Fees. The Depositor agrees: (a) to pay to the Trustees from time to time such compensation as shall have been agreed in writing with the Depositor for all services rendered by them hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (b) except as otherwise expressly provided herein, to reimburse the Trustees upon request for all reasonable expenses, disbursements and advances incurred or made by the Trustees in accordance with any provision of this Trust Agreement (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its own negligent action, its own negligent failure to act or its own wilful misconduct (or, in the case of the Administrative Trustee, any such expense, disbursement or advance as may be attributable to his/her gross negligence); and (c) to indemnify each of the Trustees or any predecessor Trustee for, and to hold the Trustees harmless against, any and all loss, damage, claims, liability, penalty or expense including taxes (other than taxes based on the income of such Trustee) incurred without its own negligent action, its own negligent failure to act or its wilful misconduct (or, in the case of the Administrative Trustees, incurred without gross negligence or bad faith), arising out of or in connection with the acceptance or administration of this Trust Agreement, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. No Trustee may claim any Lien or charge on any Trust Property as a result of any amount due pursuant to this Section 7.06. The provisions of this Section 7.06 shall survive the termination of this Trust Agreement. Section 7.07. Corporate Property Trustee Required; Eligibility of Trustees (a) There shall at all times be a Property Trustee hereunder. The Property Trustee shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $50,000,000. If any such Person publishes reports of condition at least annually, pursuant to law or to the requirements of its supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Property Trustee with respect to the Trust Securities shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. (b) There shall at all times be one or more Administrative Trustees hereunder. Each Administrative Trustee shall be either a natural person who is at least 21 years of age or a legal entity that shall act through one or more persons authorized to bind that entity. (c) There shall at all times be a Delaware Trustee. The Delaware Trustee shall either be (i) a natural person who is at least 21 years of age and a resident of the State of Delaware or (ii) a legal entity with its principal place of business in the State of Delaware and that otherwise meets the requirements of applicable Delaware law that shall act through one or more persons authorized to bind such entity. Section 7.08. Conflicting Interests. If the Property Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Property Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Trust Agreement. Section 7.09. Co-Trustees and Separate Trustee. Unless an Event of Default shall have occurred and be continuing, at any time or times, for the purpose of meeting the legal requirements of the Trust Indenture Act or of any jurisdiction in which any part of the Trust Property may at the time be located, the Depositor and the Administrative Trustee (and if more than one Administrative Trustee, by agreed action of the majority of such Trustees) shall have power (i) to appoint, and upon the written request of the Administrative Trustee the Depositor shall for such purpose join with the Administrative Trustee in the execution, delivery and performance of all instruments and agreements necessary or proper to appoint one or more Persons approved by the Property Trustee either to act as co-trustee, jointly with the Property Trustee, of all or any part of such Trust Property, or to the extent required by law to act as separate trustee of any such property, in either case with such powers as may be provided in the instrument of appointment, and (ii) to vest in such Person or Persons in the capacity aforesaid, any property, title, right or power deemed necessary or desirable, subject to the other provisions of this Section. If the Depositor does not join in such appointment within 15 days after the receipt by it of a request so to do, or in case a Debenture Event of Default has occurred and is continuing, the Property Trustee alone shall have power to make such appointment. Any co-trustee or separate trustee appointed pursuant to this Section shall either be (i) a natural person who is at least 21 years of age and a resident of the United States or (ii) a legal entity with its principal place of business in the United States that shall act through one or more persons authorized to bind such entity. Should any written instrument from the Depositor be required by any co-trustee or separate trustee so appointed for more fully confirming to such co-trustee or separate trustee such property, title, right or power, any and all such instruments shall, on request, be executed, acknowledged, and delivered by the Depositor. Every co-trustee or separate trustee shall, to the extent permitted by law, but to such extent only, be appointed subject to the following terms, namely: (a) The Trust Securities shall be executed and delivered and all rights, powers, duties and obligations hereunder in respect of the custody of securities, cash and other personal property held by, or required to be deposited or pledged with, the Trustees specified hereunder, shall be exercised, solely by such Trustees and not by such co-trustee or separate trustee. (b) The rights, powers, duties and obligations hereby conferred or imposed upon the Property Trustee in respect of any property covered by such appointment shall be conferred or imposed upon and exercised or performed by the Property Trustee or by the Property Trustee and such co-trustee or separate trustee jointly, as shall be provided in the instrument appointing such co-trustee or separate trustee, except to the extent that under any law of any jurisdiction in which any particular act is to be performed, the Property Trustee shall be incompetent or unqualified to perform such act, in which event such rights, powers, duties and obligations shall be exercised and performed by such co-trustee or separate trustee. (c) The Property Trustee at any time, by an instrument in writing executed by it, with the written concurrence of the Depositor, may accept the resignation of or remove any co-trustee or separate trustee appointed under this Section, and, in case a Debenture Event of Default has occurred and is continuing, the Property Trustee shall have power to accept the resignation of, or remove, any such co-trustee or separate trustee without the concurrence of the Depositor. Upon the written request of the Property Trustee, the Depositor shall join with the Property Trustee in the execution, delivery and performance of all instruments and agreements necessary or proper to effectuate such resignation or removal. A successor to any co-trustee or separate trustee so resigned or removed may be appointed in the manner provided in this Section. (d) No co-trustee or separate trustee hereunder shall be personally liable by reason of any act or omission of the Property Trustee, or any other trustee hereunder. (e) The Property Trustee shall not be liable by reason of any act of a co-trustee or separate trustee. (f) Any Act of Holders delivered to the Property Trustee shall be deemed to have been delivered to each such co-trustee and separate trustee. Section 7.10. Resignation and Removal; Appointment of Successor. No resignation or removal of any Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 7.11. Subject to the immediately preceding paragraph, any Trustee may resign at any time with respect to the Trust Securities by giving written notice thereof to the Securityholders. Unless an Event of Default shall have occurred and be continuing, any Trustee may be removed at any time by Act of the Holder of the Common Securities. If an Event of Default shall have occurred and be continuing, the Property Trustee or the Delaware Trustee, or both of them, may be removed at such time only by Act of the Holders of at least a majority in Liquidation Amount of the Outstanding Preferred Securities, delivered to such Trustee (in its individual capacity and on behalf of the Trust). The Administrative Trustee may only be removed by the Holder of Common Securities at any time. If the instrument of acceptance by the successor Trustee required by Section 7.11 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation or removal, the Trustee may petition, at the expense of the Depositor, any court of competent jurisdiction for the appointment of a successor Trustee. If any Trustee shall resign, be removed or become incapable of acting as Trustee, or if a vacancy shall occur in the office of any Trustee for any cause, at a time when no Event of Default shall have occurred and be continuing, the Holder of Common Securities, by Act of the Holder of Common Securities delivered to the retiring Trustee, shall promptly appoint a successor Trustee or Trustees and the Trust, and the retiring Trustee shall comply with the applicable requirements of Section 7.11. If the Property Trustee or the Delaware Trustee shall resign, be removed or become incapable of continuing to act as the Property Trustee or the Delaware Trustee, as the case may be, at a time when an Event of Default has occurred and is continuing, the Holders of Preferred Securities, by Act of the Securityholders of at least a majority in Liquidation Amount of the Outstanding Preferred Securities delivered to the retiring Trustee, shall promptly appoint a successor Trustee or Trustees, and such successor Trustee shall comply with the applicable requirements of Section 7.11. If any Administrative Trustee shall resign, be removed or become incapable of acting as Administrative Trustee at a time when an Event of Default shall have occurred and be continuing, the Holder of Common Securities shall appoint a successor Administrative Trustee. If no successor Trustee shall have been so appointed by the Holder of Common Securities or the Holders of Preferred Securities and accepted appointment in the manner required by Section 7.11, any Securityholder who has been a Securityholder of Trust Securities for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. The Property Trustee shall give notice of each resignation and each removal of a Trustee and each appointment of a successor Trustee to all Securityholders in the manner provided in Section 10.08 and shall give notice to the Depositor. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office if it is the Property Trustee. Notwithstanding the foregoing or any other provision of this Trust Agreement, in the event any Administrative Trustee or Delaware Trustee who is a natural person dies or becomes, in the opinion of the Depositor, incompetent or incapacitated, the vacancy created by such death, incompetence or incapacity may be filled by (a) the unanimous act of the remaining Administrative Trustees if there are at least two of them or (b) otherwise by the Depositor (with the successor in each case being a Person who satisfies the eligibility requirements for Administrative Trustee or for the Delaware Trustee, as the case may be, set forth in Section 7.07). Section 7.11. Acceptance of Appointment by Successor. In case of the appointment hereunder of a successor Trustee, the retiring Trustee and each successor Trustee shall execute and deliver to the Trust and the retiring Trustee an amendment hereto wherein each successor Trustee shall accept such appointment and which (a) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee and (b) shall add to or change any of the provisions of this Trust Agreement as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such amendment shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee and upon the execution and delivery of such amendment the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee and the Trust; but, on request of the Trust or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all Trust Property, all proceeds thereof and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Trust shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in the preceding paragraphs. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. Section 7.12. Merger, Conversion, Consolidation or Succession to Business. Any Person into which any of the Trustees may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which such Trustee shall be a party, or any Person succeeding to all or substantially all the corporate trust business of such Trustee, shall be the successor of such Trustee hereunder, provided such Person shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. Section 7.13. Preferential Collection of Claims Against Depositor or Trust. If and when the Property Trustee or the Delaware Trustee shall be or become a creditor (whether directly or indirectly, secured or unsecured) of the Depositor or the Trust (or any other obligor upon the Debentures or the Trust Securities), including under the terms of Section 7.05 hereof, the Property Trustee or the Delaware Trustee, as the case may be, shall be subject to and shall take all actions necessary in order to comply with the provisions of the Trust Indenture Act regarding the collection of claims against the Depositor or Trust (or any such other obligor). Section 7.14. Reports by Property Trustee. The Property Trustee shall transmit to Holders such reports concerning the Property Trustee and its actions under this Trust Agreement as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. If required by Section 313(a) of the Trust Indenture Act, the Property Trustee shall, within 60 days after each May 31 following the date of this Trust Agreement deliver to Holders a brief report, dated as of such May 31, which complies with the provisions of such Section 313(a). A copy of each such report shall, at the time of such transmission to Holders, be filed by the Property Trustee with each stock exchange upon which any Preferred Securities are then listed, with the Commission and with the Trust. The Trust will promptly notify the Property Trustee when any Preferred Securities are listed on any stock exchange. Section 7.15. Reports to the Property Trustee and the Commission.The Depositor and the Administrative Trustee on behalf of the Trust shall provide to the Property Trustee and the Commission, as applicable, such documents, reports and information as required by Section 314 of the Trust Indenture Act (if any) and the compliance certificate required by Section 314(a) of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. Section 7.16. Evidence of Compliance with Conditions Precedent. The Depositor and the Administrative Trustee on behalf of the Trust shall provide to the Property Trustee evidence of compliance with the conditions precedent, if any, provided for in this Trust Agreement that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Section 7.17. Statements Required in Officer's Certificate and Opinion of Counsel. Each Officer's Certificate and Opinion of Counsel with respect to compliance with a covenant or condition provided for in this Trust Agreement shall include: (1) a statement that each Person making such Officer's Certificate or Opinion of Counsel has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such Officer's Certificate or Opinion of Counsel are based; (3) a statement that, in the opinion of each such Person, such Person has made such examination or investigation as is necessary to enable such Person to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement that, in the opinion of such Person, such covenant or condition has been complied with; provided, however, that with respect to matters of fact not involving any legal conclusion, an Opinion of Counsel may rely on an Officer's Certificate or certificates of public officials. Section 7.18. Number of Trustees (a) The number of Trustees shall be three, provided that the Holder of all of the Common Securities by written instrument may increase and, if increased, may decrease the number of Administrative Trustees. (b) If a Trustee ceases to hold office for any reason and the number of Administrative Trustees is not reduced pursuant to Section 7.18(a), or if the number of Trustees is increased pursuant to Section 7.18(a), a vacancy shall occur. The vacancy shall be filled with a Trustee appointed in accordance with Section 7.10. (c) The death, resignation, retirement, removal, bankruptcy, dissolution, termination, incompetence or incapacity to perform the duties of a Trustee shall not operate to dissolve, terminate or annul the Trust. Whenever a vacancy shall occur, until such vacancy is filled by the appointment of an Administrative Trustee in accordance with Section 7.10, the Administrative Trustees in office, regardless of their number (and notwithstanding any other provision of this Trust Agreement), shall have all the powers granted to the Administrative Trustee and shall discharge all the duties imposed upon the Administrative Trustees by this Trust Agreement. Section 7.19. Delegation of Power (a) Any Administrative Trustee may, by power of attorney consistent with applicable law, delegate to any natural person over the age of 21 his/her power for the purpose of executing any documents contemplated in Section 2.07(a), including any registration statement or amendment thereto filed with the Commission, or making any other governmental filing; and (b) the Administrative Trustees shall have power to delegate from time to time to such of their number, if there is more than one Administrative Trustee, or to the Depositor the doing of such things and the execution of such instruments either in the name of the Trust or the names of the Administrative Trustees or otherwise as the Administrative Trustees may deem expedient, to the extent such delegation is not prohibited by applicable law or contrary to the provisions of the Trust, as set forth herein. Section 7.20. Voting. Except as otherwise provided in this Trust Agreement, the consent or vote of the Trustees shall be approved by not less than a majority of the Administrative Trustees. ARTICLE VIII Dissolution and Liquidation Section 8.01. Dissolution Upon Expiration Date. Unless earlier dissolved, the Trust shall automatically dissolve on December 22, 2051 (the "Expiration Date"). Section 8.02. Early Dissolution. The earliest to occur of any of the following events is an "Early Dissolution Event" upon the occurrence of which the Trust shall be dissolved: (a) the occurrence of a Bankruptcy Event in respect of, or the dissolution or liquidation of the Depositor or an acceleration of the maturity of the Debentures pursuant to Section 6.02 of the Indenture; (b) upon the election of the Depositor to liquidate the Trust and cause the distribution of a Like Amount of Debentures to the Holders of the Trust Securities; (c) the redemption of all of the Trust Securities; and (d) an order for dissolution of the Trust shall have been entered by a court of competent jurisdiction. The election of the Depositor pursuant to Section 8.02(b) shall be made by the Depositor giving written notice to the Trustees not less than 30 days prior to the date of distribution of the Debentures. Such notice shall specify the date of distribution of the Debentures and shall be accompanied by an Opinion of Counsel that such event will not be a taxable event to the Holders of the Trust Securities for Federal income tax purposes. Section 8.03. Dissolution. The respective obligations and responsibilities of the Trustees and the Trust continued hereby shall terminate upon the latest to occur of the following: (a) the distribution by the Property Trustee to Securityholders upon the liquidation of the Trust pursuant to Section 8.04, or upon the redemption of all of the Trust Securities pursuant to Section 4.02, of all amounts required to be distributed hereunder upon the final payment of the Trust Securities; (b) the payment of any expenses owed by the Trust; and (c) the discharge of all administrative duties of the Administrative Trustee, including the performance of any tax reporting obligations with respect to the Trust or the Securityholders. Section 8.04. Liquidation (a) If an Early Dissolution Event specified in clause (a), (c) or (d) of Section 8.02 occurs or upon the Expiration Date, the Trust shall be liquidated by the Trustees as expeditiously as the