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PROSPECTUS SUPPLEMENT Issued May 13, 1999 (Subject to Completion)
(To Prospectus Dated February 4, 1999)
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4,000,000 Trust Preferred Securities
MET-ED CAPITAL TRUST
__% Trust Preferred Securities
(Liquidation amount $25 per Trust Preferred Security)
each representing a __% Cumulative Preferred Security of
MET-ED CAPITAL II, L.P.
(Liquidation amount $25 per Preferred Security)
Fully and unconditionally guaranteed, as described herein, by
METROPOLITAN EDISON COMPANY
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A BRIEF DESCRIPTION OF THE TRUST PREFERRED SECURITIES CAN BE FOUND UNDER
"SUMMARY INFORMATION--Q&A" IN THIS PROSPECTUS SUPPLEMENT.
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APPLICATION HAS BEEN MADE TO LIST THE TRUST PREFERRED SECURITIES ON THE NEW
YORK STOCK EXCHANGE. IF APPROVED, METROPOLITAN EDISON COMPANY EXPECTS THAT THE
TRUST PREFERRED SECURITIES WILL BEGIN TRADING WITHIN 30 DAYS AFTER THEY ARE
FIRST ISSUED.
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INVESTING IN THE TRUST PREFERRED SECURITIES INVOLVES RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE S-8.
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS
PUBLIC COMMISSIONS TO TRUST
------------ -------------- ------------
Per Trust Preferred Security.... $25 $ $25
Total........................... $100,000,000 $ $100,000,000
Metropolitan Edison Company will pay all underwriting commissions. For
sales of 10,000 or more Trust Preferred Securities to a single purchaser, the
underwriting commission will be $____ per Trust Preferred Security. Met-Ed
Capital Trust will not pay any underwriting commissions. Any accumulated
distributions from the date of original issuance of the Trust Preferred
Securities should be added to the Price to Public.
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities or determined if this Prospectus
Supplement or the accompanying Prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The Underwriters expect to deliver the Trust Preferred Securities to
purchasers on or about May__, 1999.
MORGAN STANLEY DEAN WITTER
A.G. EDWARDS & SONS, INC.
BANC ONE CAPITAL MARKETS, INC.
LEGG MASON WOOD WALKER
INCORPORATED
SALOMON SMITH BARNEY
May __, 1999
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT AND ACCOMPANYING PROSPECTUS IS NOT
COMPLETE AND MAY BE CHANGED. A REGISTRATION STATEMENT RELATING TO THESE
SECURITIES HAS BEEN DECLARED EFFECTIVE BY THE SECURITIES AND EXCHANGE
COMMISSION. NEITHER THIS PROSPECTUS SUPPLEMENT NOR THE ACCOMPANYING PROSPECTUS
IS AN OFFER TO SELL THESE SECURITIES AND NEITHER IS SOLICITING ANY OFFER TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
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<PAGE>
You should rely only on the information contained or incorporated by
reference in this Prospectus Supplement and the accompanying Prospectus.
Metropolitan Edison Company and the underwriters have not authorized any other
person to provide you with different information. If anyone provides you with
different or inconsistent information, you should not rely on it. Metropolitan
Edison Company and the underwriters are not making an offer to sell these
securities in any jurisdiction where the offer or sale is not permitted. You
should assume that the information appearing in this Prospectus Supplement and
the accompanying Prospectus is accurate as of the date on the front of the
documents only. Metropolitan Edison Company's business, financial condition,
results of operations and prospects may have changed since that date.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Page
----
Summary Information - Q&A.................................................. S-3
Risk Factors............................................................... S-8
Incorporation of Certain Documents by Reference............................ S-11
Selected Consolidated Financial Information................................ S-12
Capitalization............................................................. S-13
Use of Proceeds............................................................ S-14
Ratio of Earnings to Fixed Charges and Earnings to
Combined Fixed Charges and Preferred Stock Dividends..................... S-14
Description of the Trust Securities........................................ S-15
Description of the Preferred Securities.................................... S-23
Description of the Guarantee............................................... S-29
Description of the Subordinated Debentures and the Debenture Indenture..... S-32
Certain Federal Income Tax Considerations.................................. S-33
ERISA Considerations....................................................... S-37
Underwriting............................................................... S-40
Experts.................................................................... S-41
PROSPECTUS
Available Information...................................................... 4
Incorporation of Certain Documents by Reference............................ 5
Metropolitan Edison Company................................................ 6
Met-Ed Capital Trust....................................................... 6
Met-Ed Capital II, L.P..................................................... 7
Financing Program.......................................................... 7
Use of Proceeds............................................................ 7
Company Coverage Ratios.................................................... 8
Accounting Treatment....................................................... 8
Description of Senior Notes................................................ 9
Description of Senior Note Mortgage Bonds.................................. 19
Description of The Trust Securities........................................ 24
Description of The Preferred Securities.................................... 27
Description of The Guarantee............................................... 29
Description of The Subordinated Debentures and the Debenture Indenture..... 32
Plan of Distribution....................................................... 38
Legal Matters.............................................................. 39
Experts.................................................................... 39
S-2
<PAGE>
SUMMARY INFORMATION--Q&A
The following information supplements, and should be read together with,
the information contained in other parts of this Prospectus Supplement and in
the accompanying Prospectus. This summary highlights selected information from
this Prospectus Supplement and the accompanying Prospectus to help you
understand the % Trust Preferred Securities ("Trust Securities"). You should
carefully read this Prospectus Supplement and the accompanying Prospectus to
understand fully the terms of the Trust Securities as well as the tax and other
considerations that are important to you in making a decision about whether to
invest in the Trust Securities. You should pay special attention to the "Risk
Factors" section beginning on page S-8 of this Prospectus Supplement to
determine whether an investment in the Trust Securities is appropriate for you.
WHAT ARE THE TRUST SECURITIES?
Each Trust Security will be issued by Met-Ed Capital Trust (the "Trust")
pursuant to the terms of an Amended and Restated Trust Agreement ("Trust
Agreement"). Each Trust Security will represent a beneficial interest in the
Trust equal to and representing a cumulative preferred limited partnership
interest ("Preferred Securities") in Met-Ed Capital II, L.P. ("Met-Ed Capital").
The Preferred Securities will be the sole assets of the Trust and the only
revenues of the Trust will be the distributions on the Preferred Securities.
Each Trust Security will entitle the holder to receive quarterly cash
distributions as described in this Prospectus Supplement. The Trust is offering
4,000,000 Trust Securities at a price of $25 for each Trust Security.
WHO IS THE TRUST?
The Trust is a Delaware business trust. The mailing address of the Trust
is c/o GPU Service, Inc., 310 Madison Avenue, Morristown, New Jersey 07962, and
its telephone number is (973) 455-8200.
The Trust will sell its Trust Securities to the public. The Trust will use
the proceeds from these sales to buy from Met-Ed Capital a series of Preferred
Securities. Met-Ed Capital will in turn use the proceeds from the sale of the
Preferred Securities, plus the capital contribution made by Met-Ed Preferred
Capital II, Inc., a Delaware special purpose corporation and the sole general
partner of Met-Ed Capital (the "General Partner") to purchase __% subordinated
debentures, Series A due 2039 ("Subordinated Debentures") from Metropolitan
Edison Company (the "Company") with the same financial terms as the Preferred
Securities. The Company will guarantee payments made on the Preferred Securities
as described herein.
The Bank of New York will act as the Property Trustee (as defined below)
of the Trust. Three officers of the Company also will act as the Regular
Trustees (as defined below) of the Trust. The Bank of New York (Delaware) will
act as the Delaware Trustee (as defined below) of the Trust. United States Trust
Company of New York will act as trustee (the "Indenture Trustee") under the
Indenture, as supplemented (the "Debenture Indenture"), pursuant to which the
Subordinated Debentures will be issued. The Property Trustee, Delaware Trustee
and Regular
S-3
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Trustees are sometimes referred to as the "Securities Trustees." See
"Description of the Trust Securities -- Trustees; Resignation and Removal."
WHO IS MET-ED CAPITAL?
Met-Ed Capital is a Delaware limited partnership. Its mailing address is
c/o GPU Service, Inc., 310 Madison Avenue, Morristown, New Jersey 07962 and its
telephone number is (973) 455-8200. All of its general partner interests are
owned by the General Partner, which is a wholly-owned subsidiary of the Company.
As a limited partnership, all of the business and affairs of Met-Ed Capital are
managed by the General Partner.
Met-Ed Capital will sell the Preferred Securities to the Trust. Met-Ed
Capital will use the proceeds of the sale together with the capital contribution
of the General Partner to purchase the Subordinated Debentures from the Company.
The Subordinated Debentures will be the only assets of Met-Ed Capital and the
only revenues of Met-Ed Capital will be the interest payments it receives on the
Subordinated Debentures.
WHO IS THE COMPANY?
Metropolitan Edison Company is a corporation organized under the laws of
the Commonwealth of Pennsylvania on July 24, 1922. The Company has its principal
office at 2800 Pottsville Pike, Reading, Pennsylvania 19605, telephone (610)
929-3601. The Company, which does business under the name "GPU Energy," is a
wholly owned subsidiary of GPU, Inc. ("GPU"), a holding company registered under
the Public Utility Holding Company Act of 1935.
The Company is a regulated public utility engaged in the generation,
transmission, distribution and sale of electric energy within a territory
located in eastern and south central Pennsylvania having a population of almost
one million. As a result of GPU's decision to exit the merchant generation
business, the Company has entered into agreements to sell all of its fossil fuel
and hydroelectric generating stations as well as its 50% interest in the Three
Mile Island Unit No. 1 nuclear station. Subject to the receipt of regulatory
approvals, the Company expects that the generation divestiture will be completed
during the third quarter of 1999.
WHEN WILL YOU RECEIVE QUARTERLY DISTRIBUTIONS?
If you purchase the Trust Securities, you are entitled to receive
cumulative cash distributions at an annual rate of % (the "Securities Rate") of
the liquidation amount of $25 per Trust Security. Distributions will accumulate
from the date the Trust issues the Trust Securities, which will be the date that
Met-Ed Capital issues the Preferred Securities (the "Issue Date"), and will be
paid quarterly in arrears on ________, ________, ________ and ________ of each
year (each, a "Distribution Date"), beginning ____________, 1999.
S-4
<PAGE>
CAN PAYMENT OF YOUR DISTRIBUTIONS BE DEFERRED?
Yes, the Company can, on one or more occasions, defer interest payments on
Subordinated Debentures for up to 20 consecutive quarterly periods. A deferral
of interest payments cannot extend, however, beyond the maturity date of the
Subordinated Debentures (which is __________, 2039).
If the Company defers interest payments on the Subordinated Debentures,
Met-Ed Capital will also defer distributions on the Preferred Securities, and,
consequently, the Trust will also defer distributions on the Trust Securities.
During this deferral period, distributions will continue to accrue on each of
the Trust Securities and Preferred Securities at an annual rate of__% of the
liquidation amount of $25 per Trust Security or Preferred Security. Interest
will also accrue on the Subordinated Debentures at an annual rate of__% of the
principal amount of the Subordinated Debentures. Also, the deferred
distributions will themselves accrue interest at an annual rate of__% (to the
extent permitted by law). Once the Company makes all interest payments on the
Subordinated Debentures, with accrued interest, it can again defer interest
payments on the Subordinated Debentures.
During any period in which the Company defers interest payments on the
Subordinated Debentures, neither the Company, nor any majority owned subsidiary
of the Company, will be permitted to (with limited exceptions):
o declare or pay any dividend on, or redeem, purchase, acquire or make
a liquidation payment with respect to, any of its capital stock
(other than dividends by wholly-owned subsidiaries), or make any
guarantee payments with respect to the foregoing; or
o make any interest, principal or premium payment on, or repurchase or
redeem, any of its debt securities that rank equal with or junior to
the Subordinated Debentures.
If the Company defers payments of interest on the Subordinated Debentures,
the Preferred Securities and the Trust Securities will, from the time of
deferral, be treated as being issued with original issue discount for United
States federal income tax purposes. This means you will be required to recognize
interest income with respect to distributions and include such amounts in your
gross income for United States federal income tax purposes even though you will
not have received any cash distributions relating to such interest income. See
"Certain Federal Income Tax Considerations -- Potential Extension of Payment
Period."
WHEN CAN THE TRUST REDEEM THE TRUST SECURITIES?
The Trust must redeem all of the outstanding Trust Securities, and Met-Ed
Capital must redeem all of the outstanding Preferred Securities, when the
Subordinated Debentures are paid at maturity on __________, 2039. In addition,
if the Company redeems any Subordinated Debentures before their maturity and
Met-Ed Capital, in turn, redeems Preferred Securities, the Trust will use the
cash it receives from the redemption to redeem, on a pro rata basis, Trust
Securities having a
S-5
<PAGE>
combined liquidation amount equal to the liquidation amount of the
Preferred Securities redeemed and the principal amount of the Subordinated
Debentures being redeemed.
The Company can redeem some or all of the Subordinated Debentures before
their maturity at 100% of their principal amount on one or more occasions any
time on or after ___________, 2004. The Company also has the option to redeem
the Subordinated Debentures, in whole, but not in part, at any time if certain
changes in tax or investment company law occur and certain other conditions are
satisfied, as more fully described under "Description of the Preferred
Securities -- Special Event Redemption; Distribution of the Subordinated
Debentures." In any case, the Company will pay accrued interest to the date of
redemption.
WHAT IS THE COMPANY'S GUARANTEE OF THE PREFERRED SECURITIES?
The Company will guarantee the Preferred Securities based on:
o its obligations to make payments on the Subordinated
Debentures;
o its obligations under the Payment and Guarantee Agreement
("Guarantee"); and
o the General Partner's obligations under the Amended and
Restated Limited Partnership Agreement of Met-Ed Capital
("Partnership Agreement") and the Trust Agreement.
The Company's obligations under the Subordinated Debentures are
subordinate and junior in right of payment to all of its Senior Indebtedness (as
defined under "Description of the Subordinated Debentures and the Debenture
Indenture -- Subordination" in the accompanying Prospectus), which aggregated
approximately $716 million at March 31, 1999.
The payment of distributions on the Preferred Securities is guaranteed by
the Company under the Guarantee, but only to the extent Met-Ed Capital has funds
legally available to make distributions.
The Company's obligations under the Guarantee are:
o subordinate and junior in right of payment to its general
liabilities (other than trade accounts payable arising in the
ordinary course of business);
o equal in rank to its preferred securities; and
o senior to its common stock.
S-6
<PAGE>
WHEN COULD THE SUBORDINATED DEBENTURES BE DISTRIBUTED TO YOU?
The Company has the right to dissolve Met-Ed Capital at any time. In the
event of a dissolution of Met-Ed Capital, Met-Ed Capital will distribute the
Subordinated Debentures to the Trust, as the holder of the Preferred Securities
(or to any other holders of the Preferred Securities on a pro rata basis). Any
distribution of Subordinated Debentures to the Trust, as the holder of the
Preferred Securities (or to any other holders of the Preferred Securities on a
pro rata basis) would be a "Distribution Event." Upon the receipt by the Trust
of Subordinated Debentures, after satisfaction of creditors of the Trust as
required by applicable law, a Securities Trustee would dissolve the Trust and
distribute Subordinated Debentures to each holder of Trust Securities in
proportion to the number of Preferred Securities represented by such Trust
Securities. If the Subordinated Debentures are distributed, the Company will use
its best efforts to list them on the New York Stock Exchange ("NYSE") (or any
other exchange on which the Trust Securities were listed). For a discussion of
the Company's ability to distribute the Subordinated Debentures, see
"Description of the Preferred Securities -- Special Event Redemption;
Distribution of the Subordinated Debentures" and "-- Dissolution Distribution."
WILL THE TRUST SECURITIES BE LISTED ON A STOCK EXCHANGE?
Application has been made to list the Trust Securities on the NYSE. If
approved, trading of the Trust Securities is expected to begin within 30 days
after they are first issued.
WILL HOLDERS OF THE TRUST SECURITIES HAVE ANY VOTING RIGHTS?
Generally, the holders of the Trust Securities will have limited voting
rights. See "Description of the Trust Securities -- Voting Rights."
IN WHAT FORM WILL THE TRUST SECURITIES BE ISSUED?
The Trust Securities will be represented by one or more global securities
that will be deposited with and registered in the name of The Depository Trust
Company ("DTC") or its nominee. This means that you will not receive a
certificate for your Trust Securities and that your broker will maintain your
position in the Trust Securities. The Company expects that the Trust Securities
will be ready for delivery through DTC on or about May __, 1999.
S-7
<PAGE>
RISK FACTORS
Your investment in the Trust Securities will involve certain risks. You
should carefully consider the following discussion of risks, and the other
information in this Prospectus Supplement and the accompanying Prospectus,
before deciding whether an investment in the Trust Securities is suitable for
you.
THE COMPANY'S OBLIGATIONS UNDER THE GUARANTEE AND THE SUBORDINATED DEBENTURES
ARE SUBORDINATED.
The Company's obligations under the Subordinated Debentures will rank
junior in priority of payment to all of the Company's Senior Indebtedness. This
means that the Company cannot make any payments on the Subordinated Debentures
if it defaults on a payment of Senior Indebtedness and does not cure that
default within the applicable grace period or if the Senior Indebtedness becomes
immediately due because of a default and has not yet been paid in full. At March
31, 1999, Senior Indebtedness of the Company aggregated approximately $716
million.
The Company's obligations under the Guarantee will rank in priority of
payment as follows:
o subordinate and junior in right of payment to its general
liabilities (other than trade accounts payable arising in the
ordinary course of business);
o equal in rank to its preferred securities; and
o senior to its common stock.
This means that the Company cannot make any payments on the Guarantee if
it defaults on a payment on any of its other liabilities except trade accounts
payable arising in the ordinary course of business. In addition, in the event of
the bankruptcy, liquidation or dissolution of the Company, its assets would, in
general, be available to pay obligations under the Guarantee only after the
Company made all payments on its other liabilities.
Neither the Trust Securities, the Preferred Securities, the Subordinated
Debentures nor the Guarantee limit the ability of the Company to incur
additional indebtedness, including indebtedness that ranks senior in priority of
payment to the Subordinated Debentures and the Guarantee. See "Description of
the Subordinated Debentures and the Debenture Indenture -- Subordination" in the
accompanying Prospectus.
THE GUARANTEE ONLY COVERS PAYMENTS IF MET-ED CAPITAL HAS CASH AVAILABLE.
The ability of the Trust to pay scheduled distributions on the Trust
Securities, the redemption price of the Trust Securities and the liquidation
amount of each Trust Security is solely dependent upon the Company making the
related payments on the Subordinated
S-8
<PAGE>
Debentures when due and upon Met-Ed Capital making the related payments on the
Preferred Securities.
If the Company defaults on its obligations to pay principal of or interest
on the Subordinated Debentures, Met-Ed Capital will not have sufficient funds to
pay distributions on the Preferred Securities, and as a result, the Trust will
not have sufficient funds to pay distributions, the redemption price or the
liquidation amount of each Trust Security. In those circumstances, you will not
be able to rely upon the Guarantee for payment of these amounts.
Instead, you:
o may rely on the Indenture Trustee to enforce the rights of
holders of Subordinated Debentures; or
o may rely on the Property Trustee to enforce the Trust's rights
under the Preferred Securities.
DEFERRAL OF DISTRIBUTIONS WOULD HAVE TAX CONSEQUENCES FOR YOU AND MAY AFFECT THE
TRADING PRICE OF THE TRUST SECURITIES.
The Company can, on one or more occasions, defer interest payments on the
Subordinated Debentures for up to 20 consecutive quarterly periods. If the
Company defers interest payments on the Subordinated Debentures, Met-Ed Capital
will defer distributions on the Preferred Securities, and the Trust will defer
distributions on the Trust Securities during any deferral period. During this
deferral period, distributions will continue to accrue on each of the Trust
Securities and Preferred Securities at an annual rate of __% of their
liquidation amount. Interest will also accrue on the Subordinated Debentures at
an annual rate of__% of their principal amount. Also, the deferred distributions
would themselves accrue interest at the annual rate of __% (to the extent
permitted by law).
If the Company defers payments of interest on the Subordinated Debentures,
you will be required to recognize interest income for United States federal
income tax purposes (based on your pro rata share of the Trust's interest in the
Subordinated Debentures held by Met-Ed Capital) before you receive any cash
relating to such interest. In addition, you will not receive such cash if you
sell the Trust Securities before the end of any deferral period or before the
record date relating to distributions which are paid.
The Company has no current intention of deferring interest payments on the
Subordinated Debentures. However, if the Company exercises its right in the
future, the Trust Securities may trade at a price that does not fully reflect
the value of accrued but unpaid interest on the Subordinated Debentures. If you
sell the Trust Securities during an interest deferral period, you may not
receive the same return on investment as someone else who continues to hold the
Trust Securities. In addition, the existence of the Company's right to defer
payments of interest on the Subordinated Debentures may mean that the market
price for the Trust Securities (which
S-9
<PAGE>
ultimately represent an undivided beneficial interest in the Subordinated
Debentures) may be more volatile than other securities that do not have these
rights.
See "Certain Federal Income Tax Considerations" for more information
regarding the tax consequences of purchasing, holding and selling the Trust
Securities.
TRUST SECURITIES MAY BE REDEEMED AT ANY TIME IF CERTAIN CHANGES IN TAX OR
INVESTMENT COMPANY LAW OCCUR.
If certain changes in tax or investment company law occur and are
continuing, and certain other conditions are satisfied, the Company has the
right to redeem the Subordinated Debentures, in whole, but not in part, at any
time. Any such redemption will cause a mandatory redemption of all Preferred
Securities which will in turn cause a mandatory redemption of all Trust
Securities at a redemption price equal to $25 per security plus any accrued and
unpaid distributions. See "Description of the Preferred Securities -- Special
Event Redemption; Distribution of the Subordinated Debentures."
TRUST SECURITIES MAY BE REDEEMED AT THE OPTION OF THE COMPANY.
At the option of the Company, the Subordinated Debentures may be redeemed,
in whole, at any time, or in part, from time to time, on or after ____________,
2004 at a redemption price equal to the principal amount to be redeemed plus any
accrued and unpaid interest to the redemption date. See "Description of the
Subordinated Debentures and the Debenture Indenture -- Redemption." You should
assume that the Company will exercise its redemption option if the Company is
able to refinance at a lower interest rate or it is otherwise in the interest of
the Company to redeem the Subordinated Debentures. If the Subordinated
Debentures are redeemed, Met-Ed Capital must redeem the Preferred Securities,
and consequently the Trust must redeem the Trust Securities having an aggregate
liquidation amount equal to the aggregate principal amount of Subordinated
Debentures to be redeemed. See "Description of the Trust Securities --
Redemption."
THERE CAN BE NO ASSURANCE AS TO THE MARKET PRICES FOR THE TRUST SECURITIES OR
THE SUBORDINATED DEBENTURES.
There can be no assurance as to the market prices for the Trust Securities
or the Subordinated Debentures that may be distributed in exchange for Trust
Securities upon a dissolution of the Trust and dissolution of Met-Ed Capital.
Accordingly, the Trust Securities that an investor may purchase, whether
pursuant to the offer made by this Prospectus Supplement or in the secondary
market, or the Subordinated Debentures that a holder of Trust Securities may
receive upon a dissolution of the Trust, may trade at a discount to the price
that the investor paid to purchase the Trust Securities offered by this
Prospectus Supplement. As a result of the Company's right to defer interest
payments on Subordinated Debentures, the market price of the Trust Securities
(which represent undivided beneficial interests in the assets of the Trust,
substantially all the assets of which consist of the Preferred Securities) may
be more volatile than the market prices of other securities that are not subject
to such optional deferrals.
S-10
<PAGE>
THE COMPANY MAY CAUSE MET-ED CAPITAL TO DISSOLVE AT ANY TIME.
The Company may cause Met-Ed Capital to dissolve at any time. If Met-Ed
Capital exercises its right to dissolve, it will liquidate and distribute the
Subordinated Debentures to the Trust, as the holder of the Preferred Securities
(or to any other holders of the Preferred Securities on a pro rata basis). Upon
the receipt by the Trust of Subordinated Debentures, after satisfaction of
creditors of the Trust as required by applicable law, a Securities Trustee would
dissolve the Trust and distribute Subordinated Debentures to each holder of
Trust Securities in proportion to the number of Preferred Securities represented
by such Trust Securities. See "Description of the Preferred Securities --
Dissolution Distribution" below.
