<PAGE>
As filed with the Securities and Exchange Commission on May 15, 2000
Registration No.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
EXELON CORPORATION
(Exact name of Registrant as specified in its charter)
Pennsylvania 551112 23-2990190
(State or other (Primary Standard Industrial(I.R.S. Employer
jurisdiction of Classification Code Number)
Identification No.)
incorporation or
organization) ---------------
37th Floor, 10 South Dearborn Street
Post Office Box A-3005
Chicago, Illinois 60690-3005
(312) 394-4321
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
JAMES W. DURHAM, ESQ. PAMELA B. STROBEL, ESQ.
Senior Vice President and General Executive Vice President and General
Counsel Counsel
PECO Energy Company Unicom Corporation
2301 Market Street 37th Floor, 10 South Dearborn Street
Post Office Box 8699 Post Office Box A-3005
Philadelphia, Pennsylvania 19101- Chicago, Illinois 60690-3005
8699 (312) 394-4321
(215) 841-4000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies To:
PHILIP A. GELSTON, ESQ. ROBERT A. YOLLES, ESQ.
Cravath, Swaine & Moore Jones, Day, Reavis & Pogue
Worldwide Plaza, 825 Eighth Avenue 77 West Wacker
New York, New York 10019 Chicago, Illinois 60601
(212) 474-1000 (312) 782-3939
---------------
Approximate date of commencement of proposed sale of the securities to the
public: Upon consummation of the merger referred to herein.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Title of each class of Proposed maximum Proposed maximum Amount of
securities to be Amount to be offering price aggregate registration
registered registered(1) per unit(2) offering price(2) fee(3)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value.. 328,000,000 $45.0625 (PECO $15,243,271,656 $4,024,224
Energy)
$42.03125
(Unicom)
- -------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) The maximum number of shares of common stock of Exelon Corporation, a
Pennsylvania corporation ("Exelon"), issuable upon consummation of the
share exchange between Exelon and PECO Energy Company, a Pennsylvania
corporation ("PECO Energy") (the "First Step Exchange"), and the merger of
Unicom Corporation, an Illinois corporation ("Unicom"), with and into
Exelon (the "Second Step Merger" and, together with the First Step
Exchange, the "Merger") based on the exchange ratios of one share of
Exelon common stock, no par value ("Exelon Common Stock"), to be exchanged
for one outstanding share of common stock of PECO Energy, no par value
("PECO Energy Common Stock"), and 0.875 shares of Exelon Common Stock to
be exchanged for one outstanding share of common stock of Unicom, no par
value ("Unicom Common Stock"), giving effect to the amount of cash to be
delivered to shareholders of Unicom in connection with the Merger.
(2) Estimated solely for the purpose of calculating the registration fee
required by Section 6(b) of the Securities Act, and calculated pursuant to
Rule 457(f) under the Securities Act. Pursuant to Rule 457(f)(1) under the
Securities Act, the proposed maximum aggregate offering price of Exelon
Common Stock was calculated in accordance with Rule 457(c) under the
Securities Act as the sum of (a) (i) $45.0625, the average of the high and
low prices per share of PECO Energy Common Stock as reported on the New
York Stock Exchange on May 11, 2000, multiplied by (ii) 176,794,000, the
aggregate number of shares of PECO Energy Common Stock to be exchanged for
Exelon Common Stock in the First Step Exchange or issuable pursuant to
outstanding options prior to the date the First Step Exchange is expected
to be completed and (b) (i) $42.03125, the average of the high and low
prices per share of Unicom Common Stock as reported on the New York Stock
Exchange on May 11, 2000, multiplied by (ii) 173,121,000, the aggregate
number of shares of Unicom common stock to be converted into Exelon common
stock in the Second Step Merger or issuable pursuant to outstanding
options prior to the date the Second Step Merger is expected to be
completed.
(3) Calculated by multiplying the proposed maximum aggregate offering price
for all securities to be registered by .000264. $807,298 of the
registration fee was previously paid in connection with PECO Energy's and
Unicom's Preliminary Proxy Statement on Schedule 14A filed with the
Commission on January 13, 2000, and $1,622,525 of the registration fee was
previously paid in connection with PECO Energy's Preliminary Proxy
Statement on Schedule 14A filed with the Commission on February 12, 1999.
Pursuant to Rule 457(b), this amount is not remitted herewith, and only
the balance of $1,594,411 is required to be paid in connection with the
filing of this Registration Statement.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Securities and Exchange
Commission, acting pursuant to said Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
[UNICOM Logo]
[PECO Energy Logo]
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of PECO Energy Company and Unicom Corporation have
unanimously approved a merger of equals that will create a new holding company,
Exelon Corporation. We both believe that this merger provides an excellent
opportunity for our two regional companies to become a national leader in the
energy industry. We expect that the combined company will create greater
opportunities for building shareholder value than either of us could achieve on
our own.
If the merger is completed, PECO Energy shareholders will receive one share
of Exelon common stock for each share of PECO Energy common stock, and Unicom
shareholders will receive 0.875 shares of Exelon common stock and $3.00 in cash
for each share of Unicom common stock. The cash portion of the merger
consideration will result in approximately $500 million of cash being paid to
Unicom shareholders at the completion of the merger. Upon completion of the
merger, approximately 54% of Exelon common stock will be owned by former PECO
Energy shareholders and approximately 46% of Exelon common stock will be owned
by former Unicom shareholders. PECO Energy and Unicom currently expect that
328,000,000 shares of Exelon common stock will be issued in connection with the
merger. We expect Exelon common stock will be listed on the New York Stock
Exchange.
In addition, Unicom intends to repurchase $1,000,000,000 of its outstanding
shares and PECO Energy intends to repurchase $500,000,000 of its outstanding
shares prior to the completion of the merger. As of May 12, 2000, Unicom had
completed approximately $585 million of its repurchases, and PECO Energy had
completed all of its repurchases. Unicom intends to complete its remaining
repurchases between the time of the shareholder meetings and the completion of
the merger.
In order to complete the merger, we must obtain necessary regulatory
approvals and the approvals of the shareholders of our companies. Information
about the merger and the other items to be voted on at your company's annual
meeting is contained in this proxy statement/prospectus. Whether or not you
plan to attend your company's annual meeting, please take the time to vote by
proxy card, telephone or Internet.
PECO Energy shareholders will vote at PECO Energy's annual meeting on June
27, 2000, at 9:30 a.m., local time, at the Millenium Hall of the Loews
Philadelphia Hotel, 1200 Market Street, in Philadelphia, Pennsylvania. Unicom
shareholders will vote at Unicom's annual meeting on June 28, 2000, 10:30 a.m.,
local time, at the Grand Ballroom of the Hyatt Regency Chicago, 151 East Wacker
Drive, in Chicago, Illinois.
You should consider the risk factors relating to the merger that we describe
beginning on page 17 of this proxy statement/prospectus before voting.
We encourage you to review carefully this proxy statement/prospectus. You
can find additional information regarding PECO Energy and Unicom by referring
to the section entitled "Where You Can Find More Information" on page 154 of
this proxy statement/prospectus.
We enthusiastically support this combination of our companies and join with
our Boards of Directors in recommending that you vote FOR the approval of the
merger agreement.
/s/ Corbin A. McNeill, Jr. /s/ John W. Rowe
Corbin A. McNeill, Jr. John W. Rowe
Chairman, President and Chief Chairman, President and Chief
Executive Officer Executive Officer
PECO Energy Company Unicom Corporation
Your vote is important.
If voting by mail, please complete, sign, date and return your proxy. If
voting by telephone or Internet, please follow the instructions on your proxy
card.
Neither the Securities and Exchange Commission nor any state securities
regulator has approved or disapproved the merger and other transactions
described in this proxy statement/prospectus or the Exelon common stock to be
issued in connection with the merger, or determined if this proxy
statement/prospectus is accurate or adequate. Any representation to the
contrary is a criminal offense.
This proxy statement/prospectus is dated May 15, 2000,
and is first being mailed to shareholders on or about May 18, 2000.
<PAGE>
PECO ENERGY COMPANY
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 27, 2000
To the Shareholders of PECO Energy Company:
We will hold the 2000 annual meeting of the shareholders of PECO Energy
Company on Tuesday, June 27, 2000, at 9:30 a.m., local time, at the Millenium
Hall of the Loews Philadelphia Hotel, 1200 Market Street, in Philadelphia,
Pennsylvania, for the following purposes:
. to consider a proposal to adopt the agreement and plan of exchange and
merger dated as of September 22, 1999, as amended and restated as of
January 7, 2000, among PECO Energy, Exelon and Unicom,
. to consider and vote upon a proposal to postpone or adjourn the annual
meeting, if proposed by PECO Energy's board of directors,
. to elect four members to the PECO Energy board of directors, and
. to ratify PricewaterhouseCoopers, LLP as PECO Energy's independent
auditors for 2000.
Only holders of record of shares of PECO Energy common stock at the close of
business on April 5, 2000, the record date for the annual meeting, are entitled
to notice of, and to vote at, the annual meeting and any adjournments or
postponements of it.
We cannot complete the share exchange described in the accompanying proxy
statement/prospectus unless holders of a majority of all shares of PECO Energy
common stock casting votes at the PECO Energy annual meeting vote to adopt the
merger agreement, assuming that holders of a majority of all PECO Energy common
stock entitled to vote are present in person or by proxy at the annual meeting.
For more information about the share exchange and the other transactions
contemplated by the merger agreement, please review the accompanying proxy
statement/prospectus and the merger agreement attached to it as Annex A.
Whether or not you plan to attend the annual meeting, please complete, sign
and date the enclosed proxy and return it promptly in the enclosed postage-paid
envelope. You may also cast your vote by Internet or by telephone by following
the instructions on your proxy card. If you do not vote by proxy, Internet,
telephone or in person at the annual meeting, it will have no effect in
determining whether the merger agreement will be adopted or on the other
matters being considered at the PECO Energy annual meeting.
Please do not send any stock certificates at this time.
By order of the board of directors,
[Signature of Katherine K. Combs]
Katherine K. Combs
Deputy General Counsel and
Corporate Secretary
Philadelphia, Pennsylvania
May 18, 2000
<PAGE>
[LOGO UNICOM CORPORATION]
UNICOM CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 28, 2000
To the Shareholders of Unicom Corporation:
We will hold the 2000 annual meeting of the shareholders of Unicom
Corporation on Wednesday, June 28, 2000, at 10:30 a.m., local time, at the
Grand Ballroom of the Hyatt Regency Chicago, 151 East Wacker Drive, Chicago,
Illinois, for the following purposes:
. to consider a proposal to approve the agreement and plan of exchange and
merger dated as of September 22, 1999, as amended and restated as of
January 7, 2000, among PECO Energy, Exelon and Unicom,
. to consider and vote upon a proposal to postpone or adjourn the annual
meeting, if proposed by Unicom's board of directors,
. to elect nine directors to the Unicom board of directors, and
. to ratify Arthur Andersen LLP as Unicom's independent auditors for 2000.
Only holders of record of shares of Unicom common stock at the close of
business on May 12, 2000, the record date for the annual meeting, are entitled
to notice of, and to vote at, the annual meeting and any adjournments or
postponements of it.
We cannot complete the merger described in the accompanying proxy
statement/prospectus unless the holders of at least two-thirds of the
outstanding shares of Unicom common stock vote to approve the merger agreement.
For more information about the merger and the other transactions
contemplated by the merger agreement, please review the accompanying proxy
statement/prospectus and the merger agreement attached to it as Annex A.
Whether or not you plan to attend the annual meeting, please complete, sign
and date the enclosed proxy and return it promptly in the enclosed postage-paid
envelope. You may also cast your vote by Internet or by telephone by following
the instructions on your proxy card. If you do not vote by proxy, Internet,
telephone or in person at the annual meeting, your shares will be treated as
voted against the merger agreement.
Please do not send any stock certificates at this time.
As described under "The Merger--Dissenters' Rights" in Chapter I of the
enclosed proxy statement/prospectus, any holder of Unicom common stock entitled
to vote at the annual meeting is entitled to dissent and obtain payment for his
or her shares if the merger is completed. In order to perfect the right to
dissent, a holder of Unicom common stock must (1) deliver to Unicom at the
office of the Corporate Secretary at 10 South Dearborn Street, Chicago,
Illinois 60603 before the shareholder vote for the approval of the merger
agreement a written demand for payment for his or her shares, (2) not vote his
or her shares in favor of the proposed merger agreement and (3) otherwise
follow the procedures set forth in Sections 11.65 and 11.70 of the Illinois
Business Corporation Act, a copy of which is attached to the accompanying proxy
statement/prospectus as Annex E.
By Order of the Board of Directors,
/s/ John P. McGarrity
John P. McGarrity
Secretary
Chicago, Illinois
May 18, 2000
<PAGE>
REFERENCES TO ADDITIONAL INFORMATION
This joint proxy statement/prospectus incorporates important business and
financial information about PECO Energy and Unicom from other documents that
are not included in or delivered with this joint proxy statement/prospectus.
This information is available to you without charge upon your written or oral
request. You can obtain those documents incorporated by reference in this joint
proxy statement/prospectus by requesting them in writing or by telephone from
the appropriate company at the following addresses:
PECO Energy Company Unicom Corporation
2301 Market Street 37th Floor, 10 South Dearborn Street
Post Office Box 8699 Post Office Box A-3005
Philadelphia, Pennsylvania 19101-8699 Chicago, Illinois 60690-3005
Telephone: (215) 841-4000 Telephone: (312) 394-7398
If you would like to request documents, please do so by June 19, 2000, in
order to receive them before your annual meeting.
See "Where You Can Find More Information" on page 154.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INTRODUCTION.............................................................. i
CHAPTER I--THE MERGER..................................................... 1
Questions and Answers About the Merger.................................. 1
Summary................................................................. 4
General............................................................... 4
The Annual Meetings................................................... 8
The Merger............................................................ 9
Comparative Per Share Information..................................... 13
Selected Historical and Unaudited Pro Forma Combined Condensed
Financial Data....................................................... 14
Risk Factors Relating to the Merger..................................... 17
Special Note Regarding Forward-Looking Statements....................... 20
The Merger.............................................................. 22
Background to the Merger.............................................. 22
Reasons for the Merger................................................ 27
PECO Energy Board of Directors Recommendation......................... 29
Opinions of PECO Energy's Financial Advisors.......................... 32
Unicom Board of Directors Recommendation.............................. 41
Opinion of Unicom's Financial Advisor................................. 45
Board of Directors, Management and Operations of Exelon After the
Merger............................................................... 52
Corporate Restructuring............................................... 54
Interests of PECO Energy's Directors and Management in the Merger..... 55
Interests of Unicom's Directors and Management in the Merger.......... 57
Indemnification and Insurance......................................... 61
Form of the Merger; Merger Consideration; Conversion of Shares........ 62
Procedures for Exchange of Certificates; Fractional Shares............ 62
Effective Time of the Merger.......................................... 63
Listing of Exelon Capital Stock....................................... 63
Dividends............................................................. 63
Material United States Federal Income Tax Consequences of the Merger.. 64
Accounting Treatment.................................................. 67
Dissenters' Rights.................................................... 67
Workforce and Employee Benefit Matters................................ 69
Effect on Awards Outstanding Under Stock Plans........................ 70
Resale of Exelon Common Stock......................................... 70
Regulatory Matters...................................................... 71
General............................................................... 71
State Approvals....................................................... 71
Public Utility Holding Company Act.................................... 71
Nuclear Regulatory Commission......................................... 72
Federal Energy Regulatory Commission.................................. 72
United States Antitrust............................................... 73
Status of Regulatory Approvals........................................ 73
The Merger Agreement.................................................... 74
Conditions to the Completion of the Merger............................ 74
No Solicitation....................................................... 75
Termination........................................................... 76
Termination Fees; Reimbursement of Expenses........................... 77
Conduct of Business Pending the Merger................................ 78
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Other Agreements....................................................... 80
Amendment; Extension and Waiver........................................ 81
Expenses............................................................... 82
Representations and Warranties......................................... 82
Exelon Articles of Incorporation....................................... 83
Exelon By-laws......................................................... 83
Comparative Stock Prices and Dividends................................... 84
Unaudited Pro Forma Combined Condensed Financial Statements.............. 85
Description of Exelon Capital Stock...................................... 97
General................................................................ 97
Common Stock........................................................... 97
Preferred Stock........................................................ 97
Comparison of Rights of Shareholders..................................... 97
Size of the Board of Directors......................................... 97
Classification of the Board of Directors............................... 98
Cumulative Voting...................................................... 98
Vacancies on the Board................................................. 98
Removal of Directors................................................... 99
Special Meetings of Shareholders....................................... 100
Corporate Action Without a Shareholder Meeting......................... 100
Charter Amendments..................................................... 100
By-law Amendments...................................................... 102
Business Combinations/Fair Price Provisions............................ 102
Other Antitakeover Protection.......................................... 104
Interested Shareholder Transactions.................................... 104
Indemnification of Directors, Officers and Employees................... 106
Limitation of Personal Liability of Directors.......................... 108
Constituencies Statutes................................................ 109
Dividends.............................................................. 109
Loans to Directors..................................................... 110
Shareholder Records.................................................... 110
Issuance of Rights or Options to Purchase Shares to Directors, Officers
and Employees......................................................... 110
Dissenters' Rights..................................................... 110
Legal Matters............................................................ 111
Experts.................................................................. 111
CHAPTER II--INFORMATION ABOUT THE PECO ENERGY ANNUAL MEETING
AND OTHER PROPOSALS........................................................ 112
The PECO Energy Annual Meeting........................................... 112
Date, Time and Place................................................... 112
Purpose of PECO Energy Annual Meeting.................................. 112
PECO Energy Record Date; Stock Entitled to Vote; Quorum................ 112
Vote Required.......................................................... 113
Voting by PECO Energy Directors and Executive Officers................. 113
Voting Your Shares..................................................... 113
Voting of Proxies...................................................... 114
Revocability of Proxies................................................ 114
Solicitation of Proxies................................................ 114
Proposals for PECO Energy Annual Meeting................................. 115
Item 1--PECO Energy Merger Proposal.................................... 115
Item 2--Postponement or Adjournment of Annual Meeting.................. 115
Item 3--Election of PECO Energy Directors.............................. 115
Item 4--Ratification of Appointment of Independent Auditors............ 130
Other Matters.......................................................... 130
</TABLE>
<PAGE>
<TABLE>
<S> <C>
CHAPTER III--INFORMATION ABOUT THE UNICOM ANNUAL MEETING
AND OTHER PROPOSALS......................................................... 132
The Unicom Annual Meeting................................................. 132
Date, Time and Place.................................................... 132
Purpose of Unicom Annual Meeting........................................ 132
Unicom Record Date; Stock Entitled to Vote; Quorum...................... 132
Vote Required........................................................... 132
Voting by Unicom Directors and Executive Officers....................... 133
How to Vote Your Shares................................................. 133
How Your Proxy Will be Voted............................................ 134
Revocability of Proxies................................................. 134
Solicitation of Proxies................................................. 134
Proposals for Unicom Annual Meeting....................................... 135
Item 1--Unicom Merger Proposal.......................................... 135
Item 2--Postponement or Adjournment of Annual Meeting................... 135
Item 3--Election of Unicom Directors.................................... 135
Item 4--Ratification of Appointment of Independent Auditors............. 152
Other Matters........................................................... 152
CHAPTER IV--WHERE YOU CAN FIND MORE INFORMATION............................. 154
</TABLE>
ANNEXES
Annex A Agreement and Plan of Merger
Annex B Opinion of Morgan Stanley & Co. Incorporated
Annex C Opinion of Salomon Smith Barney Inc.
Annex D Opinion of Wasserstein Perella & Co., Inc.
Annex E Illinois Business Corporation Act--Right to Dissent
<PAGE>
INTRODUCTION
This proxy statement/prospectus is being mailed to shareholders of PECO
Energy and Unicom in connection with each company's annual meeting of
shareholders. The document is organized into four chapters.
Chapter I--"The Merger" provides summary and detailed information about PECO
Energy's and Unicom's proposed merger of equals on which the shareholders of
each company will vote at their annual meeting.
Chapter II--"Information About the PECO Energy Annual Meeting and Other
Proposals" provides information about PECO Energy's annual meeting, the matters
that PECO Energy shareholders will vote on at the PECO Energy annual meeting,
including election of directors and ratification of independent auditors, and
how shareholders may vote or grant a proxy and the vote required to adopt each
proposal to be presented. Unicom shareholders will not vote on these matters.
Chapter III--"Information About the Unicom Annual Meeting and Other
Proposals" provides information about Unicom's annual meeting, the matters that
Unicom shareholders will vote on at the Unicom annual meeting, including
election of directors and ratification of independent auditors, and how
shareholders may vote or grant a proxy and the vote required to adopt each
proposal to be presented. PECO Energy shareholders will not vote on these
matters.
Chapter IV--"Where You Can Find More Information" explains where
shareholders of PECO Energy and Unicom can find more information about each of
the companies.
You should read this proxy statement/prospectus carefully before you vote
your shares.
i
<PAGE>
CHAPTER I--THE MERGER
QUESTIONS AND ANSWERS ABOUT THE MERGER
- --------------------------------------------------------------------------------
Q: Why are PECO Energy and Unicom proposing to merge?
A: We believe that this merger will provide substantial strategic and financial
benefits to PECO Energy's and Unicom's shareholders, employees and
customers, including:
.expanding our generation capacity,
.enhancing our power marketing and trading business,
.broadening our distribution platform,
.providing a foundation for growth of our unregulated businesses, and
.producing cost savings.
To review the reasons for the merger in greater detail, see pages 27
through 29.
- --------------------------------------------------------------------------------
Q: What is the structure of the merger?
A: The combination will occur in two steps, a first step share exchange and a
second step merger, which are described in this booklet. After both steps,
PECO Energy and Commonwealth Edison Company, Unicom's principal subsidiary,
will be wholly owned subsidiaries of Exelon. Both PECO Energy and
Commonwealth Edison Company will retain their individual names and
identities in their service territories. In this proxy statement/prospectus,
we will sometimes refer to the first step exchange and the second step
merger together as the "merger."
- --------------------------------------------------------------------------------
Q: What will I receive in the merger?
A: If the merger is completed, PECO Energy shareholders and Unicom shareholders
will receive the following:
<TABLE>
<CAPTION>
For each share of PECO Energy common
stock: For each share of Unicom common stock:
------------------------------------ --------------------------------------
<S> <C>
. one share of Exelon common stock . 0.875 shares of Exelon common stock, and
. $3.00 in cash.
</TABLE>
- --------------------------------------------------------------------------------
Q: Why was the merger agreement amended?
A: As we have previously announced, earlier this year the boards of directors
of our companies unanimously approved an amendment to the merger agreement
providing for certain changes to the terms of the merger. The amendment
allows the companies to repurchase $1,500,000,000 of common stock prior to
the completion of the merger rather than waiting until the merger is
completed to pay this cash to shareholders. This permits the companies to
take advantage of lower market prices for their stock.
The amendment changes what you will receive in the merger because the
$1,500,000,000 in cash that was intended to be paid as part of the merger
under the original agreement will now be paid as part of the repurchases.
As described above, PECO Energy shareholders will receive Exelon common
stock and Unicom shareholders will receive Exelon common stock and cash.
The cash portion of the merger consideration will result in approximately
$500 million of additional cash being paid to Unicom shareholders at the
completion of the merger. The opportunity for shareholders to choose to
receive Exelon common stock or cash in the original merger agreement has
been eliminated. We believe that the amendment to the merger agreement
creates additional value for shareholders, while retaining the benefits of
the original agreement. Overall, the revised merger consideration to be
paid to shareholders of each of our companies is intended to be comparable
to that contemplated in the original merger agreement.
1
<PAGE>
As stated in the previous paragraph, we intend to repurchase before the
closing of the merger a total of $1.5 billion of common stock of both
companies ($1.0 billion by Unicom and $500 million by PECO Energy). As of
May 12 , 2000, Unicom had completed approximately $585 million of its
repurchases, and PECO Energy had completed all of its repurchases. Unicom
intends to complete its remaining repurchases between the time of the
annual meetings and the completion of the merger.
We expect that reducing the number of shares outstanding through the
repurchases described above will have a positive effect on earnings per
share of Exelon. By taking advantage of lower prices for the companies'
common stock, we believe that we will be able to repurchase more shares at
lower prices than we would have been able to under the original merger
agreement.
- --------------------------------------------------------------------------------
Q: What do I need to do now?
A: After carefully reading and considering the information contained in this
proxy statement/prospectus, please complete and sign your proxy and return
it in the enclosed postage-paid envelope or vote by telephone or by Internet
as soon as possible, so that your shares may be represented at your annual
meeting.
If you sign, date and send in your proxy and do not indicate how you want
to vote, we will count your proxy as a vote for the approval of the merger
agreement.
If you are a PECO Energy shareholder and you abstain from voting or do not
vote, you will have no effect in determining whether the merger agreement
will be adopted. If you are a Unicom shareholder and you abstain from
voting or do not vote, your shares will be treated as having been voted
against approval of the merger agreement. The boards of directors of each
company are unanimously recommending that their shareholders vote FOR the
merger agreement.
- --------------------------------------------------------------------------------
Q: When is the annual meeting?
A: The PECO Energy annual meeting will take place on Tuesday, June 27, 2000 and
the Unicom annual meeting will take place on Wednesday, June 28, 2000. You
may attend your annual meeting and vote your shares in person rather than
signing and mailing your proxy or voting by telephone or by Internet.
- --------------------------------------------------------------------------------
Q: Can I vote my shares by telephone or by Internet?
A: If you hold your stock in your own name, you may vote by telephone or by
Internet, by following the instructions included on your proxy card.
If your shares are held in "street name," you will need to contact your
broker or other nominee to find out whether you will be able to vote by
telephone or by Internet.
- --------------------------------------------------------------------------------
Q: If my broker holds my shares in "street name," will my broker vote my
shares?
A: Your broker will vote your shares on the merger proposal only if you provide
instructions on how to vote. You should follow the directions provided by
your broker regarding how to instruct your broker to vote your shares. If
you are a PECO Energy shareholder and you do not provide your broker with
instructions on how to vote your shares, your shares will not be voted,
which will have no effect in determining whether the merger agreement will
be adopted. If you are a Unicom shareholder and you do not provide your
broker with instructions on how to vote your shares, it will be equivalent
to a vote against approval of the merger agreement. See Chapters II and III
for how your broker will vote on other matters under consideration at the
annual meetings.
- --------------------------------------------------------------------------------
Q: Can I change my vote after I have mailed my signed proxy?
A: Yes. You can change your vote at any time before your proxy is voted at your
annual meeting. You can do this in one of three ways. First, you can send a
written notice stating that you would like to revoke
2
<PAGE>
your proxy. Second, you can complete and submit a new later-dated proxy or
cast a new vote by telephone or by Internet. Third, you can attend your
annual meeting and vote in person. Simply attending your annual meeting
without voting will not revoke your proxy.
- -------------------------------------------------------------------------------
Q: Should I send in my stock certificates now?
A: No. After the completion of the merger, we will send to you written
instructions for exchanging your stock certificates.
- -------------------------------------------------------------------------------
Q: What about future dividends?
A: Until the merger is completed, PECO Energy expects to continue to pay
annual dividends on PECO Energy common stock of $1.00 per share and Unicom
expects to continue to pay annual dividends on Unicom common stock of $1.60
per share. We expect that, after the merger, Exelon will pay annual
dividends of $1.69 per share. The payment of dividends by PECO Energy,
Unicom and Exelon, however, is subject to approval and declaration by their
boards of directors and will depend on a variety of factors, including
business conditions and financial condition, earnings and cash
requirements.
- -------------------------------------------------------------------------------
Q: When do you expect to complete the merger?
A: We are pursuing all necessary approvals and anticipate completing the
merger in the second half of 2000.
- -------------------------------------------------------------------------------
Q: Who can help answer my questions?
A: If you have any questions about the merger or if you need additional copies
of this proxy statement/prospectus or the enclosed proxy, you should
contact Morrow & Co., Inc. as follows:
For registered shareholders: 1-800-566-9061
For brokers and financial institutions: 1-800-662-5200
- -------------------------------------------------------------------------------
3
<PAGE>
SUMMARY
This summary highlights selected information from this proxy
statement/prospectus and may not contain all of the information that is
important to you. To understand the merger fully and for a more complete
description of the legal terms of the merger, you should read carefully this
entire proxy statement/prospectus and the other documents to which we refer.
See "Where You Can Find More Information" on page 154. We have included page
references parenthetically to direct you to a more complete description of the
topics presented in this summary.
General
The Companies
PECO Energy Company
2301 Market Street
Post Office Box 8699
Philadelphia, Pennsylvania 19101-8699
(215) 841-4000
Incorporated in Pennsylvania in 1929, PECO Energy Company is engaged
principally in the production, purchase, transmission, distribution and sale of
electricity to residential, commercial, industrial and wholesale customers in
its franchised service territory in southeastern Pennsylvania. Since 1999, the
Commonwealth of Pennsylvania has required the unbundling of retail electric
services in Pennsylvania into separate generation, transmission and
distribution services with open retail competition for generation services.
With the commencement of deregulation, PECO Energy serves as the local
distribution company providing electric distribution services in southeastern
Pennsylvania and bundled electric service to customers who cannot or do not
choose an alternate electric generation supplier. Through its Exelon Energy
division, PECO Energy is a competitive generation supplier offering competitive
energy supply to customers throughout Pennsylvania. The Company's Exelon
Infrastructure Services subsidiary provides utility infrastructure services to
customers in several regions of the United States. PECO Energy has also formed
AmerGen Energy Company, a joint venture with British Energy plc, to acquire and
operate nuclear generating facilities. PECO Energy also engages in the
wholesale marketing of electricity on a national basis. PECO Energy also
participates in joint ventures which provide telecommunication services in the
Philadelphia metropolitan region.
Unicom Corporation
37th Floor, 10 South Dearborn Street
Post Office Box A-3005
Chicago, Illinois 60690-3005
(312) 394-7398
Unicom, incorporated in January 1994, is the parent of its principal
subsidiary, Commonwealth Edison Company, a regulated electric utility, and
Unicom Enterprises, an unregulated subsidiary engaged through its subsidiaries
in energy service activities. ComEd is engaged principally in the production,
purchase, transmission, distribution and sale of electricity to a diverse base
of residential, commercial, industrial and wholesale customers. ComEd was
organized in the State of Illinois on October 17, 1913 as a result of the
merger of Cosmopolitan Electric Company into the original corporation named
Commonwealth Edison Company. The latter had been incorporated on September 17,
1907. ComEd's electric service territory has an area of approximately 11,300
square miles and an estimated population of approximately eight million as of
December 31, 1999. It includes the city of Chicago, an area of approximately
225 square miles with an estimated population of approximately three million
from which ComEd derived approximately one-third of its consumer revenues in
1999. ComEd had 3.5 million electric customers at December 31, 1999. Unicom
Enterprises is engaged, through subsidiaries, in district cooling and related
services, retail electric services, retail gas services, performance
contracting, distributed energy, active energy management systems and the
design, installation and servicing of heating, ventilation and air conditioning
facilities.
4
<PAGE>
Exelon Corporation
Exelon Corporation is currently a wholly owned subsidiary of PECO Energy
that has no assets and has not to date conducted any business. It will become
the parent holding company of PECO Energy, ComEd, PECO Energy's subsidiaries
and Unicom's other subsidiaries following completion of the merger. Exelon is a
Pennsylvania corporation.
Structure of the Merger
The merger involves two transactions, a first step share exchange between
PECO Energy and its wholly owned subsidiary Exelon, after which PECO Energy
will be a wholly owned subsidiary of Exelon, and a second step merger of Unicom
into Exelon. The corporate structures of PECO Energy and Unicom before the
merger and Exelon after the merger appears as follows:
[FLOW CHART APPEARS HERE]
5
<PAGE>
Board of Directors and Management of Exelon After the Merger (page 52)
The merger agreement provides for certain arrangements relating to the board
of directors and management of Exelon during a transition period lasting from
the completion of the merger until December 31, 2003, including the following:
.upon completion of the merger, Exelon's board of directors will have 16
members, eight of whom will be serving as members of PECO Energy's board
of directors immediately prior to the completion of the merger and who
are recommended by PECO Energy's board of directors immediately prior to
that time, and eight of whom will be members of Unicom's board of
directors immediately prior to the completion of the merger and who are
recommended by Unicom's board of directors immediately prior to that
time,
.from the completion of the merger until the end of the transition period,
Corbin A. McNeill, Jr. and John W. Rowe will be co-chief executive
officers of Exelon,
.during the first half of the transition period, Mr. McNeill will be
chairman of the Exelon board of directors and Mr. Rowe will be chairman
of the executive committee of the Exelon board of directors and president
of Exelon,
.during the second half of the transition period, Mr. Rowe will be chairman
of the Exelon board of directors and Mr. McNeill will be chairman of the
executive committee of the Exelon board of directors,
.at the end of the transition period, Mr. Rowe will become chairman of the
board of directors and sole chief executive officer of Exelon and Mr.
McNeill will remain on the Exelon board of directors, and
.if at any time either Mr. McNeill or Mr. Rowe is unwilling or unable to
hold any of these positions, the other, if he is still a co-chief
executive officer of Exelon, will succeed to the position.
In addition, the merger agreement contains arrangements relating to other
senior management positions and the locations of Exelon's corporate
headquarters and other principal offices. These arrangements are described
elsewhere in this proxy statement/prospectus.
Material United States Federal Income Tax Consequences of the Merger (page
63)
The merger is structured to be tax-free to holders of PECO Energy common
stock and Unicom common stock for United States federal income tax purposes,
except with respect to cash received in exchange for Unicom common stock,
including any cash received instead of any fractional shares of Exelon common
stock.
Tax matters are very complicated. The tax consequences of the merger to you
will depend on the facts of your own situation. You should consult your own tax
advisor for a full understanding of the tax consequences of the merger to you.
Board of Directors Recommendations
PECO Energy (page 29)
The PECO Energy board of directors:
.approved the amendment to the merger agreement, the merger and the other
transactions contemplated by the merger agreement,
.determined that the merger and the other transactions contemplated by the
merger agreement were fair to and in the best interests of PECO Energy
and its shareholders, and
.recommended that the PECO Energy shareholders vote for the adoption of the
merger agreement.
6
<PAGE>
Unicom (page 41)
The Unicom board of directors:
.approved the amendment to the merger agreement, the merger and the other
transactions contemplated by the merger agreement,
.determined that the merger and the other transactions contemplated by the
merger agreement were fair to and in the best interests of Unicom and its
shareholders, and
.recommended that Unicom shareholders vote for the approval of the merger
agreement.
To review the background and reasons for the merger in greater detail, as
well as certain risks related to the merger, see pages 22 through 27, 27
through 29, 29 through 32 and 41 through 45.
Fairness Opinions of Financial Advisors
PECO Energy (page 32)
In deciding to approve the merger, the PECO Energy board of directors
considered the separate opinions of its co-financial advisors, Morgan Stanley &
Co. Incorporated and Salomon Smith Barney Inc., to the effect that as of
January 7, 2000, the consideration to be received by holders of PECO Energy
common stock in the merger was fair from a financial point of view to those
holders. These opinions are attached as Annexes B and C to this proxy
statement/prospectus. These opinions are directed to the PECO Energy board and
address only the fairness of the consideration to be received by the holders of
PECO Energy common stock pursuant to the terms of the transaction. They are not
recommendations as to how you should vote on the merger. The opinions describe
important exceptions, assumptions and limitations and we encourage PECO Energy
shareholders to read these opinions carefully.
Unicom (page 45)
In deciding to approve the merger, the Unicom board of directors considered
the opinion of its financial advisor, Wasserstein Perella & Co., as to the
fairness, from a financial point of view, as of January 6, 2000, of the
aggregate consideration to be received by holders of Unicom common stock in the
merger. This opinion is attached as Annex D to this proxy statement/prospectus.
This opinion was directed to the Unicom board of directors and addressed only
the fairness from a financial point of view to the shareholders of Unicom of
the aggregate consideration to those shareholders provided for in the merger
agreement. It did not address the fairness of the cash consideration or the
number of shares of Exelon common stock into which a share of Unicom common
stock may be converted individually, nor did it express any view on any other
aspect of the merger or any other terms of the merger agreement. This opinion
does not constitute a recommendation to any shareholder of Unicom as to how any
shareholder should vote on the merger. The opinion describes important
exceptions, assumptions and limitations and we encourage Unicom shareholders to
read this opinion carefully.
Interests of PECO Energy's and Unicom's Directors and Management in the Merger
(page 55)
In considering the recommendations of the PECO Energy board of directors and
Unicom board of directors with respect to the merger agreement, you should be
aware that some PECO Energy and Unicom directors and officers have interests in
the merger as directors or officers that may be different from, or greater
than, your interests. If we complete the merger, eight PECO Energy directors
and eight Unicom directors will become members of the board of directors of
Exelon and several current PECO Energy or Unicom executive officers, including
the current chief executive officers of PECO Energy and Unicom, will continue
to be executive officers of Exelon after the merger, as described under "The
Merger--Board of Directors and Management of Exelon After the Merger" in this
Chapter I.
7
<PAGE>
PECO Energy has entered into change in control agreements with approximately
100 officers and key employees in the four highest generic salary categories of
PECO Energy. Unicom has entered into an employment agreement with Mr. Rowe and
change in control agreements with 10 other senior executive officers and has
also established the Key Management Severance Plan covering eligible executive
officers and key employees. These agreements and plans will provide the
officers with severance benefits if their employment with the combined company
is terminated after the merger and other rights in connection with the merger.
The Unicom officers and employees who have options to purchase Unicom common
stock will have their options adjusted in order to give the holders of options
value substantially equivalent to that received by holders of outstanding
shares in the merger. The number of shares into which the options are
exercisable, and the option price, will be adjusted as if the exchange ratio
for Unicom common stock were 0.95, instead of the 0.875 applicable to the
exchange of outstanding shares, and the $3.00 per share cash consideration will
be disregarded.
Also, following the merger, Exelon will indemnify, and provide directors'
and officers' insurance for, the directors and officers of PECO Energy and
Unicom for events occurring before the merger, including events that are
related to the merger agreement.
The members of our boards of directors knew about these additional
interests, and took them into account, when they approved the merger agreement
and the merger.
The Annual Meetings
Dates
PECO Energy (page 112)
The 2000 annual meeting of PECO Energy shareholders will be held on Tuesday,
June 27, 2000, at 9:30 a.m., local time, at the Millenium Hall of the Loews
Philadelphia Hotel, 1200 Market Street, in Philadelphia, Pennsylvania. At the
PECO Energy annual meeting, shareholders will be asked to adopt the merger
agreement and vote on other matters described in Chapter II of this proxy
statement/prospectus.
Unicom (page 132)
The 2000 annual meeting of Unicom shareholders will be held on Wednesday,
June 28, 2000, at 10:30 a.m., local time, at the Grand Ballroom of the Hyatt
Regency Chicago, 151 East Wacker Drive, Chicago, Illinois. At the Unicom annual
meeting, shareholders will be asked to approve the merger agreement and vote on
other matters described in Chapter III of this proxy statement/prospectus.
Record Dates; Voting Power
PECO Energy (page 112)
PECO Energy shareholders are entitled to vote at the PECO Energy annual
meeting if they owned shares of PECO Energy common stock as of the close of
business on April 5, 2000, the PECO Energy record date.
On April 5, 2000, there were approximately 181,454,576 shares of PECO Energy
common stock entitled to vote at the PECO Energy annual meeting. PECO Energy
shareholders will have one vote at the PECO Energy annual meeting for each
share of PECO Energy common stock that they owned on the PECO Energy record
date.
Unicom (page 132)
Unicom shareholders are entitled to vote at the Unicom annual meeting if
they owned shares of Unicom common stock as of the close of business on May 12,
2000, the Unicom record date.
8
<PAGE>
On May 12, 2000, there were approximately 176,522,602 shares of Unicom
common stock entitled to vote at the Unicom annual meeting. Unicom shareholders
will have one vote at the Unicom annual meeting for each share of Unicom common
stock that they owned on the Unicom record date. Unicom shareholders have
cumulative voting rights in the election of directors. See "Chapter III".
Votes Required to Approve Merger
PECO Energy (page 113)
The affirmative vote of the holders of a majority of all shares of PECO
Energy common stock casting votes at the PECO Energy annual meeting is required
to adopt the merger agreement, assuming that holders of a majority of all PECO
Energy common stock entitled to vote are present at the annual meeting.
Unicom (page 132)
The affirmative vote of holders of at least two-thirds of the shares of
Unicom common stock outstanding on the Unicom record date is required to
approve the merger agreement.
Share Ownership of Directors and Executive Officers
PECO Energy (page 113)
On April 5, 2000, directors and executive officers of PECO Energy and their
affiliates owned and were entitled to vote approximately 354,247 shares of PECO
Energy common stock, or approximately 0.2% of the shares of PECO Energy common
stock outstanding on that date.
Unicom (page 133)
On May 12, 2000, directors and executive officers of Unicom and their
affiliates owned and were entitled to vote less than 1% of Unicom common stock
outstanding on that date.
The Merger (page 22)
The merger agreement is attached as Annex 1 to this proxy
statement/prospectus. We encourage you to read the merger agreement. It is the
principal document governing the merger.
Conditions to the Completion of the Merger (page 74)
PECO Energy and Unicom will complete the merger only if they satisfy or, in
some cases, waive, several conditions, including the following:
.approval of the merger agreement by shareholders of PECO Energy and
Unicom,
.approval of the Exelon common stock for listing on the New York Stock
Exchange,
.expiration or termination of the waiting period applicable to the merger
under the Hart-Scott- Rodino Antitrust Improvements Act,
.receipt of all required regulatory approvals, with all approvals becoming
final orders that do not impose terms or conditions which, individually
or in the aggregate, could reasonably be expected to have a material
adverse effect on Exelon,
.accuracy of representations and warranties and performance of obligations
contained in the merger agreement by PECO Energy and Unicom,
.absence of events, changes, effects or developments having a material
adverse effect on either PECO Energy's or Unicom's business, assets,
condition (financial or otherwise), prospects or results of operations,
and
.receipt of a tax opinion of counsel to each of PECO Energy and Unicom.
9
<PAGE>
Termination of the Merger Agreement (page 76)
1. PECO Energy and Unicom can jointly agree to terminate the merger
agreement at any time prior to completing the merger, including after approval
by the PECO Energy shareholders or the Unicom shareholders.
2. Either PECO Energy or Unicom can terminate the merger agreement
(including after approval by the PECO Energy shareholders or the Unicom
shareholders) if:
(a) the second step merger is not completed by March 31, 2001, unless
the failure is the result of a breach by the party seeking to terminate,
(b) governmental entity permanently prohibits the completion of the
merger,
(c) a condition to the obligation of a party to complete the merger
becomes incapable of satisfaction prior to March 31, 2001, unless the
failure of the condition to be met is the result of a material breach of
the merger agreement by the party seeking to terminate,
(d) the Unicom shareholders do not approve the merger agreement at a
Unicom shareholders meeting,
(e) the PECO Energy shareholders do not adopt the merger agreement at a
PECO Energy shareholders meeting,
(f) a condition to the completion of the merger cannot be satisfied
because the other party breached the merger agreement as a result of which
a closing condition relating to representations, warranties or covenants
cannot be satisfied or which has not been cured or cannot be cured within
30 days,
(g) the other party's board of directors or any committee of the board
of directors withdraws or modifies its approval or recommendation, or
publicly proposes to do so, or approves or recommends any competing
proposal, or proposes to do so, or otherwise breaches its no-solicitation
covenant in any material respect, or
(h) prior to obtaining its shareholder approval of the merger agreement:
.the party receives an unsolicited superior proposal,
.the board of directors of the party determines in good faith, based
upon the advice of its outside counsel, that its fiduciary
obligations require it to (a) withdraw or modify its approval or
recommendation of the merger agreement and the merger, (b)
terminate the merger agreement and (c) enter into a definitive
agreement for the competing proposal,
.the party complies with its no-solicitation covenants,
.the party pays the required termination fee, and
.the board of directors of the party approves and the party enters
into an agreement providing for the implementation of the superior
proposal.
Termination Fees; Reimbursement of Expenses
PECO Energy (page 77)
PECO Energy must pay to Unicom a termination fee of $250 million and
reimburse Unicom for its out-of-pocket expenses actually incurred in connection
with the merger agreement and the transactions contemplated by the merger
agreement up to a limit of $15 million, if any of the following occur:
.PECO Energy terminates the merger agreement for the reason described in
paragraph 2(h) above under "--Termination of the Merger Agreement",
.Unicom terminates the merger agreement for the reason described in
paragraph 2(g) above under "--Termination of the Merger Agreement", or
10
<PAGE>
.any competing proposal for PECO Energy has been proposed or publicly
disclosed and
.the merger agreement is terminated by (a) PECO Energy for the reason
described in paragraph 2(a) above under "--Termination of the Merger
Agreement", (b) either PECO Energy or Unicom for the reason described
in paragraph 2(e) above under "--Termination of the Merger Agreement"
or (c) Unicom for the reason described in paragraph 2(f) above under
"--Termination of the Merger Agreement" for a willful breach or failure
to perform, and
.within 18 months of termination PECO Energy enters into a definitive
agreement to consummate or consummates any competing proposal.
In addition, PECO Energy must reimburse Unicom (whether or not a termination
fee-triggering event occurs) for its out-of-pocket expenses actually incurred
in connection with the merger agreement and the transactions contemplated by
the merger agreement up to a limit of $15 million, if:
.either PECO Energy or Unicom terminates the merger agreement for the
reason described in paragraph 2(e) above under "--Termination of the
Merger Agreement", or
.Unicom terminates the merger agreement for the reason described in
paragraph 2(f) above under "--Termination of the Merger Agreement".
Unicom (page 77)
Unicom must pay to PECO Energy a termination fee of $250 million and
reimburse PECO Energy for its out-of-pocket expenses actually incurred in
connection with the merger agreement and the transactions contemplated by the
merger agreement up to a limit of $15 million, if any of the following occur:
.Unicom terminates the merger agreement for the reason described in
paragraph 2(h) above under "--Termination of the Merger Agreement",
.PECO Energy terminates the merger agreement for the reason described in
paragraph 2(g) above under "--Termination of the Merger Agreement", or
.any competing proposal for Unicom has been proposed or publicly disclosed
and
.the merger agreement is terminated by (a) Unicom for the reason
described in paragraph 2(a) above under "--Termination of the Merger
Agreement", (b) either Unicom or PECO Energy for the reason described
in paragraph 2(d) above under "--Termination of the Merger Agreement"
or (c) PECO Energy for the reason described in paragraph 2(f) above
under "--Termination of the Merger Agreement" for a willful breach or
failure to perform, and
.within 18 months of termination Unicom enters into a definitive
agreement to consummate or consummates any competing proposal.
In addition, Unicom must reimburse PECO Energy (whether or not a termination
fee-triggering event occurs) for its out-of-pocket expenses actually incurred
in connection with the merger agreement and the transactions contemplated by
the merger agreement up to a limit of $15 million, if:
.either PECO Energy or Unicom terminates the merger agreement for the
reason described in paragraph 2(d) above under "--Termination of the
Merger Agreement" or
.PECO Energy terminates the merger agreement for the reason described in
paragraph 2(f) above under "--Termination of the Merger Agreement".
Regulatory Approvals (page 71)
In order to complete the merger, we must receive approvals from and/or make
filings with various federal and state regulatory agencies. At the federal
level, these approvals include approval of the Securities and Exchange
Commission, the Nuclear Regulatory Commission and the Federal Energy Regulatory
Commission.
11
<PAGE>
In addition, the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act must have expired or been terminated. At the state level,
PECO Energy must receive approval from regulators in Pennsylvania. Unicom has
filed a required notice of the merger with regulators in Illinois and no other
regulatory action is required in Illinois to complete the merger.
Accounting Treatment (page 67)
The merger is expected to be accounted for using the purchase method of
accounting with PECO Energy being deemed to have acquired Unicom.
Dissenters' Rights
PECO Energy Shareholders (page 67)
Under Pennsylvania law, PECO Energy shareholders do not have dissenters'
rights in connection with the merger.
Unicom Shareholders (page 67)
Under Illinois law, Unicom shareholders have dissenters' rights in
connection with the second step merger.
Expenses (page 82)
PECO Energy and Unicom will each bear its own expenses in connection with
the merger, except that PECO Energy and Unicom will share equally the costs of
filing the registration statement, of which this proxy statement/prospectus is
a part, with the Securities and Exchange Commission and printing and mailing
this proxy statement/prospectus to PECO Energy and Unicom shareholders.
Comparative Stock Prices and Dividend Information (page 84)
Shares of PECO Energy common stock and Unicom common stock are listed on
the New York Stock Exchange. The following table presents the last reported
sale price of one share of PECO Energy common stock and one share of Unicom
common stock, as reported on the New York Stock Exchange Composite Transaction
reporting system on September 22, 1999, the last full trading day prior to the
public announcement of the proposed merger, on January 6, 2000, the last full
trading day prior to the public announcement of the amendment of the merger
agreement, and on May 11, 2000, the last day for which this information could
be calculated prior to the date of this proxy statement/prospectus.
<TABLE>
<CAPTION>
PECO Energy Unicom
Common Common
Date Stock Stock
---- ----------- --------
<S> <C> <C>
September 22, 1999................................... $38.1250 $37.0625
January 6, 2000...................................... $36.0000 $34.3750
March 31, 2000....................................... $36.8750 $36.5000
May 11, 2000......................................... $45.5000 $42.8125
</TABLE>
Until the merger is completed, PECO Energy expects to continue to pay
annual dividends on PECO Energy common stock of $1.00 per share and Unicom
expects to continue to pay annual dividends on Unicom common stock of $1.60
per share. We expect that, after the merger, Exelon will pay annual dividends
of $1.69 per share. The payment of dividends by PECO Energy, Unicom and
Exelon, however, is subject to approval and declaration by their boards of
directors and will depend on a variety of factors, including business
conditions and their financial condition, earnings and cash requirements.
12
<PAGE>
Comparative Per Share Information
The December 31, 1999 and 1998 selected comparative per share information of
PECO Energy and Unicom and the March 31, 2000 and 1999 selected comparative per
share information of Unicom, set forth below, were derived from audited
financial statements. The March 31, 2000 and 1999 selected comparative per
share information of PECO Energy set forth below has been derived from
unaudited financial statements and, in the opinion of management of PECO
Energy, includes all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation for such periods. Due to the effect of
seasonal fluctuations and other factors on the operations of PECO Energy and
Unicom, financial results for the three-month period ending March 31, 2000 are
not necessarily indicative of results for the year ended December 31, 2000.
You should read the information in this section along with PECO Energy's and
Unicom's historical consolidated financial statements and accompanying notes
for the periods referred to above included in the documents described under
"Where You Can Find More Information" on page 154. You should also read the
unaudited pro forma combined condensed financial statements and accompanying
discussion and notes included in this proxy statement/prospectus starting on
page 85.
<TABLE>
<CAPTION>
At or for At or for the Three
the Year Ended Months Ended
December 31, March 31,
--------------- -------------------
1999 1998 2000 1999
------- ------- --------- ---------
<S> <C> <C> <C> <C>
PECO Energy-Historical
Basic earnings per common share.......... $ 2.91 $ 2.24 $ 0.89 $ 0.69
Diluted earnings per average common
share................................... 2.89 2.23 0.89 0.68
Cash dividends per common share.......... 1.00 1.00 0.25 0.25
Book value per outstanding common share.. 9.78 13.61 10.43 12.18
Unicom-Historical
Basic earnings per common share.......... $ 2.62 $ 2.35 $ 1.01 $ 0.32
Diluted earnings per common share........ 2.61 2.34 1.00 0.32
Cash dividends declared per common
share................................... 1.60 1.60 0.40 0.40
Book value per outstanding common share.. 24.50 23.49 22.13 23.33
</TABLE>
<TABLE>
<CAPTION>
At or for At or for the Three
the Year Ended Months Ended
December 31, 1999 March 31, 2000
----------------- -------------------
<S> <C> <C>
Unaudited Pro Forma Combined
Basic earnings before extraordinary
items per common share................ $3.72 $ 1.04
Diluted earnings before extraordinary
items per common share................ 3.70 1.04
Book value per outstanding common
share................................. -- 21.12
</TABLE>
13
<PAGE>
Selected Historical and Unaudited Pro Forma Combined Condensed Financial Data
PECO Energy
The following selected financial data of PECO Energy at December 31, 1999,
1998, 1997, 1996 and 1995, and for each of the five years in the period ended
December 31, 1999, are derived from audited consolidated financial statements.
The following selected financial data of PECO Energy at March 31, 2000 and
1999, and for the three-month periods ended March 31, 2000 and 1999, are
derived from unaudited consolidated financial statements incorporated by
reference in this proxy statement/prospectus.
You should note the following in reading the PECO Energy selected historical
financial information:
.In 1999, PECO Energy, through a wholly owned subsidiary, securitized $4
billion of its authorized stranded cost recovery. The proceeds from
securitization have been used to repurchase common equity, preferred
securities and debt pursuant to the terms of the Pennsylvania Public
Utility Commission's (PUC) Restructuring Order.
.In 1999, an extraordinary loss of $37 million (after-tax) was recorded
related to the early redemption of long-term debt.
.In 1998, PECO Energy recognized a $124.2 million charge to earnings before
taxes for its early retirement and separation program related to costs
incurred in connection with its Cost Competitiveness Review workforce
reduction program. This charge is reflected in its operating income.
.In 1998, an extraordinary loss of $20 million (after-tax) was recorded
related to the early redemption of long-term debt.
.In 1997, PECO Energy recognized a $3.1 billion extraordinary charge to
earnings before taxes reflecting the effects of the PUC's Restructuring
Order and deregulation of its electric generation operations.
You should read the information in this section along with PECO Energy's
financial statements and accompanying notes incorporated by reference in this
proxy statement/prospectus. See "Where You Can Find More Information" on page
154.
<TABLE>
<CAPTION>
Historical
--------------------------------------------------------
At or for the
Three Months Ended,
At or for the Year ended December 31, March 31, (unaudited)
---------------------------------------- ---------------------------
1999 1998 1997 1996 1995 2000 1999
------- ------- ------- ------- ------- ------- -------
(Dollars in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Operating revenues.... $ 5,437 $ 5,263 $ 4,601 $ 4,284 $ 4,186 $ 1,343 $ 1,252
Net income (loss) from
continuing
operations........... 582 513 (1,497) 517 610 165 156
Earnings (loss) per
average common
share................ 2.91 2.24 (6.80) 2.24 2.64 0.89 0.69
Dividends per common
share................ 1.00 1.00 1.80 1.755 1.65 0.25 0.25
Balance Sheet Data:
Total assets.......... $13,120 $12,048 $12,357 $15,261 $15,309 $13,031 $14,971
Long-term debt........ 5,969 2,920 3,853 3,936 4,199 5,895 6,084
Common shareholders'
equity............... 1,773 3,057 2,727 4,646 4,531 1,895 2,486
</TABLE>
14
<PAGE>
Unicom
The following selected financial data of Unicom at December 31, 1999, 1998,
1997, 1996 and 1995 and for each of the five years in the period ended December
31, 1999 are derived from the audited consolidated financial statements. The
following selected financial data of Unicom at March 31, 2000 and 1999, and for
the three-month periods ended March 31, 2000 and 1999, are derived from audited
consolidated financial statements incorporated by reference in this proxy
statement/prospectus.
You should note the following in reading the Unicom selected historical
financial information:
. In December 1999, Unicom completed the sale of ComEd's fossil generating
assets, representing an aggregate generating capacity of approximately
9,772 megawatts, to Edison Mission Energy, a subsidiary of Edison
International, for $4.8 billion in cash. In accordance with the Illinois
Public Utilities Act, the gain on the sale was recorded as a regulatory
liability and was used to recover regulatory assets.
. In 1999, an extraordinary loss of $28 million (after-tax) was recorded
related to the early redemption of long-term debt.
. In December 1998, ComEd initiated the issuance of $3.4 billion of
transitional trust notes. During 1999, the proceeds from the transitional
trust notes, net of transaction costs, were, as required by the Illinois
Electric Service Customer Choice and Rate Relief Law of 1997 (the
"Illinois Act"), used to repurchase higher cost, long-term debt,
preference stock and Unicom common stock.
. In January 1998, the boards of directors of Unicom and ComEd authorized
the permanent cessation of electric generation operations and the
retirement of ComEd's 2,080 megawatt Zion nuclear generating station. The
retirement resulted in a charge in the fourth quarter of 1997 of $523
million (after-tax), or $2.42 per common share (diluted).
. In December 1997, ComEd discontinued SFAS 71 and recognized an
extraordinary charge of $810 million (after-tax), or $3.75 per common
share (diluted), reflecting the effects of the Illinois Act and
deregulation of its electric generation operations. The Illinois Act is
expected to ultimately lead to market-based pricing of electric
generation services.
. In 1997, ComEd changed its accounting method for revenue recognition to
record revenues associated with service which has been provided to
customers but has not yet been billed at the end of each accounting
period. This change in accounting method increased operating results for
the year 1997 to reflect the one-time cumulative effect of a change for
years prior to 1997 by $197 million (after-tax), or $0.91 per common
share.
You should read the information in this section along with Unicom's
financial statements and accompanying notes incorporated by reference in this
proxy statement/prospectus. See "Where You Can Find More Information" on page
154.
<TABLE>
<CAPTION>
Historical
-----------------------------------------------------------
At or for the
At or for the Year ended December 31, Three Months Ended
(audited) March 31,
--------------------------------------- -------------------
1999 1998 1997 1996 1995 2000 1999
------ ------- ------- ------- ------- --------- ---------
(Dollars in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Operating revenues.... $6,848 $ 7,103 $ 7,083 $ 6,937 $ 6,910 $ 1,658 $ 1,538
Net income (loss) from
continuing
operations........... 597 510 (239) 666 660 195 97
Earnings per average
diluted common
share................ 2.61 2.34 (3.94) 3.09 2.98 1.00 0.32
Dividends per common
share................ 1.60 1.60 1.60 1.60 1.60 0.40 0.40
Balance Sheet Data:
Total assets.......... 23,406 25,690 22,700 23,388 23,250 21,156 23,990
Long-term debt........ 7,130 7,793 5,737 6,070 6,549 6,965 7,677
Common shareholders'
equity............... 5,333 5,099 4,919 6,104 5,770 3,932 5,065
</TABLE>
15
<PAGE>
PECO Energy and Unicom Pro Forma Combined
The following selected unaudited pro forma combined condensed financial data
of PECO Energy and Unicom have been prepared to reflect the acquisition of
Unicom by PECO Energy under the purchase method of accounting. The selected
unaudited pro forma combined condensed financial data is derived from the
unaudited pro forma combined condensed financial statements contained elsewhere
in this proxy statement/prospectus. The unaudited pro forma combined condensed
financial statements do not give effect to the estimated cost savings and
revenue enhancements as a result of the merger or the costs to achieve such
savings and revenue enhancements or one-time merger-related costs. The Unicom
and PECO Energy adjustments and the merger are reflected in the unaudited pro
forma combined condensed balance sheet contained elsewhere in this proxy
statement/prospectus as if they occurred on March 31, 2000. The unaudited pro
forma combined condensed statement of income for the three months ended March
31, 2000 and for the year ended December 31, 1999 contained elsewhere in this
proxy statement/prospectus assume that these transactions were completed on
January 1, 1999.
The following unaudited pro forma combined condensed financial data is for
illustrative purposes only. It is not necessarily indicative of the financial
position or operating results that would have occurred had the merger been
completed as of the dates referred to above. The data is not necessarily
indicative of future financial position or operating results. Results of
operations and financial position in the first year after the merger could
differ significantly from the unaudited pro forma combined condensed financial
data, which is based on past operations. Future operations will be affected by
various factors including operating performance, energy market developments,
and other matters.
You should read the financial information in this section along with
historical financial statements and unaudited pro forma combined condensed
financial statements and accompanying notes, either incorporated by reference
or included in this proxy statement/prospectus. See "Unaudited Pro Forma
Combined Condensed Financial Statements" on page 85 and "Where You Can Find
More Information" on page 154.
<TABLE>
<CAPTION>
At or for the
At or for the Three Months
Year Ended Ended
December 31, 1999 March 31, 2000
----------------- --------------
(Dollars in millions, except
per share amounts)
<S> <C> <C>
Income Statement Data:
Operating revenues.......................... $12,225 $ 2,987
Income before extraordinary items........... 1,172 329
Income before extraordinary items per share-
diluted.................................... 3.70 1.04
Balance Sheet Data:
Total assets................................ -- $36,014
Long-term debt.............................. -- 13,860
Redeemable preferred securities............. -- 478
Common shareholders' equity................. -- 6,654
</TABLE>
16
<PAGE>
RISK FACTORS RELATING TO THE MERGER
In addition to the other information included and incorporated by reference
in this proxy statement/prospectus, PECO Energy and Unicom shareholders should
consider carefully the matters described below in determining whether to adopt
or approve the merger agreement.
. The consideration to be received by shareholders in the merger is fixed
and will not be adjusted in the event of any change in the stock prices
of PECO Energy or Unicom prior to the merger. Upon completion of the
merger, each share of PECO Energy common stock will be exchanged for one
share of Exelon common stock, and each share of Unicom common stock will
be exchanged for 0.875 shares of Exelon common stock plus $3.00. These
exchange ratios and the cash amount to be received by Unicom shareholders
are fixed and will not be adjusted in the event of changes in the prices
of PECO Energy common stock or Unicom common stock.
There may be a significant amount of time between the dates when PECO
Energy and Unicom shareholders vote on the merger agreement at the annual
meetings and the date when the merger is completed. The prices of PECO
Energy common stock and Unicom common stock on the dates of the meetings
may not be indicative of their prices immediately prior to completion of
the merger and the price of Exelon common stock after the merger is
completed. The relative prices of shares of PECO Energy common stock and
Unicom common stock may vary significantly between the date of this proxy
statement/prospectus, the dates of the annual meetings and the completion
of the merger. These variations may be caused by changes in the
businesses, operations, results and prospects of our companies, market
expectations of the likelihood that the merger will be completed and the
timing of completion, the prospects of post-merger operations, the effect
of any conditions or restrictions imposed on or proposed with respect to
the combined company by regulators, general market and economic
conditions, and other factors. In addition, it is impossible to predict
accurately the market price of Exelon common stock to be received by PECO
Energy and Unicom shareholders after the completion of the merger. We urge
you to obtain current market quotations for your company's common stock at
the time you are making your decision as to how to vote.
. The integration of PECO Energy and Unicom following the merger will
present significant challenges which may result in the combined company
not operating as effectively as expected or in a failure to achieve the
anticipated potential benefits of the merger. PECO Energy and Unicom will
face significant challenges in consolidating functions, integrating their
organizations, procedures and operations in a timely and efficient
manner, and retaining key PECO Energy and Unicom personnel. The
integration of PECO Energy and Unicom will be complex and time-consuming
and the managements of PECO Energy and Unicom will have to dedicate
substantial effort to it and these efforts could divert management's
focus and resources from other strategic opportunities and from
operational matters during the integration process. In addition,
integrating portions of the organizations of the two companies requires
regulatory approvals, which could be delayed or not received at all. The
delay or failure to integrate PECO Energy and Unicom and to manage
successfully the challenges presented by the integration process may
result in the combined company not operating as effectively as expected
or achieving the anticipated potential benefits of the merger, including
expected cost savings and synergies, or achieving them later than
anticipated. In addition, the integration will have to be completed
amidst recent and future developments in the electric and gas utility
industries, including restructuring, deregulation and increased
competition.
. Combining the nuclear operations of PECO Energy and Unicom will present
significant challenges which may affect the combined company's ability to
maintain and improve the efficient operation of its nuclear generating
plants. The combined nuclear operations of Exelon will be significantly
larger than either company's nuclear operations and will require the
integration of nuclear operations among PECO Energy and Unicom. Exelon's
nuclear operation will be the largest in the United States in terms of
size and geographic scope. Exelon will have to build on the successful
nuclear management of PECO Energy and Unicom to maintain and improve the
efficient operation of its nuclear generating plants.
17
<PAGE>
. The merger is subject to the receipt of consents and approvals from
government entities that could delay completion of the merger or impose
conditions that could have a material adverse effect on the combined
company or cause abandonment of the merger. Completion of the merger is
conditioned upon the expiration or termination of the applicable waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act and the
receipt of consents, orders, approvals or clearances, as required, from
the Securities and Exchange Commission, the Federal Energy Regulatory
Commission, the Nuclear Regulatory Commission and the Pennsylvania Public
Utility Commission. In addition, notice of the second step merger must be
filed with the Illinois Commerce Commission. A substantial delay in
obtaining satisfactory approvals or the imposition of unfavorable terms
or conditions in the approvals could have a material adverse effect on
the business, financial condition or results of operations of PECO Energy
or Unicom or may cause the abandonment of the merger by PECO Energy or
Unicom.
The companies have also applied for regulatory approvals of the
restructuring of PECO Energy and ComEd. See "The Merger--Corporate
Restructuring" in this Chapter I. The approvals required for the
restructuring are not necessary to complete the merger. Pursuing the
restructuring approvals could have an adverse impact on the merger
regulatory proceedings. It is a condition to the completion of the merger
that the regulatory approvals required for the merger be obtained as final
orders without terms or conditions which could reasonably be expected to
have a material adverse effect on Exelon and its prospective subsidiaries
after the merger or which would be materially inconsistent with the merger
agreement. PECO Energy and Unicom have not determined how they will
respond to any of these potential terms or conditions.
. Efforts of unions to organize workers not currently covered by collective
bargaining agreements may increase as a result of the merger which could
adversely affect Exelon. About 60% of Unicom's employees are represented
by unions. None of PECO Energy's employees are represented by unions.
Therefore, PECO Energy's operations may be subject to increased efforts
to unionize portions of its workforce. Increased efforts to unionize
portions of PECO Energy's work force could adversely effect Exelon
through increased labor costs or disruptions of operations.
. Our unregulated businesses are more risky than our traditional utility
businesses. We expect the combined company's unregulated businesses will
contribute a greater proportion of the combined company's earnings than
either PECO Energy's or Unicom's unregulated businesses currently
contribute to their earnings. Unregulated operations generally carry a
higher level of risk than our regulated utility businesses. As a result,
we expect the operating results of these businesses to exhibit more
variability than our regulated utility businesses. PECO Energy is engaged
in power marketing and trading operations on a greater scale than Unicom.
The risks associated with this business are different from the risks of
the traditional utility business.
. Failures of equipment or facilities in ComEd's distribution system would
cause interruption of the electric services provided by ComEd, which
could adversely affect the value of Exelon common stock to be received by
PECO Energy shareholders in the merger. Such failures could result in
lost revenues, additional costs and possible claims against ComEd for
damages incurred by customers as a result of the outage. During the
summer of 1999, ComEd experienced interruptions in service to a large
number of customers due to a series of equipment failures. If ComEd's
efforts to repair or replace equipment are not successful in making the
necessary improvements to its distribution system, similar outages may
occur in the future.
. The benefits from share repurchases may be less than anticipated. The
benefits of accelerated share repurchases may be less than anticipated
due to changes in the number of shares of common stock of Unicom and PECO
Energy that will actually be repurchased prior to completion of the
merger as a result of changing market prices for those shares or other
factors.
. A determination by the Internal Revenue Service that the share
repurchases by Unicom and PECO Energy referred to in the merger agreement
are not independent of the merger and, therefore, should
18
<PAGE>
be integrated with the merger, could result in adverse federal income tax
consequences to some Unicom shareholders. The character of any gain
recognized by a Unicom shareholder in the second step merger will depend
on whether the pre-closing share repurchases made by Unicom and PECO
Energy are independent of and, therefore, should not be integrated with
the merger. Although this matter is not free from doubt and there is no
directly authoritative precedent on this issue, Jones, Day, Reavis &
Pogue, tax counsel to Unicom, has given its opinion that it is more likely
than not that the pre-closing share repurchases will be independent of and
will not be integrated with the second step merger and, therefore, that
any gain recognized by a Unicom shareholder, which will be limited to the
amount of cash received, will be treated as capital gain, with limited
exceptions. This opinion is not binding on the Internal Revenue Service
and the Internal Revenue Service may disagree with these conclusions. If
the Internal Revenue Service were successful in asserting a contrary view,
any gain recognized by Unicom shareholders in the second step merger would
be treated as a dividend rather than a capital gain, with limited
exceptions. See "The Merger--Material United States Federal Income Tax
Consequences of the Merger" in this Chapter 1.
19
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus contains certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 with
respect to the financial condition, results of operations, cash flows,
dividends, business strategies, operating efficiencies or synergies, budgets,
capital and other expenditures, competitive positions, growth opportunities for
existing businesses, plans and objectives of management, markets for stock of
PECO Energy and Unicom, and after the merger Exelon, and other matters.
Statements in this proxy statement/prospectus that are not historical facts are
hereby identified as "forward-looking statements" for the purpose of the safe
harbor provided by Section 21E of the Securities Exchange Act of 1934 and
Section 27A of the Securities Act of 1933. These forward-looking statements,
including, without limitation, those relating to the future business prospects,
revenues and income, in each case relating to PECO Energy and Unicom, and after
the merger Exelon, wherever they occur in this proxy statement/prospectus, are
necessarily estimates reflecting the best judgment of the senior management of
PECO Energy and Unicom and involve a number of risks and uncertainties that
could cause actual results to differ from those suggested by the forward-
looking statements. These forward-looking statements should, therefore, be
considered in light of various important factors, including those set forth in
this proxy statement/prospectus. Important factors that could cause actual
results to differ from estimates or projections contained in the forward-
looking statements include without limitation:
. the risk of legislative, regulatory or other governmental action seeking
to impose additional restrictions on the operations of PECO Energy,
Unicom or Exelon or to increase the burden of necessary regulatory
approvals for the merger, or the imposition of unfavorable terms as a
condition of approval of the merger, including requirements for rate
reductions or allocations to customers of merger cost savings,
. the risk of a significant delay in the expected completion of, and
unexpected consequences resulting from, the merger, including the
inability to close the transaction or unexpected difficulties in
integrating the operations of the two companies, difficulties in
achieving anticipated cost savings, difficulties in achieving other
operational improvements and revenue enhancements, and diversion of
management's focus and resources from other strategic opportunities and
from operational matters during the integration process,
. the risk that the assumptions and estimates underlying the anticipated
cost savings may prove to be faulty or other factors may adversely affect
the amount, nature or timing of anticipated cost savings,
. the risk that competition, industry developments, difficulties
encountered by the companies in coordinating new business ventures or
other difficulties could adversely affect the amount, nature or timing of
anticipated revenue enhancements,
. changes in the amount of proceeds received by the companies from
securitization transactions or other factors affecting the amount and
timing of receipt of available funds to provide the cash consideration
for the merger or share repurchases,
. future state and federal regulatory and/or legislative initiatives,
including with respect to environmental matters,
. the development of competition in the utility industry, including:
legislative and regulatory restructuring initiatives, industry
restructuring initiatives, transmission system operation, recovery of
investments made under traditional regulation, nature of competitors
entering the industry, retail wheeling, new pricing structures, former
customers entering the generation market, and technological developments
resulting in competitive disadvantages,
. financial or regulatory accounting principles or policies imposed by the
Financial Accounting Standards Board, the Securities and Exchange
Commission, the Federal Energy Regulatory Commission, the Nuclear
Regulatory Commission and similar agencies with regulatory oversight,
20
<PAGE>
. factors affecting utility and nonutility operations such as unusual
weather conditions, catastrophic weather-related damage, unscheduled
generation outages, maintenance or repairs, unanticipated changes to
fossil fuel, nuclear fuel or gas supply costs or availability due to
higher demand, shortages, transportation problems or other developments,
nuclear or environmental incidents, or electric transmission or gas
pipeline system constraints, all of which may affect revenues and
margins,
. employee workforce factors, including loss or retirement of key
executives, collective bargaining agreements with union employees, union
organizing activities or work stoppages,
. nuclear plant operating risks and nuclear regulatory policies and
procedures, including nuclear decommissioning costs and related funding
requirements, operating regulations and spent nuclear fuel storage, and
. factors associated with unregulated investments, including government
actions, economic risks, partnership actions, competition and operating
risks.
Words such as "estimate", "project", "plan", "intend", "expect", "believe",
"anticipate" and similar expressions are intended to identify forward-looking
statements, although not every forward-looking statement includes these words.
These forward-looking statements are found at various places throughout this
proxy statement/prospectus and the other documents incorporated herein by
reference, including, but not limited to, the Annual Report on Form 10-K for
the year ended December 31, 1998 of each of PECO Energy and Unicom, including
any amendments. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this proxy
statement/prospectus. Neither PECO Energy nor Unicom undertakes, and each
disclaims, any obligation to publicly update or release any revisions to these
forward-looking statements to reflect events or circumstances after the date of
this proxy statement/prospectus or to reflect the occurrence of unanticipated
events.
21
<PAGE>
THE MERGER
The discussion in this proxy statement/prospectus of the merger and the
principal terms of the merger agreement dated as of September 22, 1999, as
amended and restated as of January 7, 2000, among PECO Energy, Exelon and
Unicom, is subject to, and is qualified in its entirety by reference to, the
merger agreement, a copy of which is attached to this proxy
statement/prospectus as Annex A and is incorporated herein by reference.
Background to the Merger
General
As a result of legislative and regulatory initiatives aimed at restructuring
the electric utility industry, the industry has undergone rapid change in
recent years. Among other things, competition has increased, particularly with
respect to energy supply and retail energy services. Many states, including
those states in which PECO Energy and Unicom currently operate, have either
passed or proposed legislation that provides for retail electric competition
and deregulation of the price of energy supply. In addition, the wholesale
electric energy market has significantly expanded and geographic boundaries are
becoming less important. During 1999, a substantial amount of electric
generation assets were sold in the United States. PECO Energy and Unicom expect
this trend to continue. Mergers continue at a rapid pace not only between
electric companies, but also between electric and gas companies that are
seeking to capture value through the convergence of the two industries. At the
same time, other companies are focusing on specific portions of the energy
industry by disaggregating their generation, transmission, distribution and
retail operations, spinning off non-core assets and acquiring assets consistent
with their strategic focus. Currently, industry participants are attempting to
prepare themselves for increased competition and position themselves to take
advantage of these trends.
PECO Energy and Unicom believe that the consolidation and transformation of
the electric and natural gas segments of the energy industry will result in the
emergence of a limited number of substantial competitors. These large entities
will have assets and skills that are necessary to create value in one or more
of the traditional segments of the utility industry. PECO Energy and Unicom
believe that companies that have the financial strength, strategic foresight
and operational skills to establish scale and an early leadership position in
key segments of the energy industry will be best positioned to compete in the
new marketplace.
Both PECO Energy's and Unicom's boards of directors have focused significant
attention on strategic planning to adapt to the evolving competitive
environment. The strategic planning activities have concentrated on those
factors that would best position the companies for enhanced shareholder value
and continued leadership in the competitive energy marketplace.
Discussions and Other
During the first half of 1998, in connection with PECO Energy's generation
growth strategy, Mr. Corbin A. McNeill, Jr., the Chairman of the Board and
Chief Executive Officer of PECO Energy, discussed various possible transactions
with Mr. John W. Rowe, then the newly elected Chairman of the Board and Chief
Executive Officer of Unicom. These discussions were subsequently expanded to
include certain members of senior management of both PECO Energy and Unicom and
certain outside advisors. The parties abandoned these discussions in the fall
of 1998 because the parties were unable to agree on an appropriate structure
for the transaction and had differing views as to the relative values of the
companies.
Before and after the fall of 1998, as part of the ongoing execution of each
company's strategic plan, each company's chief executive officer along with
other members of senior management and with the assistance of outside advisors
actively considered a number of potential strategic acquisitions and mergers
involving domestic electric and gas utilities of a similar or smaller size, as
well as possible asset acquisitions or divestitures. Unicom engaged in
preliminary discussions and exchanged confidential information with three
22
<PAGE>
companies other than PECO Energy, and PECO Energy engaged in preliminary
discussions and exchanged confidential information with one company other than
Unicom. The management of each company kept its board of directors informed as
to the status of the contacts with potential transaction partners and the
continued refinement of management's evaluation of strategic alternatives.
During this time, Salomon Smith Barney Inc., who had been retained as financial
advisor by PECO Energy in May 1998, continued to assist PECO Energy in
exploring its strategic options. On January 20, 1999, in connection with its
planning initiative, Unicom retained the services of Wasserstein Perella as its
financial advisor to assist Unicom in exploring its strategic options.
On May 20, 1999, at an industry conference, Mr. McNeill and Mr. Rowe had the
occasion to meet briefly, at which time they discussed the possibility of
exploring a merger involving PECO Energy and Unicom.
On June 13, 1999, at another industry conference, Mr. McNeill and Mr. Rowe
met again and, after briefly discussing various strategic opportunities
available to their companies, decided to meet on June 25, 1999.
On June 22, 1999, at a regularly scheduled PECO Energy board of directors
meeting, Mr. McNeill described the background of discussions with Unicom and
identified the regulatory changes which stimulated renewed interest in a
potential transaction between PECO Energy and Unicom. The PECO Energy board of
directors discussed the possible structure and key terms of a potential
transaction and formed, pursuant to a proposal by Mr. McNeill, a special ad hoc
committee to advise PECO Energy's management on a potential transaction. The
special ad hoc committee consisted of C. A. McNeill, Jr., Chairman; G. F.
DiBona, Jr.; R. K. Elliott; R. H. Glanton; and R. Rubin, all of whom, with the
exception of Mr. McNeill, were outside directors. The special ad hoc
committee's role was to advise management regarding the possible transaction
with Unicom. The role of the special ad hoc committee was not, and the special
ad hoc committee did not undertake at any time during the discussions between
PECO Energy and Unicom, to review and make recommendations to the PECO Energy
board regarding the merger, the merger agreement or the amendment to the merger
agreement.
On June 25, 1999, Mr. McNeill and Mr. Rowe met and discussed the potential
for a merger of PECO Energy and Unicom. At this meeting, Mr. McNeill and Mr.
Rowe described and compared their companies' strategies and visions for the
future. Based on these discussions, Mr. McNeill and Mr. Rowe concluded that the
two companies shared sufficiently compatible strategies and goals to warrant
further discussions.
At a meeting on July 10, 1999, Mr. McNeill and Mr. Rowe and other members of
senior management from each company met to discuss and compare their companies'
strategies and visions for the future. Based on these discussions, Mr. McNeill
and Mr. Rowe concluded that there was a sufficient basis to undertake further
exploratory discussions relating to a possible transaction.
On July 15, 1999, PECO Energy and Unicom executed a confidentiality
agreement providing that each company would keep confidential information
furnished by the other in connection with discussions relating to a possible
transaction.
Beginning in July and continuing in the first half of August, 1999,
representatives of management of PECO Energy and Unicom and their financial
advisors met and spoke by telephone on numerous occasions to explore a possible
transaction. During these meetings and conversations, PECO Energy's and
Unicom's representatives discussed their companies' businesses and operations,
the rationale for a potential business combination, alternative structures for
and the terms of a possible transaction, regulatory approvals, governance
issues and other matters. During this period, the companies also exchanged
financial information and members of senior financial management considered
cost savings and other financial benefits that might be achieved through a
combination of the two companies. Also during this period, management
representatives and Cravath, Swaine & Moore, legal advisors to PECO Energy, and
Jones, Day, Reavis & Pogue, legal advisors to Unicom, and the companies'
financial advisors conducted business and legal due diligence.
23
<PAGE>
On July 26, 1999 and August 25, 1999, PECO Energy entered into engagement
letters with Morgan Stanley and Salomon Smith Barney, who were already
participating in the preliminary discussions, to act as PECO Energy's financial
advisors in exploring a possible transaction with Unicom. PECO Energy and
Unicom also retained Deloitte Consulting LLC ("Deloitte Consulting") to assist
the managements of PECO Energy and Unicom in their analyses of potential
synergies that may result from the merger.
At a regularly scheduled PECO Energy board of directors meeting on July 27,
1999, Mr. McNeill and other members of PECO Energy's management summarized the
status of discussions with Unicom and outlined the strategic rationale for, and
potential benefits from, a potential transaction with Unicom as compared to
alternatives available to PECO Energy. Also at that meeting, Salomon Smith
Barney and Morgan Stanley discussed financial aspects of and possible investor
reaction to a potential transaction. Mr. McNeill discussed how the merger would
accelerate PECO Energy's growth strategy for its generation and its power
marketing business. In addition, Mr. McNeill explained that a merger would
provide a platform for expansion of its distribution business, increase the
number of electric utility customers and provide a foundation for the growth of
PECO Energy's unregulated businesses, such as its infrastructure services and
telecommunications businesses.
At a regularly scheduled Unicom board of director's meeting on July 28,
1999, Mr. Rowe reviewed Unicom management's analysis of the strategic
alternatives available to Unicom, including potential acquisitions by Unicom or
a merger-of-equals transaction. Mr. Rowe also discussed with Unicom's board of
directors the contacts that he had with PECO Energy and a limited number of
potential acquisition targets in the electric and gas utility industry in the
central United States. The Unicom board of directors encouraged management to
continue its evaluation of PECO Energy and these other potential targets,
although none of the other opportunities progressed to the point of discussing
definitive terms.
During late August and September 1999, representatives of the companies and
Cravath, Swaine & Moore, legal advisors to PECO Energy, and Jones, Day, Reavis
& Pogue, legal advisors to Unicom, held various discussions to negotiate the
terms of a proposed possible merger of equals and began working on a draft
merger agreement. In addition, members of senior management and the companies'
financial advisors held meetings and discussions at which a possible business
plan for a combined company and potential synergies from a transaction and
other financial and due diligence matters were discussed.
During August and September 1999, there were also numerous meetings and
telephone conversations between Mr. McNeill and Mr. Rowe regarding terms of a
potential agreement for a merger of equals, in particular board composition of
the combined company, management succession for the combined company and the
location of the headquarters for the combined company.
At a special meeting held on August 23, 1999, the Unicom board of directors
reviewed, among other things, the status of the discussions with PECO Energy as
well as the other possible acquisition targets discussed above. After
presentations by members of the senior management of Unicom, the Unicom board
of directors authorized management to continue its discussions with PECO Energy
and to review other alternative transactions.
On August 24, 1999, the special ad hoc committee and the finance committee
of the PECO Energy board of directors held a meeting to hear a preliminary
analysis by management of a potential transaction with Unicom. Representatives
from Salomon Smith Barney, Morgan Stanley and Deloitte Consulting attended the
meeting. Also at this meeting, representatives of Deloitte Consulting assisted
the management of PECO Energy in presenting management's preliminary analysis
of potential synergies. James W. Durham, Senior Vice President and General
Counsel of PECO Energy, and a representative of Cravath, Swaine & Moore
discussed the fiduciary duties of the PECO Energy board of directors under
applicable law with respect to its consideration of a transaction with Unicom.
The special committee encouraged management to continue discussions with
Unicom.
On September 1, 1999, Unicom's board of directors held a regularly scheduled
meeting at which senior management and the company's legal advisors from Jones,
Day, Reavis & Pogue and financial advisors from
24
<PAGE>
Wasserstein Perella discussed the status of discussions with PECO Energy and
the status of other potential transactions. Mr. Rowe asked representatives of
Goldman Sachs & Co. who were present to report generally on mergers and
acquisitions in the electric industry and potential investor reaction to
possible transactions involving Unicom. Goldman Sachs provided an overview of
developments in the electric industry and the need for companies within the
industry to make strategic decisions given these developments and further
changes that are expected in the industry. Goldman Sachs reported that they
believed that a transaction involving PECO Energy would be favorably received
by the investment community but that Unicom would have to clearly and
effectively communicate the strategic purpose of a transaction and its expected
benefits. The Unicom board of directors advised management that it should focus
its strategic efforts on the proposed transaction with PECO Energy. The Unicom
board of directors determined not to pursue the other alternative transactions
that had been considered for several reasons, including the absence of a
compatible strategic vision and because these opportunities did not offer as
much potential to provide increased shareholder value, the combined financial
and management capabilities, as well as the generation, distribution and other
business resources necessary to succeed as a national energy company as a
possible merger with PECO Energy.
On September 1, 1999, the special ad hoc committee of the PECO Energy board
of directors held a meeting and discussed Unicom and various matters related to
the corporate governance of the combined company that would result from a
possible transaction with Unicom, and authorized Mr. McNeill to continue
negotiations with Unicom.
In September 1999, Unicom engaged Goldman Sachs to assist in Unicom's
development of a plan to effectively communicate with the investor community
regarding the transaction.
On September 16, Mr. McNeill, Mr. Rowe, Mr. Durham and Ms. Pamela B.
Strobel, Executive Vice President and General Counsel of Unicom, met in
Chicago, Illinois, and discussed various governance matters in connection with
the proposed merger, including the composition of the board of directors of the
combined company and management succession for the combined company.
On September 20, 1999, Unicom's board of directors held a special meeting
for the purpose of hearing a report on the status of the proposed merger with
PECO Energy. At this meeting, board members were given an outline of the
preliminary draft of the original merger agreement, a copy of the preliminary
draft of the original merger agreement, a presentation on fiduciary duties by
representatives of Jones, Day, Reavis & Pogue and a detailed report on the
results of the due diligence investigation of PECO Energy. The draft of the
original merger agreement presented to the Unicom board of directors at this
meeting was preliminary and did not contain exchange ratios, the termination
fees or provisions regarding Mr. Rowe's employment agreement. These provisions
were still under negotiation at the time of this meeting. Also at this meeting,
representatives of Deloitte Consulting assisted the management of Unicom in
making management's presentation outlining the synergies which the managements
of Unicom and PECO Energy estimated could be realized in the proposed merger.
In addition, corporate structure, governance and other related matters were
discussed. Wasserstein Perella made a detailed financial presentation at the
special meeting. Mr. McNeill attended this meeting and made a presentation
relating to various aspects of the proposed merger and answered questions from
members of the Unicom board of directors. At this meeting, the Unicom board of
directors authorized management to continue negotiations relating to a
potential merger with PECO Energy.
A special meeting of PECO Energy's board of directors to consider the
proposed merger was held on September 22, 1999. At the meeting, board members
were given a summary of the final draft of the original merger agreement, a
copy of the final draft of the original merger agreement and a presentation
relating to the final draft of the original merger agreement and fiduciary
duties under applicable law by Mr. Durham and a representative of Cravath,
Swaine & Moore. PECO Energy management also provided a financial overview of
the proposed merger and a detailed report on the results of due diligence.
Representatives of Salomon Smith Barney and Morgan Stanley made a detailed
financial presentation to the PECO Energy board of directors and each rendered
an oral opinion, which was subsequently confirmed in writing that, as of that
date, and based upon and subject to the factors and assumptions contained in
the opinions, the consideration to be received in the merger by PECO Energy
shareholders was fair from a financial point of view to those
25
<PAGE>
shareholders. Also at this meeting, representatives of Deloitte Consulting
assisted the management of PECO Energy in making management's presentation
outlining the synergies which the managements of PECO Energy and Unicom
estimated could result from the proposed merger. Mr. Rowe attended this meeting
and made a presentation relating to various aspects of the proposed merger and
answered questions from members of the PECO Energy board of directors. After
considering and discussing the various presentations at that meeting and at
prior meetings, as well as the recommendation of PECO Energy's senior
management, the PECO Energy board of directors unanimously approved the merger
agreement, authorized the execution of the merger agreement and recommended
that PECO Energy shareholders vote in favor of adoption of the merger
agreement.
A special meeting of Unicom's board of directors to consider the proposed
merger was held on September 22, 1999. At the meeting, representatives of
Jones, Day, Reavis & Pogue made a presentation on fiduciary duties and senior
management, financial advisors and representatives of Jones, Day, Reavis &
Pogue discussed changes to the original merger agreement and the terms of Mr.
Rowe's proposed employment agreement. Final drafts of the original merger
agreement and disclosure schedules to the original merger agreement were
presented at that meeting and described to directors. Representatives of
Wasserstein Perella updated their previous financial presentation to Unicom's
board of directors and rendered an oral opinion which was subsequently
confirmed in writing that, as of that date, and based upon and subject to the
factors and assumptions contained in the opinion, the consideration to be
received in the transaction by the Unicom shareholders was fair to the Unicom
shareholders from a financial point of view. After considering and discussing
the various presentations at that meeting and at prior meetings, as well as the
recommendation of Unicom's senior management, the members of the Unicom board
of directors present at the meeting unanimously approved the merger agreement
and authorized the execution of the merger agreement. All members were present
except Mr. Carlos Cantu. At a board meeting on October 27, 1999, the entire
Unicom board of directors unanimously voted to recommend that Unicom
shareholders vote in favor of approval of the merger agreement.
The parties executed the original merger agreement during the evening of
September 22, 1999 and, before the opening of trading on the New York Stock
Exchange on September 23, 1999, announced the merger. The original merger
agreement offered shareholders of PECO Energy the choice to receive one share
of Exelon common stock or $45.00 in cash and shareholders of Unicom the choice
to receive 0.95 shares of Exelon common stock or $42.75 in cash. The original
merger agreement provided that each company's shareholders would receive a
total of $750 million in cash, and shareholders' choices were subject to
proration.
During the fourth quarter of 1999, the managements of PECO Energy and Unicom
each followed closely the declining prices of the common stock of each of the
companies. Each company began to analyze the potential impact on Exelon that
would result from accelerating the repurchases of their common stock and/or
increasing the number of shares of their common stock to be repurchased before
the completion of the merger. This review indicated that earnings per share for
Exelon would be enhanced by a further reduction in the outstanding shares of
each company. Unicom took into account the fact that the proceeds of the sale
of its fossil generating facilities would be available for stock repurchases.
PECO Energy considered potential funding sources for repurchases, including
engaging in additional securitization transactions. Each company conducted
independent analyses until December. At that time the companies began joint
discussions regarding the feasibility of pursuing open market repurchases and
accelerating the reduction of outstanding common stock. The companies consulted
with their financial advisors regarding the timing and amount of possible stock
repurchases and the impact this would have on Exelon and the merger.
At the regular Unicom board of directors meeting on December 15, 1999,
management summarized the analysis it was conducting, but the board of
directors was not asked to take any action.
Beginning in December 1999 and continuing in early January 2000, the
companies and their advisors continued discussion and negotiations concerning
an amendment to the merger agreement.
At a special meeting of the Unicom board of directors held on January 6,
2000, Mr. Rowe and members of the Unicom management team presented the Unicom
board of directors with proposed amendments to the
26
<PAGE>
financial terms of the merger. The proposed amendments provided that the
companies would accelerate the payment of cash to shareholders by repurchasing
$1,500,000,000 of common stock to take advantage of lower market prices for
each company's stock. In addition, the proposed amendments provided that
shareholders would no longer have the opportunity to choose to receive cash or
stock of the combined company. Rather, the Unicom shareholders would receive
Exelon common stock and cash in return for their shares of Unicom common stock
and PECO Energy shareholders would receive only Exelon common stock. Mr. Rowe
and members of Unicom management explained that while the revised merger
consideration to be paid to shareholders of each company was intended to be
comparable to that contemplated in the original merger agreement, it was
expected that reducing the number of shares outstanding through repurchases of
more shares of common stock at lower prices would have a positive effect on
earnings per share of Exelon as well as the value of Exelon common stock after
the merger. At that meeting Jones, Day, Reavis & Pogue presented a brief update
to the discussion of the directors' fiduciary duties and Wasserstein Perella
gave a financial presentation. At the conclusion of the meeting Wasserstein
Perella rendered an oral opinion which was subsequently confirmed in writing
that, as of that date, and based upon and subject to the factors and
assumptions contained in the opinion, the aggregate consideration to be
received by the Unicom shareholders in the merger was fair from a financial
point of view to the Unicom shareholders. Following a full discussion of the
revised transactions and the amendments to the merger agreement as a whole, the
Unicom directors present at the meeting unanimously adopted the amendments to
the merger agreement and authorized the repurchase by Unicom of $1.0 billion of
its common stock prior to the closing of the merger. Mr. Edgar Jannotta was
unable to attend the entire meeting and left prior to the directors' vote.
A special meeting of PECO Energy's board of directors was held on January 7,
2000. At the meeting, Mr. McNeill and other members of PECO Energy's management
summarized the revised transaction and the proposed amendments to the merger
agreement. Mr. McNeill and members of PECO Energy management explained that
while the revised merger consideration to be paid to shareholders of each
company was intended to be comparable to that contemplated in the original
merger agreement, it was expected that reducing the number of shares
outstanding through repurchases of more shares of common stock at lower prices
would have a positive effect on earnings per share of Exelon as well as the
value of Exelon common stock after the merger. The proposed amendments were
identical to those described in the previous paragraph. Mr. Durham and
representatives of Cravath, Swaine & Moore, answered the questions of the PECO
Energy board of directors relating to their fiduciary duties under applicable
law. Representatives of Salomon Smith Barney and Morgan Stanley made a
financial presentation to the PECO Energy board of directors and each rendered
an oral opinion, which was subsequently confirmed in writing that, as of that
date, and based upon and subject to the factors and assumptions contained in
the opinions, the consideration to be received in the merger by PECO Energy
shareholders was fair from a financial point of view to those shareholders.
After considering and discussing the revised transaction and the amendments to
the merger agreement as a whole, as well as the recommendation of PECO Energy's
senior management, the PECO Energy board of directors unanimously approved the
amendment to the merger agreement, authorized the execution of the amendment
and recommended that PECO Energy shareholders vote in favor of adoption of the
merger agreement.
The parties executed the amendment to the merger agreement and announced the
revised merger on January 7, 2000.
Reasons for the Merger
We believe that the common vision of PECO Energy and Unicom and their
complementary strategies, combined with their management, personnel, technical
expertise and financial strength, will create a preeminent national energy
company with the capabilities and resources required to succeed and grow in the
new competitive energy marketplace.
We believe that this merger, joining two well-managed companies of similar
market capitalization, will provide substantial strategic and financial
benefits to PECO Energy's and Unicom's shareholders, employees and customers.
These benefits are expected to include:
27
<PAGE>
. Expanded Generation Capacity. Exelon is expected to have a portfolio of
generation assets with a capacity that will be nearly double that of
either PECO Energy or Unicom alone and that can be deployed to expand
our power marketing and trading business. We believe in the competitive
and strategic value of size and scope which will increase our future
earnings growth rates, creating value for our shareholders. With a focus
on nuclear operations excellence, Exelon will have the nation's largest
nuclear generation fleet in terms of capacity and number of units. We
expect to achieve synergies in operations and supply management by
combining best practices and operating capabilities. The expansion
strategy of Exelon will be consistent with PECO Energy's disciplined
acquisition programs and will provide a framework for adding value to
Unicom's nuclear fleet.
. Enhanced Power Marketing and Trading Business. Based on the expanded
generation capacity of Exelon, we intend to extend the scale and the
scope of our proven power marketing and trading business by:
. exploiting the flexibility and geographic diversity of the combined
portfolio,
. broadening the portfolio of customized products offered to customers,
. enhancing our position as a preferred counterparty, and
. pursuing additional generation development and contract opportunities.
. Broadened Distribution Platform. Exelon will have approximately 5
million electric customers --among the largest electric utility customer
bases in the nation--and expects to use its existing distribution
facilities as a platform for regional consolidation based on:
. an unwavering commitment to top-tier reliability and customer
satisfaction,
. sharing of best practices and systems while also respecting each
company's commitment to its local community and service territory,
. growth through market extension and strategic acquisitions, and
. the benefits of more diversified economic, weather and market
conditions.
. Strategic Fit and Compatibility. PECO Energy, with its generation focus
yet substantial number of distribution customers, and Unicom, with its
distribution focus yet substantial generation capacity, have
complementary strategies and compatible corporate cultures and visions
of the future of the energy business. In addition, the companies have a
shared commitment to supporting and participating in competitive
electric markets, are already competing in deregulated markets in our
respective service territories and are prepared for further industry
restructuring.
. Foundation for Growth of Unregulated Businesses. We expect the merger to
provide the critical mass and the development and operating
infrastructure to expand the broad and complementary unregulated
businesses of PECO Energy and Unicom, with a focus on infrastructure
services, energy solutions and telecommunications. In addition, the
merger is expected to enhance the flexibility of the companies to take
advantage of new opportunities for unregulated businesses, including:
. leveraging of infrastructure services over a broader customer base,
. capitalizing on opportunities in the telecommunications business, and
. exploiting cross-selling opportunities in the energy solutions
business.
. Cost Savings. We believe that the merger will produce cost savings
through the elimination of duplication in corporate and administrative
programs, generation consolidation, greater efficiencies in the power
marketing and trading business, unregulated ventures integration,
improved purchasing power (non-fuel), and the combination of portions of
the two workforces. Although the following estimates are only
approximations of the cost savings which the combined company may
achieve, we estimate that the combined company will achieve regulated
and unregulated net annual cost savings of approximately
28
<PAGE>
$100 million in the first year following completion of the merger,
increasing to approximately $180 million by the third year. Approximately
60% of these estimated savings will be attributable to regulated
activities and the remainder to unregulated activities. Estimated savings
include only those cost savings and cost avoidance items management
expects to achieve as a result of the merger.
PECO Energy Board of Directors Recommendation
At its meeting on September 22, 1999, after due consideration, the PECO
Energy board of directors unanimously:
. approved the original merger agreement, the first step exchange, the
second step merger and the other transactions contemplated by the
original merger agreement,
. determined that the first step exchange, the second step merger and the
other transactions contemplated by the original merger agreement were
fair to and in the best interests of PECO Energy and its shareholders,
and
. recommended that the PECO Energy shareholders vote for the adoption of
the original merger agreement.
At its meeting on January 7, 2000, after due consideration, the PECO Energy
board of directors:
. approved the amendment to the merger agreement, the first step exchange,
the second step merger and the other transactions contemplated by the
merger agreement,
. determined that the first step exchange, the second step merger and the
other transactions contemplated by the merger agreement were fair to and
in the best interests of PECO Energy and its shareholders, and
. recommended that the PECO Energy shareholders vote for the adoption of
the merger agreement.
In approving the merger and making these determinations and recommendations,
the PECO Energy board of directors consulted with PECO Energy's management as
well as its outside legal counsel and financial advisors, and considered a
number of factors, including the following:
. all the benefits of the merger described under "--Reasons for the
Merger" above,
. the PECO Energy board of directors' understanding of the present and
anticipated environment in the utility industry, and how possible
consolidation within the utility industry could affect PECO Energy's
competitive position in the industry,
. the risks and potential rewards associated with, as an alternative to
the merger, continuing to execute PECO Energy's strategic plan as a
stand-alone entity. These risks include, among others, the risks
associated with remaining a stand-alone entity amidst industry-wide
restructuring and consolidation, and the rewards include, among others,
the ability of existing PECO Energy shareholders to partake in the
potential future growth and profitability of PECO Energy,
. the possibility of pursuing, as an alternative to the merger, an
acquisition of or a business combination or joint venture with an entity
other than Unicom and the conclusion of the PECO Energy board of
directors that a transaction with Unicom is more feasible, and is
expected to yield greater benefits, than the likely alternatives. The
PECO Energy board of directors reached this conclusion for reasons
including Unicom's interest in pursuing a transaction with PECO Energy,
PECO Energy's view that the merger could be acceptably completed from a
timing and regulatory standpoint, and PECO Energy management's
assessment of the alternatives to, and the expected benefits of, the
merger and the compatibility of the companies as described under "--
Reasons for the Merger--Strategic Fit and Compatibility" above,
. the PECO Energy board of directors' consideration of the financial
condition, results of operations, prospects and businesses of PECO
Energy and Unicom, including the revenues of the companies, their
29
<PAGE>
complementary businesses, the financial exposure of each company to
nuclear operations, the ability of each company to recover investments in
generation under the applicable state electric restructuring legislation,
the stock price performance of PECO Energy shares and Unicom shares prior
to signing the merger agreement,
. the fixed exchange ratio for the Exelon common stock to be received by
PECO Energy shareholders,
. the opportunity for PECO Energy shareholders to participate, as holders
of Exelon common stock, in a combined enterprise that will be a
preeminent national energy company with the capabilities and resources
required to succeed and grow in the new competitive energy marketplace,
. the repurchases by PECO Energy of its common stock expected to be
completed prior to the completion of the merger,
. management's expectation that the merger will be accretive to PECO
Energy shareholders during the first full fiscal year after completion
of the merger,
. the favorable impact that a further reduction in outstanding shares
would have on earnings per share of Exelon common stock following the
merger,
. that management expected that revising the merger consideration would
not result in a change to the anticipated date of completion of the
merger,
. that the revisions to the merger would constitute a modification for
accounting purposes that could lead to a reduction in goodwill for
accounting purposes and a commensurate further enhancement of Exelon's
earnings per share,
. that, overall, the revised merger consideration was intended to be
comparable to that provided for in the original merger agreement,
. the fact that the basic features of the merger of equals transaction
were not changed, including provisions regarding board composition,
senior management and headquarters,
. management's expectation that Exelon will pay an annual dividend of
$1.69 per share,
. current industry, economic and market conditions and the prospects of
further restructuring and consolidation in the electric and gas utility
industries,
. the accounting treatment of the merger as an acquisition of Unicom by
PECO Energy and the impact that accounting would likely have on Exelon,
including the creation of goodwill,
. the ability to complete the merger as a tax-free transaction for U.S.
federal income tax purposes and have the conversion of shares of PECO
Energy common stock into Exelon common stock be tax-free to
shareholders,
. the terms and conditions of the merger agreement, including the
conditions to closing and the termination fees payable under certain
circumstances (see "The Merger Agreement--Conditions to the Completion
of the Merger", "The Merger Agreement--Termination" and "The Merger
Agreement --Termination Fees; Reimbursement of Expenses" in this Chapter
I),
. the various analyses and presentations of Morgan Stanley and Salomon
Smith Barney and their written opinions, copies of which are attached as
Annexes B and C to this proxy statement/prospectus, to the effect that,
as of January 7, 2000, and based upon and subject to the various
assumptions and limitations set forth in the respective opinions, the
consideration proposed to be received by PECO Energy shareholders in the
merger was fair from a financial point of view to PECO Energy
shareholders,
. the other advice from PECO Energy management and the PECO Energy board
of directors' financial, legal and other advisors over an extended
period, and the discussions of the PECO Energy board of directors
concerning the proposed merger agreement,
. the corporate governance aspects of the merger, including the role that
PECO Energy's current management would play in the management of the
combined company and the composition of the combined company's board of
directors (see "--Board of Directors and Management of Exelon After the
Merger" below),
30
<PAGE>
. the fact that while Exelon's corporate headquarters will be located in
Chicago, Illinois, the headquarters of Exelon's generation and power
marketing businesses and of PECO Energy, which will be a subsidiary of
Exelon after the merger, will be in southeastern Pennsylvania,
. the positive impact the merger is expected to have on the reliability and
cost of service provided to PECO Energy customers,
. although the consolidated workforce of the companies is expected to be
reduced by approximately 5%, that the impact of the reduction is intended
to be minimized through a combination of separation packages and
attrition and that the anticipated expansion of the combined business
could result in increased employment opportunities in Exelon,
. although the quantities and prices of goods and services purchased by
PECO Energy may be reduced due to greater efficiencies and improved
purchasing power, the anticipated expansion of the combined business
could result in an increase in the goods or services purchased by Exelon,
. that the combined company would continue PECO Energy's commitment to the
communities of southeastern Pennsylvania, including through financial and
other support to civic and charitable organizations,
. that while the merger is likely to be completed, there are risks
associated with obtaining necessary regulatory approvals. First, it is
possible that regulatory authorities or other third parties could seek
to impose unfavorable terms or conditions in the required approvals.
