-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JA/nIpJqV9X5nZTWstr9WNd68XJmm15zDvzHCzEPGVbgpCdu4frmF5peIfEeb8kJ Tg1Pb9x7h/sJAdvDZzcx/Q== 0000893220-95-000728.txt : 19951109 0000893220-95-000728.hdr.sgml : 19951109 ACCESSION NUMBER: 0000893220-95-000728 CONFORMED SUBMISSION TYPE: SC 13E4 PUBLIC DOCUMENT COUNT: 18 FILED AS OF DATE: 19951108 SROS: NONE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: PECO ENERGY CO CENTRAL INDEX KEY: 0000078100 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 230970240 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E4 SEC ACT: 1934 Act SEC FILE NUMBER: 005-42653 FILM NUMBER: 95587981 BUSINESS ADDRESS: STREET 1: 2301 MARKET ST STREET 2: P O BOX 8699 CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2158414000 FORMER COMPANY: FORMER CONFORMED NAME: PHILADELPHIA ELECTRIC CO DATE OF NAME CHANGE: 19920703 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: PECO ENERGY CO CENTRAL INDEX KEY: 0000078100 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 230970240 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E4 BUSINESS ADDRESS: STREET 1: 2301 MARKET ST STREET 2: P O BOX 8699 CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2158414000 FORMER COMPANY: FORMER CONFORMED NAME: PHILADELPHIA ELECTRIC CO DATE OF NAME CHANGE: 19920703 SC 13E4 1 SCHEDULE 13E-4, PECO ENERGY COMPANY 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13E-4 ISSUER TENDER OFFER STATEMENT (PURSUANT TO SECTION 13(e)(1) OF THE SECURITIES EXCHANGE ACT OF 1934) PECO ENERGY COMPANY (Name of the Issuer) PECO ENERGY COMPANY (Name of Person(s) Filing Statement) DEPOSITARY SHARES, EACH REPRESENTING A 1/4 SHARE OF $7.96 CUMULATIVE PREFERRED STOCK (Title of Class of Securities) 693304875 (CUSIP Number of Class of Securities) J. B. MITCHELL VICE PRESIDENT - FINANCE AND TREASURER PECO ENERGY COMPANY P.O. BOX 8699, 2301 MARKET STREET PHILADELPHIA, PA 19101 (215) 841-4000 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of the Person(s) Filing Statement) ---------------------------- PLEASE ADDRESS A COPY OF ALL COMMUNICATIONS TO: ROBERT C. GERLACH, ESQ. ROBERT M. JONES, JR., ESQ. BALLARD SPAHR ANDREWS & INGERSOLL DRINKER BIDDLE & REATH 1735 MARKET STREET, 51ST FLOOR 1345 CHESTNUT STREET PHILADELPHIA, PENNSYLVANIA 19103 PHILADELPHIA, PENNSYLVANIA 19107 (215) 865-8000 (215) 988-2700 November 8, 1995 (Date Tender Offer First Published, Sent or Given to Security Holders) CALCULATION OF FILING FEE
====================================================================== Transaction Valuation* Amount of Filing Fee --------------------- -------------------- $137,025,000 $27,405 ======================================================================
* For purposes of calculating the filing fee pursuant to Rule 0-11 of the Securities Exchange Act of 1934, as amended, the market value of the Depositary Shares, each representing a 1/4 share interest in the Company's $7.96 Cumulative Preferred Stock (the "Depositary Shares") proposed to be acquired was determined by multiplying $25-3/8 (the average of the high and low reported prices of the Depositary Shares on the New York Stock Exchange on November 3, 1995, by 5,400,000 (the number of Depositary Shares which PECO Energy Company has offered to acquire). /x/ Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: $46,552 Form or Registration Nos.: Form S-4 (Registration Nos. 33-60859 and 33-60859-01) Filing Parties: PECO Energy Company, PECO Energy Capital, L.P. and PECO Energy Capital Trust I Date Filed: July 5, 1995 Page 1 of 6 pages 2 This Issuer Tender Offer Statement (the "Statement") is being filed with the Securities and Exchange Commission (the "Commission") by PECO Energy Company ("PECO Energy") in connection with the filing under the Securities Act of 1933, as amended, of a registration statement on Form S-4 (the "Registration Statement") regarding an exchange offer (the "Offer") to holders of Depositary Shares, each representing a one-fourth interest in a share of the $7.96 Cumulative Preferred Stock (the "Depositary Shares") of PECO Energy. A copy of the Offering Circular/Prospectus dated November 6, 1995 (the "Offering Circular/Prospectus") contained in the Registration Statement (Registration Nos. 33-60859 and 33-60859-01) declared effective by the Commission on November 6, 1995 is attached hereto as Exhibit A. Pursuant to General Instruction B to Schedule 13E-4, certain information contained in the Offering Circular/Prospectus is hereby incorporated by reference in answer to items of this Statement. References to the Offering Circular/Prospectus are identified by the captions set forth in the Offering Circular/Prospectus. Where substantially identical information required by Schedule 13E-4 is included under more than one caption, reference is made to only one caption of the Offering Circular/Prospectus. ITEM 1. SECURITY AND ISSUER. (a) The name of the issuer is PECO Energy Company, a Pennsylvania corporation. The address of its principal executive offices is 2301 Market Street, Philadelphia, Pennsylvania 19101. (b) The exact title of the class of securities being sought is "Depositary Shares, each representing a one-fourth interest in a share of $7.96 Cumulative Preferred Stock of PECO Energy Company." Reference is made to "Offering Circular/Prospectus Summary" and "The Offer -- Terms of the Offer" in the Offering Circular/Prospectus, which are incorporated herein by reference, for information on the amount of securities outstanding, the exact amount of securities being sought and the consideration being offered therefor. No Depositary Shares are to be acquired from any officer, director or affiliate of PECO Energy. (c) Reference is made to "Price Range of Depositary Shares" in the Offering Circular/Prospectus, which is incorporated herein by reference, for information on the exchange on which the Depositary Shares are traded and the high and low sales prices. (d) Not applicable. ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. (a) Reference is made to "The Offer -- Terms of the Offer," "Description of the Series B Preferred Securities," "Description of the Series B Guarantee" and "Description of the Series B Subordinated Debentures" in the Offering Circular/Prospectus, which are incorporated herein by reference. Page 2 of 6 pages 3 (b) Reference is made to "The Offer -- Terms of the Offer," "Description of the Series B Preferred Securities," "Description of the Series B Guarantee" and "Description of the Series B Subordinated Debentures" in the Offering Circular/Prospectus, which are incorporated herein by reference. ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE. Reference is made to "The Offer -- Purpose of the Offer" and "-- Terms of the Offer" in the Offering Circular/Prospectus, which are incorporated herein by reference. Depositary Shares acquired pursuant to the Offer will be delivered to PECO Energy and will be retired. (a)-(j) None. ITEM 4. INTEREST IN SECURITIES OF THE ISSUER. None. ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO THE ISSUER'S SECURITIES. None. ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED. Reference is made to "The Offer -- Exchange Agent and Information Agent," "-- Dealer Managers; Soliciting Dealers" and "Fees and Expenses; Transfer Taxes" in the Offering Circular/Prospectus, which are incorporated herein by reference. ITEM 7. FINANCIAL INFORMATION. (a) Reference is made to "Incorporation of Certain Documents by Reference," "Coverage Ratios" and "Selected Consolidated Financial Data" in the Offering Circular/Prospectus, which are incorporated herein by reference. (b) Not applicable. ITEM 8. ADDITIONAL INFORMATION. (a) None. (b) There are no applicable regulatory requirements which must be complied with or approvals which must be obtained in connection with the Offer other than compliance with the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder including, without limitation, Rule 13e-4 and the Trust Indenture Act of 1939, as amended, the Pennsylvania Public Utility Page 3 of 6 pages 4 Code and the rules and regulations promulgated thereunder, the orders of the Pennsylvania Public Utilities Commission, and the requirements of the state securities or "blue sky" laws. (c) Not applicable. (d) None. (e) None. ITEM 9. MATERIAL TO BE FILED AS EXHIBITS. (a) Offering Circular/Prospectus dated November 6, 1995 (Exhibit A); Letter of Transmittal (Exhibit B); Notice of Guaranteed Delivery (Exhibit C); Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees (Exhibit D); Letter to Clients (Exhibit E); Tombstone advertisement to be published on November 9, 1995 (Exhibit F); Press Release issued by PECO Energy on July 5, 1995 (Exhibit G); Press Release issued by PECO Energy on November 7, 1995 (Exhibit H); PECO Energy Letter to Holders of Depositary Shares each representing a one-fourth interest in a share of $7.96 Cumulative Preferred Stock (Exhibit I); Questions and Answers Pamphlet (Exhibit J); Form of Dealer Manager's Letter to Non-Contacts (Exhibit K). (b) Indenture dated as of July 1, 1994 between the Company and Meridian Trust Company, as Trustee (Exhibit L), as amended by a First Supplemental Indenture to be dated December 1, 1995, (Exhibit M) and Payment and Guarantee Agreement of PECO Energy (Exhibit N). (c) None. (d) Tax opinion of Ballard Spahr Andrews & Ingersoll (Exhibit O). (e) The Offering Circular/Prospectus is included in (a) above. (f) Merrill Lynch, Pierce, Fenner & Smith Incorporated Research Memorandum (Exhibit P); Smith Barney Inc. Research Memorandum (Exhibit Q). Page 4 of 6 pages 5 SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: November 7, 1995 PECO Energy Company By: /s/ J. Barry Mitchell ----------------------- J. Barry Mitchell Vice President - Finance and Treasurer Page 5 of 6 pages 6 EXHIBITS Exhibit A Offering Circular/Prospectus dated November 6, 1995 Exhibit B Letter of Transmittal Exhibit C Notice of Guaranteed Delivery Exhibit D Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees Exhibit E Letter to Clients Exhibit F Tombstone advertisement to be published on November 9, 1995 Exhibit G Press Release issued by PECO Energy on July 5, 1995 Exhibit H Press Release issued by PECO Energy on November 7, 1995 Exhibit I PECO Energy Letter to Holders of Depositary Shares each representing a one-fourth interest in a share of $7.96 Cumulative Preferred Stock Exhibit J Questions and Answers Pamphlet Exhibit K Form of Dealer Manager's Letter to Non-Contacts Exhibit L Indenture dated as of July 1, 1994 between the Company and Meridian Trust Company, as Trustee Exhibit M Form of First Supplemental Indenture to be dated December 1, 1995 Exhibit N Form of Payment and Guarantee Agreement of PECO Energy Exhibit O Tax opinion of Ballard Spahr Andrews & Ingersoll Exhibit P Merrill Lynch, Pierce, Fenner & Smith Incorporated Research Memorandum Exhibit Q Smith Barney Inc. Research Memorandum Page 6 of 6 pages EX-99.A 2 OFFERING CIRCULAR/PROSPECTUS DATED 11/6/95 1 EXHIBIT A OFFERING CIRCULAR/PROSPECTUS PECO ENERGY COMPANY OFFER TO EXCHANGE TRUST RECEIPTS ("TOPRS SM") EACH REPRESENTING A 8.72% CUMULATIVE MONTHLY INCOME PREFERRED SECURITY, SERIES B OF PECO ENERGY CAPITAL, L.P. (STATED LIQUIDATION PREFERENCE $25 PER PREFERRED SECURITY) FOR UP TO 5,400,000 OUTSTANDING DEPOSITARY SHARES EACH REPRESENTING A ONE-FOURTH INTEREST IN A SHARE OF $7.96 CUMULATIVE PREFERRED STOCK OF PECO ENERGY COMPANY THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON DECEMBER 13, 1995, UNLESS THE OFFER IS EXTENDED. --------------------- PECO Energy Company, a Pennsylvania corporation ("PECO Energy"), hereby offers, upon the terms and subject to the conditions set forth in this Offering Circular/Prospectus and the accompanying Letter of Transmittal (the "Letter of Transmittal" which, together with this Offering Circular/Prospectus, constitute the "Offer"), to effect the exchange (the "Exchange") of Trust Receipts, each representing a 8.72% Cumulative Monthly Income Preferred Security, Series B, representing a limited partner interest issued by PECO Energy Capital, L.P., a limited partnership formed under the laws of the State of Delaware ("PECO Energy Capital"), for up to 5,400,000 depositary shares (the "Depositary Shares"), or 96.4% of the outstanding Depositary Shares, each representing a one-fourth interest in a share of $7.96 Cumulative Preferred Stock of PECO Energy. The Trust Receipts, which will be issued by PECO Energy Capital Trust I, a statutory business trust created under the laws of the State of Delaware (the "Trust"), are hereinafter referred to as the "Preferred Trust Receipts" and the underlying 8.72% Cumulative Monthly Income Preferred Securities, Series B of PECO Energy Capital are hereinafter referred to as the "Series B Preferred Securities." Exchanges will be made on the basis of one Preferred Trust Receipt for each Depositary Share validly tendered and accepted for exchange in the Offer. Depositary Shares not accepted for exchange because of proration or otherwise will be returned. IN ORDER TO PARTICIPATE IN THE OFFER, HOLDERS OF DEPOSITARY SHARES MUST EITHER SUBMIT A LETTER OF TRANSMITTAL (OR AN AGENT'S MESSAGE, IF APPLICABLE) OR SUBMIT A NOTICE OF GUARANTEED DELIVERY AND COMPLY WITH THE OTHER PROCEDURES FOR TENDERING IN ACCORDANCE WITH THE INSTRUCTIONS CONTAINED HEREIN AND IN THE LETTER OF TRANSMITTAL PRIOR TO 12:00 MIDNIGHT, NEW YORK CITY TIME, ON DECEMBER 13, 1995 (THE "EXPIRATION DATE"). The Preferred Trust Receipts have been approved for listing on the New York Stock Exchange (the "NYSE") subject to notice of issuance and attainment of the NYSE distribution standards. Trading of the Preferred Trust Receipts on the NYSE is expected to commence within a 30-day period after the initial delivery of the Preferred Trust Receipts. --------------------- SEE "RISK FACTORS" WHICH COMMENCES ON PAGE 9 OF THIS OFFERING CIRCULAR/PROSPECTUS FOR A DISCUSSION OF CERTAIN FACTORS RELATING TO THE PREFERRED TRUST RECEIPTS THAT SHOULD BE CONSIDERED BY INVESTORS, INCLUDING THE PERIOD DURING WHICH AND CIRCUMSTANCES UNDER WHICH DISTRIBUTIONS ON THE UNDERLYING SERIES B PREFERRED SECURITIES MAY BE DEFERRED AND THE RELATED FEDERAL INCOME TAX CONSEQUENCES. --------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS OFFERING CIRCULAR/PROSPECTUS, AND ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. --------------------- NO RECOMMENDATION TO HOLDERS OF DEPOSITARY SHARES TO TENDER OR TO REFRAIN FROM TENDERING IN THE OFFER IS MADE BY PECO ENERGY, THE BOARD OF DIRECTORS OF PECO ENERGY, PECO ENERGY CAPITAL, THE GENERAL PARTNER OF PECO ENERGY CAPITAL, THE TRUST OR THE TRUSTEE (AS DEFINED BELOW). HOLDERS OF DEPOSITARY SHARES ARE URGED TO CONSULT THEIR FINANCIAL AND TAX ADVISERS IN MAKING THEIR DECISIONS ON WHAT ACTION TO TAKE IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES. --------------------- PECO Energy will pay to Soliciting Dealers (as defined herein) designated by the record or beneficial owner, as appropriate, of Depositary Shares a solicitation fee of $0.50 per Depositary Share validly tendered and accepted for exchange pursuant to the Offer and to Merrill Lynch & Co. and Smith Barney Inc., as Dealer Managers, an aggregate fee of $0.125 per Depositary Share tendered pursuant to the Offer, subject to certain conditions. Soliciting Dealers are not entitled to a solicitation fee for Depositary Shares beneficially owned by such Soliciting Dealer. See "The Offer -- Dealer Managers; Soliciting Dealers." --------------------- The Dealer Managers for the Offer are: MERRILL LYNCH & CO. SMITH BARNEY INC. --------------------- THE DATE OF THIS OFFERING CIRCULAR/PROSPECTUS IS NOVEMBER 6, 1995. SM "TOPrS" is a service mark of Merrill Lynch & Co., Inc. 2 DIAGRAM OF OFFER The diagram shows that the Depositary Shares will be tendered by the holders thereof to the Exchange Agent which will return the Depositary Shares to PECO Energy. PECO Energy will issue its Series B Subordinated Debentures to the Exchange Agent, and the Exchange Agent will deliver the Series B Subordinated Debentures to PECO Energy Capital. PECO Energy Capital will issue its Series B Preferred Securities to the Trust, and the Trust will issue its Preferred Trust Receipts to the Exchange Agent which will deliver Preferred Trust Receipts to each tendering holder of Depositary Shares. - --------------- (1) Depositary Shares (2) Series B Subordinated Debentures* (3) Series B Preferred Securities (4) Preferred Trust Receipts** * The principal amount of the Series B Subordinated Debentures delivered to PECO Energy Capital pursuant to the Exchange will be equal to the aggregate stated liquidation preference of the Series B Preferred Securities issued in connection with the Offer. PECO Energy Capital will also purchase Series B Subordinated Debentures with a principal amount equal to the proceeds received by PECO Energy Capital from the issuance of additional general partner interests to PECO Energy Capital Corp., the general partner. ** Holders of Depositary Shares who participate in the Offer will receive one Preferred Trust Receipt for each outstanding Depositary Share that is validly tendered and accepted for exchange. 3 DIAGRAM OF OFFER SHOWING END RESULT FOR HOLDERS OF DEPOSITARY SHARES The diagram shows that each holder of Depositary Shares tendering Depositary Shares to the Exchange Agent will receive, in exchange therefor, Preferred Trust Receipts from the Exchange Agent. - --------------- * Holders of Depositary Shares who participate in the Offer will receive one Preferred Trust Receipt for each outstanding Depositary Share that is validly tendered and accepted for exchange. DIAGRAM OF PAYMENT FLOWS AFTER COMPLETION OF THE EXCHANGE The diagram shows that PECO Energy will pay interest on its Series B Subordinated Debentures to PECO Energy Capital as the holder thereof. PECO Energy Capital will then make distributions on its Series B Preferred Securities to the Trust which will concurrently make distributions on its Preferred Trust Receipts to the holders thereof. 4 NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED IN THIS OFFERING CIRCULAR/PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PECO ENERGY, PECO ENERGY CAPITAL, THE TRUST OR THE DEALER MANAGERS. NEITHER THE DELIVERY OF THIS OFFERING CIRCULAR/PROSPECTUS NOR ANY EXCHANGE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF PECO ENERGY, PECO ENERGY CAPITAL OR THE TRUST SINCE THE RESPECTIVE DATES AS OF WHICH INFORMATION IS GIVEN HEREIN. THE OFFER IS NOT BEING MADE TO (NOR WILL TENDERS BE ACCEPTED FROM OR ON BEHALF OF) HOLDERS OF DEPOSITARY SHARES IN ANY JURISDICTION IN WHICH THE MAKING OF THE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH JURISDICTION. HOWEVER, PECO ENERGY, PECO ENERGY CAPITAL OR THE TRUST MAY, AT THEIR DISCRETION, TAKE SUCH ACTION AS THEY MAY DEEM NECESSARY TO MAKE THE OFFER IN ANY SUCH JURISDICTION AND EXTEND THE OFFER TO HOLDERS OF DEPOSITARY SHARES IN SUCH JURISDICTION. IN ANY JURISDICTION THE LAWS OF WHICH REQUIRE THE OFFER TO BE MADE BY A LICENSED BROKER OR DEALER, THE OFFER IS BEING MADE ON BEHALF OF PECO ENERGY BY THE DEALER MANAGERS OR ONE OR MORE REGISTERED BROKERS OR DEALERS WHICH ARE LICENSED UNDER THE LAWS OF SUCH JURISDICTION. 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. Securities of PECO Energy are listed on the New York and Philadelphia Stock Exchanges, where reports, proxy and information statements and other information concerning PECO Energy may be inspected. No separate financial statements of PECO Energy Capital or the Trust have been included herein. PECO Energy does not consider that such financial statements would be material to holders of Preferred Trust Receipts offered hereby because PECO Energy Capital and the Trust are special purpose entities, have no independent operations and are not engaged in, and do not propose to engage in, any activity other than as set forth below. See "PECO Energy Capital" and "The Trust." 1 5 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, 1994; 2. PECO Energy's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995 and June 30, 1995; and 3. PECO Energy's Current Reports on Form 8-K dated February 2, 1995, May 24, 1995, June 13, 1995, July 24, 1995, August 14, 1995, October 17, 1995, October 23, 1995 and November 1, 1995. Each document filed subsequent to the date of this Offering Circular/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 Offering Circular/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 Offering Circular/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 Offering Circular/Prospectus. THIS OFFERING CIRCULAR/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 AN OFFERING CIRCULAR/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) 841-5741. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE NOT LATER THAN FIVE BUSINESS DAYS PRIOR TO THE EXPIRATION DATE. TABLE OF CONTENTS
PAGE ---- Offering Circular/Prospectus Summary.................................................. 3 Risk Factors.......................................................................... 9 Comparison of Preferred Trust Receipts and Depositary Shares.......................... 11 PECO Energy........................................................................... 14 PECO Energy Capital................................................................... 14 The Trust............................................................................. 14 Coverage Ratios....................................................................... 14 Selected Consolidated Financial Data.................................................. 16 The Offer............................................................................. 18 Listing and Trading of Preferred Trust Receipts and Depositary Shares................. 25 Transactions and Arrangements Concerning the Offer.................................... 26 Fees and Expenses; Transfer Taxes..................................................... 26 Price Range of Depositary Shares...................................................... 26 Description of the Preferred Trust Receipts........................................... 27 Description of the Series B Preferred Securities...................................... 30 Description of the Series B Guarantee................................................. 36 Description of the Series B Subordinated Debentures and the Indenture................. 38 Description of the Depositary Shares.................................................. 43 United States Taxation................................................................ 48 Legal Matters......................................................................... 51 Experts............................................................................... 51
2 6 OFFERING CIRCULAR/PROSPECTUS SUMMARY The following summary does not purport to be complete and is qualified in its entirety by the more detailed information contained elsewhere in, or incorporated by reference in, this Offering Circular/Prospectus. PECO ENERGY PECO Energy Company, incorporated in Pennsylvania in 1929, is an operating utility which provides electric and gas service to the public in southeastern Pennsylvania. In 1994, PECO Energy's total revenues were $4 billion, with approximately 90% derived from its electric business and 10% from its gas business. PECO Energy's mailing address is P.O. Box 8699, Philadelphia, PA 19101, and its telephone number is (215) 841-4000. See "PECO Energy -- Recent Developments." PECO ENERGY CAPITAL PECO Energy Capital, L.P. is a limited partnership formed in 1994 under the laws of the State of Delaware solely for the purpose of issuing one or more series of its limited partner interests (the "Preferred Securities") and lending the proceeds thereof to PECO Energy and entering into similar arrangements. 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 I is a statutory business trust recently created under the laws of the State of Delaware solely for the purpose of issuing Preferred Trust Receipts representing the Series B Preferred Securities held by the Trust and performing functions directly related thereto. The Trust's mailing address is c/o PNC Bank, Delaware, Corporate Trust Department, 222 Delaware Avenue, Wilmington, Delaware 19801, and its telephone number is (302) 429-1546. THE OFFER Subject to the terms and conditions set forth herein and in the Letter of Transmittal, PECO Energy offers to effect the exchange of Preferred Trust Receipts, each representing a Series B Preferred Security, for up to 5,400,000 Depositary Shares. The exchange of Preferred Trust Receipts for Depositary Shares will be effected by (a) the delivery by PECO Energy of its 8.72% Deferrable Interest Subordinated Debentures, Series B (the "Series B Subordinated Debentures") to First Chicago Trust Company of New York (the "Exchange Agent"), which will receive the Series B Subordinated Debentures on behalf of the Holders (as defined herein) of the Depositary Shares in exchange for Depositary Shares, (b) the delivery by the Exchange Agent (acting pursuant to the directions of the Holders of the Depositary Shares) of the Series B Subordinated Debentures to PECO Energy Capital in consideration for the issuance and deposit by PECO Energy Capital of the Series B Preferred Securities to the Trust under an Amended and Restated Trust Agreement (the "Trust Agreement") with PNC Bank, Delaware, as Trustee and (c) the issuance and delivery by the Trust of the Preferred Trust Receipts to the Exchange Agent for distribution to the former Holders of the Depositary Shares. The Preferred Trust Receipts are being issued in exchange for the Depositary Shares instead of directly issuing the Series B Preferred Securities to Holders so that a holder of Preferred Trust Receipts will receive a Form 1099 to report interest income for Federal income tax purposes, rather than a Form K-1 which would have been required if the Series B Preferred Securities were held directly by investors. On July 3, 1995, the last day of trading prior to the first public announcement of the Offer, the closing sales price of the Depositary Shares on the NYSE as reported on the Composite Tape was $25 1/8 per share. Holders of Depositary Shares are urged to obtain a current market quotation for the Depositary Shares. 3 7 PURPOSE OF THE OFFER - The purpose of the Offer is to reduce the after-tax financing costs of PECO Energy through the replacement of Depositary Shares with Preferred Trust Receipts. POTENTIAL BENEFITS TO EXCHANGING HOLDERS - The rate of Distributions on the Preferred Trust Receipts will be 76 basis points greater than the dividend rate on the Depositary Shares. - Dividends on the Depositary Shares accumulate but do not compound. Monthly Distributions on Preferred Trust Receipts will be cumulative and monthly Distributions in arrears after the monthly payment date therefor will accumulate additional Distributions thereon at the Distribution rate. The term "Distributions" as used herein shall include, as applicable, monthly distributions and distributions on monthly distributions in arrears. Monthly Distributions on the Series B Preferred Securities underlying the Preferred Trust Receipts will be made from interest payments by PECO Energy on the Series B Subordinated Debentures. PECO Energy can defer such interest payments for up to 60 consecutive months (the "Extension Period"). During such deferral, PECO Energy may not pay dividends on any of its capital stock, including the Depositary Shares. PECO Energy currently believes that it is unlikely that it (a) will discontinue declaring dividends on its capital stock, including the Depositary Shares, or (b) defer interest payments on the Series B Subordinated Debentures. - Monies for Distributions and liquidation and redemption payments on the Preferred Trust Receipts will only be available if PECO Energy pays principal and interest on the Series B Subordinated Debentures. Although the Series B Subordinated Debentures are subordinated to all Senior Indebtedness (as defined herein) of PECO Energy (approximately $5.0 billion at September 30, 1995) and the Payment and Guarantee Agreement delivered by PECO Energy for the benefit of the holders of the Series B Preferred Securities (the "Series B Guarantee") is subordinated to all creditors of PECO Energy, in the event of a liquidation of PECO Energy, the Series B Subordinated Debentures and the Series B Guarantee must be satisfied in full before the holders of PECO Energy's preferred stock, including the Depositary Shares, will be entitled to any liquidation payments. - The Series B Preferred Securities and the Preferred Trust Receipts will be redeemed upon payment at maturity of the Series B Subordinated Debentures on December 19, 2025. As a result, the Preferred Trust Receipts are effectively subject to mandatory redemption; in contrast the Depositary Shares could remain outstanding indefinitely. POTENTIAL DISADVANTAGES TO EXCHANGING HOLDERS - Participation in the Offer will be a taxable event for Holders of Depositary Shares; Holders of Depositary Shares should consult their tax advisers. - If PECO Energy elects to defer payments of interest on the Series B Subordinated Debentures by extending the interest period thereon, Distributions on the Preferred Trust Receipts would also be deferred but the holders of the Preferred Trust Receipts would continue to accrue interest income (as original issue discount) in respect of the Preferred Trust Receipts which will be taxable to owners of the Preferred Trust Receipts. As a result, owners of the Preferred Trust Receipts during an Extension Period of interest on the Series B Subordinated Debentures will include their pro rata share of the interest in gross income in advance of the receipt of cash. - Holders of Preferred Trust Receipts will have no voting rights with respect to PECO Energy. If preferred dividends of PECO Energy are in arrears in an aggregate amount equivalent to four full quarterly dividend payments, the holders of PECO Energy's preferred stock, including Holders of Depositary Shares, have the right to elect the least number of directors necessary to constitute a majority of the full board of directors of PECO Energy. 4 8 - While the Depositary Shares are not redeemable prior to October 1, 1997, the Series B Preferred Securities (and thus the Preferred Trust Receipts) in certain circumstances will be redeemable prior to that date upon the occurrence of a Tax Event (as defined herein) or an Investment Company Act Event (as defined herein). - While dividends on the Depositary Shares are eligible for the dividends received deduction for corporate holders, distributions on the Preferred Trust Receipts are not eligible for the dividends received deduction for corporate holders. - While the Preferred Trust Receipts have been approved for listing on the NYSE, subject to notice of issuance and attainment of the NYSE distribution standards, the Preferred Trust Receipts are a new issue of securities with no established trading market. - Holders of the Depositary Shares are entitled to participate in PECO Energy's Dividend Reinvestment and Stock Purchase Plan. Holders of Preferred Trust Receipts will not be entitled to participate in such plan. POTENTIAL RISK TO NON-EXCHANGING HOLDERS - The liquidity and trading market for Depositary Shares which are not exchanged in the Offer could be adversely affected by the reduction in the number of publicly traded Depositary Shares resulting from the Offer. For more detailed information concerning the potential disadvantages to exchanging Holders of Depositary Shares and the potential risk to non-exchanging Holders of Depositary Shares, see "Risk Factors" and "United States Taxation" herein. TERMS OF THE OFFER BASIS OF EXCHANGE: One Preferred Trust Receipt for each Depositary Share validly tendered and accepted. MAXIMUM NUMBER OF SHARES; PRORATION: The Offer is for up to 5,400,000 Depositary Shares, unless reduced by PECO Energy in its sole discretion. If more than 5,400,000 Depositary Shares are validly tendered, acceptance of Depositary Shares of each tendering Holder will be pro rated. EXPIRATION DATE: 12:00 Midnight, New York City time on December 13, 1995 unless extended by PECO Energy in its sole discretion or as required by law. EXCHANGE DATE: The date of issuance of the Preferred Trust Receipts will be as soon as practicable following the Expiration Date or up to 12 Business Days following the Expiration Date if proration of tendered Depositary Shares is required. WITHDRAWALS: Any time prior to the Expiration Date and, unless accepted for exchange, at any time after 40 Business Days (defined, for purposes of the Offer, as any day other than a Saturday, Sunday or federal holiday) from November 8, 1995. AMENDMENT; TERMINATION: PECO Energy may amend or terminate the Offer and not accept any Depositary Shares at any time prior to the Expiration Date, provided PECO Energy will not accept Depositary Shares if as of the Expiration Date for any reason there would be fewer than 1,000,000 Preferred Trust Receipts to be issued or 400 record or beneficial holders of Preferred Trust Receipts to be issued as a result of the Exchange. PROCEDURES FOR TENDERING: In order to participate in the Offer, Holders of Depositary Shares must submit a Letter of Transmittal or Agent's Message (as defined herein) 5 9 or submit a Notice of Guaranteed Delivery and comply with the other procedures for tendering in accordance with instructions contained herein and in the Letter of Transmittal prior to the Expiration Date. LETTERS OF TRANSMITTAL, DEPOSITARY SHARES AND ANY OTHER REQUIRED DOCUMENTS SHOULD BE SENT ONLY TO THE EXCHANGE AGENT, NOT TO PECO ENERGY, PECO ENERGY CAPITAL, THE TRUST, THE DEALER MANAGERS OR THE INFORMATION AGENT. BENEFICIAL OWNERS: Any beneficial owner of Depositary Shares registered in the name of a broker/dealer, commercial bank, trust company or other nominee who wishes to tender must instruct such registered holder to tender on behalf of such beneficial owner. GUARANTEED DELIVERY PROCEDURES: A tender may be effected in accordance with the guaranteed delivery procedures set forth in "The Offer -- Procedures for Tendering -- Guaranteed Delivery." EXCHANGE AGENT: First Chicago Trust Company of New York. INFORMATION AGENT: D. F. King & Co., Inc. DEALER MANAGERS: Merrill Lynch & Co. and Smith Barney Inc. Questions and requests for assistance, requests for additional copies of this Offering Circular/Prospectus or of the Letter of Transmittal and requests for Notices of Guaranteed Delivery should be directed to the Information Agent. The address and telephone number of the Information Agent are set forth in "The Offer -- Exchange Agent and Information Agent" and on the outside back cover of this Offering Circular/Prospectus. Questions with respect to the Offer may be directed to Merrill Lynch & Co. Marketing Support at (212) 236-4565 (call collect) or the Smith Barney Inc. Liability Management Group at (800) 813-3754. PREFERRED TRUST RECEIPTS NATURE OF SECURITY: Each Preferred Trust Receipt represents a Series B Preferred Security DISTRIBUTIONS: Cumulative Distributions at the annual rate of 8.72% per annum payable monthly in arrears. Distributions in arrears after the monthly payment date therefor will accumulate additional Distributions thereon at the Distribution rate. Additionally, the Preferred Trust Receipts will accrue an additional distribution at the rate of 7.96% per annum of the liquidation amount thereof from November 1, 1995 up to but not including the Exchange Date, payable on the first Distribution payment date. DENOMINATIONS: Each Preferred Trust Receipt represents a Series B Preferred Security; each Series B Preferred Security has a stated liquidation preference of $25. FORM: Certificated or Book-Entry REDEMPTION: Upon any redemption of Series B Preferred Securities, which are subject to the following redemptions: Optional: (i) After October 1, 1997 (ii) Upon a Tax Event Mandatory: (i) Upon an Investment Company Event (ii) Upon payment at maturity of the Series B Subordinated Debentures on December 19, 2025 6 10 (iii) Upon redemption of the Series B Subordinated Debentures, which are subject to optional redemption upon a Tax Event or after October 1, 1997
LISTING: The Preferred Trust Receipts have been approved for listing on the NYSE, subject to notice of issuance and attainment of the NYSE distribution standards. In order to satisfy the NYSE listing requirements, acceptance of Depositary Shares validly tendered in the Offer is subject to the conditions that as of the Expiration Date there be at least 1,000,000 Preferred Trust Receipts to be issued and 400 record or beneficial holders of Preferred Trust Receipts to be issued in exchange for such Depositary Shares, which conditions may not be waived. WITHDRAWAL: Upon surrender of Preferred Trust Receipts at the principal office of the Trustee, and subject to the terms of the Partnership Agreement, a holder of Preferred Trust Receipts represented thereby is entitled to delivery of the whole number of Series B Preferred Securities represented by such Preferred Trust Receipts. SERIES B SUBORDINATED DEBENTURES: The Distribution rate and the Distribution and other payment dates for the Series B Preferred Securities represented by the Preferred Trust Receipts will correspond to the interest rate and the interest and other payment dates of the Series B Subordinated Debentures issued to PECO Energy Capital concurrently with the issuance of the Series B Preferred Securities. The Series B Subordinated Debentures will be issued under PECO Energy's Indenture dated as of July 1, 1994 between PECO Energy and Meridian Trust Company, as trustee (the "Indenture Trustee"), as supplemented by a First Supplemental Indenture dated as of December 1, 1995 (as so supplemented, the "Indenture"). SERIES B GUARANTEE: The Series B Guarantee guarantees payment of accumulated and unpaid monthly Distributions, amounts payable upon redemption, and amounts payable upon liquidation with respect to the Series B 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 B Subordinated Debentures, PECO Energy Capital will not have sufficient funds to pay Distributions on the Series B Preferred Securities. The Series B Guarantee does not cover payment of Distributions when PECO Energy Capital does not have sufficient funds to pay such Distributions. In such event, the remedy of a holder of Series B Preferred Securities is to enforce the rights of PECO Energy Capital under the Series B Subordinated Debentures. SUBORDINATION OF PECO ENERGY OBLIGATIONS: The obligations of PECO Energy under the Series B Guarantee are subordinate and junior in right of payment to all general liabilities of PECO Energy and its obligations under the Series B Subordinated Debentures are subordinate and junior in right of payment to all present and future Senior Indebtedness of PECO Energy, which aggregated approximately $5.0 billion at September 30, 1995. CERTAIN UNITED STATES INCOME TAX CONSIDERATIONS The Exchange will be a taxable event. Gain or loss generally will be recognized in an amount equal to the difference between the fair market value on the Exchange Date of the Holder's pro rata share of the Series B Subordinated Debentures deemed received in the Exchange and the exchanging Holder's tax basis in the Depositary Shares surrendered. For this purpose, the fair market value of the Series B Subordinated 7 11 Debentures deemed issued in exchange for Depositary Shares on the Exchange Date will equal the fair market value of the Preferred Trust Receipts on that date. See "United States Taxation -- Receipt of Preferred Trust Receipts for Depositary Shares." No portion of the amounts received on the Preferred Trust Receipts will be eligible for the dividends received deduction. The Preferred Trust Receipts may trade at a price that does not fully reflect the value of accrued but unpaid interest with respect to the Series B Subordinated Debentures. During any extension period, each holder of Preferred Trust Receipts (a "Securityholder") who disposes of his Preferred Trust Receipts prior to the record date for payment of Distributions at the end of such Extension Period will nevertheless be required to include his pro rata share of accrued but unpaid interest on the Series B Subordinated Debentures allocable monthly to the Trust through the date of disposition in income as ordinary income, and to add such amount to his adjusted tax basis in his pro rata share of the Series B Preferred Securities deemed disposed of. Accordingly, such a Securityholder 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 the Securityholder's 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 United States federal income tax purposes. 8 12 RISK FACTORS Holders of the Depositary Shares who plan to participate in the Offer should carefully consider, in addition to the information set forth elsewhere in this Offering Circular/Prospectus, the following: TAX CONSEQUENCES OF THE EXCHANGE The Exchange will be a taxable event. Generally, gain or loss will be recognized in an amount equal to the difference between the fair market value on the Exchange Date of the Holder's pro rata share of the Series B Subordinated Debentures deemed received in the Exchange and the exchanging Holder's tax basis in the Depositary Shares exchanged. See "United States Taxation -- Receipt of Preferred Trust Receipts for Depositary Shares." All Holders of the Depositary Shares are advised to consult their tax advisers regarding the United States federal, state, local and foreign tax consequences of the exchange of the Depositary Shares and the issuance of Preferred Trust Receipts. SUBORDINATE OBLIGATIONS OF SERIES B GUARANTEE AND SERIES B SUBORDINATED DEBENTURES PECO Energy's obligations under the Series B Guarantee are subordinate and junior in right of payment to all general liabilities of PECO Energy and its obligations under the Series B Subordinated Debentures are subordinate and junior in right of payment to all Senior Indebtedness of PECO Energy. At September 30, 1995, the Senior Indebtedness of PECO Energy aggregated approximately $5.0 billion. There are no terms in the Series B Subordinated Debentures or the Series B Guarantee that limit PECO Energy's ability to incur additional indebtedness, including indebtedness that ranks senior to the Series B Subordinated Debentures and the Series B Guarantee. The Series B Guarantee guarantees payment of accumulated and unpaid monthly distributions, amounts payable on redemption, and amounts payable on liquidation with respect to the Series B 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 B Subordinated Debentures, PECO Energy Capital would lack legally available funds for the payment of Distributions or amounts payable on redemption of the Series B Preferred Securities or upon liquidation of PECO Energy Capital, and in such event the holders of the Preferred Trust Receipts representing the Series B Preferred Securities would not be able to rely upon the Series B Guarantee for payment of such amounts. Instead, holders of the Preferred Trust Receipts representing the Series B Preferred Securities would be required to seek enforcement of PECO Energy Capital's rights against PECO Energy pursuant to the terms of the Indenture. See "Description of the Series B Guarantee -- Status of the Series B Guarantee" and "Description of the Series B Subordinated Debentures and the Indenture -- Subordination." OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX IMPACT OF EXTENSION PECO Energy has the right under the Indenture to extend interest payment periods on the Series B Subordinated Debentures for up to 60 consecutive months, and, as a consequence, monthly Distributions on the Series B Preferred Securities can be deferred by PECO Energy Capital during any such extended interest payment period. Distributions in arrears after the monthly payment date therefor will accumulate additional distributions thereon at the rate per annum of 8.72% thereof. In the event PECO Energy exercises its right to extend the interest payment periods on the Series B Subordinated Debentures, PECO Energy may not declare dividends on any shares of its capital stock during such extension period. See "Description of the Series B Subordinated Debentures and the Indenture -- Option to Extend Interest Payment Period." Should an extended interest payment period occur, PECO Energy Capital will continue to accrue income for United States federal income tax purposes which will be allocated, but not distributed, to the holders of the Preferred Trust Receipts, as the owners for tax purposes of the Series B Preferred Securities represented by the Preferred Trust Receipts. As a result, the owner will include such interest in gross income for United States federal income tax purposes in advance of the receipt of cash, and will not receive the cash related to such income if the owner disposes of the Preferred Trust Receipts prior to the record date for payment of Distributions. See "United States Taxation -- Potential Extension of Payment Period." 9 13 LISTING AND TRADING OF PREFERRED TRUST RECEIPTS AND DEPOSITARY SHARES The Preferred Trust Receipts constitute a new issue of securities with no established trading market. While the Preferred Trust Receipts have been approved for listing on the NYSE, subject to notice of issuance and attainment of the NYSE distribution standards, there can be no assurance that an active market for the Preferred Trust Receipts will develop or be sustained in the future on the NYSE. Although the Dealer Managers have indicated to PECO Energy and PECO Energy Capital that they intend to make a market in the Preferred Trust Receipts as permitted by applicable laws and regulations prior to the commencement of trading on the NYSE, they are not obligated to do so and may discontinue any such market-making at any time without notice. Accordingly, no assurance can be given as to the liquidity of, or trading markets for, the Preferred Trust Receipts. In order to satisfy the NYSE listing requirements, acceptance of Depositary Shares validly tendered in the Offer is subject to the conditions that as of the Expiration Date there be at least 1,000,000 Preferred Trust Receipts to be issued and 400 record or beneficial holders of Preferred Trust Receipts to be issued as a result of the Exchange, which conditions may not be waived by PECO Energy. The liquidity and trading market for Depositary Shares which are not exchanged in the Offer could be adversely affected by the reduction in the number of publicly traded Depositary Shares resulting from the Offer. The Offer is for up to 5,400,000 Depositary Shares (or 96.4% of the 5,600,000 Depositary Shares outstanding) rather than for all the outstanding Depositary Shares, to reduce the risk that the Depositary Shares would be subject to delisting following consummation of the Offer. Under the rules of the NYSE, preferred securities such as the Depositary Shares are subject to delisting if (i) the aggregate value of publicly held shares is less than $2 million and (ii) the number of publicly held shares is less than 100,000. Since at least 200,000 Depositary Shares will remain outstanding following consummation of the Offer, the number of outstanding Depositary Shares will exceed the delisting criteria set forth in clause (ii) above. In addition, based on the market price of the Depositary Shares on the NYSE ($25 1/8 on July 3, 1995, the closing sales price of the Depositary Shares on the NYSE on the last trading day immediately prior to PECO Energy's first public announcement of the Offer, and $25 3/8 on November 2, 1995), PECO Energy believes that the aggregate value of the minimum number (200,000) of Depositary Shares which will be outstanding following consummation of the Offer should exceed the delisting criteria set forth in clause (i) above. See "Price Range of Depositary Shares." If less than 5,400,000 Depositary Shares are validly tendered, then the number of Depositary Shares remaining outstanding, and the aggregate value thereof, will be even greater. POSSIBLE REDEMPTION OF PREFERRED TRUST RECEIPTS PRIOR TO OCTOBER 1, 1997 The Depositary Shares are not subject to redemption prior to October 1, 1997. Except as described below, the Series B Preferred Securities will not be subject to redemption prior to October 1, 1997. If a Tax Event shall occur and be continuing, the Series B Preferred Securities will be subject to redemption, at the option of PECO Energy Capital Corp., a Delaware corporation and a wholly owned subsidiary of PECO Energy, as the sole general partner (the "General Partner") of PECO Energy Capital, in whole or in part. If an Investment Company Act Event shall occur and be continuing, the Series B Preferred Securities will be subject to mandatory redemption following the occurrence of such event. In the event the Series B Preferred Securities are redeemed, an equal amount of related Preferred Trust Receipts will be redeemed. See "Description of the Series B Preferred Securities -- Special Event Redemptions" and "Description of the Series B Subordinated Debentures and the Indenture -- Redemption." 10 14 COMPARISON OF PREFERRED TRUST RECEIPTS AND DEPOSITARY SHARES The following is a brief summary of certain terms of the Preferred Trust Receipts and the Depositary Shares. For a more complete description of the Preferred Trust Receipts, see "Description of the Preferred Trust Receipts" and "Description of the Series B Preferred Securities." For a more complete description of the Series B Subordinated Debentures which will represent the sole source for the payment of distributions and other payments on the Series B Preferred Securities represented by the Preferred Trust Receipts, see "Description of the Series B Subordinated Debentures and the Indenture."
PREFERRED TRUST RECEIPTS DEPOSITARY SHARES --------------------------------- --------------------------------- Nature of Security....... Represents a Series B Preferred A one-fourth interest in $7.96 Security, which represents a Cumulative Preferred Stock issued limited partner interest in PECO by PECO Energy. Energy Capital. Distribution/Dividend Rate................... 8.72% per annum payable $1.99 ($7.96 per share of $7.96 monthly in arrears on the Cumulative Preferred Stock) per last day of each month of each annum payable on February 1, May year, commencing 1, August 1 and November 1 of December 29, 1995 from and each year, out of funds legally including the Exchange Date but available therefor, when, as and only if, and to the extent that, if declared by PECO Energy's Distributions are made in respect Board of Directors. Dividends are of the Series B Preferred cumulative. Accumulated unpaid Securities. Distributions in dividends do not accumulate arrears after the monthly payment additional dividends thereon. date therefor, including during any Extension Period for the Series B Subordinated Debentures, accumulate additional Distributions thereon at the rate of 8.72% per annum. Optional Redemption...... See "Maturity/Mandatory Redeemable at the option of PECO Redemption" below. Energy on and after October 1, 1997, in whole or in part, at a redemption price equal to 100% of the stated liquidation preference of the shares to be redeemed, plus accrued and unpaid dividends, if any, to the redemption date. Maturity/Mandatory Redemption............. The Preferred Trust Receipts will None be redeemed upon: (1) the redemption of the Series B Preferred Securities upon the payment at maturity of the Series B Subordinated Debentures, (2) optional redemption, in whole or in part, of the Series B Subordinated Debentures or the Series B Preferred Securities on or after October 1, 1997 or (3) the optional redemption of the Series B Subordinated Debentures or Series B Preferred Securities upon the occurrence of a Tax Event or mandatory redemption of the Series B Preferred Securities upon occurrence of an Investment Company Act Event. Any such redemption of the Preferred Trust Receipts will be at a redemption price equal to 100% of the stated
11 15
PREFERRED TRUST RECEIPTS DEPOSITARY SHARES --------------------------------- --------------------------------- liquidation preference of the Series B Preferred Securities to be redeemed, plus accrued and unpaid Distributions, if any, to the redemption date, including Distributions accrued as a result of PECO Energy's election to defer payments of interest on the Series B Subordinated Debentures. The Series B Subordinated Debentures have a final maturity of December 19, 2025. See "Description of the Preferred Trust Receipts -- Redemption of Preferred Trust Receipts" and "Description of the Series B Preferred Securities -- Mandatory Redemption" and "-- Special Event Redemptions." Withdrawal Rights........ Upon surrender of Preferred Trust Upon surrender of Depositary Receipts at the principal office Receipts (as defined below) at of the Trustee, and subject to the principal office of the the terms of the Partnership Depositary (as defined below), Agreement, a holder of Preferred and upon payment of the Trust Receipts is entitled to Depositary's customary charges delivery of the number of whole therefor, and subject to the Series B Preferred Securities terms of the deposit agreement represented by such Preferred for the Depositary Shares, a Trust Receipts. holder of the Depositary Shares is entitled to delivery of the number of whole shares of the $7.96 Preferred Stock and all money and other property, if any, represented by such Depositary Shares. Subordination............ The Series B Preferred Securities Subordinate to claims of will rank subordinate to claims creditors of PECO Energy, of creditors of PECO Energy including the Subordinated Capital, but senior to the Debentures, but senior to the general partner interests in PECO common stock of PECO Energy and Energy Capital and pari passu pari passu with all other with all other Preferred outstanding series of preferred Securities of PECO Energy stock of PECO Energy. Capital. The obligations of PECO Energy under the Series B Guarantee are subordinate and junior in right of payment to all general liabilities of PECO Energy and its obligations under the Series B Subordinated Debentures are subordinate and junior in right of payment to all present and future Senior Indebtedness of PECO Energy, which aggregated approximately $5.0 billion at September 30, 1995, but senior in payment to all capital stock of PECO Energy, including the Depositary Shares. Listing.................. The Preferred Trust Receipts have The Depositary Shares are listed been approved for listing on the on the NYSE. NYSE, subject to notice of issuance and attainment of the NYSE
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PREFERRED TRUST RECEIPTS DEPOSITARY SHARES --------------------------------- --------------------------------- distribution standards. In order to satisfy the NYSE listing requirements, acceptance of Depositary Shares validly tendered in the Offer is subject to the conditions that as of the Expiration Date there be at least 1,000,000 Preferred Trust Receipts to be issued and 400 record or beneficial holders of Preferred Trust Receipts to be issued in exchange for such Depositary Shares, which conditions may not be waived. Federal Income Tax Consequences of Distributions/ Dividends.............. Distributions are not eligible Dividends are eligible for the for the dividends received dividends received deduction for deduction for corporate holders. corporate holders. Voting Rights/Enforcement..... If (i) PECO Energy Capital fails If dividends shall be in arrears to pay Distributions in full on in an aggregate amount equivalent any series of the Preferred to four quarterly dividend Securities for 18 consecutive payments, the holders of PECO monthly distribution periods, Energy preferred stock, including (ii) an Event of Default (as the holders of Depositary Shares, defined in the Indenture) occurs have the right to elect the and is continuing, or (iii) PECO smallest number of directors Energy is in default on any of necessary to constitute a its payment obligations under the majority of the full board of Payment and Guarantee Agreements directors of PECO Energy. (the "Guarantees") relating to the Preferred Securities issued by PECO Energy Capital, then the holders of the Preferred Securities, including the Trust acting through the Trustee at the direction of the holders of the Preferred Trust Receipts, 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 Deferrable Interest Subordinated Debentures of PECO Energy (the "Subordinated Debentures") and the Indenture and the obligations undertaken by PECO Energy under the Guarantees, including, after failure to pay distributions for 60 consecutive monthly distribution periods on the Preferred Securities, the payment of distributions on the Preferred Securities.
13 17 PECO ENERGY PECO Energy, incorporated in Pennsylvania in 1929, is an operating utility which provides electric and gas service to the public in southeastern Pennsylvania. The total area served by PECO Energy covers 2,107 square miles. Electric service is supplied in an area of 1,972 square miles with a population of about 3,638,000, including 1,600,000 in the City of Philadelphia. Approximately 94% of the electric service area and 63% of retail kilowatthour sales are in the suburbs around Philadelphia, and 6% of the service area and 37% of such sales are in the City of Philadelphia. In 1994, approximately 60% of PECO Energy's electric output was generated from nuclear sources. PECO Energy estimates for 1995 that 59% of its electric output will come from nuclear sources. Natural gas service is supplied in a 1,475-square-mile area of southeastern Pennsylvania adjacent to Philadelphia with a population of 1,900,000. PECO Energy and its subsidiaries hold franchises to the extent necessary to operate in the areas served. 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., as the General Partner. As a limited partnership, all of the business and affairs of PECO Energy Capital are managed by the General Partner. PECO Energy Capital was created solely for the purpose of issuing the Preferred Securities and lending the proceeds thereof to PECO Energy, and entering into similar financing arrangements. Such loans are evidenced by the Subordinated Debentures issued by PECO Energy under the Indenture. The Subordinated Debentures are the only assets of PECO Energy Capital and the only revenues of PECO Energy Capital are interest on the Subordinated Debentures. The General Partner pays all of PECO Energy Capital's operating expenses and has general liability for all of PECO Energy Capital's obligations. THE TRUST PECO Energy Capital Trust I is a statutory business trust recently created under the laws of the State of Delaware. PNC Bank, Delaware is the sole trustee of the Trust (in such capacity, and not in its individual capacity, the "Trustee"). The Trust exists for the sole purpose of issuing the Preferred Trust Receipts representing the Series B Preferred Securities held by the Trust and performing functions directly related thereto. The Series B Preferred Securities are the only assets of the Trust. All expenses or liabilities of the Trust will be paid by the General Partner, provided that if the Trustee incurs fees, charges or expenses for which it is not otherwise liable under the Trust Agreement at the election of a holder of Preferred Trust Receipts or other person, such holder or other person will be liable for such fees, charges and expenses. COVERAGE RATIOS PECO Energy's Ratio of Earnings to Fixed Charges for each of the periods indicated was as follows:
SIX MONTHS ENDED JUNE YEARS ENDED DECEMBER 31, 30, - ---------------------------------------- ------------- 1990 1991 1992 1993 1994 1994 1995 - ---- ---- ---- ---- ---- ---- ---- 1.31(1) 2.55 2.43 3.15 2.66(2) 3.30 3.46
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. 14 18 PECO Energy's Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends for each of the periods indicated was as follows:
SIX MONTHS ENDED JUNE YEARS ENDED DECEMBER 31, 30, - ---------------------------------------- ------------- 1990 1991 1992 1993 1994 1994 1995 - ---- ---- ---- ---- ---- ---- ---- 1.04(1) 2.14 2.06 2.67 2.32(2) 2.80 3.15
- --------------- (1) Reflects the one-time, after-tax charge against income of $250 million associated with various disallowances made by the Pennsylvania Public Utility Commission in the Limerick Unit No. 2 rate order and the one-time, after-tax charge against income of $150 million associated with PECO Energy's 1990 early retirement plan. (2) Reflects a one-time after-tax charge against income of $254 million associated with early retirement and separation programs. 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. 15 19 SELECTED CONSOLIDATED FINANCIAL DATA Reference is made to PECO Energy's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (the "Form 10-K"), which is incorporated by reference in this Offering Circular/Prospectus and which contains PECO Energy's audited consolidated financial statements, including the consolidated income statement for the three fiscal years in the period ended December 31, 1994, consolidated balance sheets as of December 31, 1993 and 1994, and the related notes. Selected unaudited financial information as of and for the six months ended June 30, 1994 and 1995 should be read in conjunction with the audited consolidated financial statements and related notes contained in the Form 10-K and the unaudited consolidated financial statements contained in PECO Energy's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, which report is also incorporated by reference in this Offering Circular/Prospectus. Such unaudited information reflects, in the opinion of management, all adjustments, consisting of only normal accruals, necessary for a consistent presentation with the audited financial information. Results of operations for the six months ended June 30, 1995 are not necessarily indicative of the results to be expected for the full fiscal year.
