As filed with the Securities and Exchange Commission on March 16, 1998
Registration No. 333-
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
____________________
PECO ENERGY PECO ENERGY PECO ENERGY
COMPANY CAPITAL, L.P. CAPITAL TRUST III
(Exact name of (Exact name of (Exact name of
registrant as specified registrant as specified registrant as specified
in its charter) in its Certificate of in its Certificate
Limited Partnership) of Trust)
PENNSYLVANIA DELAWARE DELAWARE
(State or other jurisdiction of incorporation or organization)
4931 6799 6799
(Primary Standard Industrial Classification Code Number)
23-0970240 51-0355322 51-0379036
(I.R.S. Employer Identification Number)
P.O. BOX 8699, 1013 CENTRE ROAD, C/O FIRST UNION TRUST COMPANY,
2301 MARKET STREET SUITE 350F NATIONAL ASSOCIATION
PHILADELPHIA, PA 19101 WILMINGTON, DE 19805 ONE RODNEY SQUARE
(215) 841-4000 (302) 998-0592 920 KING STREET, 1ST FLOOR
WILMINGTON, DE 19801
(302) 888-7500
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
J. B. MITCHELL
VICE PRESIDENT - FINANCE AND TREASURER
P.O. BOX 8699, 2301 MARKET STREET
PHILADELPHIA, PA 19101
(215) 841-4000
(Name, address, including zip code, and telephone number,
including area code, of agent for service for each registrant)
with copies to:
JAMES W. DURHAM, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
P.O. BOX 8699, 2301 MARKET STREET, PHILADELPHIA, PA 19101
ROBERT C. GERLACH, ESQ. ROBERT M. JONES, JR., ESQ.
BALLARD SPAHR ANDREWS & INGERSOLL, LLP DRINKER BIDDLE & REATH LLP
1735 MARKET STREET, 51ST FLOOR 1345 CHESTNUT STREET
PHILADELPHIA, PA 19103-7599 PHILADELPHIA, PA 19107-3496
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the Registration Statement becomes effective.
____________________
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. / /
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection
with dividend or interest reinvestment plans, please check the following
box. / X /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
____________________
CALCULATION OF REGISTRATION FEE
==============================================================================
PROPOSED
MAXIMUM PROPOSED
TITLE OF OFFERING MAXIMUM
EACH CLASS OF PRICE AGGREGATE AMOUNT OF
SECURITIES AMOUNT TO BE PER UNIT OFFERING REGISTRATION
TO BE REGISTERED REGISTERED (1) (2)(3) PRICE (2)(3) FEE (4)
- ------------------------------------------------------------------------------
Capital Trust Pass-through
Securities issued by
PECO Energy Capital
Trust III representing
PECO Energy Capital,
L.P. ___% Cumulative
Preferred Securities,
Series D ...............
- ------------------------------------------------------------------------------
PECO Energy Capital,
L.P. ___% Cumulative
Preferred Securities,
Series D ...............
- ------------------------------------------------------------------------------
PECO Energy Company
Guarantee with
respect to PECO Energy
Capital, L.P. ___%
Cumulative Preferred
Securities,
Series D(5)............
- ------------------------------------------------------------------------------
PECO Energy Company, ___%
Subordinated Deferrable
Interest Debentures,
Series D...............
- ------------------------------------------------------------------------------
Total.................... $78,105,000 100% $78,105,000 $23,041
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(1) There are being registered hereunder 78,105 Capital Trust Pass-through
Securities, each representing a __% Cumulative Preferred Security, Series
D of PECO Energy Capital, L.P., with an aggregate initial offering
price not to exceed $78,105,000, and related Guarantee and __%
Subordinated Deferrable Interest Debentures, Series D of PECO Energy
Company for which no separate consideration will be received.
(2) Estimated solely for the purpose of determining the registration fee.
(3) Exclusive of accrued interest and dividends, if any.
(4) Pursuant to Rule 457(n) and (o), the registration fee is calculated on
the basis of the proposed maximum offering price of the Capital Trust
Pass-through Securities.