Under current United States federal income tax law, a distribution of
Subordinated Debentures to you on the dissolution of the Trust and dissolution
of Met-Ed Capital should not be a taxable event to you. See "Certain Federal
Income Tax Considerations."
The Company has no current intention of causing the dissolution of Met-Ed
Capital and the distribution of the Subordinated Debentures. The Company
anticipates that it would consider causing Met-Ed Capital to exercise this right
in the event that expenses associated with maintaining the Trust were
substantially greater than currently expected, for example, if certain changes
in tax law or investment company law occurred. See "Description of the Preferred
Securities -- Special Event Redemption; Distribution of the Subordinated
Debentures." The Company cannot predict the other circumstances under which it
might exercise this right.
Although the Company will use its best efforts to list the Subordinated
Debentures on the NYSE (or any other exchange on which the Trust Securities were
then listed) if they are distributed, there is no assurance that the
Subordinated Debentures would be approved for listing or that a trading market
would exist for those securities.
YOU HAVE LIMITED VOTING RIGHTS.
You will have limited voting rights. In particular, subject to certain
exceptions, only Met-Ed Capital can appoint or remove any of the Securities
Trustees. See "Description of the Trust Securities -- Voting Rights".
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates herein by reference the following
documents which have been filed by the Company with the Securities and Exchange
Commission ("SEC") pursuant to the Securities Exchange Act of 1934 ("Exchange
Act"):
1. The Company's Annual Report on Form 10-K for the year ended December
31, 1998.
S-11
<PAGE>
2. The Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1999.
All documents subsequently filed by the Company with the SEC pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination
of the offering made hereby shall be deemed to be incorporated herein by
reference and to be a part hereof from the respective dates of filing thereof.
The documents incorporated or deemed to be incorporated herein by reference are
sometimes hereinafter called the "Incorporated Documents." Any statement
contained herein or in an Incorporated Document shall be deemed to be modified
or superseded for all purposes to the extent that a statement contained herein
or in any subsequently filed Incorporated Document modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus Supplement
or the accompanying Prospectus.
The Company will provide without charge to each person to whom this
Prospectus Supplement is delivered, upon written or oral request of any such
person, a copy of any or all of the Incorporated Documents, excluding the
exhibits thereto unless such exhibits are specifically incorporated by reference
into such documents. Requests for such documents should be directed to
Metropolitan Edison Company, 2800 Pottsville Pike, Reading, Pennsylvania 19605,
attention: Secretary. The Company's telephone number is (610) 929-3601.
In addition to the historical information contained or incorporated by
reference herein, this Prospectus Supplement contains or incorporates by
reference a number of "forward-looking statements" within the meaning of the
Exchange Act. Such statements address future events and conditions concerning
capital expenditures, resolution and impact of litigation, regulatory matters,
liquidity and capital resources and accounting matters. Actual results in each
case could differ materially from those projected in such statements due to a
variety of factors including, without limitation, restructuring of the utility
industry; future economic conditions; earnings retention and dividend payout
policies; developments in the legislative, regulatory and competitive
environments in which the Company operates; and other circumstances that could
affect anticipated revenues and costs, such as compliance with laws and
regulations. These and other factors are discussed in the Company's filings with
the SEC.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(In Millions of Dollars)
The following material, which is presented solely to furnish limited
introductory information, is qualified in its entirety by, and should be
considered in conjunction with, the other information appearing in this
Prospectus Supplement, the accompanying Prospectus and the documents
incorporated by reference.
S-12
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FOR THE YEARS ENDED DECEMBER 31,
For the
Twelve
Months Ended
March 31,
1999 1998(1) 1997 1996(2) 1995(3) 1994(4)
---- ---- ---- ---- ---- ----
(unaudited)
Operating
revenues $914.0 $919.6 $943.1 $910.4 $854.7 $801.3
Net Income 59.0 50.9 93.5 69.1 148.5 1.0
(1) Results for 1998 include an extraordinary charge of $6.8 million
(after-tax) as a result of the order of the Pennsylvania Public Utility
Commission ("Restructuring Order"). Also in 1998, as a result of the
Restructuring Order, the Company recorded a non-recurring charge of $19
million (after-tax) related to the obligation to refund 1998 revenues; and
for the establishment of a sustainable energy fund.
(2) Results for 1996 reflect a non-recurring charge of $15.4 million
(after-tax) for costs related to voluntary enhanced retirement programs.
(3) Results for 1995 reflect the reversal of $72.8 million (after-tax) of
certain future Three Mile Island Unit No. 2 ("TMI-2") retirement costs
written off in 1994. The reversal of this write-off resulted from a 1995
Pennsylvania Supreme Court decision that overturned a 1994 lower court
order, and restored a 1993 rate order allowing for the recovery of such
costs. Partially offsetting this increase was a non-recurring charge to
income of $5.7 million (after-tax) of TMI-2 monitored storage costs deemed
not probable of recovery through ratemaking.
(4) Results for 1994 reflect a net non-recurring charge to earnings of $79.9
million (after-tax) due to the write-off of certain future TMI-2 retirement
costs ($72.8 million); a charge for costs related to early retirement
programs ($20.1 million); and net interest income from refunds of
previously paid federal income taxes related to the tax retirement of TMI-2
($13.0 million).
CAPITALIZATION
(In Millions of Dollars)
The following table sets forth the capitalization of the Company and its
consolidated subsidiaries as of March 31, 1999. The following material, which is
presented solely to furnish limited introductory information, is qualified in
its entirety by, and should be considered in conjunction with, the other
information appearing in this Prospectus Supplement, the accompanying Prospectus
and the documents incorporated by reference.
March 31, 1999 (unaudited)
----------------------------
Actual As Adjusted(1)
-------- --------------
Capital Structure:
Long-term Debt
First Mortgage Bonds $ 540.9 $ 540.9
Other 6.0 6.0
Trust Preferred Securities -- 100.0
Company-Obligated
Mandatorily Redeemable
Preferred Securities 100.0 100.0
Common Equity 705.9 705.9
-------- ---------
Total Capitalization $1,352.8 $1,452.8
======== ========
- ----------
(1) Gives effect to the issuance of 4,000,000 Trust Securities at a price of
$25 for each Trust Security and the application of the proceeds from the
sale of the Subordinated Debentures.
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USE OF PROCEEDS
The Trust will use the proceeds from its sale of the Trust Securities to
purchase the Preferred Securities. Met-Ed Capital will use the proceeds from its
sale of the Preferred Securities to purchase Subordinated Debentures. The
Company will use the proceeds from the sale of its Subordinated Debentures (i)
to redeem or repurchase other outstanding securities of the Company, (ii) to
reduce the Company's short-term borrowings, (iii) for construction purposes and
(iv) for other corporate purposes, including to reimburse the Company's treasury
for funds previously expended for the purposes described above.
RATIO OF EARNINGS TO FIXED CHARGES AND EARNINGS
TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The Company's Ratio of Earnings to Fixed Charges for each of the periods
indicated was as follows:
TWELVE MONTHS ENDED YEARS ENDED DECEMBER 31,
MARCH 31, 1999 ------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
----------- ---- ---- ---- ---- ----
2.69 2.37 3.42 2.83 4.69 0.87(1)
The Ratio of Earnings to Fixed Charges represents, on a pre-tax basis, the
number of times earnings cover fixed charges. Earnings consist of net income to
which has been added fixed charges and taxes based on income of the Company.
Fixed charges consist of interest on funded indebtedness, other interest
(including distributions on Company-Obligated Mandatorily Redeemable Preferred
Securities), amortization of net gain on reacquired debt and net discount on
debt and interest portion of all rentals charged to income.
The Company's Ratio of Earnings to Combined Fixed Charges and Preferred
Stock Dividends for each of the periods indicated was as follows:
TWELVE MONTHS ENDED YEARS ENDED DECEMBER 31,
MARCH 31, 1999 ------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
----------- ---- ---- ---- ---- ----
2.66 2.34 3.38 2.76 4.58 0.81(2)
The Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends represents, on a pre-tax basis, the number of times earnings cover
fixed charges and preferred stock dividends. Earnings consist of net income to
which has been added fixed charges and taxes
- --------
(1)The deficiency amount is $8,015,000.
(2)The deficiency amount is $13,189,000.
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<PAGE>
based on income of the Company. Combined fixed charges and preferred stock
dividends consist of interest on funded indebtedness, other interest (including
distribution on Company-Obligated Mandatorily Redeemable Preferred Securities),
amortization of net gain on reacquired debt and net discount on debt, preferred
stock dividends (increased to reflect the pre-tax earnings required to cover
such dividend requirements) and the interest portion of all rentals charged to
income.
DESCRIPTION OF THE TRUST SECURITIES
The Trust Securities will be issued pursuant to the terms of the Trust
Agreement. The Trust Agreement has been qualified as an indenture under the
Trust Indenture Act of 1939 ("1939 Act"). The Property Trustee will act as the
indenture trustee with respect to the Trust for purposes of compliance with the
provisions of the 1939 Act. The terms of the Trust Securities will include those
stated in the Trust Agreement, the Delaware Business Trust Act, and those made
part of the Trust Agreement by the 1939 Act. The following summary of the
principal terms and provisions of the Trust Securities does not purport to be
complete and is subject to, and qualified in its entirety by reference to, the
Trust Agreement, a form of which is filed as an exhibit to the Registration
Statement of which this Prospectus Supplement and the accompanying Prospectus
are a part, as well as the Delaware Business Trust Act and the 1939 Act.
GENERAL
The Trust Securities will be issued by the Trust pursuant to the Trust
Agreement. Each Trust Security will represent a cumulative Preferred Security of
Met-Ed Capital. The Trust Securities will be issued in book-entry form through
DTC or such other depository at which the Company may have established an
account. Trust Securities may be exchanged for the underlying Preferred
Securities as described under "--Withdrawal of Preferred Securities."
DISTRIBUTIONS
Distributions on the Trust Securities will be fixed at the Securities Rate
and will accrue from the Issue Date and, except in the event of an Extension
Period, will be payable in arrears on each Distribution Date, beginning
_________, 1999. Whenever the Trust shall receive any cash distribution
representing a distribution on the Preferred Securities (whether or not
distributed by Met-Ed Capital on the regular quarterly distribution date
therefor) or payment under the Guarantee in respect thereof, the Trust shall
distribute such amounts to the holders of the Trust Securities in proportion to
the respective number of Preferred Securities represented by such Trust
Securities. Under the Debenture Indenture, the Company shall have the right at
any time, so long as an Event of Default under the Debenture Indenture has not
occurred and is not continuing, to defer the interest payment period for all
Subordinated Debentures for up to 20 consecutive quarterly periods, in which
event Met-Ed Capital will defer distributions on the Preferred Securities and
the Trust will similarly defer distributions on the Trust Securities (the
"Extension Period"); provided that, no Extension Period shall extend beyond the
stated maturity date or date of redemption of the Subordinated Debentures. At
the end of the Extension Period, the Company shall pay all interest then accrued
and payable on the Subordinated Debentures
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(together with interest thereon to the extent permitted by applicable law at the
rate per annum borne by the Subordinated Debentures). During any Extension
Period, no distributions will be made on the Preferred Securities represented by
the Trust Securities; however, all accrued and payable distributions thereon and
on the Trust Securities (together with any applicable distributions on such
distributions) shall be paid at the end of any such Extension Period. See
"Description of the Subordinated Debentures and the Debenture Indenture--Option
to Extend Interest Payment Period."
REDEMPTION
The Trust Securities will be subject to mandatory redemption upon
redemption of the Preferred Securities. Whenever Met-Ed Capital shall elect or
is required to redeem the Preferred Securities in accordance with the
Partnership Agreement, and as provided under "Description of the Preferred
Securities--Special Event Redemption; Distribution of the Subordinated
Debentures," Met-Ed Capital shall give the Property Trustee at least 45 days'
prior notice thereof. The Property Trustee will mail the notice of redemption
not less than 30 nor more than 90 days prior to the date fixed for redemption of
the Trust Securities to the holders of the Trust Securities. On the date of
redemption of the Trust Securities, provided that Met-Ed Capital (or the Company
pursuant to the Guarantee) shall have deposited with the Trust the aggregate
amount payable upon redemption of all the Trust Securities to be redeemed, the
Trust shall redeem the Trust Securities representing the same number of such
Preferred Securities redeemed by Met-Ed Capital at the same redemption price at
which such Preferred Securities are redeemed. In the event that fewer than all
the outstanding Trust Securities are redeemed, the Trust Securities to be
redeemed shall be selected by lot or pro rata or by other equitable method
determined by the Property Trustee. Under the Trust Agreement, Met-Ed Capital
will agree that if a partial redemption of the Preferred Securities would result
in a delisting of the Trust Securities from any national exchange on which the
Trust Securities are then listed, Met-Ed Capital will only redeem the Preferred
Securities in whole.
WITHDRAWAL OF PREFERRED SECURITIES
Any beneficial owner of the Trust Securities may withdraw all, but not
less than all, of the Preferred Securities represented by such Trust Securities
by providing a written notice and agreement to be bound by the terms of the
Partnership Agreement to the Property Trustee, all in form satisfactory to the
Regular Trustees. Within three business days after such request has been made,
the beneficial owner or such beneficial owner's agent shall instruct DTC to
reduce the number of Trust Securities represented by the global certificate held
by DTC by the amount equal to the number of Trust Securities surrendered in
connection with the Preferred Securities to be so withdrawn by the withdrawing
owner. Met-Ed Capital shall then issue to the withdrawing owner a certificate
representing the number of Preferred Securities so withdrawn and Met-Ed Capital
shall reduce the number of Preferred Securities represented by the global
certificate held by the Trust by a like amount; provided that Met-Ed Capital
shall not issue any fractional number of Preferred Securities. The Preferred
Securities will only be issued in certificated form.
The Preferred Securities will not be listed on any securities exchange.
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Any holder of Preferred Securities may redeposit withdrawn Preferred
Securities by delivery to Met-Ed Capital of a certificate or certificates for
the Preferred Securities to be redeposited together with other required
documents. Upon such a request, the Property Trustee shall increase the number
of Trust Securities represented by the global certificate held by the Trust by
an amount equal to the Preferred Securities redeposited. The Trust Securities
that represent such redeposited Preferred Securities will not be issued in
certificated form.
TRUST ENFORCEMENT EVENT
Under the Trust Agreement, a Trust Enforcement Event ("Trust Enforcement
Event") will occur if (i) arrearages on distributions of the Trust Securities
exist for 20 consecutive quarterly periods, or (ii) the Company defaults in
respect of its obligations under the Guarantee. Within 90 days after the
occurrence of a Trust Enforcement Event, the Property Trustee shall transmit
notice of all defaults with respect to the Trust Securities known to the
Property Trustee to the holders of the Trust Securities unless such Trust
Enforcement Event is cured or waived.
If a Trust Enforcement Event occurs and is continuing, then pursuant to
the Trust Agreement, the Property Trustee may exercise all of the rights, powers
and privileges of a holder of Preferred Securities, including the right to
appoint a Special Representative to enforce Met-Ed Capital's rights against the
Company. See "Description of the Preferred Securities -- Voting Rights."
VOTING RIGHTS
If, pursuant to the Partnership Agreement, the holders of the Preferred
Securities, acting as a single class, are entitled to appoint and authorize a
Special Representative (as defined below), the Property Trustee shall notify the
holders of the Trust Securities of such right, request direction of each holder
of a Trust Security as to the appointment of a Special Representative and vote
the Preferred Securities represented by such Trust Security in accordance with
such direction. See "Description of the Preferred Securities -- Voting Rights".
If the General Partner fails to convene a general meeting of Met-Ed Capital as
required in the Partnership Agreement, the Property Trustee shall notify the
holders of the Trust Securities and, if so directed by the holders of the Trust
Securities representing Preferred Securities constituting at least 10% of the
aggregate stated liquidation preference of the outstanding Preferred Securities,
shall convene such meeting.
Generally, under the Trust Agreement, Met-Ed Capital will agree that
without the consent of the holders of a majority in aggregate liquidation amount
of the Trust Securities, it may not consolidate, amalgamate, merge with or into,
or be replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other entity if, as a result,
the Trust Securities would be delisted by any national securities exchange or
other organization on which the Trust Securities may be listed, downgraded by
any "nationally recognized statistical rating organization," as that term is
defined by the SEC for purposes of Rule 436(g)(2) under the Securities Act of
1933 ("Securities Act") or the holders thereof would recognize any gain or loss
for federal income tax purposes as a result of such merger, consolidation,
amalgamation,
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<PAGE>
replacement, conveyance, transfer or lease. See "Description of Preferred
Securities -- Merger, Consolidation, etc. of Met-Ed Capital."
AMENDMENT AND TERMINATION OF TRUST AGREEMENT
Met-Ed Capital or the General Partner, and the Property Trustee, may, at
any time and from time to time, enter into one or more agreements supplemental
to the Trust Agreement without the consent of the holders of the Trust
Securities to: (i) evidence the succession of another partnership, corporation
or other entity to Met-Ed Capital or the General Partner and the assumption by
any such successor of the covenants of Met-Ed Capital or the General Partner in
the Trust Agreement; (ii) add to the covenants of Met-Ed Capital or the General
Partner for the benefit of the holders of the Trust Securities, or to surrender
any right or power herein conferred upon Met-Ed Capital or the General Partner;
(iii) correct or supplement any provision in the Trust Agreement which may be
defective or inconsistent with any other provision therein or to make any other
provisions with respect to matters or questions arising under the Trust
Agreement; provided that, any such amendment shall not materially adversely
affect the interests of the holders of Trust Securities; (iv) cure any ambiguity
or correct any mistake; (v) conform to any change in the 1940 Act (as defined
below) or written change in interpretation or application of the rules and
regulations promulgated thereunder by any legislative body, court, government
agency or regulatory authority; (vi) conform to any change in the 1939 Act or
written change in interpretation or application of the rules and regulations
promulgated thereunder by any legislative body, court, government agency or
regulatory authority; and (vii) modify, eliminate and add to any provision of
the Trust Agreement to such extent as may be necessary or desirable; provided
that such amendments do not have a material adverse effect on the rights,
preferences or privileges of the holders of the Trust Securities. Any other
amendment of the Trust Agreement must be approved by the holders of a majority
in aggregate liquidation amount of the Trust Securities.
The Trust Agreement will terminate upon the redemption of the Trust
Securities or a final distribution in respect of the Preferred Securities and
such distribution has been delivered to the holders of the Trust Securities.
EXPENSES OF THE TRUST
All charges or expenses of the Trust, including the charges and expenses
of the Securities Trustees, will be paid by the General Partner.
TRUSTEES; RESIGNATION AND REMOVAL
There will initially be a total of five Securities Trustees, including the
Delaware Trustee, the Property Trustee and three Regular Trustees.
At least one of the Securities Trustees must be either (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 that has its principal
S-18
<PAGE>
place of business in Delaware and otherwise meets the requirements of law (the
"Delaware Trustee").
In addition, at least one of the Securities Trustees must (i) not be an
Affiliate (as defined in the Trust Agreement) of Met-Ed Capital, and (ii) be a
corporation organized and doing business under the laws of the United States or
any state or territory thereof or the District of Columbia, or a natural person,
corporation or other entity permitted by the SEC to act as an institutional
trustee under the 1939 Act, authorized under such laws to exercise corporate
trust powers, having a combined capital and surplus of at least $50,000,000, and
subject to supervision or examination by federal, state, territorial or District
of Columbia authority (the "Property Trustee"). The same person or entity may,
from time to time, serve as both Delaware Trustee and Property Trustee, if such
person or entity meets the requirements to serve as both such trustees.
Each Securities Trustee other than the Delaware Trustee and the Property
Trustee (the "Regular Trustees") must be either a natural person who is at least
21 years of age or a legal entity.
Met-Ed Capital may appoint or remove any Securities Trustee at any time
without cause; provided that neither the Property Trustee nor the Delaware
Trustee may be removed until a successor has accepted appointment as such.
Each Securities Trustee shall hold office until a successor has been
appointed or until an earlier dissolution, termination, bankruptcy, death,
removal or resignation. A Securities Trustee may resign by written notice to
Met-Ed Capital and the Trust. Generally, any such resignation will take effect
upon such delivery, or upon such later date as is specified therein; provided,
that (i) a resignation by the Property Trustee will not be effective until a
successor Property Trustee has accepted appointment as such or the assets of the
Trust have been completely liquidated and the proceeds thereof distributed to
the holders of the Trust Securities, and (ii) a resignation by the Delaware
Trustee will not be effective until a successor has accepted appointment as
such.
BOOK-ENTRY-ONLY ISSUANCE
The Trust Securities will be issued in book-entry form (a Trust Security
so represented, a "Book-Entry Security"), and any Trust Security issued will be
issued in the form of one or more fully registered Global Securities (each a
"Global Security") that will be deposited with, or on behalf of, DTC or such
other depositary which may replace DTC as depositary for the Book-Entry
Securities (the "Depositary"), and registered in the name of a nominee of the
Depositary.
Upon issuance, all Book-Entry Securities having the same original issue
date, maturity date, redemption provisions and interest rate will be represented
by one or more Global Securities. Except under the circumstances described
below, Book-Entry Securities will not be exchangeable for Trust Securities in
certificated form and will not otherwise be issuable in certificated form.
If the Depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed, the Trust will issue
securities in certificated form ("Certificated Securities")
S-19
<PAGE>
in exchange for the Global Security or Global Securities representing the
corresponding Book-Entry Security. In addition, the Trust may at any time and in
its sole discretion determine not to have any Book-Entry Security represented by
one or more Global Securities and, in such event, will issue individual
Certificated Securities in exchange for the Global Security or Global Securities
representing the corresponding Book-Entry Security. In any such instance, an
owner of a Book-Entry Security represented by a Global Security will be entitled
to physical delivery of individual Certificated Securities equal in liquidation
amount to such Book-Entry Security and to have such Certificated Securities
registered in its name. Individual Certificated Securities will be issued as
registered securities in denominations of $25 and whole multiples of $25.
The following is based on information furnished by DTC:
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code,
and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC holds securities that its participants
("Participants") deposit with DTC. DTC also facilitates the settlement
among Participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized
book-entry changes in Participants' accounts, thereby eliminating the need
for physical movement of securities certificates. Direct Participants of
DTC ("Direct Participants") include securities brokers and dealers, banks,
trust companies, clearing corporations, and certain other organizations.
DTC is owned by a number of its Direct Participants and by the New York
Stock Exchange, Inc., the American Stock Exchange, Inc., and the National
Association of Securities Dealers, Inc. Access to the DTC system is also
available to others such as securities brokers and dealers, banks, and
trust companies that clear through or maintain a custodial relationship
with a Direct Participant, either directly or indirectly ("Indirect
Participants"). The rules applicable to DTC and its Participants are on
file with the Securities and Exchange Commission.
Purchases of Book-Entry Securities under the DTC system must be made
by or through Direct Participants, which will receive a credit for the
Book-Entry Security on DTC's records. The ownership interest of each
actual purchaser of each Book-Entry Security ("Beneficial Owner") is in
turn to be recorded on the Direct and Indirect Participants' records.
Beneficial Owners will not receive written confirmation from DTC of their
purchase, but Beneficial Owners are expected to receive written
confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Direct or Indirect Participant
through which the Beneficial Owner entered into the transaction. Transfers
of ownership interests in the Book-Entry Securities are to be accomplished
by entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interests in Book-Entry Securities, except in
the event that use of the book-entry system for the Book-Entry Securities
is discontinued.
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<PAGE>
To facilitate subsequent transfers, all Book-Entry Securities
deposited with, or on behalf of, DTC are registered in the name of DTC's
partnership nominee, Cede & Co. The deposit of Book-Entry Securities with
DTC and their registration in the name of Cede & Co. effect no change in
beneficial ownership. DTC has no knowledge of the actual Beneficial Owners
of the Book-Entry Securities; DTC's records reflect only the identity of
the Direct Participants to whose accounts such Book-Entry Securities are
credited which may or may not be the Beneficial Owners. The Participants
will remain responsible for keeping account of their holdings on behalf of
their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by
Direct Participants and Indirect Participants to Beneficial Owners will be
governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of
the Book-Entry Securities having the same Original Issue Date and other
terms are being redeemed, DTC's practice is to determine by lot the amount
of the interest of each Direct Participant to be so redeemed.
