INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT.
SUBJECT TO COMPLETION, DATED MARCH 25, 1998
P R O S P E C T U S
PECO ENERGY CAPITAL TRUST III
78,105 Capital Trust Pass-through SecuritiesSM (TRUPSR)*
each representing a ____% Cumulative Preferred Security,
Series D of PECO Energy Capital, L.P.
(stated liquidation preference $1,000 per Preferred Security)
fully and unconditionally guaranteed to the extent PECO Energy Capital, L.P.
has funds as set forth herein by
PECO ENERGY COMPANY
The Capital Trust Pass-through SecuritiesSM ("Capital Securities")
offered hereby by PECO Energy Capital Trust III, a statutory business trust
created under the laws of the State of Delaware (the "Trust") each
represent a ____% Cumulative Preferred Security, Series D (a "Series D
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 7 FOR CERTAIN INFORMATION
RELEVANT TO AN INVESTMENT IN THE CAPITAL SECURITIES, INCLUDING THE PERIOD
DURING WHICH AND CIRCUMSTANCES UNDER WHICH DISTRIBUTIONS ON THE CAPITAL
SECURITIES MAY BE DEFERRED AND THE RELATED FEDERAL INCOME TAX
CONSEQUENCES.
The Capital Securities have been approved for listing on the New York
Stock Exchange, subject to official notice of issuance. Trading of the
Capital Securities 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
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE COMMISSION(1) THE TRUST(2)(3)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Capital Security $1,000.00 (2) $1,000.00
- -------------------------------------------------------------------------------
Total $78,105,000 (2) $78,105,000
- -------------------------------------------------------------------------------
</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 $10 per Capital Security (or $781,050 in the aggregate).
See "Underwriting."
(3) Expenses of the offering, which are payable by PECO Energy, are
estimated to be $320,000.
The Capital Securities 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 Capital Securities will be made in
book-entry-only form through the facilities of The Depository Trust Company on
or about April _____, 1998.
- -----------------
* Salomon Brothers Inc has filed an application with the United
States Patent and Trademark Office for the registration of the
"Capital Trust Pass-through Securities" service mark. "TRUPS" is a
registered service mark of Salomon Brothers Inc.
SALOMON SMITH BARNEY MERRILL LYNCH & CO.
MARCH 25, 1998
<PAGE>
(continued from previous page)
The Trust will use the proceeds from the sale of its Capital Securities to
purchase the Series D Preferred Securities, which will be the sole assets of
the Trust. PECO Energy Capital will lend the proceeds from the sale of its
Series D 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 ____% Subordinated Deferrable Interest Debentures, Series D, due 2028
(the "Series D Subordinated Debt Securities").
Holders of the Capital Securities will be entitled to receive
Distributions (as defined below) at the rate of __% of the liquidation amount
of $1,000 per Capital Security accumulating from the date of original issuance
and payable (subject to any Extension Period described below) semiannually in
arrears on April 30 and October 31, of each year, commencing April 30, 1998.
Whenever the Trust receives any cash distribution representing a semiannual
distribution on the Series D Preferred Securities (whether or not distributed
by PECO Energy Capital on the regular semiannual distribution date therefor)
or payment under the Payment and Guarantee Agreement (the "Series D
Guarantee") issued by PECO Energy for the benefit of the holders of the Series
D Preferred Securities, the Trust will distribute such amounts to the holders
of the Capital Securities in proportion to their respective number of Series D
Preferred Securities represented by such Capital Securities. As used herein,
the terms "Distribution" and "Distributions" shall include, as the context
requires, all semiannual distributions on the Capital Securities and the
Series D Preferred Securities, including any and all payments made under the
Series D Guarantee, as well as interest payments on the Series D Subordinated
Debt Securities. 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 (collectively, "Subordinated Debt Securities")
for up to 60 consecutive months (each, an "Extension Period"). During any
Extension Period, no Distributions will be made on the Series D Preferred
Securities represented by the Capital Securities. See "Description of the
Series D Subordinated Debt Securities and the Indenture--Option to Extend
Interest Payment Period" and "--Events of Default."
PECO Energy will, through the Series D Guarantee, the Amended and Restated
Trust Agreement relating to the Trust (the "Trust Agreement"), the Indenture
and the Series D Subordinated Debt Securities, taken together, fully,
irrevocably and unconditionally guarantee all of PECO Energy Capital's
obligations under the Series D Preferred Securities. Under the Series D
Guarantee, PECO Energy will guarantee payment of accumulated and unpaid
semiannual Distributions, amounts payable upon redemption and amounts payable
upon liquidation with respect to the Series D 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 D Subordinated Debt
Securities, PECO Energy Capital will not have sufficient funds to pay
Distributions on the Series D Preferred Securities. The Series D 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 Capital Securities representing the Series D 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 D Preferred Securities--Voting Rights." The obligations of PECO
Energy under the Series D Guarantee will be subordinate and junior in right of
payment to all general liabilities of PECO Energy and its obligations under
the Series D Subordinated Debt Securities will be subordinate and junior in
right of payment to all present and future Senior Indebtedness of PECO Energy
(as defined in "Description of the Series D Subordinated Debt Securities--
Subordination"), which aggregated approximately $4.678 billion at
December 31, 1997.
The Capital Securities will be subject to mandatory redemption upon any
redemption of Series D Preferred Securities, which will be subject to optional
redemption upon the occurrence of certain tax events, and which will be
subject to mandatory redemption upon payment at maturity or redemption of the
Series D Subordinated Debt Securities and the occurrence of certain events
under the Investment Company Act of 1940, as amended. See "Description of the
Series D Preferred Securities--Mandatory Redemption" and "--Special Event
Redemptions."
In the event of the liquidation of PECO Energy Capital, the Trust will
distribute to the holders of Capital Securities, 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 in "Risk Factors--Rights Under the Series
D Guarantee") or the amount of assets of PECO Energy Capital legally available
therefor, in either case, in proportion to the respective number of Series D
Preferred Securities represented by such Capital Securities. Upon any
voluntary or involuntary dissolution or liquidation of PECO Energy Capital,
the holders of Series D 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 $1,000 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 Preferred Securities of PECO Energy Capital
(collectively, "Preferred Securities") will be distributed to the General
Partner.
The Capital Securities will be represented by global securities registered
in the name of The Depository Trust Company ("DTC") or its nominee.
Beneficial interests in the Capital Securities will be shown on, and transfers
thereof will be effected only through, records maintained by participants in
DTC. Capital Securities in certificated form will not be issued in exchange
for the global securities. See "Description of the Capital
Securities--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 CAPITAL
SECURITIES, INCLUDING ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
<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 Capital Securities 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, 1997; and
2. PECO Energy's Current Reports on Form 8-K dated January 9, 1998,
January 15, 1998, January 22, 1998, January 23, 1998 and
January 26, 1998.
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.
3
<PAGE>
- -------------------------------------------------------------------------------
SUMMARY
The following summary is qualified in its entirety by reference
to the detailed information appearing elsewhere in this Prospectus.
RISK FACTORS
Prospective investors should carefully consider the matters set
forth under "Risk Factors."
PECO ENERGY
Incorporated in Pennsylvania in 1929, PECO Energy provides
retail electric and natural gas service in southeastern
Pennsylvania and, through pilot programs, natural gas service to
areas in Maryland and New Jersey. PECO Energy also engages in the
wholesale marketing of electricity on a national basis and
participates in joint ventures which provide telecommunication
services in the Philadelphia area.
PECO Energy's traditional retail service territory covers 2,107
square miles. Electric service is furnished to an area of 1,972
square miles with a population of approximately 3.6 million,
including 1.6 million in the City of Philadelphia. Approximately
94% of the retail electric service area and 64% of retail
kilowatthour sales are in the suburbs around Philadelphia, and 6%
of the retail 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 approximately 1.9 million. Through Horizon
Energy, a wholly owned subsidiary of PECO Energy, and PECO
Energy/EnergyOne, a franchised energy products brand, PECO Energy
participates in Pennsylvania's pilot program for retail
competition for generation. For additional information, see "PECO
Energy."
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 Debt Securities issued by PECO Energy
in series under the Indenture. The Subordinated Debt Securities
are the only assets of PECO Energy Capital and the only revenues of
PECO Energy Capital are interest on the Subordinated Debt
Securities. 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 III 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 Capital Securities
representing the Series D Preferred Securities to be held by the
Trust and performing functions directly related thereto. The Trust
cannot issue other equity securities or any debt securities. The
Series D Preferred Securities will be 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 Capital Securities or other person, such holder or other
person will be liable for such fees, charges and expenses.
THE OFFERING
Securities Offered.................... $78,105,000 aggregate stated
liquidation preference of
Capital Securities
(liquidation preference
$1,000 per Capital
Security).
Offering Price....................... $1,000 per Capital Security.
General.............................. Each Capital Security will
represent a Series D
Preferred Security issued
by PECO Energy Capital.
Such Series D Preferred
Securities will represent
an undivided beneficial
interest in the assets of
PECO Energy
4
<PAGE>
Capital. PECO Energy Capital
will use the proceeds from
the sale of its Series D
Preferred Securities to
purchase the Series D
Subordinated Debt
Securities, which mature
on April __, 2028 unless
redeemed earlier as
described under "Series D
Preferred Securities--
Special Event
Redemptions."
Distributions........................ The Distributions payable on the
Capital Securities will
be fixed at a rate per
annum of ____% of of the
stated liquidation
preference of $1,000 per
Capital Security and will
accumulate from the date
of original issuance of
the Capital Securities
and (subject to any
Extension Period) will be
payable semiannually, in
arrears, on April 30 and
October 31 of each year,
commencing April 30,
1998. See "Description
of the Capital
Securities--Distributions."