Secondly, if a required approval is not obtained, it is possible that
the merger may not be completed even if approved by shareholders (see
"Regulatory Matters" and "The Merger Agreement--Conditions to the
Completion of the Merger" in this Chapter I),
. the impact of regulations under various state and federal laws,
including the additional regulatory oversight that would result from the
addition of public utility operations in Illinois, and the issues
involved in the registration of Exelon as a holding company, and the
regulation of PECO Energy and ComEd as subsidiaries of a registered
holding company, under the Public Utility Holding Company Act of 1935
(see "Regulatory Matters" in this Chapter I),
. that although PECO Energy's relationships with regulators, customers,
governments and partners might be negatively affected because of
uncertainty surrounding PECO Energy's future status and direction
pending completion of the merger, the PECO Energy board of directors
believe that any potential negative effect will cease once the merger is
completed,
. the problems inherent in merging the operations of two large and
geographically separated companies, including the potential diversion of
management resources,
. the requirement for a supermajority vote of the Exelon board of
directors or the concurrence of Mr. Rowe and Mr. McNeill required to
alter certain arrangements regarding the management of Exelon, including
the composition of Exelon's board of directors and board committees, the
identity of Exelon's chairman of the board of directors, chairman of the
executive committee of the board of directors, co-chief executive
officers, president and other senior officers and the location of
Exelon's corporate headquarters and other principal offices, and
. the interests that certain executive officers and directors of PECO
Energy, including Mr. McNeill, may have with respect to the merger in
addition to their interests as shareholders of PECO Energy generally
(see "--Interests of PECO Energy's Directors and Management in the
Merger" below).
The PECO Energy board of directors also considered:
. the risk that the benefits sought in the merger would not be obtained,
. the risk that the merger would not be completed,
. the effect of the public announcement of the merger on PECO Energy's
sales, customer, supplier and creditor relationships, operating results
and ability to retain employees and the trading price of PECO Energy
shares,
31
<PAGE>
. the substantial management time and effort that will be required to
complete the merger and integrate the operations of the two companies,
. the impact of the merger on PECO Energy employees,
. the possibility that various provisions of the merger agreement might
have the effect of discouraging other persons potentially interested in
a combination with PECO Energy from pursuing such an opportunity, and
. other matters described under "Risk Factors" and "Cautionary Statement
Regarding Forward-Looking Statements."
This discussion of the information and factors considered by the PECO Energy
board of directors in making its decision is not intended to be exhaustive but
is believed to include all material factors and risks considered by the PECO
Energy board of directors. In view of the wide variety of factors and risks
considered in connection with its evaluation of the merger, including the
amendments, and the complexity of these matters, the PECO Energy board of
directors did not find it useful to and did not attempt to quantify, rank or
otherwise assign relative weights to these factors or to evaluate them
individually, but rather evaluated them as a whole. The PECO Energy board of
directors relied on the experience and expertise of Morgan Stanley and Salomon
Smith Barney, its financial advisors, for quantitative analysis of the
financial terms of the merger to the extent included in the financial advisors'
presentation to the PECO Energy board of directors. See "--Opinions of PECO
Energy's Financial Advisors" below. In addition, the PECO Energy board of
directors did not undertake to make any specific determination as to whether
any particular factor, or any aspect of any particular factor, was favorable or
unfavorable to its ultimate determination, but rather the PECO Energy board of
directors conducted an overall analysis of the factors described above,
including through discussions with and questioning of PECO Energy's management
and legal, financial and accounting advisors. Individual members of the PECO
Energy board of directors may have given different weight to different factors.
Opinions of PECO Energy's Financial Advisors
Pursuant to the letter agreements dated July 26, 1999 and May 15, 1998 (as
amended by the letter agreement dated August 25, 1999) PECO Energy retained
Morgan Stanley and Salomon Smith Barney to act as its financial advisors in
connection with the merger. On January 7, 2000, Morgan Stanley and Salomon
Smith Barney each rendered to the board of directors of PECO Energy their
opinions subsequently confirmed in writing that, as of such date and based upon
and subject to the factors and assumptions set forth in their opinions, the
consideration to be received in the merger by the holders of shares of common
stock of PECO Energy was fair from a financial point of view to those holders.
The full texts of each of the fairness opinions, which set forth the
assumptions made, matters considered, and qualifications and limitations of the
reviews undertaken by Morgan Stanley and Salomon Smith Barney, are attached as
Annexes B and C to this proxy statement/prospectus and are incorporated into
this proxy statement/prospectus by reference. The summary of the fairness
opinions set forth in this proxy statement/prospectus is qualified in its
entirety by reference to the full texts of these opinions. Holders of PECO
Energy common stock should read these opinions carefully and in their entirety.
The fairness opinions were provided to the PECO Energy board of directors for
its information and are directed only to the fairness from a financial point of
view of the consideration to be received in the merger by PECO Energy
shareholders. The fairness opinions do not constitute recommendations to any
PECO shareholder as to how any shareholder should vote on the merger or how
PECO Energy shareholders should act with respect to PECO Energy's repurchase of
its common stock.
The summaries set forth below do not purport to be complete descriptions of
the analyses underlying the Morgan Stanley opinion or the Salomon Smith Barney
opinion or the presentation jointly made by Morgan Stanley and Salomon Smith
Barney to the PECO Energy board of directors in connection with their approval
and recommendation of the merger. The preparation of a fairness opinion is a
complex analytic process
32
<PAGE>
involving various determinations as to the most appropriate and relevant
methods of financial analysis and the application of those methods to the
particular circumstances and, therefore, a fairness opinion is not readily
susceptible to partial analysis or summary description. In arriving at their
opinions, neither Morgan Stanley nor Salomon Smith Barney attributed any
particular weight to any analysis or factor that it considered, but rather made
qualitative judgments as to the significance and relevance of each analysis and
factor. Accordingly, each of Morgan Stanley and Salomon Smith Barney believes
that its analyses must be considered as a whole and that selecting portions of
its analyses, without considering all analyses, would create an incomplete view
of the process underlying the preparation of the fairness opinions.
Opinion of Morgan Stanley
In connection with rendering its opinion, Morgan Stanley, among other
things:
. reviewed certain publicly available financial statements and other
information of Unicom and PECO Energy,
. reviewed certain internal financial statements and other financial and
operating data concerning Unicom prepared by the management of Unicom,
. reviewed certain financial projections prepared by the management of
Unicom,
. reviewed and discussed with senior executives of PECO Energy and Unicom
an analysis prepared by PECO Energy and Unicom regarding estimates of
the amount and timing of certain strategic, financial and operational
benefits anticipated from the merger,
. discussed the past and current operations and financial condition and
the prospects of Unicom,
. reviewed certain internal financial statements and other financial
operating data concerning PECO Energy prepared by the management of PECO
Energy,
. reviewed certain financial projections prepared by the management of
PECO Energy,
. discussed the past and current operations and financial condition and
the prospects of PECO Energy, and reviewed the pro forma impact of the
merger on PECO Energy's earnings and cash flow per share, consolidated
capitalization and financial ratios,
. reviewed the reported prices and trading activity for the common stock
of both Unicom and PECO Energy,
. compared the financial performance of Unicom and the prices and trading
activity of Unicom common stock with that of certain other comparable
publicly traded companies and their securities,
. compared the financial performance of PECO Energy and the prices and
trading activity of PECO Energy common stock with that of certain other
comparable publicly traded companies and their securities,
. reviewed the financial terms, to the extent publicly available, of
certain comparable merger transactions,
. reviewed and discussed with the management of PECO Energy and Unicom
proposed uses of the proceeds from the sale of Unicom's fossil fuel
generation assets,
. participated in discussions and negotiations among representatives of
PECO Energy and Unicom and their financial and legal advisors,
. reviewed the merger agreement, and
. performed other analyses as Morgan Stanley deemed appropriate.
Morgan Stanley assumed and relied upon, without independent verification,
the accuracy and completeness of the information it reviewed for the purposes
of its opinion. With respect to the financial projections, Morgan Stanley
assumed that they were reasonably prepared on bases reflecting the best
currently available
33
<PAGE>
estimates and judgments of the future financial performance of Unicom and PECO
Energy. In addition, Morgan Stanley assumed that the merger will be treated as
a tax-free reorganization and/or exchange to PECO Energy and Unicom, pursuant
to the Internal Revenue Code of 1986, and will be consummated in accordance
with the terms set forth in the merger agreement. Morgan Stanley did not make
any independent valuation or appraisal of the assets or liabilities of Unicom
and PECO Energy, nor was it furnished with any such appraisals. With respect to
the analysis of the strategic, financial and operational benefits estimated and
expected to result from the merger, Morgan Stanley assumed that the analysis
was reasonably prepared on bases reflecting the best currently available
estimates and judgments of the benefits and the future financial performance of
the combined company, and Morgan Stanley relied upon, without independent
verification, this analysis. Morgan Stanley's opinion was necessarily based on
economic, market and other conditions as in effect on, and the information made
available to Morgan Stanley as of, the date of its opinion.
Morgan Stanley assumed that, in connection with the receipt of all the
necessary regulatory approvals for the merger, no restrictions will be imposed
that would have any material adverse effect on the contemplated benefits to be
derived in the merger. Morgan Stanley noted that it is not a legal or
regulatory expert and that it relied upon, without independent verification,
the assessment of PECO Energy's legal and regulatory advisors with respect to
the legal and regulatory matters related to the merger. In addition, Morgan
Stanley's opinion did not in any manner address the prices at which the Exelon
common stock will trade following completion of the merger, and Morgan Stanley
expressed no opinion or recommendation as to how PECO Energy shareholders
should vote at the shareholders' meeting to be held in connection with the
merger.
In the past, Morgan Stanley and its affiliates have provided financial
advisory and financing services for PECO Energy and have received fees for the
rendering of these services. In the ordinary course of Morgan Stanley's trading
and brokerage activities, Morgan Stanley or its affiliates may at any time hold
long or short positions, trade or otherwise effect transactions, for its own
account or for the account of customers, in the equity or debt securities of
PECO Energy or Unicom.
Opinion of Salomon Smith Barney
In arriving at its opinion, Salomon Smith Barney, among other things:
. reviewed the terms of the merger agreement,
. held discussions with certain senior officers, directors and other
representatives and advisors of PECO Energy and certain senior officers
and other representatives and advisors of Unicom concerning the
businesses, operations and prospects of PECO Energy and Unicom,
. examined certain publicly available business and financial information
relating to PECO Energy and Unicom,
. examined certain financial forecasts and other information and data for
PECO Energy and Unicom which were provided to or otherwise discussed
with Salomon Smith Barney by the respective managements of PECO Energy
and Unicom,
. reviewed and discussed with senior officers of PECO Energy and Unicom an
analysis prepared by PECO Energy and Unicom regarding the estimates of
the amount and timing of certain strategic, financial and operational
benefits expected to be derived from the merger,
. reviewed and discussed with the managements of PECO Energy and Unicom
proposed uses of the proceeds from the sale of Unicom's fossil fuel
generation assets, and
. conducted such other analyses and examinations and considered such
financial, economic and market criteria as it deemed appropriate in
arriving at its opinion.
In rendering its opinion, Salomon Smith Barney assumed and relied upon,
without independent verification, the accuracy and completeness of all
financial and other information and data publicly available or furnished to or
otherwise reviewed by or discussed with it. With respect to financial forecasts
and other
34
<PAGE>
information and data provided to or otherwise reviewed by or discussed with
Salomon Smith Barney, the managements of PECO Energy and Unicom advised Salomon
Smith Barney that these forecasts and other information and data were
reasonably prepared reflecting the best currently available estimates and
judgments of the managements of PECO Energy and Unicom as to the future
financial performance of PECO Energy and Unicom. With respect to the analysis
regarding the strategic, financial and operational benefits expected to be
derived from the merger, Salomon Smith Barney assumed that this analysis has
been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the benefits and the future financial performance of
the combined company and it relied upon, without independent verification, this
analysis.
Salomon Smith Barney assumed, with the consent of PECO Energy's board of
directors, that the merger will be effected in all material respects in
accordance with the terms of the merger agreement and that the merger will be
treated as a tax-free reorganization and/or exchange to PECO Energy and Unicom
for federal income tax purposes and, in the course of obtaining the necessary
regulatory approvals for the merger, no limitations, restrictions or conditions
will be imposed that would have a material adverse effect on PECO Energy,
Unicom, Exelon or the combined company or the contemplated benefits anticipated
to result from the merger.
Salomon Smith Barney did not express any opinion as to what the value of the
Exelon common stock actually will be when issued to PECO Energy and Unicom
shareholders pursuant to the merger or the price at which the Exelon common
stock will trade subsequent to the completion of the merger. Salomon Smith
Barney did not make and was not provided with an independent evaluation or
appraisal of the assets or liabilities, contingent or otherwise, of PECO Energy
or Unicom nor did it make any physical inspection of the properties or assets
of PECO Energy or Unicom. In connection with its engagement, Salomon Smith
Barney was not requested to, and did not, solicit third party indications of
interest in the acquisition of all or a part of PECO Energy. Salomon Smith
Barney expressed no view as to, and its opinion did not address, the relative
merits of the merger as compared to any alternative business strategies that
might exist for PECO Energy or the effect of any other transaction in which
PECO Energy might engage. Salomon Smith Barney's opinion was necessarily based
upon information available, and financial, stock market and other conditions
and circumstances existing and disclosed to Salomon Smith Barney, as of the
date of its opinion.
Salomon Smith Barney was engaged to render financial advisory services to
PECO Energy in connection with the merger and will receive a fee for these
services, a significant portion of which is contingent upon completion of the
merger. Salomon Smith Barney has in the past provided investment banking
services to each of PECO Energy and Unicom unrelated to the merger, and has
received compensation for these services. In the ordinary course of its
business, Salomon Smith Barney or any of its affiliates may actively trade or
hold the securities of PECO Energy and Unicom for its own account or for the
account of its customers and, accordingly, may at any time hold a long or short
position in such securities. In addition, Salomon Smith Barney and its
affiliates, including Citigroup Inc. and its affiliates, may maintain
relationships with PECO Energy, Unicom and their affiliates.
Salomon Smith Barney's advisory services and opinion were provided for the
information of the board of directors of PECO Energy in its evaluation of the
merger and its opinion was not intended to be and does not constitute a
recommendation to any shareholder as to how such shareholder should vote on any
matters relating to the merger.
Presentation to the PECO Energy Board of Directors
The following is a summary of the material financial and comparative
analyses jointly performed by Morgan Stanley and Salomon Smith Barney and
presented to the PECO Energy board of directors in connection with the
rendering of their fairness opinions. Morgan Stanley and Salomon Smith Barney
jointly prepared the presentation made to the PECO Energy board of directors
and each of them relied on the analyses included in this presentation in
rendering their fairness opinions. In arriving at their opinions, Morgan
Stanley and Salomon Smith Barney considered the analyses as a whole and did not
attribute any particular weight to
35
<PAGE>
any specific analysis. Each of Morgan Stanley and Salomon Smith Barney believes
that its analyses should be considered as a whole and that selecting one
analysis, without considering all analyses, would be contrary to the process
underlying the rendering of their fairness opinions.
Some of the analyses include information presented in tabular format. In
order to fully understand the financial analyses used by PECO Energy's
financial advisors, the tables must be read together with the text of each
summary. The tables alone do not constitute a complete description of the
financial analyses.
Comparable Public Companies Analysis. PECO Energy's financial advisors
reviewed and compared certain financial information, ratios and public market
multiples relating to PECO Energy and Unicom to corresponding financial data
for comparable publicly traded utility companies. The financial advisors
selected these companies based upon the financial advisors' views as to the
comparability of the financial and operating characteristics of these companies
to PECO Energy and Unicom.
The companies included in the PECO Energy comparable companies analysis
were:
. Consolidated Edison, Inc. (pro forma for its pending acquisition of
Northeast Utilities),
. Public Service Enterprise Group Incorporated,
. Entergy Corporation,
. Ameren Corporation,
. Constellation Energy Group, Inc., and
. PP&L Resources, Inc.
The companies included in the Unicom comparable companies analysis were:
. Consolidated Edison, Inc. (pro forma for its pending acquisition of
Northeast Utilities),
. Entergy Corporation,
. Ameren Corporation, and
. Wisconsin Energy Corporation (pro forma for its pending acquisition of
WICOR INC.).
The financial advisors then reviewed publicly available information to
compare financial information and multiples of market value of these companies
to PECO Energy's and Unicom's:
. stock price to 1999 estimated earnings per share,
. stock price to 2000 estimated earnings per share,
. stock price to the September 30, 1999 book value of equity per share,
adjusted in the case of PECO Energy, to eliminate the effect of a write-
down in connection with a regulatory settlement by PECO Energy, and
. firm value (equals equity value plus nonconvertible debt, minority
interest, noncovertible preferred stock and all out-of-money
convertibles less cash as of September 30, 1999) to the last twelve
months' ("LTM") earnings before interest, taxes, depreciation and
amortization ("EBITDA").
36
<PAGE>
The following table reflects the results of the analysis, as compared to the
multiples for PECO Energy and Unicom:
<TABLE>
<CAPTION>
Price to EPS
------------------------
Firm Value
Price to to LTM
1999E 2000E Book Value EBITDA
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
Range Derived from PECO Energy
Comparable Companies.......... 10.5x--12.0x 9.5x--11.0x 1.3x--1.9x 5.7x--7.3x
Range Derived from Unicom
Comparable Companies.......... 10.5x--12.0x 9.5x--11.0x 1.1x--1.4x 5.7x--7.7x
PECO Energy.................... 11.8x 10.0x 1.9x 7.6 x
Unicom......................... 13.0x 10.7x 1.4x 6.8x
</TABLE>
Applying a range of multiples derived from the comparable public companies
analysis, the financial advisors calculated a range of implied equity values
per share of PECO Energy with respect to PECO Energy's:
. stock price to estimated earnings per share in 1999,
. stock price to estimated earnings per share in 2000,
. stock price to the September 30, 1999 book value of equity per share,
adjusted to eliminate the effect of a write-down in connection with
regulatory settlement by PECO Energy, and
. firm value (equals equity value plus nonconvertible debt, minority
interest, nonconvertible preferred stock and all out-of-money
convertibles less cash as of September 30, 1999) to LTM EBITDA.
Based on this analysis, the financial advisors derived a range of implied
equity values per share of PECO Energy of $28.00 to $37.00.
Applying a range of multiples derived from the comparable public companies
analysis, the financial advisors then calculated a range of implied equity
values per share of Unicom with respect to Unicom's:
. stock price to estimated earnings per share in 1999,
. stock price to estimated earnings per share in 2000, assuming Unicom
would retain the proceeds from the sale of its fossil generation assets,
. stock price to estimated earnings per share in 2000, assuming Unicom
would distribute to shareholders the proceeds from the sale of its
fossil generation assets,
. stock price to the September 30, 1999 book value of equity per share,
adjusted to reflect a $700 million share repurchase by Unicom, and
. firm value to LTM EBITDA.
Based on this analysis, the financial advisors derived a range of implied
equity values per share of Unicom of $28.25 to $37.00.
Based on the valuations derived for PECO Energy and Unicom, the financial
advisors calculated a range of implied exchange ratios for Unicom common stock
to PECO Energy common stock of 0.764x to 1.321x, with an exchange ratio of
1.004x based on the ratio of the average of the implied equity value for each
of PECO Energy and Unicom. For comparative purposes, Morgan Stanley and Salomon
Smith Barney noted that based on a closing price of PECO Energy common stock of
$35.31 on January 6, 2000 (the last business day before their joint
presentation to the PECO Energy board of directors), the exchange ratio implied
by the merger consideration was 0.96.
No company utilized in the comparable public companies analysis is identical
to PECO Energy or Unicom. Accordingly, an analysis of the results of the
foregoing necessarily involves complex considerations and judgments concerning
differences in financial and operating characteristics of PECO Energy and
Unicom and other factors that could affect the public trading value of the
companies to which they are being compared. In evaluating the comparable
companies, the financial advisors made judgments and assumptions with regard to
industry performance, general business, economic, market and financial
conditions and other matters, many of
37
<PAGE>
which are beyond the control of PECO Energy or Unicom, such as the impact of
competition on PECO Energy or Unicom and the industry generally, industry
growth and the absence of any adverse material change in the financial
conditions and prospects of PECO Energy or Unicom or the industry or in the
financial markets in general. Mathematical analysis, such as determining the
mean, median or average, is not in itself a meaningful method of using
comparable company data.
Discounted Cash Flow Analyses. The financial advisors performed discounted
cash flow analyses on PECO Energy and Unicom using financial projections
provided by the companies' respective managements for the period from December
31, 1999 through December 31, 2003.
For the PECO Energy discounted cash flow analysis, the financial advisors
calculated terminal values by applying a range of terminal multiples of
projected price to earnings per share of 10.00x to 12.00x, which implies a
range of terminal multiples of projected EBITDA of 6.79x to 7.59x, to PECO
Energy's earnings per share in 2003. The cash flow streams and terminal values
were discounted to present values using a discount rate of 7.5%, based on the
weighted average cost of capital. From this analysis, the financial advisors
calculated a range of implied estimated equity value per share of PECO Energy
as of December 31, 1999 of $36.00 to $43.00.
The financial advisors performed separate discounted cash flow analyses for
Unicom assuming (1) that Unicom would distribute to its shareholders the
proceeds from the sale of its fossil generation assets and (2) that Unicom
would retain the proceeds from the sale of its fossil generation assets. For
the Unicom discounted cash flow analysis assuming distribution of the proceeds,
the financial advisors calculated terminal values by applying a range of
terminal multiples of estimated price to earnings per share of 10.00x to
12.00x, which implies a range of terminal multiples of projected EBITDA of
5.25x to 5.85x, to Unicom's earnings per share in 2003. For the Unicom
discounted cash flow analysis assuming retention of the proceeds, terminal
values were calculated using a range of terminal multiples of estimated price
to earnings per share of 10.00x to 12.00x, which implies a range of terminal
multiples of projected EBITDA of 5.71x to 6.27x. For both analyses, the cash
flow streams and terminal values were discounted to present values using a
discount rate of 7.5%, based on the weighted average cost of capital. From
these analyses, the financial advisors calculated ranges of implied equity
value per share of Unicom as of December 31, 1999 of $39.25 to $46.00 assuming
distribution of proceeds and $37.75 to $44.50 assuming retention of proceeds.
Based on the ranges of values calculated in the discounted cash flow
analyses assuming Unicom would distribute the proceeds from the sale of its
fossil generation assets, the financial advisors calculated a range of implied
exchange ratios for Unicom common stock to PECO Energy common stock of 0.913x
to 1.278x, with an exchange ratio of 1.079x, based on the ratio of the average
of the implied equity value for each of PECO Energy and Unicom. Assuming Unicom
would retain the proceeds from the sale of its fossil generation assets, the
financial advisors calculated a range of implied exchange ratios for Unicom
common stock to PECO Energy common stock of 0.878x to 1.236x, with an exchange
ratio of 1.041x, based on the ratio of the average of the implied equity value
for each of PECO Energy and Unicom. For comparative purposes, Morgan Stanley
and Salomon Smith Barney noted that based on a closing price of PECO Energy
common stock of $35.31 on January 6, 2000 (the last business day before their
joint presentation to the PECO Energy board of directors), the exchange ratio
implied by the merger consideration was 0.96.
Historical Trading Ratio Analysis. The financial advisors reviewed the ratio
of daily closing share prices of Unicom common stock to PECO Energy common
stock for the three-year, one-year and five-day periods ended September 17,
1999.
The following table reflects the results of the analysis:
<TABLE>
<CAPTION>
Average Ratio
Historical Period of Closing Prices
----------------- -----------------
<S> <C>
Three-year historical period............................ 1.088x
One-year historical period.............................. 0.925x
Five-day historical period.............................. 0.947x
September 17, 1999...................................... 0.938x
</TABLE>
38
<PAGE>
The financial advisors reviewed the ratio of volume-weighted average prices
of Unicom common stock to PECO Energy common stock for the ten-day and five-day
periods ended September 17, 1999.
The following table reflects the results of the analysis:
<TABLE>
<CAPTION>
Volume-Weighted
Average Trading
Historical Period Ratio
----------------- ---------------
<S> <C>
Ten-day historical period................................. 0.946x
Five-day historical period................................ 0.950x
September 17, 1999........................................ 0.953x
</TABLE>
The financial advisors reviewed the ratio of daily closing share prices of
Unicom common stock to PECO Energy common stock for the three-year, one-year
and five-day periods ended January 5, 2000.
The following table reflects the results of the analysis:
<TABLE>
<CAPTION>
Average Ratio
Historical Period of Closing Prices
----------------- -----------------
<S> <C>
Three-year historical period............................ 1.081x
One-year historical period.............................. 0.930x
Five-day historical period.............................. 0.960x
January 5, 2000......................................... 0.957x
</TABLE>
Contribution Analyses. The financial advisors reviewed selected historical
and estimated future financial information for PECO Energy and Unicom to
determine PECO Energy's and Unicom's relative contribution to the combined
company after the merger. The financial advisors analyzed PECO Energy's and
Unicom's relative contribution to EBITDA, net income and cash flow from
operations for the years 2000 and 2001. The financial advisors analyzed
estimated net income and cash flow from operations based on
. PECO Energy and Unicom management projections and
. Unicom management projections adjusted to assume a $1.5 billion
repurchase of shares of Unicom common stock in 2000 using a price of 10%
over the closing price of Unicom common stock on January 5, 2000.
In performing this analysis, the financial advisors did not take into
account certain estimates of strategic, financial and operational benefits from
the merger provided to the financial advisors by management of PECO Energy and
Unicom. Based on the relative contributions of PECO Energy and Unicom to the
combined company calculated in the contribution analysis, the financial
advisors determined a range of implied exchange ratios for Unicom common stock
to PECO Energy common stock.
The following table reflects the results of the analysis:
<TABLE>
<CAPTION>
Implied
Exchange
Ratio Based
on
Contributions
to the
Combined
Company
-------------
2000 2001
------ ------
<S> <C> <C>
EBITDA...................................................... 1.918x 2.115x
Net Income-Management projections........................... 0.872x 0.902x
Net Income-Assuming share repurchase........................ 1.009x 1.052x
Cash Flow-Management projections............................ 1.252x 1.290x
Cash Flow-Assuming share repurchase......................... 1.522x 1.577x
</TABLE>
For comparative purposes, Morgan Stanley and Salomon Smith Barney noted that
based on a closing price of PECO Energy common stock of $35.31 on January 6,
2000 (the last business day before their joint presentation to the PECO Energy
board of directors), the exchange ratio implied by the merger consideration was
0.96.
Pro Forma Transaction Analysis. Using financial projections provided by PECO
Energy's and Unicom's managements and taking into account certain estimates of
cost synergies (but not potential revenue enhancements or other strategic,
financial or operational benefits) provided to the financial advisors by
39
<PAGE>
managements of PECO Energy and Unicom, the financial advisors reviewed the pro
forma impact of the merger on PECO Energy's and Unicom's earnings per share and
cash flow per share for the years 2001, 2002 and 2003. The financial advisors
assumed that, among other things:
. PECO Energy would be the acquirer for purchase accounting purposes,
. goodwill would be amortized over 40 years,
. the estimated cost synergies applicable to the combined company's
businesses would be as provided by management of PECO Energy and Unicom,
. the combined company's initial dividend would be $1.69 per share,
. the merger would be tax-free to shareholders except to the extent of
cash received,
. the merger would close on December 31, 2000,
. the $1.0 billion repurchase by Unicom of shares of Unicom common stock
and the $500 million repurchase by PECO Energy of shares of PECO Energy
common stock provided for in the merger agreement would be completed
using prices of 10% over Unicom's January 5, 2000 closing price of
$33.75 per share of common stock and PECO Energy's January 5, 2000
closing price of $35.25 per share of common stock, respectively, and
. in addition to the $1.5 billion repurchase provided for in the merger
agreement, a further $900 million of available cash would be used for
the repurchase of Exelon shares using a price of 10% over PECO Energy's
January 5, 2000 closing price of $35.25 per share of common stock or
would be used for other purposes having an equivalent economic effect
(this assumption was based on discussions with management of PECO Energy
with respect to the proposed uses of the proceeds from the sale of
Unicom's fossil generation assets). A second scenario was also
considered in which there was a $1.5 billion share repurchase but not
the additional $900 million share repurchase or economic equivalent.
The table below reflects the results of the analysis. The Unicom statistics
are adjusted to reflect cash its shareholders receive in the merger.
<TABLE>
<CAPTION>
Accretion (Dilution)
-----------------------------------------------------------------------
2001 2002 2003
----------------------- ----------------------- -----------------------
$1.5 Billion $1.5 Billion $1.5 Billion
Share Share Share
$1.5 Repurchase/ $1.5 Repurchase/ $1.5 Repurchase/
Billion $900 Million Billion $900 Million Billion $900 Million
Share Share Share Share Share Share
Repurchase Repurchase Repurchase Repurchase Repurchase Repurchase
---------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
PECO Energy Earnings Per
Share.................. 3.6 % 9.6 % (0.2)% 3.6 % 4.7 % 9.0 %
PECO Energy Cash Flow
Per Share.............. 30.2 % 39.4 % 24.4 % 32.0 % 18.9 % 26.1 %
Unicom Earnings Per
Share.................. (1.9)% 3.8 % 2.1 % 6.0 % 0.2 % 4.3 %
Unicom Cash Flow Per
Share.................. (14.2)% (8.1)% (11.5)% (6.1)% (7.3)% (1.7)%
</TABLE>
In performing their analyses, the financial advisors made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of PECO
Energy or Unicom. Any estimates contained in the financial advisors' analyses
are not necessarily indicative of future results or actual values, which may be
significantly more or less favorable than those suggested by the estimates. The
analyses performed were performed solely as part of the financial advisors'
analysis of the fairness from a financial point of view of the consideration to
be received by the holders of shares of PECO Energy common stock pursuant to
the merger agreement and were conducted in connection with the delivery of the
financial advisors' opinions to PECO Energy's board of directors. The analyses
do not purport to be appraisals or to reflect the prices at which PECO Energy
common stock or Unicom common stock might actually trade. The consideration to
be received by the shareholders of PECO Energy common stock pursuant to the
merger agreement and other terms of the merger agreement were
40
<PAGE>
determined through arm's length negotiations between PECO Energy and Unicom and
were approved by PECO Energy's board of directors. The financial advisors
provided advice to PECO Energy during the negotiations. The financial advisors'
opinions dated January 7, 2000 were one of a number of factors taken into
consideration by PECO Energy's board of directors in making its decision to
approve the merger agreement and the transactions contemplated by the merger
agreement. Consequently, the financial advisors' analyses described above
should not be viewed as determinative of the opinion of PECO Energy's board of
directors with respect to the value of PECO Energy. See "The Merger--PECO
Energy Board of Directors Recommendation" in this Chapter I.
Morgan Stanley and Salomon Smith Barney, as part of their investment banking
businesses, are continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate
and other purposes. PECO Energy selected the financial advisors based upon
their qualifications, experience and expertise and because they are
internationally recognized investment banking firms that have substantial
experience in transactions similar to the merger.
Pursuant to the terms of its engagement, PECO Energy agreed to pay Morgan
Stanley an advisory fee of $75,000 per month commencing June 15, 1999. PECO
Energy also has agreed to pay Morgan Stanley a transaction fee equal to
approximately one-quarter of one percent of the equity value of Unicom. The
fee, which is payable in three installments, varies depending on the equity
value of Unicom as of the dates the installment payments are due: 25% upon the
signing of the merger agreement ($4.3 million), 25% upon approval of the merger
agreement by PECO Energy shareholders ($4.3 million, assuming the equity value
of Unicom is equal to its equity value as of the signing of the original merger
agreement on September 22, 1999) and 50% upon completion of the merger ($8.6
million, assuming the equity value of Unicom is equal to its equity value as of
the signing of the original merger agreement September 22, 1999). The
transaction fee is reduced by the amount of advisory fees paid.
Pursuant to the terms of its engagement, PECO Energy agreed to pay Salomon
Smith Barney an advisory fee of $100,000 per month (reduced to $75,000 per
month during any period of substantive negotiations regarding any potential
transaction) commencing May 15, 1998. PECO Energy also has agreed to pay
Salomon Smith Barney a transaction fee equal to approximately one-quarter of
one percent of the equity value of Unicom. The fee, which is payable in three
installments, varies depending on the equity value of Unicom as of the dates
the installment payments are due: 25% upon the signing of the merger agreement
($4.3 million), 25% upon approval of the merger agreement by PECO Energy
shareholders ($4.3 million, assuming the equity value of Unicom is equal to its
equity value as of the signing of the original merger agreement on September
22, 1999) and 50% upon completion of the merger ($8.6 million, assuming the
equity value of Unicom is equal to its equity value as of the signing of the
original merger agreement on September 22, 1999).
PECO Energy has also agreed to reimburse Morgan Stanley and Salomon Smith
Barney for certain expenses incurred by them, including fees of outside legal
counsel, and to indemnify Morgan Stanley and Salomon Smith Barney and related
parties against liabilities, including liabilities under federal securities
laws, arising out of their engagement.
Unicom Board of Directors Recommendation
At its meeting on September 22, 1999, after due consideration, the members
of the Unicom board of directors present at the meeting unanimously:
. approved the original merger agreement and the second step merger and
the other transactions contemplated by the original merger agreement,
and
. determined that the second step merger and the other transactions
contemplated by the original merger agreement were fair to and in the
best interests of Unicom and its shareholders.
All members were present at this meeting except Mr. Carlos Cantu, who was
unable to attend.
41
<PAGE>
At a special meeting held on September 22, 1999, after determining that the
merger is fair to and in the best interests of Unicom and its shareholders, the
Unicom board of directors approved and adopted the merger agreement.
At its meeting on January 6, 2000, after due consideration, the Unicom board
of directors:
. approved the amendment to the merger agreement and the second step
merger and the other transactions contemplated by the merger agreement,
. determined that the second step merger and the other transactions
contemplated by the merger agreement were fair to and in the best
interests of Unicom and its shareholders, and
. recommended that Unicom shareholders vote for the approval of the merger
agreement.
In approving the merger agreement and the transactions involving Unicom and
in reaching its recommendation, the Unicom board of directors consulted with
and relied upon information and reports prepared or presented by Unicom's
management and Unicom's legal and financial advisors. The following are the
material factors that the Unicom board of directors considered, some of which
contain both positive and negative elements:
. all the benefits of the merger described under "Reasons for the Merger"
above,
. the Unicom board of directors' understanding of the present and
anticipated environment in the utility industry, and how possible
consolidation within the utility industry could affect Unicom's
competitive position in the industry,
. the risks and potential rewards associated with, as an alternative to
the merger, continuing to execute Unicom's strategic plan as an
independent entity. These risks include, among others, the risks
associated with remaining independent amidst industry-wide restructuring
and consolidation, and the rewards include, among others, the ability of
existing Unicom shareholders to partake in the potential future growth
and profitability of Unicom,
. the possibility of pursuing, as an alternative to the merger, an
acquisition of or a business combination or joint venture with an entity
other than PECO and the conclusion of the Unicom board of directors that
a transaction with PECO is more feasible, and is expected to yield
greater benefits, than the likely alternatives. The Unicom board of
directors reached this conclusion for reasons including PECO Energy's
interest in pursuing a transaction with Unicom, Unicom's view that the
merger could be acceptably completed from a timing and regulatory
standpoint, and Unicom management's assessment of the alternatives to,
and the expected benefits of, the merger and the compatibility of the
companies as described under "--Reasons for the Merger--Strategic Fit
and Compatibility" above,
. the Unicom board of directors' consideration of the financial condition,
results of operations, prospects and businesses of Unicom and PECO,
including the revenues of the companies, their complementary businesses,
the financial exposure of each company to nuclear operations, the
ability of each company to recover investments in generation under the
applicable state deregulation legislation, the stock price performance
of Unicom shares and PECO shares prior to signing the merger agreement
and the percentage of the combined company to be owned by Unicom
shareholders following the merger,
. the fixed exchange ratio for the stock portion of the consideration to
be received by Unicom shareholders and the $3.00 per share cash portion
of the consideration,
. the repurchases by Unicom of its common stock expected to be completed
prior to the completion of the merger,
. current industry, economic and market conditions and the prospects of
further restructuring and consolidation in the electric and gas utility
industries,
. the fact that the corporate headquarters of Exelon will be in Chicago,
Illinois;
42
<PAGE>
. the corporate governance aspects of the merger including that Mr. Rowe
will be co-chief executive officer during the transition period and
chairman of the executive committee in the first half of the transition
period, chairman of the Exelon board of directors in the second half of
the transition period and chairman and sole chief executive officer
following the transition period,
. the beneficial effects of the merger on the municipalities served
resulting from the creation of a strong combined company with
headquarters in Illinois and with a continued commitment to charitable
and other community concerns,
. the financial and business prospects for the combined company,
. while the Unicom board of directors did not view the specific levels of
potential accretion to be determinative, it did consider management's
presentation showing that the merger would be accretive to Unicom
shareholders in the first three years following the merger. Management's
accretion analysis was based on a number of assumptions regarding share
repurchase levels, anticipated activities of Exelon following the merger
and competitive and other factors outside the control of Exelon. Actual
events may differ materially from management's expectations and these
differences may result in Exelon's earnings per share being
significantly different--positively or negatively--than the anticipated
earnings levels shown in management's analysis. The management accretion
analysis showed possible annual accretion ranging from approximately 35
cents to 55 cents per share over the three calendar years following the
merger. This range of possible accretion is a forward looking statement
and is subject to the factors set out under "Special Note Regarding
Forward-Looking Statements" above,
. the favorable impact that a further reduction in outstanding shares
would have on earnings per share of Exelon common stock following the
merger,
. that management expected that revising the merger consideration would
not result in a change to the anticipated date of completion of the
merger,
. that the revisions to the merger would constitute a modification for
accounting purposes that could lead to a reduction in goodwill for
accounting purposes and a commensurate further enhancement of Exelon's
earnings per share,
. that, overall, the revised merger consideration was intended to be
comparable to that provided for in the original merger agreement,
. the fact that the basic features of the merger of equals transaction
were not changed, including provisions regarding governance, senior
management and headquarters,
. the expectation that Exelon will pay an annual dividend of $1.69 per
share,
. the ability to complete the merger as a tax-free transaction for U.S.
federal income tax purposes and have the conversion of shares of Unicom
common stock be tax-free to shareholders to the extent their shares are
converted into Exelon common stock,
. the accounting treatment of the merger as an acquisition of Unicom by
PECO and the impact that accounting would likely have on Exelon,
including the creation of goodwill,
. the terms and conditions of the merger agreement, including the
conditions to closing and the termination fees payable under certain
circumstances (see "The Merger Agreement--Conditions to the Completion
of the Merger", "The Merger Agreement--Termination" and "The Merger
Agreement-- Termination Fees; Reimbursement of Expenses" in this Chapter
I),
. the interests of certain persons in the merger, including Mr. Rowe,
. the opinion of Wasserstein Perella that, as of January 6, 2000, and
subject to the assumptions and limitations described therein, the
consideration to be received by the Unicom shareholders was fair from a
financial point of view to the Unicom shareholders,
43
<PAGE>
. the other advice from Unicom management and the Unicom board of
directors' financial and legal advisors over an extended period, and the
discussions of the Unicom board of directors concerning the proposed
merger agreement,
. the impact of the merger on Unicom's customers, employees and suppliers,
including likely efficiencies resulting in better service to customers,
reductions in the number of employees in administrative functions,
likely better opportunities for employees in a larger, more competitive
company, and the possible reduction in the number of suppliers resulting
from consolidation in business operations as well as opportunities for
suppliers to sell to a larger organization,
. that while the merger is likely to be completed, there are risks
associated with obtaining necessary regulatory approvals. First, it is
possible that regulatory authorities or other third parties could seek
to impose unfavorable terms or conditions in the required approvals.
Secondly, if a required approval is not obtained, it is possible that
the merger may not be completed even if approved by shareholders (see
"Regulatory Matters" and "The Merger Agreement--Conditions to the
Completion of the Merger" in this Chapter I),
. the impact of regulations under various state and federal laws,
including the additional regulatory oversight that would result from the
addition of public utility operations in Pennsylvania, and the issues
involved in the registration of Exelon as a holding company, and the
regulation of PECO and ComEd as subsidiaries of a registered holding
company, under the Public Utility Holding Company Act (see "Regulatory
Matters" in this Chapter I),
. that although Unicom's relationships with regulators, customers,
governments and partners might be negatively affected because of
uncertainty surrounding Unicom's future status and direction pending
completion of the merger, the Unicom board of directors believed that
any potential negative effect would cease once the merger was completed,
. the problems inherent in merging the operations of two large and
geographically separated companies, including the potential diversion of
management resources, and
. the requirement for a supermajority vote of the Exelon board of
directors required to alter certain arrangements regarding the
management of Exelon, including the composition of Exelon's board of
directors and board committees, the identity of Exelon's chairman of the
board of directors, chairman of the executive committee of the board of
directors, co-chief executive officers, president and other senior
officers and the location of Exelon's corporate headquarters and other
principal offices.
The Unicom board of directors also considered:
. that if the merger is not completed but Unicom has repurchased
$1,000,000,000 of its common stock, the debt portion of Unicom's
capitalization would have increased to 56% from the current 52%,
. the fact that the $3.00 cash portion of the merger consideration payable
to all Unicom's shareholders will be subject to federal income tax
whereas the transaction would be tax free to shareholders who received
only Exelon stock under the original merger agreement,
. the fact that Unicom shareholders will be affected to a lesser degree by
increases or decreases in the market price of PECO Energy or Exelon
shares than they would be if the merger consideration to Unicom
shareholders were all stock rather than stock and cash,
. the risk that the benefits sought in the merger would not be obtained,
. the risk that the merger would not be completed,
. the effect of the public announcement of the merger on Unicom's sales,
customer, supplier and creditor relationships, operating results and
ability to retain employees and the trading price of Unicom shares,
. the substantial management time and effort that will be required to
complete the merger and integrate the operations of the two companies,
44
<PAGE>
. the impact of the merger on Unicom employees, including likely
reductions in administrative staff,
. the possibility that various provisions of the merger agreement might
have the effect of discouraging other persons potentially interested in
a combination with Unicom from pursuing such an opportunity, and
. other matters described under "Risk Factors" and "Cautionary Statement
Regarding Forward-Looking Statements."
The following section, "Opinion of Unicom's Financial Advisor," summarizes
the various analyses performed by Wasserstein Perella in support of its opinion
regarding the fairness, from a financial point of view, of the aggregate number
of shares of Exelon common stock to be issued, together with the aggregate cash
distributed, to Unicom shareholders pursuant to the merger of Unicom with and
into Exelon, which analyses were summarized by Wasserstein Perella for the
Unicom board at its January 6, 2000 meeting. Wasserstein Perella made available
to the Unicom board supporting information describing these analyses, but the
Unicom board members relied on the Wasserstein Perella summary and did not find
it necessary to request these materials.
This discussion of the information and factors considered by the Unicom
board of directors is not intended to be exhaustive. In view of the wide
variety of factors considered in connection with its evaluation of the merger,
including the amendments to the merger agreement, the Unicom board of directors
did not assign relative weights to the factors discussed above or determine
that any factor was of particular importance nor did it evaluate any of these
factors individually, but rather evaluated them as a whole. Rather, the Unicom
board of directors based its recommendation upon the totality of the
information presented.
The Unicom board of directors did not consider the voting control of Exelon
by PECO Energy shareholders in connection with the merger to be a positive or
negative factor. The Unicom board of directors considered the approximate
ownership of shares by Unicom shareholders and PECO Energy shareholders,
together with social issues agreed to by the parties, to result in a merger-of-
equals. Therefore, the voting control of Exelon by PECO Energy shareholders was
viewed by the Unicom board of directors as a neutral factor in determining
whether to approve the merger agreement.
Opinion of Unicom's Financial Advisor
The Unicom board of directors retained Wasserstein Perella to provide
investment banking advice and services in connection with a possible business
combination between Unicom and PECO Energy, including rendering its opinion as
to the fairness, from a financial point of view, to the shareholders of Unicom
of the aggregate consideration to be received by the shareholders of Unicom
pursuant to the merger agreement. The merger agreement provides as follows:
. for PECO Energy and Exelon to effect a mandatory share exchange in which
each share of PECO Energy common stock will be acquired by Exelon in
exchange for one share of Exelon common stock,
. immediately after the share exchange, for the merger of Unicom into
Exelon, pursuant to which each share of Unicom common stock will be
converted into the right to receive 0.875 shares of Exelon common stock
plus $3.00 in cash, and
. prior to the effective time of the merger, for Unicom to repurchase
shares of Unicom common stock and PECO Energy to repurchase shares of
PECO Energy common stock.
The aggregate number of shares of Exelon common stock to be issued pursuant
to the share exchange between PECO Energy and Exelon are referred to in this
section as the "Aggregate PECO Energy Consideration." The aggregate number of
shares of Exelon common stock to be issued, together with the aggregate cash to
be distributed, pursuant to the merger of Unicom with and into Exelon are
referred to in this section as the "Aggregate Unicom Consideration."
Wasserstein Perella was not requested to recommend the composition of
consideration to be received by shareholders of Unicom pursuant to the merger
agreement; it
45
<PAGE>
was requested to evaluate, among other things, the fairness from a financial
point of view to the shareholders of Unicom of the Aggregate Unicom
Consideration negotiated by Unicom and PECO Energy.
On January 6, 2000, Wasserstein Perella orally delivered its opinion to the
Unicom board of directors, which it later confirmed in a written opinion dated
January 6, 2000, to the effect that, as of the date of the opinion and based
upon and subject to various assumptions and limitations set forth in the
opinion, the Aggregate Unicom Consideration provided for pursuant to the merger
agreement was fair to the shareholders of Unicom from a financial point of
view. Wasserstein Perella also presented to the Unicom board of directors the
analyses described below.
The full text of Wasserstein Perella's opinion is attached as Annex D to
this proxy statement/prospectus and is incorporated by reference. Shareholders
of Unicom are urged to, and should, read the Wasserstein Perella opinion
carefully in its entirety for information with respect to the procedures
followed, assumptions made, matters considered and limits on the review
undertaken by Wasserstein Perella in rendering its opinion. References to
Wasserstein Perella's opinion in this proxy statement/prospectus and the
summary of Wasserstein Perella's opinion in this section of the proxy
statement/prospectus are qualified in their entirety by reference to Annex D.
Wasserstein Perella's opinion addressed only the fairness from a financial
point of view to the shareholders of Unicom of the Aggregate Unicom
Consideration provided for pursuant to the merger agreement. Wasserstein
Perella did not express any view on any other aspect of the merger or any other
terms of the merger agreement. Specifically, the opinion did not address
Unicom's repurchase of its common stock prior to completion of the merger, PECO
Energy's repurchase of its common stock in connection with the merger, or
Unicom's underlying business decision to enter into the amendments reflected in
the merger agreement or to effect the transactions contemplated by the merger
agreement, nor did Wasserstein Perella's opinion address any alternative
transaction or business strategy that may have been available to Unicom.
Wasserstein Perella's opinion does not constitute a recommendation to any
shareholder of Unicom as to how such shareholder should
. vote with respect to the merger,
. act in respect of Unicom's repurchase of its common stock or
. otherwise act in respect of the merger, and shareholders should not rely
upon it as such.
The following summary does not purport to be a complete description of the
analyses performed by Wasserstein Perella.
In arriving at its opinion, Wasserstein Perella reviewed, among other
things:
. publicly available business and financial information relating to Unicom
and PECO Energy that Wasserstein Perella deemed to be relevant,
. internal financial information, including financial projections,
forecasts and analyses relating to the business, earnings, cash flow,
assets, liabilities and prospects of Unicom and PECO Energy, in each
case prepared and furnished to it by Unicom or PECO Energy,
. the expected dividend policy for Exelon furnished to it by Unicom and
PECO Energy,
. market prices and valuation multiples of Unicom common stock and PECO
Energy common stock and similar data of certain publicly traded
companies that Wasserstein Perella deemed to be relevant,
. the results of operations for recent periods of Unicom and PECO Energy
and for certain other publicly traded companies that Wasserstein Perella
deemed to be relevant,
. the financial terms of the merger compared with those of certain other
business combination transactions that Wasserstein Perella deemed to be
reasonably comparable to the merger or otherwise relevant, and
. the pro forma financial impact of the merger.
Wasserstein Perella had discussions with members of senior management and
representatives of Unicom and PECO Energy concerning certain publicly available
business and financial information relating to Unicom
46
<PAGE>
and PECO Energy and certain internal financial information, including financial
projections, forecasts and analyses relating to the business, earnings, cash
flow, assets, liabilities and prospects of Unicom and PECO Energy described
above, as well as the respective businesses, regulatory environments and
prospects of Unicom and PECO Energy before and after giving effect to the
merger. Wasserstein Perella also performed such other financial studies,
analyses and investigations and reviewed such other information as it
considered appropriate for purposes of its opinion.
In conducting its review and analysis and formulating its opinion,
Wasserstein Perella assumed and relied upon the accuracy and completeness of
all the financial and other information that was provided to or discussed with
it or was publicly available, and did not assume any responsibility for
independently verifying this information. Wasserstein Perella also assumed and
relied upon the reasonableness and accuracy of the financial projections,
forecasts and analyses provided to it and assumed that all of these
projections, forecasts and analyses were reasonably prepared in good faith and
on bases reflecting the best currently available judgments and estimates of the
managements of Unicom and PECO Energy. Wasserstein Perella also, with the
consent of Unicom, factored in an assumed level of financial synergies from the
merger that management of Unicom provided to it. Wasserstein Perella did not
express any opinion with respect to the projections, forecasts, analyses and
assumed level of financial synergies or the assumptions upon which they were
based. In addition, Wasserstein Perella did not review any of the books and
records of Unicom or PECO Energy, or assume any responsibility for conducting a
physical inspection of the properties or facilities of Unicom or PECO Energy,
or for making or obtaining an independent valuation or appraisal of the assets
or liabilities of Unicom or PECO Energy, and Wasserstein Perella was not
provided with any such independent valuation or appraisal. Wasserstein Perella
noted that
. the merger is intended to qualify as a tax free reorganization for
United States federal income tax purposes in which gain (if any) will be
recognized only to the extent of the aggregate cash to be distributed to
Unicom shareholders in the merger and Wasserstein Perella assumed that
the merger will so qualify and
. the merger is intended to be accounted for as a purchase of Unicom by
PECO Energy and Wasserstein Perella assumed that the merger will be so
accounted for.
Wasserstein Perella also assumed that obtaining all regulatory and other
approvals and third-party consents required for consummation of the merger
would not have an adverse impact on Unicom or PECO Energy or on the anticipated
benefits of the merger, and assumed that the transactions described in the
merger agreement would be consummated without waiver or modification of any
material term or condition by any party thereto.
Wasserstein Perella's opinion was necessarily based on economic and market
conditions and other circumstances as they existed and could be evaluated by
Wasserstein Perella on the date of its opinion. In addition, Wasserstein
Perella did not express any opinion as to the prices at which any securities of
Unicom, PECO Energy or Exelon would actually trade at any time.
Summary and Analysis of the Merger
During a meeting with the Unicom board of directors on January 6, 2000, and
supported by materials presented to the Unicom board of directors, Wasserstein
Perella reviewed with the members of the Unicom board of directors certain
financial, industry and market information with respect to Unicom and PECO
Energy, and the procedures used in arriving at, and the analyses underlying,
Wasserstein Perella's opinion. Wasserstein Perella also presented a summary of
the material terms of the merger, including:
. the proposed structure of the merger, the effect of which would be a
stock-for-stock merger, which would involve the following steps:
. PECO Energy would be acquired by Exelon in exchange for one share of
common stock of Exelon per PECO Energy share,
. immediately thereafter, Unicom would merge with and into Exelon and
the Unicom shareholders would receive in exchange for one share of
common stock of Unicom, 0.875 shares of common stock of Exelon and
$3.00 in cash, and
47
<PAGE>
. prior to the closing, PECO Energy would repurchase $500 million of its
common stock and Unicom would repurchase $1.0 billion of its common
stock,
. the expected tax treatment to Unicom, PECO Energy and their
shareholders of the merger,
. the expected accounting treatment of the merger,
. the anticipated dividend policy of Exelon,
. regulatory approvals and customary conditions to closing,
. certain aspects of the management of Exelon,
. the structure of the board of directors of Exelon, and
. the termination fees, non-solicitation provisions and termination
rights.
Unicom and PECO Energy Historical Stock Price Ratios and Trading Analysis
Wasserstein Perella performed an analysis of the market trading multiples as
of January 5, 2000, for Unicom and PECO Energy based on their (1) enterprise
values as a multiple of 1999 estimated, 2000 projected and 2001 projected
earnings before interest and taxes ("EBIT") and (2) equity values as a multiple
of 1999 estimated, 2000 projected and 2001 projected net income and book value.
The results of this analysis are summarized below.
Summary of Market Trading Multiples
<TABLE>
<CAPTION>
Estimated Projected Projected
1999 2000 2001
--------- --------- ---------
Unicom
- ------
<S> <C> <C> <C>
Enterprise Value as a Multiple of EBIT............ 8.2x 8.1x 7.7x
Equity Value as a Multiple of Net Income.......... 10.1x 11.0x 10.0x
Equity Value as a Multiple of Book Value.......... 1.3x 1.5x 1.4x
<CAPTION>
PECO Energy
- -----------
<S> <C> <C> <C>
Enterprise Value as a Multiple of EBIT............ 9.0x 8.3x 7.4x
Equity Value as a Multiple of Net Income.......... 12.5x 10.4x 9.2x
Equity Value as a Multiple of Book Value.......... 4.1x 3.2x 2.5x
</TABLE>
Wasserstein Perella also reviewed the ratio of the closing price per share
of Unicom common stock to the closing price per share of PECO Energy common
stock over the periods described below. Wasserstein Perella noted that the
means of the ratios of the closing price per share of Unicom common stock to
the closing price per share of the PECO Energy common stock for these periods
were as follows:
Summary of Historical Closing Price Ratios
<TABLE>
<CAPTION>
Period Ending January 5, 2000 Mean Ratio
----------------------------- ----------
<S> <C>
10 Calendar Days ............................................... 0.970x
30 Calendar Days ............................................... 0.972x
60 Calendar Days ............................................... 0.994x
90 Calendar Days ............................................... 0.986x
Since September 22, 1999........................................ 0.993x
</TABLE>
Wasserstein Perella also analyzed the daily closing prices of Unicom and
PECO Energy common stock and the Standard and Poor's index of electric
utilities over the period January 5, 1999 to January 5, 2000 and noted that the
closing prices of Unicom and PECO Energy common stock had decreased 15.6% and
17.9%, respectively, over the period and that Standard and Poor's index of
electric utilities had decreased by 14.8% over the same period. Wasserstein
Perella noted that, during this period, closing prices for Unicom common stock
ranged from $30.94 to $42.81 and closing prices for PECO Energy common stock
ranged from $30.75 to $50.50.
48
<PAGE>
Wasserstein Perella analyzed the foregoing historical daily ratios, daily
closing prices and market trading multiples of Unicom and PECO Energy as part
of its analysis of the fairness, from a financial point of view, to the
shareholders of Unicom of the Aggregate Unicom Consideration provided for
pursuant to the merger agreement. Wasserstein Perella did not determine a range
of implied public market equity values for either Unicom or PECO Energy based
on these analyses.
Wasserstein Perella also noted that the merger consideration to be received
by Unicom shareholders of 0.875 shares of Exelon common stock plus $3.00 in
cash for each share of Unicom common stock would be equivalent to an exchange
ratio of 0.961 if the price of PECO Energy common stock were $35.00 at the
closing, 0.950 if it were $40.00 and 0.942 if it were $45.00.
Selected Power Utility Company Trading Analysis
To analyze the relative public market valuations of selected comparable
utility companies, Wasserstein Perella analyzed the stock price performance and
operating performance of a group of publicly traded power utility companies
considered by Wasserstein Perella to be relevant. The following companies were
included in the comparable company analyses:
. Allegheny Energy, Inc. . FPL Group, Inc.
. American Electric Power Company, Inc.
. GPU, Inc.
. Constellation Energy Group, Inc. . Northern States Power Company
. CMS Energy Corp. . PECO Energy
. Carolina Power & Light Company . PG&E Corporation
. Cinergy Corp. . Public Service Enterprise Group
. Consolidated Edison, Inc. Incorporated
. DTE Energy Company . PP&L Resources, Inc.
. Dominion Resources, Inc. . Reliant Energy, Incorporated
. Duke Energy Corporation . The Southern Company
. Edison International . Sempra Energy
. Entergy Corporation . Texas Utilities Company
. FirstEnergy Corp. . Unicom
Wasserstein Perella calculated market trading multiples for each of these
companies based on their (1) enterprise values as a multiple of the LTM EBIT,
1999 estimated EBIT and 2000 estimated EBIT and (2) equity values as a multiple
of LTM net income, 1999 estimated net income and 2000 estimated net income.
Based on these calculations, Wasserstein Perella noted that the ranges of and
median enterprise value market multiples and equity value market multiples were
as summarized in the following table:
<TABLE>
<CAPTION>
Multiple Range Median
-------- ------------- ------
<S> <C> <C>
Enterprise Value as a Multiple of LTM EBIT................ 7.1x to 12.3x 10.3x
Enterprise Value as a Multiple of 1999 estimated EBIT..... 6.3x to 14.4x 9.5x
Enterprise Value as a Multiple of 2000 estimated EBIT..... 5.2x to 13.3x 9.2x
Equity Value as a Multiple of LTM net income.............. 5.8x to 14.4x 10.9x
Equity Value as a Multiple of 1999 estimated net income... 7.6x to 13.8x 11.0x
Equity Value as a Multiple of 2000 estimated net income... 8.4x to 13.2x 10.2x
</TABLE>
Based on the median enterprise value market multiples for 2000 and 2001
estimated EBIT and the median equity value market multiples for 2000 and 2001
estimated net income (after applying an assumed average annual growth rate for
EBIT and net income to the 2000 median enterprise and equity values),
Wasserstein Perella determined a range of implied effective exchange ratios of
0.762 to 1.200 and noted that these analyses supported a determination that the
Aggregate Unicom Consideration provided for pursuant to the merger agreement
was fair to the shareholders of Unicom from a financial point of view.
49
<PAGE>
Contribution Analysis
Wasserstein Perella compared the relative contributions of the implied
equity value of Unicom and PECO Energy to the combined entity based on the 2000
and 2001 projected net income and EBIT of the two companies. Based on the
financial data for 2000 and the median 2000 estimated comparable companies
trading multiples for net income and EBIT, Wasserstein Perella derived total
implied equity values for the combined entity based on 2000 projected net
income and EBIT and determined that Unicom's relative contributions to those
equity values were 48.9% and 52.2%, respectively. Based on the financial data
for 2001 and the median 2001 estimated comparable companies trading multiples
for net income and EBIT, Wasserstein Perella derived total implied equity
values for the combined entity based on 2001 projected net income and EBIT and
determined that Unicom's relative contributions to those equity values were
48.1% and 49.8%, respectively. Based on these analyses, Wasserstein Perella
determined a range of implied effective exchange ratios of 0.876 to 1.036 and
noted that these analyses supported a determination that the Aggregate Unicom
Consideration provided for pursuant to the merger agreement was fair to the
shareholders of Unicom from a financial point of view.
Review of Selected Electric Utility Company Acquisitions
Wasserstein Perella reviewed certain publicly available financial and other
information relating to the following business combinations or proposed
combinations in the electric utility industry considered reasonably comparable
to the merger or otherwise relevant by Wasserstein Perella:
. Consolidated Edison, . Sierra Pacific Resources/
Inc./Northeast Utilities Nevada Power Company
System . American Electric Power
. PECO Energy/Unicom (under the Company, Inc./Central and
original merger agreement) South West Corporation
. Carolina Power & Light . CalEnergy Company, Inc./ New
Company/Florida Progress York Electric & Gas
Corporation . LG&E Energy Corp./KU Energy
. Energy East Corp./CMP Group Corporation
Inc. . Allegheny Power System
. Dynegy Inc./Illinova Inc./DQE, Inc.
Corporation . Ohio Edison Company/
. Private Investor Group/TNP Centerior Energy Corporation
Enterprises, Inc. . Enron Corp./Portland General
. Northern States Power Corporation
Company/New Century Energies, . Western Resources, Inc./
Inc. Kansas City Power & Light
. New England Electric Company
System/Eastern Utilities . Baltimore Gas and Electric
Associates Company/Potomac Electric
. The National Grid Group Power Company
plc/New England Electric . PECO Energy/PP&L Resources,
System Inc.
. BEC Energy/Commonwealth . Wisconsin Energy
Energy System Corporation/Northern States
. Scottish Power plc/Pacificorp Power Company
. CalEnergy Company, Inc./
MidAmerican Energy Company
In conducting its review of each of these transactions, Wasserstein Perella
calculated the enterprise value of the target company as a multiple of EBIT and
the equity value of the target company as a multiple of net income, in each
case for the four most recent fiscal quarters ending prior to the date on which
the applicable transaction was announced. Based on these calculations,
Wasserstein Perella noted that the ranges of and median implied enterprise
value market multiples and equity value market multiples of the target company
were as summarized in the following table:
<TABLE>
<CAPTION>
Multiple Range Median
- -------- ------------- ------
<S> <C> <C>
Enterprise Value as a Multiple of EBIT..................... 7.4x to 27.2x 12.4x
Equity Value as a Multiple of net income................... 9.9x to 19.1x 14.9x
</TABLE>
50
<PAGE>
Based on these median multiples as applied to the 2000 and 2001 projected
net income (after applying an assumed average annual growth rate for net income
to the median implied equity value market multiple) and the 2000 projected EBIT
of each of Unicom and PECO Energy, Wasserstein Perella determined a range of
implied effective exchange ratios of 0.697 to 1.275 and noted that these
analyses supported a determination that the Aggregate Unicom Consideration
provided for pursuant to the merger agreement was fair to the shareholders of
Unicom from a financial point of view.
Discounted Cash Flow Analysis
Wasserstein Perella performed discounted cash flow analyses for Unicom and
PECO Energy using financial projections for fiscal years 2000 through 2003
provided by the managements of Unicom and PECO Energy. Unicom's and PECO
Energy's management each prepared a set of financial projections, which were
based on each management's base assumptions for future performance. Wasserstein
Perella aggregated the present value of the cash flows from 2000 through 2003
with the present value of a range of terminal values. All cash flows were
discounted at rates ranging from 9.0% to 11.0%. The terminal values were
computed using multiples ranging from 8.0x to 9.5x for fiscal year 2003 EBIT.
Wasserstein Perella arrived at these discount rates based on its judgment of
the weighted average cost of capital of selected publicly traded utility
companies, and arrived at these terminal values based on its review of the
trading characteristics of the common stock of selected utility companies. This
analysis indicated a range of values for the Unicom common stock of $33.00 to
$38.00 per share, and a range of values for the PECO Energy common stock of
$38.00 to $44.00 per share. Based on this range of implied share prices,
Wasserstein Perella determined a range of implied effective exchange ratios of
0.750 to 1.000 and noted that these analyses supported a determination that the
Aggregate Unicom Consideration provided for pursuant to the merger agreement
was fair to the shareholders of Unicom from a financial point of view.
Pro Forma Transaction Analysis
Wasserstein Perella analyzed the potential pro forma effect of the merger on
earnings per share with respect to the shareholders of PECO Energy for the
fiscal years 2001 through 2003, using I/B/E/S median earnings estimates,
assuming merger consideration to Unicom shareholders of 0.875 shares of Exelon
common stock plus $3.00 in cash, an Exelon dividend of $1.69, the repurchase of
$500 million of PECO Energy common stock and $1.0 billion of Unicom common
stock prior to the completion of the merger and that goodwill would be based on
the PECO Energy stock price around the time the amended merger agreement was
announced. Wasserstein Perella analyzed the pro forma effect on earnings per
share assuming that a level of financial synergies provided by Unicom
management to Wasserstein Perella were achieved. This analysis suggested that,
with respect to PECO Energy's shareholders, the merger would be accretive to
earnings per share in fiscal years 2001, 2002 and 2003. The actual results that
the combined company achieves may, however, vary from projected results and
these variations may be material. In conducting the analysis of the pro forma
effect of the merger on the Aggregate Unicom Consideration, Wasserstein Perella
determined that the analysis relevant to its opinion was that in respect of
PECO Energy earnings per share for the fiscal years 2001 through 2003 because
of the assumption that PECO Energy would be the acquiring company for
accounting purposes. Wasserstein Perella concluded that whether the merger
would be accretive or dilutive in respect of PECO Energy earnings per share
would impact the value of Exelon common stock more so than would accretion or
dilution in respect of the Unicom common stock.
The preceding summary is not a complete description of the analyses
performed by Wasserstein Perella or its presentations to the Unicom board of
directors. The preparation of a fairness opinion is a complex process that is
not purely mathematical and is not necessarily susceptible to partial analyses
or summary description. Wasserstein Perella believes that its analyses must be
considered as a whole and that selecting portions of its analyses and the
factors considered by it, without considering all factors and analyses taken as
a whole, could create an incomplete view of the process underlying its analyses
set forth in its opinion. In addition, Wasserstein Perella considered the
results of all of the analyses and did not assign relative weights to any of
51
<PAGE>
the analyses, so the ranges of valuations resulting from any particular
analysis described above should not be taken to be Wasserstein Perella's view
of the actual value of Unicom or a combination of Unicom and PECO Energy. In
performing its analyses, Wasserstein Perella made numerous macroeconomic,
operating and financial assumptions with respect to industry performance,
general business, regulatory and economic conditions and other matters, many of
which are beyond the control of Unicom and PECO Energy. Any estimates
incorporated in the analyses performed by Wasserstein Perella are not
necessarily indicative of actual values or future results that might be
achieved, all of which may be significantly more or less favorable than those
suggested by the estimates. Estimated values do not purport to be appraisals or
to reflect the prices at which utility companies might be sold. Since these
estimates are inherently subject to uncertainty, Wasserstein Perella does not
assume any responsibility for their accuracy. No company analyzed for
comparative purposes is identical to Unicom or PECO Energy. Accordingly, an
analysis of comparative companies and comparative business combinations is not
simply mathematical, but rather involves complex considerations and judgments
concerning financial and operating characteristics of the companies involved
and other factors that affect value.
In addition to the analyses outlined above, Wasserstein Perella considered
other factors that it deemed appropriate in determining the fairness, from a
financial point of view, to the shareholders of Unicom of the Aggregate Unicom
Consideration provided for pursuant to the merger agreement. Wasserstein
Perella concluded that, in its judgment, including the full range of its
analyses described above and the various assumptions and limitations set forth
in the opinion, the Aggregate Unicom Consideration provided for pursuant to the
merger agreement was fair to the shareholders of Unicom from a financial point
of view.
Wasserstein Perella is an investment banking firm engaged in, among other
things, the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. The Unicom board of directors
selected Wasserstein Perella as its financial advisor in connection with the
merger because Wasserstein Perella is an internationally recognized investment
banking firm and members of Wasserstein Perella have substantial experience in
transactions similar to the merger and in the valuation of companies.
Under the terms of Wasserstein Perella's engagement, Unicom has agreed to
pay Wasserstein Perella a fee of $35 million for providing financial advisory
services in connection with the merger, including providing the opinion
described above. The fee is payable as follows: 8% upon the public announcement
of the merger agreement, 17% upon approval of the merger agreement by the
Unicom shareholders and 75% upon completion of the merger. In addition, Unicom
agreed to reimburse Wasserstein Perella for its reasonable out-of-pocket
expenses related to its engagement, including the reasonable fees and expenses
of counsel, whether or not the merger is consummated. Unicom also has agreed to
indemnify Wasserstein Perella and certain related persons against certain
liabilities relating to or arising out of its engagement, including certain
liabilities under the federal securities laws.
In the ordinary course of its business, Wasserstein Perella may actively
trade the debt and equity securities of Unicom and PECO Energy for its own
account and for the accounts of its customers and, accordingly, may at any time
hold a long or short position in these securities.
Board of Directors, Management and Operations of Exelon After the Merger
Pursuant to an amendment to the by-laws of Exelon to be effective upon
completion of the merger, PECO Energy and Unicom have agreed to certain
arrangements relating to the board of directors and management of Exelon during
a transition period lasting from the completion of the merger until December
31, 2003. These arrangements may not be changed without the affirmative vote of
at least two-thirds of the board of directors of Exelon.
Exelon Board of Directors
Upon completion of the merger, Exelon's board of directors will have 16
members, eight designated by PECO Energy and eight designated by Unicom. The
Exelon board of directors will be staggered, with three-
52
<PAGE>
year terms for directors (6 directors in first class, 5 in second and 5 in
third), and each class of directors will be divided in as nearly equal numbers
as possible between the directors designated by each of PECO Energy and Unicom.
During the transition period, the Exelon board of directors will take all
action necessary to ensure that any vacancy of a position on the Exelon board
of directors will be filled by a majority of the remaining directors designated
by the company that designated the member to which the vacancy relates. With
respect to each election of directors by shareholders during the transition
period, the Exelon board of directors will nominate for election a PECO Energy-
designated director to fill any position held prior to the election by a PECO
Energy-designated director and a Unicom-designated director to fill any
position held prior to the election by a Unicom director. During the transition
period, the Exelon board of directors will meet six to eight times annually,
with at least two meetings each year being held in each of Pennsylvania and
Illinois.
Chairman of the Board; Co-Chief Executive Officers; President
From the completion of the merger until the end of the transition period,
Corbin A. McNeill, Jr. and John W. Rowe will be co-chief executive officers of
Exelon. During the first half of the transition period, Mr. McNeill will be
chairman of the Exelon board of directors, Mr. Rowe will serve as chairman of
the executive committee of the Exelon board of directors and Mr. Rowe will be
president of Exelon. During the second half of the transition period, Mr. Rowe
will serve as chairman of the Exelon board of directors and Mr. McNeill will
serve as chairman of the executive committee of the Exelon board of directors.
At the end of the transition period, Mr. Rowe will become chairman of the
Exelon board of directors and sole chief executive officer of Exelon. Mr.
McNeill will remain on the Exelon board of directors. If at any time either Mr.
McNeill or Mr. Rowe is unwilling or unable to hold any of these positions, the
other, if he is still a co-chief executive officer of Exelon, will succeed to
the position.
At any time during the transition period when Messrs. McNeill and Rowe are
co-chief executive officers of Exelon, each of them will receive the same
salary, bonus and other compensation (including option grants and other
incentive awards and all other forms of compensation) and enjoy the same other
benefits and the same employment security arrangements as the other. See "The
Merger--Interests of Unicom's Directors and Management in the Merger--
Employment Agreement with John W. Rowe" in this Chapter I.
Mr. McNeill will retire as an executive of Exelon at the end of the
transition period and will no longer serve as chairman of the executive
committee of the Exelon board of directors, but will continue as a member of
the Exelon board of directors. Mr. Rowe will become the sole chief executive
officer of Exelon immediately prior to the end of the transition period, and at
that time will be the chairman of the Exelon board of directors, if immediately
prior to that time he holds the position of co-chief executive officer. The
Exelon board of directors or its nominating committee will nominate for
election Messrs. McNeill and Rowe as part of management's slate of candidates
at each meeting of the shareholders (if at the time of the meeting Messrs.
McNeill or Rowe, as applicable, is a member of the Exelon board of directors)
at which members of the Exelon board of directors are elected as shall be
necessary in order that Messrs. McNeill or Rowe, as applicable, serves as a
director of Exelon from the end of the transition period until the election of
directors following December 31, 2005.
During the transition period, Mr. McNeill will have the responsibility for
overseeing the generation and power marketing operations of Exelon and Mr. Rowe
will have the responsibility for overseeing transmission and distribution
operations, as well as unregulated retail enterprises.
53
<PAGE>
Senior Officers
In addition, the following individuals will serve as senior officers of
Exelon:
<TABLE>
<CAPTION>
Name Company Exelon Position
---- ------- ---------------
<C> <C> <S>
Michael J. Egan................ PECO Energy Chief Financial Officer and Chief
Transition/Integration Officer
Ruth Ann M. Gillis............. Unicom Senior Vice President, Finance
Oliver D. Kingsley, Jr......... Unicom Chief Nuclear Officer
Gerald R. Rainey............... PECO Energy Nuclear Operations Officer
Pamela B. Strobel.............. Unicom Executive Vice President and Exelon Energy
Delivery President
Kenneth G. Lawrence............ PECO Energy PECO Energy Distribution President
Carl J. Croskey................ Unicom Commonwealth Edison Distribution President
Paul A. Elbert................. Unicom Unregulated Retail/New Business President
S. Gary Snodgrass.............. Unicom Senior Vice President, Human Resources
</TABLE>
None of these senior offices may be removed, replaced or demoted prior to
the end of the transition period without either the consent of both Messrs.
McNeill and Rowe or the affirmative vote of two-thirds of the board of
directors of Exelon.
Corporate Offices
At least for the duration of the transition period, the corporate
headquarters of Exelon will be in Chicago, Illinois and the headquarters of its
generation and power marketing businesses will be in southeastern Pennsylvania.
PECO Energy's and Unicom's electric and gas utilities will remain separate
subsidiaries of Exelon and will continue to operate under the names PECO Energy
Company and Commonwealth Edison Company. PECO Energy will maintain its
headquarters in southeastern Pennsylvania and ComEd will maintain its
headquarters in Chicago.
Corporate Restructuring
Subject to receipt of necessary regulatory approvals, PECO Energy and ComEd
intend to pursue a restructuring of their corporate organizations
simultaneously with and after the completion of the merger. In general, this
restructuring will involve separating PECO Energy's and ComEd's regulated and
unregulated businesses into a number of separate corporate entities. We expect
that all of the generation assets of PECO Energy and ComEd will be consolidated
into a single generation company, which may have subsidiaries and will contain
Exelon's power marketing and trading business. This generation company will be
a direct subsidiary of Exelon. We also intend to organize the other unregulated
businesses of PECO Energy and Unicom into one or more groups of companies that
will be direct and indirect subsidiaries of Exelon. PECO Energy and ComEd will
be separate direct subsidiaries of Exelon and will continue to be regulated
public utilities. PECO Energy will continue to own and operate its electricity
distribution business and will continue to own its transmission facilities
subject to participation in the Pennsylvania-New Jersey-Maryland
Interconnection. Likewise, ComEd will continue its electricity distribution
business. ComEd is reviewing plans for its transmission business in light of
developments in the region, possibly resulting in the formation of an
"independent transmission company" or regional transmission organization. The
Companies may modify these restructuring plans to adapt to changing regulatory
and competitive conditions. Completion of the merger is not conditioned on the
consummation of, or receipt of regulatory approval for, any portion of these
corporate restructuring plans.
54
<PAGE>
Interests of PECO Energy's Directors and Management in the Merger
Continuing Board Positions
As provided in the merger agreement, as of the completion of the merger, the
Exelon board of directors will consist of 16 members, with eight to be
recommended by PECO Energy and eight to be recommended by Unicom. The Corporate
Governance Committee of PECO Energy's board of directors currently is
responsible for considering and recommending nominees for election as
directors. As a result, the Chairman of the Corporate Governance Committee,
after consultation with each of the directors, will recommend to the full PECO
Energy board of directors eight nominees to serve on the Exelon board of
directors. The board of directors of PECO Energy will vote on the nominees and,
upon their approval, designate the eight PECO Energy directors to serve on the
Exelon board.
Employment Arrangements with Corbin A. McNeill, Jr. and Certain Other PECO
Energy Personnel
Although neither PECO Energy nor Exelon has entered into an employment
agreement with Mr. McNeill, the merger agreement provides that at any time
during the transition period when Messrs. McNeill and Rowe are co-chief
executive officers, each of them will receive the same salary, bonus and other
compensation (including option grants and other incentive awards and all other
forms of compensation) and enjoy the same other benefits and the same
employment security arrangements as the other. Unicom has entered into an
amended employment agreement with Mr. Rowe. See "--Interests of Unicom's
Directors and Management in the Merger--Employment Agreement with John W. Rowe"
below. The merger agreement contains other provisions relating to the
employment of Mr. McNeill and other PECO Energy personnel by Exelon after the
completion of the merger. See "--Board of Directors, Management and Operations
of Exelon After the Merger" above.
Changes to PECO Energy Employee Plans and Arrangements
PECO Energy intends to make certain changes to its employee benefit plans
and arrangements prior to the completion of the merger, including (1) entering
into severance agreements for up to 100 officers and key employees in the four
highest generic salary categories of PECO Energy, which agreements would
contain change in control and other terms similar to those currently in effect
for comparable Unicom employees under its change in control agreements or Key
Management Severance Plan, as applicable, and (2) adopting amendments to
certain benefit plans to maintain the comparability of such plans with
competitive benefits structures. On October 26, 1999, the PECO Energy board of
directors authorized PECO Energy to enter into agreements as described in
clause (1) of the preceding sentence, including with each of Messrs. Egan,
Durham, Lawrence and Rainey. No determination has been made by PECO Energy as
of the date hereof with respect to the matters described in clause (2) of the
first sentence of this paragraph. The merger agreement permits PECO Energy to
make the changes and take the actions described above. PECO Energy also intends
to continue to fund its grantor trust (which is used to finance certain of PECO
Energy's executive compensation plans) in accordance with its terms.
Change in Control Under PECO Energy Employee Plans and Severance Arrangements
PECO Energy has entered into change in control agreements with approximately
100 officers and key employees in the four highest generic salary categories of
PECO Energy. These agreements contain terms similar to those currently in
effect for comparable Unicom employees under Unicom change in control
agreements or the Key Management Severance Plan, as applicable. These
agreements provide severance payments and benefits in the event of termination
of these employees for reasons other than cause, or in the event of their
resignation for good reason, within 24 months following a change in control of
PECO Energy.
Approval of the merger by PECO Energy shareholders will constitute a change
in control of PECO Energy for purposes of the agreements. The severance
payments and benefits provided under the agreements include:
. Severance payments (prorated and paid monthly) equal to either three,
two or one and one-half, depending on the employee's position with PECO
Energy, multiplied by the sum of:
55
<PAGE>
. the employee's annual base salary, plus
. an amount equal to the average of the annual incentive awards paid to
the employee for the two years preceding the year of termination or,
if greater, the target award under the annual incentive award program
in which the employee participates for the year in which termination
occurs.
. A prorated annual incentive award for the year in which termination
occurs.
. Continuation of life, disability, accident, health and other welfare
benefit coverage. For each employee, the benefits will continue for a
number of years equal to the multiple of base salary and annual
incentive award (i.e., three, two or one and one-half) applicable to
that employee's severance payment described above.
. Outplacement services.
. All of a terminated employee's exercisable options would remain
exercisable until the applicable option expiration date, and all
unvested options would become fully exercisable and remain so until the
applicable option expiration date.
. Any deferred stock units, restricted stock, or restricted share units
would become fully vested and any other long-term incentive plan award
which is unvested would vest.
. For purposes of determining benefits under the supplemental retirement
plan or arrangement, if any, in which the employee participates, the
employee will be credited with additional years of credited service, age
and compensation. The additional years will be equal to the multiple of
base salary and annual incentive award (i.e., three, two or one and one-
half) applicable to that employee's severance payment described above.
. For purposes of determining eligibility for retiree welfare benefits,
the employee will be deemed to have additional years of service and age.
The additional years will be equal to the multiple of base salary and
annual incentive award applicable to that employee's severance payment
described above.
. All compensation earned through the date of termination as well as all
coverage and benefits under all benefit plans to which the employee is
entitled.
Pursuant to the terms of offers of employment or employment agreements,
certain employees are also entitled to additional service credits for purposes
of retiree health care eligibility and for determining benefits under the
supplemental retirement plan or arrangement in which they participate.
In connection with the severance benefits described above, each employee is
subject to a non-compete agreement for 24 months from the applicable
termination date. Although a participating employee does not have a duty to
mitigate the amounts due from the company, continued welfare benefit coverage
would be offset during the applicable continuation period by comparable
coverage provided under welfare plans of another employer.
Those participating employees who are senior vice-presidents will receive an
additional payment to cover excise taxes imposed under Section 4999 of the
Internal Revenue Code on "excess parachute payments" or under similar state or
local law if the after-tax amount of payments and benefits subject to these
taxes exceeds 110% of the "safe harbor" amount that would not subject the
employee to these excise taxes. If the after-tax amount, however, is less than
110% of the safe harbor amount, payments and benefits subject to these taxes
would be reduced or eliminated to equal the safe harbor amount. Benefits
payable to other employees subject to the excise taxes imposed under Section
4999 of the Code will be reduced to the employees's safe harbor amount.
PECO Energy's Long-Term Incentive Plan does not contain provisions relating
to change in control. As a result, unless an employee has entered into a change
in control agreement outlined above, grants under PECO Energy's Long-Term
Incentive Plan are not subject to accelerated vesting due to a change in
control.
56
<PAGE>
Interests of Unicom's Directors and Management in the Merger
Continuing Board Positions
As provided in the merger agreement, upon the completion of the merger, the
Exelon board of directors will consist of 16 members, with eight to be
recommended by PECO Energy and eight to be recommended by Unicom. The
Governance and Nominating Committee of Unicom's board of directors currently
recommends to the Unicom board of directors candidates for election to the
Unicom board of directors. As a result, the Governance and Nominating Committee
will develop a selection process and criteria for recommending nominees to
serve on the Exelon board. The Governance and Nominating Committee will then
consider and recommend to the Unicom board of directors eight nominees to serve
on the Exelon board of directors. The board of directors of Unicom will vote on
the nominees and, upon their approval, designate the eight Unicom directors to
serve on the Exelon board.
Employment Agreement with John W. Rowe
Unicom has entered into an amended employment agreement with Mr. Rowe, which
will be effective only upon the completion of the merger and will be binding on
Exelon at that time. Under this agreement, Mr. Rowe will serve as:
. co-chief executive officer and president of Exelon, chairman of the
executive committee of the Exelon board of directors and a member of the
Exelon board of directors during the first half of the transition
period,
. co-chief executive officer of Exelon, chairman of the Exelon board of
directors and a member of the Exelon board of directors during the
second half of the transition period, and
. chief executive officer of Exelon, chairman of the Exelon board of
directors and a member of the Exelon board of directors after the
transition period.
Mr. Rowe will succeed to the position of sole chief executive officer of
Exelon or chairman of the Exelon board of directors if:
. prior to the end of the transition period, Mr. McNeill should cease to
be a co-chief executive officer of Exelon or the chairman of the Exelon
board of directors, and
. Mr. Rowe is still a co-chief executive officer of Exelon at that time.
Mr. Rowe will receive an annual base salary of:
. at least $900,000 through March 15, 2001, but not less than his base
salary immediately prior to the completion of the merger (currently
$975,000), or
. Mr. McNeill's base salary, whichever is higher.
After March 15, 2001, Mr. Rowe's base salary will be determined by Exelon's
compensation committee. Mr. Rowe will be eligible to participate in annual
incentive award programs, long-term incentive plans and stock option plans on
the same basis as other senior executives of Exelon. A grant of options will be
considered for the co-chief executive officers at the time of the completion of
the merger. Mr. Rowe will be entitled to participate in all savings, deferred
compensation, retirement and other employee benefit plans generally available
to other senior executives of Exelon. During the transition period, Mr. Rowe's
base salary and participation in the plans and awards described in this
paragraph will be on a basis that is not less than that of Mr. McNeill's or on
which Mr. McNeill participates.
Under his amended employment agreement, Mr. Rowe will receive a special
supplemental executive retirement plan, or SERP, benefit if:
. he terminates due to normal retirement, early retirement, termination
without cause, termination for good reason, death or disability, or
57
<PAGE>
. he voluntarily terminates on or after the first anniversary of the
completion of the merger for any other reason.
The term "good reason" includes the failure to appoint Mr. Rowe to the
management and Exelon board of director positions described above. The special
SERP benefit will equal the SERP benefit that Mr. Rowe would have received:
. if he had attained age 60 (or his actual age, if greater), and
. if he had earned 20 years of service on March 16, 1998 and one
additional year of service on each anniversary after that date and prior
to termination.
Except as provided in the next paragraph, if Exelon terminates Mr. Rowe's
employment for reasons other than cause, death or disability or if he should
terminate employment for good reason, he would be entitled to the following
benefits:
. a prorated annual incentive award for the year in which termination
occurs,
. severance payments equal to his base salary for two years after
termination, and for each year during such period an amount equal to the
average of the annual incentive awards paid to him with respect to the
three years preceding the year of termination or, if greater, his annual
incentive award for the year before termination,
. for the two-year period, continuation of his life, disability, accident,
health and other welfare benefits, plus the retirement benefits
described above and post-retirement health care coverage,
. all of his exercisable options would remain exercisable until the
applicable option expiration date,
. unvested options would continue to become exercisable during the two-
year continuation period and thereafter remain exercisable until the
applicable option expiration date, and
. all compensation earned through the date of termination and coverage and
benefits under all benefit plans to which he is entitled.
Mr. Rowe will receive the termination benefits described in "Change in
Control Under Employee Plans and Severance Arrangements" below, rather than the
benefits described in the previous paragraph, if Exelon terminates Mr. Rowe
without cause or he terminates with good reason and
. the termination is within 24 months after a change in control of Exelon,
or
. the termination is at any other time prior to the earlier of normal
retirement or December 31, 2004, or
. the termination is for good reason at any other time on or after the
completion of the merger and before normal retirement because of the
failure to appoint or elect Mr. Rowe to the management or Exelon board
of director positions described above.
Change in Control Under Unicom Employee Plans and Severance Arrangements
Unicom has entered into an employment agreement with Mr. Rowe and change in
control agreements with 10 other senior executive officers and has also
established the Key Management Severance Plan covering other eligible executive
officers and key employees. These agreements, and the Key Management Severance
Plan, provide severance payments and benefits in the event of termination of
these executives for reasons other than cause, or in the event of their
resignation for good reason, within 24 months following a change in control of
Unicom.
Approval of the merger by Unicom shareholders will constitute a change in
control of Unicom for purposes of the agreements and Key Management Severance
Plan. Mr. Rowe's amended employment agreement described above will replace his
current employment agreement at the completion of the merger.
58
<PAGE>
Thus, if the merger is completed and his employment is later terminated, Mr.
Rowe will not be entitled to payments and benefits provided under his current
employment agreement and will be entitled to payments and benefits only under
his amended employment agreement.
The severance payments and benefits provided under the agreements and Key
Management Severance Plan include:
. A lump sum severance payment equal to either three, two or one and one-
half, depending on the executive's position with Unicom, multiplied by
the sum of:
. the executive's annual base salary, plus
. an amount equal to the average of the annual incentive awards paid to
the executive for the two years preceding the year of termination or,
if greater, the target award under the annual incentive award program
in which the executive participates for the year in which termination
occurs or, for Mr. Rowe, a benefit calculated based on a formula
incentive award amount as defined in his agreement.
. A prorated annual incentive award for the year in which termination
occurs.
. Continuation of life, disability, accident, health and other welfare
benefit coverage. For each executive, the benefits will continue for a
number of years equal to the multiple of base salary and annual
incentive award (i.e., three, two or one and one-half) applicable to
that executive's severance payment described above.
. Outplacement services.
. All of a terminated executive's exercisable options would remain
exercisable until the applicable option expiration date, and all
unvested options would become fully exercisable and remain so until the
applicable option expiration date.
. Any deferred stock units, restricted stock, or restricted share units
would become fully vested and any other long-term incentive plan award
which is unvested would vest.
. For purposes of determining benefits under the supplemental retirement
plan or arrangement, if any, in which the executive participates, the
executive will be credited with additional years of credited service,
age and compensation. The additional years will be equal to the multiple
of base salary and annual incentive award (i.e., three, two or one and
one-half) applicable to that executive's severance payment described
above.
. For purposes of determining eligibility for retiree welfare benefits,
the executive will be deemed to have additional years of service and
age. The additional years will be equal to the multiple of base salary
and annual incentive award applicable to that executive's severance
payment described above.
. All compensation earned through the date of termination as well as all
coverage and benefits under all benefit plans to which the executive is
entitled.
Pursuant to the terms of offers of employment or employment agreements,
certain executives are also entitled to additional service credits for purposes
of retiree health care eligibility and for determining benefits under the
supplemental retirement plan or arrangement in which they participate.
In connection with the severance benefits described above, a participating
executive does not have a duty to mitigate the amounts due from the company.
However, continued welfare benefit coverage would be offset during the
applicable continuation period by comparable coverage provided under welfare
plans of another employer.
59
<PAGE>
Officers will receive an additional payment to cover excise taxes imposed
under Section 4999 of the Internal Revenue Code on "excess parachute payments"
or under similar state or local law if the after-tax amount of payments and
benefits subject to these taxes exceeds 110% of the "safe harbor" amount that
would not subject the executive to these excise taxes. If the after-tax amount,
however, is less than 110% of the safe harbor amount, payments and benefits
subject to these taxes would be reduced or eliminated to equal the safe harbor
amount. Benefits payable to other executives subject to the excise taxes
imposed under Section 4999 of the Code will be reduced to the executive's safe
harbor amount.
Stock options and certain shares of restricted stock granted to eligible
executives, including executive officers, under the Unicom Corporation Long-
Term Incentive Plan contain provisions relating to change in control.
Outstanding options granted prior to July 22, 1998 provide that on the
occurrence of a change in control such options become fully exercisable. Most
of these options will have, in any event, become fully exercisable through the
passage of time by January 1, 2001. Options granted under the Long-Term
Incentive Plan on or after July 22, 1998 provide that if within 24 months
following a change in control the optionee's employment is terminated other
than for cause, or the optionee resigns for good reason, the optionee's options
would become fully exercisable. Grants of approximately 55,000 shares of
restricted stock made under the Long-Term Incentive Plan to certain executive
officers provide that upon the occurrence of a change in control restrictions
on such shares will lapse. Approval of the merger by Unicom shareholders will
constitute a change in control for purposes of these provisions.
Unicom estimates that, if all executives, including executive officers,
covered under the agreements and plans described above, were terminated
immediately after the consummation of the merger, based on currently effective
compensation levels, valuation factors, interest rates and a Unicom common
stock price of $43.75, the aggregate after-tax cost of additional benefits
payable to executive officers under the plans and agreements as a result of the
merger and subsequent termination would be approximately $110.5 million.
Treatment of Unicom Employee Stock Options
Under the merger agreement, options to purchase Unicom common stock that
have been awarded to officers and employees of Unicom will be modified to take
the merger transaction into account. The merger agreement calls for these
options to be converted into options for Exelon common stock. The number of
shares into which the options are exercisable, and the option price, will be
adjusted as if the exchange ratio for Unicom common stock were 0.95, instead of
the 0.875 applicable to the exchange of outstanding shares, and the $3.00 per
share cash consideration will be disregarded. This adjustment is intended to
give the holders of options value substantially equivalent to that received by
holders of outstanding shares in the merger. As a result of this method of
adjusting outstanding options, holders of options will be affected to a greater
degree by increases or decreases in the market price of PECO Energy or Exelon
shares than they would be if the options were adjusted only by a conversion
factor of 0.875 and the option holders received $3.00 per share in cash.
Stock Options and Related Benefits Issued by Exelon
Exelon will assume and continue the amended and restated 1989 Long Term
Incentive Plan of PECO Energy, effective as of the date of the merger, and
succeed to all of PECO Energy's rights, powers and obligations under the plan.
Under this plan, Exelon will be able to award performance-based grants to key
employees of Exelon and its subsidiaries, including key employees who are
officers or members of the Exelon board of directors. Members of the board of
directors who are not employees will not be eligible to participate in the
plan. Awards may be made under the plan in the form of incentive stock options,
nonqualified stock options, restricted stock, stock appreciation rights,
performance units, performance shares, phantom stock and dividend equivalents.
The business criteria to be used for purposes of establishing performance
goals, the attainment of which may be used to determine the amount and/or
vesting of grants under the plan, will be
60
<PAGE>
selected from among the following alternatives, each of which may be based on
absolute standards or peer industry group corporations and may be applied at
various organizational levels (e.g., corporate, business unit, division).
1. Total shareholder return 11. Earnings per share
2. Stock price increase 12. Revenue
3. Dividend payout as percentage 13. Workforce diversity
of net income 14. Safety
4. Return on equity 15. Personal performance
5. Return on capital 16. Productivity measures
6. Cash flow, including operating 17. Diversification of business
cash flows, free cash flow, opportunities
discounted cash flow, return 18. Price to earnings ratio
on investment, and cash flow 19. Expense ratios
in excess of cost of capital 20. Total expenditures
7. Economic value added 21. Completion of key projects
8. Cost per kilowatt hour
9. Market share
10. Customer/employee
satisfaction as measured by
survey instruments
The aggregate number of shares of common stock of PECO Energy that may be
issued or transferred under the plan as approved by shareholders of PECO Energy
in 1997 was 16 million shares. By virtue of its assumption of the plan by
Exelon upon the merger, it is anticipated that approximately 10.8 million
shares of Exelon common stock will remain available to be issued or transferred
under the plan following the merger. Following the merger, during a single
calendar year, no individual may be granted options or other grants based on
the fair market value of Exelon common stock that, in the aggregate, would
require delivery of more than 500,000 shares of Exelon common stock or other
assets with an equivalent fair market value. With respect to grants the value
of which is not based on the fair market value of common stock, no individual
may receive during any calendar year cash or shares of Exelon common stock with
a fair market value, in the aggregate, exceeding $2 million. The aggregate
share and individual limits may be adjusted under the plan to reflect stock
splits and other changes that may affect Exelon common stock.
The amended and restated plan was approved by the shareholders of PECO
Energy in 1997 such that applicable awards under the plan to a "covered
employee" within the meaning of Section 162(m) of the Code would constitute
qualified performance-based compensation eligible to be deducted for federal
income tax purposes without regard to the limits of Section 162(m) of the Code.
Based on applicable interpretations, when the plan is assumed by Exelon
following the merger, it is expected to be considered to have received
shareholder approval for purposes of Section 162(m), and PECO Energy and Unicom
do not believe additional shareholder approval is required. Accordingly,
neither PECO Energy nor Unicom is seeking in this prospectus/proxy statement a
vote of shareholders with respect to the plan. Because the plan will be assumed
by Exelon upon the completion of the merger, a vote in favor of the merger will
have the effect of approving the plan and the continued operation of the plan
by Exelon.
Indemnification and Insurance
Under the merger agreement and subject to certain limitations, Exelon has
agreed that it will assume the same obligations with respect to indemnification
of current and former directors and officers of PECO Energy or Unicom as were
contained in the articles of incorporation or certificate of incorporation or
by-laws of PECO Energy or Unicom and any indemnification or other agreements at
the date of signing the merger agreement. In addition, Exelon will maintain,
with certain limitations, the directors' and officers' liability insurance
policies currently maintained by PECO Energy and Unicom, or substantially
comparable policies as in effect upon the completion of the merger for a period
of six years following the completion of the merger.
61
<PAGE>
Form of the Merger; Merger Consideration; Conversion of Shares
The merger involves two transactions, a first step share exchange between
PECO Energy and its wholly owned subsidiary Exelon, after which PECO Energy
will be a wholly owned subsidiary of Exelon, and a second step merger of Unicom
into Exelon.
Subject to the terms and conditions of the merger agreement and in
accordance with Pennsylvania law, at the completion of the first step exchange,
each share of PECO Energy common stock (other than shares owned by PECO Energy,
which will be automatically canceled) will automatically be converted into the
right to receive one share of Exelon common stock.
At the completion of the second step merger, which will occur immediately
after the completion of the first step exchange, subject to the terms and
conditions of the merger agreement and in accordance with Illinois law and
Pennsylvania law, Unicom will be merged with and into Exelon, and each share of
Unicom common stock (other than shares owned by Unicom or Exelon, which will be
automatically canceled), will automatically be converted into the right to
receive 0.875 shares of Exelon common stock and $3.00 in cash.
Upon completion of the first step exchange and the second step merger, PECO
Energy and ComEd will be wholly owned subsidiaries of Exelon. Unicom's separate
corporate existence will end upon completion of the second step merger and its
subsidiaries, including ComEd, will be subsidiaries of Exelon.
Based upon the number of shares of PECO Energy common stock and Unicom
common stock outstanding on May 12, 2000, and assuming the pre-closing share
repurchases by PECO Energy and Unicom contemplated by the merger agreement are
completed, upon completion of the merger approximately 54% of Exelon common
stock will be owned by former PECO Energy shareholders and approximately 46% of
Exelon common stock will be owned by former Unicom shareholders.
Procedures for Exchange of Certificates; Fractional Shares
Promptly after completion of the merger, an exchange agent selected by PECO
Energy and Unicom will mail the following materials to each shareholder of
record of PECO Energy common stock or Unicom common stock:
. a letter of transmittal for use in submitting these shares to the
exchange agent for exchange, and
. instructions explaining what the shareholder must do to effect the
surrender of PECO Energy certificates or Unicom certificates in exchange
for the merger consideration.
Shareholders should not return stock certificates with the enclosed proxy
card.
After the merger, each certificate that previously represented shares of
PECO Energy or Unicom common stock will represent only the right to receive the
merger consideration.
Holders of certificates previously representing PECO Energy or Unicom common
stock will not be paid dividends or distributions on the Exelon common stock
into which their stock has been converted with a record date after the merger,
and will not be paid cash for any fractional shares of Exelon common stock,
until their certificates are surrendered to the exchange agent for exchange.
When their certificates are surrendered, any unpaid dividends and any cash
instead of fractional shares will be paid without interest.
In the event of a transfer of ownership of PECO Energy common stock or
Unicom common stock which is not registered in the records of the transfer
agent of PECO Energy or Unicom, a certificate representing the proper number of
shares of Exelon common stock may be issued to a person other than the person
in whose name the surrendered certificate is registered if:
. the certificate is properly endorsed or otherwise is in proper form for
transfer, and
. the person requesting payment and issuance will:
62
<PAGE>
. pay any transfer or other taxes resulting from the issuance of shares
of Exelon common stock to a person other than the registered holder of
the certificate, or
. establish to the satisfaction of Exelon that any taxes have been paid
or are not applicable.
All cash paid and shares of Exelon common stock issued upon surrender of
certificates representing shares of PECO Energy common stock or Unicom common
stock, including any cash paid instead of any fractional shares of Exelon
common stock, will be deemed to have been issued and paid in full satisfaction
of all rights relating to those shares of PECO Energy common stock or Unicom
common stock, as the case may be. Exelon will remain obligated, however, to pay
or provide for the rights of dissenting Unicom shareholders and to pay any
dividends or make any other distributions declared or made by PECO Energy or
Unicom in accordance with the merger agreement on shares of PECO Energy common
stock or Unicom common stock with a record date before the completion of the
merger and which remain unpaid at the completion of the merger. If certificates
are presented to Exelon or the exchange agent after the completion of the
merger, they will be canceled and exchanged as described above.
Unless Unicom and PECO Energy agree prior to the completion of the merger to
establish a direct share registration program for Exelon common stock, no
fractional shares of Exelon common stock will be issued upon the conversion of
Unicom common stock and shares of Exelon common stock representing fractional
share interests will be sold on the New York Stock Exchange after the
completion of the second step merger and the cash from these sales (less
transfer taxes) will be allocated pro rata among those holders with fractional
share interests. If Unicom and PECO Energy agree to establish a direct share
registration program for Exelon common stock, Unicom shareholders would receive
a book entry credit for fractional shares of Exelon common stock instead of
receiving cash as described in the previous sentence. Exelon will not in any
event issue certificates or scrip for fractional shares.
PECO Energy common stock will be converted into Exelon common stock at the
rate of one share of Exelon common stock for each share of PECO Energy common
stock, and therefore no fractional shares will result from the first step
exchange.
Effective Time of the Merger
The effective time of the first step exchange will be the time of the filing
of the articles of exchange with the Pennsylvania Department of State or at a
later time agreed to by Exelon and PECO Energy and specified in the articles of
exchange. The effective time of the second step merger will be the time when
the Illinois articles of merger are filed with the Illinois Secretary of State
and the Illinois Secretary of State has issued a certificate of merger for the
second step merger or at a later time agreed to by Exelon and Unicom pursuant
to applicable law.
Listing of Exelon Capital Stock
It is a condition to the completion of the merger that Exelon common stock
issuable to PECO Energy and Unicom shareholders pursuant to the merger
agreement and under certain PECO Energy and Unicom stock plans be approved for
listing on the New York Stock Exchange, subject to official notice of issuance.
Dividends
PECO Energy currently pays annual dividends on PECO Energy common stock of
$1.00 per share, and Unicom currently pays annual dividends on Unicom common
stock of $1.60 per share. We expect that, after the merger, Exelon will pay
annual dividends of $1.69 per share. The payment of dividends by PECO Energy,
Unicom and Exelon, however, is subject to approval and declaration by their
respective boards of directors and will depend on a variety of factors,
including business conditions and financial condition, earnings and cash
requirements.
63
<PAGE>
Material United States Federal Income Tax Consequences of the Merger
The following summary discusses the material U.S. federal income tax
consequences to PECO Energy and Unicom shareholders of the merger. This
discussion is based upon the United States Internal Revenue Code of 1986,
Treasury regulations, administrative rulings and judicial decisions currently
in effect, all of which are subject to change, possibly with retroactive
effect. The discussion assumes that PECO Energy shareholders hold their PECO
Energy common stock and will hold their Exelon common stock, and that Unicom
shareholders hold their Unicom common stock and will hold their Exelon common
stock, as a capital asset within the meaning of Section 1221 of the Internal
Revenue Code. Further, the discussion does not address all aspects of U.S.
federal income taxation that may be relevant to a particular shareholder in
light of his, her or its personal investment circumstances or to shareholders
subject to special treatment under the U.S. federal income tax laws, including:
. insurance companies,
. tax-exempt organizations,
. dealers in securities or foreign currency,
. banks or trusts,
. persons that hold their PECO Energy common stock or Unicom common stock
as part of a straddle, a hedge against currency risk, a constructive
sale or conversion transaction,
. persons that have a functional currency other than the U.S. dollar,
. investors in pass-through entities,
. shareholders who acquired their PECO Energy common stock or Unicom
common stock through the exercise of options or otherwise as
compensation or through a tax-qualified retirement plan, or
. holders of options granted under any PECO Energy or Unicom benefit plan.
. Furthermore, this discussion does not consider the potential effects of
any state, local or foreign tax laws.
None of PECO Energy, Unicom or Exelon has requested a ruling from the United
States Internal Revenue Service with respect to any of the U.S. federal income
tax consequences of the merger and, as a result, there can be no assurance that
the Internal Revenue Service will not disagree with or challenge any of the
conclusions described below.
Holders of PECO Energy common stock and Unicom common stock are urged to
consult their own tax advisors regarding the specific tax consequences to them
of the merger, including the applicability and effect of federal, state, local
and foreign income and other tax laws in their particular circumstances.
For purposes of this discussion, "U.S. Holder" means:
. an individual citizen or resident of the United States,
. a corporation or other entity taxable as a corporation created or
organized under the laws of the United States or any of its political
subdivisions,
. a trust if a U.S. court is able to exercise primary supervision over the
administration of the trust and one or more U.S. fiduciaries have the
authority to control all substantial decisions of the trust, or
. an estate that is subject to U.S. federal income tax on its income
regardless of its source.
Cravath, Swaine & Moore, counsel to PECO Energy, has delivered its opinion
to PECO Energy as to the U.S. federal income tax consequences to PECO Energy
shareholders of the merger. Jones, Day, Reavis & Pogue, counsel to Unicom, has
delivered its opinion to Unicom as to the U.S. federal income tax consequences
64
<PAGE>
to Unicom shareholders of the second step merger. The Cravath tax opinion and
the Jones, Day tax opinion are subject to qualifications and are based on
currently applicable law, certain factual representations made by PECO Energy,
Unicom and Exelon and certain assumptions. Any change in currently applicable
law, which may or may not be retroactive, or failure of any of the factual
representations or assumptions to be true, correct and complete in all material
respects, could affect the continuing validity of the Cravath tax opinion and
the Jones, Day tax opinion. The Cravath tax opinion and the Jones, Day tax
opinion are attached as Exhibits 8.1 and 8.2 to the registration statement, on
Form S-4, filed with the Securities and Exchange Commission, which includes
this proxy statement/prospectus. PECO Energy and Unicom shareholders should
read the Cravath tax opinion and the Jones, Day tax opinion in their entirety.
