PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 14, 1999)
$350,000,000
PENNSYLVANIA ELECTRIC COMPANY
$125,000,000 SENIOR NOTES, 5.750% SERIES A DUE 2004
$100,000,000 SENIOR NOTES, 6.125% SERIES B DUE 2009
$125,000,000 SENIOR NOTES, 6.625% SERIES C DUE 2019
----------
Interest on the notes is payable semiannually on April 1 and October 1 of
each year, beginning on October 1, 1999. The Series A notes will mature on April
1, 2004; the Series B notes will mature on April 1, 2009; and the Series C notes
will mature on April 1, 2019. Pennsylvania Electric Company may redeem some or
all of the notes at any time, subject to a premium. The redemption prices are
discussed under the caption "Description of The Notes - Optional Redemption" in
this prospectus supplement.
The notes will be unsecured obligations of Pennsylvania Electric Company
and will rank equally with all of Pennsylvania Electric Company's other
unsecured and unsubordinated indebtedness. Except as described in "Description
of the Senior Notes-Certain Covenants of the Company" in the accompanying
prospectus, Pennsylvania Electric Company will not issue any secured debt
without equally securing the notes.
There is currently no public market for the notes. Pennsylvania Electric
Company does not intend to list the notes on any securities exchange.
The mailing address and telephone number of Pennsylvania Electric Company's
principal executive offices are: 2800 Pottsville Pike, Reading, Pennsylvania
19605, (610) 929-3601.
Neither the Securities and Exchange Commission nor any state securities
commission has 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.
----------
Proceeds to
Public Offering Underwriting Pennsylvania
Price Discount Electric Company
--------------- ------------ ----------------
Per Series A Note 99.941% .600% 99.341%
Per Series B Note 99.954% .650% 99.304%
Per Series C Note 99.952% .875% 99.077%
TOTAL $349,820,250 $2,493,750 $347,326,500
Interest on the notes will accrue from April 27, 1999 to date of delivery.
----------
The underwriters have agreed to purchase all of the notes if they purchase
any of them. The underwriters are offering the notes subject to various
conditions. The underwriters expect to deliver the notes, in book-entry form
only, to purchasers through The Depository Trust Company on or about April 27,
1999.
------------
SALOMON SMITH BARNEY
ABN-AMRO INCORPORATED
J.P. MORGAN & CO.
NATIONSBANC MONTGOMERY SECURITIES LLC
WARBURG DILLON READ LLC
April 20, 1999
<PAGE>
You should rely on the information incorporated by reference or provided in this
prospectus supplement or the accompanying prospectus. Pennsylvania Electric
Company has not authorized anyone else to provide you with different
information. Neither Pennsylvania Electric Company nor the underwriters are
making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information in this prospectus
supplement or the prospectus is accurate as of any date other than the date on
the front of those documents.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Page
Introductory Statement ............................................. S-3
The Company ........................................................ S-3
Certain Consolidated Financial Information ......................... S-5
Use of Proceeds .................................................... S-6
Ratio of Earnings to Fixed Charges ................................. S-6
Description of the Notes ........................................... S-7
Underwriting .......................................................S-14
PROSPECTUS
Available Information .............................................. 4
Incorporation of Certain Documents
By Reference ..................................................... 5
Pennsylvania Electric Company ...................................... 5
Penelec Capital Trust .............................................. 6
Penelec Capital II, L.P. ........................................... 6
Financing Program .................................................. 7
Use of Proceeds .................................................... 7
Company Coverage Ratios ............................................ 8
Accounting Treatment ............................................... 8
Description of Senior Notes ........................................ 9
Description of the Trust Securities ................................ 17
Description of the Preferred Securities ............................ 20
Description of the Guarantee ....................................... 23
Description of the Subordinated Debentures
and the Debenture Indenture ...................................... 26
Plan of Distribution ............................................... 31
Legal Matters ...................................................... 33
Experts ............................................................ 33
<PAGE>
INTRODUCTORY STATEMENT
Pennsylvania Electric Company is offering Senior Notes, 5.750% Series A due
2004 (the "Series A Notes"), in the principal amount of $125,000,000; Senior
Notes, 6.125% Series B due 2009 (the "Series B Notes"), in the principal amount
of $100,000,000; and Senior Notes, 6.625% Series C due 2019 (the "Series C
Notes"), in the principal amount of $125,000,000 (the Series A Notes, Series B
Notes and Series C Notes are, collectively, the "Notes").