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31, --------------------- ----------------------------------------------------------- 1995 1994 1994 1993 1992 1991 1990 --------- --------- --------- --------- --------- --------- --------- (MILLIONS OF DOLLARS) SUMMARY OF EARNINGS Operating Revenues........................ $ 2,017.2 $ 2,080.0 $ 4,040.6 $ 3,988.1 $ 3,962.5 $ 4,018.6 $ 3,786.7 Operating Income.......................... 489.3 463.1 829.6 1,035.4 1,033.4 1,081.2 767.7 Income from Continuing Operations......... 305.6 275.4 426.7 590.6 478.9 534.7 105.8 Net Income................................ 305.6 275.4 426.7 590.6 478.9 534.7 214.2 Earnings Applicable to Common Stock....... 293.5 253.8 389.4(2) 541.6 418.2 468.6 123.9(1) Earnings Per Average Common Share From Continuing Operations (Dollars)......... 1.32 1.15 1.76 2.45 1.90 2.15 0.07 Earnings Per Average Common Share (Dollars)............................... 1.32 1.15 1.76 2.45 1.90 2.15 0.58 Dividends Per Common Share (Dollars)...... 0.81 0.76 1.545 1.43 1.325 1.225 1.45 Common Stock Equity (Per Share)........... 19.94 19.63 19.41 19.25 18.24 17.69 16.71 Average Shares of Common Stock Outstanding (Millions).............................. 221.7 221.5 221.6 221.1 220.2 218.2 214.4 FINANCIAL CONDITION AT END OF PERIOD Net Utility Plant, at Original Cost....... 10,693.4 10,727.6 10,828.7 10,763.0 10,691.2 10,598.4 10,591.3 Leased Property, Net...................... 163.2 167.6 174.6 194.7 210.0 223.8 241.3 --------- --------- --------- --------- --------- --------- --------- Total Current Assets...................... 683.3 605.0 454.8 514.8 550.0 783.2 745.0 Total Deferred Debits and Other Assets.... 3,539.5 3,664.8 3,634.7 3,559.8 1,127.0 918.1 938.6 --------- --------- --------- --------- --------- --------- --------- Total Assets............................ $15,079.4 $15,165.0 $15,092.8 $15,032.3 $12,578.2 $12,523.5 $12,516.2 ======== ======== ======== ======== ======== ======== ======== Common Shareholders' Equity............... $ 4,423.2 $ 4,349.3 $ 4,302.5 $ 4,263.4 $ 4,022.2 $ 3,892.3 $ 3,624.5 Preferred and Preference Stock Without Mandatory Redemption............ 277.4 422.5 277.5 422.5 422.5 422.5 422.5 With Mandatory Redemption............... 92.7 182.1 92.7 186.5 231.1 315.6 330.9 Company Obligated Mandatorily Redeemable Preferred Securities of Partnership holding solely PECO Energy Debentures... 221.3 -- 221.3 -- -- -- -- Long-Term Debt............................ 4,515.5 4,876.5 4,785.6 4,884.3 5,203.9 5,415.6 5,830.8 --------- --------- --------- --------- --------- --------- --------- Total Capitalization...................... 9,530.1 9,830.4 9,679.6 9,756.7 9,879.7 10,046.0 10,208.7 --------- --------- --------- --------- --------- --------- --------- Total Current Liabilities................. 1,064.3 930.4 878.6 954.6 830.6 823.4 783.8 --------- --------- --------- --------- --------- --------- --------- Total Deferred Credits and Other Liabilities............................. 4,485.0 4,404.2 4,534.6 4,321.0 1,867.9 1,654.1 1,523.7 --------- --------- --------- --------- --------- --------- --------- Total Capitalization and Liabilities...... $15,079.4 $15,165.0 $15,092.8 $15,032.3 $12,578.2 $12,523.5 $12,516.2 ======== ======== ======== ======== ======== ======== ========
- --------------- (1) Reflects the one-time, after-tax charge against income of $250 million associated with various disallowances made by the Pennsylvania Public Utility Commission in the Limerick Unit No. 2 rate order and the one-time, after-tax charge against income of $150 million associated with PECO Energy's 1990 early retirement plan. (2) Reflects a one-time after-tax charge against income of $254 million associated with early retirement and separation programs. 16 20 On October 23, 1995, PECO Energy reported that common stock earnings for the quarter ended September 30, 1995 were $0.80 per share, which are $0.08 per share, or 11% higher than the third quarter of last year after adjusting for the one-time charge in 1994 of $0.66 per share associated with PECO Energy's retirement and separation programs. The increase in earnings was attributable to higher electric sales resulting primarily from warmer weather in August 1995 compared to last year and lower operations and maintenance expenses related to PECO Energy's retirement and separation programs. Total electric sales increased 11% from the third quarter of 1994 primarily due to increased sales to other utilities and increased residential sales. Gas sold and transported increased 42% primarily due to increased gas transported for others. Earnings for the twelve months ended September 30, 1995 were $2.68 per share as compared to $1.78 per share for the corresponding period in 1994. The increase is primarily attributable to the one-time charge in the third quarter of 1994 associated with PECO Energy's retirement and separation programs. Also contributing to the increase in earnings were lower operations and maintenance expenses related to PECO Energy's retirement and separation programs, the ongoing emphasis on cost control, a one-time gain on the sale of Conowingo Power Company in June 1995, and benefits of PECO Energy's ongoing debt and preferred stock refinancing program. These increases were partially offset by a reduction in revenue received in 1994 for accepting nuclear fuel from the Shoreham Nuclear Power Station. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, --------------------- --------------------- --------------------- 1995 1994 1995 1994 1995 1994 --------- --------- --------- --------- --------- --------- (MILLIONS OF DOLLARS) Total Operating Revenues.......... $ 1,125.2 $ 1,041.1 $ 3,142.4 $ 3,121.1 $ 4,061.9 $ 4,062.8 Net Income........................ 184.3 22.2 489.9 297.6 619.0 436.6 Shares of Common Stock -- Average (Millions)...................... 221.9 221.6 221.8 221.5 221.7 221.5 Earnings Per Average Common Share (Dollars)....................... $ 0.80 $ 0.06 $ 2.13 $ 1.20 $ 2.68 $ 1.78
17 21 THE OFFER PURPOSE OF THE OFFER The purpose of the Offer is to reduce the after-tax financing costs of PECO Energy through the replacement of Depositary Shares with Preferred Trust Receipts. Although the Distribution rate on the Preferred Trust Receipts will be higher than the dividend rate on the Depositary Shares, PECO Energy will deduct interest payable on the Series B Subordinated Debentures for federal income tax purposes; dividends payable on the Depositary Shares are not deductible by PECO Energy for federal income tax purposes. Except as described herein, PECO Energy has no present plans or intentions to make acquisitions of or offers for the Depositary Shares. PECO Energy will continue to monitor the market for the Depositary Shares outstanding after the expiration of the Offer and reserves the right, in its sole discretion, subject to applicable law, to acquire and to make offers for Depositary Shares subsequent to the Expiration Date for cash or in exchange for other securities, by optional redemption of the Depositary Shares, after October 1, 1997, or otherwise. The terms of any such acquisitions or offers may differ from the terms of the Offer. Such acquisitions or offers, if any, may depend upon, among other things, the market price of the Depositary Shares, and general economic and market conditions. GENERAL PARTICIPATION IN THE OFFER IS VOLUNTARY AND HOLDERS OF DEPOSITARY SHARES SHOULD CAREFULLY CONSIDER WHETHER TO ACCEPT. NO RECOMMENDATION TO HOLDERS TO TENDER OR TO REFRAIN FROM TENDERING IN THE OFFER IS MADE BY PECO ENERGY, THE BOARD OF DIRECTORS OF PECO ENERGY, PECO ENERGY CAPITAL, THE GENERAL PARTNER, THE TRUST OR THE TRUSTEE. HOLDERS OF DEPOSITARY SHARES ARE URGED TO CONSULT THEIR FINANCIAL AND TAX ADVISERS IN MAKING THEIR DECISIONS ON WHAT ACTION TO TAKE IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES. Holders of Depositary Shares will not have any appraisal or dissenters' rights under the Pennsylvania Business Corporation Law in connection with the Offer. PECO Energy intends to conduct the Offer in accordance with the applicable requirements of the Exchange Act and the rules and regulations of the SEC thereunder. PECO Energy has received all regulatory approvals necessary to consummate the Exchange. Unless the context requires otherwise, the term "Holder" with respect to the Offer means (i) any person in whose name any Depositary Shares are registered on the books of the Depositary or (ii) any other person who has obtained a properly completed stock power from the registered Holder, or (iii) any person whose Depositary Shares are held of record by The Depository Trust Company ("DTC"), Philadelphia Depository Trust Company or Midwest Securities Trust Company (collectively, the "Depositories" and each, a "Depository") who desires to deliver such Depositary Shares by book-entry transfer at such Depository. The $7.96 Cumulative Preferred Stock represented by the Depositary Shares exchanged pursuant to the Offer will be retired. PECO Energy will take all actions necessary to restore such retired Preferred Stock to the status of authorized but unissued Preferred Stock which may thereafter be reissued. TERMS OF THE OFFER Upon the terms and subject to the conditions set forth herein and in the Letter of Transmittal, PECO Energy will offer to effect an exchange of Preferred Trust Receipts for up to 5,400,000 outstanding Depositary Shares. The exchange of Preferred Trust Receipts for Depositary Shares will be effected by (a) the delivery by PECO Energy of its Series B Subordinated Debentures to the Exchange Agent, which will receive the Series B Subordinated Debentures on behalf of the Holders of the Depositary Shares, in exchange for Depositary Shares, (b) the delivery by the Exchange Agent (acting pursuant to the directions of the Holders of Depositary Shares) of the Series B Subordinated Debentures to PECO Energy Capital in consideration for the issuance and deposit by PECO Energy Capital of the Series B Preferred Securities to and with the Trust under the Trust Agreement and (c) the issuance and delivery by the Trust of the Preferred Trust Receipts to the Exchange Agent for distribution to the former Holders of the Depositary Shares. 18 22 Holders of Depositary Shares will not have the right to retain the Series B Subordinated Debentures delivered to the Exchange Agent in exchange for Depositary Shares validly tendered and accepted. The Offer will be effected on the basis of one Preferred Trust Receipt for each Depositary Share validly tendered and accepted for exchange. See "-- Procedures for Tendering." Upon the terms and subject to the conditions set forth herein and in the Letter of Transmittal, PECO Energy will accept up to 5,400,000 Depositary Shares validly tendered and not withdrawn prior to the Expiration Date and, unless the Offer has been withdrawn or terminated, PECO Energy will cause to be delivered Preferred Trust Receipts to tendering Holders of Depositary Shares as promptly as practicable following the Exchange Date. PECO Energy expressly reserves the right, in its sole discretion, to delay acceptance for exchange of Depositary Shares tendered under the Offer and the delivery of the Preferred Trust Receipts with respect to the Depositary Shares accepted for exchange (subject to Rules 13e-4 and 14e-1 under the Exchange Act, which require that PECO Energy consummate the Offer or return the Depositary Shares deposited by or on behalf of the Holders thereof promptly after the termination or withdrawal of the Offer), or to withdraw or terminate the Offer at any time prior to the Expiration Date for any reason. In all cases, except to the extent waived by PECO Energy, delivery of Preferred Trust Receipts issued with respect to the Depositary Shares accepted for exchange pursuant to the Offer will be made only after timely receipt by the Exchange Agent of Depositary Shares (or confirmation of book-entry transfer thereof), a properly completed and duly executed Letter of Transmittal or Agent's Message, as applicable, and any other documents required thereby. As of the date of this Offering Circular/Prospectus, there are 5,600,000 Depositary Shares outstanding. This Offering Circular/Prospectus, together with the Letter of Transmittal, is being sent to all registered Holders as of November 8, 1995. PECO Energy will accept validly tendered Depositary Shares (or defectively tendered Depositary Shares with respect to which PECO Energy has waived such defect) by giving oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering Holders for the purpose of receiving Depositary Shares from, and remitting Preferred Trust Receipts to, tendering Holders who are participating in the Offer and whose shares are accepted. Upon the terms and subject to the conditions of the Offer, delivery of Preferred Trust Receipts to tendering Holders will be made as promptly as practicable following the Expiration Date. If proration of tendered Depositary Shares is required, the Preferred Trust Receipts will be issued and distributed by the Exchange Agent up to 12 Business Days following the Expiration Date. If proration of tendered Depositary Shares is required, because of the difficulty in determining the number of Depositary Shares validly tendered (including shares tendered by the guaranteed delivery procedures described in "-- Procedures for Tendering"), PECO Energy does not expect that it would be able to announce the final proration factor or to commence the Exchange for any Depositary Shares pursuant to the Offer until approximately seven Business Days after the Expiration Date. Preliminary results of the proration will be announced by press release as promptly as practicable after the Expiration Date. Holders of Depositary Shares may obtain such preliminary information from the Dealer Managers, the Information Agent or the Exchange Agent and may also be able to obtain such information from their brokers. If any tendered Depositary Shares are not accepted for exchange because of an invalid tender, proration or withdrawal or termination by PECO Energy of the Offer, unless otherwise requested by the Holder under "Special Delivery Instructions" in the Letter of Transmittal, such Depositary Shares will be returned, without expense, to the tendering Holder thereof (or in the case of Depositary Shares tendered by book-entry transfer into the Exchange Agent's account at the Depository where such Depositary Shares are held, such Depositary Shares will be credited to an account maintained at the Depository designated by the participant therein who so delivered such Depositary Shares), as promptly as practicable after the Expiration Date or the withdrawal or termination of the Offer. Holders who tender Depositary Shares in the Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Depositary Shares pursuant to the Offer. See "Fees and Expenses; Transfer Taxes." 19 23 Holders who tender Depositary Shares held in global form shall receive Preferred Trust Receipts in global form and holders tendering Depositary Shares held directly in certificated form shall receive Preferred Trust Receipts in certificated form in each case unless otherwise provided in the Letter of Transmittal. See "-- Procedures for Tendering." EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION The Offer will expire on the Expiration Date. PECO Energy reserves the right to extend the Offer in its sole discretion at any time and from time to time by giving oral or written notice to the Exchange Agent and by timely public announcement communicated or as otherwise required by applicable law or regulation. During any extension of the Offer, all Depositary Shares previously tendered pursuant to the Offer and not withdrawn will remain subject to the Offer. PECO Energy expressly reserves the right to (i) extend, amend or modify the terms of the Offer in any manner and (ii) withdraw or terminate the Offer and not accept for exchange any Depositary Shares at any time prior to the Expiration Date for any reason. PECO also reserves the right to waive any condition of the Offer, including the condition that at least 2,800,000 Depositary Shares are tendered in the Offer; provided that in order to satisfy the NYSE listing requirements, acceptance of Depositary Shares validly tendered in the Offer is subject to the conditions that as of the Exchange Date there be at least 1,000,000 Preferred Trust Receipts to be issued and 400 record or beneficial holders of Preferred Trust Receipts to be issued in exchange for such Depositary Shares, which conditions may not be waived. If PECO Energy makes a material change in the terms of the Offer or if it waives a material condition of the Offer, PECO Energy may extend the Offer. The minimum period for which the Offer will be extended following a material change or waiver, other than a change in the amount of Depositary Shares sought for exchange, the consideration offered therefor or the fee paid to the Soliciting Dealers, will depend upon the facts and circumstances, including the relative materiality of the change or waiver. With respect to a change in the amount of Depositary Shares sought, the consideration offered therefor or the fee paid to the Soliciting Dealers, if required, the Offer will remain open for a minimum of ten Business Days following public announcement of such change. Any withdrawal or termination of the Offer will be followed as promptly as practicable by public announcement thereof. If PECO Energy withdraws or terminates the Offer, it will give immediate notice to the Exchange Agent, and all Depositary Shares theretofore tendered pursuant to the Offer will be returned promptly to the tendering Holders thereof. See "-- Withdrawal of Tenders." ACCUMULATED DIVIDENDS AND DISTRIBUTIONS The Preferred Trust Receipts will bear Distributions at an annual rate of 8.72% from and including the Exchange Date. Dividends accumulated after October 31, 1995 on the Depositary Shares which have been accepted for exchange in the Offer will not be paid. In lieu thereof, holders of Preferred Trust Receipts will be entitled to an additional distribution at the rate of 7.96% per annum (equal to the dividend rate on the Depositary Shares) from and including November 1, 1995 up to but not including the Exchange Date, payable at the time of the first Distribution payment on the Preferred Trust Receipts. See "Description of Preferred Trust Receipts -- Distributions." PROCEDURES FOR TENDERING The tender of Depositary Shares by a Holder thereof pursuant to one of the procedures set forth below will constitute an agreement between such Holder and PECO Energy in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal and PECO Energy's right to terminate or withdraw the Offer at any time for any reason. EACH HOLDER OF THE DEPOSITARY SHARES WISHING TO PARTICIPATE IN THE OFFER MUST (I) PROPERLY COMPLETE AND SIGN THE LETTER OF TRANSMITTAL IN ACCORDANCE WITH THE INSTRUCTIONS CONTAINED HEREIN AND IN THE LETTER OF TRANSMITTAL (EXCEPT WHEN AN AGENT'S MESSAGE IS APPROPRIATE AND UTILIZED), TOGETHER WITH ANY REQUIRED SIGNATURE GUARANTEES, AND DELIVER THE SAME TO THE EXCHANGE AGENT, AT ONE OF ITS ADDRESSES SET FORTH IN "-- EXCHANGE AGENT AND INFORMATION AGENT" PRIOR TO THE EXPIRATION DATE AND EITHER (A) CERTIFICATES FOR THE 20 24 DEPOSITARY SHARES MUST BE RECEIVED BY THE EXCHANGE AGENT AT SUCH ADDRESS OR (B) SUCH DEPOSITARY SHARES MUST BE TRANSFERRED PURSUANT TO THE PROCEDURES FOR BOOK-ENTRY TRANSFER DESCRIBED BELOW AND A CONFIRMATION OF SUCH BOOK-ENTRY TRANSFER MUST BE RECEIVED BY THE EXCHANGE AGENT, IN EACH CASE PRIOR TO THE EXPIRATION DATE OR (II) COMPLY WITH THE GUARANTEED DELIVERY PROCEDURES DESCRIBED BELOW. LETTERS OF TRANSMITTAL, DEPOSITARY SHARES AND ANY OTHER REQUIRED DOCUMENTS SHOULD BE SENT ONLY TO THE EXCHANGE AGENT, NOT TO PECO ENERGY, PECO ENERGY CAPITAL, THE TRUST, THE TRUSTEE, THE DEALER MANAGERS OR THE INFORMATION AGENT. Special Procedure for Beneficial Owners. Any beneficial owner whose Depositary Shares are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact such registered Holder promptly and instruct such registered Holder to tender on such beneficial owner's behalf. If such beneficial owner wishes to tender on its own behalf, such owner must, prior to completing and executing the Letter of Transmittal and delivering its Depositary Shares, either make appropriate arrangements to register ownership of the Depositary Shares in such owner's name or obtain a properly completed stock power from the registered Holder. The transfer of registered ownership may take considerable time and may not be able to be completed prior to the Expiration Date. THE METHOD OF DELIVERY OF DEPOSITARY SHARES AND ALL OTHER DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED THAT (A) REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, (B) INSURANCE BE OBTAINED, AND (C) THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION DATE. Signature Guarantees. If tendered Depositary Shares are registered in the name of the signer of the Letter of Transmittal and the Preferred Trust Receipts to be issued in exchange therefor are to be issued (and any untendered Depositary Shares are to be reissued) in the name of the registered holder (which includes any participant in a Depository whose name appears on a security listing as the owner of Depositary Shares), the signature of such signer need not be guaranteed. If the tendered Depositary Shares are registered in the name of someone other than the signer of the Letter of Transmittal, or if Preferred Trust Receipts issued in exchange therefor are to be issued in the name of any other person other than the signer of the Letter of Transmittal, such tendered Depositary Shares must be endorsed or accompanied by written instruments of transfer in form satisfactory to First Chicago Trust Company of New York, transfer agent for the Depositary Shares, and duly executed by the registered Holder, and the signature on the endorsement or instrument of transfer must be guaranteed by a financial institution (including most banks, savings and loans associations and brokerage houses) that is a participant in the Security Transfer Agents Medallion Program or the Stock Exchange Medallion Program (any of the foregoing hereinafter referred to as an "Eligible Institution"). If the Depositary Shares not exchanged are to be delivered to an address other than that of the registered Holder appearing on the register for the Depositary Shares, the signature in the Letter of Transmittal must be guaranteed by an Eligible Institution. Book-Entry Transfer. PECO Energy understands that the Exchange Agent has an account or will make a request promptly after the date of this Offering Circular/Prospectus to establish accounts with respect to the Depositary Shares at DTC and such other Depositories which hold Depositary Shares for the purpose of facilitating the Offer, and subject to the establishment thereof, any financial institution that is a participant in DTC's or such other Depository's system may make book-entry delivery of Depositary Shares by causing DTC or such other Depository to transfer such Depositary Shares into the Exchange Agent's account with respect to the Depositary Shares in accordance with DTC's Automated Tender Offer Program ("ATOP") procedures, in the case of DTC, or the procedures of such other Depository, in the case of such other Depository, for such book-entry transfers. However, the exchange for the Depositary Shares so tendered will only be made after timely confirmation (a "Book-Entry Confirmation") of such book-entry transfer of Depositary Shares into the Exchange Agent's account, and timely receipt by the Exchange Agent of an Agent's Message (as such term is defined in the next sentence), in the case of a book-entry transfer effected by DTC, or the Letter of Transmittal and any other documents required by the Letter of Transmittal, in the case of DTC or any other Depository. 21 25 The term "Agent's Message" means a message, transmitted by DTC and received by the Exchange Agent and forming a part of a Book-Entry Confirmation, which states that DTC has received an express acknowledgment from a participant tendering Depositary Shares that are the subject of such Book-Entry Confirmation that such participant has received and agrees to be bound by the terms of the Letter of Transmittal, and that PECO Energy may enforce such agreement against such participant. Guaranteed Delivery. If a Holder desires to participate in the Offer and time will not permit a Letter of Transmittal or Depositary Shares to reach the Exchange Agent before the Expiration Date or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected if the Exchange Agent has received at its office prior to the Expiration Date a Notice of Guaranteed Delivery from an Eligible Institution setting forth the name and address of the tendering Holder, the name(s) in which the Depositary Shares are registered and, if the Depositary Shares are held in certificated form, the certificate numbers of the Depositary Shares to be tendered, and stating that the tender is being made thereby and guaranteeing that within three NYSE trading days after the date of execution of such Notice of Guaranteed Delivery by the Eligible Institution, the Depositary Shares in proper form for transfer together with a properly and duly executed Letter of Transmittal (and any other required documents), or a confirmation of book-entry transfer of such Depositary Shares into the Exchange Agent's account at a Depository with a Letter of Transmittal (and any other required documents) or, in the case of DTC, an Agent's Message, will be delivered by such Eligible Institution. Unless the Depositary Shares being tendered by the above-described method are deposited with the Exchange Agent within the time period set forth above (accompanied or preceded by a properly completed Letter of Transmittal and any other required documents) or a confirmation of book-entry transfer of such Depositary Shares into the Exchange Agent's account at a Depository, in accordance with such Depository's procedures (accompanied or preceded by a properly completed Letter of Transmittal and any other required documents) or, in the case of DTC, in accordance with DTC's ATOP procedures (along with a Letter of Transmittal or an Agent's Message), is received, PECO Energy may, at its option, reject the tender. In addition to the copy being transmitted herewith, copies of a Notice of Guaranteed Delivery which may be used by Eligible Institutions for the purposes described in this paragraph are available from the Exchange Agent and the Information Agent. Miscellaneous. All questions as to the validity, form, eligibility (including time of receipt) and acceptance for exchange of any tender of Depositary Shares will be determined by PECO Energy, whose determination will be final and binding. PECO Energy reserves the absolute right to reject any or all tenders not in proper form or the acceptance for exchange of which may, in the opinion of PECO Energy's counsel, be unlawful. PECO Energy also reserves the absolute right to waive any defect or irregularity in the tender of any Depositary Shares, and PECO Energy's interpretation of the terms and conditions of the Offer (including the instructions in the Letter of Transmittal) will be final and binding. None of PECO Energy, the Exchange Agent, the Dealer Managers, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification. Tenders of Depositary Shares involving any irregularities will not be deemed to have been made until such irregularities have been cured or waived. Depositary Shares received by the Exchange Agent that are not validly tendered and as to which the irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering Holder (or in the case of Depositary Shares tendered by book-entry transfer into the Exchange Agent's account at DTC or such other Depository, such Depositary Shares will be credited to an account maintained at DTC or such other Depository designated by the participant therein who so delivered such Depositary Shares), unless otherwise requested by the Holder in the Letter of Transmittal, as promptly as practicable after the Expiration Date or the withdrawal or termination of the Offer. LETTER OF TRANSMITTAL The Letter of Transmittal contains, among other things, the following terms and conditions, which are part of the Offer. 22 26 The party tendering Depositary Shares for exchange (the "Transferor") sells, assigns and transfers the Depositary Shares to PECO Energy, and irrevocably constitutes and appoints the Exchange Agent as the Transferor's agent and attorney-in-fact to cause the Depositary Shares to be assigned, transferred and exchanged. The Letter of Transmittal directs the Exchange Agent to deliver the Series B Subordinated Debentures received upon exchange of the Depositary Shares to PECO Energy Capital. The Transferor represents and warrants that it has full power and authority to tender, exchange, assign and transfer the Depositary Shares and to acquire Preferred Trust Receipts issuable upon the exchange of such tendered Depositary Shares and that, when such Transferor's Depositary Shares are accepted for exchange, PECO Energy will acquire good and unencumbered title to such tendered Depositary Shares, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim. The Transferor also warrants that it will, upon request, execute and deliver any additional documents deemed by PECO Energy to be necessary or desirable to complete the exchange, assignment and transfer of tendered Depositary Shares or transfer ownership of such Depositary Shares. All authority conferred by the Transferor will survive the death, bankruptcy or incapacity of the Transferor and every obligation of the Transferor shall be binding upon the heirs, legal representatives, successors, assigns, executors and administrators of such Transferor. WITHDRAWAL OF TENDERS Tenders of Depositary Shares pursuant to the Offer may be withdrawn at any time prior to the Expiration Date and, unless accepted for exchange by PECO Energy, may be withdrawn at any time after 40 Business Days from November 8, 1995. To be effective, a written notice of withdrawal delivered by mail, hand delivery or facsimile transmission must be timely received by the Exchange Agent at the address set forth below under "-- Exchange Agent and Information Agent." The method of notification is at the risk and election of the Holder. Any such notice of withdrawal must specify (i) the Holder named in the Letter of Transmittal as having tendered Depositary Shares to be withdrawn, (ii) if the Depositary Shares are held in certificated form, the certificate numbers of the Depositary Shares to be withdrawn, (iii) that such Holder is withdrawing his election to have such Depositary Shares exchanged and (iv) the name of the registered Holder of such Depositary Shares. Any notice of withdrawal must be signed by the Holder in the same manner as the original signature on the Letter of Transmittal (including any required signature guarantees) or be accompanied by evidence satisfactory to PECO Energy that the person withdrawing the tender has succeeded to the beneficial ownership of the Depositary Shares being withdrawn. The Exchange Agent will return the properly withdrawn Depositary Shares promptly following receipt of notice of withdrawal. If Depositary Shares have been tendered pursuant to the procedure for book-entry transfer, any notice of withdrawal must specify the name and number of the account at DTC or other Depository to be credited with the withdrawn Depositary Shares and otherwise comply with DTC's or such other Depository's procedures. All questions as to the validity of notice of withdrawal, including time of receipt, will be determined by PECO Energy, and such determination will be final and binding on all parties. Withdrawals of tenders of Depositary Shares may not be rescinded and any Depositary Shares withdrawn will thereafter be deemed not validly tendered for purposes of the Offer. Properly withdrawn Depositary Shares, however, may be retendered by following the procedures therefor described elsewhere herein at any time prior to the Expiration Date. See "-- Procedures for Tendering." ACCEPTANCE OF DEPOSITARY SHARES AND PRORATION Upon the terms and subject to the conditions of the Offer, if 5,400,000 Depositary Shares (or, if decreased as described herein, such lesser number as PECO Energy may elect to exchange pursuant to the Offer) have been validly tendered and not withdrawn prior to the Expiration Date, PECO Energy will accept for exchange all such Depositary Shares. Upon the terms and subject to the conditions of the Offer, if more than 5,400,000 Depositary Shares (or, if decreased as described herein, such lesser number) have been validly tendered and not withdrawn prior to the Expiration Date, PECO Energy will accept for exchange Depositary Shares from each Holder on a pro rata basis, subject to adjustment to avoid the acceptance for exchange of fractional shares. 23 27 If PECO Energy decreases the amount of Depositary Shares sought, changes the consideration offered therefor or changes the fee offered to the Soliciting Dealers, and the Offer is scheduled to expire less than ten Business Days from and including the date that notice of such decrease is first published, sent or given in the manner specified above in "-- Expiration Date; Extensions; Amendments; Termination," then the Offer will be extended for ten Business Days from and including the date of such notice. All Depositary Shares not accepted pursuant to the Offer, including Depositary Shares not accepted because of proration, will be returned to the tendering Holders at PECO Energy's expense as promptly as practicable following the Expiration Date. EXCHANGE AGENT AND INFORMATION AGENT First Chicago Trust Company of New York has been appointed as the Exchange Agent for the Offer. THE EXCHANGE AGENT: FIRST CHICAGO TRUST COMPANY OF NEW YORK By Hand or Overnight Courier in New York: First Chicago Trust Company of New York 14 Wall Street Tenders and Exchanges 8th Floor -- Suite 4680-PECO New York, New York 10005 By Mail: (Registered or certified mail recommended) First Chicago Trust Company of New York Tenders and Exchanges Suite 4660-PECO P.O. Box 2559 Jersey City, New Jersey 07303-2559 By Facsimile Transmission: (For Eligible Institutions Only) (201) 222-4720 or 4721 Confirm Receipt of Notice of Guaranteed Delivery by Telephone: (201) 222-4707 D. F. King & Co., Inc. (the "Information Agent") has been retained by PECO Energy as the Information Agent to assist in connection with the Offer. Questions and requests for assistance regarding the Offer, requests for additional copies of this Offering Circular/Prospectus, the Letter of Transmittal and requests for Notice of Guaranteed Delivery may be directed to the Information Agent at 77 Water Street, New York, New York 10005. Banks and brokers call: (212) 425-1685; all others telephone (800) 628-8509. PECO Energy will pay the Exchange Agent and the Information Agent reasonable and customary fees for their services and will reimburse them for all their reasonable out-of-pocket expenses in connection therewith. DEALER MANAGERS; SOLICITING DEALERS Merrill Lynch & Co. and Smith Barney Inc., as Dealer Managers, have agreed to solicit exchanges of Depositary Shares for Preferred Trust Receipts. PECO Energy will pay the Dealer Managers an aggregate fee of $0.125 per Depositary Share tendered and not withdrawn (up to 5,400,000 Depositary Shares) pursuant to 24 28 the Offer. The maximum fee payable to the Dealer Managers is approximately $675,000 plus such amount, if any, that Merrill Lynch & Co. and Smith Barney Inc. may be entitled to pursuant to the next paragraph. PECO Energy will also reimburse the Dealer Managers for certain reasonable out-of-pocket expenses in connection with the Offer and will indemnify the Dealer Managers against certain liabilities, including liabilities under the Securities Act of 1933, as amended ("Securities Act"). Merrill Lynch & Co. and Smith Barney Inc. engage in transactions with, and from time to time have each performed services for, PECO Energy, including acting as an underwriter for the issuance of the Depositary Shares. PECO Energy will pay to a Soliciting Dealer a solicitation fee of $0.50 per Depositary Share validly tendered and accepted for exchange pursuant to the Offer. As used in this Offering Circular/Prospectus, "Soliciting Dealer" includes (i) any broker or dealer in securities, including each Dealer Manager in its capacity as a broker or dealer, who is a member of any national securities exchange or of the National Association of Securities Dealers, Inc. (the "NASD"), (ii) any foreign broker or dealer not eligible for membership in the NASD who agrees to conform to the NASD's Rules of Fair Practice in soliciting tenders outside the United States to the same extent as though it were an NASD member, or (iii) any bank or trust company, any one of whom has solicited and obtained a tender pursuant to the Offer. No such fee shall be payable to a Soliciting Dealer in respect of Depositary Shares registered in the name of such Soliciting Dealer unless such Depositary Shares are held by such Soliciting Dealer as nominee and such shares are being tendered for the benefit of one or more beneficial owners identified on the Letter of Transmittal or on the Notice of Solicited Tenders (included in the materials provided to brokers and dealers). No such fee shall be payable to a Soliciting Dealer with respect to the tender of Depositary Shares by a holder unless the Letter of Transmittal accompanying such tender designates such Soliciting Dealer as such in the box captioned "Solicited Tenders" or the Notice of Solicited Tenders accompanying such tender designates such Soliciting Dealer. No such fee shall be payable to the Soliciting Dealer with respect to the tender of Depositary Shares by the holder of record, for the benefit of the beneficial owner, unless the beneficial owner has designated such Soliciting Dealer. No such fee shall be payable to the Soliciting Dealer unless the Soliciting Dealer returns a Notice of Solicited Tenders to the Exchange Agent within five business days after the Expiration Date. No such fee shall be payable to a Soliciting Dealer if such Soliciting Dealer is required for any reason to transfer the amount of such fee to a depositing holder. No broker, dealer, bank, trust company or fiduciary shall be deemed to be the agent of PECO Energy, PECO Energy Capital, the Trust, the Exchange Agent, the Information Agent or the Dealer Managers for purposes of the Offer. Soliciting Dealers are not entitled to a solicitation fee for Depositary Shares beneficially owned by such Soliciting Dealer. The maximum fee payable to Soliciting Dealers is $2,700,000, exclusive of the amount that Merrill Lynch & Co. and Smith Barney Inc. are entitled to pursuant to the preceding paragraph. Additional solicitation may be made by telephone or in person by officers and regular employees of PECO Energy and its affiliates. No additional compensation will be paid to any such officers and employees who engage in soliciting tenders. LISTING AND TRADING OF PREFERRED TRUST RECEIPTS AND DEPOSITARY SHARES The Preferred Trust Receipts constitute a new issue of securities with no established trading market. The Preferred Trust Receipts have been approved for listing on the NYSE subject to notice of issuance and attainment of the NYSE distribution standards. Trading of the Preferred Trust Receipts on the NYSE is expected to commence within a 30-day period after the initial delivery of the Preferred Trust Receipts. There can be no assurance, however, that an active market for the Preferred Trust Receipts will develop or be sustained in the future on such exchange. Although the Dealer Managers have indicated to PECO Energy that they intend to make a market in the Preferred Trust Receipts as permitted by applicable laws and regulations prior to the commencement of trading on the NYSE, they are not obligated to do so and may discontinue any such market-making at any time without notice. Accordingly, no assurance can be given as to the liquidity of, or trading markets for, the Preferred Trust Receipts. In order to satisfy the NYSE listing requirements, acceptance of Depositary Shares validly tendered in the Offer are subject to the conditions that as of the Exchange Date there be at least 1,000,000 Preferred Trust Receipts to be issued and 400 record or beneficial 25 29 holders of Preferred Trust Receipts to be issued in exchange for such Depositary Shares, which conditions may not be waived. To the extent that Depositary Shares are tendered and accepted in the Offer, the terms on which untendered Depositary Shares could subsequently be sold could be adversely affected. In addition, if the Offer is substantially subscribed or oversubscribed, there would be a significant risk that round lot holdings of Depositary Shares outstanding following the Offer would be limited. See "Risk Factors -- Listing and Trading of Preferred Trust Receipts and Depositary Shares." TRANSACTIONS AND ARRANGEMENTS CONCERNING THE OFFER Except as described or referred to herein, there are no material contracts, arrangements, understandings or relationships in connection with the Offer between PECO Energy or any of its directors or executive officers, PECO Energy Capital or the General Partner, the Trust or the Trustee and any person with respect to the Series B Subordinated Debentures, the Depositary Shares, the Series B Preferred Securities and the Preferred Trust Receipts. FEES AND EXPENSES; TRANSFER TAXES The expenses of soliciting tenders of the Depositary Shares will be borne by PECO Energy. For compensation to be paid to the Dealer Managers and Soliciting Dealers, see "The Offer -- Dealer Managers; Soliciting Dealers." The total cash expenditures to be incurred by PECO Energy in connection with the Offer, other than fees payable to the Dealer Managers and Soliciting Dealers, but including the expenses of the Dealer Managers, accounting and legal fees, and the fees and expenses of the Exchange Agent, the Information Agent, the Trustee, and Meridian Trust Company, as trustee under the Indenture (the "Indenture Trustee") are estimated to be approximately $525,000. PECO Energy will pay all transfer taxes, if any, applicable to the exchange of Depositary Shares pursuant to the Offer. If, however, Depositary Shares not tendered or accepted for exchange, are to be delivered to, or are to be issued in the name of, any person other than the registered Holder of the Depositary Shares tendered or if a transfer tax is imposed for any reason other than the exchange of Depositary Shares pursuant to the Offer, then the amount of any such transfer taxes (whether imposed on the registered Holder or any other persons) will be payable by the tendering Holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering Holder. PRICE RANGE OF DEPOSITARY SHARES The Depositary Shares are listed and principally traded on the NYSE. The following table sets forth, for each period shown, the high and low sales prices of the Depositary Shares as reported on the NYSE Composite Tape.
HIGH LOW --- --- Fiscal Year Ended December 31, 1993 1st Quarter............................................................ 27 1/8 25 2nd Quarter............................................................ 26 1/2 25 1/2 3rd Quarter............................................................ 27 1/8 26 4th Quarter............................................................ 27 25 3/8 Fiscal Year Ended December 31, 1994 1st Quarter............................................................ 26 3/8 24 1/2 2nd Quarter............................................................ 25 1/4 23 7/8 3rd Quarter............................................................ 25 1/8 23 3/8 4th Quarter............................................................ 24 1/4 21 5/8
26 30
HIGH LOW --- ---
Fiscal Year Ended December 31, 1995 1st Quarter............................................................ 25 22 3/8 2nd Quarter............................................................ 25 1/4 24 3rd Quarter............................................................ 26 24 7/8 4th Quarter (through November 2, 1995)................................. 26 25 1/4
On July 3, 1995 the last day of trading prior to the first public announcement of the Offer, the closing sales price of the Depositary Shares on the NYSE as reported on the Composite Tape was $25 1/8 per share. Holders of Depositary Shares are urged to obtain a current market quotation for the Depositary Shares. DESCRIPTION OF THE PREFERRED TRUST RECEIPTS The following is a summary of certain terms and provisions of the Preferred Trust Receipts and the Trust Agreement. The summary is subject to, and qualified in its entirety by reference to, the Trust Agreement and the laws of the State of Delaware for business trusts. The Trust Agreement is an exhibit to the Registration Statement of which this Offering Circular/Prospectus forms a part. The Preferred Trust Receipts will be issued by the Trust pursuant to the Trust Agreement. Each Preferred Trust Receipt represents a Series B Preferred Security. Each Series B Preferred Security has a stated liquidation preference of $25. The Preferred Trust Receipts will be issued directly to the holders thereof or in book-entry form through DTC or such other Depository at which the Exchange Agent may have established an account. The Trust is a statutory business trust created under the Delaware Business Trust Act. The Trustee will hold the Series B Preferred Securities deposited in the Trust for the benefit of the holders of the Preferred Trust Receipts. The holders of the Preferred Trust Receipts will have the right to withdraw Preferred Securities from the Trust as described below. 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 Preferred Trust Receipts, each holder of Preferred Trust Receipts shall be entitled to enforce in the name of the Trust the Trust's rights under the Series B Preferred Securities represented by the Preferred Trust Receipts held by such holder. DISTRIBUTIONS Whenever the Trust shall receive any cash distribution representing a monthly distribution on the Series B Preferred Securities (whether or not distributed by PECO Energy Capital on the regular monthly distribution date therefor) or payment under the Series B Guarantee in respect thereof, the Trust shall distribute such amounts to the holders of the Preferred Trust Receipts in proportion to the respective number of Series B Preferred Securities represented by such Preferred Trust Receipts. Under the Indenture, PECO Energy shall have the right at any time after payment of the Additional Distribution (as defined below), so long as an Event of Default under the Indenture has not occurred and is continuing, to extend the interest payment period for all Subordinated Debentures for up to 60 consecutive months; provided that no Extension Period shall extend beyond the stated maturity date or date of redemption of any series of Subordinated Debentures. At the end of the Extension Period, PECO Energy shall pay all interest then accrued and unpaid on such Subordinated Debentures (together with interest thereon to the extent permitted by applicable law at the rate per annum borne by such Subordinated Debentures). During any Extension Period, no Distributions will be made on the Series B Preferred Securities represented by the Preferred Trust Receipts; however, all accrued and unpaid Distributions (together with any applicable Distributions on such Distributions) shall be paid at the end of the Extension Period. See "Description of the Series B Subordinated Debentures and the Indenture -- Option to Extend Interest Payment Period." The paying agent for the Preferred Trust Receipts will be First Chicago Trust Company of New York. 27 31 REDEMPTION OF PREFERRED TRUST RECEIPTS Whenever PECO Energy Capital shall elect or is required to redeem Series B Preferred Securities in accordance with the Amended and Restated Limited Partnership Agreement of PECO Energy Capital, dated as of July 25, 1994, as amended (the "Partnership Agreement"), PECO Energy Capital shall give the Trustee at least 40 days' prior notice thereof. The Trustee will mail the notice of redemption not less than 30 nor more than 60 days prior to the date fixed for redemption of the Series B Preferred Securities and the Preferred Trust Receipts to the holders of the Preferred Trust Receipts. On the date of redemption of the Series B Preferred Securities, provided that PECO Energy Capital (or PECO Energy pursuant to the Series B Guarantee) shall have deposited with the Trustee the aggregate amount payable upon redemption of all Series B Preferred Securities held by the Trust to be redeemed, the Trustee shall redeem Preferred Trust Receipts representing the same number of such Series B Preferred Securities redeemed by PECO Energy Capital at the same redemption price at which such Series B Preferred Securities are redeemed. In the event that fewer than all the outstanding Preferred Trust Receipts are redeemed, the Preferred Trust Receipts to be redeemed shall be selected by lot or pro rata or other equitable method determined by the Trustee. Under the Trust Agreement, PECO Energy Capital agrees that if a partial redemption of the Series B Preferred Securities would result in a delisting of the Preferred Trust Receipts from any national exchange on which the Preferred Trust Receipts are then listed, PECO Energy Capital will only redeem the Series B 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 B Guarantee in respect thereof), after satisfaction of creditors of the Trust as required by applicable law, the Trustee shall distribute to the holders of the Preferred Trust Receipts such amounts in proportion to the respective number of Series B Preferred Securities represented by such Preferred Trust Receipts. PAYMENTS ON PREFERRED TRUST RECEIPTS Monthly distributions on the Preferred Trust Receipts in certificated form will be payable by check to the holders of record on the record date therefor which will be the fifteenth day (whether or not a business day) of the month, provided that the record date for the Distribution on December 29, 1995 will be the date of initial issuance of the Preferred Trust Receipts. Payments of the redemption price of the Preferred Trust Receipts in certificated form and distributions in liquidation will be made at the office of First Chicago Trust Company of New York, as paying agent, upon surrender of such Preferred Trust Receipts. Payments on Preferred Trust Receipts in global form will be made through the appropriate Depository. TRANSFERS AND EXCHANGES First Chicago Trust Company of New York will act as transfer agent and registrar for the Preferred Trust Receipts. Subject to the terms and conditions of the Trust Agreement, the transfer agent shall register the transfers on its books from time to time of Preferred Trust Receipts upon any surrender thereof by the holder in person or by a duly authorized attorney, properly endorsed or accompanied by a properly executed instrument of transfer or endorsement, together with evidence of the payment of any transfer taxes as may be required by law. Upon surrender of Preferred Trust Receipts at the office of the transfer agent, subject to the terms and conditions of the Trust Agreement, the transfer agent shall execute and deliver new Preferred Trust Receipts representing the same number of Series B Preferred Securities as the Preferred Trust Receipts surrendered. As a condition precedent to the registration of the transfer or exchange of any Preferred Trust Receipt, the transfer agent, may require (i) payment to it of a sum sufficient for the payment of any tax or other governmental charge with respect thereto; (ii) the production of proof satisfactory to it as to the identity and genuineness of any signature; and (iii) compliance with such requirements as the Trustee may establish not inconsistent with the provisions of the Trust Agreement. 28 32 No service charge shall be made to a holder of Preferred Trust Receipts for any registration of transfer or exchange of Preferred Trust Receipts, but the Trustee or the registrar shall require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer or exchange of Preferred Trust Receipts. The transfer agent shall not be required (i) to register the transfer of or exchange any Preferred Trust Receipts for a period beginning at the opening of business ten days next preceding any selection of Preferred Trust Receipts to be redeemed and ending at the close of business on the day of the mailing of a notice of redemption of Preferred Trust Receipts or (ii) to transfer or exchange for another Preferred Trust Receipt any Preferred Trust Receipt called or being called for redemption in whole or in part. WITHDRAWAL OF SERIES B PREFERRED SECURITIES Upon surrender of Preferred Trust Receipts at the principal office of the Trustee and subject to the terms of the Trust Agreement and the Partnership Agreement, an owner of Preferred Trust Receipts is entitled to delivery of the number of whole Series B Preferred Securities represented by such Preferred Trust Receipts. Owners of Preferred Trust Receipts will be entitled to receive whole numbers of Series B Preferred Securities on the basis of one Series B Preferred Security for each Preferred Trust Receipt. Partial Series B Preferred Securities will not be issued. If the Preferred Trust Receipts delivered by the owner exceed the number of the Series B Preferred Securities to be withdrawn, the Trustee will deliver to such owner at the same time a new Preferred Trust Receipt evidencing such excess number of Preferred Trust Receipts. Subject to the terms of the Trust Agreement, owners of the Series B Preferred Securities thus withdrawn will thereafter be entitled to deposit such Series B Preferred Securities under the Trust Agreement and to receive Preferred Trust Receipts representing Series B Preferred Securities therefor. The Series B Preferred Securities will not be listed on any exchange, and as a result, the liquidity and trading market for the Series B Preferred Securities will be limited. VOTING RIGHTS If the holders of the Preferred Partner Interests (as defined in the Partnership Agreement), acting as a single class, are entitled to appoint and authorize a Special Representative pursuant to the Partnership Agreement, the Trustee shall notify the holders of the Preferred Trust Receipts of such right, request direction of each holder of a Preferred Trust Receipt as to the appointment of a Special Representative and vote the Series B Preferred Securities represented by such Preferred Trust Receipt in accordance with such direction. If the General Partner fails to convene a general meeting of PECO Energy Capital as required in the Partnership Agreement, the Trustee shall notify the holders of the Preferred Trust Receipts and, if so directed by the holders of the Preferred Trust Receipts representing Preferred Securities constituting at least 10% of the aggregate stated liquidation preference of the outstanding Preferred Partner Interests shall convene such meeting. Under the Trust Agreement, PECO Energy Capital has agreed that without the consent of the holders of 66 2/3% in liquidation amount of the Preferred Trust Receipts it may not consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any corporation or other entity if, as a result, the Preferred Trust Receipts would be delisted, downgraded or the holders thereof would recognize any gain or loss for federal income tax purposes. Upon receipt of notice of any meeting at which the holders of Series B Preferred Securities are entitled to vote, the Trustee shall, as soon as practicable thereafter, mail to the holders of Preferred Trust Receipts a notice, which shall be provided by the General Partner and which shall contain (i) such information as is contained in such notice of meeting, (ii) a statement that the holders of Preferred Trust Receipts will be entitled, subject to any applicable provision of law, to instruct the Trustee as to the exercise of the voting rights pertaining to the amount of Series B Preferred Securities represented by their respective Preferred Trust Receipts, and (iii) a brief statement as to the manner in which such instructions may be given. Upon the written request of a holder of a Preferred Trust Receipt, the Trustee shall vote or cause to be voted the number of Series B Preferred Securities represented by such Preferred Trust Receipts in accordance with the instructions set forth in such request. 29 33 AMENDMENT AND TERMINATION OF TRUST AGREEMENT PECO Energy Capital or the General Partner may, and the Trustee shall, at any time and from time to time enter into one or more agreements supplemental to the Trust Agreement without the consent of the holders of the Preferred Trust Receipts: (i) to evidence the succession of another partnership, corporation or other entity to PECO Energy Capital or the General Partner and the assumption by any such successor of the covenants of PECO Energy Capital or the General Partner in the Trust Agreement; (ii) to add to the covenants of PECO Energy Capital or the General Partner for the benefit of the holders of the Preferred Trust Receipts, or to surrender any right or power herein conferred upon PECO Energy Capital or the General Partner; (iii) to correct or supplement any provision in the Trust Agreement which may be defective or inconsistent with any other provision therein or to make any other provisions with respect to matters or questions arising under the Trust Agreement, provided, that any such action shall not materially adversely affect the interests of the holders of Preferred Trust Receipts; or (iv) to cure any ambiguity or correct any mistake. Any other amendment of the Trust Agreement must be approved by the holders of 66 2/3% of the Preferred Trust Receipts. The Trust Agreement shall terminate upon the redemption of the Preferred Trust Receipts or a final distribution in respect of the Series B Preferred Securities and such distribution has been delivered to the holders of the Preferred Trust Receipts. EXPENSES OF THE TRUSTEE All charges or expenses of the Trust, including the charges and expenses of the Trustee, will be paid by the General Partner, provided that if the Trustee incurs fees, charges or expenses for which it is not otherwise liable under the Trust Agreement at the election of a holder of Preferred Trust Receipts or other person, such holder or other person will be liable for such fees, charges and expenses. RESIGNATION AND REMOVAL OF 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. DESCRIPTION OF THE SERIES B PREFERRED SECURITIES The following is a summary of certain terms and provisions of the Series B Preferred Securities represented by the Preferred Trust Receipts and the Partnership Agreement. The summary is subject to, and qualified in its entirety by reference to, the Partnership Agreement and the Delaware Revised Uniform Limited Partnership Act. The Partnership Agreement is an exhibit to the Registration Statement of which this Offering Circular/Prospectus forms a part. 30 34 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 B 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 B Preferred Securities will be entitled to Distributions out of funds on hand legally available therefor held by PECO Energy Capital at the annual rate of 8.72% of the stated liquidation preference of $25, payable monthly in arrears on the last day of each calendar month. Distributions on the Series B Preferred Securities will be cumulative, will accrue from the Exchange Date and, except as otherwise described below, will be payable monthly in arrears, on the last day of each month of each year, commencing on December 29, 1995. Distributions in arrears after the monthly payment date therefor will accumulate additional distributions thereon at the rate of 8.72% per annum. In addition, holders of Series B Preferred Securities will be entitled to receive, when, as and if declared by the General Partner out of funds on hand and legally available therefor an additional cash distribution at the rate of 7.96% per annum of the stated liquidation preference thereof from November 1, 1995 up to but not including the Exchange Date in lieu of dividends accumulating from November 1, 1995 on their Depositary Shares accepted for exchange, such additional distribution to be made at the time the first distribution on the Series B Preferred Securities is made (the "Additional Distribution"). 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 B Preferred Securities and any other outstanding Preferred Securities of PECO Energy Capital. The Series B Preferred Securities will rank pari passu with all other series of Preferred Securities which may be issued by PECO Energy Capital. The Series A Preferred Securities are the only other series of Preferred Securities which have been issued by PECO Energy Capital to date. The stated liquidation preference of the Series A Preferred Securities is $221,250,000. After payment of the Additional Distribution, PECO Energy has the right under the Indenture to extend the interest payment period from time to time on the Series B Subordinated Debentures to a period not exceeding 60 consecutive months; provided that such extended interest period shall not extend beyond the stated maturity date or redemption date of any Subordinated Debentures, including the Series B Subordinated Debentures. As a consequence, monthly Distributions on the Series B Preferred Securities would be deferred (but would continue to accumulate with Distributions thereon) by PECO Energy Capital during any such extended interest payment period. In the event that PECO Energy exercises its right to extend the interest payment period on the Subordinated Debentures, PECO Energy may not declare or pay dividends on, or redeem, purchase or acquire, any of its capital stock during the extension period. PECO Energy Capital and PECO Energy currently believe that the extension of an interest payment period is unlikely. Prior to the termination of any such extension period, PECO Energy may further extend the interest payment period, provided that such extension period together with all such previous and further extensions thereof may not exceed 60 consecutive months. Upon the termination of any extension period and the payment of all amounts then due on the Subordinated Debentures, PECO Energy may elect to extend the interest payment period again, subject to the above requirements. Following an extension period of eighteen (18) months or more, the holders of Preferred Securities, including the Series B Preferred Securities, shall have the right to appoint a Special Representative (as hereinafter defined) to enforce PECO Energy Capital's rights against PECO Energy under the Subordinated Debentures and the Indenture and the obligations of PECO Energy under the Guarantees. See "-- Voting Rights," "Risk Factors" and "Description of the Series B Subordinated Debentures and the Indenture -- Option to Extend Interest Payment Period" and "-- Interest." 