The conclusions reached in the Cravath tax opinion with respect to the
merger are:
. The merger will be treated as a transaction described in Section 351 of
the Internal Revenue Code.
. No gain or loss will be recognized by U.S. Holders of PECO Energy common
stock on the exchange of their PECO Energy common stock for Exelon
common stock.
. The aggregate adjusted tax basis of the Exelon common stock received in
the merger by a U.S. Holder of PECO Energy common stock will be equal to
the aggregate adjusted tax basis of the U.S. Holder's PECO Energy common
stock exchanged for that Exelon common stock.
. The holding period of Exelon common stock received in the merger by a
U.S. Holder of PECO Energy common stock will include the holding period
of the U.S. Holder's PECO Energy common stock exchanged for that Exelon
common stock.
. While the matter is not free from doubt, and there is no directly
authoritative precedent, it is more likely than not that the pre-closing
share repurchases by PECO Energy referred to in the merger agreement
will be independent of and will not be integrated with the merger.
. The Internal Revenue Service, however, may not agree with the conclusion
that the pre-closing share repurchases by PECO Energy referred to in the
merger agreement are independent of the merger and, therefore, should
not be integrated with the merger. If the Internal Revenue Service were
successful in asserting this contrary view, this would not be likely to
have a material effect on U.S. Holders of PECO Energy common stock. The
U.S. federal income tax treatment of amounts received with respect to
the share repurchases by PECO Energy referred to in the merger agreement
by a U.S. Holder of PECO Energy common stock who is not described in the
next sentence should not change. However, in unusual circumstances,
involving a U.S. Holder of PECO Energy common stock who is also a
substantial holder of Unicom common stock immediately prior to the
merger, the amounts received by such U.S. Holder with respect to the
share repurchases by PECO Energy referred to in the merger agreement
that would otherwise have been taxed as capital gain or loss could be
taxed as a dividend.
The conclusions reached in the Jones, Day tax opinion are:
. The second step merger will be treated as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code.
. Exelon and Unicom will each be a party to that reorganization within the
meaning of Section 368(b) of the Internal Revenue Code.
. A U.S. Holder of Unicom common stock who exchanges that common stock for
both cash consideration (including any cash received instead of a
fractional share of Exelon common stock) and Exelon common stock
pursuant to the second step merger will realize gain or loss with
respect to the Unicom common stock surrendered in an amount equal to the
difference between (1) the sum of the cash and the fair market value of
the Exelon common stock received and (2) the U.S. Holder's aggregate
adjusted tax basis in the Unicom common stock surrendered. The U.S.
Holder's gain, if any, will be recognized, however, only to the extent
of the amount of cash consideration received. Any loss will not be
recognized.
65
<PAGE>
. While the matter is not free from doubt, and there is no directly
authoritative precedent, it is more likely than not that the pre-closing
share repurchases by Unicom and PECO Energy referred to in the merger
agreement will be independent of and will not be integrated with the
second step merger for purposes of determining the character of any gain
recognized by a U.S. Holder of Unicom common stock. It is therefore more
likely than not that any gain recognized by a U.S. Holder who receives
both cash and Exelon common stock pursuant to the second step merger
will be treated as capital gain except as described below. Any capital
gain recognized will be long-term capital gain if the U.S. Holder's
holding period for the Unicom common stock surrendered exceeds one year
and, with respect to certain non-corporate U.S. Holders, will be
eligible for a maximum U.S. federal income tax rate of 20%. There are,
however, circumstances in which all or part of the gain recognized by a
U.S. Holder, other than gain recognized with respect to cash received
instead of fractional shares of Exelon common stock, might be treated as
a dividend rather than capital gain. Those circumstances involve U.S.
Holders who would have owned, either directly or constructively under
the applicable attribution rules of the Internal Revenue Code, 1% or
more of the Exelon common stock if they had exchanged all of their
Unicom common stock solely for Exelon common stock or who exercise
control over Exelon corporate affairs. In that case, the amount of gain
recognized by the U.S. Holder could be taxable as ordinary dividend
income to the extent of the U.S. Holder's ratable share of the
accumulated earnings and profits of Unicom and thereafter would be
treated as capital gain.
. The Internal Revenue Service, however, may not agree with the
conclusions that the pre-closing share repurchases by Unicom and PECO
Energy referred to in the merger agreement are independent of the second
step merger and, therefore, should not be integrated with the second
step merger for purposes of determining the character of any gain
recognized by a U.S. Holder of Unicom common stock. If the Internal
Revenue Service were successful in asserting this contrary view, any
gain recognized by a U.S. Holder who receives both cash and Exelon
common stock pursuant to the second step merger, other than gain
recognized with respect to cash received instead of fractional shares of
Exelon common stock, would be treated as a dividend rather than capital
gain, to the extent of the U.S. Holder's ratable share of the
accumulated earnings and profits of Unicom, except as described below.
Any gain recognized by that U.S. Holder as a result of the second step
merger could still be treated as capital gain if the U.S. Holder had
effected other sales or dispositions of Unicom common stock prior to the
second step merger or of Exelon common stock subsequent to the second
step merger, in each case, as part of an overall plan to reduce or
terminate the holder's proportionate ownership interest in Exelon, and
the other sales or dispositions of Unicom or Exelon common stock could,
for federal income tax purposes, be integrated with the U.S. Holder's
exchange of Unicom common stock pursuant to the second step merger.
Moreover, amounts received by a U.S. Holder of Unicom common stock with
respect to the share repurchases by Unicom should be taxed as capital
gain or loss, and not as a dividend. In unusual circumstances, however,
involving U.S. Holders of Unicom common stock who sell a relatively
small portion of their holdings, amounts received by a U.S. Holder with
respect to the Unicom share repurchases could be taxed as a dividend if
it could be determined that the holder's shares had been purchased by
Unicom. Because all of the share repurchases are being undertaken in the
open market in transactions effected through a broker in which Unicom
will not know the identity of any particular seller of Unicom common
stock and any seller of Unicom common stock will not know that Unicom is
the purchaser of that stock, it is unlikely that those unusual
circumstances could arise.
. The aggregate adjusted tax basis of the Exelon common stock (including
any fractional interest for which cash is received) received by a U.S.
Holder of Unicom common stock in the second step merger will be equal to
the U.S. Holder's aggregate adjusted tax basis in the Unicom common
stock exchanged for that Exelon common stock, decreased by the amount of
cash consideration received by the U.S. Holder and increased by the
amount of gain, if any, recognized by the U.S. Holder (including any
gain treated as a dividend).
. The holding period of the Exelon common stock received by a U.S. Holder
of Unicom common stock pursuant to the second step merger will include
the holding period of the U.S. Holder's Unicom common stock exchanged
for that Exelon common stock.
66
<PAGE>
. A U.S. Holder of Unicom common stock who exercises Illinois dissenters'
rights with respect to the second step merger and receives solely cash
in respect of dissenting shares of Unicom common stock will generally
recognize capital gain or loss in an amount equal to the difference
between the amount of cash received and the U.S. Holder's aggregate
adjusted tax basis in the dissenting shares of Unicom common stock. Any
capital gain or loss recognized will be long-term capital gain or loss
if the U.S. Holder's holding period for the dissenting shares of Unicom
common stock surrendered exceeds one year, and, with respect to certain
non-corporate U.S. Holders, will be eligible for a maximum U.S. federal
income tax rate of 20%.
U.S. Holders of Unicom common stock should consult their own tax advisors
regarding the character of any gain recognized in the second step merger
because the application of capital gain or dividend treatment depends on each
U.S. Holder's particular circumstances, including the application of certain
constructive ownership rules.
Certain non-corporate Unicom shareholders may be subject to backup
withholding at a 31% rate on cash payments received in connection with the
merger (including cash paid instead of fractional shares of Exelon common
stock) or in respect of dissenting shares of Unicom common stock. Backup
withholding will not apply, however, to a Unicom shareholder who or that (1)
furnishes a correct taxpayer identification number and certifies that he, she
or it is not subject to backup withholding on the substitute Internal Revenue
Service Form W-9 or successor form included in the letter of transmittal to be
delivered to Unicom shareholders following the date of the merger, (2) provides
a certification of foreign status on Internal Revenue Service Form W-8 or
successor form or (3) is otherwise exempt from backup withholding.
Accounting Treatment
The merger is expected to be accounted for using purchase accounting with
PECO Energy being deemed to have acquired Unicom.
Dissenters' Rights
PECO Energy Shareholders
Under Pennsylvania corporate law, PECO Energy shareholders have no
dissenters' rights in the merger because PECO Energy common stock is listed on
a national securities exchange and is being exchanged solely for Exelon common
stock.
Unicom Shareholders
Illinois law provides that if you hold Unicom common stock and do not wish
to accept the merger consideration, then Sections 11.65 and 11.70 of the
Illinois Business Corporation Act, copies of which are attached as Annex E to
this proxy statement/prospectus, provide you with an alternative. Under these
sections, you may object to the merger and may demand payment from Exelon for
the fair value of your shares. Set forth below is a summary of the procedures
relating to the exercise of your rights as a dissenter to the merger.
This summary does not purport to be a complete statement of your dissenters'
rights and is qualified in its entirety by reference to Sections 11.65 and
11.70 of the Illinois Business Corporation Act which are set forth in Annex E
to this proxy statement/prospectus and to any amendments to such provisions as
may be adopted after the date of this joint proxy statement/prospectus. If you
wish to exercise your rights to dissent from the merger you should carefully
review Annex E and seek advice of legal counsel.
Illinois Dissenters' Rights Procedures
In order to perfect your Illinois dissenters' rights, you must do the
following:
. deliver to Unicom at the office of the Corporate Secretary, 10 South
Dearborn Street, Chicago, Illinois 60603, prior to the taking of the
vote of the shareholders upon the approval of the merger agreement a
written demand for payment for your shares if the merger agreement is
approved, and
67
<PAGE>
. you must not vote your shares in favor of the merger agreement.
In perfecting your right to dissent, neither a vote against the merger
agreement nor a proxy directing a vote against the merger agreement will be
deemed to satisfy the requirement that a written demand for payment be
delivered to Unicom prior to the taking of the vote. However, if you have
delivered the written demand before the taking of the vote, you will not be
deemed to have waived your right to dissent either by failing to vote against
the merger agreement or by failing to furnish a proxy directing a vote against
the merger agreement.
Payment of Fair Value by Exelon
Within ten days after the completion of the merger or 30 days after delivery
of the written demand for payment, whichever is later, Exelon will advise you,
if you dissent to the merger, of Exelon's estimate of the fair value of your
shares (which will have been converted to Exelon common stock). At this time,
Exelon must elect to (1) make a commitment to purchase your shares at Exelon's
estimated fair value or (2) instruct you to sell your shares within ten days of
Exelon's election. Exelon may instruct you to sell your shares only if there is
a public market at which the shares may be readily sold. Such a market will
exist for the Exelon common stock because it will be listed on the New York
Stock Exchange immediately following the completion of the merger. If Exelon
elects to direct you to sell and you do not sell within that ten-day period,
you will be deemed to have sold your shares at the average closing price of the
Exelon common stock on the New York Stock Exchange during that ten-day period.
"Fair value" means the value of the shares immediately before the completion of
the merger excluding any appreciation or depreciation in anticipation of the
Unicom merger, unless exclusion would be inequitable.
If you have made a written demand for payment as described above you will
retain all other rights of a shareholder until those rights are canceled or
modified by the completion of the merger. At the completion of the merger,
Exelon will pay to you if you transmit to Exelon your stock certificates the
amount Exelon estimates to be the fair value of the shares, plus accrued
interest, less the amount of the proceeds of sale, or amount deemed to be
proceeds of sale, if Exelon has directed you to sell your shares as described
above. Any payment will be accompanied by a written explanation of how the
interest was calculated. Interest will accrue from the completion of the merger
to the date of payment at the average rate currently paid by Exelon on its
principal bank loans, or, if none, at a rate that is fair and equitable under
all the circumstances.
Dissenting Shareholders' Estimate of Fair Value
If you do not agree with Exelon's estimated fair value or the amount of
interest due, within 30 days after delivery of Exelon's statement of fair value
you must notify Exelon in writing of your estimate of the fair value of your
shares and the amount of interest due and demand payment of the difference
between your estimate of fair value and interest due and (1) the amount of
payment by Exelon or (2) the proceeds (or the amount deemed to be proceeds) of
the sale by you, which is applicable because of the option selected by Exelon,
as described above.
Appeal to Circuit Court
If, within 60 days after delivery to Exelon of your notification of
estimated fair value, Exelon and you have not agreed in writing on the fair
value of the shares and interest due, Exelon must either pay you the difference
in the estimated fair values, with interest, or file a petition in the circuit
court for the county in which Exelon has its registered office or principal
office, requesting the court to determine the fair value of the shares and
interest due. If the court determines that the fair value of the shares, plus
interest, exceeds the amount paid by Exelon or the proceeds of the sale of
shares, as the case may be, you will be entitled to judgment for the amount of
the excess. The court may also allow the costs of the proceeding, including
fees and expenses of counsel and experts, to be assessed against Exelon or
against you based on criteria set forth in the Illinois Business Corporation
Act.
68
<PAGE>
In connection with the merger, Exelon intends to reserve the right to elect
(1) to offer to pay to dissenting shareholders Exelon' original estimate of the
fair value of the shares and to pay any additional amount agreed upon by Exelon
and the shareholder or ordered by the court to be paid by Exelon to the
shareholder as provided in the Illinois Business Corporation Act, or (2) to
direct a dissenting shareholder to sell his or her shares and to pay only that
amount, if any, in excess of the proceeds of the sale (or the amount of
proceeds deemed to have been received) as may be agreed upon by Exelon and the
shareholder or ordered by the court to be paid by Exelon to the shareholder as
provided in the Illinois Business Corporation Act.
Workforce and Employee Benefit Matters
Continuation of Agreements
After completion of the merger, Exelon and its subsidiaries will honor and
perform in accordance with their terms any collective bargaining agreements of
PECO Energy, Unicom or their subsidiaries then in effect (subject to any
reserved right contained in any collective bargaining agreement to amend,
modify, suspend, revoke or terminate the agreement).
Employee Benefit Plans
Under the merger agreement, and subject to applicable law and collective
bargaining agreements, employee benefit plans and employment arrangements of
PECO Energy, Unicom and their subsidiaries will be treated in the following
manner:
. Each employee benefit plan and employment arrangement of PECO Energy,
Unicom and their subsidiaries with respect to the current and former
employees, officers or directors of PECO Energy and Unicom and their
respective subsidiaries will be maintained in effect by Exelon and its
subsidiaries until Exelon determines otherwise and shall be honored and
performed in accordance with its terms (subject to any reserved right
contained in the plan or arrangement to amend, modify, suspend, revoke
or terminate the plan or arrangement).
. Each employee benefit plan and employment arrangement of PECO Energy or
Unicom will be assumed, performed, sponsored and administered by Exelon
in the same manner and to the same extent that PECO Energy or Unicom, as
the case may be, would be required to perform, sponsor and administer
the plan or arrangement.
. Each participant in an employee benefit plan of PECO Energy, Unicom and
their subsidiaries will be credited for purposes of eligibility to
participate, vesting and eligibility to receive benefits under any
employee benefit plan of Exelon or its subsidiaries for service credited
for the corresponding purposes under the applicable plans of PECO
Energy, Unicom and their subsidiaries, except for benefit accrual
purposes and unless providing credit would result in a duplication of
benefits.
. Each medical, dental or health benefit plan of Exelon or its
subsidiaries will take into account for purposes of determining a
participant's deductibles and out-of-pocket limits, the expenses
previously incurred by the participant during the same year under any
other plan and will waive restrictions for pre-existing conditions not
applicable to the participant under the other plan in which the
participant participated prior to participation in that plan.
. Each cafeteria plan of Exelon or its subsidiaries under the Internal
Revenue Code will cause credits and debits in respect of any participant
to be transferred to and maintained in any corresponding plan in which
the participant may subsequently participate during the same year.
Workforce Reductions
Subject to applicable law and collective bargaining agreements, it is the
intention of PECO Energy and Unicom that following the merger:
. Any workforce reductions will be made on a fair and equitable basis, in
light of the circumstances and the objectives to be achieved, as
determined by Exelon, and without regard to whether the affected
69
<PAGE>
individuals were employed by PECO Energy, Unicom or their subsidiaries,
before the merger and with due consideration to work history, prior
experience and skills and Exelon's business needs.
. Any employee whose employment is terminated or whose job is eliminated
will be entitled to participate on a fair and equitable basis as
determined by Exelon in the job opportunity and placement programs
offered by Exelon or its subsidiaries.
Effect on Awards Outstanding Under Stock Plans
PECO Energy
Under the merger agreement, upon completion of the merger, Exelon will
assume each PECO Energy employee stock option plan and outstanding PECO Energy
employee stock option. Under the merger agreement, prior to the merger, PECO
Energy will adjust the terms of all outstanding PECO Energy employee stock
options to acquire shares of PECO Energy common stock to provide that the
options will constitute options to acquire, on the same terms and conditions
as under the PECO Energy employee stock option plan, the same number of shares
of Exelon common stock as the holder of the option would have received in the
merger had the holder exercised the option in full immediately prior to the
merger. The amount of the exercise price per share of Exelon common stock
under any option will be equal to the aggregate amount of the exercise price
for the shares of PECO Energy common stock subject to the PECO Energy option
divided by the total number of shares of Exelon common stock to be subject to
the option (rounded up to the nearest whole cent). As of April 30, 2000, the
number of shares of PECO Energy common stock reserved for issuance under such
plans was approximately 10.9 million.
Unicom
Under the merger agreement, upon completion of the merger, Exelon will
assume each Unicom employee stock option plan and outstanding Unicom employee
stock option. Under the merger agreement, prior to the merger, Unicom will
adjust the terms of all outstanding Unicom employee stock options to acquire
shares of Unicom common stock to provide that the options will constitute
options to acquire, on the same terms and conditions as under the Unicom
employee stock option, 0.95 shares of Exelon common stock for each share of
Unicom common stock subject to the option. The $3.00 per share cash
consideration to be received by Unicom shareholders will be disregarded in
making this adjustment which results in a slightly different exchange ratio
from that which is applicable to Unicom shareholders (see "--Interests of
Unicom Directors and Management in the Merger--Treatment of Unicom Employee
Stock Options"). The amount of the exercise price per share of Exelon common
stock under any option will be equal to the aggregate amount of the exercise
price for the shares of Unicom common stock subject to the Unicom option
divided by the total number of shares of Exelon common stock to be subject to
the option (rounded up to the nearest whole cent). As of May 12, 2000, the
number of shares of Unicom common stock reserved for issuance under such plan
was approximately 8.6 million.
Resale of Exelon Common Stock
Exelon common stock issued in the merger will not be subject to any
restrictions on transfer arising under the Securities Act of 1933, except for
shares issued to any PECO Energy or Unicom shareholder who is, or is expected
to be, an "affiliate" of PECO Energy or Unicom, as applicable, for purposes of
Rule 145 under the Securities Act. It is expected that these shareholders will
agree not to transfer any Exelon common stock received in the merger except
pursuant to an effective registration statement under the Securities Act or in
a transaction that is not required to be registered under the Securities Act.
The merger agreement requires each of PECO Energy and Unicom to use reasonable
efforts to cause its shareholders who are, or who are expected to be,
affiliates to enter into these agreements. This proxy statement/prospectus
does not cover resales of Exelon common stock received by any person upon
completion of the merger, and no person is authorized to make any use of this
proxy statement/prospectus in connection with any resale.
70
<PAGE>
REGULATORY MATTERS
General
A summary of the material regulatory requirements affecting the merger is
set forth below. Additional immaterial consents from or notifications to
governmental agencies may be necessary or appropriate in connection with the
merger.
While we believe that we will receive the requisite regulatory approvals and
clearances for the merger that are summarized below, there can be no assurance
as to the timing of these approvals and clearances or our ability to obtain
these approvals and clearances on satisfactory terms or otherwise. Consummation
of the merger is conditioned upon receipt of final orders from the various
federal and state commissions described below. There can be no assurance that
any of these approvals will be obtained or, if obtained, will not contain terms
or conditions that could reasonably be expected to have a material adverse
effect on Exelon and its prospective subsidiaries.
PECO and Unicom intend to pursue a restructuring of their corporate
organizations simultaneously with and after completion of the merger. This
restructuring will require additional regulatory approvals. See "The Merger--
Corporate Restructuring" in this Chapter I.
State Approvals
Pennsylvania Public Utility Commission
PECO Energy is subject to the jurisdiction of the Pennsylvania Public
Utility Commission. The issuance of a certificate of public convenience and
necessity is required in connection with the first step exchange and the second
step merger. The standard for approval is whether the transaction is necessary
and proper for the service, accommodation, convenience or safety of the public.
This standard has been applied by the Pennsylvania Public Utility Commission
(PaPUC) to require that applicants demonstrate that the transaction will
affirmatively promote the service, accommodation, convenience or safety of the
public in some substantial way. In addition, under provisions enacted as part
of Pennsylvania's electric and natural gas restructuring legislation, the PaPUC
must consider whether a proposed transaction is likely to result in
anticompetitive or discriminatory conduct, including the unlawful exercise of
market power, which would prevent retail electric or natural gas customers in
Pennsylvania from obtaining the benefits of a properly functioning and workable
competitive retail electric or natural gas market.
Illinois Commerce Commission
Under Illinois law, ComEd, as an electric utility, is required to file
notice with respect to the second step merger with the Illinois Commerce
Commission. The notice must be accompanied by certain information relating to
the second step merger. ComEd has filed the required notice. Formal approval by
the Illinois Commerce Commission of the second step merger is not required for
electric utilities.
Public Utility Holding Company Act
PECO Energy is currently a holding company exempt from most provisions of
the Public Utility Holding Company Act under Section 3(a)(2) of the Act
pursuant to Rule 2 of the Securities and Exchange Commission regulations
implementing the Act. Unicom is currently a holding company exempt from most
provisions of the Public Utility Holding Company Act under Section 3(a)(1)
pursuant to an order of the Securities and Exchange Commission. PECO Energy and
Unicom are required to obtain Securities and Exchange Commission approval under
Sections 9(a)(2) and 10 of the Public Utility Holding Company Act in connection
with the merger. Section 9(a)(2) requires an entity owning, directly or
indirectly, 5% or more of the outstanding voting securities of a public utility
company (as defined in the Public Utility Holding Company Act) to obtain the
approval of the Securities and Exchange Commission under Section 10 prior to
acquiring a direct or indirect interest in 5% or more of the voting securities
of any additional public utility company. Exelon will acquire in excess of 5%
71
<PAGE>
of the voting securities of each of PECO Energy and ComEd, both of which are
public utility companies within the meaning of the Public Utility Holding
Company Act, and therefore approval of the merger by the Securities and
Exchange Commission is required.
Under the applicable standards of the Public Utility Holding Company Act,
the Securities and Exchange Commission is directed to approve the merger unless
it finds that
. the merger would tend towards detrimental interlocking relations or a
detrimental concentration of control,
. the consideration to be paid in connection with the merger is not
reasonable,
. the merger would unduly complicate the capital structure of Exelon's
holding company system or would be detrimental to the proper functioning
of Exelon's holding company system or
. the merger would violate applicable state law.
To approve the merger, the Securities and Exchange Commission must also find
that the merger would tend towards the development of an economical and
efficient integrated public utility system.
Based on the most recent information available, following consummation of
the merger, PECO Energy and Unicom believe that Exelon would not qualify for an
exemption from registration under the Public Utility Holding Company Act and
would be required to register under Section 5 of the Act. In that event, Exelon
will become subject to the restrictions that the Public Utility Holding Company
Act imposes on registered holding company systems. Among these are requirements
that certain securities issuances as well as sales and acquisitions of utility
assets or of securities of utility companies and acquisitions of interests of
any other business be approved by the Securities and Exchange Commission. The
Public Utility Holding Company Act also limits the ability of registered
holding companies to engage in nonutility ventures and regulates any holding
company system service company and the rendering of services by holding company
affiliates to the system's utilities. Although pursuant to the Public Utility
Holding Company Act the Securities and Exchange Commission may require the
divestiture of any business of the combined company that is not energy-related
as a condition to approval of the merger, PECO Energy and Unicom believe that
all of their material non-utility activities after completion of the merger
will meet the requirements for retention by a registered holding company. In
conjunction with the registration of Exelon as a holding company under the
Public Utility Holding Company Act, the Securities and Exchange Commission will
review the question of whether the system can retain both gas and electric
utility operations. PECO Energy and Unicom do not believe that these
restrictions or requirements placed on Exelon as a result of becoming a
registered holding company will have any material adverse impact on Exelon's
business.
Nuclear Regulatory Commission
PECO Energy and ComEd each hold Nuclear Regulatory Commission operating
licenses for certain of their nuclear generating facilities. These licenses
authorize each of PECO Energy and Unicom to own and/or operate its nuclear
facilities. The Atomic Energy Act provides that a license may not be
transferred or in any manner disposed of, directly or indirectly, through
transfer of control of any license unless the Nuclear Regulatory Commission
finds that the transfer complies with the Atomic Energy Act and consents to the
transfer. Therefore, the consent of the Nuclear Regulatory Commission is
required for the transfer of control pursuant to the merger of the licenses
held by each of PECO Energy and ComEd.
Federal Energy Regulatory Commission
Section 203 of the Federal Power Act provides that no public utility may
sell or otherwise dispose of its jurisdictional facilities, directly or
indirectly merge or consolidate its facilities with those of any other person,
or acquire any security of any other public utility, without first having
obtained authorization from the Federal Energy Regulatory Commission. PECO
Energy and Unicom have filed an application seeking this approval of the
Federal Energy Regulatory Commission under Section 203.
72
<PAGE>
The Federal Energy Regulatory Commission has stated in its 1996 utility
merger policy statement that, in analyzing a merger under Section 203, it will
evaluate the following criteria:
. the effect of the merger on competition in wholesale electric power
markets, utilizing an initial screening approach derived from the
Department of Justice/Federal Trade Commission-Initial Merger Guidelines
to determine if a merger will result in an increase in an applicant's
market power,
. the effect of the merger on the applicants' Federal Energy Regulatory
Commission jurisdictional ratepayers, and
. the effect of the merger on state and federal regulation of the
applicants.
United States Antitrust
The Hart-Scott-Rodino Antitrust Improvements Act and the related rules and
regulations prohibit us from completing the merger until we submit required
information to the Antitrust Division of the Department of Justice and the
Federal Trade Commission and certain waiting period requirements have been
satisfied. The HSR Act provides for an initial 30 calendar day waiting period
following the filing with the Antitrust Division and the Federal Trade
Commission of certain Notification and Report Forms by the parties to the
merger agreement. The HSR Act further provides that, if, within the initial 30
calendar day waiting period, the Antitrust Division or the Federal Trade
Commission issues a request for additional information or documents, the
waiting period will be extended until the 20th day after the date of
substantial compliance by both filing parties with such request. Even after the
Hart-Scott-Rodino waiting period expires or terminates, the Antitrust Division
or the Federal Trade Commission may later challenge the merger on antitrust
grounds. We do not believe that the merger will violate federal antitrust laws.
Once the HSR waiting period expires or terminates, the parties have 12 months
to complete the merger. If the merger is not completed within 12 months, the
parties must make a new HSR filing with new waiting periods.
Status of Regulatory Approvals
As of the date of this proxy statement/prospectus, PECO Energy, Unicom,
ComEd and Exelon have made all required filings for approvals of the merger
with each of the regulatory authorities described above. Proceedings are
pending before each of these authorities.
As of the date of this proxy statement/prospectus:
. On March 23, 2000, PECO Energy reached a comprehensive settlement with
the various parties who had intervened in the proceeding before the
PaPUC. The comprehensive settlement agreement includes rate reductions
of $200 million for the period from January 2002 through December 2005,
extended rate caps, electric reliability and customer service standards
and mechanisms to enhance competition and customer choice. The
settlement is subject to the approval of the PaPUC.
. On April 12, 2000, the Federal Energy Regulatory Commission approved the
merger without condition and as proposed by the companies. Parties to
the proceeding may seek a rehearing prior to May 12, 2000.
. No further action by the Illinois Commerce Commission is required to
complete the merger.
. The waiting period under the HSR Act expired in April 2000.
While we cannot predict when all necessary regulatory approvals will be in
place, Exelon hopes to complete the merger in the second half of 2000.
73
<PAGE>
THE MERGER AGREEMENT
The following description summarizes the material provisions of the merger
agreement. You are urged to read carefully the merger agreement, which is
attached as Annex A to this proxy statement/prospectus.
Conditions to the Completion of the Merger
Each party's obligation to complete the merger is subject to the
satisfaction or waiver of various conditions, which include, in addition to
other customary closing conditions, the following:
. adoption of the merger agreement by holders of at least a majority of
the votes cast by all holders of PECO Energy common stock entitled to
vote, assuming that holders of at least a majority of all PECO Energy
common stock entitled to vote are present,
. approval of the merger agreement by holders of at least two-thirds of
the outstanding shares of Unicom common stock,
. approval for listing on the New York Stock Exchange of the shares of
Exelon common stock issuable to PECO Energy and Unicom shareholders in
the merger and under PECO Energy's and Unicom's stock plans, subject to
official notice of issuance,
. expiration or termination of the waiting period applicable to the merger
under the Hart-Scott- Rodino Antitrust Improvements Act,
. receipt of all approvals by the Federal Energy Regulatory Commission,
the Nuclear Regulatory Commission, the Securities and Exchange
Commission and the Pennsylvania Public Utility Commission,
. delivery of notice to the Illinois Commerce Commission,
. absence of any order or injunction of any court and absence of other
legal restraints or prohibitions that would prevent the completion of
the merger, but prior to asserting this condition, each of the parties
must have used all reasonable efforts to prevent the entry of an
injunction or order and to appeal it as promptly as possible,
. effectiveness under the Securities Act of the registration statement on
Form S-4, of which this proxy statement/prospectus forms a part, and the
registration statement must not be the subject of any stop order or
proceeding seeking a stop order, and receipt by Exelon of the
authorizations under state securities or "blue sky" laws to issue its
common stock pursuant to the merger, and
. receipt of the approval of each person whose approval is required in
order to consummate the merger and the transactions contemplated by the
merger, except for approvals which, if not obtained, could not
reasonably be expected to have a material adverse effect on Exelon and
its prospective subsidiaries taken as a whole or on the ability of PECO
Energy or Unicom to complete the merger and the transactions
contemplated by the merger.
In addition, each party's obligation to complete the merger is further
subject to the satisfaction or waiver of the following additional conditions:
. the representations and warranties of PECO Energy and Unicom set forth
in the merger agreement must be true and correct as of the date of the
original merger agreement and as of the date on which the merger is
completed as though made on that date, or, if the representations and
warranties expressly relate to an earlier date, then as of that date, in
each case, without giving effect to any materiality qualifiers in the
representation or warranty, other than for failures to be true and
correct that have not had and could not reasonably be expected to have a
material adverse effect on the party making the representation and
warranty,
. performance by PECO Energy and Unicom in all material respects of all
obligations required to be performed under the merger agreement on or
prior to the date on which the merger is completed,
74
<PAGE>
. receipt of letters from each person identified as an "affiliate" of
either PECO Energy or Unicom for purposes of Rule 145 under the
Securities Act,
. receipt by PECO Energy of a tax opinion of counsel to PECO Energy, dated
as of the date on which the merger is completed, and
. receipt by Unicom of an opinion of counsel to Unicom, dated as of the
date on which the merger is completed, to the effect that the second
step merger will constitute a tax-free reorganization.
The merger agreement provides that a "material adverse effect" means, when
used in respect of any person, a material adverse effect on
. the business, assets, condition (financial or otherwise), prospects or
results of operations of that person and its subsidiaries, taken as a
whole, or
. the ability of that person to perform its obligations under the merger
agreement or on the ability of that person to consummate the merger and
the other transactions contemplated by the merger agreement.
However, with respect to the representations and warranties by the parties as
to the absence of a material adverse effect as of the date of the original
merger agreement and as of the date the merger is completed, any events,
changes, effects and developments relating to the economy in general or to PECO
Energy's or Unicom's,industry in general, and not specifically relating to PECO
Energy or Unicom, are deemed not to cause a material adverse effect.
No Solicitation
In the merger agreement, each of PECO Energy and Unicom has agreed that it
will not, nor will it authorize or permit any of its subsidiaries or any
directors, officers, employees, agents or representatives of it or any of its
subsidiaries to, directly or indirectly:
. solicit, initiate, encourage or facilitate, or furnish or disclose non-
public information in furtherance of, any inquiries or the making of any
competing proposal involving it, as described below, or
. participate in any discussions or negotiations regarding any competing
proposal involving it.
The merger agreement provides that the term "competing proposal" means any
recapitalization, merger, consolidation or other business combination involving
either PECO Energy or Unicom, or acquisition of any material portion of the
capital stock or assets of PECO Energy or Unicom, except for acquisitions of
assets in the ordinary course and acquisitions permitted by the merger
agreement that do not and could not reasonably be expected to impede the
merger.
None of the board of directors of PECO Energy or Unicom or any committee
thereof will:
. withdraw or modify, or propose to withdraw or modify, in a manner
adverse to the other party, the approval or recommendation by that board
of directors or that committee of the merger and the merger agreement,
. approve, or permit or cause that party to enter into, any definitive
agreement providing for the implementation of any competing proposal
involving that party, or
. approve or recommend, or propose to approve or recommend, any competing
proposal involving that party.
However, the merger agreement provides that, prior to either party receiving
the approval of its shareholders of the merger agreement, PECO Energy or Unicom
may, only to the extent that its board of directors concludes in good faith,
based upon the advice of its outside counsel, that failure to do so could
reasonably be expected to constitute a breach of its fiduciary obligations,
participate in discussions or
75
<PAGE>
negotiations relating to, and furnish non-public information in connection
with, an unsolicited proposal for a competing transaction involving it that is:
. for cash or marketable securities only and not conditioned on financing,
. on terms which the party's board of directors determines to be superior
from a financial point of view and more favorable generally, and
. reasonably capable of being completed within 18 months of the
termination of the merger agreement or by March 31, 2001, whichever is
later.
The merger agreement also provides that each party will immediately advise
the other of the receipt of any inquiry regarding a competing proposal, and
promptly furnish to the other party a copy of the proposal or inquiry and if
the proposal or inquiry is not in writing, the identity of the person making
the proposal or inquiry.
Termination
The merger agreement may be terminated at any time prior to the completion
of the merger:
1. by mutual written consent of PECO Energy and Unicom,
2. by PECO Energy or Unicom, if the second step merger has not been
completed by March 31, 2001, unless the failure of the merger to be
completed by that date is the result of a breach of the merger agreement by
the party seeking to terminate,
3. by PECO Energy or Unicom, if a governmental entity issues any order
which has become final and nonappealable permanently enjoining, restraining
or otherwise prohibiting the merger,
4. by PECO Energy or Unicom, if any condition only to the obligation of
that party to complete the merger becomes incapable of satisfaction prior
to March 31, 2001, unless the failure of the condition to be met is the
result of a material breach of the merger agreement by the party seeking to
terminate,
5. by PECO Energy or Unicom, if the Unicom shareholders have not
approved the merger agreement at a Unicom shareholders meeting,
6. by PECO Energy or Unicom, if the PECO Energy shareholders have not
adopted the merger agreement at a PECO Energy shareholders meeting,
7. by PECO Energy or Unicom, if the other breaches or fails to perform
in any material respect any of its representations, warranties or covenants
contained in the merger agreement, which breach or failure to perform would
give rise to the failure of a closing condition relating to representations
or warranties or the performance of obligations and has not been or cannot
be cured within 30 days of notice of the breach,
8. by PECO Energy or Unicom, if the other party's board of directors or
any committee thereof withdraws or modifies, or publicly proposes to do so,
its approval or recommendation or approves or recommends, or proposes to do
so, any competing proposal, or otherwise breaches the covenant described in
"--No Solicitation" above in any material respect, or
9. by PECO Energy or Unicom, if prior to obtaining its shareholder
approval of the merger agreement:
. the party received an unsolicited superior proposal satisfying
the conditions described in "--No Solicitation" above,
. the board of directors of the party determines in good faith,
based upon the advice of outside counsel, that failure to take
action could reasonably be expected to constitute a breach of its
fiduciary obligations under applicable law and therefore it must
(a) withdraw or modify its approval or recommendation of the
merger agreement and the merger, (b) terminate the merger
agreement and (c) enter into a definitive agreement for the
competing proposal,
76
<PAGE>
. the party has complied with its covenants described in "--No
Solicitation" above,
. the party has paid in advance the required termination fee
described in "--Termination Fees; Reimbursement of Expenses"
below, and
. the board of directors of the party approves and the party enters
into an agreement providing for the implementation of the
superior proposal.
Termination Fees; Reimbursement of Expenses
PECO Energy
PECO Energy must pay to Unicom a termination fee of $250 million and
reimburse Unicom for its out-of-pocket expenses actually incurred in connection
with the merger agreement and the transactions contemplated by the merger
agreement up to a limit of $15 million, if any of the following occur:
. PECO Energy terminates the merger agreement as described above in
paragraph 9 under "--Termination" above,
. Unicom terminates the merger agreement as described above in paragraph 8
under "--Termination" above, or
. any competing proposal for PECO Energy has been proposed or publicly
disclosed and
. the merger agreement is terminated by (a) PECO Energy as described
above in paragraph 2 under "--Termination" above, (b) either PECO
Energy or Unicom as described above in paragraph 6 under "--
Termination" above or (c) Unicom as described above in paragraph 7
under "--Termination" above for a willful breach or failure to
perform, and
. within 18 months of termination PECO Energy enters into a definitive
agreement to consummate or consummates any competing proposal.
In addition, PECO Energy must reimburse Unicom (whether or not a termination
fee-triggering event occurs) for its out-of-pocket expenses actually incurred
in connection with the merger agreement and the transactions contemplated by
the merger agreement up to a limit of $15 million, if:
. either PECO Energy or Unicom terminates the merger agreement as
described above in paragraph 6 under "--Termination" above, or
. Unicom terminates the merger agreement as described above in paragraph 7
under "--Termination" above.
Unicom
Unicom must pay to PECO Energy a termination fee of $250 million and
reimburse PECO Energy for its out-of-pocket expenses actually incurred in
connection with the merger agreement and the transactions contemplated by the
merger agreement up to a limit of $15 million, if any of the following occur:
. Unicom terminates the merger agreement as described above in paragraph 9
under "--Termination" above,
. PECO Energy terminates the merger agreement as described above in
paragraph 8 under "--Termination" above, or
. any competing proposal for Unicom has been proposed or publicly
disclosed and
. the merger agreement is terminated by (a) Unicom as described above in
paragraph 2 under "--Termination" above, (b) either Unicom or PECO
Energy as described above in paragraph 6 under "--Termination" above,
or (c) PECO Energy as described above in paragraph 7 under "--
Termination" above for a willful breach or failure to perform, and
77
<PAGE>
. within 18 months of termination Unicom enters into a definitive
agreement to consummate or consummates any competing proposal.
In addition, Unicom must reimburse PECO Energy (whether or not a termination
fee-triggering event occurs) for its out-of-pocket expenses actually incurred
in connection with the merger agreement and the transactions contemplated by
the merger agreement up to a limit of $15 million, if:
. either PECO Energy or Unicom terminates the merger agreement as
described above in paragraph 6 under "--Termination" above, or
. PECO Energy terminates the merger agreement as described above in
paragraph 7 under "--Termination" above.
Conduct of Business Pending the Merger
Under the merger agreement, each of PECO Energy and Unicom has agreed that,
prior to the completion of the merger, it will, and will cause its subsidiaries
to, conduct its business in all material respects in the usual, regular and
ordinary course in substantially the same manner as previously conducted and
use all reasonable efforts to preserve intact its current business organization
in all material respects, subject to prudent management of workforce and
business needs, keep available the services of its current officers and key
employees and keep its relationships to the end that its goodwill and ongoing
business will be unimpaired in all material respects at the completion of the
merger. In addition, each of PECO Energy and Unicom has agreed that, subject to
certain exceptions, prior to the completion of the merger it and its
subsidiaries will not, without the prior written consent of the other party,
among other things:
Dividends
. declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than
dividends and distributions by a wholly owned subsidiary or regular
quarterly cash dividends in accordance with past dividend policy
Capital Stock
. split, combine or reclassify any of its capital stock or issue any other
securities in respect of shares of its capital stock or acquire any
shares of capital stock of it or its subsidiaries or any other of their
securities or any rights, warrants or options to acquire any of these
securities
. issue, deliver, sell or grant any shares of its capital stock, any other
voting securities or any securities convertible into, or any rights,
warrants or options to acquire, any of these securities, or any
"phantom" stock, "phantom" stock rights, stock appreciation rights or
stock-based performance units, other than pursuant to existing options
and plans
Amendments to Governing Documents
. amend its certificate of incorporation, by-laws or other comparable
charter or organizational documents
Acquisitions
. acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or portion of the assets of,
any business or any person
. acquire or agree to acquire any material assets, except PECO Energy or
its subsidiaries may acquire or otherwise invest in any assets, other
than nuclear plants, so long as PECO Energy consults with Unicom
concerning acquisitions or investments that involve an expenditure that,
individually, is in excess of $50 million, or in the aggregate during
this period, are in excess of $250 million
. in the case of PECO Energy only, acquire or agree to acquire any nuclear
plants (whether through AmerGen Energy Company LLC or otherwise) other
than those nuclear plants in respect of which
78
<PAGE>
PECO Energy or AmerGen has made written offers or has signed agreements as
of the date of the merger agreement unless PECO Energy involves Unicom for
the purpose of ensuring that an acquisition will be consistent with a rate
of nuclear generation acquisitions and growth that will not impair
Exelon's ability to provide and maintain adequate resources and
performance focus for the entire Exelon nuclear fleet and has obtained the
express written consent of Unicom, which consent shall not be unreasonably
withheld
Dispositions
. sell, lease, license or otherwise dispose of or subject to any lien any
material properties or assets, other than sales of inventory and excess
or obsolete assets in the ordinary course
Indebtedness
. except in the ordinary course of business consistent with prior practice
and other than in connection with a refinancing on commercially
reasonable terms
. incur any indebtedness for borrowed money or guarantee any
indebtedness of another person
. issue or sell any debt securities or warrants or other rights to
acquire any debt securities
. guarantee any debt securities of another person
. enter into any "keep well" or other agreement to maintain any
financial statement condition of another person or enter into any
arrangement having the economic effect of any of the foregoing
. make any loans, advances or capital contributions to, or investments
in, any other person
Capital Expenditures
. make or agree to make any new capital expenditures that, individually,
is in excess of $50 million or, in the aggregate, are in excess of $250
million, except to the extent made in order to ensure compliance with
the rules and regulations or an order of the Nuclear Regulatory
Commission or any other governmental entity or to ensure compliance with
the terms of any permit
Employee Matters
. except as required by law or contemplated by the terms of any benefit
plan, employment arrangement or collective bargaining agreement, enter
into, adopt or amend in any material respect or terminate any benefit
plan, employment arrangement or collective bargaining agreement
. except in the ordinary course of business consistent with past practice
or as contemplated in the merger agreement or by the terms of any
contract the existence of which does not violate the merger agreement,
increase the compensation or benefits of any current or former employee,
officer or director or pay any benefit or amount not required by a plan
or arrangement as in effect on the date of the merger agreement to any
such person
Taxes
. make any material tax election or settle or compromise any material tax
liability or refund
Accounting
. make any material change in accounting methods, principles or practices,
except as required by a change in generally accepted accounting
principles
Public Utility Holding Company Act
. engage in any activities which would cause a change in its status under
the Public Utility Holding Company Act, or that would impair its ability
to claim an exemption as of right under Rule 2 of the Securities and
Exchange Commission regulations implementing the Act, other than the
application to the Securities and Exchange Commission under the Act
contemplated by the merger agreement
79
<PAGE>
Power Purchase Agreements
. enter into or commit to any power purchase agreement which requires the
prior approval of the board of directors or a committee thereof of PECO
Energy
Other Actions
. authorize any of, or commit or agree to take any of, the foregoing
actions
PECO Energy Transition Bonds
Notwithstanding any of the foregoing, PECO Energy is not restricted from:
. issuing through PECO Energy Transition Trust, a subsidiary of PECO
Energy, or through any other special purpose entity which is a
subsidiary of PECO Energy, transition bonds in accordance with
Pennsylvania's electric and natural gas restructuring legislation in an
aggregate principal amount of up to $1,000,000,000,
. selling, in connection with the issuance of transition bonds, all or any
part of the property or rights necessary to secure the transition bonds,
and
. using the proceeds from the transition bonds to:
. repurchase of up to $500,000,000 of PECO Energy common stock as
contemplated by the merger agreement,
. repay outstanding debt of PECO Energy, or
. purchase PECO Energy preferred stock.
Other Agreements
Each of PECO Energy and Unicom has made certain additional agreements in the
merger agreement. The following summarizes the more significant of these
agreements:
Regulatory Approvals
PECO Energy and Unicom have agreed to use reasonable best efforts to obtain
all necessary consents of all governmental entities necessary or advisable to
complete the merger.
Workforce Matters; Stock Plans
PECO Energy and Unicom have made various agreements relating to workforce
matters, employee benefits and existing stock plans. See "The Merger--Workforce
and Employee Benefit Matters" and "The Merger--Effect on Awards Outstanding
Under Stock Plans" in this Chapter I.
Indemnification
Exelon has agreed to honor all of PECO Energy's and Unicom's obligations to
indemnify the current and former directors and officers of PECO Energy or
Unicom and to maintain their current directors' and officers' liability
insurance policies. See "The Merger--Indemnification and Insurance" in this
Chapter I.
Stock Exchange Listing
PECO Energy and Unicom have agreed to use all reasonable efforts to cause
the Exelon common stock to be issued in the merger and under the stock plans to
be approved for listing on the New York Stock Exchange.
80
<PAGE>
Rights Agreement
Unicom's board of directors has agreed to take all action requested by PECO
Energy in order to render Unicom's shareholder rights plan inapplicable to the
merger and the other transactions contemplated by the merger agreement.
Tax Treatment
Each of PECO Energy, Unicom and Exelon has agreed not to take any action
that would prevent, or would be reasonably likely to prevent, the merger or the
second step merger from constituting a tax-free transaction.
Reorganization and Amendment
PECO Energy and Unicom have agreed to negotiate in good faith and enter into
an amendment providing for necessary changes to the merger agreement if PECO
Energy decides to implement, prior to the completion of the merger, a
reorganization creating a holding company to hold PECO Energy's businesses.
Common Stock Repurchase
PECO Energy and Unicom have each agreed to use commercially reasonable best
efforts to repurchase specified amounts of their common stock prior to the
completion of the merger at prevailing market prices to the extent possible and
to consult on a regular basis and cooperate in connection with these
repurchases. Unicom intends to repurchase $1.0 billion of its common stock, and
PECO Energy intends to repurchase $500 million of its common stock. These
repurchases will be in addition to other repurchases permitted by the merger
agreement (other than repurchases described in the next paragraph). Neither
PECO Energy nor Unicom shall make these repurchases if they are reasonably
likely to result in the failure of PECO Energy and Unicom to receive the
required tax opinions or in the failure of the merger to be treated as a
purchase of Unicom by PECO Energy under generally accepted accounting
principles.
Prior to the completion of the merger, Unicom will purchase the minimum
number of shares of Unicom common stock necessary in order that, after giving
effect to the repurchases described in the previous paragraph, the merger and
the other transactions contemplated by the merger agreement are treated as a
purchase of Unicom by PECO Energy under generally accepted accounting
principles.
No Solicitation
PECO Energy and Unicom have agreed not to take action to solicit or
encourage an offer for an alternative acquisition transaction involving either
company of a nature defined in the merger agreement. See "--No Solicitation"
above.
Amendment; Extension and Waiver
Subject to applicable law:
. the merger agreement may be amended by the parties at any time before or
after the merger agreement has been adopted by the PECO Energy
shareholders or Unicom shareholders, except that after the merger
agreement has been adopted by PECO Energy shareholders or Unicom
shareholders, no amendment may be made that by law requires further
approval by PECO Energy shareholders or Unicom shareholders without
further approval of those shareholders, and
. at any time prior to the completion of the merger, a party may, by
written instrument signed on behalf of that party, extend the time for
performance of the obligations of any other party to the merger
agreement, waive inaccuracies in representations and warranties of any
other party contained in the merger agreement or in any related document
and except as provided in the previous paragraph, waive compliance by
any other party with any agreements or conditions in the merger
agreement.
81
<PAGE>
PECO Energy and Unicom will promptly notify their shareholders of any
amendment to the merger agreement or of any waiver of the merger agreement
through a press release and the filing of a Current Report on Form 8-K with the
Securities and Exchange Commission. In addition, in the case of a material
amendment or waiver prior to adoption of this agreement by the shareholders,
Exelon will file with the Securities and Exchange Commission a post-effective
amendment to the registration statement in which this joint proxy
statement/prospectus is included and PECO Energy and Unicom will distribute to
shareholders a copy of the amendment or waiver.
Expenses
Except as described in "--Termination Fees; Reimbursement of Expenses"
above, whether or not the merger is completed, all fees and expenses incurred
in connection with the merger and the other transactions contemplated by the
merger agreement will be paid by the party incurring the fees or expenses,
except that PECO Energy and Unicom will share equally the expenses incurred in
connection with filing, printing and mailing of this proxy statement/prospectus
and the registration statement of which it is a part.
Representations and Warranties
The merger agreement contains customary representations and warranties by
each of PECO Energy and Unicom relating to, among other things:
. corporate organization and similar corporate matters,
. subsidiaries and equity interests,
. capital structure,
. authorization, execution, delivery, performance and enforceability of
the merger agreement,
. required shareholder vote,
. satisfaction of certain state takeover statutes' requirements,
. amendment of its shareholder rights agreement (Unicom only),
. no conflicts relating to the merger agreement and the transactions
contemplated thereby,
. required consents, approvals, orders and authorizations of governmental
authorities relating to the merger agreement and the transactions
contemplated thereby,
. documents filed with the Securities and Exchange Commission, the
accuracy of information contained therein and the absence of undisclosed
liabilities,
. the accuracy of information supplied in connection with this proxy
statement/prospectus and the registration statement of which it is a
part,
. absence of material changes or events,
. filing of tax returns and payment of taxes,
. absence of changes in benefit plans,
. matters relating to the Employee Retirement Income Security Act of 1974
and excess parachute payments,
. pending or threatened material litigation,
. compliance with applicable laws,
. payment of fees of brokers, investment bankers and financial advisors,
82
<PAGE>
. receipt of fairness opinions from financial advisors,
. year 2000 matters,
. environmental matters,
. labor and employee relations matters,
. operations of nuclear power plants,
. ownership of shares of other party,
. regulation as a utility,
. certain contracts and no defaults,
. title to properties,
. intellectual property,
. hedging, and
. regulatory proceedings.
Exelon Articles of Incorporation
Upon the completion of the merger, the articles of incorporation of Exelon
will be the articles of incorporation of the surviving corporation. For a
summary of certain provisions of the Exelon articles of incorporation and the
associated rights of Exelon shareholders, see "Comparison of Rights of
Shareholders" in this Chapter I.
Exelon By-laws
Upon the completion of the merger, the by-laws of Exelon will, until changed
or amended, be the by-laws of the surviving corporation and will be amended as
described in "The Merger--Board of Directors and Management of Exelon After the
Merger" in this Chapter I. For a summary of certain provisions of the Exelon
by-laws and the associated rights of Exelon shareholders, see "Comparison of
Rights of Shareholders" in this Chapter I.
83
<PAGE>
COMPARATIVE STOCK PRICES AND DIVIDENDS
PECO Energy common stock is listed for trading on the New York Stock
Exchange under the symbol "PE" and Unicom common stock is listed for trading on
the New York Stock Exchange under the symbol "UCM." The following table sets
forth, for the periods indicated, dividends and the high and low sales prices
per share of PECO Energy common stock and Unicom common stock on the New York
Stock Exchange Composite Transaction reporting system. For current price
information, you are urged to consult publicly available sources.
<TABLE>
<CAPTION>
PECO Energy Common Stock Unicom Common Stock
------------------------- -------------------------
Dividends Dividends
Calendar Period High Low Declared High Low Declared
--------------- ------- ------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
1997
First Quarter.......... $26.375 $20.000 $0.45 $28.250 $19.250 $0.40
Second Quarter......... 21.125 18.750 0.45 24.250 18.500 0.40
Third Quarter.......... 24.313 20.750 0.45 25.625 21.000 0.40
Fourth Quarter......... 25.125 21.438 0.45 30.750 18.500 0.40
1998
First Quarter.......... 24.688 18.875 0.25 35.813 30.000 $0.40
Second Quarter......... 30.625 21.188 0.25 36.938 32.563 0.40
Third Quarter.......... 36.750 28.500 0.25 38.000 33.375 0.40
Fourth Quarter......... 42.188 36.500 0.25 41.188 36.813 0.40
1999
First Quarter.......... 46.438 35.250 0.25 39.250 33.563 0.40
Second Quarter......... 50.500 41.875 0.25 42.813 35.500 0.40
Third Quarter.......... 44.188 35.875 0.25 42.188 35.625 0.40
Fourth Quarter......... 38.813 31.500 0.25 39.563 30.938 0.40
2000
First Quarter.......... 43.688 33.000 0.25 41.688 32.000 0.40
Second Quarter (through
May 11, 2000)......... 45.750 36.563 0.25 42.813 36.250 0.40
</TABLE>
--------
N/A-Not Applicable
The following table sets forth the high and low sales prices per share of
PECO Energy common stock and Unicom common stock on the New York Stock Exchange
Composite Transaction reporting system on September 22, 1999, the last full
trading day before the public announcement of the merger agreement, on January
6, 2000, the last full trading day prior to the public announcement of the
amendment of the merger agreement, and on May 11, 2000, the latest trading day
before the date of this proxy statement/prospectus:
<TABLE>
<CAPTION>
High Low High Low
------- ------- ------- -------
PECO Energy Unicom
CommonStock CommonStock
--------------- ---------------
<S> <C> <C> <C> <C>
September 22, 1999............................ $39.000 $35.500 $37.250 $36.563
January 6, 2000............................... 36.000 34.375 34.000 33.375
May 11, 2000.................................. 45.750 44.375 42.813 41.250
</TABLE>
84
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The historical consolidated financial statements of Unicom have been
adjusted to give effect to the annualized continuing impacts of the sale of
ComEd's fossil generating plants and the annualized effects of Unicom's
issuance of securitization notes and related use of proceeds. ComEd completed
the sale of its fossil generating plants on December 15, 1999. The historical
consolidated financial statements of PECO Energy have been adjusted to give
effect to its use of the proceeds from its securitization of stranded costs.
The unaudited pro forma financial statements do not give effect to the
estimated cost savings and revenue enhancements as a result of the merger or
the costs to achieve these savings and revenue enhancements or one-time merger-
related costs. The Unicom and PECO Energy pro forma adjustments and the merger
are reflected in the unaudited combined condensed pro forma balance sheet as if
they occurred on March 31, 2000. The unaudited pro forma combined condensed
statement of income for the three months ended March 31, 2000 and for the year
ended December 31, 1999 assume that these transactions were completed on
January 1, 1999.
The following unaudited pro forma combined condensed financial statements
have been prepared to reflect the acquisition of Unicom by PECO Energy under
the purchase method of accounting. Under the purchase method of accounting,
tangible and identifiable intangible assets acquired and liabilities assumed
are recorded at their current fair values. The excess of the purchase price,
including estimated fees and expenses related to the merger, over the net
assets acquired is classified as goodwill on the accompanying unaudited pro
forma combined condensed balance sheet. For pro forma adjustment purposes, the
estimated fair values of the assets acquired and liabilities assumed are equal
to book value and are subject to final valuation adjustments which may cause
certain of the intangibles to be amortized over a shorter life than the
goodwill amortization period of 40 years.
The unaudited pro forma combined condensed financial statements do not
reflect potential adjustments to Unicom's assets and liabilities to reflect
fair value, as will be required upon consummation of the merger under purchase
accounting. These adjustments to the book value of assets and liabilities could
be significant, particularly with respect to Unicom's nuclear generating
stations. The fair value of the nuclear generating stations is expected to be
determined considering, among other things, independent appraisals or expected
cash flows. To the extent the fair value of Unicom's nuclear generating
stations is ultimately determined to be less than the March 31, 2000 book value
of $6.9 billion, additional goodwill and/or an identifiable intangible asset
will be recorded. The results of the fair value determination are not currently
known. However, the ultimate determination is not expected to have a dilutive
effect on results of operations.
The following unaudited pro forma financial statements should be read in
conjunction with the consolidated historical financial statements and related
notes of PECO Energy and Unicom, which are included in the PECO Energy and
Unicom Quarterly Reports on Form 10-Q for the quarter ended March 31, 2000 and
Annual Reports on Form 10-K for the year ended December 31, 1999. PECO Energy
has provided all the information included below regarding PECO Energy and its
subsidiaries. Unicom has provided all the information included below regarding
Unicom and its subsidiaries. Neither PECO Energy nor Unicom assumes any
responsibility for the accuracy or completeness of the information provided by
the other party.
The following unaudited pro forma financial statements are for illustrative
purposes only. They are not necessarily indicative of the financial position or
operating results that would have occurred had these transactions been
completed on January 1, 1999 or March 31, 2000, as assumed above; nor is the
information necessarily indicative of future financial position or operating
results. Results of operations and financial position in the first year after
consummation could differ significantly from the unaudited pro forma combined
condensed financial statements, which are based on past operations. Future
operations will be affected by various factors including operating performance,
energy market developments and other matters.
The historical financial statements of PECO Energy included in the
accompanying pro forma combined condensed financial statements for the three
months ended March 31, 2000 are unaudited. The December 31, 1999 historical
financial statements of PECO Energy and Unicom and the March 31, 2000
historical financial statements of Unicom were derived from audited financial
statements but do not include all disclosures required by GAAP.
You should read the financial information in this section along with PECO
Energy's and Unicom's historical consolidated financial statements and
accompanying notes incorporated by reference in this proxy
statement/prospectus. See "Where You Can Find More Information" on page 154.
85
<PAGE>
Unaudited Pro Forma Condensed Statement of Income
(Millions Except Per Share Data)
For the Three Month Period Ended March 31, 2000
<TABLE>
<CAPTION>
PECO
Energy
PECO Energy Prior to
PECO Transition Bond Merger
Energy Pro Forma Pro
As Filed Adjustments(1) Forma
-------- --------------- --------
<S> <C> <C> <C>
Operating Revenues........................ $1,343 $-- $1,343
------ ---- ------
Operating Expenses
Fuel and Energy Interchange............. $ 457 $-- $ 457
Operation and Maintenance............... 390 -- 390
Depreciation and Amortization........... 79 -- 79
Goodwill Amortization................... 1 -- 1
Taxes Other Than Income Taxes........... 67 -- 67
------ ---- ------
Total Operating Expenses.............. $ 994 $-- $ 994
------ ---- ------
Operating Income.......................... $ 349 $-- $ 349
------ ---- ------
Other Income and Deductions
Interest Expense........................ $ (104) $(24) $ (128)
Preferred and Preference Stock
Dividends.............................. (2) -- (2)
Other, net.............................. 19 -- 19
------ ---- ------
Total Other Income and Deductions..... $ (87) $(24) $ (111)
------ ---- ------
Income Before Income Taxes and
Extraordinary Item....................... $ 262 $(24) $ 238
Income Tax Expense........................ 97 (10) 87
------ ---- ------
Income Before Extraordinary Item.......... $ 165 $(14) $ 151
====== ==== ======
Preferred Stock Dividends................. $ 3 $-- $ 3
====== ==== ======
Income Before Extraordinary Item per
Share.................................... $ 0.89
======
Income Before Extraordinary Item per
Share--Diluted........................... $ 0.89
======
Average Basic Shares Outstanding.......... 181.4
======
Average Diluted Shares Outstanding........ 182.6
======
</TABLE>
86
<PAGE>
Unaudited Pro Forma Combined Condensed Statement of Income
(Millions Except Per Share Data)
For the Three Month Period Ended March 31, 2000
<TABLE>
<CAPTION>
PECO
Energy
Prior to Unicom Merger
Merger as ProForma Exelon
ProForma filed Adjustments ProForma
-------- ------ ----------- --------
<S> <C> <C> <C> <C>
Operating Revenues................... $1,343 $1,658 $(14)(7) $2,987
Operating Expenses
Fuel and Energy Interchange........ $ 457 $ 326 $(14)(7) $ 769
Operation and Maintenance.......... 390 549 -- 939
Depreciation and Amortization...... 79 374 -- 453
Goodwill Amortization.............. 1 1 14 (8) 16
Taxes Other Than Income Taxes...... 67 138 -- 205
------ ------ ---- ------
Total Operating Expenses......... $ 994 $1,388 $-- $2,382
------ ------ ---- ------
Operating Income..................... $ 349 $ 270 $(14) $ 605
------ ------ ---- ------
Other Income and Deductions
Interest Expense................... $ (128) $ (135) $-- $ (263)
Preferred and Preference Stock
Dividends......................... (2) (9) (3)(9) (14)
Other, net......................... 19 103 -- 122
------ ------ ---- ------
Total Other Income and
Deductions...................... $ (111) $ (41) $ (3) $ (155)
------ ------ ---- ------
Income Before Income Taxes and
Extraordinary Item.................. $ 238 $ 229 $(17) $ 450
Income Tax Expense................... 87 34 -- 121
------ ------ ---- ------
Income Before Extraordinary Item..... $ 151 $ 195 $(17) $ 329
====== ====== ==== ======
Preferred Stock Dividends............ $ 3 $ (3)(9) $ --
====== ==== ======
Income Before Extraordinary Item per
Share............................... $ 1.02 $ 1.04
====== ======
Income Before Extraordinary Item per
Share--Diluted...................... $ 1.01 $ 1.04
====== ======
Average Basic Shares Outstanding..... 191.0 315.1
====== ======
Average Diluted Shares Outstanding... 191.8 317.1
====== ======
</TABLE>
87
<PAGE>
Unaudited Pro Forma Condensed Statement of Income
(Millions Except Per Share Data)
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
PECO Energy PECO Energy
Securitization Prior to
PECO Energy Pro Forma Merger
As Filed Adjustments(1) Pro Forma
----------- -------------- -----------
<S> <C> <C> <C>
Operating Revenues................... $5,437 $-- $5,437
------ ---- ------
Operating Expenses
Fuel and Energy Interchange........ 2,145 -- 2,145
Operation and Maintenance.......... 1,384 -- 1,384
Depreciation and Amortization...... 237 -- 237
Goodwill Amortization.............. -- -- --
Taxes Other Than Income Taxes...... 262 -- 262
------ ---- ------
Total Operating Expenses......... 4,028 -- 4,028
------ ---- ------
Operating Income..................... 1,409 -- 1,409
------ ---- ------
Other Income and Deductions
Interest Expense................... (396) (108) (504)
Other, net......................... (36) 12 (24)
------ ---- ------
Total Other Income and
Deductions...................... (432) (96) (528)
------ ---- ------
Income Before Income Taxes and
Extraordinary Item.................. 977 (96) 881
Income Tax Expense................... 358 (38) 320
------ ---- ------
Income Before Extraordinary Item..... $ 619 $(58) $ 561
====== ==== ======
Preferred Stock Dividends............ $ 12 $ (1) $ 11
====== ==== ======
Income Before Extraordinary Item per
Share............................... $ 3.10
======
Income Before Extraordinary Item per
Share--Diluted...................... $ 3.08
======
Average Basic Shares Outstanding..... 196.3
======
Average Diluted Shares Outstanding... 197.6
======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
88
<PAGE>
Unaudited Pro Forma Condensed Statement of Income
(Millions Except Per Share Data)
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Unicom Unicom Unicom
Fossil Sale Securitization Prior to
Unicom Pro Forma Pro Forma Merger
As Filed Adjustments(2) Adjustments(3) Pro Forma
-------- ------------- -------------- ---------
<S> <C> <C> <C> <C>
Operating Revenues $6,848 $ -- $ -- $6,848
------ ----- ----- ------
Operating Expenses
Fuel and Energy
Interchange............. 1,549 257 -- 1,806
Operation and
Maintenance............. 2,428 (271) -- 2,157
Depreciation and
Amortization............ 843 26 113 982
Goodwill Amortization.... -- -- -- --
Taxes Other Than Income
Taxes................... 508 (16) -- 492
------ ----- ----- ------
Total Operating
Expenses.............. 5,328 (4) 113 5,437
------ ----- ----- ------
Operating Income........... 1,520 4 (113) 1,411
------ ----- ----- ------
Other Income and Deductions
Interest Expense......... (564) -- 20 (544)
Preferred and Preference
Stock Dividends......... (53) -- 10 (43)
Other, net............... 1 -- -- 1
------ ----- ----- ------
Total Other Income and
Deductions............ (616) -- 30 (586)
------ ----- ----- ------
Income Before Income Taxes
and Extraordinary Item.... 904 4 (83) 825
Income Tax Expense......... 307 4 (37) 274
------ ----- ----- ------
Income Before Extraordinary
Item...................... $ 597 $ -- $ (46) $ 551
====== ===== ===== ======
Income Before Extraordinary
Item per Share............ $ 2.75
======
Income Before Extraordinary
Item per Share--Diluted... $ 2.74
======
Average Basic Shares
Outstanding............... 217.3
======
Average Diluted Shares
Outstanding............... 218.1
======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
89
<PAGE>
Unaudited Pro Forma Combined Condensed Statement of Income
(Millions Except Per Share Data)
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
PECO Energy Unicom
Prior to Prior to Merger
Merger Merger Pro Forma Exelon
Pro Forma Pro Forma Adjustments Pro Forma
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Operating Revenues.......... $5,437 $6,848 $(60)(7) $12,225
------ ------ ---- -------
Operating Expenses
Fuel and Energy
Interchange.............. 2,145 1,806 (60)(7) 3,891
Operation and
Maintenance.............. 1,384 2,157 -- 3,541
Depreciation and
Amortization............. 237 982 (212)(6) 1,007
Goodwill Amortization..... -- -- 57 (8) 57
Taxes Other Than Income
Taxes.................... 262 492 -- 754
------ ------ ---- -------
Total Operating
Expenses............... 4,028 5,437 (215) 9,250
------ ------ ---- -------
Operating Income............ 1,409 1,411 155 2,975
------ ------ ---- -------
Other Income and Deductions
Interest Expense.......... (504) (544) (1,048)
Preferred and Preference
Stock Dividends.......... -- (43) (18)(9) (61)
Other, net................ (24) 1 7 (9) (16)
------ ------ ---- -------
Total Other Income and
Deductions............. (528) (586) (11) (1,125)
------ ------ ---- -------
Income Before Income Taxes
and Extraordinary Item..... 881 825 144 1,850
Income Tax Expense.......... 320 274 84 678
------ ------ ---- -------
Income Before Extraordinary
Item....................... $ 561 $ 551 $ 60 $ 1,172
====== ====== ==== =======
Preferred Stock Dividends... $ 11 $ -- $(11)(9) $ --
====== ====== ==== =======
Income Before Extraordinary
Item per Share............. $ 3.72
=======
Income Before Extraordinary
Item per Share--Diluted.... $ 3.70
=======
Average Basic Shares
Outstanding................ 315.1 (5)
=======
Average Diluted Shares
Outstanding................ 317.1
=======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
90
<PAGE>
Unaudited Pro Forma Condensed Balance Sheet
(In Millions)
As of March 31, 2000
<TABLE>
<CAPTION>
PECO
PECO PECO Energy Energy
Energy Securitization Prior to
As Pro Forma Merger
Filed Adjustments(1) Pro Forma
------- -------------- ---------
<S> <C> <C> <C>
ASSETS
Utility Plant
Plant.................................... $ 7,918 $ -- $ 7,918
Accumulated Provision for Depreciation... 3,125 -- 3,125
------- ------ -------
$ 4,793 $ -- $ 4,793
Nuclear Fuel, net........................ 287 -- 287
------- ------ -------
$ 5,080 $ -- $ 5,080
------- ------ -------
Current Assets
Cash and Temporary Cash Investments...... $ 110 $1,000 $ 1,110
Accounts Receivable, net................. 594 -- 594
Inventories, at average cost............. 176 -- 176
Other Current Assets..................... 204 -- 204
------- ------ -------
$ 1,084 $1,000 $ 2,084
------- ------ -------
Deferred Debits and Other Assets
Regulatory Assets........................ $ 6,050 $ -- $ 6,050
Goodwill................................. 117 -- 117
Investments and Other Property, net...... 568 -- 568
Other.................................... 132 -- 132
------- ------ -------
$ 6,867 $ -- $ 6,867
------- ------ -------
Total.................................. $13,031 $1,000 $14,031
======= ====== =======
CAPITALIZATION AND LIABILITIES
Capitalization
Common Stock Equity...................... $ 1,895 $ -- $ 1,895
Preferred and Preference Stock........... 193 -- 193
Company Obligated Mandatorily
Redeemable Preferred Securities......... 128 -- 128
Long-Term Debt........................... 5,895 1,000 6,895
------- ------ -------
$ 8,111 $1,000 $ 9,111
------- ------ -------
Current Liabilities
Notes Payable, Bank...................... $ 135 $ -- $ 135
Accounts Payable......................... 251 -- 251
Other Current Liabilities................ 790 -- 790
------- ------ -------
$ 1,176 $ -- $ 1,176
------- ------ -------
Deferred Credits and Other Liabilities
Deferred Income Taxes.................... $ 2,417 $ -- $ 2,417
Unamortized Investment Tax Credits....... 282 -- 282
Nuclear Decommissioning Liab. For Retired
Plants.................................. -- -- --
Other.................................... 1,045 -- 1,045
------- ------ -------
$ 3,744 $ -- $ 3,744
------- ------ -------
Total.................................. $13,031 $1,000 $14,031
======= ====== =======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
91
<PAGE>
Unaudited Pro Forma Combined Condensed Balance Sheet
(In millions)
As of March 31, 2000
<TABLE>
<CAPTION>
PECO Energy
Prior to Unicom Merger Exelon
Merger Pro As Pro Forma Pro Forma
Forma Filed Adjustments Balance
----------- ------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Utility Plant
Plant....................... $ 7,918 $25,290 $(13,988)(6) $19,220
Accumulated Provision for
Depreciation............... 3,125 13,988 (13,988)(6) 3,125
------- ------- -------- -------
$ 4,793 $11,302 $ -- $16,095
Nuclear Fuel, net........... 287 797 -- 1,084
------- ------- -------- -------
$ 5,080 $12,099 $ -- $17,179
------- ------- -------- -------
Current Assets
Cash and Temporary Cash
Investments................ $ 1,110 $ 717 $ (500)(4)
(500)(1)
(466)(10) $ 361
Accounts Receivable, net.... 594 1,223 -- 1,817
Inventories, at average
cost....................... 176 250 -- 426
Other Current Assets........ 204 1,905 -- 2,109
------- ------- -------- -------
$ 2,084 $ 4,095 $ (1,466) $ 4,713
------- ------- -------- -------
Deferred Debits and Other
Assets
Regulatory Assets........... $ 6,050 $ 1,585 $ -- $ 7,635
Goodwill.................... 117 43 2,293 (6) 2,453
Investments and Other
Property, net.............. 568 3,289 -- 3,857
Other....................... 132 45 -- 177
------- ------- -------- -------
$ 6,867 $ 4,962 $ 2,293 $14,122
------- ------- -------- -------
Total..................... $14,031 $21,156 $ 827 $36,014
======= ======= ======== =======
CAPITALIZATION AND LIABILITIES
Capitalization
Common Stock Equity......... $ 1,895 $ 3,932 $ (500)(4)
(500)(1)
(466)(10)
2,293 (6) $ 6,654
Preferred and Preference
Stock...................... 193 2 -- 195
Company Obligated
Mandatorily
Redeemable Preferred
Securities................. 128 350 -- 478
Long-Term Debt.............. 6,895 6,965 -- 13,860
------- ------- -------- -------
$ 9,111 $11,249 $ 827 $21,187
------- ------- -------- -------
Current Liabilities
Notes Payable, Bank......... $ 135 $ 445 $ -- $ 580
Accounts Payable............ 251 478 -- 729
Other Current Liabilities... 790 1,854 -- 2,644
------- ------- -------- -------
$ 1,176 $ 2,777 $ -- $ 3,953
------- ------- -------- -------
Deferred Credits and Other
Liabilities
Deferred Income Taxes....... $ 2,417 $ 2,464 $ -- $ 4,881
Unamortized Investment Tax
Credits.................... 282 477 -- 759
Nuclear Decommissioning
Liability For Retired
Plants..................... -- 1,275 -- 1,275
Other....................... 1,045 2,914 -- 3,959
------- ------- -------- -------
$ 3,744 $ 7,130 $ -- $10,874
------- ------- -------- -------
Total..................... $14,031 $21,156 $ 827 $36,014
======= ======= ======== =======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
92
<PAGE>
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
1. The effects of the use of proceeds from the securitization of stranded
costs by PECO Energy on the pro forma combined condensed statements of
income were as follows (in millions):
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, 1999 March 31, 2000
----------------- ------------------
<S> <C> <C>
Transition Bond Interest Expense... $318 $ 80
Interest Savings Associated with
Higher Cost Debt that was
Repurchased....................... (129) (32)
Transition Bond Interest Expense
Included In Historical Interest
Expense........................... (179) (57)
Interest Savings Included in
Historical Interest Expense....... 98 33
---- ----
$108 $ 24
==== ====
PECO Energy Obligated Mandatorily
Redeemable Preferred Securities
($221 million @ 9%)............... $(20) $ (5)
Interest Savings Included in
Historical Financial Statements... 8 5
---- ----
$(12) --
==== ====
PECO Preferred Stock Dividends
($37 million @ 6.12%)............. $ (2) $ (1)
PECO Preferred Stock Dividend
Savings Included in Historical
Financial Statements.............. 1 1
---- ----
$ (1) --
==== ====
</TABLE>
In May 2000, PECO Energy, through a wholly owned subsidiary, issued an
additional $1.0 billion of transition bonds. Approximately $500 million of
these proceeds were used to settle a forward share repurchase agreement that
resulted in the repurchase of approximately 12.0 million shares of PECO Energy
common stock.
2. The Unicom fossil sale Pro Forma Adjustments for the Income Statement for
the Year Ended December 31, 1999 reflect the continuing impact of the sale
of ComEd's fossil generating plants which was completed in December 1999.
. Fuel and Energy Interchange: Reflects the elimination of fossil fuel expense
and the replacement impact of purchasing power under the power purchase
agreements entered into with the purchaser of the fossil assets at the time
of the fossil sale, as provided below (in millions):
<TABLE>
<S> <C>
Fossil Fuel Expense............................................... $(616)
Energy Interchange Expense........................................ 873
-----
Total............................................................. $ 257
=====
. Operation and Maintenance: Reflects the elimination of the fossil generating
plants operation and maintenance expenses.
. Depreciation and Amortization: Reflects the following (in millions):
Elimination of Fossil Plant Depreciation.......................... (73)
Additional Amortization of Regulatory Assets...................... 99
-----
Total........................................................... $ 26
=====
</TABLE>
93
<PAGE>
The Unicom pro forma adjustments reflecting the sale of ComEd's fossil
generating plants include increased regulatory asset amortization because those
adjustments on a prior-to-merger, pro forma basis would result in ComEd's
earnings exceeding the earnings cap provision of the Illinois Public Utilities
Act.
. Taxes Other Than Income Taxes: Reflects the elimination of real estate and
payroll taxes related to the ownership of the fossil plants.
The pro forma adjustments do not reflect the income effects of the
reinvestment of cash proceeds received from the fossil sale.
3. Reflects Unicom's purchase, at prevailing market prices, of approximately
26.3 million shares of Unicom common stock that were subject to certain
forward purchase contracts at December 31, 1999. During 1999, Unicom
entered into forward purchase arrangements with financial institutions for
the repurchase of approximately 26.3 million shares of Unicom common stock.
The repurchase arrangements were settled in January 2000 on a physical
(i.e. shares) basis. Effective January 2000, the share repurchases have
reduced outstanding shares and common stock equity. Prior to the
settlement, the repurchase arrangements were recorded as a receivable on
the Consolidated Balance Sheet of Unicom based on the aggregate market
value of the shares deliverable under the arrangements.
In addition, reflects adjustments to net interest expense and preferred and
preference stock dividends related to the use of securitization proceeds as
follows (in millions):
<TABLE>
<S> <C>
Pro forma adjustment to eliminate historical interest
expense associated with higher cost debt that was
repurchased...................................................... $(20)
Pro forma adjustment to eliminate historical
dividend provisions associated with higher cost
preferred and preference stock that was repurchased.............. $(10)
</TABLE>
The Unicom Securitization pro forma adjustments include increased
regulatory asset amortization because those adjustments on a prior-to-
merger, pro forma basis would result in ComEd's earnings exceeding the
earnings cap provision of the Illinois Public Utilities Act.
4. Reflects the payment of the cash portion of the merger consideration to
Unicom common shareholders.
5. Reflects issuance of Exclon shares in exchange for PECO Energy and Unicom
common stock net of shares which were repurchased by PECO Energy and Unicom
as follows:
<TABLE>
<CAPTION>
PECO Pro Forma
Energy Unicom Exelon
------- ------- ---------
(Shares in 000's)
<S> <C> <C> <C>
Actual shares outstanding at March 31,
2000...................................... 181,454 177,647
Shares repurchased-Notes (1) and (10)...... (11,954) (11,247)
------- -------
Remaining shares to be exchanged........... 169,500 166,400
Exchange factor............................ 1.0 .875
------- -------
Remaining shares to be exchanged........... 169,500 145,600 315,100
======= ======= =======
</TABLE>
6. A pro forma adjustment has been made to recognize estimated goodwill in
connection with the merger. The goodwill represents the excess of the
purchase consideration of $5.8 billion, including PECO Energy's estimated
transaction costs resulting from the merger, over the book value of
Unicom's assets and liabilities at March 31, 2000. The adjustment reflects
the merger consideration including approximately 145.6 million shares of
Exelon Common Stock at a price of $35.89 based on the average closing price
of PECO Energy Common Stock between January 3 and 12, 2000. PECO Energy's
transaction costs of approximately $32.5 million represent the estimated
costs to be incurred for the merger that meet the requirements for
inclusion in the purchase price.
94
<PAGE>
For purposes of the pro forma financial statements the excess of cost over
fair value of net assets acquired resulting from the preliminary purchase price
is assumed to be as follows (in millions):
<TABLE>
<S> <C>
Pro Forma Purchase Price.......................................... $5,759
Less: Pro Forma Historical Net Book Value
of Assets Acquired (as of March 31, 2000)........................ 3,466
------
Excess of Purchase Price Over Net Book Value
of Assets Acquired (Goodwill).................................... $2,293
======
</TABLE>
Actual goodwill recorded upon consummation will consider the fair value of
Unicom's assets and liabilities at that future date, including the fair value
determination of nuclear generating stations, and may differ significantly from
the amount recorded in these pro forma financial statements. The fair value
analysis of Unicom's assets and liabilities has not been completed. The
following table sets forth preliminary estimates of potential additional
purchase accounting adjustments (in millions):
<TABLE>
<S> <C>
Utility Plant................................................... $(5,300)
Pension Benefits................................................ 650
Post-retirement Benefits........................................ 250
Long-term Debt.................................................. 150
Deferred Taxes.................................................. 1,700
Intangible Asset................................................ 1,000
Goodwill........................................................ 1,550
</TABLE>
. Utility Plant: Reflects the preliminary fair value analyses of ComEd's
nuclear stations based on discounted cash flows. The preliminary analyses
indicated fair value estimates ranging from $300 million to $3.0 billion. The
analyses are significantly affected by assumptions made regarding nuclear
plant capacity factors, operating costs and the expected market price for
electricity. The $5.3 billion adjustment to utility plant reflects the
difference between the $1.6 billion midpoint of the range and the $6.9
billion book value of the nuclear stations as of March 31, 2000. The $5.3
billion reduction to utility plant is estimated to reduce nuclear
depreciation expense by approximately $225 million annually based on 1999
nuclear depreciation rates. The final allocation of the purchase price will
be dependent on estimates of future capacity factors, operating costs and the
expected market price for electricity at the time of the closing and may
consider independent appraisals as well.
. Pension Benefits and Post-Retirement Obligations: Reflects elimination of
unrecognized net actuarial gains, prior service costs and transition
obligations at March 31, 2000. Final allocation amounts may differ largely
due to discount rates at the time of closing. The adjustments will increase
pension benefits and post-retirement benefit expense over average periods of
14 years and 4 years, respectively, based on actuarial estimates.
. Long-Term Debt: Represents the adjustment of long-term debt including
transitional trust notes to fair value at March 31, 2000. The final fair
value determination will be based on prevailing market interest rates at the
time of closing. The adjustment will be amortized over the remaining life of
the individual debt issues, which average six years.
. Intangible Asset: Represents the estimated recovery of above market plant
costs through regulated cash flows over the period 2000-2006, pursuant to
stranded cost recovery provisions of the Illinois Public Utilities Act.
Preliminary estimates of above market regulated cash flows available for
stranded cost recovery during the period range from $500 million to $1.5
billion, resulting in a midpoint estimate of $1 billion. The intangible asset
will be amortized over the 2000-2006 revenue recovery period and amortization
amounts will vary by year based on annual regulated cash flows.
. Goodwill: Represents additional goodwill resulting from the preliminary
adjustments reflected above, to be amortized over 40 years.
95
<PAGE>
This adjustment also includes the elimination of accumulated depreciation
reflected on Unicom's books in accordance with purchase accounting as
prescribed by generally accepted accounting principles. The Merger Pro Forma
Adjustments for the Income Statement for the Year Ended December 31, 1999, as a
result of the increased merger pro forma common stock equity balance, include a
reversal of the increased regulatory asset amortization related to the Unicom
pro forma adjustments discussed in Notes 2 and 3.
7. Reflects the elimination of purchased power and off-system sales
transactions between PECO Energy and Unicom.
8. Reflects amortization of goodwill over a 40-year period.
9. Reflects the reclassification of PECO Energy preferred stock dividends and
interest on PECO Energy obligated mandatorily redeemable preferred
securities for consistent presentation.
10. Reflects the repurchase of approximately $466 million of Unicom's
outstanding common shares and approximately $500 million of PECO Energy's
outstanding common shares prior to closing. In the first quarter of 2000,
Unicom repurchased approximately $534 million of the approximately $1.0
billion common share repurchase required by the merger agreement.
96
<PAGE>
DESCRIPTION OF EXELON CAPITAL STOCK
The following summary of the capital stock of Exelon is subject in all
respects to applicable provisions of the Business Corporation Law of the
Commonwealth of Pennsylvania and the Exelon articles of incorporation. Exelon
is a Pennsylvania corporation. See "Comparison of Rights of Shareholders" in
this Chapter I and "Where You Can Find More Information" on page 154.
General
The total authorized shares of capital stock of Exelon consist of (1)
600,000,000 shares of common stock, no par value and (2) 100,000,000 shares of
preferred stock, no par value. At the close of business on May 12, 2000, 100
shares of Exelon common stock were issued and outstanding, all of which were
owned by PECO Energy, and no shares of Exelon preferred stock were issued and
outstanding.
Common Stock
Each holder of common stock is entitled to cast one vote for each share held
of record on all matters submitted to a vote of shareholders, including the
election of directors. Holders of common stock are entitled to receive
dividends or other distributions declared by the Exelon board of directors. The
right of the Exelon board of directors to declare dividends, however, is
subject to the rights, if any, of holders of preference stock of Exelon and
certain requirements of Pennsylvania law.
Preferred Stock
The Exelon board of directors has the full authority permitted by law to
determine the voting rights, if any, and designations, preferences, limitations
and special rights of any class or any series of any class of the preferred
stock.
COMPARISON OF RIGHTS OF SHAREHOLDERS
Upon completion of the first step exchange, PECO Energy shareholders will
receive shares of common stock of Exelon in exchange for their shares of PECO
Energy common stock. On the effective date of the second step merger, Unicom
shareholders will receive shares of common stock of Exelon and cash in exchange
for their shares of Unicom common stock. The following is a summary of the
material differences with respect to the rights of holders of Unicom common
stock, PECO Energy common stock and Exelon common stock. These differences
arise in part, in the case of Unicom shareholders, from the differences between
various provisions of Illinois and Pennsylvania law, as well as differences
between the governing instruments of PECO Energy, Unicom and Exelon.
The following description summarizes the material differences which may
affect the rights of Exelon shareholders and PECO Energy shareholders and
Unicom shareholders, but does not purport to be a complete statement of all of
the differences, or a complete description of the specific provisions referred
to in this summary. PECO Energy shareholders and Unicom shareholders should
read carefully the relevant provisions of Pennsylvania law and Illinois law,
the Exelon articles of incorporation and by-laws, the PECO Energy articles of
incorporation and by-laws and the Unicom articles of incorporation and by-laws.
Size of the Board of Directors
Under Illinois law, the board of directors of a corporation consists of one
or more members. The number of directors is fixed by the by-laws, except the
number of the initial directors is fixed by the incorporators in the articles
of incorporation or at the organizational meeting. In the absence of a by-law
fixing the number of directors, the number of directors fixed by the
incorporators governs. The Unicom by-laws provide that the
97
<PAGE>
number of directors of Unicom will be not less than eight nor more than
thirteen directors, and that directors are elected annually by the
shareholders.
Under Pennsylvania law, the by-laws or articles of incorporation govern the
size of the board. If neither the articles of incorporation nor the by-laws
provide for the size of the board, Pennsylvania law fixes the number of
directors on the board at three. Under both the PECO Energy and Exelon articles
of incorporation, the whole board (a majority of the total number of directors
that Exelon would have if there were no vacancies on the board of directors)
determines the number of directors on the board, except as otherwise provided
in the express terms of any class or series of preferred or preference stock
with respect to the election of directors upon the occurrence of a default in
the payment of dividends or in the performance of another express requirement
of the terms of the preferred or preference stock. Until the effective date of
the first step exchange, the board of directors of Exelon will consist of three
members. This proviso expires on the effective date of the first step exchange,
after which the number of directors will be set at 16.
Classification of the Board of Directors
Under Illinois law, if the board of directors consists of six or more
members, the articles of incorporation or by-laws may provide that the
directors be divided into either two or three classes with staggered terms of
office. Each class has to be as nearly equal in number as possible. The
articles of incorporation and by-laws of Unicom are silent on this point. The
Unicom board of directors is not classified.
Pennsylvania law provides that, unless otherwise specified in the articles
of incorporation, a corporation's board of directors may be divided into
various classes with staggered terms of office. The term of office of at least
one class must expire in each year and the members of a class may not be
elected for a period longer than four years. If the directors are to be
otherwise classified, the classification must be done in the articles of
incorporation. Under the PECO Energy articles of incorporation, each class will
be as nearly equal in number as possible and, under the Exelon articles of
incorporation, each class will be approximately equal in number. Under the PECO
Energy and Exelon articles of incorporation the term of office of at least one
class must expire in each year. Except as otherwise provided in the articles of
incorporation or in the express terms of any series of the preferred or
preference stock, the members of each class will be elected for a term of three
years and until their respective successors have been elected and qualified,
except in the event of their earlier death, resignation or removal. However, in
the case of Exelon, the initial classes and terms of directors taking office
upon the first step exchange will coincide with their unexpired terms as
directors of PECO Energy and until their respective successors have been
elected and qualified, except in the event of their earlier death, resignation
or removal or until the merger is completed, at which time Exelon's board of
directors will be constituted in accordance with the merger agreement.
Cumulative Voting
Under Illinois law, cumulative voting for directors exists unless a
corporation's articles of incorporation provide otherwise. Unicom's articles of
incorporation provide shares of Unicom common stock with a right to cumulative
voting in all elections of directors by vote of shareholders. Unicom's by-laws
also provide for cumulative voting for directors.
Under Pennsylvania law, cumulative voting exists unless a corporation's
articles of incorporation provide otherwise. Both PECO Energy and Exelon have
eliminated cumulative voting.
Vacancies on the Board
Illinois law provides that if there is an increase in the number of
directors, any vacancy on the board of directors and any directorship may be
filled by election at an annual meeting of shareholders or at a special meeting
of shareholders called for that purpose. Under Illinois law, the by-laws may
provide a method for filling vacancies arising between meetings of shareholders
by reason of an increase in the number of directors or otherwise, by director
or shareholder action. If such a provision does not exist in the by-laws, the
board of directors must fill the vacancy.
98
<PAGE>
Unicom's by-laws provide that any kind of vacancy occurring in the board of
directors may be filled by election at an annual shareholders meeting or at a
special meeting called for that purpose. Any vacancy arising between meetings
of shareholders may be filled by the vote of a majority of the directors then
in office, even if less than a quorum. Any director so elected will serve until
the next annual meeting of the shareholders.
Pennsylvania law provides that a majority of the directors then in office,
even if less than a quorum, may fill newly created directorships and all
vacancies, including vacancies resulting from an increase in the size of the
board. In addition, when one or more directors resign from the board effective
at a future date, the directors then in office, including those who have so
resigned, may fill the vacancy or vacancies by a majority vote. Unless the by-
laws specify otherwise, directors selected to fill newly created directorships
and all vacancies serve the balance of the unexpired term.
Both the PECO Energy and Exelon by-laws provide that a majority of directors
in office, or a sole remaining director, may fill all vacancies and newly
created directorships and those filling the vacancies will serve out the
remaining terms of their predecessors. The Exelon by-laws provide that the size
of the board of directors will be established by resolution adopted by a
majority of the whole board (the total number of directors that Exelon would
have if there were no vacancies on the board of directors).
Removal of Directors
With four exceptions under Illinois law, the holders of a majority of the
outstanding shares entitled to vote at an election of directors may remove any
director with or without cause. The four exceptions are as follows:
. if the notice of the shareholders meeting fails to mention that a purpose
of the meeting is to vote upon the removal of one or more directors named
in the notice,
. if in the case of cumulative voting, where less than the entire board is
to be removed, the votes cast against the removal of a director would be
sufficient to elect him or her by cumulative voting at an election of the
entire board of directors,
. if a director is elected by a class or series of a class, he or she may
be removed only by the shareholders of that class or series, and
. if, in the case of a corporation whose board is classified, the articles
of incorporation provide that directors may be removed only for cause.
These exceptions are not applicable in cases where the circuit court of the
county in which the corporation's registered office is located is asked to
remove a director for engaging in fraudulent or dishonest conduct or for gross
abuse of his or her position to the detriment of the corporation and the court
determines that removal is in the best interest of the corporation.
Unicom's articles of incorporation and by-laws are silent with regard to the
removal of directors.
With two exceptions under Pennsylvania law, the holders of a majority of the
shares entitled to vote at an election of directors may remove any director,
with or without cause. Those two exceptions are as follows:
. if the corporation has a classified board, shareholders may remove a
director only for cause, and
. if the corporation has cumulative voting, and less than the entire board
of directors is to be removed, then no director may be removed without
cause if the votes cast against his removal would be sufficient to elect
him if cumulatively voted at an election of the entire board of
directors, or if there are classes of directors, at an election of the
class of directors of which he or she is a part.
Both the PECO Energy and Exelon by-laws provide that a majority of the
shareholders may remove a director only for cause.
99
<PAGE>
Special Meetings of Shareholders
Under Illinois law, special meetings of shareholders may be called by:
.the president,
. the holders of not less than one-fifth of all outstanding shares entitled
to vote on the matter for which the meeting is called, or
.other officers or persons as may be provided in the articles of
incorporation or the by-laws.
Unicom's by-laws provide that a special meeting of the shareholders may be
called by the chairman, by the board of directors, by a majority of the
directors individually or by the holders of not less than one-fifth of the
total outstanding shares of capital stock of the company.
Pennsylvania law provides that special meetings of the shareholders may be
called by:
.the board of directors,
.shareholders entitled to cast at least 20% of the vote entitled to be cast
at that meeting, or
.any person or persons as may be authorized by the by-laws.
In addition, under Pennsylvania law, if the annual meeting for election of
directors is not called and held within six months after the designated time,
any shareholder may call the meeting at any time thereafter.
Both the PECO Energy and Exelon by-laws provide that special meetings of the
shareholders may be called at any time by the board of directors. As registered
corporations, both PECO Energy and Exelon are subject to a provision of the
Pennsylvania law which eliminates the right of shareholders to call a special
meeting.
Corporate Action Without a Shareholder Meeting
Under Illinois law, unless otherwise provided in the articles of
incorporation, shareholders may take any action which may be taken at a
shareholders meeting without a shareholders meeting and without a vote, if a
consent in writing, setting forth the action to be taken, is signed by either
(1) the holders of outstanding shares that would be sufficient to vote in favor
of the action at a shareholders meeting at which all shareholders entitled to
vote would be present and vote, or (2) by all shareholders entitled to vote
with regard to the subject matter thereof. If the action is consented to by
fewer than all the shareholders entitled to vote, then the action becomes
effective only if all shareholders entitled to vote were notified in writing of
the subject matter at least five days prior to the vote and subsequent to the
consent were promptly notified that the corporate action was taken with less
than unanimous written consent.
Under Illinois law, dissolution of a corporation may be authorized by the
unanimous consent in writing of the holders of all outstanding shares.
Unicom's articles of incorporation and by-laws are silent with regard to
taking corporate action without a shareholder meeting.
Under Pennsylvania law, unless otherwise provided in the by-laws,
shareholders may act without a meeting on any action requiring a shareholder
vote, provided they have the written consent of the holders of all outstanding
shares entitled to vote thereon. Both the PECO Energy and Exelon by-laws
provide that, except as may otherwise be provided in the terms of any preferred
or preference stock or when shareholders act by unanimous consent to remove a
director or directors, shareholder action must be taken at an annual or special
meeting of shareholders.
Charter Amendments
Under Illinois law, a corporation may amend its articles of incorporation at
any time to add new provisions or to change or remove old provisions, provided
that the amended articles contain only provisions as are required or permitted
in original articles of incorporation at the time of amendment. A corporation
whose period of duration as provided in the articles of incorporation has
expired may amend its articles of
100
<PAGE>
incorporation to revive its articles and extend the period of corporate
duration, even to perpetual duration, at any time within five years after
expiration.
Generally, under Illinois law, a proposed amendment will be adopted upon
receiving the affirmative vote of the holders of two-thirds of the outstanding
shares entitled to vote on the amendment and, if any class of shares is
entitled to vote as a class, the affirmative vote of the holders of two-thirds
of the outstanding shares in that class. The articles of incorporation may
provide for a smaller or greater vote requirement, but not less than a majority
of the outstanding shares entitled to vote.
Prior to voting on an amendment, Illinois law provides that the board of
directors must adopt a resolution setting forth the proposed amendment and must
direct that the amendment be submitted to a vote at a shareholder meeting.
Written notice setting forth the proposed amendment must be given to the
shareholders prior to the shareholders meeting.
Under Illinois law, a majority of the whole board of directors of a
corporation may amend the articles of incorporation without shareholder action
to take various ministerial actions as permitted by Illinois law.
Unicom's articles of incorporation and by-laws are silent with regard to
amending the articles of incorporation.
Generally, under Pennsylvania law, unless the articles of incorporation
require a greater vote, a proposed amendment will be adopted upon receiving the
affirmative vote of a majority of the votes cast by all shareholders entitled
to vote thereon and, if any class or series of shares is entitled to vote
thereon as a class, the affirmative vote of a majority of the votes cast in
that class vote. Also, except for a proposed amendment that is the subject of a
petition of shareholders entitled to cast 10% or more of the votes of all
shareholders in aggregate, a proposed amendment of the articles of
incorporation will be deemed not to have been adopted by a corporation unless
the board of directors has also approved the amendment, even though the board
submitted the amendment to the shareholders for action.
Under Pennsylvania law, unless otherwise restricted in the articles of
incorporation, an amendment of the articles of incorporation does not require
the approval of the shareholders if shares have not been issued or if the
amendment only takes various ministerial actions as permitted by Pennsylvania
law.
Also, shareholder approval is not necessary if the corporation has only one
class of shares outstanding and the amendment is solely to increase the number
of authorized shares to effectuate a stock dividend or a stock split and, in
case of a stock split, may also change the par value of the shares.
Under Pennsylvania law, the holders of shares of a class or series are
entitled to vote as a class with respect to an amendment if the amendment
would:
. authorize the board of directors to fix and determine the relative rights
and preferences of any preferred or special class,
. make any change in the preferences, limitations or special rights of the
shares of a class or series adverse to the class or series other than
preemptive rights or the right to vote cumulative,
. authorize a new class or series having a preference as to dividends or
assets which is senior to the shares of a class or series, or
. increase the number of authorized shares of any class or series having a
preference as to dividends or assets which is senior in any respect to
the shares of a class or series.
Under the articles of incorporation of both PECO Energy and Exelon, the
articles of incorporation may be amended in the manner and at the time
prescribed by Pennsylvania law.
101
<PAGE>
By-law Amendments
Under Illinois law, unless otherwise provided in the articles of
incorporation, shareholders or the board of directors may make, alter, amend or
repeal the by-laws of the corporation. But no by-law adopted by the
shareholders may be altered, amended or repealed by the board of directors if
the by-laws so provide.
Unicom's by-laws provide that the by-laws may be altered, amended or
repealed by the shareholders or the board of directors.
Under Pennsylvania law, after a corporation receives payment for any of its
stock, the power to adopt, amend or repeal by-laws resides exclusively in the
shareholders unless the by-laws confer a concurrent power on the board of
directors. However, even if the shareholders confer concurrent power on the
board of directors, the directors have no authority to adopt or change a by-law
on any subject that is committed expressly to the shareholders by Pennsylvania
law.
The PECO Energy by-laws provide that the shareholders may adopt, amend or
repeal by-laws only with the approval of the board of directors. The by-laws
may be amended or repealed, or new by-laws may be adopted, by a vote of a
majority of the board of directors at any special meeting of directors.
Subject to the limitations provided in this paragraph, the Exelon by-laws
provide that the board of directors may adopt, alter or repeal by-laws. In
addition, the shareholders may adopt by-laws. The board of directors may not,
however, adopt, alter or repeal by-laws that Pennsylvania law specifies may be
adopted only by shareholders. Furthermore, the board of directors may not alter
or repeal any by-law that is adopted by the shareholders and provides that it
may not be altered or repealed by the board of directors.
Business Combinations/Fair Price Provisions
Under Illinois law, a merger or consolidation requires approval of a
majority vote of the board of directors and approval by the holders of two-
thirds of the outstanding shares entitled to vote. The articles of
incorporation of any corporation may require any smaller or larger vote
requirement, but not less than a majority of the outstanding shares entitled to
vote.
In addition, there are special vote requirements for certain business
combinations of a domestic corporation that has not decided to opt out of these
provisions. Under Illinois law, "business combination" is defined generally to
include:
. a merger or consolidation of a corporation with an interested
shareholder, or with any other corporation if the merger or consolidation
is caused by an interested shareholder,
. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of assets equal to at least 10% of the aggregate market value
of all the assets or at least 10% of the aggregate market value of the
outstanding stock to or with an interested shareholder,
. any transaction involving the issuance or transfer by a corporation of
its shares to an interested shareholder, except:
. based on rights to obtain shares of a corporation that were outstanding
before a shareholder became an interested shareholder,
. based on rights to obtain dividends, distributions or the exchange of
securities for shares that are evenly distributed to all holders of a
class or series of shares after a shareholder becomes an interested
shareholder,
. pursuant to an exchange offer by a corporation to purchase shares made
on the same terms to all shareholders, and
. any issuance or transfer of shares by a corporation, so long as an
interested shareholder's proportionate ownership of any shares is not
increased, or
. any loans from a corporation to an interested shareholder.
An "interested shareholder" is defined generally as a shareholder who
beneficially owns at least 15% of the outstanding voting power or who is an
affiliate or associate of the corporation and beneficially owned 15%
102
<PAGE>
of the voting power of the then outstanding voting stock within the preceding
three years. The special vote requirements may apply to a domestic corporation
that has any equity securities registered under Section 12 of the Securities
Exchange Act of 1934 or that is subject to Section 15(d) of that Act or any
other domestic corporation that elects in its articles of incorporation to be
treated under these special vote requirements.
For these corporations, any "business combination" summarized above requires
the affirmative vote of the holders of at least 80% of the combined voting
power of the outstanding shares of all classes and series of the corporation
entitled to vote generally in the election of directors and the affirmative
vote of a majority of the voting shares held by disinterested shareholders
unless certain fair price and procedural requirements are met. These
requirements include:
. approval by two-thirds of the disinterested directors, and
. satisfaction of the conditions described in the next paragraph.
The business combination must provide that all holders of common shares
receive consideration for all their shares, and that the aggregate amount of
cash and the fair market value of consideration other than cash to be received
per share as of the date the business combination is consummated is at least
equal to the higher of:
. the highest per share price paid by the interested shareholder to acquire
any common shares beneficially owned by the interested shareholder that
were acquired (1) within two years before the proposal of the business
combination was publicly announced, or (2) in the transaction in which it
became an interested shareholder, and
. the fair market value per common share on the first trading day after the
date the business combination was publicly announced or on the first
trading date after the date that it is publicly announced that the
shareholder became an interested shareholder.
In addition, the business combination must also provide that all holders of
outstanding shares, other than holders of common shares, receive consideration
for all these shares, and that the aggregate amount of cash and the fair market
value of consideration other than cash to be received per share as of the date
the business combination is consummated is at least equal to or greater than
the higher of:
. the highest per share price paid by the interested shareholder to acquire
any of the shares beneficially owned by the interested shareholder that
were acquired (1) within two years before the proposal of the business
combination was publicly announced, or (2) in the transaction in which it
became an interested shareholder,
. the highest preferential amount per share to which the holders of the
shares are entitled in the event of any liquidation, dissolution or
winding up of the corporation,
. the fair market value of the shares on the first trading day after the
date the proposal of the business combination was publicly announced, or
on the determination date, whichever is higher, or
. an amount equal to the fair market value per share determined pursuant to
clause (iii) times the highest value obtained in calculating the highest
per share price paid by an interested shareholder for any of the shares
within the two-year period divided by the market value per share on the
first day of the two-year period in which the interested shareholder
acquired the shares.
Furthermore, the consideration to be received by shareholders of a
particular class must be in cash or in the same form as the interested
shareholder has paid. If the interested shareholder has paid in different
forms, then the form by which the interested shareholder has acquired most
shares shall apply. Also, after a shareholder has become an interested
shareholder and before the business combination is consummated:
. except as approved by two-thirds of the disinterested directors, the
corporation must not fail to declare and pay on time any dividends on any
shares other than the common shares, and
. the corporation must not reduce the annual rate of dividends paid on the
common shares.
103
<PAGE>
Finally, a proxy or information statement describing the proposed business
combination that complies with the Securities Exchange Act of 1934 must be
mailed to public shareholders at least 30 days before the business combination
is consummated.
Unicom's articles of incorporation and by-laws are silent with regard to
business combinations. Accordingly, the special voting requirements discussed
above are applicable to a business combination transaction with Unicom and an
interested shareholder. The second step merger is not, however, the type of
transaction covered by this provision of Illinois law and therefore the 80%
vote requirement does not apply.
Under Pennsylvania law, a merger or consolidation requires approval of the
corporation's board of directors and the affirmative vote of a majority of the
votes cast by all shareholders entitled to vote.
Under Pennsylvania law, unless a corporation has opted out of certain
statutory provisions, shares of a corporation whose shares are registered under
the Securities Exchange Act of 1934 acquired in a "control share acquisition"
do not have voting rights unless restored by a resolution approved by a vote of
the disinterested shareholders. Under Pennsylvania law a "control share
acquisition" means an acquisition by any person of voting power of a
corporation that would, when added to all other voting power of that person,
entitle that person to cast for the first time the amount of voting power in
any of the following ranges:
. at least 20% but less than 33 1/3%,
. at least 33 1/3% but less than 50%, or
. 50% or more.
Neither PECO Energy nor Exelon has in its articles of incorporation opted
out of the provisions of the Pennsylvania Business Corporation Law relating to
control share acquisitions.