THE COMPANY
GENERAL
Pennsylvania Electric Company (the "Company"), a public utility furnishing
electric service within Pennsylvania and a small portion of New York, is a
subsidiary of GPU, Inc. ("GPU"), a holding company registered under the Public
Utility Holding Company Act of 1935. The Company provides electric service
within a territory located in western, northern and south central Pennsylvania
having a population of about 1.5 million. The Company, as lessee of the property
of The Waverly Electric Light and Power Company, a subsidiary, also serves a
population of about 13,700 in Waverly, New York. The Company's principal
executive offices are located at 2800 Pottsville Pike, Reading, Pennsylvania
19605, and its telephone number is (610) 929-3601.
PENNSYLVANIA RESTRUCTURING
In 1996, Pennsylvania adopted the Electricity Generation Customer Choice
and Competition Act which provides for comprehensive restructuring of the
electric utility industry. In October 1998, the Pennsylvania Public Utility
Commission ("PaPUC") adopted orders ("Restructuring Orders") approving a
Settlement Agreement entered into by the Company, the PaPUC and other parties in
the Company's restructuring proceeding designed to implement competition and
customer choice in accordance with that legislation. One intervenor has appealed
the Restructuring Orders, and that appeal is pending before the Pennsylvania
Commonwealth Court. Among other things, the Restructuring Orders provide for
full customer choice of an electric supplier beginning January 1, 1999.
GENERATION DIVESTITURE
In October 1997, the Company and its affiliates announced their intention
to begin a process to sell, through a competitive bid process, up to all of
their fossil-fuel and hydroelectric generating facilities consisting of 26
operating stations, support organizations and development sites, with
approximately 5,300 MW of capacity (of which the Company's share is 2,100 MW),
with a net book value of approximately $1.1 billion at December 31, 1998, of
which about $508 million relates to the Company's facilities. GPU Generation,
Inc., an affiliate, operates these facilities.
S-3
<PAGE>
In March 1999, the Company completed the sale of its 50% interest in the
1,884 MW coal-fired Homer City Generating Station to a subsidiary of Edison
Mission Energy for approximately $900 million. The Company used a portion of the
proceeds to redeem $600 million of its first mortgage bonds in April 1999.
In November 1998, the Company and its affiliates entered into definitive
agreements to sell substantially all of their remaining fossil-fuel and
hydroelectric generating facilities to Sithe Energies, Inc. and FirstEnergy
Corp. (which is purchasing the Company's 20% interest in the Seneca Station),
for a total purchase price of approximately $1.7 billion, of which the Company's
share is approximately $604 million. The sales are expected to be completed by
mid-1999.
In October 1998, the Company and its affiliates entered into definitive
agreements to sell the Three Mile Island Unit 1 ("TMI-1") nuclear plant to
AmerGen Energy Company, LLC, a joint venture between PECO Energy Company and
British Energy. The Company owns a 25% interest in TMI-1.
The generation asset sales are subject to various conditions, including
the receipt of satisfactory federal and state regulatory approvals. In addition,
certain favorable rulings from the Internal Revenue Service will be necessary
with respect to the TMI-1 sale. There can be no assurance as to the outcome of
these matters.
The net proceeds from these generation asset sales will be used to reduce
capitalization, including short term debt, and fund previously incurred
liabilities in accordance with the Restructuring Orders.
----------
Additional information about the Company's restructuring plan, generation
divestiture and financing program is contained in the Company's Annual Report on
Form 10-K for the year 1998, which is incorporated by reference in this
Prospectus.
S-4
<PAGE>
CERTAIN CONSOLIDATED FINANCIAL INFORMATION
(In Millions of Dollars except Ratios and Percentages)
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.
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------------------------
1998(1) 1997 1996(2) 1995(3) 1994(4)
------- ---- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Operating Revenues $1,032.2 $1,052.9 $1,019.6 $ 981.3 $ 944.7
Net Income 39.6 95.0 69.8 111.0 31.8
<CAPTION>
December 31, 1998
-----------------------------------------------------------------------------------
Actual As Adjusted(5)
--------------------------------- --------------------------------------
Amount % Amount %
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Capital Structure:
Long-Term Debt
First Mortgage Bonds $ 623.4 41.2 $ 73.4 6.4
Senior Notes -- -- 350.0 30.5
Other 3.0 0.2 3.0 0.2
Company-Obligated
Mandatorily Redeemable
Preferred Securities 105.0 6.9 105.0 9.2
Preferred Stock 16.7 1.1 -- --
Common Equity 767.3 50.6 616.3 53.7
Total $1,515.4 100% $1,147.7 100%
======== ==== ======== ====
</TABLE>
- ---------------
(1) Results for 1998 include an extraordinary charge of $19 million (after-tax)
as a result of the PaPUC Restructuring Orders. Also in 1998, as a result of
the Restructuring Orders, the Company recorded a non-recurring charge of
$21 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 $19.7 million
(after-tax) for costs related to voluntary enhanced retirement programs.
