<PAGE>
PROSPECTUS
PECO ENERGY CAPITAL TRUST II
Trust Receipts each representing an
8% Cumulative Monthly Income Preferred Security,
Series C of PECO Energy Capital, L.P.
(stated liquidation preference $25 per Preferred Security)
guaranteed to the extent PECO Energy Capital, L.P.
has funds as set forth herein by
PECO Energy Company
The Trust Receipts (the "Preferred Trust Receipts") offered hereby by PECO
Energy Capital Trust II, a statutory business trust created under the laws of
the State of Delaware (the "Trust") each represent an 8% Cumulative Monthly
Income Preferred Security, Series C (a "Series C Preferred Security") of PECO
Energy Capital, L.P., a limited partnership formed under the laws of the State
of Delaware ("PECO Energy Capital").
(continued on next page)
See "Risk Factors" commencing on page 5 for certain information relevant
to an investment in the Preferred Trust Receipts, including the period during
which and circumstances under which Distributions on the Preferred Trust
Receipts may be deferred and the related federal income tax consequences.
The Preferred Trust Receipts have been approved for listing, subject to
official notice of issuance, on the New York Stock Exchange. Trading of the
Preferred Trust Receipts is expected to commence within a 30-day period after
the initial delivery thereof.
------------
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 COMMIS-
SION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Initial Public Underwriting Proceeds to
Offering Price Commission(1) the Trust(2)(3)
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Per Preferred Trust Receipt $25.00 (2) $25.00
- --------------------------------------------------------------------------------
Total $50,000,000 (2) $50,000,000
</TABLE>
- --------------------------------------------------------------------------------
(1) PECO Energy and PECO Energy Capital have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Under the Underwriting Agreement, PECO Energy will pay to the Underwriters
$0.7875 per Preferred Trust Receipt (or $1,575,000 in the aggregate);
provided, that such compensation will be $0.50 per Preferred Trust Receipt
sold to certain institutions. See "Underwriting."
(3) Expenses of the offering, which are payable by PECO Energy, are estimated
to be $410,000.
------------
The Preferred Trust Receipts offered hereby are offered severally by the
Underwriters, as specified herein, subject to receipt and acceptance by them
and subject to their right to reject any order in whole or in part. It is
expected that delivery of the Preferred Trust Receipts will be made in
book-entry-only form through the facilities of The Depository Trust Company on
or about June 6, 1997.
------------
Smith Barney Inc. Lehman Brothers
The date of this Prospectus is June 5, 1997.
<PAGE>
(continued from previous page)
The Trust will use the proceeds from the sale of its Preferred Trust Receipts
to purchase the Series C Preferred Securities, which will be the sole assets of
the Trust. PECO Energy Capital will lend the proceeds from the sale of its
Series C Preferred Securities, plus the capital contribution made by PECO
Energy Capital Corp., a Delaware corporation and the sole general partner of
PECO Energy Capital (the "General Partner"), to PECO Energy Company, a
Pennsylvania corporation ("PECO Energy"), which loan will be evidenced by PECO
Energy's 8% Deferrable Interest Subordinated Debentures, Series C, due 2037
(the "Series C Subordinated Debentures").
Whenever the Trust receives any cash distribution representing a monthly
distribution on the Series C Preferred Securities (whether or not distributed
by PECO Energy Capital on the regular monthly distribution date therefor) or
payment under the Payment and Guarantee Agreement (the "Series C Guarantee")
issued by PECO Energy for the benefit of the holders of the Series C Preferred
Securities (collectively, "Distributions"), the Trust will distribute such
amounts to the holders of the Preferred Trust Receipts in proportion to their
respective number of Series C Preferred Securities represented by such
Preferred Trust Receipts. Under the Indenture dated as of July 1, 1994 between
PECO Energy and First Union National Bank, as successor trustee (as
supplemented, the "Indenture"), PECO Energy has the right at any time, so long
as an Event of Default under the Indenture has not occurred and is continuing,
to extend the interest payment period for all Deferrable Interest Subordinated
Debentures issued thereunder ("Subordinated Debentures") for up to 60
consecutive months (an "Extension Period"). During any Extension Period, no
Distributions will be made on the Series C Preferred Securities represented by
the Preferred Trust Receipts. See "Description of the Series C Subordinated
Debentures and the Indenture--Option to Extend Interest Payment Period."
PECO Energy has, through the Series C Guarantee, the Amended and Restated
Trust Agreement relating to the Trust (the "Trust Agreement"), the Indenture and
the Series C Subordinated Debentures, taken together, fully, irrevocably and
unconditionally guaranteed all of PECO Energy Capital's obligations under the
Series C Preferred Securities. Under the Series C Guarantee, PECO Energy
guarantees payment of accumulated and unpaid monthly Distributions, amounts
payable upon redemption and amounts payable upon liquidation with respect to the
Series C Preferred Securities, in each case, only to the extent that PECO Energy
Capital has funds on hand legally available therefor and payment does not
violate applicable law. If PECO Energy fails to make interest payments on its
Series C Subordinated Debentures, PECO Energy Capital will not have sufficient
funds to pay Distributions on the Series C Preferred Securities. The Series C
Guarantee does not cover payment of Distributions when PECO Energy Capital does
not have sufficient funds to pay such Distributions. In such event, the holders
of Preferred Trust Receipts representing the Series C Preferred Securities would
be required to seek enforcement of PECO Energy Capital's rights against PECO
Energy pursuant to the terms of the Indenture as provided under "Description of
the Series C Preferred Securities--Voting Rights." The obligations of PECO
Energy under the Series C Guarantee are subordinate and junior in right of
payment to all general liabilities of PECO Energy and its obligations under the
Series C Subordinated Debentures are subordinate and junior in right of payment
to all present and future Senior Indebtedness of PECO Energy (as defined
herein), which aggregated approximately $4.698 billion at March 31, 1997.
The Preferred Trust Receipts are subject to mandatory redemption upon any
redemption of Series C Preferred Securities, which are subject to optional
redemption on or after June 6, 2002 and upon the occurrence of certain tax
events, and which are subject to mandatory redemption upon payment at maturity
or redemption of the Series C Subordinated Debentures and the occurrence of
certain events under the Investment Company Act of 1940, as amended. See
"Description of the Series C Preferred Securities--Optional Redemption,"
"--Mandatory Redemption," and "--Special Event Redemptions."
In the event of the liquidation of PECO Energy Capital, the Trust will
distribute to the holders of Preferred Trust Receipts, after satisfaction of
creditors of the Trust as required by law, the amounts received by the Trust
from PECO Energy Capital representing the lesser of the Partnership Liquidation
Distribution (as defined herein) or the amount of assets of PECO Energy Capital
legally available therefor, in either case, in proportion to the respective
number of Series C Preferred Securities represented by such Preferred Trust
Receipts. Upon any voluntary or involuntary dissolution or winding up of PECO
Energy Capital, the holders of Series C Preferred Securities will be entitled
to receive out of the assets of PECO Energy Capital, after satisfaction of
liabilities to creditors and before distribution of assets is made to holders
of its general partner interests, the sum of their
<PAGE>
$25.00 stated liquidation preference and all accumulated and unpaid
Distributions to the date of payment. All assets of PECO Energy Capital
remaining after payment of the liquidation distribution to the holders of all
Cumulative Monthly Income Preferred Securities of PECO Energy Capital
("Preferred Securities") will be distributed to the general partner of PECO
Energy Capital.
The Preferred Trust Receipts will be represented by global securities
registered in the name of The Depository Trust Company ("DTC") or its nominee.
Beneficial interests in the Preferred Trust Receipts will be shown on, and
transfers thereof will be effected only through, records maintained by
participants in DTC. Preferred Trust Receipts in certificated form will not be
issued in exchange for the global securities. See "Description of the Preferred
Trust Receipts--Book-Entry-Only Issuance--The Depository Trust Company."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE PREFERRED TRUST
RECEIPTS, INCLUDING ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
3
<PAGE>
AVAILABLE INFORMATION
PECO Energy is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports, proxy and information statements and other
information with the Securities and Exchange Commission (the "SEC"). Such
reports, proxy and information statements and other information filed by PECO
Energy may be inspected and copied at the public reference facilities
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at
certain of its regional offices at Suite 1400, 500 West Madison Street,
Chicago, IL 60661-2511 and Suite 1300, 7 World Trade Center, New York, NY
10048. Copies of such material may also be obtained from the Public Reference
Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. In addition, registration statements and certain other
filings made with the SEC through its Electronic Data Gathering, Analysis and
Retrieval ("EDGAR") system are publicly available through the SEC's site on the
Internet's World Wide Web, located at http://www.sec.gov. The Registration
Statement, including all exhibits thereto and amendments thereof, has been
filed with the SEC through EDGAR. Securities of PECO Energy are listed on the
New York and Philadelphia Stock Exchanges, where reports, proxy and information
statements and other information concerning PECO Energy may be inspected.
No separate financial statements of PECO Energy Capital or the Trust have
been included herein. PECO Energy does not consider that such financial
statements would be material to holders of Preferred Trust Receipts offered
hereby because PECO Energy Capital and the Trust are special purpose entities,
have no independent operations and are not engaged in, and do not propose to
engage in, any activity other than as set forth below. See "PECO Energy
Capital" and "The Trust."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the SEC pursuant to Section 13 of the
Exchange Act by PECO Energy (File No. 1-1401) are incorporated herein by
reference:
1. PECO Energy's Annual Report on Form 10-K for the year ended December 31,
1996;
2. PECO Energy's Quarterly Report on Form 10-Q for the quarter ended March
31, 1997; and
3. PECO Energy's Current Reports on Form 8-K dated January 23, 1997, January
24, 1997, January 30, 1997, February 21, 1997, February 27, 1997, March
25, 1997, April 1, 1997, April 14, 1997, April 25, 1997, May 8, 1997, May
12, 1997 and May 22, 1997.
Each document filed subsequent to the date of this Prospectus pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to the
termination of the offering shall be deemed to be incorporated by reference in
this Prospectus and shall be a part hereof from the date of filing of such
document. Any statement contained herein or in a document all or a portion of
which is incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
This Prospectus incorporates documents by reference which are not
presented herein or delivered herewith. PECO Energy undertakes to provide
without charge to each person, including any beneficial owner, to whom a
Prospectus is delivered, upon written or oral request of such person, a copy of
any or all documents described above under "Incorporation of Certain Documents
by Reference," other than exhibits to such documents. Such requests should be
directed to PECO Energy Company, Financial Division, S21-1, P.O. Box 8699,
Philadelphia, PA 19101, (215) 841-5678.
4
<PAGE>
RISK FACTORS
Prospective purchasers of Preferred Trust Receipts should carefully review
the information contained elsewhere in this Prospectus and should particularly
consider the following matters:
Subordinate Obligations of Series C Guarantee and Series C Subordinated
Debentures
PECO Energy's obligations under the Series C Guarantee are subordinate and
junior in right of payment to all general liabilities of PECO Energy and its
obligations under the Series C Subordinated Debentures are subordinate and
junior in right of payment to all Senior Indebtedness of PECO Energy (as
defined under "Description of the Series C Subordinated Debentures and the
Indenture--Subordination"). At March 31, 1997, the Senior Indebtedness of PECO
Energy aggregated approximately $4.698 billion. There are no terms in the
Series C Subordinated Debentures or the Series C Guarantee that limit PECO
Energy's ability to incur additional indebtedness, including indebtedness that
ranks senior to the Series C Subordinated Debentures and the Series C
Guarantee. The Series C Guarantee guarantees payment of accumulated and unpaid
monthly Distributions, amounts payable on redemption, and amounts payable on
liquidation with respect to the Series C Preferred Securities, in each case,
however, only to the extent that PECO Energy Capital has funds on hand legally
available therefor and payment thereof does not otherwise violate applicable
law. If PECO Energy were to default on its obligation to pay interest or
amounts payable on redemption or maturity of the Series C Subordinated
Debentures, PECO Energy Capital would lack legally available funds for the
payment of Distributions or amounts payable on redemption of the Series C
Preferred Securities or upon liquidation of PECO Energy Capital, and in such
event, the holders of the Preferred Trust Receipts representing the Series C
Preferred Securities would not be able to rely upon the Series C Guarantee for
payment of such amounts. Instead, holders of the Preferred Trust Receipts
representing the Series C Preferred Securities would be required to seek
enforcement of PECO Energy Capital's rights against PECO Energy pursuant to the
terms of the Indenture as provided in "Description of the Series C Preferred
Securities--Voting Rights." See "Description of the Series C Guarantee--Status
of the Series C Guarantee" and "Description of the Series C Subordinated
Debentures and the Indenture--Subordination."