Other Antitakeover Protection
Interested Shareholder Transactions
Illinois law restricts certain publicly held Illinois corporations from
engaging in business combinations involving an interested shareholder during
the period of three years following the date that person became an interested
shareholder. A general definition of a "business combination" under Illinois
law is described in the previous section. The restrictions involving an
interested shareholder do not apply if:
. the corporation's articles of incorporation contain a provision expressly
electing not to be governed by this section,
. the corporation does not have a class of voting shares that is listed on
a national securities exchange, authorized for quotation on the NASDAQ
Stock Market or held of record by more than 2,000 shareholders, unless
any of the foregoing results from action taken by an interested
shareholder or from a transaction in which a person becomes an interested
shareholder,
. a shareholder inadvertently becomes an interested shareholder and as soon
as practicable divests itself of ownership of sufficient shares so that
the shareholder is no longer an interested shareholder, or
. in the situation of certain business combinations, including mergers,
consolidations, tender offers, exchange offers and major asset transfers,
the business combination is:
. with a person who was not an interested shareholder during the previous
three years or who became one with the approval of the corporation's
board of directors, and
. approved by a majority of the members of the board of directors then in
office who were directors before a person became an interested
shareholder within the previous three years or were elected or who were
recommended for election to succeed the directors by a majority of
those previous directors.
104
<PAGE>
Notwithstanding the three-year restriction, a business combination with an
interested shareholder may occur if:
. the business combination or the acquisition of shares by the interested
shareholder is approved by the board of directors prior to the date the
interested shareholder becomes an interested shareholder,
. after the acquisition in which the interested shareholder becomes an
interested shareholder he or she owns at least 85% of the outstanding
voting shares, not including certain categories of employee-owned stock,
or
. on or after the date the interested shareholder became an interested
shareholder, the business combination is approved by the board of
directors and authorized by the affirmative vote of at least two-thirds
of the outstanding voting shares which are not beneficially owned by the
interested shareholder.
The articles of incorporation or by-laws may not require a greater vote of
shareholders to approve a "business combination" with an "interested
shareholder" than that specified in the preceding paragraph.
Pennsylvania law prohibits a corporation from engaging in a business
combination with the beneficial owner of 20% or more of the corporation's stock
for five years from the time the shareholder acquired the stock, unless certain
conditions are met.
Under Pennsylvania law, a corporation whose shares are registered under the
Securities Exchange Act of 1934 that has not opted out of certain statutory
provisions may engage in a business combination with a 20% shareholder within
the five-year period only if:
. The 20% shareholder's stock purchase was approved by the corporation's
board of directors before the share acquisition date,
. the business combination itself was approved by the corporation's board
of directors before the share acquisition date,
. the business combination is approved by the affirmative vote of all of
the holders of all of the outstanding common shares, or
. The business combination is approved by the affirmative vote of the
majority of disinterested shareholders no earlier than three months after
the share acquisition date, provided the 20% shareholder is the
beneficial owner of 80% of the voting shares of the corporation and
provided the price paid to all shareholders meets statutory criteria
establishing a formula price.
After the expiration of the five-year period, the business combination will
be permitted if:
. approved by a majority of disinterested shareholders, or
. approved by the affirmative vote of the shareholders provided the price
to be paid meets the formula price.
The formula price is the higher of the price paid by the 20% shareholder any
time within five years before the announcement date of the combination or the
share acquisition date, whichever is higher or the market value of the stock as
of the announcement date or the share acquisition date, whichever is higher,
plus interest on United States Treasury securities, less dividends paid on the
stock.
Neither PECO Energy nor Exelon has opted out of the provisions of the
Pennsylvania Business Corporation Law relating to interested shareholder
transactions.
Anti-Greenmail Provision
Illinois law has no anti-greenmail provisions.
105
<PAGE>
Pennsylvania law provides that, unless a corporation has opted out, any
profit realized by any person or group that acquires voting control over at
least 20% of a corporation whose shares are registered under the Securities
Exchange Act of 1934 pursuant to the disposition of equity securities of the
registered corporation within two years before or 18 months after becoming a
20% shareholder is recoverable by the corporation.
Neither PECO Energy nor Exelon has opted out of the anti-greenmail
provisions of the Pennsylvania Business Corporation Law.
Shareholder Rights Plan
Unicom currently has a shareholder rights plan. Neither PECO Energy nor
Exelon have adopted a shareholder rights plan.
Interested Director Transactions
Under Illinois law, a transaction that is fair to a corporation may not be
invalidated on the grounds that a director of the corporation is directly or
indirectly a party to the transaction. The party asserting validity has the
burden of proving fairness unless the material facts of the transaction and the
director's interest are disclosed and the transaction is approved either by a
majority of disinterested directors or by the shareholders without counting the
vote of any shareholder who is an interested director.
Pennsylvania law provides rules for transactions between a corporation and
one or more of its directors or between a corporation and another entity in
which the corporation's director is also a director or in which the director
has a financial interest. Under Pennsylvania law, a transaction is not void or
voidable solely because:
. of the director's interest,
. the interested director was present at or participated in the meeting at
which the transaction was authorized, or
. the interested director's vote counted in the authorization of the
transaction.
A transaction is not void or voidable provided:
. the board of directors knows or learns of the material facts regarding
the director's interest and the board authorizes the transaction by the
affirmative vote of a majority of disinterested directors,
. the shareholders entitled to vote on the transaction know or are told in
good faith the material facts regarding the director's interest, and the
shareholders approve the transaction, or
. the transaction is fair to the corporation as of the time it is
authorized by the board of directors or shareholders.
Neither the PECO Energy nor the Exelon by-laws alter the statutory rules
regarding interested director transactions.
Indemnification of Directors, Officers and Employees
Illinois law provides that a corporation may indemnify a director or officer
against liabilities and expenses if the director or officer acted in good faith
and in a manner he or she reasonably believed to be in, or not opposed to, the
best interests of the corporation, and, in the case of a criminal action, if
the director or officer had no reason to believe his or her conduct was
unlawful. Under Illinois law, in a proceeding brought by or in the right of the
corporation, no indemnification may be made with respect to any claim as to
which an officer or director has been adjudged to have been liable to the
corporation, unless the court determines that that person is reasonably and
fairly entitled to indemnification for expenses. Indemnification will be made
by a corporation only if a determination has been made, by a majority vote of a
quorum of the disinterested directors
106
<PAGE>
or by the shareholders or by independent legal counsel, that the director or
officer met the required standard of conduct. Illinois law provides that a
corporation may purchase liability insurance on behalf of an officer or
director whether or not the corporation would otherwise have the power to
indemnify such a person. Under Illinois law, a corporation may maintain
insurance on behalf of officers and directors against liabilities asserted
against the individual arising out of his or her status as an officer or
director, whether or not the corporation would have the power to indemnify the
individual against the liability under the relevant provisions of Illinois law.
Unicom's articles of incorporation and by-laws provide indemnification for
all directors, officers or other employees or agents of the corporation or
person who serve or served upon request of the Unicom board of directors or an
officer of the corporation as an employee or agent of the corporation or as a
director, officer, employee, agent, trustee or fiduciary of another
corporation, partnership, joint venture, trust or other enterprise to the full
extent possible now and thereafter under Illinois law. The articles and by-laws
provide that the corporation may also enter into one or more agreements with
any person providing for indemnification greater or different than the one
stated and that any repeal of the articles of incorporation or by-laws may not
adversely affect any right or protection existing immediately prior to the
repeal or modification.
Pursuant to Pennsylvania law, except as otherwise provided in the
corporation's by-laws, a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any action, suit or proceeding,
whether civil, criminal, administrative or investigative, except an action by
or in the right of the corporation. That person may be indemnified against
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her in connection with
the action, suit or proceeding if:
. he or she acted in good faith,
. in a manner which he or she reasonably believed to be in or not opposed
to the best interest of the corporation, and
. with respect to any criminal action or proceeding, he or she had no
reasonable cause to believe his or her conduct was unlawful.
In the case of shareholder derivative suits, a corporation may indemnify any
person who is or was a representative of the corporation, or is or was serving
at the request of the corporation as a representative of another corporation,
partnership, joint venture, trust or other enterprise against expenses,
including attorneys' fees, actually and reasonably incurred in connection with
the defense or settlement of the action or suit if:
. he or she acted in good faith, and
. in a manner which he or she reasonably believed to be in or not opposed
to the best interests of the corporation.
However, indemnification may not be made for any claim, issue or matter as
to which the person has been adjudged by a court of competent jurisdiction, to
be liable to the corporation, unless and only to the extent a proper court
determines upon that the person is fairly and reasonably entitled to indemnity
for expenses as the court deems proper.
Any person who has been successful on the merits or otherwise in the defense
of a civil or criminal action or proceeding is entitled to indemnification
against expenses, including attorneys' fees actually and reasonably incurred by
that person in connection with the defense.
Unless ordered by a court, any indemnification must be made by the
corporation only as authorized:
. by the shareholders,
. by majority vote of a quorum of the directors who were not parties to the
action, suit or proceeding, or
107
<PAGE>
. if a quorum is not obtainable, or if the directors so direct, by
independent legal counsel in written opinion.
The indemnification and advancement of expenses authorized by Pennsylvania
law does not exclude any other rights to which a person seeking indemnification
or advancement of expenses may be entitled under any by-law, agreement, vote of
shareholders or disinterested directors or otherwise.
Expenses, including attorneys' fees, incurred by an officer or director
defending any civil, criminal, administrative or investigative action, suit or
proceeding may be paid by the corporation in advance of the final disposition
of the action, suit or proceeding if the director or officer agrees to repay
the amount if it is ultimately determined that he or she is not entitled to be
indemnified by the corporation. Expenses incurred by other employees and agents
may be so paid on such terms and conditions as the board of directors deems
appropriate.
Both the PECO Energy and Exelon by-laws provide that the company will
indemnify officers and directors, and certain other persons, to the fullest
extent permitted by Pennsylvania law.
Limitation of Personal Liability of Directors
Illinois law provides that a corporation may eliminate or limit the personal
liability of directors to the corporation or its shareholders for monetary
damages for breach of the directors' fiduciary duties, provided that the
corporation adopts a provision to do so in its articles of incorporation. The
provision may not eliminate or limit the liability of a director:
. for any breach of the director's duty of loyalty to the corporation or
its shareholders,
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law,
. for the payment of improper dividends or certain corporate actions
following dissolution,
. for transactions from which the director derived an improper personal
benefit, or
. for any act or omission occurring before the effective date of the
articles provision.
Unicom's articles of incorporation and by-laws adopt the limitation of
director's personal liability to the extent and in the manner provided for
under Illinois law. The articles of incorporation and by-laws provide that if
Illinois law is amended to further eliminate or limit the personal liability of
directors, then this amendment will apply to its directors. Any repeal or
modification of the section of Unicom's articles of incorporation or the by-
laws regarding the personal liability of a director may not adversely affect
any right or protection of a director existing prior to the repeal or
modification.
Pennsylvania law provides that a corporation's articles may contain a
provision eliminating or limiting the personal liability of directors to the
corporation or its shareholders for damages for any breach of duty in that
capacity. However, the provision cannot eliminate or limit:
. The liability of any director if a judgment or other final adjudication
establishes that:
. the director's acts or omissions were in bad faith or involved
intentional misconduct or a knowing violation of law, or
. the director personally gained a financial profit or other advantage to
which such director was not legally entitled, or
. the liability of any director for any act or omission before the adoption
of such provision in the articles of incorporation.
108
<PAGE>
Both the PECO Energy and Exelon by-laws include a provision eliminating the
personal liability of directors to the fullest extent permitted by Pennsylvania
law. Under current Pennsylvania laws, these provisions do not apply to the
liability of a director pursuant to any criminal statute or the liability of a
director for payment of taxes pursuant to local, state or Federal law.
Constituencies Statutes
Illinois law provides that the board of directors, committees of the board,
individual directors and individual officers may, in considering the best
interest of the corporation, consider the effects of any action upon employees,
suppliers and customers of the corporation or its subsidiaries, communities in
which offices or other establishments of the corporation or its subsidiaries
are located, and all other pertinent factors.
Pennsylvania law provides that the board of directors, committees of the
board and individual directors of a business corporation may, in considering
the best interests of the corporation, consider to the extent they deem
appropriate:
. the effects of any action on any or all groups affected by the action,
including shareholders, employees, suppliers, customers and creditors of
the corporation, and upon communities in which offices or other
establishments of the corporation are located,
. the short-term and long-term interests of the corporation, including
benefits that the corporation may enjoy from its long-term plans and the
possibility that these interests may be best served by the continued
independence of the corporation,
. the resources, intent and conduct, past, stated and potential, of any
person seeking to acquire control of the corporation, and
. all other pertinent factors.
Pennsylvania law also provides that, in considering the best interests of
the corporation, the board of directors, committees of the board of directors
and individual directors are not required to regard any corporate or other
interest as dominant or controlling.
Dividends
Under Illinois law, the board of directors may, unless otherwise provided in
the articles of incorporation, authorize, and the corporation may make,
distributions to its shareholders. No distribution may be made if, after giving
it effect:
. the corporation would be insolvent, or
. the net assets of the corporation would be less than zero or less than
the maximum amount payable at the time of distribution to shareholders
having preferential rights in liquidation if the corporation were then to
be liquidated.
There is no provision regarding dividends in Unicom's articles of
incorporation or by-laws.
Under Pennsylvania law, the board of directors of a corporation may, except
as otherwise provided in its by-laws, declare and pay distributions to
shareholders in cash, property or shares, provided that a distribution may not
be made if, after giving effect thereto:
. the corporation would be unable to pay its debts as they become due in
the usual course of its business, or
. the total assets of the corporation would be less than the sum of its
total liabilities plus the amount that would be needed, if the
corporation were to be dissolved at the time the distribution is
approved, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to
109
<PAGE>
those receiving the distribution. Total assets and liabilities for this
purpose are to be determined by the board of directors, which may base its
determination on the factors it considers relevant, including the book
value of the corporation's assets and liabilities and unrealized
appreciation and depreciation of the corporation's assets.
There is no provision regarding dividends in either of PECO Energy's or
Exelon's articles of incorporation or by-laws.
Loans to Directors
Illinois law grants corporations the power to lend money to its directors,
officers, employees and agents.
Pennsylvania law permits loans, guarantees of obligations or similar
undertakings by a corporation to its directors, officers or employees.
Shareholder Records
Under Illinois law, any shareholder of record has the right to examine, at
any reasonable time and upon proper demand, the corporation's books and
records of account, minutes, voting trust agreements filed with the
corporation and record of shareholders, and to make extracts therefrom, but
only for a proper purpose. If the corporation refuses examination, the
shareholder may file suit to compel proper examination.
Under Pennsylvania law, every shareholder has a statutory right to inspect
the stock list or books and records of a corporation for a proper purpose
during the usual hours for business upon submitting a written verified demand
stating his or her purpose. If a corporation does not grant inspection to a
shareholder within five business days of a demand, the shareholder may apply
to the court for an order to enforce his or her demand. A proper purpose is
any purpose reasonably related to the person's status as a shareholder in a
corporation.
Issuance of Rights or Options to Purchase Shares to Directors, Officers and
Employees
Illinois law provides that a corporation may create and issue rights or
options entitling the holder thereof to purchase shares of any class or series
from the corporation, upon such terms and conditions as are fixed by the
board.
Pennsylvania law provides that the issuance of options or rights to
directors, officers and employees may be authorized by the board of directors,
unless the articles of incorporation provides otherwise.
Dissenters' Rights
Illinois law provides that a shareholder may dissent from, and obtain
payment for its shares in the event of, certain mergers, consolidations, share
exchanges, asset transfers and corporate actions that adversely affect
shareholder rights.
Under Pennsylvania law, a shareholder may dissent from, and receive payment
of the fair value of its shares in the event of certain mergers,
consolidations, share exchanges, asset transfers and corporate divisions.
However, no dissenters' rights are available with respect to shares which, at
the applicable record date, were either listed on a national securities
exchange or held of record by more than 2,000 shareholders, unless the holders
of the shares are required by the terms of the merger or consolidation to
accept any consideration other than shares of the surviving corporation,
shares of stock of another corporation and cash instead of fractional shares.
110
<PAGE>
LEGAL MATTERS
The legality of Exelon common stock offered by this proxy
statement/prospectus will be passed upon for Exelon by Ballard Spahr Andrews &
Ingersoll LLP. As of May 12, 2000, attorneys of Ballard Spahr Andrews &
Ingersoll LLP beneficially owned approximately 3,500 shares of PECO Energy
common stock.
Certain United States federal income tax consequences of the merger will be
passed upon for PECO Energy by Cravath, Swaine & Moore and for Unicom by Jones,
Day, Reavis & Pogue.
EXPERTS
The consolidated balance sheets of PECO Energy as of December 31, 1999, and
December 31, 1998, and the consolidated statements of income, cash flows and
changes in common shareholders' equity and preferred stock for each of the
three years in the period ended December 31, 1999, incorporated in this proxy
statement/prospectus by reference to PECO Energy's Annual Report on Form 10-K
for the year ended December 31, 1999, have been so incorporated in reliance on
the report of PricewaterhouseCoopers LLP, independent auditors, given on the
authority of said firm as experts in accounting and auditing.
The consolidated balance sheets and statements of consolidated
capitalization of Unicom as of December 31, 1999, and December 31, 1998, and
the statements of consolidated operations, retained earnings (deficit) and cash
flows for each of the three years in the period ended December 31, 1999,
incorporated in this proxy statement/prospectus by reference to Unicom's Annual
Report on Form 10-K and on Form 10-K/A for the year ended December 31, 1999,
and the consolidated balance sheets and statements of consolidated
capitalization of Unicom as of March 31, 2000, and the statements of
consolidated operations, retained earnings and cash flows for the three-month
and twelve-month ended periods then ended, incorporated in this proxy
statement/prospectus by reference to Unicom's Quarterly Report on Form 10-Q for
the period ended March 31, 2000, have been so incorporated in reliance on the
report of Arthur Andersen LLP, independent auditors, given on the authority of
said firm as experts in accounting and auditing.
111
<PAGE>
CHAPTER II--INFORMATION ABOUT THE PECO ENERGY ANNUAL MEETING AND OTHER
PROPOSALS
THE PECO ENERGY ANNUAL MEETING
This proxy statement/prospectus is being furnished in connection with the
solicitation of proxies from the holders of PECO Energy common stock by the
PECO Energy board of directors relating to the election of directors, the
merger proposal and other matters to be voted upon at the PECO Energy annual
meeting and at any adjournment or postponement of the meeting. This proxy
statement/prospectus is also a prospectus for the shares of Exelon common stock
to be issued in the merger. PECO Energy mailed this proxy statement/prospectus
to shareholders beginning May 18, 2000. You should read this proxy
statement/prospectus carefully before voting your shares.
Date, Time and Place
We will hold the PECO Energy annual meeting on Tuesday, June 27, 2000, at
9:30 a.m., local time, at the Millenium Hall of the Loews Philadelphia Hotel,
1200 Market Street, in Philadelphia, Pennsylvania. Directions to the PECO
Energy annual meeting may be found on the second to last printed page of this
proxy statement/prospectus and on the proxy card.
Purpose of PECO Energy Annual Meeting
At the PECO Energy annual meeting, you will be asked to consider and vote
upon the following proposals:
. to consider a proposal to adopt the agreement and plan of exchange and
merger dated as of September 22, 1999, as amended and restated as of
January 7, 2000, among PECO Energy, Exelon and Unicom, providing for the
first step exchange and the second step merger, described under "The
Merger" and "The Merger Agreement" in Chapter I,
. to consider and vote upon a proposal to postpone or adjourn the annual
meeting, if proposed by PECO Energy's board of directors, described under
"--Proposals for PECO Energy Annual Meeting--Item 2--Postponement or
Adjournment of Annual Meeting" below,
. to elect four members of the PECO Energy board of directors, each for a
term of three years, described under "--Proposals for PECO EnergyAnnual
Meeting--Item 3--Election of PECO Energy Directors" below,
. to ratify PricewaterhouseCoopers, LLP as PECO Energy's independent
auditors for 2000, described under "--Proposals for PECO Energy Annual
Meeting--Item 4--Ratification of Appointment of Independent Auditors"
below, and
. to consider any other business that properly comes before the PECO Energy
annual meeting.
PECO Energy Record Date; Stock Entitled to Vote; Quorum
Only holders of record of PECO Energy common stock at the close of business
on April 5, 2000, the PECO Energy record date, are entitled to notice of and to
vote at the PECO Energy annual meeting. On April 5, 2000, approximately
181,454,576 shares of PECO Energy common stock were issued and outstanding and
held by approximately 130,662 holders of record. A quorum will be present at
the PECO Energy annual meeting if at least a majority of the shares of PECO
Energy common stock issued and outstanding and entitled to vote on the PECO
Energy record date are represented in person or by proxy. If a quorum is not
present at the PECO Energy annual meeting, we expect that the PECO Energy
annual meeting will be adjourned or postponed to solicit additional proxies.
Holders of record of PECO Energy common stock on the PECO Energy record date
are entitled to one vote per share at the PECO Energy annual meeting.
112
<PAGE>
Vote Required
Assuming the presence of a quorum, generally the adoption of a proposal by
PECO Energy shareholders requires the affirmative vote of the holders of at
least a majority of all shares of PECO Energy common stock casting votes in
person or by proxy, telephone or Internet at the PECO Energy annual meeting.
Directors are elected by a plurality, and the four nominees who receive the
most votes will be elected. Abstentions and broker non-votes will not be taken
into account to determine the outcome of the election of directors or the
approval of any proposal.
Voting by PECO Energy Directors and Executive Officers
At the close of business on April 5, 2000, directors and executive officers
of PECO Energy and their affiliates owned and were entitled to vote
approximately 354,247 shares of PECO Energy common stock, which represented
approximately 0.2% of the shares of PECO Energy common stock outstanding on
that date.
Voting Your Shares
The PECO Energy board of directors is soliciting proxies from PECO Energy
shareholders. This will give you the opportunity to vote at the PECO Energy
annual meeting. When you deliver a valid proxy, the shares represented by that
proxy will be voted in accordance with your instructions.
You may grant a proxy by
. signing and mailing your proxy card,
. calling a toll-free number and following the recorded instructions or
. going to a website on the Internet and following the instructions
provided. If your shares are not registered in your own name, the bank,
broker or other institution holding your shares may not offer telephone
or Internet proxy voting. If your proxy card does not include telephone
or Internet voting instructions, please complete and return your proxy
card by mail. You may also cast your vote in person at the meeting.
Mail
To grant your proxy by mail, please complete your proxy card, sign, date and
return it in the enclosed envelope. To be valid, a returned proxy card must be
signed and dated.
Telephone
You may use the toll-free number listed on your proxy card to grant your
proxy. You must have your proxy card ready. Call the toll-free number and do
the following:
. enter your Control Number located on your proxy card, and
. follow the recorded instructions.
Internet
You may also use the Internet to grant your proxy. You must have your proxy
card ready and:
. go to the website shown on your proxy card and follow the instructions
provided, and
. enter your Control Number located on your proxy card.
In Person
If you attend the PECO Energy annual meeting in person, you may vote your
shares by completing a ballot at the meeting.
113
<PAGE>
Voting of Proxies
All shares represented by properly executed proxies received in time for the
PECO Energy annual meeting will be voted at the PECO Energy annual meeting in
the manner specified by the holders of those proxies. Properly executed proxies
that do not contain voting instructions will be voted for the adoption of the
merger agreement and the other proposals recommended by the PECO Energy board
of directors.
Shares of PECO Energy common stock represented at the PECO Energy annual
meeting but not voting, including shares of PECO Energy common stock for which
proxies have been received but for which holders of shares have abstained, will
be treated as present at the PECO Energy annual meeting for purposes of
determining the presence or absence of a quorum for the transaction of all
business.
Only shares affirmatively voted for the proposal for the adoption of the
merger agreement, including properly executed proxies that do not contain
voting instructions, will be counted as favorable votes for that proposal.
Brokers who hold shares of PECO Energy common stock in street name for
customers who are the beneficial owners of those shares may not give a proxy to
vote those shares without specific instructions from those customers. These
non-voted shares are referred to as broker non-votes and will have no effect in
determining whether the merger agreement will be adopted.
PECO Energy does not expect that any matter other than the proposal to adopt
the merger agreement, the election of directors and appointment of auditors
will be brought before the PECO Energy annual meeting. If, however, the PECO
Energy board of directors properly presents other matters, the persons named as
proxies will vote in accordance with their judgment.
Revocability of Proxies
Voting by use of a proxy on the enclosed form, telephone or Internet does
not preclude a PECO Energy shareholder from voting in person at the PECO Energy
annual meeting. A PECO Energy shareholder may revoke a proxy at any time prior
to its exercise by filing with the corporate secretary of PECO Energy a duly
executed revocation of proxy, by submitting a duly executed proxy, telephone or
Internet vote to PECO Energy bearing a later date or by appearing at the PECO
Energy annual meeting and voting in person. Attendance at the PECO Energy
annual meeting without voting will not itself revoke a proxy.
Solicitation of Proxies
PECO Energy will bear the cost of the solicitation of proxies from its
shareholders. In addition to solicitation by mail, the directors, officers and
employees of PECO Energy and its subsidiaries may solicit proxies from PECO
Energy shareholders by telephone or other electronic means or in person.
Arrangements will also be made with brokerage houses and other custodians,
nominees and fiduciaries for the forwarding of solicitation materials to the
beneficial owners of stock held of record by these persons, and PECO Energy
will reimburse them for their reasonable out-of-pocket expenses.
PECO Energy will mail a copy of this proxy statement/prospectus to each
holder of record of PECO Energy common stock on the PECO Energy record date.
Morrow & Co., Inc. will assist in the solicitation of proxies by PECO
Energy. PECO Energy will pay Morrow & Co. a fee of $20,000, plus reimbursement
of certain out-of-pocket expenses, and will indemnify Morrow & Co. against any
losses arising out of Morrow & Co.'s proxy soliciting services on behalf of
PECO Energy.
114
<PAGE>
PECO Energy shareholders should not send stock certificates with their
proxies. A transmittal form with instructions for the surrender of PECO Energy
common stock certificates will be mailed to PECO Energy shareholders after
completion of the merger.
PROPOSALS FOR PECO ENERGY ANNUAL MEETING
ITEM 1--PECO Energy Merger Proposal
For summary and detailed information regarding the PECO Energy merger
proposal, see "The Merger" in Chapter I.
ITEM 2--Postponement or Adjournment of Annual Meeting
In the event that the PECO Energy board of directors decides to adjourn or
postpone the PECO Energy annual meeting, it shall submit to PECO Energy
shareholders present and entitled to vote a proposal to so adjourn or postpone
the annual meeting. We are asking that you grant your proxy for your shares to
be voted in favor of such a proposal, if made.
ITEM 3--Election of PECO Energy Directors
The PECO Energy board of directors consists of 12 members, divided into
three classes. The three-year terms of each class are staggered so that the
term of one class expires at each annual meeting. The terms of the four Class I
directors will expire at the 2000 annual meeting.
The corporate governance committee has recommended, and the PECO Energy
board of directors nominates, the following Class I directors for re-election:
Richard H. Glanton, Rosemarie B. Greco, Corbin A. McNeill, Jr. and Robert
Subin. Each has consented to serve a three-year term.
If any director is unable to stand for re-election, the PECO Energy board of
directors may reduce the number of directors, or designate a substitute. In
that case, shares represented by proxies may be voted for a substitute
director. We do not expect that any nominee will be unavailable or unable to
serve.
The corporate governance committee and the PECO Energy board of directors
recommend a vote FOR these directors.
Biographical Information of PECO Energy Directors
CORBIN A. McNEILL, JR.* Director since 1990
Mr. McNeill, age 60, is Chairman, President and Chief
Executive Officer of PECO Energy. He was elected Executive
Vice President, Nuclear in 1988, President and Chief Operating
Officer in 1990, Chief Executive Officer in 1995 and Chairman
in 1997. Before joining PECO Energy in 1988, he was Senior
Vice President, Nuclear of Public Service Electric and Gas
Company.
[PHOTO]
* Nominee for election at 2000 annual meeting.
115
<PAGE>
SUSAN W. CATHERWOOD Director since 1988
Ms. Catherwood, age 56, is the former Chairman of the Trustee
Board, University of Pennsylvania Medical Center and Health
System and Vice Chairman of the Board of the University of
Pennsylvania. She was formerly Chairman of the Board of
Overseers of the University of Pennsylvania Museum. Ms.
Catherwood is also a director of the Glenmede Corporation, the
Glenmede Trust Company, the Glenmede Trust Company of New
Jersey and the Pew Charitable Trusts.
[PHOTO]
DANIEL L. COOPER Director since 1997
Admiral Cooper, age 64, is the former Vice President and
General Manager, Nuclear Services Division of
Gilbert/Commonwealth, Inc. He retired from the Navy in 1991 as
Assistant Chief of Naval Operations (Undersea Warfare). His
Navy career included service as Commander, Submarine Force, of
the U.S. Atlantic Fleet; Director of Navy Program Planning;
and Director, Navy Budget. He is a former director and Vice
Chairman of the Board of USAA insurance company, an insurance
and financial services company; and until December 1999 was
Chairman of the Advisory Board of Applied Research Laboratory,
Penn State University.
[PHOTO]
M. WALTER D'ALESSIO Director since 1983
Mr. D'Alessio, age 66, is Chairman, President and Chief
Executive Officer of Legg Mason Real Estate Services,
commercial mortgage banking and pension fund advisors. He is
also a director of the Philadelphia Beltline Railroad,
Independence Blue Cross and the Brandywine Real Estate
Investment Trust.
[PHOTO]
G. FRED DiBONA, JR. Director since 1997
Mr. DiBona, age 49, is President and Chief Executive Officer
of Independence Blue Cross, a health insurance organization.
He also serves as Chairman, President and Chief Executive
Officer of Keystone Health Plan East, a subsidiary of
Independence Blue Cross. He is past chairman of the National
Blue Cross and Blue Shield Association. He is also a director
of Tasty Baking Company, Philadelphia Suburban Corporation,
Eclipsys Corporation and Magellan Health Services, Inc.
[PHOTO]
R. KEITH ELLIOTT Director since 1997
Mr. Elliott, age 58, is the former Chairman and Chief
Executive Officer of Hercules Incorporated, which produces
specialty chemicals and related products. He is also a
director of Wilmington Trust Company and Computer Task Group.
[PHOTO]
* Nominee for election at 2000 annual meeting.
116
<PAGE>
RICHARD H. GLANTON* Director since 1991
Mr. Glanton, age 53, is a partner of the law firm of Reed
Smith Shaw & McClay LLP. Mr. Glanton is also a director of CGU
Corporation of North America, Philadelphia Suburban
Corporation, Philadelphia Suburban Water Company, Wackenhut
Corrections Corporation and is Chairman of Philadelphia
Television Network, Inc.
Reed Smith Shaw & McClay LLP provided legal services to PECO
Energy during 1999. Under the board's conflict of interest
policy, the board specifically reviewed the proposal to engage
Mr. Glanton's partners to perform particular legal services
and concluded that the representation was in the best interest
of PECO Energy.
[PHOTO]
ROSEMARIE B. GRECO* Director since 1998
Ms. Greco, age 53, is the Principle of GRECO ventures and is
the former President of CoreStates Financial Corporation and
Chief Executive Officer, President and director of CoreStates
Bank, N.A. She is also a director of Sunoco, Inc.,
Pennsylvania Real Estate Investment Trust, Cardone Industries,
Inc., Genuardi's Family Markets, Inc., PWRT ComServe, Inc. and
Radian Group, Inc.
[PHOTO]
JOHN M. PALMS, Ph.D. Director since 1990
Dr. Palms, age 64, is President of the University of South
Carolina and Professor of Physics. He previously served as
President of Georgia State University and was the Charles
Howard Chandler Professor of Physics and Vice President for
Academic Affairs of Emory University. He is also director of
Fortis, Inc., Policy Management Systems Corporation, Chairman
of the Board of Trustees of the Institute for Defense Analyses
and a member of the Advisory Council for the Institute of
Nuclear Power Operations.
[PHOTO]
JOSEPH F. PAQUETTE, JR. Director since 1988
Mr. Paquette, age 65, retired as Chairman of the Board in
1997. During his career with PECO Energy, he also held the
positions of President, Chief Executive Officer and Chief
Operating Officer. He is also a director of AAA Mid-Atlantic
Inc. and Keystone Insurance Companies.
[PHOTO]
RONALD RUBIN Director since 1988
Mr. Rubin, age 68, is Chief Executive Officer of The
Pennsylvania Real Estate Investment Trust, a real estate
management and development company. In 1997, the Rubin
Organization, Inc. was acquired by The Pennsylvania Real
Estate Investment Trust. He is a former director of
Continental Bank and Midlantic Bank.
[PHOTO]
* Nominee for election at 2000 annual meeting.
117
<PAGE>
ROBERT SUBIN* Director since 1994
Mr. Subin, age 61, retired as Senior Vice President--Global
Sourcing & Engineering for Campbell Soup Company in 1998.
During his career at Campbell Soup Company, he held the
positions of Senior Vice President--Finance, President of the
Bakery and Confectionery Division, President of the
International Specialty Foods Division and President of the
Campbell Europe/America Division.
[PHOTO]
* Nominee for election at 2000 annual meeting
Committees of the PECO Energy Board of Directors
Audit Committee
The Audit Committee reviews auditing, accounting, financial reporting and
internal control functions. The committee also reviews officers' and
directors' expenses, corporate code of conduct, environmental and legal
compliance matters and Year 2000 issues. This committee recommends the
independent auditors and approves the scope of the annual audit by the
independent auditors and internal auditors. All members of this committee are
non-employee directors. The committee meets outside of the presence of
management for portions of its meetings with both the independent auditors and
the internal auditors.
Compensation Committee
The Compensation Committee reviews the executives' compensation and
administers and oversees the employee benefit plans and programs. The
committee makes compensation decisions, which are approved by the full board,
for the positions of Chairman, Chief Executive Officer, President, Senior Vice
President, Vice President and Corporate Secretary. The committee uses the
services of an independent compensation consultant who reports directly to the
committee. All members are non-employee directors.
Corporate Governance Committee
The Corporate Governance Committee considers and recommends nominees for
election as directors. The committee reviews individual committee self-
assessments and makes recommendations on board and committee structure,
membership, functions, compensation and effectiveness. The committee oversees
management succession planning and development programs on behalf of the
board. The committee also establishes the job description and performance
criteria of the chief executive officer and initially evaluates the chief
executive officer's performance for the board. All members are non-employee
directors.
Finance Committee
The Finance Committee reviews and makes recommendations to the board about
significant financial matters and business opportunities. The committee serves
as the fiduciary of PECO Energy's qualified pension and savings plans,
establishes the investment policy and reviews the transactions and performance
of the investment managers. All members are non-employee directors.
Nuclear Committee
The Nuclear Committee oversees nuclear operations of PECO Energy for
safety, reliability and quality and effectiveness of management and management
systems. The committee uses an independent consultant to assist it in
performing its functions.
Public Affairs Committee
The Public Affairs Committee advises management on matters of legislative,
regulatory and public policy.
Each director attended at least 92% of the meetings of the board and the
meetings of committees of which he or she was a member.
118
<PAGE>
Committee Membership Roster
<TABLE>
<CAPTION>
Corporate Public
Name Board Audit Compensation Governance Finance Nuclear Affairs
---- ----- ----- ------------ ---------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
C. A. McNeill, Jr....... X* x*
S. W. Catherwood........ X X* X
D. L. Cooper............ X X X X
M. W. D'Alessio......... X X* X X
G. F. DiBona, Jr........ X X X
R. K. Elliott........... X X X*
R. H. Glanton........... X X X
R. B. Greco............. X X X X X
J. M. Palms............. X X X X*
J. F. Paquette, Jr...... X X X
R. Rubin................ X X X X
R. Subin................ X X* X
No. of Meetings in
1999................... 10 3 5 4 11 13 2
</TABLE>
- --------
* Chairperson
Board Compensation
Employee directors receive no compensation, other than their normal salary,
for serving on the board or its committees.
PECO Energy's total compensation target for directors who are not officers
of PECO Energy is between the lowest 25th and the 50th percentile of the
general industry average. Directors are paid in cash and deferred stock units
as set forth below, and are reimbursed expenses, if any, for attending
meetings:
. $21,000 Annual board retainer,
. $ 1,000 Meeting fee,
. $ 2,000 Annual retainer for chairmanship of audit and nuclear committees,
. $ 1,000 Annual retainer for chairmanship of compensation, corporate
governance and finance committees, and
. 1,000 Deferred stock units.
Directors are required to own at least 3,000 shares of PECO Energy common
stock or stock units within three years after their election to the board.
Effective January 1997, PECO Energy terminated all future retirement benefit
accruals and stock option grants for non-employee directors. Accrued benefits
under the previous retirement plan have been replaced with a one-time grant of
deferred stock units equal to the January 1997 value of all accrued benefits.
The expected values of the future benefits under the previous retirement plan
have been replaced with annual grants of deferred stock units. Each deferred
stock unit is the right to receive one share of PECO Energy common stock at
retirement. Before retirement, deferred stock units accrue dividend equivalents
for each year the director serves on the board. Upon retirement, the director
can receive the accumulated shares in a lump sum or spread the distribution
over a period of up to ten years.
Directors can elect to receive all or a portion of their compensation in
stock or to defer receiving it until retirement, death or until they no longer
serve as director. Deferred compensation is put in an unfunded account and
credited with interest, equal to the amount that would have been earned had the
compensation been invested in one or more of eight designated mutual funds. The
deferred amounts and accrued interest are unfunded obligations of PECO Energy
and cannot be distributed to the director until he or she reaches 65, retires
or is no longer a director. There are exceptions to this rule for financial
hardship.
119
<PAGE>
In 1999, non-employee directors received $520,000 as a group. At its April
27, 1999 meeting, the corporate governance committee reviewed the overall level
of director compensation and increased the annual allocation of deferred stock
units from 715 to 1,000.
Report of the Compensation Committee
What is Our Compensation Philosophy?
The objectives of PECO Energy's executive compensation program are to
motivate and reward senior management for achieving high levels of business
performance and outstanding financial results. In 1999, PECO Energy continued
to direct its focus to compensating executives competitively with general
industry. This philosophy reflects a commitment to attract executives from
competitive businesses and retain key executives to ensure positive business
performance and continued focus on achieving long-term growth in shareholder
value.
The compensation committee, comprised of non-employee directors, has the
responsibility of administering executive compensation programs, policies and
practices. There are three parts to PECO Energy's executive compensation
program:
. Base salary,
. Annual bonuses, and
. Long-term incentives.
These three parts balance short-term, mid-term and long-term business
objectives and align executive financial rewards with those of PECO Energy's
shareholders.
Annual incentives are awarded for the successful achievement of PECO
Energy's financial and operational goals established at the beginning of each
year.
Long-term incentives are generally granted in the form of stock options and
restricted stock. These awards tie the executives' financial rewards directly
to increased shareholder value.
What Factors Do We Consider in Determining Overall Compensation?
Compensation levels for PECO Energy's executives are reviewed each year by a
nationally recognized, independent consulting firm. A survey of large, general
industry companies, adjusted for PECO Energy's size, including the majority of
companies in the "Fortune 500", is prepared and presented to the compensation
committee. The compensation committee uses this information, along with
individual performance and PECO Energy's overall financial condition, to make
decisions on each executive's overall compensation.
How Do We Determine Base Salary?
Base salaries for PECO Energy's executives are determined by individual
performance and by comparisons to the salaries of executives in similar
positions in general industry, and where appropriate, the utility sector. The
goal for the base salary component is to pay competitively with comparable
markets to attract and retain key executives. Executive salaries are targeted
to correspond to approximately the median (50th percentile) salaries of the
companies identified and surveyed.
Mr. McNeill's 1999 Base Salary: The committee determined Mr. McNeill's base
salary as Chairman, President and CEO by considering:
. input from an outside consulting firm, which reviews competitive data and
estimates a competitive level of base pay,
120
<PAGE>
. performance achieved against financial goals in 1998, and
. the implementation of PECO Energy's strategic plans.
Other Named Executives' 1999 Base Salary: The base pay for the other named
executive officers listed in the Summary Compensation Table on page 125 was
determined by their individual performance and by considering comparable
compensation data from the industry surveys referred to above.
How Are Annual Bonuses Determined?
Under the PECO Energy management incentive compensation plan, annual bonuses
are paid to executives based on a combination of the achievement of pre-
determined corporate and business unit-specific measures and individual
performance. The objective of the incentive plan is to tie executive bonuses to
achievement of key goals of PECO Energy and the executive's particular business
unit.
Corporate and business unit measures are established each year and are based
on critical business factors necessary to achieve a balance of short and long-
term strategic business objectives. These goals are incorporated into a number
of factors designed to measure corporate and business unit performance. These
key performance factors are financial, customer, internal and innovation
measures, which are described below.
1999 Bonus Payout Level: For 1999, Mr. McNeill's bonus payout was determined
according to the following corporate performance measures:
. Net Income,
. Cash Flow,
. Average Customer Retention of PECO Energy's Distribution Division,
. Customer Value Index of PECO Energy's Distribution Division,
. Employee Commitment,
. Safety,
. Generating Company Capacity Growth,
. Exelon Portfolio Growth, and
. Implementation of the Corporate Value Drivers.
The other named executive officers listed in the Summary Compensation Table
on page 125 are measured on a combination of corporate results and on measures
specific to their business unit or department.
<TABLE>
<CAPTION>
Executive Factors Weighting
- --------- ------- ---------
<S> <C> <C>
Mr. McNeill............................................. Corporate 100%
Messrs. Egan and Durham................................. Corporate 80%
Business Unit 20%
Messrs. Lawrence and Rainey............................. Corporate 60%
Business Unit 40%
</TABLE>
Mr. McNeill's 1999 Bonus: In evaluating Mr. McNeill's performance, the
committee considered the overall performance of PECO Energy against the
measures that were achieved in the incentive plan. In arriving at Mr. McNeill's
bonus, the committee factored in his leadership in positioning PECO Energy for
the future, including:
. The fact that overall financial, customer, and operational results were
consistently above target levels,
121
<PAGE>
. The aggressive growth plan of the generating company, with the
acquisition, or signed intent to acquire, 5,600 megawatts of additional
generation capacity through the purchase of Three Mile Island, Nine Mile
Point, Oyster Creek, Peach Bottom, Clinton, Vermont Yankee and entry into
certain power purchase contracts,
. The inception of the Exelon Infrastructure Services subsidiary, as a
separate line of business, and
. The pending merger of PECO Energy and Unicom, which will result in one of
the largest electric utility companies in the United States.
A final 1999 plan payout to Mr. McNeill of $1,000,000 was approved by the
Board.
Other Named Executive Officers' 1999 Bonuses: The final 1999 incentive plan
payouts as approved by the committee for Messrs. Egan, Durham, Lawrence and
Rainey were an aggregate of $1,105,100 for the group and were determined in
accordance with the incentive plan and each individual's performance.
How Is Compensation Used To Focus Management on Long-Term Value Creation?
In 1997, the shareholders approved an amended 1989 long-term incentive plan.
The amended 1989 plan awards performance-based grants and provides PECO Energy
flexibility in its executive compensation practices in a competitive,
deregulated business environment. For 1999, the amended 1989 plan was divided
into two segments: mid-term and long-term incentives.
Mid-term Incentives
Mid-term incentives are awarded in the form of restricted stock to retain
key executives engaged in positioning PECO Energy. Awards are determined upon
the successful completion of strategic goals designed to achieve long-term
business success and increased shareholder value. Depending upon PECO Energy's
progress each year, the committee may award restricted stock with prohibitions
on sale or transfer until the restrictions lapse.
Restricted stock was awarded to key executives after a review of the
progress made in repositioning PECO Energy to compete successfully over the
long term. Specific areas considered in determining awards for Mr. McNeill and
the other named officers included outstanding shareholder return for 1998,
finalization of the settlement with the Pennsylvania Public Utility Commission,
and growth in both core and new lines of business.
Mr. McNeill's mid-term award of 25,000 shares of restricted stock was
approved by the Board of Directors.
The mid-term awards as approved by the Board of Directors for Messers. Egan,
Durham, Lawrence and Rainey were an aggregate of 14,000 shares of restricted
stock.
Long-term Incentives
Long-term incentives are granted in the form of stock options. The purpose
of stock options is to align compensation directly to increases in shareholder
value. Individuals receiving options are given the right to buy a fixed number
of shares of PECO Energy common stock at the closing price of the PECO Energy
common stock on the date of grant during a specified period of time.
In 1998, Mr. McNeill and other named officers received a multi-year grant of
stock options. These awards were designed to motivate the executives to achieve
aggressive stock appreciation during the uncertain business conditions that
exist during the transition to deregulation. In addition, this approach
supported the strategy of shifting total compensation from utility industry to
general industry standards, where the proportion of at-risk pay to fixed pay is
considerably higher. In 1999, no stock options were awarded to executives who
received these significant grants. Mr. Durham, who did not receive a multi-year
award in 1998, received an award in 1999 of 30,000 stock options.
122
<PAGE>
Stock Ownership Guidelines
PECO Energy is committed to strengthening the alignment of its executives'
financial interests with those of its shareholders. Officers of PECO Energy are
required to own the following levels of stock:
<TABLE>
<CAPTION>
Stock
Position Ownership Levels
-------- ----------------
<S> <C>
Chairman, President and CEO.............................. 4 times salary
Senior Vice Presidents................................... 2 times salary
Other officers........................................... 1 times salary
</TABLE>
Officers must meet the required levels of stock ownership by February 2002
or five years from their election as an officer of PECO Energy, whichever is
later. The Chairman reviews ownership progress of executives on a regular
basis, and reports progress against target levels to the compensation committee
annually. Stock options, whether vested or unvested, are not considered stock
owned for the purpose of meeting the ownership guidelines.
Can We Deduct Executive Compensation Under Section 162(m) of the Internal
Revenue Code?
Under Section 162(m) of the Internal Revenue Code, PECO Energy may not
deduct executive compensation in excess of $1.0 million per year unless it
qualifies as performance-based compensation. The compensation committee
reviewed PECO Energy's current compensation plans and practices and concluded
that it was entitled to deduct executive compensation under Section 162(m).
Are the Companies Used in the Executive Compensation Comparison and in the
Shareholder Return Comparison the Same?
The shareholder return comparison companies are those included in the Dow
Jones Utility Average. For 1999, the companies used for executive pay
comparisons are companies across general industry, including a number of major
electric utilities.
What Was PECO Energy Company's Cumulative Shareholder Return?
As noted on the graph shown on page 124, an investment of $100 in PECO
Energy common stock on December 31, 1994 would have grown in value to $185.34
assuming reinvestment of dividends at December 31, 1999. For the five-year
period ending December 31, 1999, the total cumulative return for holders of
PECO Energy common stock amounted to approximately 85%, or the equivalent of
13.13% per year compounded. That return was slightly below the comparable Dow
Jones Utility Average, and both indices were substantially below the return of
the Standard & Poor's 500 Stock Index.
Compensation Committee
Robert Subin, Chairman
G. Fred DiBona, Jr.
Rosemarie B. Greco
John M. Palms, Ph.D.
Ronald Rubin
123
<PAGE>
Comparison of Five-Year Cumulative Return
The performance chart below illustrates a five-year comparison of cumulative
total returns based on an initial investment of $100 in PECO Energy common
stock as compared with the S&P 500 Stock Index and the Dow Jones Utility
Average for the period 1994 through 1999.
This performance chart assumes:
. $100 invested on December 31, 1994 in PECO Energy common stock, S&P 500
Stock Index and Dow Jones Utility Average, and
.all dividends are reinvested.
Comparison of Five-Year Cumulative Return-1995-1999
UCM COMMON STOCK S&P 500 COMPOSITE DJ UTIL
1994 100 100 100
1995 144 137 132
1996 127 169 144
1997 154 225 177
230
1998 202 289 210
300
1999 183 350 198
124
<PAGE>
Summary Compensation Table
Compensation of Executive Officers
The amounts listed under "All Other Compensation" are matching contributions
made by PECO Energy under the PECO Energy Employee Savings Plan.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
----------------------------------- ----------------------------------
Awards Payouts
------------------- --------------
Restricted
Stock Long-Term All Other
Award(s) Options Incentive Plan Compensation
Name and Principal Position Year Salary ($) Bonus ($) Other ($) ($) (#)(A) Payouts ($) ($)
--------------------------- ---- ---------- --------- --------- ---------- ------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Corbin A. McNeill, Jr... 1999 659,857 1,000,000 0 942,188 0 0 3,200
Chairman of the Board, 1998 585,476 708,100 0 0 500,000 0 3,200
President and Chief 1997 551,112 330,200 0 0 50,000 0 3,200
Executive Officer
Michael J. Egan......... 1999 326,312 311,400 0 150,750 0 0 0
Senior Vice President, 1998 317,439 235,700 0 0 125,000 0 0
Finance and Chief 1997 63,003 229,148 0 99,851(B) 298,000 0 200,000(C)
Financial Officer
Gerald R. Rainey........ 1999 310,386 289,000 0 150,750 0 0 2,076
President and Chief 1998 269,308 193,700 0 0 90,000 0 2,040
Nuclear Officer, 1997 215,260 99,783 0 0 10,000 0 3,200
PECO Energy Nuclear
James W. Durham......... 1999 298,831 274,500 0 120,600 30,000 0 3,200
Senior Vice President, 1998 298,952 225,300 0 0 34,000 0 3,200
and General Counsel 1997 294,639 111,733 0 0 20,000 0 3,200
Kenneth G. Lawrence..... 1999 291,847 241,200 0 94,219 0 0 3,200
Senior Vice President, 1998 282,164 200,700 0 0 115,000 0 3,107
Corporate and Presi- 1997 255,126 107,142 0 0 20,000 0 3,200
dent, PECO Energy Dis-
tribution
</TABLE>
(A) In 1998, Messrs. McNeill, Egan, Rainey and Lawrence received a multi-
year grant of stock options. Therefore, they did not receive any stock
options in 1999.
(B) At December 31, 1999, Mr. Egan held 4,475 shares of restricted stock
with an aggregate value of $155,506. These shares vest on October 13,
2000 and Mr. Egan will receive dividends on these shares during the
vesting period.
(C) The signing bonus that Mr. Egan received when he was elected an officer
effective October 13, 1997.
125
<PAGE>
Option Grants in 1999
The options listed below become exercisable in full based on a combination of
PECO Energy stock price performance and time. Once the stock has closed at a
price of $41.00, one third of the options will vest 12 months from the date of
grant, one-third will vest 24 months from the date of grant and one-third will
vest 36 months from the date of grant.
Values indicated are an estimate based on the Black-Scholes option pricing
model. Although executives risk forfeiting these options in some circumstances,
these risks are not factored into the calculated values. The actual value of
these options will be determined by the excess of the stock price over the
exercise price on the date the option is exercised. There is no certainty that
the actual value realized will be at or near the value estimated by the Black-
Scholes option pricing model.
Assumptions used for the Black-Scholes model are as of December 31, 1999 and
are as follows:
<TABLE>
<S> <C>
Risk-free interest rate......................................... 5.41%
Volatility...................................................... .2836
Dividend yield.................................................. 6.26%
Time of exercise ............................................... 9.5 years
</TABLE>
<TABLE>
<CAPTION>
Individual Grants Grant Date Value
----------------------------- ----------------
% of Total
Number of Options
Securities Granted
Underlying Options to Employees Exercise or Base Grant Date
Name Granted(#) in 1999 Price($/SH) Expiration Date Present Value($)
---- ------------------ ------------ ---------------- --------------- ---------------- ---
<S> <C> <C> <C> <C> <C> <C>
Corbin A. McNeill, Jr... 0 0 N/A N/A 0
Chairman of the Board,
President and Chief
Executive Officer
Michael J. Egan......... 0 0 N/A N/A 0
Senior Vice President,
Finance and Chief
Financial Officer
Gerald R. Rainey........ 0 0 N/A N/A 0
President and Chief
Nuclear Officer,
PECO Energy Nuclear
James W. Durham......... 30,000 .16 37.6875 02/23/09 241,800
Senior Vice President
and General Counsel
Kenneth G. Lawrence..... 0 0 N/A N/A 0
Senior Vice President,
Corporate and
President,
PECO Energy
Distribution
</TABLE>
126
<PAGE>
Option Exercises and Year-End Value
This table shows the number and value of exercised and unexercised stock
options for the named executive officers during 1999. Value is determined using
the market value of PECO Energy common stock at the year-end price of $34.75
per share, minus the value of PECO Energy common stock at the exercise price.
All options whose exercise price exceeds the market value are valued at zero.
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised in-the-Money
Options at Options at
12/31/99 12/31/99
-------------- --------------
Shares
Acquired Value (#)Exercisable ($)Exercisable
Name on Exercise(#) Realized($) Unexercisable Unexercisable
---- ------------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Corbin A. McNeill, Jr... 25,000 596,875 E 823,500 E 10,725,375
Chairman of the Board, U 0 U 0
President and Chief
Executive Officer
Michael J. Egan......... 0 0 E 423,000 E 5,379,039
Senior Vice President, U 0 U 0
Finance and Chief
Financial Officer
Gerald R. Rainey........ 0 0 E 0 E 0
President and Chief
Nuclear Officer, U 0 U 0
PECO Energy Nuclear
James W. Durham......... 0 0 E 174,000 E 1,580,250
Senior Vice President
and General Counsel U 20,000 U 0
Kenneth G. Lawrence..... 20,000 497,760 E 108,000 E 1,108,500
Senior Vice President,
Corporate and U 0 U 0
President, PECO Energy
Distribution
</TABLE>
127
<PAGE>
Pension Plan Table
<TABLE>
<CAPTION>
Years of Service
Average Annual
Compensation for
Highest Consecutive
Five Years 10 years 15 years 20 Years 25 Years 30 Years 35 Years 40 Years
------------------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 100,000.00 $ 19,343 $ 26,514 $ 33,686 $ 40,857 $ 48,029 $ 55,200 $ 62,372
200,000.00 39,843 54,764 69,686 84,607 99,529 114,450 129,372
300,000.00 60,343 83,014 105,686 128,357 151,029 173,700 196,372
400,000.00 80,843 111,264 141,686 172,107 202,529 232,950 263,372
500,000.00 101,343 139,514 177,686 215,857 254,029 292,200 330,372
600,000.00 121,843 167,764 213,686 259,607 305,529 351,450 397,372
700,000.00 142,343 196,014 249,686 303,357 357,029 410,700 464,372
800,000.00 162,843 224,264 285,686 347,107 408,529 469,950 531,372
900,000.00 183,343 252,514 321,686 390,857 460,029 529,200 598,372
1,000,000.00 203,843 280,764 357,686 434,607 511,529 588,450 665,372
</TABLE>
Messrs. McNeill, Egan, Rainey, Durham and Lawrence have 32, 2, 30, 21 and 30
credited years of service, respectively, under PECO Energy's pension program.
Mr. Durham has been granted one year of additional service, for purposes of
calculating his benefits under PECO Energy's pension program, for each year of
service up to a maximum of 10 additional years.
Retirement Plans
The preceding table shows the estimated annual retirement benefits payable
on a straight-life annuity basis to participating employees, including
officers, in the earnings and year of service classes indicated, under PECO
Energy's non-contributory retirement plans. The amounts shown in the table are
not subject to any deduction for Social Security or other offset amounts.
Covered compensation includes salary and bonus which is disclosed in the
Summary Compensation Table on page 125 for the named executive officers. The
calculation of retirement benefits under the plans is based upon average
earnings for the highest consecutive five-year period. The Internal Revenue
Code limits the annual benefits that can be paid from a tax-qualified
retirement plan. As permitted by the Employee Retirement Income Security Act of
1974, PECO Energy has supplemental plans which allow the payment out of general
funds of PECO Energy of any benefits calculated under provisions of the
applicable retirement plan which may be above these limits.
128
<PAGE>
Other Information
Change-of-Control Agreements
PECO Energy has entered into change-of-control agreements with most of its
executive officers, including the individuals named in the Summary Compensation
Table. The purpose of the agreements is to assure the objective judgment, and
to keep the loyalties, of key executives when PECO Energy is faced with a
potential change of control by providing for a continuation of salary, bonus,
health and other benefits for a maximum period of three years. See "The
Merger--Interests of PECO Energy's Directors and Management in the Merger--
Change in Control under Plans" in Chapter I.
In addition, PECO Energy's long-term incentive plan allows the committee
administering this plan to terminate the restrictions on stock options and
restricted stock grants at any time. PECO Energy has also entered into two
trust agreements to provide for the payment of retirement benefits and deferred
compensation benefits of directors and officers that include provisions
requiring full funding in the event of a change of control.
Beneficial Ownership
The following table indicates how much PECO Energy common stock was owned by
the directors, named executive officers and beneficial owners of more than 5%
owned as of December 31, 1999. In reviewing this table, please note the
following:
. the shares listed as "Beneficially Owned" include shares in the Employee
Savings Plan, the Officers and Directors Deferred Compensation Plan and
the Directors Deferred Stock Unit Plan,
. the shares listed as "May Be Acquired" include shares of PECO Energy
common stock which can be acquired upon the exercise of stock options
granted under the PECO Energy Long-Term Incentive Plan, and
. beneficial ownership of directors and officers as a group represents
less than 1% of the outstanding shares of PECO Energy common stock.
<TABLE>
<CAPTION>
Number of Common Shares
--------------------------------
Beneficially May Be
Name Owned Acquired Total
---- ------------ --------- ---------
<S> <C> <C> <C>
Susan W. Catherwood, Director.............. 9,165 6,000 15,165
Daniel L. Cooper, Director................. 2,992 0 2,992
M. Walter D'Alessio, Director.............. 9,798 6,000 15,798
G. Fred DiBona, Jr., Director.............. 2,958 0 2,958
James W. Durham, Officer................... 17,095 194,000 211,095
Michael J. Egan, Officer................... 20,134 423,000 443,134
R. Keith Elliott, Director................. 3,958 0 3,958
Richard H. Glanton, Director............... 5,723 0 5,723
Rosemarie B. Greco, Director............... 4,523 0 4,523
Kenneth G. Lawrence, Officer............... 11,828 108,000 119,828
Corbin A. McNeill, Jr., Director and
Officer................................... 90,391 848,500 938,891
John M. Palms, Ph.D., Director............. 9,577 6,000 15,577
Joseph F. Paquette, Jr., Director.......... 42,034 90,000 132,034
Gerald R. Rainey, Officer.................. 25,970 0 25,970
Ronald Rubin, Director..................... 10,266 6,000 16,266
Robert Subin, Director..................... 5,439 5,000 10,439
Directors and Officers as a group (42)..... 411,557 2,679,100 3,090,657
</TABLE>
This table does not include 533,293 shares of common stock held under PECO
Energy's Service Annuity Plan. Messrs. Cooper, D'Alessio, Elliott, Paquette and
Rubin are members of the finance committee which monitors the investment policy
and performance of the investments under that plan.
129
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
The federal securities laws require PECO Energy's directors and executive
officers to file with the Securities and Exchange Commission initial reports of
ownership and reports of changes in ownership of any securities of PECO Energy.
To PECO Energy's knowledge, based solely on a review of the copies of these
reports given to PECO Energy and written representations that no other reports
were required during 1999, all of PECO Energy's directors and executive
officers made the required filings except that Rosemarie Greco, a director of
PECO Energy, filed one late report of changes in beneficial ownership on Form 4
relating to a purchase of shares of PECO Energy common stock, and except that
Ian McLean, an officer of PECO Energy, filed an initial statement of beneficial
ownership late.
ITEM 4--Ratification of Appointment of Independent Auditors
Coopers & Lybrand had been our independent auditors for many years.
Effective July 1, 1998, Coopers & Lybrand merged with PriceWaterhouse to form
PricewaterhouseCoopers, LLP. Since this merger, PricewaterhouseCoopers has been
our independent auditors. The audit committee and the board of directors
believe that PricewaterhouseCoopers's long-term knowledge of PECO Energy is
invaluable, especially as PECO Energy moves to competition in the energy
market. Representatives of PricewaterhouseCoopers working on PECO Energy
matters are periodically changed, providing PECO Energy with new expertise and
experience.
Representatives of PricewaterhouseCoopers have direct access to members of
the audit committee and regularly attend their meetings. Representatives of
PricewaterhouseCoopers will attend the PECO Energy annual meeting to answer
appropriate questions and make a statement if they desire. In 1999, the audit
committee reviewed the PricewaterhouseCoopers Audit Plan for 2000 and proposed
fees and concluded that the scope of audit was appropriate and the proposed
fees were reasonable.
The audit committee and the board of directors recommend a vote FOR
PricewaterhouseCoopers, LLP as PECO Energy's independent auditors for 2000.
Other Matters
Nominees for Board of Directors
You may recommend any person as a nominee for director of PECO Energy by
writing to M. Walter D'Alessio, Chairman of the Corporate Governance Committee,
c/o PECO Energy Company, 2301 Market Street, P.O. Box 8699, Philadelphia, PA
19101-8699. Any such recommendation will be subject to review by the Corporate
Governance Committee of the PECO Energy board of directors, which has the sole
discretion to decide whom it will recommend to the full board of directors, and
the PECO Energy board of directors has the sole discretion to make the final
selection of board-nominated candidates for election as directors of PECO
Energy.
If you intend to nominate a candidate for election to the PECO Energy board
of directors at the annual meeting in opposition to the candidates designated
by the PECO Energy board of directors, you must submit to Katherin K. Combs,
Deputy General Counsel and Corporate Secretary, PECO Energy Company, 2301
Market Street, P.O. Box 8699, Philadelphia, PA 19101-8699, written notice of
such intent between April 12, 2000 and May 12, 2000. Such written notice must
include a notarized statement indicating the nominee's willingness to serve, if
elected, and information required under PECO Energy's By-laws, including the
nominee's principal occupations or employment over the past five years.
130
<PAGE>
Shareholder Proposals
In order to be considered, PECO shareholders must submit proposals for next
year's PECO Energy annual meeting in writing to Katherine K. Combs, Deputy
General Counsel and Corporate Secretary, PECO Energy Company, 2301 Market
Street, P.O. Box 8699, Philadelphia, PA 19101-8699. Under the PECO Energy By-
laws, no proposal can be considered at the PECO Energy 2001 annual meeting
unless it is received by the Corporate Secretary of PECO Energy before the
close of business on January 17, 2000. The proposal must also meet the other
requirements of the rules of the Securities and Exchange Commission relating to
shareholder proposals.
Discretionary Voting Authority
The PECO Energy board of directors knows of no other matters to be presented
for action at the meeting. As to any other matters that may properly come
before the meeting, the individuals serving as proxies intend to vote in their
best judgment. Your signed proxy card gives authority to M. Walter D'Alessio,
Joseph F. Paquette, Jr. and J. Barry Mitchell to vote on these matters.
DIRECTIONS to Loews Philadelphia Hotel
From The North (I-95)
Follow I-95 South to Central Philadelphia, exit number 17 to Callowhill Street.
Turn right at the bottom of the exit ramp and follow Callowhill Street to 12th
Street and make a left. Follow 12th Street to Market Street. Loews is located
on the Southwest corner of 12th and Market Streets.
From New York or North Jersey (NJ Turnpike)
Follow the New Jersey Turnpike to Exit #4 and take Route 73 North
(Philadelphia/Camden). Follow Route 73 North to Route 90 (left exit), which
crosses the Betsy Ross Bridge (Eastbound toll $3.00). After crossing the bridge
follow I-95 South to Central Philadelphia, exit number 17 to Callowhill Street.
Turn right at the bottom of the exit ramp and follow Callowhill Street to 12th
Street and make a left. Follow 12th Street to Market Street. Loews is located
on the Southwest corner of 12th and Market Streets.
From The South or Airport (I-95)
Follow I-95 North to from Philadelphia International Airport or from points
South. Exit I-95 North to the left at exit 17. Follow the signs to Callowhill
Street. Follow Callowhill Street to 12th Street and make a left. Follow 12th
Street to Market Street. Loews is located on the Southwest corner of 12th and
Market Streets.
From Atlantic City
Take the Atlantic City Expressway to Route 42 North. Follow Route 42 North to
I-76 West. Follow I-76 West to I-676 West, crossing the Benjamin Franklin
Bridge (Eastbound toll $3.00). After crossing the bridge continue straight onto
Vine Street. Follow Vine Street to 12th Street and make a left. Follow 12th
Street to Market Street. Loews is located on the Southwest corner of 12th and
Market Streets.
From The West (PA Turnpike)
Exit the Turnpike from Exit 24, the Valley Forge Interchange, to I-76 East.
Exit I-76 East to the left onto I-676 East. Follow I-676 for only 1/2 mile to
the Broad Street exit. At the top of the Broad Street exit ramp make a right
onto 15th Street. Go one light to Race Street, and turn left. Follow Race
Street to 12th Street and make a right. Follow 12th Street to Market Street.
Loews is located on the Southwest corner of 12th and Market Streets.
From The Northeast Extension (PA Turnpike)
Take the Northeast Extension to the East Pennsylvania Turnpike--Exit 25A. Then
continue on I-476 South to I-76 East. Exit I-76 East to the left onto I-676
East. Follow I-676 for only 1/2 mile to the Broad Street exit. At the top of
the Broad Street exit ramp make a right onto 15th Street. Go one light to Race
Street, and turn left. Follow Race Street to 12th Street and make a right.
Follow 12th Street to Market Street. Loews is located on the Southwest corner
of 12th and Market Streets.
131
<PAGE>
CHAPTER III--INFORMATION ABOUT THE UNICOM ANNUAL MEETING
AND OTHER PROPOSALS
THE UNICOM ANNUAL MEETING
This proxy statement/prospectus is being furnished in connection with the
solicitation of proxies from the holders of Unicom common stock by the Unicom
board of directors relating to the election of directors, the merger proposal
and other matters to be voted upon at the Unicom annual meeting and at any
adjournment or postponement of the meeting. This proxy statement/prospectus is
also a prospectus for the shares of Exelon common stock to be issued in the
merger. Unicom mailed this proxy statement/prospectus to shareholders beginning
May 18, 2000. You should read this proxy statement/prospectus carefully before
voting your shares.
Date, Time and Place
We will hold the Unicom annual meeting on Wednesday, June 28, 2000, at 10:30
a.m., local time, at the Grand Ballroom of the Hyatt Regency Chicago, 151 East
Wacker Drive, Chicago, Illinois.
Purpose of Unicom Annual Meeting
At the Unicom annual meeting, you will be asked to consider and vote upon
the following proposals:
. to consider a proposal to approve the agreement and plan of exchange and
merger dated as of September 22, 1999, as amended and restated as of
January 7, 2000, among PECO Energy, Exelon and Unicom, providing for the
first step exchange and the second step merger, described under "The
Merger" and "The Merger Agreement" in Chapter I,
. to consider and vote upon a proposal to postpone or adjourn the annual
meeting, if proposed by Unicom's board of directors, described under "--
Proposals for Unicom Annual Meeting--Item 2--Postponement or Adjournment
of Annual Meeting" below,
. to elect nine members of the Unicom board of directors, described under
"--Proposals for Unicom Annual Meeting--Item 3--Election of Unicom
Directors" below,
. to ratify Arthur Andersen LLP as Unicom's independent auditors for 2000,
described under "--Proposals for Unicom Annual Meeting--Item 4--
Appointment of Independent Auditors" below, and
. to consider any other business that properly comes before the Unicom
annual meeting.
Unicom Record Date; Stock Entitled to Vote; Quorum
Only holders of record of Unicom common stock at the close of business on
May 12, 2000, the Unicom record date, are entitled to notice of and to vote at
the Unicom annual meeting. On May 12, 2000, approximately 176,522,602 shares of
Unicom common stock were issued and outstanding and held by approximately
108,149 holders of record. A quorum will be present at the Unicom annual
meeting if at least a majority of the shares of Unicom common stock issued and
outstanding and entitled to vote on the Unicom record date are represented in
person or by proxy. If a quorum is not present at the Unicom annual meeting, we
expect that the Unicom annual meeting will be adjourned or postponed to solicit
additional proxies. Holders of record of Unicom common stock on the Unicom
record date are entitled to one vote per share at the Unicom annual meeting.
Vote Required
The approval of the merger agreement by Unicom shareholders requires the
affirmative vote of the holders of at least two-thirds of all outstanding
shares of Unicom common stock. If a Unicom shareholder abstains
132
<PAGE>
from voting or does not vote (either in person or by proxy), it will have the
same effect as voting against approval of the merger agreement. For the
election of directors, each Unicom shareholder has the right to vote the number
of shares owned by such shareholder for as many persons as there are directors
to be elected, or to cumulate such votes and give one candidate as many votes
as shall equal the number of directors to be elected multiplied by the number
of such shares or to distribute such cumulative votes in any proportion among
any number of candidates. Assuming that a quorum is present at the meeting, the
nine persons receiving the greatest number of votes shall be elected as
directors, and the affirmative vote of a majority of the shares of common stock
represented at the meeting and entitled to vote on the matter is required for
approval of any items other than the approval of the merger and the election of
directors. Proxies marked to abstain from voting with respect to any of these
matters will have the legal effect of voting against such matter.
Voting by Unicom Directors and Executive Officers
At the close of business on May 12, 2000, directors and executive officers
of Unicom and their affiliates owned and were entitled to vote less than 1% of
the shares of Unicom common stock outstanding on that date.
How to Vote Your Shares
The Unicom board of directors is soliciting proxies from Unicom
shareholders. This will give you the opportunity to vote at the Unicom annual
meeting.
You may grant a proxy by
. signing and mailing your proxy card,
. calling a toll-free number and following the recorded instructions or
. going to a website on the Internet and following the instructions
provided.
If your shares are not registered in your own name, the bank, broker or
other institution holding your shares may not offer telephone or Internet proxy
voting. If your proxy card does not include telephone or Internet voting
instructions, please complete and return your proxy card by mail. You may also
cast your vote in person at the meeting.
Mail
To grant your proxy by mail, please complete your proxy card and sign, date
and return it in the enclosed envelope. To be valid, a returned proxy card must
be signed and dated.
Telephone
You may use the toll-free number listed on your proxy card to grant your
proxy. You must have your proxy card ready. Call the toll-free number and:
. enter your Control Number located on your proxy card, and
. follow the recorded instructions.
Internet
You may also use the Internet to grant your proxy. You must have your proxy
card ready and:
. go to the website shown on your proxy card and follow the instructions
provided, and
. enter your Control Number located on your proxy card.
133
<PAGE>
In Person
If you attend the Unicom annual meeting in person, you may vote your shares
by completing a ballot at the meeting.
How Your Proxy Will be Voted
All shares represented by properly executed proxies received in time for the
Unicom annual meeting will be voted at the Unicom annual meeting in the manner
specified by the holders of those proxies. Properly executed proxies that do
not contain voting instructions will be voted FOR the approval of the merger
agreement, FOR the proposal to postpone or adjourn the annual meeting, if
proposed by Unicom's board of directors, FOR the election of directors and FOR
the appointment of auditors and the other proposals recommended by the Unicom
board of directors. The proxy holders will cumulate votes for the election of
directors for shares represented by proxies only if a shareholder gives them
specific written instructions to do so.
Shares of Unicom common stock represented at the Unicom annual meeting but
not voting, including shares of Unicom common stock for which proxies have been
received but for which holders of shares have abstained, will be treated as
present at the Unicom annual meeting for purposes of determining the presence
or absence of a quorum for the transaction of all business.
Brokers who hold shares of Unicom common stock in street name for customers
who are the beneficial owners of those shares may not give a proxy to vote
those shares on the merger proposal without specific instructions from those
customers. These non-voted shares are referred to as broker non-votes and will
have the same effect as votes against the approval of the merger agreement.
Brokers may vote your shares for the election of directors and the appointment
of auditors without your instructions.
Unicom does not expect that any matter other than the proposal to approve
the merger agreement, a proposal to postpone or adjourn the annual meeting, if
proposed by Unicom's board of directors, the election of directors and
appointment of auditors will be brought before the Unicom annual meeting. If,
however, the Unicom board of directors properly presents other matters, the
persons named as proxies will vote in accordance with their judgment.
Revocability of Proxies
Voting by use of a proxy on the enclosed form, telephone or Internet does
not preclude a Unicom shareholder from voting in person at the Unicom annual
meeting. A Unicom shareholder may revoke a proxy at any time prior to its
exercise by filing with Unicom a duly executed revocation of proxy, by
submitting a duly executed proxy, telephone or Internet vote to Unicom bearing
a later date or by appearing at the Unicom annual meeting and voting in person.
Attendance at the Unicom annual meeting without voting will not itself revoke a
proxy.
Solicitation of Proxies
Unicom will bear the cost of the solicitation of proxies from its
shareholders. In addition to solicitation by mail, the directors, officers and
employees of Unicom and its subsidiaries may solicit proxies from Unicom
shareholders by telephone or other electronic means or in person. Arrangements
will also be made with brokerage houses and other custodians, nominees and
fiduciaries for the forwarding of solicitation materials to the beneficial
owners of stock held of record by these persons, and Unicom will reimburse them
for their reasonable out-of-pocket expenses.
Unicom will mail a copy of this proxy statement/prospectus to each holder of
record of Unicom common stock on the Unicom record date.
134
<PAGE>
Morrow & Co., Inc. will assist in the solicitation of proxies by Unicom.
Unicom will pay Morrow & Co. a fee of $50,000, plus reimbursement of certain
out-of-pocket expenses, and will indemnify Morrow & Co. against any losses
arising out of Morrow & Co.'s proxy soliciting services on behalf of Unicom.
Unicom shareholders should not send stock certificates with their proxies. A
transmittal form with instructions for the surrender of Unicom common stock
certificates will be mailed to Unicom shareholders after completion of the
merger.
PROPOSALS FOR UNICOM ANNUAL MEETING
ITEM 1--Unicom Merger Proposal
For summary and detailed information regarding the Unicom merger proposal,
see "The Merger" in Chapter I.
ITEM 2--Postponement or Adjournment of Annual Meeting
In the event that the Unicom board of directors decides to adjourn or
postpone the Unicom annual meeting, it shall submit to Unicom shareholders
present and entitled to vote a proposal to so adjourn or postpone the annual
meeting. We are asking that you grant your proxy for your shares to be voted in
favor of such a proposal, if made.
ITEM 3--Election of Unicom Directors
Elizabeth Anne Moler resigned from the Unicom and ComEd boards of directors
on December 31, 1999, to become a Senior Vice President of Unicom and ComEd.
Donald P. Jacobs is retiring as a director of Unicom and ComEd after serving as
a director of Unicom since its incorporation in 1994 and as a director of ComEd
since 1979. His contributions to Unicom and to ComEd have been many and are
gratefully appreciated. The vacancies created by Ms. Moler's resignation and
Mr. Jacob's retirement are not being filled, and the number of directors is
being reduced to nine.
Nine directors are to be elected at the annual meeting to serve terms of one
year and until their respective successors have been elected. The nominees for
director, all of whom are now serving as directors of Unicom and ComEd, are
listed below together with certain biographical information. Except as
otherwise indicated, each nominee for director has been engaged in his or her
present principal occupation for at least the past five years. Unicom was
formed in 1994.
Biographical Information of Unicom Directors
EDWARD A. BRENNAN
Mr. Brennan, age 66. Director of Unicom and ComEd since 1995.
Retired. Chairman and CEO of Sears, Roebuck and Co. (retail
merchandiser) for more than five years prior to his retirement
in August 1995. Chairman of Compensation Committee. Other
directorships: The Allstate Corporation, AMR Corporation, Dean
Foods Company, Minnesota Mining and Manufacturing Company,
Morgan Stanley Dean Witter & Co. and The SABRE Group Holdings,
Inc.
[PHOTO]
135
<PAGE>
CARLOS H. CANTU
Mr. Cantu, age 66. Director of Unicom and ComEd since July 31,
1998. Retired. President and Chief Executive Officer of The
ServiceMaster Company (service businesses) from January 1,
1994 through October 1, 1999. Other directorships: The
ServiceMaster Company, First Tennessee National Corporation.
[PHOTO]
JAMES W. COMPTON
Mr. Compton, age 62. Director of Unicom since 1994 and ComEd
since 1989. President and Chief Executive Officer of the
Chicago Urban League (a non-profit agency). Chairman of Audit
and Compliance Committee and member of Compensation Committee.
Other directorships: Ariel Mutual Funds and Highland Community
Bank.
[PHOTO]
BRUCE DeMARS
Mr. DeMars, age 64. Director of Unicom and ComEd since 1996.
Vice President and Secretary of DeMars, Inc. (consulting firm)
since May 1997 and Partner, Trident Merchant Group since May
1998. Admiral, United States Navy and Director, Naval Nuclear
Propulsion Program for more than five years prior to his
retirement in October 1996. Member of Audit and Compliance
Committee. Other directorship: McDermott International.
[PHOTO]
SUE L. GIN
Ms. Gin, age 58. Director of Unicom since 1994 and ComEd since
1993. Founder, Owner, Chairman and Chief Executive Officer of
Flying Food Group, Inc. (in-flight catering company).
Chairperson of Business Development Committee and member of
Audit and Compliance and Governance and Nominating Committees.
[PHOTO]
EDGAR D. JANNOTTA
Mr. Jannotta, age 68. Director of Unicom and ComEd since 1994.
Senior Director of William Blair & Company, L.L.C. (investment
banking and brokerage company) since January 1996. For more
than five years prior thereto, Managing Partner of William
Blair & Company and Senior Partner during 1995. Chairman of
Governance and Nominating Committee and member of Business
Development Committee. Other directorships: AAR Corp., AON
Corporation, Bandag, Incorporated and Molex Incorporated.
[PHOTO]
136
<PAGE>
JOHN W. ROGERS, JR.
Mr. Rogers, age 42. Director of Unicom and ComEd since 1999.
President of Ariel Capital Management, Inc., an institutional
money management firm which he founded in 1983. Ariel Capital
Management also serves as the investment advisor,
administrator and distributor for Ariel Mutual Funds. Member
of Governance and Nominating and Business Development
Committees. Other directorships: AON Corporation, Bank One
Corporation, Burrell Communications Group, Inc. and GATX
Corporation.
[PHOTO]
JOHN W. ROWE
Mr. Rowe, age 54. Director, Chairman, President and Chief
Executive Officer of Unicom and ComEd since March 16, 1998.
President and Chief Executive Officer of New England Electric
System from February 1989 to March 1998. Other directorships:
Fleet Boston Financial, UnumProvident Corporation and
Wisconsin Central Transportation Corporation.
[PHOTO]
RICHARD L. THOMAS
Mr. Thomas, age 69. Director of Unicom and ComEd since July
31, 1998. Retired. Chairman of First Chicago NBD Corporation
(banking and financial services) from 1995 to 1996 and of The
First National Bank of Chicago from 1992 to 1996. Member of
the Audit and Compliance and Compensation Committees. Other
directorships: IMC Global Inc., The PMI Group, Inc., The SABRE
Group Holdings, Inc. and Sara Lee Corporation.
[PHOTO]
Committees of the Unicom Board of Directors
Audit and Compliance Committee
The Audit and Compliance Committee consists of four directors who are not
employees or former employees of Unicom or any of its subsidiaries. Members
serve three-year staggered terms. The Audit and Compliance Committee acts as
the principal agent of the board of directors in fulfilling its
responsibilities relating to corporate financial accounting and disclosure
practices, in overseeing the establishment and maintenance of an appropriate
system of internal controls and internal audit functions, and in monitoring and
promoting compliance with applicable laws, regulations and Unicom's policies.
The Audit and Compliance Committee met four times in 1999. Members of the
committee are James W. Compton (Chairman), Bruce DeMars, Sue L. Gin and Richard
L. Thomas.
Business Development Committee
The Business Development Committee consists of three directors who are not
employees or former employees of Unicom or any of its subsidiaries. Members
serve one-year terms. The Business Development Committee advises and assists
the board of directors in providing oversight and direction to Unicom's
customer service and new business development activities. The Business
Development Committee met once in 1999. Members of the committee are Sue L. Gin
(Chairperson), Edgar D. Jannotta, and John W. Rogers, Jr.
137
<PAGE>
Compensation Committee
The Compensation Committee consists of four directors who are not and have
never been employees of Unicom or any of its subsidiaries. Members serve one-
year terms. The Compensation Committee oversees general compensation policy of
Unicom, establishes and administers compensation programs applicable to the
principal officers of Unicom, and administers awards under Unicom's Deferred
Compensation Unit Plan, Long-Term Incentive Plan, and 1996 Directors' Fee Plan.
The Compensation Committee met seven times in 1999. Members of the committee
are Edward A. Brennan (Chairman), James W. Compton, Donald P. Jacobs and
Richard L. Thomas.
Governance and Nominating Committee
The Governance and Nominating Committee consists of four directors who are
not employees or former employees of Unicom or its subsidiaries. Members serve
one-year terms. The Governance and Nominating Committee oversees corporate
governance policies, practices and procedures of Unicom and makes such
recommendations as it may deem appropriate to the full board of directors, acts
as the executive committee of the board of directors when the board of
directors is not in session, and recommends to the board of directors
candidates for election to the board of directors. The committee will consider
nominees recommended by shareholders if such recommendations are submitted in
writing, accompanied by a description of the proposed nominee's qualifications
and other relevant biographical information and evidence of the consent of the
proposed nominee. The recommendations should be addressed to the Governance and
Nominating Committee, in care of the Secretary of Unicom. Nominations also may
be presented by shareholders at the annual meeting of shareholders provided
that they comply with the nomination procedures set forth in Unicom's By-laws,
which are summarized in this proxy statement/prospectus under the heading
"Shareholder Proposals and Nominations for 2001 Annual Meeting". The Governance
and Nominating Committee met two times in 1999. Members of the committee are
Edgar D. Jannotta (Chairman), Sue L. Gin, Donald P. Jacobs and John W. Rogers,
Jr.
Attendance at Meetings
During 1999, there were 14 meetings of Unicom's board of directors. The
average attendance of all incumbent directors, expressed as a percent of the
aggregate total of board and board committee meetings in 1999, was 97%. Each
incumbent director attended at least 80% of the meetings of Unicom's board and
board committees of which the director was a member, except Mr. Cantu, who
attended 57% of the meetings of Unicom's board of directors. Mr. Cantu missed
several meetings as a result of illness.
Board Compensation
Directors who are not employees of Unicom or any of its subsidiaries receive
an annual fee of $36,200 payable in shares of Unicom common stock under the
Unicom Corporation 1996 Directors' Fee Plan. These directors also receive a fee
of $1,500 for each board of directors and committee meeting they attend and an
additional annual fee of $2,500 for each committee of the board of directors
that they chair, which meeting and chair fees may, at the election of the
director, be paid in shares of Unicom common stock under the 1996 Directors'
Fee Plan. In the event that directors also serve as directors of ComEd, or as
chairs of corresponding committees of ComEd, the aggregate fees paid to such
directors in respect of such service to Unicom and ComEd do not exceed the
foregoing amounts, so that directors do not receive duplicate fees. Directors
who are full-time employees of Unicom or any of its subsidiaries receive no
fees for service on the Unicom board of directors. Directors may defer their
fees. Prior to 1997, directors who had never been an officer or an employee of
Unicom or any of its subsidiaries, and who had attained at least age 65 and
completed the required period of board service (3 to 5 years as applicable,
including service as a director of ComEd), became eligible for retirement
benefits upon retirement. Such benefits were to be paid to the retired director
or a surviving spouse for a period equal to such director's years of service
(including service as a director of ComEd) in an amount per year equal to the
annual retainer for board members as in effect at the time of payment.
Effective January 1, 1997, the Unicom board of directors terminated the further
accrual of retirement benefits and offered
138
<PAGE>
each director the option to irrevocably elect, in lieu of amounts otherwise
payable, a lump sum amount payable upon retirement, either by delivery of
shares of Unicom common stock or in cash. In lieu of further accrual of
retirement benefits, non-employee directors received a $6,200 increase in their
annual fee (from $30,000 to $36,200), effective June 1, 1997 and payable in
shares of Unicom common stock.
Other Information
Ariel Capital Management, Inc. has acted as investment manager with respect
to a portion of the assets of an employee benefit plan of ComEd since 1994.
During 1999, such firm received approximately $170,499 in fees. In 2000, it is
estimated that such firm will receive approximately $163,000 in fees. Mr.
Rogers is President of Ariel Capital Management, Inc. Unicom believes the fees
paid or payable are equivalent to the fees that would have been paid to an
unaffiliated third party for similar services.
Security Ownership of Certain Beneficial Owners and Management
No person is known to Unicom to be the beneficial owner of more than five
percent of Unicom common stock. The following table lists the beneficial
ownership, as defined under the rules of the Securities and Exchange
Commission, as of March 31, 2000, of Unicom common stock held by each of the
directors, each of the executive officers named in the Summary Compensation
Table on page 141 and Unicom's directors and executive officers as a group. In
addition, the table includes two columns describing securities held by such
persons that are not considered to be "beneficially owned" under the rules of
the SEC. The column headed "Other Stock Options" includes stock options held by
such persons that are not exercisable within 60 days of March 31, 2000. The
column headed "Deferred Share Equivalents" includes shares deferred by such
persons under the Unicom Corporation Stock Bonus Deferral Plan or the Unicom
Corporation 1996 Directors' Fee Plan or share equivalents held in the Unicom
Corporation Retirement Plan for Directors.
<TABLE>
<CAPTION>
Beneficial Ownership
of Common Stock
------------------------------
Other
Amount Percent Stock Deferred Share
Name and Nature of Class Options(5) Equivalents(7)
---- ------------ --------- ---------- --------------
<S> <C> <C> <C> <C>
Edward A. Brennan....... 4,438 * -- 1,250
Carlos H. Cantu......... 2,425 * -- --
James W. Compton........ 5,105 * -- 3,751
Bruce DeMars............ 4,064 * -- 510
Sue L. Gin.............. 12,873 * -- 1,181
Donald P. Jacobs........ 10,202 * -- 10,632
Edgar D. Jannotta....... 7,567 * -- 4,667
John W. Rogers, Jr...... 1,000 * -- 985
Richard L. Thomas....... 10,616 * -- 2,771
John W. Rowe............ 222,278(1)(2) * 281,666 39,258
Oliver D. Kingsley,
Jr..................... 53,064(1) * 133,332 61,696
Robert J. Manning....... 79,328(1)(3) * 68,197(6) 24,823(8)
Pamela B. Strobel....... 52,490(1) * 74,166 15,548
David R. Helwig......... 31,001(1) * 52,999 16,663
Directors and executive
officers as a group (22
persons)............... 679,984(1)(4) * 1,019,855 213,224
</TABLE>
* Less than one percent
(1) The numbers and percentages of shares shown in the table above include
shares as to which the indicated person(s) had the right to acquire within
60 days of March 31, 2000 upon the exercise of outstanding stock options,
as follows: Mr. Rowe 216,334; Mr. Kingsley 41,668; Mr. Manning 72,103
(includes 12,935 options owned by spouse); Ms. Strobel 40,334; Mr. Helwig
19,001; and all executive officers and directors as a group (including such
individuals) 487,445. Such persons disclaim any beneficial ownership of the
shares subject to such options.
139
<PAGE>
(2) Includes 2,000 shares owned by spouse, beneficial ownership of which is
disclaimed.
(3) Includes 14,910 shares owned by spouse, beneficial ownership of which is
disclaimed.
(4) Includes 16,910 shares owned by spouses. The directors and executive
officers to whom such beneficial ownership is attributed disclaim any
beneficial ownership of the shares held by such persons.
(5) Includes stock options which are not considered to be "beneficially owned"
under SEC rules because they cannot be exercised within 60 days of March
31, 2000.
(6) Includes 9,865 stock options held by spouse, beneficial ownership of which
is disclaimed.
(7) Includes share equivalents that are not considered to be "beneficially
owned" under SEC rules because they are deferred under the Unicom
Corporation Stock Bonus Deferral Plan, the Unicom 1996 Directors' Fee Plan,
or the Unicom Corporation Retirement Plan for Directors. Under the Unicom
Corporation Stock Bonus Deferral Plan and the Unicom 1996 Directors' Fee
Plan, executives and directors, respectively, may defer the receipt of the
stock portion of certain awards made pursuant to the Unicom Corporation
Long-Term Incentive Plan or certain fees, respectively. Deferred amounts
are only required to be kept in Unicom's books of account as deferred stock
accounts, which are for bookkeeping purposes only. Unicom has no obligation
to set aside or segregate any actual shares of Unicom common stock or other
assets in respect of such accounts. Unicom has elected to issue the
deferred shares to trusts having an institutional trustee, which has sole
voting rights with respect to such shares. At the end of the deferral
period (in the case of the Unicom Stock Bonus Deferral Plan) or upon
leaving the board of directors (in the case of the Unicom 1996 Directors'
Fee Plan), the share equivalents are distributed in whole shares of Unicom
common stock and cash in lieu of any fractional share. Dividends paid with
respect to deferred shares under the Unicom Stock Bonus Deferral Plan are
either reinvested in Unicom common stock and held by such Trustee or are
paid to the executive officer making the deferral. Dividends paid with
respect to deferred shares under the Unicom 1996 Directors' Fee Plan are
reinvested in Unicom common stock and held by such Trustee. Under the
Unicom Corporation Retirement Plan for Directors, effective January 1,
1997, the accrual of further benefits was terminated and directors could
elect to have benefits accrued through such date deferred into share
equivalents to be paid in shares of Unicom common stock upon retirement.
Accounts under such Plan are credited with an additional number of share
equivalents determined by assuming the reinvestment of dividend equivalents
on share equivalents in such accounts.
(8) Includes 3,721 deferred share equivalents held by spouse.
140
<PAGE>
Executive Compensation
The following table sets forth certain information relating to the
compensation during the past three calendar years of the person who served as
the Chief Executive Officer during 1999 and the other four most highly
compensated executive officers of Unicom or ComEd at December 31, 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
----------------------------------- --------------------------------------
Bonus Awards Payouts
---------------- --------------------- ----------------
LTIP Payouts
----------------
Other Securities
Annual Underlying All Other
Stock- Compen- Restricted Options/ Stock- Compen-
Name and Salary Cash Based(1) sation(2) Stock(3) SARs Cash Based(1) sation(4)
Principal Position Year $ $ $ $ $ # $ $ $
------------------ ---- ------- ------- -------- --------- ---------- ---------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
John W. Rowe(5)........ 1999 957,692 529,125 529,125* 55,112 -- 123,000 475,246 203,677* 42,478
Chairman (Chief 1998 726,923 484,209 484,209* 215,117 -- 250,000 343,219 52,537* 2,728,076
Executive Officer) 1997 -- -- -- -- -- -- -- -- --
Unicom and ComEd
Oliver D. Kingsley,
Jr.(6)................ 1999 544,385 -- 594,000* 175,502 231,562 40,000 -- 322,488* 24,139
Executive Vice
President 1998 475,000 -- 383,332* 220,713 -- 35,000 -- 187,984* 20,994
Unicom and ComEd 1997 82,212 -- -- 202,828 560,000 25,000 182,712 10,777* 378,395
Robert J. Manning...... 1999 401,931 210,456 70,152* -- -- 40,000 102,229 102,229* 18,327
Executive Vice
President 1998 375,035 184,958 61,653* -- -- 35,000 43,469 43,469* 22,132
Unicom and ComEd 1997 312,802 86,319 28,773* -- 291,250 25,000 42,153 42,153* 19,894
Pamela B. Strobel...... 1999 375,131 208,961 69,654* -- -- 30,000 84,410 84,410* 16,483
Executive Vice
President 1998 341,000 137,341 58,861* -- -- 20,000 42,528 42,528* 20,347
and General Counsel 1997 304,970 41,742 13,914* -- 291,250 17,500 33,605 33,605* 19,247
Unicom and ComEd
David R. Helwig(7)..... 1999 355,115 177,071 177,071* -- 479,256 25,000 -- 144,206* 15,702
Senior Vice President 1998 312,500 -- 196,727* -- -- 22,000 -- 85,747* 285,875
Unicom and ComEd 1997 -- -- -- -- -- -- -- -- --
</TABLE>
(1) All of the amounts shown under "Bonus--Stock-Based" and "LTIP Payouts--
Stock-Based" were either paid in shares of Unicom common stock or were
deferred and are deemed to be invested in shares of Unicom's common stock,
and thus fully "at risk" until the end of the deferral period. Deferred
amounts are noted with an asterisk. See note 7 to the "Security Ownership
of Certain Beneficial Owners and Management" table on page 140.
(2) Excludes perquisites and other benefits, unless the aggregate amount of
such compensation is at least the lesser of either $50,000 or 10% of the
total annual salary and bonus reported for the named executive officer.
For 1999, includes $13,276 and $66,345 paid to Messrs. Rowe and Kingsley
for the payment of taxes and $75,000 paid to Mr. Kingsley as a living cost
allowance and $15,395 paid for financial and legal services for Mr. Rowe.
For 1998, includes $89,381 and $132,077 paid to Messrs. Rowe and Kingsley,
respectively, for reimbursements for the payment of taxes, $108,340 paid
to Mr. Rowe for moving expenses and $75,000 paid to Mr. Kingsley as a
living cost allowance. For 1997, includes payments to Mr. Kingsley of
$74,065 for moving expenses, $75,000 as a living cost allowance and
$53,251 for reimbursement of taxes.
(3) The value shown is as of the date of grant. Dividends are paid or accrued
on restricted stock awards at the same rate as paid to all shareholders. As
of December 31, 1999, Mr. Manning had an aggregate of 5,000 shares of
restricted stock worth $167,500, Ms. Strobel had an aggregate of 10,000
shares of restricted stock worth $335,000, Mr. Helwig had an aggregate of
12,000 shares of restricted stock worth $402,000 and Mr. Kingsley had an
aggregate of 16,500 shares of restricted stock worth $552,750.
(4) Amounts shown include matching contributions made by ComEd pursuant to the
ComEd Employee Savings and Investment Plan ("ESIP"), matching contributions
made by ComEd pursuant to the ComEd
141
<PAGE>
Excess Benefit Savings Plan and premiums and administrative service fees
paid by ComEd on behalf of the named individuals under various group life
insurance plans. For the year 1999, contributions made to the ESIP amounted
to $6,960, $6,960, $4,184, $4,518 and $4,547 on behalf of Mr. Rowe, Mr.
Kingsley, Mr. Manning, Ms. Strobel and Mr. Helwig, respectively.
Contributions made to the ComEd Excess Benefit Savings Plan during 1999
totaled $34,700, $16,720, $12,311, $11,104 and $10,901 on behalf of Mr.
Rowe, Mr. Kingsley, Mr. Manning, Ms. Strobel and Mr. Helwig, respectively.
Premiums and administrative service fees paid during 1999 for Split Dollar
Life, Accidental Death and Travel Accident insurance policies for Mr. Rowe,
Mr. Kingsley, Mr. Manning, Ms. Strobel and Mr. Helwig, respectively, are as
follows: $818, $459, $1,832, $861 and $254. For the year 1998,
contributions made to the ESIP amounted to $7,287, $4,246, $4,350 and
$1,915 on behalf of Mr. Kingsley, Mr. Manning, Ms. Strobel and Mr. Helwig,
respectively. Contributions made to the ComEd Excess Benefit Savings Plan
during 1998 totaled $31,621, $13,375, $11,079, $9,787 and $8,960 on behalf
of Mr. Rowe, Mr. Kingsley, Mr. Manning, Ms. Strobel and Mr. Helwig,
respectively. Premiums and administrative service fees paid during 1998 for
Split Dollar Life, Accidental Death and Travel Accident insurance policies
for Mr. Rowe, Mr. Kingsley, Mr. Manning and Ms. Strobel, respectively, are
as follows: $96,455, $332, $6,807 and $6,210. ComEd is entitled to recover
the premiums and administrative service fees from any amounts paid by the
insurer on such Split Dollar Life policies and has retained a collateral
interest on each policy to the extent of the premiums and administrative
service fees paid with respect to such policy. Includes a $2,000,000 lump
sum payment to Mr. Rowe in 1998 as partial compensation for actual
compensation, benefits and programs which Mr. Rowe was, or was reasonably
expected to become, entitled to receive from his previous employer, and a
payment of $600,000 as an inducement to enter into his employment
agreement. For 1997, includes $375,000 paid to Mr. Kingsley as an
inducement to enter into his employment agreement. For 1998, includes
$275,000 paid to Mr. Helwig as an inducement to enter into his employment
agreement.
(5) Mr. Rowe commenced employment on March 16, 1998.
(6) Mr. Kingsley commenced employment on November 1, 1997.
(7) Mr. Helwig commenced employment on January 19, 1998.
142
<PAGE>
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------
Number of
Securities % of Total
Underlying Options/SARs Exercise Grant Date
Options/SARs Granted to or Base Present
Granted(1) Employees in Price Expiration Value(2)
Name # Fiscal Year $ /Share Date $
---- ------------ ------------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
John W. Rowe (CEO)...... 110,000 5.99 35.75 1/24/09 $712,250
John W. Rowe (CEO)...... 13,000(3) 0.71 35.563 3/03/09 84,175
Oliver D. Kingsley,
Jr..................... 40,000 2.18 35.75 1/24/09 259,000
Robert J. Manning....... 40,000 2.18 35.75 1/24/09 259,000
Pamela B. Strobel....... 30,000 1.63 35.75 1/24/09 194,250
David R. Helwig......... 25,000 1.36 35.75 1/24/09 161,875
</TABLE>
(1) Except as noted in note 3 below, each option becomes exercisable in equal
annual increments on the first, second and third anniversaries of the
grant date, subject to acceleration in the event that termination after a
change in control of Unicom occurs. The options do not include any stock
appreciation rights.
(2) The "grant date present value" is based upon the Black-Scholes option-
pricing model. The actual value, if any, an executive may realize upon
exercise of the option will depend on the excess of the stock price over
the exercise price on the date the option is exercised. Consequently,
there is no assurance the value realized by an executive will be at or
near the value estimated by the Black-Scholes model. The principal
assumptions incorporated into the valuation model by Unicom for the
options expiring 1/24/09 and 3/03/09 are as follows: (i) expected time to
exercise of seven years, (ii) dividend yield rate of 4.5%, (iii) risk-free
interest rate of 4.83% and (iv) expected volatility of 23.02%.
(3) Mr. Rowe received this grant of options as a premium for deferring half of
his 1998 Annual Incentive Award. Half of this grant vested immediately and
the balance vested on the first anniversary of the grant date.
Aggregated Option Exercises in 1999 and 1999 Year-End Option Value
<TABLE>
<CAPTION>
Underlying Unexercised Value of Unexercised
Shares Options at In-The-Money Options at
Acquired December 31, 1999 December 31, 1999(1)
on Value ------------------------- -------------------------
Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
Name # $ # # $ $
---- -------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John W. Rowe (CEO)...... 0 0 89,834 283,166 5,167 10,333
Oliver D. Kingsley,
Jr..................... 0 0 28,334 71,666 91,669 45,832
Robert J. Manning....... 0 0 45,834 71,666 326,454 93,221
Pamela B. Strobel....... 0 0 30,334 49,166 226,519 65,254
David R. Helwig......... 0 0 7,334 39,666 13,747 13,745
</TABLE>
(1) Market value less exercise price, before payment of applicable income
taxes.
Long-term Incentive Plans--Awards in Last Fiscal Year
<TABLE>
<CAPTION>
Estimated Future Payouts Under
Number of Performance or Other Non-Stock Price-Based Plans
Shares, Units Period Until --------------------------------
or Other Maturation Threshold Target Maximum
Name Rights(1) or Payout(2) Number Number Number
---- ------------- -------------------- --------------------- ----------
(Number of Performance Units)
<S> <C> <C> <C> <C> <C>
John W. Rowe (CEO)...... 12,694.32 3 years 6,347.16 12,694.32 25,388.64
Oliver D. Kingsley,
Jr..................... 6,093.27 3 years 3,046.64 6,093.27 12,186.55
Robert J. Manning....... 4,804.31 3 years 2,402.16 4,804.31 9,608.62
Pamela B. Strobel....... 3,905.94 3 years 1,952.97 3,905.94 7,811.89
David R. Helwig......... 3,235.42 3 years 1,617.71 3,235.42 6,470.85
</TABLE>
(1) Long-term performance unit awards were established in 1994 for executive
and group level employees under the Unicom Corporation Long-Term Incentive
Plan. The awards are based on a three-year
143
<PAGE>
performance period. For the awards described in the table, the number of
units initially awarded to a participant is determined by dividing a
percentage of base salary (including income from current compensation units
under Unicom's and ComEd's Deferred Compensation Unit Plans) by $38.403. The
applicable percentages for the individuals shown in the table are: 50% for
Mr. Rowe; 45% for Mr. Kingsley; 45% for Mr. Manning; 40% for Ms. Strobel;
and 35% for Mr. Helwig. If a promotion changes the applicable percentage of
salary, awards are pro-rated accordingly. Payouts are based on achievement
of corporate shareholder value added and customer satisfaction goals as well
as specific business unit strategic initiatives over the three-year
performance period ending December 31, 2001. The dollar value of a payout
will be determined by multiplying (a) the number of units applicable by (b)
the average closing price of Unicom common stock as reported in the Wall
Street Journal as New York Stock Exchange Composite Transactions during the
calendar quarter ending on December 31, 2001 by (c) the level of performance
achieved. Payments will be made half in cash and half in the form of
unrestricted shares of Unicom common stock. A participant may elect to defer
receipt of up to 100% of the total award (net of applicable taxes) under the
Unicom Corporation Stock Bonus Deferral Plan and receive, after such
deferral, the deferred amount in the form of unrestricted shares of Unicom
common stock.
(2) Three-year period ending December 31, 2001.
144
<PAGE>
Service Annuity System
The following table sets forth the annual retirement benefits payable under
ComEd's Service Annuity System (including payments under a supplemental
management retirement plan) to employees who retire at age 65 at stated levels
of compensation and years of service at retirement (in 1999).
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Highest
4-Year
Average Annual Normal Retirement Benefits After Specified Years of
Earnings Service*
-------- ----------------------------------------------------------
15 20 25 30 35 40
-- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
$ 100,000 $ 31,936 $ 42,472 $ 52,368 $ 61,784 $ 70,842 $ 79,633
200,000 63,872 84,945 104,735 123,568 141,684 159,266
300,000 95,808 127,417 157,103 185,351 212,526 238,899
400,000 127,744 169,889 209,470 247,135 283,368 318,532
500,000 159,681 212,362 261,838 308,919 354,211 398,165
600,000 191,617 254,834 314,206 370,703 425,053 477,798
700,000 223,553 297,307 366,573 432,487 495,895 557,431
800,000 255,489 339,779 418,941 494,271 566,737 637,064
900,000 287,425 382,251 471,308 556,054 637,579 716,696
1,000,000 319,361 424,724 523,676 617,838 708,421 796,329
1,100,000 351,297 467,196 576,044 679,622 779,263 875,962
1,200,000 383,233 509,668 628,411 741,406 850,105 955,595
1,300,000 415,169 552,141 680,779 803,190 920,948 1,035,228
1,400,000 447,106 594,613 733,146 864,974 991,790 1,114,861
1,500,000 479,042 637,085 785,514 926,757 1,062,632 1,194,494
1,600,000 510,978 679,558 837,882 988,541 1,133,474 1,274,127
1,700,000 542,914 722,030 890,249 1,050,325 1,204,316 1,353,760
1,800,000 574,850 764,503 942,617 1,112,109 1,275,158 1,433,393
1,900,000 606,786 806,975 994,984 1,173,893 1,346,000 1,513,026
2,000,000 638,722 849,447 1,047,352 1,235,677 1,416,842 1,592,659
</TABLE>
* An employee may elect a marital annuity for a surviving spouse which would
reduce the employee's normal retirement benefits. The amounts shown reflect
certain assumptions as to total earnings, but do not reflect any reduction
for Social Security benefits.