31 35 Distributions on the Series B Preferred Securities must be paid by PECO Energy Capital in any calendar year or portion thereof to the extent that PECO Energy Capital has funds on hand legally available therefor. It is anticipated that the funds available for distribution by PECO Energy Capital will be limited to payments received by PECO Energy Capital in respect of the Series B Subordinated Debentures. See "Description of the Series B Subordinated Debentures and the Indenture." The amount of Distributions payable for any period will be computed on the basis of twelve 30-day months and a 360-day year and, for any period shorter than a full monthly distribution period, will be computed on the basis of the actual number of days elapsed in such period. Distributions on the Series B Preferred Securities will be made to the Holders thereof as they appear on the books and records of PECO Energy Capital on the relevant record dates, which will be the 15th day of each month, provided that the record date for the Distribution on December 29, 1995 will be the date of initial issuance of the Series B Preferred Securities. If any date on which Distributions are payable on the Series B Preferred Securities is not a business day, then payment of the Distributions payable on such date will be made on the next succeeding day that is a business day (and without any interest or other payment in respect of any such delay) except that, if such business day is in the next succeeding calendar year, such payment shall be made on the immediately preceding business day, in each case with the same force and effect as if made on such date. The term "business day," as used in relation to the Series B Preferred Securities, shall mean any day other than a day on which banking institutions in the City of New York or the State of Delaware are authorized or required by law to close. CERTAIN RESTRICTIONS ON PECO ENERGY CAPITAL If distributions have not been paid in full on any series of Preferred Securities of PECO Energy Capital, PECO Energy Capital shall not: (i) pay any distributions on any other series of Preferred Securities, unless the amount of any distributions paid on any Preferred Securities is paid on all Preferred Securities then outstanding on a pro rata basis in proportion to the full distributions to which each series of Preferred Securities would be entitled if paid in full; (ii) pay any distribution on the general partner interests; or (iii) redeem, purchase or otherwise acquire any Preferred Securities or the general partner interests; until, in each case, such time as all accumulated and unpaid distributions on all series of Preferred Securities shall have been paid in full for all prior distribution periods. OPTIONAL REDEMPTION The Series B Preferred Securities are subject to redemption, at the option of the General Partner, in whole or in part, from time to time, on or after October 1, 1997, at $25 per Series B Preferred Security, plus accumulated and unpaid Distributions(whether or not declared), if any, to the date fixed for redemption (the "Redemption Price"). MANDATORY REDEMPTION If at any time PECO Energy redeems the Series B Subordinated Debentures or pays the Series B Subordinated Debentures at maturity, the Series B Preferred Securities will be subject to mandatory redemption at the Redemption Price. The Series B 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 B 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 32 36 (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 B Preferred Securities, there is more than an insubstantial risk that (i) PECO Energy Capital is subject to United States federal income tax with respect to interest received on the Series B Subordinated Debentures or PECO Energy Capital will otherwise not be taxed as a partnership, (ii) interest payable by PECO Energy on the Series B Subordinated Debentures will not be deductible for United States 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 Act Event (as defined below) shall occur and be continuing, the Series B Preferred Securities will be subject to mandatory redemption in whole at the Redemption Price within 90 days following the occurrence of such Investment Company Act Event. "Investment Company Act 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 B Preferred Securities; provided, that no Investment Company Act Event shall be deemed to have occurred if PECO Energy Capital has received an opinion of counsel (which may be regular counsel to PECO Energy or any affiliate but not an employee thereof) experienced in such matters, to the effect that PECO Energy Capital and/or PECO Energy has taken reasonable measures, in its discretion, to avoid such Change in 1940 Act Law so that notwithstanding such Change in 1940 Act Law, PECO Energy Capital is not required to be registered as an "Investment Company" within the meaning of the 1940 Act. REDEMPTION PROCEDURES PECO Energy Capital may not redeem any Series B Preferred Securities unless all accumulated and unpaid Distributions have been paid on all Series B Preferred Securities for all monthly distribution periods terminating on or prior to the date of redemption. Notice of any redemption of the Preferred Partner Interests will be given by the Partnership by mail or delivery to each record holder of Series B 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 B Preferred Securities. Notices of redemption shall be addressed to the record holders of the Series B Preferred Securities at the addresses of the holders appearing in the books and records of the Partnership. If notice of redemption shall have been given and payment shall have been made by the Partnership to the Trust and any other holder of Series B Preferred Securities, then, upon the date of such payment all rights of beneficial owners of the Series B Preferred Securities so called for redemption will cease. In the event that any date fixed for redemption of Series B 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 winding up of PECO Energy Capital, the holders of the Preferred Securities will be entitled to receive out of the assets of PECO Energy Capital after satisfaction of liabilities to creditors as required by Delaware law and before any distribution of assets is made to holders of its general partner interests, the sum of their stated liquidation preference and all accumulated 33 37 and unpaid Distributions to the date of payment for such series of Preferred Securities (collectively, the "Partnership Liquidation Distribution"). All assets of PECO Energy Capital remaining after payment of the Partnership Liquidation Distribution 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 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 the term of PECO Energy Capital, which is 99 years, (ii) upon the withdrawal, removal or bankruptcy of the General Partner or the occurrence of any other event that under applicable law causes PECO Energy Capital Corp. to cease to be the General Partner, except for a transfer to a permitted successor of the General Partner or as otherwise provided in the Partnership Agreement, (iii) the entry of a decree of judicial dissolution, or (iv) the written consent of the General Partner and all of the holders of the Preferred Securities. Upon such dissolution, PECO Energy is required to redeem the Subordinated Debentures to fund the Partnership Liquidation Distribution. The amount per share payable on the Series B Preferred Securities in the event of any voluntary or involuntary liquidation of PECO Energy Capital is $25 plus accumulated and unpaid Distributions. MERGER, CONSOLIDATION, ETC. OF PECO ENERGY CAPITAL PECO Energy Capital may not consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any corporation or other entity, except with the approval of the General Partner and the holders of 66 2/3% in aggregate stated liquidation preference of the outstanding Preferred Securities or as otherwise described below. The General Partner may, without the consent of the holders of the Preferred Securities, cause PECO Energy Capital to consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to, a corporation, a limited liability company or a limited partnership, a trust or other entity organized as such under the laws of any state of the United States of America or the District of Columbia, provided that (i) such successor entity either (x) expressly assumes all of the obligations of PECO Energy Capital under the Preferred Securities or (y) substitutes for the Preferred Securities other securities having substantially the same terms as the Preferred Securities (the "Successor Securities") so long as the Successor Securities rank, as regards participation in the profits and assets of the successor entity, at least as high as the Preferred Securities rank, as regards participation in the profits and assets of PECO Energy Capital, (ii) PECO Energy confirms its obligations under the Guarantee 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 on which such series of Preferred Securities is then listed, (iv) such consolidation, amalgamation, merger, replacement, conveyance, transfer or lease does not cause the Preferred Securities or Successor Securities to be downgraded by any "nationally recognized statistical rating organization," as that term is defined by the SEC for purposes of Rule 436(g)(2) under the Securities Act, (v) such consolidation, amalgamation, merger, replacement, conveyance, transfer or lease does not adversely affect the powers, preferences and other special rights of holders of Preferred Securities or Successor Securities in any material respect, (vi) such successor entity has a purpose substantially identical to 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 United States 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 United States 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 34 38 investment company, and (z) such consolidation, amalgamation, merger, replacement, conveyance, transfer or lease will not adversely affect the limited liability of holders of Preferred Securities or Successor Securities. VOTING RIGHTS Except as provided below and under "-- Merger, Consolidation, etc. of PECO Energy Capital" and "Description of the Series B Guarantee -- Amendments" and as otherwise required by law and the Partnership Agreement, the holders of the Preferred Securities will have no voting rights. If (i) PECO Energy Capital fails to pay Distributions in full on the Preferred Securities for 18 consecutive monthly distribution periods, (ii) an Event of Default (as defined in the Indenture) occurs and is continuing, or (iii) PECO Energy is in default on any of its payment obligations under the Guarantees, then the holders of the Preferred Securities, acting as a single class, will be entitled by a vote of the majority of the aggregate stated liquidation preference of the outstanding Preferred Securities to appoint a special representative (the "Special Representative") to enforce PECO Energy Capital's rights against PECO Energy under the Subordinated Debentures and the Indenture and the obligations undertaken by PECO Energy under the Guarantees, including, after failure to pay Distributions for 60 consecutive monthly distribution periods on the Preferred Securities, the payment of Distributions on the Preferred Securities. The Special Representative shall not be admitted as a partner of PECO Energy Capital or otherwise be deemed a partner of PECO Energy Capital and shall have no liability for the debts, obligations or liabilities of PECO Energy Capital. For purposes of determining whether PECO Energy Capital has failed to pay Distributions in full for 18 consecutive monthly distribution periods, Distributions shall be deemed to remain in arrears, notwithstanding any payments in respect thereof, until full cumulative Distributions on all Preferred Securities have been or contemporaneously are paid with respect to all monthly distribution periods terminating on or prior to the date of payment of such full cumulative Distributions. Subject to the requirements of applicable law, not later than 30 days after such right to appoint the Special Representative, the General Partner will convene a general meeting for the above purpose. If the General Partner fails to convene such meeting within such 30-day period, the holders of 10% of the aggregate stated liquidation preference of the Preferred Securities will be entitled to convene such meeting. The provisions of the Partnership Agreement relating to the convening and conduct of the general meetings of security holders will apply with respect to any such meeting. Any Special Representative so appointed shall vacate office immediately if PECO Energy Capital (or PECO Energy pursuant to the Guarantee) shall have paid in full all accumulated and unpaid Distributions on the Preferred Securities or such default or breach, as the case may be, shall have been cured. Notwithstanding the appointment of any such Special Representative, PECO Energy retains all rights under the Indenture, including the right to extend the interest payment period on the Subordinated Debentures. If any proposed amendment to the Partnership Agreement provides for, or the General Partner otherwise proposes to effect, any action which would materially adversely affect the powers, preferences or special rights attached to any series of Preferred Securities, whether by way of amendment to the Partnership Agreement or otherwise, then the holders of such series of Preferred Securities will be entitled to vote on such amendment or action of the General Partner (but not on any other amendment or action) and, in the case of an amendment or action which would equally adversely affect the rights or preferences of any other Preferred Securities, such Preferred Securities shall vote together as a class on such amendment or action of the General Partner (but not on any other amendment or action), and such amendment or action shall not be effective except with the approval of the holders of not less than 66 2/3% of the aggregate stated liquidation preference of such series of Preferred Securities. Except in certain circumstances described under "-- Liquidation Distribution," PECO Energy Capital will be dissolved and wound up only with the consent of the holders of all Preferred Securities then outstanding as well as the General Partner. The powers, preferences or special rights attached to any Preferred Securities will be deemed not to be adversely affected by the creation or issue of, and no vote will be required for the creation or issue of, any additional series of Preferred Securities or additional general partner interests. Holders of Preferred Securities have no preemptive rights. 35 39 So long as any Subordinated Debentures are held by PECO Energy Capital, the General Partner, unless so directed by the Special Representative, shall not (i) direct the time, method and place of conducting any proceeding for any remedy available to the holder of the Subordinated Debentures or the Indenture Trustee under the Indenture, or executing any trust or power conferred on the Indenture Trustee, (ii) waive any past default which is available under the Indenture, (iii) exercise any right to rescind or annul a declaration that the principal of all the Subordinated Debentures shall be due and payable or (iv) consent to any amendment, modification or termination of the Indenture, where such consent shall be required, without, in each case, obtaining the prior approval of the holders of at least 66 2/3% in aggregate stated liquidation preference of all series of Preferred Securities affected thereby, acting as a single class; provided, however, that where a consent under the Indenture would require the consent of each holder affected thereby, no such consent shall be given by the General Partner without the prior consent of each holder of all series of Preferred Securities affected thereby. The General Partner shall not revoke any action previously authorized or approved by a vote of any series of Preferred Securities. The General Partner shall notify all holders of the Preferred Securities of any notice of default received from the Indenture Trustee with respect to the Subordinated Debentures. Any required approval of holders of Preferred Securities may be given at a separate meeting of such holders convened for such purposes, at a meeting of all partners of PECO Energy Capital or pursuant to written consent. PECO Energy Capital will cause a notice of any meeting at which holders of any series of Preferred Securities are entitled to vote, or of any matter upon which action by written consent of such holders is to be taken, to be mailed to each holder of record of such series of Preferred Securities. Each such notice will include a statement setting forth (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any resolution proposed for adoption at such meeting on which such holders are entitled to vote or of such matter upon which written consent is sought and (iii) instructions for the delivery of proxies or consents. The holders of the Preferred Securities will have no rights to remove or replace the General Partner. MISCELLANEOUS The General Partner is authorized and directed to use its best efforts to manage the affairs of PECO Energy Capital in such a way that PECO Energy Capital would not be deemed to be an "investment company" required to be registered under the 1940 Act or taxed as a corporation for United States federal income tax purposes and so that the Subordinated Debentures will be treated as indebtedness of PECO Energy for federal income tax purposes. In this connection, the General Partner is authorized to take any action not inconsistent with applicable law, the Certificate of Limited Partnership of PECO Energy Capital or the Partnership Agreement, and that does not materially adversely affect the interests of holders of Preferred Securities, that the General Partner determines in its discretion to be necessary or desirable for such purposes. PECO Energy Capital may not borrow money or issue debt or mortgage or pledge any of its assets. DESCRIPTION OF THE SERIES B GUARANTEE The following is a summary of certain provisions of the Series B Guarantee which will be executed and delivered by PECO Energy concurrently with the issuance of the Series B Preferred Securities. The summary is subject to, and qualified by reference to the Payment and Guarantee Agreement, which is filed as an exhibit to the Registration Statement of which this Offering Circular/Prospectus forms a part. GENERAL Under the Series B Guarantee, PECO Energy will agree to pay (i) any accumulated and unpaid Distributions on the Series B 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 B Preferred Securities called for redemption by PECO Energy Capital to the extent that PECO Energy Capital has funds on hand legally available therefor, (iii) upon a liquidation of PECO Energy Capital, the lesser of (a) the portion of the Partnership Liquidation Distribution applicable to the Series B Preferred Securities and (b) the amount of 36 40 assets of PECO Energy Capital legally available for distribution to holders of Series B Preferred Securities in liquidation of PECO Energy Capital and (iv) the Additional Distribution (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 set-off 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 B Preferred Securities or by causing PECO Energy Capital to pay such amounts to such holders. STATUS OF THE SERIES B GUARANTEE The Series B 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 B Guarantee will constitute a guarantee of payment and not of collection. The Series B Guarantee will be held by the General Partner for the benefit of the holders of the Series B Preferred Securities. In the event of the appointment of a Special Representative, the Special Representative may enforce the Series B Guarantee. If no Special Representative has been appointed to enforce the Series B Guarantee, the General Partner has the right to enforce the Series B Guarantee on behalf of the holders of the Series B Preferred Securities. The holders of Preferred Trust Receipts, together with the holders of the Series B Preferred Securities other than the Trust, representing not less than 10% in aggregate stated liquidation preference of the Series B Preferred Securities have the right to direct the time, method and place of conducting any proceeding to enforce any remedy available in respect of the Series B 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 B Guarantee as above provided, any holder of Preferred Trust Receipts representing Series B Preferred Securities, and any holder of Series B Preferred Securities other than the Trust, may institute a legal proceeding directly against PECO Energy to enforce its rights under the Series B Guarantee without first instituting a legal proceeding against PECO Energy Capital or any other person or entity. The Series B 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 B Guarantee. RELATIONSHIP AMONG SERIES B GUARANTEE, SERIES B SUBORDINATED DEBENTURES AND SERIES B PREFERRED SECURITIES In addition to the obligations of PECO Energy under the Series B Guarantee, the Indenture provides that PECO Energy shall cause the General Partner to remain the general partner of PECO Energy Capital and timely perform all its duties as such (including the duty to pay Distributions on the Preferred Securities), which include, among other things, the General Partner's duties under the Partnership Agreement to directly pay all costs and expenses of PECO Energy Capital (for the purpose of insuring that payment of principal and interest by PECO Energy on the Subordinated Debentures will be sufficient to allow payment in full to the holders of the Preferred Securities) and the covenant of the General Partner in the Partnership Agreement to at all times maintain a "fair market value net worth" of at least 10% of the total contributions (less redemptions) to PECO Energy Capital. While the assets of the General Partner will not be available for making Distributions on the Preferred Securities, they will be available for payment of the expenses of PECO Energy Capital. Accordingly, the Series B Guarantee and the Indenture, together with the related covenants contained in the Partnership Agreement and PECO Energy's obligations under the Subordinated Debentures, provide for PECO Energy's full and unconditional guarantee of the Series B Preferred Securities as set forth above. CERTAIN COVENANTS OF PECO ENERGY Under the Series B Guarantee, PECO Energy will covenant that, so long as any Series B 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 37 41 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 B 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 B Preferred Securities (in which case no vote will be required), the Series B Guarantee may be amended only with the prior approval of the holders of Preferred Trust Receipts representing not less than 66 2/3% of the aggregate stated liquidation preference of the outstanding Series B Preferred Securities. MERGER OF PECO ENERGY So long as the Series B 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 B Guarantee. TERMINATION OF THE SERIES B GUARANTEE The Series B Guarantee will terminate and be of no further force and effect upon full payment of the redemption price of all Series B Preferred Securities or upon full payment of the amounts payable with respect to the Series B Preferred Securities upon liquidation of PECO Energy Capital. The Series B Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any holder of Series B Preferred Securities must restore payments of any sums paid under the Series B Preferred Securities or the Series B Guarantee. DESCRIPTION OF THE SERIES B SUBORDINATED DEBENTURES AND THE INDENTURE The following is a summary of certain terms and provisions of the Series B Subordinated Debentures and the Indenture. The summary is subject to, and is qualified by reference to the Indenture, which is filed as an exhibit to the Registration Statement of which this Offering Circular/Prospectus forms a part. GENERAL The Series B Subordinated Debentures will be unsecured subordinated obligations of PECO Energy issued under the Indenture. The Series B Subordinated Debentures will be in a principal amount equal to the aggregate stated liquidation preference of the Series B Preferred Securities plus the General Partner's concurrent investment in PECO Energy Capital, will bear interest at a rate equal to the Distribution rate on the Series B Preferred Securities payable on the Distribution dates, will have maturity and redemption provisions corresponding to the redemption provisions of the Series B Preferred Securities and will be subject to mandatory redemption upon the dissolution and winding up of PECO Energy Capital. The entire principal amount of the Series B Subordinated Debentures will become due and payable, together with any accrued and unpaid interest thereon, on December 19, 2025. PECO Energy will deliver the Series B Subordinated Debentures to the Exchange Agent (which will receive the Series B Subordinated Debentures on behalf of the Holders of the Depositary Shares) in exchange for the Depositary Shares. The Series B Subordinated Debentures will be delivered by the Exchange Agent to PECO Energy Capital in consideration for the issuance and deposit by PECO Energy Capital of the Series B Preferred Securities with the Trustee under the Trust Agreement. PECO Energy Capital will purchase additional Series B Subordinated Debentures issued by PECO Energy in an amount equal to the contribution made by the General Partner to PECO Energy Capital concurrently with the Exchange. 38 42 REDEMPTION Except as provided below, the Series B Subordinated Debentures may not be redeemed prior to October 1, 1997. PECO Energy shall have the right to redeem the Series B Subordinated Debentures, in whole or in part, from time to time, on or after October 1, 1997, upon not less than 30 nor more than 60 days' notice (and not less than 40 days' notice to the Trust), at a redemption price equal to 100% of the aggregate principal amount to be redeemed, plus any accrued and unpaid interest, to the redemption date, including interest accrued during an Extension Period. PECO Energy will also have the right to redeem the Series B Subordinated Debentures at any time upon the occurrence of a Tax Event if certain conditions are met as described under "Description of the Series B Preferred Securities -- Special Event Redemption." The Series B Subordinated Debentures will be subject to mandatory redemption upon the dissolution of PECO Energy Capital or upon redemption of the Series B Preferred Securities. If PECO Energy gives a notice of redemption in respect of Series B Subordinated Debentures, then, on or prior to the redemption date, PECO Energy shall deposit with the paying agent funds sufficient to pay the applicable redemption price and will give irrevocable instructions and authority to pay such redemption price. If notice of redemption shall have been given, if required, then the Series B Subordinated Debentures called for redemption shall become due and payable on the redemption date and upon the redemption date, interest will cease to accrue on the Series B Subordinated Debentures called for redemption and such Series B Subordinated Debentures will no longer be deemed to be outstanding. INTEREST The Series B Subordinated Debentures will bear interest at an annual rate of 8.72% plus Additional Interest, if any, from the Exchange Date. Interest will be payable monthly in arrears on the last day of each month of each year, commencing on December 29, 1995, to PECO Energy Capital. In addition, PECO Energy is obligated under the Series B Subordinated Debentures to pay on the first interest payment date an amount sufficient to pay the Additional Distribution. PECO Energy will make additional interest payments on any overdue installment of interest on the Series B Subordinated Debentures to PECO Energy Capital at the same rate per annum as the annual rate payable on the Series B Subordinated Debentures. Interest payments on the Subordinated Debentures are eliminated in consolidation from the Consolidated Statements of Income of PECO Energy. Distributions on the Preferred Securities appear as a separate line item under Interest Charges entitled "Dividends on Preferred Securities of Subsidiary" 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 such amounts as shall be required so that the net amounts received and retained by PECO Energy Capital after paying any such taxes, duties, or other governmental charges will not be less than the amounts PECO Energy Capital would have received had no such taxes, duties or other governmental charges been imposed. OPTION TO EXTEND INTEREST PAYMENT PERIOD Under the Indenture, PECO Energy shall have the right at any time after payment of the Additional Distribution, so long as an Event of Default under the Indenture has not occurred and is continuing, to extend the interest payment period for all Subordinated Debentures for up to 60 consecutive months; provided that no Extension Period shall extend beyond the stated maturity date or date of redemption of any series of Subordinated Debentures. At the end of the Extension Period, PECO Energy shall pay all interest then accrued and unpaid (together with interest thereon to the extent permitted by applicable law at the rate per annum borne by such Subordinated Debentures). During any such Extension Period, neither PECO Energy 39 43 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 the NYSE or other applicable self-regulatory organization of the record date or the date such Distributions are payable, but in any event not less than two business days prior to such record date. PECO Energy shall cause the Indenture Trustee to give such notice of PECO Energy's selection of such extended interest payment period to the holders of the Preferred Securities. SUBORDINATION The Indenture provides that all payments by PECO Energy in respect of the Subordinated Debentures, including the Series B Subordinated Debentures, shall be subordinated to the prior payment in full of all amounts payable on Senior Indebtedness. The term "Senior Indebtedness" means (i) the principal of and premium, if any, in respect of (A) indebtedness of PECO Energy for money borrowed and (B) indebtedness evidenced by securities, debentures, bonds or other similar instruments issued by PECO Energy; (ii) all capital lease obligations of PECO Energy; (iii) all obligations of PECO Energy issued or assumed as the deferred purchase price of property, all conditional sale obligations of PECO Energy and all obligations of PECO Energy under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business); (iv) certain obligations of PECO Energy for the reimbursement of any obligor on any letter of credit, banker's acceptance, security purchase facility or similar credit transaction; (v) all obligations of the type referred to in clauses (i) through (iv) of other persons and all dividends of other persons (other than Preferred Securities) for the payment of which, in either case, PECO Energy is responsible or liable as obligor, guarantor or otherwise; and (vi) all obligations of the type referred to in clauses (i) through (v) of other persons secured by any lien on any property or asset of PECO Energy (whether or not such obligation is assumed by PECO Energy), except for any such indebtedness that is by its terms subordinated to or pari passu with the Subordinated Debentures or indebtedness between or among PECO Energy and its affiliates. Upon any payment or distribution of assets or securities of PECO Energy, upon any dissolution or winding up or total or partial liquidation or reorganization of PECO Energy, whether voluntary or involuntary, or in bankruptcy, insolvency, receivership or other proceedings, all amounts payable on Senior Indebtedness (including any interest accruing on such Senior Indebtedness subsequent to the commencement of a bankruptcy, insolvency or similar proceeding) shall first be paid in full before PECO Energy Capital (as holder of the Subordinated Debentures), the Indenture Trustee on behalf of such holder or any Special Representative appointed by the holders of the Preferred Securities shall be entitled to receive from PECO Energy any payment of principal of or interest on or any other amounts in respect of the Subordinated Debentures or distribution of any assets or securities. No direct or indirect payment by or on behalf of PECO Energy of principal of or interest on the Subordinated Debentures, whether pursuant to the terms of the Subordinated Debentures or upon acceleration or otherwise, shall be made if, at the time of such payment, there exists (i) a default in the payment of all or any portion of any Senior Indebtedness or (ii) any other default pursuant to which the maturity of Senior Indebtedness has been accelerated and, in either case, requisite notice has been received by the Indenture Trustee and such default shall not have been cured or waived by or on behalf of the holders of such Senior Indebtedness. If the Indenture Trustee, PECO Energy Capital (as holder of the Subordinated Debentures) or any Special Representative appointed by the holders of the Preferred Securities, shall have received any payment on account of the principal of or interest on the Subordinated Debentures when such payment is prohibited 40 44 and before all amounts payable on, under or in connection with Senior Indebtedness are paid in full, then such payment shall be received and held in trust for the holders of Senior Indebtedness and shall be paid over or delivered first to the holders of the Senior Indebtedness remaining unpaid to the extent necessary to pay such Senior Indebtedness in full. Nothing in the Indenture shall limit the right of the Indenture Trustee, PECO Energy Capital (as holder of the Subordinated Debentures) or the Special Representative to take any action to accelerate the maturity of the Subordinated Debentures or to pursue any rights or remedies against PECO Energy; provided that all Senior Indebtedness shall be paid before PECO Energy Capital (as holder of the Subordinated Debentures) is entitled to receive any payment from PECO Energy of principal of or interest on the Subordinated Debentures. Upon the payment in full of all Senior Indebtedness, PECO Energy Capital (as holder of the Subordinated Debentures) (and any Special Representative appointed by such holders) shall be subrogated to the rights of the holders of such Senior Indebtedness to receive payments or distributions of assets of PECO Energy made on such Senior Indebtedness until the Subordinated Debentures shall be paid in full. The Indenture does not limit the aggregate amount of Senior Indebtedness which PECO Energy may issue. CERTAIN COVENANTS OF PECO ENERGY PECO Energy will covenant that it and any majority-owned subsidiary will not declare or pay any dividend on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock (other than dividends by wholly owned subsidiaries) (i) during an Extension Period, (ii) if there shall have occurred any event that, with the giving of notice or the lapse of time or both, would constitute an Event of Default under the Indenture or (iii) if PECO Energy shall be in default with respect to its payment obligations under any Guarantee. PECO Energy will also covenant (i) to maintain direct or indirect 100% ownership of the General Partner and will cause the General Partner to maintain 100% ownership of the general partner interests of PECO Energy Capital, (ii) to cause the General Partner to at all times maintain a "fair market net worth" of at least 10% of the total capital contributions (less redemptions) to PECO Energy Capital and to maintain general partner interests representing 3% of all interests in the capital, income, gain, loss, deduction and credit of PECO Energy Capital, (iii) to cause the General Partner to timely perform all of its duties as general partner of PECO Energy Capital (including the duty to pay Distributions on the Series B 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 United States federal income tax purposes. PECO Energy Capital may not waive compliance or waive any default in compliance by PECO Energy with any covenant or other term in the Indenture without the approval of the Special Representative or without the direction of the holders of 66 2/3% of the aggregate stated liquidation preference of the Preferred Securities. MODIFICATION OF THE INDENTURE The Indenture contains provisions permitting PECO Energy and the Indenture Trustee, without the consent of the Special Representative or PECO Energy Capital, to modify the Indenture or any Supplemental Indenture: (i) to cure any ambiguity, defect or inconsistency; (ii) to comply with the provisions of the Indenture regarding a successor to PECO Energy; (iii) to provide for uncertificated Subordinated Debentures in addition to or in place of certificated Subordinated Debentures; (iv) to make any other change that does not adversely affect the rights of any holder of the Subordinated Debentures; (v) to comply with any requirement for qualification of the Indenture under the Trust Indenture Act of 1939, as amended; and (vi) to set forth the terms and conditions of any series of Subordinated Debentures. 41 45 The Indenture contains provisions permitting PECO Energy and the Indenture Trustee, with the consent of the Special Representative or PECO Energy Capital at the direction of the holders of not less than 66 2/3% of the aggregate stated liquidation preference of the Preferred Securities to modify the Indenture or any supplemental indenture or the rights of the holders of the Subordinated Debentures issued under the Indenture; provided that no such modification, without the consent of each holder of the Subordinated Debentures affected, may, (i) change the stated maturity date of the principal of, or any installment of principal of or interest, if any, on, the Subordinated Debentures, (ii) reduce the principal amount of, or premium or rate of interest, if any, on, the Subordinated Debentures, (iii) reduce the amount of principal of an original issue discount Subordinated Debenture payable upon acceleration of the maturity thereof, (iv) make the Subordinated Debentures payable in money or securities other than as stated in the Subordinated Debentures, (v) impair the right to institute suit for the enforcement of any payment on or with respect to the Subordinated Debentures, (vi) adversely change the redemption provisions of the Subordinated Debentures, (vii) adversely affect the rights of the holders of the Subordinated Debentures with respect to subordination or (viii) reduce the principal amount of the holders of the Subordinated Debentures that must consent to an amendment of the Indenture. EVENTS OF DEFAULT The following are Events of Default under the Indenture: (i) default for 10 days in payment of any interest on any series of the Subordinated Debentures (other than the payment of interest during an Extension Period); (ii) default in payment of principal of (or premium, if any, on) any Subordinated Debentures; (iii) default for 60 days after notice in the performance of any other covenant or agreement in the Indenture or any series of Subordinated Debentures or (iv) certain events of bankruptcy, insolvency or reorganization of PECO Energy. In case an Event of Default under the Indenture shall occur and be continuing (other than an Event of Default relating to bankruptcy, insolvency or reorganization of PECO Energy, in which case principal and interest on all of the Subordinated Debentures shall become immediately due and payable), the Indenture Trustee, PECO Energy Capital (as holder of the Subordinated Debentures) or the Special Representative may declare the principal of all the Subordinated Debentures to be due and payable. Under certain circumstances, a declaration of acceleration with respect to Subordinated Debentures may be rescinded and past defaults (except, unless theretofore cured, a default in the payment of principal of or interest on the Subordinated Debentures) may be waived only by the Special Representative or by PECO Energy Capital at the direction of the holders of 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 B 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 B Subordinated Debentures, to declare the principal and interest on the Series B Subordinated Debentures due and payable and to enforce the obligations of PECO Energy under the Series B Subordinated Debentures and the Indenture directly against PECO Energy, without first proceeding against PECO Energy Capital or any other person or entity. CONSOLIDATION, MERGER, SALE OR CONVEYANCE The Indenture provides that PECO Energy may not consolidate with or merge with or into, or sell, convey, transfer or lease all or substantially all its assets (either in one transaction or a series of transactions) to, any person, unless, among other things, (i) the successor person shall be organized and existing under the laws of the United States or any state thereof or the District of Columbia, and shall expressly assume by a supplemental indenture all of the obligations of PECO Energy under the Subordinated Debentures and the Indenture and (ii) immediately prior to and after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing. 42 46 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 B Subordinated Debentures if PECO Energy irrevocably deposits with the Indenture Trustee or other paying agent, in trust, (i) cash and/or (ii) United States Government Obligations (as defined in the Indenture), which through the payment of interest thereon and principal thereof in accordance with their terms will provide cash in an amount sufficient to pay all the principal of, premium, if any, and interest on, the Subordinated Debentures then outstanding on the dates such payments are due in accordance with the terms of the Series B Subordinated Debentures. INFORMATION CONCERNING THE INDENTURE TRUSTEE Subject to the provisions of the Indenture relating to its duties, the Indenture Trustee will be under no obligation to exercise any of its rights or powers under the Indenture, unless the Indenture Trustee receives security and indemnity reasonably satisfactory to it. Subject to such provision for indemnification, the holders of a majority in principal amount of the Subordinated Debentures then outstanding thereunder or the Special Representative will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Indenture Trustee thereunder, or exercising any trust or power conferred on the Indenture Trustee. The Indenture contains limitations on the right of the Indenture Trustee, as a creditor of PECO Energy, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. In addition, the Indenture Trustee may be deemed to have a conflicting interest and may be required to resign as Indenture Trustee if at the time of default under the Indenture it is a creditor of PECO Energy. An affiliate of Meridian Trust Company, the Trustee under the Indenture, has from time to time engaged in transactions with, or performed services for, PECO Energy and its affiliates in the ordinary course of business. Mr. Joseph F. Paquette, Jr. is Chairman of the Board and a Director of PECO Energy and a Director of Meridian Bancorp, Inc., the parent corporation of the Indenture Trustee. DESCRIPTION OF THE DEPOSITARY SHARES The summary of the terms of the Depositary Shares set forth below does not purport to be complete and is subject to, and qualified in its entirety by reference to the provisions of PECO Energy's Amended and Restated Articles of Incorporation and the Deposit Agreement (the "Deposit Agreement") among PECO Energy, First Chicago Trust Company of New York, as depositary (the "Depositary") and Holders from time to time of the Depositary Shares, and copies of which may be obtained from PECO Energy upon request. Each Depositary Share represents a one-fourth interest in a share of $7.96 Cumulative Preferred Stock (the "$7.96 Preferred Stock"). The shares of $7.96 Preferred Stock underlying the Depositary Shares are deposited with the Depositary under the Deposit Agreement. The Depositary Shares are evidenced by Depositary Receipts ("Depositary Receipts") issued by the Depositary under the Deposit Agreement. Subject to the terms of the Deposit Agreement, each owner of a Depositary Share is entitled, through the Depositary, in proportion to the one-fourth interest in a share of $7.96 Preferred Stock underlying such Depositary Share, to all rights and preferences of the $7.96 Preferred Stock (including dividend, voting, redemption and liquidation rights). Since each share of $7.96 Preferred Stock entitles the holder thereof to one vote on matters on which the holders of the $7.96 Preferred Stock are entitled to vote, each Depositary Share, in effect, entitles the Holder thereof to one-fourth of a vote thereon, rather than one full vote. The Depositary acts as registrar and transfer agent with respect to the Depositary Shares. 43 47 GENERAL All shares of preferred stock of PECO Energy, including the $7.96 Preferred Stock, are of equal rank. The shares of the preferred stock of different series may vary as to (i) annual dividend rate or rates, (ii) redemption price or prices, if any, and any special terms and conditions applicable to redemption, (iii) amount or amounts payable upon any voluntary or involuntary liquidation or winding up of PECO Energy, (iv) terms and amounts of any sinking fund provided for the purchase or redemption of shares, and (v) conversion, participating or other special rights, and qualifications, limitations or restrictions thereof, if any. The authorized capital stock of PECO Energy consists of 15 million shares of preferred stock without par value, issuable in series, 100 million shares of preference stock, issuable in series, and 500 million shares of common stock without par value. DIVIDENDS AND OTHER DISTRIBUTIONS The Depositary distributes all cash dividends or other cash distributions received in respect of the $7.96 Preferred Stock, less any amount required to be withheld, to the record holders of Depositary Receipts representing the related Depositary Shares in proportion to the number of Depositary Shares owned by such holders on the relevant record date, which is the same date as the record date fixed by PECO Energy for the $7.96 Preferred Stock. In the event that the calculation of any such cash dividend or other cash distribution to be paid to any record holder on the aggregate number of Depositary Receipts held by such holder results in an amount which is a fraction of a cent, the amount the Depositary distributes to such record holder is rounded to the next highest whole cent. In the event of a distribution other than in cash, the Depositary is required to distribute property received by it to the record holders of Depositary Receipts entitled thereto, in proportion, as nearly as may be practicable, to the number of Depositary Shares owned by such holders on the relevant record date, unless PECO Energy determines that it is not feasible to make such distribution, in which case PECO Energy may adopt any other method for such distribution as it deems equitable and practicable, including the sale of such property and distribution of the net proceeds from such sale to such holders. The $7.96 Preferred Stock, pari passu with the issued and outstanding preferred stock of PECO Energy, is entitled to dividends when and as declared by the Board of Directors of PECO Energy at the rate of $7.96 (equivalent to $1.99 per annum per Depositary Share), payable quarterly on February 1, May 1, August 1 and November 1. After payment in full of all dividends accrued on the preferred stock, dividends on the common stock of PECO Energy or any other stock junior to the preferred stock may be declared and paid as the Board of Directors of PECO Energy determine. Unless dividends on all outstanding shares of preferred stock of all series shall have been paid for all past monthly dividend periods, no dividends shall be paid or declared and no other distribution shall be made on the preference stock or the common stock, and no preference stock or common stock shall be purchased or otherwise acquired for value by PECO Energy. REDEMPTION PROVISIONS The Depositary Shares will be redeemed from the proceeds received by the Depositary resulting from the redemption, in whole or in part, of the $7.96 Preferred Stock held by the Depositary. Whenever PECO Energy redeems any $7.96 Preferred Stock held by the Depositary, the Depositary will redeem as of the same redemption date the number of Depositary Shares representing the $7.96 Preferred Stock so redeemed. The Depositary will mail the notice of redemption no less than 30 nor more than 60 days prior to the date fixed for redemption of the $7.96 Preferred Stock and Depositary Shares to the record Holders of the Depositary Receipts. If less than all of the Depositary Shares are to be redeemed, the Depositary Shares to be redeemed will be selected by lot or pro rata or by any other method determined by PECO Energy in its sole discretion to be equitable. 44 48 The $7.96 Preferred Stock is not subject to redemption prior to October 1, 1997. Thereafter, the $7.96 Preferred Stock may be redeemed as a whole at any time or in part from time to time by PECO Energy upon not less than 30 days' notice at a price of $100 per share of $7.96 Preferred Stock (equivalent to $25 per Depositary Share) plus accrued and unpaid dividends. The $7.96 Preferred Stock is not entitled to any sinking fund. Notice of redemption having been given as described above, from and after the date fixed for redemption, unless PECO Energy shall have failed to redeem the number of shares of $7.96 Preferred Stock called for redemption, the Depositary Shares so called for redemption will no longer be deemed to be outstanding, and all rights of the Holders of the Depositary Shares will cease, except for the right to receive the monies payable upon such redemption and any money or other property to which the Holders of such Depositary Shares were entitled upon such redemption and surrender to the Depositary of the Depositary Receipts evidencing such Depositary Shares. LIQUIDATION VALUE The amount per share payable on the $7.96 Preferred Stock in the event of any voluntary or involuntary liquidation of PECO Energy is $100 (equivalent to $25 per Depositary Share) plus accrued and unpaid dividends. All shares of PECO Energy preferred stock of all series are of equal rank. VOTING RIGHTS OF $7.96 PREFERRED STOCK Except as hereinafter set forth or when some mandatory provision of law shall be controlling, the holders of preferred stock of PECO Energy, including the Holders of the Depositary Shares, have no voting rights. Holders of preferred stock of PECO Energy are entitled to vote on certain matters relating to (i) authorizing of stock (other than a series of preferred stock) ranking prior to or on a parity with the preferred stock or any security convertible into shares of stock of such kind; (ii) change of the express terms of the preferred stock or of any series thereof in a manner prejudicial to the holders thereof; (iii) issuance of additional shares of preferred stock unless, for any twelve consecutive calendar months within the fifteen calendar months immediately preceding the calendar month within which such additional shares are issued, net earnings applicable to the payment of dividends on the preferred stock and net income before payment of interest charges on indebtedness and after provision for depreciation and taxes shall have been, respectively, at least two times the dividend requirements upon the entire amount of preferred stock to be outstanding immediately after the proposed issue of such additional shares, and at least one and one-half times the aggregate of such dividend requirements and interest charges for such period on the entire amount of indebtedness then to be outstanding; (iv) issuance of additional shares of preferred stock, unless the capital of PECO Energy represented by its preference stock and common stock together with its surplus is in the aggregate at least equal to the involuntary liquidating value of the preferred stock to be outstanding immediately after the proposed issue of such additional shares of preferred stock; (v) increase in the total authorized amount of preferred stock of all series; and (vi) merger or consolidation with or into any corporation, or division, unless ordered, exempted, approved, or permitted by the SEC or other federal regulatory authority. Except as otherwise provided in the express terms of any series of preferred stock, the number of authorized shares of preferred stock of any series may be increased without vote or consent of the holders of the outstanding shares of the series so affected, subject to the aggregate limit on the authorized number of shares of preferred stock. With respect to (i), (ii), (iii), and (iv) above, the consent or affirmative vote of the holders of shares of the preferred stock entitled to cast at least two-thirds of the votes which all holders of preferred stock of all series then outstanding are entitled to cast (or of the affected series in the case of a change prejudicial to less than all series) is required; and with respect to (v) and (vi), the consent or affirmative vote of the holders of shares of the preferred stock entitled to cast at least a majority of the votes which all holders of preferred stock of all series then issued and outstanding are entitled to cast is required. Coverage under the more restrictive earnings test of PECO Energy's Amended and Restated Articles of Incorporation relating to dividend requirements and interest charges on all indebtedness and preferred stock for the twelve months ended June 30, 1995 was 2.17. 45 49 The Board of Directors of PECO Energy is classified into three classes. In each election of Directors, holders of common stock elect an entire class for three-year terms. If and when dividends payable on all shares of the preferred stock are in default in an amount equal to four full quarterly dividends, and until all dividends then in default are paid or declared and set apart for payment, the holders of all shares of preferred stock, voting separately as a class, are entitled to elect the smallest number of Directors necessary to constitute a majority of the full Board of Directors, and the holders of the common stock (and except as otherwise provided by the terms of the preference stock), voting separately as a class, are entitled to elect the remaining Directors. Holders of preferred stock are not entitled to cumulative voting rights in election of Directors. The preferred stock of all series constitutes one class in any vote of shareholders except as stated above, or when some mandatory provision of law is controlling. VOTING PROCEDURES FOR DEPOSITARY SHARES Promptly upon receipt of notice of any meeting at which the holders of the $7.96 Preferred Stock are entitled to vote, the Depositary will mail the information contained in such notice of meeting to the record holders of the Depositary Receipts as of the record date for such meeting. Each such record holder of Depositary Receipts will be entitled to instruct the Depositary as to the exercise of the voting rights pertaining to the amount of the $7.96 Preferred Stock represented by such record holder's Depositary Shares. The Depositary will endeavor, insofar as practicable, to vote the amount of the $7.96 Preferred Stock represented by such Depositary Shares in accordance with such instructions, and PECO Energy will agree to take all action which may be deemed necessary by the Depositary in order to enable the Depositary to do so. The Depositary will abstain from voting any of the $7.96 Preferred Stock to the extent that it does not receive specific instructions from the Holders of Depositary Receipts. Each share of $7.96 Preferred Stock will be entitled to one vote or a fraction thereof for each $100 or fraction thereof of involuntary liquidation value of such share on matters on which the $7.96 Preferred Stock is entitled to vote. WITHDRAWAL OF $7.96 PREFERRED STOCK Upon surrender of Depositary Receipts at the principal office of the Depositary, upon payment of the Depositary's customary charges therefor, and subject to the terms of the Deposit Agreement, the owner of the Depositary Shares evidenced thereby is entitled to delivery of the number of whole shares of the $7.96 Preferred Stock and all money and other property, if any, represented by such Depositary Shares. Owners of Depositary Shares will be entitled to receive whole shares of the $7.96 Preferred Stock on the basis of one share of $7.96 Preferred Stock for four Depositary Shares. Fractional interests in the Depositary Shares will not be issued. If the Depositary Receipts delivered by the holder evidence a number of Depositary Shares in excess of the number of Depositary Shares representing the number of whole shares of the $7.96 Preferred Stock to be withdrawn, the Depositary will deliver to such holder, at the same time, a new Depositary Receipt evidencing such excess number of Depositary Shares. Subject to the terms of the Deposit Agreement, holders of the $7.96 Preferred Stock thus withdrawn will thereafter be entitled to deposit such shares under the Deposit Agreement and to receive Depositary Receipts evidencing Depositary Shares therefor. DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN PECO Energy maintains a Dividend Reinvestment and Stock Purchase Plan (as described in a separate prospectus) which permits holders of PECO Energy's common and preferred shares to reinvest cash dividends automatically and make direct investments of up to $50,000 per calendar year in shares of common stock. Holders of Preferred Trust Receipts will not be entitled to participate in PECO Energy's Dividend Reinvestment and Stock Purchase Plan. AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT The form of Depositary Receipt evidencing the Depositary Shares and any provision of the Deposit Agreement may at any time and from time to time be amended by agreement between PECO Energy and the 46 50 Depositary. Any amendment that shall impose any fees, taxes or charges shall not become effective as to outstanding Depositary Receipts until the expiration of three months after notice of such amendment has been given to the Holders of the outstanding Depositary Receipts. Any amendment which is prejudicial to any substantial existing rights of the Holders of Depositary Shares will not be effective unless such amendment has been approved by the Holders of at least a majority of the Depositary Shares then outstanding. No such amendment may impair the right, subject to the terms of the Deposit Agreement, of any owner of any Depositary Shares to surrender the Depositary Receipt evidencing such Depositary Shares with instructions to the Depositary to deliver to the holder the $7.96 Preferred Stock and all money and other property, if any represented thereby, except in order to comply with mandatory provisions of applicable law. The Deposit Agreement may be terminated by PECO Energy or the Depositary only if all outstanding Depositary Shares relating thereto have been redeemed or there has been a final distribution in respect of the $7.96 Preferred Stock in connection with any liquidation, dissolution or winding up of PECO Energy and such distribution has been distributed to the holders of the related Depositary Receipts. Notwithstanding the foregoing, PECO Energy has the right to terminate the Deposit Agreement upon 30 days' prior written notice to the Holders of the Depositary Receipts and the Depositary if (i) the deposit arrangement evidenced by the Deposit Agreement is in violation of applicable law or becomes separately taxable for federal income tax purposes or (ii) PECO Energy affects a four-for-one split of the $7.96 Preferred Stock. CHARGES OF DEPOSITARY Under the Deposit Agreement, Holders of Depositary Shares are required to pay all transfer and other taxes and governmental charges arising from the existence of the depositary arrangements. PECO Energy will pay charges of the Depositary in connection with any redemption of the $7.96 Preferred Stock. Holders of Depositary Shares pay transfer and other taxes and governmental charges and certain other charges as are provided in the Deposit Agreement to be for their accounts. RESIGNATION AND REMOVAL OF DEPOSITARY The Depositary may resign at any time by delivering to PECO Energy notice of its election to do so, and PECO Energy may at any time remove the Depositary, any such resignation or removal to take effect upon the appointment of a successor depositary and its acceptance of such appointment. Such successor depositary must be appointed within 45 days after delivery of the notice for resignation or removal and must be a bank or trust company having its principal office in the United States of America and having a combined capital and surplus of at least $50,000,000. MISCELLANEOUS The Depositary forwards all reports and communications from PECO Energy which are delivered to the Depositary and which PECO Energy is required to furnish to the holders of the $7.96 Preferred Stock. In addition, the Depositary makes available for inspection by Holders of Depositary Receipts at the principal office of the Depositary, and at such other places as it may from time to time deem advisable, any reports and communications received from PECO Energy which are received by the Depositary as the holder of $7.96 Preferred Stock. The obligations of PECO Energy and the Depositary under the Deposit Agreement are limited to performance in good faith of their duties thereunder and neither the Depositary nor PECO Energy assumes any other obligation or will be subject to any other liability under the Deposit Agreement to holders of Depositary Receipts. Neither the Depositary nor PECO Energy will be liable if it is prevented or delayed by law or any circumstance beyond its control in performing its obligations under the Deposit Agreement. The Depositary and PECO Energy will not be obligated to prosecute or defend any legal proceeding in respect of any Depositary Shares or $7.96 Preferred Stock unless satisfactory indemnity is furnished. PECO Energy and the Depositary may rely on written advice of counsel or accountants, on information provided by Holders of Depositary Shares or other persons believed in good faith to be competent to give such information and on documents believed to be genuine and to have been signed or presented by the proper party or parties. 