Option to Extend Interest Payment Period; Tax Impact of Extension
PECO Energy has the right under the Indenture to extend the interest
payment period on all Subordinated Debentures for up to 60 consecutive months,
and, as a consequence, monthly Distributions on the Series C Preferred
Securities may be deferred by PECO Energy Capital during any such Extension
Period. Distributions in arrears after the monthly payment date therefor will
accumulate additional Distributions thereon at the rate per annum of 8% thereof.
In the event PECO Energy exercises its right to extend the interest payment
period on the Series C Subordinated Debentures, PECO Energy may not declare
dividends on any shares of its capital stock during such Extension Period. See
"Description of the Series C Subordinated Debentures and the Indenture-- Option
to Extend Interest Payment Period."
Should an Extension Period occur, a holder of Preferred Trust Receipts
will accrue interest income (as original issue discount) on an economic accrual
basis in respect of its pro rata share of the Series C Preferred Securities
held by the Trust. As a result, a holder of Preferred Trust Receipts will
include such interest in gross income for federal income tax purposes in
advance of the receipt of cash, and will not receive the cash related to such
income from the Trust if the holder disposes of the Preferred Trust Receipts
prior to the record date for the payment of Distributions. See "United States
Taxation--Taxability of Distributions."
PECO Energy has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Series C
Subordinated Debentures. However, should PECO Energy exercise such right in the
future, the market price of the Preferred Trust Receipts is likely to be
affected. An owner who disposes of Preferred Trust Receipts during an Extension
Period might not receive the same return on investment as an owner who
continues to hold Preferred Trust Receipts. In addition, as a result of the
mere existence of PECO Energy's right to defer interest payments on the Series
C Subordinated Debentures, the market price of the Preferred Trust Receipts may
be more volatile than other securities that are not subject to such deferrals.
Special Event Redemptions
Upon the occurrence and continuation of a Tax Event (as defined in
"Description of the Series C Preferred Securities--Special Event Redemptions"),
the General Partner has the right to redeem the Series C Preferred
5
<PAGE>
Securities, in whole or in part, and upon the occurrence of an Investment
Company Act Event (as defined in "Description of the Series C Preferred
Securities--Special Event Redemptions"), the General Partner must redeem the
Series C Preferred Securities in whole but not in part, and in either case,
cause a mandatory redemption of the Preferred Trust Receipts at a redemption
price equal to the liquidation amount plus accumulated and unpaid
Distributions, within 90 days following the occurrence of such Tax Event or
Investment Company Event. A holder of Series C Preferred Securities will
recognize gain or loss upon such a redemption for federal income tax purposes
to the extent that the liquidation amount differs from such holder's adjusted
tax basis for the Series C Preferred Securities. Any accumulated and unpaid
Distributions also will be taxable to the extent that such holder has not
already taken such Distributions into account. See "United States
Taxation--Disposition of the Preferred Trust Receipts."
Proposed Tax Law Changes
In late 1995, President Clinton proposed certain tax law changes that
would, among other things, generally deny interest deductions to corporate
issuers if the debt instrument has a term exceeding 20 years and is not
reflected as indebtedness on such issuer's consolidated balance sheet. Because
the term of the Series C Subordinated Debentures exceeds 20 years, this
proposal, were it to become effective, would prevent PECO Energy from deducting
interest on the Series C Subordinated Debentures. However, on March 29, 1996,
the Chairmen of the Senate Finance Committee and the House Ways and Means
Committee issued a joint statement to the effect that it was their intention
that the effective date of the President's legislative proposals, if adopted,
will be no earlier than the date of appropriate Congressional action. The
Clinton Administration renewed these proposals as part of its fiscal 1998
budget and would make them effective upon the date of first committee action.
The revised proposals as proposed by the Clinton Administration would apply to
debt instruments with terms exceeding 15 years. In the opinion of special tax
counsel to PECO Energy and PECO Energy Capital, under current law, interest on
the Series C Subordinated Debentures is deductible by PECO Energy. There can be
no assurance, however, that such proposals, subsequent proposals or final
legislation will not affect the ability of PECO Energy to deduct interest on
the Series C Subordinated Debentures which in turn could give rise to a Tax
Event and, accordingly, the General Partner's optional right to redeem the
Series C Preferred Securities, as described under "Description of the Series C
Preferred Securities--Special Event Redemptions" and "United States Taxation."
Rights Under the Series C Guarantee
Under the Series C Guarantee, PECO Energy agrees to pay (i) any
accumulated and unpaid Distributions on the Series C Preferred Securities to
the extent that PECO Energy Capital has funds on hand legally available
therefor, (ii) the redemption price payable with respect to any Series C
Preferred Securities called for redemption by PECO Energy Capital to the extent
that PECO Energy Capital has funds on hand legally available therefor, and
(iii) upon liquidation of PECO Energy Capital, the lesser of (a) the portion of
the Partnership Liquidation Distribution (as defined herein) applicable to the
Series C Preferred Securities and (b) the amount of assets of PECO Energy
Capital legally available for distribution to holders of Series C Preferred
Securities in liquidation of PECO Energy Capital. For the purposes hereof
"Partnership Liquidation Distribution" shall mean the stated liquidation
preference of all Preferred Securities and all accumulated and unpaid
Distributions to the date of payment for such series of Preferred Securities.
See "Description of the Series C Guarantee--General." If PECO Energy were to
default on its obligation to pay amounts payable on the Series C Subordinated
Debentures, PECO Energy Capital would lack funds for the payment of
Distributions or amounts payable on redemption of the Series C Preferred
Securities or upon liquidation of PECO Energy Capital, and, in each such event,
holders of Preferred Trust Receipts would not be able to rely upon the Series C
Guarantee for payment of such amounts. The holders of Preferred Trust Receipts,
together with the holders of Series C Preferred Securities other than the
Trust, representing not less than 10% aggregate liquidation preference of the
Series C Preferred Securities have the right to direct the time, method and
place of conducting any proceeding for any remedy available in respect of the
Series C Guarantee, including the right to direct the General Partner or the
Special Representative (as defined under "Description of the Series C Preferred
Securities--Voting Rights"), as the case may be. If the General Partner or
Special Representative fails to enforce the Series C Guarantee, any holder of
the Preferred Trust Receipts may institute a legal proceeding directly against
PECO Energy to enforce its rights under the Series C Guarantee without first
instituting a legal proceeding against PECO Energy Capital or any other person
or entity. See "Description of the Series C Guarantee--Status of the Series C
Guarantee" and "Description of the Series C Subordinated Debentures and the
Indenture--Subordination."
6
<PAGE>
Limited Voting Rights
Holders of Preferred Trust Receipts have limited voting rights and are
only entitled to appoint and authorize a Special Representative to enforce PECO
Energy Capital's rights against PECO Energy upon the occurrence of the
following: (i) PECO Energy Capital fails to pay Distributions in full on the
Preferred Securities for 18 consecutive monthly distribution periods, (ii) an
Event of Default (as defined in the Indenture) occurs and is continuing, or
(iii) PECO Energy is in default on any of its payment obligations under any
Payment and Guarantee Agreement issued by PECO Energy for the benefit of the
holders of Preferred Securities (a "Guarantee"). See "Description of the Series
C Preferred Securities--Voting Rights."
Trading Characteristics of the Preferred Trust Receipts
The Preferred Trust Receipts may trade at a price that does not fully
reflect the value of accrued but unpaid interest with respect to the Series C
Subordinated Debentures. An owner of Preferred Trust Receipts who disposes of
Preferred Trust Receipts between record dates for payments of Distributions
will nevertheless be required to include accrued but unpaid interest on the
Series C Subordinated Debentures through the date of disposition in income as
ordinary income and to add such amount to its adjusted tax basis of the
Preferred Trust Receipts so disposed. Such owner will recognize a capital loss
to the extent the selling price (which may not fully reflect the value of
accrued but unpaid interest) is less than its adjusted tax basis (which will
include accrued but unpaid interest). Subject to certain limited exceptions,
capital losses cannot be applied to offset ordinary income for federal income
tax purposes. See "United States Taxation."
PECO ENERGY
PECO Energy, incorporated in Pennsylvania in 1929, is an operating utility
which provides electric and gas service to the public in southeastern
Pennsylvania and buys and sells power in the wholesale generation market
throughout North America. The total area served by PECO Energy covers 2,107
square miles. Retail electric service is supplied in an area of 1,972 square
miles with a population of about 3.6 million, including 1.6 million in the City
of Philadelphia. Approximately 94% of the electric service area and 64% of
retail kilowatt hour sales are in the suburbs around Philadelphia, and 6% of
the service area and 36% of such sales are in the City of Philadelphia. Natural
gas service is supplied in a 1,475-square-mile area of southeastern
Pennsylvania adjacent to Philadelphia with a population of 1.9 million.
PECO ENERGY CAPITAL
PECO Energy Capital is a limited partnership formed in 1994 under the laws
of the State of Delaware. All of its general partner interests are owned by
PECO Energy Capital Corp., a wholly owned subsidiary of PECO Energy, as the
General Partner. As a limited partnership, all of the business and affairs of
PECO Energy Capital are managed by the General Partner. PECO Energy Capital was
created solely for the purpose of issuing the Preferred Securities and lending
the proceeds thereof to PECO Energy, and entering into similar financing
arrangements. Such loans are evidenced by the Subordinated Debentures issued by
PECO Energy in series under the Indenture. The Subordinated Debentures are the
only assets of PECO Energy Capital and the only revenues of PECO Energy Capital
are interest on the Subordinated Debentures. The General Partner pays all of
PECO Energy Capital's operating expenses and has general liability for all of
PECO Energy Capital's obligations.
THE TRUST
PECO Energy Capital Trust II is a statutory business trust recently
created under the laws of the State of Delaware. The Trust exists for the sole
purpose of issuing the Preferred Trust Receipts representing the Series C
Preferred Securities held by the Trust and performing functions directly
related thereto. The Series C Preferred Securities are the only assets of the
Trust. All expenses and liabilities of the Trust will be paid by the General
Partner, provided that if the trustee of the Trust (the "Trustee") incurs fees,
charges or expenses for which it is not otherwise liable under the Trust
Agreement at the election of a holder of Preferred Trust Receipts or other
person, such holder or other person will be liable for such fees, charges and
expenses.
7
<PAGE>
COVERAGE RATIOS
PECO Energy's Ratio of Earnings to Fixed Charges for each of the periods
indicated was as follows:
Three Months
ended
Years ended December 31, March 31,
- -------------------------------------------------- --------------
1992 1993 1994 1995 1996 1996 1997
- ------ ------ ------ ------ ------ ----- -----
2.43 3.15 2.66 3.41 3.29 3.59 3.24
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 PECO Energy.
Fixed charges consist of interest on funded indebtedness, other interest,
amortization of net gain on reacquired debt and net discount on debt and the
interest portion of all rentals charged to income.
PECO Energy's Ratio of Earnings to Combined Fixed Charges and Preferred
Stock Dividends for each of the periods indicated was as follows:
Three Months
ended
Years ended December 31, March 31,
- -------------------------------------------------- --------------
1992 1993 1994 1995 1996 1996 1997
- ------ ------ ------ ------ ------ ------ -----
2.06 2.67 2.32 3.12 3.04 3.33 2.97
The Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends represents, on a pretax 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 PECO Energy.
Combined fixed charges and preferred stock dividends consist of interest on
funded indebtedness, other interest, 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.