(3) Results for 1995 reflect the reversal of $32.1 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 reversing 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
$2.7 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 $61.8
million (after-tax) due to the write-off of certain future TMI-2 retirement
costs ($32.1 million); a charge for costs related to early retirement
programs ($25.6 million); a write-off of post-retirement benefit costs
believed not probable of recovery in rates ($10.6 million); and net
interest income from refunds of previously paid federal income taxes
related to the tax retirement of TMI-2 ($6.5 million).
(5) Gives effect to the issuance of $350 million principal amount of
Notes, the redemption of $600 million of the Company's first
mortgage bonds (of which $50 million is due within a year), the
redemption of all of the Company's cumulative preferred stock,
the payment of $150 million in common stock dividends to GPU,
Inc. and the application of the proceeds from the Company's
sale of the Homer City Station.
S-5
<PAGE>
USE OF PROCEEDS
The Company will use the net proceeds from the sale of the Notes (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
The Company's Ratio of Earnings to Fixed Charges for each of the periods
indicated was as follows:
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
2.44 3.35 2.64 3.51 1.69
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.
S-6
<PAGE>
DESCRIPTION OF THE NOTES
The following is a summary of certain terms of the notes, does not purport
to be complete, and is subject to, and qualified in its entirety by, the
description of Senior Notes in the accompanying prospectus, the form of the
Senior Note Indenture (as defined below), which is on file with the Securities
and Exchange Commission, and the Trust Indenture Act of 1939. Certain
capitalized terms used herein are defined in the Senior Note Indenture. The
following description of certain terms of the notes supplements and, to the
extent inconsistent therewith, replaces the description of the general terms and
provisions of the Senior Notes set forth in the accompanying prospectus, to
which reference is hereby made.
GENERAL
Each of the Series A, Series B and Series C Notes is being issued as a
series of Senior Notes under the Senior Note Indenture, as it may be amended or
supplemented from time to time (the "Senior Note Indenture") between the Company
and United States Trust Company of New York (the "Senior Note Trustee"). All of
the Notes outstanding under the Senior Note Indenture will be unsecured general
obligations of the Company and will rank on a parity with other unsecured and
unsubordinated indebtedness of the Company. Other than as described in the
Prospectus, the Company will not issue any secured debt without securing the
Notes equally and ratably with such secured debt.
On April 19, 1999, the Company redeemed $600 million principal amount of
its outstanding first mortgage bonds. Following the redemption, approximately
$73.4 million of the Company's first mortgage bonds remain outstanding. The
Senior Note Indenture provides that the Company will not issue any additional
first mortgage bonds under its Mortgage and Deed of Trust following the issuance
of the initial series of Notes.
For further information concerning the Notes, see "Description of Senior
Notes" in the accompanying Prospectus.
The Series A Notes will mature on April 1, 2004. The Series B Notes will
mature on April 1, 2009. The Series C Notes will mature on April 1, 2019.
The Notes will be issued in book-entry form only, in denominations of
$1,000 and integral multiples thereof.
PAYMENT OF PRINCIPAL AND INTEREST
Until the Notes are paid or payment thereof is provided for, the Company
will, at all times, maintain a paying agent (the "Paying Agent") in The City of
New York capable of performing the duties described herein to be performed by
the Paying Agent. The Company has initially appointed United States Trust
Company of New York, 114 West 47th Street, New York, New York 10036 as Paying
Agent. The Company will notify the holders of the Notes in accordance with the
Senior Note Indenture of any change in the Paying Agent or its address.
S-7
<PAGE>
Any payment required to be made in respect of a Note on a date that is not
a Business Day for such Note need not be made on such date, but may be made on
the next succeeding Business Day with the same force and effect as if made on
such date, and no additional interest shall accrue as a result of such delayed
payment.
"Business Day" shall mean each day that is not a day on which banking
institutions or trust companies in the Borough of Manhattan, the City and State
of New York, or in the city where the corporate trust office of the Senior Note
Trustee is located, are obligated or authorized by law or executive order to
close.