47 51 UNITED STATES TAXATION In the opinion of Ballard Spahr Andrews & Ingersoll, counsel to PECO Energy, the following are the material United States federal income tax consequences (and certain Pennsylvania tax considerations) of the receipt of Preferred Trust Receipts in exchange for the Depositary Shares pursuant to the Offer and of the ownership and disposition of Preferred Trust Receipts. Unless otherwise stated, this summary deals only with Preferred Trust Receipts held as capital assets by holders who acquire the Preferred Trust Receipts pursuant to the Offer ("Initial Holders"). It does not deal with special classes of holders, such as dealers in securities or currencies, life insurance companies, persons holding Preferred Trust Receipts as a hedge against or which are hedged against currency risks or as a part of a straddle, or persons whose functional currency is not the United States dollar. This summary is based on the Internal Revenue Code of 1986, as amended, Treasury Regulations thereunder and administrative and judicial interpretations thereof, as of the date hereof, all of which are subject to change (possibly on a retroactive basis). ALL HOLDERS OF DEPOSITARY SHARES ARE ADVISED TO CONSULT THEIR TAX ADVISERS AS TO THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE RECEIPT OF PREFERRED TRUST RECEIPTS FOR DEPOSITARY SHARES AND OF THE OWNERSHIP AND DISPOSITION OF PREFERRED TRUST RECEIPTS IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, AS WELL AS THE EFFECT OF ANY STATE, LOCAL OR OTHER LAWS. RECEIPT OF PREFERRED TRUST RECEIPTS FOR DEPOSITARY SHARES The receipt in the Exchange of Preferred Trust Receipts for Depositary Shares pursuant to the Offer will be treated for United States federal income tax purposes as consisting of three transactions: (a) a taxable exchange of Depositary Shares for the underlying Series B Subordinated Debentures followed by (b) a tax-free contribution of the underlying Series B Subordinated Debentures to PECO Energy Capital in exchange for Series B Preferred Securities followed, in turn, by (c) a tax-free deposit of Series B Preferred Securities with the Trust in consideration for the issuance of the Preferred Trust Receipts to the Holders of the Depositary Shares. The receipt of Preferred Trust Receipts for Depositary Shares pursuant to the Offer will be a taxable transaction. In the case of an Initial Holder who actually or constructively owns solely Depositary Shares, or not more than one percent of such stock and not more than one percent of any other class of PECO Energy stock, gain or loss will be recognized in an amount equal to the difference between (a) the fair market value on the Exchange Date of the underlying Series B Subordinated Debentures received in the Exchange and (b) the Initial Holder's tax basis in the Depositary Shares exchanged therefor, and will be long-term capital gain or loss if the Depositary Shares have been held for more than one year as of such date. For this purpose, the fair market value of the Series B Subordinated Debentures deemed issued in exchange for Depositary Shares on the Exchange Date will equal the fair market value of the Preferred Trust Receipts on that date. No further gain or loss will be recognized by an Initial Holder on account of the contribution of the underlying Series B Subordinated Debentures to PECO Energy Capital or the deposit of the Series B Preferred Securities with the Trust in consideration for the issuance of the Preferred Trust Receipts. An Initial Holder's aggregate tax basis in his pro rata share of the Series B Preferred Securities (represented by his Preferred Trust Receipts) will be equal to his tax basis for the Depositary Shares surrendered in the Exchange increased by the amount of any gain or reduced by the amount of any loss recognized in the Exchange. Holders of Depositary Shares who actually or constructively own more than one percent of any class of PECO Energy stock are advised to consult their tax advisers as to the income tax consequences of exchanging Depositary Shares. CLASSIFICATION OF PECO ENERGY CAPITAL AND THE TRUST In connection with the issuance of Preferred Trust Receipts, Ballard Spahr Andrews & Ingersoll will render its tax opinion to the effect that, under then current law and assuming full compliance with the terms of 48 52 the Partnership Agreement and the Trust Agreement, (a) PECO Energy Capital will be classified for United States federal income tax purposes as a partnership and not as an association taxable as a corporation and (b) the Trust will be classified as a grantor trust and not as an association taxable as a corporation. As a consequence, each Securityholder will be considered the owner of a pro rata portion of the Series B Preferred Securities held by the Trust. As a further consequence, each Securityholder will be required to include in gross income his pro rata share of the income accrued on the Series B Subordinated Debentures held by PECO Energy Capital and allocated to the Trust. Such income should not exceed distributions received by the Securityholders on the Preferred Trust Receipts except in limited circumstances described under "-- Potential Extension of Payment Period." No portion of such income will be eligible for the dividends received deduction. ACCRUAL OF ORIGINAL ISSUE DISCOUNT AND PREMIUM The underlying Series B Subordinated Debentures will be considered to have been issued with "original issue discount." PECO Energy Capital will be required to include original issue discount on the Series B Subordinated Debentures in 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 allocated to the Trust. Generally, all of a Securityholder's taxable interest income with respect to the Series B Subordinated Debentures will be accounted for by PECO Energy Capital as "original issue discount" and actual distributions of stated interest will not be separately reported as taxable income. So long as the interest payment period is not extended, cash distributions received by an initial Securityholder for any monthly interest period will equal or exceed the sum of the daily accruals of income for such interest period, unless the issue price of the underlying Series B Subordinated Debentures (as defined below) is less than $25. The total amount of "original issue discount" on the underlying Series B Subordinated Debentures will equal the difference between the "issue price" of the Series B Subordinated Debentures and their "stated redemption price at maturity." Because PECO Energy has the right to extend the interest payment period of the Series B Subordinated Debentures, all of the stated interest payments on the Series B Subordinated Debentures will be includible in determining their "stated redemption price at maturity." The "issue price" of each $25 principal amount of the Series B Subordinated Debentures will be equal to the fair market value of the Depositary Shares on the Exchange Date, which may be more or less than $25, with the result that the total amount of original issue discount on the underlying Series B Subordinated Debentures may be more or less than the amount of stated interest payable with respect thereto. POTENTIAL EXTENSION OF PAYMENT PERIOD Securityholders will continue to accrue original issue discount with respect to their pro rata share of the underlying Series B Subordinated Debentures during an extended interest payment period, and any Securityholders who dispose of Preferred Trust Receipts prior to the record date for the payment of Distributions following such extended interest payment period will not receive from the Trust any cash related thereto. Under the terms of the Indenture, PECO Energy will be permitted to extend the interest payment period on the Series B Subordinated Debentures 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 extended interest 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 extended payment period, over the length of the extended interest payment period. Accrued income will be allocated, but not distributed, to Securityholders of record on the 15th day of each calendar month. As a result, during an extended interest payment period, Securityholders will be required to include interest in gross income in advance of the receipt of cash, and any such Securityholders who dispose of Preferred Trust Receipts prior to the record date for the payment of Distributions following 49 53 such extended interest payment period will include interest in gross income but will not receive any cash related thereto from the Trust. The tax basis of a Series B Preferred Security will be increased by the amount of any interest that is included in income without a 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. TREATMENT OF THE PAYMENT OF THE ADDITIONAL DISTRIBUTION The Additional Distribution payable on the first monthly Distribution date for the Preferred Trust Receipts should be treated as a dividend for United States federal income tax purposes. WITHDRAWAL OF SERIES B PREFERRED SECURITIES The receipt of Series B Preferred Securities by a Securityholder in exchange for Preferred Trust Receipts (and vice versa), at the option of the Securityholder, will not be a taxable event. The Securityholder's tax basis and holding period for the Series B Preferred Securities immediately after the exchange will equal the Securityholder's tax basis and holding period for the Preferred Trust Receipts (or Series B Preferred Securities, as applicable) surrendered in the exchange. Income earned from the Series B Preferred Securities will be reported annually to the Securityholder and to the Internal Revenue Service on Schedule K-1 and not on Form 1099. DISPOSITION OF THE PREFERRED TRUST RECEIPTS Gain or loss will be recognized on a sale, including a redemption for cash, of Preferred Trust Receipts in an amount equal to the difference between the amount realized and the Securityholder's tax basis in his pro rata share of Series B Preferred Securities represented by such Preferred Trust Receipts. Gain or loss recognized by a Securityholder on the sale or exchange of Preferred Trust Receipts held for more than one year generally will be taxable as long-term capital gain or loss. PENNSYLVANIA TAX CONSIDERATIONS In the opinion of Ballard Spahr Andrews & Ingersoll, the Preferred Trust Receipts are exempt from existing personal property taxes in Pennsylvania. UNITED STATES ALIEN HOLDERS For purposes of this discussion, a "United States Alien Holder" is any holder or beneficial owner who or which is (a) a nonresident alien individual or (b) a foreign corporation, partnership, estate or trust, in either case not subject to United States federal income tax on a net income basis in respect of a Series B Preferred Security. Under present United States federal income tax law, subject to the discussion below with respect to backup withholding: (i) Payments by the Trust or any of its paying agents to any United States Alien Holder will not be subject to United States withholding tax provided that (a) the beneficial owner of the Preferred Trust Receipt does not actually or constructively own 10% or more of the total combined voting power of all classes of stock of PECO Energy, (b) the beneficial owner of the Preferred Trust Receipt is not a controlled foreign corporation that is related to PECO Energy through stock ownership, and (c) either (A) the beneficial owner of the Preferred Trust Receipt certifies to the Trust or its agent, under penalties of perjury, that it is a United States Alien Holder and provides its name and address or (B) the holder of the Preferred Trust Receipt is a securities clearing organization, bank or other financial institution that holds customers' securities in the ordinary course of its trade or business (a "financial institution"), and such holder certifies to the Trust or its agent under penalties of perjury that such statement has been received from the beneficial owner by it or by a financial institution between it and the beneficial owner and furnishes the payor with a copy thereof; and (ii) a United States Alien Holder of a Preferred Trust Receipt will not be subject to United States federal income or withholding tax on any gain realized on the Exchange or on the sale or exchange of a Preferred Trust Receipt unless such person is present in the United States for 183 days or more in the 50 54 taxable year of sale and such person has a "tax home" in the United States or certain other requirements are met. BACKUP WITHHOLDING AND INFORMATION REPORTING In general, information reporting requirements will apply to payments to noncorporate United States holders of the proceeds of the sale of the Preferred Trust Receipts within the United States and "backup withholding" at a rate of 31% will apply to such payments if the seller fails to provide a correct taxpayer identification number. Payments of the proceeds from the sale by a United States Alien Holder of Preferred Securities made to or through a foreign office of a broker will not be subject to information reporting or backup withholding, except that, if the broker is a United States person, a controlled foreign corporation for United States federal tax purposes or a foreign person 50% or more of whose gross income is effectively connected with a United States trade or business for a specified three-year period, information reporting may apply to such payment. Payments of the proceeds from the sale of Preferred Securities to or through the United States office of a broker is subject to information reporting and backup withholding unless the holder or beneficial owner certifies as to its non-United States status or otherwise establishes an exemption from information reporting and backup withholding. LEGAL MATTERS Certain matters of Delaware law relating to the validity of the Series B Preferred Securities and the Preferred Trust Receipts will be passed upon for PECO Energy Capital and the Trust by Richards, Layton & Finger, P.A., Wilmington, Delaware, special Delaware counsel to PECO Energy Capital and the Trust. The validity of the Series B Guarantee and the Series B Subordinated Debentures will be passed upon on behalf of PECO Energy by Ballard Spahr Andrews & Ingersoll, Philadelphia, Pennsylvania. Certain legal matters will be passed upon on behalf of the Dealer Managers by Drinker Biddle & Reath, Philadelphia, Pennsylvania, counsel to the Dealer Managers. Ballard Spahr Andrews & Ingersoll and Drinker Biddle & Reath, will rely on Richards, Layton & Finger, P.A. as to certain matters of Delaware law. EXPERTS The consolidated financial statements and schedules of PECO Energy incorporated by reference in this Offering Circular/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, 1994. The consolidated financial statements and schedules 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. 51 55 Facsimile copies of the Letter of Transmittal will not be accepted. Letters of Transmittal, certificates representing Depositary Shares and any other required documents should be sent by each Holder of Depositary Shares or his broker, dealer, commercial bank, trust company or other nominee to the Exchange Agent at one of the addresses as set forth below: THE EXCHANGE AGENT IS: FIRST CHICAGO TRUST COMPANY OF NEW YORK By Hand or Overnight Courier in New York: First Chicago Trust Company of New York 14 Wall Street Tenders and Exchanges 8th Floor -- Suite 4680 -- PECO New York, New York 10005 By Mail: (registered or certified mail recommended) First Chicago Trust Company of New York Tenders and Exchanges Suite 4660 -- PECO P.O. Box 2559 Jersey City, New Jersey 07303-2559 By Facsimile Transmission: (For Eligible Institutions Only) (201) 222-4720 or 4721 Confirm Receipt of Notice of Guaranteed Delivery by Telephone: (201) 222-4707 The Information Agent is: D. F. King & Co., Inc.. 77 Water Street New York, New York 10005 Banks and Brokers Call: (212) 425-1685 ALL OTHERS CALL TOLL-FREE: (800) 628-8509 Any questions or requests for assistance or additional copies of this Offering Circular/Prospectus, the Letter of Transmittal or for copies of the Notice of Guaranteed Delivery may be directed to the Information Agent at its telephone number and location set forth above. You may also contact your broker, dealer, commercial bank or trust company or other nominee for assistance concerning the Offer. The Dealer Managers for the Offer are: MERRILL LYNCH & CO. SMITH BARNEY INC. EX-99.B 3 LETTER OF TRANSMITTAL 1 EXHIBIT B LETTER OF TRANSMITTAL TO TENDER DEPOSITARY SHARES (CUSIP NO. 693 304 875) (THE "DEPOSITARY SHARES") EACH REPRESENTING A ONE-FOURTH INTEREST IN A SHARE OF $7.96 CUMULATIVE PREFERRED STOCK OF PECO ENERGY COMPANY PURSUANT TO THE OFFER BY PECO ENERGY COMPANY TO EXCHANGE TRUST RECEIPTS EACH REPRESENTING A 8.72% CUMULATIVE MONTHLY INCOME PREFERRED SECURITY, SERIES B ("SERIES B PREFERRED SECURITIES") OF PECO ENERGY CAPITAL, L.P. FOR UP TO 5,400,000 DEPOSITARY SHARES This Letter of Transmittal relates to the offer by PECO Energy Company ("PECO Energy") to effect the exchange of Trust Receipts (the "Preferred Trust Receipts"), each representing a 8.72% Cumulative Monthly Income Preferred Security, Series B (the "Series B Preferred Securities") of PECO Energy Capital, L.P. ("PECO Energy Capital"), for up to 5,400,000 Depositary Shares, each representing a one-fourth interest in a share of $7.96 Cumulative Preferred Stock of PECO Energy. The exchange of Preferred Trust Receipts for Depositary Shares will be effected by (a) the tendering of the Depositary Shares to FIRST CHICAGO TRUST COMPANY OF NEW YORK (the "Exchange Agent"), (b) the delivery by PECO Energy of its 8.72% Deferrable Interest Subordinated Debentures, Series B (the "Series B Subordinated Debentures") to the Exchange Agent, which will receive the Series B Subordinated Debentures on behalf of the holders ("Holders") of Depositary Shares validly tendered and accepted, in exchange for the Depositary Shares, (c) the delivery by the Exchange Agent (acting pursuant to the directions of the holders of the Depositary Shares) of the Series B Subordinated Debentures to PECO Energy Capital in consideration for the issuance and deposit by PECO Energy Capital of the Series B Preferred Securities with PECO Energy Capital Trust I (the "Trust") under a Trust Agreement, and (d) the issuance and delivery by the Trust of the Preferred Trust Receipts to the Exchange Agent for distribution, either in certificated form or through the facilities of a depository, to each holder. The offer is for up to 5,400,000 Depositary Shares, unless reduced by PECO Energy in its sole discretion. If more than 5,400,000 or Depositary Shares are validly tendered, acceptance of Depositary Shares of each tendering holder will be pro rated. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON DECEMBER 13, 1995, UNLESS THE OFFER IS EXTENDED. The Exchange Agent for the Offer is: FIRST CHICAGO TRUST COMPANY OF NEW YORK By Hand or Overnight Courier: By Mail: First Chicago Trust Company of New York (Registered or Certified Mail Recommended) Tenders & Exchanges First Chicago Trust Company of New York 14 Wall Street Tenders & Exchanges 8th Floor, Suite 4680-PECO Suite 4660-PECO New York, New York 10005 P.O. Box 2559 Jersey City, New Jersey 07303-2559
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE OFFERING CIRCULAR/PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO D.F. KING & CO., INC., THE INFORMATION AGENT FOR THE EXCHANGE OFFER, AT 77 WATER STREET, NEW YORK, NEW YORK 10005, TELEPHONE (800) 628-8509 (TOLL-FREE) OR (212) 425-1685. 2 This Letter of Transmittal is to be completed by holders of Depositary Shares, (i) if certificates for Depositary Shares are to be forwarded herewith; (ii) unless an Agent's Message (as defined in the accompanying Offering Circular/Prospectus dated November 6, 1995 (the "Offering Circular/Prospectus")) is utilized, if tenders of Depositary Shares are to be made by book-entry transfer into the account of the Exchange Agent at The Depository Trust Company ("DTC") pursuant to the procedures described under "The Offer-Procedures for Tendering" in the Offering Circular/Prospectus; or (iii) if tenders of Depositary Shares are to be made by book-entry transfer into the account of the Exchange Agent at Philadelphia Depository Trust Company or Midwest Securities Trust Company (collectively with DTC, the "Depositories" and each individually, a "Depository") pursuant to the procedures under "The Offer -- Procedures for Tendering" in the Offering Circular/Prospectus. Holders of Depositary Shares who tender shares by book-entry transfer are referred to herein as "Book-Entry Shareholders." Any holder of Depositary Shares who submits this Letter of Transmittal and tenders Depositary Shares in accordance with the instructions contained herein prior to the Expiration Date (as defined in the Offering Circular/Prospectus) will thereby have directed the Exchange Agent to deliver the Series B Subordinated Debentures to PECO Energy Capital which will deposit the Series B Preferred Securities in the Trust with PNC Bank, Delaware, as Trustee, which will issue the Preferred Trust Receipts to such Holder, all as set forth in the Offering Circular/Prospectus. Tenders of Depositary Shares pursuant to this Letter of Transmittal are subject to withdrawal as described in the Offering Circular/Prospectus under the caption "The Offer -- Withdrawal of Tenders". 3 - -------------------------------------------------------------------------------- DESCRIPTION OF DEPOSITARY SHARES TENDERED - ------------------------------------------------------------------------------------------------------------------------------ NAME(S) AND ADDRESS(ES) OF DEPOSITARY SHARES TENDERED REGISTERED HOLDER(S) (ATTACH ADDITIONAL LIST (PLEASE FILL IN, IF BLANK) IF NECESSARY) ------------------------------------------------------------------------------------------------------------------------------ TOTAL NUMBER OF DEPOSITARY SHARES CERTIFICATE REPRESENTED BY NUMBER OF DEPOSITARY NUMBER(S)* CERTIFICATE(S)* SHARES TENDERED** ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ TOTAL SHARES ------------------------------------------------------------------------------------------------------------------------------
* Need not be completed by Holders tendering by book-entry transfer. ** Unless otherwise indicated, the holder will be deemed to have tendered the full number of Depositary Shares represented by the tendered certificates. See Instruction 4. - -------------------------------------------------------------------------------- / / CHECK HERE IF TENDERED DEPOSITARY SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE EXCHANGE AGENT'S ACCOUNT AT A DEPOSITORY AND COMPLETE THE FOLLOWING: Name of Tendering Institution Check box of Book-Entry Transfer Facility / / The Depository Trust Company / / Philadelphia Depository Trust Company / / Midwest Securities Trust Company Account No. Transaction Code No. / / CHECK HERE IF TENDERED DEPOSITARY SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name(s) of Tendering Shareholder(s) Date of Execution of Notice of Guaranteed Delivery Name of Institution which Guaranteed Delivery If delivery by book-entry transfer: Name of Tendering Institution Check box of Book-Entry Transfer Facility / / The Depository Trust Company / / Philadelphia Depository Trust Company / / Midwest Securities Trust Company Account No. Transaction Code No. 4 SOLICITED TENDERS (SEE INSTRUCTION 11) PECO Energy will pay to any Soliciting Dealer, as defined in Instruction 11, a solicitation fee of $0.50 per Depositary Share validly tendered and accepted for exchange pursuant to the Offer (as herein defined). The undersigned represents that the Soliciting Dealer which solicited and obtained this tender is: Name of Firm: ----------------------------------------------------------------- (Please Print) Name of Individual Broker or Financial Consultant: ---------------------------- - ------------------------------------------------------------------------------- Identification Number (if known): --------------------------------------------- Address: ----------------------------------------------------------------------- - ------------------------------------------------------------------------------- (Include Zip Code) The acceptance of compensation by such Soliciting Dealer will constitute a representation by it that: (i) it has complied with the applicable requirements of the Securities Exchange Act of 1934 and the applicable rules and regulations thereunder in connection with such solicitations; (ii) it is entitled to such compensation for such solicitation under the terms and conditions of the Offer; (iii) in soliciting tenders of Depositary Shares, it has used no soliciting materials other than those furnished by PECO Energy; and (iv) if it is a foreign broker or dealer not eligible for membership in the National Association of Securities Dealers, Inc. (the "NASD"), it has agreed to conform to the NASD's Rules of Fair Practice in making solicitations outside the United States to the same extent as though it were an NASD member. If tendered Depositary Shares are being delivered by book-entry transfer made to an account maintained by the Exchange Agent with a Depository, the Soliciting Dealer must return a Notice of Solicited Tenders to the Exchange Agent to receive a solicitation fee. SOLICITING DEALERS ARE NOT ENTITLED TO A SOLICITATION FEE FOR DEPOSITARY SHARES BENEFICIALLY OWNED BY SUCH SOLICITING DEALER. 5 NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: Pursuant to the offer by PECO Energy Company ("PECO Energy"), the undersigned hereby tenders to PECO Energy each of the above-described Depositary Shares, each representing a one-fourth ( 1/4) share interest in PECO Energy's $7.96 Cumulative Preferred Stock, $100 liquidation preference, in exchange for trust receipts (the "Preferred Trust Receipts"), issued by PECO Energy Capital Trust I (the "Trust") with PNC Bank, Delaware, as Trustee (the "Trustee"), each representing a 8.72% Cumulative Monthly Income Preferred Security, Series B (the "Series B Preferred Securities") of PECO Energy Capital, L.P. ("PECO Energy Capital") on the basis of one Preferred Trust Receipt for each Depositary Share validly tendered and accepted. PECO Energy offers to effect exchange of Preferred Trust Receipts for up to 5,400,000 Depositary Shares (the "Exchange"), upon the terms and subject to the conditions set forth in the Offering Circular/Prospectus, receipt of which is hereby acknowledged, and in this Letter of Transmittal (which, together with the Offering Circular/Prospectus, constitute the "Offer"). Depositary Shares not accepted for exchange because of proration or for any other reason will be returned. The Preferred Trust Receipts will be issued in either book-entry form through the facilities of a Depository or in certificated form, depending on whether the Depositary Shares are tendered in certificated form or by book-entry transfer. Distributions, redemption price and stated liquidation preference on the Series B Preferred Securities, and ultimately the Preferred Trust Receipts, will be paid from corresponding payments on PECO Energy Company 8.72% Deferrable Interest Subordinated Debentures, Series B (the "Series B Subordinated Debentures") issued by PECO Energy in consideration for the issuance and deposit by PECO Energy Capital of the Series B Preferred Securities. The mechanics of the Exchange actually involve a simultaneous two-step process. In step one, the undersigned, as holder of the Depositary Shares, exchanges the Depositary Shares for the Series B Subordinated Debentures of PECO Energy. In step two, the undersigned directs the Exchange Agent to deliver the Series B Subordinated Debentures to PECO Energy Capital upon issuance and deposit by PECO Energy Capital of the Series B Preferred Securities with the Trust and the issuance by the Trustee of Preferred Trust Receipts to the undersigned. Though the mechanics of the Exchange involve the undersigned receiving Series B Subordinated Debentures and exchanging Series B Subordinated Debentures for the Preferred Trust Receipts, the Exchange will appear to the undersigned as a one-step transaction where the Depositary Shares are exchanged directly for the Preferred Trust Receipts. The two-step process will be effected simultaneously by use of the Exchange Agent as described in the next paragraph. The undersigned acknowledges that it has no right to retain Series B Subordinated Debentures. Subject to and effective upon acceptance for exchange of the Depositary Shares tendered herewith, the undersigned hereby sells, assigns and transfers to or upon the order of PECO Energy, all right, title and interest in and to all the Depositary Shares that are being tendered hereby and appoints the Exchange Agent the true and lawful agent and attorney-in-fact of the undersigned with respect to such Depositary Shares, with full power of substitution (such power of attorney, being deemed to be an irrevocable power coupled with an interest), to (a) accept depositary receipts for such Depositary Shares or assign or transfer ownership of such Depositary Shares on the account books maintained by the Depository which holds the Depositary Shares, together, in any such case, with all accompanying evidences of transfer and authenticity, for deposit by the Depository into the account of the Exchange Agent, (b) present such Depositary Shares for transfer on the books of PECO Energy, (c) accept the Series B Subordinated Debentures from PECO Energy in exchange for the Depositary Shares, (d) deliver the Series B Subordinated Debentures to PECO Energy Capital, (e) deposit the Preferred Trust Receipts into the account of the undersigned, or issue certificates for Preferred Trust Receipts and (f) receive all benefits and otherwise exercise all rights of beneficial ownership of such Depositary Shares, all in accordance with the terms of the Offer. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, exchange, assign and transfer the Depositary Shares tendered hereby and to acquire Preferred Trust Receipts issuable upon the exchange of such tendered Depositary Shares and that, when the undersigned's Depositary Shares are accepted for exchange, PECO Energy will acquire good and unencumbered title to such tendered Depositary Shares, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim. The undersigned will, upon request, execute and deliver any additional documents deemed by PECO Energy to be necessary or desirable to complete the exchange, assignment and transfer of tendered Depositary Shares or transfer ownership of such Depositary Shares. All authority herein conferred or agreed to be conferred shall survive the death, bankruptcy or incapacity of the undersigned and every obligation of the undersigned hereunder shall be binding upon the heirs, legal representatives, successors, assigns, executors and administrators of the undersigned. Except as stated in the Offer, this tender is irrevocable. 6 The undersigned understands that tenders of Depositary Shares pursuant to any one of the procedures described in "The Offer -- Procedures for Tendering" of the Offering Circular/Prospectus and in the instructions hereto will constitute agreements between the undersigned and PECO Energy upon the terms and subject to the conditions of the Offer. Unless otherwise indicated under "Special Exchange Instructions", please cause Preferred Trust Receipts to be issued to me in certificated form or by crediting the account of the undersigned at the Depository which held my Depositary Shares, and return any Depositary Shares not tendered or not accepted for exchange, in the name(s) of the undersigned (and, in the case of Depositary Shares tendered by book-entry transfer, by credit to the account at the Depository where my Depositary Shares were held). Similarly, unless otherwise indicated under "Special Delivery Instructions," please mail any certificates for Depositary Shares not tendered or not accepted for exchange (and accompanying documents, as appropriate), to the undersigned at the address shown below the undersigned's signature(s). If both "Special Exchange Instructions" and "Special Delivery Instructions" are completed, please cause the Preferred Trust Receipts to be issued and delivered to, and return any Depositary Shares not tendered or not accepted for exchange, in the name(s) of, and deliver any certificates for such Depositary Shares to, the person(s) so indicated. - ------------------------------------------------------------ SPECIAL EXCHANGE INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if certificates representing Preferred Trust Receipts are to be issued, or certificates for Depositary Shares not tendered or not accepted for exchange are to be issued, in the name of someone other than the undersigned. Issue / / certificates for Depositary Shares to: Issue / / certificates for Preferred Trust Receipts in name of: Name ----------------------------------------------------------- (Please Print) ----------------------------------------------------------- Address ----------------------------------------------------------- ----------------------------------------------------------- (Zip Code) ----------------------------------------------------------- (Taxpayer Identification No.) - ------------------------------------------------------------ - ------------------------------------------------------------ SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 5 AND 7) To be completed ONLY if certificates for Depositary Shares not tendered or not accepted for exchange, or certificates for Preferred Trust Receipts are to be mailed to someone other than the undersigned, or to the undersigned at an address other than that shown below the undersigned's signature(s). Mail / / certificates for Depositary Shares to: Name ----------------------------------------------------------- (Please Print) ----------------------------------------------------------- Address ----------------------------------------------------------- ----------------------------------------------------------- (Zip Code) Mail / / certificates for Preferred Trust Receipts to: Name ----------------------------------------------------------- (Please Print) ----------------------------------------------------------- Address ----------------------------------------------------------- ----------------------------------------------------------- (Zip Code) - ------------------------------------------------------------ 7 SIGN HERE (PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW) - ------------------------------------------------------------------------------- Signature(s) of Owner(s) Dated , 1995 --------------- Name(s) ------------------------------------------------------------------------ - ------------------------------------------------------------------------------- (Please Print) Capacity (full title) ---------------------------------------------------------- Address ------------------------------------------------------------------------ - ------------------------------------------------------------------------------- (Include Zip Code) Area Code and Telephone No. ---------------------------------------------------- (Must be signed by registered holder(s) exactly as name(s) appear(s) on certificate(s) for Depositary Shares or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, please set forth full title and see Instruction 5.) GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 1 AND 5) Authorized Signature ----------------------------------------------------------- Name --------------------------------------------------------------------------- Title -------------------------------------------------------------------------- Address ------------------------------------------------------------------------ Name of Firm ------------------------------------------------------------------- Area Code and Telephone Number ------------------------------------------------- Dated , 1995 --------------- 8 - -------------------------------------------------------------------------------- PAYER'S NAME: FIRST CHICAGO TRUST COMPANY OF NEW YORK - ------------------------------------------------------------------------------------------------------- PAYEE INFORMATION -- check appropriate box: / / Corporation / / Partnership / / Individual/Sole Proprietor / / Other Name(s) as shown above on certificate(s) for Depositary Shares (if joint ownership, list first and circle the name of the person or entity whose number you enter in Part I below). - ------------------------------------------------------------------------------------------------------- Address (if holder does not complete, signature in Part III below will constitute a certification that the address on the reverse hereof is correct). - ------------------------------------------------------------------------------------------------------- City, State, and Zip Code - ------------------------------------------------------------------------------------------------------- SUBSTITUTE FORM W-9 DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE PAYER'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER (TIN) - ------------------------------------------------------------------------------------------------------- PART I -- PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND CERTIFY BY SIGNING AND DATING BELOW Social Security Number OR Employer Identification Number ------------------- ------------------- - ------------------------------------------------------------------------------------------------------- PART II -- TIN Applied For / / For Payees exempt from backup withholding, write "Exempt" here. ------------------------------- - ------------------------------------------------------------------------------------------------------- PART III -- CERTIFICATION. Under penalties of perjury, I certify that: (1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me), and (2) I am not subject to backup withholding because (a) I am exempt from backup withholding, (b) I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. CERTIFICATION INSTRUCTIONS. You must cross out item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of under reporting interest or dividends on your tax return. However, if you have been notified by the IRS that you are no longer subject to backup withholding, do not cross item (2). - ------------------------------------------------------------------------------------------------------- SIGNATURE DATE - -------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENT MADE TO YOU WITH RESPECT TO THE PREFERRED TRUST RECEIPTS. PLEASE REVIEW THE ENCLOSED "GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9" FOR ADDITIONAL DETAILS. 9 YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART I OF SUBSTITUTE FORM W-9 CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a Taxpayer Identification Number has not been issued to me, and either (a) I have mailed or delivered an application to receive a Taxpayer Identification Number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver an application in the near future. I understand that if I do not provide a Taxpayer Identification Number within 60 days, thirty-one (31) percent of all reportable payments made to me will be withheld until I provide a properly certified Taxpayer Identification Number to the Exchange Agent. - ------------------------------------------------------ - ------------------------------------------------------ Signature Date 10 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. GUARANTEE OF SIGNATURES. No signature guarantee is required on this Letter of Transmittal (i) if tendered Depositary Shares are registered in the name(s) of the undersigned and the Preferred Trust Receipts to be issued in exchange therefor are to be issued (and any Depositary Shares not tendered or not accepted for exchange are to be returned) in the name of the registered holder(s) (which term, for the purposes described herein, shall include any participant in a Depository whose name appears on a security listing as the owner of Depositary Shares) and (ii) such holder(s) have not completed the instruction entitled "Special Exchange Instructions" or "Special Delivery Instructions" on this Letter of Transmittal. If the tendered Depositary Shares are registered in the name(s) of someone other than the undersigned or if the Preferred Trust Receipts to be issued in exchange therefor are to be issued (or Depositary Shares not tendered or not accepted for exchange are to be returned) in the name of any other person, such tendered Depositary Shares must be endorsed or accompanied by written instruments of transfer in form satisfactory to the Exchange Agent and duly executed by the registered holder, and the signature on the endorsement or instrument of transfer must be guaranteed by a financial institution (including most banks, savings and loan associations and brokerage houses) that is a participant in the Security Transfer Agents Medallion Program or the Stock Exchange Medallion Program (any of the foregoing hereinafter referred to as an "Eligible Institution"). See Instruction 5. 2. DELIVERY OF LETTER OF TRANSMITTAL AND DEPOSITARY SHARES. Depositary receipts for all physically delivered Depositary Shares, or confirmation of any book-entry transfer to the Exchange Agent's account at a Depository of Depositary Shares tendered by book-entry transfer (a "Book-Entry Confirmation"), as well as (i) a properly completed and duly executed copy of this Letter of Transmittal, and any other documents required by this Letter of Transmittal, or (2) an Agent's Message in connection with a book-entry transfer, must be received by the Exchange Agent at either of the addresses set forth herein prior to the Expiration Date. If a holder of Depositary Shares desires to participate in the Offer and time will not permit this Letter of Transmittal or Depositary Shares to reach the Exchange Agent before the Expiration Date or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected if the Exchange Agent has received at its office prior to the Expiration Date, a Notice of Guaranteed Delivery from an Eligible Institution setting forth the name and address of the tendering Holder, the name(s) in which the Depositary Shares are registered and, if the Depositary Shares are held in certificated form, the certificate numbers of the Depositary Shares to be tendered, and stating that the tender is being made thereby and guaranteeing that within three New York Stock Exchange, Inc. ("NYSE") trading days after the date of execution of such Notice of Guaranteed Delivery by the Eligible Institution, the Depositary Shares in proper form for transfer together with a properly completed and duly executed Letter of Transmittal (and any other required documents), or a confirmation of book-entry transfer of such Depositary Shares into the Exchange Agent's account at the applicable Depository, along with a Letter of Transmittal (and any other required documents) or, in the case of DTC, an Agent's Message, will be delivered by such Eligible Institution. Unless the Depositary Shares being tendered by the above-described method are deposited with the Exchange Agent within the time period set forth above or a confirmation of book entry transfer of such Depositary Shares into the Exchange Agent's account at a Depository in accordance with such Depository's procedures (accompanied or preceded by a properly completed Letter of Transmittal and any other required documents), or in accordance with DTC's Automated Tender Offer Program ("ATOP") procedures (along with an Agent's message), is received, PECO Energy may, at its option, reject the tender. The method of delivery of Depositary Shares and all other required documents, including delivery through a Depository, is at the option and risk of the tendering shareholder. If certificates for Depositary Shares are sent by mail, registered mail with return receipt requested, properly insured, is recommended. In all cases, sufficient time should be allowed to ensure timely delivery. No alternative, conditional or contingent tenders will be accepted, and no fractional Depositary Shares will be accepted for exchange. By executing this Letter of Transmittal, the tendering holder waives any right to receive any notice of the acceptance of the Depositary Shares for exchange. 3. INADEQUATE SPACE. If the space provided herein is inadequate, the certificate numbers and/or the number of Depositary Shares should be listed on a separate signed schedule attached hereto. 4. PARTIAL TENDERS. (Not applicable to Book-Entry Shareholders). If fewer than all the Depositary Shares represented by any certificate delivered to the Exchange Agent are to be tendered, fill in the number of Depositary Shares which are to be tendered in the box entitled "Number of Shares Tendered." In such case, a new certificate for the remainder of the Depositary Shares 11 represented by the old certificate will be sent to the person(s) signing this Letter of Transmittal, unless otherwise provided in the appropriate box on this Letter of Transmittal, as promptly as practicable following the Expiration Date. All Depositary Shares represented by certificates delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. 5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If this Letter of Transmittal is signed by the registered holder(s) of the Depositary Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the certificates without alteration enlargement or any change whatsoever. If any of the Depositary Shares tendered hereby are held of record by two or more persons, all such persons must sign this Letter of Transmittal. If any of the Depositary Shares tendered hereby are registered in different names on different certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of certificates. If this Letter of Transmittal is signed by the registered holder(s) of the Depositary Shares tendered hereby, no endorsements of certificates or separate stock powers are required unless Preferred Trust Receipts issued in exchange therefor are to be issued, or Depositary Shares not tendered or not exchanged are to be returned, in the name of any person other than the registered holder(s). Signatures on any such certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Depositary Shares tendered hereby, certificates must be endorsed or accompanied by appropriate stock powers, in either case, signed exactly as the name(s) of the registered holder(s) appear(s) on the certificates for such Depositary Shares. Signature(s) on any such certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal or any certificate or stock power is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to the Exchange Agent of the authority of such person so to act must be submitted. 6. STOCK TRANSFER TAXES. PECO Energy will pay all stock transfer taxes, if any, applicable to the exchange of any Depositary Shares pursuant to the Offer. If, however, Depositary Shares not tendered or accepted for exchange are to be issued in the name of any person other than the registered holder of the Depositary Shares tendered or if a transfer tax is imposed for any reason other than the exchange of Depositary Shares pursuant to the Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other Persons) will be payable by the holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with this Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. 7. SPECIAL EXCHANGE AND DELIVERY INSTRUCTIONS. If any Depositary Shares not tendered or not accepted for exchange are to be issued or to be returned to, a person other than the person(s) signing this Letter of Transmittal or certificates for Depositary Shares not tendered or not accepted for exchange are to be mailed to someone other than the person(s) signing this Letter of Transmittal or to the person(s) signing this Letter of Transmittal at an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. 8. SUBSTITUTE FORM W-9. Under the federal income tax laws, the Exchange Agent may be required to withhold 31% of the amount of any payments made to certain shareholders pursuant to the Offer. In order to avoid such backup withholding, each tendering shareholder, and, if applicable, each other payee, must provide such shareholder's or payee's correct taxpayer identification number and certify that such holder of Depositary Shares or payee is not subject to such backup withholding by completing the Substitute Form W-9 set forth above. In general, if a holder of Depositary Shares or payee is an individual, the taxpayer identification number is the Social Security number of such individual. Certain holders of Depositary Shares or payees (including, among others, all corporations and certain foreign individual(s)) are not subject to these backup withholding and reporting requirements. In order to satisfy the Exchange Agent that a foreign individual qualifies as an exempt recipient, such holder of Depositary Shares or payee must submit a statement, signed under penalties of perjury, attesting to that individual's exempt status. Such statements can be obtained from the Exchange Agent. For further information concerning backup withholding and instructions for completing the Substitute Form W-9 (including how to obtain a taxpayer identification number if you do not have one and how to complete the Substitute 12 Form W-9 if Shares are held in more than one name), consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. 9. WAIVER OF CONDITIONS. The conditions of the Offer may be waived by PECO Energy from time to time in accordance with, and subject to the limitations described in, the Offering Circular/Prospectus, provided that acceptance of Depositary Shares validly tendered in the Offer is subject to the condition that as of the Expiration Date there be at least 1,000,000 Preferred Trust Receipts to be issued and 400 record or beneficial holders of Preferred Trust Receipts to be issued in exchange of such Depositary Shares, which condition may not be waived. 10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for assistance or additional copies of the Offering Circular/Prospectus and this Letter of Transmittal may be obtained from the Information Agent at its telephone number set forth below. 11. SOLICITED TENDERS. PECO Energy will pay to a Soliciting Dealer (as defined herein) a solicitation fee of $0.50 per Depositary Share validly tendered and accepted for exchange pursuant to the Offer. For purposes of this Instruction 11, "Soliciting Dealer" includes (i) any broker or dealer in securities, including a Dealer Manager in its capacity as a dealer or broker, who is a member of any national securities exchange or of the National Association of Securities Dealers, Inc. (the "NASD"), (ii) any foreign broker or dealer not eligible for membership in the NASD who agrees to conform to the NASD's Rules of Fair Practice in soliciting tenders outside the United States to the same extent as though it were an NASD member, or (iii) any bank or trust company, any one of whom has solicited and obtained a tender pursuant to the Offer. No Solicitation Fee shall be payable to a Soliciting Dealer with respect to the tender of Depositary Shares by a holder unless the Letter of Transmittal accompanying such tender designates such Soliciting Dealer as such in the box captioned "Solicited Tenders". If tendered Depositary Shares are being delivered by book-entry transfer made to an account maintained by the Exchange Agent with a Depository, the Soliciting Dealer must return a Notice of Solicited Tenders to the Exchange Agent within three NYSE trading days after the Expiration Date in order to receive a Solicitation Fee. No Solicitation Fee shall be payable to a Soliciting Dealer in respect of Depositary Shares (i) beneficially owned by such Soliciting Dealer or (ii) registered in the name of such Soliciting Dealer unless such Depositary Shares are held by such Soliciting Dealer as nominee and such Depositary Shares are being tendered for the benefit of one or more beneficial owners identified on the Letter of Transmittal or the Notice of Solicited Tenders. No Solicitation Fee shall be payable to the Soliciting Dealer with respect to the tender of Depositary Shares by the holder of record, for the benefit of the beneficial owner, unless the beneficial owner has designated such Soliciting Dealer. The Information Agent for the Offer is: D. F. KING & CO., INC. 77 Water Street New York, New York 10005 Banks and Brokers Call: (212) 425-1685 All Others Call Toll-Free: (800) 628-8509 The Dealer Managers for the Offer are: MERRILL LYNCH & CO. SMITH BARNEY INC. World Financial Center 388 Greenwich Street 250 Vesey Street New York, New York 10013 New York, New York 10281 Liability Management Group Marketing Support (800) 813-3754 (212) 236-4565 (call collect)
November 8, 1995 EX-99.C 4 NOTICE OF GUARANTEED DELIVERY 1 EXHIBIT C NOTICE OF GUARANTEED DELIVERY This form, or a form substantially equivalent to this form, must be used to accept the Offer (as defined below) if (i) Depositary Shares each representing a one-fourth ( 1/4) interest in PECO Energy Company ("PECO Energy") $7.96 Cumulative Preferred Stock (the "Depositary Shares") cannot be delivered to the Exchange Agent by the Expiration Date (as defined in the Offering Circular/Prospectus dated November 6, 1995 (the "Offering Circular/Prospectus")), (ii) the procedure for book-entry transfer of Depositary Shares (as set out in the Offering Circular/Prospectus) cannot be completed by the Expiration Date or (iii) the Letter of Transmittal or Agent's Message and all other required documents cannot be delivered to the Exchange Agent prior to the Expiration Date. This form, properly completed and duly executed, may be delivered by hand or facsimile transmission or mail to the Exchange Agent. See the Offering Circular/Prospectus. TO: FIRST CHICAGO TRUST COMPANY OF NEW YORK, EXCHANGE AGENT
By Hand or By Mail: Overnight Courier: (registered or certified mail recommended) First Chicago Trust Company First Chicago Trust Company of New York of New York Tenders & Exchanges Tenders & Exchanges 14 Wall Street Suite 4660 -- PECO 8th Floor, Suite 4680 -- PECO P.O. Box 2559 New York, New York 10005 Jersey City, NJ 07303-2559 By Facsimile Transmission: Confirm Receipt of Notice (For Eligible Institutions Only) of Guaranteed Delivery by Telephone: (201) 222-4270 or 4721 (201) 222-4707
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. LADIES AND GENTLEMEN: The undersigned hereby tenders to PECO Energy Company upon the terms and conditions set forth in the Offering Circular/Prospectus dated November 6, 1995 and the related Letter of Transmittal (which constitute the "Offer"), receipt of which is hereby acknowledged, the number of Depositary Shares set forth below, pursuant to the guaranteed delivery procedure set forth in the Offering Circular/Prospectus. Number of shares of Depositary Shares tendered: Certificate Nos. (if available) - ------------------------------------------------------------ - ------------------------------------------------------------ If Depositary Shares will be tendered by book-entry transfer: Name of Tendering Institution: ----------------------------------------------------------- - ------------------------------------------------------------ - ------------------------------------------------------------ Check Box of Book-Entry Transfer Facility / / The Depository Trust Company / / Philadelphia Depository Trust Company / / Midwest Securities Trust Company Account No. ----------------------------------------------------------- SIGN HERE - ------------------------------------------------------------ - ------------------------------------------------------------ (Signature(s)) - ------------------------------------------------------------ (Name(s)) (Please Print) - ------------------------------------------------------------ (Address) - ------------------------------------------------------------ (Zip Code) - ------------------------------------------------------------ (Area Code and Telephone No.) 2 GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a firm that is a member of a registered national securities exchange or the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office branch or agency in the United States, guarantees (a) that the above named-person(s) own(s) the Depositary Shares "tendered" hereby as such term is defined within Rule 14e-4 under the Securities Exchange Act of 1934, as amended, (b) that such tender of Depositary Shares complies with Rule 14e-4 and (c) to deliver to the Exchange Agent either the Depositary Shares tendered hereby, in proper form for transfer, or confirmation of the book-entry transfer of the Depositary Shares tendered hereby into the account of the Exchange Agent at The Depository Trust Company ("DTC"), Midwest Securities Trust Company or Philadelphia Depository Trust Company, in each case together with a properly completed and duly executed Letter(s) of Transmittal, with any required signature guarantees (or in the case of DTC, an Agent's Message (as defined in the Offering Circular/Prospectus)) and any other required documents within three New York Stock Exchange trade days after the date of execution of this Notice. - -------------------------------------------------------------------------------- (Name of Firm) - -------------------------------------------------------------------------------- (Authorized Signature) - -------------------------------------------------------------------------------- (Name) - -------------------------------------------------------------------------------- (Address) - -------------------------------------------------------------------------------- (Zip Code) - -------------------------------------------------------------------------------- (Area Code and Telephone No.) Dated:-------------------------------------------------------------------------- DO NOT SEND STOCK CERTIFICATES WITH THIS FORM. YOUR STOCK CERTIFICATES MUST BE SENT WITH THE LETTER OF TRANSMITTAL. EX-99.D 5 LETTER TO BROKERS 1 EXHIBIT D PECO ENERGY COMPANY OFFER TO EXCHANGE TRUST RECEIPTS EACH REPRESENTING A 8.72% CUMULATIVE MONTHLY INCOME PREFERRED SECURITY, SERIES B OF PECO ENERGY CAPITAL, L.P. (STATED LIQUIDATION PREFERENCE $25 PER PREFERRED SECURITY) FOR UP TO 5,400,000 OUTSTANDING DEPOSITARY SHARES EACH REPRESENTING A ONE-FOURTH INTEREST IN A SHARE OF $7.96 CUMULATIVE PREFERRED STOCK OF PECO ENERGY COMPANY November 8, 1995 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees We have been appointed by PECO Energy Company, a Pennsylvania corporation ("PECO Energy"), and PECO Energy Capital, L.P., a Delaware limited partnership ("PECO Energy Capital"), to act as Dealer Managers in connection with the offer by PECO Energy to exchange, upon the terms and subject to the conditions set forth in the Offering Circular/Prospectus referred to below and the related Letter of Transmittal (which together constitute the "Offer"), Trust Receipts (the "Preferred Trust Receipts"), each representing a 8.72% Cumulative Monthly Income Preferred Security, Series B ("Series B Preferred Securities"), representing a limited partner interest issued by PECO Energy Capital, for up to 5,400,000 of outstanding Depositary Shares, each representing a one-fourth interest in a share of PECO Energy's $7.96 Cumulative Preferred Stock (the "Depositary Shares"). In connection with the Offer, PECO Energy will deliver its 8.72% Deferrable Interest Subordinated Debentures, Series B ("Series B Subordinated Debentures"), to First Chicago Trust Company of New York (the "Exchange Agent"), which will receive the Series B Subordinated Debentures on behalf of the holders of the Depositary Shares in exchange for Depositary Shares; the Exchange Agent (acting pursuant to the directions of the holders of the Depositary Shares) will deliver the Series B Subordinated Debentures to PECO Energy Capital in consideration for the issuance and deposit by PECO Energy Capital of the Series B Preferred Securities with PECO Energy Capital Trust I (the "Trust"); and the Trust will issue the Preferred Trust Receipts to the Exchange Agent for distribution to the former holders of the Depositary Shares. Pursuant to the Offer, exchanges will be made on the basis of one Preferred Trust Receipt for each Depositary Share validly tendered and accepted for exchange in the Offer. Depositary Shares not accepted for exchange because of proration or any other reason will be returned. The Exchange Agent, on behalf of PECO Energy, will accept for exchange all Depositary Shares validly tendered and not withdrawn, up to 5,400,000 shares (or, if decreased as described in the Offering Circular/Prospectus, such lesser number as PECO Energy may elect to exchange pursuant to the Offer), upon the terms and subject to the conditions of the Offer, including the provisions thereof relating to proration described in the Offering Circular/Prospectus dated November 6, 1995 (the "Offering Circular/Prospectus"). PECO Energy will upon request, reimburse brokers, dealers, commercial banks and trust companies for reasonable and necessary costs and expenses incurred by them in forwarding materials to their customers. PECO Energy will pay all stock transfer taxes applicable to the acceptance of Depositary Shares pursuant to the Offer, subject to Instruction 6 of the Letter of Transmittal. Soliciting Dealers should take care to ensure proper record-keeping to document their entitlement to any solicitation fee. Any inquiries you may have with respect to the Offer should be addressed to, and additional copies of the enclosed materials may be obtained from, the Information Agent or the undersigned at the addresses and telephone numbers set forth in the back cover of the Offering Circular/Prospectus. 2 For your information and for forwarding to your clients for whom you hold Depositary Shares registered in your name or in the name of your nominee, we are enclosing the following documents: 1. Offering/Circular Prospectus dated November 6, 1995; 2. Letter of Transmittal for your use and for the information of your clients, together with GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 providing information relating to backup federal income tax withholding; 3. Notice of Guaranteed Delivery to be used to accept the Offer if the Depositary Shares and all other required documents cannot be delivered to the Exchange Agent by the Expiration Date (as defined in the Offering/Circular Prospectus), or the book-entry transfer of the Depositary Shares cannot be completed by the Expiration Date; 4. A form of letter that may be sent to your clients of whose accounts you hold Depositary Shares registered in your name or in the name of your nominee, with space provided for obtaining such clients' instructions and designation of Soliciting Dealer with regard to the Offer; 5. A Questions and Answers Pamphlet that may be sent to your clients; 6. A letter from the Chairman of PECO Energy to holders of Depositary Shares; and 7. Return envelope addressed to FIRST CHICAGO TRUST COMPANY OF NEW YORK, the Exchange Agent. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON DECEMBER 13, 1995, UNLESS THE OFFER IS EXTENDED. NO RECOMMENDATION TO HOLDERS OF DEPOSITARY SHARES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING IN THE OFFER IS MADE BY PECO ENERGY, THE BOARD OF DIRECTORS OF PECO ENERGY, PECO ENERGY CAPITAL, ITS GENERAL PARTNER, THE TRUST OR ITS TRUSTEE. HOLDERS OF DEPOSITARY SHARES ARE URGED TO CONSULT THEIR FINANCIAL AND TAX ADVISERS IN MAKING THEIR DECISIONS ON WHAT ACTION TO TAKE IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES. PECO Energy will pay a solicitation fee of $0.50 per Depositary Share (the "Solicitation Fee") for any Depositary Shares tendered by physically delivering depositary receipts which are accepted for exchange and exchanged pursuant to the Offer and covered by a Letter of Transmittal which designates, as having solicited and obtained the tender, the name of (i) any broker or dealer in securities, including each Dealer Manager in its capacity as a broker or dealer, which is a member of any national securities exchange or of the National Association of Securities Dealers, Inc. (the "NASD"), (ii) any foreign broker or dealer not eligible for membership in the NASD which agrees to conform to the NASD's Rules of Fair Practice in soliciting tenders outside the United States to the same extent as though it were an NASD member, or (iii) any bank or trust company (each of which is referred to herein as a "Soliciting Dealer"). No Solicitation Fee shall be payable to a Soliciting Dealer with respect to the tender of depositary receipts evidencing Depositary Shares by a holder unless the Letter of Transmittal accompanying such tender designates such Soliciting Dealer as such in the box captioned "Solicited Tenders". If tendered Depositary Shares are being delivered by book-entry transfer made to an account maintained by the Exchange Agent with DTC, the Soliciting Dealer must return a Notice of Solicited Tenders to the Exchange Agent within three New York Stock Exchange trading days after the Expiration Date in order to receive a Solicitation Fee. No Solicitation Fee shall be payable to a Soliciting Dealer in respect of Depositary Shares (i) beneficially owned by such Soliciting Dealer or (ii) registered in the name of such Soliciting Dealer unless such Depositary Shares are held by such Soliciting Dealer as nominee and such Depositary Shares are being tendered for the benefit of one or more beneficial owners identified on the Letter of Transmittal or the Notice of Solicited Tenders. No Solicitation Fee shall be payable to the Soliciting Dealer with respect to the tender of Depositary Shares by the holder of record, for the benefit of the beneficial owner, unless the beneficial owner has designated such Soliciting Dealer. 3 No Solicitation Fee shall be payable to a Soliciting Dealer if such Soliciting Dealer is required for any reason to transfer any portion of such fee to a tendering holder (other than itself). No broker, dealer, bank, trust company or fiduciary shall be deemed to be the agent of PECO Energy, the Exchange Agent, the Information Agent or the Dealer Managers for purposes of the Offer. Very truly yours, Merrill Lynch & Co. Smith Barney Inc. NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU THE AGENT OF PECO ENERGY, PECO ENERGY CAPITAL, THE GENERAL PARTNER OF PECO ENERGY CAPITAL, THE DEALER MANAGERS, THE INFORMATION AGENT OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN. 4 NOTICE OF SOLICITED TENDERS Listed below are the number of Depositary Shares whose tender you have solicited. All Depositary Shares beneficially owned by a beneficial owner, whether in one account or several, and in however many capacities, must be aggregated for purposes of completing the tables below. Any questions as to what constitutes beneficial ownership should be directed to the Exchange Agent. If the space below is inadequate, list the Depositary Shares in a separate signed schedule and affix the list to this Notice of Solicited Tenders. Please do not complete the sections of the table headed "TO BE COMPLETED ONLY BY EXCHANGE AGENT." ALL NOTICES OF SOLICITED TENDERS SHOULD BE RETURNED TO THE EXCHANGE AGENT AT THE ADDRESS SET FORTH ON THE BACK COVER OF THE OFFERING CIRCULAR/PROSPECTUS. ALL QUESTIONS CONCERNING THE NOTICES OF SOLICITED TENDERS SHOULD BE DIRECTED TO THE INFORMATION AGENT AT THE TELEPHONE NUMBER SET FORTH ON THE BACK COVER OF THE OFFERING CIRCULAR/PROSPECTUS. SOLICITED TENDERS OF DEPOSITARY SHARES NOT BENEFICIALLY OWNED BY SOLICITING DEALER