USE OF PROCEEDS
The net proceeds from the sale of Preferred Trust Receipts will be used by
the Trust to purchase the Series C Preferred Securities from PECO Energy
Capital. PECO Energy Capital will lend the proceeds from the sale of the Series
C Preferred Securities, plus the capital contribution made by the General
Partner, to PECO Energy, which loan will be evidenced by the Series C
Subordinated Debentures. These funds will be used by PECO Energy in connection
with its redemption of $50,000,000 aggregate liquidation value of PECO Energy's
outstanding depositary shares each representing a one-fourth interest in a
share of $7.96 Cumulative Preferred Stock, after such depositary shares become
subject to redemption at the election of PECO Energy on October 1, 1997.
DESCRIPTION OF THE PREFERRED TRUST RECEIPTS
The following is a summary of certain terms and provisions of the
Preferred Trust Receipts and 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.
The Preferred Trust Receipts will be issued by the Trust pursuant to the
Trust Agreement. Each Preferred Trust Receipt represents a Series C Preferred
Security. Each Series C Preferred Security has a stated liquidation preference
of $25. The Preferred Trust Receipts will be issued in book-entry form through
DTC or such other depository at which PECO Energy may have established an
account. Preferred Trust Receipts may be exchanged for the underlying Series C
Preferred Securities as described under "--Withdrawal of Series C Preferred
Securities."
The Trust is a statutory business trust created under the Delaware
Business Trust Act. The Trustee will hold the Series C Preferred Securities
deposited in the Trust for the benefit of the holders of the Preferred Trust
Receipts. The Trust Agreement provides that, to the fullest extent permitted by
law, without the need for any
8
<PAGE>
other action of any person, including the Trustee and any other holder of
Preferred Trust Receipts, each holder of Preferred Trust Receipts shall be
entitled to enforce in the name of the Trust the Trust's rights under the
Series C Preferred Securities represented by the Preferred Trust Receipts held
by such holder.
It is anticipated that the assets of the Trust available for distribution
to the holders of the Preferred Trust Receipts will be limited to payments from
PECO Energy Capital under the Series C Preferred Securities, which payments by
PECO Energy Capital will be limited to payments from PECO Energy on the Series
C Subordinated Debentures. See "Description of the Series C Subordinated
Debentures and the Indenture." If PECO Energy fails to make a payment on the
Series C Subordinated Debentures or if PECO Energy Capital fails to make a
Distribution on the Series C Preferred Securities, the Trust will not have
sufficient funds to make related payments, including Distributions, on the
Preferred Trust Receipts.
Distributions
Whenever the Trust shall receive any cash distribution representing a
monthly distribution on the Series C Preferred Securities (whether or not
distributed by PECO Energy Capital on the regular monthly distribution date
therefor) or payment under the Series C Guarantee in respect thereof, the Trust
shall distribute such amounts to the holders of the Preferred Trust Receipts in
proportion to the respective number of Series C Preferred Securities
represented by such Preferred Trust Receipts. Under the Indenture, PECO Energy
shall have the right at any time, so long as an Event of Default under the
Indenture has not occurred and is continuing, to extend the interest payment
period for all Subordinated Debentures for up to 60 consecutive months;
provided that no Extension Period shall extend beyond the stated maturity date
or date of redemption of any series of Subordinated Debentures. At the end of
the Extension Period, PECO Energy shall pay all interest then accrued and
unpaid on such Subordinated Debentures (together with interest thereon to the
extent permitted by applicable law at the rate per annum borne by such
Subordinated Debentures). During any Extension Period, no Distributions will be
made on the Series C Preferred Securities represented by the Preferred Trust
Receipts; however, all accrued and unpaid Distributions (together with any
applicable Distributions on such Distributions) shall be paid at the end of the
Extension Period. See "Description of the Series C Subordinated Debentures and
the Indenture--Option to Extend Interest Payment Period."
Redemption of Preferred Trust Receipts
Whenever PECO Energy Capital shall elect or is required to redeem Series C
Preferred Securities in accordance with the Amended and Restated Limited
Partnership Agreement of PECO Energy Capital, dated as of July 25, 1994, as
amended (the "Partnership Agreement"), PECO Energy Capital shall give the
Trustee at least 40 days' prior notice thereof. The Trustee will mail the
notice of redemption not less than 30 nor more than 60 days prior to the date
fixed for redemption of the Series C Preferred Securities and the Preferred
Trust Receipts to the holders of the Preferred Trust Receipts. On the date of
redemption of the Series C Preferred Securities, provided that PECO Energy
Capital (or PECO Energy pursuant to the Series C Guarantee) shall have
deposited with the Trustee the aggregate amount payable upon redemption of all
Series C Preferred Securities held by the Trust to be redeemed, the Trustee
shall redeem Preferred Trust Receipts representing the same number of such
Series C Preferred Securities redeemed by PECO Energy Capital at the same
redemption price at which such Series C Preferred Securities are redeemed. In
the event that fewer than all the outstanding Preferred Trust Receipts are
redeemed, the Preferred Trust Receipts to be redeemed shall be selected by lot
or pro rata or other equitable method determined by the Trustee. Under the
Trust Agreement, PECO Energy Capital agrees that if a partial redemption of the
Series C Preferred Securities would result in a delisting of the Preferred
Trust Receipts from any national exchange on which the Preferred Trust Receipts
are then listed, PECO Energy Capital will only redeem the Series C Preferred
Securities in whole.
Payments on Liquidation of PECO Energy Capital
Upon receipt by the Trust of any distribution from PECO Energy Capital
upon liquidation of PECO Energy Capital (or payment by PECO Energy under the
Series C Guarantee in respect thereof), after satisfaction of creditors of the
Trust as required by applicable law, the Trustee shall distribute to the
holders of the Preferred Trust Receipts such amounts in proportion to the
respective number of Series C Preferred Securities represented by such
Preferred Trust Receipts.
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Withdrawal of Series C Preferred Securities
Any beneficial owner of Preferred Trust Receipts may withdraw all, but not
less than all, of the Series C Preferred Securities represented by such
Preferred Trust Receipts by providing a written notice and agreement to be
bound by the terms of the Partnership Agreement to the Trustee, with evidence
of beneficial ownership in form satisfactory to the Trustee. Within a
reasonable period after such request has been made, the Trustee shall instruct
DTC to reduce the number of Preferred Trust Receipts represented by the global
certificate held by DTC by the amount equal to the number of Preferred Trust
Receipts to be so withdrawn by the withdrawing owner, the Trustee shall issue
to the withdrawing owner a certificate representing the number of Series C
Preferred Securities so withdrawn and the Trustee shall reduce the number of
Series C Preferred Securities represented by the global certificate held by the
Trustee by a like amount; provided, that the Trustee shall not issue any
fractional number of Series C Preferred Securities. The Series C Preferred
Securities will only be issued in certificated form.
Any holder of Series C Preferred Securities may redeposit withdrawn Series
C Preferred Securities by delivery to the Trustee of a certificate or
certificates for the Series C Preferred Securities to be deposited, properly
endorsed or accompanied, if required by the Trustee, by a properly executed
instrument of transfer or endorsement in form satisfactory to the Trustee and
in compliance with the terms of the Partnership Agreement, together with all
such certifications as may be required by the Trustee in its sole discretion
and in accordance with the provisions of the Trust Agreement. Within a
reasonable period after such deposit is properly made, the Trustee shall
instruct DTC to increase the number of Preferred Trust Receipts represented by
the global certificate held by DTC by an amount equal to the Series C Preferred
Securities to be deposited. The Preferred Trust Receipts will not be issued in
certificated form.
Voting Rights
If the holders of the Preferred Partner Interests (as defined in the
Partnership Agreement), acting as a single class, are entitled to appoint and
authorize a Special Representative pursuant to the Partnership Agreement, the
Trustee shall notify the holders of the Preferred Trust Receipts of such right,
request direction of each holder of a Preferred Trust Receipt as to the
appointment of a Special Representative and vote the Series C Preferred
Securities represented by such Preferred Trust Receipt in accordance with such
direction. If the General Partner fails to convene a general meeting of PECO
Energy Capital as required in the Partnership Agreement, the Trustee shall
notify the holders of the Preferred Trust Receipts and, if so directed by the
holders of the Preferred Trust Receipts representing Preferred Securities
constituting at least 10% of the aggregate stated liquidation preference of the
outstanding Preferred Partner Interests, shall convene such meeting. Under the
Trust Agreement, PECO Energy Capital has agreed that without the consent of the
holders of 66 2/3% in liquidation amount of the Preferred Trust Receipts, it may
not consolidate, amalgamate, merge with or into, or be replaced by, or convey,
transfer or lease its properties and assets substantially as an entirety to any
corporation or other entity if, as a result, the Preferred Trust Receipts would
be delisted by any national securities exchange or other organization on which
the Preferred Trust Receipts are then listed, downgraded by any "nationally
recognized statistical rating organization," as that term is defined by the SEC
for purposes of Rule 436(g)(2) under the Securities Act of 1933, as amended (the
"Securities Act"), or the holders thereof would recognize any gain or loss for
federal income tax purposes as a result of such consolidation, amalgamation,
merger, conveyance or transfer.
Upon receipt of notice of any meeting at which the holders of Series C
Preferred Securities are entitled to vote, the Trustee shall, as soon as
practicable thereafter, mail to the holders of Preferred Trust Receipts 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 Preferred Trust Receipts will be entitled,
subject to any applicable provision of law, to instruct the Trustee as to the
exercise of the voting rights pertaining to the amount of Series C Preferred
Securities represented by their respective Preferred Trust Receipts, 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 Preferred Trust Receipt, the Trustee
shall vote or cause to be voted the number of Series C Preferred Securities
represented by such Preferred Trust Receipts in accordance with the
instructions set forth in such request.
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Amendment and Termination of Trust Agreement
PECO Energy Capital or the General Partner may, and the Trustee shall, at
any time and from time to time enter into one or more agreements supplemental
to the Trust Agreement without the consent of the holders of the Preferred
Trust Receipts: (i) to evidence the succession of another partnership,
corporation or other entity to PECO Energy Capital or the General Partner and
the assumption by any such successor of the covenants of PECO Energy Capital or
the General Partner in the Trust Agreement; (ii) to add to the covenants of
PECO Energy Capital or the General Partner for the benefit of the holders of
the Preferred Trust Receipts, or to surrender any right or power herein
conferred upon PECO Energy Capital or the General Partner; (iii) to correct or
supplement any provision in the Trust Agreement which may be defective or
inconsistent with any other provision therein or to make any other provisions
with respect to matters or questions arising under the Trust Agreement,
provided, that any such action shall not materially adversely affect the
interests of the holders of Preferred Trust Receipts; or (iv) to cure any
ambiguity or correct any mistake. Any other amendment of the Trust Agreement
must be approved by the holders of 66 2/3% of the Preferred Trust Receipts.
The Trust Agreement shall terminate upon the redemption of the Preferred
Trust Receipts or a final distribution in respect of the Series C Preferred
Securities and such distribution has been delivered to the holders of the
Preferred Trust Receipts.
Expenses of the Trust
All charges or expenses of the Trust, including the charges and expenses
of the Trustee, will be paid by the General Partner, provided that if the
Trustee incurs fees, charges or expenses for which it is not otherwise liable
under the Trust Agreement, at the election of a holder of Preferred Trust
Receipts or other person, such holder or other person will be liable for such
fees, charges and expenses.
Resignation and Removal of the Trustee
The Trust shall at all times have a Trustee which is a bank that has its
principal place of business in the State of Delaware having a combined capital
and surplus of $50,000,000. If the Trustee ceases to be eligible, it will
resign.
The Trustee may at any time resign as trustee under the Trust Agreement by
notice of its election to do so delivered to PECO Energy Capital and the
General Partner, such resignation to take effect upon the appointment of a
successor trustee and its acceptance of such appointment as hereinafter
provided. The Trustee may at any time be removed by PECO Energy Capital by
notice of such removal delivered to the Trustee, provided that at the time of
such removal, no Event of Default shall have occurred and be continuing under
the Indenture or the Series C Guarantee, such removal to take effect upon the
appointment of a successor trustee and its acceptance of such appointment.
In case at any time the Trustee shall resign or be removed, PECO Energy
Capital shall, within 45 days after the delivery of the notice of resignation
or removal, as the case may be, appoint a successor trustee, which shall be a
bank or trust company, or an affiliate of a bank or trust company, having its
principal office in the State of Delaware and having a combined capital and
surplus of at least $50,000,000.