Trustees determine to be possible by distributing, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, to each Securityholder a Like Amount of Debentures, subject to Section 8.04(d). If an Early Dissolution Event specified in clause (b) occurs, the Trust shall be liquidated by the Trustee on the date of distribution of the Debentures specified by the Depositor in its notice delivered pursuant to Section 8.02. Notice of liquidation shall be given by the Property Trustee by first-class mail, postage prepaid, mailed not later than 30 nor more than 60 days prior to the Liquidation Date to each Holder of Trust Securities at such Holder's address appearing in the Securities Register. All notices of liquidation shall: (i) state the Liquidation Date; (ii) state that from and after the Liquidation Date, the Trust Securities will no longer be deemed to be Outstanding and any Trust Securities Certificates not surrendered for exchange will be deemed to represent a Like Amount of Debentures; and (iii)provide such information with respect to the mechanics by which Holders may exchange Trust Securities Certificates for certificates evidencing Debentures, or, if Section 8.04(d) applies, receive a Liquidation Distribution, as the Administrative Trustee or the Property Trustee shall deem appropriate. (b) In order to effect the liquidation of the Trust and distribution of the Debentures to Securityholders, the Property Trustee, either itself acting as exchange agent or through the appointment of a separate exchange agent, shall establish such procedures as it shall deem appropriate to effect the distribution of Debentures in exchange for the Outstanding Trust Securities Certificates. (c) Except where Section 8.02(c) or 8.04(d) applies, on or after the Liquidation Date, (i) the Trust Securities will no longer be deemed to be Outstanding, (ii) certificates representing a Like Amount of Debentures will be issued to Holders of Trust Securities Certificates, upon surrender of such certificates to the Administrative Trustee or its agent for exchange, (iii) the Depositor shall use its best efforts to have the Debentures listed on the New York Stock Exchange or such other exchange as the Preferred Securities are then listed and shall take any reasonable action necessary to effect the distribution of the Debentures, (iv) any Trust Securities Certificates not so surrendered for exchange will be deemed to represent a Like Amount of Debentures, accruing interest at the rate provided for in the Debentures from the last Distribution Date on which a Distribution was made on such Trust Securities Certificates until such certificates are so surrendered (and until such certificates are so surrendered, no payments of interest or principal will be made to Holders of Trust Securities Certificates with respect to such Debentures) and (v) all rights of Securityholders holding Trust Securities will cease, except the right of such Securityholders to receive Debentures upon surrender of Trust Securities Certificates. (d) In the event that, notwithstanding the other provisions of this Section 8.04, whether because of an order for dissolution entered by a court of competent jurisdiction or otherwise, distribution of the Debentures in the manner provided herein is determined by the Property Trustee not to be practical, the Trust Property shall be liquidated, and the Trust shall be dissolved, by the Property Trustee in such manner as the Property Trustee determines. In such event, on the date of the dissolution of the Trust, Securityholders will be entitled to receive out of the assets of the Trust available for distribution to Securityholders, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, an amount equal to the Liquidation Amount per Trust Security plus accumulated and unpaid Distributions thereon to the date of payment (such amount being the "Liquidation Distribution"). If, upon any such dissolution, the Liquidation Distribution can be paid only in part because the Trust has insufficient assets available to pay in full the aggregate Liquidation Distribution, then, subject to the next succeeding sentence, the amounts payable by the Trust on the Trust Securities shall be paid on a pro rata basis (based upon Liquidation Amounts). The Holder of the Common Securities will be entitled to receive Liquidation Distributions upon any such dissolution pro rata (determined as aforesaid) with Holders of Preferred Securities, except that, if a Debenture Event of Default has occurred and is continuing, the Preferred Securities shall have a priority over the Common Securities, and no Liquidation Distribution will be paid to the Holders of the Common Securities unless and until receipt by all Holders of the Preferred Securities of the entire Liquidation Distribution payable in respect thereof. ARTICLE IX Mergers, Etc. Section 9.01. Mergers, Consolidations, Amalgamations or Replacements of the Trust. The Trust may not merge with or into, consolidate, amalgamate, or be replaced by, or convey, transfer or lease its properties and assets as an entirety or substantially as an entirety to any Person, except as described below or under Article VIII. The Trust may, at the request of the Depositor, with the consent of the Administrative Trustee and without the consent of the Holders of the Preferred Securities, merge with or into, consolidate, amalgamate, or be replaced by, a trust organized as such under the laws of any State; provided, that (i) such successor entity either (a) expressly assumes all of the obligations of the Trust with respect to the Preferred Securities or (b) substitutes for the Preferred Securities other securities having substantially the same terms as the Preferred Securities (the "Successor Securities") so long as the Successor Securities rank the same as the Preferred Securities rank with respect to the payment of Distributions and payments upon liquidation and redemption, (ii) the Depositor expressly appoints a trustee of such successor entity possessing the same powers and duties as the Property Trustee with respect to the Debentures, (iii) the Successor Securities are listed, or any Successor Securities will be listed upon notification of issuance, on any national securities exchange or other organization on which the Preferred Securities are then listed, (iv) such merger, consolidation, amalgamation or replacement does not cause the Preferred Securities (including any Successor Securities) to be downgraded by any nationally recognized statistical rating organization, (v) such merger, consolidation, amalgamation or replacement does not adversely affect the rights, preferences and privileges of the Holders of the Preferred Securities (including any Successor Securities) in any material respect, (vi) such successor entity has a purpose substantially similar to that of the Trust, (vii) prior to such merger, consolidation, amalgamation or replacement, the Depositor has received an Opinion of Counsel to the effect that (a) such merger, consolidation, amalgamation or replacement does not adversely affect the rights, preferences and privileges of the Holders of the Preferred Securities (including any Successor Securities) in any material respect, and (b) following such merger, consolidation, amalgamation or replacement, neither the Trust nor such successor entity will be required to register as an investment company under the 1940 Act and (viii) the Depositor or any permitted successor assignee owns all of the common securities of such successor entity and guarantees the obligations of such successor entity under the Successor Securities at least to the extent provided by the Guarantee and this Trust Agreement. Notwithstanding the foregoing, the Trust shall not, except with the consent of all Holders of the Preferred Securities, merge with or into, consolidate, amalgamate, or be replaced by, any other entity or permit any other entity to consolidate, amalgamate, merge with or into, or replace it if such consolidation, amalgamation, merger or replacement would cause the Trust or the successor entity not to be classified as a grantor trust for United States Federal income tax purposes. ARTICLE X Miscellaneous Provisions Section 10.01. Limitation of Rights of Securityholders. The death, incapacity, bankruptcy, dissolution and termination of any Person having an interest, beneficial or otherwise, in Trust Securities shall not operate to terminate this Trust Agreement or dissolve, terminate or annul the Trust, nor entitle the legal representatives or heirs of such Person or any Securityholder for such Person, to claim an accounting, take any action or bring any proceeding in any court for a partition or winding-up of the arrangements contemplated hereby, nor otherwise affect the rights, obligations and liabilities of the parties hereto or any of them. Section 10.02. Amendment (a) This Trust Agreement may be amended from time to time by the Trustees and the Depositor, without the consent of any Securityholders, to cure any ambiguity, defect or inconsistency or make any other change which does not adversely affect in any material respect the interests of any Holder of Preferred Securities. Any amendments of this Trust Agreement pursuant to Section 10.02(a) shall become effective when notice thereof is given to the Securityholders. (b) Except as provided in Section 10.02(a) and 10.02(c) hereof, any provision of this Trust Agreement may be amended by the Trustees and the Depositor with the consent of Holders of at least a majority of the aggregate Liquidation Amount of the Outstanding Preferred Securities. (c) In addition to and notwithstanding any other provision in this Trust Agreement, without the consent of each affected Securityholder (such consent being obtained in accordance with Section 6.03 or 6.06 hereof), this Trust Agreement may not be amended to (i) change the method of calculation of, timing or currency of any Distribution or Liquidation Distribution on the Trust Securities or otherwise adversely affect the method of payment of any Distribution or Liquidation Distribution required to be made in respect of the Trust Securities as of a specified date; (ii) change the redemption provisions of the Trust Securities; (iii) restrict the right of a Securityholder to institute suit for the enforcement of any such payment contemplated in (i) or (ii) above on or after the related date; (iv) modify the first sentence of Section 2.06 hereof; (v) authorize or issue any beneficial interest in the Trust other than as contemplated by this Trust Agreement as of the date hereof; (vi) change the conditions precedent for the Depositor to elect to dissolve the Trust and distribute the Debentures to Holders of Trust Securities as set forth in Section 8.02; or (vii) affect the limited liability of any Holder of Preferred Securities, and, notwithstanding any other provision herein, without the unanimous consent of the Securityholders (such consent being obtained in accordance with Section 6.03 or 6.06 hereof), paragraphs (b) and (c) of this Section 10.02 may not be amended. (d) Notwithstanding any other provisions of this Trust Agreement, no amendment to this Trust Agreement shall be made without receipt by the Trust of an Opinion of Counsel experienced in such matters to the effect that such amendment will not affect the Trust's status as a grantor trust for United States Federal income tax purposes or its exemption from regulation as an "investment company" under the 1940 Act. (e) Notwithstanding anything in this Trust Agreement to the contrary, without the consent of the Depositor, this Trust Agreement may not be amended in a manner which imposes any additional obligation on the Depositor. (f) In the event that any amendment to this Trust Agreement is made, the Administrative Trustee shall promptly provide to the Depositor a copy of such amendment. (g) In executing any amendment to this Trust Agreement, the Property Trustee shall be entitled to receive, and (subject to Section 7.01) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such amendment is authorized or permitted by this Trust Agreement. Except as contemplated by Section 7.11, a Trustee may, but shall not be obligated to, enter into any amendment to this Trust Agreement which affects such Trustee's own rights, duties or immunities under this Trust Agreement or otherwise. Section 10.03. Severability. In case any provision in this Trust Agreement or in the Trust Securities Certificates shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 10.04. Governing Law. THIS TRUST AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE SECURITYHOLDERS, THE TRUST AND THE TRUSTEES WITH RESPECT TO THIS TRUST AGREEMENT AND THE TRUST SECURITIES SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES. Section 10.05. Payments Due on Non-Business Day. Except as provided in Section 4.01(a) hereof, if the date fixed for any payment on any Trust Security shall be a day which is not a Business Day, then such payment need not be made on such date but may be made on the next succeeding day which is a Business Day (except as otherwise provided therein, with the same force and effect as though made on the date fixed for such payment), and no interest shall accumulate thereon for the period after such date to the date of payment on such succeeding day. Section 10.06. Successors and Assigns. This Trust Agreement shall be binding upon and shall inure to the benefit of any successor to the Trust or successor Trustee or both, including any successor by operation of law. Except in connection with a consolidation, merger or sale involving the Depositor that is permitted under Article V of the Indenture and pursuant to which the assignee agrees in writing to perform the Depositor's obligations hereunder, the Depositor shall not assign its obligations hereunder. Section 10.07. Headings. The Article and Section headings are for convenience only and shall not affect the construction of this Trust Agreement. Section 10.08. Reports, Notices and Demands. Any report, notice, demand or other communication which by any provision of this Trust Agreement is required or permitted to be given or served to or upon any Securityholder or the Depositor may be given or served in writing by deposit thereof, first-class postage prepaid in the United States mail, hand delivery or facsimile transmission, in each case, addressed, (a) in the case of a Holder of a Preferred Security, to such Holder of a Preferred Security as such Securityholder's name and address may appear on the Securities Register; and (b) in the case of the Holder of a Common Security or the Depositor, to Public Service Enterprise Group Incorporated, 80 Park Plaza, Newark, New Jersey 07101, Attention: Treasurer, facsimile no.: (973) 596-6309. Such notice, demand or other communication to or upon a Securityholder or the Depositor shall be deemed to have been sufficiently given or made, for all purposes, upon hand delivery, mailing or transmission. Any notice, demand or other communication which by any provision of this Trust Agreement is required or permitted to be given or served to or upon the Trust, the Property Trustee or the Administrative Trustee shall be given in writing addressed (until another address is published by the Trust) as follows: (a) with respect to the Property Trustee to First Union National Bank, 765 Broad Street, Newark, New Jersey 07101, Attention: Corporate Trust Office; (b) with respect to the Delaware Trustee, to One Rodney Square, 920 King Street, Wilmington, Delaware 19801 Attention: Corporate Trust Department; and (c) with respect to the Administrative Trustee, to the address above for notices to the Depositor, marked "Attention: Administrative Trustee of Enterprise Capital Trust II c/o Treasurer." Such notice, demand or other communication to or upon the Trus, the Delaware Trustee or the Property Trustee shall be deemed to have been sufficiently given or made only upon actual receipt of the writing by the Trust, the Delaware Trustee or the Property Trustee. Section 10.09. Agreement Not to Petition. Each of the Trustees and the Depositor agree for the benefit of the Securityholders that, until at least one year and one day after the Trust has been terminated in accordance with Article VIII, they shall not file, or join in the filing of, a petition against the Trust under any Bankruptcy Laws or otherwise join in the commencement of any proceeding against the Trust under any Bankruptcy Law. In the event the Depositor or any of the Trustees takes action in violation of this Section 10.09, the Property Trustee agrees, for the benefit of Securityholders, that at the expense of the Depositor, it shall file an answer with the bankruptcy court or otherwise properly contest the filing of such petition by the Depositor or any of the Trustees, as applicable, against the Trust or the commencement of such action and raise the defense that the Depositor or Trustee, as applicable, has agreed in writing not to take such action and should be stopped and precluded therefrom and such other defenses, if any, as counsel for the Property Trustee or the Trust may assert. The provisions of this Section 10.09 shall survive the termination of this Trust Agreement. Section 10.10. Trust Indenture Act; Conflict with Trust Indenture Act. (a) This Trust Agreement is subject to the provisions of the Trust Indenture Act that are required to be part of this Trust Agreement and shall, to the extent applicable, be governed by such provisions. (b) The Property Trustee shall be the only Trustee which is a trustee for the purposes of the Trust Indenture Act. (c) If any provision hereof limits, qualifies or conflicts with another provision hereof which is required to be included in this Trust Agreement by any of the provisions of the Trust Indenture Act, such required provision shall control. If any provision of this Trust Agreement modifies or excludes any provision of the Trust Indenture Act which may be so modified or excluded, the latter provision shall be deemed to apply to this Trust Agreement as so modified or excluded, as the case may be. (d) The application of the Trust Indenture Act to this Trust Agreement shall not affect the nature of the Trust Securities as equity securities representing undivided beneficial interests in the assets of the Trust. Section 10.11 Acceptance of Terms of Trust Agreement, Guarantee and Indenture. THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST THEREIN BY OR ON BEHALF OF A SECURITYHOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY SIGNATURE OR FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE UNCONDITIONAL ACCEPTANCE BY THE SECURITYHOLDER AND ALL OTHERS HAVING A BENEFICIAL INTEREST IN SUCH TRUST SECURITY OF ALL THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT AND AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER TERMS OF THE GUARANTEE AND THE INDENTURE, AND SHALL CONSTITUTE THE AGREEMENT OF THE TRUST, SUCH SECURITYHOLDER AND SUCH OTHERS THAT THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT SHALL BE BINDING, OPERATIVE AND EFFECTIVE AS BETWEEN THE TRUST AND SUCH SECURITYHOLDER AND SUCH OTHERS. PUBLIC SERVICE ENTERPRISE FIRST UNION NATIONAL BANK, as GROUP INCORPORATED, as Depositor Property Trustee By: MORTON A. PLAWNER By: FRANK GALLAGHER ----------------- --------------- Name: Morton A. Plawner Name: Frank Gallagher Title: Treasurer Title: Vice President Fred F. Saunders, FIRST UNION BANK OF DELAWARE, as Administrative Trustee as Delaware Trustee FRED F. SAUNDERS By: FRANK GALLAGHER - ---------------- --------------- Name: Frank Gallagher Title: Vice President EX-4 3 FIRST SUPPLEMENTAL INDENTURE PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED and FIRST UNION NATIONAL BANK, as Trustee FIRST SUPPLEMENTAL INDENTURE Dated as of June 1, 1998 to INDENTURE Dated as of January 1, 1998 Floating Rate Deferrable Interest Subordinated Debentures, Series B TABLE OF CONTENTS ----------------- Page ---- ARTICLE 1. DEFINITIONS...............................................2 SECTION 1.01 Definitions.................................2 ARTICLE 2. THE SERIES B DEBENTURES...................................2 SECTION 2.01 Terms and Form of the Series B Debentures....2 ARTICLE 3. REDEMPTION................................................5 SECTION 3.01 Redemption; Notice to Trustee...............5 ARTICLE 4. COVENANT..................................................5 SECTION 4.01 Payment of Expenses of Trust II.............5 ARTICLE 5. MISCELLANEOUS.............................................5 SECTION 5.01 