Each series of Notes will bear interest from April 27, 1999 (the "Original
Issue Date") at the rate of 5.750% per year for the Series A Notes, 6.125% per
year for the Series B Notes, and 6.625% per year for the Series C Notes, until
the principal amount thereof is paid or made available for payment. Interest on
each series of Notes will be payable semiannually each April 1 and October 1
(each an "Interest Payment Date") and at maturity or upon earlier redemption;
provided, however, that the first payment of interest on any series of Notes
with an Original Issue Date between a Record Date (as defined below) and an
Interest Payment Date will be made on the succeeding Interest Payment Date to
the registered holder. Each payment of interest in respect of an Interest
Payment Date will include interest accrued to but excluding such Interest
Payment Date. Interest will be computed on the basis of a 360-day year of twelve
30-day months.
Interest payable on any Interest Payment Date will be paid to the person
in whose name a Note is registered at the close of business on the Record Date
next preceding such Interest Payment Date; provided, however, that interest
payable at maturity or upon earlier redemption will be payable to the person to
whom principal shall be payable. The "Record Date" with respect to any Interest
Payment Date will be the fifteenth day of the calendar month next preceding such
Interest Payment Date.
OPTIONAL REDEMPTION
The Notes will be redeemable, as a whole or in part, at the Company's
option, at any time or from time to time, on at least 30 days, but not more than
60 days, prior notice mailed to the registered address of each holder of the
Notes. The redemption prices will be equal to the greater of (1) 100% of the
principal amount of the Notes to be redeemed or (2) the sum of the present
values of the Remaining Scheduled Payments (as defined below) discounted, on a
semiannual basis (assuming a 360-day year consisting of twelve 30-day months),
at a rate equal to the sum of the Treasury Rate (as defined below) and:
o 10 basis points for the Series A Notes
o 15 basis points for the Series B Notes
o 20 basis points for the Series C Notes
In each case accrued interest will be payable to the redemption date.
S-8
<PAGE>
"Treasury Rate" means, with respect to any redemption date, the rate per
annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the Series A Notes, the Series B Notes, or the Series C
Notes, as the case may be, to be redeemed that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the remaining term
of such Notes. "Independent Investment Banker" means one of the Reference
Treasury Dealers appointed by the Company.
"Comparable Treasury Price" means, with respect to any redemption date,
(1) the average of the Reference Treasury Dealer Quotations for such redemption
date after excluding the highest and lowest of such Reference Treasury Dealer
Quotations, or (2) if the Senior Note Trustee obtains fewer than four such
Reference Treasury Dealer Quotations, the average of all such quotations.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any redemption date, the average, as determined by the
Senior Note Trustee, of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) quoted in
writing to the Senior Note Trustee by such Reference Treasury Dealer at 3:30
p.m., New York City time, on the third business day preceding such redemption
date.
"Reference Treasury Dealer" means each of Salomon Smith Barney Inc., ABN
AMRO Incorporated, J.P. Morgan Securities Inc., NationsBanc Montgomery
Securities LLC, Warburg Dillon Read LLC and their respective successors. If any
of the foregoing shall cease to be a primary U.S. Government securities dealer
(a "Primary Treasury Dealer"), the Company shall substitute another nationally
recognized investment banking firm that is a Primary Treasury Dealer.
"Remaining Scheduled Payments" means, with respect to each Note to be
redeemed, the remaining scheduled payments of principal of and interest on such
Note that would be due after the related redemption date but for such
redemption. If such redemption date is not an interest payment date with respect
to such Note, the amount of the next succeeding scheduled interest payment on
such Note will be reduced by the amount of interest accrued on such Note to such
redemption date.
On and after the redemption date, interest will cease to accrue on the
Notes or any portion of the Notes called for redemption (unless the Company
defaults in the payment of the redemption price and accrued interest). On or
before the redemption date, the Company will deposit with a paying agent (or the
Senior Note Trustee) money sufficient to pay the redemption price of and accrued
interest on the Notes to be redeemed on such date. If less than all the Notes of
any series are to be redeemed, the Notes to be redeemed shall be selected by the
Trustee by such method as the Senior Note Trustee shall deem fair and
appropriate.
The Notes will not be subject to a sinking fund.
S-9
<PAGE>
The Company may at any time purchase Notes at any price in the open market
or otherwise. Notes so purchased by the Company may be surrendered to the Senior
Note Trustee for cancellation.