Option to Extend Interest So long as no Event
Payment Period..................... of Default has occurred and
is continuing under the
Indenture, PECO Energy
will have the right to
extend the interest
payment period for all
Subordinated Debt
Securities pursuant to an
Extension Period. No
Extension Period may
exceed 60 consecutive
months or extend beyond
the maturity date of any
Subordinated Debt
Securities.
Distributions on the
Capital Securities will
be deferred during any
Extension Period. See
"Description of the
Series D Subordinated
Debt Securities--Option to
Extend Interest Payment
Period" and "United
States Taxation--Potential
Extension of Payment
Period."
Liquidation Preference............... In the event of the liquidation
of PECO Energy Capital,
the Trust will distribute
to the holders of Capital
Securities, 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 in "Risk
Factors--Rights Under the
Series D Guarantee") or
the amount of assets of
PECO Energy Capital
legally available
therefor, in either case,
in proportion to the
respective number of
Series D Preferred
Securities represented by
such Capital Securities.
Upon any voluntary or
involuntary dissolution
or liquidation of PECO
Energy Capital, the
holders of Series D
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 $1,000
stated liquidation
preference and all
accumulated and unpaid
Distributions to the date
of payment. See
"Description of the
Series D Preferred
Securities--Liquidation
Distribution."
Redemption of Capital Securities..... The Series D Preferred
Securities are not
subject to redemption
except upon the repayment
of the Series D
Subordinated Debt
Securities at maturity or
upon the occurrence of
certain Special Events as
described in "Description
of the Series D Preferred
Securities--Mandatory
Redemption" and "--Special
Event
5
<PAGE>
Redemptions." The
proceeds from any
redemption of the Series D
Preferred Securities
will be used to redeem a
like amount of Capital
Securities. See
"Description of the Capital
Securities--Redemption."
The Series D Guarantee............... Under the Series D
Guarantee, PECO Energy
will guarantee payment of
accumulated and unpaid
semiannual Distributions,
amounts payable on
redemption and amounts
payable upon liquidation
with respect to the
Series D 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. The Series D
Guarantee does not cover
payment of Distributions
when PECO Energy Capital
does not have sufficient
funds to pay such
Distributions. PECO
Energy will, through the
Series D Guarantee, the
Trust Agreement, the
Indenture and the Series D
Subordinated Debt
Securities taken
together, fully,
irrevocably and
unconditionally guarantee
all of PECO Energy
Capital's obligations
under the Series D
Preferred Securities.
Ranking.............................. The Series D
Subordinated Debt
Securities will be
subordinate and rank
junior in right of
payment to all Senior
Indebtedness of PECO
Energy. See "Description
of the Series D
Subordinated Debt
Securities--Subordination."
The Guarantee will be
subordinate and rank junior
in right of payment to
all general liabilities
of PECO Energy. See
"Description of the
Guarantee--Status of the
Series D Guarantee."
Voting Rights........................ Holders of Capital
Securities will have
limited voting rights.
See "Description of the
Capital Securities--
Voting Rights."
Ratings.............................. The Capital Securities
have been rated Baa2 by
Moody's Investors
Service, Inc., BBB by
Standard and Poor's
Rating Services, BBB+ by
Fitch IBCA, Inc. and BBB-
by Duff & Phelps. A
security rating is not a
recommendation to buy,
sell or hold securities
and may be subject to
revision or withdrawal at
any time by the assigning
rating organization.
ERISA Considerations................. Prospective purchasers
should consider the
information set forth
under "ERISA
Considerations."
Use of Proceeds....................... It is anticipated that
PECO Energy will use the
proceeds from the sale of
the Series D Subordinated
Debt Securities to redeem
a series of outstanding
Preferred Securities.
See "Use of Proceeds."
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6
<PAGE>
RISK FACTORS
Prospective purchasers of Capital Securities should carefully review the
information contained elsewhere in this Prospectus and should particularly
consider the following matters:
RANKING OF SUBORDINATE OBLIGATIONS UNDER THE SERIES D GUARANTEE AND SERIES D
SUBORDINATED DEBT SECURITIES
PECO Energy's obligations under the Series D Guarantee will be subordinate
and junior in right of payment to all general liabilities of PECO Energy and
its obligations under the Series D Subordinated Debt Securities will be
subordinate and junior in right of payment to all Senior Indebtedness of PECO
Energy (as defined under "Description of the Series D Subordinated Debt
Securities and the Indenture--Subordination"). At December 31, 1997, the
Senior Indebtedness of PECO Energy aggregated approximately $4.6 78 billion.
There are no terms in the Series D Subordinated Debt Securities or the Series
D Guarantee that limit PECO Energy's ability to incur additional indebtedness,
including indebtedness that ranks senior to the Series D Subordinated Debt
Securities and the Series D Guarantee. The Series D Guarantee guarantees
payment of accumulated and unpaid semiannual Distributions, amounts payable on
redemption and amounts payable on liquidation with respect to the Series D
Preferred Securities, in each case, how ever, 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 D Subordinated Debt Securities, PECO Energy Capital
would lack legally available funds for the payment of Distributions or amounts
payable on redemption of the Series D Preferred Securities or upon liquidation
of PECO Energy Capital, and in such event, the holders of the Capital
Securities representing the Series D Preferred Securities would not be able to
rely upon the Series D Guarantee for payment of such amounts. Instead,
holders of the Capital Securities representing the Series D 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 D Preferred Securities--Voting Rights." See
"Description of the Series D Guarantee Status of the Series D Guarantee" and
"Description of the Series D Subordinated Debt Securities and the
Indenture--Subordination."
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSIDERATIONS
PECO Energy will have the right under the Indenture to extend the interest
payment period on all Subordinated Debt Securities for up to 60 consecutive
months, and, as a consequence, semiannual Distributions on the Series D
Preferred Securities may be deferred by PECO Energy Capital during any such
Extension Period. Distributions in arrears after the semiannual distribution
date therefor will accumulate additional Distributions thereon at the rate per
annum of _____% thereof. In the event PECO Energy exercises its right to
extend the interest payment period on the Subordinated Debt Securities, PECO
Energy may not declare dividends on any shares of its capital stock during
such Extension Period. See "Description of the Series D Subordinated Debt
Securities and the Indenture--Option to Extend Interest Payment Period."
Should an Extension Period occur, a holder of Capital Securities will
accrue interest income (as original issue discount) on an economic accrual
basis in respect of its pro rata share of the Series D Preferred Securities
held by the Trust. As a result, a holder of Capital Securities 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 Capital Securities 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 D
Subordinated Debt Securities. However, should PECO Energy exercise such right
in the future, the market price of the Capital Securities is likely to be
affected. An owner who disposes of Capital Securities during an Extension
Period might not receive the same return on investment as an owner who
continues to hold Capital Securities. In addition, as a result of the mere
existence of PECO Energy's right to defer interest payments on the Series D
Subordinated Debt Securities, the market price of the Capital Securities may
be more volatile than other securities that are not subject to such deferrals.
TAX EVENT OR INVESTMENT COMPANY EVENT REDEMPTION
Upon the occurrence and continuation of a Tax Event (as defined in
"Description of the Series D Preferred Securities--Special Event Redemptions"),
the General Partner will have the right to redeem the Series D Preferred
Securities, in whole or in part, and upon the occurrence of an Investment
Company Event (as defined in "Description of the Series D Preferred
Securities--Special Event Redemptions"), the General Partner must redeem the
Series D Preferred Securities in whole but not in part, and in either cas e,
cause a mandatory redemption of the Capital Securities at a redemption price
equal to the liquidation preference of $1,000 plus accumulated and unpaid
Distributions to the date of redemption within 90 days
7
<PAGE>
following the occurrence of such Tax Event or Investment Company Event. A
holder of Series D Preferred Securities will recognize gain or loss upon
such a redemption for federal income tax purposes to the extent that the
liquidation preference differs from such holder's adjusted tax basis for
the Series D 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 Capital Securities."
RIGHTS UNDER THE SERIES D GUARANTEE
Under the Series D Guarantee, PECO Energy will agree to pay (i) any
accumulated and unpaid Distributions on the Series D 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 D
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 below)
applicable to the Series D Preferred Securities and (b) the amount of assets
of PECO Energy Capital legally available for distribution to holders of Series
D 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 D Guarantee--General." If PECO
Energy were to default on its obligation to pay amounts payable on the Series
D Subordinated Debt Securities, PECO Energy Capital would lack funds for the
payment of Distributions or amounts payable on redemption of the Series D
Preferred Securities or upon liquidation of PECO Energy Capital, and, in each
such event, holders of Capital Securities would not be able to rely upon the
Series D Guarantee for payment of such amounts. The holders of Capital
Securities, together with the holders of Series D Preferred Securities other
than the Trust, representing not less than 10% aggregate liquidation
preference of the Series D Preferred Securities will have the right to direct
the time, method and place of conducting any proceeding for any remedy
available in respect of the Series D Guarantee, including the right to direct
the General Partner or the Special Representative (as defined under
"Description of the Series D Preferred Securities--Voting Rights"), as the
case may be. If the General Partner or Special Representative fails to
enforce the Series D Guarantee, any holder of the Capital Securities may
institute a legal proceeding directly against PECO Energy to enforce its
rights under the Series D Guarantee without first instituting a legal
proceeding against PECO Energy Capital or any other person or entity. See
"Description of the Series D Guarantee--Status of the Series D Guarantee" and
"Description of the Series D Subordinated Debt Securities and the
Indenture--Subordination."
The Series D 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 Trust Agreement provides that each holder of
Capital Securities, by acceptance thereof, agrees to the provisions of the
Series D Guarantee, including the subordination provisions thereof.
LIMITED VOTING RIGHTS
Holders of Capital Securities will have limited voting rights and will
only be entitled, together with the other holders of Preferred Securities, 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 months; (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 D Preferred Securities--Voting
Rights."