Service Annuity System. ComEd maintains a non-contributory pension plan, the
Service Annuity System, for all regular employees of ComEd. The Service Annuity
System ("Plan") provides benefits upon retirement at age 65 which are based
upon years of credited service and percentages of the employee's highest
consecutive four-year average annual base pay, which includes basic
compensation and certain incentive pay. An employee with at least 10 years of
service may retire prior to attaining age 65 (but not prior to age 50) and will
receive reduced benefits if retirement is prior to age 60. A non-executive
employee may work beyond age 65 with additional benefits accruing for earnings
and service after age 65. Contributions to the Plan by ComEd are based upon
actuarial determinations that take into account the amount deductible for
income tax purposes and the minimum contribution required under the Employee
Retirement Income Security Act of 1974, as amended. Compensation used in the
computation of annual retirement benefits under the Plan is substantially
equivalent to the amounts shown in the "Salary" and "Bonus" columns under the
"Annual Compensation" heading of the Summary Compensation Table. The
compensation used in the computation of annual retirement benefits under the
Plan is limited by the Internal Revenue Code as of January 1, 2000 to $170,000
(which number is subject to adjustment for increases in the cost of living) for
any one employee. Any reduction in the annual retirement benefits payable to
management employees under the Plan as a result of any limitations imposed by
the Internal Revenue Code is restored under a supplemental management
retirement plan maintained by
145
<PAGE>
ComEd, which also provides retirement benefits granted under employment
agreements or other arrangements. Thus, annual retirement benefits, as set
forth in the Pension Plan Table above, are based on the sum of the amounts
shown in the "Salary" and "Bonus" columns under the "Annual Compensation"
heading of the Summary Compensation Table, without limitation as a result of
the application of the provisions of the Internal Revenue Code. The approximate
number of years of credited service under the Plan or, if applicable, under the
supplemental management retirement plan, for the persons named in the Summary
Compensation Table are as follows: John W. Rowe, 22 years; Robert J. Manning,
36 years; Oliver D. Kingsley, 17 years; Pamela B. Strobel, 7 years; and David
R. Helwig, 2 years.
Employment Agreements
John W. Rowe
Unicom and ComEd have an employment agreement with John W. Rowe, pursuant to
which he became Chairman, President and Chief Executive Officer of each company
on March 16, 1998. The agreement provides that Mr. Rowe will be paid an annual
base salary of at least $900,000. Unicom also granted Mr. Rowe an option to
purchase 250,000 shares of common stock with an option price equal to the fair
market value of the common stock as of March 16, 1998. Such options become
exercisable in equal installments on March 16 of 1999, 2000, and 2001, and
expire on March 15, 2008. In accordance with the terms of his employment
agreement, Mr. Rowe was not entitled to any additional grants of stock options
during 1998.
The employment agreement with Mr. Rowe further provides that Mr. Rowe will
participate in Unicom's Annual Incentive Award Program and will receive an
annual incentive award for 1998 and 1999 that shall equal at least $600,000.
The employment agreement was amended to provide that Mr. Rowe's annual
incentive awards for 1998 and 1999 would be paid half in cash and half in
Unicom common stock, and that the guaranteed portion of Mr. Rowe's annual
incentive award for 1998 and 1999 would be paid 50% in cash and 50% as a grant
of shares of Unicom common stock, half of which vested on the date the annual
incentive would otherwise be paid (the "Grant Date") and half of which vested
on the anniversary of the Grant Date. In connection with this grant of shares,
Mr. Rowe also received, on the Grant Date, an option to purchase 13,000 of
Unicom common stock, which was the number of shares with a value as of the
Grant Date of $90,000 (determined using the pricing models used by the
Compensation Committee). Such option became exercisable 50% on the Grant Date
and 50% on the first anniversary thereof.
Mr. Rowe participates in the Unicom Long-Term Performance Unit Award
Program, and any award payable under such Program with respect to the three-
year performance periods ending on December 31, 1998, 1999, or 2000 will be
made as though he had participated in the Program throughout such performance
periods (except in the case of a termination of employment). Mr. Rowe agreed to
defer receipt of the stock portion of any incentive award under the Unicom
Corporation Stock Bonus Deferral Plan. As partial compensation for actual
compensation, benefits and programs that Mr. Rowe was, or was reasonably
expected to become, entitled to receive from his previous employer, he received
a lump-sum payment of $2,000,000. In addition, Mr. Rowe received $600,000 as an
inducement to enter into the employment agreement.
Mr. Rowe's employment agreement provides for a retirement benefit equal to
the amount that would have been payable under the Service Annuity System (plus
amounts payable under the ComEd Supplemental Management Retirement Plan) for an
employee who retires at age 60 (or such greater age if Mr. Rowe should become
eligible for the retirement benefit after attaining the age of 60) calculated
based on the assumption that Mr. Rowe had completed 20 years of credited
service as well as his actual years of credited service.
The employment agreement with Mr. Rowe provides for severance payments to
Mr. Rowe if he should be terminated without cause or if he should terminate the
employment agreement for good reason (as defined in the agreement) equal to his
base salary at the time of such termination, together with a formula annual
incentive award (as defined in the agreement), until the later of March 16,
2001 or one year after termination (if such termination should occur before
March 16, 2001), or one year after the date of termination (if such termination
should occur after March 16, 2001), and a continuation of health and life
insurance benefits during such period, plus retirement benefits. In addition,
any unvested options shall continue to become exercisable
146
<PAGE>
during such period, except that any unvested portion of the deferred shares and
additional option granted to Mr. Rowe pursuant to the amendment to his
employment agreement described above will immediately become fully exercisable
upon any such termination of employment. If the termination occurs within 24
months following a change in control of Unicom, such benefits will be paid for
three years after the date of termination.
Mr. Rowe agreed not to use for his own benefit or disclose any confidential
information of Unicom or ComEd during or after the term of his employment, and
not to compete with Unicom or ComEd or solicit any key employee or interfere
with the relationship with any material customer or supplier of either company
until two years after the term of his employment with the companies.
The employment agreement has been amended and restated, effective upon the
completion of the merger, as described under "The Merger--Interests of Unicom's
Directors and Management in the Merger" in Chapter I.
Oliver D. Kingsley, Jr.
ComEd entered into an employment agreement with Oliver D. Kingsley, Jr.
pursuant to which he became Executive Vice President and President and Chief
Nuclear Officer--Nuclear Generation Group, effective November 1, 1997. The
agreement provides for an annual base salary for 1997 and 1998 equal to
$475,000, and further provides for a guaranteed increase of at least 4% per
year, beginning in 1999.
Mr. Kingsley received an option to purchase 25,000 shares of common stock
with an option price equal to the fair market value of the common stock as of
November 1, 1997. Such options become exercisable in equal installments on
November 1 of 1998, 1999 and 2000, and expire on October 31, 2007. Mr. Kingsley
also received a grant of 20,000 shares of restricted stock that vests in equal
installments on November 1 of 1998, 1999 and 2000.
The employment agreement with Mr. Kingsley provides that Mr. Kingsley will
participate in Unicom's Annual Incentive Award Program and will receive an
annual incentive award for 1998 and 1999 at least equal to the target award of
$213,750.
Mr. Kingsley participates in the Unicom Long-Term Performance Unit Award
Program, and any award payable under such Program with respect to the three-
year performance periods ending on December 31, 1997, 1998, or 1999 will be
made as though he had participated in the Program throughout such performance
periods (except in the case of a termination of employment). In addition, Mr.
Kingsley received $375,000 as an inducement to enter into the employment
agreement, and an annual living cost allowance equal to $75,000 (increased by
the amount of applicable taxes on such amount as so increased) for the first
three years of the agreement term.
Mr. Kingsley's employment agreement provides for a retirement benefit equal
to the amount that would have been payable under the Service Annuity System
(plus amounts payable under the ComEd Supplemental Management Retirement Plan)
for an employee who retires at age 60 calculated based on the assumption that
Mr. Kingsley had completed 15 years of credited service beginning with the
third year of his employment and that such credited service increased by five
years during each of the next two years, in addition to his actual years of
credited service after five years of employment.
The employment agreement with Mr. Kingsley provides for a lump sum severance
payment to Mr. Kingsley if he should be terminated without cause equal to two
times his base salary at the time of such termination, and a continuation of
health and life insurance benefits for two years after the date of termination,
plus retirement benefits (calculated as though he had completed at least 15
years of credited service if such termination occurs during the first two years
of employment) and retiree health care coverage. In addition, any unvested
portion of the restricted stock granted under the agreement will immediately
become fully vested and nonforfeitable.
Mr. Kingsley agreed not to use for his own benefit or disclose any
confidential information of Unicom or ComEd during or after the term of his
employment, and not to solicit any employee of ComEd for one year after the
term of his employment with ComEd.
147
<PAGE>
Severance Plans
Unicom established the Key Management Severance Plan in 1998 to provide key
employees, including the named executive officers, certain benefits in the
event their employment is terminated by their employer without cause, or in the
event they resign for good reason (both terms as defined in the Plan). Benefits
under the Plan include severance pay equal to the sum of a terminated
executive's current annual base salary plus the average of his annual incentive
awards for the two years preceding the termination, annual incentive awards and
long-term incentive awards (with respect to any performance cycle for which the
executive has completed 24 months) prorated through the date of termination,
continuation of health care coverage, life insurance and long-term disability
coverage, and outplacement services. Payment of severance pay and continuation
of the benefits described above is made over two years, and the amount of the
severance pay and incentive and the payment period is included for purposes of
calculating retirement benefits under the supplemental management retirement
plan and determining eligibility for retiree health care coverage. As a
condition of receiving plan benefits, an executive must agree not to use for
his own benefit or disclose any confidential information of Unicom or ComEd
during or after the term of his employment, and not to compete with Unicom or
ComEd or solicit any key employee or interfere with the relationship with any
material customer or supplier of either company until two years after the term
of his employment with the companies, and must release Unicom from all claims
arising out of his employment as of the date of termination. In the case of Mr.
Rowe and Mr. Kingsley, the severance benefits provided under the terms of their
employment agreements will control, to the extent they exceed the benefits
provided under the Plan.
The boards of directors of Unicom and ComEd approved a change in control
policy (the "Policy") in 1998 pursuant to which Mr. Rowe and the other named
executive officers will receive benefits in the event their employment is
terminated without cause or if they resign for good reason (as such terms are
defined under the Policy) within 24 months following a change in control of
Unicom. The change in control benefits are provided in the form of individual
agreements for the named executives, and Mr. Rowe's employment agreement was
amended, effective March 8, 1999, to reflect the Policy provisions. The
benefits provided in the event of a change in control, including approval of
the merger, are described under "The Merger--Interests of Unicom's Directors
and Management in the Merger" in Chapter I.
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Boards of Directors of Unicom and ComEd
has furnished the following report on executive compensation:
Introduction. The Committee is responsible for Unicom's executive
compensation philosophy and policies, which form the basis for the Committee's
decisions. The overall objectives of the executive compensation programs are to
drive and reinforce achievement of financial objectives and strategic
initiatives, to provide compensation opportunities that are competitive with
top performing energy services companies and general industry firms, and to
ensure that compensation is linked to performance and increasing shareholder
value.
It is the policy of the Committee to compensate executive officers based on
fulfillment of their responsibilities and their achievement of established
corporate and business unit goals. The business challenges resulting from the
restructuring of the utility industry make it critical that Unicom's
compensation programs drive and reinforce achievement of financial, operational
and strategic goals. A study of management compensation programs was
commissioned by the Committee in the fall of 1998. This study was conducted by
a leading external management compensation consulting firm and included an
assessment of business plans and strategic and competitive compensation levels
compared with the external market.
While overall, Unicom's total compensation levels were found to be generally
competitive, the study results indicated that Unicom's mix of compensation
components (i. e., salary, annual and long term incentives and stock options)
could be more effectively aligned with the competitive market. Based on those
results, Unicom's pay-for-performance philosophy was refined to have an
increased emphasis on pay-at-risk. When excellent performance is achieved, pay
will exceed market levels. Failure to achieve target goals will result in
148
<PAGE>
below-market pay. In addition, other compensation changes were made to achieve
a more effective use of shareholder value as a determinant of compensation and
to encourage officers and other employees to act like owners of the business.
The Committee believes that compensation paid should be appropriate in
relation to the financial performance of Unicom and should be sufficient to
enable Unicom to attract and retain individuals possessing the talents required
for ensuring the Company's long-term successful performance. The Committee also
believes that incentive compensation performance goals for executive management
should be based on factors over which management has significant control and
which are important to Unicom's long-term success.
In 1999, the major components of executive officer compensation were base
salary, consisting of cash salary and current compensation unit income, non-
qualified stock options, and incentive compensation (both annual and longer-
term) related to awards under the Unicom Corporation Long-Term Incentive Plan.
Base Salary. The process of determining the officers' base salaries began
with a review of the salary levels for various comparable executive positions
at a group of peer companies identified by the Committee. The Committee also
used compensation survey information from several executive compensation-
consulting firms. The Committee then considered differences from other
companies in Unicom's organizational structure and the responsibilities of its
executive officers, in the size, scope and complexity of Unicom's operations,
and in the regulatory environment and competitive challenges faced by Unicom.
Salary range increases and salary adjustment budgets are established annually
for non-officer employees based on business and economic conditions of Unicom
as well as on competitive practices. Beginning in 1999, Unicom initiated a two-
year scheduled review cycle for officer level executives to make the rewards
more meaningful and to cover a longer performance period. Salaries are adjusted
based upon each executive's performance impact and overall contributions to
Unicom.
The Chairman reviewed the base salary of each officer and recommended an
adjustment after assessing particular responsibilities and performance. The
Chairman's recommendations were reviewed and approved by the Committee.
Percentage increases for individual officers varied and were structured to
recognize changes in industry compensation levels; to reflect the impact,
performance and contributions of individual officers; and to reflect strategic
changes in job responsibilities and assignments.
In 1999, four executive officers held current compensation units. Each such
unit entitles the holder to receive current income equal to the dividends paid
on one share of Unicom Common Stock. During 1999, no additional units were
awarded by the Committee.
Incentive Compensation Awards. Another component of executive compensation
is incentive compensation earned under awards made by the Committee under the
Unicom Corporation Long-Term Incentive Plan. Such incentives are designed to
drive and enforce achievement of established financial, operational and
strategic goals that are critical to Unicom's success, including increasing
shareholder value. Incentive opportunities include an annual incentive target,
a long-term performance unit target covering a three-year performance period
and non-qualified stock options.
The Unicom Corporation 1999 Annual Incentive Award for Management Employees
under the Unicom Corporation Long-Term Incentive Plan was established to reward
the achievement of certain corporate and business unit goals during 1999. The
annual incentive award placed increased emphasis on financial performance,
strategic direction and results that will increase shareholder value. A
significant portion of the 1999 annual incentive for executive officers was
tied to a Shareholder Value Added measure.
The award is variable and is designed to encourage achievement of short-term
goals. Employees receive incentive awards only if their business units and
Unicom meet or exceed the established performance targets for the year. The
amount of the individual awards is based upon the individual and collective
accomplishments of employees and varies based upon the degree to which the
financial and strategic goals are met or exceeded and upon the Committee's
assessment of individual performance. For key management employees, the annual
incentive award is payable 75% in cash and 25% in Unicom Common Stock.
149
<PAGE>
For management employees other than those in selected sales-related
positions, the 1999 corporate financial goal was "Shareholder Value Added."
Shareholder Value Added was defined as revenues (ComEd, Off System and
Subsidiaries) less Costs (operations and maintenance expenditures, fuel,
depreciation and taxes), minus capital charge (debt and equity costs). Staff
executive officers' annual incentive awards were tied to the corporate
Shareholder Value Added goals whereas line executive officers were tied to both
the corporate Shareholder Value Added goal and his or her business unit's
Shareholder Value Added goal. The 1999 Unicom Corporate Shareholder Value Added
achieved was 138.95% of the target level. In addition to the Shareholder Value
Added goal tie, the remaining portion of executive officers' annual incentive
award was comprised of a combination of corporate and business unit strategic
initiatives and key performance indicators. Quantitative goals (for example,
nuclear capacity) were measured on a scale of performance ranging from
"threshold" to "maximum." Other strategic goals were assessed and approved by
the Committee.
For Mr. Rowe and other executive officers, the final determination of the
annual incentive award was based on the accomplishment of Shareholder Value
Added, strategic goals, and an individual performance assessment by the
Committee.
A long term performance unit award program was established in 1994 to focus
employees on long range performance by linking certain incentive payments to
specific performance measures. Incentive opportunities are expressed as a
percentage of base salary and increase with the executive's management level.
The awards payable in 2000 and in 2001 are based on the total return of Unicom
Common Stock relative to that of the other companies constituting the Dow Jones
Utility Stock Index over three-year performance periods. The Dow Jones Utility
Stock Index includes Unicom and fourteen other large energy services companies.
To better support improved business performance and the creation of Unicom
shareholder value, the award payable in 2002 places a significant emphasis on
Business Unit performance as well as corporate profitability as measured by
Corporate Cumulative Shareholder Value Added and a Customer Satisfaction Index.
Awards for the performance period 1997-1999 resulted in a payment that was
115.5% of the target award. Payments to certain executive officers are included
in the "Payouts" column under the "Long-Term Compensation" heading in the
Summary Compensation Table. Unicom's shareholder return increased by 44.3%
during that same performance period.
Stock Option Grants in 1999. Unicom grants non-qualified stock options to
reward and motivate the Company's management to increase long-term shareholder
value. Option grants are made generally to key employees who are expected to
contribute materially to Unicom's success. The option awards permit grantees to
purchase shares of Unicom's Common Stock at an exercise price equal to the
market value on the date of grant, and become exercisable in equal increments
over a three-year period. The options have a maximum term of ten years.
Committee decisions regarding the size of option grants were based on an
evaluation of competitive data drawn from companies in a study conducted in
fall 1998 for Unicom by a leading executive compensation consulting firm, as
well as the option recipient's base salary, target mix of other compensation
components, management level, performance and potential.
Compensation of the Chief Executive Officer. In considering the compensation
for 1999 of Mr. Rowe, the Compensation Committee evaluated Unicom's 1998
performance, compensation for other chief executive officers, and Unicom's
strategic direction. Under his employment agreement, Mr. Rowe is paid an annual
base salary of at least $900,000, is guaranteed an annual incentive award for
1998 and 1999 of at least $600,000, and participates in the Long-Term
Performance Unit Award Programs with respect to the three-year performance
periods ending December 31, 1998, 1999 and 2000 as though he had participated
in the Program throughout the performance periods.
Salary. The Committee's assessment of the personal performance of Mr. Rowe
was based upon an evaluation of his leadership, achievements and contributions
to Unicom during 1998, as well as an assessment of competitive practices and
market comparisons of chief executive officers for comparable companies. Mr.
Rowe's total annual salary in 1999 was increased $75,000 to a rate of $975,000
per year.
150
<PAGE>
Incentive Compensation Plans
Annual Incentive Program. Mr. Rowe participated in the annual incentive
program described earlier in this report. Mr. Rowe's target award was 70% of
his base salary. The actual award paid was 155.1% of his target level based on
the achievement of Shareholder Value Added, strategic goals and an individual
performance assessment by the Committee. The Committee approved payment of the
award 50% in cash and 50% in Unicom Common Stock. Mr. Rowe deferred the portion
of his incentive that was payable in Unicom Common Stock under the Unicom
Corporation Stock Bonus Deferral Plan.
Long Term Performance Unit Award. Mr. Rowe's award opportunity for the 1997-
1999 performance cycle was at a target level of 50% of his then-current base
salary. The actual award paid was 115.5% of his target level based on the total
return of Unicom Common Stock relative to the other companies constituting the
Dow Jones Utility Stock Index over the performance period.
Stock Option Award. Mr. Rowe was granted 110,000 non-qualified stock options
as part of the normal annual grant cycle. In addition, as Mr. Rowe voluntarily
deferred one-half of his guaranteed annual awards for 1998 and 1999, the
Committee awarded him a premium of an additional 13,000 options on March 4,
1999. One-half of this premium grant vested immediately and the remaining
portion will vest on March 4, 2000.
Internal Revenue Code Section 162(m) Considerations. Under Section 162(m) of
the Internal Revenue Code, executive compensation in excess of $1 million is
generally not deductible for purposes of corporate income taxes. However,
"qualified performance-based compensation" which is paid pursuant to a plan
meeting certain requirements of the Code and applicable regulations remains
deductible. As noted in previous reports, the Committee intends to continue
reliance on performance-based compensation programs, consistent with sound
executive compensation policy. Such programs will be designed to fulfill, in
the best possible manner, future corporate business objectives. The Committee's
policy has been to seek to cause executive incentive compensation to qualify as
"performance-based" in order to preserve its deductibility for federal income
tax purposes to the extent possible without sacrificing flexibility in
designing appropriate compensation programs. In 1997 and 1999, the Company
obtained shareholder approval of performance-based incentives in Long-Term
Performance Unit Awards in order to qualify such compensation as "performance-
based." However, in order to provide executives with appropriate incentives,
the Committee may also determine, in light of all applicable circumstances,
that it would be in the best interests of Unicom for awards to be paid under
certain of its incentive compensation programs or otherwise in a manner that
would not satisfy the requirements to qualify as performance-based compensation
under Code Section 162(m). The portion of Mr. Rowe's incentive compensation
that was guaranteed under his employment agreement does not qualify as
performance-based compensation under Code Section 162(m), and accordingly, to
the extent receipt of such compensation is not deferred, the amount of such
incentive compensation and salary in excess of $1 million will not be
deductible by Unicom for purposes of corporate income taxes. Mr. Rowe deferred
the portion of his incentive that was payable in Unicom Common Stock under the
Unicom Corporation Stock Bonus Deferral Plan.
Compensation Committee
Edward A. Brennan, Chairman
James W. Compton
Donald P. Jacobs
Richard Thomas
Shareholder Return Performance
Set forth below is a line graph comparing the quarterly percentage change in
the cumulative total shareholder return on Unicom common stock ("UCM") against
the cumulative total return of the S&P 500 Composite Stock Index and the Dow
Jones Utility Stock Index for the five-year period ending December 31, 1999.
151
<PAGE>
Cumulative Performance Since January 1, 1995 Assuming Reinvestment of Dividends
(January 1, 1995 = $100)
ITEM 4--Ratification of Appointment of Independent Auditors
Subject to shareholder approval, the Unicom board of directors has appointed
Arthur Andersen LLP, independent public accountants, as auditors to examine the
annual and quarterly consolidated financial statements of Unicom and its
subsidiary companies for 2000. The shareholders will be asked at the annual
meeting to approve such appointment. The firm of Arthur Andersen LLP has
audited the accounts of Unicom since its inception in 1994, and ComEd since
1932. A representative of Arthur Andersen LLP will be present at the meeting to
make a statement if such representative so desires, and to respond to
shareholders' questions.
Other Matters
Shareholder Proposals and Nominations for 2001 Annual Meeting
Any shareholder proposal intended to be presented at the 2001 annual meeting
of Unicom's shareholders must be received at the principal executive offices of
Unicom by the close of business on January 17, 2000, in order to be considered
for inclusion in Unicom's proxy materials relating to that meeting. In
addition, under Unicom's By-laws, in order for a shareholder to bring business
before, or to make a nomination of a candidate
152
<PAGE>
for election as a director at, an annual meeting, the shareholder must comply
with the procedures set forth in the Unicom By-laws. Under the Unicom By-laws,
written notice in proper form of any business to be brought before an annual
meeting must be provided to the Secretary of Unicom not less than 90 nor more
than 120 days before the anniversary date of the preceding annual meeting of
shareholders. However, if the annual meeting is called for a date that is not
within 30 days before or after such anniversary date, notice by the shareholder
must be so received by the Secretary not later than 10 days after the day on
which notice of the date of the annual meeting was mailed or publicly
announced. To be in proper written form, the notice must include a brief
description of such business, the reasons for conducting such business at the
annual meeting, and certain information concerning the identity of the
shareholder proposing to bring the business before the annual meeting.
Similarly, under the Unicom By-laws, written notice in proper form of any
nomination of a candidate for election as a director at an annual meeting must
be provided to the Secretary within the same time limits as set forth above for
business to be brought before a meeting by a shareholder. To be in proper
written form, the notice must set forth all information regarding the nominee
that is required to be disclosed pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended, together with certain information
concerning the identity of the shareholder proposing to make the nomination. A
copy of the Unicom By-law provisions specifying the requirements for
shareholders wishing to bring business before the annual meetings or wishing to
make a nomination for election as a director at such meetings will be furnished
to any shareholder without charge upon written request to the Secretary. Any
such proposal, nomination or request should be directed to the Secretary of
Unicom at the 37th Floor, Bank One Building, 10 South Dearborn Street, Chicago,
Illinois. If mailed, it should be sent to Secretary, Unicom Corporation, 10
South Dearborn Street, Post Office Box A-3005, Chicago, Illinois 60690-3005.
As of the date of this proxy statement/prospectus, management knows of no
matters to be brought before the annual meeting other than the matters referred
to in this proxy statement/prospectus. If, however, further business is
presented, the proxy holders will act in accordance with their best judgment.
153
<PAGE>
CHAPTER IV--WHERE YOU CAN FIND MORE INFORMATION
Exelon filed a registration statement on Form S-4 on May 15, 2000, to
register with the Securities and Exchange Commission the Exelon common stock to
be issued to PECO Energy and Unicom shareholders in the merger. This proxy
statement/prospectus is a part of that registration statement and constitutes a
prospectus of Exelon in addition to being a proxy statement of PECO Energy and
Unicom. As allowed by Securities and Exchange Commission rules, this proxy
statement/prospectus does not contain all the information you can find in
Exelon's registration statement or the exhibits to the registration statement.
PECO Energy and Unicom file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information that PECO
Energy and Unicom file with the Securities and Exchange Commission at the
Securities and Exchange Commission's public reference rooms at the following
locations:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, NY 10048 Suite 1400
Chicago, IL 60661-2511
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the public reference rooms. These Securities and
Exchange Commission filings are also available to the public from commercial
document retrieval services and at the Internet worldwide web site maintained
by the Securities and Exchange Commission at "http://www.sec.gov". Reports,
proxy statements and other information concerning PECO Energy and Unicom may
also be inspected at the offices of the New York Stock Exchange, which is
located at 20 Broad Street, New York, New York 10005.
The Securities and Exchange Commission allows PECO Energy, Unicom and Exelon
to "incorporate by reference" information into this proxy statement/prospectus,
which means that the companies can disclose important information to you by
referring you to other documents filed separately with the Securities and
Exchange Commission. The information incorporated by reference is considered
part of this proxy statement/prospectus, except for any information superseded
by information contained directly in this proxy statement/prospectus or in
later filed documents incorporated by reference in this proxy
statement/prospectus.
This proxy statement/prospectus incorporates by reference the documents set
forth below that PECO Energy and Unicom have previously filed with the
Securities and Exchange Commission. These documents contain important business
and financial information about PECO Energy and Unicom that is not included in
or delivered with this proxy statement/prospectus.
<TABLE>
<CAPTION>
PECO Energy Filings (File No. 1-1401) Period
------------------------------------- ------
<C> <S>
Annual Report on Form 10-K Fiscal Year ended December 31, 1999
Quarterly Report on Form 10-Q For the period ended March 31, 2000
Current Reports on Form 8-K Filed January 7, 2000, January 13, 2000,
March 21, 2000, March 24, 2000 and May 3,
2000
Registration Statement on Form 8-A Filed October 24, 1991
(description of PECO Energy common stock)
</TABLE>
154
<PAGE>
<TABLE>
<CAPTION>
Unicom Filings (File No.1-11375) Period
-------------------------------- ------
<C> <S>
Annual Report on Form 10-K and on Form 10-
K/A Fiscal Year ended December 31, 1999
Quarterly Report on Form 10-Q For the Period ended March 31, 2000
Current Reports on Form 8-K Filed January 7, 2000, January 13, 2000 and
May 9, 2000
Registration Statement on Form 8-B Filed August 24, 1994
(description of Unicom common stock)
Registration Statement on Form 8-A Filed February 6, 1998
(description of the Unicom rights to
acquire Unicom common stock)
</TABLE>
PECO Energy and Unicom also incorporate by reference additional documents
that may be filed with the Securities and Exchange Commission under Section
13(a), 13(c), 14 or 15(d) of the Exchange Act between the date of this proxy
statement/prospectus and the date of the PECO Energy annual meeting and the
date of the Unicom annual meeting, as applicable. These include periodic
reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q
and Current Reports on Form 8-K, as well as proxy statements.
PECO Energy has supplied all information contained or incorporated by
reference in this proxy statement/prospectus relating to PECO Energy and
Exelon, and Unicom has supplied all information relating to Unicom.
If you are a PECO Energy shareholder or a Unicom shareholder, we may have
sent to you some of the documents incorporated by reference, but you can also
obtain any of them through the companies, the Securities and Exchange
Commission or the Securities and Exchange Commission's Internet web site as
described above. Documents incorporated by reference are available from the
companies without charge, excluding all exhibits, except that if the companies
have specifically incorporated by reference an exhibit in this proxy
statement/prospectus, the exhibit will also be provided without charge. You may
obtain documents incorporated by reference in this proxy statement/prospectus
by requesting them in writing or by telephone from the appropriate company at
the following addresses:
PECO Energy Company Unicom Corporation
2301 Market Street 37th Floor, 10 South Dearborn Street
Post Office Box 8699 Post Office Box A-3005
Philadelphia, Pennsylvania 19101- Chicago, Illinois 60690-3005
8699 Telephone: 1-800-950-2377
Telephone: 1-888-340-7326 Attention: Shareholder Services
Attention: Investor Relations
If you would like to request documents, please do so by June 19, 2000, in
order to receive them before your annual meeting.
You should rely only on the information contained or incorporated by
reference in this proxy statement/prospectus. We have not authorized anyone to
provide you with information that is different from what is contained in this
proxy statement/prospectus. Therefore, if anyone does give you information of
this sort, you should not rely on it. If you are in a jurisdiction where offers
to exchange or sell, or solicitations of offers to exchange or purchase, the
securities offered by this document or the solicitation of proxies is unlawful,
or if you are a person to whom it is unlawful to direct these types of
activities, then the offer presented in this document does not extend to you.
This proxy statement/prospectus is dated May 15, 2000. You should not assume
that the information contained in this proxy statement/prospectus is accurate
as of any date other than that date. Neither the mailing of this proxy
statement/prospectus to PECO Energy and Unicom shareholders nor the issuance of
Exelon common stock in the merger creates any implication to the contrary.
155
<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDED AND RESTATED AGREEMENT
AND PLAN OF EXCHANGE AND MERGER
Dated as of September 22, 1999,
Amended and Restated as of January 7, 2000,
Among
PECO ENERGY COMPANY,
NEWHOLDCO CORPORATION
And
UNICOM CORPORATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Article i
The Exchange and Merger
<TABLE>
<C> <S> <C>
Section 1.01. The Exchange and Merger.................................... A-1
Section 1.02. Closing.................................................... A-2
Section 1.03. Merger Effective Time...................................... A-2
Section 1.04. Effects.................................................... A-2
Section 1.05. Articles of Incorporation and By-laws...................... A-2
Section 1.06. Newco Board of Directors................................... A-3
Section 1.07. Newco Senior Officers...................................... A-3
Section 1.08. Operations................................................. A-3
Article ii
Effect on the Capital Stock of the Constituent Corporations
Section 2.01. Effect on Capital Stock.................................... A-3
Section 2.02. Exchange of Certificates................................... A-4
Section 2.03. Certain Adjustments........................................ A-7
Article iii
Representations and Warranties of the Company
Section 3.01. Organization, Standing and Power........................... A-8
Section 3.02. Company Subsidiaries; Equity Interests..................... A-8
Section 3.03. Capital Structure.......................................... A-8
Section 3.04. Authority; Execution and Delivery; Enforceability.......... A-9
Section 3.05. No Conflicts; Consents..................................... A-10
Section 3.06. SEC Documents; Undisclosed Liabilities..................... A-11
Section 3.07. Information Supplied....................................... A-11
Section 3.08. Absence of Certain Changes or Events....................... A-12
Section 3.09. Taxes...................................................... A-12
Section 3.10. Absence of Changes in Benefit Plans........................ A-13
Section 3.11. ERISA Compliance; Excess Parachute Payments................ A-13
Section 3.12. Litigation................................................. A-15
Section 3.13. Compliance with Applicable Laws; Permits................... A-15
Section 3.14. Brokers; Schedule of Fees and Expenses..................... A-15
Section 3.15. Opinion of Financial Advisor............................... A-15
Section 3.16. Year 2000.................................................. A-15
Section 3.17. Environmental Matters...................................... A-15
Section 3.18. Labor and Employee Relations............................... A-17
Section 3.19. Operations of Nuclear Power Plants......................... A-17
Section 3.20. Parent Share Ownership..................................... A-17
Section 3.21. Regulation as a Utility.................................... A-17
Section 3.22. Contracts; No Default...................................... A-17
Section 3.23. Title to Properties........................................ A-18
Section 3.24. Intellectual Property...................................... A-18
Section 3.25. Hedging.................................................... A-18
Section 3.26. Regulatory Proceedings..................................... A-18
</TABLE>
i
<PAGE>
Article iv
Representations and Warranties of Parent and Newco
<TABLE>
<C> <S> <C>
Section 4.01. Organization, Standing and Power........................ A-19
Section 4.02. Parent Subsidiaries; Equity Interests................... A-19
Section 4.03. Capital Structure....................................... A-19
Section 4.04. Authority; Execution and Delivery; Enforceability....... A-20
Section 4.05. No Conflicts; Consents.................................. A-21
Section 4.06. SEC Documents; Undisclosed Liabilities.................. A-21
Section 4.07. Information Supplied.................................... A-22
Section 4.08. Absence of Certain Changes or Events.................... A-22
Section 4.09. Taxes................................................... A-22
Section 4.10. Absence of Changes in Benefit Plans..................... A-23
Section 4.11. ERISA Compliance; Excess Parachute Payments............. A-24
Section 4.12. Litigation.............................................. A-25
Section 4.13. Compliance with Applicable Laws; Permits................ A-25
Section 4.14. Brokers; Schedule of Fees and Expenses.................. A-25
Section 4.15. Opinions of Financial Advisors.......................... A-25
Section 4.16. Year 2000............................................... A-26
Section 4.17. Environmental Matters................................... A-26
Section 4.18. Labor and Employee Relations............................ A-26
Section 4.19. Operations of Nuclear Power Plants...................... A-27
Section 4.20. Company Share Ownership................................. A-27
Section 4.21. Regulation as a Utility................................. A-27
Section 4.22. Contracts; No Default................................... A-27
Section 4.23. Title to Properties..................................... A-28
Section 4.24. Intellectual Property................................... A-28
Section 4.25. Hedging................................................. A-28
Section 4.26. Regulatory Proceedings.................................. A-28
Article v
Covenants Relating to Conduct of Business
Section 5.01. Conduct of Business..................................... A-28
Section 5.02. No Solicitation by Company.............................. A-34
Section 5.03. No Solicitation by Parent............................... A-35
Article vi
Additional Agreements
Section 6.01. Preparation of the Form S-4 and the Proxy Statement;
Shareholders Meetings.................................. A-37
Section 6.02. Access to Information; Confidentiality.................. A-38
Section 6.03. Regulatory Matters; Reasonable Best Efforts............. A-39
Section 6.04. Company and Parent Stock Options and Other Stock Plans.. A-39
Section 6.05. Benefit Plans; Workforce Matters........................ A-42
Section 6.06. Indemnification......................................... A-43
Section 6.07. Fees and Expenses....................................... A-43
Section 6.08. Public Announcements.................................... A-44
Section 6.09. Transfer Taxes.......................................... A-44
</TABLE>
ii
<PAGE>
<TABLE>
<C> <S> <C>
Section 6.10. Affiliates............................................... A-45
Section 6.11. Stock Exchange Listing................................... A-45
Section 6.12. Rights Agreements; Consequences if Rights Triggered...... A-45
Section 6.13. Tax Treatment............................................ A-45
Section 6.14. Reorganization and Amendment............................. A-45
Section 6.15. Common Stock Repurchase.................................. A-46
Section 6.16. Parity of Compensation................................... A-46
Section 6.17. Board Seats.............................................. A-46
Article vii
Conditions Precedent
Section 7.01. Conditions to Each Party's Obligation To Effect The
Merger.................................................. A-46
Section 7.02. Conditions to Obligations of Parent and Newco............ A-47
Section 7.03. Conditions to Obligations of the Company................. A-48
Article viii
Termination, Amendment and Waiver
Section 8.01. Termination.............................................. A-48
Section 8.02. Effect of Termination.................................... A-50
Section 8.03. Amendment................................................ A-50
Section 8.04. Extension; Waiver........................................ A-50
Procedure for Termination, Amendment, Extension or
Section 8.05. Waiver.................................................. A-51
Article ix
General Provisions
Section 9.01. Nonsurvival of Representations and Warranties............ A-51
Section 9.02. Notices.................................................. A-51
Section 9.03. Definitions.............................................. A-52
Section 9.04. Interpretation; Disclosure Letters....................... A-52
Section 9.05. Severability............................................. A-52
Section 9.06. Counterparts............................................. A-52
Section 9.07. Entire Agreement; No Third-Party Beneficiaries........... A-52
Section 9.08. Governing Law............................................ A-53
Section 9.09. Assignment............................................... A-53
Section 9.10. Enforcement.............................................. A-53
Section 9.11. Newco Obligations........................................ A-53
</TABLE>
iii
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Defined Term Section
------------ -------
<S> <C>
"Affiliate" Section 9.03
"Agreement" Recitals
"AmerGen" Section 5.01(b)(iv)
"AmerGen Nuclear Facilities" Section 4.19(b)
"Applicable Law" Section 3.05(a)
"Articles of Exchange" Section 1.03(a)
"Atomic Energy Act" Section 3.05(b)
"Certificates" Section 2.02(b)(v)
"Closing" Section 1.02
"Closing Date" Section 1.02
"Code" Recitals
"ComEd" Section 1.08(a)
"Common Shares Trust" Section 2.02(e)(ii)
"Company" Recitals
"Company Acquisition Agreement" Section 5.02(b)
"Company Benefit Plans" Section 3.10
"Company Board" Section 3.04(b)
"Company By-laws" Section 3.01
"Company Cash Consideration" Section 2.01(b)(ii)
"Company Certificates" Section 2.02(b)(v)
"Company Chairman" Section 6.16
"Company Charter" Section 3.01
"Company Common Stock" Recitals
"Company Competing Transaction" Section 5.02(a)
"Company Conversion Number" Section 2.01(b)(ii)
"Company Disclosure Letter" Section 3.02(a)
"Company Dissent Shares" Section 2.01(b)(iv)
"Company Employee Stock Option" Section 6.04(f)
"Company Employment Arrangements" Section 3.10
"Company Exchange Ratio" Section 2.01(b)(ii)
"Company Material Adverse Effect" Section 3.01
"Company Nuclear Facilities" Section 3.19
"Company Permits" Section 3.13(b)
"Company Reorganization" Section 5.01(g)
"Company Required Statutory Approvals" Section 3.05(b)
"Company Rights" Section 3.03(a)
"Company Rights Agreement" Section 3.03(a)
"Company SEC Documents" Section 3.06
"Company Shareholder Approval" Section 3.04(c)
"Company Shareholders Meeting" Section 6.01(d)
"Company Stock Plans" Section 6.04(f)
"Company Subsidiaries" Section 3.01
"Confidentiality Agreement" Section 6.02
"Consent" Section 3.05(b)
"Contract" Section 3.05(a)
"ERISA" Section 3.11(b)
"Election Deadline" Section 2.02(b)
"Environmental Claims" Section 3.17(f)(i)
"Environmental Laws" Section 3.17(f)(ii)
</TABLE>
iv
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Defined Term Section
------------ -------
<S> <C>
"Environmental Permits" Section 3.17(f)(iii)
"Excess Shares" Section 2.02(e)(ii)
"Exchange Act" Section 3.05(b)
"Exchange Agent" Section 2.02(a)
"Exchange Consideration" Section 2.01(a)(ii)
"Exchange Effective Time" Section 1.03(a)
"Exchange Fund" Section 2.02(a)
"FERC" Section 3.05(b)
"Filed Company SEC Documents" Section 3.08
"Filed Parent SEC Documents" Section 4.08
"Final Order" Section 7.01(c)
"First Step Exchange" Recitals
"Form S-4" Section 3.07
"Form of Election" Section 2.02(b)
"GAAP" Section 3.06
"Governmental Entity" Section 3.05(b)
"Hazardous Materials" Section 3.17(f)(iv)
"HSR Act" Section 3.05(b)
"IBCA" Section 1.01(b)
"ICC" Section 3.05(b)
"Illinois Articles of Merger" Section 1.03(b)
"Indemnified Party" Section 6.06(c)
"Intellectual Property Rights" Section 3.24
"Judgment" Section 3.05(a)
"Liens" Section 3.02(a)
"Losses" Section 6.06(c)
"Material Adverse Effect" Section 9.03
"Merger" Recitals
"Merger Consideration" Section 2.01(b)(ii)
"Merger Effective Time" Section 1.03(b)
"NRC" Section 3.05(b)
"NYSE" Section 2.02(e)(ii)
"Newco" Recitals
"Newco Articles" Section 1.05(a)
"Newco Board" Section 1.06(b)
"Newco By-laws" Section 1.05(b)
"Newco Common Stock" Recitals
"Original Merger Agreement" Recitals
"Outside Date" Section 8.01(b)
"PBCL" Section 1.01(a)
"PCBs" Section 3.17(f)(iv)
"PPUC" Section 4.05(b)
"PUHCA" Section 3.02(a)
"PURPA" Section 3.02(a)
"Parent" Recitals
"Parent Acquisition Agreement" Section 5.03(b)
"Parent Benefit Plans" Section 4.10
"Parent Board" Section 4.04(b)
"Parent By-laws" Section 4.01
</TABLE>
v
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Defined Term Section
------------ -------
<S> <C>
"Parent Capital Stock" Section 4.03(a)
"Parent Certificate" Section 2.02(b)(v)
"Parent Chairman" Section 6.16
"Parent Charter" Section 4.01
"Parent Common Stock" Recitals
"Parent Competing Transaction" Section 5.03(a)
"Parent Disclosure Letter" Section 4.02(a)
"Parent Employee Stock Option" Section 6.04(f)
"Parent Employment Arrangements" Section 4.10
"Parent Exchange Ratio" Section 2.01(a)(ii)
"Parent Material Adverse Effect" Section 4.01
"Parent Nuclear Facilities" Section 4.19(a)
"Parent Permits" Section 4.13(b)
"Parent Preferred Stock" Section 4.03(a)
"Parent Reorganization" Section 5.01(g)
"Parent Required Statutory Approvals" Section 4.05(b)
"Parent SAR" Section 6.04(f)
"Parent SEC Documents" Section 4.06
"Parent Shareholder Approval" Section 4.04(c)
"Parent Shareholders Meeting" Section 6.01(e)
"Parent Stock Plans" Section 6.04(f)
"Parent Subsidiaries" Section 4.01
"Power Purchase Agreement" Section 5.01(a)(xii)
"Pennsylvania Articles of Merger" Section 1.03(b)
"Pennsylvania Competition Act" Section 4.13(b)
"Person" Section 9.03
"Power Act" Section 3.02(a)
"Proxy Statement" Section 3.05(b)
"Qualified Plans" Section 3.11(a)
"Qualifying Company Proposal" Section 5.02(d)
"Qualifying Parent Proposal" Section 5.03(d)
"Release" Section 3.17(f)(v)
"Representatives" Section 5.02(a)
"SEC" Section 3.05(b)
"Second Step Merger" Recitals
"Sections 11.65 and 11.70" Section 2.01(b)(iv)
"Securities Act" Section 3.06
"Share Issuance" Section 1.01(c)
"Stock Plan" Section 6.04(e)
"Subsidiary" Section 9.03
"Surviving Corporation" Section 1.01(b)
"Taxes" Section 3.09(g)
"Tax Return" Section 3.09(g)
"Transactions" Section 1.01(c)
"Transition Period" Section 6.16
"Transfer Taxes" Section 6.09
"Voting Company Debt" Section 3.03(d)
"Voting Parent Debt" Section 4.03(d)
</TABLE>
vi
<PAGE>
AMENDED AND RESTATED AGREEMENT AND PLAN OF EXCHANGE AND MERGER dated as of
September 22, 1999, as amended and restated as of January 7, 2000 (this
"Agreement"), among PECO ENERGY COMPANY, a Pennsylvania corporation ("Parent"),
NEWHOLDCO CORPORATION, a Pennsylvania corporation and a wholly owned subsidiary
of Parent ("Newco"), and UNICOM CORPORATION, an Illinois corporation (the
"Company").
WHEREAS Parent, Newco and the Company entered into an Agreement and Plan of
Exchange and Merger dated as of September 22, 1999 (the "Original Merger
Agreement"), and they now desire to amend and restate the Original Merger
Agreement (it being understood that all references herein to this "Agreement"
refer to the Original Merger Agreement as amended and restated hereby and that
all references herein to the "date hereof" or the "date of this Agreement"
refer to September 22, 1999);
WHEREAS the respective Boards of Directors of Parent, Newco and the Company
have approved the consummation of the business combination provided for in this
Agreement, pursuant to which (a) Parent and Newco will, on the terms and
subject to the conditions set forth in this Agreement, effect a mandatory share
exchange (the "First Step Exchange") whereby each outstanding share of common
stock, no par value, of Parent (the "Parent Common Stock") shall be acquired by
Newco in exchange for common stock, no par value, of Newco (the "Newco Common
Stock"), as herein provided, (b) immediately thereafter, the Company will, on
the terms and subject to the conditions set forth in this Agreement, merge with
and into Newco (the "Second Step Merger" and, together with the First Step
Exchange, the "Merger"), whereby each share of common stock, no par value, of
the Company (the "Company Common Stock") will be converted into the right to
receive Newco Common Stock and cash, as herein provided, (c) the holders of
Parent Common Stock and Company Common Stock will together own all of the
outstanding shares of Newco Common Stock and (d) each share of each other class
of capital stock of Parent and the Company shall be unaffected and remain
outstanding;
WHEREAS for Federal income tax purposes it is intended that the Merger
constitutes transactions described in Section 351 of the Internal Revenue Code
of 1986, as amended (the "Code"), and the Second Step Merger constitutes a
transaction described in Section 368(a) of the Code; and
WHEREAS Parent, Newco and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger.
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
agree as follows:
Article I
The Exchange and Merger
Section 1.01. The Exchange and Merger. (a) On the terms and subject to the
conditions set forth in this Agreement, in accordance with the Business
Corporation Law of the Commonwealth of Pennsylvania ("PBCL"), Parent and Newco
shall effect the First Step Exchange at the Exchange Effective Time (as defined
in Section 1.03). As a result of the First Step Exchange, Parent shall become a
wholly owned subsidiary of Newco. The effects and the consequences of the First
Step Exchange and the Second Step Merger shall be as set forth in Section 1.04.
(b) On the terms and subject to the conditions set forth in this Agreement,
in accordance with the Illinois Business Corporation Act (the "IBCA") and the
PBCL, the Company shall be merged with and into Newco at the Merger Effective
Time (as defined in Section 1.03). At the Merger Effective Time, the separate
corporate existence of the Company shall cease and Newco shall continue as the
surviving corporation (the "Surviving Corporation").
A-1
<PAGE>
(c) The First Step Exchange, the Second Step Merger, the issuance by Newco
of Newco Common Stock in connection with the Merger (the "Share Issuance") and
the other transactions contemplated by this Agreement are referred to in this
Agreement collectively as the "Transactions".
Section 1.02. Closing. The closing (the "Closing") of the Merger shall take
place at such location as shall be determined by the parties at 10:00 a.m. on
the second business day following the satisfaction (or, to the extent permitted
by Applicable Law (as defined in Section 3.05), waiver by all parties) of the
conditions set forth in Section 7.01, or, if on such day any condition set
forth in Section 7.02 or 7.03 has not been satisfied (or, to the extent
permitted by Applicable Law, waived by the party or parties entitled to the
benefits thereof), as soon as practicable after all the conditions set forth in
Article VII have been satisfied (or, to the extent permitted by Applicable Law,
waived by the parties entitled to the benefits thereof), or at such other
place, time and date as shall be agreed in writing between Parent and the
Company. The date on which the Closing occurs is referred to in this Agreement
as the "Closing Date".
Section 1.03. Merger Effective Time. (a) Prior to the Closing, Parent shall
prepare, and on the Closing Date Parent shall file with the Department of State
of the Commonwealth of Pennsylvania, articles of exchange or other appropriate
documents (in any such case, the "Articles of Exchange") executed in accordance
with the relevant provisions of the PBCL and shall make all other filings or
recordings required under the PBCL to effect the First Step Exchange. The First
Step Exchange shall become effective at such time as the Articles of Exchange
are duly filed with such Department of State, or at such other time as Newco
and Parent shall agree and specify in the Articles of Exchange (the time the
First Step Exchange becomes effective being the "Exchange Effective Time").
(b) Prior to the Closing and after the Exchange Effective Time, Newco and
the Company shall prepare, and on the Closing Date and after the Exchange
Effective Time Newco and the Company shall (i) file with the Department of
State of the Commonwealth of Pennsylvania, the articles of merger or other
appropriate documents (in any such case, the "Pennsylvania Articles of Merger")
executed in accordance with the relevant provisions of the PBCL and shall make
all other filings or recordings required under the PBCL to effect the Second
Step Merger and (ii) thereafter file with the Secretary of State of the State
of Illinois, articles of merger or other appropriate documents (in any such
case, the "Illinois Articles of Merger") executed in accordance with the
relevant provisions of the IBCA and shall make all other filings or recordings
required under the IBCA to effect the Second Step Merger. The Second Step
Merger shall become effective at such time as the Illinois Articles of Merger
are duly filed as provided by Applicable Law and the Secretary of State of the
State of Illinois has issued a certificate of merger in respect of the Second
Step Merger, or at such other time as Newco and the Company shall agree and
specify as provided by Applicable Law (the time the Second Step Merger becomes
effective being the "Merger Effective Time").
Section 1.04. Effects. The First Step Exchange shall have the effects set
forth in Section 1931 of the PBCL. The Second Step Merger shall have the
effects set forth in Section 1929 of the PBCL and Section 11.50 of the IBCA.
Section 1.05. Articles of Incorporation and By-laws. (a) At the Merger
Effective Time, the Articles of Incorporation of Newco (the "Newco Articles")
shall, until thereafter changed or amended as provided therein or by Applicable
Law and as Parent and the Company shall have agreed prior to the Merger
Effective Time, be the Articles of Incorporation of the Surviving Corporation
and shall in any case be amended to provide that the name of Newco be changed
to "Exelon Corporation".
(b) At the Merger Effective Time, the By-laws of Newco (the "Newco By-laws")
shall, until thereafter changed or amended as provided therein or by Applicable
Law and as Parent and the Company shall have agreed prior to the Merger
Effective Time, be the By-laws of the Surviving Corporation, and shall in any
case be amended by inserting the provisions set forth in Exhibit A as Article X
thereof.
A-2
<PAGE>
Section 1.06. Newco Board of Directors. (a) The directors of Parent
immediately prior to the Exchange Effective Time shall be the directors of
Newco as of the Exchange Effective Time, until the earlier of the Merger
Effective Time or their resignation or removal or the due election and
qualification of their respective successors, as the case may be.
(b) In accordance with the Newco By-laws, as amended pursuant to Section
1.05(b), as of the Merger Effective Time, the Board of Directors of the
Surviving Corporation (the "Newco Board") shall consist of 16 members, eight of
whom shall be serving as members of the Board of Directors of Parent
immediately prior to the Merger Effective Time who are recommended by the Board
of Directors of Parent immediately prior to the Merger Effective Time, and
eight of whom of whom shall be members of the Board of Directors of the Company
immediately prior to the Merger Effective Time who are recommended by the Board
of Directors of the Company immediately prior to the Merger Effective Time.
Section 1.07. Newco Senior Officers. As of the Merger Effective Time the
senior officers of Newco shall be as set forth in Exhibit B and shall hold
office until their respective successors are duly elected and qualified, or
until their earlier death, resignation or removal in accordance with the Newco
By-Laws.
Section 1.08. Operations. (a) Corporate Offices. The Surviving Corporation
shall maintain (i) in Chicago, Illinois offices serving as its corporate
headquarters, (ii) in southeastern Pennsylvania offices serving as the
headquarters of the generation and power marketing businesses of the Surviving
Corporation and its subsidiaries, and (iii) offices in Chicago, Illinois and
southeastern Pennsylvania as the headquarters of Commonwealth Edison Company,
an Illinois corporation ("ComEd"), and Parent, respectively. The chief nuclear
officer of the Surviving Corporation shall maintain offices in both Chicago,
Illinois and southeastern Pennsylvania.
(b) Charities. The parties agree that provision of charitable contribution
and community support in the respective service areas of Parent and the Company
and their respective subsidiaries serves a number of important goals. During
the two-year period immediately following the Merger Effective Time, the
Surviving Corporation shall provide, directly or indirectly, charitable
contributions and traditional local community support within the respective
service areas of Parent and the Company and each of their subsidiaries that are
utilities at levels substantially comparable to and no less than the levels of
charitable contributions and community support provided by Parent and the
Company and such subsidiaries within their service areas within the two-year
period immediately prior to the Merger Effective Time.
Article II
Effect on the Capital Stock of the Constituent Corporations; Exchange of
Certificates
Section 2.01. Effect on Capital Stock. (a) First Step Exchange. At the
Exchange Effective Time, by virtue of the First Step Exchange and without any
action on the part of the holder of any shares of Parent Common Stock or Newco
Common Stock:
(i) Cancelation of Treasury Stock. Each share of Parent Common Stock
that is owned by Parent shall automatically be canceled and retired and
shall cease to exist, and no Newco Common Stock or other consideration
shall be delivered or deliverable in exchange therefor.
(ii) Exchange of Parent Common Stock. (A) Subject to Section
2.01(a)(i), each issued share of Parent Common Stock shall be exchanged for
one fully paid and nonassessable share of Newco Common Stock (the "Parent
Exchange Ratio").
(B) The shares of Newco Common Stock to be issued by Newco upon the
exchange of shares of Parent Common Stock pursuant to this Section
2.01(a)(ii) are referred to collectively as "Exchange Consideration".
As of the Exchange Effective Time, all such shares of Parent Common
Stock shall
A-3
<PAGE>
be exchanged for Exchange Consideration and such shares of Parent
Common Stock shall remain outstanding and shall be owned and held by
Newco, and each holder of a certificate representing any such shares of
Parent Common Stock shall cease to have any rights with respect
thereto, except the right to receive Exchange Consideration upon
surrender of such certificate in accordance with Section 2.02, without
interest.
(iii) Parent Preferred Stock. The Parent Preferred Stock (as defined in
Section 4.03(a)) outstanding immediately prior to the Exchange Effective
Time shall remain outstanding, without change, after the Exchange Effective
Time, and no consideration shall be delivered or deliverable in exchange
therefor.
(b) Second Step Merger. At the Merger Effective Time, by virtue of the
Second Step Merger and without any action on the part of the holder of any
shares of Company Common Stock or Newco Common Stock:
(i) Cancelation of Treasury Stock and Newco-Owned Stock. Each share of
Company Common Stock that is owned by the Company or Newco shall no longer
be outstanding and shall automatically be canceled and retired and shall
cease to exist, and no Newco Common Stock or other consideration shall be
delivered or deliverable in exchange therefor.
(ii) Conversion of Company Common Stock. (A) Subject to Sections
2.01(b)(i) and 2.02(e), each issued share of Company Common Stock shall be
converted into the right to receive (1) $3.00 in cash (the "Company Cash
Consideration") and (2) 0.875 (the "Company Conversion Number") fully paid
and nonassessable shares of Newco Common Stock (the "Company Exchange
Ratio").
(B) The Company Cash Consideration, shares of Newco Common Stock to
be issued upon the conversion of shares of Company Common Stock
pursuant to this Section 2.01(b)(ii) and cash in lieu of fractional
shares of Newco Common Stock to the extent contemplated by Section
2.02(e) are referred to collectively as "Merger Consideration". As of
the Merger Effective Time, all such shares of Company Common Stock
shall no longer be outstanding and shall automatically be canceled and
retired and shall cease to exist, and each holder of a certificate
representing any such shares of Company Common Stock shall cease to
have any rights with respect thereto, except the right to receive
Merger Consideration upon surrender of such certificate in accordance
with Section 2.02, without interest.
(iii) Newco Common Stock. The Newco Common Stock outstanding immediately
prior to the Merger Effective Time issued as contemplated by Section
2.01(a)(ii) shall remain outstanding, without change, after the Merger
Effective Time, and no Merger Consideration shall be delivered or
deliverable in exchange therefor.
(iv) Dissent Rights. Notwithstanding anything in this Agreement to the
contrary, shares ("Company Dissent Shares") of Company Common Stock that
are outstanding immediately prior to the Merger Effective Time and that are
held by any person who is entitled to demand and properly demands payment
of the fair value of such Company Dissent Shares pursuant to, and who
complies in all respects with, Sections 11.65 and 11.70 of the IBCA
("Sections 11.65 and 11.70") shall be converted into the right to receive
Merger Consideration as provided in Section 2.01(b)(ii), and shall
thereafter be subject to sale and purchase rights in accordance with
Sections 11.65 and 11.70.
Section 2.02. Exchange of Certificates. (a) Exchange Agent. Promptly
following the Merger Effective Time, Newco shall deposit with such bank or
trust company as may be designated by Newco and reasonably acceptable to Parent
and the Company (the "Exchange Agent"), for the benefit of the holders of
shares of Parent Common Stock and Company Common Stock, for exchange in
accordance with this Article II, through the Exchange Agent, cash equal to the
total aggregate Company Cash Consideration and certificates representing the
shares of Newco Common Stock issuable pursuant to Section 2.01 in exchange for
outstanding Company Certificates or Parent Certificates. Newco shall provide to
the Exchange Agent on a timely basis, as and when needed after the Merger
Effective Time, cash equal to the total aggregate Company Cash
A-4
<PAGE>
Consideration (such shares of Newco Common Stock and cash, together with any
dividends or distributions with respect thereto, being hereinafter referred to
as the "Exchange Fund"). For the purposes of such deposit, Newco shall assume
that there will not be any fractional shares of Newco Common Stock. Newco shall
make available to the Exchange Agent, for addition to the Exchange Fund, from
time to time as needed, cash sufficient to pay cash in lieu of fractional
shares to the extent provided in Section 2.02(e).
(b) Exchange Procedures. As soon as reasonably practicable after the Merger
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates that immediately prior to the Exchange Effective
Time represented outstanding shares of Parent Common Stock that were converted
into the right to receive Exchange Consideration (the "Parent Certificates") or
that immediately prior to the Merger Effective Time represented outstanding
shares of Company Common Stock that were converted into the right to receive
Merger Consideration (the "Company Certificates" and, together with the Parent
Certificates, the "Certificates"), in each case, pursuant to Section 2.01, (i)
a letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon delivery
of the Certificates to the Exchange Agent and shall be in such form and have
such other provisions as Parent and the Company may reasonably specify) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for Exchange Consideration or Merger Consideration, as the case may
be. Upon surrender of a Parent Certificate or a Company Certificate for
cancelation to the Exchange Agent, together with such letter of transmittal,
duly executed, and such other documents as may reasonably be required by the
Exchange Agent, the holder of such Certificate shall be entitled to receive in
exchange therefor Company Cash Consideration and a certificate representing
that number of whole shares of Newco Common Stock (together with cash in lieu
of fractional shares), in each case, that such holder has the right to receive
pursuant to the provisions of this Article II, and the Certificate so
surrendered shall forthwith be canceled. Until such time as a certificate
representing Newco Common Stock is issued to or at the direction of the holder
of a surrendered Company Certificate or Parent Certificate, such Newco Common
Stock shall be deemed not outstanding and shall not be entitled to vote on any
matter. In the event of a transfer of ownership of Parent Common Stock or
Company Common Stock that is not registered in the transfer records of Parent
or the Company, as the case may be, payment may be made and a certificate
representing the appropriate number of shares of Newco Common Stock may be
issued to a person other than the person in whose name the Certificate so
surrendered is registered, if such Certificate shall be properly endorsed or
otherwise be in proper form for transfer and the person requesting such payment
shall pay any transfer or other taxes required by reason of such payment or the
issuance of shares of Newco Common Stock to a person other than the registered
holder of such Certificate or establish to the satisfaction of Newco that such
tax has been paid or is not applicable. Subject to Sections 11.65 and 11.70 of
the IBCA (in the case of a Company Certificate), until surrendered as
contemplated by this Section 2.02, each Company Certificate or Parent
Certificate shall be deemed at any time after the Merger Effective Time or
Exchange Effective Time, as applicable, to represent only the right to receive
upon such surrender Merger Consideration or Exchange Consideration, as
applicable, as contemplated by this Section 2.02. No interest shall be paid or
accrue on any cash payable, whether in respect of Exchange Consideration,
Merger Consideration, dividends or otherwise, upon surrender of any
Certificate. Any dividend reinvestment plan, employee stock ownership plan or
similar plan of the Company may be treated as a single holder of Company Common
Stock for the purposes of Section 2.02(e).
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions with respect to Newco Common Stock with a record date after the
Merger Effective Time shall be paid to the holder of any unsurrendered Company
Certificate or Parent Certificate with respect to the shares of Newco Common
Stock issuable upon surrender thereof, and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section 2.02(e),
until the surrender of such certificate in accordance with this Article II.
Subject to Applicable Law, following surrender of any such Certificate, there
shall be paid to the holder of the certificate representing whole shares of
Newco Common Stock issued in exchange therefor, without interest, (i) at the
time of such surrender, the amount of any cash payable in lieu of a fractional
share of Newco Common Stock to which such holder is entitled pursuant to
Section 2.02(e) and the amount of dividends or other distributions with a
record date after the Merger Effective Time theretofore paid with respect to
such
A-5
<PAGE>
whole shares of Newco Common Stock, and (ii) at the appropriate payment date,
the amount of dividends or other distributions with a record date after the
Merger Effective Time but prior to such surrender and a payment date subsequent
to such surrender payable with respect to such whole shares of Newco Common
Stock.
(d) No Further Ownership Rights in Parent Common Stock or Company Common
Stock. The Exchange Consideration and Merger Consideration issued (and paid) in
accordance with the terms of this Article II upon conversion and exchange of
any shares of Parent Common Stock or Company Common Stock, as the case may be,
shall be deemed to have been issued (and paid) in full satisfaction of all
rights pertaining to such shares of Parent Common Stock or Company Common
Stock, subject, however, to (i) the Surviving Corporation's obligations to pay
or provide for the rights of dissenters and (ii) the Surviving Corporation's
obligation to pay any dividends or make any other distributions with a record
date prior to the Merger Effective Time that may have been declared or made by
the Parent on such shares of Parent Common Stock or the Company on such shares
of Company Common Stock, respectively, in accordance with the terms of this
Agreement or prior to the date of this Agreement and which remain unpaid at the
Merger Effective Time, and after the Merger Effective Time there shall be no
further registration of transfers on the stock transfer books of the Surviving
Corporation of shares of Parent Common Stock or Company Common Stock that were
outstanding immediately prior to the Merger Effective Time. If, after the
Merger Effective Time, any certificates formerly representing shares of Parent
Common Stock or Company Common Stock, as the case may be, are presented to the
Surviving Corporation or the Exchange Agent for any reason, they shall be
canceled and exchanged as provided in this Article II.
(e) No Fractional Shares. (i) Except as otherwise agreed to by the Company
and Parent as provided in Section 2.02(e)(v), no certificates or scrip
representing fractional shares of Newco Common Stock shall be issued upon the
conversion of Company Common Stock pursuant to Section 2.01, and such
fractional share interests shall not entitle the owner thereof to vote or to
any rights of a holder of Newco Common Stock. For purposes of this Section
2.02(e), all fractional shares to which a single record holder would be
entitled shall be aggregated and calculations shall be rounded to three decimal
places.
(ii) As promptly as practicable following the Merger Effective Time, the
Exchange Agent shall determine the excess of (A) the number of shares of Newco
Common Stock delivered to the Exchange Agent by Newco pursuant to Section
2.02(a) over (B) the aggregate number of whole shares of Newco Common Stock to
be issued to holders of Company Common Stock pursuant to Section 2.02(b) (such
excess being herein called the "Excess Shares"). As soon after the Merger
Effective Time as practicable, the Exchange Agent, as agent for the holders of
Company Common Stock, shall sell the Excess Shares at then prevailing prices on
the New York Stock Exchange (the "NYSE"), all in the manner provided in Section
2.02(e)(iii).
(iii) The sale of the Excess Shares by the Exchange Agent shall be executed
on the NYSE through one or more member firms of the NYSE and shall be executed
in round lots to the extent practicable. The proceeds from such sale or sales
available for distribution to the holders of Company Common Stock shall be
reduced by transfer taxes in connection with such sale or sales of the Excess
Shares. Until the net proceeds of such sale or sales have been distributed to
the holders of Company Common Stock entitled thereto, the Exchange Agent shall
hold such proceeds in trust for such holders of Company Common Stock (the
"Common Shares Trust"). The Exchange Agent shall determine the portion of the
Common Shares Trust to which each holder of a Certificate shall be entitled, if
any, by multiplying the amount of the aggregate net proceeds comprising the
Common Shares Trust by a fraction, the numerator of which is the amount of the
fractional share interest in a share of Newco Common Stock to which such holder
is entitled under Section 2.01(b)(ii) (or would be entitled but for this
Section 2.02(e)) and the denominator of which is the aggregate amount of
fractional interests in a share of Newco Common Stock to which all holders of
Company Common Stock are entitled.
(iv) As soon as practicable after the determination of the amount of cash,
if any, to be paid to holders of Company Common Stock in lieu of any fractional
share interests in Newco Common Stock, the Exchange Agent shall make available
such amounts, without interest, to such holders entitled to receive such cash.
A-6
<PAGE>
(v) Notwithstanding anything herein to the contrary, if the Company and
Parent so agree prior to the Closing, Newco may establish a common stock direct
share registration program pursuant to which shareholders would receive a book
entry credit for fractional shares of Newco Common Stock in lieu of cash as
otherwise provided in this Section 2.02(e). If the Company and Parent agree to
have Newco establish such a program, any reference herein to fractional shares
shall refer to such book entry fractional shares and no cash will be issued for
such shares except as may be provided by such program. In no event will Newco
issue certificates or script representing fractional shares.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund that
remains undistributed to the holders of Parent Common Stock or Company Common
Stock for six months after the Merger Effective Time shall be delivered to
Newco, upon demand, and any holder of Parent Common Stock or Company Common
Stock who has not theretofore complied with this Article II shall thereafter
look only to Newco for payment of its claim for Exchange Consideration or
Merger Consideration, as the case may be, and any dividends or distributions
with respect to Newco Common Stock as contemplated by Section 2.02(c).
(g) No Liability. None of Parent, Newco, the Company or the Exchange Agent
shall be liable to any person in respect of any shares of Newco Common Stock
(or dividends or distributions with respect thereto) or cash from the Exchange
Fund delivered to a public official pursuant to any applicable abandoned
property, escheat or similar Applicable Law. If any Company Certificate or
Parent Certificate has not been surrendered prior to five years after the
Merger Effective Time (or immediately prior to such earlier date on which
Merger Consideration or Exchange Consideration or any dividends or
distributions with respect to Newco Common Stock as contemplated by Section
2.02(c)(i) in respect of such Company Certificate or Parent Certificate would
otherwise escheat to or become the property of any Governmental Entity (as
defined in Section 3.05)), any such shares, cash, dividends or distributions in
respect of such Company Certificate shall, to the extent permitted by
Applicable Law, become the property of the Surviving Corporation, free and
clear of all claims or interest of any person previously entitled thereto.
(h) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund, as directed by Newco, on a daily basis. Any
interest and other income resulting from such investments shall be paid to
Newco.
(i) Withholding Rights. Newco shall be entitled to deduct and withhold from
the consideration otherwise payable to any holder of Parent Common Stock or
Company Common Stock pursuant to this Agreement such amounts as may be required
to be deducted and withheld with respect to the making of such payment under
the Code, or under any provision of state, local or foreign tax law. To the
extent that amounts are so withheld and paid over to the appropriate taxing
authority, Newco will be treated as though it withheld an appropriate amount of
the type of consideration otherwise payable pursuant to this Agreement to any
holder of Parent Common Stock or Company Common Stock, sold such consideration
for an amount of cash equal to the fair market value of such consideration at
the time of such deemed sale and paid such cash proceeds to the appropriate
taxing authority.
Section 2.03. Certain Adjustments. If after the date hereof and on or prior
to the Closing Date, the outstanding shares of Parent Common Stock or Company
Common Stock shall be changed into a different number of shares by reason of
any reclassification, recapitalization, split-up, combination or exchange of
shares, or any dividend payable in stock or other securities is declared
thereon with a record date within such period, or any similar event shall
occur, the Exchange Consideration and the Merger Consideration will be adjusted
accordingly to provide to the holders of Parent Common Stock and Company Common
Stock, respectively, the same economic effect as contemplated by this Agreement
prior to such reclassification, recapitalization, split-up, combination,
exchange or dividend or similar event. This provision is not intended to affect
the need for either party to obtain the other party's consent to take such an
action under any other provision of this Agreement.
A-7
<PAGE>
Article III
Representations and Warranties of the Company
The Company represents and warrants to Parent and Newco as follows:
Section 3.01. Organization, Standing and Power. Each of the Company and each
of its subsidiaries (the "Company Subsidiaries") is duly organized, validly
existing and in good standing (with respect to jurisdictions which recognize
the concept of good standing) under the laws of the jurisdiction in which it is
organized and has full corporate power and authority and possesses all
governmental franchises, licenses, permits, authorizations and approvals
necessary to enable it to own, lease or otherwise hold its properties and
assets and to conduct its businesses as conducted as of the date of this
Agreement, other than such franchises, licenses, permits, authorizations and
approvals the lack of which, individually or in the aggregate, has not had and
could not reasonably be expected to have a Material Adverse Effect on the
Company (a "Company Material Adverse Effect"). The Company and each Company
Subsidiary is duly qualified to do business in each jurisdiction where the
nature of its business or their ownership or leasing of its properties make
such qualification necessary, other than such qualifications the lack of which,
individually or in the aggregate, has not had and could not reasonably be
expected to have a Company Material Adverse Effect. The Company has made
available to Parent true and complete copies of the articles of incorporation
of the Company, as amended to the date of this Agreement (as so amended, the
"Company Charter"), and the By-laws of the Company, as amended to the date of
this Agreement (as so amended, the "Company By-laws"), and the comparable
charter or organizational documents of each Company Subsidiary, in each case as
amended through the date of this Agreement.
Section 3.02. Company Subsidiaries; Equity Interests. (a) The letter, dated
as of the date of this Agreement, from the Company to Parent and Newco (the
"Company Disclosure Letter") lists each Company Subsidiary and its jurisdiction
of organization and specifies each of the Company Subsidiaries that is (i) a
"public-utility company", a "holding company", a "subsidiary company", an
"affiliate" of any public-utility company, an "exempt wholesale generator" or a
"foreign utility company" within the meaning of Section 2(a)(5), 2(a)(7),
2(a)(8), 2(a)(11), 32(a)(1) or 33(a)(3) of the Public Utility Holding Company
Act of 1935, as amended ("PUHCA"), respectively, (ii) a "public utility" within
the meaning of Section 201(e) of the Federal Power Act (the "Power Act") or
(iii) a "qualifying facility" within the meaning of the Public Utility
Regulatory Policies Act of 1978, as amended ("PURPA"), or that owns such a
qualifying facility. All the outstanding shares of capital stock of each
Company Subsidiary have been validly issued and are fully paid and
nonassessable and, except as set forth in the Company Disclosure Letter, are
owned by the Company, by another Company Subsidiary or by the Company and
another Company Subsidiary, free and clear of all pledges, liens, charges,
mortgages, encumbrances and security interests of any kind or nature whatsoever
(collectively, "Liens").
(b) Except for its interests in the Company Subsidiaries and except for the
ownership interests set forth in the Company Disclosure Letter or interests
acquired after the date of this Agreement without violating any covenant of
this Agreement, the Company does not own, directly or indirectly, any capital
stock, membership interest, partnership interest, joint venture interest or
other equity interest with a fair market value as of the date of this Agreement
in excess of $500,000 in any person, as reasonably determined by the Company.
Section 3.03. Capital Structure. (a) The authorized capital stock of the
Company consists of 400,000,000 shares of Company Common Stock. At the close of
business on August 31, 1999, (i) 217,411,003 shares of Company Common Stock
were issued and outstanding, (ii) 264,406 shares of Company Common Stock were
held by the Company in its treasury, (iii) 4,625,691 shares of Company Common
Stock were subject to outstanding Company Employee Stock Options (as defined in
Section 6.04) and 4,700,637 additional shares of Company Common Stock were
reserved for issuance pursuant to the Company Stock Plans (as defined in
Section 6.04), (iv) 368,171 shares of Company Common Stock were reserved for
issuance pursuant to the Company's Employee Stock Purchase Plan, (v) 164,845
shares of Company Common
A-8
<PAGE>
Stock were reserved for issuance pursuant to the Company's 1996 Directors' Fee
Plan, (vi) 88,526 shares of Company Common Stock were subject to exchange for
the common stock, $12.50 par value of ComEd, and (vii) 400,000 shares of
Company Common Stock were reserved for issuance in connection with the rights
(the "Company Rights") issued pursuant to the Rights Agreement dated as of
February 2, 1998 (as amended from time to time, the "Company Rights
Agreement"), between the Company and First Chicago Trust Company of New York,
as Rights Agent.
(b) Except as set forth in clause (a) of this Section 3.03 or in the Company
Disclosure Letter, at the close of business on August 31, 1999, no shares of
capital stock or other voting securities of the Company were issued, reserved
for issuance or outstanding.
(c) All outstanding shares of Company Common Stock are, and all such shares
that may be issued prior to the Merger Effective Time will be when issued, duly
authorized, validly issued, fully paid and nonassessable and not subject to or
issued in violation of any purchase option, call option, right of first
refusal, preemptive right, subscription right or any similar right under any
provision of the IBCA, the Company Charter, the Company By-laws or any Contract
(as defined in Section 3.05) to which the Company is a party or otherwise
bound.
(d) There are not any bonds, debentures, notes or other indebtedness of the
Company having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which holders of Company
Common Stock may vote ("Voting Company Debt").
(e) Except as set forth in clause (a) of this Section 3.03 or in the Company
Disclosure Letter, as of the date of this Agreement, there are not any options,
warrants, rights, convertible or exchangeable securities, "phantom" stock
rights, stock appreciation rights, stock-based performance units, commitments,
Contracts, arrangements or undertakings of any kind to which the Company or any
Company Subsidiary is a party or by which any of them is bound (i) obligating
the Company or any Company Subsidiary to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock or other equity
interests in, or any security convertible or exercisable for or exchangeable
into any capital stock of or other equity interest in, the Company or of any
Company Subsidiary or any Voting Company Debt or (ii) obligating the Company or
any Company Subsidiary to issue, grant, extend or enter into any such option,
warrant, call, right, security, commitment, Contract, arrangement or
undertaking.
(f) As of the date of this Agreement, except as described in the Company
Disclosure Letter, there are not any outstanding contractual obligations of the
Company or any Company Subsidiary to repurchase, redeem or otherwise acquire
any shares of capital stock of the Company or any Company Subsidiary.
(g) The Company has delivered to Parent a complete and correct copy of the
Company Rights Agreement, as amended to the date of this Agreement.
Section 3.04. Authority; Execution and Delivery; Enforceability. (a) The
Company has all requisite corporate power and authority to execute and deliver
this Agreement and to consummate the Transactions. The execution and delivery
by the Company of this Agreement and the consummation by the Company of the
Transactions have been duly authorized by all necessary corporate action on the
part of the Company, subject, in the case of the Second Step Merger, to receipt
of the Company Shareholder Approval (as defined in Section 3.04(c)). The
Company has duly executed and delivered this Agreement, and this Agreement
constitutes its legal, valid and binding obligation, enforceable against it in
accordance with its terms.
(b) The Board of Directors of the Company (the "Company Board"), at a
meeting duly called and held, duly and unanimously adopted resolutions (i)
approving this Agreement, the Merger and the other Transactions, (ii)
determining that the terms of the Second Step Merger and the other Transactions
are fair to and in the best interests of the Company and its shareholders and
(iii) directing that this Agreement be submitted to a vote of the Company's
shareholders and recommending that they approve this Agreement. Such
resolutions are
A-9
<PAGE>
sufficient to render inapplicable to Parent and Newco and this Agreement, to
the extent otherwise applicable, the Merger and the other Transactions the
provisions of Sections 7.85 and 11.75 of the IBCA. To the Company's knowledge,
no other state takeover statute or similar statute or regulation applies or
purports to apply to the Company with respect to this Agreement, the Second
Step Merger or any other Transaction.
(c) The only vote of holders of any class or series of Company securities
necessary to approve and adopt this Agreement and the Second Step Merger is the
approval of this Agreement by the holders of at least two-thirds of the shares
of outstanding Company Common Stock entitled to vote (the "Company Shareholder
Approval"). The affirmative vote of the holders of Company Common Stock, or any
of them, is not necessary to consummate any Transaction other than the Second
Step Merger.
Section 3.05. No Conflicts; Consents. (a) Except as set forth in the
Company Disclosure Letter, the execution and delivery by the Company of this
Agreement does not, and the consummation of the Merger and the other
Transactions and compliance with the terms hereof and thereof will not,
conflict with, or result in any violation of or default (with or without notice
or lapse of time, or both) under, or give rise to a right of termination,
consent, approval, cancelation or acceleration of any obligation or to loss of
a material benefit under, or to increased, additional, accelerated or
guaranteed rights or entitlements of any person under, or result in the
creation of any Lien upon any of the properties or assets of the Company or any
Company Subsidiary under, any provision of (i) the Company Charter, the Company
By-laws or the comparable charter or organizational documents of any Company
Subsidiary, (ii) any loan or credit agreement, contract, lease, license,
indenture, note, bond, agreement, permit, concession, franchise or other
instrument (a "Contract") to which the Company or any Company Subsidiary is a
party or by which any of their respective properties or assets is bound or
(iii) subject to the filings and other matters referred to in Section 3.05(b),
any judgment, order or decree ("Judgment") or statute, law, ordinance, rule or
regulation ("Applicable Law") or writ, permit or license applicable to the
Company or any Company Subsidiary or their respective properties or assets
(other than immaterial consents, approvals, licenses, permits, orders,
authorizations, registrations, declarations or filings, including with respect
to communications systems, zoning, name changes, occupancy and similar routine
regulatory approvals), other than, in the case of clauses (ii) and (iii) above,
any such items that, individually or in the aggregate, have not had and could
not reasonably be expected to have a Company Material Adverse Effect.
(b) No consent, approval, license, permit, order or authorization (other
than immaterial consents, approvals, licenses, permits, orders, authorizations,
registrations, declarations or filings, including with respect to
communications systems, zoning, name changes, occupancy and similar routine
regulatory approvals) ("Consent") of, action by or in respect of, or
registration, declaration or filing with, or notice to, any Federal, state,
local or foreign government or any court of competent jurisdiction,
administrative or regulatory agency or commission or other governmental
authority or instrumentality or any non-governmental self-regulatory agency,
commission or authority, domestic or foreign (a "Governmental Entity") is
required to be obtained or made by or with respect to the Company or any
Company Subsidiary in connection with the execution, delivery and performance
of this Agreement or the consummation of the Transactions, other than (i)
compliance with and filings under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), (ii) the filing with the Securities
and Exchange Commission (the "SEC") of (A) a proxy or information statement
relating to the approval of this Agreement by the Company's shareholders (the
"Proxy Statement"), and (B) such reports under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as may be required in connection with
this Agreement, the Second Step Merger and the other Transactions, (iii) the
filing of the Illinois Articles of Merger with, and the issuance of a
certificate of merger by, the Secretary of State of the State of Illinois, the
filing of the Pennsylvania Articles of Merger with the Department of State of
Pennsylvania and the filing of appropriate documents with the relevant
authorities of the other jurisdictions in which the Company is qualified to do
business, (iv) notice to, and the consent and approval of, the Federal Energy
Regulatory Commission ("FERC") under the Power Act, (v) notice to, and the
consent and approval of, the Nuclear Regulatory Commission (the "NRC") under
the Atomic Energy Act of 1954, as amended (the "Atomic Energy Act"), (vi)
notice to the Illinois Commerce Commission (the "ICC"), (vii) the consents,
filings and approvals required under PUHCA, (viii) compliance with and such
filings as may be required under
A-10
<PAGE>
applicable Environmental Laws (as defined in Section 3.17), (ix) such filings
as may be required in connection with the taxes described in Section 6.09 and
(x) such other items as are set forth in the Company Disclosure
Letter (collectively, whether or not legally required to be obtained, the
"Company Required Statutory Approvals").
(c) The Company and the Company Board have taken all action necessary to (i)
render the Company Rights inapplicable to this Agreement, the Merger and the
other Transactions and (ii) ensure that (A) neither Parent nor any of its
affiliates or associates is or will become an "Acquiring Person" (as defined in
the Company Rights Agreement) by reason of this Agreement, the Merger or any
other Transaction, (B) a "Distribution Date" (as defined in the Company Rights
Agreement) shall not occur by reason of this Agreement, the Merger or any other
Transaction and (C) the Company Rights shall expire immediately prior to the
Merger Effective Time.
Section 3.06. SEC Documents; Undisclosed Liabilities. The Company and the
Company Subsidiaries have filed all reports, schedules, forms, statements and
other documents required to be filed by the Company or any Company Subsidiary
with the SEC since January 1, 1998 (the "Company SEC Documents"). Each Company
SEC Document complied in all material respects as of its respective date with
the requirements of the Exchange Act or the Securities Act of 1933, as amended
(the "Securities Act"), as the case may be, and the rules and regulations of
the SEC promulgated thereunder applicable to such Company SEC Document, and
except to the extent that information contained in any Company SEC Document has
been revised or superseded by a later filed Company SEC Document, does not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The consolidated financial statements of the Company included in
the Company SEC Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles ("GAAP") (except, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto)
and fairly present the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). Except as
set forth in the Filed Company SEC Documents (as defined in Section 3.08) or
the Company Disclosure Letter or incurred after the date hereof in the usual,
regular and ordinary course of business in substantially the same manner as
previously conducted and not prohibited by this Agreement, neither the Company
nor any Company Subsidiary has any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) required by GAAP to be set
forth on a consolidated balance sheet of the Company and its consolidated
subsidiaries or in the notes thereto and that, individually or in the
aggregate, could reasonably be expected to have a Company Material Adverse
Effect.
Section 3.07. Information Supplied. None of the information supplied or to
be supplied by the Company for inclusion or incorporation by reference in (i)
the registration statement on Form S-4 to be filed with the SEC by Newco in
connection with the Share Issuance (the "Form S-4") will, at the time the
Form S-4 is filed with the SEC, at any time it is amended or supplemented or at
the time it becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(ii) the Proxy Statement will, at the date it is first mailed to the Company's
shareholders or Parent's shareholders or at the time of the Company
Shareholders Meeting (as defined in Section 6.01) or the Parent Shareholders
Meeting (as defined in Section 6.01), contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Proxy Statement
will comply as to form in all material respects with the requirements of the
Exchange Act and the rules and regulations thereunder, except that no
representation is made by the Company with respect to statements made or
incorporated by reference therein based on information supplied by or on behalf
of Parent or Newco for inclusion or incorporation by reference in the Proxy
Statement.
A-11
<PAGE>
Section 3.08. Absence of Certain Changes or Events. Except as disclosed in
the Company SEC Documents filed and publicly available prior to the date of
this Agreement (the "Filed Company SEC Documents") or in the Company Disclosure
Letter:
(a) since December 31, 1998, there has not been any event, change,
effect or development that, individually or in the aggregate, has had or
could reasonably be expected to have a Company Material Adverse Effect,
other than events, changes, effects and developments relating to the
economy in general or to the Company's industry in general and not
specifically relating to the Company or any Company Subsidiary; and
(b) from December 31, 1998 to the date of this Agreement, the Company
has conducted its business only in the ordinary course, and during such
period there has not been:
(i) any declaration, setting aside or payment of any dividend or
other distribution (whether in cash, stock or property) with respect to
any Company Common Stock or any repurchase for value by the Company of
any Company Common Stock;
(ii) any split, combination or reclassification of any Company
Common Stock or any issuance or the authorization of any issuance of
any other securities in respect of, in lieu of or in substitution for
shares of Company Common Stock; or
(iii) any change in accounting methods, principles or practices by
the Company or any Company Subsidiary materially affecting the
consolidated assets, liabilities or results of operations of the
Company, except insofar as may have been required by a change in GAAP.
Section 3.09. Taxes. (a) Each of the Company and each Company Subsidiary has
timely filed, or has caused to be timely filed on its behalf, all Tax Returns
required to be filed by it (or requests for extensions to file such Tax Returns
have been timely filed and granted and have not expired), and all such Tax
Returns are true, complete and accurate, except to the extent any failure to
file or any inaccuracies in any filed Tax Returns would not, individually or in
the aggregate, have a Company Material Adverse Effect. All Taxes shown to be
due on such Tax Returns, or otherwise owed by the Company or any Company
Subsidiary, have been timely paid, except to the extent that any failure to
pay, individually or in the aggregate, has not had and could not reasonably be
expected to have a Company Material Adverse Effect.
(b) Except as set forth in the Company Disclosure Letter, the most recent
financial statements contained in the Filed Company SEC Documents reflect an
adequate reserve for all current Taxes payable by the Company and the Company
Subsidiaries (in addition to any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) for all Taxable periods
and portions thereof through the date of such financial statements. Except as
set forth in the Company Disclosure Letter, no deficiency with respect to any
Taxes has, to the best knowledge of the Company, been proposed, asserted or
assessed against the Company or any Company Subsidiary, and no requests for
waivers of the time to assess any such Taxes are pending, except to the extent
any such deficiency or request for waiver, individually or in the aggregate,
has not had and could not reasonably be expected to have a Company Material
Adverse Effect.
(c) The Federal income Tax Returns of the Company and each Company
Subsidiary consolidated in such Returns have been examined by and settled with
the United States Internal Revenue Service for all years through 1995. Except
as set forth in the Company Disclosure Letter, all material assessments for
Taxes due with respect to such completed and settled examinations or any
concluded litigation have been fully paid.
(d) There are no material Liens for Taxes (other than for current Taxes not
yet due and payable) on the assets of the Company or any Company Subsidiary.
Except as set forth in the Company Disclosure Letter, neither the Company nor
any Company Subsidiary is bound by any agreement with respect to Taxes.
(e) The Company and each Company Subsidiary have complied with all
applicable statutes, laws, ordinances, rules and regulations relating to the
payment and withholding of taxes (including withholding of taxes pursuant to
Sections 1441, 1442, 3121 and 3402 of the Code or similar provisions under any
Federal,
A-12
<PAGE>
state or local laws, domestic and foreign) and have, within the time and in the
manner prescribed by law, withheld from and paid over to the proper
governmental authorities all amounts required to be so withheld and paid over
under applicable laws, except to the extent that any failure to withhold or to
pay, individually or in the aggregate, has not had and could not reasonably be
expected to have a Company Material Adverse Effect.
(f) The Company knows of no fact and neither the Company nor any Company
Subsidiary has taken or agreed to take any action that could reasonably be
expected to prevent (i) the Merger from constituting transactions described in
Section 351 of the Code or (ii) the Second Step Merger from constituting a
transaction described in Section 368(a) of the Code.
(g) For purposes of this Agreement:
"Taxes" includes all forms of taxation, whenever created or imposed, and
whether of the United States or elsewhere, and whether imposed by a local,
municipal, state, foreign, Federal or other Governmental Entity, or in
connection with any agreement with respect to Taxes, including all
interest, penalties and additions imposed with respect to such amounts.
"Tax Return" means all Federal, state, local, provincial and foreign Tax
returns, declarations, statements, reports, schedules, forms and
information returns and any amended Tax return required to be filed with
any taxing authority with respect to Taxes.
Section 3.10. Absence of Changes in Benefit Plans. Except as disclosed in
the Company Disclosure Letter, from December 31, 1998 to the date of this
Agreement, there has not been any adoption or amendment in any material respect
by the Company or any Company Subsidiary of (a) any collective bargaining
agreements, (b) any bonus, pension, profit sharing, deferred compensation,
incentive compensation, stock ownership, stock purchase, stock option, phantom
stock, retirement, vacation, severance, disability, death benefit,
hospitalization, medical or other plan, program, policy, arrangement or
understanding (whether or not legally binding) providing benefits to any
current or former employee, officer or director of the Company or any Company
Subsidiary or any beneficiary or dependent thereof, that is sponsored or
maintained by the Company or any Company Subsidiary or to which the Company or
any Company Subsidiary contributes or is obligated to contribute (collectively,
"Company Benefit Plans") or (c) any Company Employment Arrangements (as defined
herein). Except as disclosed in the Company Disclosure Letter, as of the date
of this Agreement there are not any employment, consulting, indemnification,
change-of-control, severance or termination agreements or arrangements between
the Company or any Company Subsidiary and any current or former employee,
officer or director of the Company or any Company Subsidiary (collectively, the
"Company Employment Arrangements").
Section 3.11. ERISA Compliance; Excess Parachute Payments. (a) The Company
Disclosure Letter includes a complete list of all material Company Benefit
Plans and Company Employment Arrangements as of the date of this Agreement.
With respect to each Company Benefit Plan (other than a multiemployer plan
within the meaning of Section 4001(a)(3) of ERISA) and Company Employment
Arrangement, the Company has delivered to Parent true, complete and correct
copies of (i) each such Company Benefit Plan or Company Employment Arrangement
(or, in the case of any unwritten plan or arrangement, a description thereof),
(ii) the most recent annual report on the applicable Form 5500 series filed
with the Internal Revenue Service (if any such report was required), including
all schedules and attachments thereto, (iii) the most recent summary plan
description (if a summary plan description is required) and all summaries of
material modifications thereto, (iv) each trust agreement, group annuity
contract or other funding vehicle relating to any such Company Benefit Plan or
Company Employment Arrangement, (v) the most recent actuarial report or
valuation relating thereto and (vi) the most recent determination letters
issued by the Internal Revenue Service with respect to Company Benefit Plans
that are intended to be qualified and exempt from Federal income taxes under
Sections 401(a) and 501(a), respectively, of the Code ("Qualified Plans") and
letters of recognition of exemption with respect to any Company Benefit Plan or
related trust that is intended to meet the requirements of Section 501(c)(9) of
the Code.
A-13
<PAGE>
(b) With respect to the Company Benefit Plans and Company Employment
Arrangements, individually and in the aggregate, no event has occurred and, to
the knowledge of the Company, there exists no condition or set of
circumstances, in connection with which the Company or any Company Subsidiary
could be subject to any liability that has had or could reasonably be expected
to have a Company Material Adverse Effect (except liability for benefits claims
and funding obligations payable in the ordinary course) under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), the Code or any
other applicable law. For purposes of this Section 3.11(b), the term "Company
Benefit Plan" shall also include any employee benefit plan within the meaning
of Section 3(3) of ERISA that, within the last six years, was sponsored or
maintained by any entity which would be treated under Section 414 of the Code
as a single employer with the Company or any Company Subsidiary or to which any
such entity contributed or was obligated to contribute.
(c) Each Company Benefit Plan and each Company Employment Arrangement has
been administered in accordance with its terms except for any failures so to
administer any Company Benefit Plan or Company Employment Arrangement as have
not had and could not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect. The Company, all Company
Subsidiaries and all the Company Benefit Plans and Company Employment
Arrangements are in compliance with the applicable provisions of ERISA, the
Code and all other applicable laws and the rules and regulations thereunder and
the terms of all applicable collective bargaining agreements, except for any
failures to be in such compliance as have not had and could not reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse
Effect. Except as disclosed in the Company Disclosure Letter, there are no
pending or, to the knowledge of the Company, threatened or anticipated claims
under or with respect to any Company Benefit Plan or Company Employment
Arrangement by or on behalf of any current or former employee, officer or
director, or dependent or beneficiary thereof, or otherwise (other than routine
claims for benefits).
(d) Except as disclosed in the Company Disclosure Letter, (i) no current or
former employee, officer or director of the Company or any Company Subsidiary
will be entitled to any additional rights or benefits or any acceleration of
the time of payment or vesting of any benefits under any Company Benefit Plan
or Company Employment Arrangement, and no trustee under any "rabbi trust", or
similar arrangement maintained in connection with any Company Benefit Plan or
Company Employment Arrangement will be entitled to any payment, as a result
(either alone or upon the occurrence of any additional or further acts or
events) of the execution of this Agreement or the consummation, announcement or
other actions relating to the Transactions and (ii) no amount payable to any
current or former employee, officer or director of the Company or any Company
Subsidiary will fail to be deductible by reason of Section 280G of the Code.
(e) Each Company Benefit Plan intended to be a Qualified Plan has received a
favorable determination letter from the Internal Revenue Service that it is so
qualified and nothing has occurred since the date of such letter that could
reasonably be expected to affect the qualified status of such Company Benefit
Plan.
(f) The aggregate accumulated benefit obligations of each Company Benefit
Plan subject to Title IV of ERISA (as of the date of the most recent actuarial
valuation prepared for such Company Benefit Plan) do not exceed the fair market
value of the assets of such plan (as of the date of such valuation).
(g) All contributions and other payments required to have been made for any
completed historical period by the Company or any Company Subsidiary to any
Company Benefit Plan or Company Employment Arrangement (or to any person
pursuant to the terms thereof) have been timely made or paid in full, or, to
the extent not required to be made or paid for such period, have been reflected
in the consolidated financial statements of the Company.
(h) Except as disclosed in the Company Disclosure Letter, no Company Benefit
Plan is a multiemployer plan within the meaning of Section 4001(a)(3) of ERISA,
and none of the Company or any Company Subsidiary has, at any time during the
last six years, contributed to or been obligated to contribute to any such
multiemployer plan. For purposes of the representations and warranties made in
the last sentence of Section 3.11(c) and in Sections 3.11(e) and (f), the term
"Company Benefit Plan" shall be deemed to exclude any such multiemployer plan.
A-14
<PAGE>
Section 3.12. Litigation. Except as disclosed in the Filed Company SEC
Documents or in the Company Disclosure Letter, there is no suit, action or
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any Company Subsidiary that, individually or in the aggregate, has
had or could reasonably be expected to have a Company Material Adverse Effect,
nor is there any Judgment outstanding against the Company or any Company
Subsidiary that has had or could reasonably be expected to have a Company
Material Adverse Effect.
Section 3.13. Compliance with Applicable Laws; Permits. (a) Except as
disclosed in the Filed Company SEC Documents or in the Company Disclosure
Letter, the Company and the Company Subsidiaries are in compliance with the
terms of all Company Permits (as defined in Section 3.13(b)) and all Applicable
Laws, except for instances of noncompliance that, individually and in the
aggregate, have not had and could not reasonably be expected to have a Company
Material Adverse Effect. This Section 3.13 does not relate to matters with
respect to Taxes, which are the subject of Section 3.09, Environmental Laws,
which are the subject of Section 3.17, benefits plans, which are the subject of
Section 3.11 and the operation of nuclear power plants, which are the subject
of Section 3.19.
(b) Except as disclosed in the Filed Company SEC Documents or in the Company
Disclosure Letter, the Company and the Company Subsidiaries own or have
sufficient rights and consents to use under existing franchises, permits,
easements, leases, and license agreements (the "Company Permits") all
properties, rights and assets necessary for the conduct of their business and
operations as currently conducted, except where the failure to own or have
sufficient rights to such properties, rights and assets, individually or in the
aggregate, have not had and could not reasonably be expected to have a Company
Material Adverse Effect. Except as provided in the Illinois Electric Customer
Choice and Rate Relief Law of 1997, to the knowledge of the Company, no other
private corporation can commence electric public utility operations in any part
of the respective territories now served by the Company or any Company
Subsidiary, without obtaining a certificate of public convenience and necessity
from the applicable state utility commission.
Section 3.14. Brokers; Schedule of Fees and Expenses. No broker, investment
banker, financial advisor or other person, other than Wasserstein Perella & Co.
and Goldman Sachs & Co., the fees and expenses of which will be paid by the
Company, is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the Second Step Merger and the
other Transactions based upon arrangements made by or on behalf of the Company.
Section 3.15. Opinion of Financial Advisor. The Company has received the
opinion of Wasserstein Perella & Co., dated as of January 6, 2000, to the
effect that, as of such date, the Company Merger Consideration is fair to the
holders of Company Common Stock from a financial point of view, a signed copy
of which opinion has been delivered to Parent.
Section 3.16. Year 2000. The Company SEC Documents fairly summarize the
status of the Company's computer applications and components, modification or
readiness plan, communications with suppliers and vendors, contingency plans
and estimated cost of remediation as they relate to the Year 2000 issue. The
Company has made available to Parent copies of all correspondence between the
Company and its third party suppliers and vendors concerning their Year 2000
compliance.
Section 3.17. Environmental Matters. (a) Compliance. Except as set forth in
the Filed Company SEC Documents or in the Company Disclosure Letter, the
Company and each of the Company Subsidiaries is and has been in compliance with
all applicable Environmental Laws (as defined below), except where the failure
to so comply, individually or in the aggregate, has not had and could not
reasonably be expected to have a Company Material Adverse Effect.
(b) Environmental Permits. Except as set forth in the Filed Company SEC
Documents or in the Company Disclosure Letter, (i) the Company and each of the
Company Subsidiaries has obtained or has applied for all Environmental Permits
(as defined below) necessary for the construction of their facilities or the
A-15
<PAGE>
conduct of their operations, except where the failure to so obtain,
individually or in the aggregate, has not had and could not reasonably be
expected to have a Company Material Adverse Effect and (ii) all such
Environmental Permits are in good standing or, where applicable, a renewal
application has been timely filed and is pending agency approval, except where
the failure of such Environmental Permits to be in good standing or to have
filed a renewal application on a timely basis has not had and could not
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect.
(c) Environmental Claims. Except as set forth in the Filed Company SEC
Documents or in the Company Disclosure Letter, there are no Environmental
Claims (as defined below) that have had or could reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse Effect,
pending or, to the knowledge of the Company, threatened against the Company or
any of the Company Subsidiaries.
(d) Releases. Except as set forth in the Filed Company SEC Documents or in
the Company Disclosure Letter, there have been no Releases (as defined below)
of any Hazardous Materials (as defined below) that could be reasonably likely
to form the basis of any Environmental Claim against the Company or any of the
Company Subsidiaries, except for any Environmental Claim which, individually or
in the aggregate, has not had and could not reasonably be expected to have a
Company Material Adverse Effect.
(e) Assumed and Retained Liabilities. Except as disclosed in the Filed
Company SEC Documents or in the Company Disclosure Letter, none of the Company
or the Company Subsidiaries has retained or assumed either contractually or by
operation of law any liabilities or obligations that could reasonably be likely
to form the basis for any Environmental Claim, which has had and could
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect.
(f) Definitions. As used in this Agreement:
(i) "Environmental Claims" means, in respect of any person, any and all
administrative, regulatory or judicial actions, suits, orders, decrees,
suits, demands, directives, claims, liens, investigations, proceedings or
notices of noncompliance or violation by any person, alleging potential
liability (including potential responsibility or liability for enforcement
costs, investigatory costs, cleanup costs, governmental response costs,
removal costs, remedial costs, mining restoration or rehabilitation costs,
natural resources damages, property damages, personal injuries or
penalties) arising out of, based on or resulting from (A) the presence or
Release of any Hazardous Materials at any location, whether or not owned,
operated, leased or managed by such person; or (B) circumstances forming
the basis of any violation or alleged violation of any Environmental Law or
(C) any and all claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting
from the presence, Release of, or exposure to, any Hazardous Materials.
(ii) "Environmental Laws" means all federal, state, local and foreign
laws (including international conventions, protocols and treaties), common
law, rules, regulations, orders, decrees, judgments, binding agreements or
Environmental Permits issued, promulgated or entered into by or with any
Governmental Entity, relating to pollution or the environment (including
ambient air, surface water, groundwater, land surface or subsurface
strata), including laws and regulations relating to noise levels, nuclear
operations, Releases of Hazardous Materials, or otherwise relating to the
generation, manufacture, processing, distribution, use, treatment, storage,
transport or handling of Hazardous Materials.
(iii) "Environmental Permits" means all permits, licenses, registrations
and other governmental authorizations required under applicable
Environmental Laws.
(iv) "Hazardous Materials" means (A) any petroleum or petroleum
products, radioactive materials or wastes, spent nuclear fuel, coal ash,
asbestos in any form that is or could become friable, urea formaldehyde
foam insulation and polychlorinated biphenyls ("PCBs"); (B) any chemicals,
materials, substances or wastes which are defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "extremely hazardous wastes," "restricted hazardous
A-16
<PAGE>
wastes," "pollutant," "toxic substances," "source," "special nuclear," and
"byproducts" or words of similar import under any Environmental Law; and
(C) any chemical, material, substance or waste that is prohibited, limited
or regulated pursuant to any Environmental Law.
(v) "Release" means any actual or threatened release, spill, emission,
leaking, dumping, injection, pouring, deposit, disposal, discharge,
dispersal, leaching or migration into the environment (including ambient
air, surface water, groundwater, land surface or subsurface strata) or
within any building, structure, facility or fixture.
Section 3.18. Labor and Employee Relations. (a) Except as set forth in the
Company Disclosure Letter, (i) neither the Company nor any of the Company
Subsidiaries is a party to any collective bargaining agreement or other labor
agreement with any union or labor organization and (ii) to the knowledge of the
Company, there is no current union representation question involving employees
of the Company or any of the Company Subsidiaries, nor does the Company have
knowledge of any activity or proceeding of any labor organization (or
representative thereof) or employee group to organize any such employees,
except to the extent it, individually or in the aggregate, has not had and
could not reasonably be expected to have a Company Material Adverse Effect.
(b) Except as set forth in the Company Disclosure Letter, or except to the
extent the following, individually or in the aggregate, have not had and could
not reasonably be expected to have a Company Material Adverse Effect, (A) there
is no unfair labor practice, employment discrimination or other charge, claim,
suit, action or proceeding against the Company or any of the Company
Subsidiaries pending, or to the knowledge of the Company, threatened before any
court, governmental department, commission, agency, instrumentality or
authority or any arbitrator and (B) there is no strike, lockout or material
dispute, slowdown or work stoppage pending or, to the knowledge of the Company,
threatened against or involving the Company.
Section 3.19. Operations of Nuclear Power Plants. Except as set forth in the
Filed Company SEC Documents or in the Company Disclosure Letter, (a) the
operations of the nuclear generation stations (collectively, the "Company
Nuclear Facilities") currently or formerly owned, in whole or part, by the
Company or any of its affiliates are and have been conducted in compliance with
all Applicable Laws and Company Permits, except for such failures to comply
that, individually or in the aggregate, have not had and could not reasonably
be expected to have a Company Material Adverse Effect, (b) each of the Company
Nuclear Facilities maintains, and is in compliance with, (i) emergency plans
designed to respond to an unplanned Release therefrom of radioactive materials,
(ii) plans for the decommissioning of each of the Company Nuclear Facilities,
(iii) plans for the storage and disposal of spent nuclear fuel, and each such
plan enumerated in (i) through (iii) conform with the requirements of
Applicable Law, and (c) the Company has funded consistent with reasonable
budget projections the current or future decommissioning of each Company
Nuclear Facility and the storage and disposal of spent nuclear fuel.
Section 3.20. Parent Share Ownership. Neither the Company nor any Company
Subsidiary owns any shares of Parent Capital Stock or other securities
convertible into Parent Capital Stock.
Section 3.21. Regulation as a Utility. ComEd is regulated as a public
utility by the State of Illinois. Commonwealth Edison Company of Indiana, Inc.,
an Indiana corporation, is regulated as a public utility by the State of
Indiana and by no other state. Except as set forth in the previous sentence,
neither the Company nor any "subsidiary company" or "affiliate" of the Company
is subject to regulation as a public utility or public service company (or
similar designation) by any other state in the United States or any foreign
country. The Company and ComEd are public utility holding companies as defined
by PUHCA, but currently claim exemptions from registration under PUHCA under
Sections 3(a)(1) and 3(a)(2), respectively, of PUHCA pursuant to orders of the
SEC issued thereunder.