Neither DTC nor Cede & Co. will consent or vote with respect to the
Book-Entry Securities. Under its usual procedures, DTC mails an Omnibus
Proxy to the Company as soon as possible after the record date. The
Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those
Direct Participants to whose accounts the Book-Entry Securities are
credited on the applicable record date (identified in a listing attached
to the Omnibus Proxy).
Principal and any premium and/or interest payments on the Book-Entry
Securities will be made to DTC. DTC's practice is to credit Direct
Participants' accounts on the date on which interest is payable in
accordance with the respective holdings shown on DTC's records unless DTC
has reason to believe that it will not receive payment on such date.
Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices, as is the case with securities held
for the accounts of customers in bearer form or registered in "street
name", and will be the responsibility of such Participant and not of DTC,
the underwriters or the Company, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of principal
and any premium and/or interest to DTC is the responsibility of the
Company and the trustees of the Trust. Disbursement of such payments to
Direct Participants shall be the responsibility of DTC, and disbursement
of such payments to the Beneficial Owners shall be the responsibility of
Direct and Indirect Participants.
DTC may discontinue providing its services as securities depositary
with respect to the Book-Entry Security at any time by giving reasonable
notice to the Company and the trustees of the Trust. Under such
circumstances, in the event that a successor securities depositary is not
obtained, Trust Securities in certificated form are required to be printed
and delivered in exchange for Book-Entry Securities held by DTC.
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The Company may decide to discontinue use of the system and
book-entry transfers through DTC (or a successor securities depositary).
In that event, Trust Securities in certificated form will be printed and
delivered in exchange for Book-Entry Securities held by DTC.
Management of DTC is aware that some computer applications, systems
and the like for processing data ("Systems") that are dependent upon
calendar dates, including dates before, on, and after January 1, 2000, may
encounter "Year 2000 problems." DTC has informed Direct Participants and
Indirect Participants and other members of the financial community (the
"Industry") that it has developed and is implementing a program so that
its Systems, as the same relate to the timely payment of distributions
(including principal and interest payments) to securityholders, book-entry
deliveries, and settlement of trades within DTC ("Depositary Services"),
continue to function appropriately. This program includes a technical
assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform properly its services is also
dependent upon other parties, including, but not limited to, issuers and
their agents, as well as DTC's Direct Participants and Indirect
Participants, third party vendors from whom DTC licenses software and
hardware, and third party vendors on whom DTC relies for information or
the provision of services, including telecommunication and electrical
utility service providers, among others. DTC has informed the Industry
that it is contacting (and will continue to contact) third party vendors
from whom DTC acquires services to: (1) impress upon them the importance
of such services being Year 2000 compliant; and (2) determine the extent
of their efforts for Year 2000 remediation (and, as appropriate, testing)
of their services. In addition, DTC is in the process of developing such
contingency plans as it deems appropriate.
According to DTC, the information in the preceding two paragraphs
with respect to DTC has been provided to the Industry for informational
purposes only and is not intended to serve as a representation, warranty,
or contract modification of any kind.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources (including DTC) that the Company believes to be
reliable, but the Company takes no responsibility for the accuracy thereof.
NONE OF THE COMPANY, MET-ED CAPITAL, THE GENERAL PARTNER, THE TRUST, THE
SECURITIES TRUSTEES, THE UNDERWRITERS OR ANY AGENT FOR PAYMENT ON OR
REGISTRATION OF TRANSFER OR EXCHANGE OF ANY GLOBAL SECURITY WILL HAVE ANY
RESPONSIBILITY OR LIABILITY FOR ANY ASPECT OF THE RECORDS RELATING TO OR
PAYMENTS MADE ON ACCOUNT OF BENEFICIAL INTERESTS IN SUCH GLOBAL SECURITY OR FOR
MAINTAINING, SUPERVISING OR REVIEWING ANY RECORDS RELATING TO SUCH BENEFICIAL
INTERESTS.
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DESCRIPTION OF THE PREFERRED SECURITIES
Set forth below is a description of the specific terms of the Preferred
Securities. This description supplements, and should be read together with, the
description of the general terms and provisions of the Preferred Securities set
forth in the accompanying Prospectus under the caption "Description of the
Preferred Securities." The following description does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, the
description in the accompanying Prospectus and the Partnership Agreement.
DISTRIBUTIONS
Distributions on the Preferred Securities will be fixed at the Securities
Rate and will accrue from the Issue Date and, except in the event of an
Extension Period, will be payable in arrears on each Distribution Date,
beginning _________, 1999. The Company has the right under the Debenture
Indenture to extend the interest payment period from time to time on all
Subordinated Debentures to a period not exceeding 20 consecutive quarterly
periods; provided that such Extension Period shall not extend beyond the stated
maturity date or redemption date of any series of Subordinated Debentures. As a
consequence, distributions on the Preferred Securities would be deferred (but
would continue to accumulate with distributions thereon) by Met-Ed Capital
during any such Extension Period. In the event that the Company exercises its
right to extend the interest payment period on the Subordinated Debentures,
during the Extension Period the Company may not (i) declare or pay dividends on,
or redeem, purchase or acquire, any of its capital stock or make any guarantee
payments with respect to the foregoing; or (ii) make any interest, principal or
premium payment on, or repurchase or redeem, any of its debt securities that
rank equal with or junior to the Subordinated Debentures. Met-Ed Capital and the
Company currently believe that the extension of an interest payment period is
unlikely. Prior to the termination of any such Extension Period, the Company may
further extend the interest payment period; provided that such Extension Period
together with all such previous and further extensions thereof may not exceed 20
consecutive quarterly periods. For purposes of determining whether Met-Ed
Capital has failed to pay distributions in full for 20 consecutive quarterly
periods, distributions shall be deemed to remain in arrears, notwithstanding any
payments in respect thereof, until full cumulative distributions on all
Preferred Securities have been paid with respect to all distribution periods for
such Preferred Securities terminating on or prior to the date of payment of such
full cumulative distributions. Upon the termination of any Extension Period and
the payment of all amounts then due on the Subordinated Debentures, the Company
may elect to extend the interest payment period again, subject to the above
requirements. Following an Extension Period of 18 consecutive months, the
holders of Preferred Securities shall have the right to appoint a Special
Representative to enforce Met-Ed Capital's rights against the Company under the
Subordinated Debentures and the Debenture Indenture and the obligations of the
Company under the Guarantees. See "-- Voting Rights," "Risk Factors" and
"Description of the Subordinated Debentures and the Debenture Indenture--Option
to Extend Interest Payment Period."
The amount of distributions payable for any period will be computed on the
basis of twelve 30-day months and a 360-day year. Distributions on the Preferred
Securities will be made
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to the holders thereof as they appear on the books and records of Met-Ed Capital
on the relevant record dates. If any date on which distributions are payable on
the Preferred Securities is not a business day, then payment of the
distributions 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). The term "business day" shall mean any day other than a day on
which banking institutions in the City of New York or the State of Delaware are
authorized or required by law to close.
CERTAIN RESTRICTIONS ON MET-ED CAPITAL
If distributions have not been paid in full on any series of Preferred
Securities of Met-Ed Capital, Met-Ed Capital shall not: (i) pay any
distributions on any other series of Preferred Securities, unless the amount of
any distributions paid on any Preferred Securities is paid on all Preferred
Securities then outstanding on a pro rata basis in proportion to the full
distributions to which each series of Preferred Securities would be entitled if
paid in full; (ii) pay any distribution on the general partner interests; or
(iii) redeem, purchase or otherwise acquire any Preferred Securities or the
general partner interests; until, in each case, such time as all accumulated and
unpaid distributions on all series of Preferred Securities shall have been paid
in full for all prior distribution periods.
MANDATORY REDEMPTION
The Preferred Securities will be subject to mandatory redemption upon the
maturity or prior redemption of the corresponding series of the Subordinated
Debentures, but will not be subject to any mandatory sinking fund.
SPECIAL EVENT REDEMPTION; DISTRIBUTION OF THE SUBORDINATED DEBENTURES
If a Tax Event (as defined below) shall occur and be continuing, the
Preferred Securities will be subject to redemption, at the option of the General
Partner, in whole but not in part at the Special Event Redemption Price (as
defined below) within 90 days following the occurrence of such Tax Event. "Tax
Event" means that the Property Trustee and Met-Ed Capital shall have received an
opinion of counsel (which may be regular counsel to the Company or an affiliate
but not an employee thereof) 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 interpretation or pronouncement is announced on or after the
date of issuance of the Preferred Securities, there is more than an
insubstantial risk that (i) the Trust or Met-Ed Capital is subject to federal
income tax with respect to interest accrued or received on the Subordinated
Debentures or Met-Ed Capital will otherwise not be taxed as a partnership, (ii)
interest payable on the Subordinated Debentures will not be deductible by the
Company for federal income tax purposes or (iii) Met-Ed Capital or the Trust is
subject to more than a de minimis amount of other taxes, duties or other
governmental charges.
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If an Investment Company Event (as defined below) shall occur and be
continuing, the Preferred Securities will be subject to redemption, at the
option of the General Partner, in whole but not in part at the Special Event
Redemption Price (as defined below) within 90 days following the occurrence of
such Investment Company Event. "Investment Company Event" means that Met-Ed
Capital and the Property Trustee shall have received an opinion of counsel
(which may be regular counsel to the Company or an affiliate but not an employee
thereof) experienced in such matters to the effect that a change in law or
regulation or a change in official interpretation of law or regulation by any
legislative body, court, governmental agency or regulatory authority (a "Change
in 1940 Act Law") has occurred to the effect that Met-Ed Capital or the Trust is
or will be considered an "Investment Company" which is required to be registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), which
Change in 1940 Act Law becomes effective on or after the date of the issuance of
the Preferred Securities.
For the purposes hereof, Special Event Redemption Price shall be equal to
liquidation value plus any accrued and unpaid distributions.
The Company may cause Met-Ed Capital to dissolve at any time. In the event
of a dissolution of Met-Ed Capital, Met-Ed Capital will distribute the
Subordinated Debentures to the Trust, as the holder of the Preferred Securities
(or to any other holders of the Preferred Securities on a pro rata basis). Upon
the receipt by the Trust of Subordinated Debentures, after satisfaction of
creditors of the Trust as required by applicable law, a Securities Trustee would
dissolve the Trust and distribute Subordinated Debentures to each holder of
Trust Securities in proportion to the number of Preferred Securities represented
by such Trust Securities.
The Company has no current intention of causing the dissolution of Met-Ed
Capital and the distribution of the Subordinated Debentures. The Company
anticipates that it would consider causing Met-Ed Capital to exercise this right
in the event that expenses associated with maintaining the Trust were
substantially greater than currently expected, for example, if a Tax Event or
Investment Company Event occurred. The Company cannot predict the other
circumstances under which it might exercise this right.
REDEMPTION PROCEDURES
Met-Ed Capital may not redeem any Preferred Securities unless all
accumulated and unpaid distributions have been paid on all Preferred Securities
for all quarterly distribution periods terminating on or prior to the date of
redemption.
Notice of any redemption of the Preferred Securities will be given by
Met-Ed Capital by mail or delivery to each record holder of Preferred Securities
to be redeemed not fewer than 30 nor more than 90 days prior to the date fixed
for redemption thereof (at least 45 days' prior notice to the Trust). A notice
of redemption shall be deemed to be given on the day such notice is first mailed
by first-class mail, postage prepaid, or on the date it was delivered in person,
receipt acknowledged, to the holders of such Preferred Securities. Notices of
redemption shall be
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addressed to the record holders of the Preferred Securities at the addresses of
the holders appearing in the books and records of Met-Ed Capital.
If notice of redemption shall have been given and payment shall have been
made by Met-Ed Capital to the Trust and any other holder of Preferred
Securities, then, upon the date of such payment, all rights of owners of the
Preferred Securities so called for redemption will cease. In the event that any
date fixed for redemption of Preferred Securities is not a business day, then
payment of the applicable 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
falls 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 day).
DISSOLUTION DISTRIBUTION
The Company may cause Met-Ed Capital to dissolve at any time. In the event
of a dissolution of Met-Ed Capital, Met-Ed Capital will distribute the
Subordinated Debentures to the Trust, as the holder of the Preferred Securities
(or to any other holders of the Preferred Securities on a pro rata basis). Upon
the receipt by the Trust of Subordinated Debentures, after satisfaction of
creditors of the Trust as required by applicable law, a Securities Trustee of
the Trust would dissolve the Trust and distribute Subordinated Debentures to
each holder of Trust Securities in proportion to the number of Preferred
Securities represented by such Trust Securities.
Upon receipt by the Trust of any distribution from Met-Ed Capital upon any
voluntary or involuntary liquidation, dissolution or winding up of Met-Ed
Capital, the holders of the Trust Securities will be entitled to receive such
amount in proportion to the respective number of Preferred Securities
represented by such Trust Securities, out of the assets of Met-Ed Capital
available for distribution after satisfaction of liabilities to creditors of the
Trust.
In the event of any voluntary or involuntary dissolution or winding up of
Met-Ed Capital, the holders of Preferred Securities will be entitled to receive
out of the assets of Met-Ed Capital, after satisfaction of liabilities to
creditors and before any distribution of assets is made to the General Partner,
the lesser of (i) the sum of their stated liquidation preference and all
accumulated and unpaid distributions to the date of payment in respect of the
Preferred Securities, and (ii) the amount of assets of Met-Ed Capital legally
available for distribution to the holders of the Preferred Securities. All
assets of Met-Ed Capital remaining after payment of the liquidation distribution
to the holders of Preferred Securities will be distributed to the General
Partner.
Upon liquidation, dissolution or winding up of the Company, the amount
payable on each series of the Preferred Securities would be limited to a pro
rata portion of any amount recovered by Met-Ed Capital in its capacity as a
subordinated debt holder of the Company. The Subordinated Debentures and the
payment obligations under the Guarantee will be subordinate to all other
existing and future Senior Indebtedness, except for any such indebtedness that
is by its terms subordinated to or pari passu with the Subordinated Debentures.
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MERGER, CONSOLIDATION, ETC. OF MET-ED CAPITAL
Met-Ed Capital may not consolidate, amalgamate, convert into, merge with
or into, or be replaced by, or convey, transfer or lease its properties and
assets substantially as an entirety to any corporation or other entity, except
with the approval of the holders of a majority in aggregate stated liquidation
preference of the outstanding Trust Securities, unless permitted in the
following paragraph and (i) such merger, consolidation, amalgamation,
conversion, replacement, conveyance, transfer or lease does not cause the Trust
Securities to be delisted by any national securities exchange or other
organization on which the Trust Securities are then listed, (ii) such merger
consolidation, amalgamation, conversion, replacement, conveyance, transfer or
lease does not cause the Trust Securities to be downgraded by any "nationally
recognized statistical rating organization," as that term is defined by the SEC
for the purposes of Rule 436(g) (2) under the Securities Act of 1933, and (iii)
prior to such merger, consolidation, amalgamation, conversion, replacement,
conveyance, transfer or lease, Met-Ed Capital has received an opinion of counsel
to the effect that the holders of outstanding Trust Securities will not
recognize any gain or loss for federal income tax purposes as a result of the
merger, consolidation, amalgamation, replacement conveyance, transfer or lease.
The General Partner may, without the consent of the holders of the
Preferred Securities, cause Met-Ed Capital to consolidate, amalgamate, convert
into, merge with or into, or be replaced by, or convey, transfer or lease its
properties and assets substantially as an entirety to, a corporation, a limited
liability company or a limited partnership, a trust or other entity organized as
such under the laws of any state of the United States or the District of
Columbia; provided that, (i) such successor entity either (x) expressly assumes
all of the obligations of Met-Ed Capital under the Preferred Securities or (y)
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, as regards to participation in the profits and
assets of the successor entity, at least as high as the Preferred Securities
rank, as regards to participation in the profits and assets of Met-Ed Capital,
(ii) the Company confirms its obligations under the Guarantee with regard to the
Preferred Securities or Successor Securities, if any, (iii) such consolidation,
conversion, amalgamation, merger, replacement, conveyance, transfer or lease
does not cause any series of Preferred Securities or Successor Securities to be
delisted by any national securities exchange or other organization on which such
series of Preferred Securities or Successor Securities may be listed, (iv) such
consolidation, conversion, amalgamation, merger, replacement, conveyance,
transfer or lease does not cause the Preferred Securities or Successor
Securities to be downgraded by any "nationally recognized statistical rating
organization," as that term is defined by the SEC for purposes of Rule 436(g)(2)
under the Securities Act, (v) such consolidation, conversion, amalgamation,
merger, replacement, conveyance, transfer or lease does not adversely affect the
powers, preferences and other special rights of holders of Preferred Securities
or Successor Securities in any material respect, (vi) such successor entity has
a purpose substantially identical to that of Met-Ed Capital and (vii) prior to
such consolidation, conversion, amalgamation, merger, replacement, conveyance,
transfer or lease, the Company has received an opinion of counsel (which may be
regular tax or other counsel to the Company or an affiliate, but not an employee
thereof) experienced in such matters to the effect that (w) holders of
outstanding Preferred Securities will not recognize any gain or loss for federal
income tax purposes as a result
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of the consolidation, conversion, amalgamation, merger, replacement, conveyance,
transfer or lease, (x) such successor entity will be treated as a partnership or
grantor trust for federal income tax purposes, (y) following such consolidation,
conversion, amalgamation, merger, replacement, conveyance, transfer or lease,
the Company and such successor entity will be in compliance with the 1940 Act
without registering thereunder as an investment company, and (z) such
consolidation, conversion, amalgamation, merger, replacement, conveyance,
transfer or lease will not adversely affect the limited liability of holders of
Preferred Securities or Successor Securities.
VOTING RIGHTS
If (i) Met-Ed Capital fails to pay distributions in full on the Preferred
Securities for 18 consecutive months; (ii) an event of default as defined in the
Debenture Indenture occurs and is continuing; or (iii) the Company is in default
on any of its payment or other obligations under the Guarantee, then the holders
of the Preferred Securities, acting as a single class, will be entitled, by a
vote of the majority of the aggregate stated liquidation preference of
outstanding Preferred Securities, to appoint and authorize a special
representative (the "Special Representative") to enforce Met-Ed Capital's rights
under the Subordinated Debentures and the Debenture Indenture and to enforce the
obligations of the Company under the Guarantee. For purposes of determining
whether Met-Ed Capital has failed to pay distributions in full for 18
consecutive months, distributions shall be deemed to remain in arrears,
notwithstanding any payments in respect thereof, until full cumulative
distributions on all Preferred Securities have been or contemporaneously are
paid with respect to all distribution periods for such Preferred Securities
terminating on or prior to the date of payment of such full cumulative
distributions. Subject to the requirements of applicable law, not later than 30
days after the right to appoint the Special Representative, the General Partner
will convene a general meeting for the above purpose. If the General Partner
fails to convene such meeting within such 30-day period, the Property Trustee
shall notify the holders of the Trust Securities and, if so directed by the
holders of Trust Securities representing Preferred Securities constituting at
least 10% of the aggregate stated liquidation preference of the Preferred
Securities, shall convene such meeting. The provisions of the Partnership
Agreement relating to the convening and conduct of the general meetings of
security holders will apply with respect to any such meeting. Any Special
Representative so appointed shall vacate office immediately if Met-Ed Capital
(or the Company pursuant to a Guarantee) shall have paid in full all accumulated
and unpaid distributions on the Preferred Securities or an Event of Default
under the Debenture Indenture or default under the Guarantee or breach, as the
case may be, shall have been cured. Notwithstanding the appointment of any such
Special Representative, the Company retains all rights under the Debenture
Indenture, including the right to extend the interest payment period on the
Subordinated Debentures.
If any proposed amendment to the Partnership Agreement provides for, or
the General Partner otherwise proposes to effect, any action which would
materially adversely affect the powers, preferences or special rights attached
to any series of Preferred Securities, whether by way of amendment to the
Partnership Agreement or otherwise, then the holders of such series of Preferred
Securities will be entitled to vote on such amendment or action of the General
Partner (but not on any other amendment or action) and, in the case of an
amendment or action which would equally adversely affect the rights or
preferences of any other Preferred Securities, such
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Preferred Securities shall vote together as a class on such amendment or action
of the General Partner (but not on any other amendment or action), and such
amendment or action shall not be effective except with the approval of the
holders of not less than a majority of the aggregate stated liquidation
preference of such series of Preferred Securities. Except in certain
circumstances described under "-- Dissolution Distribution," Met-Ed Capital will
be dissolved and wound up only with the consent of the holders of all Preferred
Securities then outstanding as well as the General Partner.
The powers, preferences or special rights attached to any Preferred
Securities will be deemed not to be adversely affected by the creation or issue
of, and no vote will be required for the creation or issue of, any additional
series of Preferred Securities or additional general partner interests. Holders
of Preferred Securities have no preemptive rights.
Any required approval of holders of Preferred Securities may be given at a
separate meeting of such holders convened for such purposes, at a meeting of all
partners of Met-Ed Capital or pursuant to written consent. Met-Ed Capital will
cause a notice of any meeting at which holders of any series of Preferred
Securities are entitled to vote, or of any matter upon which action by written
consent of such holders is to be taken, to be mailed to each holder of record of
such series of Preferred Securities. Each such notice will include a statement
setting forth (i) the date of such meeting or the date by which such action is
to be taken, (ii) a description of any resolution proposed for adoption at such
meeting on which such holders are entitled to vote or of such matter upon which
written consent is sought and (iii) instructions for the delivery of proxies or
consents.
The holders of the Preferred Securities will have no rights to remove or
replace the General Partner.
DESCRIPTION OF THE GUARANTEE
Set forth below is a description of the specific terms of the Guarantee.
This description supplements, and should be read together with, the description
of the general terms and provisions of the Guarantee set forth in the
accompanying Prospectus under the caption "Description of the Guarantee." The
following description does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the description in the accompanying
Prospectus and the Guarantee.
GENERAL
Under the Guarantee, the Company will agree to pay (i) any accumulated and
unpaid distributions on the Preferred Securities to the extent that Met-Ed
Capital has funds on hand legally available therefor, (ii) the applicable
redemption price payable with respect to any Preferred Securities called for
redemption by Met-Ed Capital to the extent that Met-Ed Capital has funds on hand
legally available therefor, and (iii) upon a dissolution of Met-Ed Capital other
than in connection with a Distribution Event, the lesser of (a) the portion of
the partnership
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liquidation distribution applicable to the Preferred Securities and (b) the
amount of assets of Met-Ed Capital legally available for distribution to holders
of Preferred Securities in liquidation of Met-Ed Capital (collectively, the
"Guarantee Payments"). The Company will agree to pay the Guarantee Payments, as
and when due (except to the extent paid by Met-Ed Capital), to the fullest
extent permitted by law, regardless of any defense, right of setoff or
counterclaim which the Company may have or assert against Met-Ed Capital, the
General Partner, the Trust or a trustee of the Trust. The Company's obligation
to make a Guarantee Payment may be satisfied by direct payment of the required
amounts by the Company to the holders of Preferred Securities or by causing
Met-Ed Capital to pay such amounts to such holders.
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all general liabilities
of the Company, except trade accounts payable arising in the ordinary course of
business.
The Guarantee will constitute a guarantee of payment and not of
collection. The Guarantee will be held by the General Partner for the benefit of
the holders of the Preferred Securities. In the event of the appointment of a
Special Representative, the Special Representative may enforce the Guarantee. If
no Special Representative has been appointed to enforce the Guarantee, the
General Partner will have the right to enforce the Guarantee on behalf of the
holders of the Preferred Securities. The holders of Trust Securities, together
with the holders of the Preferred Securities other than the Trust, representing
not less than 10% in aggregate stated liquidation preference of the Preferred
Securities, will have the right to direct the time, method and place of
conducting any proceeding to enforce any remedy available in respect of the
Guarantee, including the giving of directions to the General Partner or the
Special Representative, as the case may be. If the General Partner or the
Special Representative fails to enforce the Guarantee as above provided, any
holder of Trust Securities representing Preferred Securities, and any holder of
Preferred Securities other than the Trust, may institute a legal proceeding
directly against the Company to enforce the Company's obligations under the
Guarantee without first instituting a legal proceeding against Met-Ed Capital or
any other person or entity. The Guarantee will not be discharged except by
payment of the Guarantee Payments in full to the extent not paid by Met-Ed
Capital and by complete performance of all obligations of the Company contained
in the Guarantee.