TRADING CHARACTERISTICS OF THE CAPITAL SECURITIES
The Capital Securities may trade at a price that does not fully reflect
the value of accrued but unpaid interest with respect to the Series D
Subordinated Debt Securities. An owner of Capital Securities who disposes of
Capital Securities between record dates for payments of Distributions will
nevertheless be required to include accrued but unpaid interest on the Series
D Subordinated Debt Securities through the date of disposition in income as
ordinary income and to add such amount to its adjusted tax basis of the
Capital Securities 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."
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PECO ENERGY
Incorporated in Pennsylvania in 1929, PECO Energy provides retail electric
and natural gas service in southeastern Pennsylvania and, through pilot
programs, natural gas service to areas in Maryland and New Jersey. PECO
Energy also engages in the wholesale marketing of electricity on a national
basis and participates in joint ventures which provide telecommunication
services in the Philadelphia area.
PECO Energy's traditional retail service territory covers 2,107 square
miles. Electric service is furnished to an area of 1,972 square miles with a
population of approximately 3.6 million, including 1.6 million in the City of
Philadelphia. Approximately 9 4% of the retail electric service area and 64%
of retail kilowatthour sales are in the suburbs around Philadelphia, and 6% of
the retail 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 approximately 1.9
million. Through Horizon Energy, a wholly owned subsidiary of PECO Energy,
and PECO Energy/EnergyOne, a franchised energy products brand, PECO Energy
participates in Pennsylvania's pilot program for retail competition for
generation.
The electric and gas utility industries are both undergoing fundamental
restructuring. In 1996, the Federal Energy Regulatory Commission issued Order
No. 888 providing for competition in wholesale generation by requiring that
all public utilities file non-discriminatory, open-access transmission
tariffs. In December 1996, Pennsylvania Governor Ridge signed into law the
Electricity Generation Customer Choice and Competition Act (the "Competition
Act") which provides for the restructuring of the electric utility industry
in Pennsylvania, including retail competition for generation beginning in
1999. At December 31, 1997, the Company discontinued the use of regulatory
accounting in its financial statements for its electric generation operations.
DEREGULATION
Pursuant to the Competition Act, in April 1997, PECO Energy filed with the
Pennsylvania Public Utility Commission (the "PUC") a comprehensive
restructuring plan detailing its proposal to implement full customer choice of
electric generation supplier. PECO Energy's restructuring plan identified
$7.5 billion of stranded costs (the loss in value of PECO Energy's electric
generation-related assets, which will result from competition). In August
1997, PECO Energy and various intervenors in PECO Energy's restructuring
proceeding filed with the PUC a Joint Petition for Partial Settlement (the
"Pennsylvania Plan").
In December 1997, the PUC rejected the Pennsylvania Plan and entered an
Opinion and Order, revised in January 1998 (the "PUC Restructuring Order"),
that deregulates PECO Energy's electric generation operations. The PUC
Restructuring Order authorizes PECO Energy to recover stranded costs of $4.9
billion on a discounted basis, or $5.3 billion on a book-value basis, over
8-1/2 years beginning in 1999. In January 1998, PECO Energy filed appeals of
the PUC Restructuring Order with the U.S. District Court for the Eastern
District of Pennsylvania (the "Eastern District Court") and the Commonwealth
Court of Pennsylvania (the "Commonwealth Court").
PECO Energy believes that the PUC Restructuring Order provides sufficient
details regarding the deregulation of PECO Energy's electric generation
operations to require PECO Energy to discontinue the use of regulatory
accounting in its financial statements for those operations. PECO Energy
determined that at December 31, 1997, $5.8 billion of its $7.1 billion of
electric generation assets were impaired and it had $2.6 billion of other
electric generation-related regulatory assets. Effective December 31, 19 97,
PECO Energy recorded an extraordinary charge against income of $3.1 billion
($1.8 billion net of income taxes) to reflect the amount of such electric
generation-related assets which will not be recovered from customers either
prior to the commencement of competition or under the PUC Restructuring Order.
On January 25, 1998, PECO Energy's Board of Directors reduced the
quarterly common stock dividend from $0.45 per share to $0.25 per share,
effective with the dividend payable on March 31, 1998. The Board of Directors
concluded that, given the impact of the PUC Restructuring Order, the dividend
reduction was necessary to provide PECO Energy with the financial flexibility
needed to meet the demands of competition. Although PECO Energy cannot
predict the ultimate effect of the PUC Restructuring Order and competition
for electric generation services, PECO Energy believes that its future
financial condition and results of operations will be adversely affected.
PECO Energy's mailing address is P.O. Box 8699, Philadelphia, PA 19101,
and its telephone number is (215) 841-4000.
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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 Debt
Securities issued by PECO Energy in series under the Indenture. The
Subordinated Debt Securities are the only assets of PECO Energy Capital and
the only revenues of PECO Energy Capital are interest on the Subordinated Debt
Securities. The General Partner pays all of PECO Energy Capital's operating
expenses and has general liability for all of PECO Energy Capital's
obligations. PECO Energy Capital's mailing address is 1013 Centre Road,
Suite 350F, Wilmington, DE 19805, and its telephone number is (302) 998-0592.
THE TRUST
PECO Energy Capital Trust III 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 Capital Securities representing the Series D
Preferred Securities to be held by the Trust and performing functions directly
related thereto. The Trust cannot issue other equity securities or any debt
securities. The Series D Preferred Securities will be 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 incurs fees, charges or
expenses for which it is not otherwise liable under the Trust Agreement at the
election of a holder of Capital Securities or other person, such holder or
other person will be liable for such fees, charges and expenses. The Trust's
mailing address is c/o First Union Trust Company, National Association, One
Rodney Square, 920 King Street, 1st Floor, Wilmington, DE 19801, and its
telephone number is (302) 888-7539.
COVERAGE RATIOS
PECO Energy's Ratio of Earnings to Fixed Charges for each of the periods
indicated was as follows:
YEARS ENDED DECEMBER 31,
------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
3.15 2.66 3.41 3.29 2.71
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:
YEARS ENDED DECEMBER 31,
------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
2.67 2.32 3.12 3.04 2.50
The Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends represents, on a pre-tax basis, the number of times earnings cover
fixed charges and preferred stock dividends. Earnings consist of net income
to which has been added fixed charges and taxes based on income of 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.
For purposes of calculating the 1997 ratio of earnings to fixed charges
and ratio of earnings to fixed charges and preferred stock dividends, net
income does not reflect the extraordinary charge against income of $3.1
billion ($1.8 billion net of income taxes). See "PECO Energy."
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ACCOUNTING TREATMENT
The financial statements of PECO Energy Capital will be consolidated with
PECO Energy's financial statements, with the Series D Preferred Securities
shown on PECO Energy's consolidated financial statements as "Company Obligated
Mandatorily 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 Debt
Securities and will specify the principal amount, interest rate and maturity
date of each series of Subordinated Debt Securities.
USE OF PROCEEDS
The net proceeds from the sale of Capital Securities will be used by the
Trust to purchase the Series D Preferred Securities from PECO Energy Capital.
PECO Energy Capital will lend the proceeds from the sale of the Series D
Preferred Securities, plus the capital contribution made by the General
Partner, to PECO Energy, which loan will be evidenced by the Series D
Subordinated Debt Securities. These funds will be used by PECO Energy in
connection with its redemption of $78,104,575 aggregate liquidation value of
Trust Receipts of PECO Energy Capital Trust I, each representing an 8.72%
Cumulative Monthly Income Preferred Security, Series B of PECO Energy Capital.
DESCRIPTION OF THE CAPITAL SECURITIES
The following is a summary of certain terms and provisions of the Capital
Securities 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.
GENERAL
The Capital Securities will be issued by the Trust pursuant to the Trust
Agreement. Each Capital Security will represent a Series D Preferred
Security, with a stated liquidation preference of $1,000. The Capital
Securities will be issued in book-entry form through DTC or such other
depository at which PECO Energy may have established an account. Capital
Securities may be exchanged for the underlying Series D Preferred Securities
as described under "--Withdrawal of Series D Preferred Securities."
The Trust is a statutory business trust created under the Delaware
Business Trust Act. The Trustee will hold the Series D Preferred Securities
deposited in the Trust for the benefit of the holders of the Capital
Securities. The Trust Agreement provides that, to the fullest extent
permitted by law, without the need for any other action of any person,
including the Trustee and any other holder of Capital Securities, each holder
of Capital Securities shall be entitled to enforce in the name of the Trust
the Trust's rights under the Series D Preferred Securities represented by the
Capital Securities held by such holder.
It is anticipated that the assets of the Trust available for distribution
to the holders of the Capital Securities will be limited to payments from PECO
Energy Capital under the Series D Preferred Securities, which payments by PECO
Energy Capital will be limited to payments from PECO Energy on the Series D
Subordinated Debt Securities. See "Description of the Series D Subordinated
Debt Securities and the Indenture." If PECO Energy fails to make a payment on
the Series D Subordinated Debt Securities or if PECO Energy Capital fails to
make a Distribution on the Series D Preferred Securities, the Trust will not
have sufficient funds to make related payments, including Distributions, on
the Capital Securities.
DISTRIBUTIONS
Each Capital Security will represent a Series D Preferred Security of PECO
Energy Capital, and Distributions on the Capital Securities will be made
concurrently with Distributions on the Series D Preferred Securities.
Distributions on the Series D Preferred Securities will be cumulative and
will accumulate from the date of original issuance at the annual rate of ____%
of the liquidation preference of $1,000 per Series D Preferred Security.
Distributions will be payable semiannually in arrears on April 30 and October
31 of each year, commencing April 30, 1998. Distributions in arrears after
the semiannual payment date therefor will accumulate additional Distributions
(to the extent permitted by law) compounded semiannually at the annual rate of
____% thereof. The term "Distributions," as used herein, shall include any
such additional Distributions. The amount of Distributions payable for any
period will be compounded on the basis of a 360-day year of twelve 30-day
months.
