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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-28369
PROSPECTUS
COMED FINANCING II
OFFER TO EXCHANGE ITS 8.50% SERIES B CAPITAL SECURITIES
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING 8.50% SERIES A CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000 PER SERIES B CAPITAL SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN, BY
COMMONWEALTH EDISON COMPANY
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON July 18, 1997, UNLESS EXTENDED.
ComEd Financing II, a trust created under the laws of the State of Delaware
(the "Trust"), hereby offers, upon the terms and subject to the conditions
set forth in this Prospectus (as the same may be amended or supplemented
from time to time, the "Prospectus") and in the accompanying Letter of
Transmittal (which together constitute the "Exchange Offer"), to exchange
up to $150,000,000 aggregate Liquidation Amount of its 8.50% Series B
Capital Securities (the "New Capital Securities") which have been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to a Registration Statement (as defined under "Available
Information") of which this Prospectus constitutes a part, for a like
aggregate Liquidation Amount of its outstanding 8.50% Series A Capital
Securities (the "Old Capital Securities"), of which $150,000,000 aggregate
Liquidation Amount is outstanding. Pursuant to the Exchange Offer,
Commonwealth Edison Company, an Illinois corporation (the "Company" or
"ComEd"), will exchange its guarantee of the payment of Distributions and
payments on liquidation or redemption of the Old Capital Securities (the
"Old Guarantee") for a like guarantee of the New Capital Securities (the
"New Guarantee") and all of its 8.50% Series A Subordinated Deferrable
Interest Debentures due January 15, 2027 (the "Old Subordinated
Debentures"), of which $154,640,000 aggregate principal amount is
outstanding, for a like aggregate principal amount of its 8.50% Series B
Subordinated Deferrable Interest Debentures due January 15, 2027 (the "New
Subordinated Debentures"), which New Guarantee and New Subordinated
Debentures also have been registered under the Securities Act. The Old
Capital Securities, the Old Guarantee and the Old Subordinated Debentures
are collectively referred to herein as the "Old Securities" and the New
Capital Securities, the New Guarantee and the New Subordinated Debentures
are collectively referred to herein as the "New Securities."
The forms and terms of the New Securities are identical in all material
respects to the respective forms and terms of the Old Securities, except
that the New Securities have been registered under the Securities Act and
therefore will not be subject to certain restrictions on transfer
applicable to the Old Securities. See "Description of Securities" and
"Description of Old Securities." The New Capital Securities are being
offered for exchange, and the New Guarantee and New Subordinated Debentures
will be exchanged, in order to satisfy certain obligations of the Company
and the Trust under a Registration Rights Agreement dated as of January 24,
1997 (the "Registration Rights Agreement"), among the Company, the Trust
and the Initial Purchasers (as defined herein). In the event that the
Exchange Offer is consummated, any Old Capital Securities that remain
outstanding and the New Capital Securities issued in the Exchange Offer
will vote together as a single class for purposes of determining whether
holders of the requisite percentage in outstanding Liquidation Amount
thereof have taken certain actions or exercised certain rights under the
Amended and Restated Trust Agreement of the Trust. In the event the
Exchange Offer is consummated, (i) the New Guarantee will apply to any Old
Capital Securities that remain outstanding and to any New Capital
Securities issued in the Exchange Offer, (ii) the Old Subordinated Debentures
will be retired and canceled and (iii) the New Subordinated Debentures will be
issued to Wilmington Trust Company, as Property Trustee under the Trust.
(continued on next page)
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SEE "RISK FACTORS" COMMENCING ON PAGE 11 FOR CERTAIN INFORMATION THAT
SHOULD BE CONSIDERED BY HOLDERS WHO TENDER OLD CAPITAL SECURITIES IN THE
EXCHANGE OFFER.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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The date of this Prospectus is June 13, 1997.
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(continued from the previous page)
Old Capital Securities may be tendered for exchange on or prior to 5:00
p.m., New York City time, on July 18, 1997 (such time on such date
being hereinafter called the "Expiration Date"), unless the Exchange Offer is
extended by the Company and the Trust (in which case the term "Expiration Date"
shall mean the latest date and time to which the Exchange Offer is extended).
Tenders of Old Capital Securities may be withdrawn at any time on or prior to
the Expiration Date. The Exchange Offer is not conditioned upon any minimum
Liquidation Amount of Old Capital Securities being tendered for exchange.
However, the Exchange Offer is subject to certain conditions which may be waived
by the Company and the Trust in their reasonable discretion and to the terms and
provisions of the Registration Rights Agreement. Old Capital Securities may be
tendered for exchange in whole or in part having a Liquidation Amount of $1,000
(1 Old Capital Security) or any integral multiple in excess thereof, provided
that if any Old Capital Securities are tendered for exchange in part, the
untendered aggregate Liquidation Amount thereof must be $100,000 (100 Old
Capital Securities) or any integral multiple of $1,000 (1 Old Capital Security)
in excess thereof. The Company has agreed to pay all expenses of the Trust,
including expenses related to the Exchange Offer. See "The Exchange Offer--Fees
and Expenses." Each New Capital Security will accumulate Distributions from the
most recent Distribution Date (as defined in "Description of Securities--
Description of Capital Securities--Distributions") on the Old Capital Securities
surrendered in exchange for such New Capital Securities or, if no Distributions
have been paid or provided for on such Old Capital Securities, from January 24,
1997. As a result, holders of Old Capital Securities that are accepted for
exchange will not receive accumulated Distributions on such Old Capital
Securities for any period from and after the most recent Distribution Date on
such Old Capital Securities or, if no Distributions have been paid or provided
for on such Old Capital Securities, from and after January 24, 1997, and such
holders will be deemed to have waived the right to receive any Distributions on
such Old Capital Securities. This Prospectus, together with the Letter of
Transmittal, is being sent to all registered holders of Old Capital Securities
as of June 6, 1997.
Neither the Company nor the Trust will receive any cash or other proceeds
from the issuance of the New Capital Securities offered hereby. No dealer-
manager is being used in connection with this Exchange Offer. See "Use of
Proceeds From the Sale of the Old Capital Securities" and "Plan of
Distribution."
As the context may require, unless expressly stated otherwise, (i) the
Exchange Offer is consummated, the New Capital Securities, (ii) "Subordinated
Debentures" means the Old Subordinated Debentures and, in the event the Exchange
Offer is consummated, the New Subordinated Debentures, (iii) "Guarantee" means
the Old Guarantee and, in the event the Exchange Offer is consummated, the New
Guarantee and (iv) "Securities" means the Old Securities and, in the event the
Exchange Offer is consummated, the New Securities. In addition, as used herein,
(i) the "Indenture" means the Indenture dated as of September 1, 1995, as
amended and supplemented from time to time, between the Company and Wilmington
Trust Company, as trustee (the "Debenture Trustee"), (ii) the "Trust Agreement"
means the Amended and Restated Trust Agreement dated as of January 24, 1997
relating to the Trust among the Company, as Sponsor, Wilmington Trust Company,
as Property Trustee (the "Property Trustee") and as Delaware Trustee (the
"Delaware Trustee"), the Administrative Trustees named therein (the
"Administrative Trustees" and, collectively with the Property Trustee and
Delaware Trustee, the "ComEd Trustees") and the holders, from time to time, of
the Capital Securities, and (iii) the "Guarantee Agreement" means the Series A
Capital Securities Guarantee Agreement dated as of January 24, 1997 (the "Old
Guarantee Agreement") between the Company and Wilmington Trust Company, as
trustee (the "Guarantee Trustee"), and, in the event the Exchange Offer is
consummated, the Series B Capital Securities Guarantee Agreement to be entered
into between the Company and the Guarantee Trustee (the "New Guarantee
Agreement") relating to the Old Guarantee and the New Guarantee, respectively.
The Capital Securities represent undivided beneficial interests in the
assets of the Trust. The Company is the owner of all of the beneficial interests
represented by common securities of the Trust (the "Common Securities" and,
collectively with the Capital Securities, the "Trust Securities"). Wilmington
Trust Company is the Property Trustee. The Trust exists for the sole purpose of
issuing the Trust Securities and investing the proceeds thereof in the
Subordinated Debentures. The Subordinated Debentures mature on January 15, 2027
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(continued from the previous page)
(the "Stated Maturity Date"). The Capital Securities have a preference over the
Common Securities under certain circumstances with respect to cash distributions
and amounts payable on liquidation, redemption or otherwise. See "Description of
Securities--Description of Capital Securities--Subordination of Common
Securities."
Holders of the Capital Securities and the Common Securities are entitled to
receive preferential cumulative cash distributions arising from the payment of
interest on the Subordinated Debentures accumulating from January 24, 1997 and
payable semi-annually in arrears on the 15th day of January and July of each
year, commencing July 15, 1997, at the annual rate of 8.50% of the Liquidation
Amount of $1,000 per Capital Security and at the annual rate of 8.50% of the
Liquidation Amount of $1,000 per Trust Security ("Distributions"). The Company
has the right to defer payments of interest on the Subordinated Debentures at
any time or from time to time for a period not exceeding 10 consecutive semi-
annual periods with respect to each deferral period (each, an "Extension
Period"), provided that no Extension Period may extend beyond the Stated
Maturity Date. Upon the termination of any such Extension Period and the payment
of all amounts then due, the Company may elect to begin a new Extension Period,
subject to the requirements set forth herein. If and for so long as interest
payments on the Subordinated Debentures are so deferred, Distributions on the
Trust Securities will also be deferred and the Company will not be permitted,
subject to certain exceptions described herein, to declare or pay any cash
distributions with respect to the Company's capital stock (which includes
common, preference and preferred stock) or to make any payment with respect to
debt securities of the Company that rank pari passu with or junior to the
Subordinated Debentures. During an Extension Period, interest on the
Subordinated Debentures will continue to accrue (and the amount of Distributions
to which holders of the Capital Securities are entitled will continue to
accumulate) at the rate of 8.50% per annum, compounded semi-annually, and
holders of Trust Securities will be required to accrue interest income for
United States federal income tax purposes. See "Description of Securities--
Description of Subordinated Debentures--Option to Extend Interest Payment Date"
and "Certain Federal Income Tax Consequences--Interest Income and Original Issue
Discount."