BOOK-ENTRY NOTES
The Notes will be issued in book-entry form (a Note so represented, a
"Book-Entry Note"), and any Note so 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, The Depository Trust Company, New York, New
York ("DTC") or such other Depositary which may replace DTC as Depositary for
the Book-Entry Notes (the "Depositary"), and registered in the name of a nominee
of the Depositary.
Upon issuance, all Book-Entry Notes of the same series will be represented
by one or more Global Securities. Except under the circumstances described
below, Book-Entry Notes will not be exchangeable for Notes 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 Company will issue
Notes in certificated form ("Certificated Notes") in exchange for the Global
Security or Global Securities representing the corresponding Book-Entry Notes.
In addition, the Company may at any time and in its sole discretion determine
not to have any Book-Entry Notes represented by one or more Global Securities
and, in such event, will issue individual Certificated Notes in exchange for the
Global Security or Global Securities representing the corresponding Book-Entry
Notes. In any such instance, an owner of a Book-Entry Note represented by a
Global Security will be entitled to physical delivery of individual Certificated
Notes equal in principal amount to such Book-Entry Notes and to have such
Certificated Notes registered in its name. Individual Certificated Notes will be
issued as registered notes in denominations of $1,000 or any higher integral
multiple of $1,000.
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 Securities Exchange Act of 1934 (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
S-10
<PAGE>
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 Notes under the DTC system must be made by
or through Direct Participants, which will receive a credit for the
Book-Entry Notes on DTC's records. The ownership interest of each actual
purchaser of each Book-Entry Note ("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 Notes 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 Notes, except in the event that use of
the book-entry system for the Book-Entry Notes is discontinued.
To facilitate subsequent transfers, all Book-Entry Notes deposited
with, or on behalf of, DTC are registered in the name of DTC's partnership
nominee, Cede & Co. The deposit of Book-Entry Notes 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 Notes; DTC's records reflect only the identity of the Direct
Participants to whose accounts such Book-Entry Notes 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 Notes 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 Notes. 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 Notes 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
Notes will be made to DTC. DTC's practice is to credit Direct
Participants' accounts on the date on
S-11
<PAGE>
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 Senior Note Trustee. 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 Notes at any time by giving reasonable
notice to the Company and the Senior Note Trustee. Under such
circumstances, in the event that a successor securities Depositary is not
obtained, Notes in certificated form are required to be printed and
delivered in exchange for Book-Entry Notes held by DTC.
The Company may decide to discontinue use of the system and
book-entry transfers through DTC (or a successor securities Depositary).
In that event, Notes in certificated form will be printed and delivered in
exchange for Book-Entry Notes 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.
S-12
<PAGE>
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.
If the Depositary is at any time unwilling or unable to continue as
Depositary or ceases to be a clearing agency registered under the Exchange Act
and a successor Depositary is not appointed by the Company, the Company will
issue Certificated Notes in exchange for the Notes of the same series
represented by the Global Securities held by the Depositary. In addition, the
Company may at any time and in its sole discretion determine not to have Notes
represented by a Global Security and, in such event, will issue individual
Certificated Notes in fully registered form, without coupons, in exchange for
the Book-Entry Notes represented by the Global Security.
None of the Company, the Senior Note Trustee, 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.
S-13
<PAGE>
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement,
each underwriter named below has severally agreed to purchase, and the Company
has agreed to sell to such underwriter, the principal amount of Notes set forth
opposite the name of such underwriter.
NAME SERIES A NOTES SERIES B NOTES SERIES C NOTES
- ---- -------------- -------------- --------------
Salomon Smith Barney Inc. $ 75,000,000 $ 60,000,000 $ 75,000,000
ABN AMRO Incorporated $ 12,500,000 $ 10,000,000 $ 12,500,000
J.P. Morgan Securities Inc. $ 12,500,000 $ 10,000,000 $ 12,500,000
NationsBanc Montgomery Securities
LLC $ 12,500,000 $ 10,000,000 $ 12,500,000
Warburg Dillon Read LLC $ 12,500,000 $ 10,000,000 $ 12,500,000
TOTAL $125,000,000 $100,000,000 $125,000,000
The underwriting agreement provides that the obligations of the several
underwriters to purchase the Notes included in this offering are subject to
approval of certain legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all the Notes if they purchase any of
the Notes.