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Whenever the Trust shall receive any cash Distribution representing a
semiannual Distribution on the Series D Preferred Securities (whether or not
distributed by PECO Energy Capital on the regular semiannual Distribution date
therefor) or payment under the Series D Guarantee in respect thereof, the
Trust shall distribute such amounts to the holders of the Capital Securities
in proportion to the respective number of Series D Preferred Securities
represented by such Capital Securities. 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 Debt Securities 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 Debt Securities. At
the end of the Extension Period, PECO Energy shall pay all interest then
accrued and payable on the Series D Subordinated Debt Securities (together
with interest thereon to the extent permitted by applicable law at the rate
per annum borne by the Series D Subordinated Debt Securities). During any
Extension Period, no Distributions will be made on the Series D Preferred
Securities represented by the Capital Securities; however, all accrued and
payable Distributions (together with any applicable Distributions on such
Distributions) shall be paid at the end of any such Extension Period. See
"Description of the Series D Subordinated Debt Securities and the
Indenture--Option to Extend Interest Payment Period."
REDEMPTION OF CAPITAL SECURITIES
The Capital Securities will be subject to mandatory redemption upon
redemption of the Series D Preferred Securities. Whenever PECO Energy Capital
shall elect or is required to redeem the Series D 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"), and as provided under "Description of the Series D Preferred
Securities--Special Event Redemptions," 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 D Preferred Securities and the Capital
Securities to the holders of the Capital Securities. On the date of
redemption of the Series D Preferred Securities, provided that PECO Energy
Capital (or PECO Energy pursuant to the Series D Guarantee) shall have
deposited with the Trust the aggregate amount payable upon redemption of all
Series D Preferred Securities held by the Trust to be redeemed, the Trust
shall redeem Capital Securities representing the same number of such Series D
Preferred Securities redeemed by PECO Energy Capital at the same redemption
price at which such Series D Preferred Securities are redeemed. In the event
that fewer than all the outstanding Capital Securities are redeemed, the
Capital Securities 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 will agree that if a partial redemption of the Series D
Preferred Securities would result in a delisting of the Capital Securities
from any national exchange on which the Capital Securities are then listed,
PECO Energy Capital will only redeem the Series D 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 D 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 Capital Securities such amounts in proportion to the respective
number of Series D Preferred Securities represented by such Capital
Securities.
WITHDRAWAL OF SERIES D PREFERRED SECURITIES
Any beneficial owner of Capital Securities may withdraw all, but not less
than all, of the Series D Preferred Securities represented by such Capital
Securities 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 Capital Securities represented by the global certificate
held by DTC by the amount equal to the number of Capital Securities to be so
withdrawn by the withdrawing owner, PECO Energy Capital shall issue to the
withdrawing owner a certificate representing the number of Series D Preferred
Securities so withdrawn and the Trustee shall reduce the number of Series D
Preferred Securities represented by the global certificate held by the Trust
by a like amount; provided that, PECO Energy Capital shall not issue any
fractional number of Series D Preferred Securities. The Series D Preferred
Securities will only be issued in certificated form.
Any holder of Series D Preferred Securities may redeposit withdrawn Series
D Preferred Securities by delivery to the Trustee of a certificate or
certificates for the Series D 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
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reasonable period after such deposit is properly made, the Trustee shall
instruct DTC to increase the number of Capital Securities represented by the
global certificate held by DTC by an amount equal to the Series D Preferred
Securities to be deposited. The Capital Securities will not be issued in
certificated form.
VOTING RIGHTS
If the holders of the Preferred Securities, 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 Capital
Securities of such right, request direction of each holder of a Capital
Security as to the appointment of a Special Representative and vote the Series
D Preferred Securities represented by such Capital Security 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 Capital Securities and, if so directed by the
holders of the Capital Securities representing (i) Preferred Securities
constituting at least 10% of the aggregate stated liquidation preference of
the outstanding Preferred Securities or (ii) Series D Preferred Securities
constituting 10% of the aggregate stated liquidation preference of Series D
Preferred Securities, shall convene such meeting. Under the Trust Agreement,
PECO Energy Capital will agree that without the consent of the holders of
662/3% in liquidation amount of the Capital Securities, it may not
consolidate, amalgamate, merge with or into, or be replaced by, or convey,
transfer or lease its properties and assets substantially as an entirety to
any corporation or other entity if, as a result, the Capital Securities would
be delisted by any national securities exchange or other organization on which
the Capital Securities may be listed, downgraded by any "nationally recognized
statistical rating organization," as that term is defined by the SEC for
purposes of Rule 436(g)(2) under the Securities Act of 1933, 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 D
Preferred Securities are entitled to vote, the Trustee shall, as soon as
practicable thereafter, mail to the holders of Capital Securities a notice,
which shall be provided by the General Partner and which shall contain (i)
such information as is contained in such notice of meeting, (ii) a statement
that the holders of Capital Securities 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 D Preferred Securities
represented by their respective Capital Securities, and (iii) a brief
statement as to the manner in which such instructions may be given. Upon the
written request of a holder of a Capital Security, the Trustee shall vote or
cause to be voted the number of Series D Preferred Securities represented by
such Capital Securities in accordance with the instructions set forth in such
request.
AMENDMENT AND TERMINATION OF TRUST AGREEMENT
PECO Energy Capital or the General Partner, and the Trustee, may, at any
time and from time to time enter into one or more agreements supplemental to
the Trust Agreement without the consent of the holders of the Capital
Securities: (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 Capital Securities, 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 Capital Securities; 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 Capital Securities.
The Trust Agreement will terminate upon the redemption of the Capital
Securities or a final distribution in respect of the Series D Preferred
Securities and such distribution has been delivered to the holders of the
Capital Securities. In addition, PECO Energy Capital may instruct the
Trustee to dissolve the Trust and distribute the Series D Preferred Securities
on a pro rata basis to the holders of Capital Securities if the Trust, at any
time, is subject to federal income tax with respect to interest received on
its allocable share of interest on the Series D Subordinated Debt Securities
received by PECO Energy Capital, the Trust is subject to more than a de
minimis amount of other taxes, duties or governmental charges, or a Change in
1940 Act Law (as defined in "Series D Preferred Securities--Special Event
Redemptions") has occurred, to the effect that the Trust is or will be
considered an "Investment Company" which is required to be registered under
the 1940 Act (as defined in "Series D Preferred Securities--Special Event
Redemptions"), which Change in 1940 Act Law becomes effective on or after the
date of the issuance of the Capital Securities. See "United States Taxation--
Withdrawal or Distribution of Series D Preferred Securities."
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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 Capital Securities
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, 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 Capital
Securities. The Capital Securities 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 Capital Securities and will be deposited with DTC. The Capital Securities
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. Direct
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. DTC is owned by a
number of its Direct Participants and by the New York Stock Exchange, Inc.,
the American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others such as
securities brokers and dealers, banks and trust companies that clear through
or maintain a custodial relationship with a Direct Participant, either
directly or indirectly ("Indirect Participants"). The rules applicable to DTC
and its Participants are on file with the SEC.
Purchases of Capital Securities under the DTC system must be made by or
through Direct Participants, which will receive a credit for the Capital
Securities on DTC's records. The ownership interest of each actual purchaser
of each Capital Security ("Beneficial Owner") is in turn to be recorded on
the Direct and Indirect Participants' records. Beneficial Owners will not
receive written confirmation from DTC of their purchases, but Beneficial
Owners are expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the Direct
or Indirect Participant through which the Beneficial Owner entered into the
transaction. Transfers of ownership interests in the Capital Securities are
to be accomplished by entries made on the books of Participants acting on
behalf of Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interests in Capital Securities, except in the
event that use of the book-entry system for the Capital Securities is
discontinued.
To facilitate subsequent transfers, all Capital Securities deposited by
Participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. The deposit of Capital Securities with DTC and their registration
in the name of Cede & Co. effect no change in beneficial ownership. DTC has
no knowledge of the actual Beneficial Owners of the Capital Securities; DTC's
records reflect only the identity of the Direct Participants to whose accounts
such Capital Securities are credited, which may or may not be the Beneficial
Owners. The Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
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Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed
by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices shall be sent to DTC. If less than all of the Capital
Securities are being redeemed, DTC's practice is to determine by lot the
amount of the interest of each Direct Participant to be redeemed.
Neither DTC nor Cede & Co. will consent or vote with respect to the
Capital Securities. Under its usual procedures, DTC mails an Omnibus Proxy to
the Trust as soon as possible after the record date. The Omnibus Proxy
assigns Cede & Co.'s consenting or voting rights to those Direct Participants
to whose accounts the Capital Securities are credited on the record date
(identified in a listing attached to the Omnibus Proxy).
Redemption proceeds and Distributions on the Capital Securities will be
made to Cede & Co., as nominee of DTC. DTC's practice is to credit Direct
Participants' accounts, upon DTC's receipt of funds and corresponding detail
information from the Trustee on behalf of the Trust on any Distribution or
other payment date in accordance with their respective holdings shown on DTC's
records. Payments by Participants to Beneficial Owners will be governed by
standing instructions and customary practices, as is the case with securities
held for the accounts of customers in bearer form or registered in "street
name," and will be the responsibility of such Participant and not of DTC, PECO
Energy, PECO Energy Capital or the Trust, subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment of
redemption proceeds and Distributions to Cede & Co. shall be the
responsibility of the Trustee on behalf of the Trust, disbursement of such
payments to Direct Participants shall be the responsibility of Cede & Co. and
disbursement of such payments to the Beneficial Owners shall be the
responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as securities depository with
respect to the Capital Securities at any time by giving reasonable notice to
the Trustee and PECO Energy. Under such circumstances, in the event that a
successor securities depository is not obtained, physical certificates
representing Capital Securities 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 securities depository). In
that event, physical certificates representing Capital Securities will be
printed and delivered.