The Company has, through the Guarantee, the Guarantee Agreement, the Trust
Agreement, the Subordinated Debentures and the Indenture, taken together, fully,
irrevocably and unconditionally guaranteed on a subordinated basis all of the
Trust's obligations under the Old Capital Securities and the New Capital
Securities. The combined operation of these documents provides a full,
irrevocable and unconditional guarantee of the Trust's obligations under the Old
Capital Securities and the New Capital Securities. See "Relationship Among the
Capital Securities, the Subordinated Debentures and the Guarantee--Full and
Unconditional Guarantee." The Guarantee of the Company guarantees the payment of
Distributions and payments on liquidation or redemption of the Capital
Securities, but in each case only to the extent that the Trust holds funds on
hand legally available therefor and has failed to make such payments, as
described herein. See "Description of Securities--Description of Guarantee." If
the Company fails to make a requested payment on the Subordinated Debentures,
the Trust will not have sufficient funds to make the related payments, including
Distributions, on the Capital Securities. The Guarantee does not cover any such
payment when the Trust does not have sufficient funds on hand legally available
therefor. In the event of a Debenture Event of Default (as defined in
"Description of Securities--Description of Subordinated Debentures--Debenture
Events of Default") under the Indenture, a holder of Capital Securities may
institute a legal proceeding directly against the Company to enforce its rights
in respect of such payment. See "Description of Securities--Description of
Subordinated Debentures--Enforcement of Certain Rights By Holders of Capital
Securities." The obligations of the Company under the Guarantee and the
Subordinated Debentures are subordinate and junior in right of payment to all
Senior Indebtedness (as defined in "Description of Securities--Description of
Subordinated Debentures--Subordination") of the Company, which was approximately
$7,072 million at March 31, 1997.
The Trust Securities are subject to mandatory redemption in a Like Amount
(as defined under "Description of Securities--Description of Capital
Securities--Redemption"), (i) in whole but not in part, on the Stated Maturity
Date upon repayment of the Subordinated Debentures at a redemption price equal
to the
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(continued from the previous page)
principal amount of, plus accrued interest on, the Subordinated Debentures (the
"Maturity Redemption Price"), (ii) in whole but not in part, at any time prior
to January 15, 2007, contemporaneously with the optional prepayment of the
Subordinated Debentures, upon the occurrence and continuation of a Tax Event (as
defined under "Description of Securities--Description of Subordinated
Debentures--Tax Event Prepayment") at a redemption price equal to the Tax Event
Prepayment Price (as defined below) (the "Tax Event Redemption Price"), and
(iii) in whole or in part, on or after January 15, 2007, contemporaneously with
the optional prepayment by the Company of the Subordinated Debentures, at a
redemption price equal to the Optional Prepayment Price (as defined below) (the
"Optional Redemption Price"). Any of the Maturity Redemption Price, the Tax
Event Redemption Price and the Optional Redemption Price may be referred to
herein as the "Redemption Price." See "Description of Securities--Description of
Capital Securities--Redemption." The Subordinated Debentures are prepayable
prior to the Stated Maturity Date at the option of the Company (i) on or after
January 15, 2007, in whole or in part, at a prepayment price (the "Optional
Prepayment Price") equal to 104.250% of the principal amount thereof on January
15, 2007, declining ratably on each January 15 thereafter to 100% on or after
January 15, 2017, plus accrued interest thereon to the date of prepayment, or
(ii) at any time prior to January 15, 2007, in whole but not in part, upon the
occurrence and continuation of a Tax Event, at a prepayment price (the "Tax
Event Prepayment Price") equal to the greater of (a) 100% of the principal
amount thereof or (b) the sum, as determined by a Quotation Agent (as defined
under "Description of Securities--Description of Subordinated Debentures--Tax
Event Prepayment") of the present values of the principal amount and premium
payable as part of the prepayment price with respect to an optional prepayment
of such Subordinated Debentures on January 15, 2007, together with scheduled
payments of interest accruing from the prepayment date to January 15, 2007, in
each case, discounted to the prepayment date on a semi-annual basis (assuming a
360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate
(as defined under "Description of Securities--Description of Subordinated
Debentures--Tax Event Prepayment") plus, in either case accrued interest thereon
to the date of prepayment. Either of the Optional Prepayment Price or the Tax
Event Prepayment Price may be referred to herein as the "Prepayment Price." See
"Description of Securities--Description of Subordinated Debentures--Optional
Prepayment" and "--Tax Event Prepayment."
The Company has the right at any time to terminate the Trust and cause the
Subordinated Debentures to be distributed to the holders of the Capital
Securities in liquidation of the Trust, subject to the Company having received
an opinion of counsel to the effect that holders of the Capital Securities will
not recognize gain or loss for United States federal income tax purposes as a
result of the dissolution of the Trust and the distribution of the Subordinated
Debentures. Unless the Subordinated Debentures are distributed to the holders of
the Trust Securities, in the event of a liquidation of the Trust as described
herein, after satisfaction of liabilities to creditors of the Trust as required
by applicable law, the holders of the Capital Securities generally will be
entitled to receive a Liquidation Amount of $1,000 per Capital Security plus
accumulated Distributions thereon to the date of payment. See "Description of
Securities--Description of Capital Securities--Liquidation of the Trust and
Distribution of Subordinated Debentures" and "Certain Federal Income Tax
Consequences--Distribution of Subordinated Debentures to Holders of Capital
Securities."
The Trust is making the Exchange Offer for the Capital Securities in
reliance on the position of the staff of the Division of Corporation Finance of
the Securities and Exchange Commission (the "Commission") as set forth in
certain interpretive letters addressed to third parties in other transactions.
Based on these interpretations by the staff of the Division of Corporation
Finance, and subject to the conditions described herein, the Company and the
Trust believe that a holder of Old Capital Securities (other than a holder who
is (a) a broker-dealer who purchased the Old Capital Securities directly from
the Trust to resell pursuant to Rule 144A or any other available exemption under
the Securities Act, (b) a person participating in the distribution of the Old
Capital Securities or (c) a person who is an "affiliate" of the Company or the
Trust) who exchanges Old Capital Securities in the Exchange Offer for New
Capital Securities and then resells such New Capital Securities will be viewed
by the staff no differently than a non-affiliated purchaser of registered
securities who purchases such securities in a registered primary offering of
securities and, after completion of such registered offering, may resell the New
Capital Securities without further compliance with the registration and
prospectus
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(continued from the previous page)
delivery requirements of the Securities Act, provided that such New Capital
Securities are acquired in the ordinary course of such holder's business and
that such holder is not participating, and has no arrangement or understanding
with any person to participate, in a distribution (within the meaning of the
Securities Act) of such New Capital Securities. Subject to the conditions
described herein, the Company and the Trust also believe that a broker-dealer
may participate in the Exchange Offer with respect to Old Capital Securities
acquired for its own account as a result of market-making activities or other
trading activities, provided that in connection with any resales of New Capital
Securities received in exchange for such Old Capital Securities, such broker-
dealer delivers a prospectus meeting the requirements of the Securities Act,
which may be this Prospectus. See "The Exchange Offer--Resales of New Capital
Securities" and "Plan of Distribution."
Prior to the Exchange Offer, there has been only a limited secondary market
and no public market for the Old Capital Securities. The New Capital Securities
will be a new issue of securities for which there currently is no market.
Although Merrill Lynch, Pierce, Fenner & Smith Incorporated, PaineWebber
Incorporated and Salomon Brothers Inc, the initial purchasers of the Old Capital
Securities (the "Initial Purchasers"), have advised the Company and the Trust
that they currently intend to make a market in the New Capital Securities, the
Initial Purchasers are not obligated to do so, and any market-making activity
with respect to the New Capital Securities may be interrupted or discontinued at
any time without notice. Accordingly, no assurance can be given that an active
public or other market will develop for the New Capital Securities or as to the
liquidity of or the trading market for the New Capital Securities. The Company
and the Trust will not apply for listing of the New Capital Securities on any
securities exchange or for quotation through the National Association of
Securities Dealers Automated Quotation System.
Any Old Capital Securities not tendered and accepted in the Exchange Offer
will remain outstanding and will be entitled to the same rights and will be
subject to the same limitations applicable thereto under the Trust Agreement
(except for those rights which terminate upon consummation of the Exchange
Offer). Following consummation of the Exchange Offer, the holders of any Old
Capital Securities that remain outstanding will continue to be subject to all of
the existing restrictions upon transfer thereof and neither the Company nor the
Trust will have any further obligation to such holders (other than under certain
limited circumstances) to provide for registration under the Securities Act of
the Old Capital Securities held by them. To the extent that Old Capital
Securities are tendered and accepted in the Exchange Offer, a holder's ability
to sell untendered Old Capital Securities could be adversely affected. See "Risk
Factors--Consequences of a Failure to Exchange Old Capital Securities."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD CAPITAL SECURITIES ARE URGED TO READ THIS PROSPECTUS
AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO
TENDER THEIR OLD CAPITAL SECURITIES PURSUANT TO THE EXCHANGE OFFER.
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FOR NORTH CAROLINA INVESTORS: THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH
CAROLINA (THE "NORTH CAROLINA INSURANCE COMMISSIONER") NOR HAS THE NORTH
CAROLINA INSURANCE COMMISSIONER RULED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS.
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AVAILABLE INFORMATION
ComEd is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, information statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, information
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and at the Commission's Regional Offices at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
and Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of
such material can also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at
prescribed rates. Such reports, information statements and other information
concerning ComEd may also be inspected at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005, the Chicago Stock
Exchange, 440 South LaSalle Street, Chicago, Illinois 60604 and the Pacific
Stock Exchange, 301 Pine Street, San Francisco, California 94101, the securities
exchanges on which certain of ComEd's securities are listed. ComEd is also
subject to the electronic filing requirements of the Commission. Accordingly,
pursuant to the rules and regulations of the Commission, certain documents,
including annual and quarterly reports and information statements, filed by
ComEd with the Commission have been filed electronically. The Commission also
maintains a World Wide Web site that contains reports, proxy and information
statements and other information regarding registrants (including ComEd) that
file electronically with the Commission at (http://www.sec.gov.).
No separate financial statements of the Trust have been included herein.
ComEd and the Trust do not consider that such financial statements would be
material to holders of the Capital Securities because the Trust is a newly
formed special purpose entity, has no operating history or independent
operations and is not engaged in and does not propose to engage in any activity
other than holding as trust assets the Subordinated Debentures and issuing the
Trust Securities. See "ComEd Financing II" and "Description of Securities." In
addition, the Company does not expect that the Trust will file reports under the
Exchange Act with the Commission.