RELATIONSHIP AMONG GUARANTEE, SUBORDINATED DEBENTURES AND PREFERRED SECURITIES
In addition to the obligations of the Company under the Guarantee, the
Debenture Indenture provides that the Company shall cause the General Partner to
remain the general partner of Met-Ed Capital and timely perform all its duties
as such (including the duty to pay distributions on the Preferred Securities),
which include, among other things, the General Partner's duties under the
Partnership Agreement to directly pay all costs and expenses of Met-Ed Capital
(for the purpose of insuring that payment of principal and interest by the
Company on the Subordinated Debentures will be sufficient to allow payment in
full to the holders of the Preferred Securities). While the assets of the
General Partner will not be available for making distributions
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on the Preferred Securities, they will be available for payment of the expenses
of Met-Ed Capital. Accordingly, the Guarantee and the Debenture Indenture,
together with the related covenants contained in the Partnership Agreement and
the Company's obligations under the Subordinated Debentures, provide for the
Company's full and unconditional guarantee of the Preferred Securities as set
forth above.
CERTAIN COVENANTS OF THE COMPANY
Under the Guarantee, the Company will covenant that, so long as any
Preferred Securities remain outstanding, neither the Company nor any majority
owned subsidiary of the Company shall declare or pay any dividend on, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of its
capital stock (other than dividends by a wholly owned subsidiary) if at such
time the Company shall be in default with respect to its payment obligations
under the Guarantee or there shall have occurred any event that, with the giving
of notice or the lapse of time or both, would constitute an event of default
under the Debenture Indenture.
AMENDMENTS
Except with respect to any changes which do not materially adversely
affect the rights of holders of Preferred Securities (in which case no vote will
be required), the Guarantee may be amended only with the prior approval of the
holders of Trust Securities, together with the holders of Preferred Securities
other than the Trust, representing not less than a majority of the aggregate
stated liquidation preference of the outstanding Preferred Securities.
MERGER OF THE COMPANY
So long as the Preferred Securities remain outstanding, the Company will
maintain its corporate existence; provided that the Company may consolidate with
or merge with or into any other person or sell, convey, transfer or lease all or
substantially all its assets (either in one transaction or a series of
transactions) to any person if the successor person shall be organized and
existing under the laws of the United States or any state thereof or the
District of Columbia and shall expressly assume the obligations of the Company
under the Guarantee.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon
full payment of the applicable redemption price of all Preferred Securities or
upon full payment of the amounts payable with respect to the Preferred
Securities upon liquidation of Met-Ed Capital or upon the occurrence of a
Distribution Event. The Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any holder of Preferred
Securities must restore payments of any sums paid under the Preferred Securities
or the Guarantee.
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DESCRIPTION OF THE SUBORDINATED DEBENTURES
AND THE DEBENTURE INDENTURE
Set forth below is a description of the specific terms of the Subordinated
Debentures. This description supplements, and should be read together with, the
description of the general terms and provisions of the Subordinated Debentures
set forth in the accompanying Prospectus under the caption "Description of the
Subordinated Debentures and the Debenture Indenture." The following description
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, the description in the accompanying Prospectus and the
Debenture Indenture.
REDEMPTION
At the option of the Company, the Subordinated Debentures may be redeemed,
in whole or in part, from time to time, on or after _____________, 2004 at a
redemption price equal to the principal amount to be redeemed plus any accrued
and unpaid interest to the redemption date. The Company has the right to redeem
the Subordinated Debentures at any time upon the occurrence of a Tax Event or an
Investment Company Event, upon not less than 30 nor more than 90 days' notice.
Met-Ed Capital shall give the Property Trustee at least 45 days' prior notice
thereof.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
Under the Debenture Indenture, the Company shall have the right at any
time, so long as an Event of Default under the Debenture Indenture has not
occurred and is continuing, to defer the interest payment period for all
Subordinated Debentures for up to 20 consecutive quarterly periods; provided
that no Extension Period shall extend beyond the stated maturity date or date of
redemption of any series of Subordinated Debentures. At the end of the Extension
Period, the Company shall pay all interest then accrued and payable on the
Subordinated Debentures (together with interest thereon to the extent permitted
by applicable law at the rate per annum borne by the Subordinated Debentures)
and all Additional Interest (as defined in the Debenture Indenture). During any
such Extension Period, neither the Company nor any majority owned subsidiary of
the Company shall (i) declare or pay any dividend on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of its capital stock
(other than dividends by wholly owned subsidiaries) or make any guarantee
payments with respect to the foregoing, or (ii) make any interest, principal or
premium payment or repurchase or redeem any of its debt securities that rank
equal with or junior to the Subordinated Debentures. Prior to the termination of
any such Extension Period, the Company may shorten or further extend the
interest payment period; provided that such Extension Period, together with all
such further extensions thereof, may not exceed 20 consecutive quarterly
periods. Upon the termination of any Extension Period and the payment of all
amounts then due, the Company may select a new Extension Period, subject to the
above requirements.
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The Company has no present intention of exercising its rights to defer
payments of interest by extending the interest payment period on the
Subordinated Debentures. See "Certain Federal Income Tax Considerations
Potential Extension of Payment Period." The Company shall give the Debenture
Indenture Trustee notice of its selection of such extended or shortened interest
payment period one business day prior to the earlier of (i) the date the Company
has selected to make the interest payment or (ii) the date the Company or Met-Ed
Capital or the Trust is required to give notice to any national securities
exchange or other applicable self-regulatory organization of the record date or
the date distributions on the Preferred Securities are payable, but in any event
not less than two business days prior to such record date. The Company shall
cause the Indenture Trustee to give such notice of the Company's selection of
such Extension Period to the holders of the Preferred Securities.
BOOK-ENTRY AND ISSUANCE
If distributed to holders of Trust Securities in connection with the
voluntary or involuntary dissolution, winding-up or liquidation of the Trust,
the Subordinated Debentures are expected to be issued in the form of one or more
global certificates registered in the name of the securities depositary or its
nominee. In such event, the procedures applicable to the transfer and payment of
the Subordinated Debentures are expected to be substantially similar to those
described with respect to the Trust Securities in "Description of the Trust
Securities -- Book Entry Only Issuance."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Carter, Ledyard & Milburn, special tax counsel to the
Company, the following are the material U.S. federal income tax consequences of
the ownership and disposition of Trust Securities.
This summary only addresses the federal income tax consequences to those
holders of Trust Securities who are "U.S. Securityholders" (as hereinafter
defined) and who have purchased the Trust Securities held by them pursuant to
the initial issuance and distribution of the Trust Securities. As used herein, a
U.S. Securityholder means any beneficial owner of a Trust Security that is (i) a
citizen or resident of the United States, (ii) a corporation, partnership or
other entity created or organized in or under the laws of the United States, any
state or any political subdivision thereof, (iii) an estate the income of which
is subject to U.S. federal income taxation regardless of source, or (iv) a trust
(A) over the administration of which a court within the United States is able to
exercise primary supervision and (B) all substantial decisions of which one or
more United States persons have the authority to control.
In addition, this summary assumes that Trust Securities are held as
capital assets, within the meaning of section 1221 of the Internal Revenue Code
of 1986, as amended (the "Code"). The summary does not address all of the tax
consequences that may be relevant to a particular U.S. Securityholder in light
of such holders' individual circumstances, or to certain types of U.S.
Securityholders (such as certain financial institutions, dealers in securities
or commodities, insurance companies, regulated investment companies, personal
holding companies, corporations subject to the alternative minimum tax,
tax-exempt organizations or persons who hold Trust
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Securities as part of a transaction that is treated as a "straddle,"
"integrated," "hedging," "conversion" or "constructive sale" transaction for
U.S. federal income tax purposes), or to persons whose functional currency is
not the U.S. dollar. Also not addressed are the consequences to U.S.
Securityholders under state, local and foreign tax laws.
Furthermore, the discussion below is based upon the provisions of the Code
and Treasury Regulations thereunder and administrative and judicial
interpretations thereof as of the date hereof, all of which are subject to
change. Prospective purchasers should particularly note that any such change
could have retroactive application to Trust Securities acquired through this
offering.
ALL PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT THEIR TAX ADVISERS REGARDING
THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF
TRUST SECURITIES IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, AS WELL AS THE
EFFECT OF ANY STATE, LOCAL OR FOREIGN LAWS.
CLASSIFICATION OF MET-ED CAPITAL AND THE TRUST
In connection with the issuance of Trust Securities, Carter Ledyard &
Milburn will render its tax opinion to the effect that, under then current law
and assuming full compliance with the terms of the Partnership Agreement and the
Trust Agreement, (i) Met-Ed Capital will be classified for U.S. federal income
tax purposes as a partnership and not as a business entity taxable as a
corporation and (ii) the Trust will be classified as a grantor trust and not as
a business entity taxable as a corporation.
As a consequence, each U.S. Securityholder will be considered the owner of
a pro rata portion of the Preferred Securities held by the Trust. As a further
consequence, each U.S. Securityholder will be required to include in gross
income as fully taxable interest income his or her pro rata share of the income
accrued on the Subordinated Debentures held by Met-Ed Capital and allocated to
the Trust. Such income should not exceed distributions received by the U.S.
Securityholders on the Trust Securities except in limited circumstances
described under "--Potential Extension of Payment Period." No portion of such
income will be eligible for the dividends received deduction.
TAXABILITY OF DISTRIBUTIONS
Met-Ed Capital will be required to include stated interest on the
Subordinated Debentures in its gross income as it accrues. Each U.S.
Securityholder, including a taxpayer who otherwise uses the cash method of
accounting, will be required to include his or her pro rata share of such
interest income in his or her gross income. Actual distributions of stated
interest will not be separately reported as taxable income. So long as there is
no Extension Period, cash distributions received by a U.S. Securityholder for
any quarterly interest period should equal the sum of the daily accruals of
income for such interest period.
S-34
<PAGE>
Under applicable U.S. Treasury Regulations, a "remote" contingency that
stated interest will not be timely paid on the Subordinated Debentures will be
ignored in determining whether the Subordinated Debentures are issued with
original issue discount. The Company believes that the likelihood of it
exercising its option to defer payments of interest on the Subordinated
Debentures is remote since, among other things, exercising that option would
prevent the Company from declaring dividends on any of its capital stock.
Accordingly, the Company intends to take the position, based on the advice of
tax counsel, that the Subordinated Debentures will not be considered to be
issued with original issue discount.
POTENTIAL EXTENSION OF PAYMENT PERIOD
Under the terms of the Debenture Indenture, the Company will be permitted
to extend the interest payment period on the Subordinated Debentures for up to
20 consecutive quarterly periods. The Company currently believes that the
extension of an interest payment period is unlikely. However, if the Company
should exercise its right to extend an interest payment period, the Subordinated
Debentures would be treated as having been reissued at that time with original
issue discount. As a result, during any such Extension Period, each U.S.
Securityholder, including a holder who otherwise uses the cash method of
accounting, will be required to include in his or her gross income his or her
pro rata share of such original issue discount as it economically accrues during
such period, even though the holder will not receive any cash distributions with
respect to such accrued interest amounts until after the end of such Extension
Period. Any U.S. Securityholders who dispose of Trust Securities prior to the
record date for the payment of distributions following such Extension Period
will be required to include interest in gross income but will not receive any
cash related thereto from the Trust. A U.S. Securityholder's tax basis in a
Trust Security will be increased by the amount of any interest (or original
issue discount) that is included in income without a corresponding receipt of
cash, and will be decreased again when and if such cash is subsequently received
from the Company and distributed by Met-Ed Capital and the Trust. The subsequent
receipt or distribution of such cash will not be included in gross income.
WITHDRAWAL OR DISTRIBUTION OF PREFERRED SECURITIES
The receipt of Preferred Securities by a U.S. Securityholder in exchange
for Trust Securities at the option of the U.S. Securityholder or upon
termination of the Trust will not be a taxable event. The U.S. Securityholder's
tax basis and holding period for the Preferred Securities immediately after such
exchange or distribution will equal the U.S. Securityholder's tax basis and
holding period for the Trust Securities surrendered in such exchange or
distribution. Income earned from the Preferred Securities (rather than the Trust
Securities) will be reported annually to the U.S. Securityholder and to the
Internal Revenue Service on Schedule K-1 and not on Form 1099.
S-35
<PAGE>
DISPOSITION OF THE TRUST SECURITIES
Gain or loss will be recognized on a sale, including a redemption for
cash, of Trust Securities in an amount equal to the difference between the
amount realized and the U.S. Securityholder's tax basis in such Trust
Securities. A U.S. Securityholder's adjusted tax basis in a Trust Security
generally will equal the amount paid for the Trust Security, increased by the
amount of income allocated to such U.S. Securityholder, and reduced by the
amount of any cash or property distributed to such U.S. Securityholder. Gain or
loss recognized by a U.S. Securityholder on the sale or exchange of Trust
Securities held for more than one year will be taxable as long-term capital gain
or loss.
DISTRIBUTION OF SUBORDINATED DEBENTURES
As discussed under the caption "Description of Preferred Securities --
Dissolution Distribution," Met-Ed Capital may liquidate and distribute
Subordinated Debentures to the holders of Preferred Securities at any time. The
holders of Preferred Securities will not recognize any gain or loss for U.S.
federal income tax purposes as a result of such distribution. Such a tax-free
transaction would result in a holder of Preferred Securities receiving an
aggregate tax basis in the Subordinated Debentures equal to such holder's
aggregate tax basis in the holder's pro rata share of Preferred Securities. A
holder's holding period in such Subordinated Debentures would include the period
for which the Preferred Securities were held by such holder. Upon any such
distribution of Subordinated Debentures to the Trust, the Trust would distribute
the Subordinated Debentures to the holders of the Trust Securities in exchange
for the Trust Securities held by them. The distribution from the Trust would not
be a taxable event. A U.S. Securityholder will have an aggregate tax basis for
the Subordinated Debentures so received equal to such holder's aggregate tax
basis in the Trust Securities surrendered in the exchange, and the holder's
holding period for the Subordinated Debentures so received will include the
period for which such Trust Securities were held by the holder.
If, however, the liquidation of Met-Ed Capital or the Trust were to occur
because Met-Ed Capital or the Trust becomes subject to U.S. federal income tax
as an association taxable as a corporation, see "Description of Preferred
Securities -- Special Event Redemption; Distribution of the Subordinated
Debentures," the distribution of Subordinated Debentures to U.S. Securityholders
would likely be a taxable event to each U.S. Securityholder, and a U.S.
Securityholder would recognize gain or loss as if it had exchanged its Trust
Securities for Subordinated Debentures. Such gain or loss would be equal to the
difference between the U.S. Securityholder's aggregate tax basis in its Trust
Securities surrendered in the exchange and the aggregate fair market value of
the Subordinated Debentures received in the exchange.
Under the original issue discount provisions of the Code and U.S. Treasury
Regulations promulgated thereunder, a "remote" contingency that stated interest
will not be timely paid will be ignored in determining whether a debt instrument
is issued with original issue discount, as discussed above under "Taxability of
Distributions."
S-36
<PAGE>
However, if the Company were to exercise its option to defer payments of
interest, the Subordinated Debentures would at that time be treated as reissued
with original issue discount. U.S. Securityholders who had received Subordinated
Debentures as a result of a distribution would be required to account for all
interest on the Subordinated Debentures on an economic accrual basis regardless
of such U.S. Securityholder's method of tax accounting, and actual distributions
of stated interest would not be reported as taxable income. Consequently, a
holder of Subordinated Debentures would be required to include in gross income
original issue discount even though the Company would not make actual cash
payments during an Extension Period. See "Potential Extension of Payment Period"
above.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
The amount of income paid or accrued on the Trust Securities, and the
Preferred Securities if withdrawn from the Trust, and payment of the proceeds
from the disposition of Trust Securities or the Preferred Securities, as the
case may be, to or through a broker, will be reported to the Internal Revenue
Service. Under the backup withholding tax provisions of the Code and applicable
U.S. Treasury Regulations, a U.S. Securityholder may be subject to backup
withholding at the rate of 31% with respect to interest paid on, original issue
discount accrued with respect to, or the proceeds of a sale, exchange or
redemption of the Preferred Securities or the Trust Securities, unless such U.S.
Securityholder (a) is a corporation or comes within certain other exempt
categories and when required demonstrates this fact or (b) provides a taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the
information reporting and backup withholding rules. The amount of any tax so
withheld from a payment to a U.S. Securityholder will be allowed as a credit
against the U.S. Securityholder's federal income tax liability and may entitle
such U.S. Securityholder to a refund, provided that the required information is
furnished to the Internal Revenue Service.
ERISA CONSIDERATIONS
Each fiduciary responsible for investing assets of a pension,
profit-sharing or other employee benefit plan subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") (an "ERISA Plan"), should
consider the standards imposed on fiduciaries by ERISA in the context of the
ERISA Plan's particular circumstances before authorizing an investment in the
Trust Securities. Accordingly, among other factors, in addition to the matters
discussed above in "Risk Factors," the fiduciary should consider whether the
investment would satisfy the prudence and diversification requirements of ERISA
and would be consistent with the documents and instruments governing the Plan.
Section 406 of ERISA and Section 4975 of the Code prohibit ERISA Plans, as
well as individual retirement accounts and "Keogh" plans subject to Section 4975
of the Code (which together with ERISA Plans are referred to herein as "Plans")
from engaging in certain transactions involving "plan assets" with persons who
are "parties in interest" under ERISA or "disqualified persons" under the Code
("Parties in Interest") with respect to such Plan. A violation of these
"prohibited transaction" rules may result in an excise tax or other liabilities
under ERISA and/or
S-37
<PAGE>
Section 4975 of the Code for such persons, unless exemptive relief is available
under an applicable statutory or administrative exemption. Employee benefit
plans that are governmental plans (as defined in Section 3(32) of ERISA),
certain church plans (as defined in Section 3(33) of ERISA) and foreign plans
(as described in Section 4(b)(4) of ERISA) are not subject to the requirements
of ERISA or Section 4975 of the Code; governmental plans may be subject to
similar provisions under applicable state laws.
The U.S. Department of Labor ("DOL") has issued five prohibited
transaction class exemptions ("PTCEs") that may provide exemptive under Section
406 of ERISA and Section 4975 of the Code for prohibited transactions that may
arise from the purchase or holding of the Trust Securities. Those class
exemptions are PTCE 96-23 (for certain transactions directed by in-house asset
managers), PTCE 95-60 (for certain investments by insurance company general
accounts), PTCE 91-38 (for certain investments by bank collective investment
funds), PTCE 90-1 (for certain transactions involving insurance company pooled
separate accounts), and PTCE 84-14 (for certain transactions effected by
independent qualified professional asset managers).
For purposes of determining whether plan assets are involved in a
transaction with a Party in Interest, the fiduciary of a Plan should consider
regulations issued by the DOL, 29 CFR Section 2510.3-101 (the "Plan Asset
Regulation") which would deem the assets of the Trust itself to be "plan assets"
under certain circumstances.
Under the Plan Assets Regulations, the assets of the Trust would be deemed
to be "plan assets" of a Plan for purposes of ERISA and Section 4975 of the Code
if "plan assets" of the Plan were used to acquire an equity interest in the
Trust and no exception were applicable under the Plan Assets Regulation. An
"equity interest" is defined under the Plan Assets Regulation as any interest in
an entity other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features and
specifically includes a beneficial interest in a trust. No assurance can be
given that the Trust Securities would not be treated as an "equity interest"
under all applicable local law.
Pursuant to an exception contained in the Plan Assets Regulation, the
assets of the Trust would not be deemed to be "plan assets" of investing Plans
if, immediately after the most recent acquisition of any equity interest in the
Trust, less than 25% of the value of each class of equity interest in the Trust
were held by Plans, other employee benefit plans not subject to ERISA or Section
4975 of the Code (such as governmental, church and foreign plans), and entities
holding assets deemed to be "plan assets" of any Plan by reason of the Plan's
investment in such entity (a "Plan Asset Entity") (collectively, "Benefit Plan
Investors"). No assurance can be given that the value of the Trust Securities
held by Benefit Plan Investors will be less than 25% of the total value of such
Trust Securities at the completion of the initial offering or thereafter, and no
monitoring of ownership of Trust Securities by Benefit Plan Investors or other
measures will be taken with respect to the satisfaction of the conditions of
this exception.
S-38
<PAGE>
Certain transactions involving the Trust could be deemed to constitute
direct or indirect prohibited transactions under ERISA and Section 4975 of the
Code with respect to a Plan if the Trust Securities are acquired with "plan
assets" of such Plan and the assets of the Trust were deemed to be "plan assets"
of Plans investing in the Trust under the Plan Assets Regulation. For example,
if the Company were a Party in Interest with respect to a Plan (either directly
or indirectly), extensions of credit between the Company and the Trust (as
represented by the Preferred Securities, Subordinated Debentures and the
Guarantee) would likely be prohibited by Section 406(a)(1)(B) of ERISA and
Section 4975(c)(1)(B) of the Code, unless exemptive relief were available under
an applicable administrative exemption.
Because the Trust Securities could be deemed to be an equity interest in
the Trust for purposes of applying ERISA and Section 4975 of the Code, the Trust
Securities may not be purchased and should not be held by any Plan, any Plan
Asset Entity or any person investing "plan assets" on behalf of any Plan, unless
such purchaser or holder is eligible for the exemptive relief available under
PTCE 96-23, 95-60, 91-38, 90-1 or 84-14 or another applicable exemption. Any
purchaser or holder of Trust Securities or any interest therein will be deemed
to have represented by its purchase and holding thereof that it either (a) is
not a Plan or a Plan Asset Entity and is not purchasing or holding such
securities on behalf of or with "plan assets" of any Plan, or (b) is eligible
for the exemptive relief available under PTCE 96-23, 95-60, 91-38, 90-1 or 84-14
or another applicable exemption with respect to such purchase or holding.
Due to the complexity of these rules and the penalties that may be imposed
upon persons involved in non-exempt prohibited transactions, it is particularly
important that Plan fiduciaries or other persons considering purchasing the
Trust Securities on behalf of or with "plan assets" of any Plan should consult
with their counsel regarding the potential consequences if the assets of the
Trust were deemed to be "plan assets" and the availability of exemptive relief
under PTCE 96-23, 95-60, 91-38, 90-1 or 84-14 or any other applicable exemption.
S-39
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
dated _____________, (the "Underwriting Agreement"), the Trust has agreed, and
the Company and Met-Ed Capital have agreed to cause the Trust, to sell to the
Underwriters named below, and the Underwriters, for whom Morgan Stanley & Co.
Incorporated, A.G. Edwards & Sons, Inc., Banc One Capital Markets, Inc., Legg
Mason Wood Walker, Incorporated and Salomon Smith Barney Inc. are acting as
representatives (the "Representatives"), have severally agreed to purchase the
number of Trust Securities set forth opposite their respective names below. In
the Underwriting Agreement, the Underwriters have agreed, subject to the terms
and conditions set forth therein, to purchase all of the Trust Securities
offered hereby if any of the Trust Securities are purchased.
NUMBER OF
TRUST
NAME SECURITIES
---- ----------
Morgan Stanley & Co. Incorporated............
A.G. Edwards & Sons, Inc.....................
Banc One Capital Markets, Inc................
Legg Mason Wood Walker, Incorporated.........
Salomon Smith Barney Inc.....................
TOTAL 4,000,000
The Underwriters have advised the Company, Met-Ed Capital and the Trust
that they propose to offer the Trust Securities in part directly to the public
at the price to the public, as set forth on the cover page of this Prospectus
Supplement, and in part to certain securities dealers at such price less a
concession not in excess of $ per Trust Security. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per Trust Security
to certain other dealers. After the Trust Securities are released for sale to
the public, the offering price and other selling terms may from time to time be
varied by the Underwriters named on the cover page hereof.
The Trust Securities are expected to be approved for listing on the NYSE,
subject to official notice of issuance. Trading of the Trust Securities on the
NYSE is expected to commence within a 30-day period after the initial delivery
of the Trust Securities. The Representatives have advised the Company, Met-Ed
Capital and the Trust that they intend to make a market in the Trust Securities
prior to the commencement of trading on the NYSE. The Representatives will have
no obligation to make a market in the Trust Securities, however, and may cease
market making activities, if commenced, at any time.
Prior to this offering, there has been no public market for the Trust
Securities. In order to meet one of the requirements for listing the Trust
Securities on the NYSE, the Underwriters will undertake to sell lots of 100 or
more Trust Securities to a minimum of 400 beneficial holders.
In order to facilitate the offering of the Trust Securities, the
Underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Trust Securities.