Section 3.22. Contracts; No Default. Except as disclosed in the Filed
Company SEC Documents or entered into after the date of this Agreement without
violating any covenant of this Agreement, there are no contracts or agreements
that are material to the business, properties, assets, condition (financial or
otherwise),
A-17
<PAGE>
results of operations or prospects of the Company and the Company Subsidiaries
taken as a whole. Neither the Company nor any of the Company Subsidiaries is in
violation of or in default under (nor does there exist any condition which upon
the passage of time or the giving of notice would cause such a violation of or
default under) any loan or credit agreement, note, bond, mortgage, indenture,
lease, permit, concession, franchise, license or any other contract, agreement,
arrangement or understanding, to which it is a party or by which it or any of
its properties or assets is bound, except for violations or defaults that have
not had and could not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect.
Section 3.23. Title to Properties. Except as set forth in the Company
Disclosure Letter each of the Company and each of the Company Subsidiaries has
good and sufficient title to its physical properties and assets, or valid
leasehold interests, easements or other appropriate interests therein or
thereto sufficient to conduct its business as presently conducted or intended
to be conducted, except for such as are no longer used or useful in the conduct
of its businesses or as have been disposed of in the ordinary course of
business and except for Liens, defects in title, easements, restrictive
covenants and similar encumbrances or impediments set forth in the Company
Disclosure Letter or that, in the aggregate, do not and will not materially
interfere with its ability to conduct its business as currently conducted or
intended to be conducted.
Section 3.24. Intellectual Property. The Company and the Company
Subsidiaries own, or are validly licensed or otherwise have the right to use,
all patents, patent rights, trademarks, trademark rights, trade names, trade
name rights, service marks, service mark rights, copyrights and other
proprietary intellectual property rights and computer programs (collectively,
"Intellectual Property Rights") which are material to the conduct of the
business of the Company and the Company Subsidiaries, taken as a whole. Except
as set forth in the Company Disclosure Letter, no claims are pending or, to the
knowledge of the Company, threatened that the Company or any of the Company
Subsidiaries is infringing or otherwise adversely affecting the rights of any
person with regard to any Intellectual Property Right. To the knowledge of the
Company, except as set forth in the Company Disclosure Letter, no person is
infringing the rights of the Company or any of the Company Subsidiaries with
respect to any Intellectual Property Right except as has not had and could not
reasonably be expected to have a Company Material Adverse Effect.
Section 3.25. Hedging. Except as set forth in the Company Disclosure Letter,
none of the Company or the Company Subsidiaries engages in any natural gas,
electricity or other futures or options trading or is a party to any price
swaps, hedges, futures or similar instruments, except for transactions and
agreements entered into, or hedge contracts, for the purchase or sale of
electricity or hydrocarbons to which the Company or any Company Subsidiary is a
party that are in accordance with the general practices of other similarly
situated companies in the industry.
Section 3.26. Regulatory Proceedings. Except as set forth in the Company
Disclosure Letter, and other than fuel adjustment or purchase gas adjustment or
similar adjusting rate mechanisms, none of the Company or the Company
Subsidiaries all or part of whose rates or services are regulated by a
Governmental Entity (a) is a party to any rate proceeding before a Governmental
Entity that would reasonably be expected to result in orders having a Company
Material Adverse Effect or (b) has rates that have been or are being collected
subject to refund, pending final resolution of any rate proceeding pending
before a Governmental Entity or on appeal to a court.
A-18
<PAGE>
Article IV
Representations and Warranties of Parent and Newco
Parent and Newco, jointly and severally, represent and warrant to the
Company as follows:
Section 4.01. Organization, Standing and Power. Each of Parent and each of
its subsidiaries, including Newco (the "Parent Subsidiaries"), is duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized and has full corporate power and
authority and possesses all governmental franchises, licenses, permits,
authorizations and approvals necessary to enable it to own, lease or otherwise
hold its properties and assets and to conduct its businesses as conducted as of
the date of this Agreement, other than such franchises, licenses, permits,
authorizations and approvals the lack of which, individually or in the
aggregate, has not had and could not reasonably be expected to have a Material
Adverse Effect on Parent (a "Parent Material Adverse Effect"). Parent and each
Parent Subsidiary is duly qualified to do business in each jurisdiction where
the nature of its business or their ownership or leasing of its properties make
such qualification necessary, other than such qualifications the lack of which,
individually or in the aggregate, has not had and could not reasonably be
expected to have a Parent Material Adverse Effect. Parent has made available to
the Company true and complete copies of the amended and restated articles of
incorporation of Parent, as amended to the date of this Agreement (as so
amended, the "Parent Charter"), and the By-laws of Parent, as amended to the
date of this Agreement (as so amended, the "Parent By-laws"), and the
comparable charter or organizational documents of Newco and each other Parent
Subsidiary, in each case as amended through the date of this Agreement.
Section 4.02. Parent Subsidiaries; Equity Interests. (a) The letter, dated
as of the date of this Agreement, from Parent to the Company (the "Parent
Disclosure Letter") lists each Parent Subsidiary and its jurisdiction of
organization and specifies each of the Parent Subsidiaries that is, and as of
the date of this Agreement AmerGen (as hereinafter defined is not), (i) a
"public-utility company", a "holding company", a "subsidiary company", an
"affiliate" of any public-utility company, an "exempt wholesale generator" or a
"foreign utility company" within the meaning of Section 2(a)(5), 2(a)(7),
2(a)(8), 2(a)(11), 32(a)(1) or 33(a)(3) of PUHCA, respectively, (ii) a "public
utility" within the meaning of Section 201(e) of the Power Act or (iii) a
"qualifying facility" within the meaning of PURPA, or that owns such a
qualifying facility. All the outstanding shares of capital stock of each Parent
Subsidiary have been validly issued and are fully paid and nonassessable and,
except as set forth in Parent Disclosure Letter, are owned by Parent, by
another Parent Subsidiary or by Parent and another Parent Subsidiary, free and
clear of all Liens.
(b) Except for its interests in Parent Subsidiaries and except for the
ownership interests set forth in Parent Disclosure Letter or interests acquired
after the date of this Agreement without violating any covenant of this
Agreement, Parent does not own, directly or indirectly, any capital stock,
membership interest, partnership interest, joint venture interest or other
equity interest with a fair market value as of the date of this Agreement in
excess of $500,000 in any person, as reasonably determined by Parent.
(c) Since the date of its incorporation, Newco has not carried on any
business or conducted any operations other than the execution of this
Agreement, the performance of its obligations hereunder and thereunder and
matters ancillary thereto. As of the date of this Agreement, Newco has no
material assets or liabilities.
Section 4.03. Capital Structure. (a) The authorized capital stock of Parent
consists of 500,000,000 shares of Parent Common Stock and shares of preferred
stock as set forth in the Parent Disclosure Letter (the "Parent Preferred
Stock" and, together with the Parent Common Stock, the "Parent Capital Stock").
At the close of business on August 31, 1999, (i) 203,392,956 shares of Parent
Common Stock were issued and outstanding and shares of Parent Preferred Stock
were issued and outstanding as set forth in the Parent Disclosure Letter, (ii)
38,721,900 shares of Parent Common Stock were held by Parent in its treasury
and (iii) 5,800,841 shares of Parent Common Stock were subject to outstanding
Parent Employee Stock Options (as defined in Section 6.04) and 5,166,533
additional shares of the Parent Common Stock were reserved for issuance
pursuant to Parent Stock Plans (as defined in Section 6.04).
A-19
<PAGE>
(b) Except as set forth in clause (a) of this Section 4.03 or in the Parent
Disclosure Letter, at the close of business on August 31, 1999, no shares of
capital stock or other voting securities of Parent were issued, reserved for
issuance or outstanding.
(c) All outstanding shares of Parent Capital Stock are, and all such shares
that may be issued prior to the Merger Effective Time will be when issued, duly
authorized, validly issued, fully paid and nonassessable and not subject to or
issued in violation of any purchase option, call option, right of first
refusal, preemptive right, subscription right or any similar right under any
provision of the PBCL, the Parent Charter, the Parent By-laws or any Contract
to which Parent is a party or otherwise bound.
(d) There are not any bonds, debentures, notes or other indebtedness of
Parent having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which holders of Parent
Common Stock may vote ("Voting Parent Debt").
(e) Except as set forth in clause (a) of this Section 4.03 or in the Parent
Disclosure Letter, as of the date of this Agreement, there are not any options,
warrants, rights, convertible or exchangeable securities, "phantom" stock
rights, stock appreciation rights, stock-based performance units, commitments,
Contracts, arrangements or undertakings of any kind to which Parent or any
Parent Subsidiary is a party or by which any of them is bound (i) obligating
Parent or any Parent Subsidiary to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock or other equity
interests in, or any security convertible or exercisable for or exchangeable
into any capital stock of or other equity interest in, Parent or of any Parent
Subsidiary or any Voting Parent Debt or (ii) obligating Parent or any Parent
Subsidiary to issue, grant, extend or enter into any such option, warrant,
call, right, security, commitment, Contract, arrangement or undertaking.
(f) As of the date of this Agreement, except as described in the Parent
Disclosure Letter, there are not any outstanding contractual obligations of
Parent or any Parent Subsidiary to repurchase, redeem or otherwise acquire any
shares of capital stock of Parent or any Parent Subsidiary.
(g) The authorized capital stock of Newco consists of 500,000,000 shares of
common stock, no par value, 100,000,000 shares of preferred stock, no par
value, and 100,000,000 shares of series preference stock, no par value, of
which only 100 shares of common stock have been validly issued, are fully paid
and nonassessable and are owned by Parent free and clear of any Lien.
Section 4.04. Authority; Execution and Delivery; Enforceability . (a) Each
of Parent and Newco has all requisite corporate power and authority to execute
and deliver this Agreement and to consummate the Transactions. The execution
and delivery by each of Parent and Newco of this Agreement and the consummation
by it of the Transactions have been duly authorized by all necessary corporate
action on the part of Parent and Newco, subject (i) in the case of the Merger
and the Share Issuance, to receipt of the Parent Shareholder Approval (as
defined in Section 4.04(c)) and (ii) adoption by Parent, as sole shareholder of
Newco, of this Agreement. Each of Parent and Newco has duly executed and
delivered this Agreement, and this Agreement constitutes its legal, valid and
binding obligation, enforceable against it in accordance with its terms.
(b) The Board of Directors of Parent (the "Parent Board"), at a meeting duly
called and held, duly and unanimously adopted resolutions (i) approving this
Agreement, the Merger, the Share Issuance and the other Transactions, (ii)
determining that the terms of the Merger, the Share Issuance and the other
Transactions are fair to and in the best interests of Parent and its
shareholders and (iii) directing that this Agreement be submitted to a vote of
Parent's shareholders and recommending that they adopt this Agreement and
approve the Share Issuance. Such resolutions are sufficient to render
inapplicable to this Agreement, the Merger, the Share Issuance and the other
Transactions, to the extent otherwise applicable, the provisions of Subchapters
D (Section 2538), E, F, G, H, I and J of Chapter 25 of the PBCL and (ii) the
provisions of Sections 508 and 509 of the Parent Charter. To Parent's
knowledge, no other state takeover statute or similar statute or regulation
applies or purports to apply to Parent or Newco with respect to this Agreement,
the Merger, the Share Issuance or any other Transaction.
A-20
<PAGE>
(c) The only vote of holders of any class or series of Parent securities
necessary to approve and adopt this Agreement, the Merger, the Share Issuance
and the other Transactions is the adoption of this Agreement by the affirmative
vote of a majority of the votes cast by all holders of Parent Common Stock
entitled to vote (collectively, the "Parent Shareholder Approval"). The
affirmative vote of the holders of Parent Capital Stock, or any of them, is not
necessary to consummate any Transaction other than the Share Issuance and the
Merger.
Section 4.05. No Conflicts; Consents. (a) Except as set forth in the Parent
Disclosure Letter, the execution and delivery by each of Parent and Newco of
this Agreement does not, and the consummation of the Merger, the Share Issuance
and the other Transactions and compliance with the terms hereof and thereof
will not, conflict with, or result in any violation of or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, consent, approval, cancelation or acceleration of any obligation
or to loss of a material benefit under, or to increased, additional,
accelerated or guaranteed rights or entitlements of any person under, or result
in the creation of any Lien upon any of the properties or assets of Parent or
any Parent Subsidiary under, any provision of (i) Parent Charter, Parent By-
laws or the comparable charter or organizational documents of any Parent
Subsidiary, (ii) any Contract to which Parent or any Parent Subsidiary is a
party or by which any of their respective properties or assets is bound or
(iii) subject to the filings and other matters referred to in Section 4.05(b),
any Judgment or Applicable Law or writ, permit or license applicable to Parent
or any Parent Subsidiary or their respective properties or assets (other than
immaterial consents, approvals, licenses, permits, orders, authorizations,
registrations, declarations or filings, including with respect to
communications systems, zoning, name changes, occupancy and similar routine
regulatory approvals), other than, in the case of clauses (ii) and (iii) above,
any such items that, individually or in the aggregate, have not had and could
not reasonably be expected to have a Parent Material Adverse Effect.
(b) No Consent of, action by or in respect of, or registration, declaration
or filing with, or notice to, any Governmental Entity is required to be
obtained or made by or with respect to Parent or any Parent Subsidiary in
connection with the execution, delivery and performance of this Agreement or
the consummation of the Transactions, other than (i) compliance with and
filings under the HSR Act, (ii) the filing with the SEC of (A) the Form S-4 and
the Proxy Statement and (B) such reports under the Exchange Act, as may be
required in connection with this Agreement, the Merger and the other
Transactions, (iii) the filing of the Articles of Exchange, Pennsylvania
Articles of Merger and the Charter Amendment with the Department of State of
the Commonwealth of Pennsylvania, the filing of the Illinois Articles of Merger
with, and issuance of a certificate of merger by, the Secretary of State of the
State of Illinois and the filing of appropriate documents with the relevant
authorities of the other jurisdictions in which the Company is qualified to do
business, (iv) notice to, and the consent and approval of, FERC under the Power
Act, (v) notice to, and the consent and approval of, the NRC under the Atomic
Energy Act, (vi) notice to and the consent and approval of the Pennsylvania
Public Utility Commission (the "PPUC"), (vii) the consents, filings and
approvals required under PUHCA, (viii) compliance with and such filings as may
be required under applicable Environmental Laws, (ix) such filings as may be
required in connection with the taxes described in Section 6.09 and (x) such
other items as are set forth in the Parent Disclosure Letter (collectively,
whether or not legally required to be obtained, the "Parent Required Statutory
Approvals").
Section 4.06. SEC Documents; Undisclosed Liabilities. Parent has filed all
reports, schedules, forms, statements and other documents required to be filed
by Parent with the SEC since January 1, 1998 (the "Parent SEC Documents"). Each
Parent SEC Document complied in all material respects as of its respective date
with the requirements of the Exchange Act or the Securities Act, as the case
may be, and the rules and regulations of the SEC promulgated thereunder
applicable to such Parent SEC Document, and except to the extent that
information contained in any Parent SEC Document has been revised or superseded
by a later filed Parent SEC Document, does not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of Parent included in the Parent SEC Documents comply as
to form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP
A-21
<PAGE>
(except, in the case of unaudited statements, as permitted by Form 10-Q of the
SEC) applied on a consistent basis during the periods involved (except as may
be indicated in the notes thereto) and fairly present the consolidated
financial position of Parent and its consolidated subsidiaries as of the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). Except as set forth in the Filed Parent SEC
Documents (as defined in Section 4.08) or the Parent Disclosure Letter or
incurred after the date hereof in the usual, regular and ordinary course of
business in substantially the same manner as previously conducted and not
prohibited by this Agreement, neither Parent nor any Parent Subsidiary has any
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise) required by GAAP to be set forth on a consolidated balance sheet
of Parent and its consolidated subsidiaries or in the notes thereto and that,
individually or in the aggregate, could reasonably be expected to have a Parent
Material Adverse Effect. None of the Parent Subsidiaries is, or has at any time
since January 1, 1998 been, subject to the reporting requirements of Sections
13(a) and 15(d) of the Exchange Act.
Section 4.07. Information Supplied. None of the information supplied or to
be supplied by Parent or Newco for inclusion or incorporation by reference in
(i) the Form S-4 will, at the time the Form S-4 is filed with the SEC, at any
time it is amended or supplemented or at the time it becomes effective under
the Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, or (ii) the Proxy Statement will, at the
date it is first mailed to the Company's shareholders or Parent's shareholders
or at the time of the Company Shareholders Meeting or the Parent Shareholders
Meeting, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not misleading. The Form S-4 will comply as to form in all material respects
with the requirements of the Securities Act and the rules and regulations
thereunder, except that no representation is made by Parent or Newco with
respect to statements made or incorporated by reference therein based on
information supplied by or on behalf of the Company for inclusion or
incorporation by reference therein.
Section 4.08. Absence of Certain Changes or Events. Except as disclosed in
the Parent SEC Documents filed and publicly available prior to the date of this
Agreement (the "Filed Parent SEC Documents") or in the Parent Disclosure
Letter:
(a) since December 31, 1998, there has not been any event, change,
effect or development that, individually or in the aggregate, has had or
could reasonably be expected to have a Parent Material Adverse Effect,
other than events, changes, effects and developments relating to the
economy in general or to Parent's industry in general and not specifically
relating to Parent or any Parent Subsidiary;
and
(b) from December 31, 1998 to the date of this Agreement, Parent has
conducted its business only in the ordinary course, and during such period
there has not been:
(i) any declaration, setting aside or payment of any dividend or
other distribution (whether in cash, stock or property) with respect to
any Parent Capital Stock or any repurchase for value by Parent of any
Parent Capital Stock;
(ii) any split, combination or reclassification of any Parent
Capital Stock or any issuance or the authorization of any issuance of
any other securities in respect of, in lieu of or in substitution for
shares of Parent Capital Stock; or
(iii) any change in accounting methods, principles or practices by
Parent or any Parent Subsidiary materially affecting the consolidated
assets, liabilities or results of operations of Parent, except insofar
as may have been required by a change in GAAP.
Section 4.09. Taxes. (a) Each of Parent and each Parent Subsidiary has
timely filed, or has caused to be timely filed on its behalf, all Tax Returns
required to be filed by it (or requests for extensions to file such
A-22
<PAGE>
Tax Returns have been timely filed and granted and have not expired), and all
such Tax Returns are true, complete and accurate, except to the extent any
failure to file or any inaccuracies in any filed Tax Returns would not,
individually or in the aggregate, have a Parent Material Adverse Effect. All
Taxes shown to be due on such Tax Returns, or otherwise owed by Parent or any
Parent Subsidiary, have been timely paid, except to the extent that any failure
to pay, individually or in the aggregate, has not had and could not reasonably
be expected to have a Parent Material Adverse Effect.
(b) Except as set forth in the Parent Disclosure Letter, the most recent
financial statements contained in the Filed Parent SEC Documents reflect an
adequate reserve for all current Taxes payable by Parent and the Parent
Subsidiaries (in addition to any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) for all Taxable periods
and portions thereof through the date of such financial statements. Except as
set forth in the Parent Disclosure Letter, no deficiency with respect to any
Taxes has, to the best knowledge of Parent, been proposed, asserted or assessed
against Parent or any Parent Subsidiary, and no requests for waivers of the
time to assess any such Taxes are pending, except to the extent any such
deficiency or request for waiver, individually or in the aggregate, has not had
and could not reasonably be expected to have a Parent Material Adverse Effect.
(c) The Federal income Tax Returns of Parent and each Parent Subsidiary
consolidated in such Returns have been examined by and settled with the United
States Internal Revenue Service for all years through 1990. Except as set forth
in the Parent Disclosure Letter, all material assessments for Taxes due with
respect to such completed and settled examinations or any concluded litigation
have been fully paid.
(d) There are no material Liens for Taxes (other than for current Taxes not
yet due and payable) on the assets of Parent or any Parent Subsidiary. Except
as set forth in the Parent Disclosure Letter, neither Parent nor any Parent
Subsidiary is bound by any agreement with respect to Taxes.
(e) The Parent and each Parent Subsidiary have complied with all applicable
statutes, laws, ordinances, rules and regulations relating to the payment and
withholding of taxes (including withholding of taxes pursuant to Sections 1441,
1442, 3121 and 3402 of the Code or similar provisions under any Federal, state
or local laws, domestic and foreign) and have, within the time and in the
manner prescribed by law, withheld from and paid over to the proper
governmental authorities all amounts required to be so withheld and paid over
under applicable laws, except to the extent that any failure to withhold or to
pay, individually or in the aggregate, has not had and could not reasonably be
expected to have a Parent Material Adverse Effect.
(f) Parent knows of no fact and neither Parent nor any Parent Subsidiary has
taken or agreed to take any action that could reasonably be expected to prevent
(i) the Merger from constituting transactions described in Section 351 of the
Code or (ii) the Second Step Merger from constituting a transaction described
in Section 368(a) of the Code.
Section 4.10. Absence of Changes in Benefit Plans. Except as disclosed in
the Parent Disclosure Letter, from December 31, 1998 to the date of this
Agreement, there has not been any adoption or amendment in any material respect
by Parent or any Parent Subsidiary of (a) any collective bargaining agreements,
(b) any bonus, pension, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
retirement, vacation, severance, disability, death benefit, hospitalization,
medical or other plan, program, policy, arrangement or understanding (whether
or not legally binding) providing benefits to any current or former employee,
officer or director of Parent or any Parent Subsidiary or any beneficiary or
dependent thereof, that is sponsored or maintained by Parent or any Parent
Subsidiary or to which Parent or any Parent Subsidiary contributes or is
obligated to contribute (collectively, "Parent Benefit Plans") or (c) any
Parent Employment Arrangements (as defined herein). Except as disclosed in the
Parent Disclosure Letter, as of the date of this Agreement there are not any
employment, consulting, indemnification, change-of-control, severance or
termination agreements or arrangements between Parent or any Parent Subsidiary
and any current or former employee, officer or director of the Parent or any
Parent Subsidiary (collectively, the "Parent Employment Arrangements").
A-23
<PAGE>
Section 4.11. ERISA Compliance; Excess Parachute Payments. (a) The Parent
Disclosure Letter includes a complete list of all material Parent Benefit Plans
and Parent Employment Arrangements as of the date of this Agreement. With
respect to each Parent Benefit Plan (other than a multiemployer plan within the
meaning of Section 4001(a)(3) of ERISA) and Parent Employment Arrangement,
Parent has delivered to the Company true, complete and correct copies of (i)
each such Parent Benefit Plan or Parent Employment Arrangement (or, in the case
of any unwritten plan or arrangement, a description thereof), (ii) the most
recent annual report on the applicable Form 5500 series filed with the Internal
Revenue Service (if any such report was required), including all schedules and
attachments thereto, (iii) the most recent summary plan description (if a
summary plan description is required) and all summaries of material
modifications thereto, (iv) each trust agreement, group annuity contract or
other funding vehicle relating to any such Parent Benefit Plan or Parent
Employment Arrangement, (v) the most recent actuarial report or valuation
relating thereto and (vi) the most recent determination letters issued by the
Internal Revenue Service with respect to Parent Benefit Plans that are intended
to be Qualified Plans and letters of recognition of exemption with respect to
any Parent Benefit Plan or related trust that is intended to meet the
requirements of Section 501(c)(9) of the Code.
(b) With respect to the Parent Benefit Plans and Parent Employment
Arrangements, individually and in the aggregate, no event has occurred and, to
the knowledge of Parent, there exists no condition or set of circumstances, in
connection with which Parent or any Parent Subsidiary could be subject to any
liability that has had or could reasonably be expected to have a Parent
Material Adverse Effect (except liability for benefits claims and funding
obligations payable in the ordinary course) under ERISA, the Code or any other
applicable law. For purposes of this Section 4.11(b), the term "Parent Benefit
Plan" shall also include any employee benefit plan within the meaning of
Section 3(3) of ERISA that, within the last six years, was sponsored or
maintained by any entity which would be treated under Section 414 of the Code
as a single employer with Parent or any Parent Subsidiary or to which any such
entity contributed or was obligated to contribute.
(c) Each Parent Benefit Plan and each Parent Employment Arrangement has been
administered in accordance with its terms except for any failures so to
administer any Parent Benefit Plan or Parent Employment Arrangement as have not
had and could not reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect. Parent, all Parent Subsidiaries
and all the Parent Benefit Plans and Parent Employment Arrangements are in
compliance with the applicable provisions of ERISA, the Code and all other
applicable laws and the rules and regulations thereunder and the terms of all
applicable collective bargaining agreements, except for any failures to be in
such compliance as have not had and could not reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse Effect. Except as
disclosed in the Parent Disclosure Letter, there are no pending or, to the
knowledge of Parent, threatened or anticipated claims under or with respect to
any Parent Benefit Plan or Parent Employment Arrangement by or on behalf of any
current or former employee, officer or director, or dependent or beneficiary
thereof, or otherwise (other than routine claims for benefits).
(d) Except as disclosed in the Parent Disclosure Letter, (i) no current or
former employee, officer or director of Parent or any Parent Subsidiary will be
entitled to any additional rights or benefits or any acceleration of the time
of payment or vesting of any benefits under any Parent Benefit Plan or Parent
Employment Arrangement, and no trustee under any "rabbi trust", or similar
arrangement maintained in connection with any Parent Benefit Plan or Parent
Employment Arrangement will be entitled to any payment, as a result (either
alone or upon the occurrence of any additional or further acts or events) of
the execution of this Agreement or the consummation, announcement or other
actions relating to the Transactions and (ii) no amount payable to any current
or former employee, officer or director of Parent or any Parent Subsidiary will
fail to be deductible by reason of Section 280G of the Code.
(e) Each Parent Benefit Plan intended to be a Qualified Plan has received a
favorable determination letter from the Internal Revenue Service that it is so
qualified and nothing has occurred since the date of such letter that could
reasonably be expected to affect the qualified status of such Parent Benefit
Plan.
A-24
<PAGE>
(f) The aggregate accumulated benefit obligations of each Parent Benefit
Plan subject to Title IV of ERISA (as of the date of the most recent actuarial
valuation prepared for such Parent Benefit Plan) do not exceed the fair market
value of the assets of such plan (as of the date of such valuation).
(g) All contributions and other payments required to have been made for any
completed historical period by Parent or any Parent Subsidiary to any Parent
Benefit Plan or Parent Employment Arrangement (or to any person pursuant to the
terms thereof) have been timely made or paid in full, or, to the extent not
required to be made or paid for such period, have been reflected in the
consolidated financial statements of Parent.
(h) Except as disclosed in the Parent Disclosure Letter, no Parent Benefit
Plan is a multiemployer plan within the meaning of Section 4001(a)(3) of ERISA,
and none of Parent or any Parent Subsidiary has, at any time during the last
six years, contributed to or been obligated to contribute to any such
multiemployer plan. For purposes of the representations and warranties made in
the last sentence of Section 4.11(c) and in Sections 4.11 (e) and (f), the term
"Parent Benefit Plan" shall be deemed to exclude any such multiemployer plan.
Section 4.12. Litigation. Except as disclosed in the Filed Parent SEC
Documents or in the Parent Disclosure Letter, there is no suit, action or
proceeding pending or, to the knowledge of Parent, threatened against Parent or
any Parent Subsidiary that, individually or in the aggregate, has had or could
reasonably be expected to have a Parent Material Adverse Effect, nor is there
any Judgment outstanding against Parent or any Parent Subsidiary that has had
or could reasonably be expected to have a Parent Material Adverse Effect.
Section 4.13. Compliance with Applicable Laws; Permits. (a) Except as
disclosed in the Filed Parent SEC Documents or in the Parent Disclosure Letter,
Parent and Parent Subsidiaries are in compliance with the terms of all
applicable Parent Permits (as defined in Section 4.13(b)) and all Applicable
Laws, except for instances of noncompliance that, individually and in the
aggregate, have not had and could not reasonably be expected to have a Parent
Material Adverse Effect. This Section 4.13 does not relate to matters with
respect to Taxes, which are the subject of Section 4.09, Environmental Laws,
which are the subject of Section 4.17, benefits plans, which are the subject of
Section 4.11 and the operation of nuclear power plants which are the subject of
Section 4.19.
(b) Except as disclosed in the Filed Parent SEC Documents or in the Parent
Disclosure Letter, Parent and the Parent Subsidiaries own or have sufficient
rights and consents to use under existing franchises, permits, easements,
leases, and license agreements (the "Parent Permits") all properties, rights
and assets necessary for the conduct of their business and operations as
currently conducted, except where the failure to own or have sufficient rights
to such properties, rights and assets, individually or in the aggregate, have
not had and could not reasonably be expected to have a Parent Material Adverse
Effect. Except as provided in the Pennsylvania Electricity Generation Customer
Choice and Competition Act of 1996 (the "Pennsylvania Competition Act"), to the
knowledge of Parent, no other private corporation can commence electric public
utility operations in any part of the respective territories now served by
Parent or any Parent Subsidiary, without obtaining a certificate of public
convenience and necessity from the applicable state utility commission.
Section 4.14. Brokers; Schedule of Fees and Expenses. No broker, investment
banker, financial advisor or other person, other than Salomon Smith Barney Inc.
and Morgan Stanley & Company Incorporated, the fees and expenses of which will
be paid by Parent, is entitled to any broker's, finder's, financial advisor's
or other similar fee or commission in connection with the Merger and the other
Transactions based upon arrangements made by or on behalf of Parent or Newco.
Section 4.15. Opinions of Financial Advisors. Parent has received the
opinions of Salomon Smith Barney Inc. and Morgan Stanley & Company
Incorporated, dated as of January 7, 2000, to the effect that, as of such date,
the Exchange Consideration is fair to the holders of Parent Common Stock from a
financial point of view, signed copies of which opinions have been delivered to
the Company.
A-25
<PAGE>
Section 4.16. Year 2000. The Parent SEC Documents fairly summarize the
status of Parent's computer applications and components, modification or
readiness plan, communications with suppliers and vendors, contingency plans
and estimated cost of remediation as they relate to the Year 2000 issue. Parent
has made available to the Company copies of all correspondence between Parent
and its third party suppliers and vendors concerning their Year 2000
compliance.
Section 4.17. Environmental Matters. (a) Compliance. Except as set forth in
the Filed Parent SEC Documents or in the Parent Disclosure Letter, Parent and
each of the Parent Subsidiaries is and has been in compliance with all
applicable Environmental Laws, except where the failure to so comply,
individually or in the aggregate, has not had and could not reasonably be
expected to have a Parent Material Adverse Effect.
(b) Environmental Permits. Except as set forth in the Filed Parent SEC
Documents or in the Parent Disclosure Letter, (i) Parent and each of the Parent
Subsidiaries has obtained or has applied for all Environmental Permits
necessary for the construction of their facilities or the conduct of their
operations, except where the failure to so obtain, individually or in the
aggregate, has not had and could not reasonably be expected to have a Parent
Material Adverse Effect, and (ii) all such Environmental Permits are in good
standing or, where applicable, a renewal application has been timely filed and
is pending agency approval, except where the failure of such Environmental
Permits to be in good standing or to have filed a renewal application on a
timely basis has not had and could not reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse Effect.
(c) Environmental Claims. Except as set forth in the Filed Parent SEC
Documents or in the Parent Disclosure Letter, there are no Environmental Claims
that have had or could reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect, pending or, to the knowledge of
Parent, threatened against Parent or any of the Parent Subsidiaries.
(d) Releases. Except as set forth in the Filed Parent SEC Documents or in
the Parent Disclosure Letter, there have been no Releases of any Hazardous
Materials that could be reasonably likely to form the basis of any
Environmental Claim against Parent or any of the Parent Subsidiaries, except
for any Environmental Claim which, individually or in the aggregate, has not
had and could not reasonably be expected to have a Parent Material Adverse
Effect.
(e) Assumed and Retained Liabilities. Except as disclosed in the Filed
Parent SEC Documents or in the Parent Disclosure Letter, none of Parent or the
Parent Subsidiaries has retained or assumed either contractually or by
operation of law any liabilities or obligations that could reasonably be likely
to form the basis for any Environmental Claim, which has had and could
reasonably be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect.
Section 4.18. Labor and Employee Relations. (a) Except as set forth in the
Parent Disclosure Letter, (i) neither Parent nor any of the Parent Subsidiaries
is a party to any collective bargaining agreement or other labor agreement with
any union or labor organization and (ii) to the knowledge of Parent, there is
no current union representation question involving employees of Parent or any
of the Parent Subsidiaries, nor does Parent have knowledge of any activity or
proceeding of any labor organization (or representative thereof) or employee
group to organize any such employees, except to the extent it, individually or
in the aggregate, has not had and could not reasonably be expected to have a
Parent Material Adverse Effect.
(b) Except as set forth in the Parent Disclosure Letter, or except to the
extent the following, individually or in the aggregate, have not had and could
not reasonably be expected to have a Parent Material Adverse Effect, (A) there
is no unfair labor practice, employment discrimination or other charge, claim,
suit, action or proceeding against Parent or any of the Parent Subsidiaries
pending, or to the knowledge of Parent, threatened before any court,
governmental department, commission, agency, instrumentality or authority or
any arbitrator and (B) there is no strike, lockout or material dispute,
slowdown or work stoppage pending or, to the knowledge of Parent, threatened
against or involving Parent.
A-26
<PAGE>
Section 4.19. Operations of Nuclear Power Plants. (a) Except as set forth in
the Filed Parent SEC Documents or in the Parent Disclosure Letter, (a) the
operations of the nuclear generation stations (collectively, the "Parent
Nuclear Facilities") currently or formerly owned, in whole or part, by Parent
or any of its affiliates are and have been conducted in compliance with all
Applicable Laws and Parent Permits, except for such failures to comply that,
individually or in the aggregate, have not had and could not reasonably be
expected to have a Parent Material Adverse Effect, (b) each of the Parent
Nuclear Facilities maintains, and is in compliance with, (i) emergency plans
designed to respond to an unplanned Release therefrom of radioactive materials,
(ii) plans for the decommissioning of each of the Parent Nuclear Facilities,
(iii) plans for the storage and disposal of spent nuclear fuel, and each such
plan enumerated in (i) through (iii) conform with the requirements of
Applicable Law, and (c) Parent has funded consistent with reasonable budget
projections the current or future decommissioning of each Parent Nuclear
Facility and the storage and disposal of spent nuclear fuel.
(b) To the best knowledge of Parent, recognizing that AmerGen does not as of
the date of this Agreement, own, or hold any operating licenses for, nuclear
generating stations, (i) the operations of the nuclear generation stations
which are the subject of an existing purchase, operating or similar agreement
by AmerGen or any of its affiliates or assignees (the "AmerGen Nuclear
Facilities") are and have been conducted in compliance with all Applicable Laws
and necessary permits of Governmental Entities, except for such failures to
comply that, individually or in the aggregate, have not had and could not
reasonably be expected to have a Parent Material Adverse Effect, (ii) each of
the AmerGen Nuclear Facilities maintains, and is in compliance with,
(A) emergency plans designed to respond to an unplanned Release therefrom of
radioactive materials, (B) plans for the decommissioning of each of the AmerGen
Nuclear Facilities and (C) plans for the storage and disposal of spent nuclear
fuel, and each such plan enumerated in (A) through (C) conform with the
requirements of Applicable Law, and (iii) the current owner has funded
consistent with reasonable budget projections the current or future
decommissioning of each AmerGen Nuclear Facility and the storage and disposal
of spent nuclear fuel.
(c) Parent hereby makes each of the representations and warranties contained
in Sections 4.05(a), 4.05(b), 4.12, 4.13 and 4.17 with respect to AmerGen, as
if AmerGen were a Parent Subsidiary as defined in this Agreement, it being
understood that the Company acknowledges and agrees that as of the date hereof
AmerGen is not a subsidiary and therefore no representation or warranty is made
concerning AmerGen or its business or operations except as expressly set forth
in this Section 4.19(c) and the first sentence of Section 4.02(a) and Section
4.19(b), and each such representation and warranty pertaining to AmerGen is
qualified to the best knowledge of Parent recognizing that AmerGen does not as
of the date of this Agreement, own, or hold any operating licenses for, nuclear
generating stations.
Section 4.20. Company Share Ownership. Neither Parent nor any Parent
Subsidiary owns any shares of Company Common Stock or other securities
convertible into Company Common Stock.
Section 4.21. Regulation as a Utility. Parent is regulated as a public
utility by the Commonwealth of Pennsylvania and by no other state. Except as
set forth in the previous sentence, neither Parent nor any "subsidiary company"
or "affiliate" of Parent is subject to regulation as a public utility or public
service company (or similar designation) by any other state in the United
States or any foreign country. Parent is a public utility holding company as
defined by PUHCA, but currently claims exemption under Section 3(a)(2) of PUHCA
pursuant to orders of the SEC thereunder.
Section 4.22. Contracts; No Default. Except as disclosed in the Filed Parent
SEC Documents or entered into after the date of this Agreement without
violating any covenant of this Agreement, there are no contracts or agreements
that are material to the business, properties, assets, condition (financial or
otherwise), results of operations or prospects of Parent and the Parent
Subsidiaries taken as a whole. Neither Parent nor any of the Parent
Subsidiaries is in violation of or in default under (nor does there exist any
condition which upon the passage of time or the giving of notice would cause
such a violation of or default under) any loan or credit agreement, note, bond,
mortgage, indenture, lease, permit, concession, franchise, license or any other
contract,
A-27
<PAGE>
agreement, arrangement or understanding, to which it is a party or by which it
or any of its properties or assets is bound, except for violations or defaults
that have not had and could not reasonably be expected to have, individually or
in the aggregate, a Parent Material Adverse Effect.
Section 4.23. Title to Properties. Except as set forth in the Parent
Disclosure Letter each of Parent and each of the Parent Subsidiaries has good
and sufficient title to its physical properties and assets, or valid leasehold
interests, easements or other appropriate interests therein or thereto
sufficient to conduct its business as presently conducted or intended to be
conducted, except for such as are no longer used or useful in the conduct of
its businesses or as have been disposed of in the ordinary course of business
and except for defects in title, easements, restrictive covenants and similar
encumbrances or impediments set forth in the Parent Disclosure Letter or that,
in the aggregate, do not and will not materially interfere with its ability to
conduct its business as currently conducted or intended to be conducted.
Section 4.24. Intellectual Property. Parent and the Parent Subsidiaries own,
or are validly licensed or otherwise have the right to use, all Intellectual
Property Rights which are material to the conduct of the business of Parent and
the Parent Subsidiaries taken as a whole. Except as set forth in the Parent
Disclosure Letter, no claims are pending or, to the knowledge of Parent,
threatened that Parent or any of the Parent Subsidiaries is infringing or
otherwise adversely affecting the rights of any person with regard to any
Intellectual Property Right. To the knowledge of Parent, except as set forth in
the Parent Disclosure Letter, no person is infringing the rights of Parent or
any of the Parent Subsidiaries with respect to any Intellectual Property Right
except as has not had and could not reasonably be expected to have a Parent
Material Adverse Effect.
Section 4.25. Hedging. Except as set forth in the Parent Disclosure Letter,
none of Parent or the Parent Subsidiaries engages in any natural gas,
electricity or other futures or options trading or is a party to any price
swaps, hedges, futures or similar instruments, except for transactions and
agreements entered into, or hedge contracts, for the purchase or sale of
electricity or hydrocarbons to which Parent or any Parent Subsidiary is a party
that are in accordance with the general practices of other similarly situated
companies in the industry.
Section 4.26. Regulatory Proceedings. Except as set forth in the Parent
Disclosure Letter and other than fuel adjustment or purchase gas adjustment or
similar adjusting rate mechanisms, none of Parent or the Parent Subsidiaries
all or part of whose rates or services are regulated by a Governmental Entity
(a) is a party to any rate proceeding before a Governmental Entity that would
reasonably be expected to result in orders having a Parent Material Adverse
Effect or (b) has rates that have been or are being collected subject to
refund, pending final resolution of any rate proceeding pending before a
Governmental Entity or on appeal to a court.
ARTICLE V
Covenants Relating to Conduct of Business
Section 5.01. Conduct of Business. (a) Conduct of Business by the
Company. Except for matters set forth in the Company Disclosure Letter or
otherwise expressly contemplated by this Agreement, from the date of this
Agreement to the Merger Effective Time the Company shall, and shall cause each
Company Subsidiary to, conduct its business in all material respects in the
usual, regular and ordinary course in substantially the same manner as
previously conducted and use reasonable best efforts to preserve intact its
current business organization in all material respects, subject to prudent
management of work force and business needs, keep available the services of its
current officers and key employees and keep its relationships with Governmental
Entities, customers, suppliers, licensors, licensees, distributors and others
having business dealings with them to the end that its goodwill and ongoing
business shall be unimpaired in all material respects at the Merger Effective
Time. In addition, and without limiting the generality of the foregoing, except
for matters set forth in
A-28
<PAGE>
the Company Disclosure Letter or otherwise expressly contemplated by this
Agreement, from the date of this Agreement to the Merger Effective Time, the
Company shall not, and shall not permit any Company Subsidiary to, do any of
the following without the prior written consent of Parent:
(i) (A) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than (1)
dividends and distributions by a direct or indirect wholly owned subsidiary
of the Company to its parent, (2) regular quarterly cash dividends with
respect to the Company Common Stock, not in excess of $0.40 per share, in
accordance with the Company's past dividend policy, and (3) regular cash
dividends with respect to preferred stock of the Company or its
subsidiaries in accordance with the current terms thereof, (B) split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock, or (C) purchase, redeem or
otherwise acquire any shares of capital stock of the Company or any Company
Subsidiary or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities;
(ii) issue, deliver, sell or grant (A) any shares of its capital stock,
(B) any Voting Company Debt or other voting securities, (C) any securities
convertible into or exchangeable for, or any options, warrants or rights to
acquire, any such shares, Voting Company Debt, voting securities or
convertible or exchangeable securities or (D) any "phantom" stock,
"phantom" stock rights, stock appreciation rights or stock-based
performance units, other than (1) the issuance of Company Common Stock (and
associated Company Rights) upon the exercise of Company Employee Stock
Options outstanding on the date of this Agreement and in accordance with
their present terms or pursuant to the terms of any Company Benefit Plan or
Company Employment Arrangement as in effect on the date of this Agreement
or as amended in accordance with or as permitted by its Agreement, (2) the
issuance, subject to Section 5.01(a)(v), of up to an additional 5,000,000
Company Employee Stock Options pursuant to the Company Stock Plans in
accordance with their present terms and the terms of the Company stock
options issued in the ordinary course prior to the date of this Agreement
and the issuance of Company Common Stock (and associated Company Rights)
upon the exercise of such Company Employee Stock Options, (3) the issuance
of "phantom" stock or "phantom" stock rights or, subject to Section
5.01(a)(v), stock appreciation rights or stock-based performance units,
pursuant to the terms of any Company Benefit Plan or Company Employment
Arrangement in effect on the date of this Agreement or as amended in
accordance with or as permitted by this Agreement, and (4) the issuance of
Company Common Stock upon the exercise of Company Rights;
(iii) amend its certificate of incorporation, by-laws or other
comparable charter or organizational documents, except for such amendments
to its certificate of incorporation, by-laws and other comparable charter
or organizational documents that do not have an adverse affect on the
Merger and the other Transactions;
(iv) acquire or agree to acquire (A) by merging or consolidating with,
or by purchasing a substantial equity interest in or portion of the assets
of, or by any other manner, any business or any corporation, partnership,
joint venture, association or other business organization or division
thereof or (B) any assets that in either case are material, individually or
in the aggregate, to the Company and the Company Subsidiaries, taken as a
whole;
(v) except to the extent required by Applicable Law or by the terms of
any Company Benefit Plan, Company Employment Arrangement or collective
bargaining agreement in effect as of the date of this Agreement, (A) grant
to any current or former employee, officer or director of the Company or
any Company Subsidiary any increase in compensation or benefits or new
incentive compensation grants, except in the ordinary course of business
consistent with prior practice, (B) grant to any current or former
employee, officer or director of the Company or any Company Subsidiary any
increase in severance, pay to stay or termination pay, except to the extent
consistent with past practice and that, in the aggregate, does not result
in a material increase in benefits or compensation expenses, (C) enter into
or amend any Company Employment Arrangement with any such current or former
employee, officer or director, except
A-29
<PAGE>
to the extent permitted in subsection (B) above, (D) establish, adopt,
enter into or amend in any material respect any collective bargaining
agreement or Company Benefit Plan, except, with respect to any Company
Benefit Plan that is a Qualified Plan, as may be required to facilitate or
obtain a determination from the Internal Revenue Service that such Company
Benefit Plan is a Qualified Plan or (E) take or permit to be taken any
action to accelerate any rights or benefits or the funding thereof, or make
or permit to be made any material determinations not in the ordinary course
of business consistent with prior practice, under any collective bargaining
agreement, Company Benefit Plan or Company Employment Arrangement;
provided, however, that notwithstanding anything herein to the contrary,
the foregoing shall not restrict the Company or the Company Subsidiaries
from (1) entering into or making available to newly hired officers and
employees or to officers and employees in the context of promotions based
on job performance or workplace requirements in the ordinary course of
business consistent with past practice, plans, agreements, benefits and
compensation arrangements (including incentive grants) that have,
consistent with past practice, been made available to newly hired or
promoted officers and employees, or (2) entering into or amending
collective bargaining agreements with existing collective bargaining
representatives so as to increase compensation or benefits in a manner that
does not materially increase the benefits or compensation expenses of the
Company and the Company Subsidiaries;
(vi) make any change in accounting methods, principles or practices
materially affecting the reported consolidated assets, liabilities or
results of operations of the Company, except as required by a change in
GAAP;
(vii) sell, lease (as lessor), license or otherwise dispose of or
subject to any Lien any properties or assets that are material,
individually or in the aggregate, to the Company and the Company
Subsidiaries, taken as a whole, except sales of inventory and excess or
obsolete assets in the ordinary course of business consistent with past
practice;
(viii) except in the ordinary course of business consistent with prior
practice, (A) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company or
any Company Subsidiary, guarantee any debt securities of another person,
enter into any "keep well" or other agreement to maintain any financial
statement condition of another person or enter into any arrangement having
the economic effect of any of the foregoing, in each case, other than in
connection with a refinancing on commercially reasonable terms, or (B) make
any loans, advances or capital contributions to, or investments in, any
other person, other than to or in the Company or any direct or indirect
wholly owned subsidiary of the Company;
(ix) make or agree to make any new capital expenditure or expenditures
other than as permitted under Section 5.01(a)(iv) that, individually, is in
excess of $50,000,000 or, in the aggregate during such period, are in
excess of $250,000,000, except to the extent made or agreed to be made in
order to ensure compliance with the rules and regulations or an order of
the NRC or any other Governmental Entity or to ensure compliance with the
terms of any Permit;
(x) make any material Tax election or settle or compromise any material
Tax liability or refund;
(xi) engage in any activities which would cause a change in its status
under PUHCA, or that would impair the ability of the Company or ComEd to
claim an exemption as of right under Rule 2 of PUHCA prior to the Merger,
other than the application to the SEC under PUHCA contemplated by this
Agreement;
(xii) enter into or commit to any agreement for the purchase of capacity
and/or energy ("Power Purchase Agreement") except for any Power Purchase
Agreement that, in the ordinary course of business, can be entered into
without the prior approval of the Board of Directors or a committee thereof
of the Company (the threshold for requiring submission to the board or a
committee not to be made substantially higher than that in effect on the
date hereof) unless the Company consults with Parent regarding such Power
Purchase Agreement and the Company has obtained the prior written consent
of Parent to such Power Purchase Agreement or such Power Purchase Agreement
is fully compliant with criteria to which
A-30
<PAGE>
Parent has previously given a generic consent, in each case, which consent
shall not be unreasonably withheld, it being understood that in such
consultation process the Company and Parent shall comply with all
Applicable Law and any applicable confidentiality or similar third party
agreement; or
(xiii) authorize any of, or commit or agree to take any of, the
foregoing actions.
(b) Conduct of Business by Parent. Except for matters set forth in Parent
Disclosure Letter or otherwise expressly contemplated by this Agreement, from
the date of this Agreement to the Merger Effective Time Parent shall, and shall
cause each Parent Subsidiary to, conduct its business in all material respects
in the usual, regular and ordinary course in substantially the same manner as
previously conducted and use all reasonable efforts to preserve intact its
current business organization in all material respects, subject to prudent
management of work force and business needs, keep available the services of its
current officers and employees and keep its relationships with Governmental
Entities, customers, suppliers, licensors, licensees, distributors and others
having business dealings with them to the end that its goodwill and ongoing
business shall be unimpaired in all material respects at the Merger Effective
Time. In addition, and without limiting the generality of the foregoing, except
for matters set forth in the Parent Disclosure Letter or otherwise expressly
contemplated by this Agreement, from the date of this Agreement to the Merger
Effective Time, Parent shall not, and shall not permit any Parent Subsidiary
to, do any of the following without the prior written consent of the Company:
(i) (A) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than (1)
dividends and distributions by a direct or indirect wholly owned subsidiary
of Parent to its parent, (2) regular quarterly cash dividends with respect
to the Parent Common Stock, not in excess of $0.25 per share, in accordance
with Parent's past dividend policy and (3) regular cash dividends with
respect to preferred stock of Parent or its subsidiaries in accordance with
the current terms thereof, (B) split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock,
or (C) purchase, redeem or otherwise acquire any shares of capital stock of
Parent or any Parent Subsidiary or any other securities thereof or any
rights, warrants or options to acquire any such shares or other securities;
(ii) issue, deliver, sell or grant (A) any shares of its capital stock,
(B) any Voting Parent Debt or other voting securities, (C) any securities
convertible into or exchangeable for, or any options, warrants or rights to
acquire, any such shares, Voting Parent Debt, voting securities or
convertible or exchangeable securities or (D) any "phantom" stock,
"phantom" stock rights, stock appreciation rights or stock-based
performance units, other than (1) the issuance of Parent Common Stock upon
the exercise of Parent Employee Stock Options outstanding on the date of
this Agreement and in accordance with their present terms or pursuant to
the terms of any Parent Benefit Plan or Parent Employment Arrangement as in
effect on the date of this Agreement or as amended in accordance with or as
permitted by this Agreement, (2) the issuance, subject to Section
5.01(b)(v), of up to an additional 4,900,000 Parent Employee Stock Options
and 100,000 shares of restricted stock pursuant to the Parent Stock Plans
in accordance with their present terms and the terms of the Parent stock
options issued in the ordinary course prior to the date of this Agreement
and the issuance of Parent Common Stock upon the exercise of such Parent
Employee Stock Options and (3) the issuance of "phantom" stock or "phantom"
stock rights or, subject to Section 5.01 (b)(v), stock appreciation rights
or stock-based performance units, pursuant to the terms of any Parent
Benefit Plan or Parent Employment Arrangement in effect on the date of this
Agreement or as amended in accordance with or as permitted by this
Agreement;
(iii) amend its certificate of incorporation, by-laws or other
comparable charter or organizational documents, except for such amendments
to its certificate of incorporation, by-laws and other comparable charter
or organizational documents that do not have an adverse affect on the
Merger and the other Transactions;
A-31
<PAGE>
(iv) acquire or agree to acquire (A) by merging or consolidating with,
or by purchasing a substantial equity interest in or portion of the assets
of, or by any other manner, any business or any corporation, partnership,
joint venture, association or other business organization or division
thereof, (B) any assets that are material, individually or in the
aggregate, to Parent and the Parent Subsidiaries, taken as a whole, except
Parent or a Parent Subsidiary may acquire or otherwise invest in any
assets, other than nuclear plants, so long as Parent consults with the
Company concerning any acquisition or investment that is not listed in the
Parent Disclosure Letter and involves an expenditure that, individually, is
the excess of $50,000,000, or in the aggregate during such period, are in
excess of $250,000,000 or (C) any nuclear plants (whether through AmerGen
Energy Company, LLC, a limited liability company organized under the laws
of Delaware ("AmerGen"), or otherwise) other than those nuclear plants in
respect of which Parent or AmerGen has made written offers or has signed
agreements as of the date of this Agreement unless (1) Parent involves the
Company in any review or consideration of such acquisition of additional
nuclear plants, which involvement shall be for the purpose of ensuring that
any such acquisition will be consistent with a rate of nuclear generation
acquisitions and growth that will not impair Newco's ability to provide and
maintain adequate resources and performance focus for the entire Newco
fleet and (2) Parent has obtained the express written consent of the
Company, which consent shall not be unreasonably withheld, prior to
entering into, or permitting any Parent Subsidiary or AmerGen to enter
into, the binding contract to acquire any such additional nuclear plant, or
otherwise expanding its, or permitting any Parent Subsidiary or AmerGen to
expand their, nuclear capacity;
(v) except to the extent required by Applicable Law or by the terms of
any Parent Benefit Plan, Parent Employment Arrangement or collective
bargaining agreement in effect as of the date of this Agreement, (A) grant
to any current or former employee, officer or director of Parent or any
Parent Subsidiary any increase in compensation or benefits or new incentive
compensation grants, except in the ordinary course of business consistent
with prior practice, (B) grant to any current or former employee, officer
or director of Parent or any Parent Subsidiary any increase in severance,
pay to stay or termination pay, except to the extent consistent with past
practice and that, in the aggregate, does not result in a material increase
in benefits or compensation expenses, (C) enter into or amend any Parent
Employment Arrangement with any such current or former employee, officer or
director, except to the extent permitted in subsection (B) above, (D)
establish, adopt, enter into or amend in any material respect any
collective bargaining agreement or Parent Benefit Plan, except, with
respect to any Parent Benefit Plan that is a Qualified Plan, as may be
required to facilitate or obtain a determination from the Internal Revenue
Service that such Parent Benefit Plan is a Qualified Plan or (E) take or
permit to be taken any action to accelerate any rights or benefits or the
funding thereof, or make or permit to be made any material determinations
not in the ordinary course of business consistent with prior practice,
under any collective bargaining agreement, Parent Benefit Plan or Parent
Employment Arrangement; provided, however, that notwithstanding anything
herein to the contrary, the foregoing shall not restrict Parent or the
Parent Subsidiaries from (1) entering into or making available to newly
hired officers and employees or to officers and employees in the context of
promotions based on job performance or workplace requirements in the
ordinary course of business consistent with past practice, plans,
agreements, benefits and compensation arrangements (including incentive
grants) that have, consistent with past practice, been made available to
newly hired or promoted officers and employees, or (2) entering into or
amending collective bargaining agreements with existing collective
bargaining representatives so as to increase compensation or benefits in a
manner that does not materially increase the benefits or compensation
expenses of Parent and the Parent Subsidiaries;
(vi) make any change in accounting methods, principles or practices
materially affecting the reported consolidated assets, liabilities or
results of operations of Parent, except as required by a change in GAAP;
(vii) sell, lease (as lessor), license or otherwise dispose of or
subject to any Lien any properties or assets that are material,
individually or in the aggregate, to Parent and the Parent Subsidiaries,
taken as a whole, except sales of inventory and excess or obsolete assets
in the ordinary course of business consistent with past practice;
A-32
<PAGE>
(viii) except in the ordinary course of business consistent with prior
practice, (A) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of Parent or any
Parent Subsidiary, guarantee any debt securities of another person, enter
into any "keep well" or other agreement to maintain any financial statement
condition of another person or enter into any arrangement having the
economic effect of any of the foregoing, in each case, other than in
connection with a refinancing on commercially reasonable terms, or (B) make
any loans, advances or capital contributions to, or investments in, any
other person, other than to or in Parent or any direct or indirect wholly
owned subsidiary of Parent;
(ix) make or agree to make any new capital expenditure or expenditures
other than as permitted by Section 5.01(b)(iv) that, individually, is in
excess of $50,000,000 or, in the aggregate, are in excess of $250,000,000,
except to the extent made or agreed to be made in order to ensure
compliance with the rules and regulations or an order of the NRC or any
other Governmental Entity or to ensure compliance with the terms of any
Permit;
(x) make any material Tax election or settle or compromise any material
Tax liability or refund;
(xi) engage in any activities which would cause a change in its status
under PUHCA, or that would impair the ability of Parent to claim an
exemption as of right under Rule 2 of PUHCA prior to the Merger, other than
the application to the SEC under PUHCA contemplated by this Agreement;
(xii) enter into or commit to any Power Purchase Agreement except for
any Power Purchase Agreement that, in the ordinary course of business, can
be entered into without the prior approval of the Board of Directors or a
committee thereof of Parent (the threshold for requiring submission to the
board or a committee not to be made substantially higher than that in
effect on the date hereof) unless Parent consults with the Company
regarding such Power Purchase Agreement and Parent has obtained the prior
written consent of the Company to such Power Purchase Agreement or such
Power Purchase Agreement is fully compliant with criteria to which the
Company has previously given a generic consent, in each case, which consent
shall not be unreasonably withheld, it being understood that in such
consultation process Parent and the Company shall comply with all
Applicable Law and any applicable confidentiality or similar third party
agreement; or
(xiii) authorize any of, or commit or agree to take any of, the
foregoing actions.
(c) Conduct of Business by Newco. Parent shall cause Newco to perform its
obligations under this Agreement and shall not permit Newco to take any action
other than in furtherance of this Agreement and the Transactions.
(d) Other Actions. The Company and Parent shall not, and shall not permit
any of their respective subsidiaries to, take any action that would, or that
could reasonably be expected to, result in (i) any of the representations and
warranties of such party set forth in this Agreement that is qualified as to
materiality becoming untrue, (ii) any of such representations and warranties
that is not so qualified becoming untrue in any material respect or (iii)
except as otherwise permitted by Section 5.02 or 5.03, any condition to the
Merger set forth in Article VII not being satisfied.
(e) Advice of Changes. The Company and Parent shall promptly advise the
other orally and in writing of any change or event that has or could reasonably
be expected to have a Company Material Adverse Effect or Parent Material
Adverse Effect, as the case may be.
(f) Coordination of Dividends. Each of Parent and the Company shall
coordinate with the other regarding the declaration and payment of dividends in
respect of Parent Common Stock and Company Common Stock and the record dates
and payment dates relating thereto, it being the intention of Parent and the
Company that no holder of Parent Common Stock, Company Common Stock or Newco
Common Stock shall receive two dividends, or fail to receive one dividend, for
any single calendar quarter with respect to its shares of Parent Common Stock
or Company Common Stock, as the case may be, and/or any shares of Newco Common
Stock any such holder receives in exchange therefor pursuant to the Merger.
A-33
<PAGE>
(g) Reorganizations. The parties hereto agree that this Agreement shall not
in any manner restrict (i) Parent from forming a holding company and such
subsidiaries as Parent considers appropriate to separate its regulated and
unregulated businesses (the "Parent Reorganization") and (ii) the Company from
forming such subsidiaries as the Company considers appropriate to separate its
regulated and unregulated businesses (the "Company Reorganization"). The
parties to this Agreement acknowledge and agree that implementation by Parent
of the Parent Reorganization or by the Company of the Company Reorganization
shall not constitute (x) a breach of or failure to perform any of the
representations, warranties or covenants in this Agreement or (y) otherwise
result in the failure of any condition to the obligation of the Company or
Parent, as applicable, to consummate the Merger to be satisfied.
(h) Transition Bonds. Notwithstanding any provision herein to the contrary,
this Agreement shall not restrict Parent from (i) issuing through PECO Energy
Trust, a Delaware business trust and a Parent Subsidiary, or through any other
special purpose entity which is a Parent Subsidiary, transition bonds in
accordance with the Pennsylvania Competition Act in an aggregate principal
amount not to exceed $1,000,000,000, (ii) selling, in connection with such
issuance, all or any part of the "Intangible Transition Property" (as such term
is defined in the Pennsylvania Competition Act) and any other property or
rights necessary as collateral to secure such transition bonds and (iii) using
the proceeds from such issuances of transition bonds to purchase Parent Common
Stock for aggregate consideration of up to $500,000,000 as contemplated by
Section 6.15(a), to repay outstanding debt of the Parent or to purchase Parent
Preferred Stock.
Section 5.02. No Solicitation by Company. (a) The Company agrees that,
during the term of this Agreement, it shall not, and shall not authorize or
permit any of its subsidiaries or any director, officer, employee, agent or
representative (collectively, "Representatives") of the Company or any of its
subsidiaries, directly or indirectly, to (i) solicit, initiate, encourage or
facilitate, or furnish or disclose non-public information in furtherance of,
any inquiries or the making of any proposal with respect to a Company Competing
Transaction (as defined herein) or (ii) negotiate, explore or otherwise engage
in discussions with any person (other than Parent or Newco or their respective
Representatives) with respect to any Company Competing Transaction. The term
"Company Competing Transaction" means any recapitalization, merger,
consolidation or other business combination involving the Company, or
acquisition of any material portion of the capital stock or assets (except for
(A) acquisitions of assets in the ordinary course of business, (B) acquisitions
by the Company that do not and could not reasonably be expected to impede the
consummation of the Merger and do not violate any other covenant in this
Agreement, (C) transactions disclosed in the Company Disclosure Letter and (D)
the Transactions) of the Company, or any combination of the foregoing. The
Company will immediately cease all existing activities, discussions and
negotiations with any parties conducted heretofore with respect to any of the
foregoing and shall use its reasonable best efforts to enforce any
confidentiality or similar agreement relating to a Company Competing
Transaction. From and after the execution of this Agreement, the Company shall
immediately advise Parent in writing of the receipt, directly or indirectly, of
any inquiries, discussions, negotiations, or proposals relating to a Company
Competing Transaction (including the specific terms thereof), and promptly
furnish to Parent a copy of any such proposal or inquiry in addition to any
information provided to or by any third party relating thereto and if such
proposal or inquiry is not in writing, the identity of the person making such
proposal or inquiry. Notwithstanding the foregoing, prior to receipt of the
Company Shareholder Approval, the Company may, but only to the extent that the
Board of Directors of the Company shall conclude in good faith, based upon the
advice of its outside counsel, that failure to take such action could
reasonably be expected to constitute a breach of the fiduciary obligations of
such Board of Directors under Applicable Law, in response to a proposal for a
Company Competing Transaction that constitutes a Qualifying Company Proposal
(as defined in Section 5.02(d)) that did not result from the breach or a deemed
breach of this Section 5.02, and subject to compliance with the notification
provisions of this Section 5.02, (A) furnish non-public information with
respect to the Company to the person proposing such Company Competing
Transaction and its Representatives pursuant to a confidentiality agreement
with terms no less restrictive of such person than those set forth in the
Confidentiality Agreement (as defined in Section 6.02) and (B) participate in
discussions or negotiations with such person and its Representatives regarding
such Company Competing Transaction. Without limiting the foregoing, it is
agreed
A-34
<PAGE>
that any violation of the restrictions set forth in this Section 5.02(a) by any
Representative or affiliate of the Company or any Company Subsidiary, whether
or not such person is purporting to act on behalf of the Company or any Company
Subsidiary or otherwise, shall be deemed to be a breach of this Section 5.02(a)
by the Company.
(b) Neither the Board of Directors of the Company nor any committee thereof
shall (i) withdraw or modify, or propose to withdraw or modify, in a manner
adverse to Parent, the approval or recommendation by the Board of Directors of
the Company of this Agreement and the Transactions, (ii) approve, or permit or
cause the Company to enter into, any definitive agreement providing for the
implementation of any Company Competing Transaction (each a "Company
Acquisition Agreement") or (iii) approve or recommend, or propose to approve or
recommend, any Company Competing Transaction. Notwithstanding the foregoing,
prior to receipt of the Company Shareholder Approval, and only to the extent
that the Board of Directors of the Company shall conclude in good faith, based
upon the advice of its outside counsel, that failure to take such action could
reasonably be expected to constitute a breach of the fiduciary obligations of
such Board of Directors under Applicable Law in response to a proposal for a
Company Competing Transaction that constitutes a Qualifying Company Proposal
that did not result from the breach or a deemed breach of this Section 5.02,
(A) the Board of Directors of the Company may withdraw or modify its approval
or recommendation of this Agreement and the Transactions and, in connection
therewith, approve or recommend such Qualifying Company Proposal and (B) the
Board of Directors of the Company may approve and the Company may enter into a
Company Acquisition Agreement contemporaneously with its termination of this
Agreement pursuant to Section 8.01(f).
(c) Nothing contained in this Section 5.02 shall prohibit the Company from
taking and disclosing to its shareholders a position contemplated by Rule 14e-
2(a) promulgated under the Exchange Act or from making any disclosure to its
shareholders if, in the good faith judgment of the Board of Directors of the
Company after consultation with outside counsel, failure to so disclose would
be inconsistent with its obligations under Applicable Law.
(d) For purposes of this Agreement, "Qualifying Company Proposal" means any
proposal made by a third party to acquire all of the equity securities or all
or substantially all of the assets of the Company, pursuant to a tender offer,
a merger, a consolidation, a recapitalization, a sale of its assets or
otherwise, that is (A) for consideration that is comprised solely of cash or
marketable securities, or a combination thereof, and not conditioned on
financing, (B) on terms which the Board of Directors of the Company determines
in its good faith judgment (based on the advice of a nationally recognized
independent investment banking firm) to be superior from a financial point of
view to the holders of Company Common Stock to the Transactions (taking into
account all of the terms of any proposal by Parent to amend or modify the terms
of the Transactions) and to be more favorable generally to the Company's
shareholders than the Transactions (taking into account all financial and
strategic considerations, including relevant legal, financial, regulatory and
other aspects of such proposal and the third party making such proposal and the
conditions and prospects for completion of such proposal, the strategic
direction of and benefits sought by the Company and all of the terms of any
proposal by Parent to amend or modify the terms of the Transactions) and (C)
reasonably capable of being completed within 18 months of the termination of
this Agreement or by the Outside Date, whichever is later, taking into account
all legal, financial, regulatory and other aspects of such proposal and the
third party making such proposal.
Section 5.03. No Solicitation by Parent. (a) Parent agrees that, during the
term of this Agreement, it shall not, and shall not authorize or permit any of
its subsidiaries or any of its or its subsidiaries' Representatives, directly
or indirectly, to (i) solicit, initiate, encourage or facilitate, or furnish or
disclose non-public information in furtherance of, any inquiries or the making
of any proposal with respect to a Parent Competing Transaction (as defined
herein) or (ii) negotiate, explore or otherwise engage in discussions with any
person (other than Company or Newco or their respective Representatives) with
respect to any Parent Competing Transaction. The term "Parent Competing
Transaction" means any recapitalization, merger,
A-35
<PAGE>
consolidation or other business combination involving Parent, or acquisition of
any material portion of the capital stock or assets (except for (A)
acquisitions of assets in the ordinary course of business, (B) acquisitions by
Parent that do not and could not reasonably be expected to impede the
consummation of the Merger and do not violate any other covenant in this
Agreement, (C) transactions disclosed in the Parent Disclosure Letter and (D)
the Transactions) of Parent, or any combination of the foregoing. Parent will
immediately cease all existing activities, discussions and negotiations with
any parties conducted heretofore with respect to any of the foregoing and shall
use its reasonable best efforts to enforce any confidentiality or similar
agreement relating to a Parent Competing Transaction. From and after the
execution of this Agreement, Parent shall immediately advise the Company in
writing of the receipt, directly or indirectly, of any inquiries, discussions,
negotiations, or proposals relating to a Parent Competing Transaction
(including the specific terms thereof), and promptly furnish to the Company a
copy of any such proposal or inquiry in addition to any information provided to
or by any third party relating thereto and if such proposal or inquiry is not
in writing, the identity of the person making such proposal or inquiry.
Notwithstanding the foregoing, prior to receipt of the Parent Shareholder
Approval, Parent may, but only to the extent that the Board of Directors of
Parent shall conclude in good faith, based upon the advice of its outside
counsel, that failure to take such action could reasonably be expected to
constitute a breach of the fiduciary obligations of such Board of Directors
under Applicable Law, in response to a proposal for a Parent Competing
Transaction that constitutes a Qualifying Parent Proposal (as defined in
Section 5.03(d)) that did not result from the breach or a deemed breach of this
Section 5.03, and subject to compliance with the notification provisions of
this Section 5.03, (A) furnish non-public information with respect to Parent to
the person proposing such Parent Competing Transaction and its Representatives
pursuant to a confidentiality agreement with terms no less restrictive of such
person than those set forth in the Confidentiality Agreement (as defined in
Section 6.02) and (B) participate in discussions or negotiations with such
person and its Representatives regarding such Parent Competing Transaction.
Without limiting the foregoing, it is agreed that any violation of the
restrictions set forth in this Section 5.03(a) by any Representative or
affiliate of Parent or any Parent Subsidiary, whether or not such person is
purporting to act on behalf of Parent or any Parent Subsidiary or otherwise,
shall be deemed to be a breach of this Section 5.03(a) by Parent.
(b) Neither the Board of Directors of Parent nor any committee thereof shall
(i) withdraw or modify, or propose to withdraw or modify, in a manner adverse
to the Company, the approval or recommendation by the Board of Directors of
Parent of this Agreement and the Transactions, (ii) approve, or permit or cause
Parent to enter into, any definitive agreement providing for the implementation
of any Parent Competing Transaction (each a "Parent Acquisition Agreement") or
(iii) approve or recommend, or propose to approve or recommend, any Parent
Competing Transaction. Notwithstanding the foregoing, prior to receipt of the
Parent Shareholder Approval, and only to the extent that the Board of Directors
of Parent shall conclude in good faith, based upon the advice of its outside
counsel, that failure to take such action could reasonably be expected to
constitute a breach of the fiduciary obligations of such Board of Directors
under Applicable Law in response to a proposal for a Parent Competing
Transaction that constitutes a Qualifying Parent Proposal that did not result
from the breach or a deemed breach of this Section 5.03, (A) the Board of
Directors of Parent may withdraw or modify its approval or recommendation of
this Agreement and the Transactions and, in connection therewith, approve or
recommend such Qualifying Parent Proposal and (B) the Board of Directors of
Parent may approve and Parent may enter into a Parent Acquisition Agreement
contemporaneously with its termination of this Agreement pursuant to Section
8.01(h).
(c) Nothing contained in this Section 5.03 shall prohibit Parent from taking
and disclosing to its shareholders a position contemplated by Rule 14e-2(a)
promulgated under the Exchange Act or from making any disclosure to its
shareholders if, in the good faith judgment of the Board of Directors of Parent
after consultation with outside counsel, failure to so disclose would be
inconsistent with its obligations under Applicable Law.
(d) For purposes of this Agreement, "Qualifying Parent Proposal" means any
proposal made by a third party to acquire all of the equity securities or all
or substantially all of the assets of Parent, pursuant to a tender offer, a
merger, a consolidation, a recapitalization, a sale of its assets of otherwise,
that is (A) for consideration
A-36
<PAGE>
that is comprised solely of cash or marketable securities, or a combination
thereof, and not conditioned on financing, (B) on terms which the Board of
Directors of Parent determines in its good faith judgment (based on the advice
of a nationally recognized independent investment banking firm) to be superior
from a financial point of view to the holders of Parent Common Stock to the
Transactions (taking into account all of the terms of any proposal by Company
to amend or modify the terms of the Transactions) and to be more favorable
generally to Parent's shareholders than the Transactions (taking into account
all financial and strategic considerations, including relevant legal,
financial, regulatory and other aspects of such proposal and the third party
making such proposal and the conditions and prospects for completion of such
proposal, the strategic direction of and benefits sought by Parent and all of
the terms of any proposal by the Company to amend or modify the terms of the
Transactions) and (C) reasonably capable of being completed within 18 months of
the termination of this Agreement or by the Outside Date, whichever is later,
taking into account all legal, financial, regulatory and other aspects of such
proposal and the third party making such proposal.
Article VI
Additional Agreements
Section 6.01. Preparation of the Form S-4 and the Proxy Statement;
Shareholders Meetings; Adoption by Sole Shareholder. (a) The Company, Parent
and Newco shall prepare and file with the SEC the Proxy Statement in
preliminary form and Parent, the Company and Newco shall prepare and file with
the SEC the Form S-4, in which the Proxy Statement will be included as a
prospectus. Each of the Company, Parent and Newco shall use its reasonable best
efforts to have the Form S-4 declared effective under the Securities Act as
promptly as practicable after such filing. Each of the Company, Parent and
Newco shall use its reasonable best efforts to cause the Proxy Statement to be
mailed to its respective shareholders as promptly as practicable after the Form
S-4 is declared effective under the Securities Act. Newco shall also take any
action (other than qualifying to do business in any jurisdiction in which it is
not now so qualified) required to be taken under any applicable state
securities laws in connection with the issuance of Newco Common Stock in the
Merger and under the Company Stock Plans and the Parent Stock Plans, and the
Company and Parent shall furnish all information concerning the Company or
Parent, as applicable, and the holders of the Company Common Stock or Parent
Common Stock and rights to acquire Company Common Stock or Parent Common Stock
pursuant to the Company Stock Plans or the Parent Stock Plans as may be
reasonably requested in connection with any such action. The parties shall
notify each other promptly of the receipt of any comments from the SEC or its
staff and of any request by the SEC or its staff for amendments or supplements
to the Proxy Statement or the Form S-4 or for additional information and shall
supply each other with copies of all correspondence between such party or any
of its Representatives, on the one hand, and the SEC or its staff, on the other
hand, with respect to the Proxy Statement, the Form S-4 or the Merger.
(b) If prior to the Merger Effective Time any event occurs with respect to
the Company or any Company Subsidiary or any change occurs with respect to
information supplied by or on behalf of the Company for inclusion in the Proxy
Statement or the Form S-4 which, in each case, is required to be described in
an amendment of, or a supplement to, the Proxy Statement or the Form S-4, the
Company shall promptly notify Parent of such event, and the Company shall
cooperate with Parent and Newco in the prompt filing with the SEC of any
necessary amendment or supplement to the Proxy Statement and Form S-4 and, as
required by law, in disseminating the information contained in such amendment
or supplement to the Company's shareholders and to Parent's shareholders.
(c) If prior to the Merger Effective Time any event occurs with respect to
Parent or any Parent Subsidiary or any change occurs with respect to
information supplied by or on behalf of Parent for inclusion in the Proxy
Statement or the Form S-4 which, in each case, is required to be described in
an amendment of, or a supplement to, the Proxy Statement or the Form S-4,
Parent shall promptly notify the Company of such event, and Parent shall
cooperate with Company in the prompt filing with the SEC of any necessary
amendment or supplement to the Proxy Statement and the Form S-4 and, as
required by law, in disseminating the information contained in such amendment
or supplement to the Company's shareholders and to Parent's shareholders.
A-37
<PAGE>
(d) The Company shall, as soon as practicable following effectiveness of the
Form S-4, duly call, give notice of, convene and hold a meeting of its
shareholders (the "Company Shareholders Meeting") for the purpose of seeking
the Company Shareholder Approval. The Company shall use its reasonable best
efforts to cause the Proxy Statement to be mailed to the Company's shareholders
as promptly as practicable after the Form S-4 is declared effective under the
Securities Act. Subject to Section 5.02(b), the Company shall, through its
Board of Directors, recommend to its shareholders that they give the Company
Shareholder Approval. Without limiting the generality of the foregoing, the
Company agrees that its obligations pursuant to the first two sentences of this
Section 6.01(d) shall not be affected by the commencement, public proposal,
public disclosure or communication to the Company of any Company Competing
Transaction.
(e) Parent shall, as soon as practicable following the date of this
Agreement, duly call, give notice of, convene and hold a meeting of its
shareholders (the "Parent Shareholders Meeting") the purpose of seeking the
Parent Shareholder Approval. The Parent shall use its reasonable best efforts
to cause the Proxy Statement to be mailed to the Parent's shareholders as
promptly as practicable after the Form S-4 is declared effective under the
Securities Act. Subject to Section 5.03(b), Parent shall, through its Board of
Directors, recommend to its shareholders that they give the Parent Shareholder
Approval. Without limiting the generality of the foregoing, Parent agrees that
its obligations pursuant to the first two sentences of this Section 6.01(e)
shall not be affected by the commencement, public proposal, public disclosure
or communication to Parent of any Parent Competing Transaction.
(f) The Company shall use its reasonable best efforts to cause to be
delivered to Parent a letter of Arthur Andersen LLP, the Company's independent
public accountants, dated a date within two business days before the date on
which the Form S-4 shall become effective and addressed to Parent, in form and
substance reasonably satisfactory to Parent and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Form S-4.
(g) Parent shall use its reasonable best efforts to cause to be delivered to
the Company a letter of PricewaterhouseCoopers LLP, Parent's independent public
accountants, dated a date within two business days before the date on which the
Form S-4 shall become effective and addressed to the Company, in form and
substance reasonably satisfactory to the Company and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Form S-4.
(h) Parent, as sole shareholder of Newco, shall adopt this Agreement.
Section 6.02. Access to Information; Confidentiality. Each of the Company
and Parent after reasonable notice shall, and shall cause each of its
respective subsidiaries to, afford to the other party and to the officers,
employees, accountants, counsel, financial advisors and other representatives
of such other party, reasonable access during normal business hours during the
period prior to the Merger Effective Time to all their respective properties,
books, contracts, commitments, personnel and records and, during such period,
each of the Company and Parent shall, and shall cause each of its respective
subsidiaries to, furnish promptly to the other party (a) a copy of each report,
schedule, registration statement and other document filed by it during such
period pursuant to the requirements of Federal or state securities laws and (b)
all other information concerning its business, properties and personnel as such
other party may reasonably request. Without limiting the generality of the
foregoing, each of the Company and Parent shall, within two business days of
request therefor, provide to the other the information (x) described in Rule
14a-7(a)(2)(ii) under the Exchange Act, (y) to which a holder of Company Common
Stock would be entitled under Section 7.75 of the IBCA (assuming such holder
met the requirements of such Section) and (z) to which a holder of Parent
Common Stock would be entitled under Section 1508 of the PBCL (assuming such
holder met the requirements of such Section). All information exchanged
pursuant to this Section 6.02 shall be subject to the confidentiality agreement
dated July 15, 1999, between the Company and Parent (the "Confidentiality
Agreement"), and this Agreement constitutes a Definitive Agreement as defined
therein.
A-38
<PAGE>
Section 6.03. Regulatory Matters; Reasonable Best Efforts. (a) Regulatory
Approvals. Upon the terms and subject to the conditions set forth in this
Agreement, and subject to actions taken in compliance with Section 5.02(b) or
5.03(b), as the case may be, each of the parties hereto shall cooperate and
promptly prepare and file all necessary documentation, to effect all necessary
applications, notices, petitions, filings and other documents, and shall use
reasonable best efforts to obtain all necessary Consents of all Governmental
Entities necessary or advisable to consummate and make effective, in the most
expeditious manner practicable, the Merger and the other Transactions,
including the Parent Required Statutory Approvals and the Company Required
Statutory Approvals. Parent shall have the right to review and approve in
advance all characterizations of the information relating to the Company, on
the one hand, and the Company shall have the right to review and approve in
advance all characterizations of the information relating to Parent, on the
other hand, in either case, which appear in any filing made in connection with
the Merger or the other Transactions. Parent and the Company agree that they
will consult with each other with respect to the obtaining of all such
necessary Consents of Governmental Entities.
(b) Further Actions. Upon the terms and subject to the conditions set forth
in this Agreement, each of the parties agrees to use reasonable best efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Merger and the other Transactions, including (i) the
obtaining of all necessary consents, approvals or waivers from third parties,
(ii) the defending of any lawsuits or other legal proceedings, whether judicial
or administrative, challenging this Agreement or the consummation of the
Transactions, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Entity vacated or reversed, and
(iii) the execution and delivery of any additional instruments necessary to
consummate the Transactions and to fully carry out the purposes of this
Agreement. Notwithstanding the foregoing, the Company and its Representatives
and Parent and its Representatives shall not be prohibited under this Section
6.03(b) from taking any actions in compliance with Section 5.02(b) or 5.03(b),
respectively.
(c) State Anti-Takeover Statutes. In connection with and without limiting
the generality of Section 6.03(b), Parent and the Company shall (i) take all
action necessary to ensure that no state anti-takeover statute or similar
statute or regulation is or becomes applicable to any Transaction or this
Agreement and (ii) if any state anti-takeover statute or similar statute or
regulation becomes applicable to any Transaction or this Agreement, take all
action necessary to ensure that the Merger and the other Transactions may be
consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute or regulation on
the Merger and the other Transactions. Notwithstanding the foregoing, the
Company and its Representatives and Parent and its Representatives shall not be
prohibited under this Section 6.03(c) from taking any action permitted by
Section 5.02(b) or 5.03(b), respectively.
(d) Notices. The Company shall give prompt notice to Parent, and Parent or
Newco shall give prompt notice to the Company, of (i) any representation or
warranty made by it contained in this Agreement that is qualified as to
materiality becoming untrue or inaccurate in any respect or any such
representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect or (ii) the failure by it to comply with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement; provided, however, that
no such notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement.
Section 6.04. Company and Parent Stock Options and Other Stock
Plans. (a) Prior to the Merger Effective Time, the Company Board (or, if
appropriate, any committee administering the Company Stock Plans) shall adopt
such resolutions or take such other actions as may be required to effect the
following:
(i) adjust the terms of all outstanding Company Employee Stock Options
to provide that, at the Merger Effective Time, each Company Employee Stock
Option outstanding immediately prior to the Merger Effective Time shall be
deemed to constitute an option to acquire, on the same terms and
A-39
<PAGE>
conditions as were applicable under such Company Employee Stock Option, the
same number of shares of Newco Common Stock as the holder of such Company
Employee Stock Option would have been entitled to receive pursuant to the
Merger had such holder exercised such Company Employee Stock Option in full
immediately prior to the Merger Effective Time, at a price per share equal
to (A) the aggregate exercise price for the shares of Company Common Stock
otherwise purchasable pursuant to such Company Employee Stock Option
immediately prior to the Merger Effective Time (whether or not exercisable)
divided by (B) the number of shares of Newco Common Stock deemed
purchasable pursuant to such Company Employee Stock Option; provided,
however, that in the case of any qualified stock options under Sections
422-424 of the Code, the option price, the number of shares purchasable
pursuant to such option and the terms and conditions of exercise of such
option shall be determined in order to comply with Section 424(a) of the
Code; provided, further, however, that solely for purposes of making the
adjustments to Company Employee Stock Options required by this Section
6.04, the Company Conversion Number shall be 0.95 and the Company Cash
Consideration shall be disregarded;
(ii) make such other changes to the Company Stock Plans and the terms of
any Company Employee Stock Options as it deems appropriate to give effect
to the Merger (subject to the approval of Parent, which shall not be
unreasonably withheld); and
(iii) ensure that, after the Merger Effective Time, no Company Employee
Stock Options may be granted under any Company Stock Plan.
(b) Prior to the Exchange Effective Time, the Parent Board (or, if
appropriate, any committee administering the Parent Stock Plans) shall adopt
such resolutions or take such other actions as may be required to effect the
following:
(i) adjust the terms of all outstanding Parent Employee Stock Options to
provide that, at the Exchange Effective Time, each Parent Employee Stock
Option outstanding immediately prior to the Exchange Effective Time shall
be deemed to constitute an option to acquire, on the same terms and
conditions as were applicable under such Parent Employee Stock Option, the
same number of shares of Newco Common Stock as the holder of such Parent
Employee Stock Option would have been entitled to receive pursuant to the
Merger had such holder exercised such Parent Employee Stock Option in full
immediately prior to the Exchange Effective Time, at a price per share
equal to (A) the aggregate exercise price for the shares of Parent Common
Stock otherwise purchasable pursuant to such Parent Employee Stock Option
immediately prior to the Exchange Effective Time (whether or not
exercisable) divided by (B) the number of shares of Newco Common Stock
deemed purchasable pursuant to such Parent Employee Stock Option; provided,
however, that in the case of any qualified stock options under
Sections 422-424 of the Code, the option price, the number of shares
purchasable pursuant to such option and the terms and conditions of
exercise of such option shall be determined in order to comply with Section
424(a) of the Code;
(ii) make such other changes to the Parent Stock Plans and the terms of
outstanding Parent Employee Stock Options as it deems appropriate to give
effect to the Merger (subject to the approval of the Company, which shall
not be unreasonably withheld); and
(iii) ensure that, after the Exchange Effective Time, no Parent Employee
Stock Options may be granted under any Parent Stock Plan.
(c) At the Merger Effective Time, and subject to compliance by the Company
with Section 6.04(a), Newco shall assume all the obligations of the Company
under the Company Stock Plans, each outstanding Company Employee Stock Option
and the agreements evidencing the grants thereof. As soon as practicable after
the Merger Effective Time, Newco shall deliver to the holders of Company
Employee Stock Options appropriate notices setting forth such holders' rights
pursuant to the respective Company Stock Plans, and the agreements evidencing
the grants of such Company Employee Stock Options shall continue in effect on
the same terms and conditions (subject to the adjustments required by this
Section 6.04 after giving effect to the
A-40
<PAGE>
Merger). Newco shall comply with the terms of the Company Stock Plans and
ensure, to the extent required by, and subject to the provisions of, such
Company Stock Plans, that the Company Employee Stock Options that qualified as
qualified stock options prior to the Merger Effective Time continue to qualify
as qualified stock options after the Merger Effective Time.
(d) At the Exchange Effective Time, and subject to compliance by Parent with
Section 6.04(b), Newco shall assume all the obligations of Parent under the
Parent Stock Plans, each outstanding Parent Employee Stock Option and Parent
SAR the agreements evidencing the grants thereof. As soon as practicable after
the Exchange Effective Time, Newco shall deliver to the holders of Parent
Employee Stock Options and Parent SARs appropriate notices setting forth such
holders' rights pursuant to the respective Parent Stock Plans, and the
agreements evidencing the grants of such Parent Employee Stock Options and
Parent SARs shall continue in effect on the same terms and conditions (subject
to the adjustments required by this Section 6.04 after giving effect to the
Merger). Newco shall comply with the terms of the Parent Stock Plans and
ensure, to the extent required by, and subject to the provisions of, such
Parent Stock Plans, that the Parent Employee Stock Options that qualified as
qualified stock options prior to the Exchange Effective Time continue to
qualify as qualified stock options after the Exchange Effective Time.
(e) With respect to each employee or director benefit or compensation plan,
program or arrangement, other than the Company Stock Plans and the Parent Stock
Plans, under which Company Common Stock or Parent Common Stock is required to
be used for purposes of the payment of benefits, grant of awards or exercise of
options (each, a "Stock Plan"), (i) the Company and the Parent shall take such
action as may be necessary so that, after the Merger Effective Time, such Stock
Plan shall provide for issuance or purchase in the open market only of Newco
Common Stock rather than Company Common Stock or Parent Common Stock, as the
case may be, and otherwise to amend such Stock Plans to reflect this Agreement
and the Merger, and (ii) Newco shall take all corporate action necessary or
appropriate to obtain shareholder approval with respect to such Stock Plan to
the extent such approval is required for purposes of the Code or other
Applicable Law. Newco shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Newco Common Stock for delivery upon
exercise of the Company Employee Stock Options and Parent Employee Stock
Options assumed in accordance with this Section 6.04 or the payment of
benefits, grant of awards or exercise of options under such Stock Plans. As
soon as reasonably practicable after the Merger Effective Time, Newco shall
file one or more registration statements on Form S-8 (or any successor or other
appropriate form) with respect to the shares of Newco Common Stock subject to
such Company Employee Stock Options and Parent Employee Stock Options or to
such Stock Plans and shall use its reasonable best efforts to maintain the
effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained therein
or related thereto) for so long as such Company Employee Stock Options and
Parent Employee Stock Options or such benefits or grants of awards remain
payable or such options remain outstanding. With respect to those individuals
who subsequent to the Merger will be subject to the reporting requirements
under Section 16(a) of the Exchange Act, where applicable, Newco shall
administer the Company Stock Plans and Parent Stock Plans assumed pursuant to
this Section 6.04 and the Stock Plans in a manner that complies with Rule 16b-3
of the SEC to the extent the applicable plan complied with such rule prior to
the Merger. Prior to the Merger Effective Time, Parent and Newco shall take all
actions as may be reasonably required to cause the acquisition of equity
securities of Newco, as contemplated by this Section 6.04, by any person who is
or will become a director or officer of Newco to be eligible for exemption
under Rule 16b-3(d) of the SEC.
(f) In this Agreement:
"Company Employee Stock Option" means any option to purchase Company
Common Stock granted under any Company Stock Plan.
"Company Stock Plans" means the Long-Term Incentive Plan of the Company
as amended from time to time.
"Parent Employee Stock Option" means any option to purchase Parent
Common Stock granted under any Parent Stock Plan.
A-41
<PAGE>
"Parent Stock Plans" means the PECO Energy Company 1989 Long-Term
Incentive Plan and the PECO Energy Company 1998 Stock Option Plan.
"Parent SAR" means any stock appreciation right linked to the price of
Parent Common Stock and granted under any Parent Stock Plan.
Section 6.05. Benefit Plans; Workforce Matters. (a) From and after the
Merger Effective Time, Newco and its subsidiaries shall honor and perform in
accordance with their respective terms (as in effect on the date of this
Agreement or as amended in accordance with or as permitted by this Agreement),
all the collective bargaining agreements of the Company, Parent or any of their
respective subsidiaries disclosed in the Company Disclosure Letter or the
Parent Disclosure Letter, respectively; provided, however, that this Section
6.05(a) is not intended to prevent Newco from enforcing such agreements in
accordance with their respective terms, including enforcement of any reserved
right to amend, modify, suspend, revoke or terminate any such agreement.
(b) Subject to Applicable Law and obligations under applicable collective
bargaining agreements, it is the current intention of Parent and the Company
that any reductions in workforce following the Merger Effective Time in respect
of employees of Newco and its subsidiaries shall be made on a fair and
equitable basis, in light of the circumstances and the objectives to be
achieved, as determined by Newco, without regard to whether employment was with
the Company or the Company Subsidiaries or Parent or the Parent Subsidiaries
and with due consideration to the applicable employee's previous work history,
prior experience and skills and Newco's business needs, and any employee whose
employment is terminated or job is eliminated shall be entitled to participate
on a fair and equitable basis as determined by Newco in the job opportunity and
employment placement programs offered by Newco or any of its subsidiaries.
(c) Subject to Applicable Law and obligations under applicable collective
bargaining agreements, each Company Benefit Plan, Parent Benefit Plan, Company
Employment Arrangement and Parent Employment Arrangement in effect on the date
of this Agreement (or as amended or established in accordance with or as
permitted by this Agreement) shall be maintained in effect by Newco and its
subsidiaries, except as provided in Section 6.04, with respect to their current
and former employees, officers or directors of the Company and Company
Subsidiaries and Parent and Parent Subsidiaries, respectively, who are covered
by such plans or arrangements immediately prior to the Merger Effective Time
until Newco determines otherwise on or after the Merger Effective Time. Newco
and its subsidiaries shall honor, perform and, with respect to each Company
Benefit Plan and Parent Benefit Plan and Company Employment Arrangement and
Parent Employment Arrangement that is not a multiemployer benefit plan within
the meaning of Section 4001(a)(3) of ERISA, sponsor and administer, each such
Company Benefit Plan and Parent Benefit Plan and Company Employment Arrangement
and Parent Employment Arrangement in accordance with their respective terms (as
in effect on the date of this Agreement or as amended in accordance with or as
permitted by this Agreement), and Newco shall (i) assume as of the Merger
Effective Time each Company Benefit Plan and Company Employment Arrangement
maintained by the Company immediately prior to the Merger Effective Time and as
of the Exchange Effective Time each Parent Benefit Plan and Parent Employment
Arrangement maintained by Parent immediately prior to the Exchange Effective
Time and (ii) perform the obligations under, sponsor and administer such plan
or arrangement in the same manner and to the same extent that the Company or
Parent, as the case may be, would be required to perform, sponsor and
administer thereunder; provided, however, that nothing contained herein shall
limit any reserved right contained in any such Company Benefit Plan, Company
Employment Arrangement, Parent Benefit Plan or Parent Employment Arrangement to
amend, modify, suspend, revoke or terminate any such plan or arrangement.
Without limiting the foregoing, (i) each participant in any Company Benefit
Plan or Parent Benefit Plan shall receive credit for purposes of eligibility to
participate, vesting and eligibility to receive benefits (but specifically
excluding for benefit accrual purposes or where such crediting would result in
a duplication of benefits) under any benefit plan of Newco or any of its
subsidiaries or affiliates for service credited for the corresponding purpose
under any such benefit plan; provided, however, that such crediting of service
shall not operate to cause any such plan or arrangement to fail to comply with
the applicable provisions of the Code or ERISA, (ii) each benefit plan of Newco
or its
A-42
<PAGE>
subsidiaries which is a medical, dental or health benefit plan shall take into
account for purposes of determining a participant's deductibles and out-of-
pocket limits thereunder expenses previously incurred by the participant during
the same year while participating in any other such Company Benefit Plan or
Parent Benefit Plan and shall waive any restrictions and limitations for pre-
existing conditions provided therein for any participant to the extent not
applicable to the participant in any other such Company Benefit Plan or Parent
Benefit Plan in which the participant participated immediately prior to
participating in that benefit plan, and (iii) each benefit plan of Newco or its
subsidiaries which is a cafeteria plan under Section 125 of the Code shall
cause credits and debits in respect of any participant in any flexible spending
account thereunder for a plan year to be transferred to and maintained in any
such corresponding Company Benefit Plan or Parent Benefit Plan in which such
participant may subsequently participate during the same year. The Company and
the Parent will cooperate on and after the date hereof to develop appropriate
employee benefit plans, programs and arrangements, including but not limited
to, executive and incentive compensation, stock option and supplemental
executive retirement plans for employees and directors of Newco and its
subsidiaries from and after the Merger Effective Time. However, no provision
contained in this Section 6.05(c) shall be deemed to constitute an employment
contract between Newco and any individual, or a waiver of Newco's right to
discharge any employee at any time, with or without cause.
Section 6.06. Indemnification. (a) Newco shall, to the fullest extent
permitted by Applicable Law, honor all the Company's and Parent's respective
obligations to indemnify (including any obligations to advance funds for
expenses) the current and former directors and officers of the Company or
Parent, as the case may be, for acts or omissions by such directors and
officers occurring prior to the Merger Effective Time to the extent that such
obligations to indemnify exist on the date of this Agreement, whether pursuant
to the Company Charter or the Parent Charter, as the case may be, the Company
By-laws or the Parent By-laws, as the case may be, individual indemnity
agreements or otherwise, and such obligations shall survive the Merger and
shall continue in full force and effect in accordance with the terms of the
Company Charter or the Parent Charter, as the case may be, the Company By-laws
or the Parent By-laws, as the case may be, and such individual indemnity
agreements from the Merger Effective Time.
(b) For a period of six years after the Merger Effective Time, Newco shall
cause to be maintained in effect the current policies of directors' and
officers' liability insurance maintained by the Company or Parent or such
substantially comparable policies as in effect on the Closing Date, as the case
may be, (provided that Newco may substitute therefor policies with reputable
and financially sound carriers of at least the same coverage and amounts
containing terms and conditions which are no less advantageous) with respect to
claims arising from or related to facts or events which occurred at or before
the Merger Effective Time. If such insurance coverage cannot be obtained at
all, Newco shall maintain the most advantageous policies of directors' and
officers' insurance reasonably obtainable.
(c) From and after the Merger Effective Time, to the fullest extent
permitted by Applicable Law, Newco shall indemnify, defend and hold harmless
the present and former officers and directors of the Company and Parent, as the
case may be, and their respective subsidiaries and any of their respective
employees who act as a fiduciary under any Company Benefit Plan (each an
"Indemnified Party") against all losses, claims, damages, liabilities, fees and
expenses (including attorneys' fees and disbursements), judgments, fines and
amounts paid in settlement (in the case of settlements, with the approval of
the indemnifying party (which approval shall not be unreasonably withheld))
(collectively, "Losses"), as incurred (payable monthly upon written request
which request shall include reasonable evidence of the Losses set forth
therein) to the extent arising from, relating to, or otherwise in respect of,
any actual or threatened action, suit, proceeding or investigation, in respect
of actions or omissions occurring at or prior to the Merger Effective Time in
connection with such Indemnified Party's duties as an officer, director or
employee as aforesaid, in each case, of the Company or Parent or any of their
respective subsidiaries, including in respect of this Agreement, the Merger and
the other Transactions.
Section 6.07. Fees and Expenses. (a) Except as provided below, all fees and
expenses incurred in connection with the Merger and the other Transactions
shall be paid by the party incurring such fees or
A-43
<PAGE>
expenses, whether or not the Merger is consummated, except that expenses
incurred in connection with filing, printing and mailing the Proxy Statement
and the Form S-4 shall be shared equally by Parent and the Company.
(b) The Company shall pay to Parent a fee of $250,000,000 if: (i) the
Company terminates this Agreement pursuant to Section 8.01(f); (ii) Parent
terminates this Agreement pursuant to Section 8.01(d); or (iii) any Company
Competing Transaction was proposed to the Company or publicly disclosed and
thereafter the Company terminates this Agreement pursuant to Section 8.01(b)(i)
or either the Company or Parent terminates this Agreement pursuant to Section
8.01(b)(iv) or Parent terminates this Agreement pursuant to Section 8.01(c)
(but in the case of termination pursuant to Section 8.01(c), only in the event
of termination for a wilful breach of this Agreement or failure to perform this
Agreement by the Company) and, in each case, within 18 months of such
termination the Company enters into a definitive agreement to consummate or
consummates any Company Competing Transaction. Any fee due under this Section
6.07(b) shall be paid by wire transfer of same-day funds on the date of
termination of this Agreement (except that in the case of termination pursuant
to clause (iii) above such payment shall be made on the date of execution of
such definitive agreement or, if earlier, consummation of such transaction or
another transaction with the same party or its affiliates).
(c) Parent shall pay to the Company a fee of $250,000,000 if: (i) Parent
terminates this Agreement pursuant to Section 8.01(h); (ii) the Company
terminates this Agreement pursuant to Section 8.01(g); (iii) any Parent
Competing Transaction was proposed to Parent or publicly disclosed and
thereafter the Parent terminates this Agreement pursuant to Section 8.01(b)(i)
or either Parent or the Company terminates this Agreement pursuant to Section
8.01(b)(v) or the Company terminates this Agreement pursuant to Section 8.01(e)
(but in the case of termination pursuant to Section 8.01(e), only in the event
of termination for a wilful breach of this Agreement or failure to perform this
Agreement by Parent) and, in each case, within 18 months of such termination
Parent enters into a definitive agreement to consummate or consummates any
Parent Competing Transaction. Any fee due under this Section 6.07(c) shall be
paid by wire transfer of same-day funds on the date of termination of this
Agreement (except that in the case of termination pursuant to clause (iii)
above such payment shall be made on the date of execution of such definitive
agreement or, if earlier, consummation of such transaction or another
transaction with the same party or its affiliates).
(d) The Company shall reimburse Parent and Newco for all its out-of-pocket
expenses actually incurred in connection with this Agreement, the Merger and
the other Transactions, up to a limit of $15,000,000, if a fee becomes payable
pursuant to Section 6.07(b) or if this Agreement is otherwise terminated
pursuant to Section 8.01(b)(iv) or 8.01(c). Such reimbursement shall be paid
upon demand following such termination.
(e) Parent shall reimburse the Company for all its out-of-pocket expenses
actually incurred in connection with this Agreement, the Merger and the other
Transactions, up to a limit of $15,000,000, if a fee becomes payable pursuant
to Section 6.07(c) or if this Agreement is otherwise terminated pursuant to
Section 8.01(b)(v) or 8.01(e). Such reimbursement shall be paid upon demand
following such termination.
Section 6.08. Public Announcements. Parent and Newco, on the one hand, and
the Company, on the other hand, shall consult with each other before issuing,
and provide each other the opportunity to review and comment upon, any press
release or other public statements with respect to this Agreement, the Merger
and the other Transactions and shall not issue any such press release or make
any such public statement prior to such consultation, except as may be required
by Applicable Law, court process or by obligations pursuant to any listing
agreement with any national securities exchange.
Section 6.09. Transfer Taxes. All stock transfer, real estate transfer,
documentary, stamp, recording and other similar Taxes (including interest,
penalties and additions to any such Taxes) ("Transfer Taxes") incurred in
connection with the Transactions shall be paid by the party incurring the
Transfer Tax, and the parties hereto shall cooperate with each other in
preparing, executing and filing any Tax Returns with respect to such Transfer
Taxes.
A-44
<PAGE>
Section 6.10. Affiliates. (a) Promptly following the date of execution of
this Agreement, the Company shall deliver to Parent and Newco a letter
identifying all persons who are expected by the Company to be on the Closing
Date, or were as of the date of this Agreement, "affiliates" of the Company for
purposes of Rule 145 under the Securities Act. The Company shall use its
reasonable best efforts to cause each such person to deliver to Parent on or
prior to the date of mailing of Proxy Statement a written agreement
substantially in the form attached as Exhibit C.
(b) Promptly following the date of execution of this Agreement, Parent shall
deliver to the Company a letter indemnifying all persons who are expected by
Parent to be, on the Closing Date, or were as of the date of this Agreement,
"affiliates" of Parent for purposes of Rule 145 under the Securities Act.
Parent shall use its reasonable best efforts to cause each such person to
deliver to the Company on or prior to the date of mailing of the Proxy
Statement a written agreement substantially in the form of Exhibit D.
Section 6.11. Stock Exchange Listing. Parent and the Company shall use all
reasonable efforts to cause the shares of Newco Common Stock to be issued in
the Merger and under the Company Stock Plans and Parent Stock Plans to be
approved for listing on the NYSE, subject to official notice of issuance, prior
to the Closing Date.
Section 6.12. Rights Agreements; Consequences if Rights Triggered. The
Company Board shall take all action requested in writing by Parent in order to
render the Company Rights inapplicable to the Merger and the other
Transactions. Except as approved in writing by Parent or as set forth in the
Company Disclosure Letter, the Company Board shall not (i) amend the Company
Rights Agreement, (ii) redeem the Company Rights or (iii) take any action with
respect to, or make any determination under, the Company Rights Agreement. If
any Distribution Date, Stock Acquisition Date or Triggering Event occurs under
the Company Rights Agreement at any time during the period from the date of
this Agreement to the Merger Effective Time, the Company and Parent shall make
such adjustment to the Company Exchange Ratio and the Parent Exchange Ratio as
the Company and Parent shall mutually agree so as to preserve the economic
benefits that the Company and Parent each reasonably expected on the date of
this Agreement to receive as a result of the consummation of the Merger and the
other Transactions.
Section 6.13. Tax Treatment. The parties intend (a) the Merger to constitute
transactions described in Section 351 of the Code and (b) the Second Step
Merger to constitute a transaction described in Section 368(a) of the Code.
Each party and its affiliates shall use reasonable efforts to cause the Merger
to so qualify and to obtain (i) the opinion of Cravath, Swaine & Moore to the
effect that (A) the Merger will constitute transactions described in Section
351 of the Code and (B) the Second Step Merger will constitute a transaction
described in Section 368(a) of the Code and (ii) the opinion of Jones, Day,
Reavis & Pogue to the effect that the Second Step Merger will constitute a
transaction described in Section 368(a) of the Code. For purposes of the tax
opinions described in Sections 7.02(d) and 7.03(d) of this Agreement, each of
Parent, Newco and the Company shall provide customary representation letters
substantially in the form of Exhibits E, F and G, respectively, each dated on
or about the date that is two business days prior to the date the Proxy
Statement is mailed to the shareholders of Parent and the Company and reissued
as of the Closing Date. Each of Parent, Newco and the Company and each of their
respective affiliates shall not take any action and shall not fail to take any
action or suffer to exist any condition which action or failure to act or
condition would prevent, or would be reasonably likely to prevent, (i) the
Merger from constituting transactions described in Section 351 of the Code or
(ii) the Second Step Merger from constituting a transaction described in
Section 368(a) of the Code.