Book-Entry-Only Issuance--The Depository Trust Company
DTC will initially act as securities depositary for all of the Preferred
Trust Receipts. The Preferred Trust Receipts will be issued only as
fully-registered securities registered in the name of Cede & Co. (DTC's
nominee) as the holder thereof. One or more fully-registered global securities
will be issued for the Preferred Trust Receipts and will be deposited with DTC.
The Preferred Trust Receipts will not be available in certificated form.
DTC is a limited purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC holds securities that its participants ("Participants") deposit with
DTC. DTC also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates.
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Direct participants include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations ("Direct
Participants"). DTC is owned by a number of its Direct Participants and by the
New York Stock Exchange, the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. Access to the DTC system is also
available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain custodial relationships with Direct
Participants, either directly or indirectly ("Indirect Participants"). The
rules applicable to DTC and its Participants are on file with the SEC.
Purchases of Preferred Trust Receipts within the DTC system must be made
by or through Direct Participants, which will receive a credit for the
Preferred Trust Receipts on DTC's records. The ownership interest of each
actual purchaser of each Preferred Trust Receipt ("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
purchases, but Beneficial Owners are expected to receive written confirmations
providing details of the transactions, as well as periodic statements of their
holdings, from the Direct or Indirect Participants through which the Beneficial
Owners purchased Preferred Trust Receipts. Transfers of ownership interests in
the Preferred Trust Receipts 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
Preferred Trust Receipts, except in the event that use of the book-entry system
for the Preferred Trust Receipts is discontinued.
DTC has no knowledge of the actual Beneficial Owners of the Preferred
Trust Receipts; DTC's records reflect only the identity of the Direct
Participants to whose accounts such Preferred Trust Receipts 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 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. as the registered holder of
the Preferred Trust Receipts. If less than all of the Preferred Trust Receipts
are being redeemed, DTC's practice is to determine by lot the amount of the
interest of each Direct Participant to be redeemed.
Although voting with respect to the Preferred Trust Receipts is limited to
the holders of record of the Preferred Trust Receipts, in those instances in
which a vote is required, neither DTC nor Cede & Co. will itself consent or
vote with respect to the Preferred Trust Receipts. Under its usual procedures,
DTC would mail an omnibus proxy (the "Omnibus Proxy") to the Trustee 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 such
Preferred Trust Receipts are credited on the record date (identified in a
listing attached to the Omnibus Proxy).
Distributions on the Preferred Trust Receipts will be made in immediately
available funds by the Trustee on behalf of the Trust to DTC. DTC's practice is
to credit Direct Participants' accounts on the relevant payment date in
accordance with their respective holdings shown on DTC's records unless DTC has
reason to believe that it will not receive payments on such payment date.
Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices will be the responsibility of such
Participant and not of DTC, the Trustee, the Trust or PECO Energy, subject to
any statutory or regulatory requirements as may be in effect from time to time.
Payment of Distributions to DTC is the responsibility of the Trustee on behalf
of the Trust, disbursement of such payments to Direct Participants is the
responsibility of DTC and disbursements of such payments to the Beneficial
Owners is the responsibility of the Direct and Indirect Participants.
DTC may discontinue providing its services as securities depositary with
respect to the Preferred Trust Receipts at any time by giving reasonable notice
to the Trustee and PECO Energy. In the event that a successor securities
depositary is not obtained, definitive Preferred Trust Receipt certificates
representing such Preferred Trust Receipts are required to be printed and
delivered. PECO Energy, at its option, may decide to discontinue use of the
system of book-entry transfers through DTC (or a successor depositary) as a
result of such discontinuance or as a result of DTC's ineligibility to so act,
in which case definitive certificates for such Preferred Trust Receipts will be
issued. Upon distribution of definitive Preferred Trust Receipts certificates,
owners of such Preferred Trust Receipts will become the registered holders of
such Preferred Trust Receipts.
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The information set forth above concerning DTC and DTC's book-entry system
has been obtained from sources that PECO Energy Capital and PECO Energy believe
to be accurate, but PECO Energy Capital and PECO Energy assume no
responsibility for the accuracy thereof. None of the Trust, PECO Energy Capital
nor PECO Energy has any responsibility for the performance by DTC or its
Participants of their respective obligations as described herein or under the
rules and procedures governing their respective operations.
In the event that the book-entry-only system is discontinued, the Trustee
shall keep the registration books for such Preferred Trust Receipts at its
corporate office. Such Preferred Trust Receipts may be transferred or exchanged
for one or more Preferred Trust Receipts upon surrender thereof at the
corporate office of the Trustee by the holders or their duly authorized
attorneys or legal representatives. Upon surrender of any Preferred Trust
Receipts to be transferred or exchanged, the Trustee shall record the transfer
or exchange in the registration books and shall deliver new Preferred Trust
Receipts appropriately registered. The Trustee shall not be required to
register the transfer of any Preferred Trust Receipts that have been called for
redemption on or after the liquidation date of PECO Energy Capital. The Trust
and the Trustee shall be entitled to treat the holders of the Preferred Trust
Receipts, as their names appear in the registration books, as the owners of
those Preferred Trust Receipts for all purposes under the Trust Agreement.
DESCRIPTION OF THE SERIES C PREFERRED SECURITIES
The following is a summary of certain terms and provisions of the Series C
Preferred Securities represented by the Preferred Trust Receipts. Reference is
made to the Partnership Agreement which is an exhibit to the Registration
Statement of which this Prospectus forms a part.
General
Under the Partnership Agreement, PECO Energy Capital is authorized to
issue two classes of partner interests: the Preferred Securities representing
limited partner interests, including the Series C Preferred Securities, and
general partner interests. All of the general partner interests of PECO Energy
Capital are owned by the General Partner, which is a wholly owned subsidiary of
PECO Energy. All of the Preferred Securities issued by PECO Energy Capital will
be of equal rank in participation in the profits and assets and income of PECO
Energy 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
PECO Energy Capital.
Distributions
The Series C Preferred Securities will be entitled to Distributions out of
funds on hand legally available therefor held by PECO Energy Capital at the
annual rate of 8% of the stated liquidation preference of $25, payable monthly
in arrears on the last day of each calendar month. Distributions on the Series
C Preferred Securities will be cumulative, will accrue from the original date
of issuance, and, except as otherwise described below, will be payable monthly
in arrears, on the last day of each month of each year, commencing on June 30,
1997. Distributions in arrears after the monthly payment date therefor will
accumulate additional Distributions thereon at the rate of 8% per annum. PECO
Energy Capital has issued Series A Preferred Securities and Series B Preferred
Securities, which have an aggregate stated liquidation preference of
$221,250,000 and $78,104,575, respectively.
The General Partner may make distributions on the general partner
interests of PECO Energy Capital only after payment in full of all
Distributions accrued on the Series C Preferred Securities and any other
outstanding Preferred Securities of PECO Energy Capital.
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PECO Energy has the right under the Indenture to extend the interest
payment period from time to time on all Subordinated Debentures to a period not
exceeding 60 consecutive months; provided that such Extension Period shall not
extend beyond the stated maturity date or redemption date of any series of
Subordinated Debentures, including the Series C Subordinated Debentures. As a
consequence, monthly Distributions on the Series C Preferred Securities would
be deferred (but would continue to accumulate with Distributions thereon) by
PECO Energy Capital during any such Extension Period. In the event that PECO
Energy exercises its right to extend the interest payment period on the
Subordinated Debentures, PECO Energy may not declare or pay dividends on, or
redeem, purchase or acquire, any of its capital stock during the Extension
Period. PECO Energy Capital and PECO Energy currently believe that the
extension of an interest payment period is unlikely. Prior to the termination
of any such Extension Period, PECO Energy may further extend the interest
payment period, provided that such Extension Period together with all such
previous and further extensions thereof may not exceed 60 consecutive months.
Upon the termination of any Extension Period and the payment of all amounts
then due on all series of Subordinated Debentures, PECO Energy may elect to
extend the interest payment period again, subject to the above requirements.
Following an Extension Period of 18 months or more, the holders of Preferred
Securities, including the Series C Preferred Securities, shall have the right
to appoint a Special Representative to enforce PECO Energy Capital's rights
against PECO Energy under the Subordinated Debentures and the Indenture and the
obligations of PECO Energy under the Guarantees. See "--Voting Rights," "Risk
Factors," and "Description of the Series C Subordinated Debentures and the
Indenture--Option to Extend Interest Payment Period" and "--Interest."
Distributions on the Series C Preferred Securities must be paid by PECO
Energy Capital in any calendar year or portion thereof to the extent that PECO
Energy Capital has funds on hand legally available therefor. It is anticipated
that the funds available for distribution by PECO Energy Capital will be
limited to payments received by PECO Energy Capital in respect of the Series C
Subordinated Debentures. See "Description of the Series C Subordinated
Debentures and the Indenture."
The amount of Distributions payable for any period will be computed on the
basis of twelve 30-day months and a 360-day year and, for any period shorter
than a full monthly distribution period, will be computed on the basis of the
actual number of days elapsed in such period. Distributions on the Series C
Preferred Securities will be made to the holders thereof as they appear on the
books and records of PECO Energy Capital on the relevant record dates, which
will be the 15th day of each month. If any date on which Distributions are
payable on the Series C Preferred Securities is not a business day, then
payment of the Distributions payable on such date will be made on the next
succeeding day that is a business day (and without any interest or other
payment in respect of any such delay) except that, if such business day is in
the next succeeding calendar year, such payment shall be made on the
immediately preceding business day, in each case with the same force and effect
as if made on such date. The term "business day," as used in relation to the
Series C Preferred Securities, shall mean any day other than a day on which
banking institutions in the City of New York or the State of Delaware are
authorized or required by law to close.
Certain Restrictions on PECO Energy Capital
If distributions have not been paid in full on any series of Preferred
Securities of PECO Energy Capital, PECO Energy Capital shall not: (i) pay any
distributions on any other series of Preferred Securities, unless the amount of
any distributions paid on any Preferred Securities is paid on all Preferred
Securities then outstanding on a pro rata basis in proportion to the full
distributions to which each series of Preferred Securities would be entitled if
paid in full; (ii) pay any distribution on the general partner interests; or
(iii) redeem, purchase or otherwise acquire any Preferred Securities or the
general partner interests; until, in each case, such time as all accumulated
and unpaid distributions on all series of Preferred Securities shall have been
paid in full for all prior distribution periods.
Optional Redemption
The Series C Preferred Securities are subject to redemption, at the option
of the General Partner, in whole or in part, from time to time, on or after
June 6, 2002, at $25 per Series C Preferred Security, plus accumulated and
unpaid Distributions (whether or not declared), if any, to the date fixed for
redemption (the "Redemption Price").
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Mandatory Redemption
If at any time PECO Energy redeems the Series C Subordinated Debentures or
pays the Series C Subordinated Debentures at maturity, the Series C Preferred
Securities will be subject to mandatory redemption at the Redemption Price.
The Series C Preferred Securities will not be entitled to any sinking
fund.
Special Event Redemptions
If a Tax Event (as defined below) shall occur and be continuing, the
Series C Preferred Securities will be subject to redemption, at the option of
the General Partner, in whole or in part at the Redemption Price within 90 days
following the occurrence of such Tax Event. "Tax Event" means that PECO Energy
Capital shall have received an opinion of counsel (which may be regular counsel
to PECO Energy or an affiliate but not an employee thereof) experienced in such
matters to the effect that, as a result of any amendment to, or change
(including any announced prospective change) in, the laws (or any regulations
thereunder) of the United States or any political subdivision or taxing
authority thereof or therein affecting taxation, or as a result of any official
administrative pronouncement or judicial decision interpreting or applying such
laws or regulations, which amendment or change is effective or such
interpretation or pronouncement is announced on or after the date of issuance
of the Series C Preferred Securities, there is more than an insubstantial risk
that (i) PECO Energy Capital is subject to federal income tax with respect to
interest received on the Series C Subordinated Debentures or PECO Energy
Capital will otherwise not be taxed as a partnership, (ii) interest payable by
PECO Energy on the Series C Subordinated Debentures will not be deductible for
federal income tax purposes or (iii) PECO Energy Capital is subject to more
than a de minimis amount of other taxes, duties or other governmental charges.