S-40
<PAGE>
Specifically, the Underwriters may over-allot in connection with this offering,
creating short positions in the securities for their own account. In addition,
to cover over-allotments or to stabilize the price of the Trust Securities, the
Underwriters may bid for, and purchase, Trust Securities in the open market.
Finally, the Underwriters may reclaim selling concessions allowed to an
underwriter or dealer for distributing Trust Securities in this offering, if the
Underwriters repurchase previously distributed Trust Securities in transactions
that cover syndicate short positions, in stabilization transactions or
otherwise. Any of these activities may stabilize or maintain the market price of
the Trust Securities above independent market levels. The Underwriters are not
required to engage in these activities, and may end any of these activities at
any time.
The Company, Met-Ed Capital and the Trust have agreed, during the period
beginning on the date of the Underwriting Agreement and continuing to and
including the date on which the Underwriters deliver the Trust Securities to
purchasers, not to sell, offer to sell, grant any option for the sale of, or
otherwise dispose of any Trust Securities, Preferred Securities, any security
convertible into or exchangeable into or exercisable for Trust Securities,
Preferred Securities or the Subordinated Debentures or any debt securities
substantially similar to the Subordinated Debentures or equity securities
substantially similar to the Trust Securities or Preferred Securities (except
for the Subordinated Debentures, Preferred Securities and the Trust Securities
issued pursuant to the Underwriting Agreement), without the prior written
consent of the Representatives.
The Company estimates that its expenses in connection with this offering,
excluding underwriting discounts and commissions, will be approximately
$300,000.
The Company, Met-Ed Capital and the Trust have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
Certain of the Underwriters and their affiliates engage in transactions
with, and, from time to time, have performed services for, the Company and its
affiliates in the ordinary course of business. As of December 31, 1998, Morgan
Stanley Dean Witter & Co., a registered investment adviser, beneficially owned
approximately 7.2% of the outstanding voting securities of GPU as a result of
acting as investment adviser to various registered investment companies.
EXPERTS
The consolidated financial statements and financial statement schedule,
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1998, are incorporated herein by reference in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
S-41
<PAGE>
PROSPECTUS
$250,000,000
METROPOLITAN EDISON COMPANY
SENIOR NOTES
--------------------
MET-ED CAPITAL TRUST
TRUST SECURITIES
each representing a Cumulative Preferred Security of Met-Ed Capital II, L.P.
fully and unconditionally guaranteed to the extent Met-Ed Capital II, L.P.
has funds,as set forth herein, by
METROPOLITAN EDISON COMPANY
-------------------
Metropolitan Edison Company, a Pennsylvania corporation (the "Company"),
may offer, from time to time in one or more series, up to $250,000,000 aggregate
principal amount of Senior Notes (the "Senior Notes") secured by its Senior Note
Mortgage Bonds (as defined herein) until the Release Date (as defined herein),
and in amounts, at prices and on terms to be determined at or prior to the time
or times of sale. Until the Release Date, the Senior Notes will be secured by
Senior Note Mortgage Bonds issued and delivered by the Company to the Senior
Note Trustee (as defined herein). See "Description of Senior Notes - Security;
Release Date". On the Release Date, the Senior Notes will cease to be secured,
will become unsecured general obligations of the Company and will rank on a
parity with other unsecured and unsubordinated indebtedness of the Company
(unless otherwise secured under the limited circumstances described under the
caption "Description of Senior Notes - Certain Covenants of the Company -
Limitations on Liens").
Met-Ed Capital Trust (the "Trust"), a statutory business trust created
under the laws of the State of Delaware, may offer up to $125,000,000 aggregate
liquidation value of preferred beneficial interests, in the form of Trust
Securities (the "Trust Securities"), in amounts, at prices and on terms to be
determined at or prior to the time of sale. Each Trust Security represents a
cumulative preferred limited partner interest (the "Preferred Securities") of
Met-Ed Capital II, L.P., a limited partnership formed under the laws of the
State of Delaware ("Met-Ed Capital"), which will be a special purpose indirect
subsidiary of the Company.
The Trust will use the proceeds from the sale of its Trust Securities to
purchase Preferred Securities from Met-Ed Capital, which will be the sole assets
of the Trust. Met-Ed Capital will lend the proceeds from the sale of its
Preferred Securities, plus the capital contribution made by Met-Ed Preferred
Capital II, Inc., a Delaware special purpose corporation and the sole general
partner of Met-Ed Capital (the "General Partner"), to the Company, which loan
will be evidenced by Subordinated Debentures (the "Subordinated Debentures")
issued by the Company. The Company's Subordinated Debentures may be issued to
Met-Ed Capital in exchange for Met-Ed Capital's payment to the Company of an
amount representing the proceeds from the sale of the Preferred Securities to
the Trust and the capital contributions of the General Partner. Subordinated
Debentures purchased by Met-Ed Capital may subsequently be distributed pro rata
to the holders of the Preferred Securities and the Trust Securities in
connection with the dissolution of Met-Ed Capital and the Trust.
<PAGE>
The Company will also unconditionally guarantee the payment by Met-Ed
Capital of (i) any accumulated and unpaid distributions on the Preferred
Securities to the extent Met-Ed Capital has funds on hand legally available
therefor, (ii) the applicable redemption price payable with respect to any
Preferred Securities called for redemption by Met-Ed Capital to the extent
Met-Ed Capital has funds on hand legally available therefor, and (iii) upon the
liquidation of Met-Ed Capital (other than in connection with a Distribution
Event (as defined herein)), the lesser of (a) the portion of the partnership
liquidation distribution applicable to the Preferred Securities and (b) the
amount of assets of Met-Ed Capital legally available for distribution to holders
of Preferred Securities in liquidation of Met-Ed Capital (the "Guarantee").
The Trust Securities will be subject to mandatory redemption upon any
redemption of the Preferred Securities, which will be subject to mandatory
redemption upon the maturity or prior redemption of the Subordinated Debentures,
but will not be subject to any mandatory sinking fund. See "Description of the
Preferred Securities - Mandatory Redemption" and "Description of the
Subordinated Debentures and the Debenture Indenture."
The Senior Notes, Trust Securities, Preferred Securities, together with
the related Guarantee, and Subordinated Debentures are collectively referred to
as the "Offered Securities". The aggregate principal amount and liquidation
value of all Offered Securities to be offered hereunder will not exceed
$250,000,000. Risk Factors regarding the Offered Securities will be set forth in
the Prospectus Supplement or Supplements.
Certain specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in an accompanying Prospectus
Supplement or Supplements, together with the terms of the particular Offered
Securities, the initial price thereof and the net proceeds from the sale
thereof. The Prospectus Supplement will set forth, with regard to the particular
Offered Securities, without limitation and where applicable, the following: (i)
in the case of the Senior Notes, the designation, aggregate principal amount,
maturity date or dates, interest rate or rates (or method of calculation
thereof) and times of payment of interest, the terms of any redemption, exchange
or sinking fund provisions, the purchase price and any other specific terms of
the offering, (ii) in the case of the Trust Securities, the specific title,
aggregate liquidation value, number of securities, purchase price, any listing
on a securities exchange, distribution rate (or method of calculation thereof)
on the related Preferred Securities, dates on which distributions shall be
payable and dates from which distributions shall accumulate on the related
Preferred Securities, any voting rights, any redemption, exchange or sinking
fund provisions, any other rights, preferences, privileges, limitations or
restrictions relating to the Trust Securities and the terms upon which the
proceeds of the Trust Securities shall be used to purchase a specific series of
Preferred Securities of Met-Ed Capital.
The Offered Securities may be sold to or through underwriters, through
dealers or agents, directly to purchasers or through a combination of such
methods. See "Plan of Distribution". The names of any underwriters, dealers or
agents involved in the sale of the Offered Securities in respect of which this
Prospectus is being delivered and any applicable fee, commission or discount
arrangements with them, will be set forth in the related Prospectus Supplement.
See "Plan of
2
<PAGE>
Distribution" for possible indemnification and contribution arrangements for
dealers, underwriters and agents.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------
The date of this Prospectus is February 4, 1999.
3
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "SEC") and the New York Stock Exchange. Such reports and other
information can be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, NW,
Washington, D.C., and at the following regional offices of the SEC: New York
Regional Office, 13th Floor, Seven World Trade Center, New York, New York and
Chicago Regional Office, 14th Floor, 500 West Madison Street, Chicago, Illinois.
Copies of such materials can also be obtained at prescribed rates from the
Public Reference Section of the SEC at its principal office at Judiciary Plaza,
450 Fifth Street, NW, Washington, D.C. 20549. Such material is also available
from the SEC's Web site at "http//www.sec.gov". Certain of the Company's
securities are listed on the New York Stock Exchange and such reports and other
information can also be inspected and copied at the office of such exchange on
the 7th Floor, 20 Broad Street, New York, New York.
This Prospectus constitutes a part of a Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") filed by the Company, Met-Ed Capital and the Trust with the SEC
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Offered Securities. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. Reference is
made to the Registration Statement and to the exhibits relating thereto for
further information with respect to the Company, Met-Ed Capital, the Trust and
the Offered Securities. Any statements contained herein concerning the
provisions of any document filed as an exhibit to the Registration Statement or
otherwise filed with the SEC or incorporated by reference herein are not
necessarily complete, and in each instance reference is made to the copy of such
document so filed for a more complete description of the matter involved. Each
such statement is qualified in its entirety by such reference.
No separate financial statements of the Trust or Met-Ed Capital have been
included or incorporated by reference herein. The Company does not consider that
such financial statements would be material to holders of the Trust Securities
because (i) the Trust and Met-Ed Capital are special purpose entities, have no
independent operations and exist for the sole purpose of issuing the securities
described herein and (ii) the Company's obligations described herein and in any
accompanying Prospectus Supplement under the Guarantee, the Subordinated
Debentures purchased by Met-Ed Capital and the related Debenture Indenture (as
defined herein), and the General Partner's obligations under the Amended and
Restated Trust Agreement of the Trust and the Amended and Restated Limited
Partnership Agreement of Met-Ed Capital, taken together, constitute a full and
unconditional guarantee of payments due on the Preferred Securities which are
represented by the Trust Securities. See "Description of the Trust Securities,"
"Description of the Preferred Securities" and "Description of the Subordinated
Debentures and the Debenture Indenture" and "Description of the Guarantee".
4
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates herein by reference the following
documents which have been filed by the Company with the SEC pursuant to the
Exchange Act:
1. The Company's Annual Report on Form 10-K for the year ended December
31, 1997.
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, June 30 and September 30, 1998.
3. The Company's Current Reports on Form 8-K, dated May 26, May 27,
June 5, July 17, July 21, August 3, October 2, October 22 and
November 12, 1998.
All documents subsequently filed by the Company with the SEC pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination
of the offering made hereby shall be deemed to be incorporated herein by
reference and to be a part hereof from the respective dates of filing thereof.
The documents incorporated or deemed to be incorporated herein by reference are
sometimes hereinafter called the "Incorporated Documents". Any statement
contained herein or in an Incorporated Document shall be deemed to be modified
or superseded for all purposes to the extent that a statement contained herein
or in any Prospectus Supplement or in any subsequently filed Incorporated
Document modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus or any Prospectus Supplement.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral the request of any such person, a
copy of any or all of the Incorporated Documents, excluding the exhibits thereto
unless such exhibits are specifically incorporated by reference into such
documents. Requests for such documents should be directed to Metropolitan Edison
Company, 2800 Pottsville Pike, Reading, Pennsylvania 19605, attention:
Secretary. The Company's telephone number is (610) 929-3601.
In addition to the historical information contained or incorporated by
reference herein, this Prospectus contains or incorporates by reference a number
of "forward-looking statements" within the meaning of the Exchange Act. Such
statements address future events and conditions concerning capital expenditures,
resolution and impact of litigation, regulatory matters, liquidity and capital
resources and accounting matters. Actual results in each case could differ
materially from those projected in such statements due to a variety of factors
including, without limitation, restructuring of the utility industry; future
economic conditions; earnings retention and dividend payout policies;
developments in the legislative, regulatory and competitive environments in
which the Company operates; and other circumstances that could affect
anticipated revenues and costs, such as compliance with laws and regulations.
These and other factors are discussed in the Company's filings with the SEC.
5
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METROPOLITAN EDISON COMPANY
Metropolitan Edison Company (the "Company"), a public utility furnishing
electric service wholly within the Commonwealth of Pennsylvania, is a subsidiary
of GPU, Inc. ("GPU"), a holding company registered under the Public Utility
Holding Company Act of 1935. The Company provides retail electric service within
a territory located in eastern and south central Pennsylvania having a
population of almost one million. The Company also sells electricity at
wholesale to four municipalities having an estimated population of over 11,000.
The Company's subsidiary, York Haven Power Company, is the owner and licensee of
the York Haven Hydroelectric Project. The Company's principal executive offices
are located at 2800 Pottsville Pike, Reading, Pennsylvania 19605, and its
telephone number is (610) 929-3601.
For the year 1997, residential sales accounted for about 41% of the
Company's operating revenues from customers and 35% of kilowatt-hour sales to
customers; commercial sales accounted for about 29% of the Company's operating
revenues from customers and 28% of kilowatt-hour sales to customers; industrial
sales accounted for about 28% of the Company's operating revenues from customers
and 35% of kilowatt-hour sales to customers; and sale to rural electric
cooperatives, municipalities (primarily for street and highway lighting) and
others accounted for about 2% of the Company's operating revenues from customers
and 2% of kilowatt-hour sales to customers. The revenues derived from the 25
largest customers in the aggregate accounted for approximately 14% of operating
revenues from customers for the year 1997. The Company also makes interchange
and spot market sales of electricity to other utilities.
The electric generating and transmission facilities of the Company and its
affiliates, Pennsylvania Electric Company and Jersey Central Power & Light
Company (collectively doing business as "GPU Energy"), are physically
interconnected and are operated as a single integrated and coordinated system.
The transmission facilities of the integrated system are physically
interconnected with neighboring nonaffiliated utilities in Pennsylvania, New
Jersey, Maryland, New York and Ohio. The Company is a member of the
Pennsylvania-New Jersey-Maryland Interconnection ("PJM") and the Mid-Atlantic
Council, an organization providing coordinated review of the planning by
utilities in the PJM area. The interconnection facilities are used for
substantial capacity and energy interchange and purchased power transactions as
well as emergency assistance.
MET-ED CAPITAL TRUST
Met-Ed Capital Trust (the "Trust") is a statutory business trust created
in August 1998 under the laws of the State of Delaware. The Trust exists for the
sole purpose of issuing the Trust Securities representing the Preferred
Securities to be held by the Trust and performing functions directly related
thereto. The Trust cannot issue any other securities. The Preferred Securities
will be the only assets of the Trust and the only revenues of the Trust will be
distributions it receives on the Preferred Securities. All expenses and
liabilities of the Trust will be paid by the General Partner. The Trust's
mailing address is c/o GPU Service, Inc., 310 Madison Avenue, Morristown, New
Jersey 07962 and its telephone number is (973) 455-8200.
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MET-ED CAPITAL II, L.P.
Met-Ed Capital II, L.P. ("Met-Ed Capital") is a limited partnership formed
in August 1998 under the laws of the State of Delaware. All of its general
partner interests are owned by Met-Ed Preferred Capital II, Inc., which will be
a wholly owned subsidiary of the Company, as the general partner (the "General
Partner"). As a limited partnership, all of the business and affairs of Met-Ed
Capital are managed by the General Partner. Met-Ed Capital was created solely
for the purpose of issuing the Preferred Securities and lending the proceeds
thereof to the Company. Such loans are evidenced by the Subordinated Debentures
issued by the Company in series under the Debenture Indenture (as hereinafter
defined). The Subordinated Debentures will be the only assets of Met-Ed Capital
and the only revenues of Met-Ed Capital will be interest its receives on the
Subordinated Debentures. The General Partner pays all of Met-Ed Capital's
operating expenses and has general liability for all of Met-Ed Capital's
obligations. Met-Ed Capital's mailing address is c/o GPU Service, Inc. 310
Madison Avenue, Morristown, New Jersey 07962 and its telephone number is (973)
455-8200.
FINANCING PROGRAM
Depending upon market conditions, during the next two years the Company
and/or the Trust, as the case may be, expect to offer pursuant to one or more
separate offerings, up to $250,000,000 aggregate principal amount and
liquidation value of Offered Securities, including up to $125,000,000
liquidation value of Trust Securities. The net proceeds from the sale of the
Trust Securities will be used to purchase Preferred Securities from Met-Ed
Capital. Met-Ed Capital will, in turn, lend the proceeds from the sale of its
Preferred Securities to the Company, which loan will be evidenced by the
Company's Subordinated Debentures. The Company also expects to have short-term
borrowings outstanding from time to time during such period.
USE OF PROCEEDS
Unless otherwise indicated in the accompanying Prospectus Supplement, the
Company intends to use the net proceeds from the sale of the Offered Securities
offered hereby (i) to redeem other outstanding securities of the Company,
including first mortgage bonds, preferred stock and preferred securities, (ii)
to repay outstanding short-term bank loans or other unsecured indebtedness,
(iii) for construction purposes and (iv) for other corporate purposes, including
to reimburse the Company's treasury for funds previously expended therefrom for
the above purposes. The Trust will use the proceeds from the sale of its Trust
Securities to purchase the Preferred Securities. Met-Ed Capital will use the
proceeds from the sale of the Preferred Securities to purchase the Subordinated
Debentures. Any specific allocation of the proceeds to a particular purpose that
has been made at the date of any Prospectus Supplement will be described
therein.
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COMPANY COVERAGE RATIOS
The Company's Ratio of Earnings to Fixed Charges for each of the periods
indicated was as follows:
YEARS ENDED DECEMBER 31, TWELVE MONTHS
---------------------------------------------------- ENDED
1993 1994 1995 1996 1997 SEPTEMBER 30, 1998
---- ---- ---- ---- ---- ------------------
3.28 0.871 4.69 2.83 3.42 2.26
The Ratio of Earnings to Fixed Charges represents, on a pre-tax basis, the
number of times earnings cover fixed charges. Earnings consist of net income to
which has been added fixed charges and taxes based on income of the Company.
Fixed charges consist of interest on funded indebtedness, other interest
(including distributions on Company Obligated Mandatorily Redeemable Preferred
Securities), amortization of net gain on reacquired debt and net discount on
debt and interest portion of all rentals charged to income.
The Company's Ratio of Earnings to Combined Fixed Charges and Preferred
Stock Dividends for each of the periods indicated was as follows:
YEARS ENDED DECEMBER 31, TWELVE MONTHS
--------------------------------------------------- ENDED
1993 1994 1995 1996 1997 SEPTEMBER 30, 1998
---- ---- ---- ---- ---- ------------------
2.72 0.812 4.58 2.76 3.38 2.23
The Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends represents, on a pre-tax basis, the number of times earnings cover
fixed charges and preferred stock dividends. Earnings consist of net income to
which has been added fixed charges and taxes based on income of the Company.
Combined fixed charges and preferred stock dividends consist of interest on
funded indebtedness, other interest (including distribution on Company Obligated
Mandatorily Redeemable Preferred Securities), amortization of net gain on
reacquired debt and net discount on debt, preferred stock dividends (increased
to reflect the pre-tax earnings required to cover such dividend requirements)
and the interest portion of all rentals charged to income.
ACCOUNTING TREATMENT
The financial statements of Met-Ed Capital will be consolidated with the
Company's financial statements, with the Preferred Securities shown on the
Company's consolidated financial statements as "Company Obligated Mandatorily
Redeemable Preferred Securities of a Partnership". The Company's financial
statements will include a footnote that discloses, among other things, that the
sole asset of Met-Ed Capital consists of the Subordinated Debentures and will
specify the principal amount, interest rate and maturity date of each series of
Subordinated Debentures.
- --------
1 The deficiency amount is $8,015,000.00.
2 The deficiency amount is $13,189,000.00.
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DESCRIPTION OF SENIOR NOTES
The following is a summary of certain terms and provisions of the Senior
Notes and the Senior Note Indenture (as defined below). Reference is made to the
Senior Note Indenture which is an exhibit to the Registration Statement of which
this Prospectus forms a part.
GENERAL
The Senior Notes may be issued from time to time in one or more series in
amounts and on terms to be determined at or prior to the time or times of sale,
under the Senior Note Indenture, as it may be amended or supplemented (the
"Senior Note Indenture") between the Company and United States Trust Company of
New York (the "Senior Note Trustee").
Until the Release Date (as defined below), all of the Senior Notes
outstanding under the Senior Note Indenture will be secured by one or more
series of the Company's Senior Note Mortgage Bonds (as defined below) issued and
delivered by the Company to the Senior Note Trustee. See "-- Security; Release
Date". ON THE RELEASE DATE, THE SENIOR NOTES WILL CEASE TO BE SECURED BY THE
SENIOR NOTE MORTGAGE BONDS, WILL BECOME UNSECURED GENERAL OBLIGATIONS OF THE
COMPANY AND WILL RANK ON A PARITY WITH OTHER UNSECURED AND UNSUBORDINATED
INDEBTEDNESS OF THE COMPANY. The Senior Note Indenture provides that prior to
the Release Date, the principal amount of the Senior Notes that may be issued
and outstanding cannot exceed the principal amount of the Senior Note Mortgage
Bonds then held by the Senior Note Trustee. See "Description of Senior Note
Mortgage Bonds".
There is no requirement under the Senior Note Indenture that future issues
of debt securities of the Company be issued exclusively under the Senior Note
Indenture; accordingly, the Company will be free to employ other indentures or
documentation, containing provisions different from those included in the Senior
Note Indenture or applicable to one or more issues of Senior Notes, in
connection with future issues of other debt securities. There is no limitation
on the amount of Senior Notes that may be issued under the Senior Note
Indenture. Notwithstanding the foregoing, the Senior Note Indenture contains
certain restrictive covenants, including a restriction that the Company may not
issue, assume, guarantee or permit to exist, so long as any Senior Notes are
outstanding and after the Release Date, any debt that ranks senior to the Senior
Notes, subject to certain exceptions. In addition, the Senior Note Indenture
also provides that so long as any Senior Notes are outstanding, certain
sale/leaseback arrangements are restricted.
There is no provision in the Senior Note Indenture or the Senior Notes
that requires the Company to redeem, or permit the holders to cause a redemption
of, the Senior Notes or that otherwise protects the holders in the event that
the Company incurs substantial additional indebtedness, whether or not in
connection with a change in control of the Company.
Reference is made to the Prospectus Supplement for a description of the
following terms of the series of Senior Notes in respect of which this
Prospectus is being delivered: (i) the title of
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such Senior Notes; (ii) the aggregate principal amount of such Senior Notes;
(iii) the price (expressed as a percentage of principal amount) at which such
Senior Notes will be issued; (iv) the date or dates on which the principal of
such Senior Notes is payable; (v) the rate or rates at which such Senior Notes
will bear interest, the date or dates from which such interest will accrue, the
dates on which such interest will be payable ("Interest Payment Dates"), and the
regular record dates for the interest payable on such Interest Payment Dates;
(vi) the option, if any, of the Company to redeem such Senior Notes and the
period or periods within which, or the date or dates on which, the prices at
which and the terms and conditions upon which, such Senior Notes may be
redeemed, in whole or in part, upon the exercise of such option; (vii) the
obligation, if any, of the Company to redeem or purchase such Senior Notes at
the option of the registered holder or pursuant to any sinking fund or analogous
provisions and the period or periods within which, or the date or dates on
which, the price or prices at which and the terms and conditions upon which,
such Senior Notes will be redeemed or purchased, in whole or in part, pursuant
to such obligation; (viii) the denominations in which such Senior Notes will be
issuable, if other than $1,000 and integral multiples thereof; (ix) whether such
Senior Notes are to be issued in whole or in part in book-entry form and
represented by one or more global Senior Notes and, if so, the identity of the
depository for such global Senior Notes and the specific terms of the depository
arrangements therefor; and (x) any other terms of such Senior Notes, including
with respect to any series, if applicable.
REDEMPTION PROVISIONS
Any terms for the optional or mandatory redemption of the Senior Notes
will be set forth in the Prospectus Supplement or Supplements. Except as shall
otherwise be provided in the applicable Prospectus Supplement or Supplements,
the Senior Notes will be redeemable only upon notice by mail not less than 30
nor more than 60 days prior to the date fixed for redemption, and, if less than
all the Senior Notes of a series, or any tranche thereof, are to be redeemed,
the particular Senior Notes to be redeemed will be selected by the Senior Note
Trustee in such a manner as it shall deem appropriate and fair.