Section 6.14. Reorganization and Amendment. The parties to this Agreement
acknowledge and agree that in the event Parent implements the Parent
Reorganization prior to the Exchange Effective Time, certain changes to the
structure of the Merger and the other Transactions will be necessary in order
for the Merger and the other Transactions to be consummated as contemplated
hereby and for Newco and its subsidiaries to have, following the Merger
Effective Time, the corporate structure as contemplated hereby, and the parties
to this Agreement agree to negotiate in good faith and enter into an amendment
to this Agreement to implement such necessary changes.
A-45
<PAGE>
Section 6.15. Common Stock Repurchases. (a) Subject to the last two
sentences of this Section 6.15(a), the Company shall use commercially
reasonable best efforts to purchase prior to the Closing at prevailing market
prices to the extent possible shares of Company Common Stock for an aggregate
consideration of $1,000,000,000, and Parent shall use commercially reasonable
best efforts to purchase prior to the Closing at prevailing market prices to
the extent possible shares of Parent Common Stock for an aggregate
consideration of $500,000,000, which purchases shall, in each case, be in
addition to all other purchases permitted by this Agreement (other than Section
6.15(b)) or contemplated in the Company Disclosure Letter or the Parent
Disclosure Letter. The Company and Parent shall consult on a regular basis
concerning the purchases described in the preceding sentence and cooperate in
connection therewith. Neither the Company nor Parent shall purchase shares
pursuant to this Section 6.15(a) if it is reasonably likely that such purchases
would result in the failure of the closing conditions set forth in Sections
7.02(d) and 7.03(d) or the failure of the Merger and the other Transactions to
be treated as a purchase of the Company by Parent under GAAP.
(b) Prior to the Merger Effective Time, the Company shall purchase, at
prevailing market prices to the extent possible, the minimum number of shares
of Company Common Stock necessary in order that, after giving effect to the
repurchases contemplated by Section 6.15(a), the Merger and the other
Transactions are treated as a purchase of the Company by Parent under GAAP.
(c) To the extent the purchases contemplated by this Section 6.15 are
inconsistent with any other provision of this Agreement, the Company Disclosure
Letter or the Parent Disclosure Letter, such provision shall be deemed to be
amended to permit such purchases.
Section 6.16. Parity of Compensation. At any time during the period from the
Merger Effective Time until December 31, 2003 (the "Transition Period") when
the Chairman of the Board of Directors, Chief Executive Officer and President
of Parent as of the date of this Agreement (the "Parent Chairman") and the
Chairman of the Board of Directors, Chief Executive Officer and President of
the Company (the "Company Chairman") as of the date of this Agreement are Co-
Chief Executive Officers of Newco, each such Co-Chief Executive Officer shall
receive the same salary, bonus and other compensation (including option grants
and other incentive awards and all other forms of compensation) and enjoy the
same other benefits and the same employment security arrangements as the other
Co-Chief Executive Officer.
Section 6.17. Board Seats. The Parent Chairman will retire as an executive
of Newco at the end of the Transition Period and shall no longer serve as
chairman of the executive committee of the Newco Board, but shall continue as a
member of the Newco Board. The Company Chairman shall become the sole Chief
Executive Officer of Newco immediately prior to the end of the Transition
Period, and at such time shall be the Chairman of the Board of Directors of
Newco, if immediately prior to such time he holds the position of Co-Chief
Executive Officer. The Newco Board or the nominating committee thereof, as
applicable, shall nominate for election the Parent Chairman and the Company
Chairman as part of management's slate of candidates at each meeting of the
shareholders (if at the time of such meeting the Parent Chairman or the Company
Chairman, as applicable, is a member of the Newco Board) at which members of
the Newco Board shall be elected as shall be necessary in order that the Parent
Chairman or the Company Chairman, as applicable, serve as a director of Newco
from the end of the Transition Period until the election of directors first
following December 31, 2005.
Article VII
Conditions Precedent
Section 7.01. Conditions to Each Party's Obligation To Effect The
Merger. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Shareholder Approval. The Company shall have obtained the Company
Shareholder Approval, and Parent shall have obtained the Parent Shareholder
Approval.
A-46
<PAGE>
(b) Listing. The shares of Newco Company Stock issuable to the Company's
and Parent's respective shareholders pursuant to this Agreement and under
the Company Stock Plans and Parent Stock Plans shall have been approved for
listing on the NYSE, subject to official notice of issuance.
(c) Statutory Approvals. The Parent Required Statutory Approvals and the
Company Required Statutory Approvals shall have been obtained (including,
in each case, the expiration or termination of the waiting periods (and any
extensions thereof) under the HSR Act applicable to the Merger and the
Transactions at or prior to the Merger Effective Time, such approvals shall
have become Final Orders (as defined below) and such Final Orders shall not
impose terms or conditions which, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on Newco and its
prospective subsidiaries taken as a whole or which would be materially
inconsistent with the agreements of the parties contained herein. A "Final
Order" means action by the relevant Governmental Entity which has not been
reversed, stayed, enjoined, set aside, annulled or suspended, with respect
to which any waiting period prescribed by law before the transactions
contemplated hereby may be consummated has expired, and as to which all
conditions to the consummation of such transactions prescribed by law,
regulation or order have been satisfied.
(d) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger shall be in effect; provided, however, that
prior to asserting this condition, subject to Section 6.03, each of the
parties shall have used all reasonable efforts to prevent the entry of any
such injunction or other order and to appeal as promptly as possible any
such injunction or other order that may be entered.
(e) Form S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order, and Newco shall have received all state
securities or "blue sky" authorizations necessary to issue Newco Common
Stock pursuant to the Merger.
(f) Other Consents and Approvals. The consent or approval (other than
Parent Required Statutory Approvals and Company Required Statutory
Approvals) of each person whose consent or approval is required in order to
consummate the Merger and the other Transactions shall have been obtained,
except for those consents and approvals which, if not obtained, could not
reasonably be expected to have a Material Adverse Effect on Newco and its
prospective subsidiaries taken as a whole or on the ability of Parent or
the Company to consummate the Merger and the other Transactions.
Section 7.02. Conditions to Obligations of Parent and Newco. The obligations
of Parent and Newco to effect the Merger are further subject to the following
conditions:
(a) Representations and Warranties. The representations and warranties
of the Company in this Agreement shall be true and correct as of the date
of this Agreement and as of the Closing Date as though made on the Closing
Date, except to the extent such representations and warranties expressly
relate to an earlier date (in which case such representations and
warranties shall be true and correct on and as of such earlier date), other
than for such failures to be true and correct that, individually and in the
aggregate, have not had and could not reasonably be expected to have a
Company Material Adverse Effect. Parent shall have received a certificate
signed on behalf of the Company by the chief executive officer or the chief
financial officer of the Company to such effect. For purposes of
determining the satisfaction of this condition, the representations and
warranties of the Company shall be deemed not qualified by any references
therein to materiality generally or to whether or not any breach results or
may result in a Company Material Adverse Effect.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and Parent
shall have received a certificate signed on behalf of the Company by the
chief executive officer and the chief financial officer of the Company to
such effect.
A-47
<PAGE>
(c) Letters from Company Affiliates. Parent shall have received from
each person named in the letter referred to in Section 6.10(a) an executed
copy of an agreement substantially in the form of Exhibit C.
(d) Tax Opinion. Parent shall have received a written opinion, dated as
of the Closing Date, from Cravath, Swaine & Moore, counsel to Parent, to
the effect that (i) the Merger will constitute transactions described in
Section 351 of the Code and (ii) the Second Step Merger will constitute a
transaction described in Section 368(a) of the Code; it being understood
that in rendering such opinion, such tax counsel shall be entitled to rely
upon customary representations provided by the parties hereto substantially
in the form of Exhibits E, F and G.
Section 7.03. Conditions to Obligations of the Company. The obligation of
the Company to effect the Merger is further subject to the following
conditions:
(a) Representations and Warranties. The representations and warranties
of Parent and Newco in this Agreement shall be true and correct as of the
date of this Agreement and on the Closing Date as though made on the
Closing Date, except to the extent such representations and warranties
expressly relate to an earlier date (in which case such representations and
warranties shall be true and correct on and as of such earlier date), other
than for such failures to be true and correct that, individually and in the
aggregate, have not had and could not reasonably be expected to have a
Parent Material Adverse Effect. The Company shall have received a
certificate signed on behalf of Parent by the chief executive officer or
the chief financial officer of Parent to such effect. For purposes of
determining the satisfaction of this condition, the representations and
warranties of Parent and Newco shall be deemed not qualified by any
references therein to materiality generally or to whether or not any breach
results or may result in a Parent Material Adverse Effect.
(b) Performance of Obligations of Parent and Newco. Parent and Newco
shall have performed in all material respects all obligations required to
be performed by them under this Agreement at or prior to the Closing Date,
and the Company shall have received a certificate signed on behalf of
Parent by the chief executive officer and the chief financial officer of
Parent to such effect.
(c) Letters from Parent Affiliates. The Company shall have received from
each person named in the letter referred to in Section 6.10(b) an executed
copy of an agreement substantially in the form of Exhibit D.
(d) Tax Opinion. The Company shall have received a written opinion,
dated as of the Closing Date, from Jones, Day, Reavis & Pogue, counsel to
the Company, to the effect that the Second Step Merger will constitute a
transaction described in Section 368(a) of the Code; it being understood
that in rendering such opinion, such tax counsel shall be entitled to rely
upon customary representations provided by the parties hereto substantially
in the form of Exhibits E, F and G.
(e) First Step Exchange. The First Step Exchange shall have been
consummated.
Article VIII
Termination, Amendment and Waiver
Section 8.01. Termination. This Agreement may be terminated at any time
prior to the Exchange Effective Time, whether before or after receipt of the
Company Shareholder Approval or the Parent Shareholder Approval:
(a) by mutual written consent of Parent, Newco and the Company;
(b) by either Parent or the Company:
(i) if the Second Step Merger is not consummated on or before March
31, 2001 (the "Outside Date"), unless the failure to consummate the
Merger is the result of a breach of this Agreement by
A-48
<PAGE>
the party seeking to terminate this Agreement; provided, however, that
the passage of such period shall be tolled for any part thereof during
which any party shall be subject to a nonfinal order, decree, ruling or
action restraining, enjoining or otherwise prohibiting the consummation
of the Merger;
(ii) if any Governmental Entity issues an order, decree or ruling or
takes any other action permanently enjoining, restraining or otherwise
prohibiting the Merger and such order, decree, ruling or other action
shall have become final and nonappealable;
(iii) if any condition to the obligation of such party to consummate
the Merger set forth in Section 7.02 (in the case of Parent) or 7.03
(in the case of the Company) becomes incapable of satisfaction prior to
the Outside Date; provided, however, that the failure of such condition
to be met is not the result of a material breach of this Agreement by
the party seeking to terminate this Agreement;
(iv) if, upon a vote at a duly held meeting to obtain the Company
Shareholder Approval, the Company shareholder Approval is not obtained;
or
(v) if, upon a vote at a duly held meeting of Parent to obtain the
Parent Shareholder Approval, the Parent Shareholder Approval is not
obtained;
(c) by Parent, if the Company breaches or fails to perform in any
material respect any of its representations, warranties or covenants
contained in this Agreement, which breach or failure to perform (i) would
give rise to the failure of a condition set forth in Section 7.02(a) or
7.02(b), and (ii) cannot be or has not been cured within 30 days after the
giving of written notice to the Company of such breach (provided that
Parent is not then in breach of any representation, warranty or covenant
contained in this Agreement);
(d) by Parent, if (i) the Company Board or any committee thereof
withdraws or modifies, or publicly proposes to withdraw or modify, in a
manner adverse to Parent or Newco, its approval or recommendation of this
Agreement or the Transactions or approves or recommends, or publicly
proposes to approve or recommend, any Company Competing Transaction or (ii)
the Company otherwise breaches, or is deemed to be in breach of, any of its
covenants in Section 5.02 in any material respect;
(e) by the Company, if Parent breaches or fails to perform in any
material respect of any of its representations, warranties or covenants
contained in this Agreement, which breach or failure to perform (i) would
give rise to the failure of a condition set forth in Section 7.03(a) or
7.03(b), and (ii) cannot be or has not been cured within 30 days after the
giving of written notice to Parent of such breach (provided that the
Company is not then in breach of any representation, warranty or covenant
in this Agreement);
(f) by the Company, if prior to receipt of the Company Shareholder
Approval, (i) the Company has received a proposal for a Company Competing
Transaction that constitutes a Qualifying Company Proposal that was not
solicited or encouraged by the Company or its Representatives and that did
not otherwise result from the breach or a deemed breach of Section 5.02,
(ii) the Board of Directors of the Company has determined in good faith,
based upon the advice of its outside counsel that failure to take such
action could reasonably be expected to constitute a breach of the fiduciary
obligations of such Board of Directors under Applicable Law, that it is
necessary to (A) withdraw or modify its approval or recommendation of this
Agreement and the Transactions, (B) terminate this Agreement pursuant
hereto and (C) enter into a Company Acquisition Agreement in connection
with such Company Competing Transaction in order to comply with its
fiduciary obligations under Applicable Law, (iii) the Company has notified
Parent in writing of the determination described in clause (ii) above, (iv)
at least ten business days following receipt by Parent of the notice
referred to in clause (iii) above, and taking into account any proposal
made by Parent since receipt of such notice to amend or modify the terms of
the Transactions, such Qualifying Company Proposal remains a Qualifying
Company Proposal and the Board of Directors of the Company has again made
the determination referred to in clause (ii) above, (v) the Company is in
compliance with Section 5.02, (vi) the Company has paid in advance the fee
due under Section 6.07(b) to
A-49
<PAGE>
Parent, and (vii) the Board of Directors of the Company concurrently
approves, and the Company concurrently enters into, a Company Acquisition
Agreement providing for the implementation of such Qualifying Company
Proposal;
(g) by the Company, if (i) the Parent Board or any committee thereof
withdraws or modifies, or publicly proposes to withdraw or modify, in a
manner adverse to the Company, its approval of this Agreement or the
Transactions or approves or recommends, or publicly proposes to approve or
recommend, any Parent Competing Transaction or (ii) Parent otherwise
breaches, or is deemed to be in breach of, any of its covenants in Section
5.03 in any material respect; or
(h) by Parent, if prior to receipt of the Parent Shareholder Approval,
(i) Parent has received a proposal for a Parent Competing Transaction that
constitutes a Qualifying Parent Proposal that was not solicited or
encouraged by Parent or its Representatives and that did not otherwise
result from the breach or a deemed breach of the Section 5.03, (ii) the
Board of Directors of Parent has determined in good faith, based upon the
advice of its outside counsel that failure to take such action could
reasonably be expected to constitute a breach of the fiduciary obligations
of such Board of Directors under Applicable Law, that it is necessary to
(A) withdraw or modify its approval or recommendation of this Agreement and
the Transactions, (B) terminate this Agreement pursuant hereto and (C)
enter into a Parent Acquisition Agreement in connection with such Parent
Competing Transaction in order to comply with its fiduciary obligations
under Applicable Law, (iii) Parent has notified the Company in writing of
the determination described in clause (ii) above, (iv) at least ten
business days following receipt by the Company of the notice referred to in
clause (iii) above, and taking into account any proposal made by the
Company since receipt of such notice to amend or modify the terms of the
Transactions, such Qualifying Parent Proposal remains a Qualifying Parent
Proposal and the Board of Directors of Parent has again made the
determination referred to in clause (ii) above, (v) Parent is in compliance
with Section 5.03, (vi) Parent has paid in advance the fee due under
Section 6.07(c) to the Company, and (vii) the Board of Directors of Parent
concurrently approves, and Parent concurrently enters into, a Parent
Acquisition Agreement providing for the implementation of such Qualifying
Parent Proposal.
Section 8.02. Effect of Termination. In the event of termination of this
Agreement by either the Company or Parent as provided in Section 8.01, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Parent, Newco or the Company, other than
Section 3.14, Section 4.14, the last two sentences of Section 6.02, Section
6.07, this Section 8.02 and Article IX, which provisions shall survive such
termination, and except to the extent that such termination results from the
wilful breach by a party of any representation, warranty or covenant set forth
in this Agreement, in which case such termination shall not relieve any party
of any liability or damages resulting from its wilful breach of this Agreement
(including any such case in which a fee is payable by such party pursuant to
Section 6.07(b) or (c), or any expenses of the other party are reimbursed by
such party pursuant to Section 6.07(d) or (e), to the extent any such liability
or damage suffered by such other party exceeds such amounts payable pursuant to
Section 6.07(b), (c), (d) or (e)). The Confidentiality Agreement shall, in
accordance with its terms, survive termination of this Agreement.
Section 8.03. Amendment. This Agreement may be amended by the parties at any
time before or after receipt of the Company Shareholder Approval or the Parent
Shareholder Approval; provided, however, that after receipt of the Company
Shareholder Approval or the Parent Shareholder Approval, there shall be made no
amendment that by Applicable Law requires further approval by the shareholders
of the Company or Parent without the further approval of such shareholders.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties.
Section 8.04. Extension; Waiver. At any time prior to the Merger Effective
Time, the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties contained in this Agreement or in any
document delivered pursuant to this Agreement or (c) subject to the proviso of
Section 8.03, waive compliance with any
A-50
<PAGE>
of the agreements or conditions contained in this Agreement. Any agreement on
the part of a party to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party. The failure
of any party to this Agreement to assert any of its rights under this Agreement
or otherwise shall not constitute a waiver of such rights.
Section 8.05. Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 8.01, an amendment of this
Agreement pursuant to Section 8.03 or an extension or waiver pursuant to
Section 8.04 shall, in order to be effective, require in the case of Parent,
Newco or the Company, action by its Board of Directors or the duly authorized
designee of its Board of Directors.
Article IX
General Provisions
Section 9.01. Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Merger Effective Time. This
Section 9.01 shall not limit any covenant or agreement of the parties which by
its terms contemplates performance after the Merger Effective Time.
Section 9.02. Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given upon receipt by the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to Parent or Newco, to
PECO Energy Company
2301 Market Street
P.O. Box 8699
Philadelphia, PA 19101-8699
Telecopy No: (215) 841-4282
Attention: General Counsel
with a copy to:
Cravath, Swaine & Moore
825 Eighth Avenue
New York, New York 10019
Telecopy No: (212) 474-3700
Attention: Philip A. Gelston
(b) if to the Company, to
Unicom Corporation
10 S. Dearborn, 37th Floor
Chicago, IL 60603
Telecopy No: (312) 394-4488
Attention: General Counsel
with a copy to:
Jones, Day, Reavis & Pogue
77 West Walker Drive
Chicago, Illinois 60001
Telecopy No: (312) 782-8585
Attention: Paul T. Ruxin
Robert A. Yolles
A-51
<PAGE>
Section 9.03. Definitions. For purposes of this Agreement:
An "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person.
A "Material Adverse Effect" means, in respect of any person, a material
adverse effect on (a) the business, assets, condition (financial or
otherwise), prospects or results of operations of such person and its
subsidiaries, taken as a whole or (b) the ability of such person to perform
its obligations under this Agreement or on the ability of such person to
consummate the Merger and the other Transactions.
A "person" means any individual, firm, corporation, partnership,
company, limited liability company, trust, joint venture, association,
Governmental Entity or other entity.
A "subsidiary" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests
of which is sufficient to elect a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, more than
50% of the equity interests of which) is owned directly or indirectly by
such first person.
Section 9.04. Interpretation; Disclosure Letters. When a reference is made
in this Agreement to a Section, such reference shall be to a Section of this
Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement. Whenever the
words "include", "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation". Any matter
disclosed in any section of either the Company Disclosure Letter or the Parent
Disclosure Letter shall be deemed disclosed for all purposes and all sections
of the Company Disclosure Letter or Parent Disclosure Letter, as applicable to
the extent that it is reasonably apparent from a reading of such disclosure
item that it would qualify or apply to such other sections, and otherwise shall
be deemed disclosed only for the purposes of the specific Sections of this
Agreement to which such section relates. Notwithstanding the amendment and
restatement of this Agreement, as between September 22, 1999 and January 7,
2000, the representations and warranties of the Company set forth in Article
III and of Parent and Newco set forth in Article IV will be deemed for purposes
of Section 7.02(a) and Section 7.03(a), as applicable, and otherwise to have
been made as of September 22, 1999, and not as of January 7, 2000, and such
amendment and restatement will not otherwise affect the other requirements in
Sections 7.02(a) and Section 7.03(a).
Section 9.05. Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule or Applicable
Law, or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner materially adverse to any party. Upon such determination that any term
or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in an
acceptable manner to the end that transactions contemplated hereby are
fulfilled to the extent possible.
Section 9.06. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties.
Section 9.07. Entire Agreement; No Third-Party Beneficiaries. This
Agreement, taken together with the Company Disclosure Letter, the Parent
Disclosure Letter and the Confidentiality Agreement, (a) constitute the entire
agreement, and supersede all prior agreements and understandings, both written
and oral, among the parties with respect to the Transactions and (b) except for
the provisions of Article II and Sections 6.06, 6.16 and 6.17 are not intended
to confer upon any person other than the parties any rights or remedies.
A-52
<PAGE>
Section 9.08. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, regardless of
the laws that might otherwise govern under applicable principles of conflicts
of laws thereof, except to the extent the laws of Pennsylvania or Illinois are
mandatorily applicable to the Merger.
Section 9.09. Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties, except that Newco may assign, in its sole
discretion, any of or all its rights, interests and obligations under this
Agreement to Parent or to any direct or indirect wholly owned subsidiary of
Parent, but no such assignment shall relieve Newco of any of its obligations
under this Agreement. Any purported assignment without such consent shall be
void. Subject to the preceding sentences, this Agreement will be binding upon,
inure to the benefit of, and be enforceable by, the parties and their
respective successors and assigns.
Section 9.10. Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any New York state court or any
Federal court located in the State of New York, this being in addition to any
other remedy to which they are entitled at law or in equity. In addition, each
of the parties hereto (a) consents to submit itself to the personal
jurisdiction of any New York state court or any Federal court located in the
State of New York in the event any dispute arises out of this Agreement or any
Transaction, (b) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court,
(c) agrees that it will not bring any action relating to this Agreement or any
Transaction in any court other than any New York state court or any Federal
court sitting in the State of New York and (d) waives any right to trial by
jury with respect to any action related to or arising out of this Agreement or
any Transaction.
Section 9.11. Newco Obligations. Parent and the Company hereby agree to take
such actions as shall be necessary in order that Newco shall assume any
obligation under this Agreement that by its terms is to be performed by Newco
after the Closing.
A-53
<PAGE>
IN WITNESS WHEREOF, Parent, Newco and the Company have duly executed this
Agreement, all as of the date first written above.
Peco Energy Company,
/s/ Corbin A. McNeill
By: _________________________________
Name: Corbin A. McNeill, Jr.
Title: Chairman of the Board,
President, and Chief
Executive Officer
Newholdco Corporation,
/s/ Corbin A. McNeill
By: _________________________________
Name: Corbin A. McNeill, Jr.
Title: Chairman of the Board,
President, and Chief
Executive Officer
Unicom Corporation,
/s/ John W. Rowe
By: _________________________________
Name: John W. Rowe
Title: Chairman of the Board,
President, and Chief
Executive Officer
A-54
<PAGE>
EXHIBIT A
Article X
Governance of the Corporation
During the Transition Period
Section 10.01. Definitions. For purposes of this Article:
(1) "PECO CEO" means Corbin A. McNeill, Jr.
(2) "PECO Directors" means (i) those directors of the corporation
designated by PECO Energy pursuant to Section 1.06(b) of the Merger
Agreement and (ii) any Replacement PECO Director (as defined in Section
10.03(b) of these by-laws).
(3) "PECO Energy" means PECO Energy Company, a Pennsylvania corporation
and a subsidiary of the corporation.
(4) "Independent Director" means a disinterested, independent person
(determined in accordance with customary standards for independent
directors applicable to U.S. public companies).
(5) "Merger Agreement" means the Agreement and Plan of Exchange and
Merger dated as of September 22, 1999, among PECO Energy, the corporation
and Unicom.
(6) "Merger Effective Time" shall have the meaning assigned to such term
in the Merger Agreement.
(7) "Transition Period" means the period from the Merger Effective Time
until December 31, 2003.
(8) "Unicom" means Unicom Corporation, an Illinois corporation.
(9) "Unicom CEO" means John W. Rowe.
(10) "Unicom Directors" means (i) those directors of the corporation
designated by Unicom pursuant to Section 1.06(b) of the Merger Agreement
and (ii) any Replacement Unicom Director (as defined in Section 10.03(b) of
these by-laws).
(11) "ComEd" means Commonwealth Edison Company, an Illinois corporation
and a subsidiary of the corporation.
Section 10.02. Corporate Offices. At least for the duration of the
Transition Period, the corporation shall maintain (a) in Chicago, Illinois
offices serving as its corporate headquarters, (b) in southeastern
Pennsylvania offices serving as the headquarters of the generation and power
marketing businesses of the corporation and its subsidiaries, and (c) offices
in Chicago, Illinois and southeastern Pennsylvania as the headquarters of
ComEd and PECO Energy, respectively.
Section 10.03. Board of Directors.
(a) Effective immediately at the Merger Effective Time and during the
Transition Period, the board of directors shall consist of sixteen (16)
directors. At the Merger Effective Time, 8 directors shall be PECO
Directors and 8 directors shall be Unicom Directors. The term of a class of
the board of directors comprised of 6 directors shall expire at the first
annual meeting of shareholders following the Merger Effective Time, a
second class comprised of 5 directors shall expire at the second annual
meeting of shareholders following the Merger Effective Time and a third
class comprised of 5 directors shall expire at the third annual meeting of
shareholders following the Merger Effective Time, and representation of
PECO Directors and Unicom Directors in each class shall be as nearly equal
in numbers as possible.
(b) (i) During the Transition Period the board of directors of the
corporation shall consist of equal numbers of PECO Directors and Unicom
Directors.
A-55
<PAGE>
(ii) During the Transition Period, the board of directors (subject to
the fiduciary duties of the directors in the case of approval of any
individual) shall take all action necessary to ensure that any vacancy of a
position on the board of directors to be filled by the Board (A) that was
held by an PECO Director is filled promptly by a person designated to fill
such seat by a majority of the PECO Directors remaining on the board of
directors (a "Replacement PECO Director") and (B) that was held by a Unicom
Director is filled promptly by a person designated to fill such seat by a
majority of the Unicom Directors remaining on the board of directors (a
"Replacement Unicom Director").
(iii) With respect to each election of directors by shareholders during
the Transition Period, the board of directors or the applicable committee
thereof shall nominate for election (subject to the fiduciary duties of the
directors in the case of approval of any individual), a PECO Director to
fill any position held prior to such election by a PECO Director and a
Unicom Director to fill any position held prior to such election by a
Unicom Director.
(c) During the Transition Period, the executive committee of the board
of directors shall have 6 members, 2 of which will be the Co-Chief
Executive Officers of the corporation (or if either Co-Chief Executive
Officer ceases to serve as such, another officer of the corporation
selected by the PECO Directors in the case of a replacement for the PECO
CEO or by the Unicom Directors in the case of a replacement for the Unicom
CEO), 2 of which shall be Independent Directors who are PECO Directors and
2 of which shall be Independent Directors who are Unicom Directors. For the
duration of the first half of the Transition Period so long as he is a Co-
Chief Executive Officer, the Unicom CEO shall be the chairman of the
executive committee of the board of directors, and as of the first day of
the second half of the Transition Period, the PECO CEO, if he is a Co-Chief
Executive Officer at such time, shall succeed to such position and hold it
for the duration of the Transition Period. If at any time during the
Transition Period either the Unicom CEO or the PECO CEO, whichever is at
such time the chairman of the executive committee, is unwilling or unable
to hold such office, the other shall succeed to such office for the
duration of the Transition Period if he continues at such time to hold the
office of Co-Chief Executive Officer or Chief Executive Officer of the
corporation.
(d) During the Transition Period, each other committee of the Board
shall consist of equal numbers of PECO Directors and Unicom Directors and
the chairmen of the committees of the board of directors (other than the
executive committee) shall be PECO Directors and Unicom Directors in as
nearly equal numbers as possible.
(e) During the Transition Period, the board of directors shall hold
between 6 and 8 regular meetings each fiscal year, with no less than 2 of
such meetings each year to be held in the Philadelphia, Pennsylvania area
and no less than 2 of such meetings each year to be held in the Chicago,
Illinois area.
Section 10.04. Chairman of the Board of Directors.
(a) As of the Merger Effective Time and for the duration of the first
half of the Transition Period so long as he is a Co-Chief Executive Officer
or Chief Executive Officer at such time, the PECO CEO shall hold the
position of Chairman of the board of directors, and so long as he is a Co-
Chief Executive Officer or the Chief Executive Officer at such time, the
Unicom CEO shall succeed to the position of Chairman of the board of
directors and hold it for the duration of the Transition Period. If at any
time during the Transition Period either the PECO CEO or the Unicom CEO,
whichever is at such time the Chairman of the board of directors, is
unwilling or unable to hold such office, the board of directors shall elect
the other to such office if he continues to hold the office of Co-Chief
Executive Officer of the Corporation at such time.
(b) The Chairman shall chair all meetings of the board of directors and
stockholders at which he is present.
Section 10.05. Co-Chief Executive Officers; President.
(a) (i) As of the Merger Effective Time and for the duration of the
Transition Period, each of the PECO CEO and the Unicom CEO shall hold the
position of Co-Chief Executive Officers of the
A-56
<PAGE>
corporation and (ii) as of the Merger Effective Date and for the duration
of the first half of the Transition Period, the Unicom CEO shall hold the
position of President of the corporation. If at any time during the
Transition Period either of the Co-Chief Executive Officers is unable or
unwilling to hold such office, the other Co-Chief Executive Officer, if he
is either the PECO CEO or the Unicom CEO, shall become the sole Chief
Executive Officer of the corporation. The Unicom CEO shall become the sole
Chief Executive Officer immediately prior to the end of the Transition
Period if immediately prior to such time he holds the position of Co-Chief
Executive Officer.
(b) The corporation's generation and wholesale marketing and trading
businesses shall report to the PECO CEO in his capacity as a Co-Chief
Executive Officer, and the corporation's transmission and distribution and
unregulated ventures businesses shall report to the Unicom CEO in his
capacity as a Co-Chief Executive Officer. The corporation's financial,
legal, human resources and other staff functions shall report to the office
of the Co-Chief Executive Officers.
(c) The Co-Chief Executive Officers shall each maintain offices in both
southeastern Pennsylvania and Chicago, Illinois.
Section 10.06. Management Changes.
(a) Until the expiration of the Transition Period, so long as either the
PECO CEO or the Unicom CEO is a Co-Chief Executive Officer or the Chief
Executive Officer of the corporation, (i) the election of any other person
to the position of Chairman of the board of directors, chairman of the
executive committee of the board of directors, Co-Chief Executive Officer
or Chief Executive Officer or, as to the first half of the Transition
Period, President or (ii) the removal, replacement or demotion of the PECO
CEO or the Unicom CEO from one or more of such positions, in each case,
shall require the affirmative vote of at least two-thirds of the members of
the board of directors(except as expressly provided in this Article X).
(b) Until the expiration of the Transition Period, none of the senior
officers of the corporation specified in Exhibit D of the Merger Agreement
shall be removed, replaced or demoted without either (i) the consent of
both Co-Chief Executive Officers or (ii) the affirmative vote of two-thirds
of the members of the Newco Board.
Section 10.07. Amendment. Until the end of the Transition Period (a) the
provisions of this Article X may not be amended, altered, repealed or waived in
any respect, and the board of directors or the corporation shall not otherwise
take any action or fail to take any action which would have the effect of
eliminating, limiting, restricting, avoiding or otherwise modifying the effect
of, or waiving compliance with the provisions of this Article X (e.g., by
creating a holding company structure if the certificate of incorporation, by-
laws or similar document of such holding company does not contain equivalent
provisions), without the affirmative vote of at least two-thirds of the
directors or (b) in the case of any amendment proposed by shareholders without
such vote of directors, the affirmative vote of holders of shares representing
at least two-thirds of the votes eligible to be cast in a general election of
directors.
Section 10.08. Successors. For the duration of the Transition Period, the
provisions of this Article shall be applicable to (i) any successor to the
corporation as the result of a merger, consolidation or other business
combination, whether or not the corporation is the surviving company in such
transaction, or otherwise and (ii) any corporation or other entity with respect
to which the corporation or its successor is or becomes a direct or indirect
subsidiary, and, in each case, the board of directors shall not permit the
corporation to be a party to any transaction which would not comply with the
foregoing without the affirmative vote of at least two-thirds of the directors.
Section 10.09. Effectiveness of this Article X. The provisions of this
Article X shall become null and void and be of no further effect after the
Transition Period.
A-57
<PAGE>
EXHIBIT B
Senior Officers of Newco
Co-Chief Executive Officer: Corbin A. McNeill, Jr.
Co-Chief Executive Officer: John W. Rowe
Chief Financial Officer: Michael J. Egan
Chief Transition/
Integration Officer: Michael J. Egan
Senior Vice President,
Finance: Ruth Ann M. Gillis
General Counsel: Pamela B. Strobel
Chief Nuclear Officer: Oliver D. Kingsley, Jr.
Nuclear Operations President: Gerald R. Rainey
PECO Distribution President: Kenneth G. Lawrence
Commonwealth Edison
Distribution President: Carl J. Croskey
Unregulated Retail/
New Business President: Paul A. Elbert
Senior Vice President,
Human Resources: S. Gary Snodgrass
A-58
<PAGE>
EXHIBIT C
PECO Energy Company
P.O. Box 8699
2301 Market Street
Philadelphia, PA 19101
Form of Company Affiliate Letter
Dear Sirs:
The undersigned refers to the Amended and Restated Agreement and Plan of
Exchange and Merger (the "Merger Agreement") dated as of September 22, 1999, as
amended and restated as of January 7, 2000, among PECO Energy Company, a
Pennsylvania corporation, Newholdco Corporation, a Pennsylvania corporation,
and Unicom Corporation, an Illinois corporation. Capitalized terms used but not
defined in this letter have the meanings give such terms in the Merger
Agreement.
The undersigned, a holder of shares of Company Common Stock, is entitled to
receive in connection with the Merger shares of Newco Common Stock. The
undersigned acknowledges that the undersigned may be deemed an "affiliate" of
the Company within the meaning of Rule 145 ("Rule 145") promulgated under the
Securities Act, although nothing contained herein should be construed as an
admission of such fact.
If in fact the undersigned were an affiliate under the Securities Act, the
undersigned's ability to sell, assign or transfer the Newco Common Stock
received by the undersigned in exchange for any shares of Company Common Stock
pursuant to the Merger may be restricted unless such transaction is registered
under the Securities Act or an exemption from such registration is available.
The undersigned (i) understands that such exemptions are limited and that Newco
is not under any obligation to effect any such registration and (ii) has
obtained advice of counsel as to the nature and conditions of such exemptions,
including information with respect to the applicability to the sale of such
securities of Rules 144 and 145(d) promulgated under the Securities Act.
The undersigned hereby represents to and covenants with Parent and Newco
that the undersigned will not sell, assign or transfer any of the Newco Common
Stock received by the undersigned in exchange for shares of Company Common
Stock pursuant to the Merger except (i) pursuant to an effective registration
statement under the Securities Act or (ii) in a transaction that, in the
opinion of counsel reasonably satisfactory to Newco or as described in a "no-
action" or interpretive letter from the Staff of the SEC, is not required to be
registered under the Securities Act.
In the event of a sale or other disposition by the undersigned pursuant to
Rule 145, of Newco Common Stock received by the undersigned in the Merger, the
undersigned will supply Newco with evidence of compliance with such Rule, in
the form of a letter in the form of Annex I hereto and the opinion of counsel
or no-action letter referred to above. The undersigned understands that Newco
may instruct its transfer agent to withhold the transfer of any Parent
securities disposed of by the undersigned, but that upon receipt of such
evidence of compliance the transfer agent shall effectuate the transfer of the
Newco Common Stock sold as indicated in the letter.
The undersigned acknowledges and agrees that (i) the Newco Common Stock
issued to the undersigned will all be in certificated form and (ii) appropriate
legends will be placed on certificates representing Newco Common Stock received
by the undersigned in the Merger or held by a transferee thereof, which legends
will be removed by delivery of substitute certificates upon receipt of an
opinion in form and substance reasonably satisfactory to Newco from counsel
reasonably satisfactory to Newco to the effect that such legends are no longer
required for purposes of the Securities Act.
A-59
<PAGE>
The undersigned acknowledges that (i) the undersigned has carefully read
this letter and understands the requirements hereof and the limitations imposed
upon the distribution, sale, transfer or other disposition of Newco Common
Stock and (ii) the receipt by Parent and Newco of this letter is an inducement
and a condition to Parent's and Newco's respective obligations to consummate
the Merger.
Very truly yours,
Dated:
A-60
<PAGE>
ANNEX I
TO EXHIBIT C
Newholdco Corporation
37th Floor, 10 South Dearborn Street
Post Office Box A-3005
Chicago, IL 60690-3005
On , the undersigned sold the securities of Newholdco Corporation
("Newco") described below in the space provided for that purpose (the
"Securities"). The Securities were received by the undersigned in connection
with the merger of Unicom Corporation with and into Newco.
Based upon the most recent report or statement filed by Parent with the
Securities and Exchange Commission, the Securities sold by the undersigned were
within the prescribed limitations set forth in Rule 144(e) promulgated under
the Securities Act of 1933, as amended (the "Securities Act").
The undersigned hereby represents that the Securities were sold in "brokers'
transactions" within the meaning of Section 4(4) of the Securities Act or in
transactions directly with a "market maker" as that term is defined in Section
3(a)(38) of the Securities Exchange Act of 1934, as amended. The undersigned
further represents that the undersigned has not solicited or arranged for the
solicitation of orders to buy the Securities, and that the undersigned has not
made any payment in connection with the offer or sale of the Securities to any
person other than to the broker who executed the order in respect of such sale.
Very truly yours,
Dated:
[Space to be provided for description of securities.]
A-61
<PAGE>
EXHIBIT D
Unicom Corporation
37th Floor
10 South Dearborn Street
Post Office Box A-3005
Chicago, IL 60690-3005
Form of Parent Affiliate Letter
Dear Sirs:
The undersigned refers to the Amended and Restated Agreement and Plan of
Exchange and Merger (the "Merger Agreement") dated as of September 22, 1999, as
amended and restated as of January 7, 2000, among PECO Energy Company, a
Pennsylvania corporation, Newholdco Corporation, a Pennsylvania corporation,
and Unicom Corporation, an Illinois corporation. Capitalized terms used but not
defined in this letter have the meanings give such terms in the Merger
Agreement.
The undersigned, a holder of shares of Parent Common Stock, is entitled to
receive in connection with the Merger shares of Newco Common Stock. The
undersigned acknowledges that the undersigned may be deemed an "affiliate" of
Parent within the meaning of Rule 145 ("Rule 145") promulgated under the
Securities Act, although nothing contained herein should be construed as an
admission of such fact.
If in fact the undersigned were an affiliate under the Securities Act, the
undersigned's ability to sell, assign or transfer the Newco Common Stock
received by the undersigned in exchange for any shares of Parent Common Stock
pursuant to the Merger may be restricted unless such transaction is registered
under the Securities Act or an exemption from such registration is available.
The undersigned (i) understands that such exemptions are limited and that Newco
is not under any obligation to effect any such registration and (ii) has
obtained advice of counsel as to the nature and conditions of such exemptions,
including information with respect to the applicability to the sale of such
securities of Rules 144 and 145(d) promulgated under the Securities Act.
The undersigned hereby represents to and covenants with the Company and
Newco that the undersigned will not sell, assign or transfer any of the Newco
Common Stock received by the undersigned in exchange for shares of Parent
Common Stock pursuant to the Merger except (i) pursuant to an effective
registration statement under the Securities Act or (ii) in a transaction that,
in the opinion of counsel reasonably satisfactory to Newco or as described in a
"no-action" or interpretive letter from the Staff of the SEC, is not required
to be registered under the Securities Act.
In the event of a sale or other disposition by the undersigned pursuant to
Rule 145, of Newco Common Stock received by the undersigned in the Merger, the
undersigned will supply Newco with evidence of compliance with such Rule, in
the form of a letter in the form of Annex I hereto and the opinion of counsel
or no-action letter referred to above. The undersigned understands that Newco
may instruct its transfer agent to withhold the transfer of any Parent
securities disposed of by the undersigned, but that upon receipt of such
evidence of compliance the transfer agent shall effectuate the transfer of the
Newco Common Stock sold as indicated in the letter.
The undersigned acknowledges and agrees that (i) the Newco Common Stock
issued to the undersigned will all be in certificated form and (ii) appropriate
legends will be placed on certificates representing Newco Common Stock received
by the undersigned in the Merger or held by a transferee thereof, which legends
will be removed by delivery of substitute certificates upon receipt of an
opinion in form and substance reasonably satisfactory to Newco from counsel
reasonably satisfactory to Newco to the effect that such legends are no longer
required for purposes of the Securities Act.
A-62
<PAGE>
The undersigned acknowledges that (i) the undersigned has carefully read
this letter and understands the requirements hereof and the limitations imposed
upon the distribution, sale, transfer or other disposition of Parent Common
Stock and (ii) the receipt by the Company and Newco of this letter is an
inducement and a condition to Company's obligations to consummate the Merger.
Very truly yours,
Dated:
A-63
<PAGE>
ANNEX I
TO EXHIBIT D
Newholdco Corporation
37th Floor, 10 South Dearborn Street
Post Office Box A-3005
Chicago, IL 60690-3005
On , the undersigned sold the securities of Newholdco Corporation
("Newco") described below in the space provided for that purpose (the
"Securities"). The Securities were received by the undersigned in connection
with the mandatory share exchange between PECO Energy Company and Newco.
Based upon the most recent report or statement filed by Parent with the
Securities and Exchange Commission, the Securities sold by the undersigned were
within the prescribed limitations set forth in Rule 144(e) promulgated under
the Securities Act of 1933, as amended (the "Securities Act").
The undersigned hereby represents that the Securities were sold in "brokers'
transactions" within the meaning of Section 4(4) of the Securities Act or in
transactions directly with a "market maker" as that term is defined in Section
3(a)(38) of the Securities Exchange Act of 1934, as amended. The undersigned
further represents that the undersigned has not solicited or arranged for the
solicitation of orders to buy the Securities, and that the undersigned has not
made any payment in connection with the offer or sale of the Securities to any
person other than to the broker who executed the order in respect of such sale.
Very truly yours,
Dated:
[Space to be provided for description of securities.]
A-64
<PAGE>
EXHIBIT E
[Letterhead of Parent]
[Date]
Cravath, Swaine & Moore
825 Eighth Avenue
New York, New York 10019
Jones, Day, Reavis & Pogue
77 West Walker Drive
Chicago, Illinois 60001
Ladies and Gentlemen:
In connection with the opinions to be delivered pursuant to Sections 7.02(d)
and 7.03(d) of the Amended and Restated Agreement and Plan of Exchange and
Merger (the "Exchange and Merger Agreement") dated as of September 22, 1999, as
amended and restated as of January 7, 2000, among PECO Energy Company, a
Pennsylvania corporation ("Parent"), Newholdco Corporation, a Pennsylvania
corporation and a wholly owned subsidiary of Parent ("Newco") and Unicom
Corporation, an Illinois corporation (the "Company"), and in connection with
the filing with the Securities and Exchange Commission (the "SEC") of the
registration statement on Form S-4 (the "Registration Statement"), which
includes the proxy statement/prospectus of Parent and the Company, each as
amended and supplemented through the date hereof, the undersigned certifies and
represents on behalf of Parent and as to Parent, after due inquiry and
investigation, as follows (any capitalized term used but not defined herein
having the meaning given to such term in the Exchange and Merger Agreement):
1. The Merger will be consummated in accordance with the Exchange and
Merger Agreement and as described in the Registration Statement. The facts
relating to the Merger as described in the Registration Statement and the
documents referenced in the Registration Statement are, insofar as such
facts relate to Parent, true, correct and complete in all material
respects.
2. The formula set forth in the Exchange and Merger Agreement pursuant
to which each issued and outstanding share of common stock, no par value,
of Parent (the "Parent Common Stock") will be converted into common shares,
no par value, of Newco (the "Newco Common Stock") is the result of arm's
length bargaining. The aggregate fair market value of the Newco Common
Stock to be received by each holder of Parent Common Stock in the First
Step Exchange will be approximately equal to the fair market value of the
Parent Common Stock surrendered in exchange therefor.
3. Parent has not made and does not have any present plan or intention
to make any distributions to holders of Parent Common Stock (other than
dividends in the ordinary course of business) prior to, in contemplation
of, or otherwise in connection with, the Merger.
4. Newco has not acquired, nor, except as a result of the First Step
Exchange will it acquire, nor has it owned in the past five years, any
Parent Common Stock.
5. Parent, Newco and the holders of Parent Common Stock will each pay
their respective expenses, if any, incurred in connection with the First
Step Exchange. Parent has not agreed to assume, nor will it directly or
indirectly assume, any expense or other liability, whether fixed or
contingent, of any holder of Parent Common Stock. Parent has not entered
into any arrangement pursuant to which Newco has agreed to assume, directly
or indirectly, any expense or other liability, whether fixed or contingent,
incurred or to be incurred by Parent or any holder of Parent Common Stock
in connection with or as part of the First Step Exchange or any related
transactions, nor will any of the Parent Common Stock that is acquired by
Newco in connection with the First Step Exchange be subject to any
liabilities.
A-65
<PAGE>
6. Parent is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Internal Revenue Code of 1986, as amended
(the "Code"), Section 351(e)(1) of the Code or Treasury Regulation Section
1.351-1(c)(1)(ii).
7. Parent will not take, and, to the best knowledge of the management of
Parent there is no present plan or intention of any holders of Parent
Common Stock to take, any position on any Federal, state or local income or
franchise tax return, or take any other tax reporting position, that is
inconsistent (i) with the treatment of the Merger as transactions described
in Section 351 of the Code or (ii) with the treatment of the Second Step
Merger as a reorganization within the meaning of Section 368(a) of the
Code, in each case unless otherwise required by a "determination" (as
defined in Section 1313(a)(1) of the Code) or by applicable state or local
tax law (and then only to the extent required by such applicable state or
local tax law).
8. None of the compensation received by any stockholder-employee of
Parent in respect of periods ending on or prior to the Exchange Effective
Time represents separate consideration for any of his or her Parent Common
Stock. None of the Newco Common Stock that will be received by any
stockholder-employee of Parent in the Merger represents separately
bargained for consideration which is allocable to any employment agreement
or arrangement. The compensation paid to any stockholder-employees will be
for services actually rendered and will be determined by bargaining at
arm's-length.
9. There is no intercorporate indebtedness existing between Newco and
Parent.
10. Parent is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
11. On the date of the First Step Exchange, the fair market value of the
assets of Parent will exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which such assets are subject.
12. To the best knowledge of the management of Parent, there is no
present plan or intention on the part of the holders of Parent Common Stock
to sell, exchange or otherwise dispose of, or to enter into any contract or
other arrangement with respect to, any interest in the shares of Newco
Common Stock received in the First Step Exchange in exchange for such
Parent Common Stock such that the former holders of Company Common Stock
and the former holders of Parent Common Stock, in the aggregate, would not
own (i) Newco Common Stock having at least 80% of the total combined voting
power of all classes of Newco stock entitled to vote and (ii) at least 80%
of the total number of shares of each other class of Newco Stock.
13. None of the holders of Parent Common Stock will retain any rights in
the Parent Common Stock transferred to Newco pursuant to the First Step
Exchange.
14. Newco will not receive any accounts receivable in the First Step
Exchange.
15. To the best knowledge of the management of Parent and taking into
account any issuance of additional shares of Newco Common Stock, any
issuance of Newco Common Stock for services, the exercise of any Newco
stock rights, options, warrants or subscriptions, any public offerings of
Newco stock, and the sale, exchange, transfer by gift or other disposition
of any Newco Common Stock received by holders of Parent Common Stock in the
Merger, the holders of Parent Common Stock and Company Common Stock will
collectively be in "control" of Newco immediately after the Merger. For
purposes of this representation letter, "control" shall mean the ownership
of (i) stock possessing at least 80% of the total combined voting power of
all classes of Newco stock entitled to vote and (ii) at least 80% of the
total number of shares of each other class of Newco stock.
16. The Exchange and Merger Agreement, the Registration Statement and
the other documents described in the Registration Statement represent the
entire understanding of Parent with respect to the Merger and there are no
other written or oral agreements regarding the Merger.
A-66
<PAGE>
17. The Merger is being undertaken for purposes of enhancing the
business of Parent and for other good and valid business purposes of Parent
as described in the proxy statement/prospectus of Parent and the Company
included in the Registration Statement.
18. The undersigned is authorized to make all the representations set
forth herein on behalf of Parent.
The undersigned acknowledges that (i) the opinions to be delivered pursuant
to Sections 7.02(d) and 7.03(d) of the Exchange and Merger Agreement will be
based on the accuracy of the representations set forth herein and on the
accuracy of the representations and warranties and the satisfaction of the
covenants and obligations contained in the Exchange and Merger Agreement and
the various other documents related thereto, and (ii) such opinions will be
subject to certain limitations and qualifications including that they may not
be relied upon if any such representations or warranties are not accurate or
if any such covenants or obligations are not satisfied in all material
respects.
The undersigned acknowledges that such opinions will not address any tax
consequences of the Merger or any action taken in connection therewith except
as expressly set forth in such opinions.
Very truly yours,
Peco Energy Company,
By :___________________________________
Name: Corbin A. McNeill, Jr.
Title: Chairman of the Board,
President, and Chief
Executive Officer
A-67
<PAGE>
EXHIBIT F
[Letterhead of Newco]
[Date]
Cravath, Swaine & Moore
825 Eighth Avenue
New York, New York 10019
Jones, Day, Reavis & Pogue
77 West Walker Drive
Chicago, Illinois 60001
Ladies and Gentlemen:
In connection with the opinions to be delivered pursuant to Sections 7.02(d)
and 7.03(d) of the Amended and Restated Agreement and Plan of Exchange and
Merger (the "Exchange and Merger Agreement") dated as of September 22, 1999, as
amended and restated as of January 7, 2000, among PECO Energy Company, a
Pennsylvania corporation ("Parent"), Newholdco Corporation, a Pennsylvania
corporation and a wholly owned subsidiary of Parent ("Newco") and Unicom
Corporation, an Illinois corporation (the "Company"), and in connection with
the filing with the Securities and Exchange Commission (the "SEC") of the
registration statement on Form S-4 (the "Registration Statement"), which
includes the proxy statement/prospectus of Parent and the Company, each as
amended and supplemented through the date hereof, the undersigned certifies and
represents on behalf of Newco and as to Newco, after due inquiry and
investigation, as follows (any capitalized term used but not defined herein
having the meaning given to such term in the Exchange and Merger Agreement):
1. The Merger will be consummated in accordance with the Exchange and
Merger Agreement and as described in the Registration Statement. The facts
relating to the Merger as described in the Registration Statement and the
documents referenced in the Registration Statement are, insofar as such
facts relate to Newco, true, correct and complete in all material respects.
2. The formulae set forth in the Exchange and Merger Agreement pursuant
to which each issued and outstanding share of common stock, no par value,
of Parent (the "Parent Common Stock") will be converted into common shares,
no par value, of Newco (the "Newco Common Stock") and each issued and
outstanding share of common stock, no par value, of the Company (the
"Company Common Stock") will be converted into Newco Common Stock and cash
are the result of arm's length bargaining. The aggregate fair market value
of the Newco Common Stock to be received by holders of Parent Common Stock
in the Merger will be approximately equal to the fair market value of the
Parent Common Stock surrendered in exchange therefor. The aggregate fair
market value of the Newco Common Stock and cash to be received by holders
of Company Common Stock in the Merger will be approximately equal to the
fair market value of the Company Common Stock surrendered in exchange
therefor.
3. Cash payments, if any, to be made to holders of Company Common Stock
in lieu of fractional shares of Newco Common Stock that would otherwise be
issued to such holders in the Second Step Merger will be made for the
purpose of saving Newco the expense and inconvenience of issuing and
transferring fractional shares of Newco Common Stock, and do not represent
separately bargained for consideration. The total cash consideration that
will be paid in the Second Step Merger to holders of Company Common Stock
in lieu of fractional shares of Newco Common Stock is not expected to
exceed one percent of the total consideration that will be issued in the
Second Step Merger to such holders in exchange for their shares of Company
Common Stock.
4. (i) Newco has no present plan or intention, following the Merger, to
reacquire, or to cause any corporation that is related to Newco to acquire,
directly or indirectly, any Newco Common Stock issued in
A-68
<PAGE>
the Merger, except for repurchases of Newco Common Stock by Newco in
connection with [describe specific parameters of any repurchase program to
be adopted by Newco]. No corporation that is related to Newco has a plan or
intention to purchase any of the Newco Common Stock issued in the Merger.
(ii) For purposes of this representation letter, a corporation shall be
treated as related to Newco if such corporation is related to Newco within
the meaning of Treasury Regulation Section 1.368-1(e)(3).
5. Newco has not acquired, nor, except as a result of the First Step
Exchange will it acquire, nor has it owned in the past five years, any
Parent Common Stock. Newco has not acquired, nor, except as a result of the
Second Step Merger will it acquire, nor has it owned in the past five
years, any Company Common Stock.
6. Newco has no present plan or intention to make any distributions
after the Merger to holders of Newco Common Stock (other than dividends
made in the ordinary course of business).
7. At the Merger Effective Time, the value of the Newco Common Stock to
be issued to holders of Company Common Stock in the Second Step Merger will
represent at least 50% of the value of the total consideration to be issued
to such holders in the Second Step Merger in exchange for their shares of
Company Common Stock. Further, no liabilities of Parent or any of the
holders of Parent Common Stock and no liabilities of any of the holders of
Company Common Stock will be assumed by Newco, nor will any of the Parent
Common Stock or Company Common Stock acquired by Newco in connection with
the Merger be subject to any liabilities.
8. Parent, Newco, the Company and holders of Parent Common Stock and
Company Common Stock will each pay their respective expenses, if any,
incurred in connection with the Merger. Newco has not paid, directly or
indirectly, nor has it agreed to assume any expense or other liability,
whether fixed or contingent, incurred or to be incurred by Parent, any
holder of Parent Common Stock or any holder of Company Common Stock in
connection with or as part of the Merger or any related transactions.
9. Following the Second Step Merger, Newco or Newco's "qualified group"
of corporations (as defined in Treasury Regulation Section 1.368-
1(d)(4)(ii)) will continue the "historic business" of the Company or use a
significant portion of the Company's "historic business assets" in a
business (as such terms are defined in Treasury Regulation Section 1.368-
1(d)). Following the First Step Exchange, Newco will cause Parent to
continue its historic business or to use a significant portion of its
historic business assets in a trade or business.
10. Newco is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code, Section 351(e)(1) of the Code or
Treasury Regulation Section 1.351-1(c)(1)(ii).
11. Newco will not take any position on any Federal, state or local
income or franchise tax return, or take any other tax reporting position,
that is inconsistent (i) with the treatment of the Merger as transactions
described in Section 351 of the Code or (ii) with the treatment of the
Second Step Merger as a reorganization within the meaning of Section 368(a)
of the Code, in each case unless otherwise required by a "determination"
(as defined in Section 1313(a)(1) of the Code) or by applicable state or
local tax law (and then only to the extent required by such applicable
state or local tax law).
12. None of the compensation received by any stockholder-employee of
Parent in respect of periods ending on or prior to the Exchange Effective
Time represents separate consideration for any of his or her Parent Common
Stock. None of the compensation received by any stockholder-employee of the
Company in respect of periods ending on or prior to the Merger Effective
Time represents separate consideration for any of his or her Company Common
Stock. None of the Newco Common Stock that will be received by any
stockholder-employee of Parent or the Company in the Merger represents
separately bargained for consideration which is allocable to any employment
agreement or arrangement. The compensation paid to any stockholder-
employees will be for services actually rendered and will be determined by
bargaining at arm's-length.
A-69
<PAGE>
13. There is no intercorporate indebtedness existing between (i) Newco
and Parent or (ii) Newco (or any of its subsidiaries) and the Company (or
any of its subsidiaries).
14. Newco is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
15. To the best knowledge of the management of Newco and taking into
account any issuance of additional shares of Newco Common Stock, any
issuance of Newco Common Stock for services, the exercise of any Newco
stock rights, options, warrants or subscriptions, any public offerings of
Newco stock, and the sale, exchange, transfer by gift or other disposition
of any Newco Common Stock received in the Merger, the holders of Parent
Common Stock and Company Common Stock will collectively be in "control" of
Newco immediately after the Merger. For purposes of this representation
letter, "control" shall mean the ownership of (i) stock possessing at least
80% of the total combined voting power of all classes of Newco stock
entitled to vote and (ii) at least 80% of the total number of shares of
each other class of Newco stock.
16. Newco has no present plan or intention to, or to cause any of its
affiliates to, (i) liquidate Newco or Parent, (ii) merge (other than in
connection with the Second Step Merger), liquidate or consolidate Newco or
Parent with or into any other entity (including, without limitation, any
affiliate), (iii) sell, transfer, distribute or otherwise dispose of the
Parent Common Stock or interests in any of its material affiliates or (iv)
sell, transfer, distribute or otherwise dispose of any of the material
assets of Parent, the Company or their affiliates acquired in the Merger
(other than in the ordinary course of business or transfers described in
Section 368(a)(2)(C) of the Code or Treasury Regulation Section 1.368-2(k)
that also qualify as transactions described in Section 351 of the Code).
17. The Newco Common Stock issued in the Merger will constitute all of
Newco's outstanding stock immediately after the Merger. Except as
specifically set forth in the Exchange and Merger Agreement, Newco will not
issue any Newco Common Stock in connection with the Merger in consideration
for services rendered to or for the benefit of Newco or any of its
affiliates, or in consideration for the transfer of any property other than
Parent Common Stock or Company assets.
18. The Exchange and Merger Agreement, the Registration Statement and
the other documents described in the Registration Statement represent the
entire understanding of Newco with respect to the Merger and there are no
other written or oral agreements regarding the Merger.
19. The Merger is being undertaken for purposes of enhancing the
business of Newco and for other good and valid business purposes of Newco
as described in the proxy statement/prospectus of Parent and the Company
included in the Registration Statement.
20. Newco is not a personal service corporation within the meaning of
Section 269A of the Code.
21. The undersigned is authorized to make all the representations set
forth herein on behalf of Newco.
The undersigned acknowledges that (i) the opinions to be delivered pursuant
to Sections 7.02(d) and 7.03(d) of the Exchange and Merger Agreement will be
based on the accuracy of the representations set forth herein and on the
accuracy of the representations and warranties and the satisfaction of the
covenants and obligations contained in the Exchange and Merger Agreement and
the various other documents related thereto, and (ii) such opinions will be
subject to certain limitations and qualifications including that they may not
be relied upon if any such representations or warranties are not accurate or
if any such covenants or obligations are not satisfied in all material
respects.
A-70
<PAGE>
The undersigned acknowledges that such opinions will not address any tax
consequences of the Merger or any action taken in connection therewith except
as expressly set forth in such opinions.
Very truly yours,
Newholdco Corporation,
By :_________________________________
Name: Corbin A. McNeill
Title: Chairman of the Board,
President, and Chief
Executive Officer
A-71
<PAGE>
EXHIBIT G
[Letterhead of the Company]
[Date]
Jones, Day, Reavis & Pogue
77 West Walker Drive
Chicago, Illinois 60001
Cravath, Swaine & Moore
825 Eighth Avenue
New York, New York 10019
Ladies and Gentlemen:
In connection with the opinions to be delivered pursuant to Sections 7.02(d)
and 7.03(d) of the Amended and Restated Agreement and Plan of Exchange and
Merger (the "Exchange and Merger Agreement") dated as of September 22, 1999, as
amended and restated as of January 7, 2000, among PECO Energy Company, a
Pennsylvania corporation ("Parent"), Newholdco Corporation, a Pennsylvania
corporation and a wholly owned subsidiary of Parent ("Newco") and Unicom
Corporation, an Illinois corporation (the "Company"), and in connection with
the filing with the Securities and Exchange Commission (the "SEC") of the
registration statement on Form S-4 (the "Registration Statement"), which
includes the proxy statement/prospectus of Parent and the Company, each as
amended and supplemented through the date hereof, the undersigned certifies and
represents on behalf of the Company and as to the Company, after due inquiry
and investigation, as follows (any capitalized term used but not defined herein
having the meaning given to such term in the Exchange and Merger Agreement):
1. The Merger will be consummated in accordance with the Exchange and
Merger Agreement and as described in the Registration Statement. The facts
relating to the Merger as described in the Registration Statement and the
documents referenced in the Registration Statement are, insofar as such
facts relate to the Company, true, correct and complete in all material
respects.
2. The formula set forth in the Exchange and Merger Agreement pursuant
to which each issued and outstanding share of common stock, no par value,
of the Company (the "Company Common Stock") will be converted into common
shares, no par value, of Newco (the "Newco Common Stock") and cash is the
result of arm's length bargaining. The aggregate fair market value of the
Newco Common Stock and cash to be received by each holder of Company Common
Stock in the Second Step Merger will be approximately equal to the fair
market value of the Company Common Stock surrendered in exchange therefor.
3. Cash payments, if any, to be made to holders of Company Common Stock
in lieu of fractional shares of Newco Common Stock that would otherwise be
issued to such holders in the Second Step Merger will be made for the
purpose of saving Newco the expense and inconvenience of issuing and
transferring fractional shares of Newco Common Stock, and do not represent
separately bargained for consideration. The total cash consideration that
will be paid in the Second Step Merger to holders of Company Common Stock
in lieu of fractional shares of Newco Common Stock is not expected to
exceed one percent of the total consideration that will be issued in the
Second Step Merger to such holders in exchange for their shares of Company
Common Stock.
4. (i) Except to the extent specifically contemplated under the Exchange
and Merger Agreement, neither the Company nor any corporation related to
the Company has acquired or has any present plan or intention to acquire,
directly or indirectly, any Company Common Stock in contemplation of the
Merger, or otherwise as part of a plan of which the Merger is a part.
(ii) For purposes of this representation letter, a corporation shall be
treated as related to the Company if such corporation is related to the
Company within the meaning of Treasury Regulation Section 1.368-1(e)(3)
(determined without regard to Treasury Regulation Section 1.368-
1(e)(3)(i)(A)).
A-72
<PAGE>
5. The Company has not made and does not have any present plan or
intention to make any distributions (other than dividends made in the
ordinary course of business) to holders of Company Common Stock prior to,
in contemplation of, or otherwise in connection with, the Merger.
6. Newco, the Company and holders of Company Common Stock will each pay
their respective expenses, if any, incurred in connection with the Second
Step Merger. The Company has not agreed to assume, nor will it directly or
indirectly assume, any expense or other liability, whether fixed or
contingent, of any holder of Company Common Stock. Further, no liabilities
of any of the holders of Company Common Stock will be assumed by Newco, nor
will any of the Company Common Stock acquired by Newco in connection with
the Merger be subject to any liabilities.
7. Any liabilities of the Company that will be assumed by Newco
pursuant to the Merger, and any liabilities to which the assets of the
Company that will be transferred to Newco pursuant to the Merger are
subject, were incurred in the ordinary course of business and are
associated with the assets of the Company.
8. At the Merger Effective Time, the value of the Newco Common Stock
issued to the holders of Company Common Stock in the Second Step Merger
will represent at least 50% of the value of the total consideration issued
to such holders in the Second Step Merger in exchange for their shares of
Company Common Stock.
9. The Company is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Internal Revenue Code of 1986, as amended
(the "Code"), Section 351(e)(1) of the Code or Treasury Regulation Section
1.351-1(c)(1)(ii).
10. The Company will not take, and to the best knowledge of the
management of the Company there is no present plan or intention by holders
of Company Common Stock to take, any position on any Federal, state or
local income or franchise tax return, or to take any other tax reporting
position, that is inconsistent (i) with the treatment of the Merger as
transactions described in Section 351 of the Code or (ii) with the
treatment of the Second Step Merger as a reorganization within the meaning
of Section 368(a) of the Code, in each case unless otherwise required by a
"determination" (as defined in Section 1313(a)(1) of the Code) or by
applicable state or local tax law (and then only to the extent required by
such applicable state or local tax law).
11. None of the compensation received by any stockholder-employee of
the Company in respect of periods ending on or prior to the Merger
Effective Time represents separate consideration for any of his or her
Company Common Stock. None of the Newco Common Stock that will be received
by any stockholder-employee of the Company in the Merger represents
separately bargained for consideration which is allocable to any employment
agreement or arrangement. The compensation paid to any stockholder-
employees will be for services actually rendered and will be determined by
bargaining at arm's-length.
12. There is no intercorporate indebtedness existing between Newco (or
any of its subsidiaries, including Parent) and the Company (or any of its
subsidiaries).
13. The Company is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
14. No assets of the Company have been sold, transferred or otherwise
disposed of which would prevent Newco or Newco's "qualified group" of
corporations (as defined in Treasury Regulation Section 1.368-1(d)(4)(ii))
from continuing the "historic business" of the Company or from using a
significant portion of the "historic business assets" of the Company in a
business following the Merger (as such terms are defined in Treasury
Regulation Section 1.368-1(d)).
15. At the Merger Effective Time, the fair market value of the assets
of the Company transferred to Newco pursuant to the Second Step Merger will
exceed the sum of its liabilities assumed by Newco pursuant to the Second
Step Merger, plus the amount of liabilities, if any, to which such assets
are subject.
A-73
<PAGE>
16. To the best knowledge of the management of the Company, there is no
present plan or intention on the part of the holders of Company Common
Stock to sell, exchange or otherwise dispose of, or to enter into any
contract or other arrangement with respect to, any interest in the shares
of Newco Common Stock received in the Second Step Merger in exchange for
such Company Common Stock such that the former holders of Company Common
Stock and the former holders of Parent Common Stock, in the aggregate,
would not own (i) Newco Common Stock having at least 80% of the total
combined voting power of all classes of Newco stock entitled to vote and
(ii) at least 80% of the total number of shares of each other class of
Newco Stock.
17. The Company will not retain any rights in the Company assets
transferred to Newco pursuant to the Second Step Merger.
18. None of the stock of any Company Subsidiary being transferred in the
Second Step Merger is Section 306 stock within the meaning of Section
306(c) of the Code.
19. Neither the Company nor any Company Subsidiary has been a
"distributing corporation" or a "controlled corporation" in a distribution
of stock qualifying for tax-free treatment under Section 355 of the Code
(i) at any time during the two-year period prior to the date of the
Exchange and Merger Agreement, (ii) at any time during the period
commencing on the date of the Exchange and Merger Agreement and ending on
the date hereof or (iii) which could otherwise constitute part of a "plan"
or "series of related transactions" (within the meaning of Section 355(e)
of the Code) in conjunction with and including the Merger.
20. To the best knowledge of the management of the Company and taking
into account any issuance of additional shares of Newco Common Stock, any
issuance of Newco Common Stock for services, the exercise of any Newco
stock rights, options, warrants or subscriptions, any public offerings of
Newco stock, and the sale, exchange, transfer by gift or other disposition
of any Newco Common Stock received by holders of Company Common Stock in
the Merger, the holders of Parent Common Stock and Company Common Stock
will collectively be in "control" of Newco immediately after the Merger.
For purposes of this representation letter, "control" shall mean the
ownership of (i) stock possessing at least 80% of the total combined voting
power of all classes of Newco stock entitled to vote and (ii) at least 80%
of the total number of shares of each other class of Newco stock.
21. The Merger is being undertaken for purposes of enhancing the
business of the Company and for other good and valid business purposes of
the Company as described in the proxy statement/prospectus of Parent and
the Company included in the Registration Statement.
22. The Exchange and Merger Agreement, the Registration Statement and
the other documents described in the Registration Statement represent the
entire understanding of the Company with respect to the Merger and there
are no other written or oral agreements regarding the Merger.
23. The undersigned is authorized to make all the representations set
forth herein on behalf of the Company.
The undersigned acknowledges that (i) the opinions to be delivered pursuant
to Sections 7.02(d) and 7.03(d) of the Exchange and Merger Agreement will be
based on the accuracy of the representations set forth herein and on the
accuracy of the representations and warranties and the satisfaction of the
covenants and obligations contained in the Exchange and Merger Agreement and
the various other documents related thereto, and (ii) such opinions will be
subject to certain limitations and qualifications including that they may not
be relied upon if any such representations or warranties are not accurate or if
any of such covenants or obligations are not satisfied in all material
respects.
A-74
<PAGE>
The undersigned acknowledges that such opinions will not address any tax
consequences of the Merger or any action taken in connection therewith except
as expressly set forth in such opinions.
Very truly yours,
Unicom Corporation
By :_________________________________
Name: John W. Rowe
Title: Chairman of the Board,
President, and Chief
Executive Officer
A-75
<PAGE>
ANNEX B
[LETTERHEAD OF MORGAN STANLEY DEAN WITTER]
January 7, 2000
Board of Directors
PECO Energy Company
2301 Market Street
Philadelphia, PA 19103
Members of the Board:
We understand that PECO Energy Company, a Pennsylvania corporation ("PECO
Energy"), Exelon Corporation, a Pennsylvania corporation ("Exelon") and a
wholly owned subsidiary of PECO Energy, and Unicom Corporation, an Illinois
corporation ("Unicom"), have entered into an Amended and Restated Agreement
and Plan of Exchange and Merger dated January 7, 2000 (as Amended the "Merger
Agreement"), which provides, among other things, (i) for a mandatory share
exchange (the "Exchange") whereby each outstanding share of common stock, no
par value, of PECO Energy (the "PECO Common Stock"), other than shares owned
by PECO, shall be acquired by Exelon in exchange for common stock, no par
value, of Exelon (the "Exelon Common Stock", as determined pursuant to the
terms and conditions of the Merger Agreement, (ii) immediately thereafter,
Unicom will, on the terms and subject to the conditions set forth in the
Merger Agreement, merge with and into Exelon (the "Merger", and together with
the Exchange, the "Transaction"), whereby each share of common stock, no par
value, of Unicom (the "Unicom Common Stock") other than shares owned by Unicom
or Exelon and Company Dissent Shares (as defined in the Merger Agreement) will
be converted into the right to receive Exelon Common Stock and cash, as
determined pursuant to the terms and conditions of the Merger Agreement, (iii)
the holders of PECO Common Stock and Unicom Common Stock will together own all
of the outstanding shares of Exelon Common Stock and (iv) each share of each
other class of capital stock of PECO Energy and Unicom shall be unaffected and
remain outstanding. The terms and conditions of the Transaction are more fully
set forth in the Merger Agreement.
You have asked for our opinion as to whether the consideration to be
received in the Transaction by the holders of PECO Common Stock is fair from a
financial point of view to such holders.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of Unicom and PECO Energy;
(ii) reviewed certain internal financial statements and other financial
and operating data concerning Unicom prepared by the management of Unicom;
(iii) reviewed certain financial projections prepared by the management
of Unicom;
(iv) reviewed and discussed with senior executives of PECO Energy and
Unicom an analysis prepared by PECO Energy and Unicom regarding estimates
of the amount and timing of certain strategic, financial, and operational
benefits anticipated from the Transaction;
(v) discussed the Past and current operations and financial condition
and the prospects of Unicom;
(vi) reviewed certain internal financial statements and other financial
operating data concerning PECO Energy prepared by the management of PECO
Energy;
(vii) reviewed certain financial projections prepared by the management
of PECO Energy;
(viii) discussed the past and current operations and financial condition
and the prospects of PECO Energy, and reviewed the pro forma impact of the
Transaction on PECO Energy's earnings and cash flow per share, consolidated
capitalization and financial ratios;
B-1
<PAGE>
(ix) reviewed the reported prices and trading activity for the Common
Stock of both Unicom and PECO Energy;
(x) compared the financial performance of Unicom and the prices and
trading activity of Unicom Common Stock with that of certain other
comparable publicly-traded companies and their securities;
(xi) compared the financial performance of PECO Energy and the prices
and trading activity of PECO Common Stock with that of certain other
comparable publicly-traded companies and their securities;
(xii) reviewed the financial terms, to the extent publicly available, of
certain comparable merger transactions;
(xiii) reviewed and discussed with the management of PECO Energy and
Unicom proposed uses of the proceeds from the sale of Unicom's fossil fuel
generation assets;
(xiv) participated in discussions and negotiations among representatives
of PECO Energy and Unicom and their financial and legal advisors;
(vx) reviewed the Merger Agreement; and
(xvi) performed such other analyses as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of Unicom
and PECO Energy. In addition, we have assumed that the Transaction will be
treated as a tax-free reorganization and/or exchange to PECO Energy and Unicom,
pursuant to the Internal Revenue Code of 1986, and will be consummated in
accordance with the terms set forth in the Merger Agreement. We have not made
any independent valuation or appraisal of the assets or liabilities of Unicom
and PECO Energy, nor have we been furnished with any such appraisals. With
respect to the analysis of the strategic, financial and operational benefits
estimated and expected to result from the Transaction, we have assumed that
such analysis has been reasonably prepared on bases reflecting the best
currently available estimates and judgments of such benefits and the future
financial performance of the combined company, and have relied upon, without
independent verification, such analysis. Our opinion is necessarily based on
economic, market and other conditions as in effect on, and the information made
available to us as of, the date hereof.
Morgan Stanley has assumed that, in connection with the receipt of all the
necessary regulatory approvals for the proposed Transaction, no restrictions
will be imposed that would have any material adverse effect on the contemplated
benefits to be derived in the proposed Transaction. We note that we are not
legal or regulatory experts and have relied upon, without independent
verification, the assessment of PECO Energy's legal and regulatory advisors
with respect to the legal and regulatory matters related to the Transaction.
We have acted as financial advisor to PECO Energy in connection with this
transaction and will receive a fee for our services. In the past, Morgan
Stanley & Co. Incorporated and its affiliates have provided financial advisory
and financing services for PECO Energy and have received fees for the rendering
of these services.
It is understood that this letter is for the information of the Board of
Directors of PECO Energy, and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by PECO Energy with the Securities and Exchange Commission
in respect of the Transaction. In addition, this opinion does not in any manner
address the prices at which the Exelon Common Stock will trade following
consummation of the Transaction, and Morgan Stanley expresses no opinion or
recommendation as to how shareholders of PECO Energy should vote at the
shareholder's meeting held in connection with the Transaction.
B-2
<PAGE>
Based on the foregoing, we are of the opinion on the date hereof that the
consideration to be received in the Transaction by the holders of PECO Common
Stock is fair from the financial point of view to such holders.
Very truly yours,
Morgan Stanley & Co. Incorporated
/s/ Jeffrey R. Holzschuh
By: _________________________________
Jeffrey R, Holzschuh
Managing Director
B-3
<PAGE>
ANNEX C
[LETTERHEAD OF SALOMON SMITH BARNEY]
January 7, 2000
Board of Directors
PECO Energy Company
2301 Market Street
Philadelphia, PA 19103
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of shares of the common stock PECO Energy Company, a
Pennsylvania corporation ("PECO"), of the consideration to be received in the
Transaction (defined below) by such holders pursuant to the terms and subject
to the conditions set forth in the Amended and Restated Agreement and Plan of
Exchange and Merger (the "Agreement") to be entered into by and among PECO,
Exelon Corporation, a Pennsylvania corporation and a wholly owned subsidiary of
PECO ("Newco"), and Unicom Corporation and Illinois corporation ("Unicom"). As
more fully described in the Agreement, each outstanding share of the common
stock, no par value, of PECO (the "PECO Common Stock"), other than shares owned
by PECO, will be acquired by Newco (the "Exchange") in exchange for common
stock, no par value, of Newco (the "Newco Common Stock"). Immediately
thereafter, in accordance with the terms of and subject to the conditions set
forth in the Agreement, Unicom will merge with and into Newco (the "Merger,"
and together with the Exchange, the "Transaction"), and each share of common
stock, no par value, of Unicom (the "Unicom Common Stock") (other than shares
owned by Unicom or Newco and Company Dissent Shares (as defined in the
Agreement)) will be converted into the right to receive Newco Common stock and
cash, as more fully described in the Agreement.
In arriving at our opinion, reviewed the terms of a draft dated January 5 of
the Agreement and held discussions with certain senior officers, directors and
other representatives and advisors of PECO and certain senior officers and
other representatives and advisors and Unicom concerning the businesses,
operations and prospectus of PECO and Unicom. We examined certain publicly
available business and financial information relating to PECO and Unicom as
well as certain financial forecasts and other information and data for PECO and
Unicom which were provided to or otherwise discussed with us by the respective
managements of PECO and Unicom. We reviewed and discussed with senior officers
of PECO and Unicom an analysis prepared by PECO and Unicom regarding the
estimates of the amount and timing of certain strategic, financial and
operation benefits expected to be derived from the Transaction. We reviewed and
discussed with the managements of PECO and Unicom proposed uses of the proceeds
from the sale of Unicom's fossil fuel generation assets. In addition to the
foregoing, we conducted such other analyses and examinations and considered
such other financial, economic and market criteria as we deemed appropriate in
arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed
by or discussed with us. With respect to financial forecasts and other
information and data provided to or otherwise reviewed by our discussed with
us, we have been advised by the managements of PECO and Unicom that such
forecasts and other information dna data were reasonably prepared reflecting
the vest currently available estimates and judgments of the respective
managements of PECO and Unicom as to the future financial performance of PECO
and Unicom. With respect to the analysis regarding the strategic, financial and
operational benefits expected to be derived from the Transaction, we have
assumed that such analysis has been reasonably prepared on bases reflecting the
best currently available estimates and judgments of such benefits and the
future financial performance of the combined company and we have relied upon,
C-1
<PAGE>
without independent verification, such analysis. We have assumed, with your
consent, that the Transaction will be effected in all material respects in
accordance with the terms of the Agreement and that the Transaction will be
treated as a tax-free reorganization and/or exchange to PECO and Unicom for
federal income tax purposes and, in the course of obtaining the necessary
regulatory approvals for the Transaction, no limitations, restrictions or
conditions will be imposed that would have a material adverse effect on PECO,
Unicom, Newco or the combined company or the contemplated benefits anticipated
to result from the Transaction. We are not expressing any opinion as to what
the value of the Newco Common Stock actually will be when issued to PECO and
Unicom stockholders pursuant to the Transaction or the price at which the Newco
Common Stock will trade subsequent to the consummation of the Transaction. We
have not made or been provided with an independent evaluation or appraisal of
the assets or liabilities (contingent or otherwise) of PECO or Unicom nor have
we made any physical inspection of the properties or assets of PECO or Unicom.
In connection with our engagement, we were not requested to, and we did not,
solicit third party indications of interest in the acquisition of all or a part
of PECO. We express no view as to, and our opinion does not address, the
relative merits of the Transaction as compared to any alternative business
strategies that might exist for PECO or the effect of any other transaction in
which PECO might engage. Our opinion is necessarily based upon information
available to us, and financial, stock market and other conditions and
circumstances existing and disclosed to us, as of the date hereof.
Salomon Smith Barney Inc. has been engaged to render financial advisory
services to PECO in connection with the Transaction and will receive a fee for
such services, a significant portion of which is contingent upon consummation
of the Transaction. We have in the past provided investment banking services to
PECO and Unicom unrelated to the proposed Transaction, for which services we
have received compensation. In the ordinary course of our business, we and our
affiliates may actively trade or hold the securities of PECO and Unicom for our
own account or for the account of our customers and, accordingly may at time
hold a long or short position in such securities. In addition, we and our
affiliates (including Citigroup Inc. and its affiliates) may maintain
relationships with PECO, Unicom and their respective affiliates.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of PECO in its evaluation of the proposed
Transaction, and our opinion is not intended to be and does not constitute a
recommendation to any shareholder as to how such shareholder should vote on any
matters relating to the proposed Transaction.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the consideration to be
received in the Transaction by the holders of shares of PECO Common Stock is
fair, from a financial point of view, to such holders.
Very truly yours,
/s/ Salomon Smith Barney Inc.
_______________________________
SALOMON SMITH BARNEY INC.
C-2
<PAGE>
ANNEX D
[LETTERHEAD OF WASSERSTEIN PERELLA & CO.]
January 6, 2000
Board of Directors
Unicom Corporation
10 South Dearborn Street
Chicago, IL 60690
Members of the Board of Directors:
You have asked us to advise you with respect to the fairness, from a
financial point of view, to the shareholders of Unicom Corporation (the
"Company") of the Aggregate Company Consideration (as defined below) provided
for pursuant to the terms of the Amended and Restated Agreement and Plan of
Exchange and Merger, dated as of January 7, 2000 (the "Merger Agreement"),
among Peco Energy Company ("Parent"), Newholdco Corporation, a wholly-owned
subsidiary of Parent ("Newco"), and the Company. The Merger Agreement provides
for, among other things, a business combination pursuant to which (a) Parent
and Newco will effect a mandatory share exchange (the "First Step Exchange")
whereby each outstanding share of common stock, no par value, of Parent (the
"Parent Common Stock") shall be acquired by Newco in exchange for one share of
common stock, no par value, of Newco (the "Newco Common Stock") and (b)
immediately thereafter, the Company will merge with and into Newco ("the Second
Step Merger" and, together with the First Step Exchange, the "Merger"), whereby
each share of common stock, no par value, of the Company (the "Company Common
Stock") will be converted into the right to receive 0.875 shares (the "Company
Conversion Number") of Newco Common Stock plus $3.00 in cash (the "Company Cash
Consideration"). The aggregate number of shares of Newco Common Stock to be
issued in the First Step Exchange are referred to herein as the "Aggregate
Parent Consideration." The aggregate number of shares of Newco Common Stock to
be issued, together with the aggregate Company Cash Consideration to be
distributed, in the Second Step Merger are referred to herein as the "Aggregate
Company Consideration." The Merger Agreement also contemplates that, prior to
the effective time of the Merger, the Company shall effect the repurchase of
shares of Company Common Stock (the "Company Common Stock Repurchase") and
Parent shall effect the repurchase of shares of Parent Common Stock (the
"Parent Common Stock Repurchase"). The terms and conditions of the Merger are
set forth in more detail in the Merger Agreement.
In connection with rendering our opinion, we have reviewed a draft of the
Merger Agreement, and for purposes hereof we have assumed that the final form
thereof will not differ in any material respect from the draft provided to us.
We have also, among other things:
1. Reviewed certain publicly available business and financial
information relating to the Company and Parent that we deemed to be
relevant;
2. Reviewed certain internal financial information, including financial
projections, forecasts, and analyses relating to the business, earnings,
cash flow, assets, liabilities and prospects of the Company and Parent, in
each case prepared and furnished to us by the Company and Parent, and
considered current expectations for the dividend policy for Newco;
3. Conducted discussions with members of senior management and
representatives of the Company and Parent concerning the matters described
in clauses 1 and 2 above, as well as the respective businesses, regulatory
environments and prospects of the Company and Parent before and after
giving effect to the Merger;
D-1
<PAGE>
4. Reviewed the market prices and valuation multiples of Company Common
Stock and Parent Common Stock and compared such data with similar data of
certain publicly-traded companies that we deemed to be relevant;
5. Reviewed the results of operations of the Company and Parent for
recent periods and compared such results with those of certain publicly-
traded companies that we deemed to be relevant;
6. Compared the proposed financial terms of the Merger with the
financial terms of certain other business combination transactions that we
deemed to be reasonably comparable to the Merger or otherwise relevant;
7. Reviewed the pro forma financial impact of the Merger, and
8. Performed such other financial studies, analyses and investigations
and reviewed such other information as we considered appropriate for
purposes of this opinion.
In our review and analysis and in formulating our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information provided to or discussed with us or publicly available, and we have
not assumed any responsibility for independent verification of any of such
information. We have also assumed and relied upon the reasonableness and
accuracy of the financial projections, forecasts and analyses provided to us,
and we have assumed that such projections, forecasts and analyses were
reasonably prepared in good faith and on bases reflecting the best currently
available judgments and estimates of the Company's and Parent's managements. We
have also, with your consent, factored in an assumed level of financial
synergies from the Merger that management of the Company has provided to us. We
express no opinion with respect to such projections, forecasts, analyses and
assumed level of financial synergies or the assumptions upon which they are
based. In addition, we have not reviewed any of the books and records of the
Company or Parent, or assumed any responsibility for conducting a physical
inspection of the properties or facilities of the Company or Parent, or for
making or obtaining an independent valuation or appraisal of the assets or
liabilities of the Company or Parent, and no such independent valuation or
appraisal was provided to us. We note that (i) the Merger is intended to
qualify as a tax free reorganization for United States Federal tax purposes in
which gain (if any) will be recognized only to the extent of the Company Cash
Consideration, and we have assumed that the Merger will so qualify and (ii) the
Merger is intended to be accounted for as a purchase of the Company by Parent,
and we have assumed that the Merger will be so accounted for. We also have
assumed that obtaining all regulatory and other approvals and third-party
consents required for consummation of the Merger will not have an adverse
impact on the Company or Parent or on the anticipated benefits of the Merger,
and we have assumed that the transactions described in the Merger Agreement
will be consummated without waiver or modification of any of the material terms
or conditions contained therein by any party thereto. Our opinion is
necessarily based on economic and market conditions and other circumstances as
they exist and can be evaluated by us as of the date hereof. We are not
expressing any opinion herein as to the prices at which any securities of
Parent, the Company or Newco will actually trade at any time.
In the ordinary course of our business, we may actively trade the debt and
equity securities of the Company and Parent for our own account and for the
accounts of customers and accordingly may at any time hold a long or short
position in such securities.
We are acting as financial advisor to the Company in connection with the
proposed Merger and will receive a fee for our services, a significant portion
of which is contingent upon the consummation of the Merger.
Our opinion addresses only the fairness from a financial point of view to
the shareholders of the Company of the Aggregate Company Consideration provided
for pursuant to the Merger Agreement. We do not express any views on any other
aspect of the Merger or any other terms of the Merger Agreement. Specifically,
our opinion does not address the Company Common Stock Repurchase, the Parent
Common Stock Repurchase or the Company's underlying business decision to enter
into the amendments reflected in the Merger Agreement
D-2
<PAGE>
or to effect the transactions contemplated by the Merger Agreement, nor does
our opinion address any alternative transaction or business strategy that may
be available to the Company.
It is understood that this letter is for the benefit and use of the Board of
Directors of the Company in its consideration of the Merger and, except for
inclusion in its entirety in any registration statement or proxy statement
required to be circulated to shareholders of the Company relating to the
Merger, may not be quoted, referred to or reproduced at any time or in any
manner without our prior written consent. This opinion does not constitute a
recommendation to any shareholder of the Company as to how such shareholder
should (i) vote with respect to the Second Step Merger, (ii) act in respect of
the Company Common Stock Repurchase or (iii) otherwise act in respect of the
Merger, and should not be relied upon by any shareholder as such.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, it is our opinion that, as of the date
hereof, the Aggregate Company Consideration provided for pursuant to the Merger
Agreement is fair to the shareholders of the Company from a financial point of
view.
Very truly yours,
/s/ Wasserstein Perella & Co. Inc.
D-3
<PAGE>
ANNEX E
(S) 805 ILCS 5/11.65. Right to dissent
Sec. 11.65. Right to dissent. (a) A shareholder of a corporation is entitled
to dissent from, and obtain payment for his or her shares in the event of any
of the following corporate actions:
(1) consummation of a plan of merger or consolidation or a plan of share
exchange to which the corporation is a party if (i) shareholder
authorization is required for the merger or consolidation or the share
exchange by Section 11.20 [805 ILCS 5/11.20] or the articles of
incorporation or (ii) the corporation is a subsidiary that is merged with
its parent or another subsidiary under Section 11.30 [805 ILCS 5/11.30];
(2) consummation of a sale, lease or exchange of all, or substantially
all, of the property and assets of the corporation other than in the usual
and regular course of business;
(3) an amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(i) alters or abolishes a preferential right of such shares;
(ii) alters or abolishes a right in respect of redemption, including
a provision respecting a sinking fund for the redemption or repurchase,
of such shares;
(iii) in the case of a corporation incorporated prior to January 1,
1982, limits or eliminates cumulative voting rights with respect to
such shares; or
(4) any other corporate action taken pursuant to a shareholder vote if
the articles of incorporation, by-laws, or a resolution of the board of
directors provide that shareholders are entitled to dissent and obtain
payment for their shares in accordance with the procedures set forth in
Section 11.70 [805 ILCS 5/11.70] or as may be otherwise provided in the
articles, by-laws or resolution.
(b) A shareholder entitled to dissent and obtain payment for his or her
shares under this Section may not challenge the corporate action creating his
or her entitlement unless the action is fraudulent with respect to the
shareholder or the corporation or constitutes a breach of a fiduciary duty owed
to the shareholder.
(c) A record owner of shares may assert dissenters' rights as to fewer than
all the shares recorded in such person's name only if such person dissents with
respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf
the record owner asserts dissenters' rights. The rights of a partial dissenter
are determined as if the shares as to which dissent is made and the other
shares were recorded in the names of different shareholders. A beneficial owner
of shares who is not the record owner may assert dissenters' rights as to
shares held on such person's behalf only if the beneficial owner submits to the
corporation the record owner's written consent to the dissent before or at the
same time the beneficial owner asserts dissenters' rights.
(Source: P.A. 85-1269.)
Note.
This section was Ill.Rev.Stat., Ch. 32, Para. 11.65.
(S) 805 ILCS 5/11.70. Procedure to Dissent
Sec. 11.70. Procedure to Dissent. (a) If the corporate action giving rise to
the right to dissent is to be approved at a meeting of shareholders, the notice
of meeting shall inform the shareholders of their right to dissent and the
procedure to dissent. If, prior to the meeting, the corporation furnishes to
the shareholders material information with respect to the transaction that will
objectively enable a shareholder to vote on the transaction and to determine
whether or not to exercise dissenters' rights, a shareholder may assert
dissenters' rights only if the shareholder delivers to the corporation before
the vote is taken a written demand for payment for his or her shares if the
proposed action is consummated, and the shareholder does not vote in favor of
the proposed action.
E-1
<PAGE>
(b) If the corporate action giving rise to the right to dissent is not to be
approved at a meeting of shareholders, the notice to shareholders describing
the action taken under Section 11.30 or Section 7.10 [805 ILCS 5/11.30 or 805
ILCS 5/7.10] shall inform the shareholders of their right to dissent and the
procedure to dissent. If, prior to or concurrently with the notice, the
corporation furnishes to the shareholders material information with respect to
the transaction that will objectively enable a shareholder to determine whether
or not to exercise dissenters' rights, a shareholder may assert dissenter's
rights only if he or she delivers to the corporation within 30 days from the
date of mailing the notice a written demand for payment for his or her shares.
(c) Within 10 days after the date on which the corporate action giving rise
to the right to dissent is effective or 30 days after the shareholder delivers
to the corporation the written demand for payment, whichever is later, the
corporation shall send each shareholder who has delivered a written demand for
payment a statement setting forth the opinion of the corporation as to the
estimated fair value of the shares, the corporation's latest balance sheet as
of the end of a fiscal year ending not earlier than 16 months before the
delivery of the statement, together with the statement of income for that year
and the latest available interim financial statements, and either a commitment
to pay for the shares of the dissenting shareholder at the estimated fair value
thereof upon transmittal to the corporation of the certificate or certificates,
or other evidence of ownership, with respect to the shares, or instructions to
the dissenting shareholder to sell his or her shares within 10 days after
delivery of the corporation's statement to the shareholder. The corporation may
instruct the shareholder to sell only if there is a public market for the
shares at which the shares may be readily sold. If the shareholder does not
sell within that 10 day period after being so instructed by the corporation,
for purposes of this Section the shareholder shall be deemed to have sold his
or her shares at the average closing price of the shares, if listed on a
national exchange, or the average of the bid and asked price with respect to
the shares quoted by a principal market maker, if not listed on a national
exchange, during that 10 day period.
(d) A shareholder who makes written demand for payment under this Section
retains all other rights of a shareholder until those rights are cancelled or
modified by the consummation of the proposed corporate action. Upon
consummation of that action, the corporation shall pay to each dissenter who
transmits to the corporation the certificate or other evidence of ownership of
the shares the amount the corporation estimates to be the fair value of the
shares, plus accrued interest, accompanied by a written explanation of how the
interest was calculated.
(e) If the shareholder does not agree with the opinion of the corporation as
to the estimated fair value of the shares or the amount of interest due, the
shareholder, within 30 days from the delivery of the corporation's statement of
value, shall notify the corporation in writing of the shareholder's estimated
fair value and amount of interest due and demand payment for the difference
between the shareholder's estimate of fair value and interest due and the
amount of the payment by the corporation or the proceeds of sale by the
shareholder, whichever is applicable because of the procedure for which the
corporation opted pursuant to subsection (c).
(f) If, within 60 days from delivery to the corporation of the shareholder
notification of estimate of fair value of the shares and interest due, the
corporation and the dissenting shareholder have not agreed in writing upon the
fair value of the shares and interest due, the corporation shall either pay the
difference in value demanded by the shareholder, with interest, or file a
petition in the circuit court of the county in which either the registered
office or the principal office of the corporation is located, requesting the
court to determine the fair value of the shares and interest due. The
corporation shall make all dissenters, whether or not residents of this State,
whose demands remain unsettled parties to the proceeding as an action against
their shares and all parties shall be served with a copy of the petition.
Nonresidents may be served by registered or certified mail or by publication as
provided by law. Failure of the corporation to commence an action pursuant to
this Section shall not limit or affect the right of the dissenting shareholders
to otherwise commence an action as permitted by law.
E-2
<PAGE>
(g) The jurisdiction of the court in which the proceeding is commenced under
subsection (f) by a corporation is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend decision on
the question of fair value. The appraisers have the power described in the
order appointing them, or in any amendment to it.
(h) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds that the fair value of his or
her shares, plus interest, exceeds the amount paid by the corporation or the
proceeds of sale by the shareholder, whichever amount is applicable.
(i) The court, in a proceeding commenced under subsection (f), shall
determine all costs of the proceeding, including the reasonable compensation
and expenses of the appraisers, if any, appointed by the court under subsection
(g), but shall exclude the fees and expenses of counsel and experts for the
respective parties. If the fair value of the shares as determined by the court
materially exceeds the amount which the corporation estimated to be the fair
value of the shares or if no estimate was made in accordance with subsection
(c), then all or any part of the costs may be assessed against the corporation.
If the amount which any dissenter estimated to be the fair value of the shares
materially exceeds the fair value of the shares as determined by the court,
then all or any part of the costs may be assessed against that dissenter. The
court may also assess the fees and expenses of counsel and experts for the
respective parties, in amounts the court finds equitable, as follows:
(1) Against the corporation and in favor of any or all dissenters if the
court finds that the corporation did not substantially comply with the
requirements of subsections (a), (b), (c), (d), or (f).
(2) Against either the corporation or a dissenter and in favor of any
other party if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this Section.
If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated and that the fees
for those services should not be assessed against the corporation, the court
may award to that counsel reasonable fees to be paid out of the amounts awarded
to the dissenters who are benefited. Except as otherwise provided in this
Section, the practice, procedure, judgment and costs shall be governed by the
Code of Civil Procedure [735 ILCS 5/1-101 et seq.].
(j) As used in this Section:
(1) "Fair value", with respect to a dissenter's shares, means the value
of the shares immediately before the consummation of the corporate action
to which the dissenter objects excluding any appreciation or depreciation
in anticipation of the corporate action, unless exclusion would be
inequitable.
(2) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair
and equitable under all the circumstances.
(Source: P.A. 86-1156.)
Note.
This section was Ill.Rev.Stat., Ch. 32, Para. 11.70.
Cross References.
As to the procedure to dissent, by a shareholder of a savings bank under the
Savings Bank Act, see 205 ILCS 205/4012.
E-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Chapter 17, Subchapter D of the Pennsylvania Business Corporation Law
contains provisions permitting indemnification of officers and directors of a
business corporation incorporated in Pennsylvania. Sections 1741 and 1742 of
the Pennsylvania Business Corporation Law provide that a business corporation
may indemnify any director or officer against liabilities and expenses he or
she may incur in connection with a threatened, pending or completed civil,
administrative or investigative proceeding by reason of the fact he or she is
or was a representative of the corporation or was serving at the request of the
corporation as a representative of another enterprise, provided that the person
acted in good faith and in a manner he or she reasonably believed to be in, or
not opposed to, the best interests of the corporation, and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. In general, the power to indemnify under these sections does not
exist in the case of actions against a director or officer by or in the right
of the corporation if the person otherwise entitled to indemnification shall
have been adjudged to be liable to the corporation unless it is judicially
determined that, despite the adjudication of liability but in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnification for the expenses the court deems proper. Section 1743 of the
Pennsylvania Business Corporation Law provides that the corporation is required
to indemnify directors and officers against expenses they may incur in
defending these actions if they are successful on the merits or otherwise in
the defense of these actions.
Section 1746 of the Pennsylvania Business Corporation Law provides that
indemnification under the other sections of Subchapter D is not exclusive of
other rights that a person seeking indemnification may have under any by-law,
agreement, vote of shareholders or disinterested directors or otherwise,
whether or not the corporation would have the power to indemnify the person
under any other provision of law. However, Section 1746 prohibits
indemnification in circumstances where the act or failure to act giving rise to
the claim for indemnification is determined by a court to have constituted
willful misconduct or recklessness.
Section 1747 of the Pennsylvania Business Corporation Law permits a
corporation to purchase and maintain insurance on behalf of any person who is
or was a director or officer of the corporation, or is or was serving at the
request of the corporation as a representative of another enterprise, against
any liability asserted against that person and incurred by him or her in that
capacity, or arising out of his or her status as such, whether or not the
corporation would have the power to indemnify the person against the liability
under Subchapter D.
Exelon's by-laws provide that Exelon is obligated to indemnify directors and
officers and other persons designated by the board of directors against any
liability including any damage, judgment, amount paid in settlement, fine,
penalty, cost or expense (including, without limitation, attorneys' fees and
disbursements) incurred in connection with any proceeding. Exelon's by-laws
provide that no indemnification shall be made where the act or failure to act
giving rise to the claim for indemnification is determined by arbitration or
otherwise to have constituted willful misconduct or recklessness or to be
attributable to receipt from Exelon of a personal benefit to which the
recipient is not legally entitled.
As permitted by the Pennsylvania Business Corporation Law, Exelon's by-laws
provide that directors generally will not be liable for monetary damages in any
action whether brought by shareholders directly or in the right of Exelon or by
third parties unless they fail in the good faith performance of their duties as
fiduciaries (the standard of care established by the Pennsylvania Business
Corporation Law), and that failure constitutes self-dealing, willful misconduct
or recklessness.
For six years after the completion of the merger, Exelon will cause to be
maintained in effect the current policies of directors' and officers' liability
insurance maintained by PECO Energy or Unicom or substantially comparable
policies as in effect on the closing date, as the case may be, with respect to
claims arising from or related to facts or events which occurred at or before
the completion of the merger.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) See Exhibit Index.
(b) Not Applicable.
(c) Opinion of Morgan Stanley & Co. Incorporated (included as Annex B to
this proxy statement/ prospectus which is a part of this registration
statement).
Opinion of Salomon Smith Barney Inc. (included as Annex C to this proxy
statement/prospectus which is a part of this registration statement).
Opinion of Wasserstein Perella & Co. (included as Annex D to this proxy
statement/prospectus which is a part of this registration statement).
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to the information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c)(1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of
a prospectus which is a part of this registration statement, by any
II-2
<PAGE>
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (c)(1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Securities Act of 1933 and is
used in connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not be
used until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Exelon has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Philadelphia,
Commonwealth of Pennsylvania, on May 15, 2000.
Exelon Corporation
/s/ Corbin A. McNeill, Jr.
By: _________________________________
Name: Corbin A. McNeill, Jr.
Title: Chairman, President, Chief
Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Corbin A. McNeill, Jr. Chairman, President, Chief May 15, 2000
______________________________________ Executive Officer and
Corbin A. McNeill, Jr. Director (Principal
Executive Officer)
/s/ Michael J. Egan Chief Financial Officer May 15, 2000
______________________________________ (Principal Accounting and
Michael J. Egan Financial Officer)
/s/ James W. Durham Director May 15, 2000
______________________________________
</TABLE> James W. Durham
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
2.1 Agreement and Plan of Exchange and Merger dated as of September 22,
1999, among PECO Energy Company, Exelon Corporation and Unicom
Corporation (included as Annex A to the proxy statement/prospectus
which is a part of this Registration Statement).
3.1 Articles of Incorporation of Exelon Corporation.
3.2 By-laws of Exelon Corporation.
4.1 Specimen certificate of Exelon common stock, no par value.
5.1 Opinion of Ballard Spahr Andrews & Ingersoll, LLP, regarding the
legality of the securities being registered.
8.1 Opinion of Cravath, Swaine & Moore as to tax matters.
8.2 Opinion of Jones, Day, Reavis & Pogue as to tax matters.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Ballard Spahr Andrews & Ingersoll, LLP (included in Exhibit
5.1).
23.4 Consent of Cravath, Swaine & Moore (included in Exhibit 8.1).
23.5 Consent of Jones, Day, Reavis & Pogue (included in Exhibit 8.2).
23.6 Consent of Salomon Smith Barney Inc.
23.7 Consent of Morgan Stanley & Co. Incorporated.
23.8 Consent of Wasserstein Perella & Co., Inc.
24.1 Power of Attorney (included on the signature page of this Registration
Statement).
99.1 Form of Proxy Card of PECO Energy.
99.2 Form of Proxy Card of Unicom.
99.3 Opinion of Morgan Stanley & Co. Incorporated (included as Annex B to
the proxy statement/prospectus which is a part of this registration
statement).
99.4 Opinion of Salomon Smith Barney Inc. (included as Annex C to the proxy
statement/prospectus which is a part of this registration statement).
99.5 Opinion of Wasserstein Perella & Co., Inc. (included as Annex D to the
proxy statement/prospectus which is a part of this registration
statement).
</TABLE>
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
EXELON CORPORATION
ARTICLE I.
The name of the Corporation is Exelon Corporation (the "Corporation").
ARTICLE II.
The address of the Corporation's registered office in the Commonwealth of
Pennsylvania is 2301 Market Street, the City of Philadelphia, County of
Philadelphia, 19103.
ARTICLE III.
PURPOSES
The purpose or purposes for which the Corporation is incorporated are to
engage in, and do any lawful act concerning, any or all lawful business for
which corporations may be incorporated under the Business Corporation Law.
ARTICLE IV.
CAPITAL STOCK
The aggregate number of shares which the Corporation shall have authority
to issue is 700,000,000 shares, divided into 600,000,000 shares of Common Stock,
without par value (hereinafter called the "Common Stock") and 100,000,000 shares
of Preferred Stock, without par value (hereinafter called the "Preferred
Stock"). The board of directors shall have the full authority permitted by law
to determine the voting rights, if any, and designations, preferences,
limitations, and special rights of any class or any series of any class of the
Preferred Stock that may be desired to the extent not determined by the
articles.
The following is a statement of the voting rights, designations,
preferences, limitations, and the special rights granted to or imposed upon the
Common Stock and the Preferred Stock:
PART 1
PREFERRED STOCK
DIVISION A
GENERAL PROVISIONS
Section 401. Vote Required to Increase Class or Series. Except as
-----------------------------------------
otherwise provided in the express terms of any series of the Preferred Stock,
the number of authorized shares of the
<PAGE>
Preferred Stock or of any series thereof may be increased without a class or
series vote or consent of the holders of the outstanding shares of the class or
series affected.
DIVISION B
VARIATIONS AMONG SERIES OF PREFERRED STOCK
(Reserved)
PART 2
COMMON STOCK
Section 421. Voting Rights. At all meetings of the shareholders of the
-------------
Corporation the holders of Common Stock shall be entitled to one vote for each
share of Common Stock held by them respectively, except as otherwise expressly
provided in this article.