If an Investment Company Event (as defined below) shall occur and be
continuing, the Series C Preferred Securities will be subject to mandatory
redemption in whole at the Redemption Price within 90 days following the
occurrence of such Investment Company Event. "Investment Company Event" means
the occurrence of a change in law or regulation or a change in official
interpretation of law or regulation by any legislative body, court,
governmental agency or regulatory authority (a "Change in 1940 Act Law") to the
effect that PECO Energy Capital is or will be considered an "Investment
Company" which is required to be registered under the Investment Company Act of
1940, as amended (the "1940 Act"), which Change in 1940 Act Law becomes
effective on or after the date of the issuance of the Series C Preferred
Securities; provided, that no Investment Company Event shall be deemed to have
occurred if PECO Energy Capital has received an opinion of counsel (which may
be regular counsel to PECO Energy or any affiliate but not an employee thereof)
experienced in such matters, to the effect that PECO Energy Capital and/or PECO
Energy has taken reasonable measures, in its discretion, to avoid such Change
in 1940 Act Law so that notwithstanding such Change in 1940 Act Law, PECO
Energy Capital is not required to be registered as an "Investment Company"
within the meaning of the 1940 Act.
Redemption Procedures
PECO Energy Capital may not redeem any Series C Preferred Securities
unless all accumulated and unpaid Distributions have been paid on all Series C
Preferred Securities for all monthly distribution periods terminating on or
prior to the date of redemption.
Notice of any redemption of the Series C Preferred Securities will be
given by PECO Energy Capital by mail or delivery to each record holder of
Series C Preferred Securities to be redeemed not fewer than 30, nor more than
60 days prior to the date fixed for redemption thereof (at least 40 days' prior
for notice to the Trust). A notice of redemption shall be deemed to be given on
the day such notice is first mailed by first-class mail, postage prepaid, or on
the date it was delivered in person, receipt acknowledged to the holders of
such Series C Preferred Securities. Notices of redemption shall be addressed to
the record holders of the Series C Preferred Securities at the addresses of the
holders appearing in the books and records of PECO Energy Capital.
If notice of redemption shall have been given and payment shall have been
made by PECO Energy Capital to the Trust and any other holder of Series C
Preferred Securities, then, upon the date of such payment all rights of owners
of the Series C Preferred Securities so called for redemption will cease. In
the event that any date fixed for redemption of Series C Preferred Securities
is not a business day, then payment of the Redemp-
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tion Price payable on such date will be made on the next succeeding day which
is a business day (and without any interest or other payment in respect of any
such delay), except that if such business day falls in the next succeeding
calendar year, such payment will be made on the immediately preceding business
day (in each case with the same force and effect as if made on such day).
Liquidation Distribution
In the event of any voluntary or involuntary dissolution and winding up of
PECO Energy Capital, the holders of the Preferred Securities will be entitled
to receive out of the assets of PECO Energy Capital, after satisfaction of
liabilities to creditors as required by Delaware law and before any
distribution of assets is made to holders of its general partner interests, the
lesser of the Partnership Liquidation Distribution or the amount of assets of
PECO Energy Capital legally available for distribution to the holders of
Preferred Securities. All assets of PECO Energy Capital remaining after payment
thereof will be distributed to the General Partner. If, upon such liquidation,
the Partnership Liquidation Distribution can be paid only in part because PECO
Energy Capital has insufficient assets available to pay in full the aggregate
Partnership Liquidation Distribution on all Preferred Securities, then the
amounts payable on each series of Preferred Securities shall be paid on a pro
rata basis, in proportion to the full Partnership Liquidation Distribution to
which each series of Preferred Securities would be otherwise entitled.
Pursuant to the Partnership Agreement, PECO Energy Capital shall be
dissolved and its affairs shall be wound up upon the occurrence of any of the
following events: (i) upon the expiration of PECO Energy Capital in 2093, (ii)
upon the withdrawal, removal or bankruptcy of the General Partner or the
occurrence of any other event that under applicable law causes PECO Energy
Capital Corp. to cease to be the General Partner, except for a transfer to a
permitted successor of the General Partner or as otherwise provided in the
Partnership Agreement, (iii) the entry of a decree of judicial dissolution, or
(iv) the written consent of the General Partner and all of the holders of the
Preferred Securities. Upon such dissolution, PECO Energy is required to redeem
all series of Subordinated Debentures to fund the Partnership Liquidation
Distribution.
The amount per share payable on the Series C Preferred Securities in the
event of any voluntary or involuntary liquidation of PECO Energy Capital is $25
plus accumulated and unpaid Distributions.
Merger, Consolidation, etc. of PECO Energy Capital
PECO Energy Capital may not consolidate, amalgamate, merge with or into,
or be replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other entity, except with
the approval of the General Partner and the holders of 66 2/3% in aggregate
stated liquidation preference of the outstanding Preferred Securities or as
otherwise described below. The General Partner may, without the consent of the
holders of the Preferred Securities, cause PECO Energy Capital to consolidate,
amalgamate, merge with or into, or be replaced by, or convey, transfer or lease
its properties and assets substantially as an entirety to, a corporation, a
limited liability company or a limited partnership, a trust or other entity
organized as such under the laws of any state of the United States of America
or the District of Columbia, provided that (i) such successor entity either (x)
expressly assumes all of the obligations of PECO Energy Capital under the
Preferred Securities or (y) substitutes for the Preferred Securities other
securities having substantially the same terms as the Preferred Securities (the
"Successor Securities") so long as the Successor Securities rank, as regards
participation in the profits and assets of the successor entity, at least as
high as the Preferred Securities rank, as regards participation in the profits
and assets of PECO Energy Capital, (ii) PECO Energy confirms its obligations
under the Guarantees with regard to the Successor Securities, if any, (iii)
such consolidation, amalgamation, merger, replacement, conveyance, transfer or
lease does not cause any series of Preferred Securities or Successor Securities
to be delisted by any national securities exchange or other organization on
which such series of Preferred Securities is then listed, (iv) such
consolidation, amalgamation, merger, replacement, conveyance, transfer or lease
does not cause the Preferred Securities or Successor Securities to be
downgraded by any "nationally recognized statistical rating organization," as
that term is defined by the SEC for purposes of Rule 436(g)(2) under the
Securities Act, (v) such consolidation, amalgamation, merger, replacement,
conveyance, transfer or lease does not adversely affect the powers, preferences
and other special rights of holders of Preferred Securities or Successor
Securities in any material respect, (vi) such successor entity has a purpose
substantially identical to
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that of PECO Energy Capital and (vii) prior to such consolidation,
amalgamation, merger, replacement, conveyance, transfer or lease, PECO Energy
has received an opinion of counsel (which may be regular tax or other counsel
to PECO Energy or an affiliate, but not an employee thereof) experienced in
such matters to the effect that (w) holders of outstanding Preferred Securities
will not recognize any gain or loss for federal income tax purposes as a result
of the consolidation, amalgamation, merger, replacement, conveyance, transfer
or lease, (x) such successor entity will be treated as a partnership for
federal income tax purposes, (y) following such consolidation, amalgamation,
merger, replacement, conveyance, transfer or lease, PECO Energy and such
successor entity will be in compliance with the 1940 Act without registering
thereunder as an investment company, and (z) such consolidation, amalgamation,
merger, replacement, conveyance, transfer or lease will not adversely affect
the limited liability of holders of Preferred Securities or Successor
Securities.
Voting Rights
Except as provided below and under "--Merger, Consolidation, etc. of PECO
Energy Capital" and "Description of the Series C Guarantee--Amendments" and as
otherwise required by law and the Partnership Agreement, the holders of the
Series C Preferred Securities have no voting rights.
If (i) PECO Energy Capital fails to pay Distributions in full on the
Preferred Securities for 18 consecutive monthly distribution periods, (ii) an
Event of Default (as defined in the Indenture) occurs and is continuing, or
(iii) PECO Energy is in default on any of its payment obligations under any
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 PECO Energy
Capital's rights against PECO Energy under the Subordinated Debentures and the
Indenture and the obligations undertaken by PECO Energy under the Guarantees
issued in conjunction with the issuance of the Preferred Securities, including,
after failure to pay Distributions for 60 consecutive monthly distribution
periods on the Preferred Securities, the payment of Distributions on the
Preferred Securities. The Special Representative shall not be admitted as a
partner of PECO Energy Capital or otherwise be deemed a partner of PECO Energy
Capital and shall have no liability for the debts, obligations or liabilities
of PECO Energy Capital.
For purposes of determining whether PECO Energy Capital has failed to pay
Distributions in full for 18 consecutive monthly distribution periods,
Distributions shall be deemed to remain in arrears, notwithstanding any
payments in respect thereof, until full cumulative Distributions on all
Preferred Securities have been or contemporaneously are paid with respect to
all monthly distribution periods terminating on or prior to the date of payment
of such full cumulative Distributions. Subject to the requirements of
applicable law, not later than 30 days after such right to appoint the Special
Representative, the General Partner will convene a general meeting for the
above purpose. If the General Partner fails to convene such meeting within such
30-day period, the holders of 10% of the aggregate stated liquidation
preference of the Preferred Securities will be entitled to convene such
meeting. The provisions of the Partnership Agreement relating to the convening
and conduct of the general meetings of security holders will apply with respect
to any such meeting. Any Special Representative so appointed shall vacate
office immediately if PECO Energy Capital (or PECO Energy pursuant to a
Guarantee) shall have paid in full all accumulated and unpaid Distributions on
the Preferred Securities or such Event of Default under the Indenture or
default under the Guarantee or breach, as the case may be, shall have been
cured. Notwithstanding the appointment of any such Special Representative, PECO
Energy retains all rights under the Indenture, including the right to extend
the interest payment period on the Subordinated Debentures.
If any proposed amendment to the Partnership Agreement provides for, or
the General Partner otherwise proposes to effect, any action which would
materially adversely affect the powers, preferences or special rights attached
to any series of Preferred Securities, whether by way of amendment to the
Partnership Agreement or otherwise, then the holders of such series of
Preferred Securities will be entitled to vote on such amendment or action of
the General Partner (but not on any other amendment or action) and, in the case
of an amendment or action which would equally adversely affect the rights or
preferences of any other Preferred Securities, such Preferred Securities shall
vote together as a class on such amendment or action of the General Partner
(but not on any other amendment or action), and such amendment or action shall
not be effective except with the approval
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of the holders of not less than 66 2/3% of the aggregate stated liquidation
preference of such series of Preferred Securities. Except in certain
circumstances described under "--Liquidation Distribution," PECO Energy Capital
will be dissolved and wound up only with the consent of the holders of all
Preferred Securities then outstanding as well as the General Partner.
The powers, preferences or special rights attached to any Preferred
Securities will be deemed not to be adversely affected by the creation or issue
of, and no vote will be required for the creation or issue of, any additional
series of Preferred Securities or additional general partner interests. Holders
of Preferred Securities have no preemptive rights.
So long as any series of Subordinated Debentures are held by PECO Energy
Capital, the General Partner, unless so directed by the Special Representative,
shall not (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 Indenture (the "Indenture Trustee"), or executing any trust
or power conferred on the Indenture Trustee, (ii) waive any past default which
is available under the 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 Indenture, where such consent shall be required, without, in each case,
obtaining the prior approval of the holders of at least 66 2/3% in aggregate
stated liquidation preference of all series of Preferred Securities affected
thereby, acting as a single class; provided, however, that where a consent
under the Indenture would require the consent of each holder affected thereby,
no such consent shall be given by the General Partner without the prior consent
of each holder 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 Indenture Trustee with respect to any series of Subordinated
Debentures.
Any required approval of holders of Preferred Securities may be given at a
separate meeting of such holders convened for such purposes, at a meeting of
all partners of PECO Energy Capital or pursuant to written consent. PECO
Energy Capital will cause a notice of any meeting at which holders of any
series of Preferred Securities are entitled to vote, or of any matter upon
which action by written consent of such holders is to be taken, to be mailed to
each holder of record of such series of Preferred Securities. Each such notice
will include a statement setting forth (i) the date of such meeting or the date
by which such action is to be taken, (ii) a description of any resolution
proposed for adoption at such meeting on which such holders are entitled to
vote or of such matter upon which written consent is sought and (iii)
instructions for the delivery of proxies or consents.