TO BE COMPLETED BY THE TO BE COMPLETED TO BE COMPLETED SOLICITING TO BE COMPLETED ONLY BY ONLY BY DEALER BY THE SOLICITING EXCHANGE AGENT EXCHANGE AGENT ---------------- DEALER ---------------- --------------- NUMBER OF SHARES ------------------ NUMBER OF SHARES FEE BENEFICIAL OWNERS TENDERED VOI TICKET NUMBER* ACCEPTED $0.50 PER SHARE - ------------------------------------- ---------------- ------------------ ---------------- --------------- Beneficial Owner No. 1............... ---------------- ------------------ ---------------- --------------- Beneficial Owner No. 2............... ---------------- ------------------ ---------------- --------------- Beneficial Owner No. 3............... ---------------- ------------------ ---------------- --------------- Beneficial Owner No. 4............... ---------------- ------------------ ---------------- --------------- Beneficial Owner No. 5............... ---------------- ------------------ ---------------- --------------- Total........................... ---------------- ------------------ ---------------- ---------------
- --------------- * Complete if Depositary Shares delivered by book-entry transfer. All questions as to the validity, form and eligibility (including time of receipt) of Notices of Solicited Tenders will be determined by the Exchange Agent, in its sole discretion, which determination will be final and binding. Neither the Exchange Agent nor any other person will be under any duty to give notification of any defects or irregularities in any Notice of Solicited Tenders or incur any liability for failure to give such notification. The undersigned hereby confirms that: (i) it has complied with the applicable requirements of the Securities Exchange Act of 1934, and the applicable rules and regulations thereunder, in connection with such solicitation; (ii) it is entitled to such compensation for such solicitation under the terms and conditions of the Offering Circular/Prospectus; (iii) in soliciting tenders of Depositary Shares, it has used no soliciting materials other than those furnished by PECO Energy; and (iv) if it is a foreign broker or dealer not eligible for membership in the NASD, it has agreed to conform to the NASD's Rules of Fair Practice in making solicitations outside the United States to the same extent as though it were an NASD member. - ---------------------------------------- -------------------------------------------------------- Printed Firm Name Address -------------------------------------------------------- City, State and Zip Code - ---------------------------------------- -------------------------------------------------------- Authorized Signature Area Code and Telephone Number
EX-99.E 6 LETTER TO CLIENTS 1 EXHIBIT E PECO ENERGY COMPANY OFFER TO EXCHANGE TRUST RECEIPTS EACH REPRESENTING A 8.72% CUMULATIVE MONTHLY INCOME PREFERRED SECURITY, SERIES B OF PECO ENERGY CAPITAL, L.P. (STATED LIQUIDATION PREFERENCE $25 PER PREFERRED SECURITY) FOR UP TO 5,400,000 OUTSTANDING DEPOSITARY SHARES EACH REPRESENTING A ONE-FOURTH INTEREST IN A SHARE OF $7.96 CUMULATIVE PREFERRED STOCK OF PECO ENERGY COMPANY November 8, 1995 To Our Clients: Enclosed for your consideration are the Offering Circular/Prospectus dated November 6, 1995 (the "Offering Circular/Prospectus") and the related Letter of Transmittal (which together constitute the "Offer") in connection with the Offer by PECO Energy Company, a Pennsylvania corporation ("PECO Energy"), to effect the exchange of trust receipts, (the "Preferred Trust Receipts"), each representing a 8.72% Cumulative Monthly Income Preferred Security, Series B, (the "Series B Preferred Securities") representing a limited partner interest issued by PECO Energy Capital, L.P., a limited partnership formed under the laws of the State of Delaware ("PECO Energy Capital") for up to 5,400,000 of outstanding depositary shares ("the Depositary Shares") each representing a one-fourth interest in a share of $7.96 Cumulative Preferred Stock of PECO Energy. In connection with the Offer, PECO Energy will deliver its 8.72% Deferrable Interest Subordinated Debentures, Series B (the "Series B Subordinated Debentures") to First Chicago Trust Company of New York (the "Exchange Agent"), which will receive the Series B Subordinated Debentures on behalf of the holders of the Depositary Shares in exchange for Depositary Shares; the Exchange Agent (acting pursuant to the directions of the holders of the Depositary Shares) will deliver the Series B Subordinated Debentures to PECO Energy Capital in consideration for the issuance and deposit by PECO Energy Capital of the Series B Preferred Securities with PECO Energy Capital Trust I (the "Trust"); and the Trust will issue the Preferred Trust Receipts to the Exchange Agent for distribution to the former holders of the Depositary Shares. Pursuant to the Offer, exchanges will be made on the basis of one (1) Preferred Trust Receipt for each Depositary Share validly tendered and accepted for exchange in the Offer. Depositary Shares not accepted for exchange because of proration or otherwise will be returned. PECO Energy will accept for exchange Depositary Shares validly tendered (or defectively tendered but as to which PECO Energy has waived the defect) and not withdrawn, upon the terms and subject to the conditions of the Offer, including the provisions thereof relating to proration described in the Offering Circular/Prospectus. We are the holder of record of Depositary Shares held for your account. A tender of such Depositary Shares can be made only by us as the holder of record and pursuant to your instructions. The Letter of Transmittal is furnished to you for your information only and cannot be used by you to tender Depositary Shares held by us for your account. We request instructions as to whether you wish us to tender any or all of the Depositary Shares held by us for your account, upon the terms and subject to the conditions set forth in the Offering Circular/Prospectus and the Letter of Transmittal. We also request that you designate, in the box captioned "Soliciting Tenders", any Soliciting Dealer who solicited your tender of Depositary Shares. 2 Your attention is invited to the following: 1. The Offer and withdrawal rights expire at 12:00 Midnight, New York City time, on December 13, 1995, unless the Offer is extended. 2. Subject to the next sentence, PECO Energy expressly reserves the right to extend, amend or modify the terms of the Offer, and withdraw or terminate and not accept for exchange any Depositary Shares, at any time prior to the date of expiration of the Offer for any reason, including (without limitation) if holders of fewer than 2,800,000 Depositary Shares are tendered (which condition may be waived by PECO Energy). In addition, acceptance of Depositary Shares validly tendered in the Offer is subject to the conditions that there be at least 1,000,000 Trust Receipts to be issued and 400 record or beneficial holders of Preferred Trust Receipts to be issued in exchange for Depositary Shares, which conditions may not be waived. 3. Any stock transfer taxes applicable to the exchange of Depositary Shares pursuant to the Offer will be paid by PECO Energy, except as otherwise provided in Instruction 6 of the Letter of Transmittal. Please note that a Questions and Answers pamphlet regarding the Exchange Offer is enclosed for your information. If you wish to have us tender any or all of your Depositary Shares please so instruct us by completing, executing, detaching and returning to us the instruction form on the detachable part hereof. An envelope to return your instructions to us is enclosed. If you authorize tender of your Depositary Shares, all such Depositary Shares will be tendered unless otherwise specified on the detachable part hereof. Your instructions should be forwarded to us in ample time to permit us to submit a tender on your behalf by the Expiration Date. As described in the Offering Circular/Prospectus, if fewer than all Depositary Shares validly tendered prior to the Expiration Date are to be accepted by PECO Energy, PECO Energy will accept Depositary Shares from each tendering holder on a pro rata basis, subject to adjustment to avoid the acceptance for exchange of fractional shares. THE OFFER IS NOT BEING MADE TO, NOR WILL TENDERS BE ACCEPTED FROM OR ON BEHALF OF, HOLDERS OF DEPOSITARY SHARES IN ANY JURISDICTION IN WHICH THE MAKING OF THE OFFER OR ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH JURISDICTION. IN THOSE JURISDICTIONS THE LAWS OF WHICH REQUIRE THAT THE OFFER BE MADE BY A LICENSED BROKER OR DEALER, THE OFFER SHALL BE DEEMED TO BE MADE ON BEHALF OF PECO ENERGY BY MERRILL LYNCH & CO., SMITH BARNEY INC. OR ONE OR MORE REGISTERED BROKERS OR DEALERS LICENSED UNDER THE LAWS OF SUCH JURISDICTION. INSTRUCTIONS WITH RESPECT TO THE OFFER The undersigned acknowledge(s) receipt of your letter and the enclosed Offering Circular/Prospectus dated November 6, 1995 and the related Letter of Transmittal in connection with the Offer by PECO Energy to effect the exchange of the Preferred Trust Receipts for up to 5,400,000 shares of outstanding Depositary Shares each representing a one-fourth interest in a share of $7.96 Cumulative Preferred Stock of PECO Energy that are validly tendered and accepted for exchange. Pursuant to the Offer, exchanges will be made on the basis of one Preferred Trust Receipt for each Depositary Share validly tendered and accepted for exchange in the Offer. Depositary Shares not accepted for exchange because of proration or otherwise will be returned. This will instruct you to tender the number of Depositary Shares indicated below held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offering Circular/Prospectus and the related Letter of Transmittal. By checking this box, all Depositary Shares held by you for our account, including fractional shares, will be tendered in the Offer. If fewer than all Depositary Shares are to be tendered, we have checked the box and indicated below the aggregate number of Depositary Shares to be tendered by you. --------------- SHARES* - --------------- * Unless otherwise indicated, it will be assumed that all Depositary Shares held by us for your account are to be tendered. 3 PLEASE DESIGNATE IN THE BOX BELOW ANY SOLICITING DEALER WHO SOLICITED YOUR TENDER. SOLICITED TENDERS The undersigned represents that the Soliciting Dealer who solicited and obtained this tender is: Name of Firm: - -------------------------------------------------------------------------------- (Please Print) Name of Individual Broker or Financial Consultant: - -------------------------------------------------------------------------------- Identification Number (if known): - -------------------------------------------------------------------------------- Address: ------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Include Zip Code) SIGN HERE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Signature(s) Please print name(s) and address(es) here Dated - --------------------- EX-99.F 7 TOMBSTONE ADVERTISEMENT 1 EXHIBIT F This is neither an offer to exchange or to sell nor a solicitation of an offer to exchange or buy any of these securities. This Offer is made only by the Offering Circular/Prospectus and the related Letter of Transmittal and the Offer is not being made to, nor will tenders be accepted from or on behalf of, holders of these securities in any jurisdiction in which the making or acceptance thereof would not be in compliance with the securities or blue sky laws of such jurisdiction. In any jurisdiction where the securities or blue sky laws require the Offer to be made by a licensed broker or dealer, the Offer is being made on behalf of PECO Energy Company by Merrill Lynch & Co. and Smith Barney Inc. or one or more other brokers or dealers which are licensed under the laws of such jurisdiction. NOTICE OF OFFER TO HOLDERS OF PECO ENERGY COMPANYDEPOSITARY SHARES EACH REPRESENTING A ONE-FOURTH INTEREST IN A SHARE OF $7.96 CUMULATIVE PREFERRED STOCK PECO Energy Company, a Pennsylvania corporation ("PECO Energy"), is offering, upon the terms and subject to the conditions set forth in its Offering Circular/Prospectus dated November 6, 1995 (the "Offering Circular/Prospectus") and the accompanying Letter of Transmittal (the "Letter of Transmittal" which together with the Offering Circular/Prospectus constitute the "Offer"), to effect the exchange of Trust Receipts ("TOPrSSM" or "Preferred Trust Receipts"), each representing an 8.72% Cumulative Monthly Income Preferred Security, Series B ("Series B Preferred Securities"), representing limited partner interests of PECO Energy Capital, L.P., a limited partnership formed under the laws of the State of Delaware ("PECO Energy Capital"), for up to 5,400,000 Depositary Shares (the "Depositary Shares"), each representing a one-fourth interest in a share of $7.96 Cumulative Preferred Stock of PECO Energy. The Preferred Trust Receipts will be issued by PECOEnergy Capital Trust I, a statutory business trust (the "Trust"). Exchanges will be made on the basis of one Preferred Trust Receipt for each Depositary Share validly tendered and accepted for exchange in the Offer. In connection with the Offer, PECO Energy will issue its 8.72% Deferrable Interest Subordinated Debentures, Series B ("Series B Subordinated Debentures") which will be delivered to First Chicago Trust Company of New York (the "Exchange Agent") (on behalf of the holders of the Depositary Shares) and the Exchange Agent will deposit the Series B Subordinated Debentures with PECO Energy Capital in consideration for PECO Energy Capital issuing the Series B Preferred Securities as set forth in the Offering Circular/Prospectus. THE OFFER WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON DECEMBER 13, 1995, UNLESS EXTENDED. NO RECOMMENDATION TO HOLDERS OF DEPOSITARY SHARES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING IN THE OFFER IS MADE BY THE BOARD OF DIRECTORS OF PECO ENERGY, PECO ENERGY, THE GENERAL PARTNER OF PECO ENERGY CAPITAL, PECO ENERGY CAPITAL, THE TRUSTEE OR THE TRUST. EACH HOLDER OF DEPOSITARY SHARES MUST MAKE ITS OWN DECISION ON WHAT ACTION TO TAKE IN LIGHT OF ITS OWN PARTICULAR CIRCUMSTANCES. Upon the terms and conditions of the Offer, including the provisions relating to proration described in the Offering Circular/Prospectus, PECO Energy will accept for exchange up to 5,400,000 Depositary Shares validly tendered and not withdrawn prior to 12:00 midnight, New York City time on December 13, 1995, or if the Offer is extended by PECO Energy, in its sole discretion, the latest date and time applicable to such extension (the "Expiration Date"). Tenders of Depositary Shares pursuant to the Offer may be withdrawn at any time prior to the Expiration Date and, unless accepted for exchange by PECO Energy, may be withdrawn at any time after 40 business days after November 8, 1995. Depositary Shares validly tendered and not accepted because of proration or otherwise will be returned to the tendering holders at PECO Energy's expense as promptly as practicable following the Expiration Date. Subject to the next sentence, PECO Energy expressly reserves the right to extend, amend or modify the terms of the Offer for any reason. PECO Energy may opt, subject to certain conditions, not to accept for exchange any Depositary Shares, including (without limitation) if holders tender fewer than 2,800,000 Depositary Shares (which condition may be waived by PECO Energy). In addition, acceptance of Depositary Shares validly tendered in the Offer is subject to the conditions that there be at least 1,000,000 Preferred Trust Receipts to be issued and 400 record or beneficial owners of Preferred Trust Receipts to be issued in exchange for Depositary Shares, which conditions may not be waived. The purpose of the Offer is to reduce the after-tax financing costs of PECO Energy through the replacement of Depositary Shares with Preferred Trust Receipts. The Offering Circular/Prospectus and Letter of Transmittal contain important information which should be read before any actions are taken by holders of Depositary Shares. Tenders may be made only by a properly completed and executed Letter of Transmittal or Agent's Message (as described in the Offering Circular/Prospectus). PECO Energy will pay to Soliciting Dealers (as defined in the Offering Circular/Prospectus) designated by the registered or beneficial owner, as appropriate, of the Depositary Shares, a solicitation fee of $0.50 per Depositary Share validly tendered and accepted for exchange pursuant to the Offer, subject to certain conditions. Soliciting Dealers are not entitled to a solicitation fee for Depositary Shares beneficially owned by such Soliciting Dealer. The information required to be disclosed by paragraph (d)(1) of Rule 13e-4 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, is contained in the Offering Circular/Prospectus and is incorporated herein by reference. 2 The Offering Circular/Prospectus and the related Letter of Transmittal were first sent to holders of Depositary Shares on November 8, 1995 and were furnished to brokers, dealers, banks and similar persons whose name or whose nominees appear on the list of holders of the Depositary Shares or, if applicable, who are listed as participants in a clearing agency's security position listing for subsequent transmittal to beneficial owners of Depositary Shares. Any questions or requests for assistance should be directed to the Information Agent and the Dealer Managers, at the addresses and telephone numbers set forth below. Requests for copies of the Offering Circular/Prospectus or of the Letter of Transmittal or the Notice of Guaranteed Delivery should be directed to D. F. King &Co., Inc., the Information Agent at (800) 628-8509, and copies will be forwarded promptly at PECO Energy's expense. Shareholders may also contact their broker, dealer, commercial bank or trust company for assistance concerning the Offer.The Information Agent for this Offer is: D. F. KING &CO., INC. 77 Water StreetNew York, New York 10005 Banks and Brokers Call: (212) 425-1685 All Others Call Toll Free: (800) 628-8509 The Dealer Managers for the Offer are: MERRILL LYNCH & CO. SMITH BARNEY INC. World Financial Center 388 Greenwich Street North Tower New York, New York 10013 250 Vesey Street Liability Management Group New York, New York 10281 (800) 813-3754 Marketing Support Group Call Collect: (212) 236-4565 November 9, 1995 (SM)"TOPrS" is a service mark of Merrill Lynch & Co., Inc. EX-99.G 8 PRESS RELEASE DATED 7/5/95 1 EXHIBIT G FOR IMMEDIATE RELEASE July 5, 1995 CONTACT: Michael Wood, (215) 841-4125 Carol Rath Gosser, (215) 841-4126 PECO ENERGY COMPANY ANNOUNCES THE FILING OF A REGISTRATION STATEMENT FOR AN OFFER TO EXCHANGE TRUST RECEIPTS ("TOPrS")(SM) PECO Energy Company announced today that it is filing a registration statement for an offer to exchange Trust Receipts ("TOPrS")(SM) each representing a ___% Cumulative Monthly Income Preferred Security, Series B representing a limited partner interest issued by PECO Energy Capital, L.P. for up to 5,400,000 outstanding Depositary Shares each representing a one-fourth interest in a share of $7.96 Cumulative Preferred Stock of PECO Energy Company. Exchanges will be made on the basis of one Trust Receipt for each Depositary Share validly tendered and accepted for exchange in the offer, subject to, among other conditions, at least 2,800,000 Depositary Shares being validly tendered. Any Depositary Shares not accepted for exchange because of proration or otherwise will be returned. PECO Energy Capital, L.P. is a finance subsidiary of PECO Energy which was created solely for the purpose of issuing one or more series of its Preferred Securities constituting limited partner interests. The only assets of PECO Energy Capital are related series of subordinated debentures of PECO Energy issued concurrently with the Preferred Securities. The exchange offer will allow PECO Energy Company to reduce its after-tax financing cost, since interest paid on the Series B Subordinated Debentures is deductible, while dividends paid on the Depositary Shares are not. The dealer manager for the exchange offer is Merrill Lynch & Co. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES WILL BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. TOPrS MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED AND NO EXCHANGE OFFER WILL BE MADE, PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY OR EXCHANGE NOR SHALL THERE BE ANY SALE OF SUCH SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, SALE OR EXCHANGE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAW OF ANY SUCH STATE. THE EXCHANGE OFFER WILL BE MADE ONLY BY MEANS OF A PROSPECTUS. EX-99.H 9 PRESS RELEASE DATED 11/7/95 1 EXHIBIT H PECO Energy Company Media & Public Relations 2301 Market Street PO Box 8699 Philadelphia, PA 19101-8699 215 841 5555 [PECO ENERGY LOGO] NEWS FOR IMMEDIATE RELEASE RELEASE November 7, 1995 CONTACT: Neil McDermott, 215 841 4122 J.B. Mitchell, 215 841 5800 PECO ENERGY COMPANY ANNOUNCES THE EFFECTIVENESS OF A REGISTRATION STATEMENT FOR AN OFFER TO EXCHANGE TRUST RECEIPTS ("TOPrS")(SM) PECO Energy Company announced today that its registration statement for an offer to exchange Trust Receipts ("TOPrS")(SM) each representing a 8.72% Cumulative Monthly Income Preferred Security, Series B representing a limited partner interest issued by PECO Energy Capital, L.P. for up to 5,400,000 outstanding Depositary Shares each representing a one-fourth interest in a share of $7.96 Cumulative Preferred Stock of PECO Energy Company, was declared effective by the Securities and Exchange Commission on November 6, 1995. PECO Energy Company anticipates that it will commence the exchange offer on November 8, 1995. Exchanges will be made on the basis of one Trust Receipt for each Depositary Share validly tendered and accepted for exchange in the offer, subject to, among other conditions, at least 2,800,000 Depositary Shares being validly tendered. Any Depositary Shares not accepted for exchange because of proration or otherwise will be returned. PECO Energy Capital, L.P. is a finance subsidiary of PECO Energy which was created solely for the purpose of issuing one or more series of its Preferred Securities constituting limited partner interests. The only assets of PECO Energy Capital are the related series of subordinated debentures of PECO Energy. The Trust Receipts will be issued by PECO Energy Capital Trust I, a statutory business trust with assets consisting solely of the Preferred Securities. The exchange offer will allow PECO Energy Company to reduce its after-tax financing costs, since interest paid on the Series B Subordinated Debentures is deductible, while dividends paid on the Depositary Shares are not. The dealer managers for the exchange offer are Merrill Lynch & Co. and Smith Barney, Inc. Requests for copies of the Offering Circular/Prospectus should be directed to D.F. King & Co., Inc., the Information Agent, at (800) 628-8509. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND HAS BECOME EFFECTIVE. THIS COMMUNICATION SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY OR EXCHANGE NOR SHALL THERE BE ANY SALE OF SUCH SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, SALE OR EXCHANGE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAW OF ANY SUCH STATE. THE EXCHANGE OFFER WILL BE MADE ONLY BY MEANS OF THE OFFERING CIRCULAR/PROSPECTUS. See reverse side for basic PECO Energy data. EX-99.I 10 LETTER TO HOLDERS OF $7.96 CUMULATIVE PREFERRED 1 EXHIBIT I [PECO ENERGY LETTERHEAD] November 8, 1995 To Holders of Depositary Shares, each representing a one-fourth interest in a share of $7.96 Cumulative Preferred Stock of PECO Energy Company PECO Energy Company ("PECO Energy") is offering to exchange Trust Receipts, each representing an 8.72% Cumulative Monthly Income Preferred Security, Series B, representing a limited partner interest issued by PECO Energy Capital, L.P. ("PECO Energy Capital"), for up to 5,400,000 depositary shares (the "Depositary Shares"), each representing a one-fourth interest in a share of $7.96 Cumulative Preferred Stock of PECO Energy. Depositary Shares not accepted for exchange because of proration or otherwise will be returned. Enclosed with this letter are an Offering Circular/Prospectus and a Letter of Transmittal which explain the exchange offer, including the terms and conditions thereof. If you want to participate in the exchange offer, the instructions for doing so are set forth in detail in the enclosed materials. I encourage you to read these materials carefully before making any decision with respect to the exchange offer and to consult your financial adviser. Neither PECO Energy nor the Board of Directors of PECO Energy makes any recommendation whether or not you should participate in the exchange offer. Sincerely, /s/ J. F. Paquette, Jr. Enclosures EX-99.J 11 QUESTIONS AND ANSWERS PAMPHLET 1 EXHIBIT J EXCHANGE OFFER QUESTIONS & ANSWERS [LOGO] 2 QUESTIONS AND ANSWERS RELATING TO THE EXCHANGE OFFER (THE "OFFER") BY PECO ENERGY COMPANY ("PECO ENERGY") TO EXCHANGE TRUST RECEIPTS EACH REPRESENTING A 8.72% CUMULATIVE MONTHLY INCOME PREFERRED SECURITY, SERIES B OF PECO ENERGY CAPITAL, L.P. FOR UP TO 5,400,000 OUTSTANDING DEPOSITARY SHARES EACH REPRESENTING A ONE-FOURTH INTEREST IN A SHARE OF $7.96 CUMULATIVE PREFERRED STOCK Please note that the following information is part of the Offering Circular/Prospectus dated November 6, 1995 and the Letter of Transmittal which together constitute the Offer. This information should be read only in conjunction with and is subject in all respects to the Offering Circular/Prospectus and the letter of transmittal. Please refer to the Offering Circular/Prospectus for the definitions of the capitalized terms used herein which are not otherwise defined. Q: WHAT ARE THE TERMS OF THE OFFER? A: Upon the terms and subject to the conditions set forth in the Offering Circular/Prospectus and in the Letter of Transmittal, PECO Energy will offer to effect an exchange of one Preferred Trust Receipt for each Depositary Share validly tendered and accepted for exchange. If more than 5,400,000 Depositary Shares (or if decreased, such lesser number) have been validly tendered and not withdrawn prior to the expiration of the offering, PECO Energy will accept for exchange Depositary Shares from each holder on a pro rata basis, subject to adjustment to avoid the acceptance for exchange of fractional shares. See "The Offer -- Terms of the Offer" in the Offering Circular/Prospectus. Q: WHAT ARE PREFERRED TRUST RECEIPTS? A: Each Preferred Trust Receipt corresponds to a Series B Preferred Security. Preferred Trust Receipts pay monthly distributions corresponding to the interest rate and the payment dates for the Series B Subordinated Debentures. See "Description of the Preferred Trust Receipts" in the Offering Circular/Prospectus. 3 Q: WHY ARE PREFERRED TRUST RECEIPTS BEING ISSUED IN EXCHANGE FOR THE DEPOSITARY SHARES INSTEAD OF DIRECTLY ISSUING THE SERIES B PREFERRED SECURITIES TO HOLDERS? A: The Preferred Trust Receipts are being issued in exchange for the Depositary Shares instead of directly issuing the Series B Preferred Securities to holders so that a holder of Preferred Trust Receipts will receive a Form 1099 to report interest income for Federal income tax purposes, rather than a Form K-1 which would have been required if the Series B Preferred Securities were held directly by investors. Q: WHAT IS THE PURPOSE OF THE OFFER? A: The purpose of the Offer is to reduce the after-tax financing costs of PECO Energy through the replacement of Depositary Shares with Preferred Trust Receipts. Although the Distribution rate on the Preferred Trust Receipts will be higher than the dividend rate on the Depositary Shares, PECO Energy will deduct interest payable on the Series B Subordinated Debentures for federal income tax purposes; dividends payable on the Depositary Shares are not deductible by PECO Energy for federal income tax purposes. Q: WILL THE PREFERRED TRUST RECEIPTS BE LISTED? A: The Preferred Trust Receipts have been approved for listing on the New York Stock Exchange ("NYSE") subject to notice of issuance and attainment of the NYSE distribution standards. Trading of the Preferred Trust Receipts on the NYSE is expected to commence within a 30-day period after the initial delivery of the Preferred Trust Receipts. 4 Q: ARE THE REDEMPTION PROVISIONS OF THE PREFERRED TRUST RECEIPTS DIFFERENT FROM THE DEPOSITARY SHARES? A: Yes. While the Depositary Shares have no maturity date, the Preferred Trust Receipts will be redeemed following repayment of the Series B Subordinated Debentures upon their December 19, 2025 final maturity date or earlier redemption. Like the Depositary Shares, the Series B Subordinated Debentures are redeemable at the option of the Company on or after October 1, 1997. See "Comparison of the Preferred Trust Receipts and Depositary Shares" and "Description of the Preferred Trust Receipts" in the Offering Circular/Prospectus. DIVIDEND MATTERS Q: HOW DOES THE DISTRIBUTION RATE ON THE PREFERRED TRUST RECEIPTS COMPARE TO THE DIVIDEND RATE ON THE DEPOSITARY SHARES? A: The rate of Distributions on the Preferred Trust Receipts will be 76 basis points greater than the dividend rate on the Depositary Shares; the annual rate of Distributions on the Preferred Trust Receipts is 8.72% versus 7.96% on the Depositary Shares. Q: WILL DISTRIBUTIONS ON THE PREFERRED TRUST RECEIPTS BE PAID ON THE SAME SCHEDULE AS DIVIDENDS ON THE DEPOSITARY SHARES? A: No, there is a different payment schedule. Distributions on the Preferred Trust Receipts will be payable monthly in arrears on the last day of each calendar month. Dividends on the Depositary Shares are payable quarterly on February 1, May 1, August 1 and November 1 of each year out of funds legally available therefor, when, as and if declared by PECO Energy's Board of Directors. Q: THE NEXT SCHEDULED PAYMENT DATE ON THE DEPOSITARY SHARES IS FEBRUARY 1, 1996; WILL THE HOLDERS THAT PARTICIPATE IN THE OFFER BE ELIGIBLE FOR THAT DIVIDEND? A: No. Dividends accumulated after October 31, 1995 on the Depositary Shares which have been accepted for exchange in the Offer will not be paid. In lieu thereof, holders of the Preferred Trust Receipts will be entitled to an additional distribution at the rate of 7.96% per annum (equal to the dividend rate on the Depositary Shares) from and including November 1, 1995 up to but not includ- 5 ing the Exchange Date, payable at the time of the first Distribution Payment on the Preferred Trust Receipts. Q: EXPLAIN THE 60 MONTH DISTRIBUTION DEFERRAL ON THE PREFERRED TRUST RECEIPTS. A: At the option of PECO Energy, monthly interest payments on the Series B Subordinated Debentures may be deferred for one or more periods of up to 60 consecutive months each. In the case of such deferral, Distributions on the Preferred Trust Receipts will be similarly deferred. The Series B Subordinated Debentures have a maturity date which may not be extended. See "Description of the Preferred Trust Receipts -- Distributions" in the Offering Circular/Prospectus. Quarterly dividend payments on the Depositary Shares are payable only if declared by PECO Energy's Board of Directors, and such dividends may be deferred indefinitely. Deferred Preferred Trust Receipt distributions continue to accrue and, if in arrears for more than one month, compound monthly at a rate equal to 8.72% per annum. However, while dividends on the Depositary Shares accrue if dividends are suspended, there is no such compounding feature. During such a deferral, PECO Energy Capital will continue to accrue interest income (as original issue discount) in respect of the Series B Subordinated Debentures which will be taxable to beneficial owners of the Preferred Trust Receipts. As a result, beneficial owners of the Preferred Trust Receipts during such a deferral will include their pro rata share of the interest in gross income in advance of the receipt of cash. TAX ISSUES Q: WILL THE EXCHANGE OF PREFERRED TRUST RECEIPTS FOR DEPOSITARY SHARES CONSTITUTE A TAXABLE EVENT? A: Yes. The Company recommends that each holder read the section entitled "United States Taxation" in the Offering Circular/Prospectus and consult his/her own tax advisor. Q: WHAT WILL BE THE INITIAL TAX BASIS FOR THE PREFERRED TRUST RECEIPTS? A: An Initial Holder's aggregate tax basis in his/her pro rata share of the Series B Preferred Securities (represented by the Preferred Trust Receipts) will be equal to his/her tax basis for the Depositary Shares surrendered in the Exchange increased by the amount of any gain or reduced by 6 the amount of any loss recognized in the Exchange. Q: HOW WILL DISTRIBUTIONS ON THE PREFERRED TRUST RECEIPTS BE REPORTED TO THE IRS? A: Distributions on the Preferred Trust Receipts will be reported on Form 1099. Q: CORPORATE HOLDERS CAN CLAIM THE 70% DIVIDENDS-RECEIVED DEDUCTION FOR DIVIDENDS ON THE DEPOSITARY SHARES. ARE DISTRIBUTIONS ON THE PREFERRED TRUST RECEIPTS ELIGIBLE FOR THE DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATE HOLDERS? A: No. 7 PROCEDURES FOR EXCHANGING DEPOSITARY SHARES Q: IF DEPOSITARY SHARES ARE REGISTERED IN MY NAME, HOW DO I PARTICIPATE IN THE OFFER? A: You should have received a package from First Chicago Trust Company of New York consisting of this Questions & Answers sheet and: - - Offering Circular/Prospectus dated November 6, 1995, - - Letter of Transmittal form (printed on blue paper) bearing a pre-printed label with your account name and address, - - Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9, - - Notice of Guaranteed Delivery, - - Letter from the Chairman of PECO Energy, and - - Return envelope addressed to First Chicago Trust Company of New York. If, after reviewing these materials carefully, you decide to participate in the Offer, complete the Letter of Transmittal form and send it with your certificate(s) representing Depositary Shares to First Chicago Trust Company of New York as Exchange Agent at either of the addresses shown on the Letter of Transmittal. It is recommended that you use registered or certified mail. Holders of record may also contact their broker to exchange their Depositary Shares on their behalf. If you have your certificate(s) but cannot deliver your certificate(s) to the Exchange Agent before the Expiration Date, then you must arrange for your broker to guarantee delivery of your Depositary Shares. Q: IF MY DEPOSITARY SHARES ARE HELD BY A BROKER OR A BANK FOR MY ACCOUNT, HOW DO I PARTICIPATE IN THE OFFER? A: If your Depositary Shares are held by a broker or bank for your account, you should have received a package from them as a holder of record containing, along with this Questions and Answers sheet, the following: - - Offering Circular/Prospectus dated November 6, 1995, - - Letter of Transmittal for information only, 8 - - Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9, - - Notice of Guaranteed Delivery, - - Letter from the Chairman of PECO Energy, and - - Cover letter or notice from your broker or bank. If you decide to participate in the Offer, you must contact your nominee to tender your Depositary Shares on your behalf. See "The Offer Procedures for Tendering -- Special Procedure for Beneficial Owners" in the Offering Circular/Prospectus. Q: ONCE I HAVE TENDERED MY DEPOSITARY SHARES, OR INSTRUCTED MY BROKER OR BANK TO TENDER THEM ON MY BEHALF, MAY I WITHDRAW THEM FROM THE OFFER? A: Yes, tenders of Depositary Shares may be withdrawn at any time prior to the Expiration Date and, unless accepted for exchange, at any time after 40 Business Days from November 8, 1995. Q: HOW AM I AFFECTED IF I ELECT NOT TO EXCHANGE? A: The terms (issuer, dividend rate, payment dates and redemption features) of the outstanding Depositary Shares are unaffected by the Offer; however, the liquidity and trading market for Depositary Shares which are not exchanged could be adversely affected by the reduction in the number of publicly traded Depositary Shares resulting from the Offer. Furthermore, payments of interest and principal on the Series B Subordinated Debentures which will fund distributions on the Series B Preferred Securities, represented by the Preferred Trust Receipts, will rank senior in right of payment to the Depositary Shares which are not exchanged. Q: WHEN DOES THE OFFER EXPIRE? A: At 12:00 Midnight, New York City time on December 13, 1995 unless extended by PECO Energy in its sole discretion or as required by law. PECO Energy may also amend or terminate the Offer as described in the Offering Circular/Prospectus. For additional details, or if you have any questions, Please call the Information Agent, D.F. King & Co., Inc. 1-800-628-8509 EX-99.K 12 FORM OF DEALER MANAGER'S LETTER TO NON-CONTACTS 1 EXHIBIT K To: Holders of Depositary Shares Each Representing a One-Fourth Interest in the 7.96% Cumulative Preferred Stock of PECO Energy Company From: At: Merrill Lynch & Co. Date: , 1995 [MERRILL LYNCH LOGO] - -------------------------------------------------------------------------------- Subject: PECO ENERGY COMPANY TOPrS EXCHANGE OFFER PECO Energy Company offers to exchange Preferred Trust Receipts ("TOPrS(SM)") each representing a 8.72% Cumulative Monthly Income Preferred Security, Series B of PECO Energy Capital, L.P. for up to 5,400,000 outstanding Depositary Shares each representing a one-fourth interest in a share of $7.96 Cumulative Preferred Stock of PECO Energy Company. Upon the terms and subject to the conditions set forth in the Offering Circular/Prospectus and in the Letter of Transmittal, PECO Energy will offer to effect an exchange of one Preferred Trust Receipt for each Depositary Share validly tendered and accepted for exchange. The rate of Distributions on the Preferred Trust Receipts will be 76 basis points greater than the dividend rate on the Depositary Shares; the annual rate of Distributions on the Preferred Trust Receipts is 8.72% versus 7.96% on the Cumulative Preferred Stock. This Exchange Offer will expire at 12:00 Midnight, New York City time on December 13, 1995 unless extended by PECO Energy in its sole discretion or as required by law. In order to ensure that your shares are tendered timely, Merrill Lynch will be available to answer any questions you may have on the mechanics of tendering your shares. Tendered Shares may be withdrawn at any time before the expiration date of the Offer. You should have received detailed information regarding this Offer under separate cover. Merrill Lynch, as co-Dealer Manager for this Offer, is readily prepared to assist you in this matter should assistance be desired. If you would like additional information pertaining to this Offer, please call the following number: _________________. Sincerely, - ---------------------- Financial Consultant EX-99.L 13 INDENTURE DATED 7/1/94 1 EXHIBIT L PECO ENERGY COMPANY AND MERIDIAN TRUST COMPANY, AS TRUSTEE INDENTURE DATED AS OF JULY 1, 1994 PROVIDING FOR THE ISSUANCE OF DEFERRABLE INTEREST SUBORDINATED DEBENTURES IN SERIES AND FOR 9% DEFERRABLE INTEREST SUBORDINATED DEBENTURES, SERIES A 2 TABLE OF CONTENTS
Page ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 SECTION 1.02 Other Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 SECTION 1.03 Incorporation by Reference of Trust Indenture Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 SECTION 1.04 Rules of Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 SECTION 1.05. Acts of Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 ARTICLE 2 THE DEBENTURES; THE SERIES A DEBENTURES SECTION 2.01 Issue of Debentures Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 SECTION 2.02 Form of the Series A Debentures; Denominations. . . . . . . . . . . . . . . . . . . . . . . . 11 SECTION 2.03 Payment of Principal and Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 SECTION 2.04 Execution and Authentication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 2.05 Registrar and Paying Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 2.06 Paying Agent to Hold Money in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 SECTION 2.07 Debentureholder Lists. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 SECTION 2.08 Transfer and Exchange. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 SECTION 2.09 Replacement Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 SECTION 2.10 Outstanding Debentures; Determinations of Holders' Action . . . . . . . . . . . . . . . . . . 16 SECTION 2.11 Temporary Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 SECTION 2.12 Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 SECTION 2.13 Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 ARTICLE 3 REDEMPTION SECTION 3.01 Redemption; Notice to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 SECTION 3.02 Selection of Debentures to be Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 SECTION 3.03 Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 SECTION 3.04 Effect of Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 SECTION 3.05 Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 SECTION 3.06 Debentures Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 ARTICLE 4 COVENANTS SECTION 4.01 Payment of Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 SECTION 4.02 Prohibition Against Dividends, etc. During an Event of Default or an Extension Period . . . . . . . . . . . . . . . . . . 21 SECTION 4.03 SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 SECTION 4.04 Compliance Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 4.05 Relationship with PECO Energy Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 4.06 Further Instruments and Acts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 4.07 Payments for Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 ARTICLE 5 SUCCESSOR CORPORATION SECTION 5.01 When the Company May Merge, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
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Page ARTICLE 6 DEFAULTS AND REMEDIES SECTION 6.01 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 6.02 Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 SECTION 6.03 Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 SECTION 6.04 Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 SECTION 6.05 Control by Majority or the Special Representative . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 6.06 Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 6.07 Rights of Holders to Receive Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 6.08 Collection Suit by the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 SECTION 6.09 The Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 SECTION 6.10 Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 SECTION 6.11 Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 SECTION 6.12 Waiver of Stay, Extension or Usury Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 ARTICLE 7 THE TRUSTEE SECTION 7.01 Duties of the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 SECTION 7.02 Rights of the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 SECTION 7.03 Individual Rights of the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 7.04 The Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 7.05 Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 7.06 Reports by Trustee to Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 7.07 Compensation and Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 7.08 Replacement of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 SECTION 7.09 Successor Trustee by Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 SECTION 7.10 Eligibility; Disqualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 SECTION 7.11 Preferential Collection of Claims Against the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 ARTICLE 8 SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE OF CERTAIN OBLIGATIONS; UNCLAIMED MONEYS SECTION 8.01 Satisfaction and Discharge of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 SECTION 8.02 Application by Trustee of Funds Deposited for Payment of Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 SECTION 8.03 Repayment of Moneys Held by Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . 37 SECTION 8.04 Return of Moneys Held by the Trustee and Paying Agent Unclaimed for Three Years . . . . . . . 37 ARTICLE 9 AMENDMENTS SECTION 9.01 Without Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 SECTION 9.02 With Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 SECTION 9.03 Compliance with Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 SECTION 9.04 Revocation and Effect Of Consents, Waivers and Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 SECTION 9.05 Notation on or Exchange of Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 SECTION 9.06 Trustee to Sign Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 SECTION 9.07 Effect of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 ARTICLE 10 SUBORDINATION SECTION 10.01 Debentures Subordinated to Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . 40
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Page SECTION 10.02 Priority and Payment of Proceeds in Certain Events; Remedies Standstill . . . . . . . . . . . . . . . . . . . . . . . . . 41 SECTION 10.03 Payments which May Be Made Prior to Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 SECTION 10.04 Rights of Holders of Senior Indebtedness Not to Be Impaired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 SECTION 10.05 Trustee May Take Action to Effectuate Subordination . . . . . . . . . . . . . . . . . . . . . 43 SECTION 10.06 Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 SECTION 10.07 Obligations of Company Unconditional; Reinstatement . . . . . . . . . . . . . . . . . . . . . 44 SECTION 10.08 Trustee Entitled to Assume Payments Not Prohibited in Absence of Notice . . . . . . . . . . . 44 SECTION 10.09 Right of Trustee to Hold Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 ARTICLE 11 MISCELLANEOUS SECTION 11.01 Trust Indenture Act Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 SECTION 11.02 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 SECTION 11.03 Communication by Holders with Other Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 SECTION 11.04 Certificate and Opinion as to Conditions Precedent . . . . . . . . . . . . . . . . . . . . . 47 SECTION 11.05 Statements Required in Certificate or Opinion . . . . . . . . . . . . . . . . . . . . . . . . 47 SECTION 11.06 Severability Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 SECTION 11.07 Rules by Trustee, Paying Agent and Registrar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 SECTION 11.08 Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 SECTION 11.09 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 SECTION 11.10 No Recourse Against Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 SECTION 11.11 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 SECTION 11.12 Multiple Original Copies of this Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 SECTION 11.13 No Adverse Interpretation of Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . 49 SECTION 11.14 Table of Contents; Headings, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 SECTION 11.15 Benefits of the Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
iii 5 CROSS-REFERENCE TABLE of Provisions of the Indenture Required by the Trust Indenture Act of 1939
TRUST INDENTURE PROVISION OF ACT SECTION INDENTURE - -------------- ------------ Section 310 (a)(1) 7.10 (a)(2) 7.10 (a)(3) Not Applicable (a)(4) Not Applicable (a)(5) Not Applicable (b) 7.08; 7.10; 11.01 (c) Not Applicable Section 311 (a) 7.11 (b) 7.11 (c) Not Applicable Section 312 (a) 2.07 (b) 11.03 (c) 11.03 Section 313 (a) 7.06 (b)(1) Not Applicable (b)(2) 7.06 (c) 7.06; 11.02 (d) 7.06 Section 314 (a) 4.03; 11.02 (b) Not Applicable (c)(1) 2.02; 11.04 (c)(2) 2.02; 11.04 (c)(3) Not Applicable (d) Not Applicable (e) 11.05 (f) Not Applicable Section 315 (a) 7.01(2) (b) 7.05; 11.02 (c) 7.01(1) (d) 7.01(3) (e) 6.11 Section 316 (a)(1)(A) 6.05 (a)(1)(B) 6.04 (a)(2) Not Applicable (a)(last sentence) 2.10 (b) 6.07 Section 317 (a)(1) 6.08 (a)(2) 6.09 (b) 2.06 Section 318 (a) 11.01 - -------------------
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be part of the Indenture. iv 6 INDENTURE, dated as of July 1, 1994, by and between PECO Energy Company, a Pennsylvania corporation (the "Company"), and Meridian Trust Company, a Pennsylvania trust company, as trustee (the "Trustee). WHEREAS, the Company has formed a wholly owned subsidiary, PECO Energy Capital Corp., which is the general partner of PECO Energy Capital, L.P., a Delaware limited partnership, which intends to issue in series from time to time its limited partner interests and to loan the proceeds thereof, together with the investment by PECO Energy Capital Corp. in PECO Energy Capital, L.P., to the Company. WHEREAS, in order to evidence its intention to make such loans and to accept the Debentures as evidence of such loans, and its approval of the terms of the Series A Debentures (as hereinafter defined), PECO Energy Capital, L.P. has joined in this Indenture. WHEREAS, the Company has authorized the issuance of the Series A Debentures to evidence its obligations with respect to a loan from PECO Energy Capital, L.P. of the proceeds of a series of its preferred limited partner interests designated 9% Cumulative Monthly Income Preferred Securities, Series A and the related investment by PECO Energy Capital Corp. in PECO Energy Capital, L.P., and to provide therefor, the Company has duly authorized the execution and delivery of this Indenture. WHEREAS, all things necessary to make the Series A Debentures when duly issued and executed by the Company and authenticated and delivered hereunder, the valid obligations of the Company, and to make this Indenture a valid and binding agreement of the Company, in accordance with its terms, have been done. NOW THEREFORE: Each of the Company and the Trustee, intending to be legally bound hereby, agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the securities issued hereunder, including the Company's 9% Deferrable Interest Subordinated Debentures, Series A (the "Series A Debentures"): 7 ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01 DEFINITIONS. "Additional Interest", with respect to the Series A Debentures, means an amount equal to and payable at the same time as, any Additional Amounts payable on the Series A Preferred Securities as defined in the action pursuant to the Limited Partnership Agreement creating the Series A Preferred Securities plus amounts, if any, which PECO Energy Capital would be required to pay as taxes, duties, assessments or governmental charges of whatever nature (other than withholding taxes) imposed by the United States, or any other taxing authority, with respect to the Series A Debentures. With respect to any other series of Debentures, "Additional Amounts" shall have the meaning set forth in the supplemental indenture creating such series. "Affiliate" of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. When used with respect to any Person, "control" means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Board of Directors" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board. "Business Day" means any day that is not a Saturday, a Sunday or a day on which banking institutions in The City of New York or Delaware are authorized or required to close. "Capital Lease Obligations" of a Person means any obligation which is required to be classified and accounted for as a capital lease on the face of a balance sheet of such Person prepared in accordance with GAAP. "Capital Stock" means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) corporate stock, including any Preferred Stock. "Debentureholder" or "Holder" means a Person in whose name a Debenture is registered on the Registrar's books. "Debentures" shall mean any of the securities of any series issued, authenticated and delivered under this Indenture. 2 8 "Default" means any event which is, or after notice or passage of time, or both, would be, an Event of Default pursuant to Section 6.01 hereof. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Extension Period" means a period, up to 60 consecutive months, in which the Company elects to extend the interest payment period on the Debentures pursuant to Section 4.01(b) hereof; provided that no Extension Period shall extend beyond the Stated Maturity date or Redemption Date of any series of Subordinated Debentures. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board. "General Partner" means PECO Energy Capital Corp., a Delaware corporation and a wholly owned subsidiary of PECO Energy Company, as the general partner of PECO Energy Capital, L.P., a Delaware limited partnership, or any successor thereto that becomes a general partner of PECO Energy Capital pursuant to the Limited Partnership Agreement. "Guarantee Agreement" means that certain payment and guarantee agreement issued by PECO Energy Company with respect to a series of Securities, to irrevocably and nonconditionally agree to pay such Guarantee Payments (as defined in the Guarantee Agreement) to the holders of the series of Preferred Securities issued concurrently therewith. "Holder" or "Debentureholder" means any Person in whose name a Debenture is registered on the Registrar's books. "Indebtedness" means without duplication, (i) the principal of and premium (if any) in respect of (A) indebtedness of the Company for money borrowed and (B) indebtedness evidenced by securities, debentures, bonds or other similar instruments issued by the Company; (ii) all Capital Lease Obligations of the Company; (iii) all obligations of the Company issued or assumed as the deferred purchase price of property, all conditional sale obligations of the Company and all obligations of the Company under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business); (iv) all obligations of the Company for the reimbursement of any obligor on any letter of credit, banker's acceptance, security purchase facility or similar credit transaction (other than obligations 3 9 with respect to letters of credit securing obligations (other than obligations described in (i) through (iii) above) entered into in the ordinary course of business of the Company to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the third Business Day following receipt by the Company of a demand for reimbursement following payment on the letter of credit); (v) all obligations of the type referred to in clauses (i) through (iv) of other Persons and all dividends of other Persons (other than the Preferred Securities) for the payment of which, in either case, the Company is responsible or liable as obligor, guarantor or otherwise; and (vi) all obligations of the type referred to in clauses (i) through (v) of other Persons secured by any lien on any property or asset of the Company (whether or not such obligation is assumed by the Company), the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured; provided, however, that Indebtedness will not include endorsements of negotiable instruments for collection in the ordinary course of business. "Indenture" means this indenture, as amended or supplemented from time to time in accordance with the terms hereof, including the provisions of the TIA that are deemed to be a part hereof. "Issue Date", with respect to a series of Debentures, means the date on which the Debentures of such series are originally issued. "Limited Partnership Agreement" means the Amended and Restated Limited Partnership Agreement of PECO Energy Capital, L.P. dated July 25, 1994, as it may be amended from time to time. "Officer" means, with respect to any corporation, the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Treasurer, Assistant Treasurer or the Secretary of such corporation. "Officer's Certificate" means a written certificate containing the applicable information specified in Sections 11.04 and 11.05 hereof, signed in the name of the Company by any one of its Officers, and delivered to the Trustee. "Opinion of Counsel" means a written opinion containing the applicable information specified in Sections 11.04 and 11.05 hereof, by legal counsel who is reasonably acceptable to the Trustee. "PECO Energy Capital" means PECO Energy Capital, L.P., a Delaware limited partnership. 4 10 "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Preferred Securities" means the limited partner interests issued from time to time in series by PECO Energy Capital. "Record date", with respect to any series of the Debentures, means the date set to determine the holders of such series entitled to payment of interest or principal or to vote, consent, make a request or exercise any other right associated with such series. "Redemption Date" or "redemption date", with respect to any Debenture to be redeemed, means the date specified for the redemption of such Debenture in accordance with the terms thereof and Article 3 of this Indenture. "Redemption Price" or "redemption price", with respect to any Debenture to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture and such Debenture. "Regular record date", with respect to an interest payment on the Debentures of a series, means the date set forth in paragraph 2 of the Debentures of such series for the determination of Holders entitled to receive payment of interest on the next succeeding interest payment date. "SEC" or "Commission" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Senior Indebtedness" means all Indebtedness, except for Indebtedness that is by its terms subordinated to or pari passu with the Debentures. Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness shall not include any Indebtedness between or among the Company and any Affiliates. "Series A Debentures" means any of the Company's 9% Deferrable Interest Subordinated Debentures, Series A issued under this Indenture. "Special Representative" means a special representative appointed by the holders of the Preferred Securities pursuant to Section 13.02(d) of the Limited Partnership Agreement. 5 11 "Stated Maturity", with respect to any Debenture, means, the date specified for the Debentures as the fixed date on which the principal of the Debentures is due and payable. "Subsidiary" means any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by (i) the Company, (ii) the Company and one or more Subsidiaries, or (iii) one or more Subsidiaries. "TIA" means the Trust Indenture Act of 1939, as amended and as in effect on the date of this Indenture; provided, however, that if the TIA is amended after such date, TIA means, to the extent required by any such amendment, the TIA as so amended. "Trust Officer", when used with respect to the Trustee, means the chairman or vice-chairman of the Board of Directors, the chairman or vice-chairman of the executive committee of the Board of Directors, the President, any vice president, any assistant vice president, the secretary, any assistant secretary, the treasurer, any assistant treasurer, the cashier, any assistant cashier, any account officer or assistant account officer, the controller and any assistant controller or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Trustee" means the party named as the "Trustee" in the first paragraph of this Indenture until a successor replaces it pursuant to the applicable provisions of this Indenture and, thereafter, shall mean such successor. "U.S. Government Obligations" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable at the issuer's option. "Voting Stock" means, with respect to a corporation, all classes of Capital Stock then outstanding of such corporation normally entitled to vote in elections of directors. 6 12 "Wholly Owned Subsidiary" means a Subsidiary all the Capital Stock of which (other than directors' qualifying shares) is owned by the Company or another Wholly Owned Subsidiary. SECTION 1.02 OTHER DEFINITIONS.