Section 422. Dividend and Other Distribution Rights. Whenever full
--------------------------------------
dividends or other distributions on all series of the Preferred Stock at the
time outstanding having preferential dividend or other distribution rights shall
have been paid or declared and set apart for payment or otherwise made, then
such dividends (payable in cash or otherwise) or other distributions, as may be
determined by the board of directors may be declared and paid or otherwise made
on the Common Stock, but only out of funds legally available for the payment of
such distributions.
Section 423. Liquidation Rights. In the event of any liquidation,
------------------
dissolution or winding up of the Corporation, the assets and funds of the
Corporation available for distribution to shareholders, after paying or
providing for the payment to the holders of shares of all series of Preferred
Stock of the full distributive amounts to which they are respectively entitled
pursuant to the terms of such Preferred Stock, shall be divided among and paid
to the holders of Common Stock according to their respective shares.
PART 3
GENERAL
Section 431. Preemptive Rights. Except as otherwise provided in the
-----------------
express terms of any class or series of shares, or in any contract, warrant or
other instrument issued by the Corporation, no holder of shares of the
Corporation shall be entitled, as such, as a matter of right to subscribe for or
purchase any part of any issue of shares or other securities of the Corporation,
of any class, series or kind whatsoever, and whether issued for cash, property,
services, by way of dividends, or otherwise.
Section 432. Special Meeting of Shareholders. Except as otherwise
-------------------------------
provided by law or in the express terms of any class or series of shares, or in
any contract, warrant, or other instrument issued by the Corporation, no holder
of shares of the Corporation shall be entitled, as such, as a matter of right to
call a special meeting of the shareholders.
Section 433. Amendments to Terms of Preferred Stock. If and to the
--------------------------------------
extent provided by the express terms of any series of the Preferred Stock, the
board of directors may, without the consent of the holders of the outstanding
shares of such series or of the holders of any other
2
<PAGE>
shares of the Corporation (unless otherwise provided in the express terms of any
such other shares), amend these articles of incorporation so as to change any of
the terms of such series.
ARTICLE V.
MANAGEMENT
The following provisions shall govern the management of the business and
affairs of the Corporation and the rights, powers or duties of its security
holders, directors or officers:
Section 501. Effective Date of Article and Amendments Thereto. This
------------------------------------------------
article and any subsequent amendments thereto which require governmental
approval, if any, shall take effect upon receipt of such governmental approval.
Section 502. Classification of Board of Directors.
------------------------------------
The board of directors of the Corporation shall be classified in respect of
the time for which they shall severally hold office as follows:
(1) The term of office of at least one class shall expire in each year.
(2) Except as otherwise provided in the express terms of any series of the
Preferred Stock with respect to the election of directors upon the
occurrence of a default in the payment of dividends or in the performance
of another express requirement of the terms of such series, the members of
each class shall be elected for a term not to exceed four years and until
their respective successors shall have been elected and qualified, except
in the event of their earlier death, resignation or removal.
(3) The number of directors constituting each class shall be approximately
equal in size.
Section 503. Number of Directors. The number of directors of the
-------------------
Corporation constituting the whole board and the number of directors
constituting each class of directors as provided by Section 502 shall be fixed
solely by resolution adopted by a majority of the total number of directors that
the Corporation would have if there were no vacancies on the board of directors,
except as otherwise provided in the express terms of any class or series of
Preferred Stock with respect to the election of directors upon the occurrence of
a default in the payment of dividends or in the performance of another express
requirement of the terms of such Preferred Stock.
Section 504. Straight Voting for Directors. The shareholders of the
-----------------------------
Corporation shall not have the right to cumulate their votes for the election of
directors of the Corporation.
Section 505. Liability of Directors and Officers.
-----------------------------------
3
<PAGE>
(a) A director shall not be personally liable, as such, for monetary
damages (including, without limitation, any judgment, amount paid in
settlement, penalty, punitive damages or expense of any nature, including,
without limitation, attorney's fees and disbursements) for any action
taken, or any failure to take any action before, on or after the date of
these Articles of Incorporation, unless:
(i) the director has breached or failed to perform the duties of
his or her office under Subchapter B of Chapter 17 of the Business
Corporation Law; and
(ii) the breach or failure to perform constitutes self-dealing,
willful misconduct or recklessness.
(b) The provisions of paragraph (a) shall not apply to the
responsibility or liability of a director pursuant to any criminal statute,
or the liability of a director for the payment of taxes pursuant to local,
State or Federal law.
(c) No amendment or repeal of this Section 505 shall have any
effect on the liability or alleged liability of any director of the
Corporation for or with respect to any such act on the part of such
director occurring prior to the effective date of such amendment or repeal.
Section 506. Conduct of Officers. In lieu of the standards of conduct
-------------------
otherwise provided by law, officers of the Corporation shall be subject to the
same standards of conduct, including standards of care and loyalty and rights of
justifiable reliance, as shall at the time be applicable to directors of the
Corporation.
Section 507. Bylaws. Except as otherwise provided in the express terms
------
of any series of the shares of the Corporation, the bylaws and, except as
otherwise stated in this Section 507, bylaws made by the board of directors or
shareholders may be altered or repealed by the board of directors. The
shareholders or the board of directors may adopt new bylaws except that the
board of directors may not adopt, alter or repeal bylaws that the Business
Corporation Law specifies may be adopted only by shareholders, and the board of
directors may not alter or repeal any bylaw adopted by the shareholders that
provides that it shall not be altered or repealed by the board of directors.
ARTICLE VI.
MISCELLANEOUS
Section 601. Headings. The headings of the various sections of these
--------
articles of incorporation are for convenience of reference only and shall not
affect the interpretation of any of the provisions of these articles.
4
<PAGE>
Section 602. Reserved Power of Amendment. These articles of
---------------------------
incorporation may be amended in the manner and at the time prescribed by
statute, and all rights conferred upon shareholders herein are granted subject
to this reservation.
5
<PAGE>
Exhibit 3.2
EXELON CORPORATION
B Y L A W S
ARTICLE I.
----------
Offices and Fiscal Year
Section 1.01 Registered Office.-- The registered office of the
--------------------
corporation in the Commonwealth of Pennsylvania shall be at 2301 Market Street,
Philadelphia, Pennsylvania 19103.
Section 1.02 Other Offices.-- The corporation may also have offices at
----------------
such other places within or without the Commonwealth of Pennsylvania as the
board of directors may from time to time appoint or as may be necessary,
advisable or appropriate for the business of the corporation.
Section 1.03 Fiscal Year.-- The fiscal year of the corporation shall
begin on the first day of January in each year.
ARTICLE II.
-----------
Notice - Waivers - Meetings Generally
Section 2.01 Manner of Giving Notice.
------------------------
(a) General Rule.--Whenever written notice is required to be given to
------------
any person under the provisions of the Business Corporation Law or by the
articles or these bylaws, it may be given to the person either personally or by
sending a copy thereof by first class or express mail, postage prepaid, or by
telegram (with messenger services specified), telex or TWX (with answerback
received) or courier service, charges prepaid, or by facsimile transmission, to
the address (or to the telex, TWX or facsimile transmission telephone number) of
the person appearing on the books of the corporation, or as otherwise permitted
by applicable law, or, in the case of directors, supplied by the director to the
corporation for the purpose of notice. If the notice is sent by mail, telegraph
or courier service, it shall be deemed to have been given to the person entitled
thereto when deposited in the United States mail or with a telegraph office or
courier service for delivery to that person or, in the case of telex or TWX,
when dispatched or, in the case of facsimile transmission, when received.
Notwithstanding the foregoing, written notice of any meeting of shareholders may
be sent by any class of mail, postage prepaid, so long as such notice is sent at
least 20 calendar days prior to the date of the meeting. A notice of meeting
shall specify the place, day and hour of the meeting and any other information
required by any other provision of the Business Corporation Law, the articles or
these bylaws.
(b) Adjourned Shareholder Meetings.--When a meeting of shareholders is
------------------------------
adjourned, it shall not be necessary to give any notice of the adjourned meeting
or of the business to be transacted at an adjourned meeting, other than by
announcement at the meeting at which the adjournment is taken, unless the board
fixes a new record date
<PAGE>
for the adjourned meeting or the Business Corporation Law requires notice of the
business to be transacted and such notice has not previously been given.
Section 2.02 Notice of Meetings of the Board of Directors.--Notice of a
--------------------------------------------
regular meeting of the board of directors need not be given. Notice of every
special meeting of the board of directors shall be given to each director by
telephone or in writing at least 24 hours (in the case of notice by telephone,
telex, TWX, facsimile or other electronic transmission) or 48 hours (in the case
of notice by telegraph, courier service or express mail) or five days (in the
case of notice by first class mail) before the time at which the meeting is to
be held. Every such notice shall state the time and place of the meeting.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the board need be specified in a notice of the meeting.
Section 2.03 Notice of Meetings of Shareholders.
-----------------------------------
(a) General Rule.-- Written notice of every meeting of the shareholders
------------
shall be given by, or at the direction of, the secretary or other authorized
person to each shareholder of record entitled to vote at the meeting not less
than five nor more than 90 calendar days prior to the date of the meeting. If
the secretary neglects or refuses to give notice of a meeting, the person or
persons calling the meeting may do so. In the case of a special meeting of
shareholders, the notice shall specify the general nature of the business to be
transacted.
(b) Notice of Action by Shareholders on Bylaws.--In the case of a
------------------------------------------
meeting of shareholders that has as one of its purposes adoption, amendment or
repeal of these bylaws, written notice shall be given to each shareholder that
the purpose, or one of the purposes, of the meeting is to consider the adoption,
amendment or repeal of the bylaws. There shall be included in, or enclosed with,
the notice a copy of the proposed amendment or a summary of the changes to be
effected thereby.
Section 2.04 Waiver of Notice.
-----------------
(a) Written Waiver.--Whenever any written notice is required to be given
--------------
under the provisions of the Business Corporation Law, the articles or these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
the notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of the notice. Neither the business to be transacted
at, nor the purpose of, a meeting need be specified in the waiver of notice of
the meeting.
(b) Waiver by Attendance.--Attendance of a person at any meeting shall
--------------------
constitute a waiver of notice of the meeting except where a person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting was not lawfully called
or convened.
Section 2.05 Modification of Proposal Contained in Notice.--Whenever the
--------------------------------------------
language of a proposed resolution is included in a written notice of a meeting
required to be given under the provisions of the Business Corporation Law or the
articles or these bylaws, the meeting considering the resolution may without
further notice adopt it with such clarifying or other amendments as do not
enlarge its original purpose.
2
<PAGE>
Section 2.06 Exception to Requirement of Notice.
-----------------------------------
(a) General Rule.--Whenever any notice or communication is required to be given
------------
to any person under the provisions of the Business Corporation Law or by
the articles or these bylaws or by the terms of any agreement or other
instrument or as a condition precedent to taking any corporate action and
communication with that person is then unlawful, the giving of the notice
or communication to that person shall not be required.
(b) Shareholders Without Forwarding Addresses.--Notice or other communications
-----------------------------------------
need not be sent to any shareholder with whom the corporation has been
unable to communicate for more than 24 consecutive months because
communications to the shareholder are returned unclaimed or the shareholder
has otherwise failed to provide the corporation with a current address.
Whenever the shareholder provides the corporation with a current address,
the corporation shall recommence sending notices and other communications
to the shareholder in the manner provided by these bylaws.
Section 2.07 Use of Conference Telephone and Similar Equipment.--
----------------------------------------------------
Any director may participate in any meeting of the board of directors or a
committee thereof, and the board of directors may provide by resolution with
respect to a specific meeting of shareholders or with respect to a class of
meetings of shareholders that one or more persons may participate in a meeting
of the shareholders of the corporation, by means of conference telephone, video
conference or similar communications equipment by means of which all persons
participating in the meeting can hear each other. Participation in a meeting
pursuant to this Section shall constitute presence in person at the meeting.
ARTICLE III.
------------
Shareholders
Section 3.01 Place of Meeting.--Meetings of the shareholders of the
----------------
corporation may be held at such place within or without the Commonwealth of
Pennsylvania as may be designated by the Board of Directors, or in the absence
of a designation by the Board of Directors, by the chairman of the board or the
president and stated in the notice of a meeting.
Section 3.02 Annual Meeting.--The annual meeting of the shareholders for
--------------
the election of directors and the transaction of other business, if any, shall
be held on such date and time as may be fixed by the board and stated in the
notice of meetings (or, if the board fails to designate a date and time, at
10:30 a.m. on the fourth Wednesday in April of each year or, if such Wednesday
is a legal holiday in the Commonwealth of Pennsylvania or in such other
jurisdiction where such meeting may be held, the next succeeding business day).
Failure to hold such meeting at the designated time or on the designated date or
to elect some or all of the members of the board at such meeting or any
adjournment thereof shall not affect otherwise valid corporate acts or work a
forfeiture or dissolution of the corporation. If the annual meeting shall not
have been called and held within six months after the designated time, any
shareholder may call the meeting at any time thereafter.
3
<PAGE>
Section 3.03 Special Meetings.--Special meetings of the shareholders may
----------------
be called at any time by resolution of the board of directors, which may fix the
date, time and place of the meeting, and shall be called as provided in the
terms of the Preferred Stock. If the board does not fix the date, time or place
of the meeting, it shall be the duty of the secretary to do so. A date fixed by
the secretary shall not be more than 60 calendar days after the date of the
action calling the special meeting.
Section 3.04 Quorum and Adjournment.
-----------------------
(a) General Rule.--A meeting of the shareholders of the corporation duly
-------------
called shall not be organized for the transaction of business unless a quorum is
present. Except as otherwise provided in the terms of the Preferred Stock, the
presence of shareholders entitled to cast at least a majority of the votes that
all shareholders are entitled to cast on a particular matter to be acted upon at
the meeting shall constitute a quorum for the purposes of consideration and
action on the matter. Shares of the corporation owned, directly or indirectly,
by it shall not be counted in determining the total number of outstanding shares
for quorum purposes at any given time.
(b) Withdrawal of a Quorum.--The shareholders present at a duly
----------------------
organized meeting can continue to do business until adjournment notwithstanding
the withdrawal of enough shareholders to leave less than a quorum.
(c) Adjournments Generally.--Any regular or special meeting of the
----------------------
shareholders, including one at which directors are to be elected and one which
cannot be organized because a quorum has not attended, may be adjourned, except
as otherwise provided by the Business Corporation Law, for such period and to
such place as the shareholders present and entitled to vote shall direct.
(d) Electing Directors at Adjourned Meeting.--Those shareholders
---------------------------------------
entitled to vote who attend a meeting called for the election of directors that
has been previously adjourned for lack of a quorum, although less than a quorum
as fixed in this Section of these bylaws, shall nevertheless constitute a quorum
for the purpose of electing directors.
(e) Other Action in Absence of Quorum.--Those shareholders entitled to
---------------------------------
vote who attend a meeting of shareholders that has been previously adjourned for
one or more periods aggregating at least 15 calendar days because of an absence
of a quorum, although less than a quorum as fixed in this Section of these
bylaws, shall nevertheless constitute a quorum for the purpose of acting upon
any matter set forth in the notice of the meeting if the notice states that
those shareholders who attend the adjourned meeting shall nevertheless
constitute a quorum for the purpose of acting upon the matter.
Section 3.05 Action by Shareholders.--
-------------------------
(a) General Rule. Except as otherwise provided in the Business
------------
Corporation Law or the articles or these bylaws, whenever any corporate action
is to be taken by vote of the shareholders of the corporation, it shall be
authorized upon receiving the affirmative vote of a majority of the votes cast
by all shareholders entitled to vote thereon and, if any shareholders are
entitled to vote thereon as a class, upon receiving the affirmative
4
<PAGE>
vote of a majority of the votes cast by the shareholders entitled to vote as a
class, in each case at a duly organized meeting of shareholders. Except as
otherwise provided in the terms of the Preferred Stock or when acting by
unanimous consent to remove a director or directors, the shareholders of the
corporation may act only at a duly organized meeting.
(b) Conduct of Business. Only such business will be conducted at an
-------------------
annual or special meeting of shareholders as shall have been properly brought
before the meeting by or at the direction of the board of directors, or with
respect to an annual meeting, by any shareholder who complies with the
procedures set forth in this Section.
(1) For business to be properly brought before an annual meeting by a
shareholder, the shareholder must have given to the secretary of the
corporation timely written notice of the shareholder's intention to make a
proposal, in the manner and form prescribed herein.
(i) To be timely, a shareholder's notice with respect to an
annual meeting of shareholders must be addressed to the secretary
of the corporation at the principal executive offices of the
corporation and received by the secretary not less than 120
calendar days in advance of the first anniversary of the date on
which the corporation first mailed its proxy materials to
shareholders for the prior year's annual meeting of shareholders,
and this notice requirement shall not be affected by any
adjournment of said meeting; provided, however, that in the event
public announcement of the date of the annual meeting is not made
at least 75 calendar days prior to the date of the annual meeting,
notice by the shareholder to be timely must be so received not
later than the close of business on the 10th calendar day following
the day on which public announcement is first made of the date of
the annual meeting.
(ii) A shareholder's notice to the secretary must set forth as
to each matter the shareholder proposes to bring before the annual
meeting (A) a description in reasonable detail of the business
desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (B) the name and
address, as they appear on the corporation's books, of the
shareholder proposing such business and of the beneficial owner, if
any, on whose behalf the proposal is made, (C) the class and number
of shares of the corporation that are owned beneficially and of
record by the shareholder proposing such business and by the
beneficial owner, if any, on whose behalf the proposal is made, and
(D) any material interest of such shareholder proposing such
business and the beneficial owner, if any, on whose behalf the
proposal is made in such business.
(iii) Notwithstanding the foregoing provisions of these bylaws,
a shareholder must also comply with all applicable requirements of
the Securities Exchange Act of 1934 (the "Exchange Act") and the
rules and regulations thereunder with respect to the matters set
forth in this Section. For purposes of this Section, "public
announcement" means disclosure in a press release reported by the
Dow Jones News Service, Bloomberg
5
<PAGE>
Business News, or Reuters Economic Services or in a document
publicly filed by the corporation with the Securities and Exchange
Commission pursuant to Section 13, 14, or 15(d) of the Exchange
Act, or publicly filed by the corporation with any national
securities exchange or quotation service through which the
corporation's stock is listed or traded, or furnished by the
corporation to its shareholders. Notwithstanding the foregoing, no
notice of the date of the annual meeting is required for the
advance notice provision of this Section 3.05 (b) to be effective
if the annual meeting is held on such date as specified in Section
3.02 of these bylaws. Nothing in this Section will be deemed to
affect any rights of shareholders to request inclusion of proposals
in the corporation's proxy statement pursuant to Rule 14a-8 under
the Exchange Act.
(2) At a special meeting of shareholders, only such business may be
conducted or considered as is properly brought before the meeting. To be
properly brought before a special meeting, business must be (i) specified
in the notice of the meeting (or any supplement thereto) given in
accordance with Section 2.03 of these bylaws or (ii) otherwise brought
before the meeting by the presiding officer or by or at the direction of a
majority of the total number of directors that the corporation would have
if there were no vacancies on the board of directors (the "Whole Board").
(3) The determination of whether any business sought to be brought
before any annual or special meeting of the shareholders is properly
brought before such meeting in accordance with this Section of these bylaws
will be made by the presiding officer of such meeting. If the presiding
officer determines that any business is not properly brought before such
meeting, he or she will so declare to the meeting and any such business
will not be conducted or considered.
Section 3.06 Organization.
-------------
(a) Presiding Officer and Secretary of Meeting.--At every meeting of the
------------------------------------------
shareholders, the chairman of the board, or such other officer of the
corporation designated by a majority of the Whole Board, will call meetings of
shareholders to order or, in the case of vacancy in office and absence by action
of the Whole Board, one of the following officers present in the order stated:
The co-chief executive officers, if there be more than one, the chief executive
officer, if there be one, the president, if there be one, the vice presidents in
their order of rank and seniority shall act as "presiding officer" of the
meeting. The term "presiding officer" means an officer who presides over a
meeting of shareholders. The secretary or, in the absence of the secretary, an
assistant secretary, or, in the absence of both the secretary and assistant
secretaries, a person appointed by the presiding officer of the meeting, shall
act as secretary of the meeting.
(b) Rules of Conduct.-- Unless otherwise determined by the board of
----------------
directors prior to the meeting, the presiding officer of the meeting of
shareholders will determine the order of business and have the authority to make
such rules or regulations for the conduct of meetings of shareholders as such
presiding officer deems necessary, appropriate or convenient for the proper
conduct of the meeting, including, without
6
<PAGE>
limitation, establishing an agenda or order of business for the meeting, rules
and procedures for maintaining order at the meeting and the safety of those
present, limitations on participation in such meeting to shareholders of record
of the corporation and their duly authorized and constituted proxies, and such
other persons as the board of directors or the presiding officer shall permit,
restrictions on entry to the meeting after the time fixed for the commencement
thereof, limitations on the time allotted to questions or comment by
participants and regulation of the opening and closing of the polls for
balloting on matters which are to be voted on by ballot. Unless, and to the
extent determined by the board of directors or the presiding officer of the
meeting, meetings of shareholders need not be conducted in accordance with rules
of parliamentary procedure.
Section 3.07 Voting Rights of Shareholders.--Unless otherwise provided
-----------------------------
in the articles, every shareholder of the corporation shall be entitled to one
vote for every share standing in the name of the shareholder on the books of the
corporation.
Section 3.08 Voting and other Action by Proxy.
---------------------------------
(a) General Rule.--
------------
(1) Every shareholder entitled to vote at a meeting of
shareholders may authorize another person to act for the
shareholder by proxy.
(2) The presence of, or vote or other action at a meeting of
shareholders by a proxy of a shareholder shall constitute the
presence of, or vote or action by, the shareholder.
(3) Where two or more proxies of a shareholder are present, the
corporation shall, unless otherwise expressly provided in the
proxy, accept as the vote of all shares represented thereby the
vote cast by a majority of them and, if a majority of the proxies
cannot agree whether the shares represented shall be voted, or upon
the manner of voting the shares, the voting of the shares shall be
divided equally among those persons.
(b) Form of Proxy.--Every proxy shall be in a form approved by the
-------------
secretary of the corporation or as otherwise provided by the Business
Corporation Law.
(c) Revocation.--A proxy, unless coupled with an interest, shall be
----------
revocable at will, notwithstanding any other agreement or any provision in the
proxy to the contrary, but the revocation of a proxy shall not be effective
until written notice thereof has been given to the secretary of the corporation.
An unrevoked proxy shall not be valid after three years from the date of its
execution unless a longer time is expressly provided therein. A proxy shall not
be revoked by the death or incapacity of the maker unless, before the vote is
counted or the authority is exercised, written notice of the death or incapacity
is given to the secretary of the corporation.
(d) Expenses.--The corporation shall pay the reasonable expenses of
--------
solicitation of votes or proxies of shareholders by or on behalf of the board of
directors or its nominees for election to the board, including solicitation by
professional proxy solicitors and otherwise.
7
<PAGE>
Section 3.09 Voting by Fiduciaries and Pledgees.--Shares of the
----------------------------------
corporation standing in the name of a trustee or other fiduciary and shares
held by an assignee for the benefit of creditors or by a receiver may
be voted by the trustee, fiduciary, assignee or receiver. A shareholder whose
shares are pledged shall be entitled to vote the shares until the shares have
been transferred into the name of the pledgee, or a nominee of the pledgee, but
nothing in this Section shall affect the validity of a proxy given to a pledgee
or nominee.
Section 3.10 Voting by Joint Holders of Shares.
----------------------------------
(a) General Rule.--Where shares of the corporation are held jointly or
------------
as tenants in common by two or more persons, as fiduciaries or otherwise:
(1) if only one or more of such persons is present in person or
by proxy, all of the shares standing in the names of such persons
shall be deemed to be represented for the purpose of determining a
quorum and the corporation shall accept as the vote of all the
shares the vote cast by a joint owner or a majority of them; and
(2) if the persons are equally divided upon whether the shares
held by them shall be voted or upon the manner of voting the
shares, the voting of the shares shall be divided equally among the
persons without prejudice to the rights of the joint owners or the
beneficial owners thereof among themselves.
(b) Exception.--If there has been filed with the secretary of the
---------
corporation a copy, certified by an attorney-at-law to be correct, of the
relevant portions of the agreement under which the shares are held or the
instrument by which the trust or estate was created or the order of court
appointing them or of an order of court directing the voting of the shares, the
persons specified as having such voting power in the latest document so filed,
and only those persons, shall be entitled to vote the shares but only in
accordance therewith.
Section 3.11 Voting by Corporations.
-----------------------
(a) Voting by Corporate Shareholders.--Any domestic or foreign
--------------------------------
corporation for profit or not-for-profit that is a shareholder of this
corporation may vote at meetings of shareholders of this corporation by any of
its officers or agents, or by proxy appointed by any officer or agent, unless
some other person, by resolution of the board of directors of the other
corporation or a provision of its articles or bylaws, a copy of which resolution
or provision certified to be correct by one of its officers has been filed with
the secretary of this corporation, is appointed its general or special proxy in
which case that person shall be entitled to vote the shares.
(b) Controlled Shares.--Shares of this corporation owned, directly or
-----------------
indirectly, by it and controlled, directly or indirectly, by the board of
directors of this corporation, as such, shall not be voted at any meeting and
shall not be counted in determining the total number of outstanding shares for
voting purposes at any given time.
Section 3.12 Determination of Shareholders of Record.
----------------------------------------
8
<PAGE>
(a) Fixing Record Date.--The board of directors may fix a time prior to
------------------
the date of any meeting of shareholders as a record date for the determination
of the shareholders entitled to notice of, or to vote at, the meeting, which
time, except as otherwise provided in the articles or in the case of an
adjourned meeting, shall be not more than 90 calendar days prior to the date of
the meeting of shareholders. Only shareholders of record on the date fixed shall
be so entitled notwithstanding any transfer of shares on the books of the
corporation after any record date fixed as provided in this Subsection. The
board of directors may similarly fix a record date for the determination of
shareholders of record for any other purpose, except that the record date fixed
to determine the holders of Preferred Stock entitled to receive dividends
thereon shall not precede the respective dividend payment date by more than 40
calendar days. When a determination of shareholders of record has been made as
provided in this Section for purposes of a meeting, the determination shall
apply to any adjournment thereof unless the board fixes a new record date for
the adjourned meeting.
(b) Determination When Record Date Is Not Fixed.--If a record date is
-------------------------------------------
not fixed:
(1) The record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the
close of business on the day next preceding the day on which notice
is given.
(2) The record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the
board of directors adopts the resolution relating thereto.
(c) Certification by Nominee.--The board of directors may adopt a
------------------------
procedure whereby a shareholder of the corporation may certify in writing to the
corporation that all or a portion of the shares registered in the name of the
shareholder are held for the account of a specified person or persons. Upon
receipt by the corporation of a certification complying with the procedure, the
persons specified in the certification shall be deemed, for the purposes set
forth in the certification, to be the holders of record of the number of shares
specified in place of the shareholder making the certification.
Section 3.13 Voting Lists.
-------------
(a) General Rule.--The officer or agent having charge of the transfer
------------
books for shares of the corporation shall make a complete list of the
shareholders entitled to vote at any meeting of shareholders, arranged in
alphabetical order, with the address of and the number of shares held by each.
The list shall be produced and kept open at the time and place of the meeting
and shall be subject to the inspection of any shareholder during the whole time
of the meeting for the purposes thereof except that, if the corporation has
5,000 or more shareholders, in lieu of the making of the list the corporation
may make the information therein available at the meeting by any other means.
(b) Effect of List.--Failure to comply with the requirements of this
--------------
Section shall not affect the validity of any action taken at a meeting prior to
a demand at the meeting by any shareholder entitled to vote thereat to examine
the list. The original share register or transfer book, or a duplicate thereof
kept in the Commonwealth of Pennsylvania, shall be prima facie evidence as to
who are the shareholders entitled to
9
<PAGE>
examine the list or share register or transfer book or to vote at any meeting of
shareholders.
Section 3.14 Judges of Election.
-------------------
(a) Appointment.--In advance of any meeting of shareholders of the
-----------
corporation, the board of directors may appoint judges of election, who need not
be shareholders, to act at the meeting or any adjournment thereof. If judges of
election are not so appointed, the presiding officer of the meeting may appoint
judges of election at the meeting. The number of judges shall be one or three. A
person who is a candidate for an office to be filled at the meeting shall not
act as a judge.
(b) Vacancies.--In case any person appointed as a judge fails to appear
---------
or fails or refuses to act, the vacancy may be filled by appointment made by the
board of directors in advance of the convening of the meeting or at the meeting
by the presiding officer thereof.
(c) Duties.--The judges of election shall determine the number of shares
------
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum, and the authenticity, validity and effect of proxies,
receive votes or ballots, hear and determine all challenges and questions in any
way arising in connection with the right to vote, count and tabulate all votes,
determine the result and do such acts as may be proper to conduct the election
or vote. The judges of election shall perform their duties impartially, in good
faith, to the best of their ability and as expeditiously as is practical. If
there are three judges of election, the decision, act or certificate of a
majority shall be effective in all respects as the decision, act or certificate
of all.
(d) Report.--On request of the presiding officer of the meeting or of
------
any shareholder, the judges shall make a report in writing of any challenge or
question or matter determined by them, and execute a certificate of any fact
found by them. Any report or certificate made by them shall be prima facie
evidence of the facts stated therein.
Section 3.15 Minors as Security Holders.--The corporation may treat a
-----------------------------
minor who holds shares or obligations of the corporation as having capacity to
receive and to empower others to receive dividends, interest, principal and
other payments or distributions, to vote or express consent or dissent and to
make elections and exercise rights relating to such shares or obligations
unless, in the case of payments or distributions on shares, the corporate
officer responsible for maintaining the list of shareholders or the transfer
agent of the corporation or, in the case of payments or distributions on
obligations, the treasurer or paying officer or agent has received written
notice that the holder is a minor.
ARTICLE IV.
-----------
Board of Directors
Section 4.01 Powers.
-------
10
<PAGE>
(a) General Rule.--Unless otherwise provided by statute, all powers
------------
vested by law in the corporation shall be exercised by or under the authority
of, and the business and affairs of the corporation shall be managed under the
direction of, the board of directors.
(b) Personal Liability of Directors.--
-------------------------------
(1) A director shall not be personally liable, as such, for
monetary damages (including, without limitation, any judgment,
amount paid in settlement, penalty, punitive damages or expenses of
any nature, including, without limitation, attorneys' fees and
disbursements) for any action taken, or any failure to take any
action before, on or after the date of these bylaws, unless:
(i) the director has breached or failed to perform the
duties of his or her office under Subchapter B of Chapter
17 of the Business Corporation Law; and
(ii) the breach or failure to perform constitutes self-
dealing, willful misconduct or recklessness.
(2) The provisions of paragraph (1) shall not apply to the
responsibility or liability of a director pursuant to any criminal
statute, or the liability of a director for the payment of taxes
pursuant to local, State or Federal law.
(3) No amendment or repeal of this Section 4.01 shall have any
effect on the liability or alleged liability of any director of the
corporation for or with respect to any such act on the part of such
director occurring prior to the effective date of such amendment or
repeal.
(c) Directors. A director shall stand in a fiduciary relation to the
---------
corporation and shall perform his duties as a director, including his duties as
a member of any committee of the board upon which he may serve, in good faith,
in a manner he reasonably believes to be in the best interests of the
corporation and with such care, including reasonable inquiry, skill and
diligence, as a person of ordinary prudence would use under similar
circumstances. In performing his duties, a director shall be entitled to rely in
good faith on information, opinions, reports or statements, including financial
statements and other financial data, in each case prepared or presented by any
of the following:
(1) One or more officers or employees of the corporation whom
the director reasonably believes to be reliable and competent in
the matters presented.
(2) Counsel, public accountants or other persons as to matters
which the director reasonably believes to be within the
professional or expert competence of such person.
(3) A committee of the board upon which he does not serve, duly
designated in accordance with law, as to matters within its
designated authority, which committee the director reasonably
believes to merit confidence.
11
<PAGE>
Section 4.02 Qualifications and Selection of Directors.
------------------------------------------
(a) Qualifications.--Each director of the corporation shall be a natural
--------------
person of full age who need not be a resident of the Commonwealth of
Pennsylvania or a shareholder of the corporation.
(b) Notice of Certain Nominations Required.--Nominations for election of
--------------------------------------
directors may be made by any shareholder entitled to vote for the election of
directors if timely written notice in proper form (the "Notice") of the
shareholder's intent to nominate a director at the meeting is given by the
shareholder and received by the secretary of the corporation. To be timely, a
shareholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not less than 120 calendar days
before the first anniversary of the date on which the corporation first mailed
its proxy materials for the prior year's annual meeting of shareholders;
provided, however, that in the event that public announcement of the date of the
annual meeting is not made at least 75 calendar days prior to the date of the
annual meeting, notice by the shareholder to be timely must be so received not
later than the close of business on the 10th calendar day following the day on
which public announcement is first made of the date of the annual meeting. The
requirements of this Subsection shall not apply to a nomination for directors
made to the shareholders by the board of directors or a committee thereof.
(c) Contents of Notice.--To be in proper written form, the Notice shall
------------------
be in writing and shall contain or be accompanied by:
(1) the name and residence address of the nominating shareholder
and of the beneficial owner, if any, on whose behalf the nomination
is made;
(2) a representation that the shareholder giving the notice is a
holder of record of voting stock of the corporation entitled to
vote at such annual meeting and intends to appear in person or by
proxy at the meeting to nominate the person or persons specified in
the Notice;
(3) the class and number of shares of voting stock of the
corporation owned beneficially and of record by the shareholder
giving the notice and by the beneficial owner, if any, on whose
behalf the nomination is made;
(4) such information regarding each nominee as would have been
required to be included in a proxy statement filed pursuant to
Regulation 14A of the rules and regulations established by the
Securities and Exchange Commission under the Exchange Act (or
pursuant to any successor act or regulation) had proxies been
solicited with respect to such nominee by the management or board
of directors of the corporation;
(5) a description of all arrangements or understandings between
or among any of (A) the shareholder giving the notice, (B) the
beneficial owner on whose behalf the notice is given, (C) each
nominee, and (D) any other person or persons (naming such person or
persons) pursuant to which the nomination or nominations are to be
made by the shareholder giving the notice;
12
<PAGE>
(6) a description of all arrangements or understandings among
the shareholder and each nominee and any other person or persons
(naming such person or persons) pursuant to which the nomination or
nominations are to be made by the shareholder; and
(7) the signed consent of each nominee to serve as a director of
the corporation if so elected.
(d) Determination of Compliance.--The presiding officer of the meeting
---------------------------
may, if the facts warrant, determine and declare to the meeting that any
nomination made at the meeting was not made in accordance with the procedures of
this Section and, in such event, the presiding officer will so declare to the
meeting, and the defective nomination shall be disregarded. Any such decision by
the presiding officer shall be conclusive and binding upon all shareholders of
the corporation for any purpose. Notwithstanding the foregoing provisions of
this Section, a shareholder must also comply with all applicable requirements of
the Exchange Act, and the rules and regulations thereunder, with respect to the
matters set forth in this Section.
(e) Election of Directors.--Except as otherwise provided in these
---------------------
bylaws, directors of the corporation shall be elected by the shareholders only
at an annual meeting of shareholders, unless such election of directors is
required by the terms of any series of Preferred Stock. In elections for
directors, voting need not be by ballot, unless required by vote of the
shareholders before the voting for election of directors begins. The candidates
receiving the highest number of votes from each class or group of classes, if
any, entitled to elect directors separately up to the number of directors to be
elected by the class or group of classes shall be elected. If at any meeting of
shareholders, directors of more than one class are to be elected, each class of
directors shall be elected in a separate election.
Section 4.03 Number and Term of Office.
--------------------------
(a) Number.--The board of directors shall consist of such number of
------
directors as may be determined from time to time by resolution of a majority of
the Whole Board.
(b) Term of Office.--Each director shall hold office until the
--------------
expiration of the term for which he or she was selected and until a successor
has been selected and qualified or until his or her earlier death, resignation
or removal. A decrease in the number of directors shall not have the effect of
shortening the term of any incumbent director.
(c) Resignation.--Any director may resign at any time upon written
-----------
notice to the corporation. The resignation shall be effective upon receipt
thereof by the corporation or at such subsequent time as shall be specified in
the notice of resignation.
(d) Classified Board of Directors.--The directors shall be classified in
-----------------------------
respect to the time for which they shall severally hold office as follows:
(1) The term of office of at least one class shall expire in
each year.
13
<PAGE>
(2) Except as otherwise provided in the terms of the Preferred
Stock or in the articles, the members of each class shall be
elected for a period of three years.
(3) The number of directors constituting each class shall be
approximately equal in size.
Section 4.04 Vacancies.
----------
(a) General Rule.--Subject to the requirements of Article X hereof and
------------
except as otherwise provided in the terms of the Preferred Stock, vacancies in
the board of directors, including vacancies resulting from an increase in the
number of directors, may be filled by a majority vote of the remaining members
of the board though less than a quorum, or by a sole remaining director, and
each person so selected shall be a director to serve for the balance of the
unexpired term of the class for which such director has been chosen, and until a
successor has been selected and qualified or until his or her earlier death,
resignation or removal.
(b) Action by Resigned Directors.--When one or more directors resign
----------------------------
from the board effective at a future date, the directors then in office,
including those who have so resigned, shall have power by the applicable vote to
fill the vacancies, the vote thereon to take effect when the resignations become
effective.
Section 4.05 Removal of Directors.
---------------------
(a) Removal by the Shareholders.--The entire board of directors, or any
---------------------------
class of the board, or any individual director may be removed from office by
vote of the shareholders entitled to vote thereon only for cause. In case the
board or a class of the board or any one or more directors are so removed, new
directors may be elected at the same meeting. The repeal of a provision of the
articles or bylaws prohibiting, or the addition of a provision to the articles
or bylaws permitting, the removal by the shareholders of the board, a class of
the board or a director without assigning any cause shall not apply to any
incumbent director during the balance of the term for which the director was
selected.
(b) Removal by the Board.--The board of directors may declare vacant the
--------------------
office of a director who has been judicially declared of unsound mind or who has
been convicted of an offense punishable by imprisonment for a term of more than
one year or if, within 60 days after notice of his or her selection, the
director does not accept the office either in writing or by attending a meeting
of the board of directors.
Section 4.06 Place of Meetings.--Meetings of the board of directors may
--------------------
be held at such place within or without the Commonwealth of Pennsylvania as the
board of directors may from time to time appoint or as may be designated in the
notice of the meeting.
Section 4.07 Organization of Meetings.--At every meeting of the board of
---------------------------
directors, the chairman of the board, if there be one, or, in the case of a
vacancy in the office or absence of the chairman of the board, one of the
following officers present in the order stated: the chief executive officer, the
president, the vice presidents in their
14
<PAGE>
order of rank and seniority, or a person chosen by a majority of the directors
present, shall act as chairman of the meeting. The secretary or, in the absence
of the secretary, an assistant secretary, or, in the absence of the secretary
and the assistant secretaries, any person appointed by the chairman of the
meeting, shall act as secretary of the meeting.
Section 4.08 Regular Meetings.--Regular meetings of the board of
-------------------
directors shall be held at such time and place as shall be designated from time
to time by resolution of the board of directors.
Section 4.09 Special Meetings.--Special meetings of the board of
-------------------
directors shall be held whenever called by the chairman of the board, the co-
chief executive officers, if there be more than one, or the chief executive
officer, if there be one or by two or more of the directors.
Section 4.10 Quorum of and Action by Directors.
----------------------------------
(a) General Rule.--A majority of the directors in office of the
------------
corporation shall be necessary to constitute a quorum for the transaction of
business and except as otherwise provided in these bylaws the acts of a majority
of the directors present and voting at a meeting at which a quorum is present
shall be the acts of the board of directors.
(b) Action by Written Consent.--Any action required or permitted to be
-------------------------
taken at a meeting of the directors may be taken without a meeting if, prior or
subsequent to the action, a consent or consents thereto by all of the directors
in office is filed with the secretary of the corporation.
(c) Notation of Dissent.--A director who is present at a meeting of the
-------------------
board of directors, or of a committee of the board, at which action on any
corporate matter is taken shall be presumed to have assented to the action taken
unless his or her dissent is entered in the minutes of the meeting or unless the
director files a written dissent to the action with the secretary of the meeting
before the adjournment thereof or transmits the dissent in writing to the
secretary of the corporation immediately after the adjournment of the meeting.
The right to dissent shall not apply to a director who voted in favor of the
action. Nothing in this Section shall bar a director from asserting that minutes
of the meeting incorrectly omitted his or her dissent if, promptly upon receipt
of a copy of such minutes, the director notifies the secretary, in writing, of
the asserted omission or inaccuracy.
Section 4.11 Committees of the Board.
------------------------
(a) Establishment and Powers.--The board of directors may, by resolution
------------------------
adopted by a majority of the directors in office, establish one or more
committees to consist of one or more directors of the corporation. Any
committee, to the extent provided in the resolution of the board of directors,
shall have and may exercise all of the powers and authority of the board of
directors except that a committee shall not have any power or authority as to
the following:
15
<PAGE>
(1) The submission to shareholders of any action requiring
approval of shareholders under the Business Corporation Law.
(2) The creation or filling of vacancies in the board of
directors.
(3) The adoption, amendment or repeal of these bylaws.
(4) The amendment or repeal of any resolution of the board that
by its terms is amendable or repealable only by the board.
(5) Action on matters committed by a resolution of the board of
directors to another committee of the board.
(b) Alternate Committee Members.--The board may designate one or more
---------------------------
directors as alternate members of any committee who may replace any absent or
disqualified member at any meeting of the committee or for the purposes of any
written action by the committee. In the absence or disqualification of a member
and alternate member or members of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not
constituting a quorum, may unanimously appoint another director to act at the
meeting in the place of the absent or disqualified member .
(c) Term.--Each committee of the board shall serve at the pleasure of
----
the board.
(d) Committee Procedures.--The term "board of directors" or "board,"
--------------------
when used in any provision of these bylaws relating to the organization or
procedures of or the manner of taking action by the board of directors, shall be
construed to include and refer to any executive or other committee of the board.
Section 4.12 Compensation.--The board of directors shall have the
------------
authority to fix the compensation of directors for their services as directors
and a director may be a salaried officer of the corporation.
ARTICLE V.
----------
Officers
Section 5.01 Officers Generally.
-------------------
(a) Number, Qualifications and Designation.--Subject to the requirements
--------------------------------------
of Article X hereof, the officers of the corporation shall be a chairman of the
board, president, one or more vice presidents (which term shall include vice
presidents, executive vice presidents and senior vice presidents), a secretary,
a treasurer, and a chief executive officer or two co-chief executive officers,
as the board of directors may designate by resolution, and such other officers
as may be elected in accordance with the provisions of Section 5.03. Officers
may but need not be directors or shareholders of the corporation. The president,
secretary and treasurer shall be natural persons of full age. The board of
directors may elect from among the members of the board a chairman of the board
and vice chairman of the board who shall be officers of the corporation. Any
number of offices may be held by the same person.
16
<PAGE>
(b) Bonding.--The corporation may secure the fidelity of any or all of
-------
its officers by bond or otherwise.
Section 5.02 Election, Term of Office and Resignations.
-----------------------------------------
(a) Election and Term of Office.--The officers of the corporation,
---------------------------
except those elected by delegated authority pursuant to Section 5.03, shall be
elected by the board of directors, and each such officer shall hold office at
the discretion of the board until his or her death, resignation or removal with
or without cause.
(b) Resignations.--Any officer may resign at any time upon written
------------
notice to the corporation. The resignation shall be effective upon receipt
thereof by the corporation or at such subsequent time as may be specified in the
notice of resignation.
Section 5.03 Subordinate Officers, Committees and Agents.--The board of
--------------------------------------------
directors may from time to time elect such other officers and appoint such
committees, employees or other agents as the business of the corporation may
require, including without limitation, one or more vice presidents, one or more
assistant secretaries, and one or more assistant treasurers, each of whom shall
hold office for such period, have such authority, and perform such duties as are
provided in these bylaws, or as the board of directors may from time to time
determine. The board of directors may delegate to any officer or committee the
power to elect subordinate officers and to retain or appoint employees or other
agents, or committees thereof, and to prescribe the authority and duties of such
subordinate officers, committees, employees or other agents.
Section 5.04 Removal of Officers and Agents.--Any officer or agent of
------------------------------
the corporation may be removed by the board of directors with or without cause.
The removal shall be without prejudice to the contract rights, if any, of any
person so removed. Election or appointment of an officer or agent shall not of
itself create contract rights.
Section 5.05 Vacancies.--A vacancy in any office because of death,
---------
resignation, removal, disqualification, or any other cause, may be filled by the
board of directors or by the officer or committee to which the power to fill
such office has been delegated pursuant to Section 5.03, as the case may be, and
if the office is one for which these bylaws prescribe a term, shall be filled
for the unexpired portion of the term.
Section 5.06 Authority.
---------
(a) General Rule.--All officers of the corporation, as between
------------
themselves and the corporation, shall have such authority and perform such
duties in the management of the corporation as may be provided by or pursuant to
resolutions or orders of the board of directors or, in the absence of
controlling provisions in the resolutions or orders of the board of directors,
as may be determined by or pursuant to these bylaws.
(b) Chief Executive Officer--Subject to the requirements of Article X
-----------------------
hereof, the board of directors may designate from time to time by resolution a
chief executive officer or two co-chief executive officers. Such chief executive
officers or co-chief executive officers may be, but need not be, the president
or chairman of the board.
17
<PAGE>
Section 5.07 Chairman of the Board; Vice Chairman of the Board.--
----------------------------------------------------
Except as otherwise provided by these bylaws, the chairman of the board shall
preside at all meetings of the shareholders and of the board of directors. The
chairman of the board shall perform such other duties as may from time to time
be requested by the board of directors. In addition, the board of directors may
designate by resolution a vice chairman of the board with such duties as may
from time to time be requested by the board of directors.
Section 5.08 The Chief Executive Officer.--The co-chief executive
---------------------------
officers, if there be more than one or, the chief executive officer, if there be
one, may have general supervision over the business and operations of the
corporation, subject however, to the control of the board of directors or the
chairman of the board. Such chief executive officer may sign, execute, and
acknowledge, in the name of the corporation, deeds, mortgages, bonds, contracts
or other instruments, authorized by the board of directors, except in cases
where the signing and execution thereof shall be expressly delegated by the
board of directors, or by these bylaws, to some other officer or agent of the
corporation; and, in general, may perform all duties incident to the office of
chief executive officer and such other duties as from time to time may be
assigned by the board of directors and the chairman of the board.
Section 5.09 The President.--The president may have general supervision
--------------
over the business and operations of the corporation, subject however, to the
control of the board of directors, the chairman of the board and the chief
executive officer or officers, as applicable. The president may sign, execute,
and acknowledge, in the name of the corporation, deeds, mortgages, bonds,
contracts or other instruments, authorized by the board of directors, except in
cases where the signing and execution thereof shall be expressly delegated by
the board of directors, or by these bylaws, to some other officer or agent of
the corporation; and, in general, may perform all duties incident to the office
of president and such other duties as from time to time may be assigned by the
board of directors, the chairman of the board and the chief executive officer or
officers, as applicable.
Section 5.10 The Vice Presidents.--The vice presidents (which term shall
-------------------
include vice presidents, executive vice presidents and senior vice presidents)
shall perform such duties as may from time to time be assigned to them by the
board of directors or by the chief executive officer or, if there be more than
one, by the co-chief executive officers.
Section 5.11 The Secretary.--The secretary or an assistant secretary
-------------
shall attend all meetings of the shareholders and of the board of directors and
shall record all the votes of the shareholders and of the directors and the
minutes of the meetings of the shareholders and of the board of directors and of
committees of the board in a book or books to be kept for that purpose; shall
see that notices are given and records and reports properly kept and filed by
the corporation as required by law; shall be the custodian of the seal of the
corporation and see that it is affixed to all documents to be executed on behalf
of the corporation under its seal; and, in general, shall perform all duties
incident to the office of secretary, and such other duties as may from time to
time be assigned by the board of directors or by the chief executive officer or,
if there be more than one, by the co-chief executive officers.
18
<PAGE>
Section 5.12 The Treasurer.--The treasurer or an assistant treasurer
-------------
shall have or provide for the custody of the funds or other property of the
corporation; shall collect and receive or provide for the collection and receipt
of moneys earned by or in any manner due to or received by the corporation;
shall deposit all funds in his, or its custody as treasurer in such banks or
other places of deposit as the board of directors may from time to time
designate; shall, whenever so required by the board of directors, render an
account showing all transactions as treasurer, and the financial condition of
the corporation; and, in general, shall discharge such other duties as may from
time to time be assigned by the board of directors or by the chief executive
officer or, if there be more than one, by the co-chief executive officers.
Section 5.13 Salaries.--The salaries of the officers elected by the
--------
board of directors shall be fixed from time to time by the board of directors or
by such officer as may be designated by resolution of the board. The salaries or
other compensation of any other officers, employees and other agents shall be
fixed from time to time by the officer or committee to which the power to elect
such officers or to retain or appoint such employees or other agents has been
delegated pursuant to Section 5.03. No officer shall be prevented from receiving
such salary or other compensation by reason of the fact that the officer is also
a director of the corporation
ARTICLE VI.
-----------
Certificates of Stock, Transfer, Etc.
Section 6.01 Share Certificates.
-------------------
(a) Form of Certificates.--Certificates for shares of the corporation
--------------------
shall be in such form as approved by the board of directors, and shall state
that the corporation is incorporated under the laws of the Commonwealth of
Pennsylvania, the name of the person to whom issued, and the number and class of
shares and the designation of the series (if any) that the certificate
represents. Certificates for shares of the corporation shall set forth upon the
face or back of the certificate (or shall state on the face or back of the
certificate that the corporation will furnish to any shareholder upon request
and without charge), a full or summary statement of the designations, voting
rights, preferences, limitations and special rights of the shares of each class
or series authorized to be issued so far as they have been fixed and determined
and the authority of the board of directors to fix and determine the
designations, voting rights, preferences, limitations and special rights of the
classes and series of shares of the corporation.
(b) Share Register.--The share register or transfer books and blank
--------------
share certificates shall be kept by the treasurer or by any transfer agent or
registrar designated by the board of directors for that purpose.
Section 6.02 Issuance.--The share certificates of the corporation shall
--------
be numbered and registered in the share register or transfer books of the
corporation as they are issued. They shall be executed in such manner as the
board of directors shall determine.
Section 6.03 Transfer.--Transfers of shares shall be made on the share
--------
register or transfer books of the corporation upon surrender of the certificate
therefor, endorsed
19
<PAGE>
by the person named in the certificate or by an attorney lawfully constituted in
writing. No transfer shall be made inconsistent with the provisions of the
Uniform Commercial Code, 13 Pa.C.S. (S)(S) 8101 et seq., and its amendments and
supplements.
Section 6.04 Record Holder of Shares.--The corporation shall be
-----------------------
entitled to treat the person in whose name any share or shares of the
corporation stand on the books of the corporation as the absolute owner thereof,
and shall not be bound to recognize any equitable or other claim to, or interest
in, such share or shares on the part of any other person.
Section 6.05 Lost, Destroyed or Mutilated Certificates.--The holder of
-----------------------------------------
any shares of the corporation shall immediately notify the corporation of any
loss, destruction or mutilation of the certificate therefor, and the officers of
the corporation may, in their discretion, cause a new certificate or
certificates to be issued to such holder, in case of mutilation of the
certificate, upon the surrender of the mutilated certificate or, in case of loss
or destruction of the certificate, upon satisfactory proof of such loss or
destruction and, if such officers shall so determine, the deposit of a bond in
such form and in such sum, and with such surety or sureties, as any of them may
direct.
ARTICLE VII.
------------
Indemnification of Directors, Officers and
Other Authorized Representatives
Section 7.01 Right to Indemnification. Each person who was or is made a
------------------------
party or is threatened to be made a party to or is otherwise involved in any
claim, action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
is or was a director or an officer of the corporation or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a director, officer, employee or agent or in
any other capacity while serving as a director, officer, employee or agent,
shall be indemnified and held harmless by the corporation to the fullest extent
permitted or required by the Business Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the corporation to provide broader indemnification
rights than such law permitted the corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in connection
therewith; provided, however, that, except as provided in Section 7.03 of this
Article VII with respect to proceedings to enforce rights to indemnification,
the corporation shall indemnify any such indemnitee in connection with a
proceeding (or part thereof) initiated by such indemnitee only if such
proceeding (or part thereof) was authorized by the board of directors of the
corporation.
Section 7.02 Right to Advancement of Expenses. The right to
--------------------------------
indemnification conferred in Section 7.01 of this Article VII shall include the
right to be paid by the corporation the expenses (including, without limitation,
attorneys' fees and expenses) incurred in defending any such proceeding in
advance of its final disposition (hereinafter
20
<PAGE>
an "advancement of expenses"); provided, however, that, if the Business
Corporation Law so requires, an advancement of expenses incurred by an
indemnitee in his or her capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such indemnitee, including,
without limitation, service to an employee benefit plan) shall be made only upon
delivery to the corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section 7.02 or otherwise. The rights to indemnification and to the advancement
of expenses conferred in Sections 7.01 and 7.02 of this Article VII shall be
contract rights and such rights shall continue as to an indemnitee who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators. Any repeal,
amendment or modification hereof shall be prospective only and shall not affect
any rights or obligations then existing. Each person who shall act as an
indemnitee of the corporation shall be deemed to be doing so in reliance upon
the rights provided by this Article.
Section 7.03 Right of Indemnitee to Bring Suit. If a claim under
---------------------------------
Section 7.01 or 7.02 of this Article VII is not paid in full by the corporation
within 60 calendar days after a written claim has been received by the
corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be 20 calendar days, the indemnitee may
at any time thereafter bring suit against the corporation to recover the unpaid
amount of the claim. If successful in whole or in part in any such suit, or in a
suit brought by the corporation to recover an advancement of expenses pursuant
to the terms of an undertaking, the indemnitee shall be entitled to be paid also
the expense of prosecuting or defending such suit. In (i) any suit brought by
the indemnitee to enforce a right to indemnification hereunder (but not in a
suit brought by the indemnitee to enforce a right to an advancement of expenses)
it shall be a defense that, and (ii) any suit brought by the corporation to
recover an advancement of expenses pursuant to the terms of an undertaking, the
corporation shall be entitled to recover such expenses upon a final adjudication
that, the indemnitee has not met any applicable standard for indemnification set
forth in the Business Corporation Law. Neither the failure of the corporation
(including its board of directors, independent legal counsel or shareholders) to
have made a determination prior to the commencement of such suit that
indemnification of the indemnitee is proper in the circumstances because the
indemnitee has met the applicable standard of conduct set forth in the Business
Corporation Law, nor an actual determination by the corporation (including its
board of directors, independent legal counsel or shareholders) that the
indemnitee has not met such applicable standard of conduct, shall create a
presumption that the indemnitee has not met the applicable standard of conduct
or, in the case of such a suit brought by the indemnitee, be a defense to such
suit. In any suit brought by the indemnitee to enforce a right to
indemnification or to an advancement of expenses hereunder, or brought by the
corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the burden of proving that the indemnitee is not entitled to be
indemnified, or to such advancement of expenses, under this Article VII or
otherwise shall be on the corporation.
21
<PAGE>
Section 7.04 Non-Exclusivity of Rights. The rights to indemnification and to
-------------------------
the advancement of expenses conferred in this Article VII shall not be exclusive
of any other right which any person may have or hereafter acquire under any
statute, the articles, these bylaws, agreement, vote of shareholders or
disinterested directors or otherwise.
Section 7.05 Insurance. The corporation may maintain insurance, at its
---------
expense, to protect itself and any director, officer, employee or agent of the
corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
corporation would have the power to indemnify such person against such expense,
liability or loss under the Business Corporation Law.
Section 7.06 Indemnification of Employees and Agents of the Corporation.
----------------------------------------------------------
The corporation may, to the extent authorized from time to time by the board of
directors, grant rights to indemnification and to the advancement of expenses to
any employee or agent of the corporation to the fullest extent of the provisions
of this Article VII with respect to the indemnification and advancement of
expenses of directors and officers of the corporation.
Section 7.07 Interpretation.--The provisions of this Article are
--------------
intended to constitute bylaws authorized by Section 1746 of the Business
Corporation Law.
ARTICLE VIII.
-------------
Emergency Bylaws
Section 8.01 Scope of Article.--This Article shall be applicable during
----------------
any emergency resulting from a catastrophe as a result of which a quorum of the
board of directors cannot readily be assembled. To the extent not in conflict
with this Article, these bylaws shall remain in effect during the emergency.
Section 8.02 Special Meetings of the Board.--A special meeting of the
-----------------------------
board of directors may be called by any director by means feasible at the time.
Section 8.03 Emergency Committee of the Board.
--------------------------------
(a) Composition.--The emergency committee of the board shall consist of
-----------
nine persons standing highest on the following list who are available and able
to act:
The chief executive officer or, if there be more than one, the co-chief
executive officers.
Members of the board of directors.
President.
The individual who, immediately prior to the emergency, was the senior
officer in charge of nuclear operations.
The individual who, immediately prior to the emergency, was the senior
officer in charge of other operations.
The individual who, immediately prior to the emergency, was the senior
officer in charge of finance operations.
Other officers.
22
<PAGE>
Where more than one person holds any of the listed ranks, the order of
precedence shall be determined by length of time in rank. Each member of the
emergency committee thus constituted shall continue to act until replaced by an
individual standing higher on the list. The emergency committee shall continue
to act until a quorum of the board of directors is available and able to act.
If the corporation has no directors, the emergency committee shall cause a
special meeting of shareholders for the election of directors to be called and
held as soon as practicable.
(b) Powers.--The emergency committee shall have and may exercise all of
------
the powers and authority of the board of directors, including the power to fill
a vacancy in any office of the corporation or to designate a temporary
replacement for any officer of the corporation who is unavailable, but shall not
have the power to fill vacancies in the board of directors.
(c) Quorum.--A majority of the members of the emergency committee in
------
office shall constitute a quorum.
(d) Status.--Each member of the emergency committee who is not a
------
director shall during his or her service as such be entitled to the rights and
immunities conferred by law, the articles and these bylaws upon directors of the
corporation and upon persons acting in good faith as a representative of the
corporation during an emergency.
ARTICLE IX.
-----------
Miscellaneous
Section 9.01 Corporate Seal.--The corporation may have a corporate seal
--------------
in the form of a circle containing the name of the corporation, the year of
incorporation and such other details as may be approved by the board of
directors from time to time.
Section 9.02 Checks.--All checks, notes, bills of exchange or other
------
orders in writing shall be signed by such person or persons as the board of
directors or any person authorized by resolution of the board of directors may
from time to time designate.
Section 9.03 Contracts.--Except as otherwise provided in the Business
---------
Corporation Law in the case of transactions that require action by the
shareholders, the board of directors may authorize any officer or agent to enter
into any contract or to execute or deliver any instrument on behalf of the
corporation, and such authority may be general or confined to specific
instances.
Section 9.04 Interested Directors or Officers; Quorum.
----------------------------------------
(a) General Rule.--A contract or transaction between the corporation and
------------
one or more of its directors or officers or between the corporation and another
domestic or foreign corporation for profit or not-for-profit, partnership, joint
venture, trust or other enterprise in which one or more of its directors or
officers are directors or officers or have a financial or other interest, shall
not be void or voidable solely for that reason, or solely because the director
or officer is present at or participates in the meeting of the
23
<PAGE>
board of directors that authorizes the contract or transaction, or solely
because his, her or their votes are counted for that purpose, if:
(1) the material facts as to the relationship or interest and as
to the contract or transaction are disclosed or are known to the
board of directors and the board authorizes the contract or
transaction by the affirmative votes of a majority of the
disinterested directors even though the disinterested directors are
less than a quorum;
(2) the material facts as to his or her relationship or interest
and as to the contract or transaction are disclosed or are known to
the shareholders entitled to vote thereon and the contract or
transaction is specifically approved in good faith by vote of those
shareholders; or
(3) the contract or transaction is fair as to the corporation as
of the time it is authorized, approved or ratified by the board of
directors or the shareholders.
(b) Quorum.--Common or interested directors may be counted in
------
determining the presence of a quorum at a meeting of the board which authorizes
a contract or transaction specified in Subsection (a).
Section 9.05 Deposits.--All funds of the corporation shall be deposited
--------
from time to time to the credit of the corporation in such banks, trust
companies or other depositories as the board of directors may approve or
designate, and all such funds shall be withdrawn only upon checks signed by such
one or more officers or employees as the board of directors shall from time to
time determine.
Section 9.06 Corporate Records.
-----------------
(a) Required Records.--The corporation shall keep complete and accurate
----------------
books and records of account, minutes of the proceedings of the incorporators,
shareholders and directors and a share register giving the names and addresses
of all shareholders and the number and class of shares held by each. The share
register shall be kept at either the registered office of the corporation in the
Commonwealth of Pennsylvania or at its principal place of business wherever
situated or at the office of its registrar or transfer agent. Any books, minutes
or other records may be in written form or any other form capable of being
converted into written form within a reasonable time.
(b) Right of Inspection.--Every shareholder shall, upon written verified
-------------------
demand stating the purpose thereof, have a right to examine, in person or by
agent or attorney, during the usual hours for business for any proper purpose,
the share register, books and records of account, and records of the proceedings
of the incorporators, shareholders and directors and to make copies or extracts
therefrom. A proper purpose shall mean a purpose reasonably related to the
interest of the person as a shareholder. In every instance where an attorney or
other agent is the person who seeks the right of inspection, the demand shall be
accompanied by a verified power of attorney or other writing that authorizes the
attorney or other agent to so act on behalf of the shareholder. The demand shall
be directed to the corporation at its registered office in the Commonwealth of
Pennsylvania or at its principal place of business wherever situated.
24
<PAGE>
Section 9.07 Amendment of Bylaws.
-------------------
(a) General Rule.--Except as otherwise provided in the express terms of
------------
any series of the shares of the corporation, any one or more of the foregoing
bylaws and, except as otherwise stated in this Section 9.07(a), any other bylaws
made by the board of directors or shareholders may be altered or repealed by the
board of directors. The shareholders or the board of directors may adopt new
bylaws except that the board of directors may not adopt, alter or repeal bylaws
that the Business Corporation Law specifies may be adopted only by shareholders,
and the board of directors may not alter or repeal any bylaw adopted by the
shareholders that presumes that such bylaw shall not be altered or repealed by
the board of directors.
(b) Effective Date.--Any change in these bylaws shall take effect when
--------------
adopted unless otherwise provided in the resolution effecting the change.
ARTICLE X.
----------
Governance of the Corporation During the Transition Period
Section 10.01 Definitions. For purposes of this Article:
-------------------------------------------
(1) "PECO CEO" means Corbin A. McNeill, Jr.
(2) "PECO Directors" means (i) those directors of the
corporation designated by PECO Energy pursuant to Section 1.06(b)
of the Merger Agreement and (ii) any Replacement PECO Director (as
defined in Section 10.03(b) of these by-laws).
(3) "PECO Energy" means PECO Energy Company, a Pennsylvania
corporation and a subsidiary of the corporation.
(4) "Independent Director" means a disinterested, independent
person (determined in accordance with customary standards for
independent directors applicable to U.S. public companies).
(5) "Merger Agreement" means the Amended and Restated Agreement
and Plan of Exchange and Merger dated as of September 22, 1999,
amended and restated as of January 7, 2000, among PECO Energy, the
corporation and Unicom.
(6) "Merger Effective Time" shall have the meaning assigned to
such term in the Merger Agreement.
(7) "Transition Period" means the period from the Merger
Effective Time until December 31, 2003.
(8) "Unicom" means Unicom Corporation, an Illinois corporation.
(9) "Unicom CEO" means John W. Rowe.
(10) "Unicom Directors" means (i) those directors of the
corporation designated by Unicom pursuant to Section 1.06(b) of the
Merger Agreement and
25
<PAGE>
(ii) any Replacement Unicom Director (as defined in Section 10.03(b) of
these by-laws) .
(11) "ComEd" means Commonwealth Edison Company, an Illinois corporation
and a subsidiary of the corporation.
Section 10.02 Corporate Offices. At least for the duration of the
-----------------
Transition Period, the corporation shall maintain (a) in Chicago, Illinois
offices serving as its corporate headquarters, (b) in southeastern Pennsylvania
offices serving as the headquarters of the generation and power marketing
businesses of the corporation and its subsidiaries, and (c) offices in Chicago,
Illinois and southeastern Pennsylvania as the headquarters of ComEd and PECO
Energy, respectively.
Section 10.03 Board of Directors.
------------------
(a) Effective immediately at the Merger Effective Time and during the
Transition Period, the board of directors shall consist of sixteen (16)
directors. At the Merger Effective Time, 8 directors shall be PECO Directors and
8 directors shall be Unicom Directors. The term of a class of the board of
directors comprised of 6 directors shall expire at the first annual meeting of
shareholders following the Merger Effective Time, a second class comprised of 5
directors shall expire at the second annual meeting of shareholders following
the Merger Effective Time and a third class comprised of 5 directors shall
expire at the third annual meeting of shareholders following the Merger
Effective Time, and representation of PECO Directors and Unicom Directors in
each class shall be as nearly equal in numbers as possible.
(b) (i) During the Transition Period the board of directors of the
corporation shall consist of equal numbers of PECO Directors and Unicom
Directors.
(ii) During the Transition Period, the board of directors
(subject to the fiduciary duties of the directors in the case of approval
of any individual) shall take all action necessary to ensure that any
vacancy of a position on the board of directors to be filled by the Board
(A) that was held by an PECO Director is filled promptly by a person
designated to fill such seat by a majority of the PECO Directors remaining
on the board of directors (a "Replacement PECO Director") and (B) that was
held by a Unicom Director is filled promptly by a person designated to fill
such seat by a majority of the Unicom Directors remaining on the board of
directors (a "Replacement Unicom Director").
(iii) With respect to each election of directors by shareholders
during the Transition Period, the board of directors or the applicable
committee thereof shall nominate for election (subject to the fiduciary
duties of the directors in the case of approval of any individual), a PECO
Director to fill any position held prior to such election by a PECO
Director and a Unicom Director to fill any position held prior to such
election by a Unicom Director.
(c) During the Transition Period, the executive committee of the board
of directors shall have 6 members, 2 of which will be the Co-Chief Executive
Officers of the corporation (or if either Co-Chief Executive Officer ceases to
serve as such, another officer of the corporation selected by the PECO Directors
in the case of a replacement
26
<PAGE>
for the PECO CEO or by the Unicom Directors in the case of a replacement for the
Unicom CEO), 2 of which shall be Independent Directors who are PECO Directors
and 2 of which shall be Independent Directors who are Unicom Directors. For the
duration of the first half of the Transition Period so long as he is a Co-Chief
Executive Officer, the Unicom CEO shall be the chairman of the executive
committee of the board of directors, and as of the first day of the second half
of the Transition Period, the PECO CEO, if he is a Co-Chief Executive Officer at
such time, shall succeed to such position and hold it for the duration of the
Transition Period. If at any time during the Transition Period either the Unicom
CEO or the PECO CEO, whichever is at such time the chairman of the executive
committee, is unwilling or unable to hold such office, the other shall succeed
to such office for the duration of the Transition Period if he continues at such
time to hold the office of Co-Chief Executive Officer or Chief Executive Officer
of the corporation.
(d) During the Transition Period, each other committee of the Board
shall consist of equal numbers of PECO Directors and Unicom Directors and the
chairmen of the committees of the board of directors (other than the executive
committee) shall be PECO Directors and Unicom Directors in as nearly equal
numbers as possible.
(e) During the Transition Period, the board of directors shall hold
between 6 and 8 regular meetings each fiscal year, with no less than 2 of such
meetings each year to be held in the Philadelphia, Pennsylvania area and no less
than 2 of such meetings each year to be held in the Chicago, Illinois area.
Section 10.04 Chairman of the Board of Directors.
------------------------------------
(a) As of the Merger Effective Time and for the duration of the first
half of the Transition Period so long as he is a Co-Chief Executive Officer or
Chief Executive Officer at such time, the PECO CEO shall hold the position of
Chairman of the board of directors, and so long as he is a Co-Chief Executive
Officer or the Chief Executive Officer at such time, the Unicom CEO shall
succeed to the position of Chairman of the board of directors and hold it for
the duration of the Transition Period. If at any time during the Transition
Period either the PECO CEO or the Unicom CEO, whichever is at such time the
Chairman of the board of directors, is unwilling or unable to hold such office,
the board of directors shall elect the other to such office if he continues to
hold the office of Co-Chief Executive Officer of the Corporation at such time.
(b) The Chairman shall chair all meetings of the board of directors and
stockholders at which he is present.
Section 10.05 Co-Chief Executive Officers; President.
--------------------------------------
(a) (i) As of the Merger Effective Time and for the duration of the
Transition Period, each of the PECO CEO and the Unicom CEO shall hold the
position of Co-Chief Executive Officers of the corporation and (ii) as of the
Merger Effective Date and for the duration of the first half of the Transition
Period, the Unicom CEO shall hold the position of President of the corporation.
If at any time during the Transition Period either of the Co-Chief Executive
Officers is unable or unwilling to hold such office, the other Co-Chief
Executive Officer, if he is either the PECO CEO or the Unicom CEO, shall become
the sole Chief Executive Officer of the corporation. The Unicom CEO shall become
the sole
27
<PAGE>
Chief Executive Officer immediately prior to the end of the Transition Period if
immediately prior to such time he holds the position of Co- Chief Executive
Officer.
(b) The corporation's generation and wholesale marketing and trading
businesses shall report to the PECO CEO in his capacity as a Co-Chief Executive
Officer, and the corporation's transmission and distribution and unregulated
ventures businesses shall report to the Unicom CEO in his capacity as a Co-Chief
Executive Officer. The corporation's financial, legal, human resources and other
staff functions shall report to the office of the Co-Chief Executive Officers.
(c) The Co-Chief Executive Officers shall each maintain offices in both
southeastern Pennsylvania and Chicago, Illinois.
Section 10.06 Management Changes.
------------------
(a) Until the expiration of the Transition Period, so long as either the
PECO CEO or the Unicom CEO is a Co-Chief Executive Officer or the Chief
Executive Officer of the corporation, (i) the election of any other person to
the position of Chairman of the board of directors, chairman of the executive
committee of the board of directors, Co-Chief Executive Officer or Chief
Executive Officer or, as to the first half of the Transition Period, President
or (ii) the removal, replacement or demotion of the PECO CEO or the Unicom CEO
from one or more of such positions, in each case, shall require the affirmative
vote of at least two-thirds of the members of the board of directors(except as
expressly provided in this Article X).
(b) Until the expiration of the Transition Period, none of the senior
officers of the corporation specified in Exhibit D of the Merger Agreement shall
be removed, replaced or demoted without either (i) the consent of both Co-Chief
Executive Officers or (ii) the affirmative vote of two-thirds of the members of
the Newco Board.
Section 10.07 Amendment. Until the end of the Transition Period (a)
---------
the provisions of this Article X may not be amended, altered, repealed or waived
in any respect, and the board of directors or the corporation shall not
otherwise take any action or fail to take any action which would have the effect
of eliminating, limiting, restricting, avoiding or otherwise modifying the
effect of, or waiving compliance with the provisions of this Article X (e.g., by
creating a holding company structure if the certificate of incorporation, by-
laws or similar document of such holding company does not contain equivalent
provisions), without the affirmative vote of at least two-thirds of the
directors or (b) in the case of any amendment proposed by shareholders without
such vote of directors, the affirmative vote of holders of shares representing
at least two-thirds of the votes eligible to be cast in a general election of
directors.
Section 10.08 Successors. For the duration of the Transition Period, the
----------
provisions of this Article shall be applicable to (i) any successor to the
corporation as the result of a merger, consolidation or other business
combination, whether or not the corporation is the surviving company in such
transaction, or otherwise and (ii) any corporation or other entity with respect
to which the corporation or its successor is or becomes a direct or indirect
subsidiary, and, in each case, the board of directors shall not permit the
corporation to be a party to any transaction which would not comply with the
foregoing without the affirmative vote of at least two-thirds of the directors.
28
<PAGE>
Section 10.09 Effectiveness of this Article X. The provisions of this
-------------------------------
Article X shall become null and void and be of no further effect after the
Transition Period. While this Article X is effective if there is a conflict
between this Article X and any other provision of these bylaws, this Article X
shall control.
As adopted _____________, _____.
29
<PAGE>
EXHIBIT 4.1
NUMBER [GRAPHIC] SHARES
- ------ ------
[GRAPHIC] [GRAPHIC]
INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA
PECO Energy Corporation
The Corporation is authorized to issue 600,000,000 Common Shares - No Par Value
This Certifies that PECO Energy Company is the owner of
-----------------------------------
One Hundred (100) fully paid and non-assessable Shares
- --------------------------------------
of the above Corporation transferable only on the books of the Corporation by
the holder hereofin person or by duly authorized Attorney upon surrender of this
Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and to be sealed with the Seal of the
Corporation.
Dated February 10, 1999
-------------------------------
[GRAPHIC]
/s/ Michael J. Egan /s/ Corbin A. McNeill, Jr.
- -------------------------- --------------------------
Treasurer President
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations. Additional abbreviations may also
be used though not in the list.
<TABLE>
<S> <C>
TEN COM --as tenants in common UNIF GIFT MIN ACT --.........Custodian............(Minor)
TEN ENT --as tenants by the entireties under Uniform Gifts to Minors Act...............(State)
JT TEN --as joint tenants with right of survivorship
and not as tenants in common
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
For value received, the undersigned hereby sells, assigns and transfers unto [ ]
____________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
____________________________________________________________________________________________________________________
______________________________________________________________________________________________________________Shares
represented by the within Certificate, and hereby irrevocably constitutes and appoints _____________________________
_______________________________________________________________________________________Attorney to transfer the said
shares on the books of the within-named Corporation with full power of substitution in the premises.
Dated, _______________________________________
In presence of ____________________________________________
__________________________________________________________________
</TABLE>
NOTICE: The signature in this assignment must correspond with the name as
written upon the face of the certificate in every particular without alteration
or enlargement, or any change whatever.
<PAGE>
Exhibit 5.1
May 12, 2000
Exelon Corporation
37th Floor, 10 South Dearborn Street
Post Office Box A-3005
Chicago, Illinois 60690-3005
Re: Registration Statement on Form S-4
----------------------------------
Ladies and Gentlemen:
We have acted as Pennsylvania counsel to Exelon Corporation, a
Pennsylvania corporation ("Exelon"), in connection with the registration under
the Securities Act of 1933, as amended, of up to 311,000,000 shares of common
stock of Exelon, no par value ("Exelon Common Stock"), issuable by Exelon upon
consummation of the share exchange between Exelon and PECO Energy Company, a
Pennsylvania corporation ("PECO Energy") (the "Share Exchange"), and the merger
of Unicom corporation, an Illinois corporation ("Unicom"), with and into Exelon
(the "Merger") based on the following exchange ratio: (i) one share of Exelon
Common Stock for each outstanding share of common stock of PECO Energy, no par
value, in the Share Exchange and (ii) 0.875 shares of Exelon Common Stock for
each outstanding share of common stock of Unicom, no par value, in the Merger.
In rendering our opinion, we have reviewed and relied upon such
certificates, documents, corporate records, other instruments and
representations of officers of Exelon as in our judgment are necessary or
appropriate to enable us to render the opinion expressed below. In giving this
opinion, we are assuming the authenticity of all instruments presented to us as
originals, the conformity with the originals of all instruments presented to us
as copies and the genuineness of all signatures.
Based on the foregoing, we are of the opinion that the shares of
Exelon Common Stock to be issued in the Share Exchange and the Merger have been
duly authorized and, when duly executed, delivered and issued in accordance with
the respective terms of the Share Exchange and the Merger, will be legally
issued, fully paid and nonassessable.
<PAGE>
We consent to the filing of this opinion as Exhibit 5 to the
Registration Statement of Form S-4, relating to the Share Exchange and the
Merger, and to the reference to this firm in the section of the Registration
Statement entitled "Legal Matters".
This opinion is limited to the matters expressly stated herein. No
implied opinion may be inferred to extend this opinion beyond the matters
expressly stated herein. We do not undertake to advise you or anyone else of
any changes in the opinion expressed herein resulting from changes in law,
changes in facts or any other matters that hereafter might occur or be brought
to our attention.
Very truly yours,
/s/ Ballard Spahr Andrews & Ingersol LLP
<PAGE>
EXHIBIT 8.1
[Letterhead of]
CRAVATH, SWAINE & MOORE
[New York Office]
May 15, 2000
Amended and Restated Agreement and Plan of
------------------------------------------
Exchange and Merger dated as of September 22, 1999,
---------------------------------------------------
as Amended and Restated as of January 7, 2000,
----------------------------------------------
Among PECO Energy Company,
--------------------------
Exelon Corporation and Unicom Corporation
-----------------------------------------
Ladies and Gentlemen:
We have acted as tax counsel for PECO Energy Company, a Pennsylvania
corporation ("PECO Energy"), in connection with (i) the proposed acquisition
(the "First Step Exchange") of each outstanding share of common stock of PECO
Energy by Exelon Corporation, a Pennsylvania corporation and a wholly owned
subsidiary of PECO Energy ("Exelon"), in exchange for common stock of Exelon and
(ii) the proposed merger (the "Second Step Merger", and together with the First
Step Exchange, the "Merger") of Unicom Corporation, an Illinois corporation
("Unicom") with and into Exelon, in each case pursuant to an Agreement and Plan
of Exchange and Merger, dated as of September 22, 1999 (the "Exchange and Merger
Agreement"), as amended and restated as of January 7, 2000 among PECO Energy,
Exelon and Unicom. In the Merger, (i) each issued and outstanding share of
common stock, no par value, of PECO Energy (the "PECO Energy Common Stock") not
owned directly by PECO Energy will be converted into common stock, no par value,
of Exelon (the "Exelon
<PAGE>
2
Common Stock") and (ii) each issued and outstanding share of common stock, no
par value, of Unicom (the "Unicom Common Stock") will be converted into Exelon
Common Stock and cash.
In that connection, you have requested our opinion regarding the
material U.S. federal income tax consequences to PECO Energy shareholders of the
Merger. In providing our opinion, we have examined the Exchange and Merger
Agreement, the registration statement on Form S-4 (the "Registration
Statement"), which includes the Proxy Statement/Prospectus of PECO Energy and
Unicom, as filed with the Securities and Exchange Commission, and such other
documents and corporate records as we have deemed necessary or appropriate for
purposes of our opinion. In addition, we have assumed that (i) the Merger will
be consummated in the manner contemplated by the Registration Statement and in
accordance with the provisions of the Merger Agreement, (ii) the statements
concerning the Merger set forth in the Merger Agreement and the Registration
Statement are true, correct and complete, (iii) the representations made to us
by PECO Energy, Exelon and Unicom in their respective letters to us each dated
as of the date hereof, and delivered to us for purposes of this opinion are
true, correct and complete (the "Representation Letters") and (iv) any
representations made in the Representation Letters or in the Merger Agreement
"to the best knowledge of" or similarly qualified are true, correct and complete
without such qualification. If any of the above-described assumptions are
untrue for any reason or if the Merger is consummated in a manner that is
inconsistent with the manner in which it is described in the Merger Agreement or
the Registration Statement, our opinions as expressed below may be adversely
affected and may not be relied upon. For purposes of this opinion, "U.S.
Holder" means (i) an individual citizen or resident of the United States, (ii) a
corporation or other entity taxable as a corporation created or organized under
the laws of the United States or any of its political subdivisions, (iii) a
trust if a U.S. court is able to exercise primary supervision over the
administration of the trust and one or more U.S. fiduciaries have the authority
to control all substantial decisions of the trust or (iv) an estate that is
subject to U.S. federal income tax on its income regardless of its source.
Based upon the foregoing, we are of opinion that, for U.S. federal
income tax purposes:
(i) The Merger will be treated as a transaction described in Section
351 of the Internal Revenue Code of 1986, as amended (the "Code").
<PAGE>
3
(ii) No gain or loss will be recognized by U.S. Holders of PECO Energy
Common Stock on the exchange of their PECO Energy Common Stock for Exelon
Common Stock.
(iii) The aggregate adjusted tax basis of the Exelon Common Stock
received in the Merger by a U.S. Holder of PECO Energy Common Stock will be
equal to the aggregate adjusted tax basis of the U.S. Holder's PECO Energy
Common Stock exchanged for that Exelon Common Stock.
(iv) The holding period of Exelon Common Stock received in the Merger
by a U.S. Holder of PECO Energy Common Stock will include the holding
period of the U.S. Holder's PECO Energy Common Stock exchanged for that
Exelon Common Stock.
(v) While the matter is not free from doubt, and there is no directly
authoritative precedent, it is more likely than not that the pre-closing
share repurchases by PECO Energy referred to in Section 6.15 of the
Exchange and Merger Agreement will be independent of and will not be
integrated with the Merger.
(vi) The Internal Revenue Service, however, may not agree with the
conclusion that the pre-closing share repurchases by PECO Energy referred
to in Section 6.15 of the Exchange and Merger Agreement are independent of
the Merger and, therefore, should not be integrated with the Merger. If
the Internal Revenue Service were successful in asserting this contrary
view, this would not be likely to have a material effect on U.S. Holders of
PECO Energy Common Stock. The U.S. federal income tax treatment of amounts
received with respect to the share repurchases by PECO Energy referred to
in Section 6.15 of the Exchange and Merger Agreement by a U.S. Holder of
PECO Energy Common Stock who is not described in the next sentence should
not change. However, in unusual circumstances, involving a U.S. Holder of
PECO Energy Common Stock who is also a substantial holder of Unicom Common
Stock immediately prior to the Merger, the amounts received by such U.S.
Holder with respect to the share repurchases by PECO Energy referred to in
Section 6.15 of the Exchange and Merger Agreement that would otherwise have
been taxed as capital gain or loss could be taxed as a dividend.
Our opinions are limited to the tax matters specifically covered
hereby, and we have not been asked to
<PAGE>
4
address, nor have we addressed, any other tax consequences of the Merger or any
other transactions. Our opinions are based upon current statutory, regulatory
and judicial authority, any of which may be changed at any time with retroactive
effect. We disclaim any undertaking to advise you of any subsequent changes of
the matters stated, represented or assumed herein or any subsequent changes in
applicable law, regulations or interpretations thereof.
We consent to the filing of this opinion as Exhibit 8.1 to the
Registration Statement and to the reference of our firm name in the section of
the Registration Statement under the heading "Material United States Federal
Income Tax Consequences of the Merger". In giving this consent, we do not admit
that we are within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
Very truly yours,
/s/ Cravath, Swaine & Moore
PECO Energy Company
2301 Market Street
P.O. Box 8699
Philadelphia, PA 19101-8699
O
<PAGE>
EXHIBIT 8.2
[Letterhead of Jones, Day, Reavis & Pogue]
May 15, 2000
Unicom Corporation
10 South Dearborn Street
37th Floor
Chicago, Illinois 60690-3005
Ladies & Gentlemen:
We have acted as counsel to Unicom Corporation, an Illinois
corporation (the "Company"), in connection with the planned merger (the "Second
Step Merger") of the Company with and into Exelon Corporation, a Pennsylvania
corporation formerly named Newholdco Corporation ("Exelon"), pursuant to an
Amended and Restated Agreement and Plan of Exchange and Merger, dated as of
September 22, 1999, as amended and restated as of January 7, 2000 (the "Merger
Agreement"), among PECO Energy Company ("PECO Energy"), Exelon and the Company,
and as described in a registration statement on Form S-4 of Exelon (the
"Registration Statement"), which includes the joint proxy statement/prospectus
of the Company and PECO Energy (the "Proxy Statement"), originally filed with
the Securities and Exchange Commission on January 13, 2000, and as amended and
supplemented through the date hereof.
In connection with this opinion, we have assumed, with your consent
and without any independent verification, that, as a part of a transaction
whereby PECO Energy will become a subsidiary of Exelon pursuant to a mandatory
share exchange under Pennsylvania law, (1) the Company will merge with and into
Exelon, with Exelon being the surviving entity, (2) the Second Step Merger will
be effected in accordance with the Merger Agreement and as described in the
Registration Statement, including the Proxy Statement, and will qualify as a
merger under the laws of the State of Illinois and the Commonwealth
Pennsylvania, (3) all the provisions of the Merger Agreement, including without
limitation all covenants and obligations contained therein, will be complied
with, (4) the factual statements contained in the Registration Statement,
including the Proxy Statement, and in the documents referenced therein are true,
correct and complete, (5) the representations and warranties of the Company,
Exelon and PECO Energy made in the Merger Agreement are true and correct, (6)
the representations of the Company, Exelon and PECO Energy made to us for
purposes of this opinion in separate letters each dated May 15, 2000
(collectively, the "Representation Letters") are true and correct, (7) any
representation made in the Merger Agreement or the Representation Letters "to
the best of the knowledge of" or similarly qualified or limited is true and
correct as if made without such qualification or limitation, and (8) there will
be no change in any of the facts or representations material to this opinion
between the date of this opinion and the Merger Effective Time (as defined in
the Merger Agreement).
Our opinion is based upon the current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the existing, temporary and
currently proposed Treasury Regulations promulgated thereunder, existing
administrative rulings and practices of the Internal
<PAGE>
Unicom Corporation
May 15, 2000
Page 2
Revenue Service and existing judicial decisions, all of which are subject to
change at any time. It should be noted that future legislative, judicial or
administrative actions, decisions or interpretations, which may or may not be
retroactive in effect, could materially affect our opinion. For purposes of this
opinion, a "U.S. Holder" means (i) an individual citizen or resident of the
United States, (ii) a corporation or other entity taxable as a corporation
created or organized under the laws of the United States or any of its political
subdivisions, (iii) a trust if a U.S. court is able to exercise primary
supervision over the administration of the trust and one or more U.S.
fiduciaries have the authority to control all substantial decisions of the trust
or (iv) an estate that is subject to U.S. federal income tax on its income
regardless of its source.
Based upon and subject to the foregoing, as well as the limitations
and qualifications set forth herein, it is our opinion that, for U.S. federal
income tax purposes:
1. The Second Step Merger will qualify as a reorganization within
the meaning of Section 368(a) of the Code.
2. Exelon and Unicom will each be a party to that reorganization
within the meaning of Section 368(b) of the Code.
3. A U.S. Holder of Unicom common stock who exchanges that common
stock for both cash consideration (including any cash received
instead of a fractional share of Exelon common stock) and Exelon
common stock pursuant to the Second Step Merger will realize gain
or loss with respect to the Unicom common stock surrendered in an
amount equal to the difference between (i) the sum of the cash
and the fair market value of the Exelon common stock received and
(ii) the U.S. Holder's aggregate adjusted tax basis in the Unicom
common stock surrendered. The U.S. Holder's gain, if any, will
be recognized, however, only to the extent of the amount of cash
consideration received. Any loss will not be recognized.
4. While the matter is not free from doubt, and there is no directly
authoritative precedent, it is more likely than not that the pre-
closing share repurchases by Unicom and PECO Energy referred to
in Section 6.15 of the Merger Agreement will be independent of
and will not be integrated with the Second Step Merger for
purposes of determining the character of any gain recognized by a
U.S. Holder of Unicom common stock. It is therefore more likely
than not that any gain recognized by a U.S. Holder who receives
both cash and Exelon common stock pursuant to the Second Step
Merger will be treated as capital gain except as described below.
Any capital gain recognized will be long-term capital gain if the
U.S. Holder's holding period for the Unicom common stock
surrendered exceeds one year and, with respect to certain non-
corporate U.S. Holders, will be eligible for a maximum U.S.
federal income tax rate of 20%. There are, however, circumstances
in which all or part of the gain recognized by a U.S. Holder,
other than gain recognized with respect to cash received instead
of fractional shares of Exelon common stock, might be treated as
a dividend rather than capital gain. Those circumstances involve
U.S. Holders who would have owned, either directly or
constructively under the applicable attribution rules of the
Code, 1% or more of the Exelon common stock if they had exchanged
all of their Unicom common stock solely for Exelon common stock
or who exercise control over Exelon corporate affairs. In that
case,
<PAGE>
Unicom Corporation
May 15, 2000
Page 3
the amount of gain recognized by the U.S. Holder could be taxable
as ordinary dividend income to the extent of the U.S. Holder's
ratable share of the accumulated earnings and profits of Unicom
and thereafter would be treated as capital gain.
5. The Internal Revenue Service, however, may not agree with the
conclusions that the pre-closing share repurchases by Unicom and
PECO Energy referred to in Section 6.15 of the Merger Agreement
are independent of the Second Step Merger and, therefore, should
not be integrated with the Second Step Merger for purposes of
determining the character of any gain recognized by a U.S. Holder
of Unicom common stock. If the Internal Revenue Service were
successful in asserting this contrary view, any gain recognized
by a U.S. Holder who receives both cash and Exelon common stock
pursuant to the Second Step Merger, other than gain recognized
with respect to cash received instead of fractional shares of
Exelon common stock, would be treated as a dividend, rather than
capital gain, to the extent of the U.S. Holder's ratable share of
the accumulated earnings and profits of Unicom, except as
described below. Any gain recognized by that U.S. Holder as a
result of the Second Step Merger could still be treated as
capital gain if the U.S. Holder had effected other sales or
dispositions of Unicom common stock prior to the Second Step
Merger or of Exelon common stock subsequent to the Second Step
Merger, in each case as part of an overall plan to reduce or
terminate the holder's proportionate ownership interest in
Exelon, and the other sales or dispositions of Unicom or Exelon
common stock could, for federal income tax purposes, be
integrated with the U.S. Holder's exchange of Unicom common stock
pursuant to the Second Step Merger. Moreover, amounts received
by a U.S. Holder of Unicom common stock with respect to the share
repurchases by Unicom should be taxed as capital gain or loss,
and not as a dividend. In unusual circumstances, however,
involving U.S. Holders of Unicom common stock who sell a
relatively small portion of their holdings, amounts received by a
U.S. Holder with respect to the Unicom share repurchases could be
taxed as a dividend if it could be determined that the holder's
shares had been purchased by Unicom. Because all of the share
repurchases are being undertaken in the open market in
transactions effected through a broker in which Unicom will not
know the identity of any particular seller of Unicom common stock
and any seller of Unicom common stock will not know that Unicom
is the purchaser of that stock, it is unlikely that those unusual
circumstances could arise.
6. The aggregate adjusted tax basis of the Exelon common stock
(including any fractional interest for which cash is received)
received by a U.S. Holder of Unicom common stock in the Second
Step Merger will be equal to the U.S. Holder's aggregate adjusted
tax basis in the Unicom common stock exchanged for that Exelon
common stock, decreased by the amount of cash consideration
received by the U.S. Holder and increased by the amount of gain,
if any, recognized by the U.S. Holder (including any gain treated
as a dividend).
7. The holding period of the Exelon common stock received by a U.S.
Holder of Unicom common stock pursuant to the Second Step Merger
will
<PAGE>
Unicom Corporation
May 15, 2000
Page 4
include the holding period of the U.S. Holder's Unicom common
stock exchanged for that Exelon common stock.
8. A U.S. Holder of Unicom common stock who exercises Illinois
dissenters' rights with respect to the Second Step Merger and
receives solely cash in respect of dissenting shares of Unicom
common stock will generally recognize capital gain or loss in an
amount equal to the difference between the amount of cash
received and the U.S. Holder's aggregate adjusted tax basis in
the dissenting shares of Unicom common stock. Any capital gain
or loss recognized will be long-term capital gain or loss if the
U.S. Holder's holding period for the dissenting shares of Unicom
common stock surrendered exceeds one year and, with respect to
certain non-corporate U.S. Holders, will be eligible for a
maximum U.S. federal income tax rate of 20%.
We do not express any opinion as to any federal income tax consequence
of the Second Step Merger other than those expressly stated above. We also do
not express any opinion with respect to the tax consequences of the Second Step
Merger under any state, local or foreign tax law.
The opinions expressed in this letter take into account laws and
interpretations of laws as of the date of this letter. We undertake no
responsibility to advise you of changes in laws or interpretations of laws after
that time. Further, the opinions set forth herein are expressly based on the
assumptions referred to above, and any change, inaccuracy or incompleteness in
any of those assumptions could adversely affect our opinions.
This opinion letter is not binding on the Internal Revenue Service or
the courts. As a result, there can be no assurance that the Internal Revenue
Service or a court will not take a contrary position with respect to some or all
of the conclusions set forth herein, particularly in the case of our opinion
expressed in Paragraph 4 as a result of the lack of directly authoritative
precedent.
We hereby consent to the use and filing of this opinion as an exhibit
to the Registration Statement and to the references to our firm under the
heading "THE MERGER--Material United States Federal Income Tax Consequences of
the Merger" in the Proxy Statement. In giving this consent, we do not thereby
admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
Very truly yours,
/s/ JONES, DAY, REAVIS & POGUE
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of Exelon Corporation of our report dated February 29,
2000, except as to the joint petition for settlement described in Note 2 which
is as of March 24, 2000 and the PUC order described in Note 4 which is as of
March 16, 2000, relating to the financial statements and financial statement
schedule, which appears in PECO Energy and Subsidiary Company's Annual Report on
Form 10-K for the year ended December 31, 1999. We also consent to the
references to us under the headings "Experts" and "Selected Financial Data" in
such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Philadelphia, PA
May 15, 2000
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of Exelon Corporation on Form S-4 of
our report dated January 31, 2000 (except with respect to Notes 1 and 3, to
which the date is May 12, 2000) appearing in the Annual Report on Form 10-K and
Form 10-K/A of Unicom Corporation for the year ended December 31, 1999 and our
report dated May 12, 2000, appearing in the Quarterly Report on Form 10-Q of
Unicom Corporation for the quarter ended March 31, 1999. We also consent to the
reference to us under the heading "Experts" in the Prospectus, which is part of
this Registration Statement.
/s/ Arthur Anderson LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
May 15, 2000
<PAGE>
Exhibit 23.6
CONSENT OF SALMON SMITH BARNEY INC.
We hereby consent to the use of our name and to the description of our opinion
letter, dated the date of the Joint Proxy Statement/Prospectus referred to
below, under the caption "Opinion of PECO Energy's Financial Advisors" in, and
to the inclusion of such opinion letter as Annex C to, the Joint Proxy
Statement/Prospectus of PECO Energy Company and Unicom Corporation, which Joint
Proxy Statement/Prospectus is part of the Registration Statement on Form S-4 of
Exelon Corporation. By giving such consent we do not thereby admit that we are
experts with respect to any part of such Registration Statement within the
meaning of the terms "expert" as used in, or that we come within the category of
persons whose consent is required under, the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
SALMON SMITH BARNEY INC.
By: /s/ Anthony R. Whittemore
------------------------------
New York, New York
<PAGE>
Exhibit 23.7
We hereby consent to the use in the Registration Statement of Exelon
Corporation on Form S-4 and in the Joint Proxy Statement/Prospectus of PECO
Energy Company and Unicom Corporation, which is part of the Registration
Statement, of our opinion dated January 7, 2000 appearing as Annex B to such
Joint Proxy Statement/Prospectus, to the description therein of such opinion and
to the references therein to our name. In giving the foregoing consent, we do
not admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended (the "Securities
Act"), or the rules and regulations promulgated thereunder, nor do we admit that
we are experts with respect to any part of such Registration Statement within
the meaning of the term "experts" as used in the Securities Act or the rules and
regulations promulgated thereunder.
MORGAN STANLEY & CO.
INCORPORATED
By: /s/ Kenneth R. Marks
__________________________
May 12, 2000
<PAGE>
Exhibit 23.8
CONSENT OF WASSERSTEIN PERELLA & CO., INC.
We hereby consent to the filing of our opinion, dated as of January 6,
2000, as an Annex to the Joint Proxy Statement/Prospectus (the "Proxy
Statement") constituting part of the Registration Statement on Form S-4 of
Exelon Corporation (the "Registration Statement") and to the reference to us
under the captions "Summary--General--Fairness Opinions of Financial
Advisors--Unicom," "The Merger--Background to the Merger," "--Unicom Board of
Directors Recommendation" and "--Opinion of Unicom's Financial Advisor" in the
Proxy Statement.
In giving such consent, we do not admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder, nor do we thereby admit that we are experts with respect
to any part of the Registration Statement within the meaning of the term
"experts" as used in the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
New York, New York /s/ Wasserstein Perella & Co., Inc.
May 10, 2000
<PAGE>
PROXY
PECO ENERGY COMPANY
2000 COMMON STOCK PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 27, 2000, AT 9:30 a.m. AT THE
MILLENNIUM HALL OF THE LOEWS PHILADELPHIA HOTEL, 1200 MARKET STREET, IN
PHILADELPHIA, PENNSYLVANIA.
M. WALTER D'ALESSIO, JOSEPH F. PAQUETTE, JR. and J. BARRY MITCHELL, or any of
them, with power of substitution are hereby appointed proxies to vote as
specified all shares of Common Stock which the Shareholder(s) named on the
reverse side is entitled to vote at the above Annual Meeting or at any
adjournment thereof, and in their discretion to vote upon all other matters as
may properly be brought before the Meeting.
First Chicago Trust Company, a division of Equiserve, as Custodian under the
Dividend Reinvestment and Stock Purchase Plan, and PECO Energy Company, as
Custodian for the 401(k) Employee Savings Plan, are hereby authorized to execute
a proxy with identical instructions for any shares of Common Stock held for the
benefit of the Shareholder(s) named on the reverse side.
Nominees for election to the Board of Directors for Class I terms expiring in
2003 are:
01. Richard H. Glanton, 02. Rosemarie B. Greco, 03. Corbin A. McNeill, Jr., and
04. Robert Subin.
Please sign and date on the reverse side and mail promptly in the enclosed
postage-paid envelope or otherwise to P.O. Box 8647, Edison, New Jersey,
08818-8647.
[ SEE REVERSE ]
[ SIDE ]
- --------------------------------------------------------------------------------
/\ FOLD AND DETACH HERE /\
[LOGO] PECO ENERGY (R)
Annual Meeting of Stockholders
June 27, 2000
9:30 a.m.
Millenium Hall of the
Loews Philadelphia Hotel
Philadelphia, Pennsylvania
Your Vote is Important
Thank you for Voting.
<PAGE>
Please mark your 9172
[X] votes as in this
example.
This proxy when properly executed will be voted in the manner directed herein.
If no direction is made, this proxy will be voted FOR Proposals 1, 2, 4, and
Director Nominees: Richard H. Glanton, Rosemarie B. Greco, Corbin A. McNeill and
Robert Subin.
The Board of Directors Recommends a vote FOR proposal 1, 2, 3 and 4.
<TABLE>
<S> <C> <C>
1. Merger FOR AGAINST WITHHELD 2. Postponement or FOR AGAINST ABSTAIN 3. Election of FOR AGAINST ABSTAIN
Agreement [ ] [ ] [ ] adjournment of [ ] [ ] [ ] Directors [ ] [ ] [ ]
Annual Meeting (see reverse)
For, except vote withheld from following
nominee(s):
----------------------------------------
4. Ratification of FOR AGAINST WITHHELD
Independent [ ] [ ] [ ]
Accountants
</TABLE>
SIGNATURE(S):________________________ DATE:_____
NOTE: Please sign exactly as name appears hereon.
Joint owners should each sign. When signing
as attorney, executor, administrator,
trustee or guardian, please give full title
as such.
- --------------------------------------------------------------------------------
/\FOLD AND DETACH HERE ONLY IF YOU ARE RETURNING YOUR VOTED PROXY CARD BY MAIL/\
[LOGO] PECO ENERGY (R)
Dear Shareholder:
PECO Energy encourages you to take advantage of new and convenient ways by which
you can vote your shares. You can vote your shares electronically through the
internet or the telephone. This eliminates the need to return the proxy card.
To vote your shares electronically you must use the control number printed in
the box above, just below the perforation. The series of numbers that appear in
the box above is your personal code to access the system.
1. To vote over the internet:
. Log on to the internet and go to the web site http://www.eproxyvote.com/pe
2. To vote over the telephone:
. On a touch-tone telephone call 1-877-229-8683 24 hours a day, 7 days
a week
Your electronic vote authorizes the named proxies in the same manner as if you
marked, signed, dated and returned the proxy card.
If you choose to vote your shares electronically, do not mail back your proxy
card.
Your vote is important. Thank you for voting.
<PAGE>
Unicom Corporation
Bank One Plaza
P. O. Box A-3005
P [Unicom Logo] Chicago, Illinois 60690-3005
R
O ---------------------------------------------------------------------
X
Y This proxy is solicited on behalf of the Board of Directors of
Unicom Corporation for the
Annual Meeting of Shareholders to be held on June 28, 2000
The undersigned appoints Pamela B. Strobel and John P.McGarrity, or either
of them, as Proxies, each with the power to appoint his or her substitute, and
hereby authorizes them to represent and to vote, as designated on the reverse
side, all shares of Unicom stock held in the undersigned's name and shares held
by agents for the benefit of the undersigned in the Plans hereafter described,
subject to the voting direction of the undersigned, at the Annual Meeting of
Shareholders to be held on June 28, 2000, or any adjournment hereof and, in the
Proxies' discretion, to vote upon such other business as may properly come
before the meeting, all as more fully set forth in the Proxy Statement related
to the meeting, receipt of which is hereby acknowledged.
Your instructions for the election of Directors may be indicated on
the other side. The nominees are Brennan, Cantu, Compton, DeMars, Gin,
Jannotta, Rogers, Rowe and Thomas.
All shares to be voted pursuant to this proxy include shares, if any,
held in the name of agents, for the benefit of the undersigned, in the
Company's Dividend Reinvestment and Employee Stock Purchase Plans.
Change of address:
--------------------------------
--------------
PLEASE SEE
[Unicom Logo] REVERSE SIDE
. FOLD AND DETACH HERE .
Unicom Corporation
Annual Meeting of Shareholders
Wednesday, June 28, 2000
10:30 A.M.
The Grand Ballroom of the Hyatt Regency Chicago
151 East Wacker Drive, Chicago, Illinois
Your vote is important. Thank you for voting.
<PAGE>
[X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. IF NO DIRECTION IS MADE, IT WILL BE VOTED FOR ITEMS 1, 2, 4 AND THE
ELECTION OF THE DIRECTOR NOMINEES: Brennan, Cantu, Compton, DeMars, Gin,
Jannotta, Rogers, Rowe, and Thomas.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
1. Approval of the FOR AGAINST ABSTAIN
Merger Agreement [ ] [ ] [ ]
2. Postponement or FOR AGAINST ABSTAIN
adjournment of the [ ] [ ] [ ]
Annual Meeting
3. Election of Directors (See Reverse) FOR WITHHELD
[ ] [ ]
For, except vote withheld from the following nominee(s):
4. Appointment of FOR AGAINST ABSTAIN
Auditors [ ] [ ] [ ]
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
SIGNATURE(S) DATE The signer hereby revokes all proxies heretofore
------------------------------------------- ----------------- given by the signer to vote at said meeting or any
adjournments thereof.
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such.
-----------------------------------------------------
</TABLE>
FOLD AND DETACH HERE ONLY IF YOU ARE RETURNING YOUR VOTED PROXY CARD BY MAIL
[Unicom Logo]
To Our Shareholders:
Unicom encourages you to take advantage of new and convenient ways by which you
can vote your shares. You can vote your shares through the Internet or the
telephone. This eliminates the need to return the proxy card.
To vote your shares through the Internet or the telephone you must use the
control number printed in the box above, just below the perforation. The series
of numbers that appear in the box above is your personal code to access the
system.
1. To vote over the Internet:
. Log on the Internet and go to the Web site
http://www.eproxyvote.com/ucm.
-----------------------------
2. To vote over the telephone:
. On a touch-tone telephone call toll-free 1-877-PRX-VOTE (1-877-
779-8683), or from outside the United States call direct 1-201-
536-8073.
Your Internet or telephone vote authorizes the named proxies in the same manner
as if you marked, signed, dated and returned the proxy card.
If you choose to vote your shares through the Internet or the telephone, do not
mail back your proxy card.
Your vote is important. Thank you for voting.