The holders of the Preferred Securities will have no rights to remove or
replace the General Partner.
Miscellaneous
The General Partner is authorized and directed to use its best efforts to
manage the affairs of PECO Energy Capital in such a way that PECO Energy
Capital would not be deemed to be an "investment company" required to be
registered under the 1940 Act or taxed as a corporation for federal income tax
purposes and so that all series of Subordinated Debentures will be treated as
indebtedness of PECO Energy for federal income tax purposes. In this
connection, the General Partner is authorized to take any action not
inconsistent with applicable law, the Certificate of Limited Partnership of
PECO Energy Capital or the Partnership Agreement, and that does not materially
adversely affect the interests of holders of Preferred Securities, that the
General Partner determines in its discretion to be necessary or desirable for
such purposes.
PECO Energy Capital may not borrow money or issue debt or mortgage or
pledge any of its assets.
DESCRIPTION OF THE SERIES C GUARANTEE
The following is a summary of certain provisions of the Series C Guarantee
which will be executed and delivered by PECO Energy concurrently with the
issuance of the Series C Preferred Securities. Reference is made to the Series
C Guarantee, which is filed as an exhibit to the Registration Statement of
which this Prospectus forms a part.
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General
Under the Series C Guarantee, PECO Energy will agree to pay (i) any
accumulated and unpaid Distributions on the Series C Preferred Securities to
the extent that PECO Energy Capital has funds on hand legally available
therefor, (ii) the Redemption Price payable with respect to any Series C
Preferred Securities called for redemption by PECO Energy Capital to the extent
that PECO Energy Capital has funds on hand legally available therefor and (iii)
upon a liquidation of PECO Energy Capital, the lesser of (a) the portion of the
Partnership Liquidation Distribution applicable to the Series C Preferred
Securities and (b) the amount of assets of PECO Energy Capital legally
available for distribution to holders of Series C Preferred Securities in
liquidation of PECO Energy Capital (collectively, the "Guarantee Payments").
PECO Energy will agree to pay the Guarantee Payments, as and when due (except
to the extent paid by PECO Energy Capital), to the fullest extent permitted by
law, regardless of any defense, right of setoff or counterclaim which PECO
Energy may have or assert against PECO Energy Capital, the General Partner, the
Trust or the Trustee. PECO Energy's obligation to make a Guarantee Payment may
be satisfied by direct payment of the required amounts by PECO Energy to the
holders of Series C Preferred Securities or by causing PECO Energy Capital to
pay such amounts to such holders.
Status of the Series C Guarantee
The Series C Guarantee will constitute an unsecured obligation of PECO
Energy and will rank subordinate and junior in right of payment to all general
liabilities of PECO Energy.
The Series C Guarantee will constitute a guarantee of payment and not of
collection. The Series C Guarantee will be held by the General Partner for the
benefit of the holders of the Series C Preferred Securities. In the event of
the appointment of a Special Representative, the Special Representative may
enforce the Series C Guarantee. If no Special Representative has been appointed
to enforce the Series C Guarantee, the General Partner has the right to enforce
the Series C Guarantee on behalf of the holders of the Series C Preferred
Securities. The holders of Preferred Trust Receipts, together with the holders
of the Series C Preferred Securities other than the Trust, representing not
less than 10% in aggregate stated liquidation preference of the Series C
Preferred Securities have the right to direct the time, method and place of
conducting any proceeding to enforce any remedy available in respect of the
Series C 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 Series C Guarantee as above
provided, any holder of Preferred Trust Receipts representing Series C
Preferred Securities, and any holder of Series C Preferred Securities other
than the Trust, may institute a legal proceeding directly against PECO Energy
to enforce its rights under the Series C Guarantee without first instituting a
legal proceeding against PECO Energy Capital or any other person or entity. The
Series C Guarantee will not be discharged except by payment of the Guarantee
Payments in full to the extent not paid by PECO Energy Capital and by complete
performance of all obligations of PECO Energy contained in the Series C
Guarantee.
Relationship among Series C Guarantee, Series C Subordinated Debentures and
Series C Preferred Securities
In addition to the obligations of PECO Energy under the Series C
Guarantee, the Indenture provides that PECO Energy shall cause the General
Partner to remain the general partner of PECO Energy 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 PECO Energy Capital (for the purpose of insuring that payment of principal
and interest by PECO Energy on the Subordinated Debentures will be sufficient
to allow payment in full to the holders of the Preferred Securities) and the
covenant of the General Partner in the Partnership Agreement to at all times
maintain a "fair market value net worth" of at least 10% of the total
contributions (less redemptions) to PECO Energy Capital. 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
PECO Energy Capital. Accordingly, the Series C Guarantee and the Indenture,
together with the related covenants contained in the Partnership Agreement and
PECO Energy's obligations under the Subordinated Debentures, provide for PECO
Energy's full and unconditional guarantee of the Series C Preferred Securities
as set forth above.
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Certain Covenants of PECO Energy
Under the Series C Guarantee, PECO Energy will covenant that, so long as
any Series C Preferred Securities remain outstanding, neither PECO Energy nor
any majority-owned subsidiary of PECO Energy 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 PECO Energy shall be in default with respect to its payment
obligations under the Series C 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 Indenture.
Amendments
Except with respect to any changes which do not materially adversely
affect the rights of holders of Series C Preferred Securities (in which case no
vote will be required), the Series C Guarantee may be amended only with the
prior approval of the holders of Preferred Trust Receipts representing not less
than 66 2/3% of the aggregate stated liquidation preference of the outstanding
Series C Preferred Securities.
Merger of PECO Energy
So long as the Series C Preferred Securities remain outstanding, PECO
Energy will maintain its corporate existence; provided that PECO Energy may
consolidate with or merge with or into any other person or sell, convey,
transfer or lease all or substantially all its properties and assets 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 PECO Energy under the Series C Guarantee.
Termination of the Series C Guarantee
The Series C Guarantee will terminate and be of no further force and
effect upon full payment of the Redemption Price of all Series C Preferred
Securities or upon full payment of the amounts payable with respect to the
Series C Preferred Securities upon liquidation of PECO Energy Capital. The
Series C Guarantee will continue to be effective or will be reinstated, as the
case may be, if at any time any holder of Series C Preferred Securities must
restore payments of any sums paid under the Series C Preferred Securities or
the Series C Guarantee.
DESCRIPTION OF THE SERIES C SUBORDINATED
DEBENTURES AND THE INDENTURE
The following is a summary of certain terms and provisions of the Series C
Subordinated Debentures and the Indenture. Reference is made to the Indenture,
which is filed as an exhibit to the Registration Statement of which this
Prospectus forms a part.
General
The Series C Subordinated Debentures will be unsecured subordinated
obligations of PECO Energy issued under the Indenture. The Series C
Subordinated Debentures will be in a principal amount equal to the aggregate
stated liquidation preference of the Series C Preferred Securities plus the
General Partner's capital contribution in PECO Energy Capital, will bear
interest at a rate equal to the Distribution rate on the Series C Preferred
Securities payable on the Distribution dates, will have maturity and redemption
provisions corresponding to the redemption provisions of the Series C Preferred
Securities and will be subject to mandatory redemption upon the dissolution and
winding up of PECO Energy Capital. The entire principal amount of the Series C
Subordinated Debentures will become due and payable, together with any accrued
and unpaid interest thereon, on June 6, 2037.
PECO Energy will deliver the Series C Subordinated Debentures to the
General Partner to be held on behalf of the holders of the Series C Preferred
Securities. The Series C Subordinated Debentures will be delivered by PECO
Energy to evidence the loan by PECO Energy Capital to PECO Energy of an amount
equal to the proceeds received from the sale of the Series C Preferred
Securities, plus the General Partner's concurrent capital contribution in PECO
Energy Capital.
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Redemption
Except as provided below, the Series C Subordinated Debentures may not be
redeemed prior to June 6, 2002. PECO Energy shall have the right to redeem the
Series C Subordinated Debentures, in whole or in part, from time to time, on or
after June 6, 2002, upon not less than 30 nor more than 60 days' notice (and
not less than 40 days' notice to the Trust), at a redemption price equal to
100% of the aggregate principal amount to be redeemed, plus any accrued and
unpaid interest, to the redemption date, including interest accrued during an
Extension Period. PECO Energy will also have the right to redeem the Series C
Subordinated Debentures at any time upon the occurrence of a Tax Event if
certain conditions are met as described under "Description of the Series C
Preferred Securities--Special Event Redemptions." The Series C Subordinated
Debentures will be subject to mandatory redemption upon the dissolution of PECO
Energy Capital or upon redemption of the Series C Preferred Securities.
If PECO Energy gives a notice of redemption in respect of Series C
Subordinated Debentures, then, on or prior to the redemption date, PECO Energy
shall deposit with the paying agent funds sufficient to pay the applicable
redemption price and will give irrevocable instructions and authority to pay
such redemption price. If notice of redemption shall have been given, if
required, then the Series C 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 Series C Subordinated Debentures called
for redemption and such Series C Subordinated Debentures will no longer be
deemed to be outstanding.
Interest
The Series C Subordinated Debentures will bear interest at an annual rate
of 8% plus Additional Interest (as defined herein), if any, from the original
date of issuance. Interest will be payable monthly in arrears on the last day
of each month of each year, commencing on June 30, 1997, to PECO Energy
Capital.
PECO Energy will make additional interest payments on any overdue
installment of interest on the Series C Subordinated Debentures to PECO Energy
Capital at the same rate per annum as the annual rate payable on the Series C
Subordinated Debentures.
Interest payments on the Subordinated Debentures are eliminated in
consolidation from the Consolidated Statements of Income of PECO Energy.
Distributions on the Preferred Securities appear as a separate line item under
Interest Charges entitled "Company Obligated Manditorily Redeemable Preferred
Securities of a Partnership, which holds Solely Subordinated Debentures of the
Company" on the Consolidated Statements of Income of PECO Energy.
Additional Interest
If at any time PECO Energy Capital would be required to pay any taxes,
duties or other governmental charges of whatever nature (other than withholding
taxes) imposed by the United States, or any other taxing authority, then, in
any such case, PECO Energy also will pay as additional interest ("Additional
Interest") such amounts as shall be required so that the net amounts received
and retained by PECO Energy Capital after paying any such taxes, duties or
other governmental charges will not be less than the amounts PECO Energy
Capital would have received had no such taxes, duties or other governmental
charges been imposed.
Option to Extend Interest Payment Period
Under the Indenture, PECO Energy shall have the right at any time, so long
as an Event of Default under the Indenture has not occurred and is continuing,
to extend the interest payment period for all Subordinated Debentures for up to
60 consecutive months; provided that no Extension Period shall extend beyond
the stated maturity date or date of redemption of any series of Subordinated
Debentures. At the end of the Extension Period, PECO Energy shall pay all
interest then accrued and unpaid (together with interest thereon to the extent
permitted by applicable law at the rate per annum borne by such Subordinated
Debentures). During any such Extension Period, neither PECO Energy nor any
majority-owned subsidiary of PECO Energy 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 wholly owned subsidiaries). Prior
to the termination of any such Exten-
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sion Period, PECO Energy may shorten or further extend the interest payment
period, provided that such Extension Period, together with all such further
extensions thereof, may not exceed 60 consecutive months. Upon the termination
of any Extension Period and the payment of all amounts then due, PECO Energy
may select a new Extension Period subject to the above requirements. PECO
Energy shall give the Indenture Trustee notice of its selection of such
extended or shortened interest payment period one business day prior to the
earlier of (i) the date PECO Energy has selected to make the interest payment
or (ii) the date PECO Energy Capital is required to give notice to the New York
Stock Exchange or other applicable self-regulatory organization of the record
date or the date such Distributions are payable, but in any event not less than
two business days prior to such record date. PECO Energy shall cause the
Indenture Trustee to give such notice of PECO Energy's selection of such
Extension Period to the holders of the Preferred Securities.