In connection therewith, ComEd represents the following:
(i) the Capital Securities will be presented on the consolidated
financial statements, along with the 8.48% Trust Originated Preferred
Securities issued by ComEd Financing I, as "Company-Obligated Mandatorily
Redeemable Preferred Securities of Subsidiary Trusts";
(ii) a footnote to the financial statements will disclose that the
sole assets of the Trust are the Company's $154,640,000 aggregate principal
amount of 8.50% Subordinated Deferrable Interest Debentures due January 15,
2027; and
(iii) it will include in an audited footnote to the consolidated
financial statements disclosure that (i) the Trust is wholly owned; (ii)
the sole assets of the Trust are the Company's $154,640,000 aggregate
principal amount of 8.50% Subordinated Deferrable Interest Debentures due
January 15, 2027; and (iii) the back-up guarantees, in the aggregate,
provide a full and unconditional guarantee of the Trust's obligations under
the Capital Securities.
This Prospectus constitutes a part of a registration statement on Form S-4
(the "Registration Statement") filed by ComEd and the Trust with the Commission
under the Securities Act. This Prospectus does not contain all the information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission, and reference is
hereby made to the
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Registration Statement and to the exhibits relating thereto for further
information with respect to ComEd and the New Securities. Any statements
contained herein concerning the provisions of any document are not necessarily
complete, and, in each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement or otherwise filed with the
Commission. Each such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by ComEd with the Commission (File No. 1-
1839) are incorporated into this Prospectus by reference and made a part hereof:
(i) ComEd's Annual Report on Form 10-K for the year ended December
31, 1996 (the "1996 Form 10-K Report");
(ii) ComEd's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1997 (the "March 31, 1997 Form 10-Q Report"); and
(iii) ComEd's Current Reports on Form 8-K dated January 29, 1997,
January 31, 1997 (the "January 31, 1997 Form 8-K Report") and May 30, 1997
(the "May 30, 1997 Form 8-K Report").
All documents subsequently filed by ComEd pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to
the termination of the offering or offerings made by this Prospectus, shall be
deemed to be incorporated in this Prospectus by reference and to be a part
hereof from the respective dates of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
in this Prospectus shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained in this Prospectus or
in any other subsequently filed document which also is or is deemed to be
incorporated by reference in this Prospectus modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. These documents are available upon request from
David A. Scholz, Secretary, Commonwealth Edison Company, 37th Floor, 10 South
Dearborn Street, Post Office Box 767, Chicago, IL 60690-0767 (telephone number
312/394-3126). In order to ensure timely delivery of the documents, any request
should be made by July 11, 1997.
As used herein, the terms "Prospectus" and "herein" mean this Prospectus,
including the documents incorporated or deemed to be incorporated herein by
reference, as the same may be amended, supplemented or otherwise modified from
time to time. Statements contained in this Prospectus as to the contents of any
contract or other document referred to herein do not purport to be complete, and
where reference is made to the particular provisions of such contract or other
document, such provisions are qualified in all respects by reference to all of
the provisions of such contract or other document.
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus or incorporated by reference
herein.
Commonwealth Edison Company
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's electric service
territory has an area of approximately 11,300 square miles and an estimated
population of approximately eight million as of March 31, 1997. It includes the
city of Chicago, an area of about 225 square miles with an estimated population
of approximately three million from which ComEd derived approximately one-third
of its ultimate consumer revenues in the twelve months ended March 31, 1997.
ComEd had approximately 3.4 million electric customers as of March 31, 1997.
ComEd's principal executive offices are located at 37th Floor, 10 South Dearborn
Street, Post Office Box 767, Chicago, IL 60690-0767, and its telephone number is
312/394-4321.
ComEd Financing II
The Trust is a statutory business trust formed under Delaware law pursuant
to (i) the Trust Agreement executed by ComEd, as Sponsor, Wilmington Trust
Company, as Property Trustee and as Delaware Trustee, and the two individual
Administrative Trustees named therein, and (ii) the filing of a certificate of
trust with the Delaware Secretary of State on November 20, 1996. The Trust's
business and affairs are conducted by the ComEd Trustees: the Property Trustee,
the Delaware Trustee, and the two individual Administrative Trustees who are
employees or officers of or affiliated with ComEd. The Trust exists for the
exclusive purposes of (i) issuing and selling the Trust Securities, (ii) using
the proceeds from the sale of the Common Securities and the Old Capital
Securities to acquire the Old Subordinated Debentures issued by ComEd, (iii)
exchanging the Old Subordinated Debentures for the New Subordinated Debentures
in the Exchange Offer pursuant to the Indenture and (iv) engaging in only those
other activities necessary, advisable or incidental thereto. Accordingly, the
Subordinated Debentures will be the sole assets of the Trust, and payments under
the Subordinated Debentures will be the sole revenue of the Trust. All of the
Common Securities are owned by ComEd.
The Exchange Offer
The Exchange Offer Up to $150,000,000 aggregate Liquidation Amount of New
Capital Securities are being offered in exchange for a
like aggregate Liquidation Amount of Old Capital
Securities. Old Capital Securities may be tendered for
exchange in whole or in part having a Liquidation
Amount of $1,000 (1 Old Capital Security) or any
integral multiple in excess thereof. ComEd and the
Trust are making the Exchange Offer in order to satisfy
their obligations under the Registration Rights
Agreement relating to the Old Securities. For a
description of the procedures for tendering Old Capital
Securities, see "The Exchange Offer--Procedures for
Tendering Old Capital Securities."
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Expiration Date 5:00 p.m., New York City time, on July
18, 1997 (such time on such date being
hereinafter called the "Expiration
Date") unless the Exchange Offer is
extended by ComEd and the Trust (in
which case the term "Expiration Date"
shall mean the latest date and time to
which the Exchange Offer is extended).
See "The Exchange Offer--Expiration
Date; Extensions; Amendments."
Conditions to the The Exchange Offer is subject to
Exchange Offer certain conditions which may be
waived by ComEd and the Trust in
their reasonable discretion and to
the terms and conditions of the
Registration Rights Agreement. The
Exchange Offer is not conditioned
upon any minimum Liquidation Amount
of Old Capital Securities being
tendered for exchange. See "The
Exchange Offer--Conditions to the
Exchange Offer."
ComEd and the Trust expressly reserve
the right in their sole and absolute
discretion, subject to applicable
law, at any time and from time to
time, (i) to delay the acceptance of
the Old Capital Securities for
exchange, (ii) to terminate the
Exchange Offer (whether or not any
Old Capital Securities have been
accepted for exchange) if ComEd or
the Trust determines, in its
reasonable discretion, that any of
the conditions referred to under "The
Exchange Offer--Conditions to the
Exchange Offer" have occurred or
exist or have not been satisfied,
(iii) to extend the Expiration Date
and retain all Old Capital Securities
tendered pursuant to the Exchange
Offer, subject, however, to the right
of holders of Old Capital Securities
to withdraw their tendered Old
Capital Securities, and (iv) to waive
any condition or otherwise amend the
terms of the Exchange Offer in any
respect. See "The Exchange
Offer--Expiration Date; Extensions;
Amendments."
Procedures for Tendering Brokers, dealers, commercial banks,
Old Capital Securities trust companies and other nominees
who hold Old Capital Securities
through The Depository Trust Company
("DTC") may effect tenders by
book-entry transfer in accordance
with DTC's Automated Tender Offer
Program ("ATOP"). Holders of such
Old Capital Securities registered in
the name of a broker, dealer,
commercial bank, trust company or
other nominee are urged to contact
such person promptly if they wish to
tender Old Capital Securities. In
order for Old Capital Securities to
be tendered by a means other than by
book-entry transfer, a Letter of
Transmittal must be completed and
signed in accordance with the
instructions contained therein. The
Letter of Transmittal and any other
documents required by the Letter of
Transmittal must be delivered to
Wilmington Trust Company (the
"Exchange Agent") by mail, facsimile,
hand delivery or overnight carrier
and either such Old Capital
Securities must be delivered to the
Exchange Agent or specified
procedures for guaranteed delivery
must be complied with. See "The
Exchange Offer--Procedures for
Tendering Old Capital Securities."
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<PAGE>
Letters of Transmittal, certificates
for Old Capital Securities and any
other documents required by the
Letter of Transmittal should not be
delivered to ComEd or the Trust.
Such documents should only be
delivered to the Exchange Agent.
Questions regarding how to tender and
requests for information should be
directed to the Exchange Agent. See
"The Exchange Offer--Exchange Agent."
Withdrawal Rights Tenders of Old Capital Securities may
be withdrawn at any time on or prior
to the Expiration Date by delivering
a written notice of such withdrawal
to the Exchange Agent in conformity
with certain procedures set forth
below under "The Exchange
Offer--Withdrawal Rights."
Resales of New Based on certain interpretations by
Capital Securities the staff of the Division of
Corporation Finance of the
Commission, and subject to the
conditions described below, the
Company and the Trust believe that a
holder of Old Capital Securities
(other than a holder who is (a) a
broker-dealer who purchased the Old
Capital Securities directly from the
Trust to resell pursuant to Rule 144A
or any other available exemption
under the Securities Act, (b) a
person participating in the
distribution of the Old Capital
Securities or (c) a person who is an
"affiliate" of the Company or the
Trust) who exchanges Old Capital
Securities in the Exchange Offer for
New Capital Securities and then
resells such New Capital Securities
will be viewed by the staff no
differently than a non-affiliated
purchaser of registered securities
who purchases such securities in a
registered primary offering of
securities and, after completion of
such registered offering, may resell
the New Capital Securities without
further compliance with the
registration and prospectus delivery
requirements of the Securities Act,
provided that such New Capital
Securities are acquired in the
ordinary course of such holder's
business and that such holder is not
participating, and has no arrangement
or understanding with any person to
participate, in a distribution
(within the meaning of the Securities
Act) of such New Capital Securities.
Any holder of Old Capital Securities
who uses the Exchange Offer to
participate in a distribution of the
New Capital Securities to be acquired
in the Exchange Offer, any
broker-dealer who receives New
Capital Securities in exchange for
Old Capital Securities that were
purchased directly from the Trust to
resell pursuant to Rule 144A or any
other available exemption under the
Securities Act, any person
participating in the distribution of
the Old Capital Securities who
receives New Capital Securities in
the Exchange Offer and any
"affiliate" of the Company or the
Trust who receives New Capital
Securities in the Exchange Offer (a)
will not be able to rely on the
interpretations of the staff of the
Division of Corporation Finance set
forth in the above-described
interpretive letters and (b) must
comply with the registration and
prospectus delivery requirements of
the Securities Act in connection with
any sale or other transfer of such
New Capital Securities, unless such
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<PAGE>
sale is made pursuant to an exemption
from such requirements. Any such sale
or other transfer must be made by
delivery of a prospectus containing
the selling securityholder
information required by the rules of
the Commission under the Securities
Act. See "The Exchange Offer--Resales
of New Capital Securities."