The underwriters, for whom Salomon Smith Barney Inc., ABN AMRO
Incorporated, J.P. Morgan Securities Inc., NationsBanc Montgomery Securities LLC
and Warburg Dillon Read LLC are acting as representatives, propose to offer some
of the Notes directly to the public at the public offering price set forth on
the cover page of this Prospectus Supplement and some of the Notes to certain
dealers at the public offering price less a concession not in excess of:
.35% of the principal amount in the case of the Series A Notes
.40% of the principal amount in the case of the Series B Notes
.50% of the principal amount in the case of the Series C Notes
The underwriters may allow, and such dealers may reallow, a concession to
certain other dealers not in excess of:
.25% of the principal amount in the case of the Series A Notes
.25% of the principal amount in the case of the Series B Notes
.25% of the principal amount in the case of the Series C Notes
After the initial offering of the Notes to the public, the public offering
prices and such concessions may be changed by the representatives.
S-14
<PAGE>
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by the Company in connection with this offering
(expressed as a percentage of the principal amount of the Notes).
NOTES UNDERWRITING DISCOUNT
----- ---------------------
Per Series A Note .600%
Per Series B Note .650%
Per Series C Note .875%
In connection with the offering, Salomon Smith Barney Inc. on behalf of
the underwriters, may purchase and sell Notes in the open market. These
transactions may include over-allotment, syndicate covering transactions and
stabilizing transactions. Over-allotment involves syndicate sales of Notes in
excess of the principal amount of the particular series of Notes to be purchased
by the underwriters in the offering, which creates a syndicate short position.
Syndicate covering transactions involve purchases of the respective series of
Notes in the open market after the distribution has been completed in order to
cover syndicate short positions. Stabilizing transactions consist of certain
bids or purchases of the respective series of Notes made for the purpose of
preventing or retarding a decline in the market price of such series of Notes
while the offering is in progress.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc., in covering syndicate short positions or making
stabilizing purchases, repurchases Notes originally sold by that syndicate
member.
Any of these activities may cause the price of the Notes of that
particular series to be higher than the price that otherwise would exist in the
open market in the absence of such transactions. These transactions may be
effected in the over-the-counter market or otherwise and, if commenced, may be
discontinued at any time.
In addition to the underwriting discounts, the Company estimates that its
total expenses of this offering will be approximately $335,000.
The representatives have performed certain investment banking, commercial
banking and advisory services for the Company or certain of its affiliates from
time to time for which they have received customary fees and expenses. The
representatives may, from time to time, engage in transactions with and perform
services for the Company or certain of its affiliates in the ordinary course of
their business.
The Company has agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, or to
contribute to payments the underwriters may be required to make in respect of
any of those liabilities.
S-15
<PAGE>
PROSPECTUS $725,000,000
PENNSYLVANIA ELECTRIC COMPANY
SENIOR NOTES
--------------------
PENELEC CAPITAL TRUST
TRUST SECURITIES
each representing a Cumulative Preferred Security of
Penelec Capital II, L.P. fully and unconditionally
guaranteed to the extent Penelec Capital II, L.P. has funds,
as set forth herein, by
Pennsylvania Electric Company
-------------------
Pennsylvania Electric Company, a Pennsylvania corporation (the "Company"),
may offer, from time to time in one or more series, up to $725,000,000 aggregate
principal amount of Senior Notes (the "Senior Notes") in amounts, at prices and
on terms to be determined at or prior to the time or times of sale. The Senior
Notes will be unsecured general obligations of the Company, and will rank on a
parity with other unsecured and unsubordinated indebtedness of the Company
(except to the extent such indebtedness may be secured under the limited
circumstances described under the caption "Description of Senior Notes - Certain
Covenants of the Company - Limitations on Liens").
Penelec 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
Penelec Capital II, L.P., a limited partnership formed under the laws of the
State of Delaware ("Penelec 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 Penelec Capital, which will be the sole
assets of the Trust. Penelec Capital will lend the proceeds from the sale of its
Preferred Securities, plus the capital contribution made by Penelec Preferred
Capital II, Inc., a Delaware special purpose corporation and the sole general
partner of Penelec 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
Penelec Capital in exchange for Penelec 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 Penelec Capital may subsequently be distributed pro rata
to the holders of the Preferred Securities and the Trust Securities in
connection with the dissolution of Penelec Capital and the Trust.