TERM DEFINED IN SECTION ---- ------------------ "Act" . . . . . . . . . . . . . . . . . . 1.05 "Bankruptcy Law" . . . . . . . . . . . . 6.01 "Custodian" . . . . . . . . . . . . . . . 6.01 "Event of Default". . . . . . . . . . . . 6.01 "Legal Holiday" . . . . . . . . . . . . . 11.08 "Notice of Default" . . . . . . . . . . . 6.01 "Paying Agent" . . . . . . . . . . . . . 2.05 "Register" . . . . . . . . . . . . . . . 2.05 "Registrar" . . . . . . . . . . . . . . . 2.05 "Successor" . . . . . . . . . . . . . . . 5.01
SECTION 1.03 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. Whenever this Indenture refers to a provision of the TIA, such provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "Commission" means the SEC. "indenture securities" means the Debentures. "indenture security holder" means a Debentureholder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means the Company and any other obligor on the Debentures. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions. 7 13 SECTION 1.04 RULES OF CONSTRUCTION. Unless the context otherwise requires: (1) A term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) "including" means including, without limitation; (5) words in the singular include the plural, and words in the plural include the singular; and (6) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. SECTION 1.05. ACTS OF HOLDERS. (1) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders, may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (2) The fact and date of the execution by any Person of any such instrument or writing may be proved in any manner which the Trustee deems sufficient. (3) The ownership of Debentures shall be proved by the Register. (4) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Debenture shall bind every future Holder of the same Debenture 8 14 and the holder of every Debenture issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Debenture. (5) If the Company solicits from the Holders any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company may, at its option, by or pursuant to a resolution of its Board of Directors, fix in advance a record date for the determination of Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but the Company shall have no obligation to do so. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only Holders of record at the close of business on such record date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of outstanding Debentures have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose the outstanding Debentures shall be computed as of such record date. ARTICLE 2 THE DEBENTURES; THE SERIES A DEBENTURES SECTION 2.01 ISSUE OF DEBENTURES GENERALLY. The aggregate principal amount of the Debentures which may be authenticated and delivered under this Indenture is limited to the sum of the aggregate liquidation preference of the Preferred Securities and the aggregate capital contribution of the General Partner to PECO Energy Capital. The Debentures may be issued in one or more series as from time to time shall be authorized by the Board of Directors. The Debentures of each series and the Trustee's Certificate of Authentication shall be substantially in the forms to be attached as exhibits to the Indenture or supplemental indenture providing for their issuance, but in the case of Debentures other than Series A Debentures, with such inclusions, omissions and variations as are such letters, numbers or other marks of identification or designation and such legends or endorsements printed, lithographed or engraved thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Indenture, or as may be required to comply with any law or with any rule or regulation made pursuant thereto 9 15 or with any rule or regulation of any securities exchange on which the Debentures may be listed, or to conform to usage. Each Debenture shall be dated the date of its authentication. The several series of Debentures may differ from the Series A Debentures, and as and between series, in respect of any or all of the following matters: (a) designation; (b) date or dates of maturity, which may be serial; (c) interest rate or method of determination of the interest rate and whether Additional Interest will be payable; (d) interest payment dates and the regular record dates therefor; (e) Issue Date; (f) authorized denominations; (g) the place or places for the payment of principal (and premium, if any) and for the payment of interest; (h) limitation upon the aggregate principal amount of Debentures of the series which may be issued; (i) the optional and mandatory redemption provisions, if any; (j) provisions, if any, for any sinking or analogous fund with respect to the Debentures of such series; and (k) any other provisions expressing or referring to the terms and conditions upon which the Debentures of such series are to be issued under this Indenture which are not in conflict with the provisions of this Indenture; in each case as determined and specified by the Board of Directors. The Trustee shall not authenticate and deliver Debentures of any series (other than the Series A Debentures) upon initial issue unless the terms and conditions of such series shall have been set forth in a supplemental indenture entered into between the Company and the Trustee as provided in Section 9.01. 10 16 SECTION 2.02 FORM OF THE SERIES A DEBENTURES; DENOMINATIONS. The Series A Debentures and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A attached hereto. The terms and provisions contained in the Series A Debentures, a form of which is annexed hereto as Exhibit A, shall constitute, and are hereby expressly made, a part of this Indenture. The Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. The Trustee shall authenticate and make available for delivery Series A Debentures for original issue in the aggregate principal amount of $206,185,567 (plus up to an additional $30,927,835 if the Underwriters for the offering of the Series A Preferred Securities exercise their over-allotment option to purchase additional Series A Preferred Securities) to evidence the Company's obligation with respect to the loan from PECO Energy Capital, upon a Board of Directors resolution and a written order of the Company signed by two Officers of the Company, but without any further action by the Company. Such order shall specify the amount of the Series A Debentures to be authenticated and the date on which the original issue of Debentures is to be authenticated and delivered. The aggregate principal amount of Series A Debentures outstanding at any time may not exceed $237,113,402 except as provided in Section 2.09 hereof. The Series A Debentures shall be issuable only in registered form without coupons and only in denominations of $25.00 and any integral multiple thereof. SECTION 2.03 PAYMENT OF PRINCIPAL AND INTEREST. The principal of and interest on the Debentures of any series, as well as any premium thereon in the case of redemption thereof prior to maturity, shall be payable in the coin or currency of the United States of America which at the time is legal tender for public and private debts at the office of the Paying Agent. Each Debenture shall be dated its Issue Date. Interest on the Debentures shall be computed on the basis of a 360-day year composed of twelve 30-day months, and for any period shorter than a full monthly distribution period, distributions will be computed on the basis of the actual number of days elapsed in such period. The interest on any Debenture which is payable and is punctually paid or duly provided for, on any interest payment date for Debentures of that series shall be paid to the person in whose name the Debenture is registered at the close of business 11 17 on the regular record date therefor. In the event that any Debenture of a particular series or portion thereof is called for redemption, and the redemption date is subsequent to the regular record date with respect to any interest payment date and prior to such interest payment date, interest on such Debenture will be paid upon presentation and surrender of such Debenture to the Paying Agent. SECTION 2.04 EXECUTION AND AUTHENTICATION. The Debentures shall be executed on behalf of the Company by its Chief Executive Officer, its President or one of its Vice Presidents, under its corporate seal imprinted or reproduced thereon attested by its Secretary or one of its Assistant Secretaries. The signature of any such Officer on the Debentures may be manual or facsimile. Debentures bearing the manual or facsimile signatures of individuals who were at any time the proper Officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Debentures or did not hold such offices at the date of such Debentures. No Debenture shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Debenture a certificate of authentication duly executed by the Trustee by manual signature of an authorized officer, and such certificate upon any Debenture shall be conclusive evidence, and the only evidence, that such Debenture has been duly authenticated and made available for delivery hereunder. The Trustee shall act as the initial authenticating agent. Thereafter, the Trustee may appoint an authenticating agent. An authenticating agent may authenticate Debentures whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as a Paying Agent to deal with the Company or an Affiliate of the Company. SECTION 2.05 REGISTRAR AND PAYING AGENT. The Company shall maintain or cause to be maintained, within or outside the Commonwealth of Pennsylvania, an office or agency where the Debentures may be presented for registration of transfer or for exchange ("Registrar"), an office or agency where Debentures may be presented or surrendered for purchase or payment ("Paying Agent"), and an office or agency where notices 12 18 and demands to or upon the Company in respect of the Debentures and this Indenture may be served. The Registrar shall keep a register (the "Register") of the Debentures and of their transfer and exchange. The Company may have one or more co-Registrars and one or more additional Paying Agents. The term Paying Agent includes any additional paying agent. The corporate trust office of the Trustee at Reading, Pennsylvania, Attention: Corporate Trust Department, shall initially be the Registrar and agent for service of notice or demands on the Company, and Delaware Trust Company, Wilmington, Delaware, shall initially be the Paying Agent. The Company shall enter into an appropriate agency agreement with any Registrar, Paying Agent or co-Registrar (if not the Company or the Trustee or an affiliate of the Trustee). The agreement shall implement the provisions of this Indenture that relate to such agent. The Company shall give prompt written notice to the Trustee of any change of location of such office or agency. If at any time the Company shall fail to maintain or cause to be maintained any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 11.02 hereof. The Company shall notify the Trustee of the name and address of any such agent. If the Company fails to maintain a Registrar, Paying Agent or agent for service of notices or demands, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 7.07 hereof. The Company or any Affiliate of the Company may act as Paying Agent, Registrar or co-Registrar or agent for service of notices and demands. The Company may also from time to time designate one or more other offices or agencies where the Debentures may be presented or surrendered for any or all such purposes and may from time to time rescind such designations. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in location of any such other office or agency. SECTION 2.06 PAYING AGENT TO HOLD MONEY IN TRUST. Except as otherwise provided herein, prior to each due date of the principal and interest on any Debenture, the Company shall deposit with the Paying Agent a sum of money sufficient to pay such principal, premium (if any) and interest so becoming due. The Company shall require each Paying Agent (other than the Trustee or the Company) to agree in writing that such Paying Agent shall hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal and interest on the Debentures and shall notify the 13 19 Trustee of any default by the Company in making any such payment. At any time during the continuance of any such default, the Paying Agent shall, upon the request of the Trustee, forthwith pay to the Trustee all money so held in trust and account for any money disbursed by it. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and to account for any money disbursed by it. Upon doing so, the Paying Agent shall have no further liability for the money so paid over to the Trustee. If the Company, a Subsidiary or an Affiliate of either of them acts as Paying Agent, it shall segregate the money held by it as Paying Agent and hold it as a separate trust fund. SECTION 2.07 DEBENTUREHOLDER LISTS. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Debentureholders. If the Trustee is not the Registrar, the Company shall cause to be furnished to the Trustee on or before the record date for each interest payment date and at such other times as the Trustee may request in writing, within five Business Days of such request, a list, in such form as the Trustee may reasonably require of the names and addresses of Debentureholders, provided that during any deferral period, such information will be provided every six months or upon request of the Trustee. SECTION 2.08 TRANSFER AND EXCHANGE. When Debentures are presented to the Registrar or a co-Registrar with a request to register the transfer or to exchange them for an equal principal amount of Debentures of the same series of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if its requirements for such transactions are met. To permit registrations of transfer and exchanges, the Company shall execute and the Trustee shall authenticate Debentures, all at the Registrar's request. Every Debenture presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar duly executed by the Holder or his attorney duly authorized in writing. The Company shall not charge a service charge for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges that may be imposed in connection with 14 20 the transfer or exchange of the Debentures from the Debentureholder requesting such transfer or exchange (other than any exchange of a temporary Debenture for a definitive Debenture not involving any change in ownership). The Company shall not be required to make, and the Registrar need not register, transfers or exchanges of (a) any Debenture for a period beginning at the opening of business 15 days before the mailing of a notice of redemption of Debentures and ending at the close of business on the day of such mailing or (b) any Debenture selected, called or being called for redemption, except, in the case of any Debenture to be redeemed in part, the portion thereof not to be redeemed. SECTION 2.09 REPLACEMENT DEBENTURES. If (a) any mutilated Debenture is surrendered to the Company or the Trustee, or (b) the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Debenture, and there is delivered to the Company and the Trustee such Debenture or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Debenture has been acquired by a bona fide purchaser, the Company shall execute in exchange for any such mutilated Debenture or in lieu of any such destroyed, lost or stolen Debenture, a new Debenture of like tenor and principal amount, bearing a number not contemporaneously outstanding, and the Trustee shall authenticate and make such new Debenture available for delivery. In case any such mutilated, destroyed, lost or stolen Debenture has become or is about to become due and payable, or is about to be redeemed by the Company pursuant to Article 3 hereof, the Company in its discretion may, instead of issuing a new Debenture, pay or purchase such Debenture, as the case may be. Upon the issuance of any new Debentures under this Section 2.09, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) in connection therewith. Every new Debenture issued pursuant to this Section 2.09 in lieu of any mutilated, destroyed, lost or stolen Debenture shall constitute an original additional contractual obligation of the Company whether or not the mutilated, destroyed, lost or stolen Debenture shall be at any time enforceable by anyone, and shall be entitled to all benefits of this Indenture equally and ratably with any and all other Debentures duly issued hereunder. 15 21 The provisions of this Section 2.09 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Debentures. SECTION 2.10 OUTSTANDING DEBENTURES; DETERMINATIONS OF HOLDERS' ACTION. Debentures outstanding at any time are all the Debentures authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those mutilated, destroyed, lost or stolen Debentures referred to in Section 2.09 hereof, those redeemed by the Company pursuant to Article 3 hereof, and those described in this Section 2.10 as not outstanding. A Debenture does not cease to be outstanding because the Company or a Subsidiary or Affiliate thereof holds the Debenture; provided, however, that in determining whether the Holders of the requisite principal amount of Debentures have given or concurred in any request, demand, authorization, direction, notice, consent or waiver hereunder, Debentures owned by the Company shall be disregarded and deemed not to be outstanding. Subject to the foregoing, only Debentures outstanding at the time of such determination shall be considered in any such determination (including determinations pursuant to Articles 3, 6 and 9). If a Debenture is replaced pursuant to Section 2.09, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Debenture is held by a bona fide purchaser. If the Paying Agent (other than the Company) holds, in accordance with this Indenture, at maturity or on a Redemption Date, money sufficient to pay the Debentures payable on that date, then immediately on the date of maturity or such Redemption Date, as the case may be, such Debentures shall cease to be outstanding, and interest, if any, on such Debentures shall cease to accrue. SECTION 2.11 TEMPORARY DEBENTURES. So long as PECO Energy Capital shall hold all of the Debentures, the Company may execute temporary Debentures, and upon the Company's written request, signed by two Officers of the Company, the Trustee shall authenticate and make such temporary Debentures available for delivery. Temporary Debentures shall be printed, lithographed, typewritten, mimeographed or otherwise 16 22 produced, in any authorized denomination, substantially of the tenor of the definitive Debentures in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the Officers of the Company executing such Debentures may determine, as conclusively evidenced by their execution of such Debentures. After the preparation of definitive Debentures, the temporary Debentures shall be exchangeable for definitive Debentures of the same series upon surrender of the temporary Debentures at the office or agency of the Company designated for such purpose pursuant to Section 2.05 hereof, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Debentures, the Company shall execute a like principal amount of definitive Debentures of authorized denominations, and the Trustee, upon written request of the Company signed by two Officers of the Company, shall authenticate and make such Debentures available for delivery in exchange therefor. Until so exchanged, the temporary Debentures shall in all respects be entitled to the same benefits under this Indenture as definitive Debentures. SECTION 2.12 CANCELLATION. All Debentures surrendered for payment, redemption by the Company pursuant to Article 3 hereof or registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly canceled by the Trustee. The Company may at any time deliver to the Trustee for cancellation any Debentures previously authenticated and made available for delivery hereunder which the Company may have acquired in any manner whatsoever, and all Debentures so delivered shall be promptly canceled by the Trustee. The Company may not reissue, or issue new Debentures to replace Debentures it has paid or delivered to the Trustee for cancellation. No Debentures shall be authenticated in lieu of or in exchange for any Debentures canceled as provided in this Section 2.12, except as expressly permitted by this Indenture. All canceled Debentures held by the Trustee shall be destroyed by the Trustee, and the Trustee shall deliver a certificate of destruction to the Company. SECTION 2.13 DEFAULTED INTEREST. If the Company defaults in a payment of interest on the Debentures, it shall pay the defaulted interest, plus (to the extent lawful) any interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, and such special record date, as used in this Section 2.13 with 17 23 respect to the payment of any defaulted interest, shall mean the 15th day next preceding the date fixed by the Company for the payment of defaulted interest, whether or not such day is a Business Day. At least 10 days before the subsequent special record date, the Company shall mail to each Holder and to the Trustee a notice that states the subsequent special record date, the payment date and the amount of defaulted interest to be paid. The Company may also pay defaulted interest in any other lawful manner. ARTICLE 3 REDEMPTION SECTION 3.01 REDEMPTION; NOTICE TO TRUSTEE. (a) The Series A Debentures are subject to redemption prior to maturity as provided in the form thereof. (b) The redemption terms for any additional series of Debentures shall be as specified in the supplemental indenture creating such series of Debentures; provided that each series of Debentures shall be subject to mandatory redemption upon the dissolution of PECO Energy Capital. (c) If any or all of the Debentures are to be redeemed pursuant to paragraphs (a) or (b) above, the Company shall give notice by first class mail, postage prepaid, to the Trustee within 45 days prior to the date of such redemption. Any such notice of redemption shall state the date and price of redemption. SECTION 3.02 SELECTION OF DEBENTURES TO BE REDEEMED. If less than all the outstanding Debentures are to be redeemed at any time, the Trustee shall select the Debentures to be redeemed on a pro rata basis, by lot or any other method the Trustee considers fair and appropriate. The Trustee shall make the selection at least 30 but not more than 60 days before the Redemption Date from outstanding Debentures not previously called for redemption. Provisions of this Indenture that apply to Debentures called for redemption also apply to portions of Debentures called for redemption. The Trustee shall notify the Company promptly of the Debentures or portions of Debentures to be redeemed. 18 24 SECTION 3.03 NOTICE OF REDEMPTION. So long as PECO Energy Capital remains the sole Holder of the Debentures, no notice of any redemption of Debentures will be required. In the event and at such time that PECO Energy Capital ceases to be the sole Holder of the Debentures, at least 30 days but not more than 60 days before a Redemption Date, the Trustee shall mail or cause to be mailed a notice of redemption by first-class mail, postage prepaid, to each Holder of Debentures to be redeemed at the Holder's last address, as it appears on the Register. At the Company's written request, the Trustee shall give the notice of redemption in the Company's name and at its expense. The notice shall identify the Debentures to be redeemed, the provision of the Debentures or this Indenture pursuant to which the Debentures called for redemption are being redeemed and shall state: (1) the Redemption Date; (2) the Redemption Price; (3) the name and address of the Paying Agent; (4) that Debentures called for redemption must be surrendered to the Paying Agent to collect the Redemption Price; (5) if fewer than all the outstanding Debentures are to be redeemed, the identification and principal amounts of the particular Debentures to be redeemed and that, on and after the Redemption Date, upon surrender of such Debentures, a new Debenture or Debentures in principal amount equal to the unredeemed portion thereof will be issued; and (6) that, unless the Company defaults in making such redemption payment, interest will cease to accrue on Debentures called for redemption on and after the Redemption Date. SECTION 3.04 EFFECT OF NOTICE OF REDEMPTION. If notice of redemption is required as set forth in Section 3.03, and after notice of redemption is given, Debentures called for redemption become due and payable on the Redemption Date and at the Redemption Price. Upon the later of the Redemption Date and the date such Debentures are surrendered to the Paying Agent, such Debentures shall be paid at the Redemption Price, plus accrued interest to the Redemption Date. 19 25 SECTION 3.05 DEPOSIT OF REDEMPTION PRICE. On or prior to a Redemption Date, the Company shall deposit with the Paying Agent (or if the Company or an Affiliate is the Paying Agent, shall segregate and hold in trust or cause such Affiliate to segregate and hold in trust) money sufficient to pay the Redemption Price of, and accrued interest on, all Debentures to be redeemed on that date. The Paying Agent shall return to the Company any money not required for the purpose stated herein. SECTION 3.06 DEBENTURES REDEEMED IN PART. Upon surrender of a Debenture that is redeemed in part, the Trustee shall authenticate for the Holder a new Debenture equal in principal amount to the unredeemed portion of such Debenture. ARTICLE 4 COVENANTS SECTION 4.01 PAYMENT OF DEBENTURES. (a) The Company shall pay the principal of and interest (including interest accruing on or after the filing of a petition in bankruptcy or reorganization relating to the Company, whether or not a claim for post-filing interest is allowed in such proceeding) on the Debentures on (or prior to) the dates and in the manner provided in the Debentures or pursuant to this Indenture. An installment of principal or interest shall be considered paid on the applicable date due if on such date the Trustee or the Paying Agent holds, in accordance with this Indenture, money sufficient to pay all of such installment then due. The Company shall pay interest on overdue principal and interest on overdue installments of interest (including interest accruing during an Extension Period and/or on or after the filing of a petition in bankruptcy or reorganization relating to the Company, whether or not a claim for post-filing interest is allowed in such proceeding), to the extent lawful, at the rate per annum borne by the Debentures, which interest on overdue interest shall accrue from the date such amounts became overdue. (b) Notwithstanding paragraph (a) of this Section 4.01 or any other provision herein to the contrary, the Company shall have the right in its sole and absolute discretion at any time and from time to time while the Debentures are outstanding, so long as an Event of Default has not occurred and is continuing, to extend the interest payment period for up to 60 consecutive 20 26 months, provided that such extended interest period shall not extend beyond the stated maturity date or redemption date of the Series A Subordinated Debentures, and provided further that at the end of each Extension Period the Company shall pay all interest then accrued and unpaid (together with interest thereon compounded daily to the extent permitted by applicable law at the rate per annum borne by the Debentures). Prior to the termination of an Extension Period, the Company may shorten or may further extend the interest payment period, provided that such Extension Period together with all such further extensions may not exceed 60 months. The Company shall give the Trustee notice of its selection of such extended or shortened interest payment period at least one Business Day prior to the earlier of (i) the date selected by the Company to make the interest payment or (ii) the date PECO Energy Capital is required to give notice of the record or payment date of such related distribution to any national securities exchange on which the Preferred Securities are then listed or other applicable self-regulatory organization, but in any event not less than two Business Days prior to such record date fixed by the Company for the payment of such interest. The Company shall give or cause the Trustee to give such notice of the Company's selection of such extended interest payment period to the Holders. SECTION 4.02 PROHIBITION AGAINST DIVIDENDS, ETC. DURING AN EVENT OF DEFAULT OR AN EXTENSION PERIOD. Neither the Company nor any Subsidiary 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) during an Extension Period or if at such time there shall have occurred any Default or Event of Default or if the Company shall be in default with respect to its payment obligations under the Guarantee Agreement. SECTION 4.03 SEC REPORTS. The Company shall file with the Trustee, within 15 days after it files them with the SEC, copies of its annual report and of the information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) which the Company is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. If the Company is not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company shall file with the Trustee such information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) which are specified in 21 27 Sections 13 or 15(d) of the Exchange Act. The Company shall also comply with the provisions of Section 314(a) of the TIA. SECTION 4.04 COMPLIANCE CERTIFICATES. (a) The Company shall deliver to the Trustee within 90 days after the end of each of the Company's fiscal years an Officer's Certificate, stating whether or not the signer knows of any Default or Event of Default. Such certificate shall contain a certification from the principal executive officer, principal financial officer or principal accounting officer of the Company as to his or her knowledge of the Company's compliance with all conditions and covenants under this Indenture. For purposes of this Section 4.04(a), such compliance shall be determined without regard to any period of grace or requirement of notice provided under this Indenture. If such Officer does know of such a Default or Event of Default, the certificate shall describe any such Default or Event of Default, and its status. Such Officer's Certificate need not comply with Sections 11.04 and 11.05 hereof. (b) The Company shall deliver to the Trustee any information reasonably requested by the Trustee in connection with the compliance by the Trustee or the Company with the TIA. SECTION 4.05 RELATIONSHIP WITH PECO ENERGY CAPITAL. The Company agrees (i) to maintain direct or indirect through a wholly owned subsidiary 100% ownership of the General Partner and will cause the General Partner to maintain 100% ownership of the general partnership interests in PECO Energy Capital; (ii) to cause the General Partner to maintain a fair market value net worth of at least 10% of the total 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 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 United States federal income tax purposes. SECTION 4.06 FURTHER INSTRUMENTS AND ACTS. Upon request of the Trustee, the Company shall execute and deliver such further instruments and do such further acts as 22 28 may be reasonably necessary or proper to carry out more effectively the purposes of this Indenture. SECTION 4.07 PAYMENTS FOR CONSENTS. Neither the Company nor any Subsidiary shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any Debentures for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Debentures unless such consideration is offered to be paid or agreed to be paid to all Holders of the Debentures who so consent, waive or agree to amend in the time frame set forth in the documents soliciting such consent, waiver or agreement. ARTICLE 5 SUCCESSOR CORPORATION SECTION 5.01 WHEN THE COMPANY MAY MERGE, ETC. The Company may not consolidate with or merge with or into, or sell, convey, transfer or lease all or substantially all of its assets (either in one transaction or a series of transactions) to, any Person unless: (1) the Person formed by or surviving such consolidation or merger or to which such sale, conveyance, transfer or lease shall have been made (the "Successor") if other than the Company, (a) is organized and existing under the laws of the United States of America or any State thereof or the District of Columbia, and (b) shall expressly assume by a supplemental indenture, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Debentures and the Indenture; (2) immediately prior to and after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Person or any Subsidiary as a result of such transaction as having been incurred by such Person or such Subsidiary at the time of such transaction), no Default or Event of Default shall have occurred and be continuing; and (3) the Company, delivers to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that such consolidation, merger, sale, conveyance, transfer or lease and such supplemental indenture comply with this Indenture. 23 29 The Successor will be the successor to the Company, and will be substituted for, and may exercise every right and power and become the obligor on the Debentures with the same effect as if the Successor had been named as, the Company herein but, in the case of a sale, conveyance, transfer or lease of all or substantially all of the assets of the Company, the predecessor Company will not be released from its obligation to pay the principal of, premium, if any, and interest on the Debentures. ARTICLE 6 DEFAULTS AND REMEDIES SECTION 6.01 EVENTS OF DEFAULT. An "Event of Default" occurs if one of the following shall have occurred and be continuing: (1) The Company defaults in the payment, when due and payable, of (a) interest, including Additional Interest, on any Debenture and the default continues for a period of 10 days; provided, that during an Extension Period, failure to pay interest on the Debentures shall not constitute a Default or Event of Default hereunder, or (b) the principal of, or premium, if any, on any Debentures when the same becomes due and payable at maturity, acceleration, on any Redemption Date, or otherwise; (2) The Company defaults in the performance of, fails to comply with any of its other covenants or agreements in the Debentures or this Indenture and such failure continues for 60 days after receipt by the Company of a "Notice of Default"; (3) The Company, pursuant to or within the meaning of any Bankruptcy Law: (a) commences a voluntary case or proceeding; (b) consents to the entry of an order for relief against it in an involuntary case or proceeding; (c) consents to the appointment of a Custodian of it or for all or substantially all of its property, and such Custodian is not discharged within 60 days; (d) makes a general assignment for the benefit of its creditors; or 24 30 (e) admits in writing its inability to pay its debts generally as they become due; or (4) A court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (a) is for relief against the Company in an involuntary case or proceeding; (b) appoints a Custodian of the Company for all or substantially all of its properties; (c) orders the liquidation of the Company; (d) and in each case the order or decree remains unstayed and in effect for 60 days. The foregoing will constitute Events of Default whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body. The term "Bankruptcy Law" means Title 11, United States Code, or any similar Federal or state law for the relief of debtors. "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator, custodian or similar official under any Bankruptcy Law. A Default under clause (2) above is not an Event of Default until the Trustee notifies the Company or the Holders of at least a majority in aggregate principal amount of the Debentures at the time outstanding or the Special Representative notifies the Company and the Trustee, of the Default and the Company does not cure such Default within the time specified in clause (2) above after receipt of such notice. Any such notice must specify the Default, demand that it be remedied and state that such notice is a "Notice of Default." SECTION 6.02 ACCELERATION. If any Event of Default other than an Event of Default under clauses (3) or (4) occurs and is continuing, the Trustee, the Holders of not less than 25% in principal amount of the Debentures then outstanding or the Special Representative may declare the principal of all such Debentures due and payable. Upon such a declaration, such principal and interest shall be due and payable immediately. 25 31 If an Event of Default specified in clause (3) or (4) with respect to the Company occurs, the principal of and interest on all the Debentures shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Debentureholders. The Special Representative or holders of a majority in aggregate principal amount of the Debentures at the time outstanding by notice to the Trustee may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of acceleration. No such rescission shall affect any subsequent Default or impair any right consequent thereto. SECTION 6.03 OTHER REMEDIES. If an Event of Default occurs and is continuing, the Trustee may, in its own name or as trustee of an express trust, institute, pursue and prosecute any proceeding, including, without limitation, any action at law or suit in equity or other judicial or administrative proceeding to collect the payment of principal of, premium, if any, or interest on the Debentures, to enforce the performance of any provision of the Debentures or this Indenture or to obtain any other available remedy. The Trustee may maintain a proceeding even if it does not possess any of the Debentures or does not produce any of the Debentures in the proceeding. A delay or omission by the Trustee, the Special Representative or any Debentureholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of, or acquiescence in, the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative. SECTION 6.04 WAIVER OF PAST DEFAULTS. The Special Representative or the Holders of 66 2/3% in aggregate principal amount of the Debentures at the time outstanding, by notice to the Trustee, the Company and PECO Energy Capital, may waive an existing Default or Event of Default and its consequences. When a Default is waived, it is deemed cured and shall cease to exist, but no such waiver shall extend to any subsequent or other Default or impair any consequent right. 26 32 SECTION 6.05 CONTROL BY MAJORITY OR THE SPECIAL REPRESENTATIVE. The Holders of a majority in aggregate principal amount of the Debentures then outstanding or the Special Representative may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture or that the Trustee determines in good faith is unduly prejudicial to the rights of other Debentureholders or would involve the Trustee in personal liability. The Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, including withholding notice to the Holders of the Debentures of any series of continuing default (except in the payment of the principal (other than any mandatory sinking fund payment) of (or premium, if any) or interest on any Debentures of such series) if the Trustee considers it in the interest of the holders of such series of Debentures to do so. SECTION 6.06 LIMITATION ON SUITS. Except as provided in Section 6.07 hereof, the Special Representative may not pursue any remedy with respect to this Indenture or the Debentures unless: (1) the Holders or the Special Representative gives to the Trustee written notice stating that an Event of Default is continuing; (2) the Holders or the Special Representative provides to the Trustee reasonable security and indemnity against any loss, liability or expense satisfactory to the Trustee; (3) the Trustee does not comply with the request within 60 days after receipt of the notice, the request and the offer of security and indemnity; and SECTION 6.07 RIGHTS OF HOLDERS TO RECEIVE PAYMENT. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of the principal amount of or interest on the Debentures held by such Holder, on or after the respective due dates expressed in the Debentures (in the case of interest, as the same may be extended pursuant to Section 4.01(b)) or any Redemption Date, or to bring suit for the enforcement of any such payment on or after such respective dates shall not be impaired or affected adversely without the consent of each such Holder. 27 33 SECTION 6.08 COLLECTION SUIT BY THE TRUSTEE. If an Event of Default described in Section 6.01(1) hereof occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company or any obligor on the Debentures for the whole amount owing with respect to the Debentures and the amounts provided for in Section 6.07 hereof. SECTION 6.09 THE TRUSTEE MAY FILE PROOFS OF CLAIM. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or its properties or assets, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise: (1) to file and prove a claim for the whole amount of the principal amount, premium, if any, and interest on the Debentures and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding; and (2) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any Custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Debentures or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. 28 34 SECTION 6.10 PRIORITIES. If the Trustee collects any money pursuant to this Article 6, it shall pay out the money in the following order: FIRST: to the Trustee for amounts due under Section 7.07 hereof; SECOND: to Debentureholders for amounts due and unpaid on the Debentures for the principal amount, Redemption Price or interest, if any, as the case may be, ratably, without preference or priority of any kind, according to such amounts due and payable on the Debentures; and THIRD: the balance, if any, to the Company. The Trustee may fix a record date and payment date for any payment to Debentureholders pursuant to this Section 6.10. SECTION 6.11 UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant (other than the Trustee) in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 hereof or a suit by Holders of more than 10% in aggregate principal amount of the Debentures at the time outstanding or a suit by the Special Representative. SECTION 6.12 WAIVER OF STAY, EXTENSION OR USURY LAWS. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury or other law wherever enacted, now or at any time hereafter in force, that would prohibit or forgive the Company from paying all or any portion of the principal or premium, if any, or interest on the Debentures as contemplated herein or affect the covenants or the performance by the Company of its obligations under this Indenture; and the Company (to the extent that it may lawfully do 29 35 so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE 7 THE TRUSTEE SECTION 7.01 DUTIES OF THE TRUSTEE. (1) If an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in its exercise as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (2) Except during the continuance of an Event of Default, (a) the Trustee need perform only those duties that are specifically set forth in this Indenture and no others; and (b) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of any certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (3) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (a) this paragraph (3) does not limit the effect of paragraph (2) of this Section 7.01; (b) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (c) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof. 30 36 (4) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (1), (2), (3) and (5) of this Section 7.01 and Section 7.02. (5) The Trustee may refuse to perform any duty or exercise any right or power or extend or risk its own funds or otherwise incur any financial liability unless it receives security and indemnity reasonably satisfactory to it against any loss, liability or expense. (6) Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall not be liable for interest on any money held by it hereunder. SECTION 7.02 RIGHTS OF THE TRUSTEE. (1) The Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document; (2) Before the Trustee acts or refrains from acting, it may require an Officer's Certificate and, if appropriate, an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officer's Certificate and Opinion of Counsel; (3) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care; (4) The Trustee shall not be liable for any action it takes or omits to take in good faith which it reasonably believes to be authorized or within its rights or powers; (5) The Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; and (6) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders or Special Representative pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security and indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. 31 37 SECTION 7.03 INDIVIDUAL RIGHTS OF THE TRUSTEE. The Trustee in its individual or any other capacity may become the owner or pledgee of Debentures and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. Any Paying Agent, Registrar or co-registrar may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11 hereof. SECTION 7.04 THE TRUSTEE'S DISCLAIMER. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Debentures, it shall not be accountable for the Company's use of the proceeds from the Debentures, and it shall not be responsible for any statement in this Indenture or the Debentures or any report or certificate issued by the Company hereunder or any registration statement relating to the Debentures (other than the Trustee's certificate of authentication), or the determination as to which beneficial owners are entitled to receive any notices hereunder. SECTION 7.05 NOTICE OF DEFAULTS. If a Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to each Debentureholder, as their names and addresses appear on the Debenture Register, notice of the Default within 90 days after it becomes known to the Trustee unless such Default shall have been cured or waived. Except in the case of a Default described in Section 6.01(1) hereof, the Trustee may withhold such notice if and so long as a committee of Trust Officers in good faith determines that the withholding of such notice is in the interests of Debentureholders. The second sentence of this Section 7.05 shall be in lieu of the proviso to TIA Section 315(b). Said proviso is hereby expressly excluded from this Indenture, as permitted by the TIA. SECTION 7.06 REPORTS BY TRUSTEE TO HOLDERS. Within 60 days after each May 31, beginning with the May 31 next following the date of this Indenture, the Trustee shall mail to each Debentureholder, and such other holders that have submitted their names to the Trustee for such purpose, a brief report dated as of such May 31 in accordance with and to the extent required under TIA Section 313. A copy of each report at the time of its mailing to Debentureholders shall be filed with the Company, the SEC and 32 38 each securities exchange on which the Debentures are listed. The Company agrees to promptly notify the Trustee whenever the Debentures become listed on any securities exchange and of any listing thereof. SECTION 7.07 COMPENSATION AND INDEMNITY. The Company agrees: (1) to pay to the Trustee from time to time such compensation as shall be agreed in writing between the Company and the Trustee for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses, and advances of its agents and counsel), including all reasonable expenses and advances incurred or made by the Trustee in connection with any Event of Default or any membership on any creditors' committee, except any such expense or advance as may be attributable to its negligence or bad faith; and (3) to indemnify the Trustee, its officers, directors and shareholders, for, and to hold it harmless against, any and all loss, liability or expense, incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. Before, after or during an Event of Default, the Trustee shall have a claim and lien prior to the Debentures as to all property and funds held by it hereunder for any amount owing it or any predecessor Trustee pursuant to this Section 7.07, except with respect to funds held by the Trustee or any Paying Agent in trust for the payment of principal of, premium, if any, or interest on particular Debentures pursuant to Section 2.06 or Section 8.01. The Company's payment obligations pursuant to this Section 7.07 are not subject to Article 10 of this Indenture and shall survive the discharge of this Indenture. When the Trustee renders services or incurs expenses after the occurrence of a Default specified in Section 6.01 hereof, the compensation for services and expenses are intended to constitute expenses of administration under any Bankruptcy Law. 33 39 SECTION 7.08 REPLACEMENT OF TRUSTEE. The Trustee may resign by so notifying the Company in writing at least 30 days prior to the date of the proposed resignation; provided, however, no such resignation shall be effective until a successor Trustee has accepted its appointment pursuant to this Section 7.08. The Special Representative or the Holders of a majority in aggregate principal amount of the Debentures at the time outstanding, may remove the Trustee by so notifying the Trustee in writing and may appoint a successor Trustee, which shall be subject to the consent of the Company unless an Event of Default has occurred and is continuing. The Trustee shall resign if: (1) the Trustee fails to comply with Section 7.10 hereof; (2) the Trustee is adjudged bankrupt or insolvent; (3) a receiver or public officer takes charge of the Trustee or its property; or (4) the Trustee otherwise becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Debentureholders. Subject to payment of all amounts owing to the Trustee under Section 7.07 hereof and subject further to its lien under Section 7.07, the retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee. If a successor Trustee does not take office within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, the Special Representative or the Holders of a majority in aggregate principal amount of the Debentures at the time outstanding, may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10 hereof, any Debentureholder may petition any court of competent jurisdiction for its removal and the appointment of a successor Trustee. 34 40 SECTION 7.09 SUCCESSOR TRUSTEE BY MERGER. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets (including this Trusteeship) to another corporation, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee. SECTION 7.10 ELIGIBILITY; DISQUALIFICATION. The Trustee shall at all times satisfy the requirements of TIA Sections 310(a)(1) and 310(a)(2). The Trustee (or any Affiliate thereof which has unconditionally guaranteed the obligations of the Trustee hereunder) shall have a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA Section 310(b). In determining whether the Trustee has conflicting interests as defined in TIA Section 310(b)(1), the provisions contained in the proviso to TIA Section 310(b)(1) shall be deemed incorporated herein. SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY. If and when the Trustee shall be or become a creditor of the Company, the Trustee shall be subject to the provisions of the TIA regarding the collection of claims against the Company. ARTICLE 8 SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE OF CERTAIN OBLIGATIONS; UNCLAIMED MONEYS SECTION 8.01 SATISFACTION AND DISCHARGE OF INDENTURE. The Company shall be deemed to have paid and discharged the entire indebtedness on any series of the Debentures outstanding on the date the Company has irrevocably deposited or caused to be irrevocably deposited with the Trustee or any Paying Agent as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit the Holders (1) cash in an amount, or (2) U.S. Government Obligations, maturing as to principal and interest at such times and in such amounts as will ensure the availability of cash, or (3) a combination thereof, sufficient to pay the principal of, premium, if any, and interest on, all Debentures then outstanding, and on such date; the provisions of this Indenture with respect to the Debentures shall no longer be in effect (except as to (1) the rights of 35 41 registration of transfer, substitution and exchange of Debentures, (2) the replacement of apparently mutilated, defaced, destroyed, lost or stolen Debentures, (3) the rights of the Holders to receive payments of principal thereof and interest thereon, (4) the rights of the Holders as beneficiaries hereof with respect to the property so deposited with the Trustee payable to all or any of them, (5) the obligation of the Company to maintain an office or agency for payments on and registration of transfer of the Debentures, and (6) the rights, obligations and immunities of the Trustee hereunder); and the Trustee shall, at the request and expense of the Company, execute proper instruments acknowledging the same; provided that if the Company deposits U.S. Government Obligations with the Trustee: (A) no Default or Event of Default with respect to the Debentures has occurred and is continuing on the date of such deposit or occurs as a result of such deposit; (B) the Company has delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent relating to the defeasance contemplated by this provision have been complied with; and (C) the Company has delivered to the Trustee (i) either a private Internal Revenue Service ruling or an Opinion of Counsel based on a ruling of the Internal Revenue Service or other change in Federal income tax law to the effect that the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to federal income tax on the same amount and in the manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred, and (ii) an Opinion of Counsel to the effect that (A) the deposit shall not result in the Company, the Trustee or the trust being deemed to be an "investment company" under the Investment Company Act of 1940, as amended, and (B) such deposit creates a valid trust in which such Holders of the Debentures have the sole beneficial ownership interest or that such Holders of the Debentures have a nonavoidable first priority security interest in such trust. SECTION 8.02 APPLICATION BY TRUSTEE OF FUNDS DEPOSITED FOR PAYMENT OF DEBENTURES. Subject to Section 8.04, and Article 10 of this Indenture, all moneys deposited with the Trustee pursuant to Section 8.01 hereof shall be held in trust and applied by it to the payment, either directly or through any Paying Agent 36 42 (including the Company acting as its own Paying Agent), to the Holders for the payment or redemption of which such moneys have been deposited with the Trustee, of all sums due and to become due thereon for principal and interest; but such money need not be segregated from other funds except to the extent required by law. SECTION 8.03 REPAYMENT OF MONEYS HELD BY PAYING AGENT. In connection with the satisfaction and discharge of this Indenture, all moneys then held by any Paying Agent under this Indenture shall, upon demand of the Company, be repaid to it or paid to the Trustee, and thereupon such Paying Agent shall be released from all further liability with respect to such moneys. SECTION 8.04 RETURN OF MONEYS HELD BY THE TRUSTEE AND PAYING AGENT UNCLAIMED FOR THREE YEARS. Any moneys deposited with or paid to the Trustee or any Paying Agent for the payment of the principal, premium, if any, or interest on any Debenture and not applied but remaining unclaimed for three years after the date when such principal, premium, if any, or interest shall have become due and payable shall unless otherwise required by mandatory provisions of applicable escheat or abandoned or unclaimed property law, be repaid to the Company by the Trustee or such Paying Agent, and the Holder of such Debenture shall, unless otherwise required by mandatory provisions of applicable escheat or abandoned or unclaimed property laws, thereafter look only to the Company for any payment which such Holder may be entitled to collect, and all liability of the Trustee or any Paying Agent with respect to such moneys shall thereupon cease. ARTICLE 9 AMENDMENTS SECTION 9.01 WITHOUT CONSENT OF HOLDERS. From time to time, when authorized by a resolution of the Board of Directors, the Company and the Trustee, without notice to or the consent of any holders of the Debentures or their Special Representative issued hereunder, may amend or supplement this Indenture or the Debentures: (1) to cure any ambiguity, defect or inconsistency; (2) to comply with Article 5 hereof; 37 43 (3) to provide for uncertificated Debentures in addition to or in place of certificated Debentures; (4) to make any other change that does not adversely affect the rights of any Debentureholder; or (5) to comply with any requirement of the SEC in connection with the qualification of this Indenture under the TIA; and (6) to set forth the terms and conditions, which shall not be inconsistent with this Indenture, of the series of Debentures (other than the Series A Debentures) that are to be issued hereunder and the form of Debentures of such series. SECTION 9.02 WITH CONSENT OF HOLDERS. With written consent of the Special Representative or the Holders of at least 66 2/3% in aggregate principal amount of the series of Debentures at the time outstanding, the Company and the Trustee may amend this Indenture or the Debentures or may waive future compliance by the Company with any provisions of this Indenture or the Debentures. However, without the consent of each Debentureholder affected, such an amendment or waiver may not: (1) reduce the principal amount of the Debentures the Holders of which must consent to an amendment of the Indenture or a waiver; (2) change the Stated Maturity of the principal of, or the interest or rate of interest on the Debentures, change adversely to the Holders the redemption provisions of Article 3 hereof, or impair the right to institute suit for the enforcement of any such payment or make any Debenture payable in money or securities other than that stated in the Debenture; (3) make any change in Article 10 hereof that adversely affects the rights of the Holders of the Debentures or any change to any other section hereof that adversely affects their rights under Article 10 hereof; (4) waive a Default in the payment of the principal of, premium, if any, or interest on, any Debenture; or (5) change Section 6.07 hereof. It shall not be necessary for the consent of the Holders under this Section 9.02 to approve the particular form of 38 44 any proposed amendment, but it shall be sufficient if such consent approves the substance thereof. If certain Holders agree to defer or waive certain obligations of the Company hereunder with respect to Debentures held by them, such deferral or waiver shall not affect the rights of any other Holder to receive the payment or performance required hereunder in a timely manner. After an amendment or waiver under this Section 9.02 becomes effective, the Company shall mail to the Special Representative and to each Holder a notice briefly describing the amendment or waiver. Any failure of the Company to mail such notices, or any defect therein, shall not, however, in any way impair or affect the validity of such amendment or waiver. SECTION 9.03 COMPLIANCE WITH TRUST INDENTURE ACT. Every supplemental indenture executed pursuant to this Article 9 shall comply with the TIA. SECTION 9.04 REVOCATION AND EFFECT OF CONSENTS, WAIVERS AND ACTIONS. Until an amendment, waiver or other action by Holders becomes effective, a consent to it or any other action by a Holder of a Debenture hereunder is a continuing consent by the Holder and every subsequent Holder of that Debenture or portion of the Debenture that evidences the same obligation as the consenting Holder's Debenture, even if notation of the consent, waiver or action is not made on the Debenture. However, any such Holder or subsequent Holder may revoke the consent, waiver or action as to such Holder's Debenture or portion of the Debenture if the Trustee receives the notice of revocation before the consent of the requisite aggregate principal amount of the Debentures then outstanding has been obtained and not revoked. After an amendment, waiver or action becomes effective, it shall bind every Debentureholder, except as provided in Section 9.02 hereof. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment or waiver. If a record date is fixed, then, notwithstanding the first two sentences of the immediately preceding paragraph, those Persons who were Holders at such record date or their duly designated proxies, and only those Persons, shall be entitled to consent to such amendment, supplement or waiver or to revoke any consent previously given, whether or not such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date. 39 45 SECTION 9.05 NOTATION ON OR EXCHANGE OF DEBENTURES. Debentures authenticated and made available for delivery after the execution of any supplemental indenture pursuant to this Article 9 may, and shall, if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Debentures so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any such supplemental indenture may be prepared and executed by the Company and authenticated and made available for delivery by the Trustee in exchange for outstanding Debentures. SECTION 9.06 TRUSTEE TO SIGN SUPPLEMENTAL INDENTURES. The Trustee shall sign any supplemental indenture authorized pursuant to this Article 9 if the supplemental indenture does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, but need not, sign it. In signing such amendment the Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Officer's Certificate and Opinion of Counsel stating that such supplemental indenture is authorized or permitted by this Indenture. SECTION 9.07 EFFECT OF SUPPLEMENTAL INDENTURES. Upon the execution of any supplemental indenture under this Article 9, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes and every Holder of Debentures theretofore or thereafter authenticated and made available for delivery hereunder shall be bound thereby. ARTICLE 10 SUBORDINATION SECTION 10.01 DEBENTURES SUBORDINATED TO SENIOR INDEBTEDNESS. Notwithstanding the provisions of Section 6.01 hereof or any other provision herein or in the Debentures, the Company and the Trustee or Holder by his acceptance thereof (a) covenants and agrees, that all payments by the Company of the principal of, premium, if any, and interest on the Debentures shall be subordinated in accordance with the provisions of this Article 10 to the prior payment in full, in cash or cash equivalents, of all amounts payable on, under or in connection with Senior 40 46 Indebtedness, and (b) acknowledges that holders of Senior Indebtedness are or shall be relying on this Article 10. SECTION 10.02 PRIORITY AND PAYMENT OF PROCEEDS IN CERTAIN EVENTS; REMEDIES STANDSTILL. (a) Upon any payment or distribution of assets or securities of the Company, as the case may be, of any kind or character, whether in cash, property or securities, upon any dissolution or winding up or total or partial liquidation or reorganization of the Company, whether voluntary or involuntary, or in bankruptcy, insolvency, receivership or other proceedings, all amounts payable on, under or in connection with 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 in cash, or payment provided for in cash or cash equivalents, before the Holders or the Trustee on behalf of the Holders shall be entitled to receive from the Company any payment of principal of or interest on or any other amounts in respect of the Debentures or distribution of any assets or securities. (b) No direct or indirect payment by or on behalf of the Company of principal of or interest on the Debentures whether pursuant to the terms of the Debentures or upon acceleration or otherwise shall be made if, at the time of such payment there exists (i) a default in the payment of all or any portion of any Senior Indebtedness (and the Trustee has received written notice thereof from the Company, one or more holders of Senior Indebtedness or from any trustee, representative or agent therefor), or (ii) any other default affecting Senior Indebtedness permitting its acceleration, as the result of which the maturity of Senior Indebtedness has been accelerated, and the Trustee has received written notice from any trustee, representative or agent for the holders of the Senior Indebtedness or the holders of at least a majority in principal amount of the Senior Indebtedness then outstanding of such default and acceleration, and such default shall not have been cured or waived by or on behalf of the holders of such Senior Indebtedness. (c) If, notwithstanding the foregoing provision prohibiting such payment or distribution, the Trustee or any Holder shall have received any payment on account of the principal of or interest on the Debentures (other than as permitted by subsections (a) and (b) of this Section 10.02) when such payment is prohibited by this Section 10.02 and before all amounts payable on, under or in connection with Senior Indebtedness are paid in full in cash or cash equivalents, then and in such event (subject to the provisions of Section 10.08) 41 47 such payment or distribution 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 in cash or cash equivalents. Upon any payment or distribution of assets or securities referred to in this Article 10, the Trustee and the Holders shall be entitled to rely upon any order or decree of a court of competent jurisdiction in which such dissolution, winding up, liquidation or reorganization proceedings are pending, and upon a certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making any such payment or distribution, delivered to the Trustee for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of Senior Indebtedness and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 10. SECTION 10.03 PAYMENTS WHICH MAY BE MADE PRIOR TO NOTICE. Nothing in this Article 10 or elsewhere in this Indenture shall prevent (i) the Company, except under the conditions described in Section 10.02 hereof, from making payments of principal of and interest on the Debentures or from depositing with the Trustee any monies for such payments, or (ii) the application by the Trustee of any monies deposited with it for the purpose of making such payments of principal of and interest on the Debentures, to the Holders entitled thereto, unless at least one day prior to the date when such payment would otherwise (except for the prohibitions contained in Section 10.02 hereof) become due and payable, the Trustee shall have received the written notice provided for in Section 10.02(b)(ii) hereof. SECTION 10.04 RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS NOT TO BE IMPAIRED. No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time or in any way be prejudiced or impaired by any act or failure to act in good faith by any such holder, or by any noncompliance by the Company with the terms and provisions and covenants herein regardless of any knowledge thereof any such holder may have or otherwise be charged with. The provisions of this Article 10 are intended to be for the benefit of, and shall be enforceable directly by, the holders of Senior Indebtedness. 42 48 Notwithstanding anything to the contrary in this Article 10, to the extent any Holders or the Trustee have paid over or delivered to any holder of Senior Indebtedness any payment or distribution received on account of the principal of, or interest on the Debentures to which any other holder of Senior Indebtedness shall be entitled to share in accordance with Section 10.02 hereof, no holder of Senior Indebtedness shall have a claim or right against any Holders or the Trustee with respect to any such payment or distribution or as a result of the failure to make payments or distributions to such other holder of Senior Indebtedness. SECTION 10.05 TRUSTEE MAY TAKE ACTION TO EFFECTUATE SUBORDINATION. Each Holder by his acceptance thereof authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate, as between the holders of Senior Indebtedness and such Holders, the subordination as provided in this Article 10 and appoints the Trustee his attorney-in-fact for any and all such purposes. SECTION 10.06 SUBROGATION. Upon the payment in full, in cash or cash equivalents, of all Senior Indebtedness, any Holder shall be subrogated to the rights of the holders of such Senior Indebtedness to receive payments or distributions of assets of the Company made on such Senior Indebtedness until the Debentures shall be paid in full; and for the purposes of such subrogation, no payments or distributions to holders of such Senior Indebtedness of any cash, property or securities to which such Holders of the Debentures would be entitled except for this Article 10, and no payment pursuant to this Article 10 to holders of such Senior Indebtedness by such Holders of the Debentures, shall, as between the Company, its creditors other than holders of such Senior Indebtedness and such Holders of the Debentures, be deemed to be a payment by the Company to or on account of such Senior Indebtedness, it being understood that the provisions of this Article 10 are solely for the purpose of defining the relative rights of the holders of such Senior Indebtedness, on the one hand, and such Holders of the Debentures, on the other hand. If any payment or distribution to which such Holders of the Debentures would otherwise have been entitled but for the provisions of this Article 10 shall have been applied, pursuant to this Article 10, to the payment of all Senior Indebtedness, then and in such case, such Holders of the Debentures shall be entitled to receive from the holders of such Senior Indebtedness 43 49 at the time outstanding any payments or distributions received by such holders of Senior Indebtedness in excess of the amount sufficient to pay, in cash or cash equivalents, all such Senior Indebtedness in full. SECTION 10.07 OBLIGATIONS OF COMPANY UNCONDITIONAL; REINSTATEMENT. Nothing in this Article 10, or elsewhere in this Indenture or in any Debenture, is intended to or shall impair, as between the Company and Holders of the Debentures, the obligations of the Company, which are absolute and unconditional, to pay to such Holders the principal of, and interest on, the Debentures as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of such Holders of the Debentures and creditors of the Company other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the Trustee, the Special Representative or any Holder from exercising all remedies otherwise permitted by applicable law upon Default under this Indenture, subject to the rights, if any, under this Article 10 of the holders of such Senior Indebtedness in respect of cash, property or securities of the Company received upon the exercise of any such remedy. The failure to make a scheduled payment of principal of, or interest on, the Debentures by reason of Section 10.02 shall not be construed as preventing the occurrence of an Event of Default under Section 6.01 hereof; provided, however, that if (i) the conditions preventing the making of such payment no longer exist, and (ii) such Holders of the Debentures are made whole with respect to such omitted payments, the Event of Default relating thereto (including any failure to pay any accelerated amounts) shall be automatically waived, and the provisions of the Indenture shall be reinstated as if no such Event of Default had occurred. SECTION 10.08 TRUSTEE ENTITLED TO ASSUME PAYMENTS NOT PROHIBITED IN ABSENCE OF NOTICE. The Trustee or Paying Agent shall not be charged with the knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee or Paying Agent, unless and until the Trustee or Paying Agent shall have received written notice thereof from the Company or one or more holders of Senior Indebtedness or from any trustee or agent therefor or unless the Trustee or Paying Agent otherwise had actual knowledge thereof; and, prior to the receipt of any such written notice or 44 50 actual knowledge, the Trustee or Paying Agent may conclusively assume that no such facts exist. Unless at least one day prior to the date when by the terms of this Indenture any monies are to be deposited by the Company with the Trustee or any Paying Agent for any purpose (including, without limitation, the payment of the principal or the interest on any Debenture), the Trustee or Paying Agent shall, except where no notice is necessary or where notice is deemed given in Sections 10.02 and 10.03 hereof, have received with respect to such monies the notice provided for in the preceding sentence, the Trustee or Paying Agent shall have full power and authority to receive and apply such monies to the purpose for which they were received. Neither of them shall be affected by any notice to the contrary, which may be received by either on or after such date. The foregoing shall not apply to the Paying Agent if the Company is acting as Paying Agent. Nothing in this Section 10.08 shall limit the right of the holders of Senior Indebtedness to recover payments as contemplated by Section 10.02 hereof. The Trustee or Paying Agent shall be entitled to rely on the delivery to it of a written notice by a Person representing himself or itself to be a holder of such Senior Indebtedness (or a trustee on behalf of, or other representative of, such holder) to establish that such notice has been given by a holder of such Senior Indebtedness or a trustee or representative on behalf of any such holder. The Trustee shall not be deemed to have any duty to the holders of Senior Indebtedness. SECTION 10.09 RIGHT OF TRUSTEE TO HOLD SENIOR INDEBTEDNESS. The Trustee and any Paying Agent shall be entitled to all of the rights set forth in this Article 10 in respect of any Senior Indebtedness at any time held by them to the same extent as any other holder of such Senior Indebtedness, and nothing in this Indenture shall be construed to deprive the Trustee or any Paying Agent of any of its rights as such holder. ARTICLE 11 MISCELLANEOUS SECTION 11.01 TRUST INDENTURE ACT CONTROLS. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by operation of subsection (c) of Section 318 of the TIA, the imposed duties shall control. The provisions of Sections 310 to 317, inclusive, of the TIA that impose duties on any Person (including provisions automatically 45 51 deemed included in an indenture unless the indenture provides that such provisions are excluded) are a part of and govern this Indenture, except as, and to the extent, they are expressly excluded from this Indenture, as permitted by the TIA. SECTION 11.02 NOTICES. Any notice or communication shall be in writing and delivered in person or mailed by first-class mail, postage prepaid, addressed as follows: if to the Company: PECO Energy Company 2301 Market Street P.O. Box 8699 Philadelphia, Pennsylvania 19101 Attention: Todd D. Cutler, Esq. Facsimile No.: (215) 841-5743 if to the Trustee: Meridian Trust Company 35 North 6th Street P.O. Box 15111 Reading, Pennsylvania 19612-5111 Attn: Corporate Trust Administration The Company or the Trustee, by giving notice to the other, may designate additional or different addresses for subsequent notices of communications. The Company shall notify the holder, if any, of Senior Indebtedness of any such additional or different addresses of which the Company receives notice from the Trustee. Any notice or communication given to a Debentureholder other than PECO Energy Capital shall be mailed to the Debentureholder at the Debentureholder's address as it appears on the Register of the Registrar and shall be sufficiently given if mailed within the time prescribed. Failure to mail a notice or communication to a Debentureholder or any defect in it shall not affect its sufficiency with respect to other Debentureholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not received by the addressee. If the Company mails a notice or communication to the Debentureholders, it shall mail a copy to the Trustee and each Registrar, Paying Agent or co-Registrar. 46 52 SECTION 11.03 COMMUNICATION BY HOLDERS WITH OTHER HOLDERS. Debentureholders may communicate, pursuant to TIA Section 312(b), with other Debentureholders with respect to their rights under this Indenture or the Debentures. The Company, the Trustee, the Registrar, the Paying Agent and anyone else shall have the protection of TIA Section 312(c). SECTION 11.04 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officer's Certificate (complying with Section 11.05 hereof) stating that, in the opinion of such Officer, all conditions precedent to the taking of such action have been complied with; and (2) if appropriate, an Opinion of Counsel (complying with Section 11.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent to the taking of such action have been complied with. SECTION 11.05 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each Officer's Certificate and Opinion of Counsel with respect to compliance with a covenant or condition provided for in this Indenture shall include: (1) a statement that each Person making such Officer's Certificate or Opinion of Counsel has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such Officer's Certificate or Opinion of Counsel are based; (3) a statement that, in the opinion of each such Person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement that, in the opinion of such Person, such covenant or condition has been complied with; provided, however, that with respect to matters of fact not involving any 47 53 legal conclusion, an Opinion of Counsel may rely on an Officer's Certificate or certificates of public officials. SECTION 11.06 SEVERABILITY CLAUSE. If any provision in this Indenture or in the Debentures shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 11.07 RULES BY TRUSTEE, PAYING AGENT AND REGISTRAR. The Trustee may make reasonable rules for action by or a meeting of Debentureholders. The Registrar and Paying Agent may make reasonable rules for their functions. SECTION 11.08 LEGAL HOLIDAYS. A "Legal Holiday" is any day other than a Business Day. If any specified date (including a date for giving notice) is a Legal Holiday, the action to be taken on such date shall be taken on the next succeeding day that is not a Legal Holiday, and if such action is a payment in respect of the Debentures, no principal or interest installment shall accrue for the intervening period; except that if any interest payment is due on a Legal Holiday and the next succeeding day is in the next succeeding calendar year, such payment shall be made on the Business Day immediately preceding such Legal Holiday. SECTION 11.09 GOVERNING LAW. This Indenture and the Debentures shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania as applied to contracts made and performed within the Commonwealth of Pennsylvania, without regard to its principles of conflicts of laws. SECTION 11.10 NO RECOURSE AGAINST OTHERS. No director, officer, employee or stockholder, as such, of the Company shall have any liability for any obligations of the Company under the Debentures or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Debenture, each Debentureholder shall waive and release all such liability. The waiver and 48 54 release shall be part of the consideration for the issue of the Debentures. SECTION 11.11 SUCCESSORS. All agreements of the Company in this Indenture and the Debentures shall bind its successors and assigns. All agreements of the Trustee in this Indenture shall bind its successors and assigns. SECTION 11.12 MULTIPLE ORIGINAL COPIES OF THIS INDENTURE. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Any signed copy shall be sufficient proof of this Indenture. SECTION 11.13 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or any Subsidiary. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 11.14 TABLE OF CONTENTS; HEADINGS, ETC. The Table of Contents, Cross-Reference Table, and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof. SECTION 11.15 BENEFITS OF THE INDENTURE. Except as expressly provided in Article 10 hereof, nothing in this Indenture or in the Debentures, express or implied, shall give to any person, other than the parties hereto and their successors hereunder, the Holders and the Special Representative, any benefit or any legal or equitable right, remedy or claim under this Indenture. 49 55 SIGNATURES IN WITNESS WHEREOF, the undersigned, being duly authorized, have executed this Indenture on behalf of the respective parties hereto as of the date first above written. PECO ENERGY COMPANY By: /s/ Morton W. Rimmerman ------------------------------- Name: Morton W. Rimmerman ----------------------------- Title: Vice-President-Finance and Treasurer ---------------------------- MERIDIAN TRUST COMPANY, AS TRUSTEE By: /s/ Jay T. Bauer ------------------------------- Name: Jay T. Bauer ----------------------------- Title: Assistant Vice President ---------------------------- PECO Energy Capital, L.P. By its General Partner, PECO Energy Capital Corp. By /s/ J. Barry Mitchell --------------------- Solely for the purposes stated in the recitals hereto. 50 56 EXHIBIT A 9% DEFERRABLE INTEREST SUBORDINATED DEBENTURES, SERIES A DUE 2043 No. 1 PECO Energy Company, a Pennsylvania corporation (the "Company"), which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to PECO Energy Capital, L.P. or registered assigns, the principal sum of______________________________________ ________________________________________ Dollars on July 27, 2043, and to pay interest on said principal sum from July 27, 1994 or from the most recent interest payment date (each such date, an "Interest Payment Date") to which interest has been paid or duly provided for, monthly in arrears on the last day of each calendar month of each year commencing August 1, 1994 at the rate of 9% per annum plus Additional Interest, if any, until the principal hereof shall have become due and payable, and on any overdue principal and premium, if any, and (to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the same rate per annum. The amount of interest payable on any Interest Payment Date shall be computed on the basis of a 360-day year of twelve 30-day months. In the event that any date on which interest is payable on the Series A Debentures is not a Business Day, then payment of interest 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 is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the person in whose name this Debenture is registered at the close of business on the regular record date for such interest installment, which shall be the close of business on the Business Day next preceding such Interest Payment Date. Any such interest installment not punctually paid or duly provided for shall forthwith cease to be payable to the registered holders on such regular record date, and may be paid to the person in whose name this Debenture is registered at the close of business on a special record date to be fixed by the Trustee for the payment of such defaulted interest, notice whereof shall be given to the registered holders of this series of Debentures not less than 10 days prior to such special record date, as more fully provided in the Indenture hereinafter referred to. The principal of (and premium, if any) and the interest on this Debenture shall be payable at the office A-1 57 or agency of the Company maintained for that purpose in Wilmington, Delaware in any coin or currency of the United States of America which at the time of payment is legal tender for payment of public and private debts; provided however, that payment of interest may be made at the option of the Company by check mailed to the registered holder at such address as shall appear in the Debenture Register. Notwithstanding the foregoing, so long as the holder of this Debenture is PECO Energy Capital, the payment of the principal of (and premium, if any) and interest (including Additional Interest, if any) in this Debenture will be made at such place and to such account as may be designated by PECO Energy Capital. The indebtedness evidenced by this Debenture is, to the extent provided in the Indenture, subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness, and this Debenture is issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Debenture, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination so provided and (c) appoints the Trustee his attorney-in-fact for any and all such purposes. Each Holder hereof, by his acceptance hereof, hereby waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Indebtedness, whether now outstanding or hereafter incurred, and waives reliance by each such Holder upon said provisions. This Debenture is one of a duly authorized series of Debentures of the Company (herein sometimes referred to as the "Series A Debentures"), specified in the Indenture, limited in aggregate principal amount as specified in the Indenture, issued under and pursuant to an Indenture dated as of July 1, 1994 (the "Indenture") executed and delivered between the Company and Meridian Trust Company, as trustee (the "Trustee") to which reference is made to the Indenture for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the holders of the Debentures. By the terms of the Indenture, debentures (the "Debentures") are issuable in series which may vary as to amount, date of maturity, rate of interest and in other respects as in the Indenture provided. The Series A Debentures are subject to mandatory redemption prior to maturity at 100% of the principal amount thereof plus accrued interest to the redemption date as follows: (i) in whole upon the dissolution of PECO Energy Capital; and A-2 58 (ii) in whole or in part upon a redemption of the Series A Preferred Securities (as defined in the Indenture), but if in part, in an aggregate principal amount equal to the aggregate stated liquidation preference of the Series A Preferred Securities redeemed. The Series A Debentures are subject to redemption prior to maturity at any time on or after July 27, 1999 at the option of the Company, in whole or in part, at 100% of the principal amount thereof plus accrued interest to the redemption date. In the event of redemption of this Debenture in part only, a new Debenture or Debentures of this series for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of all of the Debentures may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions for defeasance at any time of the entire indebtedness of this Debenture upon compliance by the Company with certain conditions set forth therein. Subject to certain exceptions in the Indenture which require the consent of every Holder, (i) the Indenture or the Series A Debentures may be amended with the written consent of the Holders of a majority in aggregate principal amount of the Series A Debentures at the time outstanding, and (ii) certain defaults or noncompliance with certain provisions may be waived by the written consent of the Holders of a majority in aggregate principal amount of the Series A Debentures at the time outstanding. Subject to certain exceptions in the Indenture, without the consent of any Debentureholder, the Company and the Trustee may amend the Indenture or the Debentures to cure any ambiguity, defect or inconsistency, to bind a successor to the obligations of the Indenture, to provide for uncertificated Debentures in addition to certificated Debentures, to comply with any requirements of the Debentures and Exchange Commission in connection with the qualification of the Indenture under the TIA, or to make any change that does not adversely affect the rights of any Debentureholder. Amendments bind all Holders and subsequent Holders. No reference herein to the Indenture and no provision of this Debenture or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, A-3 59 to pay the principal of and premium, if any, and interest on this Debenture at the time and place and at the rate and in the money herein prescribed. The Company shall have the right at any time during the term of the Series A Debentures, from time to time to extend the interest payment period of such Debentures to up to 60 consecutive months (the "Extended Interest Payment Period"), at the end of which period the Company shall pay all interest then accrued and unpaid (together with interest thereon at the rate specified for the Series A Debentures to the extent that payment of such interest is enforceable under applicable law); provided that, during such Extended Interest Payment Period the Company shall not declare or pay any dividend on, redeem or purchase any of its capital stock. Prior to the termination of any such Extended Interest Payment Period, the Company may further extend such Extended Interest Payment Period, provided that such Period together with all such further extensions thereof shall not exceed 60 consecutive months. At the termination of any such Extended Interest Payment Period and upon the payment of all accrued and unpaid interest and any additional amounts then due, the Company may select a new Extended Interest Payment period. As provided in the Indenture and subject to certain limitations therein set forth, this Debenture is transferable by the registered holder hereof on the Debenture Register of the Company, upon surrender of this Debenture for registration of transfer at the office or agency of the Registrar accompanied by a written instrument or instruments of transfer in form satisfactory to the Company or the Trustee duly executed by the registered holder hereof or his attorney duly authorized in writing, and thereupon one or more new Debentures of authorized denominations and for the same aggregate principal amount and series will be issued to the designated transferee or transferees. No service charge will be made for any such transfer, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in relation thereto. Prior to presentment for registration of transfer of this Debenture, the Company, the Trustee, any paying agent and any Debenture Registrar may deem and treat the registered holder hereof as the absolute owner hereof (whether or not this Debenture shall be overdue and notwithstanding any notice of ownership or writing hereon made by anyone other than the Debenture Registrar) for the purpose of receiving payment of or on account of the principal hereof and premium, if any, and interest due hereon and for all other purposes, and neither the Company nor the Trustee nor any payment agent nor any Debenture Registrar shall be affected by any notice to the contrary. A-4 60 No recourse shall be had for the payment of the principal of or the interest on this Debenture, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture, against any incorporator, stockholder, officer or director, past, present or future, as such, of the Company or of any predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issuance hereof, expressly waived and released. Debentures of this series so issued are issuable only in registered form without coupons in denominations of $25 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Debentures of this series are exchangeable for a like aggregate principal amount of Debentures of this series of a different authorized denomination, as requested by the Holder surrendering the same. All terms used in this Debenture which are defined in the Indenture shall have the meanings assigned to them in the Indenture. This Debenture shall not be valid until an authorized officer of the Trustee manually signs the Trustee's Certificate of Authentication below. IN WITNESS WHEREOF, the Company has caused this Debenture to be signed manually or by facsimile by its duly authorized officers and a facsimile of its corporate seal to be affixed hereto or imprinted hereon. PECO ENERGY COMPANY By: -------------------------- Name: Morton W. Rimerman Title: Vice President - Finance and Treasurer Dated: July 27, 1994 TRUSTEE'S CERTIFICATE OF AUTHENTICATION THIS IS ONE OF THE DEBENTURES REFERRED TO IN THE WITHIN-MENTIONED INDENTURE. MERIDIAN TRUST COMPANY, as Trustee By: -------------------------- Name - ------------------------------ Authorized Signatory A-5 61 ASSIGNMENT FORM To assign this Debenture, fill in the form below: (I) or (we) assign and transfer this Debenture to: --------------------------------------------------------------- (Insert assignee's social security or tax I.D. number) --------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint ______________________________ agent to transfer this Debenture on the books of the Debenture Register. The agent may substitute another to act for him. Dated: Signature: ---------------- ------------------------ (Sign exactly as your name appears on the other side of this Debenture) Signature Guaranty: ------------------------ A-6 EX-99.M 14 FIRST SUPPLEMENTAL INDENTURE DATED 12/1/95 1 EXHIBIT M PECO ENERGY COMPANY AND MERIDIAN TRUST COMPANY, AS TRUSTEE FIRST SUPPLEMENTAL INDENTURE DATED AS OF __________ 1, 1995 TO INDENTURE DATED AS OF JULY 1, 1994 PROVIDING FOR THE ISSUANCE OF _____% DEFERRABLE INTEREST SUBORDINATED DEBENTURES, SERIES B 2 TABLE OF CONTENTS
Page ---- ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE ------------------------------------------ SECTION 1.01 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE 2 THE SERIES B DEBENTURES ----------------------- SECTION 2.01 Form of the Series B Debentures; Denominations . . . . . . . . . . . . . . . . . . 2 ARTICLE 3 REDEMPTION ----------- SECTION 3.01 Redemption; Notice to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . 3 SECTION 3.02. Compliance with Terms of Indenture . . . . . . . . . . . . . . . . . . . . . . . . 3 ARTICLE 4 EXTENSION PERIOD ---------------- SECTION 4.01 Limitation on Right of Company to Extend Interest Payment Period . . . . . . . . . 4 ARTICLE 5 CONCERNING THE TRUSTEE ---------------------- SECTION 5.01. Not Responsible for Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 SECTION 5.02. Qualification Under Trust Indenture Act of 1939 . . . . . . . . . . . . . . . . . 4 ARTICLE 6 MISCELLANEOUS ------------- SECTION 6.01 Trust Indenture Act Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 6.02 Severability Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 6.03 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 6.04 No Recourse Against Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 6.05. Use of Term "Trustee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 6.06. Confirmation of Original Indenture . . . . . . . . . . . . . . . . . . . . . . . . 6 SECTION 6.07 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 SECTION 6.08 Multiple Original Copies of this Indenture . . . . . . . . . . . . . . . . . . . . 6 SECTION 6.09 Table of Contents; Headings, Etc . . . . . . . . . . . . . . . . . . . . . . . . . 6 SECTION 6.10 Benefits of the Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 SECTION 6.11. Date of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(i) 3 FIRST SUPPLEMENTAL INDENTURE, dated as of 1, 1995, by and between PECO Energy Company, a Pennsylvania corporation (the "Company"), and Meridian Trust Company, a Pennsylvania trust company, as trustee (the "Trustee"), to an Indenture, dated as of July 1, 1994, by and between the Company and the Trustee (the "Original Indenture", together with this Supplemental Indenture, the "Indenture"). WHEREAS, the Company has formed a wholly owned subsidiary, PECO Energy Capital Corp., which is the general partner of PECO Energy Capital, L.P., a Delaware limited partnership ("PECO Energy Capital"), to issue in series from time to time its limited partner interests ("Preferred Securities") and to loan the proceeds thereof, together with the investment by PECO Energy Capital Corp. in PECO Energy Capital, to the Company and to effect other similar arrangements. WHEREAS, the Company has duly executed and delivered to the Trustee the Original Indenture to provide for the issue of one or more series of deferrable interest subordinated debentures (herein sometimes called the "Debentures"), issuable as in the Indenture provided, and authorized and issued the initial series of Debentures which were designated therein as the 9% Deferrable Interest Subordinated Debentures, Series A; and WHEREAS, the Company desires to effect the exchange of Trust Receipts, each representing a __% Cumulative Monthly Income Preferred Security, Series B of PECO Energy Capital for _______ Depositary Shares, each representing a one-fourth interest in a share of $7.96 Cumulative Preferred Stock of the Company and the Company has authorized the issuance of $_______ aggregate principal amount of its ____% Deferrable Subordinated Debentures, Series B (the "Series B Debentures") under this First Supplemental Indenture for such purpose; WHEREAS, all things necessary to make the Series B Debentures when duly issued and executed by the Company and authenticated and delivered hereunder, the valid obligations of the Company, and to make this Supplemental Indenture a valid and binding agreement of the Company, in accordance with its terms, have been done. NOW THEREFORE: Each of the Company and the Trustee, intending to be legally bound hereby, agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Series B Debentures: 4 ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01 DEFINITIONS. "Additional Interest", with respect to the Series B Debentures, means amounts, if any, which PECO Energy Capital would be required to pay as taxes, duties, assessments or governmental charges of whatever nature (other than withholding taxes) imposed by the United States, or any other taxing authority, with respect to the Series B Debentures. "Additional Payments" means an amount equal to interest on the principal amount of the Series B Debentures at the rate of 7.96% per annum from and including November 1, 1995 through but not including the Issue Date of the Series B Debentures, payable on the first interest payment date for the Series B Debentures. "Exchange Agent" means First Chicago Trust Company of New York in its capacity as the Exchange Agent under an Exchange Agreement dated as of _______, 1995 between the Company and the Exchange Agent. "Issue Date" means _____________, 1995. "Series B Debentures" means any of the Company's _____% Deferrable Interest Subordinated Debentures, Series B issued under this Supplemental Indenture. "Series B Debentureholder" or "Series B Holder" means a Person in whose name a Series B Debenture is registered on the Registrar's books. "Series B Preferred Securities" means the ___% Cumulative Monthly Income Preferred Securities, Series B, representing limited partner interests of PECO Energy Capital. Unless otherwise defined herein, all other capitalized terms used herein have the meanings set forth in the Original Indenture. ARTICLE 2 THE SERIES B DEBENTURES SECTION 2.01 FORM OF THE SERIES B DEBENTURES; DENOMINATIONS. The Series B Debentures and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A 2 5 attached hereto. The terms and provisions contained in the Series B Debentures, a form of which is annexed hereto as Exhibit A, shall constitute, and are hereby expressly made, a part of this Supplemental Indenture. The Company and the Trustee, by their execution and delivery of this First Supplemental Indenture, expressly agree to such terms and provisions and to be bound thereby. The Trustee shall authenticate and make available for delivery the Series B Debentures for original issue in the aggregate principal amount of $ upon receipt by the Trustee of a Board of Directors resolution and a written order of the Company signed by two Officers of the Company, but without any further action by the Company. Upon authentication by the Trustee, the Series B Debentures shall be delivered by the Trustee as follows: (i) $_________ of Series B Debentures shall be delivered to the Exchange Agent in exchange for Depositary Shares and subsequent delivery by the Exchange Agent (acting pursuant to the directions of the holders of such Depositary Shares) to PECO Energy Capital and (ii) $_________ of Series B Debentures shall be delivered to PECO Energy Capital as evidence of the Company's obligation with respect to the loan to the Company of the investment by PECO Energy Capital Corp. in PECO Energy Capital on the date of issuance of the Series B Subordinated Debentures. The Series B Debentures shall be issuable only in registered form without coupons and only in denominations of $25.00 and any integral multiple thereof attached hereto as Exhibit A. ARTICLE 3 REDEMPTION SECTION 3.01 REDEMPTION; NOTICE TO TRUSTEE. (a) The Series B Debentures are subject to redemption prior to maturity as provided in the form thereof attached hereto as Exhibit A. (b) If any or all of the Series B Debentures are to be redeemed pursuant to paragraph (a) above, in addition to the notices required by the Original Indenture, the Company shall give notice by first class mail, postage prepaid, to the Trustee at least 40 days prior to the date of such redemption. Any such notice of redemption shall state the date and price of redemption. SECTION 3.02. COMPLIANCE WITH TERMS OF INDENTURE. In case the Company shall desire to exercise such right to redeem all or any part of said Series B Debentures as 3 6 hereinbefore provided, it shall comply with all the terms and provisions of Article III of the Original Indenture applicable thereto, and such redemption shall be made under and subject to the terms and provisions of said Article III and in the manner and with the effect therein provided, but at the time or times and at the respective redemption rates and upon mailing of notice, all as hereinbefore set forth in Section 3.01 of this Article. ARTICLE 4 EXTENSION PERIOD SECTION 4.01 LIMITATION ON RIGHT OF COMPANY TO EXTEND INTEREST PAYMENT PERIOD. The Company agrees not to exercise its right under Section 4.01(b) of the Original Indenture to extend the interest payment period for the Debentures for up to 60 months until the Additional Payment has been paid in full. The Company also agrees that no extended interest payment period shall extend beyond the stated maturity date or redemption date of the Series B Debentures. ARTICLE 5 CONCERNING THE TRUSTEE The Trustee hereby reaffirms acceptance of the trust herein declared and provided and agrees to perform the same upon the terms and conditions set forth in the Indenture, as supplemented by this First Supplemental Indenture, and upon the following terms and conditions: SECTION 5.01. NOT RESPONSIBLE FOR RECITALS. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this First Supplemental Indenture or the due execution thereof by the Company or for or in respect of the recitals contained herein, all of which recitals are made solely by the Company. SECTION 5.02. QUALIFICATION UNDER TRUST INDENTURE ACT OF 1939. The Trustee hereby acknowledges that the Company proposes to qualify this First Supplemental Indenture under the Trust Indenture Act of 1939, as amended. 4 7 ARTICLE 6 MISCELLANEOUS SECTION 6.01 TRUST INDENTURE ACT CONTROLS. If any provision of this First Supplemental Indenture limits, qualifies or conflicts with the duties imposed by operation of subsection (c) of Section 318 of the TIA, the imposed duties shall control. The provisions of Sections 310 to 317, inclusive, of the TIA that impose duties on any Person (including provisions automatically deemed included in an indenture unless the indenture provides that such provisions are excluded) as a part of and govern this First Supplemental Indenture, except as, and to the extent, they are expressly excluded from this Supplemental Indenture, as permitted by the TIA. SECTION 6.02 SEVERABILITY CLAUSE. If any provision in this First Supplemental Indenture or in the Series B Debentures shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 6.03 GOVERNING LAW. This First Supplemental Indenture and the Series B Debentures shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania as applied to contracts made and performed within the Commonwealth of Pennsylvania, without regard to its principles of conflicts of laws. SECTION 6.04 NO RECOURSE AGAINST OTHERS. No director, officer, employee or stockholder, as such, of the Company shall have any liability for any obligations of the Company under the Series B Debentures or this First Supplemental Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Series B Debenture, each Series B Debentureholder shall waive and release all such liability. The waiver and release shall be part of the consideration for the issue of the Series B Debentures. SECTION 6.05. USE OF TERM "TRUSTEE". Unless otherwise clearly required by the context, the term, "Trustee," or any other equivalent term used in this First 5 8 Supplemental Indenture shall be held and construed to mean the trustee under the Indenture for the time being whether the original or a successor trustee. SECTION 6.06. CONFIRMATION OF ORIGINAL INDENTURE. As supplemented by this First Supplemental Indenture, the Original Indenture is in all respects ratified and confirmed, and this First Supplemental Indenture shall be read, taken and construed as a part of the Indenture so that all of the rights, remedies, terms, conditions, covenants and agreements of the Original Indenture shall apply and remain in full force and effect with respect to this First Supplemental Indenture and to the Series B Debentures issued hereunder. SECTION 6.07 SUCCESSORS. All agreements of the Company in this First Supplemental Indenture and the Series B Debentures shall bind its successors and assigns. All agreements of the Trustee in this First Supplemental Indenture shall bind its successors and assigns. SECTION 6.08 MULTIPLE ORIGINAL COPIES OF THIS INDENTURE. The parties may sign any number of copies of this First Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Any signed copy shall be sufficient proof of this First Supplemental Indenture. SECTION 6.09 TABLE OF CONTENTS; HEADINGS, ETC. The Table of Contents, Cross-Reference Table, and headings of the Articles and Sections of this First Supplemental Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof. SECTION 6.10 BENEFITS OF THE INDENTURE. Except as expressly provided in Article 10 of the Original Indenture, nothing in this First Supplemental Indenture or in the Series B Debentures, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, the Series B Holders and the Special Representative, any benefit or any legal or equitable right, remedy or claim under this First Supplemental Indenture. 6 9 SECTION 6.11. DATE OF INDENTURE. This First Supplemental Indenture is dated as of __________ 1, 1995, but was actually executed and delivered on __________ __, 1995. 7 10 SIGNATURES IN WITNESS WHEREOF, the undersigned, being duly authorized, have executed this First Supplemental Indenture on behalf of the respective parties hereto as of the date first above written. PECO ENERGY COMPANY By: ------------------------------- Name: ----------------------------- Title: ---------------------------- MERIDIAN TRUST COMPANY, AS TRUSTEE By: ------------------------------- Name: ----------------------------- Title: ---------------------------- PECO Energy Capital, L.P. By its General Partner, PECO Energy Capital Corp. By --------------------- Solely for the purposes stated in the recitals hereto. 8 11 EXHIBIT A _____% DEFERRABLE INTEREST SUBORDINATED DEBENTURES, SERIES B DUE 2025 No. 1 PECO Energy Company, a Pennsylvania corporation (the "Company"), which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to PECO Energy Capital, L.P. or registered assigns, the principal sum of ______________________________________ __________________________________ Dollars on _______ __, 2025, and to pay interest on said principal sum from __________ ___, 1995 (the "Issue Date") or from the most recent interest payment date (each such date, an "Interest Payment Date") to which interest has been paid or duly provided for, monthly in arrears on the last day of each calendar month of each year commencing __________ 1, 1995 at the rate of ___% per annum plus Additional Interest, if any, until the principal hereof shall have become due and payable, and on any overdue principal and premium, if any, and (to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the same rate per annum. The Company also promises to pay to PECO Energy Capital, L.P. or registered assigns on _________, 1995 an amount (the "Additional Payment") equal to interest on the principal amount hereof at the rate of 7.96% per annum from and including November 1, 1995 through but not including the Issue Date. If at any time PECO Energy Capital, L.P. ("PECO Energy Capital") would be required to pay any taxes, duties, or other governmental charges (other than withholding taxes) imposed by the United States, or any other taxing authority, then, in any such case, the Company also will pay as Additional Interest such amounts as shall be required so that the net amounts received and retained by 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, assessments or other governmental charges been imposed. The amount of interest payable on any Interest Payment Date (and the Additional Payment) shall be computed on the basis of a 360-day year of twelve 30-day months. In the event that any date on which interest is payable on the Series B Debentures is not a Business Day, then payment of interest 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 is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, A-1 12 in each case with the same force and effect as if made on such date. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the person in whose name this Debenture is registered at the close of business on the regular record date for such interest installment, which shall be the fifteenth day of the month of, or in the case of an Interest Payment Date which is on the first Business Day of a month, the fifteenth day of the month next preceding, such Interest Payment Date, provided that the record date for the interest installment payable on December 29, 1995 shall be the date of issuance of this Debenture. Any such interest installment not punctually paid or duly provided for shall forthwith cease to be payable to the registered holders on such regular record date, and may be paid to the person in whose name this Debenture is registered at the close of business on a special record date to be fixed by the Trustee for the payment of such defaulted interest, notice whereof shall be given to the registered holders of this series of Debentures not less than 10 days prior to such special record date, as more fully provided in the Indenture hereinafter referred to. The principal of (and premium, if any) and the interest on this Debenture shall be payable at the office or agency of the Company maintained for that purpose in Wilmington, Delaware in any coin or currency of the United States of America which at the time of payment is legal tender for payment of public and private debts; provided however, that payment of interest may be made at the option of the Company by check mailed to the registered holder at such address as shall appear in the Debenture Register. Notwithstanding the foregoing, so long as the holder of this Debenture is PECO Energy Capital, the payment of the principal of (and premium) and interest (including the Additional Payment and Additional Interest, if any) in this Debenture will be made at such place and to such account as may be designated by PECO Energy Capital. The indebtedness evidenced by this Debenture is, to the extent provided in the Indenture, subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness, and this Debenture is issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Debenture, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on its behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination so provided and (c) appoints the Trustee its attorney-in-fact for any and all such purposes. Each Holder hereof, by its acceptance hereof, hereby waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Indebtedness, whether now outstanding or hereafter incurred, and waives reliance by each such Holder upon said provisions. A-2 13 This Debenture is one of a duly authorized series of Debentures of the Company (herein sometimes referred to as the "Series B Debentures"), specified in the Indenture, limited in aggregate principal amount as specified in the Indenture, issued under and pursuant to an Indenture dated as of July 1, 1994, as supplemented by a First Supplemental Indenture, dated as of __________ 1, 1995 (as supplemented, the "Indenture") executed and delivered between the Company and Meridian Trust Company, as trustee (the "Trustee") to which reference is made to the Indenture for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the holders of the Debentures. By the terms of the Indenture, Debentures are issuable in series which may vary as to amount, date of maturity, rate of interest and in other respects as in the Indenture provided. The Series B Debentures are subject to mandatory redemption prior to maturity at 100% of the principal amount thereof plus accrued interest to the redemption date as follows: (i) in whole upon the dissolution of PECO Energy Capital; and (ii) in whole or in part upon a redemption of the Series B Preferred Securities (as defined in the Indenture), but if in part, in an aggregate principal amount equal to the aggregate stated liquidation preference of the Series B Preferred Securities redeemed. At the option of the Company, the Series B Debentures are subject to redemption prior to maturity (i) at any time on or after October 1, 1997 at the option of the Company, in whole or in part, and (ii) if a Tax Event shall occur and be continuing, in whole (but not in part), and in each case at 100% of the principal amount thereof plus accrued interest to the redemption date. "Tax Event" shall mean that PECO Energy Capital shall have received an opinion of counsel (which may be regular counsel to the Company or an Affiliate, but not an employee thereof) experienced in such matters to the effect that, as a result of any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein affecting taxation, or as a result of any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or such interpretation or pronouncement is announced on or after the date of original issuance of the Series B Preferred Securities, there is more than an insubstantial risk that (i) PECO Energy Capital is subject to United States Federal income tax with respect to interest A-3 14 received on the Debentures or PECO Energy Capital will otherwise not be taxed as a partnership, (ii) interest payable by the Company to PECO Energy Capital on the Series B Debentures will not be deductible for United States 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. In the event of redemption of this Debenture in part only, a new Debenture or Debentures of this series for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of all of the Debentures may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions for defeasance at any time of the entire indebtedness of this Debenture upon compliance by the Company with certain conditions set forth therein. Subject to certain exceptions in the Indenture which require the consent of every Holder, (i) the Indenture or the Series B Debentures may be amended with the written consent of the Holders of a majority in aggregate principal amount of the Series B Debentures at the time outstanding, and (ii) certain defaults or noncompliance with certain provisions may be waived by the written consent of the holders of a majority in aggregate principal amount of the Series B Debentures at the time outstanding. Subject to certain exceptions in the Indenture, without the consent of any Debentureholder, the Company and the Trustee may amend the Indenture or the Debentures to cure any ambiguity, defect or inconsistency, to bind a successor to the obligations of the Indenture, to provide for uncertificated Debentures in addition to certificated Debentures, to comply with any requirements of the Debentures or the Securities and Exchange Commission in connection with the qualification of the Indenture under the TIA, or to make any change that does not adversely affect the rights of any Debentureholder. Amendments bind all Holders and subsequent Holders. No reference herein to the Indenture and no provision of this Debenture or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and premium, if any, and interest on this Debenture at the time and place and at the rate and in the money herein prescribed. A-4 15 After payment in full of the Additional Payment, the Company shall have the right at any time during the term of the Series B Debentures, from time to time to extend the interest payment period of such Debentures to up to 60 consecutive months (the "Extended Interest Payment Period"), at the end of which period the Company shall pay all interest then accrued and unpaid (together with interest thereon at the rate specified for the Series B Debentures to the extent that payment of such interest is enforceable under applicable law); provided that, during such Extended Interest Payment Period the Company shall not declare or pay any dividend on, redeem or purchase any of its capital stock. Prior to the termination of any such Extended Interest Payment Period, the Company may further extend such Extended Interest Payment Period, provided that such Period together with all such further extensions thereof shall not exceed 60 consecutive months. At the termination of any such Extended Interest Payment Period and upon the payment of all accrued and unpaid interest and any additional amounts then due, the Company may select a new Extended Interest Payment period. As provided in the Indenture and subject to certain limitations therein set forth, this Debenture is transferable by the registered holder hereof on the Debenture Register of the Company, upon surrender of this Debenture for registration of transfer at the office or agency of the Registrar accompanied by a written instrument or instruments of transfer in form satisfactory to the Company or the Trustee duly executed by the registered holder hereof or its attorney duly authorized in writing, and thereupon one or more new Debentures of authorized denominations and for the same aggregate principal amount and series will be issued to the designated transferee or transferees. No service charge will be made for any such transfer, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in relation thereto. Prior to presentment for registration of transfer of this Debenture, the Company, the Trustee, any paying agent and any Debenture Registrar may deem and treat the registered holder hereof as the absolute owner hereof (whether or not this Debenture shall be overdue and notwithstanding any notice of ownership or writing hereon made by anyone other than the Debenture Registrar) for the purpose of receiving payment of or on account of the principal hereof and premium, if any, and interest due hereon and for all other purposes, and neither the Company nor the Trustee nor any payment agent nor any Debenture Registrar shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of or the interest on this Debenture, or for any claim based hereon, or otherwise in respect hereof, or based on or in A-5 16 respect of the Indenture, against any incorporator, stockholder, officer or director, past, present or future, as such, of the Company or of any predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issuance hereof, expressly waived and released. Debentures of this series so issued are issuable only in registered form without coupons in denominations of $25 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Debentures of this series are exchangeable for a like aggregate principal amount of Debentures of this series of a different authorized denomination, as requested by the Holder surrendering the same. All terms used in this Debenture which are defined in the Indenture shall have the meanings assigned to them in the Indenture. This Debenture shall not be valid until an authorized officer of the Trustee manually signs the Trustee's Certificate of Authentication below. IN WITNESS WHEREOF, the Company has caused this Debenture to be signed manually or by facsimile by its duly authorized officers and a facsimile of its corporate seal to be affixed hereto or imprinted hereon. PECO ENERGY COMPANY (Seal) By: -------------------------- Name: Title: Attest: ----------------------- Dated: , 1995 ------- -- TRUSTEE'S CERTIFICATE OF AUTHENTICATION THIS IS ONE OF THE DEBENTURES REFERRED TO IN THE WITHIN-MENTIONED INDENTURE. MERIDIAN TRUST COMPANY, as Trustee By: -------------------------- Name - ------------------------------ Authorized Signatory A-6 EX-99.N 15 PAYMENT AND GUARANTEE AGREEMENT OF PECO ENERGY 1 EXHIBIT N PAYMENT AND GUARANTEE AGREEMENT THIS PAYMENT AND GUARANTEE AGREEMENT ("Guarantee Agreement"), dated as of ________________, 1995, is executed and delivered by PECO Energy Company, a Pennsylvania corporation (the "Guarantor"), for the benefit of the Holders (as defined below) of the Series B Preferred Securities (as defined below) of PECO Energy Capital, L.P., a Delaware limited partnership ("PECO Energy Capital"), the general partner of which is PECO Energy Capital Corp. (the "General Partner"), a Delaware corporation and a wholly owned subsidiary of the Guarantor. WHEREAS, PECO Energy Capital is issuing on the date hereof $_________________ aggregate stated liquidation preference of limited partner interests of a series designated the __% Cumulative Monthly Income Preferred Securities, Series B (the "Series B Preferred Securities"), and the Guarantor desires to enter into this Guarantee Agreement for the benefit of the Holders, as provided herein; WHEREAS, the Guarantor will issue Series B Subordinated Debentures (as defined below) in accordance with the Indenture (as defined below) to PECO Energy Capital in an amount equal to the aggregate stated liquidation preference of the Series B Preferred Securities and the capital contribution of the General Partner to PECO Energy Capital (the "G.P. Capital Contribution"); and WHEREAS, the Guarantor desires to irrevocably and unconditionally agree to the extent set forth herein to pay to the Holders the Guarantee Payments (as defined below) and to make certain other undertakings on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises and other consideration, receipt of which is hereby acknowledged, the Guarantor, intending to be legally bound hereby, agrees as follows: ARTICLE I As used in this Guarantee Agreement, each term set forth below, unless the context otherwise requires, shall have the following meaning. Each capitalized term used but not otherwise defined herein shall have the meaning assigned to such term in the Amended and Restated Limited Partnership Agreement of PECO Energy Capital dated as of July 25, 1994 (as amended from time to time, the "Limited Partnership Agreement"). 2 "Guarantee Payments" shall mean the following payments, without duplication, to the extent not paid by PECO Energy Capital: (i) any accumulated and unpaid monthly distributions on the Series B Preferred Securities out of moneys legally available therefor held by PECO Energy Capital, (ii) the Redemption Price (as defined below) payable with respect to any Series B Preferred Securities called for redemption by PECO Energy Capital out of moneys legally available therefor held by PECO Energy Capital, (iii) upon liquidation of PECO Energy Capital, the lesser of (a) the Liquidation Distribution (as defined below) and (b) the amount of assets of PECO Energy Capital available for distribution to the Holders in liquidation of PECO Energy Capital, and (iv) a cash distribution at the rate of 7.96% per annum of the stated liquidation preference of $25 per Series B Preferred Security accumulating from November 1, 1995 through but not including , 1995. "Holders" shall mean the persons or entities in whose name any Series B Preferred Securities are registered on the registration books maintained by PECO Energy Capital; provided, however, that in determining whether the Holders of the requisite percentage of Series B Preferred Securities have given any request, notice, consent or waiver hereunder, "Holder" shall not include the Guarantor or any entity owned more than 50% by the Guarantor, either directly or indirectly. "Indenture" shall mean the Indenture, dated as of July 1, 1994 (the "Original Indenture"), as supplemented by the Supplemental Indenture, between the Guarantor and Meridian Trust Company, pursuant to which the Guarantor has issued and will issue its Deferrable Interest Subordinated Debentures in series. "Liquidation Distribution" shall mean the aggregate of the stated liquidation preference of $25 per Series B Preferred Security and all accumulated and unpaid distributions to the date of payment. "Preferred Trust Receipts" shall mean the trust receipts issued by the Trust each representing a Series B Preferred Security. "Redemption Price" shall mean the aggregate of $25 per Series B Preferred Security and all accumulated and unpaid distributions to the date fixed for redemption. "Special Representative" shall mean any representative of the Holders appointed pursuant to Section 13.02(d) of the Limited Partnership Agreement. "Supplemental Indenture" shall mean the First Supplemental Indenture, dated as of ________, 1995, between the Guarantor and Meridian Trust Company, pursuant to which the Guarantor has issued its __% Deferrable Interest Subordinated Debentures, Series B (the "Series B Subordinated Debentures") in 2 3 an amount equal to the aggregate stated liquidation preference of the Series B Preferred Securities and the G.P. Capital Contribution. "Trust" shall mean PECO Energy Capital Trust I, a Delaware business trust. "Trust Agreement" shall mean the Amended and Restated Trust Agreement of PECO Energy Capital Trust I, as amended from time to time, among PECO Energy Capital, L.P., as Grantor and PNC Bank, Delaware, as Trustee, dated as of _______, 1995. "Trustee" shall mean PNC Bank, Delaware or a successor trustee under the Trust Agreement. ARTICLE II SECTION 2.01. The Guarantor hereby irrevocably and unconditionally agrees to pay in full to the Holders 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 set-off or counterclaim which the Guarantor may have or assert against PECO Energy Capital, the General Partner, the Trust or the Trustee. The Guarantor's obligation to make a Guarantee Payment may be satisfied by direct payment by the Guarantor to the Holders or by payment of such amounts by PECO Energy Capital to the Holders. Notwithstanding anything to the contrary herein, the Guarantor retains all of its rights under Section 4.01(b) of the Indenture to extend the interest payment period on the Series B Subordinated Debentures and the Guarantor shall not be obligated hereunder to pay during an Extension Period any monthly distributions on the Series B Preferred Securities which are not paid by PECO Energy Capital during such Extension Period. SECTION 2.02. The Guarantor hereby waives notice of acceptance of this Guarantee Agreement and of any liability to which it applies or may apply, presentment, demand for payment, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands. SECTION 2.03. Except as otherwise set forth herein, the obligations, covenants, agreements and duties of the Guarantor under this Guarantee Agreement shall in no way be affected or impaired by reason of the happening from time to time of any of the following: (a) the release or waiver, by operation of law or otherwise, of the performance or observance by PECO Energy Capital of any express or implied agreement, covenant, term or condition relating to the Series B Preferred Securities to be performed or observed by PECO Energy Capital; (b) the extension of time for the payment by PECO Energy Capital of all or any portion of the distributions, 3 4 Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Series B Preferred Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Series B Preferred Securities; (c) any failure, omission, delay or lack of diligence on the part of the Holders or the Special Representative to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders or the Special Representative pursuant to the terms of the Series B Preferred Securities, or any action on the part of PECO Energy Capital granting indulgence or extension of any kind; (d) the voluntary or involuntary liquidation, dissolution, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, PECO Energy Capital or any of the assets of PECO Energy Capital; (e) any invalidity of, or defect or deficiency in, any of the Series B Preferred Securities; or (f) the settlement or compromise of any obligation guaranteed hereby or hereby incurred. There shall be no obligation to the Holders to give notice to, or obtain the consent of, the Guarantor with respect to the occurrence of any of the foregoing. SECTION 2.04. The Guarantor expressly acknowledges that (i) this Guarantee Agreement will be deposited with the General Partner to be held for the benefit of the Holders; (ii) in the event of the appointment of a Special Representative, the Special Representative may enforce this Guarantee Agreement for such purpose; (iii) if no Special Representative has been appointed, the General Partner has the right to enforce this Guarantee Agreement on behalf of the Holders; (iv) the holders of Preferred Trust Receipts, together with the holders of the Series B Preferred Securities other than the Trust, representing not less than 10% in aggregate stated liquidation preference of the Series B Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available in respect of this Guarantee Agreement including the giving of directions to the General Partner or the Special Representative as the case may be; and (v) if the General Partner or the Special Representative fails to enforce this Guarantee Agreement as above provided, any holder of Preferred Trust Receipts, together with the holders of the Series B Preferred Securities other than the Trust, representing Series B Preferred Securities may institute a legal proceeding directly against the Guarantor to enforce its rights under this Guarantee 4 5 Agreement, without first instituting a legal proceeding against PECO Energy Capital or any other person or entity. SECTION 2.05. This is a guarantee of payment and not of collection. The General Partner or Special Representative may enforce this Guarantee Agreement directly against the Guarantor, and the Guarantor will waive any right or remedy to require that any action be brought against PECO Energy Capital or any other person or entity before proceeding against the Guarantor. The Guarantor agrees that this Guarantee Agreement shall 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 the Guarantor contained in this Guarantee Agreement. SECTION 2.06. The Guarantor will be subrogated to all rights of the Holders against PECO Energy Capital in respect of any amounts paid to the Holders by the Guarantor under this Guarantee Agreement and shall have the right to waive payment by PECO Energy Capital pursuant to Section 2.01; provided, however, that the Guarantor shall not (except to the extent required by mandatory provisions of law) exercise any rights which it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of a payment under this Guarantee Agreement, if, at the time of any such payment, any amounts remain due and unpaid under this Guarantee Agreement. If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to pay over such amount to the Holders. SECTION 2.07. The Guarantor acknowledges that its obligations hereunder are independent of the obligations of PECO Energy Capital with respect to the Series B Preferred Securities and that the Guarantor shall be liable as principal and sole debtor hereunder to make Guarantee Payments pursuant to the terms of this Guarantee Agreement notwithstanding the occurrence of any event referred to in subsections (a) through (f), inclusive, of Section 2.03 hereof. ARTICLE III SECTION 3.01. So long as any Series B Preferred Securities remain outstanding, neither the Guarantor nor any majority-owned subsidiary of the Guarantor shall declare or pay any dividend on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock (other than dividends by a wholly owned subsidiary) if at such time the Guarantor shall be in default with respect to its payment or other obligations hereunder or there shall have occurred any event that, with the giving of notice or the lapse 5 6 of time or both, would constitute an Event of Default under the Indenture. The Guarantor shall take all actions necessary to ensure the compliance of its subsidiaries with this Section 3.01. SECTION 3.02. So long as any Series B Preferred Securities are outstanding, the Guarantor agrees to maintain its corporate existence; provided that the Guarantor may consolidate with or merge with or into, or sell, convey, transfer or lease all or substantially all of its assets (either in one transaction or a series of transactions) to, any person, corporation, partnership, limited liability company, joint venture association, joint stock company, trust or unincorporated association if such entity formed by or surviving such consolidation or merger or to which such sale, conveyance, transfer or lease shall have been made, if other than the Guarantor, (i) is organized and existing under the laws of the United States of America or any state thereof or the District of Columbia, and (ii) shall expressly assume all the obligations of the Guarantor under this Guarantee Agreement. SECTION 3.03. This Guarantee Agreement will constitute an unsecured obligation of the Guarantor and will rank subordinate and junior in right of payment to all general liabilities of the Guarantor. ARTICLE IV This Guarantee Agreement shall terminate and be of no further force and effect upon full payment of the Redemption Price of all Series B Preferred Securities or upon full payment of the amounts payable to the Holders upon liquidation of PECO Energy Capital; provided, however, that this Guarantee Agreement shall continue to be effective or shall be reinstated, as the case may be, if at any time the Holders must restore payments of any sums paid under the Series B Preferred Securities or under this Guarantee Agreement for any reason whatsoever. ARTICLE V SECTION 5.01. All guarantees and agreements contained in this Guarantee Agreement shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders. Except as provided in Section 3.02, the Guarantor may not assign its obligations hereunder without the prior approval of the Holders of not less than 66 2/3% of the aggregate stated liquidation preference of all Series B Preferred Securities then outstanding. 6 7 SECTION 5.02. This Guarantee Agreement may only be amended by a written instrument executed by the Guarantor; provided that, so long as any of the Series B Preferred Securities remain outstanding, any amendment that materially adversely affects the Holders, any termination of this Guarantee Agreement and any waiver of compliance with any covenant hereunder shall be effected only with the prior approval of the holders of Preferred Trust Receipts, together with the holders of Series B Preferred Securities other than the Trust, representing not less than 66 2/3% of the aggregate liquidation preference of all Series B Preferred Securities then outstanding. SECTION 5.03. All notices, requests or other communications required or permitted to be given hereunder to the Guarantor shall be deemed given if in writing and delivered personally or by recognized overnight courier or express mail service or by facsimile transmission (confirmed in writing) or by registered or certified mail (return receipt requested), addressed to the Guarantor at the following address (or at such other address as shall be specified by like notice to the Holders): PECO Energy Company 2301 Market Street P.O. Box 8699 Philadelphia, Pennsylvania 19101 Facsimile No.: (215) 841-5743 Attention: Treasurer All notices, requests or other communications required or permitted to be given hereunder to the Holders shall be deemed given if in writing and delivered by the Guarantor in the same manner as notices sent by PECO Energy Capital to the Holders. SECTION 5.04. This Guarantee Agreement is solely for the benefit of the Holders and is not separately transferable from the Series B Preferred Securities. SECTION 5.05. This Guarantee Agreement shall be governed by and construed and interpreted in accordance with the laws of the Commonwealth of Pennsylvania without giving effect to the conflict of law principles thereof. 7 8 THIS GUARANTEE AGREEMENT is executed as of the day and year first above written. PECO ENERGY COMPANY By: ----------------------------------- Name: Title: 8 EX-99.O 16 TAX OPINION OF BALLARD SPAHR ANDREWS & INGERSOLL 1 EXHIBIT O October 24, 1995 PECO Energy Company 2301 Market Street Philadelphia, PA 19103 Ladies and Gentlemen: We have acted as special counsel to you (the "Company") in connection with the registration of Preferred Trust Receipts representing Cumulative Monthly Income Preferred Securities, Series B of PECO Energy Capital, L.P., a Delaware limited partnership and the registration of the related Payment and Guarantee Agreement and Deferrable Interest Subordinated Debentures, Series B of the Company and hereby confirm to you our opinion as set forth under the heading "United States Taxation" in the Offering Circular/Prospectus included in the Registration Statement filed on Form S-4. Very truly yours, Ballard Spahr Andrews & Ingersoll EX-99.P 17 MERRILL LYNCH RESEARCH MEMORANDUM 1 EXHIBIT P [MERRILL LYNCH LOGO] Preferred Stock Exchange Offer MERRILL LYNCH & CO. =============================================================================== M. L. LEAD DEALER MANAGER ATTENTION: REGIONAL MANAGERS SALES MANAGERS FINANCIAL CONSULTANTS NOVEMBER 6, 1995 PECO ENERGY COMPANY OFFER TO EXCHANGE (THE "EXCHANGE OFFER") PREFERRED TRUST RECEIPTS ("TOPRS(SM)") EACH REPRESENTING A 8.72% CUMULATIVE MONTHLY INCOME PREFERRED SECURITY, SERIES B OF PECO ENERGY CAPITAL, L.P. (STATED LIQUIDATION PREFERENCE $25 PER PREFERRED SECURITY) FOR UP TO 5,400,000 OUTSTANDING DEPOSITARY SHARES EACH REPRESENTING A ONE-FOURTH INTEREST IN A SHARE OF $7.96 CUMULATIVE PREFERRED STOCK OF PECO ENERGY COMPANY THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON DECEMBER 13, 1995, UNLESS THE OFFER IS EXTENDED. SUMMARY HIGHLIGHTS SEE "RISK FACTORS" IN THE OFFERING CIRCULAR/PROSPECTUS AND HEREIN FOR A DISCUSSION OF CERTAIN FACTORS RELATING TO THE PREFERRED TRUST RECEIPTS THAT SHOULD BE CONSIDERED BY INVESTORS, INCLUDING THE PERIOD DURING WHICH AND CERTAIN CIRCUMSTANCES UNDER WHICH DISTRIBUTIONS ON THE UNDERLYING SERIES B PREFERRED SECURITIES MAY BE DEFERRED AND THE RELATED FEDERAL INCOME TAX CONSEQUENCES. - - HOLDERS OF THE DEPOSITARY SHARES SHOULD BE ADVISED OF THE FOLLOWING: PECO ENERGY COMPANY ("PECO ENERGY") WILL PAY MERRILL LYNCH A FEE FOR EACH DEPOSITARY SHARE VALIDLY TENDERED FOR EXCHANGE AND NOT WITHDRAWN PURSUANT TO THE EXCHANGE OFFER. - - COMMISSIONS/FEES/TRANSFER TAXES: Holders who tender Depositary Shares in the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Depositary Shares pursuant to the Exchange Offer. A solicitation fee of $0.50 per Depositary Share validly tendered and accepted for exchange pursuant to the Exchange Offer will be paid by PECO Energy to Soliciting Dealers designated by the record or beneficial owner, as appropriate, of Depositary Shares. Soliciting Dealers should take care to ensure proper record-keeping to document their entitlement to any soliciting dealer fee. Soliciting Dealers are not entitled to a solicitation fee for the Depositary Shares beneficially owned by such Soliciting Dealer. - - EXPECTED RATINGS: Preferred Trust Receipts Ratings: "baa2"/BBB. Series B Preferred Securities Ratings: "baa2"/BBB. - - DISTRIBUTION RATE: The rate of Distributions on the Preferred Trust Receipts will be 76 basis points greater than the dividend rate on the Depositary Shares. No portion of the amounts received on the Preferred Trust Receipts will be eligible for the dividends received deduction. - - DISTRIBUTION EXTENSION : PECO Energy has the right to extend interest payment periods on the Series B Subordinated Debentures for up to 60 consecutive months, and, as a consequence, monthly Distributions on the Series B Preferred Securities will be deferred by PECO Energy Capital during any such extended interest payment period. Distributions in arrears after the monthly payment date therefor will accumulate additional distributions thereon at the rate per annum of 8.72% thereof. Should an extended interest payment period occur, PECO Energy Capital will continue to accrue income for tax purposes which will be allocated, but not distributed, to the holders of the Preferred Trust Receipts, as the owners for tax purposes of the Series B Preferred Securities represented by the Preferred Trust Receipts. As a result, the owner will include such interest in gross income for tax purposes in advance of the receipt of cash. - - THE EXCHANGE OFFER: PECO Energy is offering to exchange Preferred Trust Receipts each representing a 8.72% Cumulative Monthly Income Preferred Security, Series B, representing a limited partner interest issued by PECO Energy Capital, L.P., a limited partnership, for up to 5,400,000 Depositary Shares, each representing a one-fourth interest in a share of $7.96 Cumulative Preferred Stock of PECO Energy. The Exchange Offer will be made on the basis of one Preferred Trust Receipt for each Depositary Share validly tendered and accepted for exchange in the Exchange Offer. The Exchange Offer is subject to the condition (which may be waived by PECO Energy) that a minimum of 2,800,000 Depositary Shares shall have been tendered and not withdrawn prior to the expiration of the Exchange Offer. - - PURPOSE OF THE EXCHANGE OFFER: The purpose of the Exchange Offer is to reduce the after-tax financing costs of PECO Energy through the replacement of Depositary Shares with Preferred Trust Receipts. - - PROCEDURES FOR TENDERING: In order to participate in the Exchange Offer, holders of Depositary Shares must either submit a Letter of Transmittal, (or an Agent's Message, if applicable) or submit a Notice of Guaranteed Delivery and comply with the other procedures for tendering in accordance with the instructions contained in the Offering Circular/Prospectus and in the Letter of Transmittal prior to the Expiration Date. - - TAXABLE TRANSACTION: The Exchange Offer will be a taxable event under applicable tax laws. It is anticipated that persons who hold Preferred Trust Receipts as nominees for beneficial holders will report the required tax information to beneficial holders on Form 1099. (SM) "TOPrS" is a service mark of Merrill Lynch & Co., Inc. FOR INTERNAL USE ONLY This memorandum relates to an Exchange Offer. It is merely a summary for informational purposes for Merrill Lynch personnel; it should be read with and is qualified in its entirety by the Offering Document(s). Under no circumstances may a copy of this report be shown, quoted or given to any member of the public. Under no circumstances is it to be used or considered as recommendation to buy or sell any security and is not to be used to solicit tenders of shares. All financial consultants should read the Offering Circular/Prospectus and the accompanying Letter of Transmittal before discussing the Exchange Offer with Shareholders. 2 THE EXCHANGE OFFER This information is to be read with and is qualified in its entirety by the more detailed information and financial data contained in the Offering Circular/Prospectus. The capitalized terms used herein and not otherwise defined are as defined in the Offering Circular/Prospectus. The Offeror.............................. PECO Energy Company Securities to be Issued.................. Preferred Trust Receipts ("TOPrS") each representing a 8.72% Cumulative Monthly Income Preferred Security, Series B of PECO Energy Capital L.P., with stated liquidation preference of $25 per Preferred Security (referred to as the "Series B Preferred Securities") Depositary Shares Sought................. Up to 5,400,000 Depositary Shares, each representing a one-fourth interest in a share of $7.96 Cumulative Preferred Stock of PECO Energy Company. If more than 5,400,000 Depositary Shares are validly tendered, acceptance of Depositary Shares of each tendering Holder will be pro rated. Purpose of the Exchange Offer............ The purpose of the Offer is to reduce the after-tax financing costs of PECO Energy through the replacement of Depositary Shares with Preferred Trust Receipts. Although the Distribution Rate on the Preferred Trust Receipts will be higher than the dividend rate on the Depositary Shares, PECO Energy will deduct interest payable on the Series B Subordinated Debentures for federal income tax purposes; dividends payable on the Depositary Shares are not deductible by PECO Energy for federal income tax purposes. Terms of the Exchange Offer.............. Upon the terms and subject to the conditions set forth in the Offering Circular/Prospectus and in the Letter of Transmittal, PECO Energy will offer to effect an exchange of Preferred Trust Receipts, each representing a Series B Preferred Security, for up to 5,400,000 outstanding Depositary Shares. The exchange of Preferred Trust Receipts for Depositary Shares will be effected by (a) the delivery by PECO Energy of its Series B Subordinated Debentures to the Exchange Agent, which will receive the Series B Subordinated Debentures on behalf of the Holders of the Depositary Shares, in exchange for Depositary Shares, (b) the delivery by the Exchange Agent (acting pursuant to the directions of the Holders of Depositary Shares) of the Series B Subordinated Debentures to PECO Energy Capital in consideration for the issuance and deposit by PECO Energy Capital of the Series B Preferred Securities to the Trust under an Amended and Restated Trust Agreement with PNC Bank, Delaware, as Trustee and (c) the issuance and delivery by the Trust of the Preferred Trust Receipts to the Exchange Agent for distribution to the former Holders of the Depositary Shares. Holders of Depositary Shares will not have the right to retain the Series B Subordinated Debentures delivered to the Exchange Agent in exchange for Depositary Shares validly tendered and accepted. The Exchange Offer will be made on the basis of one Preferred Trust Receipt for each Depositary Share validly tendered and accepted for exchange in the Exchange Offer. Procedures for Tendering................. In order to participate in the Exchange Offer, Holders of Depositary Shares must submit a Letter of Transmittal or Agent's Message or submit a Notice of Guaranteed Delivery and comply with the other procedures for tendering in accordance with instructions contained in the Offering Circular/Prospectus and in the Letter of Transmittal prior to the Expiration Date. Beneficial Owners........................ Any beneficial owner of Depositary Shares registered in the name of a broker/dealer, commercial bank, trust company or other nominee who wishes to tender must instruct such registered holder to tender on behalf of such beneficial owner.
3 Expiration Date; Exchange Date; Withdrawal Rights........................ The Exchange Offer and the Withdrawal Rights will expire at 12:00 midnight, New York City time, on December 13, 1995, unless the Exchange Offer is extended by PECO Energy in its sole discretion or as required by law. Merrill Lynch will stop accepting orders on December 12, 1995 at 6:30pm, Eastern Standard Time. The date of issuance of the Preferred Trust Receipts will be as soon as practicable following the Expiration Date or up to 12 Business Days following the Expiration Date if proration of tendered Depositary Shares is required. Tenders of the Depositary Shares pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date and, unless accepted for exchange, at any time after 40 Business Days from November 8, 1995. Amendments; Termination.................. PECO Energy may amend or terminate the Exchange Offer and not accept any Depositary Shares at any time prior to the Expiration Date, provided PECO Energy will not accept Depositary Shares if as of the Expiration Date there would be fewer than 1,000,000 Preferred Trust Receipts to be issued or 400 record or beneficial holders of Preferred Trust Receipts to be issued as a result of the Exchange. Solicitation Fee......................... Not payable by shareholders. A solicitation fee of $0.50 per Depositary Share validly tendered and accepted for exchange pursuant to the Exchange Offer will be paid by PECO Energy to Soliciting Dealers designated by the record or beneficial owner, as appropriate, of Depositary Shares. Soliciting Dealers should take care to ensure proper record-keeping to document their entitlement to any soliciting dealer fee. Soliciting Dealers are not entitled to a solicitation fee for Depositary Shares beneficially owned by such Soliciting Dealer. Holders of Depositary Shares should be advised of the following: PECO Energy will pay Merrill Lynch a fee for each Depositary Share validly tendered and accepted for exchange pursuant to the Exchange Offer. Transfer Tax............................. PECO Energy will pay all transfer taxes, if any, applicable to the exchange of Depositary Shares pursuant to the Exchange Offer. If, however, Depositary Shares not accepted for exchange, are to be delivered to, or are to be issued in the name of, any person other than the registered Holder of the Depositary Shares tendered or if a transfer tax is imposed for any reason other than the exchange of Depositary Shares pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered Holder or any other persons) will be payable by the tendering Holder. Exchange Agent; Information Agent........ First Chicago Trust Company of New York has been appointed as Exchange Agent in connection with the Exchange Offer. Questions and requests for assistance regarding the Exchange Offer, requests for additional copies of the Offering Circular/Prospectus, the Letter of Transmittal and requests for Notice of Guaranteed Delivery should be directed to D.F. King & Co., Inc. which has been appointed to act as Information Agent for the Exchange Offer, at 77 Water Street, New York, New York 10005. Banks and brokers call (212) 425-1685; all others telephone (800) 628-8509. Dealer Managers.......................... Merrill Lynch & Co. and Smith Barney Inc. have been retained as Dealer Managers (the "Dealer Managers") in connection with the Exchange Offer. Questions with respect to the Exchange Offer should be directed to Merrill Lynch & Co.,Marketing Support at (212) 236-4565. (Call Collect) Denominations............................ Each Preferred Trust Receipt represents a Series B Preferred Security; each Series B Preferred Security has a stated liquidation preference of $25. Form..................................... Certificated or Book-Entry. Blue Sky................................. The Exchange Offer is expected to be qualified for sale in all states.
4 COMPARISON OF PREFERRED TRUST RECEIPTS AND DEPOSITARY SHARES The following is a brief summary of certain terms of the Preferred Trust Receipts and the Depositary Shares. For a more complete description of the Preferred Trust Receipts, see "Description of the Preferred Trust Receipts" and "Description of the Series B Preferred Securities" in the Offering Circular/Prospectus and for a complete description of the Series B Subordinated Debentures which will represent the sole source for the payment of distributions and other payments on the Series B Preferred Securities underlying the Preferred Trust Receipts, see "Description of the Series B Subordinated Debentures and the Indenture" in the Offering Circular/Prospectus.
PREFERRED TRUST RECEIPTS DEPOSITARY SHARES ------------------------ ----------------- Nature of Security.............. Represents a Series B Preferred Security, A one-fourth interest in $7.96 Cumulative which represents a limited partner Preferred Stock issued by PECO Energy. interest in PECO Energy Capital. Distribution/Dividend Rate...... 8.72% per annum payable monthly in $1.99 ($7.96 per share of $7.96 arrears on the last day of each month of Cumulative Preferred Stock) per annum each year, commencing December 29, 1995, payable on February 1, May 1, August 1 and from and including the Exchange Date but November 1 of each year, out of funds only if, and to the extent that, legally available therefor, when, as and Distributions are made in respect of the if declared by PECO Energy's Board of Series B Preferred Securities. Directors. Dividends are cumulative. Distributions in arrears after the Accumulated unpaid dividends do not monthly payment date therefor, including accumulate additional dividends thereon. during any Extension Period for the Series B Subordinated Debentures, accumulate additional Distributions thereon at the rate of 8.72% per annum. Optional Redemption............. See "Maturity/Mandatory Redemption" Redeemable at the option of PECO Energy on below. and after October 1, 1997, in whole or in part, at a redemption price equal to 100% of the stated liquidation preference of the shares to be redeemed, plus accrued and unpaid dividends, if any, to the redemption date. Maturity/Mandatory Redemption... The Preferred Trust Receipts will be None redeemed upon: (1) the redemption of the Series B Preferred Securities upon the payment at maturity of the Series B Subordinated Debentures, (2) optional redemption, in whole or in part, of the Series B Subordinated Debentures or the Series B Preferred Securities on or after October 1, 1997 or (3) the optional redemption of the Series B Subordinated Debentures or the Series B Preferred Securities upon the occurrence of a Tax Event or mandatory redemption of the Series B Preferred Securities upon occurrence of an Investment Company Act Event. Any such redemption of the Preferred Trust Receipts will be at a redemption price equal to 100% of the stated liquidation preference of the Series B Preferred Securities to be redeemed, plus accrued and unpaid Distributions, if any, to the redemption date, including Distributions accrued as a result of PECO
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PREFERRED TRUST RECEIPTS DEPOSITARY SHARES ------------------------ ----------------- Maturity/Mandatory Redemption (cont'd)........................ Energy's election to defer payments of interest on the Series B Subordinated Debentures. The Series B Subordinated Debentures have a final maturity of December 19, 2025. See "Description of the Preferred Trust Receipts-Redemption of Preferred Trust Receipts" and "Description of the Series B Preferred Securities - Mandatory Redemption" and "-Special Event Redemptions" in the Offering Circular/Prospectus. Withdrawal Rights............... Upon surrender of Preferred Trust Upon surrender of Depositary Receipts at Receipts at the principal office of the the principal office of the Depositary, Trustee, and subject to the terms of the and upon payment of the Depositary's Partnership Agreement, a holder of customary charges therefor, and subject to Preferred Trust Receipts is entitled to the terms of the deposit agreement for the delivery of the number of whole Series B Depositary Shares, a holder of the Preferred Securities represented by such Depositary Shares is entitled to delivery Preferred Trust Receipts. of the number of whole shares of the $7.96 Preferred Stock and all money and other property, if any, represented by such Depositary Shares. Subordination................... The Series B Preferred Securities will Subordinate to claims of creditors of PECO rank subordinate to claims of creditors Energy, including the Subordinated of PECO Energy Capital, but senior to the Debentures, but senior to the common stock general partner interests in PECO Energy of PECO Energy and pari passu with all Capital and pari passu with all other other outstanding series of preferred Preferred Securities of PECO Energy stock of PECO Energy. Capital. The obligations of PECO Energy under the Series B Guarantee are subordinate and junior in right of payment to all general liabilities of PECO Energy and its obligations under the Series B Subordinated Debentures are subordinate and junior in right of payment to all present and future Senior Indebtedness of PECO Energy, which aggregated approximately $5.0 billion at September 30, 1995, but senior in payment to all capital stock of PECO Energy including the Depositary Shares. Listing......................... The Preferred Trust Receipts have been The Depositary Shares are listed on the approved for listing on the NYSE subject NYSE. to notice of issuance and attainment of the NYSE distribution standards. Trading of the Preferred Trust Receipts on the NYSE is expected to commence within a 30-day period after the initial delivery of the Preferred Trust Receipts.