Confirmation of Indenture...................5 SECTION 5.02 Notices.....................................5 SECTION 5.03 Severability Clause.........................6 SECTION 5.04 No Recourse Against Others..................6 SECTION 5.05 Successors..................................7 SECTION 5.06 Multiple Original Copies of this Indenture..7 SECTION 5.07 Table of Contents; Headings, Etc............7 FIRST SUPPLEMENTAL INDENTURE, dated as of June 1, 1998, by and between Public Service Enterprise Group Incorporated, a corporation duly organized and existing under the laws of the State of New Jersey (the "Company") and First Union National Bank, a national banking association organized and existing under the laws of the United States of America, as trustee (the "Trustee") under the Indenture dated as of January 1, 1998 between the Company and the Trustee. WHEREAS, the Company executed and delivered the Indenture dated as of January 1, 1998 to the Trustee to provide for the issuance of its deferrable interest subordinated debentures (the "Debentures") in series from time to time as might be determined by the Company and pursuant thereto, the Company has issued its 7.44% Deferrable Interest Subordinated Debentures, Series A. WHEREAS, pursuant to an Amended and Restated Trust Agreement dated as of June 26, 1998 (the "Trust II Agreement"), among the Company, as depositor, First Union National Bank, as Property Trustee (the "Property Trustee II"), the Delaware Trustee named therein and the Administrative Trustees named therein, there has been declared and established Enterprise Capital Trust II, a Delaware business trust ("Trust II"). WHEREAS, Trust II intends to issue its Trust Securities (as defined in the Trust II Agreement), including its Floating Rate Capital Securities, Series B, representing undivided beneficial interests in the assets of Trust II and having a liquidation amount of $1,000 per security (the "Series B Capital Securities"). WHEREAS, the Company has authorized the issuance of a series of additional debentures pursuant to Section 2.04 of the Indenture to be designated as the Company's Floating Rate Deferrable Interest Subordinated Debentures, Series B (the "Series B Debentures") to be purchased by Trust II with the proceeds of the Trust Securities, and to provide therefor, the Company has duly authorized the execution and delivery of this First Supplemental Indenture. WHEREAS, all things necessary to make the Series B Debentures when duly issued and executed by the Company and authenticated and delivered hereunder, the valid obligations of the Company, and to make this First Supplemental Indenture a valid and binding agreement of the Company, in accordance with its terms, have been done. NOW THEREFORE: Each of the Company and the Trustee, intending to be legally bound hereby, agrees as follows for the benefit of the other party and for the equal and ratable benefit of the holders of the Debentures, including the Series B Debentures: ARTICLE 1. DEFINITIONS SECTION 1.01 Definitions The following terms used in this First Supplemental Indenture shall have the following meanings: "Debentureholder" or "Holder" means a Person in whose name a Series B Debenture is registered on the Registrar's books. "Series B Debentures" means any of the Company's Floating Rate Deferrable Interest Subordinated Debentures, Series B issued under this First Supplemental Indenture. "Series B Guarantee Agreement" means that certain Guarantee Agreement issued by the Company with respect to the Series B Capital Securities, in which the Company irrevocably and unconditionally agrees to pay the Guarantee Payments (as defined in the Guarantee Agreement) to the holders of the Series B Capital Securities. "Series B Capital Securities" means the undivided beneficial interests in the assets of Trust II, having a liquidation amount of $1,000 and having rights provided therefor in the Trust II Agreement. "Trust II" means Enterprise Capital Trust II, a Delaware business trust created by the Trust II Agreement. "Trust II Agreement" means the Amended and Restated Trust Agreement dated as of June 26, 1998, among the Company, as Depositor, Fidelity Union National Bank, as Property Trustee, the Delaware Trustee named therein and the Administrative Trustees named therein, as the same may be amended and modified from time to time. Each of the other terms used in this First Supplemental Indenture that is defined in the Indenture and not defined herein shall have the meaning assigned to it in the Indenture. ARTICLE 2. THE SERIES B DEBENTURES SECTION 2.01 Terms and Form of the Series B Debentures (a) The Series B Debentures shall be designated "Public Service Enterprise Group Incorporated Floating Rate Deferrable Interest Subordinated Debentures, Series B." The Series B Debentures and the Trustee's Certificate of Authentication shall be substantially in the form of Exhibit A attached hereto. The Series B Debentures shall initially be issued as global Debentures in accordance with the provisions of Section 2.12 of the Indenture with The Depository Trust Company as Depositary. The terms and provisions contained in the Series B Debentures shall constitute, and are hereby expressly made, a part of this First Supplemental Indenture. The Company and the Trustee, by their execution and delivery of this First Supplemental Indenture, expressly agree to such terms and provisions and to be bound thereby. (b) The aggregate principal amount of Series B Debentures outstanding at any time may not exceed $154,640,000 except as provided in Section 2.09 of the Indenture. The Series B Debentures shall be authenticated and delivered from time to time upon delivery to the Trustee of the items specified in Section 2.04(d) of the Indenture. (c) The Stated Maturity Date of the Series B Debentures is June 30, 2028. (d) The interest rate of the Series B Debentures will be a floating rate per annum determined quarterly by reference to 3-Month LIBOR, determined as described herein, plus a margin of 1.22%. "3-Month LIBOR" means the London interbank offered rate for three-month U.S. dollar deposits and with respect to any Interest Period (as defined below) will be calculated by First Union National Bank or any successor appointed by the Company as Calculation Agent, as permitted by this First Supplemental Indenture (the "Calculation Agent") as follows: i. On the second Market Day (as defined below) preceding the commencement of such Interest Period (each, a "Determination Date"), 3-Month LIBOR will be determined on the basis of the offered rate for deposits of not less than U.S. $1,000,000 for a period of three months (the "Index Maturity"), commencing on such Market Day, which appears on the display designated as Page 3750 on the Dow Jones Markets Limited (or such other page as may replace Page 3750 on that service (or any successor service) for the purpose of displaying London interbank offered rates of major banks) ("Telerate Page 3750") as of 11:00 a.m., London time on such Market Day. If no such offered rate appears, 3-Month LIBOR with respect to such Interest Period will be determined as described in (ii) below. The term "Interest Period" means each period beginning on, and including, the date of original issuance and ending on, but excluding, the first Interest Payment Date (as defined below) , and each successive period, so beginning on an Interest Payment Date and so ending on, but excluding the next successive Interest Payment Date. ii. With respect to a Determination Date on which no such offered rate appears on Telerate Page 3750 as described in (i) above, 3-Month LIBOR shall be the arithmetic mean, expressed as a percentage, of the offered rates for deposits in U.S. dollars for the Index Maturity which appears on the display designated as "LIBO" on the Reuter Monitor Money Market Rates Service (or such other page as may replace the LIBO page on that service (or any successor service) for the purpose of displaying London interbank offered rates of major banks) ("Reuters Screen LIBO Page") as of 11:00 a.m., London time, on such Market Day. If, in turn, such rate is not displayed on the Reuters Screen LIBO Page at such time, the Calculation Agent will obtain from each of four reference banks in London selected by the Calculation Agent (the "Reference Banks") such bank's offered quotation (expressed as a percentage per annum) as of approximately 11:00 a.m., London time, on such Market Day for deposits in U.S. dollars for the Index Maturity to prime banks in the London interbank market. If two or more such quotations are provided as requested, then 3-Month LIBOR for such Market Day shall be the arithmetic mean of such quotations. If, in turn, fewer than two such quotations are provided as requested, then 3-Month LIBOR for such Market Day will be obtained from the preceding Market Day for which the Reuters Screen LIBO Page displayed an offered rate for deposits in U.S. dollars for the Index Maturity. iii. If on any Determination Date, the Calculation Agent is required but unable to determine 3-Month LIBOR in the manner provided in paragraphs (i) and (ii) above, 3-Month LIBOR for such Interest Period shall be 3-Month LIBOR as determined on the immediately preceding Determination Date. The term "Market Day" means any day on which commercial banks and foreign exchange markets are open for business (including dealings in foreign exchange and foreign currency deposits) in The City of New York and The City of London. The interest rate for any Interest Period will at no time be higher than the maximum rate then permitted by applicable law. All percentages resulting from any calculations referred to herein will be rounded, if necessary, to the nearest multiple of 1/100 of 1% and all U.S. dollar amounts used in or resulting from such calculations will be rounded to the nearest cent (with one-half cent or more being rounded upwards). The Calculation Agent shall, as soon as practicable after 11:00 a.m., London time, on each Determination Date, determine the interest rate and calculate the amount of interest payable in respect of the Interest Period related to such Determination Date (the "Interest Amount"). The Interest Amount shall be calculated by applying the interest rate to the principal amount of each Series B Debenture outstanding at the commencement of the Interest Period, multiplying such amount by the actual number of days in the applicable Interest Period divided by 360 and rounding the resultant figure to the nearest cent (with one-half cent or more being rounded upwards). The determination of the interest rate and the Interest Amount by the Calculation Agent will (in the absence of willful default, bad faith or manifest error) be final, conclusive and binding on all concerned. Neither the Calculation Agent nor the Company (or any of their respective officers, directors, agents, beneficiaries, employees or affiliates) shall have any liability to any person for (i) the selection of any Reference Bank or (ii) any inability to retain major banks in the London interbank market, in the case of the Calculation Agent, which is caused by circumstances beyond its reasonable control. All certificates, communications, opinions, determinations, calculations, quotations and decisions given, expressed, made or obtained for the purposes of the provisions hereof relating to the payment and calculation of interest on the Series B Debentures, whether by the Reference Banks (or any of them) or the Calculation Agent, will (in the absence of willful default, bad faith or manifest error) be binding on Trust II, the Company, the Trustee, the Calculation Agent and all of the holders of the Series B Debentures and no liability will (in the absence of willful default, bad faith or manifest error) attach to the Calculation Agent in connection with the exercise or non-exercise by it of its powers, duties and discretion. (e) The "Interest Payment Dates" for the Series B Debentures are March 31, June 30, September 30 and December 31 of each year, commencing September 30, 1998. In the event that any date on which interest is payable on the Series B Debentures is not a Business Day, then payment of interest payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), except that if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. The Regular Record Date for each Interest Payment Date for the Series B Debentures shall be the 15th day (whether or not a Business Day) of the last month of each quarter, provided that if Trust II is the sole Holder of the Series B Debentures or the Series B Debentures are issued in book-entry-only form, the Regular Record Date shall be the close of business on the Business Day next preceding such Interest Payment Date. Each Series B Debenture shall bear interest from its Issue Date or from the most recent Interest Payment Date to which interest has been paid or duly provided for with respect to such Series B Debenture; except that, so long as there is no existing Defaulted Interest or Extension Period on the Series B Debentures, any Series B Debenture authenticated by the Trustee between the Regular Record Date for any Interest Payment Date and such Interest Payment Date shall bear interest from such Interest Payment Date. Overdue principal of, and interest on, any Series B Debenture and interest which has been deferred pursuant to Section 4.01(b) of the Indenture shall bear interest (to the extent that the payment of such interest shall be legally enforceable) at a rate per annum equal to the interest rate per annum payable on such Series B Debenture. The Calculation Agent will cause the interest rate, the Interest Amount in respect of each Series B Debenture and the interest payment date for each Interest Period to be given to the Trustee, the Property Trustee and the Company as soon as practicable after the determination thereof but in no event later than the second Business Day of the applicable Interest Period. (f) The Series B Debentures shall be issuable only in registered form without coupons and only in denominations of $1,000 and any integral multiple thereof. (g) The maximum Extension Period for the Series B Debentures shall be 20 consecutive quarters. (h) First Union National Bank shall initially be the Paying Agent for the Series B Debentures. (i) First Union National Bank shall initially be the Calculation Agent for the Series B Debenture. In the event of the resignation or removal of First Union National Bank as the Calculation Agent, the Company will promptly appoint a successor Calculation Agent and such successor Calculation Agent shall, without any further act, deed or conveyance become vested with all of the authority, rights, duties and obligations of the Calculation Agent with the like effect as if originally appointed as Calculation Agent. ARTICLE 3. REDEMPTION SECTION 3.01 Redemption; Notice to Trustee (a) The Series B Debentures are subject to redemption prior to maturity as provided therein. (b) Any redemption of the Series B Debentures shall be made in the manner, upon the terms and with the effect, all as provided in Sections 3.01(c), 3.02, 3.03, 3.04, 3.05 and 3.06 of the Indenture. ARTICLE 4. COVENANT SECTION 4.01. Payment of Expenses of Trust II. The Company covenants for the benefit of the Holders of the Series B Debentures to pay all of the costs and expenses of Trust II in accordance with Section 2.03(b) of the Trust II Agreement and to pay the taxes of Trust II in accordance with Section 2.03(c) of the Trust II Agreement in order to permit Trust II to make distributions on and redemptions of the Series B Capital Securities in accordance with Article IV of the Trust II Agreement. ARTICLE 5. MISCELLANEOUS SECTION 5.01 Confirmation of Indenture As amended and supplemented by this First Supplemental Indenture, the Indenture is in all respects ratified and confirmed and the Indenture and this First Supplemental Indenture shall be read, taken and construed as one and the same instrument. SECTION 5.02 Notices Any notice, request or other communication required or permitted to be given hereunder shall be in writing and delivered, telecopied or mailed by first-class mail, postage prepaid, addressed as follows: if to the Company: Public Service Enterprise Group Incorporated 80 Park Plaza, T6B P.O. Box 570 Newark, New Jersey 07101 Facsimile No. (973) 242-1651 Attention: Treasurer if to the Trustee: First Union National Bank 765 Broad Street Newark, New Jersey 07101 Facsimile No. (973) 430-2117 Attention: Corporate Trust Department The Company or the Trustee, by giving notice to the other, may designate additional or different addresses for subsequent notices of communications. The Company shall notify the holder, if any, of Senior Indebtedness of any such additional or different addresses of which the Company receives notice from the Trustee. Any notice or communication given to a Debentureholder other than Trust II shall be mailed to the Debentureholder at the Debentureholder's address as it appears on the Register of the Registrar and shall be sufficiently given if mailed within the time prescribed. Failure to mail a notice or communication to a Debentureholder or any defect in it shall not affect its sufficiency with respect to other Debentureholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not received by the addressees. If the Company mails a notice or communication to the Debentureholders, it shall mail a copy to the Trustee and each Registrar, Paying Agent or co-Registrar. SECTION 5.03 Severability Clause If any provision in this Indenture or in the Series B Debentures shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 5.04 No Recourse Against Others. No director, officer, employee or stockholder, as such, of the Company shall have any liability for any obligations of the Company under the Series B Debentures or this First Supplemental Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Series B Debenture, each Debentureholder shall waive and release all such liability. The waiver and release shall be a part of the consideration for the issue of the Series B Debentures. SECTION 5.05 Successors. All agreements of the Company in this First Supplemental Indenture and the Series B Debentures shall bind its successors and assigns. All agreements of the Trustee in this First Supplemental Indenture shall bind its successors and assigns. SECTION 5.06 Multiple Original Copies of this Indenture The parties may sign any number of copies of this First Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Any signed copy shall be sufficient proof of this First Supplemental Indenture. SECTION 5.07 Table of Contents; Headings, Etc The Table of Contents, Cross-Reference Table and headings of the Articles and Sections of this First Supplemental Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof. SIGNATURES IN WITNESS WHEREOF, the undersigned, being duly authorized, have executed this First Supplemental Indenture on behalf of the respective parties hereto as of the date first above written. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED By: MORTON A. PLAWNER ----------------- Name: Morton A. Plawner Title: Treasurer FIRST UNION NATIONAL BANK, as Trustee By: FRANK GALLAGHER --------------- Name: Frank Gallagher Title: Vice President Exhibit A PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED Floating Rate Deferrable Interest Subordinated Debenture, Series B No. R-1 Public Service Enterprise Group Incorporated, a New Jersey corporation (the "Company", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to Enterprise Capital Trust II or registered assigns, the principal sum of One Hundred Fifty-Four Million Six Hundred Forty Thousand Dollars ($154,640,000) on June 30, 2028, and to pay interest on said principal sum from June 26, 1998 or from the most recent Interest Payment Date (as defined below) to which interest has been paid or duly provided for, quarterly in arrears and reset on March 31, June 30, September 30 and December 31 commencing September 30, 1998 (each, an "Interest Payment Date") at floating rate per annum determined quarterly by reference to 3-Month LIBOR, determined as provided in the Indenture, plus a margin of 1.22% until the principal hereof shall have become due and payable, and on any overdue principal and (to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the same rate per annum. The amount of interest payable on any Interest Payment Date shall be calculated by applying the interest rate to the principal amount outstanding at the commencement of the Interest Period, multiplying such amount by the actual number of days in the applicable Interest Period divided by 360 and rounding the resultant figure to the nearest cent (with one-half cent or more being rounded upwards). In the event that any Interest Payment Date is not a Business Day, then interest will be payable on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. The interest installment so payable, and punctually paid or duly provided for as provided in the Indenture, shall be paid to the Person in whose name this Debenture is registered at the close of business on the Regular Record Date for such interest installment, which shall be the 15th day (whether or not a Business Day) of the last month of each quarter, provided that if all of the Series B Debentures (as defined below) are then held by Enterprise Capital Trust II (the "Trust") or the Series B Debentures are held in book-entry-only form, the Regular Record Date shall be the close of business on the Business Day next preceding such Interest Payment Date. Any such interest installment not punctually paid or duly provided for shall forthwith cease to be payable to the Holders on such Regular Record Date, and may be paid to the Person in whose name this Debenture is registered at the close of business on a Special Record Date to be fixed by the Trustee (as defined below) for the payment of such defaulted interest, notice whereof shall be given to the Holders of the Series B Debentures not less than 7 days prior to such Special Record Date, as more fully provided in the Indenture. Payment of the principal of and interest on this Debenture will be made in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. Payments of interest on an Interest Payment Date will be made by check mailed to the Holder hereof at the address shown in the Register or, at the option of the Holder hereof, to such other place in the United States of America as Holder hereof shall designate to the Trustee in writing. At the request of a Holder of at least $10,000,000 aggregate principal amount of Series B Debentures, interest on such Debentures will be payable by wire transfer within the continental United States in immediately available funds to the bank account number specified in writing by such Holder to the Registrar prior to the Regular Record Date. The principal amount hereof and interest due on the Stated Maturity Date or a Redemption Date (other than an Interest Payment Date) will be paid only upon surrender of this Debenture at the principal corporate trust office of First Union National Bank, Paying Agent, in Newark, NJ, or at such other office or agency of the Paying Agent as the Company shall designate by written notice to the Holder of this Debenture. The indebtedness evidenced by this Debenture is, to the extent provided in the Indenture, subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness, and this Debenture is issued subject to the provisions of the Indenture with respect thereto. The Holder of this Debenture, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination so provided and (c) appoints the Trustee his attorney-in-fact for any and all such purposes. The Holder of this Debenture, by his acceptance hereof, hereby waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Indebtedness, whether now outstanding or hereafter incurred, and waives reliance by each such holder upon said provisions. This Debenture is one of a duly authorized series of Debentures of the Company (herein sometimes referred to as the "Series B Debentures"), specified in the Indenture, limited in aggregate principal amount to One Hundred Fifty-Four Million, Six Hundred Forty Thousand Dollars ($154,640,000) issued under and pursuant to an Indenture dated as of January 1, 1998 executed and delivered between the Company and First Union National Bank, as trustee (the "Trustee"), as supplemented by the First Supplemental Indenture dated as of June 1, 1998 between the Company and the Trustee (said Indenture as so supplemented being hereinafter referred to as the "Indenture"). The Series B Debentures are initially being issued to the Trust, to be held on behalf of the Trust by its property trustee (the "Property Trustee"). Concurrently with the issuance of the Series B Debentures, the Trust is issuing its trust securities, representing undivided beneficial interests in the assets of the Trust and having an aggregate liquidation amount equal to the principal amount of the Series B Debentures, including the Trust's Floating Rate Capital Securities, Series B (the "Preferred Securities"). By the terms of the Indenture, Debentures are issuable in series which may vary as to amount, date of maturity, rate of interest and in other respects as provided in the Indenture. Reference is made to the Indenture and all indentures supplemental thereto for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the Holders of the Debentures. Each term used in this Debenture which is defined in the Indenture and not defined herein shall have the meaning assigned to it in the Indenture. The following redemption provisions shall apply to the Series B Debentures: Regular Redemption The Series B Debentures may be redeemed in whole or part at the option of the Company at any time on or after June 30, 2003 at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest to the redemption date. Special Event Redemption If a Tax Event or an Investment Company Event (each, a "Special Event") has occurred and is continuing, the Company may redeem the Series B Debentures, in whole but not in part, at a price equal to 100% of the principal amount thereof plus accrued and unpaid interest to the redemption date within 90 days following the occurrence of such Special Event. "Tax Event" means that the Company shall have received an opinion of counsel (which may be counsel to the Company or an affiliate but not an employee thereof and which must be acceptable to the Property Trustee) experienced in such matters to the effect that, as a result of any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein affecting taxation, or as a result of any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or such pronouncement or decision is announced on or after the date of original issuance of the Series B Capital Securities, there is more than an insubstantial risk that (i) the Trust is, or will be, subject to federal income tax with respect to interest on the Series B Debentures, (ii) interest payable by the Company on the Series B Debentures is not, or will not be, deductible by the Company for federal income tax purposes or (iii) the Trust is, or will be, subject to more than a de minimis amount of other taxes, duties, assessments or other governmental charges. "Investment Company Event" means the occurrence of a change in law or regulation or a change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority (a "Change in 1940 Act Law") to the effect that the Trust is or will be considered an "investment company" that is required to be registered under the Investment Company Act of 1940, as amended, which Change in 1940 Act Law becomes effective on or after the date of original issuance of the Series B Capital Securities. At least 30 days but not more than 60 days before the Redemption Date, the Trustee shall mail or caused to be mailed a notice of redemption by first-class mail, postage prepaid, to each Holder of Series B Debentures to be redeemed. In the event of redemption of this Debenture in part only, a new Series B Debenture or Debentures for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof. In case an Event of Default with respect to the Series B Debentures occurs and is continuing, the principal of and interest on all of the Series B Debentures may (and, in certain circumstances shall) be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions for defeasance at any time of the entire indebtedness of this Debenture upon compliance by the Company with certain conditions set forth therein. Subject to certain exceptions in the Indenture which require the consent of every Holder, the Company and the Trustee may amend the Indenture or may waive future compliance by the Company with any provisions of the Indenture with the consent of the Holders of at least a majority in aggregate principal amount of the Debentures of each series affected thereby provided that if the Series B Debentures are held by the Trust, no such amendment or waiver that adversely affects the holders of the Preferred Securities shall be effective without the prior consent of the holders of at least a majority in aggregate liquidation amount of the outstanding Preferred Securities issued under the Indenture at the time outstanding. Subject to certain exceptions in the Indenture, without the consent of any Holder of the Debentures issued under the Indenture, the Company and the Trustee may amend the Indenture to cure any ambiguity, defect or inconsistency, to bind a successor to the obligations of the Indenture, to provide for uncertificated Debentures in addition to certificated Debentures, to comply with any requirements of the Debentures and the Securities and Exchange Commission in connection with the qualification of the Indenture under the TIA, or to make any change that, in the reasonable judgment of the Company, does not adversely affect the rights of any Holder of the Debentures. Amendments bind all Holders and subsequent Holders of Debentures. No reference herein to the Indenture and no provision of this Debenture or the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Debenture at the time and place and at the rate and in the money herein prescribed. So long as an Event of Default with respect to the Series B Debentures has not occurred and is continuing, the Company shall have the right at any time and from time to time to extend the interest payment period of the Series B Debentures for up to 20 consecutive quarters (the "Extension Period"), provided that no Extension Period shall extend beyond the Stated Maturity Date or Redemption Date of any Series B Debenture. At the end of the Extension Period, the Company shall pay all interest then accrued and unpaid (together with interest thereon at the rate specified on a quarterly basis for the Series B Debentures, as described in the Indenture, compounded quarterly, to the extent that payment of such interest is enforceable under applicable law). During such Extension Period, the Company may not declare or pay any dividend on, redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock. Prior to the termination of any such Extension Period, the Company may further extend such Extension Period, provided that such Extended Interest Payment Period together with all such previous and further extensions thereof shall not exceed 20 consecutive quarters and shall not extend beyond the Stated Maturity Date or Redemption Date of any Series B Debenture. At the termination of any such Extended Interest Payment Period and upon the payment of all amounts then due, the Company may elect to begin a new Extended Interest Payment Period, subject to the foregoing restrictions. Series B Debentures are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, this Debenture is exchangeable for a like aggregate principal amount of Series B Debentures of a different authorized denomination, as requested by the Holder surrendering the same. As provided in the Indenture and subject to certain limitations therein set forth, this Debenture is transferable by the Holder hereof upon surrender of this Debenture for registration of transfer at the office or agency of the Registrar accompanied by a written instrument or instruments of transfer in form satisfactory to the Registrar duly executed by the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Series B Debentures of authorized denominations and for the same aggregate principal amount will be issued to the designated transferee or transferees. No service charge will be made for any such transfer, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in relation thereto. Prior to presentment for registration of transfer of this Debenture, the Company, the Trustee, any Paying Agent and any Registrar may deem and treat the Holder hereof as the absolute owner hereof (whether or not this Debenture shall be overdue and notwithstanding any notice of ownership or writing hereon made by anyone other than the Registrar) for the purpose of receiving payment of or on account of the principal hereof and interest due hereon and for all other purposes, and neither the Company nor the Trustee nor any Paying Agent nor any Registrar shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of or the interest on this Debenture, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture, against any incorporator, stockholder, officer or director, past, present or future, as such, of the Company or of any predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issuance hereof, expressly waived and released. This Debenture shall not be valid until an authorized signatory of the Trustee manually signs and dates the Trustee's Certificate of Authentication below. IN WITNESS WHEREOF, the Company has caused this Debenture to be signed manually or by facsimile by a duly authorized officer and a facsimile of its corporate seal to be affixed hereto or imprinted hereon. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED By: MORTON A. PLAWNER ----------------- [SEAL] Name: Morton A. Plawner Title: Treasurer Attest: PATRICK M. BURKE - -------------------------------- [Assistant] Secretary TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Debentures, of the series designated, referred to in the within-mentioned First Supplemental Indenture. FIRST UNION NATIONAL BANK, as Trustee By: FRANK GALLAGHER --------------- Name:Frank Gallagher Authorized Signatory Dated: June 26, 1998 ------------- ASSIGNMENT FORM To assign this Debenture, fill in the form below: (I) or (we) assign and transfer this Debenture to: ______________________________________________________ (Insert assignee's social security or tax I.D. number) ______________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint _____________________________ agent to transfer this Debenture on the books of the Register. The agent may substitute another to act for him. Dated:__________________________ Signature:_________________________________ (Sign exactly as your name appears on the other side of this Debenture) Signature Guaranty:___________________ EX-4 4 SECOND SUPPLEMENTAL INDENTURE PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED and FIRST UNION NATIONAL BANK, as Trustee SECOND SUPPLEMENTAL INDENTURE Dated as of July 1, 1998 to INDENTURE Dated as of January 1, 1998 7-1/4% Deferrable Interest Subordinated Debentures, Series C TABLE OF CONTENTS ----------------- Page ---- ARTICLE 1. DEFINITIONS...............................................2 SECTION 1.01 Definitions.................................2 ARTICLE 2. THE SERIES C DEBENTURES...................................2 SECTION 2.01 Terms and Form of the Series C Debentures....2 ARTICLE 3. REDEMPTION................................................3 SECTION 3.01 Redemption; Notice to Trustee...............3 ARTICLE 4. COVENANT..................................................4 SECTION 4.01 Payment of Expenses of Trust III............4 ARTICLE 5. MISCELLANEOUS.............................................4 SECTION 5.01 Confirmation of Indenture...................4 SECTION 5.02 Notices.....................................4 SECTION 5.03 Severability Clause.........................5 SECTION 5.04 No Recourse Against Others..................5 SECTION 5.05 Successors..................................5 SECTION 5.06 Multiple Original Copies of this Indenture..5 SECTION 5.07 Table of Contents; Headings, Etc............5 SECOND SUPPLEMENTAL INDENTURE, dated as of July 1, 1998, by and between Public Service Enterprise Group Incorporated, a corporation duly organized and existing under the laws of the State of New Jersey (the "Company") and First Union National Bank, a national banking association organized and existing under the laws of the United States of America, as trustee (the "Trustee") under the Indenture dated as of January 1, 1998 between the Company and the Trustee. WHEREAS, the Company executed and delivered the Indenture dated as of January 1, 1998 to the Trustee to provide for the issuance of its deferrable interest subordinated debentures (the "Debentures") in series from time to time as might be determined by the Company and pursuant thereto, the Company has issued its 7.44% Deferrable Interest Subordinated Debentures, Series A. WHEREAS, the Company executed and delivered a supplement to the Indenture (the "First Supplemental Indenture") dated as of June 1, 1998 providing for the issuance of its Floating Rate Deferrable Interest Subordinated Debentures, Series B. WHEREAS, pursuant to an Amended and Restated Trust Agreement dated as of July 6, 1998 (the "Trust III Agreement"), among the Company, as depositor, First Union National Bank, as Property Trustee (the "Property Trustee III"), the Delaware Trustee named therein and the Administrative Trustees named therein, there has been declared and established Enterprise Capital Trust III, a Delaware business trust ("Trust III"). WHEREAS, Trust III intends to issue its Trust Securities (as defined in the Trust III Agreement), including its 7-1/4% Trust Originated Preferred Securities, Series C, representing undivided beneficial interests in the assets of Trust III and having a liquidation amount of $25 per security (the "Series C Preferred Securities"). WHEREAS, the Company has authorized the issuance of a series of additional debentures pursuant to Section 2.04 of the Indenture to be designated as the Company's 7-1/4% Deferrable Interest Subordinated Debentures, Series C (the "Series C Debentures") to be purchased by Trust III with the proceeds of the Trust Securities, and to provide therefor, the Company has duly authorized the execution and delivery of this Second Supplemental Indenture. WHEREAS, all things necessary to make the Series C Debentures when duly issued and executed by the Company and authenticated and delivered hereunder, the valid obligations of the Company, and to make this Second Supplemental Indenture a valid and binding agreement of the Company, in accordance with its terms, have been done. NOW THEREFORE: Each of the Company and the Trustee, intending to be legally bound hereby, agrees as follows for the benefit of the other party and for the equal and ratable benefit of the holders of the Debentures, including the Series C Debentures: ARTICLE 1. DEFINITIONS SECTION 1.01 Definitions The following terms used in this Second Supplemental Indenture shall have the following meanings: "Debentureholder" or "Holder" means a Person in whose name a Series C Debenture is registered on the Registrar's books. "Series C Debentures" means any of the Company's 7-1/4% Deferrable Interest Subordinated Debentures, Series C issued under this Second Supplemental Indenture. "Series C Guarantee Agreement" means that certain Guarantee Agreement issued by the Company with respect to the Series C Preferred Securities, in which the Company irrevocably and unconditionally agrees to pay the Guarantee Payments (as defined in the Guarantee Agreement) to the holders of the Series C Preferred Securities. "Series C Preferred Securities" means the undivided beneficial interests in the assets of Trust III, having a liquidation amount of $25 and having rights provided therefor in the Trust III Agreement. "Trust III" means Enterprise Capital Trust III, a Delaware business trust created by the Trust III Agreement. "Trust III Agreement" means the Amended and Restated Trust Agreement dated as of July 6, 1998, among the Company, as Depositor, Fidelity Union National Bank, as Property Trustee, the Delaware Trustee named therein and the Administrative Trustees named therein, as the same may be amended and modified from time to time. Each of the other terms used in this Second Supplemental Indenture that is defined in the Indenture and not defined herein shall have the meaning assigned to it in the Indenture. ARTICLE 2. THE SERIES C DEBENTURES SECTION 2.01 Terms and Form of the Series C Debentures (a) The Series C Debentures shall be designated "Public Service Enterprise Group Incorporated 7-1/4% Deferrable Interest Subordinated Debentures, Series C." The Series C Debentures and the Trustee's Certificate of Authentication shall be substantially in the form of