In the event that the book-entry-only system is discontinued, the Trustee
shall keep the registration books for such Capital Securities at its corporate
trust office in Delaware. Such Capital Securities may be transferred or
exchanged for one or more Capital Securities upon surrender thereof at the
corporate trust office of the Trustee in Delaware by the holders or their duly
authorized attorneys or legal representatives. Upon surrender of any Capital
Securities to be transferred or exchanged, the Trustee shall record the
transfer or exchange in the registration books and shall deliver new Capital
Securities appropriately registered. The Trustee shall not be required to
register the transfer of any Capital Securities 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 Capital
Securities, as their names appear in the registration books, as the owners of
those Capital Securities for all purposes under the Trust Agreement.
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 Trustee, 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.
DESCRIPTION OF THE SERIES D PREFERRED SECURITIES
The following is a summary of certain terms and provisions of the Series D
Preferred Securities represented by the Capital Securities. 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 D 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
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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 D 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 ____% of the stated liquidation preference of $1,000, payable
semiannually in arrears on April 30 and October 31 of each year.
Distributions on the Series D Preferred Securities will be cumulative, will
accrue from the original date of issuance, and, except as otherwise described
below, will be payable semiannually in arrears commencing on April 30, 1998.
Distributions in arrears after the semiannual payment date therefor will
accumulate additional Distributions thereon at the rate of ____% per annum.
PECO Energy Capital has previously issued Cumulative Monthly Income Preferred
Securities, Series A, Series B and Series C, which have an aggregate stated
liquidation preference of $221,250,000, $78,104,575 and $50,000,000,
respectively. PECO Energy intends to use the proceeds from the sale of its
Series D Subordinated Debt Securities to PECO Energy Capital to redeem its
8.72% Deferrable Interest Subordinated Debentures, Series B and thereby cause
a mandatory redemption of PECO Energy Capital's 8.72% Cumulative Monthly
Income Preferred Securities, Series B.
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 D Preferred Securities and any other
outstanding Preferred Securities of PECO Energy Capital.
PECO Energy has the right under the Indenture to extend the interest
payment period from time to time on all Subordinated Debt Securities 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 Debt Securities, including the Series D
Subordinated Debt Securities. As a consequence, semiannual Distributions on
the Series D 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 Debt Securities, 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 Debt
Securities, PECO Energy may elect to extend the interest payment period again,
subject to the above requirements. Following an Extension Period of 18
consecutive months, the holders of Preferred Securities, including the Series
D Preferred Securities, shall have the right to appoint a Special
Representative to enforce PECO Energy Capital's rights against PECO Energy
under the Subordinated Debt Securities and the Indenture and the obligations
of PECO Energy under the Guarantees. See "--Voting Rights," "Risk Factors" and
"Description of the Series D Subordinated Debt Securities and the
Indenture--Option to Extend Interest Payment Period" and "--Interest."
Distributions on the Series D Preferred Securities must be paid by PECO
Energy Capital 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 D Subordinated Debt Securities.
See "Description of the Series D Subordinated Debt Securities 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. Distributions on the Series
D 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 April 15 and October 15. If any date on which Distributions are
payable on the Series D Preferred Securities is not a business day, then
payment of the Distributions payable on such date will be made on the next
succeeding day that is a business day (and without any interest or other
payment in respect of any such delay). The term "business day," as used in
relation to the Series D 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
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proportion to the full distributions to which each series of Preferred
Securities would be entitled if paid in full; (ii) pay any distribution on the
general partner interests; or (iii) redeem, purchase or otherwise acquire any
Preferred Securities or the general partner interests; until, in each case,
such time as all accumulated and unpaid distributions on all series of
Preferred Securities shall have been paid in full for all prior distribution
periods.
MANDATORY REDEMPTION
The Series D Preferred Securities will be subject to mandatory redemption
upon the repayment by PECO Energy of the Series D Subordinated Debt Securities
at maturity, at $1,000 per Series D Preferred Security, plus accumulated and
unpaid Distributions (whether or not declared), if any, to the date fixed for
redemption (the "Redemption Price").
The Series D 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 D 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 D 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 D Subordinated Debt
Securities or PECO Energy Capital will otherwise not be taxed as a partner-
ship, (ii) interest payable by PECO Energy on the Series D Subordinated Debt
Securities 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 D 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 D 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 D Preferred Securities
unless all accumulated and unpaid Distributions have been paid on all Series D
Preferred Securities for all semiannual Distribution periods terminating on or
prior to the date of redemption.
Notice of any redemption of the Series D Preferred Securities will be
given by PECO Energy Capital by mail or delivery to each record holder of
Series D 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 D Preferred Securities. Notices of redemption
shall be addressed to the record holders of the Series D 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 D
Preferred Securities, then, upon the date of such payment, all rights of
owners of the Series D Preferred Securities so called for redemption will
cease. In the event that any date fixed for redemption of Series D Preferred
Securities is not a business day, then payment of the Redemption Price payable
on such date will be made on
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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 liquidation
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 Debt Securities to fund the Partnership
Liquidation Distribution.
The amount per share payable on the Series D Preferred Securities in the
event of any voluntary or involuntary liquidation of PECO Energy Capital is
$1,000 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 to participation in the profits and assets of the
successor entity, at least as high as the Preferred Securities rank, as
regards to participation in the profits and assets of 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 may be 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 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,
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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 D Guarantee--Amendments" and as
otherwise required by law and the Partnership Agreement, the holders of the
Series D Preferred Securities have no voting rights.
If (i) PECO Energy Capital fails to pay distributions in full on the
Preferred Securities for 18 consecutive months, (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 Debt Securities 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 months 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 months, distributions shall be deemed
to remain in arrears, notwithstanding any payments in respect thereof, until
full cumulative distributions on all Preferred Securities have been or
contemporaneously are paid with respect to all distribution periods for such
Preferred Securities terminating on or prior to the date of payment of such
full cumulative distributions. Subject to the requirements of applicable
law, not later than 30 days after 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 (i) the Preferred Securities or (ii) the Series D 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 Debt Securities.
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 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 Debt Securities 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
Debt Securities 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, (i ii) exercise any
right to rescind or annul a declaration that the principal of all the
Subordinated Debt Securities 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
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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
Debt Securities.
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 Debt Securities 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 D GUARANTEE
The following is a summary of certain provisions of the Series D Guarantee
which will be executed and delivered by PECO Energy concurrently with the
issuance of the Series D Preferred Securities. Reference is made to the
Series D Guarantee, which is filed as an exhibit to the Registration Statement
of which this Prospectus forms a part.
GENERAL
Under the Series D Guarantee, PECO Energy will agree to pay (i) any
accumulated and unpaid Distributions on the Series D 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 D
Preferred Securities called for redemption by PECO Energy Capital (as
described under "Series D Preferred Securities--Mandatory Redemption" and
"--Special Event Redemptions") 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 D Preferred Securities and (b) the
amount of assets of PECO Energy Capital legally available for distribution to
holders of Series D 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 D
Preferred Securities or by causing PECO Energy Capital to pay such amounts to
such holders.
STATUS OF THE SERIES D GUARANTEE
The Series D 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 D Guarantee will constitute a guarantee of payment and not of
collection. The Series D Guarantee will be held by the General Partner for
the benefit of the holders of the Series D Preferred Securities. In the event
of the appointment of a Special Representative, the Special Representative
may enforce the Series D Guarantee. If no Special Representative has been
appointed to enforce the Series D Guarantee, the General Partner will have the
right to enforce the Series D Guarantee on behalf of the holders of the Series
D Preferred Securities. The holders of Capital Securities, together with the
holders of the Series D Preferred Securities other than the Trust,
representing not less than 10% in aggregate stated
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liquidation preference of the Series D Preferred Securities will have the
right to direct the time, method and place of conducting any proceeding to
enforce any remedy available in respect of the Series D 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 D Guarantee as above provided, any holder of
Capital Securities representing Series D Preferred Securities, and any holder
of Series D Preferred Securities other than the Trust, may institute a legal
proceeding directly against PECO Energy to enforce its rights under the Series
D Guarantee without first instituting a legal proceeding against PECO Energy
Capital or any other person or entity. The Series D 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 D Guarantee.
RELATIONSHIP AMONG SERIES D GUARANTEE, SERIES D SUBORDINATED DEBT
SECURITIES AND SERIES D PREFERRED SECURITIES
In addition to the obligations of PECO Energy under the Series D
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 Debt Securities 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 D
Guarantee and the Indenture, together with the related covenants contained in
the Partnership Agreement and PECO Energy's obligations under the Subordinated
Debt Securities, provide for PECO Energy's full and unconditional guarantee
of the Series D Preferred Securities as set forth above.
CERTAIN COVENANTS OF PECO ENERGY
Under the Series D Guarantee, PECO Energy will covenant that, so long as
any Series D 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 D 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 D Preferred Securities (in which case
no vote will be required), the Series D Guarantee may be amended only with the
prior approval of the holders of Capital Securities representing not less than
66-2/3% of the aggregate stated liquidation preference of the outstanding
Series D Preferred Securities.
MERGER OF PECO ENERGY
So long as the Series D 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 D
Guarantee.
TERMINATION OF THE SERIES D GUARANTEE
The Series D Guarantee will terminate and be of no further force and
effect upon full payment of the Redemption Price of all Series D Preferred
Securities or upon full payment of the amounts payable with respect to the
Series D Preferred Securities upon liquidation of PECO Energy Capital. The
Series D Guarantee will continue to be effective or will be reinstated, as the
case may be, if at any time any holder of Series D Preferred Securities must
restore payments of any sums paid under the Series D Preferred Securities or
the Series D Guarantee.