The Company will also unconditionally guarantee the payment by Penelec
Capital of (i) any accumulated and unpaid distributions on the Preferred
Securities to the extent Penelec Capital has funds on hand legally available
therefor, (ii) the applicable redemption price payable with
<PAGE>
respect to any Preferred Securities called for redemption by Penelec Capital to
the extent Penelec Capital has funds on hand legally available therefor, and
(iii) upon the liquidation of Penelec 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 Penelec Capital legally available for distribution
to holders of Preferred Securities in liquidation of Penelec 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. Preferred Securities may
also be subject to optional redemption upon the occurrence of certain special
events.
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
$725,000,000. 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 Penelec 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 Distribution" for possible indemnification and contribution
arrangements for dealers, underwriters and agents.
- 2 -
<PAGE>
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 April 14, 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, Penelec 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, Penelec 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 Penelec 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 Penelec 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 Penelec 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 Penelec 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 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:
The Company's Annual Report on Form 10-K for the year ended December
31, 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 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 Pennsylvania
Electric 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.
PENNSYLVANIA ELECTRIC COMPANY
Pennsylvania Electric Company (the "Company"), a public utility furnishing
electric service within the Commonwealth of Pennsylvania and a small portion of
New York State, is a subsidiary of GPU, Inc. ("GPU"), a holding company
registered under the Public Utility Holding Company Act of 1935. The Company
provides electric service within a territory located in western, northern and
south central Pennsylvania having a population of about 1,500,000. The
- 5 -
<PAGE>
Company, as lessee of the property of The Waverly Electric Light and Power
Company, a subsidiary, also serves a population of about 13,700 in Waverly, New
York. 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 1998, residential sales accounted for about 35% of the
Company's operating revenues from customers and 27% of kilowatt-hour sales to
customers; commercial sales accounted for about 33% of the Company's operating
revenues from customers and 31% of kilowatt-hour sales to customers; industrial
sales accounted for about 28% of the Company's operating revenues from customers
and 37% of kilowatt-hour sales to customers; and sales to rural electric
cooperatives, municipalities (primarily for street and highway lighting) and
others accounted for about 4% of the Company's operating revenues from customers
and 5% of kilowatt-hour sales to customers. The revenues derived from the 25
largest customers in the aggregate accounted for approximately 12% of operating
revenues from customers for the year 1998. 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, Metropolitan Edison 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.
PENELEC CAPITAL TRUST
Penelec 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.
PENELEC CAPITAL II, L.P.
Penelec Capital II, L.P. ("Penelec 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 Penelec 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
Penelec
- 6 -
<PAGE>
Capital are managed by the General Partner. Penelec 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 Penelec Capital
and the only revenues of Penelec Capital will be interest its receives on the
Subordinated Debentures. The General Partner pays all of Penelec Capital's
operating expenses and has general liability for all of Penelec Capital's
obligations. Penelec 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 $725,000,000 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 Penelec
Capital. Penelec 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. Penelec 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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<PAGE>
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,
------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
2.44 3.35 2.64 3.51 1.69
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,
------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
2.40 3.29 2.55 3.39 1.59
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 Penelec 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 Penelec Capital consists of the Subordinated Debentures and will
specify the principal amount, interest rate and maturity date of each series of
Subordinated Debentures.
- 8 -
<PAGE>
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").
THE SENIOR NOTES WILL BE UNSECURED GENERAL OBLIGATIONS OF THE COMPANY AND
WILL RANK ON A PARITY WITH OTHER UNSECURED AND UNSUBORDINATED INDEBTEDNESS OF
THE COMPANY.
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 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 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
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<PAGE>
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.
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;
and (d) 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. At any time after an acceleration of
the Senior Notes has been declared, 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.
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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 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
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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; or (f)
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 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.
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 or other entity organized and existing under the laws
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of the United States or any state thereof or the District of Columbia; and (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. Upon any such
consolidation, merger, sale, transfer or other disposition of the properties of
the Company substantially as an entirety, the successor entity 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 entity 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.
CERTAIN COVENANTS OF THE COMPANY
LIMITATIONS 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
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
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under the Company's Mortgage and Deed of Trust dated as of January 1, 1942
between the Company and United States Trust Company of New York, as successor
trustee (the "Mortgage Trustee"), as heretofore amended and supplemented
(collectively, the "Mortgage"), where such Debt has been issued for purposes of
any transactions described in (4) above; (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 (6), provided, however,
that the principal amount of Debt secured thereby and not otherwise authorized
by said clauses (1) to (6), 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 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 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.
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<PAGE>
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 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.