Exhibit A attached hereto. The Series C Debentures shall initially be issued as global Debentures in accordance with the provisions of Section 2.12 of the Indenture with The Depository Trust Company as Depositary. The terms and provisions contained in the Series C Debentures shall constitute, and are hereby expressly made, a part of this Second Supplemental Indenture. The Company and the Trustee, by their execution and delivery of this Second Supplemental Indenture, expressly agree to such terms and provisions and to be bound thereby. (b) The aggregate principal amount of Series C Debentures outstanding at any time may not exceed $154,639,200 except as provided in Section 2.09 of the Indenture. The Series C Debentures shall be authenticated and delivered from time to time upon delivery to the Trustee of the items specified in Section 2.04(d) of the Indenture. (c) The Stated Maturity Date of the Series C Debentures is June 30, 2047. (d) The interest rate of the Series C Debentures will be 7-1/4% per annum. (e) The "Interest Payment Dates" for the Series C Debentures are March 31, June 30, September 30 and December 31 of each year, commencing September 30, 1998. In the event that any date on which interest is payable on the Series C Debentures is not a Business Day, then payment of interest payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), except that if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. The Regular Record Date for each Interest Payment Date for the Series C Debentures shall be the 15th day (whether or not a Business Day) of the last month of each quarter, provided that if Trust III is the sole Holder of the Series C Debentures or the Series C Debentures are issued in book-entry-only form, the Regular Record Date shall be the close of business on the Business Day next preceding such Interest Payment Date. Each Series C Debenture shall bear interest from its Issue Date or from the most recent Interest Payment Date to which interest has been paid or duly provided for with respect to such Series C Debenture; except that, so long as there is no existing Defaulted Interest or Extension Period on the Series C Debentures, any Series C Debenture authenticated by the Trustee between the Regular Record Date for any Interest Payment Date and such Interest Payment Date shall bear interest from such Interest Payment Date. Overdue principal of, and interest on, any Series C Debenture and interest which has been deferred pursuant to Section 4.01(b) of the Indenture shall bear interest (to the extent that the payment of such interest shall be legally enforceable) at a rate per annum equal to the interest rate per annum payable on such Series C Debenture. (f) The Series C Debentures shall be issuable only in registered form without coupons and only in denominations of $25 and any integral multiple thereof. (g) The maximum Extension Period for the Series C Debentures shall be 20 consecutive quarters. (h) First Union National Bank shall initially be the Paying Agent for the Series C Debentures. ARTICLE 3. REDEMPTION SECTION 3.01 Redemption; Notice to Trustee (a) The Series C Debentures are subject to redemption prior to maturity as provided therein. (b) Any redemption of the Series C Debentures shall be made in the manner, upon the terms and with the effect, all as provided in Sections 3.01(c), 3.02, 3.03, 3.04, 3.05 and 3.06 of the Indenture. ARTICLE 4. COVENANT SECTION 4.01. Payment of Expenses of Trust III. The Company covenants for the benefit of the Holders of the Series C Debentures to pay all of the costs and expenses of Trust III in accordance with Section 2.03(b) of the Trust III Agreement and to pay the taxes of Trust III in accordance with Section 2.03(c) of the Trust III Agreement in order to permit Trust III to make distributions on and redemptions of the Series C Preferred Securities in accordance with Article IV of the Trust III Agreement. ARTICLE 5. MISCELLANEOUS SECTION 5.01 Confirmation of Indenture As amended and supplemented by this Second Supplemental Indenture, the Indenture is in all respects ratified and confirmed and the Indenture and this Second Supplemental Indenture shall be read, taken and construed as one and the same instrument. SECTION 5.02 Notices Any notice, request or other communication required or permitted to be given hereunder shall be in writing and delivered, telecopied or mailed by first-class mail, postage prepaid, addressed as follows: if to the Company: Public Service Enterprise Group Incorporated 80 Park Plaza, T6B P.O. Box 570 Newark, New Jersey 07101 Facsimile No. (973) 242-1651 Attention: Treasurer if to the Trustee: First Union National Bank 765 Broad Street Newark, New Jersey 07101 Facsimile No. (973) 430-2117 Attention: Corporate Trust Department The Company or the Trustee, by giving notice to the other, may designate additional or different addresses for subsequent notices of communications. The Company shall notify the holder, if any, of Senior Indebtedness of any such additional or different addresses of which the Company receives notice from the Trustee. Any notice or communication given to a Debentureholder other than Trust III shall be mailed to the Debentureholder at the Debentureholder's address as it appears on the Register of the Registrar and shall be sufficiently given if mailed within the time prescribed. Failure to mail a notice or communication to a Debentureholder or any defect in it shall not affect its sufficiency with respect to other Debentureholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not received by the addressees. If the Company mails a notice or communication to the Debentureholders, it shall mail a copy to the Trustee and each Registrar, Paying Agent or co-Registrar. SECTION 5.03 Severability Clause If any provision in this Indenture or in the Series C Debentures shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 5.04 No Recourse Against Others. No director, officer, employee or stockholder, as such, of the Company shall have any liability for any obligations of the Company under the Series C Debentures or this Second Supplemental Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Series C Debenture, each Debentureholder shall waive and release all such liability. The waiver and release shall be a part of the consideration for the issue of the Series C Debentures. SECTION 5.05 Successors. All agreements of the Company in this Second Supplemental Indenture and the Series C Debentures shall bind its successors and assigns. All agreements of the Trustee in this Second Supplemental Indenture shall bind its successors and assigns. SECTION 5.06 Multiple Original Copies of this Indenture The parties may sign any number of copies of this Second Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Any signed copy shall be sufficient proof of this Second Supplemental Indenture. SECTION 5.07 Table of Contents; Headings, Etc. The Table of Contents, Cross-Reference Table and headings of the Articles and Sections of this Second Supplemental Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof. SIGNATURES IN WITNESS WHEREOF, the undersigned, being duly authorized, have executed this Second Supplemental Indenture on behalf of the respective parties hereto as of the date first above written. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED By: MORTON A. PLAWNER ----------------- Name: Morton A. Plawner Title: Treasurer FIRST UNION NATIONAL BANK, as Trustee By: FRANK GALLAGHER --------------- Name: Frank Gallagher Title: Vice President Exhibit A PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED 7-1/4% Deferrable Interest Subordinated Debenture, Series C No. R-1 Public Service Enterprise Group Incorporated, a New Jersey corporation (the "Company", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to Enterprise Capital Trust III or registered assigns, the principal sum of One Hundred Fifty-Four Million Six Hundred Thirty-Nine Thousand Two Hundred Dollars ($154,639,200) on June 30, 2047, and to pay interest on said principal sum from July 6, 1998 or from the most recent Interest Payment Date (as defined below) to which interest has been paid or duly provided for, quarterly in arrears on March 31, June 30, September 30 and December 31 commencing September 30, 1998 (each, an "Interest Payment Date") at a rate of 7-1/4% per annum until the principal hereof shall have become due and payable, and on any overdue principal and (to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the same rate per annum. The amount of interest payable on any Interest Payment Date shall be computed on the basis of a 360-day year of twelve 30-day months. In the event that any Interest Payment Date is not a Business Day, then interest will be payable on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. The interest installment so payable, and punctually paid or duly provided for as provided in the Indenture, shall be paid to the Person in whose name this Debenture is registered at the close of business on the Regular Record Date for such interest installment, which shall be the 15th day (whether or not a Business Day) of the last month of each quarter, provided that if all of the Series C Debentures (as defined below) are then held by Enterprise Capital Trust III (the "Trust") or the Series C Debentures are held in book-entry-only form, the Regular Record Date shall be the close of business on the Business Day next preceding such Interest Payment Date. Any such interest installment not punctually paid or duly provided for shall forthwith cease to be payable to the Holders on such Regular Record Date, and may be paid to the Person in whose name this Debenture is registered at the close of business on a Special Record Date to be fixed by the Trustee (as defined below) for the payment of such defaulted interest, notice whereof shall be given to the Holders of the Series C Debentures not less than 7 days prior to such Special Record Date, as more fully provided in the Indenture. Payment of the principal of and interest on this Debenture will be made in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. Payments of interest on an Interest Payment Date will be made by check mailed to the Holder hereof at the address shown in the Register or, at the option of the Holder hereof, to such other place in the United States of America as Holder hereof shall designate to the Trustee in writing. At the request of a Holder of at least $10,000,000 aggregate principal amount of Series C Debentures, interest on such Debentures will be payable by wire transfer within the continental United States in immediately available funds to the bank account number specified in writing by such Holder to the Registrar prior to the Regular Record Date. The principal amount hereof and interest due on the Stated Maturity Date or a Redemption Date (other than an Interest Payment Date) will be paid only upon surrender of this Debenture at the principal corporate trust office of First Union National Bank, Paying Agent, in Newark, NJ, or at such other office or agency of the Paying Agent as the Company shall designate by written notice to the Holder of this Debenture. The indebtedness evidenced by this Debenture is, to the extent provided in the Indenture, subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness, and this Debenture is issued subject to the provisions of the Indenture with respect thereto. The Holder of this Debenture, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination so provided and (c) appoints the Trustee his attorney-in-fact for any and all such purposes. The Holder of this Debenture, by his acceptance hereof, hereby waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Indebtedness, whether now outstanding or hereafter incurred, and waives reliance by each such holder upon said provisions. This Debenture is one of a duly authorized series of Debentures of the Company (herein sometimes referred to as the "Series C Debentures"), specified in the Indenture, limited in aggregate principal amount to One Hundred Fifty-Four Million, Six Hundred Thirty-Nine Thousand Two Hundred Dollars ($154,639,200) issued under and pursuant to an Indenture dated as of January 1, 1998 executed and delivered between the Company and First Union National Bank, as trustee (the "Trustee"), as supplemented by the Second Supplemental Indenture dated as of June 1, 1998 and the Second Supplemental Indenture dated July 1, 1998 between the Company and the Trustee (said Indenture as so supplemented being hereinafter referred to as the "Indenture"). The Series C Debentures are initially being issued to the Trust, to be held on behalf of the Trust by its property trustee (the "Property Trustee"). Concurrently with the issuance of the Series C Debentures, the Trust is issuing its trust securities, representing undivided beneficial interests in the assets of the Trust and having an aggregate liquidation amount equal to the principal amount of the Series C Debentures, including the Trust's 7-1/4% Trust Originated Preferred Securities, Series C (the "Preferred Securities"). By the terms of the Indenture, Debentures are issuable in series which may vary as to amount, date of maturity, rate of interest and in other respects as provided in the Indenture. Reference is made to the Indenture and all indentures supplemental thereto for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the Holders of the Debentures. Each term used in this Debenture which is defined in the Indenture and not defined herein shall have the meaning assigned to it in the Indenture. The following redemption provisions shall apply to the Series C Debentures: Regular Redemption ------------------ The Series C Debentures may be redeemed in whole or part at the option of the Company at any time on or after June 30, 2003 at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest to the redemption date. Special Event Redemption ------------------------ If a Tax Event or an Investment Company Event (each, a "Special Event") has occurred and is continuing, the Company may redeem the Series C Debentures, in whole but not in part, at a price equal to 100% of the principal amount thereof plus accrued and unpaid interest to the redemption date within 90 days following the occurrence of such Special Event. "Tax Event" means that the Company shall have received an opinion of counsel (which may be counsel to the Company or an affiliate but not an employee thereof and which must be acceptable to the Property Trustee) experienced in such matters to the effect that, as a result of any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein affecting taxation, or as a result of any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or such pronouncement or decision is announced on or after the date of original issuance of the Series C Preferred Securities, there is more than an insubstantial risk that (i) the Trust is, or will be, subject to federal income tax with respect to interest on the Series C Debentures, (ii) interest payable by the Company on the Series C Debentures is not, or will not be, deductible by the Company for federal income tax purposes or (iii) the Trust is, or will be, subject to more than a de minimis amount of other taxes, duties, assessments or other governmental charges. "Investment Company Event" means the occurrence of a change in law or regulation or a change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority (a "Change in 1940 Act Law") to the effect that the Trust is or will be considered an "investment company" that is required to be registered under the Investment Company Act of 1940, as amended, which Change in 1940 Act Law becomes effective on or after the date of original issuance of the Series C Preferred Securities. At least 30 days but not more than 60 days before the Redemption Date, the Trustee shall mail or caused to be mailed a notice of redemption by first-class mail, postage prepaid, to each Holder of Series C Debentures to be redeemed. In the event of redemption of this Debenture in part only, a new Series C Debenture or Debentures for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof. In case an Event of Default with respect to the Series C Debentures occurs and is continuing, the principal of and interest on all of the Series C Debentures may (and, in certain circumstances shall) be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions for defeasance at any time of the entire indebtedness of this Debenture upon compliance by the Company with certain conditions set forth therein. Subject to certain exceptions in the Indenture which require the consent of every Holder, the Company and the Trustee may amend the Indenture or may waive future compliance by the Company with any provisions of the Indenture with the consent of the Holders of at least a majority in aggregate principal amount of the Debentures of each series affected thereby provided that if the Series C Debentures are held by the Trust, no such amendment or waiver that adversely affects the holders of the Preferred Securities shall be effective without the prior consent of the holders of at least a majority in aggregate liquidation amount of the outstanding Preferred Securities issued under the Indenture at the time outstanding. Subject to certain exceptions in the Indenture, without the consent of any Holder of the Debentures issued under the Indenture, the Company and the Trustee may amend the Indenture to cure any ambiguity, defect or inconsistency, to bind a successor to the obligations of the Indenture, to provide for uncertificated Debentures in addition to certificated Debentures, to comply with any requirements of the Debentures and the Securities and Exchange Commission in connection with the qualification of the Indenture under the TIA, or to make any change that, in the reasonable judgment of the Company, does not adversely affect the rights of any Holder of the Debentures. Amendments bind all Holders and subsequent Holders of Debentures. No reference herein to the Indenture and no provision of this Debenture or the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Debenture at the time and place and at the rate and in the money herein prescribed. So long as an Event of Default with respect to the Series C Debentures has not occurred and is continuing, the Company shall have the right at any time and from time to time to extend the interest payment period of the Series C Debentures for up to 20 consecutive quarters (the "Extension Period"), provided that no Extension Period shall extend beyond the Stated Maturity Date or Redemption Date of any Series C Debenture. At the end of the Extension Period, the Company shall pay all interest then accrued and unpaid (together with interest thereon at the rate specified on a quarterly basis for the Series C Debentures, as described in the Indenture, compounded quarterly, to the extent that payment of such interest is enforceable under applicable law). During such Extension Period, the Company may not declare or pay any dividend on, redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock. Prior to the termination of any such Extension Period, the Company may further extend such Extension Period, provided that such Extended Interest Payment Period together with all such previous and further extensions thereof shall not exceed 20 consecutive quarters and shall not extend beyond the Stated Maturity Date or Redemption Date of any Series C Debenture. At the termination of any such Extended Interest Payment Period and upon the payment of all amounts then due, the Company may elect to begin a new Extended Interest Payment Period, subject to the foregoing restrictions. Series C Debentures are issuable only in registered form without coupons in denominations of $25 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, this Debenture is exchangeable for a like aggregate principal amount of Series C Debentures of a different authorized denomination, as requested by the Holder surrendering the same. As provided in the Indenture and subject to certain limitations therein set forth, this Debenture is transferable by the Holder hereof upon surrender of this Debenture for registration of transfer at the office or agency of the Registrar accompanied by a written instrument or instruments of transfer in form satisfactory to the Registrar duly executed by the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Series C Debentures of authorized denominations and for the same aggregate principal amount will be issued to the designated transferee or transferees. No service charge will be made for any such transfer, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in relation thereto. Prior to presentment for registration of transfer of this Debenture, the Company, the Trustee, any Paying Agent and any Registrar may deem and treat the Holder hereof as the absolute owner hereof (whether or not this Debenture shall be overdue and notwithstanding any notice of ownership or writing hereon made by anyone other than the Registrar) for the purpose of receiving payment of or on account of the principal hereof and interest due hereon and for all other purposes, and neither the Company nor the Trustee nor any Paying Agent nor any Registrar shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of or the interest on this Debenture, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture, against any incorporator, stockholder, officer or director, past, present or future, as such, of the Company or of any predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issuance hereof, expressly waived and released. This Debenture shall not be valid until an authorized signatory of the Trustee manually signs and dates the Trustee's Certificate of Authentication below. IN WITNESS WHEREOF, the Company has caused this Debenture to be signed manually or by facsimile by a duly authorized officer and a facsimile of its corporate seal to be affixed hereto or imprinted hereon. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED By: MORTON A. PLAWNER ----------------- [SEAL] Name: Morton A. Plawner Title: Treasurer Attest: E. J. BIGGINS, JR. - -------------------------------- Secretary TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Debentures, of the series designated, referred to in the within-mentioned Second Supplemental Indenture. FIRST UNION NATIONAL BANK, as Trustee By: FRANK GALLAGHER --------------- Name: Frank Gallagher Authorized Signatory Dated: July 6, 1998 ASSIGNMENT FORM To assign this Debenture, fill in the form below: (I) or (we) assign and transfer this Debenture to: ______________________________________________________ (Insert assignee's social security or tax I.D. number) ______________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint _____________________________ agent to transfer this Debenture on the books of the Register. The agent may substitute another to act for him. Dated:__________________________ Signature:_________________________________ (Sign exactly as your name appears on the other side of this Debenture) Signature Guaranty:___________________ EX-10 5 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT AGREEMENT, by and between Public Service Enterprise Group Incorporated, a New Jersey Corporation ("Enterprise") and E. James Ferland (the "Executive"), dated as of June 16, 1998. WHEREAS, the Executive is currently serving as Chairman of the Board, President and Chief Executive Officer of Enterprise, and as Chairman of the Board and Chief Executive Officer of its subsidiaries Public Service Electric and Gas Company ("PSE&G"), a New Jersey corporation, and PSEG Energy Holdings Inc. ("Energy Holdings"), a New Jersey corporation, all such corporations hereinafter collectively referred to as the "Company". WHEREAS, the Executive is willing to commit himself to be employed by the Company on the terms and conditions herein set forth; and WHEREAS, the parties desire to enter into this Agreement setting forth the terms and conditions for the employment relationship of the Executive with the Company during the Employment Period (as hereinafter defined): NOW, THEREFORE, IN CONSIDERATION of the mutual premises, covenants and agreements set forth below, it is hereby agreed as follows: 1. General. (a) Employment. The Company agrees to employ the Executive, and the Executive agrees to be employed by the Company, in accordance with the terms and provisions of this Agreement during the Employment Period. (b) Term. The term of the Executive's employment under this Agreement (the "Employment Period") shall commence as of the date hereof (the "Effective Date") and shall continue until March 31, 2005. If the Executive elects to retire prior to March 31, 2005, the Employment Period shall end on the date of retirement. 2. Position, Duties and Powers of the Executive. (a) Position. During the Employment Period, the Executive shall serve as Chairman of the Board and Chief Executive Officer of Enterprise. (b) Reporting Duties and Powers. During the Employment Period, the Executive shall report directly to the Board of Directors of Enterprise (the "Board"). As Chief Executive Officer of Enterprise, he shall be the highest ranking officer of Enterprise with plenary powers of the supervision and direction of the business and affairs of Enterprise and its subsidiaries and affiliates. (c) End of Employment Period. At the end of the Employment Period (the "Retirement Date"), the Executive will retire from all offices held with the Company and shall be entitled to a pension unreduced for early retirement and calculated in accordance with Section 3(f) hereof (hereinafter referred to as "Retirement"). (d) Board Membership. The Executive shall continue as a member of and Chairman of the Board on the first day of the Employment Period through the end of his current term ending with the Annual Meeting of Stockholders in 2001. Thereafter, the Board shall consider the Executive for re-election to the Board throughout the Employment Period in accordance with its customary practice for nominations to the Board, and shall elect him Chairman of the Board if elected as a director by the shareholders. At the end of the Employment Period, the Executive may continue as a member of the Board and be considered for nomination for reelection to the Board thereafter on the same basis as the other directors who are former CEOs, in accordance with the Board's customary practice for nominations and its Retirement Policy. (e) Other Positions. In addition to serving as Chairman and Chief Executive Officer of Enterprise, the Executive is also presently serving as President of Enterprise and as Chairman of the Board and Chief Executive Officer of PSE&G and Energy Holdings. The Executive agrees to serve, if elected, at no additional compensation in the position of officer or director of any direct or indirect subsidiary or affiliate of the Company. (f) Attention. During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote full attention and time during normal business hours to the business and affairs of the Company and to use his reasonable best efforts to perform such responsibilities in a professional manner. It shall not be a violation of this Agreement for the Executive to (i) serve on corporate, civic or charitable boards or committees, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions and (iii) manage personal investments, so long as such activities do not interfere with the performance of the Executive's responsibilities as an officer and director of the Company in accordance with this Agreement. 3. Compensation. Except as modified by this Agreement, the Executive's compensation shall be provided in accordance with the Company's standard compensation and payroll practices as in effect from time to time. The aggregate of Base Salary, Annual Incentive Compensation and Long-Term Incentives in paragraphs (a), (b) and (c) below shall be determined based upon competitive practices for chief executive officers of companies of comparable size and standing. (a) Base Salary. The annual rate of base salary payable to the Executive during the Employment Period (the "Annual Base Salary") shall be established by the Organization and Compensation Committee of the Board (the "Compensation Committee"). During the Employment Period, the Annual Base Salary shall be reviewed by the Compensation Committee for possible increase at least annually. Annual Base Salary shall not be reduced after any such increase, and the term "Annual Base Salary" shall thereafter refer to the Annual Base Salary as so increased. (b) Annual Incentive Compensation. The Board has established and intends to continue an annual incentive compensation plan for the benefit of the officers and other key employees of the Company, including the Executive, based on competitive practices for companies of comparable size and standing. The performance objectives for the Executive in respect of such incentive will be determined by the Compensation Committee in accordance with past practices. (c) Long-Term Incentives. The Board has established and intends to continue a long-term incentive plan for the benefit of the officers and other key employees of the Company, including the Executive, based on competitive practices for companies of comparable size and standing. Such plan may, in the judgment of the Compensation Committee, provide for stock options, stock appreciation rights, restricted stock or stock units, performance stock or units and/or other type of long-term incentive awards. The type and amount of equity and any other long-term incentive grants will be determined by the Compensation Committee from time to time, and awards thereunder shall be payable to the Executive in accordance with the long-term incentive plan or plans in effect from time to time. (d) Stock Award. In consideration of the commitment he will assume during the Employment Period, the Executive shall be granted an award (the "Stock Award") with respect to 150,000 shares of the Common Stock without nominal or par value of Enterprise ("Stock"), effective as of the Effective Date, the shares of which Stock Award shall be restricted and shall be subject to the following terms and conditions: (i) The shares for the Stock Award shall be purchased by Enterprise or its agent on the open market. In the event any of the shares of the Stock Award shall be forfeited, Enterprise may apply such shares for its corporate purposes in its discretion. (ii) The Executive's right to the Stock Award shall vest in accordance with the following schedule, provided that the Executive has remained continuously employed by the Company, or its successor, during the Employment Period through the dates indicated below: Date Number of Shares 3/31/2002 60,000 3/31/2003 20,000 3/31/2004 30,000 3/31/2005 40,000 If, during the Employment Period, the Company terminates the Executive's employment for Cause or the Executive terminates his employment without Good Reason, including Retirement prior to March 31, 2005, the Executive shall forfeit all right to all shares of the Stock Award that are not vested as of the Date of Termination. If, during the Employment Period, the Company shall terminate the Executive's employment without Cause or the Executive terminates his employment for Good Reason, or the Executive's Employment terminates by reason of death or Disability, the Executive's right to receive all shares of the Stock Award shall vest as of the Date of Termination. (iii) Shares of the Stock Award will be issued in the name of the Executive, but will be held by Enterprise for the account of the Executive together with a stock power that the Executive shall execute and deliver to Enterprise. The shares shall bear a restrictive legend indicating that they are subject to the terms, conditions and limitations of this Agreement. (iv) Once shares of the Stock Award shall vest, Enterprise shall promptly issue to the Executive a certificate for such shares without any legend or restriction (other than may be required by law) and Enterprise shall return to the Executive or shall destroy the related stock power previously executed by the Executive. (v) Shares of Stock held by Enterprise for the account of the Executive prior to distribution to the Executive may not be sold assigned, transferred, pledged, hypothecated or otherwise disposed of, except by will or the laws of descent and distribution. Any attempted sale, assignment, transfer, pledge, hypothecation or disposition in contravention of the foregoing shall be null and void and of no effect. (vi) Except as otherwise provided herein, the Executive shall have all of the rights of a stockholder with respect to the shares of the Stock Award issued in his name, including the right to vote the shares, to receive dividends and other distributions thereon and to participate in any change in capitalization of Enterprise. In the event of any change in capitalization resulting in the issuance of additional shares to the Executive, such shares shall be subject to the same terms, conditions and restrictions as the shares in respect to which they are issued, and the Executive shall execute and deliver to Enterprise stock powers in respect thereto. If the Executive elects to reinvest dividends on the shares of the Stock Award, or if he shall receive rights or warrants in respect to any shares of the Stock Award, the shares acquired by dividend reinvestment or through the exercise of rights may be held, sold or otherwise disposed of by the Executive, free and clear of any restrictions created by this Agreement. (vii) Unless the shares of the Stock Award to be issued to the Executive have been registered pursuant to a Registration Statement under the Securities Act of 1933, prior to receiving such shares the Executive shall represent in writing to the Company that such shares are being acquired for investment purposes only and not with a view towards the further sale or distribution thereof and shall supply Enterprise with such other documentation as may be required by Enterprise, unless in the opinion of counsel to the Enterprise such representation, agreement or documentation is not necessary to comply with the Securities Act of 1933 and the rules and regulations thereunder. (viii) Enterprise shall not be required to deliver any shares of the Stock Award until they have been listed on each securities exchange on which shares of the Stock are listed or until there has been qualification under or compliance with such state and federal laws, rules or regulations that Enterprise may deem applicable. Enterprise will use its best efforts to obtain such listing, qualification and compliance. (ix) The Compensation Committee may make such provisions and take such steps as it may deem necessary or appropriate for the withholding of any taxes that the Company is required by law or regulation of any governmental authority, whether federal, state or local, domestic or foreign, to withhold in connection with the Stock Award, including, but not limited to (1) withholding delivery of the certificate for shares of Stock until the Executive reimburses the Company for the amount it is required to withhold with respect to such taxes, (2) the canceling of any number of shares of Stock issuable to the Executive in an amount necessary to reimburse the Company for the amount it is required to so withhold, or (3) withholding the amount due from the Executive's other compensation. (e) Employee Benefit Programs. During the Employment Period, (i) the Executive shall be eligible to participate in all savings and retirement plans, practices, policies and programs to the same extent as other senior executives of the Company and (ii) the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company, other than severance plans, practices, policies and programs but including, without limitation, medical, prescription, dental, disability, salary continuance, employee life insurance, group life insurance, accidental death and travel accident insurance plans and programs, and, upon retirement, all applicable retirement benefit plans to the same extent and subject to the same terms, conditions, cost-sharing requirements and the like, as other senior executives of the Company, as such plans may be amended from time to time, and as supplemented hereby. Following a Change in Control (as defined below), no benefit coverage available to the Executive and/or to his family under any such plan, practice, policy or program shall be materially reduced without the prior written consent of the Executive. (f) Retirement Benefit. During the Employment Period, the Executive shall participate in PSE&G's Pension Plan, and also in PSE&G's Limited Supplemental Benefits Plan, Mid-Career Hire Plan, Reinstatement Plan and such other supplemental executive retirement plans as may be adopted and amended by the Company from time to time ("SERPs"), such that the aggregate value of the retirement benefits that he and his beneficiaries will receive at the end of the Employment Period under all pension benefit plans of the Company and its affiliates (whether qualified or not) will not be less than the benefits he would have received had he continued, through the end of the Employment Period, to participate in such plans, as in effect immediately before the date hereof and giving effect to the service credits and payment terms set forth in Section 4 of the employment agreement dated April 16, 1986 between PSE&G and the Executive (the "PSE&G Employment Agreement"), the terms of which Section 4 are incorporated herein by reference, and a copy of which PSE&G Employment Agreement is attached hereto. It is agreed that the Stock Award and any dividends or other distributions in respect of the Stock Award shall not be included in any pension calculation. (g) Expenses. The Executive is authorized to incur reasonable expenses in carrying out his duties and responsibilities under this Agreement. The Company shall promptly reimburse him for all such expenses in accordance with the policies of the Company in effect from time to time for reimbursement of expenses for senior executives, and subject to documentation provided by the Executive in accordance with such Company policies. (h) Fringe Benefits. During the Employment Period, the Executive shall be furnished with such fringe benefits and perquisites as are customary for the Chairman and Chief Executive Officer of a corporation of the size and nature of the Company and shall participate in all fringe benefits and perquisites available to senior executives of the Company on terms and conditions that are commensurate with his positions and responsibilities at the Company. (i) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with Company policy for its most senior executives as in effect from time to time. (j) Deferred Compensation. The Executive will retain all of his rights in any compensation deferred prior to the date hereof in accordance with the Deferred Compensation Plan, including earnings thereon, and following the date hereof the obligations of PSE&G to pay such deferred compensation at the times and in the manner specified in the Deferred Compensation Plan will continue. 4. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 4(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" means that (i) the Executive has been unable, for the period, if any, specified in the Company's disability plan for senior executives, but not less than a period of 180 consecutive days, to perform the Executive's duties under this Agreement and (ii) a physician selected by the Company or its insurers, and acceptable to the Executive or the Executive's legal representative, has determined that the Executive is disabled within the meaning of the applicable disability plan for senior executives. (b) By the Company. (i) The Company may terminate the Executive's employment during the Employment Period for Cause or without Cause. For purposes of this Agreement, "Cause" shall mean (A) willful and continued failure by the Executive to substantially perform his duties under this Agreement, (B) the willful engaging by the Executive in gross misconduct which is materially and demonstrably injurious to the Company, or (C) the conviction of the Executive of a felony. No act or failure to act on the part of the Executive shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act or failure to act that is based upon authority given pursuant to a resolution duly adopted by the Board, or the advice of counsel for the Company, shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. (ii) A termination of the Executive's employment for Cause shall be effected in accordance with the following procedures. The Company shall give the Executive written notice ("Notice of Termination for Cause") of its intention to terminate the Executive's employment for Cause, setting forth in reasonable detail the specific conduct of the Executive that it considers to constitute Cause and the specific provision(s) of this Agreement on which it relies. Such notice shall be given no later than 60 days after the act or failure (or the last in a series of acts or failures) that the Company alleges to constitute Cause. The Executive shall have 30 days after receiving the Notice of Termination for Cause in which to cure such act or failure, to the extent such cure is possible. In the case of a termination under Section 4(b)(i)(A) or Section 4(b)(i)(B), if the Executive fails to cure such act or failure to the reasonable satisfaction of the Board, the Company shall give the Executive a second written notice stating the date, time and place of a special meeting of the Board called and held specifically for the purpose of considering the Executive's termination for Cause, which special meeting shall take place not less than ten and not more than twenty business days after the Executive receives notice thereof, and the Executive shall be given an opportunity, together with counsel, to be heard at the special meeting of the Board. The Executive's termination for Cause shall be effective when and if a resolution is duly adopted by the affirmative vote of a majority of the Board stating that in the good faith opinion of the Board, the Executive is guilty of the conduct described in the Notice of Termination for Cause and that such conduct constitutes Cause under this Agreement. (c) Good Reason. (i) The Executive may terminate his employment for Good Reason or without Good Reason. For purpose of this Agreement, "Good Reason" shall mean: (A) any adverse change in the Executive's titles, authority, duties, responsibilities and reporting lines as specified in Sections 2(a) and 2(b) of this Agreement, or the assignment to the Executive of any duties or responsibilities inconsistent in any respect with those customarily associated with the position of Chief Executive Officer of Enterprise to be held by the Executive pursuant to this Agreement; (B) the failure by the Board to elect the Executive to the positions of Chairman and Chief Executive Officer of Enterprise during the Employment Period; (C) the failure by the Board to nominate the Executive for reelection to the Board at any annual meeting of Enterprise's shareholders during the Employment Period at which the Executive's term as a director is scheduled to expire, and if elected a director by the shareholders, to elect the Executive as Chairman of the Board; (D) the appointment at any time during the Employment Period of any person other than the Executive to (x) the position specified in Section 2(a) or (y) any other position or title conferring similar status or authority; (E) any reduction in the Executive's salary, target annual bonus, target long-term incentive or Retirement benefit; (F) any requirement by the Company that the Executive's services be rendered primarily at a location or locations other than in New Jersey; (G) any purported termination of the Executive's employment by the Company for a reason or in a manner not expressly permitted by this Agreement; (H) any failure by Enterprise to comply with Section 10(c) of this Agreement; or (I) any other material breach of this Agreement by the Company that either is not taken in good faith or, even if taken in good faith, is not remedied by the Company promptly after receipt of notice thereof from the Executive; provided that following a Change in Control which is recommended to the Board by the Executive, Sections 4(c)(i)(A), (B), (C) and (D) shall not permit the Executive to terminate his employment for Good Reason so long as during the remainder of the Employment Period, the Board nominates the Executive as a director of the surviving parent corporation, his office with the surviving parent corporation is Chairman, Vice Chairman or President, and his executive position with the surviving parent corporation is Chief Executive Officer or Chief Operating Officer; and the provisions of Sections 2(a), (b) and (d) shall be deemed modified to reflect such offices, positions and duties as are so held by the Executive. Following a Change in Control, the Executive's determination that an act or failure to act constitutes Good Reason shall be conclusively presumed to be valid unless such determination is decided to be unreasonable by an arbitrator pursuant to Section 9. (ii) A termination of employment by the Executive for Good Reason shall be effectuated by giving the Company written notice ("Notice of Termination for Good Reason") of the termination, setting forth in reasonable detail the specific acts or omissions of the Company that constitute Good Reason and the specific provision(s) of this Agreement on which the Executive relies. Unless the Board determines otherwise, a Notice of Termination for Good Reason by the Executive must be made within 60 days after the Executive first has actual knowledge of the act or omission (or the last in a series of acts or omissions) that the Executive alleges to constitute Good Reason, and the Company shall have 30 days from the receipt of such Notice of Termination for Good Reason to cure the conduct cited therein. A termination of employment by the Executive for Good Reason shall be effective on the final day of such 30-day cure period unless prior to such time the Company has cured the specific conduct asserted by the Executive to constitute Good Reason to the reasonable satisfaction of the Executive. (iii) A termination of the Executive's employment by the Executive without Good Reason shall be effected by giving the Company written notice specifying the effective date of termination. (d) Date of Termination. The "Date of Termination" means the date of the Executive's death, the Disability Effective Date, the date on which the termination of the Executive's employment by the Company for Cause or without Cause or by the Executive for Good Reason is effective, the effective date specified in a notice of a termination of employment without Good Reason from the Executive to the Company, or Retirement, as the case may be. 5. Obligations of the Company upon Termination. (a) Good Reason; Other Than for Cause. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause, death or Disability, or the Executive shall terminate his employment for Good Reason: (i) the Company shall pay to the Executive in a lump sum in cash, within 15 days after the Date of Termination, the aggregate of the amounts set forth in clauses A and B below: A. The sum of: (1) the Executive's Annual Base Salary through the Date of Termination; (2) the product of (x) the "target" annual bonus under Section 3(b) (the "Target Bonus") and (y) a fraction, the numerator of which is the number of days in the current calendar year through the Date of Termination, and the denominator of which is 365; and (3) any accrued vacation pay; in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the "Accrued Obligations"); and B. the amount equal to the product of (1) two and (2) the sum of (x) the Executive's Annual Base Salary and (y) the Target Bonus. (ii) the Stock Award shall vest in accordance with 3(d)(ii); (iii) any stock awards, other than the Stock Award, stock options, stock appreciation rights or other equity-based awards that were outstanding immediately prior to the Date of Termination ("Prior Equity Awards") shall remain outstanding and shall continue to vest and/or become exercisable as though the Executive's employment had not terminated until the later of (x) the third anniversary of the Date of Termination and (y) 90 days from the date that a stock option or other award (or portion thereof) first becomes exercisable but in no event beyond the original term thereof, and the Company shall take all such actions as may be necessary to effectuate the foregoing; (iv) for two years after the Executive's Date of Termination or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the welfare plans, programs, practices and policies described in Section 3(e) of this Agreement if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or dental benefits under another employer provided plan, the medical and dental benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. (v) any compensation previously deferred (other than pursuant to a tax-qualified plan) by or on behalf of the Executive (together with any accrued interest or earnings thereon), whether or not then vested, shall become vested on the Date of Termination and shall be paid in accordance with the terms of the plan, policy or practice under which it was deferred; (vi) the Company shall, at its sole expense as incurred, provide the Executive with outplacement services suitable to the Executive's position for a period not to exceed two years with a nationally recognized outplacement firm; and, (vii) to the extent not theretofore paid or provided, the Company shall pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is entitled to receive under any plan, program, policy, practice, contract or agreement of the Company and its affiliated companies (other than medical or dental benefits if the Executive is eligible for such benefits to be provided by a subsequent employer), including earned but unpaid stock and similar compensation but excluding any severance plan or policy (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause during the Employment Period, or if the Executive voluntarily terminates employment during the Employment Period, excluding a resignation for Good Reason, this Agreement shall terminate without further obligations to the Executive other than for amounts described in Sections 5(a)(i)(A)(1) and 5(a)(i)(A)(3) and the timely payment or provision of Other Benefits. In such case, all such amounts shall be paid to the Executive in a lump sum within 30 days of the Date of Termination. (c) Death. If the Executive's employment terminates by reason of the Executive's death during the Employment Period, all Accrued Obligations as of the time of death shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination and the Executive's estate or beneficiary shall be entitled to any Other Benefits in accordance with their terms. In addition, the Stock Award shall vest in accordance with 3(d)(ii). Any Prior Equity Awards shall vest and/or become exercisable, as the case may be, as of the Date of Termination and the Executive's estate or beneficiary, as the case may be, shall have the right to exercise any such stock option, stock appreciation right or other exercisable equity-based award until the earlier of (A) one year from the Date of Termination (or such longer period as may be provided under the terms of any such stock option, stock appreciation right or other equity-based award) and (B) the normal expiration date of such stock option, stock appreciation right or other equity-based award. (d) Disability. If the Executive's employment is terminated by reason of Disability during the Employment Period, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination, and the Executive shall be entitled to any Other Benefits in accordance with their terms. In addition, the Stock Award shall vest in accordance with 3(d)(ii). Any Prior Equity Awards shall vest immediately and/or become exercisable, as the case may be, and the Executive shall have the right to exercise any such stock option, stock appreciation right or other exercisable equity-based award until the earlier of (A) one year from the Date of Termination (or such longer period as may be provided under the terms of any such stock option, stock appreciation right or other equity-based award) and (B) the normal expiration date of such stock option, stock appreciation right or other equity-based award. (e) Retirement. If the Executive's employment terminates at the expiration of the Employment Period (or at any earlier date at which the Executive elects to retire under any retirement plan maintained by the Company), the Executive shall be paid the Accrued Obligations in a lump sum in cash within 30 days of the Date of Termination and the Executive shall be entitled to any Other Benefits in accordance with their terms. Upon the Executive's retirement, unless the Board otherwise determines, there shall be no acceleration of vesting of any portion of the Stock Award not yet earned. The Executive agrees not to retire (except for any Disability) prior to March 31, 2002. 6. Change in Control. (a) Benefits Upon a Change in Control. Upon the occurrence of a Change in Control during the Employment Period, the Stock Award shall continue in effect and vest (or be forfeited) in accordance with provisions of this Agreement as though no Change in Control had occurred, except that, as appropriate, the shares of Stock of the Stock Award shall be treated the same as all other shares of Stock of Enterprise. The Executive's rights upon a termination of employment that occurs following a Change in Control shall be as specified in Section 5 generally for termination of employment, except (i) the amount payable under 5(a)(i)(B) shall be three times the sum of (x) the Executive's Annual Base Salary and (y) the Target Bonus; (ii) the benefits under Section 5(a)(iv) shall be provided for three years after the Date of Termination and the Executive's eligibility (but not the time of commencement of such benefits) for retiree benefits pursuant to such plans, practices, programs and policies shall be determined as if the Executive had remained employed until three years after the Date of Termination and to have retired on the last day of such period, and (iii) the Executive shall be paid within 15 days after the Date of Termination, an amount equal to the excess of (A) the actuarial equivalent of the benefit under the Company's applicable qualified defined benefit retirement plan in which the Executive is participating immediately prior to his Date of Termination (the "Retirement Plan") (utilizing the rate used to determine lump sums and, to the extent applicable, other actuarial assumptions no less favorable to the Executive than those in effect under the Retirement Plan immediately prior to the Date of this Agreement), any SERPs in which the Executive participates and, to the extent applicable, any other defined benefit retirement arrangement between the Executive and the Company ("Other Pension Benefits") which the Executive would receive if the Executive's employment continued for three additional years beyond the Date of Termination, assuming for this purpose that all accrued benefits are fully vested, and, assuming that the Executive's compensation for such deemed additional period was the Executive's Annual Base Salary as in effect immediately prior to the Date of Termination and assuming a bonus in each year during such deemed additional period equal to the Target Bonus, over (B) the actuarial equivalent of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan, the SERPs and Other Pension Benefits as of the Date of Termination (utilizing the rate used to determine lump sums and, to the extent applicable, other actuarial assumptions no less favorable to the Executive than those in effect under the Retirement Plan immediately prior to the date of this Agreement). (b) Definition. For purposes of this Agreement, a "Change in Control" shall mean the occurrence of any of the following events after the date of this Agreement: (i) any "person" (within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") is or becomes the beneficial owner within the meaning of Rule 13d-3 under the Exchange Act (a "Beneficial Owner"), directly or indirectly, of securities of Enterprise (not including in the securities beneficially owned by such person any securities acquired directly from Enterprise or its affiliates) representing 25% or more of the combined voting power of Enterprise's then outstanding securities, excluding any person who becomes such a Beneficial Owner in connection with a transaction described in clause (A) of paragraph (iii) below; or (ii) the following individuals cease for any reason to constitute a majority of the number of directors of Enterprise then serving: individuals who, on the date of this Agreement, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of Enterprise) whose appointment or election by the Board or nomination for election by Enterprise's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or (iii) there is consummated a merger or consolidation of Enterprise or any direct or indirect wholly-owned subsidiary of Enterprise with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of Enterprise outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of Enterprise or any subsidiary of Enterprise, at least 75% of the combined voting power of the securities of Enterprise or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of Enterprise (or similar transaction) in which no person is or becomes the Beneficial Owner, directly or indirectly, of securities of Enterprise representing 25% or more of the combined voting power of Enterprise's then outstanding securities; or (iv) the shareholders of Enterprise approve a plan of complete liquidation or dissolution of Enterprise or there is consummated an agreement for the sale or disposition by Enterprise of all or substantially all of Enterprise's assets, other than a sale or disposition by Enterprise of all or substantially all of Enterprise's assets to an entity, at least 75% of the combined voting power of the voting securities of which are owned by stockholders of Enterprise in substantially the same proportions as their ownership of Enterprise immediately prior to such sale. Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of Enterprise immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of Enterprise immediately following such transaction or series of transactions. 7. Confidential Information; No competition. (a) The Executive shall hold in a fiduciary capacity for the benefit of the Company all confidential information, knowledge or data (defined below) relating to the Company or any of its affiliates or subsidiaries, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). Upon Termination of the Executive's employment, he shall return to the Company all Company information. After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it, except (x) otherwise publicly available information, or (y) as may be necessary to enforce his rights under this Agreement or necessary to defend himself against a claim asserted directly or indirectly by the Company or its affiliates. Unless and until a determination has been made in accordance with Section 7(d) or Section 9 hereof that the Executive has violated this Section 7, an asserted violation of the provisions of this Section 7 shall not constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. (b) As used herein, the term "confidential information, knowledge or data" means all trade secrets, proprietary and confidential business information belonging to, used by, or in the possession of the Company or any of its affiliates and subsidiaries, including but not limited to information, knowledge or data related to business strategies, plans and financial information, mergers, acquisitions or consolidations, purchase or sale of property, leasing, pricing, sales programs or tactics, actual or past sellers, purchasers, lessees, lessors or customers, those with whom the Company or its affiliates and subsidiaries has begun negotiations for new business, costs, employee compensation, marketing and development plans, inventions and technology, whether such confidential information, knowledge or data is oral, written or electronically recorded or stored, except information in the public domain, information known by the Executive prior to employment with PSE&G, and information received by the Executive from sources other than the Company or its affiliates and subsidiaries, without obligation of confidentiality. (c) The confidential knowledge, information and data, as defined in the previous paragraph, gained in the performance of the Executive's duties hereunder may be valuable to those who are now, or might become, competitors of the Company or its affiliates and subsidiaries. Accordingly, the Executive agrees that he will not, for the period of two years from Date of Termination, directly own, manage, operate, join, control, become employed by, consult to or participate in the ownership, management, or control of any business which is in direct competition with the Company and/or its affiliates and subsidiaries. Further, the Executive agrees that, for two years following the Date of Termination, he will not, directly or indirectly, solicit or hire, or encourage the solicitation or hiring of any person who was a managerial or higher level employee of the Company at any time during the term of the Executive's employment by the Company by any employer other than the Company for any position as an employee, independent contractor, consultant or otherwise. The foregoing agreement of the Executive shall not apply to any person after 6 months have elapsed subsequent to the date on which such person's employment by the Company has terminated. In the case of any such prohibited activity, the Executive shall not be entitled to post-employment payments (including any unpaid installments of the Stock Award), and the Executive shall return or repay to the Company a portion of any installments of the Stock Award that have vested in accordance with Section 3(d)(ii) during the two year period immediately preceding such prohibited activity which is equal to the amount of such installments paid within such two year period times a fraction, the numerator of which is the number of months from the commencement of such activity to the date that is 24 months after the Date of Termination and the denominator of which is 24. (d) In the event of a breach by the Executive of any of the agreements set forth in Paragraphs (a), (b) or (c) above, it is agreed that the Company shall suffer irreparable harm for which money damages are not an adequate remedy, and that, in the event of such breach, the Company shall be entitled to obtain an order of a court of competent jurisdiction for equitable relief from such breach, including, but not limited to, temporary restraining orders and preliminary and/or permanent injunctions against the breach of such agreements by the Executive. In the event that the Company should initiate any legal action for the breach or enforcement of any of the provisions contained in this Section 7 and the Company does not prevail in such action, the Company shall promptly reimburse the Executive the full amount of any court costs, filing fees, attorney's fees which the Executive incurs in defending such action, and any loss of income during the period of such litigation. 