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PREFERRED TRUST RECEIPTS DEPOSITARY SHARES ------------------------ ----------------- Listing (cont'd)................ In order to satisfy the NYSE listing requirements, acceptance of Depositary Shares validly tendered in the Exchange Offer is subject to the conditions that as of the Expiration Date there be at least 1,000,000 Preferred Trust Receipts to be issued and 400 record or beneficial holders of Preferred Trust Receipts to be issued in exchange for such Depositary Shares, which conditions may not be waived. Federal Income Tax Consequences of Distributions/Dividends......... Distributions are not eligible for the Dividends are eligible for the dividends dividends received deduction for received deduction for corporate holders. corporate holders. Voting Rights/Enforcement....... If (i) PECO Energy Capital fails to pay If dividends shall be in arrears in an Distributions in full on any series of aggregate amount equivalent to four the Preferred Securities for 18 quarterly dividend payments, the holders consecutive monthly distribution periods, of PECO Energy preferred stock, including (ii) an Event of Default (as defined in the holders of Depositary Shares, have the the Indenture) occurs and is continuing, right to elect the smallest number of or (iii) PECO Energy is in default on any directors necessary to constitute a of its payment obligations under the majority of the full board of directors of Payment and Guarantee Agreements (the PECO Energy. "Guarantees") relating to the Preferred Securities issued by PECO Energy Capital, then the holders of the Preferred Securities, including the Trust acting through the Trustee at the direction of the holders of the Preferred Trust Receipts, 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 8.72% Deferrable Interest Subordinated Debentures, Series B of PECO Energy (the "Subordinated Debentures") and the Indenture and the obligations undertaken by PECO Energy under the Guarantees, including, after failure to pay distributions for 60 consecutive monthly distribution periods on the Preferred Securities, the payment of distributions on the Preferred Securities.
7 RISK FACTORS Holders of the Depositary Shares who plan to participate in the Exchange Offer should carefully consider, in addition to the other information set forth in the Offering Circular/Prospectus, the following: TAX CONSEQUENCES OF THE EXCHANGE The exchange of the Depositary Shares for Preferred Trust Receipts pursuant to the Exchange Offer will be a taxable event. Generally, gain or loss will be recognized in an amount equal to the difference between the fair market value on the Exchange Date of the Holder's pro rata share of the Series B Subordinated Debentures deemed received in the Exchange and the exchanging Holder's tax basis in the Depositary Shares exchanged. See "United States Taxation - Receipt of Preferred Trust Receipts for Depositary Shares" in the Offering Circular/Prospectus. All Holders of the Depositary Shares are advised to consult their tax advisers regarding the United States federal, state, local and foreign tax consequences of the exchange of the Depositary Shares and the issuance of Preferred Trust Receipts. SUBORDINATE OBLIGATIONS OF SERIES B GUARANTEE AND SERIES B SUBORDINATED DEBENTURES PECO Energy's obligations under the Series B Guarantee are subordinate and junior in right of payment to all general liabilities of PECO Energy and its obligations under the Series B Subordinated Debentures are subordinate and junior in right of payment to all Senior Indebtedness of PECO Energy. At September 30, 1995, the Senior Indebtedness of PECO Energy aggregated approximately $5.0 billion. There are no terms in the Series B Subordinated Debentures or the Series B Guarantee that limit PECO Energy's ability to incur additional indebtedness, including indebtedness that ranks senior to the Series B Subordinated Debentures and the Series B Guarantee. The Series B Guarantee guarantees payment of accumulated and unpaid monthly distributions, amounts payable on redemption, and amounts payable on liquidation with respect to the Series B 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 B Subordinated Debentures, PECO Energy Capital would lack legally available funds for the payment of Distributions or amounts payable on redemption of the Series B Preferred Securities or upon liquidation of PECO Energy Capital, and in such event the holders of the Preferred Trust Receipts representing the Series B Preferred Securities would not be able to rely upon the Series B Guarantee for payment of such amounts. Instead, holders of the Preferred Trust Receipts representing the Series B Preferred Securities would be required to seek enforcement of PECO Energy Capital's rights against PECO Energy pursuant to the terms of the Indenture. See "Description of the Series B Guarantee - Status of the Series B Guarantee" and "Description of the Series B Subordinated Debentures and the Indenture - Subordination" in the Offering Circular/Prospectus. OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX IMPACT OF EXTENSION PECO Energy has the right under the Indenture to extend interest payment periods on the Series B Subordinated Debentures for up to 60 consecutive months, and, as a consequence, monthly Distributions on the Series B Preferred Securities can be deferred by PECO Energy Capital during any such extended interest payment period. Distributions in arrears after the monthly payment date therefor will accumulate additional distributions thereon at the rate per annum of 8.72% thereof. In the event PECO Energy exercises its right to extend the interest payment periods on the Series B Subordinated Debentures, PECO Energy may not declare dividends on any shares of its capital stock during such extension period. See "Description of the Series B Subordinated Debentures and the Indenture-Option to Extend Interest Payment Period" in the Offering Circular/Prospectus. Should an extended interest payment period occur, PECO Energy Capital will continue to accrue income for United States federal income tax purposes which will be allocated, but not distributed, to holders of the Preferred Trust Receipts, as the owners for tax purposes of the Series B Preferred Securities represented by the Preferred Trust Receipts. As a result, the owner will include such interest in gross income for United States federal income tax purposes in advance of the receipt of cash, and will not receive the cash related to such income if the owner disposes of the Preferred Trust Receipts prior to the record date for payment of Distributions. See "United States Taxation - Potential Extension of Payment Period" in the Offering Circular/Prospectus. LISTING AND TRADING OF PREFERRED TRUST RECEIPTS AND DEPOSITARY SHARES The Preferred Trust Receipts constitute a new issue of securities with no established trading market. While the Preferred Trust Receipts have been approved for listing on the NYSE, subject to notice of issuance and attainment of the NYSE distribution standards, there can be no assurance that an active market for the Preferred Trust Receipts will develop or be sustained in the future on the NYSE. Although the Dealer Managers have indicated to PECO Energy and PECO Energy Capital that they intend to make a market in the Preferred Trust Receipts as permitted by applicable laws and regulations prior to the commencement of trading on the NYSE, they are not obligated to do so and may discontinue any such market-making at any time without notice. 8 Accordingly, no assurance can be given as to the liquidity of, or trading markets for, the Preferred Trust Receipts. In order to satisfy the NYSE listing requirements, acceptance of the Depositary Shares validly tendered in the Exchange Offer is subject to the conditions that as of the Expiration Date there be at least 1,000,000 Preferred Trust Receipts to be issued and 400 record or beneficial holders of Preferred Trust Receipts to be issued as a result of the Exchange Offer, which conditions may not be waived by PECO Energy. The liquidity and trading market for Depositary Shares which are not exchanged in the Offer could be adversely affected by the reduction in the number of publicly traded Depositary Shares resulting from the Exchange Offer. The Exchange Offer is for up to 5,400,000 shares of the Depositary Shares (or 96.4% of the 5,600,000 Depositary Shares outstanding) rather than for all the outstanding shares of the Depositary Shares, to reduce the risk that the Depositary Shares would be subject to delisting following consummation of the Exchange Offer. Under the rules of the NYSE, preferred securities such as the Depositary Shares are subject to delisting if (i) the aggregate value of publicly held shares is less than $2 million and (ii) the number of publicly held shares is less than 100,000. Since at least 200,000 Depositary Shares will remain outstanding following consummation of the Exchange Offer, the number of outstanding Depositary Shares will exceed the delisting criteria set forth in clause (ii) above. In addition, based on the market price of the Depositary Shares on the NYSE ($251/8 on July 3, 1995, the closing sales price of the Depositary Shares on the NYSE on the last trading day immediately prior to PECO Energy's first public announcement of the Exchange Offer, and $253/8 on November 2, 1995), PECO Energy believes that the aggregate value of the minimum number (200,000) of Depositary Shares which will be outstanding following consummation of the Exchange Offer should exceed the delisting criteria set forth in clause (i) above. See "Price Range of Depositary Shares" in the Offering Circular/Prospectus. If less than 5,400,000 Depositary Shares are validly tendered, then the number of Depositary Shares remaining outstanding, and the aggregate value thereof, will be even greater. POSSIBLE REDEMPTION OF PREFERRED TRUST RECEIPTS PRIOR TO OCTOBER 1, 1997 The Depositary Shares are not subject to redemption prior to October 1, 1997. Except as described below, the Series B Preferred Securities will not be subject to redemption prior to October 1, 1997. If a Tax Event shall occur and be continuing, the Series B Preferred Securities will be subject to redemption, at the option of PECO Energy Capital Corp., a Delaware corporation and a wholly owned subsidiary of PECO Energy, as the sole general partner (the "General Partner") of PECO Energy Capital, in whole or in part. If an Investment Company Act Event shall occur and be continuing, the Series B Preferred Securities will be subject to mandatory redemption following the occurrence of such event. In the event the Series B Preferred Securities are redeemed, an equal amount of related Preferred Trust Receipts will be redeemed. See "Description of the Series B Preferred Securities - Special Event Redemptions" and "Description of the Series B Subordinated Debentures and the Indenture - Redemption" in the Offering Circular/Prospectus. 9 PECO ENERGY PECO Energy, incorporated in Pennsylvania in 1929, is an operating utility which provides electric and gas service to the public in southeastern Pennsylvania. The total area served by PECO Energy covers 2,107 square miles. Electric service is supplied in an area of 1,972 square miles with a population of about 3,638,000, including 1,600,000 in the City of Philadelphia. Approximately 94% of the electric service area and 63% of retail kilowatthour sales are in the suburbs around Philadelphia, and 6% of the service area and 37% of such sales are in the City of Philadelphia. In 1994, approximately 60% of PECO Energy's electric output was generated from Nuclear sources. PECO Energy estimates for 1995 that 59% of its electric output will come from nuclear sources. Natural gas service is supplied in a 1,475-square-mile area of southeastern Pennsylvania adjacent to Philadelphia with a population of 1,900,000. PECO Energy and its subsidiaries hold franchises to the extent necessary to operate in the areas served. 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., as the General Partner. As a limited partnership, all of the business and affairs of PECO Energy Capital are managed by the General Partner. PECO Energy Capital was created solely for the purpose of issuing the Preferred Securities and lending the proceeds thereof to PECO Energy, and entering into similar financing arrangements. Such loans are evidenced by the Subordinated Debentures issued by PECO Energy under the Indenture. The Subordinated Debentures are the only assets of PECO Energy Capital and the only revenues of PECO Energy Capital are interest on the Subordinated Debentures. The General Partner pays all of PECO Energy Capital's operating expenses and has general liability for all of PECO Energy Capital's obligations. THE TRUST PECO Energy Capital Trust I is a statutory business trust recently formed under the laws of the State of Delaware. PNC Bank, Delaware is the sole trustee of the Trust (in such capacity, and not in its individual capacity, the "Trustee"). The Trust exists for the sole purpose of issuing the Preferred Trust Receipts representing the Series B Preferred Securities held by the Trust and performing functions directly related thereto. The Series B Preferred Securities are the only assets of the Trust. All expenses or liabilities of the Trust will be paid by the General Partner, provided that if the Trustee incurs fees, charges or expenses for which it is not otherwise liable under the Trust Agreement at the election of a holder of Preferred Trust Receipts or other person, such holder or other person will be liable for such fees, charges and expenses. CERTAIN UNITED STATES INCOME TAX CONSIDERATIONS The exchange of the Depositary Shares for Preferred Trust Receipts pursuant to the Exchange Offer will be a taxable event. Gain or loss generally will be recognized in an amount equal to the difference between the fair market value on the Exchange Date of the Holder's pro rata share of the Series B Subordinated Debentures deemed received in the Exchange and the exchanging Holder's tax basis in the Depositary Shares surrendered. For this purpose, the fair market value of the Series B Subordinated Debentures deemed issued in exchange for Depositary Shares on the Exchange Date will equal the fair market value of the Preferred Trust Receipts on that date. See "United States Taxation - - Receipt of Preferred Trust Receipts for Depositary Shares" in the Offering Circular/Prospectus. No portion of the amounts received on the Preferred Trust Receipts will be eligible for the dividends received deduction. The Preferred Trust Receipts may trade at a price that does not fully reflect the value of accrued but unpaid interest with respect to the Series B Subordinated Debentures. During any extension period, each holder of Preferred Trust Receipts (a "Securityholder") who disposes of his Preferred Trust Receipts prior to the record date for payment of Distributions at the end of such Extension Period will nevertheless be required to include his pro rata share of accrued but unpaid interest on the Series B Subordinated Debentures allocable monthly to the Trust through the date of disposition in income as ordinary income, and to add such amount to his adjusted tax basis in his pro rata share of the Series B Preferred Securities deemed disposed of. Accordingly, such a Securityholder 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 the Securityholder's 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 United States federal income tax purposes. ALL HOLDERS OF DEPOSITARY SHARES ARE ADVISED TO CONSULT THEIR TAX ADVISORS AS TO THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE RECEIPT OF PREFERRED TRUST RECEIPTS FOR DEPOSITARY SHARES AND OF THE OWNERSHIP AND DISPOSITION OF PREFERRED TRUST RECEIPTS IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, AS WELL AS THE EFFECT OF ANY STATE, LOCAL OR OTHER LAWS. 10 INFORMATION SOURCES Questions and requests for assistance regarding the Exchange Offer, requests for copies of the Offering Circular/Prospectus, the Letter of Transmittal and requests for Notice of Guaranteed Delivery should be directed to: D.F. KING & COMPANY, INC. (INFORMATION AGENT) 77 WATER STREET NEW YORK, NEW YORK 10005 BANKS AND BROKERS CALL: (212) 425-1685 ALL OTHERS CALL TOLL FREE: (800) 628-8509 Questions about the Exchange Offer and tender procedures should be directed to: MERRILL LYNCH & CO. (DEALER MANAGER) 250 VESEY STREET NEW YORK, NY 10281 MARKETING SUPPORT (212) 236-4565 (CALL COLLECT) QUESTIONS ABOUT THE OFFER SHOULD BE DIRECTED TO: EASTERN SALES DIVISION WESTERN SALES DIVISION CENTRAL SALES DIVISION (212) 449-5984 (212) 449-5981 (212) 449-5993 For current update, see: PRI XPNM-Z 11 PROCEDURES FOR TENDERING Each Holder of the Depositary Shares wishing to participate in the Exchange Offer must (i) properly complete and sign the Letter of Transmittal in accordance with the instructions contained in the Offering Circular/Prospectus and in the Letter of Transmittal (except when an Agent's Message is appropriate and utilized), together with any required signature guarantees, and deliver the same to the Exchange Agent, at one of its addresses set forth below prior to the Expiration Date and either (a) certificates for the Depositary Shares must be received by the Exchange Agent at such address or (b) such Depositary Shares must be transferred pursuant to the procedures for book-entry transfer described in the Offering Circular/Prospectus and a confirmation of such book-entry transfer must be received by the Exchange Agent, in each case prior to the Expiration Date or (ii) comply with the guaranteed delivery procedures described in the Offering Circular/Prospectus. THE METHOD OF DELIVERY OF DEPOSITARY SHARES AND ALL OTHER DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED THAT (A) REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, (B) INSURANCE BE OBTAINED, AND (C) THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION DATE. LETTERS OF TRANSMITTAL, DEPOSITARY SHARES AND ANY OTHER REQUIRED DOCUMENTS SHOULD BE SENT ONLY TO THE EXCHANGE AGENT, NOT TO PECO ENERGY, PECO ENERGY CAPITAL, THE TRUST, THE TRUSTEE, THE DEALER MANAGERS OR THE INFORMATION AGENT. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON DECEMBER 13, 1995, UNLESS THE OFFER IS EXTENDED. THE EXCHANGE AGENT: FIRST CHICAGO TRUST COMPANY OF NEW YORK BY HAND OR OVERNIGHT COURIER IN NEW YORK: First Chicago Trust Company of New York 14 Wall Street Tenders and Exchanges 8th Floor - Suite 4680 - PECO New York, New York 10005 BY MAIL: (Registered or certified mail recommended) First Chicago Trust Company of New York Tenders and Exchanges Suite 4660 - PECO P.O. Box 2559 Jersey City, New Jersey 07303-2559 BY FACSIMILE TRANSMISSION (FOR ELIGIBLE INSTITUTIONS ONLY): (201) 222-4720 or 4721 Confirm Receipt of Notice of Guaranteed Delivery by Telephone: (201) 222-4707 Any questions or requests for assistance or additional copies of the Offering Circular/Prospectus, the Letter of Transmittal or for copies of the Notice of Guaranteed Delivery may be directed to the Information Agent. 12 ORDER ENTRY PROCEDURES FOR TENDERING The Exchange Offer outlined is eligible for "on-line" order entry and can be accessed via the Bridge System. To enter instructions to participate in the Offer, please follow these steps: To obtain direct access to the Order Entry Screen- enter OEE in the function field and REO in the select field. The following formatted screen will appear-please fill in the appropriate fields indicated. - -------------------------------------------------------------------------------- REORGANIZATION ORDER ENTRY SECURITY NBR : 585D6 QTY: (# OF SHARES TO BE EXCHANGED) PLAN SYMBOL : X00460 PRICE: (does not apply) PRORATION QTY : (does not apply) ACCT#: (CUSTOMER ACCOUNT) FC# : ???? CONDITION: * CONDITION DATE: * P&S : (does not apply) TRANSFER ACCT : CFM QTY : (REPEAT # OF SHARES TO BE EXCHANGED) ORDER READ TO CUST Y/N : Y - -------------------------------------------------------------------------------- Upon completion of the screen, hit ENTER - the system will edit the instruction on-line and highlight any problems with the instruction. Once reviewed and accepted, enter OK in the action field and hit ENTER to input your instruction. All instructions, once input can be viewed on OIF. * The CONDITION and COND DATE fields are to be used when PECO Energy shares are being deposited and are not currently long in the account. To enter instructions on the condition that the securities are being deposited, enter DEP in the condition field, and the DATE (MMDDYY) in the con date field. NOTE: In addition, the above formatted screen can be accessed while reviewing the cashiers memo in the RCI function by entering OE in the action field. 13 For those offices unable to access the OEE (automated order entry), you may enter a formatted instruction on a Code-18 to wirecall - TND - by filling in a sell order like the one shown below: ORDER ENTRY TICKET - --------------------------------------------------------------------------- NYSE | RL | ORDER NO | |SYMBOL | | | SL | SSHRT | | - ---------|-----| | | | | | |-------- | | ASE | RC | | ; |X00460 |; ; | E | LONG | XOS | ; | - ----------------------------------------------------------------------- | | QUANTITY SYMBOL/DESCRIPTION (PLEASE PRINT) | - ---------------| | ODD | | ML ODL | 585D6 | LOT | | - ---------------|------------------------------------------------------- | | PRICE QULIFIERS GTC|FOK|IOC| |TRADING | | MONEY | ---|---|---|----| INST | | S BER | ; DAY|DNR|AON|UNSL| | | E FUNDS | | | | | | | L | | | | | | ; | L - ---------------|------------------------------------------------------| | CMA/ | CXL |SL | |GTC|TRADING INSTRUCTION| | ISA/ | |SSHRT| ; |---| | | CM | |OTS | |DAY| | | CBA | | | | | | | FUNDS | | | | | | ; | - ---------------| | |------------------------------------- | MKTG KG | |OFFCE| NO |MO DAY YR.| |ACCOUNT NUMBER| - ---------------| | | | | | ----| TRNTO KX | REF | | | | | |INX| | | | | - - | ;;| - |S | - ---------------|----------------------------------------------------------| B C | |VERIFY ACCOUNT NUMBER | CUSTOMER NAME| O O | KC | | | |-----| | | N R | KE | | | |-----| | | D P | KF | |--------------| |-----| |A/E NO.| INTRA| S | | | | OFFC | - ---------------|-------------------------------- |--------------| OTHER |P & S / MARGIN DATA | |MISC | | | | | | | | TND | USP | | RAP | ; | | | - --------------------------------------------------------------------------- EX-99.Q 18 SMITH BARNEY INC. RESEARCH MEMORANDUM 1 EXHIBIT Q SALES MEMORANDUM - FOR INTERNAL USE ONLY SMITH BARNEY INC. - ------------------------------------------------------------------------------- PECO ENERGY COMPANY OFFER TO EXCHANGE TRUST RECEIPTS ("TOPrS(SM)") EACH REPRESENTING A 8.72% CUMULATIVE MONTHLY INCOME PREFERRED SECURITY, SERIES B OF PECO ENERGY CAPITAL, L.P. (STATED LIQUIDATION PREFERENCE $25 PER PREFERRED SECURITY) FOR UP TO 5,400,000 OUTSTANDING DEPOSITARY SHARES EACH REPRESENTING A ONE-FOURTH INTEREST IN A SHARE OF $7.96 CUMULATIVE PREFERRED STOCK OF PECO ENERGY COMPANY THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON DECEMBER 13, 1995, UNLESS THE OFFER IS EXTENDED. -------------------- EXCHANGE OFFER(1) -------------------- TERMS OF THE OFFER BASIS OF EXCHANGE: One Preferred Trust Receipt for each Depositary Share validly tendered and accepted. MAXIMUM NUMBER OF SHARES; PRORATION: The Offer is for up to 5,400,000 Depositary Shares, unless reduced by PECO Energy in its sole discretion. If more than 5,400,000 Depositary Shares are validly tendered, acceptance of Depositary Shares of each tendered Holder will be pro rated. EXPIRATION DATE: 12:00 Midnight, New York City time on December 13, 1995 unless extended by PECO Energy in its sole discretion or as required by law. EXCHANGE DATE: The date of issuance of the Preferred Trust Receipts will be as soon as practicable following the Expiration Date or up to 12 Business Days following the Expiration Date if proration of tendered Depositary Shares is required. WITHDRAWALS: Any time prior to the Expiration Date and, unless accepted for exchange, at any time after 40 Business Days (defined, for purposes of the Offer, as any day other than a Saturday, Sunday or federal holiday) from November 8, 1995. AMENDMENT; TERMINATION: PECO Energy may amend or terminate the Offer and not accept any Depositary Shares at any time prior to the Expiration Date, provided PECO Energy will not accept Depositary Shares if as of the Expiration Date for any reason there would be fewer than 1,000,000 Preferred Trust Receipts to be issued or 400 record or beneficial holders of Preferred Trust Receipts to be issued as a result of the Exchange. PROCEDURES FOR TENDERING: In order to participate in the Offer, Holders of Depositary Shares must submit a Letter of Transmittal or Agent's Message or submit a Notice of Guaranteed Delivery and comply with the other procedures for tendering in accordance with instructions contained in the Offering Circular/Prospectus and in the Letter of Transmittal prior to the Expiration Date. BENEFICIAL OWNERS: Any beneficial owner of Depositary Shares registered in the name of a broker/dealer, commercial bank, trust company or other nominee who wishes to tender must instruct such registered holder to tender on behalf of such beneficial owner. EXCHANGE AGENT: First Chicago Trust Company of New York. INFORMATION AGENT: D.F. King & Co., Inc. DEALER MANAGERS: Smith Barney Inc. and Merrill Lynch & Co. (lead)
- ----------- (1) This information should be read only in conjunction with and is subject in all respects to the Offering Circular/Prospectus and the Letter of Transmittal.Please refer to the Offering Circular/Prospectus for the definitions of capitalized terms used herein which are not otherwise defined. 2 SALES MEMORANDUM - FOR INTERNAL USE ONLY SMITH BARNEY INC. - ------------------------------------------------------------------------------- DIAGRAM OF OFFER [CHART] The diagram shows that the Depositary Shares will be tendered by the holders thereof to the Exchange Agent which will return the Depositary Shares to PECO Energy. PECO Energy will issue its Series B Subordinated Debentures to the Exchange Agent, and the Exchange Agent will deliver the Series B Subordinated Debentures to PECO Energy Capital. PECO Energy Capital will issue its Series B Preferred Securities to the Trust, and the Trust will issue its Preferred Trust Receipts to the Exchange Agent which will deliver Preferred Trust Receipts to each tendering holder of Depositary Shares. (1) Depositary Shares (2) Series B Subordinated Debentures* (3) Series B Preferred Securities (4) Preferred Trust Receipts** * The principal amount of the Series B Subordinated Debentures delivered to PECO Energy Capital pursuant to the Exchange will be equal to the aggregate stated liquidation preference of the Series B Preferred Securities issued in connection with the Offer. PECO Energy Capital will also purchase Series B Subordinated Debentures with a principal amount equal to the proceeds received by PECO Energy Capital from the issuance of additional general partner interests to PECO Energy Capital Corp., the general partner, ** Holders of Depositary Shares who participate in the Offer will receive one Preferred Trust Receipt for each outstanding Depositary Share that is validly tendered and accepted for exchange. DIAGRAM OF OFFER SHOWING END RESULT FOR HOLDERS OF DEPOSITARY SHARES [CHART] The diagram shows that each holder of Depositary Shares tendering Depositary Shares to the Exchange Agent will receive, in exchange therefor, Preferred Trust Receipts from the Exchange Agent. * Holders of Depositary Shares who participate in the Offer will receive one Preferred Trust Receipt for each outstanding Depositary Share that is validly tendered and accepted for exchange. DIAGRAM OF PAYMENT FLOWS AFTER COMPLETION OF THE EXCHANGE [CHART] The diagram shows that PECO Energy will pay interest on its Series B Subordinated Debentures to PECO Energy Capital as the holder thereof. PECO Energy Capital will then make distributions on its Series B Preferred Securities to the Trust which will concurrently make distributions on its Preferred Trust Receipts to the holders thereof. 3 SALES MEMORANDUM - FOR INTERNAL USE ONLY SMITH BARNEY INC. - ------------------------------------------------------------------------------- PECO ENERGY PECO Energy Company ("PECO Energy"), incorporated in Pennsylvania in 1929, is an operating utility which provides electric and gas service to the public in southeastern Pennsylvania. The total area served by PECO Energy covers 2,107 square miles. Electric service is supplied in an area of 1,972 square miles with a population of about 3,638,000, including 1,600,000 in the City of Philadelphia. Approximately 94% of the electric service area and 63% of retail kilowatt-hour sales are in the suburbs around Philadelphia, and 6% of the service area and 37% of such sales are in the City of Philadelphia. In 1994, approximately 60% of PECO Energy's electric output was generated from nuclear sources. PECO Energy estimates for 1995 that 59% of its electric output will come from nuclear sources. Natural gas service is supplied in a 1,475-square mile area of southeastern Pennsylvania adjacent to Philadelphia with a population of 1,900,000. PECO Energy and its subsidiaries hold franchises to the extent necessary to operate in the areas served. PECO ENERGY CAPITAL PECO Energy Capital, L.P. ("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., as the General Partner. As a limited partnership, all of the business and affairs of PECO Energy Capital are managed by the General Partner. PECO Energy Capital was created solely for the purpose of issuing the Preferred Securities and lending the proceeds thereof to PECO Energy, and entering into similar financing arrangements. Such loans are evidenced by the Subordinated Debentures issued by PECO Energy under the Indenture. The Subordinated Debentures are the only assets of PECO Energy Capital and the only revenues of PECO Energy Capital are interest on the Subordinated Debentures. The General Partner pays all of PECO Energy Capital's operating expenses and has general liability for all of PECO Energy Capital's obligations. THE TRUST PECO Energy Capital Trust I (the "Trust") is a statutory business trust recently created under the laws of the State of Delaware. PNC Bank, Delaware is the sole trustee of the Trust (in such capacity, and not in its individual capacity, the "Trustee"). The Trust exists for the sole purpose of issuing the Preferred Trust Receipts representing the Series B Preferred Securities held by the Trust and performing functions directly related thereto. The Series B Preferred Securities are the only assets of the Trust. All expenses or liabilities of the Trust will be paid by the General Partner, provided that if the Trustee incurs fees, charges or expenses for which it is not otherwise liable under the Trust Agreement at the election of a holder of Preferred Trust Receipts or other person, such holder or other person will be liable for such fees, charges and expenses. 4 SALES MEMORANDUM - FOR INTERNAL USE ONLY SMITH BARNEY INC. - ------------------------------------------------------------------------------- COMPARISON OF PREFERRED TRUST RECEIPTS AND DEPOSITARY SHARES
PREFERRED TRUST RECEIPTS DEPOSITARY SHARES ------------------------ ----------------- NATURE OF SECURITY............. Represents a Series B Preferred A one-fourth interest in $7.96 Security, which represents a Cumulative Preferred Stock issued limited partner interest in PECO by PECO Energy. Energy Capital. DISTRIBUTION/DIVIDEND RATE..... 8.72% per annum payable monthly in $1.99 ($7.96 per share of $7.96 arrears on the last day of each Cumulative Preferred Stock) per month of each year, commencing annum payable on February 1, May December 29, 1995, from and 1, August 1 and November 1 of each including the Exchange Date but year, out of funds legally only if, and to the extent that, available therefor, when, as and Distributions are made in respect if declared by PECO Energy's Board of the Series B Preferred of Directors. Dividends are Securities. Distributions in cumulative. Accumulated unpaid arrears after the monthly payment dividends do not accumulate date therefor, including during additional dividends thereon. any Extension Period for the Series B Subordinated Debentures, accumulate additional Distributions thereon at the rate of 8.72% per annum. OPTIONAL REDEMPTION............ See "Maturity/Mandatory Redeemable at the option of PECO Redemption" below. Energy on and after October 1, 1997, in whole or in part, at a redemption price equal to 100% of the stated liquidation preference of the shares to be redeemed, plus accrued and unpaid dividends, if any, to the redemption date. MATURITY/MANDATORY REDEMPTION.. The Preferred Trust Receipts will None be redeemed upon: (1) the redemption of the Series B Preferred Securities upon the payment at maturity of the Series B Subordinated Debentures, (2) optional redemption, in whole or in part, of the Series B Subordinated Debentures or the Series B Preferred Securities on or after October 1, 1997 or (3) the optional redemption of the Series B Subordinated Debentures or Series B Preferred Securities upon the occurrence of a Tax Event or mandatory redemption of the Series B Preferred Securities upon occurrence of an Investment Company Act Event. Any such redemption of the Preferred Trust Receipts will be at a redemption price equal to 100% of the stated liquidation preference of the Series B Preferred Securities to be redeemed, plus accrued and unpaid Distributions, if any, to the redemption date, including Distributions accrued as a result of PECO energy's election to defer payments of interest on the Series B Subordinated Debentures. The Series B Subordinated Debentures have a final maturity of December 19, 2025.
5 SALES MEMORANDUM - FOR INTERNAL USE ONLY SMITH BARNEY INC. - ------------------------------------------------------------------------------- COMPARISON OF PREFERRED TRUST RECEIPTS AND DEPOSITARY SHARES
PREFERRED TRUST RECEIPTS DEPOSITARY SHARES ------------------------ ----------------- WITHDRAWAL RIGHTS.............. Upon surrender of Preferred Trust Upon surrender of Depositary Receipts at the principal office Receipts at the principal office of the Trustee, and subject to the of the Depositary, and upon terms of the Partnership payment of the Depositary's Agreement, a holder of Preferred customary charges therefor, and Trust Receipts is entitled to subject to the terms of the delivery of the number of whole deposit agreement for the Series B Preferred Securities Depositary Shares, a holder of the represented by such Preferred Depositary Shares is entitled to Trust Receipts. delivery of the number of whole shares of the $7.96 Preferred Stock and all money and other property, if any, represented by such Depositary Shares. SUBORDINATION.................. The Series B Preferred Securities Subordinate to claims of creditors will rank subordinate to claims of of PECO Energy, including the creditors of PECO Energy Capital, Subordinated Debentures, but but senior to the general partner senior to the common stock of PECO interests in PECO Energy Capital Energy and pari passu with all and pari passu with all other other outstanding series of Preferred Securities of PECO preferred stock of PECO Energy. Energy Capital. The obligations of PECO Energy under the Series B Guarantee are subordinate and junior in right of payment to all general liabilities of PECO Energy and its obligations under the Series B Subordinated Debentures are subordinate and junior in right of payment to all present and future Senior Indebtedness of PECO Energy, which aggregated approximately $5.0 billion at September 30, 1995, but senior in payment to all capital stock of PECO Energy, including the Depositary Shares. LISTING........................ The Preferred Trust Receipts have The Depositary Shares are listed been approved for listing on the on the NYSE. NYSE, subject to notice of issuance and attainment of the NYSE distribution standards. In order to satisfy the NYSE listing requirements, acceptance of Depositary Shares validly tendered in the Offer is subject to the conditions that as of the Expiration Date there be at least 1,000,000 Preferred Trust Receipts to be issued and 400 record or beneficial holders of Preferred Trust Receipts to be issued in exchange for such Depositary Sharers, which conditions may not be waived. FEDERAL INCOME TAX CONSEQUENCES OF Distributions are not eligible for Dividends are eligible for the DISTRIBUTIONS/DIVIDENDS..... the dividends received deduction dividends received deduction for for corporate holders. corporate holders. VOTING RIGHTS/ENFORCEMENT...... If (i) PECO Energy Capital fails to pay Distributions in full on any series of the Preferred Securities for 18 consecutive monthly distribution periods, (ii) an Event of Default (as defined in the Indenture), occurs and is continuing, or (iii) PECO
6 SALES MEMORANDUM - FOR INTERNAL USE ONLY SMITH BARNEY INC. - ------------------------------------------------------------------------------- COMPARISON OF PREFERRED TRUST RECEIPTS AND DEPOSITARY SHARES
PREFERRED TRUST RECEIPTS DEPOSITARY SHARES ------------------------ ----------------- VOTING RIGHTS/ENFORCEMENT Energy is in default on any If dividends shall be in arrears (CONT)......................... of its payment obligations under in an aggregate amount equivalent the Payment and Guarantee to four quarterly dividend Agreements (the "Guarantees") payments, the holders of PECO relating to the Preferred Energy preferred stock, including Securities issued by PECO Energy the holders of Depositary Shares, Capital, then the holders of the have the right to elect the Preferred Securities, including smallest number of directors the Trust acting through the necessary to constitute a majority Trustee at the direction of the of the full board of directors of holders of the Preferred Trust PECO Energy. Receipts, 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 Deferrable Interest Subordinated Debentures of PECO Energy (the "Subordinated Debentures") and the Indenture and the obligations undertaken by PECO Energy under the Guarantees, including, after failure to pay distributions for 60 consecutive monthly distribution periods on the Preferred Securities, the payment of distributions on the Preferred Securities.
7 SALES MEMORANDUM - FOR INTERNAL USE ONLY SMITH BARNEY INC. - ------------------------------------------------------------------------------- QUESTIONS AND ANSWERS WHAT ARE THE TERMS OF THE OFFER? Upon the terms and subject to the conditions set forth in the Offering Circular/Prospectus and in the Letter or Transmittal, PECO Energy will offer to effect an exchange of one Preferred Trust Receipt for each Depositary Share validly tendered and accepted for exchange. If more than 5,400,000 Depositary Shares (or if decreased, such lesser number) have been validly tendered and not withdrawn prior to the expiration of the offering, PECO Energy will accept for exchange Depositary Shares from each holder on a pro rata basis, subject to adjustment to avoid the acceptance for exchange of fractional shares. WHAT ARE PREFERRED TRUST RECEIPTS? Each Preferred Trust Receipt corresponds to a Series B Preferred Security. Preferred Trust Receipts pay monthly distributions corresponding to the interest rate and the payments dates for the Series B Subordinated Debentures. WHY ARE PREFERRED TRUST RECEIPTS BEING ISSUED IN EXCHANGE FROM THE DEPOSITARY SHARES INSTEAD OF DIRECTLY ISSUING THE SERIES B PREFERRED SECURITIES TO HOLDERS? The Preferred Trust Receipts are being issued in exchange for the Depositary Shares instead of directly issuing the Series B Preferred Securities to Holders so that a holder of Preferred Trust Receipts will receive a Form 1099 to report interest income for Federal income tax purposes, rather than a Form K-1 which would have been required if the Series B Preferred Securities were held directly by investors. WHAT IS THE PURPOSE OF THE OFFER? The purpose of the Offer is to reduce the after-tax financing costs of PECO Energy through the replacement of Depositary Shares with Preferred Trust Receipts. Although the Distribution rate on the Preferred Trust Receipts will be higher than the dividend rate on the Depositary Shares, PECO Energy will deduct interest payable on the Series B Subordinated Debentures for federal income tax purposes; dividends payable on the Depositary Shares are not deductible by PECO Energy for federal income tax purposes. WILL THE PREFERRED TRUST RECEIPTS BE LISTED? The Preferred Trust Receipts have been approved on the New York Stock Exchange ("NYSE") subject to notice of issuance and attainment of the NYSE distribution standards. Trading of the Preferred Trust Receipts on the NYSE is expected to commence within a 30-day period after the initial delivery of the Preferred Trust Receipts. ARE THE REDEMPTION PROVISIONS OF THE PREFERRED TRUST RECEIPTS DIFFERENT FROM THE DEPOSITARY SHARES? Yes. While the Depositary Shares have no maturity date, the Preferred Trust Receipts will be redeemed following repayment of the Series B Subordinated Debentures upon their December 19, 2025 final maturity date or earlier redemption. Like the Depositary Shares, the Series B Subordinated Debentures are redeemable at the option of PECO Energy on or after October 1, 1997. DIVIDEND MATTERS HOW DOES THE DISTRIBUTION RATE ON THE PREFERRED TRUST RECEIPTS COMPARE TO THE DIVIDEND RATE ON THE DEPOSITARY SHARES? The rate of Distributions on the Preferred Trust Receipts will be 76 basis points greater than the dividend rate on the Depositary Shares; the annual rate of Distributions on the Preferred Trust Receipts is 8.72% versus 7.96% on the Depositary Shares. 8 SALES MEMORANDUM - FOR INTERNAL USE ONLY SMITH BARNEY INC. - ------------------------------------------------------------------------------- DIVIDEND MATTERS WILL DISTRIBUTIONS ON THE PREFERRED TRUST RECEIPTS BE PAID ON THE SAME SCHEDULE AS DIVIDENDS ON THE DEPOSITARY SHARES? No, there is a different payment schedule. Distributions on the Preferred Trust Receipts will be payable monthly in arrears on the last day of each calendar month. Dividends on the Depositary Shares are payable quarterly on February 1, May 1, August 1 and November 1 of each year out of funds legally available therefor, when, as and if declared by PECO Energy's Board of Directors. THE NEXT SCHEDULED PAYMENT DATE ON THE DEPOSITARY SHARES IS FEBRUARY 1, 1996; WILL THE HOLDERS THAT PARTICIPATE IN THE OFFER BE ELIGIBLE FOR THIS DIVIDEND? No. Dividends accumulated after October 31, 1995 on the Depositary Shares which have been accepted for exchange in the Offer will not be paid. In lieu thereof, holders of the Preferred Trust Receipts will be entitled to an additional distribution at the rate of 7.96% per annum (equal to the dividend rate on the Depositary Shares) from and including November 1, 1995 up to but not including the Exchange Date, payable at the time of the first Distribution Payment on the Preferred Trust Receipts. EXPLAIN THE 60 MONTH DISTRIBUTION DEFERRAL ON THE PREFERRED TRUST RECEIPTS. At the option of PECO Energy, monthly interest payments on the Series B Subordinated Debentures may be deferred for one or more periods of up to 60 consecutive months each. In the case of such deferral, Distributions on the Preferred Trust Receipts will be similarly deferred. The Series B Subordinated Debentures have a maturity date which may not be extended. See "Description of the Preferred Trust Receipts - Distributions" in the Offering Circular/Prospectus. Quarterly dividend payments on the Depositary Shares are payable only if declared by PECO Energy's Board of Directors, and such dividends may be deferred indefinitely. Deferred Preferred Trust Receipt distributions continue to accrue and, if in arrears for more than one month, compound monthly at a rate equal to 8.72% per annu. However, while dividends on the Depositary Shares accrue if dividends are suspended, there is no such compounding feature. During such a deferral, PECO Energy Capital will continue to accrue interest income (as original issue discount) in respect of the Series B Subordinated Debentures which will be taxable to beneficial owners of the Preferred Trust Receipts. As a result, beneficial owners of the Preferred Trust Receipts during such a deferral will include their pro rata share of the interest in gross income in advance of the receipt of cash. TAX ISSUES WILL THE EXCHANGE OF PREFERRED TRUST RECEIPTS FOR DEPOSITARY SHARES CONSTITUTE A TAXABLE EVENT? Yes. PECO Energy recommends that each holder read the section entitled "United States Taxation" in the Offering Circular/Prospectus and consult his/her own tax advisor. WHAT WILL BE THE INITIAL TAX BASIS FOR THE PREFERRED TAX RECEIPTS? An initial Holder's aggregate tax basis in his/her pro rata share of the Series B Preferred Securities (represented by the Preferred Trust Receipts) will be equal to his or her tax basis for the Depositary Shares surrendered in the Exchange increased by the amount of any gain or reduced by the amount of any loss recognized in the Exchange. HOW WILL DISTRIBUTIONS ON THE PREFERRED TRUST RECEIPTS BE REPORTED TO THE IRS? Distributions on the Preferred Trust Receipts will be reported on Form 1099. CORPORATE HOLDERS CAN CLAIM THE 70% DIVIDENDS-RECEIVED DEDUCTION FOR DIVIDENDS ON THE DEPOSITARY SHARES. ARE DISTRIBUTIONS ON THE PREFERRED TRUST RECEIPTS ELIGIBLE FOR THE DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATE HOLDERS? No. 9 SALES MEMORANDUM - FOR INTERNAL USE ONLY SMITH BARNEY INC. - ------------------------------------------------------------------------------- PROCEDURES FOR EXCHANGING DEPOSITARY SHARES IF DEPOSITARY SHARES ARE REGISTERED IN MY NAME, HOW DO I PARTICIPATE IN THE OFFER? You should have received a package from First Chicago Trust Company of New York consisting of a Questions and Answers sheet and: - Offering Circular/Prospectus dated November 6, 1995, - Letter of Transmittal form (printed on blue paper) bearing a pre-printed label with your account name and address, - Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9, - Notice of Guaranteed Delivery, - Letter from the Chairman of PECO Energy, and - Return envelope addressed to First Chicago Trust Company of New York. If, after reviewing these materials carefully, you decide to participate in the Offer, complete the Letter of Transmittal form and send it with your certificate(s) representing Depositary Shares to First Chicago Trust Company of New York as Exchange Agent at either of the addresses shown on the Letter of Transmittal. It is recommended that you use registered or certified mail. Holders of record may also contact their broker to exchange their Depositary Shares on their behalf. If you have your certificate(s) but cannot deliver your certificate(s) to the Exchange Agent before the Expiration Date, then you must arranage for your broker to guarantee delivery of your Depositary Shares. IF MY DEPOSITARY SHARES ARE HELD BY A BROKER OR A BANK FOR MY ACCOUNT, HOW DO I PARTICIPATE IN THE OFFER? If your Depositary Shares are held by a broker or bank for your account, you should have received a package from them as a holder of record containing, along with a Questions and Answers sheet, the following: - Offering Circular/Prospectus dated November 6, 1995, - Letter of Transmittal for information only, - Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9, - Notice of Guaranteed Delivery, - Letter from the Chairman of PECO Energy, and - Cover letter or notice from your broker or bank. If you decide to participate in the Offer, you must contact your nominee to tender your Depositary Shares on your behalf. See "The Offer Procedures for Tendering - Special Procedure for Beneficial Owners" in the Offering Circular/Prospectus. ONCE I HAVE TENDERED MY DEPOSITARY SHARES, OR INSTRUCTED MY BROKER OR BANK TO TENDER THEM ON MY BEHALF, MAY I WITHDRAW THEM FROM THE OFFER? Yes, tenders of Depositary Shares may be withdrawn at any time prior to the Expiration Date and, unless accepted for exchange, at any time after 40 Business Days from November 8, 1995. HOW AM I AFFECTED IF I ELECT NOT TO EXCHANGE? The terms (issuer, dividend rate, payment dates and redemption features) of the outstanding Depositary Shares are unaffected by the Offer; however, the liquidity and trading market for Depositary Shares which are not exchanged could be adversely affected by the reduction in the number of publicly traded Depositary Shares resulting from the Offer. Furthermore, payments of interest and principal on the Series B Subordinated Debentures which will fund distributions on the Series B Preferred Securities, represented by Preferred Trust Receipts, will rank senior in right of payment to the Depositary Shares which are not exchanged. WHEN DOES THE OFFER EXPIRE? At 12:00 Midnight, New York City time on December 13, 1995 unless extended by PECO Energy in its sole discretion or as required by law. PECO Energy may also amend or terminate the Offer as described in the Offering Circular/Prospectus. 10 SALES MEMORANDUM - FOR INTERNAL USE ONLY SMITH BARNEY INC. - -------------------------------------------------------------------------------- SELECTED CONSOLIDATED FINANCIAL DATA Reference is made to PECO Energy's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (the "Form 10-K"), which is incorporated by reference in the Offering Circular/Prospectus and which contains PECO Energy's audited consolidated financial statements, including the consolidated income statement for the three fiscal years in the period ended December 31, 1994, consolidated balance sheets as of December 31, 1993 and 1994, and the related notes. Selected unaudited financial information as of and for the six months ended June 30, 1994 and 1995 should be read in conjunction with the audited consolidated financial statements and related notes contained in PECO Energy's Quarterly Report of Form 10-Q for the quarter ended June 30, 1995, which report is also incorporated by reference in the Offering Circular/Prospectus. Such unaudited information reflects, in the opinion of management, all adjustments, consisting of only normal accruals, necessary for a consistent presentation with the audited financial information. Results of operations for the six months ended June 30, 1995 are not necessarily indicative of the results to be expected for the full fiscal year.
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31, ----------------------- -------------------------------------------------------------- 1995 1994 1994 1993 1992 1991 1990 --------- --------- --------- --------- --------- --------- --------- (MILLIONS OF DOLLARS) SUMMARY OF EARNINGS Operating Revenues . . . . . . $ 2,017.2 $ 2,080.0 $ 4,040.6 $ 3,988.1 $ 3,962.5 $ 4,018.6 $ 3,786.7 Operating Income . . . . . . . 498.3 463.1 829.6 1,035.4 1,033.4 1,081.2 767.7 Income from Continuing Operations . . . . . . . . . 305.6 275.4 426.7 590.6 478.9 534.7 105.8 Net Income . . . . . . . . . . 305.6 275.4 426.7 590.6 478.9 534.7 214.2 Earnings Applicable to Common Stock . . . . . . . . 293.5 253.8 389.4(2) 541.6 418.2 468.6 123.9(1) Earnings Per Average Common Share From Continuing Operations (Dollars) . . . . . . . . . . 1.32 1.15 1.76 2.45 1.90 2.15 0.07 Earnings Per Average Common Share (Dollars) . . . 1.32 1.15 1.76 2.45 1.90 2.15 0.58 Dividends Per Common Share (Dollars) . . . . . . . . . . 0.81 0.76 1.545 1.43 1.325 1.225 1.45 Common Stock Equity (Per Share) . . . . . . . . . 19.94 19.63 19.41 19.25 18.24 17.69 16.71 Average Shares of Common Stock Outstanding (Millions) . . . . . . . . . 221.7 221.5 221.6 221.1 220.2 218.2 214.4 FINANCIAL CONDITION AT END OF PERIOD Net Utility Plant, at Original Cost . . . . . . 10,693.4 10,727.6 10,828.7 10,763.0 10,691.2 10,598.4 10,591.3 Leased Property, Net . . . . . 163.2 167.6 174.6 194.7 210.0 223.8 241.3 --------- --------- --------- --------- --------- --------- --------- Total Current Assets . . . . . 683.3 605.0 454.8 514.8 550.0 783.2 745.0 Total Deferred Debits and Other Assets . . . . . . . . 3,539.5 3,664.8 3,634.7 3,559.8 1,127.0 918.1 938.6 --------- --------- --------- --------- --------- --------- --------- Total Assets . . . . . . . . $15,079.4 $15,165.0 $15,092.8 $15,032.3 $12,578.2 $12,523.5 $12,516.2 ========= ========= ========= ========= ========= ========= ========= Common Shareholders' Equity . . $ 4,423.2 $ 4,349.3 $ 4,302.5 $ 4,263.4 $ 4,022.2 $ 3,892.3 $ 3,624.5 Preferred and Preference Stock Without Mandatory Redemption . . . . . . . . 277.4 422.5 277.5 422.5 422.5 422.5 422.5 With Mandatory Redemption . . . . . . . . 92.7 182.1 92.7 186.5 231.1 315.6 330.9 Company Obligated Mandatorily Redeemable Preferred Securities of Partnership holding solely PECO Energy Debentures . . . . . . . . . 221.3 -- 221.3 -- -- -- -- Long-Term Debt . . . . . . . . 4,515.5 4,876.5 4,875.6 4,884.3 5,203.9 5,415.6 5,830.8 --------- --------- --------- --------- --------- --------- --------- Total Capitalization . . . . . 9,530.1 9,830.4 9,679.6 9,756.7 9,879.7 10,046.0 10,208.7 --------- --------- --------- --------- --------- --------- --------- Total Current Liabilities . . . 1,064.3 930.4 878.6 954.6 830.6 823.4 783.8 --------- --------- --------- --------- --------- --------- --------- Total Deferred Credits and Other Liabilities . . . . . . 4,485.0 4,404.2 4,534.6 4,321.0 1,867.9 1,654.1 1,523.7 --------- --------- --------- --------- --------- --------- --------- Total Capitalization and Liabilities . . . . . . . . . $15,079.4 $15,165.0 $15,092.8 $15,032.3 $12,578.2 $12,523.5 $12,516.2 ========= ========= ========= ========= ========= ========= =========
- ------------ (1) Reflects the one-time, after-tax charge against income of $250 million associated with various disallowances made by the Pennsylvania Public Utility Commission in the Limerick Unit No. 2 rate order and the one-time, after-tax charge against income of $150 million associated with PECO Energy's 1990 early retirement plan. (2) Reflects a one-time after-tax charge against income of $254 million associated with early retirement and separation programs. 11 SALES MEMORANDUM - FOR INTERNAL USE ONLY SMITH BARNEY INC. - -------------------------------------------------------------------------------- SELECTED CONSOLIDATED FINANCIAL DATA On October 23, 1995, PECO Energy reported that common stock earnings for the quarter ended September 30, 1995 were $0.80 per share, or 11% higher than the third quarter of last year after adjusting for the one-time charge in 1994 of $0.66 per share associated with PECO Energy's retirement and separation programs. The increase in earnings was attributable to higher electric sales resulting primarily from warmer weather in August 1995 compared to last year and lower operations and maintenance expenses related to PEPCO Energy's retirement and separation programs. Total electric sales increased 11% from the third quarter of 1994 primarily due to increased sales to other utilities and increased residential sales. Gas sold and transported increased 42% primarily due to increased gas transported from others. Earnings for the twelve months ended September 30, 1995 were $2.68 per share as compared to $1.78 per share for the corresponding period of 1994. The increase is primarily attributable to the one time charge in the third quarter of 1994 associated with PECO Energy's retirement and separation programs. Also contributing to the increase in earnings were lower operations and maintenance expenses related to PECO Energy's retirement and separation programs, the ongoing emphasis on cost control, a one-time gain on the sale of Conowingo Power Company in June 1995, and benefits of PECO Energy's ongoing debt and preferred stock refinancing program. These increases were partially offset by a reduction in revenue received in 1994 for accepting nuclear fuel from the Shoreham Nuclear Power Station.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, --------------------- ------------------- ---------------------- 1995 1994 1995 1994 1995 1994 ---- ---- ---- ---- ---- ---- (MILLIONS OF DOLLARS) Total Operating Revenues . . . . $1,125.2 $1,041.1 $3,142.4 $3,121.1 $4,061.9 $4,062.8 Net Income . . . . . . . . . . . 184.3 22.2 489.9 297.6 619.0 436.6 Shares of Common Stock -- Average (Millions) . . . . . 221.9 221.6 221.8 221.5 221.7 221.5 Earnings Per Average Common Share (Dollars) . . . . $ 0.80 $ 0.60 $ 2.13 $ 1.20 $ 2.68 $ 1.78
COVERAGE RATIOS PECO Energy's Ratio of Earnings to Fixed Charges for each of the periods indicated was as follows:
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30, ----------------------------------------------- ------------------------- 1990 1991 1992 1993 1994 1994 1995 -------- -------- ------ ------- ------ ------ -------- 1.31(1) 2.55 2.43 3.15 2.66(2) 3.30 3.46
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 relates 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, SIX MONTHS ENDED JUNE 30, ----------------------------------------------- ------------------------- 1990 1991 1992 1993 1994 1994 1995 -------- -------- ------ ------- ------ ------ -------- 1.04(1) 2.14 2.06 2.67 2.32(2) 2.80 3.15
- ---------- (1) Reflects the one-time, after-tax charge against income of $250 million associated with various disallowances made by the Pennsylvania Public Utility Commission in the Limerick Unit No. 2 rate order and the one-time, after-tax charge against income of $150 million associated with PECO Energy's 1990 early retirement plan. (2) Reflects a one-time, after-tax charges against income of $254 million associated with early retirement and separation programs. 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 12 SALES MEMORANDUM - FOR INTERNAL USE ONLY SMITH BARNEY INC. - -------------------------------------------------------------------------------- COVERAGE RATIOS 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. QUESTIONS CONCERNING THE TRANSACTION MAY BE DIRECTED TO THE FOLLOWING AT (212): UTILITIES GROUP DEBT CAPITAL MANAGEMENT NEW PRODUCTS GROUP Jerry R. Hilligoss Robert b. Holloman Hewrbert Wreschner James D. Hampstead (816-7658) Christopher C. Lynch Jacques Lilly (816-7624) Antonio Gralante (816-7587) Kimberly Bluc (723-7615) Stacey Lipschitz (816-7701) Kimberly T. Corrigan (816-0316) Michael J. Daum (723-7790) LIABILITY MANAGEMENT TFI SYNDICATE FIXED INCOME RESEARCH Paul S. Galant (723-7622) Michael P. Hynes Douglas Clifford (723-5084) Timothy Q. Lu (723-7668) Melissa Motherway (723-7597) Jeffrey M. Dorst (723-5333) TFI MARKETING Eileen Keane (723-5327) Elizabeth Baker (723-7506)
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