Any notice of redemption at the option of the Company may state that such
redemption will be conditional upon receipt by the Senior Note Trustee, on or
prior to the date fixed for such redemption, of money sufficient to pay the
principal of and premium, if any, and interest on such Senior Notes and that if
such money has not been so received, such notice will be of no force and effect
and the Company will not be required to redeem such Senior Notes.
SECURITY; RELEASE DATE
Until the Release Date, the Senior Notes will be secured by one or more
series of the Company's first mortgage bonds ("Senior Note Mortgage Bonds')
issued and delivered by the Company to the Senior Note Trustee (see "Description
of Senior Note Mortgage Bonds"). Upon the issuance of a series of Senior Notes
prior to the Release Date, the Company will simultaneously issue and deliver to
the Senior Note Trustee, as security for all the Senior Notes being issued, a
series of Senior Note Mortgage Bonds that will have the same stated maturity
date and corresponding redemption provisions, and will be in the same aggregate
principal amount and
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have the same interest rate as the corresponding series of Senior Notes being
issued. Any payment by the Company to the Senior Note Trustee of principal of,
premium, if any, and interest on, a series of Senior Note Mortgage Bonds will be
applied by the Senior Note Trustee to satisfy the Company's obligations with
respect to principal of, premium, if any, and interest on, the respective
corresponding series of Senior Notes.
THE RELEASE DATE WILL BE THE EARLIER OF (I) THE DATE THAT ALL FIRST
MORTGAGE BONDS (AS DEFINED HEREIN) OTHER THAN THE SENIOR NOTE MORTGAGE BONDS,
HAVE BEEN RETIRED (WHETHER AT, BEFORE OR AFTER THE MATURITY THEREOF) THROUGH
PAYMENT, REDEMPTION, PURCHASE, DEFEASANCE OR OTHERWISE AND (II) THE DATE UPON
WHICH THE SENIOR NOTE TRUSTEE HOLDS SENIOR NOTE MORTGAGE BONDS CONSTITUTING NOT
LESS THAN 80% IN AGGREGATE PRINCIPAL AMOUNT OF ALL OUTSTANDING FIRST MORTGAGE
BONDS. ON THE RELEASE DATE, THE SENIOR NOTE TRUSTEE WILL DELIVER TO THE COMPANY
FOR CANCELLATION ALL SENIOR NOTE MORTGAGE BONDS AND, NOT LATER THAN 30 DAYS
THEREAFTER, WILL PROVIDE NOTICE TO ALL HOLDERS OF THE SENIOR NOTES OF THE
OCCURRENCE OF THE RELEASE DATE. AS A RESULT, ON THE RELEASE DATE, THE SENIOR
NOTE MORTGAGE BONDS SHALL CEASE TO SECURE THE SENIOR NOTES AND THE SENIOR NOTES
WILL BECOME UNSECURED AND UNSUBORDINATED GENERAL OBLIGATIONS OF THE COMPANY.
Each series of Senior Note Mortgage Bonds will be a series of First
Mortgage Bonds of the Company. See "Description of Senior Note Mortgage Bonds -
Kind and Priority of Lien". Upon the payment or cancellation of any outstanding
Senior Notes, the Senior Note Trustee shall surrender to the Company for
cancellation an equal principal amount of the related series of Senior Note
Mortgage Bonds. The Company shall not permit, at any time prior to the Release
Date, the aggregate principal amount of Senior Note Mortgage Bonds held by the
Senior Note Trustee to be less than the aggregate principal amount of the Senior
Notes outstanding. The Senior Note Indenture includes a restriction that the
Company may not issue, guarantee or permit to exist, so long as any of the
Senior Notes are outstanding and after the Release Date, any debt that ranks
senior to the Senior Notes, subject to certain exceptions. After the issuance of
the first series of the Senior Notes, no additional First Mortgage Bonds will be
issued under the Mortgage (as defined herein) other than as collateral security
for the Senior Notes.
EVENTS OF DEFAULT
The following constitute events of default under the Senior Note
Indenture: (a) default in the payment of principal of or premium, if any, on any
Senior Note when due and payable; (b) default in the payment of interest on any
Senior Note when due which continues for 60 days; (c) default in the performance
or breach of any other covenant or agreement of the Company in the Senior Notes
or in the Senior Note Indenture and the continuation thereof for 90 days after
written notice thereof to the Company by the Senior Note Trustee or the holders
of at least 33% in aggregate principal amount of the outstanding Senior Notes;
(d) prior to the Release Date, the occurrence of a "completed default" (as
defined) under the Mortgage; provided, however, that the waiver or cure of such
default and the recision and annulment of the consequences thereof under the
Mortgage shall constitute a waiver of the corresponding event of default under
the Senior Note Indenture and a recision and annulment of the consequences
thereof under the Senior Note
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Indenture; and (e) certain events of bankruptcy, insolvency, reorganization,
assignment or receivership of the Company.
If an event of default occurs and is continuing, either the Senior Note
Trustee or the holders of a majority in aggregate principal amount of the
outstanding Senior Notes may declare the principal amount of all of the Senior
Notes to be due and payable immediately. Upon such acceleration of the Senior
Notes, the Senior Note Mortgage Bonds shall be immediately redeemable upon
demand of the Senior Note Trustee (and surrender thereof to the Mortgage
Trustee, as defined) at a redemption price of 100% of the principal amount
thereof, together with interest to the redemption date. See "Description of
Senior Note Mortgage Bonds - Redemption Provisions of Senior Note Mortgage
Bonds". At any time after an acceleration of the Senior Notes has been obtained
(and provided the acceleration of all Senior Note Mortgage Bonds has not
occurred), if the Company pays or deposits with the Senior Note Trustee a sum
sufficient to pay all matured installments of interest and the principal and any
premium which has become due on the Senior Notes otherwise than by acceleration
and all defaults shall have been cured or waived, then such payment or deposit
will cause an automatic rescission and annulment of the acceleration of the
Senior Notes.
The Senior Note Indenture provides that the Senior Note Trustee generally
will be under no obligation to exercise any of its rights or powers under the
Senior Note Indenture at the request or direction of any of the holders of the
Senior Notes unless such holders have offered to the Senior Note Trustee
reasonable security or indemnity. Subject to such provisions for indemnity and
certain other limitations contained in the Senior Note Indenture, the holders of
a majority in aggregate principal amount of the outstanding Senior Notes
generally will have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Senior Note Trustee, or of
exercising any trust or power conferred on the Senior Note Trustee. The holders
of a majority in aggregate principal amount of the outstanding Senior Notes
generally will have the right to waive any past default or event of default
(other than a payment default) on behalf of all holders of the Senior Notes. The
Senior Note Indenture provides that no holder of the Senior Notes may institute
any action against the Company under the Senior Note Indenture unless such
holder previously shall have given to the Senior Note Trustee written notice of
an event of default and continuance thereof and unless the holders of not less
than a majority in aggregate principal amount of the Senior Notes then
outstanding affected by such event of default shall have requested the Senior
Note Trustee to institute such action and shall have offered the Senior Note
Trustee reasonable indemnity, and the Senior Note Trustee shall not have
instituted such action within 60 days of such request. Furthermore, no holder of
the Senior Notes will be entitled to institute any such action if and to the
extent that such action would disturb or prejudice the rights of other holders
of the Senior Notes. Notwithstanding that the right of a holder of the Senior
Notes to institute a proceeding with respect to the Senior Note Indenture is
subject to certain conditions precedent, each holder of a Senior Note has the
right, which is absolute and unconditional, to receive payment of the principal
of, and premium, if any, and interest on such Senior Note when due and to
institute suit for the enforcement of any such payment, and such rights may not
be impaired without the consent of such holders of Senior Notes. The Senior Note
Indenture provides that the Senior Note Trustee, within 90 days after the
occurrence of a default with respect to the Senior Notes, is required to give
holders of the Senior Notes notice of any
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default known to the Senior Note Trustee, unless cured or waived, but, except in
the case of default in the payment of principal of, or premium, if any, or
interest on, any Senior Notes, the Senior Note Trustee may withhold such notice
if it determines in good faith that it is in the interest of such holders to do
so. The Company is required to deliver to the Senior Note Trustee each year an
officer's certificate as to whether or not the Company is in compliance with the
conditions and covenants under the Senior Note Indenture.
MODIFICATION WITH APPROVAL
Modification and amendment of the Senior Note Indenture may be effected by
the Company and the Senior Note Trustee with the consent of the holders of a
majority in aggregate principal amount of the outstanding Senior Notes affected
thereby, provided that no such modification or amendment may, without the
consent of the holder of each outstanding Senior Note affected thereby, (a)
change the maturity date of any Senior Note; (b) reduce the rate (or change the
method of calculation thereof) or extend the time of payment of interest on any
Senior Note; (c) reduce the principal amount of, or premium payable on, any
Senior Note; (d) change the coin or currency of any payment of principal of, or
premium, if any, or interest on, any Senior Note; (e) change the date on which
any Senior Note may be redeemed or repaid at the option of the holder thereof or
adversely affect the rights of a holder to institute suit for the enforcement of
any payment on or with respect to any Senior Note; (f) impair the interest of
the Senior Note Trustee in the Senior Note Mortgage Bonds held by it or, prior
to the Release Date, reduce the principal amount of any series of Senior Note
Mortgage Bonds securing the Senior Notes to an amount less than the principal
amount of the related series of Senior Notes or alter the payment provisions of
such Senior Note Mortgage Bonds in a manner adverse to the holders of the Senior
Notes; or (g) modify the foregoing requirements or reduce the percentage of
outstanding Senior Notes necessary to modify or amend the Senior Note Indenture
or to waive any past default to less than a majority.
MODIFICATION WITHOUT APPROVAL
Modification and amendment of the Senior Note Indenture may be effected by
the Company and the Senior Note Trustee without the consent of the holders (a)
to add to the covenants of the Company for the benefit of the holders or to
surrender a right conferred on the Company in the Senior Note Indenture; (b) to
add further security for the Senior Notes; (c) to supply omissions, cure
ambiguities or correct defects, which actions, in each case, are not prejudicial
to the interest of the holders in any material respect; or (d) to make any other
change that is not prejudicial to the holders of the Senior Notes in any
material respect.
A supplemental indenture which changes or eliminates any covenants or
other provision of the Senior Note Indenture (or any supplemental indenture)
which has expressly been included solely for the benefit of one or more series
of the Senior Notes, or which modifies the rights of the holders of the Senior
Notes of such series with respect to such covenant or provision, will be deemed
not to affect the rights under the Senior Note Indenture of the holders of the
Senior Notes of any other series.
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DEFEASANCE AND DISCHARGE
The Senior Note Indenture provides that the Company will be discharged
from any and all obligations in respect to the Senior Notes and the Senior Note
Indenture (except for certain obligations such as obligations to register the
transfer or exchange of the Senior Notes, replace stolen, lost or mutilated
Senior Notes and maintain paying agencies) if, among other things, the Company
irrevocably deposits with the Senior Note Trustee, in trust for the benefit of
the holders of Senior Notes, money or certain United States government
obligations, or any combination thereof, which will provide money in an amount
sufficient, without reinvestment, to make all payments of principal of, premium,
if any, and interest on, the Senior Notes on the dates such payments are due in
accordance with the terms of the Senior Note Indenture and the Senior Notes;
provided that unless all of the Senior Notes mature within 90 days of such
deposit by redemption or otherwise, the Company shall also have delivered to the
Senior Note Trustee an opinion of counsel to the effect that the holders of the
Senior Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such defeasance or discharge of the Senior Note
Indenture. Thereafter, the holders of the Senior Notes may look only to such
deposit for payment of the principal of, and interest and any premium on, the
Senior Notes.
CONSOLIDATION, MERGER AND SALE OR DISPOSITION OF ASSETS
The Company may not consolidate with or merge into any other corporation
or sell or otherwise dispose of its properties as or substantially as an
entirety unless (i) the successor or transferee corporation shall be a
corporation organized and existing under the laws of the United States or any
state thereof or the District of Columbia, (ii) the successor or transferee
corporation assumes by supplemental indenture the due and punctual payment of
the principal of and premium, if any, and interest on all the Senior Notes and
the performance of every covenant of the Senior Note Indenture to be performed
or observed by the Company; and (iii) if prior to the Release Date, the
successor or transferee corporation assumes the Company's obligations under the
Mortgage with respect to the Senior Note Mortgage Bonds. Upon any such
consolidation, merger, sale, transfer or other disposition of the properties of
the Company substantially as an entirety, the successor corporation formed by
such consolidation or into which the Company is merged or to which such transfer
is made shall succeed to, and be substituted for, and may exercise every right
and power of, the Company under the Senior Note Indenture with the same effect
as if such successor corporation had been named as the Company therein, and the
Company will be released from all obligations under the Senior Note Indenture.
For purposes of the Senior Note Indenture, the conveyance or other transfer by
the Company of (a) all or any portion of its facilities for the generation of
electric energy or (b) all of its facilities for the transmission of electric
energy, in each case considered alone or in any combination with properties
described in the other clause, shall in no event be deemed to constitute a
conveyance or other transfer of all the properties of the Company, as or
substantially as an entirety.
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CERTAIN COVENANTS OF THE COMPANY
Limitation on Liens
The Senior Note Indenture provides that, so long as any such Senior Notes
are outstanding, the Company may not issue, assume, guarantee or permit to exist
after the Release Date any Debt (as defined below) that is secured by any
mortgage, security interest, pledge or lien ("Lien") of or upon any Operating
Property of the Company (as defined below), whether owned at the date of the
Senior Note Indenture or thereafter acquired, without in any such case
effectively securing the Senior Notes (together with, if the Company shall so
determine, any other indebtedness of the Company ranking equally with the Senior
Notes) equally and ratably with such Debt (but only so long as such Debt is so
secured).
The foregoing restriction will not apply to: (1) Liens on any Operating
Property existing at the time of its acquisition (which Liens may also extend to
subsequent repairs, alterations and improvements to such Operating Property);
(2) Liens on Operating Property of an entity existing at the time such entity is
merged into or consolidated with, or such entity disposes of its properties (or
those of a division) as or substantially as an entirety to, the Company; (3)
Liens on Operating Property to secure the costs of acquisition, construction,
development or substantial repair, alteration or improvement of property or to
secure indebtedness incurred to provide funds for any such purpose or for
reimbursement of funds previously expended for any such purpose, provided such
Liens are created or assumed contemporaneously with, or within 18 months after,
such acquisition or the completion of substantial repair or alteration,
construction, development or substantial improvement; (4) Liens in favor of any
state or any department, agency or instrumentality or political subdivision of
any state, or for the benefit of holders of securities issued by any such entity
(or providers of credit enhancement with respect to such securities), to secure
any Debt (including, without limitation, obligations of the Company with respect
to industrial development, pollution control or similar revenue bonds) incurred
for the purpose of financing all or any part of the purchase price or the cost
of substantially repairing or altering, constructing, developing or
substantially improving Operating Property of the Company; (5) Liens under the
Mortgage, except as provided in the Senior Note Indenture; (6) Liens to
compensate the Senior Note Trustee as provided in the Senior Note Indenture; (7)
any extension, renewal or replacement (or successive extensions, renewals or
replacements), in whole or in part, of any Lien referred to in clauses (1)
through (7), provided, however, that the principal amount of Debt secured
thereby and not otherwise authorized by said clauses (1) to (7), inclusive,
shall not exceed the principal amount of Debt, plus any premium or fee payable
in connection with any such extension, renewal or replacement, so secured at the
time of such extension, renewal or replacement. However, the foregoing
restriction will not apply to the issuance, assumption or guarantee by the
Company of Debt secured by a Lien which would otherwise be subject to the
foregoing restriction up to an aggregate amount which, together with all other
secured Debt of the Company (not including secured Debt permitted under any of
the foregoing exceptions) and the Value (as defined below) of Sale and
Lease-Back Transactions (as defined below) existing at such time (other than
Sale and Lease-Back Transactions the proceeds of which have been applied
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to the retirement of certain indebtedness, Sale and Lease-Back Transactions in
which the property involved would have been permitted to be subjected to a Lien
under any of the foregoing exceptions in clauses (1) to (7) and Sale and
Lease-Back Transactions that are permitted by the first sentence of "Limitations
on Sale and Lease-Back Transactions" below), does not exceed the greater of 15%
of Tangible Assets or 15% of Capitalization (as such terms are defined below).
Limitation on Sale and Lease-Back Transactions
The Senior Note Indenture provides that so long as any Senior Notes are
outstanding, the Company may not enter into or permit to exist after the Release
Date any Sale and Lease-Back Transaction with respect to any Operating Property
(except for transactions involving leases for a term, including renewals, of not
more than 48 months), if the purchasers' commitment is obtained more than 18
months after the later of the completion of the acquisition, construction or
development of such Operating Property or the placing in operation of such
Operating Property or of such Operating Property as constructed or developed or
substantially repaired, altered or improved. This restriction will not apply if
(a) the Company would be entitled pursuant to any of the provisions described in
clauses (1) to (7) of the first sentence of the second paragraph under
"Limitation on Liens" above to issue, assume, guarantee or permit to exist Debt
secured by a Lien on such Operating Property without equally and ratably
securing the Senior Notes, (b) after giving effect to such Sale and Lease-Back
Transaction, the Company could incur pursuant to the provisions described in the
second sentence of the second paragraph under "Limitation on Liens", at least
$1.00 of additional Debt secured by Liens (other than Liens permitted by clause
(a)), or (c) the Company applies within 180 days an amount equal to, in the case
of a sale or transfer for cash, the net proceeds (not exceeding the net book
value), and, otherwise, an amount equal to the fair value (as determined by its
Board of Directors) of the Operating Property so leased, to the retirement of
Senior Notes or other Debt of the Company ranking equally with the Senior Notes,
subject to reduction for Senior Notes and such Debt retired during such 180-day
period otherwise than pursuant to mandatory sinking fund or prepayment
provisions and payments at stated maturity.
Certain Definitions
"Capitalization" means the total of all the following items appearing on,
or included in, the consolidated balance sheet of the Company: (i) liabilities
for indebtedness maturing more than 12 months from the date of determination;
and (ii) common stock, preferred stock, Hybrid Preferred Securities (as defined
in the Senior Note Indenture), premium on capital stock, capital surplus,
capital in excess of par value and retained earnings (however the foregoing may
be designated), less, to the extent not otherwise deducted, the cost of shares
of capital stock reacquired by the Company.
"Debt" means any outstanding debt for money borrowed evidenced by notes,
debentures, bonds or other securities, or guarantees of any thereof.
"Operating Property" means (i) any interest in real property owned by the
Company and (ii) any asset owned by the Company that is depreciable in
accordance with generally accepted
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accounting principles ("GAAP") excluding, in either case, any interest of the
Company as lessee under any lease (except for a lease that results from a Sale
and Lease-Back Transaction) which has been or would be capitalized on the books
of the lessee in accordance with GAAP.
"Sale and Lease-Back Transaction" means any arrangement with any person
providing for the leasing to the Company of any Operating Property (except for
leases for a term, including any renewals thereof, of not more than 48 months),
which Operating Property has been or is to be sold or transferred by the Company
to such person; provided, however, Sale and Lease-Back Transaction does not
include any arrangement first entered into prior to the date of the Senior Note
Indenture.
"Tangible Assets" means the amount shown as total assets on the
consolidated balance sheet of the Company, less the following: (i) intangible
assets including, but without limitation, such items as goodwill, trademarks,
trade names, patents, and unamortized debt discount and expense, and (ii)
appropriate adjustments, if any, on account of minority interests. Tangible
Assets shall be determined in accordance with GAAP and practices applicable to
the type of business in which the Company is engaged and that are approved by
the independent accountants that are regularly retained by the Company, and may
be determined as of a date not more than 60 days prior to the happening of the
event for which such determination is being made.
"Value" means, with respect to a Sale and Lease-Back Transaction, as of
any particular time, the amount equal to the greater of (i) the net proceeds to
the Company from the sale or transfer of the property leased pursuant to such
Sale and Lease-Back Transaction, or (ii) the net book value of such property, as
determined by the Company in accordance with GAAP, in either case multiplied by
a fraction, the numerator of which shall be equal to the number of full years of
the term of the lease that is part of such Sale and Lease-Back Transaction
remaining at the time of determination and the denominator of which shall be
equal to the number of full years of such term, without regard, in any case, to
any renewal or extension options contained in such lease.
VOTING OF SENIOR NOTE MORTGAGE BONDS HELD BY SENIOR NOTE TRUSTEE
The Senior Note Trustee, as the holder of Senior Note Mortgage Bonds, will
attend any meeting of bondholders under the Mortgage, or, at its option, will
deliver its proxy in connection therewith relating to matters with respect to
which it is entitled to vote or consent.
The Senior Note Trustee shall vote all Senior Note Mortgage Bonds then
held by it or consent with respect thereto, proportionately with the vote or
consent of the holders of all other First Mortgage Bonds outstanding under the
Mortgage, the holders of which are eligible to vote or consent; provided,
however, that the Senior Note Trustee shall not so vote in favor of, or so
consent to, any amendment or modification of the Mortgage which, if it were an
amendment or modification of the Senior Note Indenture, would require the
consent of the holders of Senior Notes as described under "- Modification",
without the prior consent of holders of Senior Notes which would be required for
such an amendment or modification of the Senior Note Indenture.
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RESIGNATION OR REMOVAL OF SENIOR NOTE TRUSTEE
The Senior Note Trustee may resign at any time upon written notice to the
Company specifying the day upon which the resignation is to take effect and such
resignation will take effect immediately upon the later of the appointment of a
successor Senior Note Trustee and such specified day.
The Senior Note Trustee may be removed at any time by an instrument or
concurrent instruments in writing filed with the Senior Note Trustee and signed
by the holders, or their attorneys-in-fact, of at least a majority in aggregate
principal amount of the then outstanding Senior Notes. In addition, so long as
no event of default under the Senior Note Indenture or event which, with the
giving of notice or lapse of time or both, would become an event of default has
occurred and is continuing, the Company may remove the Senior Note Trustee upon
written notice to the holder of each Senior Note outstanding and the Senior Note
Trustee, and appointment of a successor Senior Note Trustee.
CONCERNING THE SENIOR NOTE TRUSTEE
The United States Trust Company of New York is the Senior Note Trustee
under the Senior Note Indenture, the Mortgage Trustee under the Mortgage and, as
described in "Description of the Subordinated Debentures and the Debenture
Indenture", the Debenture Trustee under the Debenture Indenture. The Senior Note
Indenture provides that the Company's obligations to compensate the Senior Note
Trustee and reimburse the Senior Note Trustee for expenses, disbursements and
advances will constitute indebtedness which will be secured by a lien generally
prior to that of the Senior Notes upon all property and funds held or collected
by the Senior Note Trustee as such. The Senior Note Indenture provides that the
Senior Note Trustee shall be subject to and shall comply with the provisions of
Section 310(b) of the Trust Indenture Act of 1939, as amended, and that nothing
in the Senior Note Indenture shall be deemed to prohibit the Senior Note Trustee
or the Company from making any application permitted pursuant to such section.
GOVERNING LAW
The Senior Note Indenture and each Senior Note will be governed by New
York law.
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DESCRIPTION OF SENIOR NOTE MORTGAGE BONDS
GENERAL
The Senior Note Mortgage Bonds are first mortgage bonds ("First Mortgage
Bonds") to be issued under and secured by the Company's Indenture dated November
1, 1944 between the Company and United States Trust Company of New York, as
successor trustee (the "Mortgage Trustee"), as heretofore amended and
supplemented, and to be further amended and supplemented by one or more
Supplemental Indentures with respect to the Senior Note Mortgage Bonds
(collectively, the "Mortgage"). The statements herein concerning the First
Mortgage Bonds and the Mortgage are summaries and do not purport to be complete.
They may make use of defined terms and are subject to, and qualified in their
entirety by, all of the provisions of the Mortgage, which is incorporated herein
by reference.
The Senior Note Mortgage Bonds will be issued as security for the
Company's obligations under the Senior Note Indenture and will be immediately
delivered to and registered in the name of the Senior Note Trustee. The Senior
Note Indenture provides that the Senior Note Trustee shall not transfer any
Senior Note Mortgage Bonds except to a successor trustee, to the Company (as
provided in the Senior Note Indenture) or in compliance with a court order in
connection with a bankruptcy or reorganization proceeding of the Company. The
Senior Note Trustee shall generally vote the Senior Note Mortgage Bonds
proportionately with what it believes to be the vote of the holders of all other
First Mortgage Bonds then outstanding, as described under "Description of Senior
Notes - Voting of Senior Note Mortgage Bonds Held by Senior Note Trustee".