(5) Includes the rights of holders of the ____% Cumulative Preferred
Securities, Series D under the Guarantee and certain backup
undertakings related thereto as described in the Registration
Statement.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE
WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
==============================================================================
SUBJECT TO COMPLETION, DATED MARCH __, 1998
PROSPECTUS
PECO ENERGY CAPITAL TRUST III
78,105 Capital Trust Pass-through Securities(sm) (TruPS(r))*
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 Securities(sm) ("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
(continued on next page)
SEE "RISK FACTORS" COMMENCING ON PAGE 9 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.
Application has been made to list the Capital Securities on the New
York Stock Exchange. If approved for listing, 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.
____________________
Initial Public Underwriting Proceeds to
Offering Price Commission(1) the Trust(2)(3)
-------------- ------------- ---------------
Per Capital Security ...... $1,000.00 (2) $1,000.00
Total ..................... $78,105,000 (2) $78,105,000
_______________________
(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 $__________ per Capital Security (or $__________ 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 ______________, 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.
_________________________________
The date of this Prospectus is _____________, 1998.
(continued from previous page)
of Delaware ("PECO Energy Capital"). 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 __________ and __________ of each year,
commencing __________, 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."
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
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
4
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 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 __________,
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 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 ___________ and
___________ of each year, commencing ________,
1998. See "Description of the Capital
Securities Distributions."
5
Option to Extend
Interest Payment
Period ...............So long as no Event 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."
6
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 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."
7
Ratings.................The Capital Securities are expected to be rated Baa2
by Moody's Investors Service, Inc., BBB by
Standard and Poor's Rating Services and BBB+ by
Fitch IBCA, Inc. 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."
8
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 $4.678 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, however, only to the extent that PECO
Energy Capital has funds on hand legally available therefor and payment
thereof does not otherwise violate applicable law. If PECO Energy were to
default on its obligation to pay interest or amounts payable on redemption
or maturity of the Series 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
9
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 case, 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 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
10
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."
11
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.
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").
12
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, 1997, 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.
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
13
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."
14
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
15
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
__________ and __________ of each year, commencing __________, 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.
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
16
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 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.
17
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 66-2/3% 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
18
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."
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.
19
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.
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
20
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.
21
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 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 ____________ and ____________ 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 ____________, 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.
22
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 __________ and __________. 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 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
23
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 partnership, (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.
24
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 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
25
(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, replacement, conveyance, transfer or lease will not
adversely affect the limited liability of holders of Preferred Securities
or Successor Securities.
26
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%
27
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, (iii) 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 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
28
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
29
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 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
30
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.
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 ________, 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.
31
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 ____________ and
____________ of each year, commencing on ____________, 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.
32
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
33
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 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
34
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.
35
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.
36
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.
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.
37
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
Securityholder 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
38
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
advise of tax counsel, that the Series D Subordinated Debt Securities will
not be considered to be issued with original issue discount.
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 ____________ and ____________ 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.
39
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").
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.
40
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
41
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 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
42
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 Plan's 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 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.
43
"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"
44
of Qualified Plan or IRA investors for purposes of determining whether
any prohibited transaction has occurred.
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:
Number of
Underwriter Capital Securities
----------- ------------------
Salomon Brothers Inc....................
Merrill Lynch, Pierce, Fenner and Smith
Incorporated.........................
_____________
Total ..................................
=============
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 $____ per Capital Security. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $____ per Capital Security to certain brokers and
45
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. An application has been made to list the Capital Securities on
the New York Stock Exchange. If the application is approved, 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 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.
46
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.
47
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 . . . . . . . . . . . . . . . . . . . . . . . .
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . .
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RISK FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PECO ENERGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PECO ENERGY CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . .
THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
COVERAGE RATIOS . . . . . . . . . . . . . . . . . . . . . . . . . . .
ACCOUNTING TREATMENT. . . . . . . . . . . . . . . . . . . . . . . . .
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . .
DESCRIPTION OF THE CAPITAL SECURITIES . . . . . . . . . . . . . . . .
DESCRIPTION OF THE SERIES D PREFERRED SECURITIES. . . . . . . . . . .
DESCRIPTION OF THE SERIES D GUARANTEE . . . . . . . . . . . . . . . .
DESCRIPTION OF THE SERIES D SUBORDINATED
DEBT SECURITIES AND THE INDENTURE . . . . . . . . . . . . . . . . .
UNITED STATES TAXATION. . . . . . . . . . . . . . . . . . . . . . . .
ERISA CONSIDERATIONS. . . . . . . . . . . . . . . . . . . . . . . . .