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DESCRIPTION OF THE SERIES D SUBORDINATED DEBT SECURITIES AND THE INDENTURE
The following is a summary of certain terms and provisions of the Series D
Subordinated Debt Securities 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 D Subordinated Debt Securities will be unsecured, subordinated
obligations of PECO Energy issued under the Indenture. The Series D
Subordinated Debt Securities will be in a principal amount equal to the
aggregate stated liquidation preference of the Series D 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 D
Preferred Securities payable on the Distribution dates, will have maturity
and redemption provisions corresponding to the redemption provisions of the
Series D Preferred Securities and will be subject to mandatory redemption upon
the dissolution and liquidation of PECO Energy Capital. The entire principal
amount of the Series D Subordinated Debt Securities will become due and
payable, together with any accrued and unpaid interest thereon, on April __,
2028.
PECO Energy will deliver the Series D Subordinated Debt Securities to the
General Partner to be held on behalf of the holders of the Series D Preferred
Securities. The Series D Subordinated Debt Securities 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 D Preferred
Securities, plus the General Partner's concurrent capital contribution in PECO
Energy Capital.
REDEMPTION
Except as provided below, the Series D Subordinated Debt Securities may
not be redeemed prior to maturity. PECO Energy Capital has the right to
redeem the Series D Preferred Securities at any time upon the occurrence of a
Tax Event, upon not less than 30 nor more than 60 days' notice (and not less
than 40 days' notice to the Trust), as described under "Description of the
Series D Preferred Securities Special Event Redemptions." The Series D
Subordinated Debt Securities will be subject to mandatory redemption upon the
dissolution of PECO Energy Capital or upon redemption of the Series D
Preferred Securities.
If PECO Energy gives a notice of redemption in respect of Series D
Subordinated Debt Securities, then, on or prior to the redemption date, PECO
Energy shall deposit with the paying agent funds sufficient to pay the
Redemption Price and will give irrevocable instructions and authority to pay
the Redemption Price. If notice of redemption shall have been given, if
required, then the Series D Subordinated Debt Securities 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 D Subordinated Debt
Securities called for redemption and such Series D Subordinated Debt
Securities will no longer be deemed to be outstanding.
INTEREST
The Series D Subordinated Debt Securities will bear interest at an annual
rate of ____% plus Additional Interest (as defined under " Additional
Interest"), if any, from the original date of issuance. Interest will be
payable semiannually in arrears on April 30 and October 31 of each year,
commencing on April 30, 1998, to PECO Energy Capital.
PECO Energy will make additional interest payments on any overdue
installment of interest on the Series D Subordinated Debt Securities to PECO
Energy Capital at the same rate per annum as the annual rate payable on the
Series D Subordinated Debt Securities.
Interest payments on the Subordinated Debt Securities 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 Mandatorily 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.
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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 Debt Securities 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 Debt Securities. At the end of the Extension Period, PECO Energy
shall pay all interest then accrued and payable on the Series D Subordinated
Debt Securities (together with interest thereon to the extent permitted by
applicable law at the rate per annum borne by the Series D Subordinated Debt
Securities). 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 Extension 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 any national securities
exchange or other applicable self-regulatory organization of the record date
or the date distributions on the Preferred Securities are payable, but in any
event not less than two business days prior to such record date. 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 Debt Securities, including the Series D Subordinated Debt
Securities, 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 Debt Securities 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 Debt Securities), 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 Debt Securities 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 Debt Securities, whether pursuant to the
terms of the Subordinated Debt Securities 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 Debt Securities) 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 Debt Securities
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
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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 Debt Securities) or the
Special Representative to take any action to accelerate the maturity of the
Subordinated Debt Securities 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 Debt Securities) is entitled to
receive any payment from PECO Energy of principal of or interest on the
Subordinated Debt Securities.
Upon the payment in full of all Senior Indebtedness, PECO Energy Capital
(as holder of the Subordinated Debt Securities) (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 Debt Securities 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 D 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 Debt Securities in addition to or in place of
certificated Subordinated Debt Securities; (iv) to make any other change that
does not adversely affect the rights of any holder of the Subordinated Debt
Securities; (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 Debt Securities.
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 Debt Securities issued under the Indenture; provided that, no
such modification, without the consent of each holder of the Subordinated
Debt Securities 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 Debt Securities, (ii) reduce the principal amount of, or premium
or rate of interest, if any, on, the Subordinated Debt Securities, (iii)
reduce the amount of principal of Subordinated Debt Securities payable upon
acceleration of the maturity thereof, (iv) make the Subordinated Debt
Securities payable in money or securities other than as stated in the
Subordinated Debt Securities, (v) impair the right to institute suit for the
enforcement of any payment on or with respect to the Subordinated Debt
Securities, (vi) adversely change the redemption provisions of the
Subordinated Debt Securities, (vii) adversely affect the rights of the holders
of the Subordinated Debt Securities with respect to subordination or (viii)
reduce the principal amount of the holders of the Subordinated Debt Securities
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
ten days in payment of any interest on any series of the Subordinated Debt
Securities (other than the payment of interest during an Extension Period);
(ii) default in payment of principal of (or premium, if any, on) any
Subordinated Debt Securities; (iii) default for 60 days after notice in the
performance of any other covenant or agreement in the Indenture or any series
of Subordinated Debt Securities 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 Debt
Securities shall become immediately due and payable), the Indenture Trustee,
PECO Energy Capital (as holder of the Subordinated Debt Securities) or the
Special Representative may declare the principal of all the Subordinated Debt
Securities to be due and payable. Under certain circumstances, a declaration
of acceleration with respect to Subordinated Debt Securities may be rescinded
and past defaults (except, unless theretofore cured, a default in the payment
of principal of or interest on the Subordinated Debt Securities) may be waived
only by the Special Representative or by PECO Energy Capital at the direction
of the holders of 66-2/3% 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 D 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 D Subordinated
Debt Securities, to declare the principal and interest on the Series D
Subordinated Debt Securities due and payable and to enforce the obligations of
PECO Energy under the Series D Subordinated Debt Securities 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 Debt Securities
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 D Subordinated Debt
Securities 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 D Subordinated Debt Securities then
outstanding on the dates such payments are due in accordance with the terms of
the Series D Subordinated Debt Securities.
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 majority in principal amount of the
Subordinated Debt Securities 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.
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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, LLP, 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 Capital Securities. Unless otherwise stated, this summary
deals only with Capital Securities 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 Capital Securities 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 (the "Code" ), Treasury regulations thereunder and administrative and
judicial interpretations thereof, as of the date hereof, all of which are
subject to change. Prospective purchasers should particularly note that any
such change could have retroactive application to Capital Securities acquired
through this offering.
This summary assumes that Capital Securities are held as capital assets,
within the meaning of section 1221 of the Code, and does not address all of
the tax consequences that may be relevant to a particular holder of Capital
Securities ("Securityholder") in light of the Securityholder's personal
circumstances, or to certain types of Securityholders (such as certain
financial institutions, dealers in securities or commodities, insurance
companies, regulated investment companies, personal holding companies,
corporations subject to the alternative minimum tax, tax-exempt organizations
or persons who hold Capital Securities as positions in a "straddle" or as part
of a "hedging," "conversion" or "constructive sale" transaction for United
States federal income tax purposes). Also not addressed are the consequences
under state, local and foreign tax laws or the tax consequences to subsequent
Securityholders.
ALL PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT THEIR TAX ADVISERS
REGARDING THE FEDERAL INCOME TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION
OF CAPITAL SECURITIES 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 Capital Securities, Ballard Spahr
Andrews & Ingersoll, LLP 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 Securityholder will be considered the owner of a
pro rata portion of the Series D Preferred Securities held by the Trust. As a
further consequence, each Securityholder will be required to include in gross
income as fully taxable interest income his pro rata share of the income
accrued on the Series D Subordinated Debt Securities held by PECO Energy
Capital and allocated by the Trust. Such income should not exceed
Distributions received by the Securityholders on the Capital Securities
except in limited circumstances described under "--Potential Extension of
Payment Period." No portion of such income will be eligible for the dividends
received deduction.
TAXABILITY OF DISTRIBUTIONS
PECO Energy Capital will be required to include stated interest on the
Series D Subordinated Debt Securities 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 there is no Extension
Period, cash Distributions received by an initial Security holder for any
semiannual interest period should equal the sum of the daily accruals of
income for such interest period.
Under the applicable Treasury Regulations, a "remote" contingency that
stated interest will not be timely paid on the Series D Subordinated Debt
Securities will be ignored in determining whether the Series D Subordinated
Debt Securities are issued with original issue discount. PECO Energy
believes that the likelihood of it exercising its option to defer payments of
interest on the Series D Subordinated Debt Securities is remote since, among
other things, exercising that option would prevent PECO Energy from declaring
dividends on any of its capital stock. Accordingly, PECO Energy intends to
take the position, based on the advice of tax counsel, that the Series D
Subordinated Debt Securities will not be considered to be issued with original
issue discount.
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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 D Subordinated Debt Securities 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 D Subordinated Debt Securities
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 April 15 and October 15 of each year. 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 Capital Securities prior to the record date for the payment of
Distributions following such Extension Period will include interest in gross
income but will not receive any cash related thereto from the Trust. The tax
basis of a Series D 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 OR DISTRIBUTION OF SERIES D PREFERRED SECURITIES
The receipt of Series D Preferred Securities by a Securityholder in
exchange for Capital Securities (and vice versa) at the option of the
Securityholder or upon termination of the Trust will not be a taxable event.
The Securityholder's tax basis and holding period for the Series D Preferred
Securities immediately after such exchange or distribution will equal the
Securityholder's tax basis and holding period for the Capital Securities (or
Series D Preferred Securities, as applicable) surrendered in such exchange or
distribution. Income earned from the Series D Preferred Securities (rather
than the Capital 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 CAPITAL SECURITIES
Gain or loss will be recognized on a sale, including a redemption for
cash, of Capital Securities in an amount equal to the difference between the
amount realized and the Securityholder's tax basis in his pro rata share of
Series D Preferred Securities represented by such Capital Securities. Gain
or loss recognized by a Securityholder on the sale or exchange of Capital
Securities held for (a) more than one year but not more than eighteen months
generally will be taxable as mid-term capital gain or loss and (b) more that
eighteen months generally will be taxable as long-term capital gain or loss.