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<PAGE>
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 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 Penelec
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 Penelec 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 Penelec
Capital under the Preferred Securities, the source of which payments by Penelec
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 Penelec 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 Penelec 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 PENELEC CAPITAL
Upon receipt by the Trust of any distribution, in cash or in kind, from
Penelec Capital upon liquidation of Penelec 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 deposited, properly endorsed or
accompanied, if required by such trustee, by a properly executed
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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 Penelec 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 Penelec 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 Penelec 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 Penelec
Capital.
All of the general partner interests of Penelec 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 Penelec
Capital. All of the Preferred Securities issued by Penelec Capital will be of
equal rank in participation in the profits and assets and income of Penelec
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
Penelec 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 Penelec Capital only after payment in full of all distributions
accumulated on all outstanding Preferred Securities of Penelec Capital.
Distributions on the Preferred Securities must be paid by Penelec Capital
to the extent that Penelec Capital has funds on hand legally available therefor.
The funds available for distribution by Penelec Capital will be limited to
payments received by Penelec 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
Penelec Capital, the holders of Preferred Securities will be entitled to receive
out of the assets of Penelec 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 Penelec Capital legally available
for distribution to the holders of Preferred Securities. All assets of Penelec
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) Penelec 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
Penelec 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
Penelec Capital or otherwise be deemed a partner of Penelec Capital and shall
have no liability for the debts, obligations or liabilities of Penelec Capital.
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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 Penelec
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.
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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 Penelec
Capital has funds on hand legally available therefor, (ii) the applicable
redemption price payable with respect to any Preferred Securities called for
redemption by Penelec Capital to the extent that Penelec Capital has funds on
hand legally available therefor, and (iii) upon a liquidation of Penelec
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 Penelec Capital legally
available for distribution to holders of Preferred Securities in liquidation of
Penelec Capital (collectively, the "Guarantee Payments"). The Company will agree
to pay the Guarantee Payments, as and when due (except to the extent paid by
Penelec 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 Penelec 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 Penelec 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 Penelec Capital
or any other person or entity. The
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Guarantee will not be discharged except by payment of the Guarantee Payments in
full to the extent not paid by Penelec 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 Penelec 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 Penelec 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 Penelec
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.
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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 Penelec 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 Penelec 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 Penelec 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
Penelec 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 Penelec Capital.
REDEMPTION
The Subordinated Debentures will be subject to mandatory redemption upon
the liquidation and dissolution of Penelec 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 Penelec 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 Penelec
Capital after paying any such taxes, duties, assessments or governmental charges
will not be less than the amounts Penelec Capital would have received had no
such taxes, duties 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 Penelec 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 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,
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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, Penelec 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, Penelec 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 Penelec 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, Penelec 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 Penelec 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 Penelec Capital and to maintain
General Partner interests representing 3% of all interests in the capital,
income, gain, loss, deduction and credit of Penelec Capital, (iii) to cause the
General Partner to timely perform all of its duties as general partner of
Penelec Capital (including the duty to pay distributions on the Preferred
Securities), and (iv) to use its reasonable efforts to cause Penelec
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Capital to remain a limited partnership and otherwise continue to be treated as
a partnership for federal income tax purposes.
Penelec 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 Penelec
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.
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
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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, Penelec 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
Penelec 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 Penelec 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 Penelec
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 Penelec 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 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
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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.
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
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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 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.
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LEGAL MATTERS
Certain legal matters will be passed upon for the Company, the Trust and
Penelec Capital by Berlack, Israels & Liberman LLP, New York, New York and
Ballard Spahr Andrews & Ingersoll, LLP, Philadelphia, 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, Penelec
Capital and the General Partner by Richards, Layton & Finger, P.A., Wilmington,
Delaware, special Delaware counsel to the Company, the Trust, Penelec Capital
and the General Partner. Berlack, Israels & Liberman LLP, Ballard Spahr Andrews
& Ingersoll, 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 Ballard
Spahr Andrews & Ingersoll, 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, 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.
- 33 -
<PAGE>
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$350,000,000
PENNSYLVANIA ELECTRIC COMPANY
$125,000,000 SENIOR NOTES, 5.750% SERIES A DUE 2004
$100,000,000 SENIOR NOTES, 6.125% SERIES B DUE 2009
$125,000,000 SENIOR NOTES, 6.625% SERIES C DUE 2019
--------------------
PROSPECTUS SUPPLEMENT
April 20,1999
--------------------
SALOMON SMITH BARNEY
ABN AMRO INCORPORATED
J.P. MORGAN & CO.
NATIONSBANC MONTGOMERY SECURITIES LLC
WARBURG DILLON READ LLC
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