UNDERWRITING. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$78,105,000
PECO ENERGY CAPITAL TRUST III
____% CAPITAL TRUST PASS-THROUGH
SECURITIES(SM) (TRUPS(R))
(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
[LOGO]
SALOMON SMITH BARNEY
MERRILL LYNCH & CO.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
Filing Fees - Securities and Exchange Commission . $ 23,041
Printing . . . . . . . . . . . . . . . . . . . . . 75,000
Legal fees and Blue Sky fees . . . . . . . . . . . 100,000
Accounting fees. . . . . . . . . . . . . . . . . . 25,000
Trustee fees and expenses. . . . . . . . . . . . . 10,000
Rating agencies fees and expenses. . . . . . . . . 40,000
Miscellaneous. . . . . . . . . . . . . . . . . . . 46,959
--------
Total . . . . . . . . . . . . . . . . . . . . $320,000
========
*Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
PECO Energy's Bylaws provide that PECO Energy is obligated to indemnify
directors and officers and other persons designated by the Board of
Directors against any liability including any damage, judgment, amount paid
in settlement, fine, penalty, cost or expense (including, without
limitation, attorneys' fees and disbursements) incurred in connection with
any proceeding. The Bylaws provide that no indemnification shall be made
where the act or failure to act giving rise to the claim for
indemnification is determined by arbitration or otherwise to have
constituted willful misconduct or recklessness or attributable to receipt
from PECO Energy of a personal benefit to which the recipient is not
legally entitled.
Section 518 of the Pennsylvania Business Corporation Law of 1988
provides that indemnification pursuant to a bylaw may be granted for any
action taken or any failure to take any action, absent a court
determination of willful misconduct or recklessness, and may be made
whether or not the corporation would have the power to indemnify the person
under any other provision of law.
Pursuant to the Pennsylvania Business Corporation Law of 1988, PECO
Energy's Bylaws provide that directors generally will not be liable for
monetary damages in any action whether brought by shareholders directly or
in the right of PECO Energy or by third parties unless they fail in the
good faith performance of their duties as fiduciaries (the standard of care
established by the Pennsylvania Business Corporation Law of 1988), and such
failure constitutes self-dealing, willful misconduct or recklessness.
PECO Energy has purchased directors' and officers' liability insurance.
Pursuant to the Partnership Agreement, to the fullest extent permitted
by applicable law, PECO Energy Capital shall indemnify and hold harmless
the General Partner or any Special Representative, any affiliate of the
General Partner or any Special Representative or any officers, directors,
shareholders, partners, employees, representatives or agents of the General
Partner or any Special Representative, or any employee or agent of PECO
Energy Capital or its affiliates (each, an "Indemnified Person") from and
against any loss, damage or claim incurred by such Indemnified Person by
reason of any act or omission performed or omitted by such Indemnified
Person in good faith on behalf of PECO Energy Capital and in a manner
reasonably believed to be within the scope of authority conferred on such
Indemnified Person by the Partnership Agreement, except that no Indemnified
Person shall be indemnified
II-1
for any loss, claim or damage incurred by reason of the Indemnified
Person's gross negligence, willful misconduct or fraud; provided, however,
that any such indemnity shall be provided out of and to the extent of PECO
Energy Capital's assets only, and no General Partner or limited partner
(collectively, "Partners"), any affiliate of a Partner or any officers,
directors, shareholders, partners, employees, representatives or agents of
a Partner or its respective affiliates, or any employee or agent of PECO
Energy Capital or its affiliates or any Special Representative shall have
any personal liability on account thereof. To the fullest extent permitted
by applicable law, expenses (including legal fees) incurred by an
Indemnified Person in defending any claim, demand, action, suit or
proceeding shall, from time to time, be advanced by PECO Energy Capital
prior to the final disposition of such claim, demand, action, suit or
proceeding pursuant to an undertaking by or on behalf of the Indemnified
Person to repay such amount if it shall be determined that the Indemnified
Person is not entitled to be indemnified.
The Trust Agreement provides, to the fullest extent permitted by law,
that the General Partner will indemnify and defend the Trustee and its
directors, officers, employees and agents against, and hold each of them
harmless from, any liability, costs and expenses (including reasonable
attorneys' fees) that may arise out of or in connection with its acting as
the Trustee under the Trust Agreement and the Capital Securities, except
for any liability arising out of gross negligence, bad faith or willful
misconduct on the part of any such person or persons.