Each holder (including any broker-
dealer) of Old Capital Securities who
wishes to exchange Old Capital
Securities for New Capital Securities
in the Exchange Offer will be
required to represent that (i) it is
not an "affiliate" of the Company or
the Trust, (ii) any New Capital
Securities to be received by it are
being acquired in the ordinary course
of its business, (iii) it has no
arrangement or understanding with any
person to participate in a
distribution (within the meaning of
the Securities Act) of such New
Capital Securities, and (iv) such
holder is not engaged in, and does
not intend to engage in, a
distribution (within the meaning of
the Securities Act) of such New
Capital Securities. The Letter of
Transmittal contains the foregoing
representations.
A broker-dealer who holds Old Capital
Securities for its own account as a
result of market-making activities or
other trading activities and who
receives New Capital Securities in
exchange for such Old Capital
Securities pursuant to the Exchange
Offer will be required to deliver a
prospectus meeting the requirements
of the Securities Act in connection
with any resale of such New Capital
Securities. Based upon the position
taken by the staff of the Division of
Corporation Finance of the Commission
in the interpretive letters referred
to above, the Company and the Trust
believe that a broker-dealer may
participate in the Exchange Offer
with respect to Old Capital
Securities acquired for its own
account as a result of market-making
activities or other trading
activities (a "Participating Broker-
Dealer"), provided that in connection
with any resales of New Capital
Securities received in exchange for
such Old Capital Securities, such
broker-dealer delivers a prospectus
meeting the requirements of the
Securities Act, which may be the
prospectus prepared for an exchange
offer so long as it contains a
description of the plan of
distribution with respect to the
resale of such New Capital
Securities. Accordingly, the Company
and the Trust will require each
broker-dealer who tenders, pursuant
to the Exchange Offer, Old Capital
Securities that were acquired for its
own account as the result of market-
making activities or other trading
activities to acknowledge that it
will deliver a prospectus meeting the
requirements of the Securities Act in
connection with any resale of New
Capital Securities received in
exchange for such Old Capital
Securities pursuant to the Exchange
Offer. The Letter of Transmittal
contains the foregoing acknowledgment
but states that by such
acknowledgment a broker-dealer will
not be deemed to admit that it is an
"underwriter" within the meaning of
the Securities Act. A Participating
Broker-Dealer may fulfill its
prospectus
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<PAGE>
delivery requirement in connection with
resales of New Capital Securities
received in exchange for Old Capital
Securities that were acquired by such
Participating Broker-Dealer for its own
account as a result of market-making
activities or other trading activities
with this Prospectus, as it may be
amended or supplemented from time to
time, during the 90-day period referred
to below. Subject to certain provisions
set forth in the Registration Rights
Agreement and to the limitations
described under "The Exchange Offer--
Resale of New Capital Securities,"
ComEd and the Trust have agreed that
this Prospectus, as it may be amended
or supplemented from time to time, may
be used by a Participating Broker-
Dealer in connection with resales of
such New Capital Securities for a
period ending 90 days after the
Expiration Date or, if earlier, when
all such New Capital Securities have
been disposed of by such Participating
Broker-Dealer. See "The Exchange
Offer--Resales of New Capital
Securities."
In that regard, each Participating
Broker-Dealer who surrenders Old
Capital Securities pursuant to the
Exchange Offer will be deemed to have
agreed, by execution of the Letter of
Transmittal or delivery of an Agent's
Message (as defined under "The Exchange
Offer--Acceptance for Exchange and
Issuance of New Capital Securities") in
lieu thereof, that, upon receipt of
notice from ComEd or the Trust of the
occurrence of any event or the
discovery of any fact which makes any
statement contained or incorporated by
reference in this Prospectus untrue in
any material respect or which causes
this Prospectus to omit to state a
material fact necessary in order to
make the statements contained or
incorporated by reference herein, in
light of the circumstances under which
they were made, not misleading or of
the occurrence of certain other events
specified in the Registration Rights
Agreement, such Participating Broker-
Dealer will suspend the sale of New
Capital Securities (or the New
Guarantee or the New Subordinated
Debentures, as applicable) pursuant to
this Prospectus until ComEd or the
Trust has amended or supplemented this
Prospectus to correct such misstatement
or omission and has furnished copies of
the amended or supplemented Prospectus
to such Participating Broker-Dealer or
ComEd or the Trust has given notice
that the sale of the New Capital
Securities (or the New Guarantee or the
New Subordinated Debentures, as
applicable) may be resumed, as the case
may be. See "The Exchange Offer--
Resales of New Capital Securities."
Exchange Agent The Exchange Agent is Wilmington Trust
Company. The addresses and telephone
and facsimile numbers of the Exchange
Agent are set forth in "The Exchange
Offer--Exchange Agent" and in the
Letter of Transmittal.
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<PAGE>
Use of Proceeds Neither ComEd nor the Trust will
receive any cash or other proceeds
from the issuance of the New Capital
Securities offered hereby. See "Use
of Proceeds From the Sale of the Old
Capital Securities."
Certain Federal Income Holders of Old Capital Securities
Tax Consequences; should review the information set
ERISA Considerations forth under "Certain Federal Income
Tax Consequences" and "ERISA
Considerations" prior to tendering
Old Capital Securities in the
Exchange Offer.
The Capital Securities
Securities Offered Up to $150,000,000 aggregate
Liquidation Amount of the Trust's
8.50% Capital Securities which have
been registered under the Securities
Act (Liquidation Amount $1,000 per
Capital Security). The New Capital
Securities will be issued and the Old
Capital Securities were issued under
the Trust Agreement. The New Capital
Securities and any Old Capital
Securities that remain outstanding
after consummation of the Exchange
Offer will constitute a single series
of Capital Securities under the Trust
Agreement and, accordingly, will vote
together as a single class for
purposes of determining whether
holders of the requisite percentage
in outstanding Liquidation Amount
thereof have taken certain actions or
exercised certain rights under the
Trust Agreement. See "Description of
Securities--Description of Capital
Securities--General." The forms and
terms of the New Securities are
identical in all material respects to
the respective forms and terms of the
Old Securities, except that the New
Securities have been registered under
the Securities Act and therefore are
not subject to certain restrictions
on transfer applicable to the Old
Securities. Accordingly, as the
context may require, unless expressly
stated otherwise, (i) "Capital
Securities" means the Old Capital
Securities and, in the event the
Exchange Offer is consummated, the
New Capital Securities, (ii)
"Subordinated Debentures" means the
Old Subordinated Debentures and, in
the event the Exchange Offer is
consummated, the New Subordinated
Debentures, (iii) "Guarantee" means
the Old Guarantee and, in the event
the Exchange Offer is consummated,
the New Guarantee and (iv)
"Securities" means the Old Securities
and, in the event the Exchange Offer
is consummated, the New Capital
Securities. See "The Exchange
Offer--Purpose and Effect of the
Exchange Offer," "Description of
Securities" and "Description of Old
Securities."
Distribution Dates January 15 and July 15 of each year,
commencing July 15, 1997.
Extension Periods Distributions on Capital Securities
will be deferred for the duration of
any Extension Period elected by ComEd
with respect to the payment of
interest on the Subordinated
Debentures. No Extension Period will
exceed 10 consecutive semi-annual
periods or extend
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<PAGE>
beyond the Stated Maturity Date. See
"Description of Securities--
Description of Subordinated
Debentures--Option to Extend Interest
Payment Date" and "Certain Federal
Income Tax Consequences--Interest
Income and Original Issue Discount."
Ranking The Capital Securities rank pari
passu, and payments thereon will be
made pro rata, with the Common
Securities except as described under
"Description of Securities--
Description of Capital Securities--
Subordination of Common Securities."
The Subordinated Debentures rank pari
passu with all other subordinated
indebtedness ("Other Indebtedness")
which has been or will be issued and
sold to other trusts which have been
or will be established by ComEd, in
each case similar to the Trust
("Other Trusts"), including the
$206.2 million principal amount of
the Company's 8.48% Subordinated
Deferrable Interest Notes due
September 30, 2035 (the "8.48%
Debentures") issued to ComEd
Financing I in connection with the
sale of the 8.48% Trust Originated
Preferred Securities issued by ComEd
Financing I (the "8.48% Preferred
Securities"), and are unsecured and
subordinate and junior in right of
payment to all Senior Indebtedness to
the extent and in the manner set
forth in the Indenture. See
"Description of Securities--
Description of Subordinated
Debentures." The Guarantee ranks pari
passu with all other guarantees
issued by the Company with respect to
capital or preferred securities
issued by Other Trusts ("Other
Guarantees") including the Company's
guarantee of the 8.48% Preferred
Securities, and constitutes an
unsecured obligation of the Company
and ranks subordinate and junior in
right of payment to all Senior
Indebtedness to the extent and in the
manner set forth in the Guarantee
Agreement. See "Description of
Securities--Description of
Guarantee."
Redemption The Trust Securities are subject to
mandatory redemption in a Like
Amount, (i) in whole but not in part,
on the Stated Maturity Date upon
repayment of the Subordinated
Debentures, (ii) in whole but not in
part, at any time prior to January
15, 2007, contemporaneously with the
optional prepayment of the
Subordinated Debentures by the
Company upon the occurrence and
continuation of a Tax Event and (iii)
in whole or in part, on or after
January 15, 2007 contemporaneously
with the optional prepayment by the
Company of the Subordinated
Debentures, in each case at the
applicable Redemption Price. See
"Description of Securities--
Description of Capital Securities--
Redemption."
Rating The Capital Securities have been
rated BBB- by Standard & Poor's
Ratings Services ("S&P") and baa3
by Moody's Investors Services, Inc.
("Moody's").
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<PAGE>
Absence of Market for The New Capital Securities will be a
the Capital Securities new issue of securities for which
there currently is no market.