STATE OF PENNSYLVANIA PERSONAL PROPERTY TAXES
Personal property taxes are no longer being imposed in the State of
Pennsylvania on intangible personal property such as the Capital Securities.
BACKUP WITHHOLDING
Under the backup withholding provisions of the Code and applicable
Treasury regulations, a Securityholder may be subject to backup withholding at
the rate of 31% with respect to interest paid on, original issue discount
accrued with respect to, or the proceeds of a sale, exchange or redemption of
the Series D Preferred Securities or the Capital Securities, unless such
Securityholder (a) is a corporation or comes within certain other exempt
categories and when required demonstrates this fact or (b) provides a
taxpayer identification number, certifies as to no loss of exemption from
backup withholding and otherwise complies with applicable requirements of the
backup withholding rules. The amount of any backup withholding from a payment
to a Securityholder will be allowed as a credit against the Securityholder's
federal income tax liability and may entitle such Securityholder to a refund,
provided that the required information is furnished to the Internal Revenue
Service ("IRS").
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SPECIAL TAX RULES APPLICABLE TO FOREIGN SECURITYHOLDERS
For purposes of the following discussion, a "Foreign Securityholder" is
any securityholder who is not (i) a citizen or resident of the United States,
(ii) a corporation, partnership or other entity created or organized in or
under the laws of the United States, any state or any political subdivision
thereof, (iii) an estate the income of which is subject to United States
federal income taxation regardless of source, or (iv) a trust (A) over the
administration of which a court within the United States is able to exercise
primary supervision and (B) all substantial decisions of which one or more
United States persons have the authority to control.
Income received by a Foreign Securityholder in the form of interest and
original issue discount on the Series D Preferred Securities will be subject
to a United States federal withholding tax at a 30% rate upon the actual
payment of interest or original issue discount except as described below and
except where an applicable tax treaty provides for the reduction or
elimination of such withholding tax. A Foreign Securityholder generally will
be taxable in the same manner as a United States corporation or resident with
respect to interest or original issue discount income if such income is
effectively connected with the conduct of a trade or business in the United
States. Such effectively connected income received by a Foreign
Securityholder that is a corporation may in certain circumstances be subject
to an additional "branch profits tax" at a 30% rate, or if applicable, a lower
treaty rate.
Payments of interest and original issue discount on the Series D Preferred
Securities received by a Foreign Securityholder on or prior to December 31,
1998, will not be subject to United States federal withholding tax provided
that (a) the Foreign Securityholder does not actually or constructively own
10% or more of the total combined voting power of all classes of stock of PECO
Energy entitled to vote, (b) the Securityholder is not a controlled foreign
corporation that is related to PECO Energy through stock ownership, and (c)
either (1) the beneficial owner of the Series D Preferred Securities, under
penalties of perjury, provides PECO Energy or its agent with its name and
address and certifies that it is not a United States person or (2) 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") certifies to PECO Energy or its agent, under
penalties of perjury, that such a statement has been received from the
beneficial owner by its or another Financial Institution and furnishes to PECO
Energy or its agent a copy thereof. Backup withholding and information
reporting also generally will not apply to payments of interest and original
discount on or prior to December 31, 1998, if the certification described
above is received, provided the payor does not have actual knowledge that the
Securityholder is a United States person.
Payments of interest and original issue discount received by a Foreign
Securityholder after December 31, 1998, will not be subject to United States
federal withholding tax (or to backup withholding and information reporting)
provided that requirements (a) and (b) of the preceding paragraph are
satisfied and, in general, (1) PECO Energy or its paying agent can reliably
associate the payment with documentation upon which it can rely to treat the
payment as made to a foreign beneficial owner under Treasury regulations
issued under section 1441 of the Code; (2) PECO Energy or its paying agent can
reliably associate the payment with a withholding certificate from a person
claiming to be a withholding foreign partnership and the foreign partnership
can reliably associate the payment with documentation upon which it can rely
to treat the payment as made to a foreign beneficial owner in accordance with
such Treasury regulations; (3) PECO Energy or its paying agent can reliably
associate the payment with a withholding certificate from a person
representing to be a "qualified intermediary" that has assumed primary
withholding responsibility under such Treasury regulations and the qualified
intermediary can reliably associate the payment with documentation upon which
it can rely to treat the payment as made to a foreign beneficial owner in
accordance with its agreement with the IRS; (4) PECO Energy or its paying
agent can reliably associate the payment with a withholding certificate
described in the Treasury Regulations from a person claiming to be a U.S.
branch of a foreign bank or insurance company subject to regulatory
jurisdiction by the Federal Reserve Board or by the National Association of
Insurance Commissioners or the insurance department of a state, a territory
or the District of Columbia under which the U.S. branch agrees to be treated
as a U.S. person with respect to that payment; or (5) PECO Energy or its
paying agent receives a statement, under penalties of perjury from an
authorized representative of a Financial Institution stating that the
Financial Institution has received from the beneficial owner a withholding
certificate described in such Treasury regulations or that it has received
from another Financial Institution a similar statement that it, or another
Financial Institution acting on behalf of the beneficial owner, has received
such a withholding certificate from the beneficial owner. In general, it will
not be necessary for a Foreign Securityholder to obtain or furnish a United
States taxpayer identification number to PECO Energy or its paying agent in
order to claim any of the foregoing exemptions from United States withholding
tax on payments of interest and original issue discount.
A Foreign Securityholder generally will not be subject to United States
federal income or withholding tax on gain realized on the sale or exchange of
the Series D Preferred Securities or the Capital Securities, unless (i) the
Foreign Securityholder is an individual who is present in the United States
for 183 days or more during the taxable year and as to
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<PAGE>
whom such gain is from United States sources or (ii) the gain is
effectively connected with a United States trade or business of the holder.
The payment of the proceeds of the sale of the Series D Preferred
Securities or the Capital Securities to or through the United States office of
a broker will be subject to information reporting and possible backup
withholding at a rate of 31% unless the owner certifies its non-United States
status under penalties of perjury or otherwise establishes an exemption in
accordance with applicable Treasury regulations. The payment of the proceeds
of the sale of the Series D Preferred Stock or the Capital Securities to or
through the foreign office of a broker generally will not be subject to this
backup withholding tax. However, in the case of the payment of proceeds from
the disposition of the Series D Preferred Securities or the Capital Securities
through a foreign office of a broker that is a United States person or a
"United States related person," the applicable Treasury regulations require
information reporting on the payment unless the broker has documentary
evidence in its files that the owner is a non-United States person and the
broker has no actual knowledge to the contrary. For this purpose, a "United
States related person" is (i) a "controlled foreign corporation" for United
States federal income tax purposes, or (ii) a foreign person 50% or more of
whose gross income from all sources for a specified period is derived from
activities that are effectively connected with the conduct of a United States
trade or business. Any amounts withheld under the backup withholding rules
from a payment to a Foreign Securityholder will be allowed as a refund or a
credit against such Foreign Securityholder's United States federal income tax,
provided that the required information is furnished to the IRS.
OTHER TAX CONSIDERATIONS
In the opinion of Ballard Spahr Andrews & Ingersoll, LLP, under current
law, interest on the Series D Subordinated Debt Securities is deductible by
PECO Energy. In the past, the Clinton Administration had 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 15 years and
is not reflected as indebtedness on such issuer's consolidated balance sheet.
Because the term of the Series D Subordinated Debt Securities exceeds 15
years, if such proposal were to become effective retroactively, PECO Energy
would be precluded from deducting interest on the Series D Subordinated Debt
Securities. There can be no assurance, however, that a legislative proposal
which would affect the ability of PECO Energy to deduct interest on the
Series D Subordinated Debt Securities might not be adopted which, in turn,
might give rise to a Tax Event and, accordingly, the General Partner's
optional right to redeem the Series D Preferred Securities, as described
under "Description of the Series D Preferred Securities--Special Event
Redemptions."
ERISA CONSIDERATIONS
FIDUCIARIES UNDER ERISA
A fiduciary of a pension, profit sharing or other employee pension benefit
plan that is intended to be tax-qualified under section 401(a) of the Code (a
"Qualified Plan") is subject to certain requirements under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), including the
discharge of duties solely in the interest of, and for the exclusive purpose
of providing benefits to, the Qualified Plan's participants and beneficiaries.
A fiduciary is required to perform the fiduciary's duties with the skill,
prudence and diligence of a prudent person acting in a like capacity, to
diversify investments so as to minimize the risk of large losses and to act in
accordance with the Qualified Plan's governing documents.
Fiduciaries with respect to a Qualified Plan include any persons who
exercise or possess any authority or control with respect to the management or
disposition of the funds or other property of the Qualified Plan. For
example, any person who is responsible for choosing a Qualified Plan's
investments, or who is a member of a committee that is responsible for
choosing a Qualified Plans investments, is a fiduciary of that Qualified
Plan. Also, an investment professional whose advice will serve as one of the
primary bases for a Qualified Plan's investment decisions may be a fiduciary
of the Qualified Plan, as may any other person with special knowledge or
influence with respect to a Qualified Plan's investment or administrative
activities.