ITEM 16. EXHIBITS
Exhibit
Numbers Exhibit
- ------- -------
1-1 Form of Underwriting Agreement.
3-1 Amended and Restated Articles of Incorporation of PECO Energy
(incorporated by reference to PECO Energy's 1993 Annual Report on
Form 10-K, File No. 1-1401).
3-2 Bylaws of PECO Energy, adopted February 26, 1990 and amended
January 26, 1998 (incorporated by reference to Exhibit 3-2 of PECO
Energy's 1997 Annual Report on Form 10-K, File No. 1-1401).
3-3 Certificate of Limited Partnership of PECO Energy Capital,
L.P. (incorporated by reference to Registration Statement Nos.
33-53785 and 33-53785-01).
4-1 Amended and Restated Limited Partnership Agreement of PECO
Energy Capital (incorporated by reference to Exhibit 10-7 of PECO
Energy's 1994 Annual Report on Form 10-K, File No. 1-1401).
4-2 Amendment No. 1 to Amended and Restated Limited Partnership
Agreement of PECO Energy Capital (incorporated by reference to
Exhibit 10-8 of PECO Energy's 1995 Annual Report on Form 10-K,
File No. 1-1401).
4-3 Amendment No. 2 to Amended and Restated Limited Partnership
Agreement of PECO Energy Capital (incorporated by reference to
Exhibit 10-9 of PECO Energy's 1995 Annual Report on Form 10-K,
File No. 1-1401).
4-4 Amendment No. 3 to Amended and Restated Limited Partnership
Agreement of PECO Energy Capital.
II-2
4-5 Form of Action of General Partner creating Series D
Preferred Securities.
4-6 Form of Series D Preferred Security Certificate
(included in Exhibit 4-1).
4-7 Subordinated Debenture Indenture dated as of July 1, 1994
(incorporated by reference to Exhibit
4-5 of PECO Energy's 1994 Annual Report on Form 10-K,
File No. 1-1401).
4-8 Form of Series D Subordinated Debt Security
(included in Exhibit 4-11).
4-9 First Supplemental Indenture to Subordinated Debenture
Indenture, dated as of December 1,
1995 (incorporated by reference to Exhibit 4-7
of PECO Energy's 1995 Annual Report on Form
10-K, File No. 1-1401).
4-10 Second Supplemental Indenture to Subordinated Debenture
Indenture, dated as of June 1, 1997
(incorporated by reference to Exhibit 4-6 of
PECO Energy's 1997 Annual Report on Form 10-K,
File No. 1-1401).
4-11 Form of Third Supplemental Indenture to
Subordinated Debenture Indenture.
4-12 Certificate of Trust for the Trust.
4-13 Trust Agreement for the Trust.
4-14 Form of Amended and Restated Trust Agreement for the Trust.
4-15 Form of Payment and Guarantee Agreement.
4-16 Form of Certificate Representing the Capital
Securities (included in Exhibit 4-14).
5-1 Opinion of Ballard Spahr Andrews & Ingersoll, LLP
relating to the legality of the Series D
Subordinated Debt Securities and Series D Guarantee,
including consent.
5-2 Opinion of Richards, Layton & Finger, P.A. relating to
the legality of the Capital Securities and
the Series D Preferred Securities, including consent.
8 Opinion of Ballard Spahr Andrews & Ingersoll, LLP as to tax matters.
12-1 Computations of PECO Energy's Ratio of Earnings
to Fixed Charges and Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividend
Requirements for the years ended
December 31, 1993-1997 (incorporated by reference to
Exhibits 12-1 and 12-2, respectively,
of PECO Energy's 1997 Annual Report on Form 10-K, File No. 1-1401).
13 PECO Energy's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997
(incorporated by reference, File No. 1-1401).
21 List of Subsidiaries of PECO Energy (incorporated by
reference to Exhibit 21 of PECO
Energy's 1997 Annual Report on Form 10-K, File No. 1-1401).
23-1 Consent of Coopers & Lybrand, L.L.P.
II-3
23-2 Consent of Ballard Spahr Andrews & Ingersoll, LLP
(included in Exhibit 5-1).