Although the Initial Purchasers have
advised ComEd and the Trust that
they currently intend to make a
market in the New Capital
Securities, the Initial Purchasers
are not obligated to do so, and any
market-making activity with respect
to the New Capital Securities may be
interrupted or discontinued at any
time without notice. Accordingly, no
assurance can be given that an
active public or other market will
develop for the New Capital
Securities or as to the liquidity of
or the trading market for the New
Capital Securities. ComEd and the
Trust will not apply for listing of
the New Capital Securities on any
securities exchange or for quotation
through the National Association of
Securities Dealers Automated
Quotation System.
For additional information regarding the New Securities, see "Description
of Securities" and "Certain Federal Income Tax Consequences" below.
Risk Factors
Holders tendering Old Capital Securities in the Exchange Offer should
carefully consider the matters set forth under "Risk Factors" beginning on
page 11.
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<PAGE>
RISK FACTORS
Holders tendering Old Capital Securities in the Exchange Offer should
carefully review the information contained elsewhere in this Prospectus and
should particularly consider the matters set forth below. The forms and
terms of the New Securities are identical in all material respects to the
respective forms and terms of the Old Securities, except that the New
Securities have been registered under the Securities Act and therefore will
not be subject to certain restrictions on transfer applicable to the Old
Securities. Accordingly, as the context may require, unless expressly
stated otherwise, (i) "Capital Securities" means the Old Capital Securities
and, in the event the Exchange Offer is consummated, the New Capital
Securities, (ii) "Subordinated Debentures" means the Old Subordinated
Debentures and, in the event the Exchange Offer is consummated, the New
Subordinated Debentures, (iii) "Guarantee" means the Old Guarantee and, in
the event the Exchange Offer is consummated, the New Guarantee and (iv)
"Securities" means the Old Securities and, in the event the Exchange Offer
is consummated, the New Securities.
Ranking of Guarantee and the Subordinated Debentures
The Company's obligations under the Guarantee are subordinate and
junior in right of payment to all liabilities of the Company other than the
Company's guarantee of the 8.48% Preferred Securities and pari passu with
the most senior preferred stock now or hereafter issued by the Company and
with any guarantee now or hereafter entered into by the Company in respect
of any preferred stock of any affiliate of the Company. The obligations of
the Company under the Subordinated Debentures are subordinate and junior in
right of payment to all present and future Senior Indebtedness of the
Company. No payment of principal of (including redemption payments, if
any), premium, if any, or interest on, the Subordinated Debentures may be
made if (i) any Senior Indebtedness of the Company is not paid when due and
any applicable grace period with respect to such default has ended with
such default not being cured or waived or ceasing to exist, or (ii) the
maturity of any Senior Indebtedness has been accelerated because of a
default. At March 31, 1997 Senior Indebtedness of the Company aggregated
approximately $7,072 million. There are no terms in the Capital
Securities, the Subordinated Debentures or the Guarantee that limit the
Company's ability to incur additional indebtedness, including indebtedness
that ranks senior to the Subordinated Debentures or the Guarantee. See
"Description of Securities--Description of Guarantee" and "Description of
Securities--Description of Subordinated Debentures--Subordination."
Rights Under the Guarantee
The Guarantee guarantees to the holders of the Capital Securities the
payment of (i) any accrued and unpaid Distributions which are required to
be paid on the Capital Securities, to the extent the Trust shall have funds
on hand legally available therefor, (ii) the Redemption Price, including
all accrued and unpaid Distributions to the date of the redemption, to the
extent the Trust shall have funds on hand legally available therefor, with
respect to any Capital Securities called for redemption by the Trust and
(iii) upon a voluntary or involuntary dissolution, winding-up or
termination of the Trust (other than in connection with the distribution of
Subordinated Debentures to the holders of Capital Securities) the lesser of
(a) the aggregate of the liquidation amount and all accrued and unpaid
Distributions on the Capital Securities to the date of payment therefor and
(b) the amount of assets of the Trust remaining available for distribution
to holders of Securities in liquidation of the Trust. The holders of a
majority in liquidation amount of the Capital Securities have the right to
direct the time, method and place of conducting any proceeding for any
remedy available to the Guarantee Trustee or to direct the exercise of any
trust or power conferred upon the Guarantee Trustee under the Guarantee.
Any holder of Capital Securities may institute a legal proceeding directly
against the Company to enforce the Guarantee Trustee's rights under the
Guarantee, without first instituting a legal proceeding against the Trust,
the Guarantee Trustee or any other person or entity. If the Company were
to default in its
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<PAGE>
obligation to pay amounts payable on the Subordinated Debentures, the Trust
would lack available funds for the payment of Distributions or amounts
payable on redemption of the Capital Securities or otherwise, and in such
event holders of the Capital Securities would not be able to rely upon the
Guarantee for payment of such amounts. Instead, in the event a Debenture
Event of Default shall have occurred and be continuing and such event is
attributable to the failure of the Company to pay principal of or premium,
if any, or interest on the Subordinated Debentures on the payment date on
which such payment is due and payable, then a holder of Capital Securities
may institute a legal proceeding directly against the Company for
enforcement of payment to such holder of the principal of or premium, if
any, or interest on such Subordinated Debentures having a principal amount
equal to the Liquidation Amount of the Capital Securities of such holder (a
"Direct Action"). Notwithstanding any payments made to a holder of Capital
Securities by the Company in connection with a Direct Action, the Company
shall remain obligated to pay the principal of and premium, if any, and
interest on the Subordinated Debentures, and the Company shall be
subrogated to the rights of the holder of such Capital Securities with
respect to payments on the Capital Securities to the extent of any payments
made by the Company to such holder in any Direct Action. Except as
described herein, holders of Capital Securities will not be able to
exercise directly any other remedy available to the holders of the
Subordinated Debentures or to assert directly any other rights in respect
of the Subordinated Debentures. See "Description of Securities--
Description of Guarantee--Status of the Guarantee" and "Description of
Securities--Description of Subordinated Debentures--Subordination." The
Trust Agreement provides that each holder of Capital Securities by
acceptance thereof agrees to the provisions of the Guarantee and the
Indenture.
Option to Extend Interest Payment Period
The Company has the right under the Indenture to defer payments of
interest on the Subordinated Debentures by extending the interest payment
period at any time, and from time to time, on the Subordinated Debentures.
As a consequence of such an extension, semi-annual distributions on the
Capital Securities would be deferred (but despite such deferral would
continue to accrue with interest thereon compounded semi-annually) by the
Trust during any such extended interest payment period. Such right to
extend the interest payment period for the Subordinated Debentures is
limited to a period not exceeding ten consecutive semi-annual periods for
any such extension. In the event that the Company exercises this right to
defer payments of interest, then (i) the Company shall not declare or pay
any dividend on, make any distributions with respect to, or redeem,
purchase or make a liquidation payment with respect to, any of its capital
stock and (ii) the Company shall not make any payment of interest,
principal or premium, if any, on or repay, repurchase or redeem any debt
securities (including guarantees) issued by the Company which rank pari
passu with or junior to the Subordinated Debentures, including the 8.48%
Debentures and the guarantee of the 8.48% Preferred Securities. Prior to
the termination of any such Extension Period, the Company may further defer
payments of interest by further extending the interest payment period,
provided that such Extension Period, together with all such previous and
further extensions thereof, may not exceed 10 consecutive semi-annual
periods or extend beyond the Stated Maturity Date of the Subordinated
Debentures. Upon the termination of any Extension Period and the payment
of all amounts then due, the Company may select a new Extension Period, as
if no Extension Period had previously been declared, subject to the above
requirements. See "Description of Securities--Description of Capital
Securities--Distributions" and "--Voting Rights; Amendment of the Trust
Agreement" and "Description of Securities--Description of Subordinated
Debentures--Option to Extend Interest Payment Date."
In September 1995, ComEd Financing I issued 8,000,000 8.48% Preferred
Securities to the public. The proceeds of such issuance, together with the
proceeds of the issuance of common securities to the Company, were used by
ComEd Financing I to purchase the 8.48% Debentures from the Company. The
Subordinated Debentures are pari passu in right of payment with the 8.48%
Debentures. As a result, in the event the Company exercises its right to
defer interest on the Subordinated Debentures, the Company will be
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<PAGE>
prohibited from making payments on the 8.48% Debentures or on its guarantee
of the 8.48% Preferred Securities, and in the event the Company exercises
its right to defer interest on the 8.48% Debentures, it will be prohibited
from making payments on the Subordinated Debentures and the Guarantee.
Should the Company exercise its rights to defer payments of interest
by extending the interest payment period, each holder of Capital Securities
will be required to accrue income (as original issue discount) for United
States federal income tax purposes in respect of the deferred interest
allocable to its Capital Securities. As a result, holders of Capital
Securities will recognize income for United States federal income tax
purposes in advance of the receipt of cash and will not receive cash from
the Trust related to such income if such holder disposes of its Capital
Securities prior to the record date for the date on which distributions of
such amounts are made. The Company has no current intention of exercising
its right to defer payments of interest by extending the interest payment
period on the Subordinated Debentures. However, should the Company
determine to exercise such right in the future, the market price of the
Capital Securities is likely to be affected. A holder that disposes of its
Capital Securities during an Extension Period, therefore, might not receive
the same return on its investment as a holder that continues to hold its
Capital Securities. In addition, as a result of the existence of the
Company's right to defer interest payments, the market price of the Capital
Securities (which represent an undivided beneficial interest in the
Subordinated Debentures) may be more volatile than other securities that do
not contain such rights. See "Certain Federal Income Tax Consequences--
Interest Income and Original Issue Discount."
Tax Event Redemption; Possible Tax Law Changes Affecting the Capital
Securities
Upon the occurrence and continuation of a Tax Event (as defined under
"Description of Securities--Description of Subordinated Debentures--Tax
Event Prepayment"), the Company will have the right to prepay the
Subordinated Debentures in whole (but not in part) at the Tax Event
Prepayment Price prior to January 15, 2007 and within 90 days following the
occurrence of such Tax Event and therefore cause a mandatory redemption of
the Capital Securities at the Tax Event Redemption Price. See "Description
of Securities--Description of Capital Securities--Redemption."
On February 6, 1997, President Clinton's budget proposal for fiscal
year 1998 was released. Included in the budget proposal is a provision
which, if enacted, would generally treat instruments such as the
Subordinated Debentures as equity for United States federal income tax
purposes if the instruments (i) have a maximum term of more than 15 years
and (ii) are not shown as indebtedness on the separate balance sheet of the
issuer. The provision is proposed to be effective generally for
instruments issued on or after the date of first committee action by
Congress. As of the date hereof, no such action has been taken. If the
provision applied to the Subordinated Debentures, among other things, the
Company would be unable to deduct interest on the Subordinated Debentures
for United States federal income tax purposes. A similar provision was
included in President Clinton's budget proposal for fiscal year 1997, but
the 104th Congress adjourned without taking action on such provision.