Subordination
The Indenture provides that all payments by PECO Energy in respect of the
Subordinated Debentures, including the Series C 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 PECO Energy for money
borrowed and (B) indebtedness evidenced by securities, debentures, bonds or
other similar instruments issued by PECO Energy; (ii) all capital lease
obligations of PECO Energy; (iii) all obligations of PECO Energy issued or
assumed as the deferred purchase price of property, all conditional sale
obligations of PECO Energy and all obligations of PECO Energy under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business); (iv) certain obligations of PECO Energy 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 and all
dividends of other persons (other than Preferred Securities) for the payment of
which, in either case, PECO Energy 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 PECO Energy (whether or not such obligation is assumed by PECO
Energy), except for any such indebtedness that is by its terms subordinated to
or pari passu with the Subordinated Debentures or indebtedness between or among
PECO Energy and its affiliates.
Upon any payment or distribution of assets or securities of PECO Energy,
upon any dissolution or winding up or total or partial liquidation or
reorganization of PECO Energy, 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 PECO Energy Capital (as
holder of the Subordinated Debentures), the Indenture Trustee on behalf of such
holder or any Special Representative appointed by the holders of the Preferred
Securities shall be entitled to receive from PECO Energy 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 PECO Energy 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, requisite notice has been received by the Indenture Trustee and
such default shall not have been cured or waived by or on behalf of the holders
of such Senior Indebtedness.
If the Indenture Trustee, PECO Energy 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 Indenture shall limit the right of the Indenture Trustee,
PECO Energy Capital (as holder of the Subordinated Debentures) or the Special
Representative to take any action to accelerate the maturity of the
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Subordinated Debentures or to pursue any rights or remedies against PECO
Energy; provided that all Senior Indebtedness shall be paid before PECO Energy
Capital (as holder of the Subordinated Debentures) is entitled to receive any
payment from PECO Energy of principal of or interest on the Subordinated
Debentures.
Upon the payment in full of all Senior Indebtedness, PECO Energy 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 PECO Energy 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 PECO Energy may issue.
Certain Covenants of PECO Energy
PECO Energy 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 by wholly owned subsidiaries) (i) during an Extension Period, (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 Indenture
or (iii) if PECO Energy shall be in default with respect to its payment
obligations under any Guarantee. PECO Energy 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
PECO Energy Capital, (ii) to cause the General Partner to at all times maintain
a "fair market net worth" of at least 10% of the total capital contributions
(less redemptions) to PECO Energy Capital and to maintain general partner
interests representing 3% of all interests in the capital, income, gain, loss,
deduction and credit of PECO Energy Capital, (iii) to cause the General Partner
to timely perform all of its duties as general partner of PECO Energy Capital
(including the duty to pay Distributions on the Series C Preferred Securities),
and (iv) to use its reasonable efforts to cause PECO Energy Capital to remain a
limited partnership and otherwise continue to be treated as a partnership for
federal income tax purposes.
PECO Energy Capital may not waive compliance or waive any default in
compliance by PECO Energy with any covenant or other term in the Indenture
without the approval of the Special Representative or without the direction of
the holders of 66 2/3% of the aggregate stated liquidation preference of the
Preferred Securities.
Modification of the Indenture
The Indenture contains provisions permitting PECO Energy and the Indenture
Trustee, without the consent of the Special Representative or PECO Energy
Capital, to modify the Indenture or any Supplemental Indenture: (i) to cure any
ambiguity, defect or inconsistency; (ii) to comply with the provisions of the
Indenture regarding a successor to PECO Energy; (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 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.
The Indenture contains provisions permitting PECO Energy and the Indenture
Trustee, with the consent of the Special Representative or PECO Energy Capital
at the direction of the holders of not less than 66 2/3% of the aggregate stated
liquidation preference of the Preferred Securities, to modify the Indenture or
any supplemental indenture or the rights of the holders of the Subordinated
Debentures issued under the Indenture; provided that no such modification,
without the consent of each holder of the Subordinated Debentures affected, may,
(i) change the stated maturity date of the principal of, or any installment of
principal of or interest, if any, on, the Subordinated Debentures, (ii) reduce
the principal amount of, or premium or rate of interest, if any, on, the
Subordinated Debentures, (iii) reduce the amount of principal of Subordinated
Debentures payable upon acceleration of the maturity thereof, (iv) make the
Subordinated Debentures payable in money or securities other than as stated in
the Subordinated Debentures, (v) impair the right to institute suit for the
enforcement of any payment on or with respect to the Subordinated Debentures,
(vi) adversely change the redemption provisions of the Subordinated Debentures,
(vii) adversely affect the rights of the holders of the Subordinated Debentures
with respect to subordination or (viii) reduce the principal amount of the
holders of the Subordinated Debentures that must consent to an amendment of the
Indenture.
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Events of Default
The following are Events of Default under the Indenture: (i) default for
10 days in payment of any interest on any series of the Subordinated Debentures
(other than the payment of interest during an Extension Period); (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 Indenture or any series of Subordinated
Debentures or (iv) certain events of bankruptcy, insolvency or reorganization
of PECO Energy. In case an Event of Default under the Indenture shall occur and
be continuing (other than an Event of Default relating to bankruptcy,
insolvency or reorganization of PECO Energy, in which case principal and
interest on all of the Subordinated Debentures shall become immediately due and
payable), the Indenture Trustee, PECO Energy 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
PECO Energy Capital at the direction of the holders of 662/3% in aggregate
stated liquidation preference of Preferred Securities.
PECO Energy is required to furnish to the Indenture Trustee annually a
statement as to the performance by PECO Energy of its obligations under the
Indenture and as to any default in such performance.
Enforcement of Certain Rights of Holders of Preferred Securities
The holders of the Preferred Securities will have the rights referred to
under "Description of the Series C Preferred Securities--Voting Rights,"
including the right to appoint a Special Representative authorized to exercise
the rights of PECO Energy Capital, as the holder of the Series C Subordinated
Debentures, to declare the principal and interest on the Series C Subordinated
Debentures due and payable and to enforce the obligations of PECO Energy under
the Series C Subordinated Debentures and the Indenture directly against PECO
Energy, without first proceeding against PECO Energy Capital or any other
person or entity.
Consolidation, Merger, Sale or Conveyance
The Indenture provides that PECO Energy 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 PECO Energy under the Subordinated Debentures and the
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.
Defeasance and Discharge
Under the terms of the Indenture, PECO Energy will be deemed to have paid
and discharged the entire indebtedness of the Series C Subordinated Debentures
if PECO Energy irrevocably deposits with the Indenture Trustee or other paying
agent, in trust, (i) cash and/or (ii) United States Government Obligations (as
defined in the 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
Series C Subordinated Debentures then outstanding on the dates such payments
are due in accordance with the terms of the Series C Subordinated Debentures.
Information Concerning the Indenture Trustee
Subject to the provisions of the Indenture relating to its duties, the
Indenture Trustee will be under no obligation to exercise any of its rights or
powers under the Indenture, unless the Indenture Trustee receives security and
indemnity reasonably satisfactory to it. Subject to such provision for
indemnification, the holders of a
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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 Indenture Trustee thereunder, or exercising any trust or power conferred on
the Indenture Trustee.
The Indenture contains limitations on the right of the Indenture Trustee,
as a creditor of PECO Energy, 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 Indenture Trustee may be deemed to have
a conflicting interest and may be required to resign as Indenture Trustee if at
the time of default under the Indenture it is a creditor of PECO Energy.
First Union National Bank, the Indenture Trustee, has from time to time
engaged in transactions with, or performed services for, PECO Energy and its
affiliates in the ordinary course of business and is the Trustee under PECO
Energy's First and Refunding Mortgage, dated May 1, 1923.
UNITED STATES TAXATION
In the opinion of Ballard Spahr Andrews & Ingersoll, special tax counsel
to PECO Energy, the following are the material federal income tax consequences
(and certain Pennsylvania tax considerations) of the ownership and disposition
of Preferred Trust Receipts. Unless otherwise stated, this summary deals only
with Preferred Trust Receipts held as capital assets by holders. It does not
deal with special classes of holders, such as dealers in securities or
currencies, life insurance companies, persons holding Preferred Trust Receipts
as a hedge against or which are hedged against currency risks or as a part of a
straddle, or persons whose functional currency is not the United States dollar.
This summary is based on the Internal Revenue Code of 1986, as amended,
Treasury Regulations thereunder and administrative and judicial interpretations
thereof, as of the date hereof, all of which are subject to change (possibly on
a retroactive basis).
ALL PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT THEIR TAX ADVISERS
REGARDING THE FEDERAL INCOME TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION
OF PREFERRED TRUST RECEIPTS IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, AS WELL
AS THE EFFECT OF ANY STATE, LOCAL OR OTHER LAWS.
Classification of PECO Energy Capital and the Trust
In connection with the issuance of Preferred Trust Receipts, Ballard Spahr
Andrews & Ingersoll will render its tax opinion to the effect that, under then
current law and assuming full compliance with the terms of the Partnership
Agreement and the Trust Agreement, (i) PECO Energy Capital will be classified
for United States federal income tax purposes as a partnership and not as a
business entity taxable as a corporation and (ii) the Trust will be classified
as a grantor trust and not as a business entity taxable as a corporation.
As a consequence, each holder of Preferred Trust Receipts (a
"Securityholder") will be considered the owner of a pro rata portion of the
Series C Preferred Securities held by the Trust. As a further consequence, each
Securityholder will be required to include in gross income his pro rata share
of the income accrued on the Series C Subordinated Debentures held by PECO
Energy Capital and allocated by the Trust. Such income should not exceed
Distributions received by the Securityholders on the Preferred Trust Receipts
except in limited circumstances described under "--Potential Extension of
Payment Period." No portion of such income will be eligible for the dividends
received deduction.
Taxability of Distributions
PECO Energy Capital will be required to include stated interest on the
Series C Subordinated Debentures in its gross income as it accrues. Each
Securityholder, including a taxpayer who otherwise uses the cash method of
accounting, will be required to include his pro rata share of such interest
income in his gross income. Actual distributions of stated interest will not be
separately reported as taxable income. So long as the interest payment period
is not extended, cash Distributions received by an initial Securityholder for
any monthly interest period should equal the sum of the daily accruals of
income for such interest period.
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Potential Extension of Payment Period
Under the terms of the Indenture, PECO Energy will be permitted to extend
the interest payment period on the Series C Subordinated Debentures for up to
60 consecutive months. In the event that PECO Energy exercises this right, PECO
Energy may not declare dividends on any of its capital stock during such
Extension Period. PECO Energy currently believes that the extension of an
interest payment period is unlikely. In the event that the interest payment
period is extended, PECO Energy Capital will continue to accrue income,
generally equal to the amount of the interest payment due at the end of the
Extension Period, over the length of the Extension Period.
During an Extension Period, PECO Energy Capital will be required to
include original issue discount on the Series C Subordinated Debentures in its
gross income as it accrues, in accordance with a constant yield method based on
a compounding of interest. Each Securityholder, including a taxpayer who
otherwise uses the cash method of accounting, will be required to include his
pro rata share of such original issue discount in gross income. Accrued income
will be allocated, but not distributed, to Securityholders of record on the
15th day of each calendar month. As a result, during an Extension Period,
Securityholders will be required to include interest in gross income in advance
of the receipt of cash, and any Securityholders who dispose of Preferred Trust
Receipts prior to the record date for the payment of Distributions following
such extended interest payment period will include interest in gross income but
will not receive any cash related thereto from the Trust. The tax basis of a
Series C Preferred Security will be increased by the amount of any interest
that is included in income without a corresponding receipt of cash, and will be
decreased again when and if such cash is subsequently received from PECO Energy
and distributed by PECO Energy Capital and the Trust. The subsequent receipt or
distribution of such cash will not be included in gross income.
Withdrawal of Series C Preferred Securities
The receipt of Series C Preferred Securities by a Securityholder in
exchange for Preferred Trust Receipts (and vice versa), at the option of the
Securityholder, will not be a taxable event. The Securityholder's tax basis and
holding period for the Series C Preferred Securities immediately after the
exchange will equal the Securityholder's tax basis and holding period for the
Preferred Trust Receipts (or Series C Preferred Securities, as applicable)
surrendered in the exchange. Income earned from the Series C Preferred
Securities will be reported annually to the Securityholder and to the Internal
Revenue Service on Schedule K-1 and not on Form 1099.