The Senior Note Mortgage Bonds will correspond to the corresponding series
of Senior Notes in respect of principal amount, interest rate, maturity date and
redemption provisions. Upon payment of the principal or premium, if any, or
interest on the Senior Notes, Senior Note Mortgage Bonds of the corresponding
series in a principal amount equal to the principal amount of such Senior Notes
will, to the extent of such payment of principal, premium or interest, be deemed
fully paid and the obligation of the Company to make such payment shall be
discharged.
REDEMPTION PROVISIONS OF SENIOR NOTE MORTGAGE BONDS
The Senior Note Mortgage Bonds will be redeemed on the respective dates
and in the respective principal amounts which correspond to the redemption dates
for and the principal amounts to be redeemed of the corresponding series of
Senior Notes. The Senior Note Mortgage Bonds are not redeemable by operation of
the improvement fund or the maintenance provisions of the Mortgage, or with the
proceeds of released property.
In the event of an event of default under the Senior Note Indenture and
acceleration of the Senior Notes, the Senior Note Mortgage Bonds will be
immediately redeemable in whole, upon demand of the Senior Note Trustee, at a
redemption price of 100% of the principal amount thereof, together with accrued
interest to the redemption date. See "Description of Senior Notes Events of
Default".
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KIND AND PRIORITY OF LIEN
The Senior Note Mortgage Bonds will rank equally as to security with all
First Mortgage Bonds outstanding under the Mortgage, which is a direct first
lien on substantially all of the Company's property and franchises (except
certain real estate not used in the Company's business, cash other than that
deposited with the Mortgage Trustee, securities, judgments, contracts, accounts
and choses in action not specifically assigned, pledged, deposited or delivered
to the Mortgage Trustee, materials and supplies not installed as a part of the
fixed property of the Company, merchandise, appliances and supplies acquired for
resale, motor vehicles and timber growing upon or cut from the lands of the
Company and other personal property not necessary or appropriate to the public
utility plant and business of the Company and to its operation as a going
concern), subject to excepted encumbrances, the lien of the Mortgage Trustee for
compensation and expenses and minor matters. With certain limitations applicable
in the cases of consolidation, merger and sale of substantially all of the
Company's assets, the Mortgage contains provisions subjecting after-acquired
property (subject to pre-existing liens) to the lien thereof.
RELEASE AND SUBSTITUTION OF PROPERTY
Property of a limited nature may be disposed of by the Company without
securing a release or consent by the Mortgage Trustee. Otherwise, property
subject to the lien of the Mortgage may be released only upon the substitution
of cash or certain other property of equivalent value. Money received by the
Mortgage Trustee as the result of any release of property may be withdrawn
against, among other things, bondable value of property additions and the
principal amount of First Mortgage Bonds and prior lien bonds previously issued
and retired. If the fair value of property released is 10% or more of the
principal amount of outstanding First Mortgage Bonds and prior lien bonds, the
Mortgage Trustee is required to report to the bondholders with respect thereto
within ninety days after such release, and annually with respect to all other
property so released.
DIVIDEND RESTRICTIONS
The Mortgage restricts dividends (except dividends payable in shares of
the Company's stock subordinate to its preferred stock) to the amount by which
the Company's accumulated earned surplus exceeds $3,360,052. The amount
available for the declaration and payment of cash dividends on the Company's
common stock after giving effect to this restriction will be contained in a
Prospectus Supplement.
ISSUANCE OF ADDITIONAL FIRST MORTGAGE BONDS
Subject to conditions and restrictions, certain of which are referred to
below, additional First Mortgage Bonds may be issued under the Mortgage to the
extent of (1) 60% of bondable value of property additions; (2) the principal
amount of refundable prior lien bonds retired as provided in the Mortgage; (3)
the principal amount of Bonds then or theretofore retired; and (4) the amount of
cash deposited with the Mortgage Trustee against the issuance of First Mortgage
Bonds. Cash so deposited
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with the Mortgage Trustee may be withdrawn in an amount equal to the principal
amount of First Mortgage Bonds which the Company is then entitled to have
authenticated and delivered. First Mortgage Bonds may be issued pursuant to (1)
and (4) (and in certain cases pursuant to (2) and (3) above) only if net
earnings (which are calculated before income taxes but after deduction of
operating expenses, including an amount equal to the greater of the actual book
provision for depreciation or the "minimum provision for depreciation" as
outlined below under "Maintenance Fund"), with non-operating income or loss
limited to 5% of operating income before income taxes, shall be at least two
times the annual interest requirements on First Mortgage Bonds and prior lien
bonds to be outstanding. Moreover, the Company's charter contains provisions
limiting the ratio of securities evidencing funded indebtedness and unsecured
indebtedness to total capitalization.
The principal amount of additional First Mortgage Bonds issuable pursuant
to these provisions will be contained in a Prospectus Supplement.
IMPROVEMENT FUND
The Company is required to deposit with the Mortgage Trustee by March 31
of each year cash equal to 1% of the aggregate principal amount of First
Mortgage Bonds issued prior to January 1 of such year (excluding any First
Mortgage Bonds issued on the basis of retired First Mortgage Bonds). Instead of
depositing cash, or as a means of withdrawing cash so deposited but not used or
applied by the Mortgage Trustee for the purchase, payment or redemption of First
Mortgage Bonds previously issued, the Company may deliver First Mortgage Bonds
or certain refundable prior lien bonds or apply bondable value of property
additions (on the basis of 60% thereof), none of which may thereafter be used
for any other purpose under the Mortgage. The Company has heretofore utilized
bondable value of property additions to meet this requirement and expects to
continue to do so.
MAINTENANCE FUND
The Company is required to make expenditures for property additions and/or
to deposit with the Mortgage Trustee, cash (less, at the option of the Company,
credit for refundable prior lien bonds and First Mortgage Bonds theretofore or
then retired) in amounts equal to the minimum provision for depreciation,
computed cumulatively at the end of each year. Cash so deposited with the
Mortgage Trustee may, during the next succeeding three years, be withdrawn by
the Company to the extent that the amount theretofore expended for property
additions, as aforesaid, exceeds the minimum provision for depreciation. The
Company has, in the past, made sufficient expenditures for property additions to
meet its obligations with respect to the minimum provision for depreciation, and
no deposits with the Mortgage Trustee have been required in this connection. The
Company expects that this pattern will continue in the future.
So long as any of the First Mortgage Bonds shall be outstanding, the term
"minimum provision for depreciation" means an amount equal to the greater of (1)
15% of gross operating revenues during such period from the operation of
bondable property after deducting the aggregate cost of electric energy
purchased for resale during such period in connection with the operation of such
property, less an amount equal to charges for current repairs and maintenance of
such property, or (2) an amount
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computed at the rate of 2 1/3% per annum of the average of the depreciable
utility property of the Company as for each year or portion thereof embraced
within such period.
MODIFICATION OF MORTGAGE
With the consent of the holders of not less than 75% in principal amount
of the First Mortgage Bonds affected, the Mortgage may be changed in any way
except (a) to reduce the amount or extend the due dates of the principal of or
interest on the First Mortgage Bonds, (b) to reduce the percentage of
bondholders required to effect changes in the Mortgage or (c) to impair or
change the rank of the lien created by the Mortgage.
DEFAULTS AND NOTICE THEREOF
"Completed Defaults" under the Mortgage include default in the payment of
principal and premium, if any, of any of the First Mortgage Bonds or any prior
lien bonds; default, for 60 days, in payment of interest on any of the First
Mortgage Bonds or beyond the period of grace on any prior lien bonds; default,
for 60 days after notice, in the performance of any covenant in the Mortgage;
and bankruptcy, insolvency or reorganization (under certain circumstances) of
the Company. The Mortgage Trustee may withhold notice to bondholders of default
(except default in payment of principal, premium, interest or sinking and
improvement fund installments) if its responsible officers determine that it is
in the interest of the bondholders to do so.
A majority in aggregate principal amount of the First Mortgage Bonds is
necessary to require the Mortgage Trustee to take action to enforce the lien of
the Mortgage. The Mortgage Trustee may require reasonable indemnification before
being required to enforce the lien of the Mortgage. Holders of not less than 25%
in aggregate principal amount of outstanding First Mortgage Bonds or the
Mortgage Trustee may declare the principal and interest of all outstanding First
Mortgage Bonds due upon the occurrence of a completed default, but the holders
of a majority in principal amount of the outstanding First Mortgage Bonds may,
under certain circumstances, including the curing of such default, annul any
such declaration. No holder shall have the right to institute action, unless
holders of 25% in aggregate principal amount of First Mortgage Bonds shall have
made written request to the Mortgage Trustee to institute such action.
CONCERNING THE MORTGAGE TRUSTEE
The Mortgage Trustee, United States Trust Company of New York, is
permitted to engage in other transactions with the Company, except that if the
Mortgage Trustee acquires any conflicting interest, as defined, it must
eliminate it or resign and is required in certain cases to share with the
bondholders the benefits of payments received within four months prior to
default. United States Trust Company of New York is also the Senior Note Trustee
under the Senior Note Indenture and the Debenture Trustee under the Debenture
Indenture and a depository of the Company and certain of the Company's
affiliates and has in the past made, and may in the future make, loans to the
Company and certain of the Company's affiliates.
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SATISFACTION AND DISCHARGE OF MORTGAGE
Upon the Company's making due provision for the payment of all of the
First Mortgage Bonds and paying all other sums due under the Mortgage, the
Mortgage shall cease to be of further effect and may be satisfied and discharged
of record. Holders of First Mortgage Bonds may wish to consult with their own
tax advisers regarding possible tax effects in the event of a defeasance of the
Mortgage.
EVIDENCE AS TO COMPLIANCE WITH MORTGAGE PROVISIONS
Compliance with Mortgage provisions is evidenced by written statements of
the Company officers or persons selected and paid by the Company. In certain
cases, opinions of counsel and certificates of an engineer, accountant,
appraiser or other expert (who in some instances must be independent) must be
furnished. The Mortgage requires that the Company furnish annually to the
Mortgage Trustee a certificate that the Company has complied with, and is not in
default under, the provisions of the Mortgage.
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DESCRIPTION OF THE TRUST SECURITIES
The following is a summary of certain terms and provisions of the Trust
Securities and the Amended and Restated Trust Agreement of the Trust (the "Trust
Agreement"). Reference is made to the Trust Agreement, which is an exhibit to
the Registration Statement of which this Prospectus forms a part.
GENERAL
The Trust Securities may be issued in amounts, at prices and on terms to
be determined at or prior to the time of sale. Reference is made to the
Prospectus Supplement relating the Trust Securities for specific terms,
including (i) the distinctive designation of such Trust Securities; (ii) the
number of Trust Securities issued; (iii) the annual distribution rate or rates
(or method of calculation thereof) for the Preferred Securities, which are
represented by the Trust Securities and the date or dates upon which such
distributions shall be payable; (iv) the date or dates (or method of determining
the date or dates) from which distributions on the Preferred Securities, which
are represented by the Trust Securities, shall be cumulative; (v) the obligation
or option, if any, of the Trust to purchase or redeem Trust Securities and the
price or prices at which, the period or periods within which, and the terms and
conditions upon which, the Preferred Securities, which are represented by the
Trust Securities shall be purchased or redeemed, in whole or in part, pursuant
to such obligation or option; (vi) the terms and conditions, if any, upon which
the Subordinated Debentures may be distributed to holders of Trust Securities
("Distribution Event"); (vii) if applicable, any securities exchange upon which
the Trust Securities shall be listed; (viii) whether the Trust Securities are to
be issued in whole or in part in book-entry form and represented by one or more
global certificates, and if so, the identity of the depository for such global
certificates and the specific terms of the depository arrangements therefor; and
(ix) any other relevant rights, preferences, privileges, limitations or
restrictions of Trust Securities, including any rights to defer distributions on
the Trust Securities, not inconsistent with the Trust Agreement or with
applicable law.
The Trust Securities will be issued by the Trust pursuant to the Trust
Agreement. Each Trust Security will represent a Preferred Security of Met-Ed
Capital. The Preferred Securities will be guaranteed by the Company to the
extent set forth below under "Description of the Guarantee". The Guarantee of
the Company, when taken together with the Company's obligations under the
Subordinated Debentures and the Debenture Indenture, and the General Partner's
obligations under the Trust Agreement and the Partnership Agreement (as defined
below), including obligations to pay costs, expenses, debts and liabilities of
the Trust and Met-Ed Capital (other than with respect to the Trust Securities),
would provide a full and unconditional guarantee of amounts due on the Preferred
Securities, which are represented by Trust Securities.
The Trust is a statutory business trust created under the Delaware
Business Trust Act. A trustee of the Trust will hold the Preferred Securities
deposited in the Trust for the benefit of the holders of the Trust Securities.
The Trust Agreement provides that, to the fullest extent permitted by law,
without the need for any other action of any person, including any trustee of
the Trust and any other holder of Trust Securities, each holder of Trust
Securities shall be entitled to enforce in
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the name of the Trust the Trust's rights under the Preferred Securities
represented by the Trust Securities held by such holder.
It is anticipated that the assets of the Trust available for distribution
to the holders of the Trust Securities will be limited to payments from Met-Ed
Capital under the Preferred Securities, the source of which payments by Met-Ed
Capital will be limited to payments from the Company on the Subordinated
Debentures. See "Description of the Subordinated Debentures and the Debenture
Indenture". If the Company fails to make a payment on the Subordinated
Debentures or if Met-Ed Capital fails to make a distribution on the Preferred
Securities, the Trust will not have sufficient funds to make related payments on
the Trust Securities.
Certain United States federal income tax considerations applicable to any
offering of Trust Securities will be described in the Prospectus Supplement
relating thereto.
DISTRIBUTIONS
Each Trust Security will represent a Preferred Security of Met-Ed Capital
issued to and held by the Trust, and distributions on the Trust Securities will
be made concurrently with distributions on the Preferred Securities.
Distributions on the Preferred Securities will be cumulative and will accumulate
from the date and at the annual rate or rates described in the Prospectus
Supplement.
REDEMPTION OF TRUST SECURITIES
The Trust Securities will be subject to mandatory redemption upon
redemption of the Preferred Securities at the redemption price set forth in the
Prospectus Supplement.
PAYMENTS ON LIQUIDATION OF MET-ED CAPITAL
Upon receipt by the Trust of any distribution, in cash or in kind, from
Met-Ed Capital upon liquidation of Met-Ed Capital (or payment by the Company
under the Guarantee in respect thereof), after satisfaction of creditors of the
Trust as required by applicable law, a trustee of the Trust shall distribute to
the holders of the Trust Securities such distributions, in cash or in kind, in
proportion to the respective number of Preferred Securities represented by such
Trust Securities.
WITHDRAWAL OF PREFERRED SECURITIES
Any beneficial owner of Trust Securities may withdraw all, but not less
than all, of the Preferred Securities represented by such Trust Securities by
providing a written notice and agreement to be bound by the terms of the
Partnership Agreement to a trustee of the Trust, with evidence of beneficial
ownership in form satisfactory to such trustee. The Preferred Securities will
only be issued in certificated form.
Any holder of Preferred Securities may redeposit withdrawn Preferred
Securities by delivery to a trustee of the Trust of a certificate or
certificates for the Preferred Securities to be
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deposited, properly endorsed or accompanied, if required by such trustee, by a
properly executed instrument of transfer or endorsement in form satisfactory to
such trustee and in compliance with the terms of the Partnership Agreement,
together with all such certifications as may be required by such trustee in its
sole discretion and in accordance with the provisions of the Trust Agreement.
VOTING RIGHTS
If the holders of the Preferred Securities, acting as a single class, are
entitled to appoint and authorize a Special Representative (as defined below)
pursuant to the Partnership Agreement, a trustee of the Trust shall notify the
holders of the Trust Securities of such right, request direction of each holder
of a Trust Security as to the appointment of a Special Representative and vote
the Preferred Securities represented by such Trust Security in accordance with
such direction.
Upon receipt of notice of any meeting at which the holders of the
Preferred Securities are entitled to vote, a trustee of the Trust shall, as soon
as practicable thereafter, mail to the holders of the Trust Securities a notice,
which shall be provided by the General Partner and which shall contain (i) such
information as is contained in such notice of meeting, (ii) a statement that the
holders of Trust Securities at the close of business on a specified record date
will be entitled, subject to any applicable provision of law, to instruct such
trustee as to the exercise of the voting rights pertaining to the amount of
Preferred Securities represented by their respective Trust Securities, and (iii)
a brief statement as to the manner in which such instructions may be given. Upon
the written request of a holder of a Trust Security, such trustee shall vote or
cause to be voted the number of Preferred Securities represented by such Trust
Securities in accordance with the instructions set forth in such request.
EXPENSES OF THE TRUST
All charges or expenses of the Trust, including the charges and expenses
of the trustees of the Trust, will be paid by the General Partner.
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DESCRIPTION OF THE PREFERRED SECURITIES
The following is a summary of certain terms and provisions of the
Preferred Securities represented by the Trust Securities. Reference is made to
the Amended and Restated Limited Partnership Agreement of Met-Ed Capital (the
"Partnership Agreement"), which is an exhibit to the Registration Statement of
which this Prospectus forms a part.
GENERAL
The Preferred Securities will be issued from time to time in one or more
series and shall have the terms described in the Prospectus Supplement.
Reference is made to the Prospectus Supplement relating to any series of
Preferred Securities of Met-Ed Capital for specific terms, including (i) the
distinctive designation of such Preferred Securities; (ii) the number of
Preferred Securities issued; (iii) the annual distribution rate or rates (or
method of determining such rate or rates) for Preferred Securities and the date
or dates upon which such distributions shall be payable; (iv) the date or dates
(or method of determining the date or dates) from which distributions on
Preferred Securities shall be cumulative; (v) the obligation or option, if any,
of Met-Ed Capital to purchase or redeem Preferred Securities and the price or
prices at which, the period or periods within which, and the terms and
conditions upon which, Preferred Securities shall be purchased or redeemed, in
whole or in part, pursuant to such obligation or option; (vi) the terms and
conditions, if any, upon which the Subordinated Debentures may be distributed to
holders of Preferred Securities; and (vii) any other relevant rights,
preferences, privileges, limitations or restrictions of Preferred Securities,
including any rights to defer distributions on the Preferred Securities, not
inconsistent with the Partnership Agreement or with applicable law.
The Preferred Securities will be guaranteed by the Company to the extent
set forth below under "Description of the Guarantee". The Guarantee of the
Company, when taken together with the Company's obligations under the
Subordinated Debentures and the Debenture Indenture and the General Partner's
obligations under the Partnership Agreement, would provide a full and
unconditional guarantee of amounts due on Preferred Securities issued by Met-Ed
Capital.
All of the general partner interests of Met-Ed Capital are owned by the
General Partner, which is a wholly owned subsidiary of the Company. The
Preferred Securities represent preferred limited partner interests of Met-Ed
Capital. All of the Preferred Securities issued by Met-Ed Capital will be of
equal rank in participation in the profits and assets and income of Met-Ed
Capital. The Partnership Agreement authorizes the General Partner to establish
series of Preferred Securities having such designations, rights, privileges,
restrictions and other terms and provisions as the General Partner may
determine. Distributions on all series of Preferred Securities must be paid in
full before the General Partner may participate in the profits or assets of
Met-Ed Capital.
Certain United States federal income tax considerations applicable to any
offering of Preferred Securities will be described in the Prospectus Supplement
relating thereto.
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DISTRIBUTIONS
The General Partner may make distributions on the general partner
interests of Met-Ed Capital only after payment in full of all distributions
accumulated on all outstanding Preferred Securities of Met-Ed Capital.
Distributions on the Preferred Securities must be paid by Met-Ed Capital
to the extent that Met-Ed Capital has funds on hand legally available therefor.
The funds available for distribution by Met-Ed Capital will be limited to
payments received by Met-Ed Capital in respect of the Subordinated Debentures.
See "Description of the Subordinated Debentures and the Debenture Indenture".
MANDATORY REDEMPTION
A series of Preferred Securities will be subject to mandatory redemption
upon the repayment at maturity or prior redemption of the corresponding series
of the Subordinated Debentures.
LIQUIDATION DISTRIBUTION
In the event of any voluntary or involuntary dissolution or winding up of
Met-Ed Capital, the holders of Preferred Securities will be entitled to receive
out of the assets of Met-Ed Capital, after satisfaction of liabilities to
creditors and before any distribution of assets is made to the General Partner,
the lesser of (i) the sum of their stated liquidation preference and all
accumulated and unpaid distributions to the date of payment of the Preferred
Securities, and (ii) the amount of assets of Met-Ed Capital legally available
for distribution to the holders of Preferred Securities. All assets of Met-Ed
Capital remaining after payment of the liquidation distribution to the holders
of Preferred Securities will be distributed to the General Partner.
VOTING RIGHTS
Except as provided in a Prospectus Supplement and as otherwise required by
law and the Partnership Agreement, the holders of the Preferred Securities have
no voting rights.
If (i) Met-Ed Capital fails to pay distributions in full on a series of
Preferred Securities for a period as set forth in the Prospectus Supplement,
(ii) an Event of Default (as defined in the Debenture Indenture) occurs and is
continuing, or (iii) the Company is in default on any of its payment obligations
under the related Guarantee, then the holders of the Preferred Securities,
acting as a single class, will be entitled by a vote of the majority of the
aggregate stated liquidation preference of the outstanding Preferred Securities
to appoint a special representative (the "Special Representative") to enforce
Met-Ed Capital's rights against the Company under the Subordinated Debentures
and the Debenture Indenture and the obligations undertaken by the Company under
the Guarantee issued in conjunction with the issuance of such Preferred
Securities. The Special Representative shall not be admitted as a partner of
Met-Ed Capital or otherwise be deemed a
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partner of Met-Ed Capital and shall have no liability for the debts, obligations
or liabilities of Met-Ed Capital.
If any proposed amendment to the Partnership Agreement provides for, or
the General Partner otherwise proposes to effect, any action which would
materially adversely affect the powers, preferences or special rights attached
to any series of Preferred Securities, whether by way of amendment to the
Partnership Agreement or otherwise, then the holders of such series of Preferred
Securities will be entitled to vote on such amendment or action of the General
Partner.
So long as any series of Subordinated Debentures are held by Met-Ed
Capital, the General Partner may not, except as directed to do so by the Special
Representative, (i) direct the time, method and place of conducting any
proceeding for any remedy available to the holder of the Subordinated Debentures
or the Trustee under the Debenture Indenture (the "Debenture Trustee"), or
executing any trust or power conferred on the Debenture Trustee, (ii) waive any
past default under the Debenture Indenture, (iii) exercise any right to rescind
or annul a declaration that the principal of all the Subordinated Debentures
shall be due and payable or (iv) consent to any amendment, modification or
termination of the Debenture Indenture, where such consent shall be required,
without, in each case, obtaining the prior approval of the holders of not less
than a majority of the aggregate stated liquidation preference of all series of
Preferred Securities affected thereby. The General Partner shall not revoke any
action previously authorized or approved by a vote of any series of Preferred
Securities. The General Partner shall notify all holders of the Preferred
Securities of any notice of default received from the Debenture Trustee with
respect to any series of Subordinated Debentures.
DESCRIPTION OF THE GUARANTEE
The following is a summary of certain provisions of the Guarantee which
will be executed and delivered by the Company concurrently with the issuance of
each series of the Preferred Securities. Reference is made to the Guarantee,
which is filed as an exhibit to the Registration Statement of which this
Prospectus forms a part.
GENERAL
Under the Guarantee, the Company will agree to pay (i) any accumulated and
unpaid distributions on the Preferred Securities to the extent that Met-Ed
Capital has funds on hand legally available therefor, (ii) the applicable
redemption price payable with respect to any Preferred Securities called for
redemption by Met-Ed Capital to the extent that Met-Ed Capital has funds on hand
legally available therefor, and (iii) upon a liquidation of Met-Ed Capital,
other than in connection with a Distribution Event, the lesser of (a) the
portion of the partnership liquidation distribution applicable to the Preferred
Securities and (b) the amount of assets of Met-Ed Capital legally available for
distribution to holders of Preferred Securities in liquidation of Met-Ed Capital
(collectively, the "Guarantee Payments"). The Company will agree to pay the
Guarantee Payments, as and when due (except to the extent paid by Met-Ed
Capital), to the fullest extent permitted by law, regardless of any defense,
right of setoff or counterclaim which the Company may have or assert against
Met-Ed Capital, the General Partner, the Trust or a
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trustee of the Trust. The Company's obligation to make a Guarantee Payment may
be satisfied by direct payment of the required amounts by the Company to the
holders of Preferred Securities or by causing Met-Ed Capital to pay such amounts
to such holders.