There can be no assurance that the current budget provision or future
legislative proposals will not affect the ability of the Company to deduct
interest on the Subordinated Debentures. Such a change could give rise to
a Tax Event, which may permit the Company to redeem the Capital Securities
at the Tax Event Redemption Price by electing to prepay the Subordinated
Debentures at the Tax Event Prepayment Price. See "Description of
Securities--Description of Capital Securities--Redemption" and "Description
of Securities--Description of Subordinated Debentures--Tax Event
Prepayment." See also "Certain Federal Income Tax Consequences--Possible
Tax Law Changes."
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<PAGE>
Sufficiency of Payments
As long as payments of interest and other payments are made when due
on the Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the Capital Securities, primarily
because (i) the aggregate principal amount of the Subordinated Debentures
will be equal to the sum of the Liquidation Amount or Redemption Price, as
applicable, of the Capital Securities and Common Securities; (ii) the
interest rate and interest and other payment dates on the Subordinated
Debentures will match the Distribution rate and Distribution and other
payment dates for the Trust Securities; (iii) under the Trust Agreement,
the Company shall pay for all and any costs, expenses and liabilities of
the Trust except the Trust's obligations to holders of Trust Securities
under such Trust Securities; and (iv) the Trust Agreement further provides
that the Trust will not engage in any activity that is not consistent with
the limited purposes thereof. If and to the extent that the Company does
not make payments on the Subordinated Debentures or as required by the
Trust Agreement, the Trust will not pay Distributions or other amounts due
on the Capital Securities. The Guarantee does not cover payment of
Distributions when the Trust does not have sufficient funds to pay such
Distributions.
Possible Adverse Effect on Market Prices
There can be no assurance as to the market prices for the Capital
Securities or the Subordinated Debentures that may be distributed in
exchange for Capital Securities if a dissolution or liquidation of the
Trust were to occur. Accordingly, the Capital Securities or the
Subordinated Debentures may trade at a discount to the price that the
investor paid to purchase the Capital Securities offered hereby. Because
holders of Capital Securities may receive Subordinated Debentures upon the
dissolution or liquidation of the Trust, prospective purchasers of Capital
Securities are also making an investment decision with regard to the
Subordinated Debentures and should carefully review all the information
regarding the Subordinated Debentures and the Company contained herein.
See "Description of Securities--Description of Capital Securities--
Liquidation of the Trust and Distribution of Subordinated Debentures" and
"Description of Securities--Description of Subordinated Debentures."
Limited Voting Rights
Holders of Capital Securities will have limited voting rights and will
not be entitled to vote to appoint, remove or replace, or to increase or
decrease the number of, ComEd Trustees, which voting rights are vested
exclusively in the Company as the holder of the Common Securities. See
"Description of Securities--Description of Capital Securities--Voting
Rights; Amendment of the Trust Agreement."
Absence of Public Market
The Old Capital Securities were issued to, and ComEd believes are
currently owned by, a relatively small number of beneficial owners. The
Old Capital Securities have not been registered under the Securities Act
and will continue to be subject to restrictions on transferability to the
extent that they are not exchanged for New Capital Securities. Although
the New Capital Securities will generally be permitted to be resold or
otherwise transferred by the holders (who are not affiliates of ComEd or
the Trust) without compliance with the registration requirements under the
Securities Act, they will constitute a new issue of securities with no
established trading market. ComEd and the Trust have been advised by the
Initial Purchasers that the Initial Purchasers currently intend to make a
market in the New Capital Securities. However, the Initial Purchasers are
not obligated to do so and any market-making activity with respect to the
New Capital Securities may be interrupted or discontinued at any time
without notice. In addition, such market-making activity will be subject
-14-
<PAGE>
to the limits imposed by the Securities Act and the Exchange Act and may be
limited during the Exchange Offer. Accordingly, no assurance can be given
that an active public or other market will develop for the New Capital
Securities or the Old Capital Securities or as to the liquidity of or the
trading market for the New Capital Securities or the Old Capital
Securities. If an active public market does not develop, the market price
and liquidity of the New Capital Securities may be adversely affected.
If a public trading market develops for the New Capital Securities,
future trading prices of such securities will depend on many factors,
including, among other things, prevailing interest rates, results of
operations and the market for similar securities. Depending on prevailing
interest rates, the market for similar securities and other factors,
including the financial condition of ComEd, the New Capital Securities may
trade at a discount.
Notwithstanding the registration of the New Capital Securities in the
Exchange Offer, holders who are "affiliates" (as defined under Rule 405 of
the Securities Act) of ComEd or the Trust may publicly offer for sale or
resell the New Capital Securities only in compliance with the provisions of
Rule 144 under the Securities Act.
Each broker-dealer that receives New Capital Securities for its own
account in exchange for Old Capital Securities, where such Old Capital
Securities were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of such New Capital
Securities. See "Plan of Distribution."
Consequences of a Failure to Exchange Old Capital Securities
The Old Capital Securities have not been registered under the
Securities Act or any state securities laws and therefore may not be
offered, sold or otherwise transferred except in compliance with the
registration requirements of the Securities Act and any other applicable
securities laws, or pursuant to an exemption therefrom or in a transaction
not subject thereto, and in each case in compliance with certain other
conditions and restrictions. Old Capital Securities which remain
outstanding after consummation of the Exchange Offer will continue to bear
a legend reflecting such restrictions on transfer. In addition, upon
consummation of the Exchange Offer, holders of Old Capital Securities which
remain outstanding will not be entitled to any rights to have such Old
Capital Securities registered under the Securities Act or to any similar
rights under the Registration Rights Agreement (subject to certain limited
exceptions). ComEd and the Trust do not intend to register under the
Securities Act any Old Capital Securities which remain outstanding after
consummation of the Exchange Offer (subject to such limited exceptions, if
applicable).
To the extent that Old Capital Securities are tendered and accepted in
the Exchange Offer, a holder's ability to sell untendered Old Capital
Securities could be adversely affected. In addition, although the Old
Capital Securities have been designated for trading in the Private
Offerings, Resale and Trading through Automatic Linkages ("PORTAL") market,
to the extent that Old Capital Securities are tendered and accepted in
connection with the Exchange Offer, any trading market for Old Capital
Securities which remain outstanding after the Exchange Offer could be
adversely affected.
The New Capital Securities and any Old Capital Securities which remain
outstanding after consummation of the Exchange Offer will constitute a
single series of Capital Securities under the Trust Agreement and,
accordingly, will vote together as a single class for purposes of
determining whether holders of the requisite percentage in outstanding
Liquidation Amount thereof have taken certain actions or exercised certain
rights under the Trust Agreement.
-15-
<PAGE>
Exchange Offer Procedures
Subject to the conditions set forth under "The Exchange Offer--
Conditions to the Exchange Offer," delivery of New Capital Securities in
exchange for Old Capital Securities tendered and accepted for exchange
pursuant to the Exchange Offer will be made only after timely receipt by
the Exchange Agent of (i) certificates for Old Capital Securities or a
book-entry confirmation of a book-entry transfer of Old Capital Securities
into the Exchange Agent's account at DTC, including an Agent's Message (as
defined under "The Exchange Offer--Acceptance for Exchange and Issuance of
New Capital Securities") if the tendering holder does not deliver a Letter
of Transmittal, (ii) a completed and signed Letter of Transmittal (or
facsimile thereof), with any required signature guarantees, or, in the case
of a book-entry transfer, an Agent's Message in lieu of the Letter of
Transmittal, and (iii) any other documents required by the Letter of
Transmittal. Therefore, holders of Old Capital Securities desiring to
tender such Old Capital Securities in exchange for New Capital Securities
should allow sufficient time to ensure timely delivery. The Trust is under
no duty to give notification of defects or irregularities with respect to
the tenders of Old Capital Securities for exchange.
USE OF PROCEEDS FROM THE SALE OF THE OLD CAPITAL SECURITIES
Neither ComEd nor the Trust will receive any cash or other proceeds
from the issuance of the New Capital Securities offered hereby. In
consideration for issuing the New Capital Securities in exchange for Old
Capital Securities as described in this Prospectus, the Trust will receive
Old Capital Securities in like Liquidation Amount. The Old Capital
Securities surrendered in exchange for the New Capital Securities will be
retired and cancelled.
The proceeds to the Trust from the offering of the Old Capital
Securities was approximately $150,000,000. All of the proceeds from the
sale of Old Capital Securities were invested by the Trust in Old
Subordinated Debentures. The proceeds were used by ComEd to discharge or
refund by redemption outstanding long-term debt. For information
concerning the Company's outstanding long-term debt, see Statements of
Consolidated Capitalization and Note 9 of Notes to Financial Statements in
the March 31, 1997 Form 10-Q Report. ComEd paid or reimbursed the Trust
for the expenses associated with the offering of the Old Capital Securities
and the compensation to the Initial Purchasers.
-16-
<PAGE>
SUMMARY INFORMATION
The following summary information is qualified in its entirety by the
information and financial statements appearing in the documents incorporated in
this Prospectus by reference.
Commonwealth Edison Company
<TABLE>
<CAPTION>
<S> <C>
Estimated Population of Service Area.............................................................. 8,000,000
Customers (as of March 31, 1997).................................................................. 3,421,000
Sales (thousands of kilowatthours-12 months ended March 31, 1997)................................. 92,850,000
Net Electric Generating Capability, net of summer limitations (kilowatts)......................... 21,954,000
Fuel Sources of Kilowatthour Generation (12 months ended March 31, 1997):
Nuclear............................................................................................... 64%
Coal.................................................................................................. 33
Oil................................................................................................... 1
Natural gas........................................................................................... 2
---
100%
===
</TABLE>
Financial Information
<TABLE>
<CAPTION>
Twelve Months
Year Ended December 31 Ended
1992 1993 1994 1995 1996 March 31, 1997
---------- ---------- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Electric Operating Revenues
(thousands of dollars) $6,026,321 $5,260,440 $6,277,521 $6,909,786 $6,934,547 $7,000,143
Net Income (thousands of
dollars) $ 513,981 $ 112,440 $ 423,946 $ 717,154 $ 743,368 $ 714,152
Net Income on Common Stock
(thousands of dollars) $ 443,442 $ 46,388 $ 359,019 $ 647,193 $ 678,944 $ 650,715
Earnings per Common Share $ 2.08 $ 0.22 $ 1.68 $ 3.02 $ 3.17 $ 3.04
Ratios of Earnings to-
Fixed Charges 2.06 1.19 1.99 2.79 2.90 2.84
Fixed Charges and Preferred
and Preference Stock
Dividend Requirements 1.78 1.03 1.73 2.39 2.48 2.43
- -------------------------
</TABLE>
See Notes (A) through (G) on pages 18 through 20.