23-3 Consent of Richards, Layton & Finger, P.A. (included in Exhibit 5-2).
24 Powers of Attorney.
25 Statement of Eligibility under the Trust Indenture
Act of 1939, as amended, of First Union
National Bank, as Trustee under the Third Supplemental Indenture.
ITEM 17. UNDERTAKINGS
(1) The undersigned registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrants' annual report pursuant to Section 13(a) or Section 15(d)
of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in
the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(2) The Trust hereby undertakes to provide to the underwriter at the
closing specified in the underwriting agreement certificates in such
dominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
(3) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrants pursuant to the foregoing
provisions, or otherwise, the Registrants have been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrants of expenses incurred
or paid by a director, officer or controlling person of the Registrants in
the successful defense of any action, suit, or proceeding) is asserted by
such director, officer of controlling person in connection with the
securities being registered, the Registrants will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(4) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrants pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(5) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(6) The undersigned registrants hereby undertake: (i) To file, during
any period in which any offers or sales are being made, a post-effective
amendment to the registration statement:
II-4
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(ii) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offering therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(iii) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, PECO Energy Company, certifies that it has reasonable grounds
to believe that it meets all of the requirements for filing on Form S-3 and
has duly caused this Registration Statement to be signed on its behalf by
the undersigned, hereunto duly authorized in the City of Philadelphia,
Commonwealth of Pennsylvania, on March 16, 1998.
PECO Energy Company
By: /s/ C.A. McNeill, Jr.
_______________________________
C.A. McNeill, Jr.
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ C.A. McNeill, Jr. Chairman of the Board, March 16, 1998
----------------------- President and Chief Executive
C.A. McNeill, Jr. Officer
(Principal Executive Officer)
/s/ M.J. Egan Senior Vice President - March 16, 1998
----------------------- Finance and Chief Financial
M.J. Egan Officer (Principal Financial
and Accounting Officer)
This Registration Statement has also been signed by C.A. McNeill, Jr.,
Attorney-in-Fact, on behalf of the following Directors on the date
indicated:
Susan W. Catherwood James A. Hagen
Daniel L. Cooper Kinnaird R. McKee
M. Walter D'Alessio Joseph J. McLaughlin
G. Fred DiBona, Jr. John M. Palms
R. Keith Elliott Joseph F. Paquette, Jr.
Richard G. Gilmore Ronald Rubin
Richard H. Glanton Robert Subin
By: /s/ C.A. McNeill, Jr. March 16, 1998
--------------------------
C.A. McNEILL, JR.,
ATTORNEY-IN-FACT
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, PECO Energy Capital, L.P., certifies that it has reasonable
grounds to believe that it meets all of the requirements for filing on Form
S-3 and has duly caused this Registration Statement to be signed on its
behalf by the undersigned, hereunto duly authorized in the City of
Philadelphia, Commonwealth of Pennsylvania, on March 16, 1998.
PECO Energy Capital, L.P.
By: PECO Energy Capital Corp.,
its general partner
By: /s/ J.B. Mitchell
---------------------------
J.B. Mitchell
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ J.B. Mitchell President and Director March 16, 1998
---------------- (Principal Executive Officer
J.B. Mitchell and Principal Financial and
Accounting Officer)
/s/ M.J. Egan Director March 16, 1998
-----------------
M.J. Egan
/s/ G.A. Massih III Director March 16, 1998
-----------------
G.A. Massih III
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, PECO Energy Capital Trust III, certifies that it has reasonable
grounds to believe that it meets all of the requirements for filing on Form
S-3 and has duly caused this Registration Statement to be signed on its
behalf by the undersigned, hereunto duly authorized in the City of
Philadelphia, Commonwealth of Pennsylvania, on March 16, 1998.
PECO Energy Capital Trust III
By: PECO Energy Capital, L.P.,
as its grantor
By: PECO Energy Capital Corp.,
as general partner
By: /s/ J.B. Mitchell
-------------------------
J.B. Mitchell
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ J.B. Mitchell (Principal Executive March 16, 1998
---------------- Officer and Principal
J.B. Mitchell Financial and
Accounting Officer)
/s/ M.J. Egan Director March 16, 1998
----------------
M.J. Egan
/s/ G.A. Massih III Director March 16, 1998
----------------
G.A. Massih III