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all general liabilities
of the Company, except trade accounts payable arising in the ordinary course of
business.
The Guarantee will constitute a guarantee of payment and not of
collection. The Guarantee will be held by the General Partner for the benefit of
the holders of the Preferred Securities. In the event of the appointment of a
Special Representative, the Special Representative may enforce the Guarantee. If
no Special Representative has been appointed to enforce the Guarantee, the
General Partner will have the right to enforce the Guarantee on behalf of the
holders of the Preferred Securities. The holders of Trust Securities, together
with the holders of the Preferred Securities other than the Trust, representing
not less than 10% in aggregate stated liquidation preference of the Preferred
Securities, will have the right to direct the time, method and place of
conducting any proceeding to enforce any remedy available in respect of the
Guarantee, including the giving of directions to the General Partner or the
Special Representative, as the case may be. If the General Partner or the
Special Representative fails to enforce the Guarantee as above provided, any
holder of Trust Securities representing Preferred Securities, and any holder of
Preferred Securities other than the Trust, may institute a legal proceeding
directly against the Company to enforce the Company's obligations under the
Guarantee without first instituting a legal proceeding against Met-Ed Capital or
any other person or entity. The Guarantee will not be discharged except by
payment of the Guarantee Payments in full to the extent not paid by Met-Ed
Capital and by complete performance of all obligations of the Company contained
in the Guarantee.
RELATIONSHIP AMONG GUARANTEE, SUBORDINATED DEBENTURES AND PREFERRED SECURITIES
In addition to the obligations of the Company under the Guarantee, the
Debenture Indenture provides that the Company shall cause the General Partner to
remain the general partner of Met-Ed Capital and timely perform all its duties
as such (including the duty to pay distributions on the Preferred Securities),
which include, among other things, the General Partner's duties under the
Partnership Agreement to directly pay all costs and expenses of Met-Ed Capital
(for the purpose of insuring that payment of principal and interest by the
Company on the Subordinated Debentures will be sufficient to allow payment in
full to the holders of the Preferred Securities). While the assets of the
General Partner will not be available for making distributions on the Preferred
Securities, they will be available for payment of the expenses of Met-Ed
Capital. Accordingly, the Guarantee and the Debenture Indenture, together with
the related covenants contained in the Partnership Agreement and the Company's
obligations under the Subordinated Debentures, provide for the Company's full
and unconditional guarantee of the Preferred Securities as set forth above.
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CERTAIN COVENANTS OF THE COMPANY
Under the Guarantee, the Company will covenant that, so long as any
Preferred Securities remain outstanding, neither the Company nor any majority
owned subsidiary of the Company shall declare or pay any dividend on, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of its
capital stock (other than dividends by a wholly owned subsidiary) if at such
time the Company shall be in default with respect to its payment obligations
under the Guarantee or there shall have occurred any event that, with the giving
of notice or the lapse of time or both, would constitute an event of default
under the Debenture Indenture.
AMENDMENTS
Except with respect to any changes which do not materially adversely
affect the rights of holders of Preferred Securities (in which case no vote will
be required), the Guarantee may be amended only with the prior approval of the
holders of Trust Securities, together with the holders of Preferred Securities
other than the Trust, representing not less than a majority of the aggregate
stated liquidation preference of the outstanding Preferred Securities.
MERGER OF THE COMPANY
So long as the Preferred Securities remain outstanding, the Company will
maintain its corporate existence; provided that the Company may consolidate with
or merge with or into any other person or sell, convey, transfer or lease all or
substantially all its assets (either in one transaction or a series of
transactions) to any person if the successor person shall be organized and
existing under the laws of the United States or any state thereof or the
District of Columbia and shall expressly assume the obligations of the Company
under the Guarantee.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon
full payment of the applicable redemption price of all Preferred Securities or
upon full payment of the amounts payable with respect to the Preferred
Securities upon liquidation of Met-Ed Capital or upon the occurrence of a
Distribution Event. The Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any holder of Preferred
Securities must restore payments of any sums paid under the Preferred Securities
or the Guarantee.
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DESCRIPTION OF THE SUBORDINATED DEBENTURES
AND THE DEBENTURE INDENTURE
The following is a summary of certain terms and provisions of the
Subordinated Debentures and the Debenture Indenture. Reference is made to the
Debenture Indenture, which is filed as an exhibit to the Registration Statement
of which this Prospectus forms a part.
GENERAL
The Subordinated Debentures will be unsecured, subordinated obligations of
the Company issued under the Debenture Indenture (the "Debenture Indenture").
The Subordinated Debentures will be in a principal amount equal to the aggregate
stated liquidation preference of the corresponding series of Preferred
Securities plus the General Partner's capital contribution in Met-Ed Capital,
will bear interest at a rate equal to the distribution rate on the Preferred
Securities payable on the distribution dates for the Preferred Securities, will
have maturity and redemption provisions corresponding to the redemption
provisions of the Preferred Securities and will be subject to mandatory
redemption upon the dissolution and liquidation of Met-Ed Capital other than in
connection with a Distribution Event.
The Company will deliver the Subordinated Debentures to the General
Partner to be held on behalf of the holders of the Preferred Securities. The
Subordinated Debentures will be delivered by the Company to evidence the loan by
Met-Ed Capital to the Company of an amount equal to the proceeds received from
the sale of the Preferred Securities, plus the General Partner's concurrent
capital contribution in Met-Ed Capital.
REDEMPTION
The Subordinated Debentures will be subject to mandatory redemption upon
the liquidation and dissolution of Met-Ed Capital other than in connection with
a Distribution Event or upon redemption of the Preferred Securities and as
described in the Prospectus Supplement.
If the Company gives a notice of redemption in respect of Subordinated
Debentures, then, except as set forth below, on or prior to the redemption date,
the Company shall deposit with the paying agent funds sufficient to pay the
applicable redemption price and will give irrevocable instructions and authority
to pay the applicable redemption price. If notice of redemption shall have been
given, if required, and the funds so deposited, then the Subordinated Debentures
called for redemption shall become due and payable on the redemption date and
upon the redemption date, interest will cease to accrue on the Subordinated
Debentures called for redemption and such Subordinated Debentures will no longer
be deemed to be outstanding.
Any notice of redemption at the option of the Company may state that such
redemption will be conditional upon receipt by the Debenture Trustee, on or
prior to the date fixed for such redemption, of money sufficient to pay the
applicable redemption price on such Subordinated Debentures and, that if such
money has not been so received, such notice will be of no force and effect and
the Company will not be required to redeem such Subordinated Debentures.
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ADDITIONAL INTEREST
If at any time Met-Ed Capital would be required to pay any taxes, duties,
assessments or governmental charges of whatever nature (other than withholding
taxes) imposed by the United States, or any other taxing authority, then, in any
such case, the Company also will pay as additional interest such amounts as
shall be required so that the net amounts received and retained by Met-Ed
Capital after paying any such taxes, duties, assessments or governmental charges
will not be less than the amounts Met-Ed Capital would have received had no such
taxes, duties, assessments or governmental charges been imposed.
SUBORDINATION
The Debenture Indenture provides that all payments by the Company in
respect of the Subordinated Debentures shall be subordinated to the prior
payment in full of all amounts payable on Senior Indebtedness. The term "Senior
Indebtedness" means (i) the principal of and premium, if any, in respect of (a)
indebtedness of the Company for money borrowed and (b) indebtedness evidenced by
securities, debentures, bonds or other similar instruments; including purchase
money obligation, for payment of which the Company is responsible or liable;
(ii) all capital lease obligations of the Company; (iii) all obligations of the
Company issued or assumed as the deferred purchase price of property, all
conditional sale obligations of the Company and all obligations of the Company
under any title retention agreement (but excluding trade accounts payable
arising in the ordinary course of business); (iv) certain obligations of the
Company for the reimbursement of any obligor on any letter of credit, banker's
acceptance, security purchase facility or similar credit transaction; (v) all
obligations of the type referred to in clauses (i) through (iv) of other persons
for the payment of which the Company is responsible or liable as obligor,
guarantor or otherwise; and (vi) all obligations of the type referred to in
clauses (i) through (v) of other persons secured by any lien on any property or
asset of the Company (whether or not such obligation is assumed by the Company),
except for any such indebtedness that is by its terms subordinated to or pari
passu with the Subordinated Debentures.
Upon any payment or distribution of assets or securities of the Company,
upon any dissolution or winding up or total or partial liquidation or
reorganization of the Company, whether voluntary or involuntary, or in
bankruptcy, insolvency, receivership or other proceedings, all amounts payable
on Senior Indebtedness (including any interest accruing on such Senior
Indebtedness subsequent to the commencement of a bankruptcy, insolvency or
similar proceeding) shall first be paid in full before Met-Ed Capital (as holder
of the Subordinated Debentures), the Debenture Trustee on behalf of such holder
or any Special Representative appointed by the holders of the Preferred
Securities shall be entitled to receive from the Company any payment of
principal of or interest on or any other amounts in respect of the Subordinated
Debentures or distribution of any assets or securities.
No direct or indirect payment by or on behalf of the Company of principal
of or interest on the Subordinated Debentures, whether pursuant to the terms of
the Subordinated Debentures or upon acceleration or otherwise, shall be made if,
at the time of such payment, there exists (i) a
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default in the payment of all or any portion of any Senior Indebtedness or (ii)
any other default pursuant to which the maturity of Senior Indebtedness has been
accelerated and, in either case, requisite notice has been received by the
Debenture Trustee and such default shall not have been cured or waived by or on
behalf of the holders of such Senior Indebtedness.
If the Debenture Trustee, Met-Ed Capital (as holder of the Subordinated
Debentures) or any Special Representative appointed by the holders of the
Preferred Securities, shall have received any payment on account of the
principal of or interest on the Subordinated Debentures when such payment is
prohibited and before all amounts payable on, under or in connection with Senior
Indebtedness are paid in full, then such payment shall be received and held in
trust for the holders of Senior Indebtedness and shall be paid over or delivered
first to the holders of the Senior Indebtedness remaining unpaid to the extent
necessary to pay such Senior Indebtedness in full.
Nothing in the Debenture Indenture shall limit the right of the Debenture
Trustee, Met-Ed Capital (as holder of the Subordinated Debentures) or the
Special Representative to take any action to accelerate the maturity of the
Subordinated Debentures or to pursue any rights or remedies against the Company;
provided that all Senior Indebtedness shall be paid before Met-Ed Capital (as
holder of the Subordinated Debentures) is entitled to receive any payment from
the Company of principal of or interest on the Subordinated Debentures.
Upon the payment in full of all Senior Indebtedness, Met-Ed Capital (as
holder of the Subordinated Debentures) (and any Special Representative appointed
by the holders of the Preferred Securities) shall be subrogated to the rights of
the holders of such Senior Indebtedness to receive payments or distributions of
assets of the Company made on such Senior Indebtedness until the Subordinated
Debentures shall be paid in full.
The Indenture does not limit the aggregate amount of Senior Indebtedness
which the Company may issue.
CERTAIN COVENANTS OF THE COMPANY
The Company will covenant that it and any majority owned subsidiary will
not declare or pay any dividend on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock (other than
dividends to the Company by a wholly-owned subsidiary of the Company) (i) during
an Extension Period (as defined in the accompanying Prospectus Supplement or
Supplements), (ii) if there shall have occurred any event that, with the giving
of notice or the lapse of time or both, would constitute an Event of Default
under the Debenture Indenture or (iii) if the Company shall be in default with
respect to its payment obligations under any Guarantee. The Company will also
covenant (i) to maintain direct or indirect 100% ownership of the General
Partner and will cause the General Partner to maintain 100% ownership of the
general partner interests of Met-Ed Capital, (ii) to cause the General Partner
to at all times maintain "fair market net worth " of at least 10% of the total
capital contributions (less redemptions) to Met-Ed Capital and to maintain
General Partner interests representing 3% of all interests in the capital,
income, gain, loss, deduction and credit of Met-Ed Capital, (iii) to cause the
General Partner to timely
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perform all of its duties as general partner of Met-Ed Capital (including the
duty to pay distributions on the Preferred Securities), and (iv) to use its
reasonable efforts to cause Met-Ed Capital to remain a limited partnership and
otherwise continue to be treated as a partnership for federal income tax
purposes.
Met-Ed Capital may not waive compliance or waive any default in compliance
by the Company with any covenant or other term in the Debenture Indenture
without the approval of the Special Representative or without the direction of
the holders of a majority of the aggregate stated liquidation preference of the
Preferred Securities.
MODIFICATION OF THE DEBENTURE INDENTURE WITHOUT APPROVAL
The Debenture Indenture contains provisions permitting the Company and the
Debenture Trustee, without the consent of the Special Representative or Met-Ed
Capital (as holder of the Subordinated Debentures), to modify the Debenture
Indenture or any supplemental indenture: (i) to cure any ambiguity, defect or
inconsistency; (ii) to comply with the provisions of the Debenture Indenture
regarding a successor to the Company; (iii) to provide for uncertificated
Subordinated Debentures in addition to or in place of certificated Subordinated
Debentures; (iv) to make any other change that does not adversely affect the
rights of any holder of the Subordinated Debentures; (v) to comply with any
requirement for qualification of the Debenture Indenture under the Trust
Indenture Act of 1939, as amended; and (vi) to set forth the terms and
conditions of any series of Subordinated Debentures.
MODIFICATIONS OF THE DEBENTURE INDENTURE WITH APPROVAL
The Debenture Indenture contains provisions permitting the Company the
Debenture Trustee, with the consent of the holders of not less than a majority
in principal amount of the Subordinated Debentures which are affected by the
amendment or waiver, to amend the Debenture Indenture or the Subordinated
Debentures or to waive compliance by the Company by the Company with any
provisions of the Debenture Indenture or the Subordinated Debentures; provided
that no such amendment or waiver may, without the consent of the holder of each
outstanding Subordinated Debenture affected thereby, (a) reduce the principal
amount of the Subordinated Debentures, (b) reduce the percentage of principal
amount of outstanding Subordinated Debentures of any series, the consent of
holders of which is required for amendment of the Debenture Indenture or for
waiver of compliance with certain provisions of the Debenture Indenture or for
waiver of certain defaults, (c) change the stated maturity date of the principal
of, or the interest or the rate of interest on, the Subordinated Debentures, (d)
change the redemption provisions applicable to the Subordinated Debentures
adversely to the holders thereof, (e) impair the right to institute suit for the
enforcement of any payment with respect to the Subordinated Debentures, (f)
change the currency in which payment with respect to the Subordinated Debentures
are to be made, (g) change the subordination provisions applicable to the
Subordinated Debentures adversely to the holders thereof, or (h) waive a default
in the payment of the principal of, or interest on, any Subordinated Debenture.
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EVENTS OF DEFAULT
The following are Events of Default under the Debenture Indenture: (i)
default for 15 days in payment of any interest on any series of the Subordinated
Debentures (other than as may be permitted by the terms thereof and as described
in a Prospectus Supplement); (ii) default in payment of principal of (or
premium, if any, on) any Subordinated Debentures; (iii) default for 60 days
after notice in the performance of any other covenant or agreement in the
Debenture Indenture or any series of Subordinated Debentures, or (iv) certain
events of bankruptcy, insolvency or reorganization of the Company. In case an
Event of Default under the Debenture Indenture shall occur and be continuing
(other than an Event of Default relating to bankruptcy, insolvency or
reorganization of the Company, in which case principal and interest on all of
the Subordinated Debentures shall become immediately due and payable), the
Debenture Trustee, Met-Ed Capital (as holder of the Subordinated Debentures) or
the Special Representative may declare the principal of all the Subordinated
Debentures to be due and payable. Under certain circumstances, a declaration of
acceleration with respect to Subordinated Debentures may be rescinded and past
defaults (except, unless theretofore cured, a default in the payment of
principal of or interest on the Subordinated Debentures) may be waived only by
the Special Representative or by Met-Ed Capital at the direction of the holders
of a majority in aggregate principal amount of the Subordinated Debentures
outstanding liquidation preference of Preferred Securities. The Company is
required to furnish to the Debenture Trustee annually a statement as to the
performance by the Company of its obligations under the Debenture Indenture and
as to any default in such performance.
ENFORCEMENT OF CERTAIN RIGHTS OF HOLDERS OF PREFERRED SECURITIES
So long as any Subordinated Debentures are held by Met-Ed Capital, the
holders of the Preferred Securities will have the rights referred to under
"Description of the Preferred Securities--Voting Rights," including the right to
appoint a Special Representative authorized to exercise the rights of Met-Ed
Capital, as the holder of the Subordinated Debentures, to declare the principal
of and interest on the Subordinated Debentures due and payable and to enforce
the obligations of the Company under the Subordinated Debentures and the
Debenture Indenture directly against the Company, without first proceeding
against Met-Ed Capital or any other person or entity.
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
The Debenture Indenture provides that the Company may not consolidate with
or merge with or into, or sell, convey, transfer or lease all or substantially
all its assets (either in one transaction or a series of transactions) to any
person unless, among other things (i) the successor person shall be organized
and existing under the laws of the United States or any state thereof or the
District of Columbia, and shall expressly assume by a supplemental indenture all
of the obligations of the Company under the Subordinated Debentures and the
Debenture Indenture and (ii) immediately prior to and after giving effect to
such transaction, no Event of Default, and no event which, after notice or lapse
of time or both, would become an Event of Default, shall have happened and be
continuing. Upon any such consolidation, merger, sale, transfer or other
disposition of the assets of the Company substantially as an entirety, the
successor corporation
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formed by such consolidation or into which the Company is merged or to which
such transfer is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under the Debenture Indenture with the
same effect as if such successor corporation had been named as the Company
therein and the Company will be released from all obligations under the
Debenture Indenture. For purposes of the Debenture Indenture, the conveyance or
other transfer by the Company of (a) all or any portion of its facilities for
the generation of electric energy, or (b) all of its facilities for the
transmission of electric energy, in each case considered alone or in combination
with properties described in the other clause, shall in no event be deemed to
constitute a conveyance or other transfer of all the assets of the Company, as
or substantially as an entirety.
DEFEASANCE AND DISCHARGE
Under the terms of the Debenture Indenture, the Company will be deemed to
have paid and discharged the entire indebtedness of the Subordinated Debentures
if the Company irrevocably deposits with the Debenture Trustee or other paying
agent, in trust (i) cash and/or (ii) United States Government Obligations (as
defined in the Debenture Indenture), which through the payment of interest
thereon and principal thereof in accordance with their terms will provide cash
in an amount sufficient to pay all the principal of, premium, if any, and
interest on, the Subordinated Debentures then outstanding on the dates such
payments are due in accordance with the terms of the Subordinated Debentures. A
condition to any such discharge is the delivery by the Company to the Debenture
Trustee of either a private Internal Revenue Service Ruling or an opinion of
counsel to the effect that the holders of the Subordinated Debentures will not
recognize income, gain or loss for federal income tax purposes as a result of
such defeasance or discharge of the Debenture Indenture.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
Subject to the provisions of the Debenture Indenture relating to its
duties, the Debenture Trustee will be under no obligation to exercise any of its
rights or powers under the Debenture Indenture, unless the Debenture Trustee
receives security and indemnity reasonably satisfactory to it. Subject to such
provision for indemnification, the holders of a majority in principal amount of
the Subordinated Debentures then outstanding thereunder or the Special
Representative will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee
thereunder, or exercising any trust or power conferred on the Debenture Trustee.
The Debenture Indenture contains limitations on the right of the Debenture
Trustee, as a creditor of the Company, to obtain payment of claims in certain
cases, or to realize on certain property received in respect of any such claim
as security or otherwise. In addition, the Debenture Trustee may be deemed to
have a conflicting interest and may be required to resign as Debenture Trustee
if at the time of default under the Debenture Indenture it is a creditor of the
Company. The United States Trust Company of New York also acts as the Senior
Note Trustee and the Mortgage Trustee.
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PLAN OF DISTRIBUTION
The Company and/or the Trust may sell the Senior Notes and Trust
Securities: (i) directly to purchasers; (ii) to or through underwriters; or
(iii) through agents or dealers. The Prospectus Supplement with respect to the
each series of Senior Notes and Trust Securities will set forth the terms of the
offering thereof, including the name or names of any such underwriters, agents
or dealers; the purchase price of and the net proceeds to the Company and/or the
Trust from such sale; any underwriting discounts and commissions or agency fees
and other items constituting underwriters' or agents' compensation; the initial
public offering price; any discounts or concessions allowed or reallowed or paid
to dealers and any securities exchange on which such series of Senior Notes or
Trust Securities may be listed. Any initial public offering price and any
discounts or concessions allowed or reallowed or paid to dealers may be changed
from time to time.
If underwriters are used in any sale, the Senior Notes or Trust
Securities, as the case may be, will be acquired by such underwriters for their
own account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale. The Senior Notes and Trust
Securities may be offered to the public either through underwriting syndicates
represented by one or more managing underwriters or directly by one or more
firms acting as underwriters. The underwriter or underwriters with respect to a
particular underwritten offering will be named in the Prospectus Supplement
relating to such offering and, if an underwriting syndicate is used, the
managing underwriter or underwriters will be set forth on the cover of such
Prospectus Supplement. Unless otherwise set forth in the Prospectus Supplement
relating thereto, the obligations of the underwriters to purchase the Senior
Notes or Trust Securities, as the case may be, will be subject to certain
conditions precedent, and the underwriters will be obligated to purchase all
such series of Senior Notes or Trust Securities if any are purchased.
If dealers are utilized in a sale of Senior Notes or Trust Securities, the
Company and/or the Trust will sell such securities to the dealers as principal.
The dealers may then resell such Senior Notes or Trust Securities to the public
at varying prices to be determined by such dealers at the time of resale. The
names of the dealers and the terms of the transaction will be set forth in the
Prospectus Supplement relating thereto.
The Senior Notes and Trust Securities may be sold directly by the Company
and/or the Trust or through agents designated by the Company and/or the Trust
from time to time. Any agent involved in the offer or sale of the Senior Notes
or Trust Securities with respect to which this Prospectus is delivered will be
named, and any commissions payable by the Company and/or the Trust to such agent
will be set forth, in the Prospectus Supplement relating thereto. Unless
otherwise indicated in the Prospectus Supplement, any such agent will be acting
on a best efforts basis for the period of its appointment.
Agents, dealers and underwriters may be entitled under agreements with the
Company and/or the Trust to indemnification by the Company and/or the Trust
against certain civil liabilities, including liabilities under the Securities
Act, or to contribution with respect to payments
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which such agents, dealers or underwriters may be required to make in respect
thereof. Agents, dealers and underwriters may be customers of, engage in
transactions with, or perform services for the Company and/or the Trust in the
ordinary course of business.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company, the Trust and
Met-Ed Capital by Berlack, Israels & Liberman LLP, New York, New York and Ryan,
Russell, Ogden & Seltzer LLP, Reading, Pennsylvania and for the underwriters by
Thelen Reid & Priest LLP, New York, New York. Certain matters of Delaware law
relating to the validity of the Trust Securities and Preferred Securities will
be passed upon on behalf of the Company, the Trust, Met-Ed Capital and the
General Partner by Richards, Layton & Finger, P.A., Wilmington, Delaware,
special Delaware counsel to the Company, the Trust, Met-Ed Capital and the
General Partner. Berlack, Israels & Liberman LLP, Ryan, Russell, Ogden & Seltzer
LLP and Thelen Reid & Priest LLP may rely on the opinion of Richards, Layton &
Finger, P.A. as to matters of Delaware law. Berlack, Israels & Liberman LLP and
Thelen Reid & Priest LLP may rely on the opinion of Ryan, Russell, Ogden &
Seltzer, LLP as to matters of Pennsylvania law. Attorneys of Berlack, Israels &
Liberman LLP own an aggregate of 14,560 shares of the Common Stock of the
Company's parent, GPU, Inc.
EXPERTS
The consolidated financial statements and financial statement schedule,
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1997, are incorporated herein by reference in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
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