While the owner of an IRA is generally treated as a fiduciary of the IRA
under the Code, IRAs generally are not subject to ERISA's fiduciary duty
rules. Also, where a participant in a Qualified Plan exercises control over
the participant's individual account in the Qualified Plan in a
"self-directed investment" arrangement that meets the requirements of Section
404(c) of ERISA, in general no person who would otherwise be a fiduciary of
the Qualified Plan may be held responsible for the consequences of the
participant's investment decisions. A fiduciary may still, however, be held
responsible for its decision to offer a particular investment option under a
Qualified Plan. Moreover, certain Qualified Plans of sole proprietors or
partnerships in which at all times (before and after the investment) the only
participants are the sole
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proprietor and his spouse or the partners and their spouses, certain
Qualified Plans of corporations in which at all times (before and after the
investment) the only participant(s) is or are an individual and/or his spouse
who own(s) 100% of the corporation's stock, are generally not subject to
ERISA's fiduciary duty rules, although they are subject to the Code's
prohibited transaction rules, explained below. Finally, governmental plans
(as defined in Section 3(32) of ERISA), certain church plans (as defined in
Section 3(33) of ERISA) and foreign plans (as described in Section 4(b)(4) of
ERISA) are not subject to the requirements of ERISA or Section 4975 of the
Code.
A person subject to ERISA's fiduciary rules with respect to a Qualified
Plan should consider those rules in the context of the particular
circumstances of the Qualified Plan before authorizing an investment of a
portion of the Qualified Plan's assets in Capital Securities.
PROHIBITED TRANSACTIONS UNDER ERISA AND THE CODE
Code Section 4975 (which applies to all Qualified Plans, except as noted
above, and IRAs) and Section 406 of ERISA (which does not apply to IRAs or to
certain Qualified Plans that, under the rules summarized above, are not
subject to ERISA's fiduciary rules) prohibit Qualified Plans and IRAs from
engaging in certain transactions involving "plan assets" with parties that are
"disqualified persons" under the Code or "parties in interest" under ERISA
("Disqualified Persons") unless an exemption is available for a particular
transaction. Disqualified Persons include fiduciaries of the Qualified Plan
or IRA, officers, directors, shareholders and other owners of the company
sponsoring the Qualified Plan and natural persons and legal entities sharing
certain family or ownership relationships with other Disqualified Persons.
"Prohibited transactions" include: (1) any direct or indirect transfer or
use of a Qualified Plan's or IRA's assets to or for the benefit of a
Disqualified Person; (ii) any act by a fiduciary that involves the use of a
Qualified Plan's or IRA's assets in the fiduciary's individual interest or for
the fiduciary's own account; and (iii) any receipt by a fiduciary of
consideration for his or her own personal account from any party dealing with
a Qualified Plan or IRA in connection with a transaction involving the assets
of the Qualified Plan or the IRA. Under ERISA, a Disqualified Person that
engages in a prohibited transaction will be required to disgorge any profits
made in connection with the transaction and will be required to compensate any
Qualified Plan that was a party to the prohibited transaction for any losses
sustained by the Qualified Plan. In addition, ERISA authorizes additional
penalties and further relief. Code Section 4975 imposes excise taxes on a
Disqualified Person that engages in a prohibited transaction with a Qualified
Plan or IRA.
Fiduciaries of, and other Disqualified Persons with respect to, Qualified
Plans and IRAs should be alert to the potential for prohibited transactions
that may occur in the context of a particular Qualified Plan's or IRA's
decision to purchase Capital Securities.
PLAN ASSETS
If the Trust assets were determined under ERISA or the Code to be "plan
assets" of Qualified Plans or IRAs holding Capital Securities, fiduciaries of
such Qualified Plans and IRAs might under certain circumstances be subject to
liability for actions taken by the Trust. Moreover, fiduciaries with
responsibilities to Qualified Plans (other than IRAs) might be deemed to have
improperly delegated their fiduciary responsibilities to the Trust in
violation of ERISA.
Although under certain circumstances ERISA and the Code, as interpreted by
the Department of Labor in currently effective regulations, apply a
"look-through" rule under which the assets of an entity in which a Qualified
Plan or IRA has made an equity investment may generally constitute "plan
assets," the applicable regulations except investments in certain publicly
registered securities from the application of the "look-through" principle.
In order to qualify for the exception described above, the securities in
question must be: (i) freely transferable; (ii) owned by at least 100
investors independent of the issuer and of one another; and (iii) either (a)
part of a class of securities registered under Section 12(b) or 12(g) of the
Securities Exchange Act, or (b) sold as part of a public offering pursuant to
an effective registration statement under the Securities Act and registered
under the Securities Exchange Act within 120 days (or such later time as may
be allowed by the Commission) after the end of the issuer's fiscal year during
which the offering occurred.
The Trust currently anticipates that the Capital Securities will be
"freely transferable" within the meaning of the Department of Labor
regulations, and will be owned by at least 100 investors independent of the
issuer and of one another will subscribe for the purchase of the Capital
Securities. Finally, no Capital Securities will be sold except pursuant to an
effective registration statement under the Securities Act, and the Trust
intends to make the required filings under the Securities Exchange Act.
Therefore, the Trust should qualify for the exception, so that the Trust assets
should not be "plan assets" of any Qualified Plan or IRA investor, and the
Trust's underlying assets should not be treated as "plan assets" of Qualified
Plan or IRA investors for purposes of determining whether any prohibited
transaction has occurred.
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<PAGE>
OTHER ERISA CONSIDERATIONS
In addition to the considerations discussed above in connection with the
"plan assets" issue, a fiduciary's decision to cause a Qualified Plan or IRA
to acquire Capital Securities should involve, among other factors,
considerations that include whether: (i) the investment is in accordance with
the documents and instruments governing the Qualified Plan or IRA; (ii) the
purchase is prudent; (iii) the investment will provide sufficient cash
distributions in light of the Qualified Plan's likely required benefit
payments and other needs for liquidity; (iv) the investment is made solely in
the interests of the plan participants; and (v) the fair market value of the
Capital Securities will be sufficiently ascertainable, with sufficient
frequency, to enable the Qualified Plan to value its assets on an annual
basis in accordance with the Qualified Plan's rules and policies.
The foregoing discussion is general in nature and is not intended to be
all inclusive. Accordingly, prospective purchasers of Capital Securities are
urged to consult their own legal counsel or advisors with respect to the
considerations associated with the acquisition and ownership of Capital
Securities under ERISA and the Code.
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
Salomon Brothers Inc and Merrill Lynch, Pierce, Fenner and Smith Incorporated
are acting as Representatives (the "Representatives"), has severally agreed to
purchase from the Trust, the respective number of Capital Securities set forth
opposite its name below:
UNDERWRITER NUMBER OF
CAPITAL SECURITIES
Salomon Brothers Inc.................................
Merrill Lynch, Pierce, Fenner and Smith
Incorporated..................................
------------
Total................................................ 78,105
============
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the Capital Securities
offered hereby, if any are taken.
The Underwriters propose to offer the Capital Securities 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 $10 per Capital Security. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $10 per Capital
Security to certain brokers and dealers. After the Capital Securities 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 $10 per Capital Security.
Prior to this offering, there has been no public market for the Capital
Securities. The Capital Securities have been approved for listing on the New
York Stock Exchange, subject to official notice of issuance. Trading of the
Capital Securities on the New York Stock Exchange is expected to commence
within a 30-day period after the initial delivery thereof. The
Representatives have advised PECO Energy that they intend to make a market in
the Capital Securities 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 Capital Securities.
In connection with this offering and in compliance with applicable law,
the Underwriters may effect transactions which stabilize, maintain or
otherwise affect the market price of the Capital Securities at levels above
those which might otherwise prevail in the open market. Such transactions
may include placing bids for the Capital Securities or effecting purchases of
the Capital Securities for the purpose of pegging, fixing or maintaining the
price of the Capital Securities 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 Capital Securities in the open market for the
account of the underwriting syndicate and the Capital Securities purchased can
be traced to a particular Underwriter or member of the selling group, the
underwriting syndicate may require the Underwriter or selling
31
<PAGE>
group member in question to purchase the Capital Securities 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 Capital 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 Capital
Securities 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 Capital Securities, Preferred Securities or any preferred stock or any
other securities of PECO Energy which are substantially similar to the Capital
Securities or the Series D 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 D
Preferred Securities and the Capital Securities 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 D Guarantee and the Series D Subordinated Debt
Securities will be passed upon on behalf of PECO Energy by Ballard Spahr
Andrews & Ingersoll, LLP, 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, LLP and Drinker Biddle & Reath LLP will rely on Richards,
Layton & Finger, P.A. as to certain matters of Delaware law.
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, 1997. 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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======================================
NO DEALER, SALESPERSON OR OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH
THE OFFER MADE HEREBY EXCEPT AS
CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS, AND IF
GIVEN OR MADE, NO SUCH INFORMATION
OR REPRESENTATIONS SHOULD BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY
PECO ENERGY, PECO ENERGY CAPITAL OR
THE TRUST. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE
CAPITAL SECURITIES BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO
DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
------------
TABLE OF CONTENTS
PAGE
----
Available Information.......... 3
Incorporation of Certain
Documents by Reference....... 3
Summary........................ 4
Risk Factors................... 7
PECO Energy.................... 9
PECO Energy Capital ........... 10
The Trust...................... 10
Coverage Ratios................ 10
Accounting Treatment........... 11
Use of Proceeds................ 11
Description of the Capital
Securities................... 11
Description of the Series D
Preferred Securities......... 15
Description of the Series D
Guarantee................... 20
Description of the Series D
Subordinated Debt Securities
and the Indenture........... 22
United States Taxation......... 26
ERISA Considerations........... 29
Underwriting................... 31
Legal Matters.................. 32
Experts........................ 32
======================================
======================================
$78,105,000
PECO ENERGY
CAPITAL TRUST III
____% CAPITAL TRUST
PASS-THROUGH SECURITIESSM
(TRUPSR)
(LIQUIDATION PREFERENCE $1,000 PER
CAPITAL SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED,
TO THE EXTENT PECO ENERGY CAPITAL,
L.P. HAS FUNDS AS SET FORTH HEREIN BY
PECO ENERGY COMPANY
(PECO ENERGY LOGO)
----------
P R O S P E C T U S
March 25, 1998
----------
SALOMON SMITH BARNEY
MERRILL LYNCH & CO.
======================================