-17-
<PAGE>
Notes to Financial Information:
(A) As a result of an April 1992 Illinois Supreme Court decision and a
Circuit Court of Cook County, Illinois decision, ComEd recorded in
1992 additional provisions for refunds and related interest related to
a prior disallowance of Byron Unit 1 costs which reduced net income by
approximately $50 million or $0.24 per common share.
(B) In January 1993, ComEd adopted an accounting standard which requires
an asset and liability approach for financial accounting and reporting
for income taxes as opposed to the deferred method that ComEd had
previously used. ComEd adopted the standard as a cumulative effect of
a change in an accounting principle, which increased net income and
net income on common stock for the year ended December 31, 1993 by
$9.7 million or $0.05 per common share.
In November 1993, two settlements (the "Settlements") related to various
proceedings and matters concerning ComEd's rates (the "Rate Matters
Settlement") and its fuel adjustment clause (the "Fuel Matters Settlement")
became final. The recording of the effects of the Settlements in October
1993 reduced 1993 net income by approximately $354 million or $1.66 per
common share, in addition to the approximately $160 million or $0.75 per
common share effect of the deferred recognition of revenues and after the
partially offsetting effect of recording approximately $269 million or
$1.26 per common share in deferred carrying charges, net of income taxes,
authorized in the Illinois Commerce Commission ("ICC") rate order issued in
January 1993. Refunds related to the Rate Matters Settlement, and reduced
fuel adjustment clause collections related to the Fuel Matters Settlement,
have been completed.
(C) The Illinois Public Utilities Act requires the ICC to hold annual
public hearings to determine whether each utility's fuel adjustment
clause reflects actual costs of fuel and power prudently purchased and
to reconcile amounts collected with actual costs. Through its fuel
adjustment clause, ComEd recovers from its customers the cost of the
fuel used to generate electricity and of purchased power as compared
to fuel costs included in base rates.
Final ICC orders have been issued in fuel reconciliation proceedings
for years prior to 1994 and for the year 1995. In 1996, an intervenor
filed testimony in the fuel reconciliation proceeding for 1994 seeking
a refund of approximately $90 million relating to nuclear station
performance. Under the Fuel Matters Settlement, parties to that
settlement agreed not to challenge the prudence of ComEd's western
coal costs for the period from 1989 through 1992. ComEd's western
coal contracts and its rail contracts for delivery of the western coal
provide for the purchase of certain coal at prices substantially above
currently prevailing market prices and ComEd has significant purchase
commitments under its contracts. For additional information relating
to ComEd's commitments for the purchase of coal, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations," subcaption "Liquidity and Capital Resources," and Note 1
of Notes to Financial Statements under "Deferred Unrecovered Energy Costs"
in the March 31, 1997 Form 10-Q Report.
-18-
<PAGE>
(D) In 1994, ComEd recorded a reduction in the carrying value of its
investments in uranium related properties after completing a review of
various alternatives and reassessing the long-term recoverability of
those investments. The effects of the reduction reduced 1994 net
income by $34 million or $0.16 per common share.
Operation and maintenance expenses in 1994 reflect $34 million of
pension expense related to the 1994 early retirement program. The
effect of this increase to pension expense reduced 1994 net income by
$20 million or $0.09 per common share.
(E) In January 1995, the ICC issued its rate order (the "Rate Order") in the
proceedings relating to ComEd's February 1994 rate increase request. The
rates provided in the Rate Order became effective on January 14, 1995;
however, they are being collected subject to refund as a result of
subsequent judicial action. The Rate Order was appealed by intervenors and
ComEd to the Illinois Appellate Court, which issued a decision on May 30,
1997 affirming the Rate Order in all respects with the exception of two
issues which it remanded to the ICC for the purpose of providing further
analysis. Those issues relate to: (i) the manner in which certain costs are
recovered and which customers should pay these costs, and (ii) the proper
rate of return on equity for ComEd. ComEd believes that the ICC can satisfy
the Appellate Court's remand directions on the basis of the existing record
from the ICC proceedings which led to the Rate Order. The Appellate Court's
decision does not have any immediate effect on ComEd's rates or require
any refunds. In connection with the initiation of the appeal, ComEd
committed to make refunds "in the event that a final, non-appealable order
is entered reversing the ICC's Rate Order." As of March 31, 1997, electric
operating revenues of approximately $754 million (excluding revenue taxes)
were subject to refund. As noted, the Appellate Court's decision did not
reverse the Rate Order. Therefore, no refunds are required by the Appellate
Court's decision. It is expected that the Appellate Court's decision will
be appealed by the intervenors to the Illinois Supreme Court. For
additional information regarding the decision and the rate of return issue,
see the May 30, 1997 Form 8-K Report.
See Note 2 of Notes to Financial Statements in the March 31, 1997 Form 10-Q
Report for information regarding certain customer initiatives, including a
five-year cap on base electric rates, that ComEd announced in December 1995
and expects to have fully implemented in 1997. Also see Note 1 of Notes
to Financial Statements under "Depreciation and Decommissioning" in the
March 31, 1997 Form 10-Q Report for information concerning additional
depreciation charges related to ComEd's steam generators at Byron Unit 1
and Braidwood Unit 1 and ComEd's ongoing evaluation of the impact of the
expected early retirement of Zion.
As discussed under "Changes in the Electric Utility Industry" in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the March 31, 1997 Form 10-Q Report, various legislative
proposals have been pending in the Illinois legislature for the purpose of,
among other things, introducing price-based competition into the supply of
electric energy in Illinois under a less regulated structure. That process
will continue into the Fall of 1997. On May 30, 1997, the Illinois House of
Representatives approved, on a vote of 85 to 12, a bill that would have
provided for a 10% residential rate reduction commencing in 1998, customer
access to other electric suppliers in a phased-process over several years,
the recovery by utilities of a portion of their invested costs that might
not otherwise be recoverable in charges in a less regulated market, and a
leveling of certain regulatory and tax provisions as applied to various
electric service providers. The Illinois Senate, however, deferred final
consideration of the bill until the Fall veto session scheduled for October
1997. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," subcaption "Changes in the Electric Utility
Industry" in the March 31, 1997 Form 10-Q Report for additional information
regarding deregulation, competition and their possible effects on the
recovery of investment costs and proposed legislation in Illinois.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," subcaption "Regulation--Nuclear Matters" in
the March 31, 1997 Form 10-Q Report for additional information
regarding ComEd's nuclear operations.
-19-
<PAGE>
(F) ComEd recorded an extraordinary loss of $33 million in the fourth
quarter of 1995 related to the early redemption of $645 million of
long-term debt, which loss reduced net income by $20 million (after
reflecting income tax effects of $13 million) or $0.09 per common
share.
Operation and maintenance expenses include $97 million, $12 million
and $18 million for the twelve months ended December 31, 1995,
December 31, 1996 and March 31, 1997, respectively, related to a
voluntary separation offer for union employees who accepted and left
ComEd's employ combined with separation plans offered to selected
groups of non-union employees. These employee separation plans
reduced net income by $59 million or $0.27 per common share, $7
million or $0.03 per common share and $11 million or $0.05 per common
share for the twelve months ended December 31, 1995, December 31, 1996
and March 31, 1997, respectively.
The effects of an income tax refund related to prior years increased
net income by $26 million or $0.12 per common share for the twelve
months ended December 31, 1996 and March 31, 1997.
The effects of a reduction in real estate taxes (approximately half of
which was related to the year 1995) increased net income by $28
million or $0.13 per common share and $30 million or $0.14 per common
share for the twelve months ended December 31, 1996 and March 31,
1997, respectively.
ComEd recorded additional depreciation charges on its nuclear
generating units of $30 million and $45 million for the twelve months
ended December 31, 1996 and March 31, 1997, respectively.
(G) For purposes of computing the ratios of earnings to fixed charges and
the ratios of earnings to fixed charges and preferred and preference
stock dividend requirements: (i) earnings consist of net income before
deducting net provisions for income taxes (including deferred taxes
and current income taxes applicable to nonoperating activities),
investment tax credits deferred and fixed charges; (ii) fixed charges
consist of interest on debt, amortization of debt discount, premium
and expense, preferred securities dividend requirements of subsidiary
trusts and the estimated interest component of nuclear fuel and other
lease payments and rentals; and (iii) preferred and preference stock
dividend requirements represent an amount equal to income, before
income taxes, which would be required to meet the dividends on
preferred and preference stocks.
-20-
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization
including short-term borrowings and current maturities of the Company at
March 31, 1997. The table should be read in conjunction with the Company's
consolidated financial statements and notes thereto included in the
documents incorporated by reference herein. See "Available Information."
<TABLE>
<CAPTION>
March 31, 1997
--------------
(in millions)
<S> <C>
Short-term borrowings............................... $ 130
Long-term borrowings including current maturities... 6,292
Company-obligated mandatorily redeemable
preferred securities of ComEd Financing I (1)..... 200
Company-obligated mandatorily redeemable
capital securities of ComEd Financing II (2)...... 150
Preferred and preference stocks without mandatory
redemption requirements........................... 507
Preference stock subject to mandatory redemption
requirements including current maturities......... 249
Common stock equity................................. 6,069
-------
Total capitalization including
short-term borrowings and current maturities...... $13,597
=======
</TABLE>
- ---------------------
(1) The sole asset of ComEd Financing I is $206.2 million principal amount
of the Company's 8.48% Subordinated Deferrable Interest Notes due
September 30, 2035.
(2) As described in this Prospectus, the sole asset of the Trust will be
$154.6 million principal amount of the Company's 8.50% Subordinated
Deferrable Interest Debentures due January 15, 2027.
The financial statements of the Trust will be consolidated with the
Company's financial statements, with the Capital Securities shown on the
Company's consolidated financial statements, along with the 8.48% Preferred
Securities issued by ComEd Financing I, as Company-obligated mandatorily
redeemable preferred securities of subsidiary trusts.