8. Full Settlement. (a) No Duty to Mitigate; No Reduction. Except as provided in Section 7(c), and except to the extent that a Court under Section 7(d) or an arbitrator appointed under Section 9 shall determine to permit an offset in respect of a violation by the Executive of his obligations under Section 7, the Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, except as specifically provided in Section 5(a)(iv) and Section 5(a)(vii) with respect to certain medical and dental benefits, such amounts shall not be reduced whether or not the Executive obtains other employment. (b) Non-exclusivity of Rights. Except as provided in Section 7(c), nothing in the Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies for which the Executive may qualify, nor, subject to Section 12(g), shall anything in this Agreement limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any or its affiliated companies. Vested benefits and other amounts that the Executive is otherwise entitled to receive under the incentive compensation plans referred to in Section 3(c), the SERPs, or any other plan, policy, practice of program of, or any contract of agreement with, the Company or any of its affiliated companies on or after the Date of Termination shall be payable in accordance with the terms of each such plan, policy, practice, program, contract or agreement, as the case may be, except as explicitly modified by this Agreement. 9. Disputes Except with respect to equitable relief provided for in Section 7(d), any dispute about the validity, interpretation, effect or alleged violation of this Agreement shall be resolved by confidential binding arbitration before one arbitrator to be held in Newark, New Jersey in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association and the United States Arbitration Act. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereover. All costs and expenses incurred by the Company or the Executive or the Executive's beneficiaries in connection with any such controversy or dispute, including without limitation reasonable attorney's fees, shall be borne by the Company as incurred, except that the Executive shall be responsible for any such costs and expenses incurred in connection with any claim determined by the arbitrator to have been without reasonable basis or to have been brought in bad faith. The Executive shall be entitled to interest at the applicable Federal rate provided for in Section 7872 (f) (2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"), on any delayed payment which the arbitrator determine he was entitled to under this Agreement. 10. Successors. (a) No Assignment by Executive. This Agreement is personal to the Executive and without the prior written consent of Enterprise shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) Successors to Enterprise. This Agreement shall inure to the benefit of and be binding upon Enterprise and its successors and assigns. (c) Performance by a Successor to Enterprise. Enterprise will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Enterprise to assume expressly and agree to perform this Agreement in the same manner and to the same extent that Enterprise would be required to perform it if no such succession had taken place. As used in this Agreement, "Enterprise" shall mean Enterprise as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 11. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 11) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income and employment taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 11(c), all determinations required to be made under this Section 11, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the Company's independent auditors or such other certified public accounting firm as may be jointly designated by the Executive and the Company (the "Accounting Firm"), which shall provide detailed supporting calculations both to the Company and the Executive. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 11, shall be paid by the Company to the Executive within 15 days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 11(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which he gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 11(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 11(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 11(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 11(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 12. Miscellaneous. (a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey applicable to agreements executed and performed entirely therein. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) Notices. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: 80 Park Plaza P. O. Box 570 Newark, NJ 07101 If to the Company: 80 Park Plaza P. O. Box 570 Newark, NJ 07101 Attention: General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) Invalidity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law. (d) Tax Withholding. Notwithstanding any other provision of this Agreement, the Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) Failure to Assert Rights. Except as provided in Section 4(b)(ii) and 4(c)(ii), the Executive's or the Company's failure to insist upon strict compliance with any provisions of, or to assert any right under, this Agreement shall not be deemed to be a waiver of such provision or right or of any other provision of or right under this Agreement. (f) No Alienation. The rights and benefits of the Executive under this Agreement may not be anticipated, assigned, alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process except as required by law. Any attempt by the Executive to anticipate, alienate, assign, sell, transfer, pledge, encumber or charge the same shall be void. Payments hereunder shall not be considered assets of the Executive in the event of insolvency or bankruptcy. (g) Entire Agreement. This Employment Agreement represents the complete agreement between the Executive and the Company relating to employment and termination and may not be altered or changed except by written agreement executed by the parties hereto or their respective successors or legal representatives. This Agreement supersedes the PSE&G Employment Agreement, dated April 16, 1986, except Paragraph 4 thereof relating to additional service credit for retirement purposes which is hereby incorporated by reference in this Agreement. IN WITNESS WHEREOF, the Executive and, pursuant to due authorization from its Board of Directors, the Company have caused this Agreement to be executed as of the day and year first above written. E. JAMES FERLAND ---------------- E. James Ferland PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED By: IRWIN LERNER ------------ Irwin Lerner, Chairman Organization and Compensation Committee April 16, 1986 E. James Ferland, President Northeast Utilities P. O. Box 270 Hartford, Connecticut 06141 Dear Mr. Ferland: In conjunction with your employment as President and Chief Operating Officer of PSE&G effective June 1, 1986 and as Chairman of the Board, President and Chief Executive Officer commencing July 1, 1986, the agreed terms of employment are as follows: 1. Your salary shall commence at the annual rate of $375,000 and may be increased, but shall not be reduced, thereafter during the three-year period commencing June 1, 1986. In addition, you shall be entitled to those benefits from time to time available to officers and employees of PSE&G generally. 2. If you should be discharged without cause during the three-year period commencing June 1, 1986, PSE&G will pay to you the salary which would have been payable pursuant to Paragraph 1 above for the remainder of such three-year period. "Cause" shall mean (i) the gross dereliction of, and continued failure by you to substantially perform, your duties with PSE&G (other than any such failure resulting form your incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to you by the Board which specifically identifies the manner in which the Board believes that you have not so performed your duties, or (ii) any conduct constituting a felony or moral turpitude. 3. Your participation in the Management Incentive Compensation Plan will begin effective June 1, 1986, and any award available to you with respect to calendar year 1986 shall be prorated to reflect such effective date; provided that if for any of the periods indicated below the amount of your award under the Plan as of the date it is established is less than the amount specified below for such period, PSE&G shall promptly pay to you as a lump sum in cash the difference between the amount specified below for such period and the amount of your award prorated for such period under the Plan. Period Amount June 1, 1986 to December 31, 1986 $29,000 January 1, 1987 to December 31, 1987 $50,000 January 1, 1988 to May 31, 1988 $21,000 4. Your credited service of 22 years at Northeast Utilities shall be utilized in determining the benefits to which you are and will be entitled under PSE&G's various benefit plans in a manner as if you had been a PSE&G employee for that entire 22-year period; except that you agree to forego until at least June 1, 1996, election of the option to retire when the sum of your age together with your credited service (Northeast Utilities and PSE&G combined) equal eighty. In addition, the amount of your pension or survivorship benefits from Northeast Utilities shall be deducted from the pension benefits payable to you or your beneficiary by PSE&G on account of such service with Northeast. 5. In accordance with our relocation program, PSE&G will compensate you for all reasonably incurred moving, relocation and temporary housing expenses (including the reimbursement of any sales commission on your existing house and including, if you desire, the purchase of your present house) in conjunction with your relocation from Connecticut to New Jersey for the purpose of commencing employment with PSE&G effective June 1, 1986, except that no payment shall be made for miscellaneous expenses in the amount of one half a month's salary as provided in such program. If the foregoing is in accordance with your understanding, please sign the enclosed copy of this letter and return it to me. Sincerely, /s/ HAROLD W. SONN Agreed to this 21 day of April, 1986 /s/ E. JAMES FERLAND E. James Ferland EX-12 6 PSEG COMPUTATION OF RATIOS EXHIBIT 12 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED -------------------------------------------- COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES 12 Months Ended YEARS ENDED DECEMBER 31, June 30, ------- ------- ------- ------- ------- 1993(B) 1994 1995 1996 1997 1998 ------- ------- ------- ------- ------- ------ (Millions of Dollars, where applicable) Earnings as Defined in Regulation S-K (A): Income from Continuing Operations (C) $549 $667 $627 $588 $560 $642 Income Taxes (D) 296 320 348 297 313 410 Fixed Charges 539 535 549 528 543 558 ------ ------ ------ ------ ----- ------ Earnings $1,384 $1,522 $1,524 $1,413 $1,416 $1,610 ====== ====== ====== ====== ====== ====== Fixed Charges as Defined in Regulation S-K (E): Total Interest Expense (F) $471 $462 $464 $453 $470 $481 Interest Factor in Rentals 11 12 12 12 11 11 Subsidiaries' Preferred Securities Dividend Requirements -- 2 16 28 44 52 Preferred Stock Dividends 38 41 34 23 12 9 Adjustment to Preferred Stock Dividends to state on a pre-income tax basis 19 18 23 12 6 5 ------ ------ ------ ------ ------ ----- Total Fixed Charges $539 $535 $549 $528 $543 $558 ====== ====== ====== ====== ====== ===== Ratio of Earnings to Fixed Charges 2.57 2.84 2.78 2.68 2.61 2.88 ====== ====== ====== ====== ====== ===== (A) The term "earnings" shall be defined as pretax income from continuing operations. Add to pretax income the amount of fixed charges adjusted to exclude (a) the amount of any interest capitalized during the period and (b) the actual amount of any preferred stock dividend requirements of majority-owned subsidiaries which were included in such fixed charges amount but not deducted in the determination of pretax income. (B) Excludes cumulative effect of $5.4 million credit to income reflecting a change in income taxes. (C) Excludes income from discontinued operations. (D) Includes State income taxes and Federal income taxes for other income. (E) Fixed Charges represent (a) interest, whether expensed or capitalized, (b) amortization of debt discount, premium and expense, (c) an estimate of interest implicit in rentals, and (d) preferred securities dividend requirements of subsidiaries and preferred stock dividends, increased to reflect the pre-tax earnings requirement for Public Service Enterprise Group Incorporated. (F) Excludes interest expense from discontinued operations. EX-12 7 PSE&G COMPUTATION OF RATIOS EXHIBIT 12 (A) PUBLIC SERVICE ELECTRIC AND GAS COMPANY --------------------------------------- COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES 12 Months Ended YEARS ENDED DECEMBER 31, June 30, ------- ------- ------- ------- ------- 1993 1994 1995 1996 1997 1998 ------- ------- ------- ------- ------- ----- (Millions of Dollars, where applicable) Earnings as Defined in Regulation S-K (A): Net Income $615 $659 $617 $535 $528 $570 Income Taxes (B) 307 302 326 268 286 364 Fixed Charges 401 408 419 438 450 441 ------ ------ ------ ------ ------ ------ Earnings $1,323 $1,369 $1,362 $1,241 $1,264 $1,375 ====== ====== ====== ====== ====== ====== Fixed Charges as Defined in Regulation S-K (C): Total Interest Expense $390 $396 $407 $399 $395 $386 Interest Factor in Rentals 11 12 12 11 11 11 Subsidiaries' Preferred Securities Dividend Requirements -- -- -- 28 44 44 ------- ------- ------- ------- ------- ------- Total Fixed Charges $401 $408 $419 $438 $450 $441 ======= ======= ======= ======= ======= ======= Ratio of Earnings to Fixed Charges 3.30 3.35 3.25 2.83 2.81 3.12 ======= ======= ======= ======= ======= ======= (A) The term "earnings" shall be defined as pretax income from continuing operations. Add to pretax income the amount of fixed charges adjusted to exclude (a) the amount of any interest capitalized during the period and (b) the actual amount of any preferred stock dividend requirements of majority-owned subsidiaries which were included in such fixed charges amount but not deducted in the determination of pretax income. (B) Includes State income taxes and Federal income taxes for other income. (C) Fixed Charges represent (a) interest, whether expensed or capitalized, (b) amortization of debt discount, premium and expense, (c) an estimate of interest implicit in rentals, and (d) Preferred Securities Dividend Requirements of subsidiaries. EX-12 8 PSE&G COMPUTATION OF RATIOS EXHIBIT 12 (B) PUBLIC SERVICE ELECTRIC AND GAS COMPANY --------------------------------------- COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS 12 Months Ended YEARS ENDED DECEMBER 31, June 30, ------- ------- ------- ------- ------- 1993 1994 1995 1996 1997 1998 ------- ------- ------- ------- ------- ----- (Millions of Dollars, where applicable) Earnings as Defined in Regulation S-K (A): Net Income $615 $659 $617 $535 $528 $570 Income Taxes (B) 307 302 326 268 286 364 Fixed Charges 401 408 419 438 450 441 ------- ------- ------- ------- ------- ------- Earnings $1,323 $1,369 $1,362 $1,241 $1,264 $1,375 ======= ======= ======= ======= ======= ======= Fixed Charges as Defined in Regulation S-K (C): Total Interest Expense $390 $396 $407 $399 $395 $386 Interest Factor in Rentals 11 12 12 11 11 11 Subsidiaries' Preferred Securities Dividend Requirements -- -- -- 28 44 44 Preferred Stock Dividends 38 42 49 23 12 9 Adjustment to Preferred Stock Dividends to state on a pre-income tax basis 19 19 24 12 6 7 ------- ------- ------- ------- ------- ------- Total Fixed Charges $458 $469 $492 $473 $468 $457 ======= ======= ======= ======= ======= ======= Ratio of Earnings to Fixed Charges 2.89 2.92 2.77 2.62 2.70 3.00 ======= ======= ======= ======= ======= ======= (A) The term "earnings" shall be defined as pretax income from continuing operations. Add to pretax income the amount of fixed charges adjusted to exclude (a) the amount of any interest capitalized during the period and (b) the actual amount of any preferred stock dividend requirements of majority-owned subsidiaries which were included in such fixed charges amount but not deducted in the determination of pretax income. (B) Includes State income taxes and Federal income taxes for other income. (C) Fixed Charges represent (a) interest, whether expensed or capitalized, (b) amortization of debt discount, premium and expense, (c) an estimate of interest implicit in rentals, and (d) preferred securities dividend requirements of subsidiaries and preferred stock dividends, increased to reflect the pre-tax earnings requirement for Public Service Electric and Gas Company. EX-27.A 9 FDS PSEG
UT This schedule contains summary financial information extracted from SEC Form 10-Q and is qualified in its entirety by reference to such financial statements. 0000788784 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED 1000000 6-MOS DEC-31-1997 JAN-01-1998 JUN-30-1998 PER-BOOK 10,897 3,700 1,784 1,586 0 17,967 3,603 0 1,675 5,251 963 95 4,614 0 0 1,069 646 0 50 0 5,279 17,967 3,458 226 2,668 2,889 569 8 577 264 313 35 313 251 200 536 1.35 1.35 State Income Taxes of $1 and Federal Income Taxes of $4 for Other Income were incorporated into this line for FDS purposes. In the referenced financial statements, Total Other Income and Deductions are net of the above applicable Federal and State income taxes. Total interest expense includes Preferred Securities Dividends Requirements.
EX-27.B 10 FDS PSE&G
UT This schedule contains summary financial information extracted from SEC Form 10-Q and is qualified in its entirety by reference to such financial statements. 0000081033 PUBLIC SERVICE ELECTRIC AND GAS COMPANY 1000000 6-MOS DEC-31-1997 JAN-01-1998 JUN-30-1998 PER-BOOK 10,897 771 1,637 1,585 0 14,890 2,563 594 1,365 4,522 588 95 4,140 0 0 955 252 0 50 0 4,288 14,890 3,255 200 2,591 2,787 468 5 473 204 269 27 264 251 153 538 0 0 Federal Income Taxes for Other Income of $4 was incorporated into this line item for FDS purposes. In the referenced financial statements, Total Other Income and Deductions are net of the above applicable Federal and State income taxes. Total interest expense includes Preferred Securities Dividend Requirements.
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