Disposition of the Preferred Trust Receipts
Gain or loss will be recognized on a sale, including for a redemption for
cash, of Preferred Trust Receipts in an amount equal to the difference between
the amount realized and the Securityholder's tax basis in his pro rata share of
Series C Preferred Securities represented by such Preferred Trust Receipts.
Gain or loss recognized by a Securityholder on the sale or exchange of
Preferred Trust Receipts held for more than one year generally will be taxable
as long-term capital gain or loss.
Pennsylvania and Philadelphia Personal Property Taxes
In the opinion of Ballard Spahr Andrews & Ingersoll, the Preferred Trust
Receipts are exempt from existing personal property taxes in Pennsylvania and
Philadelphia.
United States Alien Holders
For purposes of this discussion, a "United States Alien Holder" is any
holder or beneficial owner who or which is (i) a nonresident alien individual
or (ii) a foreign corporation, partnership, estate or trust, in either case not
subject to federal income tax on a net income basis in respect of a Series C
Preferred Security.
Under present federal income tax law, subject to the discussions below
with respect to backup withholding, payments by the Trust or any of its paying
agents to any United States Alien Holder will not be subject to the United
States withholding tax provided that (i) the beneficial owner of the Preferred
Trust Receipt does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of PECO Energy, (ii) the
beneficial owner of the Preferred Trust Receipt is not a controlled foreign
corporation that is
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<PAGE>
related to PECO Energy through stock ownership, and (iii) either (a) the
beneficial owner of the Preferred Trust Receipt certifies to the Trust or its
agent, under penalties of perjury, that it is a United States Alien Holder and
provides its name and address or (b) the holder of the Preferred Trust Receipt
is a securities clearing organization, bank or other financial institution that
holds customers' securities in the ordinary course of its trade or business (a
"financial institution"), and such holder certifies to the Trust or its agent
under penalties of perjury that such statement has been received from the
beneficial owner by it or by a financial institution between it and the
beneficial owner and furnishes the payor with a copy thereof.
Backup Withholding and Information Reporting
In general, information reporting requirements will apply to payments to
noncorporate United States holders of the proceeds of the sale of the Preferred
Trust Receipts within the United States and "backup withholding" at a rate of
31% will apply to such payments if the seller fails to provide a correct
taxpayer identification number.
Payments of the proceeds from the sale by a United States Alien Holder of
Preferred Trust Receipts made to or through a foreign office of a broker will
not be subject to information reporting or backup withholding, except that, if
the broker is a United States person, a controlled foreign corporation for
federal tax purposes or a foreign person 50% or more of whose gross income is
effectively connected with a United States trade or business for a specified
three-year period, information reporting may apply to such payment. Payments of
the proceeds from the sale of Preferred Trust Receipts to or through the United
States office of a broker is subject to information reporting and backup
withholding unless the holder or beneficial owner certifies as to its non-
United States status or otherwise establishes an exemption from information
reporting and backup withholding.
Proposed Tax Law Changes
In late 1995, President Clinton proposed certain tax law changes that
would, among other things, generally deny interest deductions to corporate
issuers if the debt instrument has a term exceeding 20 years and is not
reflected as indebtedness on such issuer's consolidated balance sheet. Because
the term of the Series C Subordinated Debentures exceeds 20 years, this
proposal, were it to become effective, would prevent PECO Energy from deducting
interest on the Series C Subordinated Debentures. However, on March 29, 1996,
the Chairmen of the Senate Finance Committee and the House Ways and Means
Committee issued a joint statement to the effect that it was their intention
that the effective date of the President's legislative proposals, if adopted,
will be no earlier than the date of appropriate Congressional action. The
Clinton Administration renewed these proposals as part of its fiscal 1998
budget and would make them effective upon the date of first committee action.
The revised proposals of the Clinton Administration would apply to debt
instruments with terms exceeding 15 years. In the opinion of special tax
counsel to PECO Energy and PECO Energy Capital, under current law, interest on
the Series C Subordinated Debentures is deductible by PECO Energy. There can be
no assurance, however, that such proposals, subsequent proposals or final
legislation will not affect the ability of PECO Energy to deduct interest on
the Series C Subordinated Debentures which in turn could give rise to a Tax
Event and, accordingly, the General Partner's optional right to redeem the
Series C Preferred Securities, as described under "Description of the Series C
Preferred Securities--Special Event Redemptions."
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<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, PECO
Energy and PECO Energy Capital have agreed to cause the Trust to sell to each
of the Underwriters named below, and each of such Underwriters, for whom Smith
Barney Inc. and Lehman Brothers Inc. are acting as Representatives (the
"Representatives"), has severally agreed to purchase from the Trust, the
respective number of Preferred Trust Receipts set forth opposite its name
below:
Number of
Underwriter Preferred Trust Receipts
------------- --------------------------
Smith Barney Inc. ........................... 940,000
Lehman Brothers Inc. ........................ 940,000
A.G. Edwards & Sons Inc. .................. 15,000
Bear Stearns & Co. Inc. ..................... 15,000
Boenning & Scattergood Inc. ............... 15,000
Janney Montgomery Scott ..................... 15,000
Prudential Securities Incorporated ......... 15,000
Pryor, McClendon, Counts & Co. ............ 15,000
V. Robinson -- Humphrey Company, Inc. ...... 15,000
Wheat First Butcher Singer .................. 15,000
----------
Total ....................................... 2,000,000
==========
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the Preferred Trust
Receipts offered hereby, if any are taken.
The Underwriters propose to offer the Preferred Trust Receipts in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus, and in part to certain securities dealers at
such price less a concession of $0.50 per Preferred Trust Receipt, except that
such concession will be $0.30 per Preferred Trust Receipt sold to certain
institutions. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $0.35 per Preferred Trust Receipt to certain
brokers and dealers. After the Preferred Trust Receipts are released for sale
to the public, the offering price and other selling terms may from time to time
be varied by the Representatives.
Under the Underwriting Agreement, PECO Energy has agreed to pay to the
Underwriters an underwriting commission of $0.7875 per Preferred Trust Receipt,
except that such commission will be $0.50 per Preferred Trust Receipt sold to
certain institutions.
Prior to this offering, there has been no public market for the Preferred
Trust Receipts. The Preferred Trust Receipts have been approved for listing,
subject to official notice of issuance, on the New York Stock Exchange. Trading
of the Preferred Trust Receipts on the New York Stock Exchange is expected to
commence within a 30-day period after the initial delivery thereof. In order to
meet one of the requirements for listing the Preferred Trust Receipts on the
New York Stock Exchange, the Underwriters will undertake to sell lots of 100 or
more Preferred Trust Receipts to a minimum of 400 beneficial owners. The
Representatives have advised PECO Energy that they intend to make a market in
the Preferred Trust Receipts prior to commencement of trading on the New York
Stock Exchange, but are not obligated to do so and may discontinue market
making at any time without notice. No assurance can be given as to the
liquidity of the trading market for the Preferred Trust Receipts.
In connection with this offering and in compliance with applicable law,
the Underwriters may overallot (i.e., sell more Preferred Trust Receipts than
the total amount shown on the list of Underwriters and participations which
appears above) and may effect transactions which stabilize, maintain or
otherwise affect the market price of the Preferred Trust Receipts at levels
above those which might otherwise prevail in the open market. Such transactions
may include placing bids for the Preferred Trust Receipts or effecting
purchases of the Preferred Trust Receipts for the purpose of pegging, fixing or
maintaining the price of the Preferred Trust Receipts or for the purpose of
reducing a syndicate short position created in connection with the offering. In
addition, the contractual arrangements among the Underwriters include a
provision whereby, if the Representatives purchase Pre-
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<PAGE>
ferred Trust Receipts in the open market for the account of the underwriting
syndicate and the securities purchased can be traced to a particular
Underwriter or member of the selling group, the underwriting syndicate may
require the Underwriter or selling group member in question to purchase the
Preferred Trust Receipts in question at the cost price to the syndicate or may
recover from (or decline to pay to) the Underwriter or selling group member in
question the selling concession applicable to the securities in question. The
Underwriters are not required to engage in any of these activities and any such
activities, if commenced, may be discontinued at any time.
PECO Energy and PECO Energy Capital have agreed, during the period
beginning from the date of the Underwriting Agreement and continuing to and
including the earlier of (i) the date on which the distribution of the
Preferred Trust Receipts ceases, as determined by the Representatives, or (ii)
30 days after the closing date, not to offer, sell, contract to sell or
otherwise dispose of any Preferred Trust Receipts, Preferred Securities or any
preferred stock or any other securities of PECO Energy which are substantially
similar to the Preferred Trust Receipts or the Series C Preferred Securities,
including any guarantee of such securities, or any securities convertible into
or exchangeable for or representing the right to receive any of the foregoing
securities, without the prior written consent of the Representatives.
PECO Energy and PECO Energy Capital have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the Series C
Preferred Securities and the Preferred Trust Receipts will be passed upon for
PECO Energy Capital and the Trust by Richards, Layton & Finger, P.A.,
Wilmington, Delaware, special Delaware counsel to PECO Energy Capital and the
Trust. The validity of the Series C Guarantee and the Series C Subordinated
Debentures will be passed upon on behalf of PECO Energy by Ballard Spahr
Andrews & Ingersoll, Philadelphia, Pennsylvania. Certain legal matters will be
passed upon on behalf of the Underwriters by Drinker Biddle & Reath LLP,
Philadelphia, Pennsylvania, counsel to the Underwriters. Ballard Spahr Andrews
& Ingersoll and Drinker Biddle & Reath LLP will rely on Richards, Layton &
Finger, P.A. as to certain matters of Delaware law.
ACCOUNTING TREATMENT
The financial statements of PECO Energy Capital will be consolidated with
PECO Energy's financial statements, with the Series C Preferred Securities
shown on PECO Energy's consolidated financial statements as "Company Obligated
Manditorily Redeemable Preferred Securities of a Partnership, which holds
Solely Subordinated Debentures of the Company." PECO Energy's financial
statements will include a footnote that discloses, among other things, that the
sole asset of PECO Energy Capital consists of Subordinated Debentures and will
specify the principal amount, interest rate and maturity date of each series of
Subordinated Debentures.
EXPERTS
The consolidated financial statements and schedule of PECO Energy
incorporated by reference in this Prospectus have been audited by Coopers &
Lybrand L.L.P., independent accountants, for the periods indicated in their
report thereon which is included in the Annual Report on Form 10-K for the year
ended December 31, 1996. The consolidated financial statements and schedule
audited by Coopers & Lybrand L.L.P. have been incorporated herein by reference
in reliance on their report given on their authority as experts in accounting
and auditing.
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<PAGE>
==============================================================================
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and, if given or
made, such information or representations must not be relied upon as having
been authorized. This Prospectus does not constitute an offer to sell or the
solicitation of any offer to buy any securities other than the securities
described in this Prospectus or an offer to sell or the solicitation of an
offer to buy such securities in any circumstances in which such offer or
solicitation is unlawful. Neither the delivery of this Prospectus nor any sale
made hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any time subsequent to the date
of such information.
--------------------------
TABLE OF CONTENTS
Page
------
Available Information ........................... 4
Incorporation of Certain Documents by
Reference .................................... 4
Risk Factors .................................... 5
PECO Energy ....................................... 7
PECO Energy Capital .............................. 7
The Trust ....................................... 7
Coverage Ratios ................................. 8
Use of Proceeds ................................. 8
Description of the Preferred Trust Receipts ...... 8
Description of the Series C Preferred
Securities .................................... 13
Description of the Series C Guarantee ............ 18
Description of the Series C Subordinated
Debentures and the Indenture .................. 20
United States Taxation ........................... 25
Underwriting .................................... 28
Legal Matters .................................... 29
Accounting Treatment .............................. 29
Experts .......................................... 29
==============================================================================
<PAGE>
==============================================================================
2,000,000 Trust Receipts
PECO Energy Capital
Trust II
each representing an
8% Cumulative Monthly
Income Preferred
Security, Series C
of PECO Energy Capital, L.P.
guaranteed to the extent
PECO Energy Capital, L.P. has funds
as set forth herein by
PECO Energy Company
[GRAPHIC OMITTED]
Smith Barney Inc.
Lehman Brothers
Representatives of the Underwriters
==============================================================================