-21-
<PAGE>
ACCOUNTING TREATMENT FOR THE TRUST
For financial reporting purposes, the Trust is treated as a subsidiary of
ComEd and, accordingly, the accounts of the Trust are included in the
consolidated financial statements of ComEd. The Capital Securities will be
presented, along with the 8.48% Preferred Securities issued by ComEd Financing
I, as "Company-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts" in the consolidated financial statements of ComEd and
appropriate disclosures about the Capital Securities, the Guarantee and the
Subordinated Debentures will be included in the notes to the consolidated
financial statements. For financial reporting purposes, ComEd will record
Distributions payable on the Capital Securities as a charge in the consolidated
statement of income.
COMED FINANCING II
The Trust is a statutory business trust formed under Delaware law pursuant
to (i) the Trust Agreement executed by ComEd, as Sponsor, Wilmington Trust
Company, as Property Trustee and as Delaware Trustee, and the Administrative
Trustees named therein, and (ii) the filing of a certificate of trust with the
Delaware Secretary of State on November 20, 1996. The Trust exists for the
exclusive purposes of (i) issuing and selling the Trust Securities, (ii) using
the proceeds from the sale of Trust Securities to acquire the Subordinated
Debentures and (iii) engaging in only those other activities necessary,
advisable or incidental thereto. Accordingly, the Subordinated Debentures will
be the sole assets of the Trust, and payments under the Subordinated Debentures
will be the sole revenues of the Trust. All of the Common Securities are owned
by ComEd. The Common Securities rank pari passu, and payments will be made
thereon pro rata, with the Capital Securities, except that upon the occurrence
and continuance of an event of default under the Trust Agreement, the rights of
ComEd as holder of the Common Securities to payments in respect of Distributions
and payments upon liquidation, redemption or otherwise will be subordinated to
the rights of the holders of the Capital Securities. See "Description of
Securities--Description of Capital Securities--Subordination of Common
Securities." ComEd owns Common Securities in a Liquidation Amount equal to 3% of
the total capital of the Trust. The Trust has a term expiring on December 31,
2030, but may terminate earlier as provided in the Trust Agreement. The Trust's
business and affairs are conducted by its trustees, each appointed by ComEd as
holder of the Common Securities. The trustees for the Trust are Wilmington Trust
Company, as the Property Trustee (the "Property Trustee") and as the Delaware
Trustee (the "Delaware Trustee"), and two individual trustees (the
"Administrative Trustees") who are employees or officers of or affiliated with
ComEd (collectively, the "ComEd Trustees"). Wilmington Trust Company, as
Property Trustee, acts as sole indenture trustee under the Trust Agreement.
Wilmington Trust Company also acts as indenture trustee under the Guarantee and
is the indenture trustee under the Indenture. See "Description of Securities--
Description of Guarantee" and "Description of Securities--Description of
Subordinated Debentures." The holder of the Common Securities of the Trust or,
if an Event of Default under the Trust Agreement has occurred and is continuing,
the holders of a majority in Liquidation Amount of the Capital Securities, is
entitled to appoint, remove or replace the Property Trustee and/or the Delaware
Trustee. In no event do the holders of the Capital Securities have the right to
vote to appoint, remove or replace the Administrative Trustees; such voting
rights will be vested exclusively in the holder of the Common Securities. The
duties and obligations of each ComEd Trustee are governed by the Trust
Agreement. ComEd will pay all fees, expenses, debts and obligations (other than
the Trust Securities) related to the Trust and the offering of the Capital
Securities and will pay, directly or indirectly, all ongoing costs, expenses and
liabilities of the Trust. The principal executive office of the Trust is 37th
Floor, 10 South Dearborn Street, Chicago, IL 60690-0767 (telephone number
312/394-4321).
-22-
<PAGE>
THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
In connection with the sale of the Old Capital Securities, ComEd
and the Trust entered into the Registration Rights Agreement with the
Initial Purchasers, pursuant to which ComEd and the Trust agreed to file
and to use their reasonable best efforts to cause to become effective with
the Commission a registration statement with respect to the exchange of the
Old Capital Securities for capital securities with terms identical in all
material respects to the terms of the Old Capital Securities. A copy of
the Registration Rights Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
The Exchange Offer is being made to satisfy the contractual
obligations of ComEd and the Trust under the Registration Rights Agreement.
The forms and terms of the New Capital Securities are identical in all
material respect to the forms and terms of the Old Capital Securities,
except that the New Capital Securities have been registered under the
Securities Act and therefore will not be subject to certain restrictions on
transfer applicable to the Old Capital Securities. See "Risk Factors--
Consequences of a Failure to Exchange Old Capital Securities" and
"Description of Old Securities."
The Exchange Offer is not being made to, nor will the Trust or
ComEd accept tenders for exchange from, holders of Old Capital Securities
in any jurisdiction in which the Exchange Offer or the acceptance thereof
would not be in compliance with the securities or blue sky laws of such
jurisdiction.
Unless the context requires otherwise, the term "holder" with
respect to the Exchange Offer means any person in whose name the Old
Capital Securities are registered on the books of ComEd or any other person
who has obtained a properly completed bond power from the registered
holder, or any person who beneficially owns Old Capital Securities which
are held of record by DTC who desires to deliver such Old Capital
Securities by book-entry transfer into the Exchange Agent's account at DTC,
or any person who beneficially owns Old Capital Securities which are held
of record by a nominee other than DTC (or its nominee).
Pursuant to the Exchange Offer, ComEd will exchange as soon as
practicable after the date hereof, the Old Guarantee for the New Guarantee
and all of the Old Subordinated Debentures, of which $154,640,000 aggregate
principal amount is outstanding, for a like aggregate principal amount of
the New Subordinated Debentures. The New Guarantee and New Subordinated
Debentures have been registered under the Securities Act.
Terms of the Exchange
The Trust hereby offers, upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal, to exchange up to $150,000,000 aggregate Liquidation Amount of
New Capital Securities for a like aggregate Liquidation Amount of Old
Capital Securities properly tendered on or prior to the Expiration Date and
not properly withdrawn in accordance with the procedures described below.
The Trust will issue, promptly after the Expiration Date, an aggregate
Liquidation Amount of up to $150,000,000 of New Capital Securities in
exchange for a like aggregate Liquidation Amount of outstanding Old Capital
Securities tendered and accepted in connection with the Exchange Offer.
Holders may tender their Old Capital Securities for exchange in whole or in
part having a Liquidation Amount of $1,000 (1 Old Capital Security) or any
integral multiple in excess thereof, provided that if any Old Capital
Securities are tendered for exchange in part, the untendered aggregate
Liquidation Amount thereof must be $100,000 (100 Old Capital Securities) or
any integral multiple of $1,000 (1 Old Capital Security) in excess thereof.
-23-
<PAGE>
The Exchange Offer is not conditioned upon any minimum
Liquidation Amount of Old Capital Securities being tendered. As of the
date of this Prospectus, $150,000,000 aggregate Liquidation Amount of Old
Capital Securities is outstanding.
Holders of Old Capital Securities do not have any appraisal or
dissenters' rights in connection with the Exchange Offer. Old Capital
Securities which are not tendered for or are tendered but not accepted in
connection with the Exchange Offer will remain outstanding and remain
entitled to the benefits of the Trust Agreement, but will not be entitled
to any further registration rights under the Registration Rights Agreement,
except under limited circumstances. See "Risk Factors--Consequences of a
Failure to Exchange Old Capital Securities" and "Description of Old
Securities."
If any tendered Old Capital Securities are not accepted for
exchange because of an invalid tender, the occurrence of certain other
events set forth herein or otherwise, certificates for any such unaccepted
Old Capital Securities will be returned, without expense, to the tendering
holder thereof promptly after the Expiration Date. Holders who tender Old
Capital Securities in connection with the Exchange Offer will not be
required to pay brokerage commissions or fees or transfer taxes with
respect to the exchange of Old Capital Securities in connection with the
Exchange Offer, except under those circumstances described in the Letter of
Transmittal. ComEd will pay all charges and expenses, other than certain
applicable taxes described below, in connection with the Exchange Offer.
See "--Fees and Expenses."
NEITHER THE BOARD OF DIRECTORS OF COMED NOR THE COMED TRUSTEES MAKES
ANY RECOMMENDATION TO HOLDERS OF OLD CAPITAL SECURITIES AS TO WHETHER TO TENDER
OR REFRAIN FROM TENDERING ALL OR ANY PORTION OF THEIR OLD CAPITAL SECURITIES
PURSUANT TO THE EXCHANGE OFFER. IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE
ANY SUCH RECOMMENDATION. HOLDERS OF OLD CAPITAL SECURITIES MUST MAKE THEIR OWN
DECISION WHETHER TO TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE
AGGREGATE LIQUIDATION AMOUNT OF OLD CAPITAL SECURITIES TO TENDER AFTER READING
THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND CONSULTING WITH THEIR
ADVISERS, IF ANY, BASED ON THEIR OWN FINANCIAL POSITION AND REQUIREMENTS.
Expiration Date; Extensions; Amendments
The term "Expiration Date" means 5:00 p.m., New York City time,
on July 18, 1997 unless the Exchange Offer is extended by ComEd and the Trust
(in which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended).
ComEd and the Trust expressly reserve the right, subject to
applicable law, at any time and from time to time, (i) to delay the
acceptance of the Old Capital Securities for exchange, (ii) to terminate
the Exchange Offer (whether or not any Old Capital Securities have been
accepted for exchange) if ComEd or the Trust determines, in its reasonable
discretion, that any of the conditions referred to under "--Conditions to
the Exchange Offer" have occurred or exist or have not been satisfied,
(iii) to extend the Expiration Date and retain all Old Capital Securities
tendered pursuant to the Exchange Offer, subject, however, to the right of
holders of Old Capital Securities to withdraw their tendered Old Capital
Securities as described under "--Withdrawal Rights," and (iv) to waive any
condition or otherwise amend the terms of the Exchange Offer in any
respect. If the Exchange Offer is amended in a manner determined by ComEd
and the Trust to constitute a material change, or if ComEd and the Trust
waive a material condition of the Exchange Offer, ComEd and the Trust will
promptly disclose such amendment by means of a prospectus supplement that
will be distributed to the registered holders of the Old Capital
Securities, and ComEd and the Trust will extend the Exchange Offer to the
extent required by Rule 14e-1 under the Exchange Act. If ComEd or the
Trust becomes
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aware of any material information with respect to the plan of distribution
not previously disclosed in the Prospectus or any material change to such
information in this Prospectus, ComEd and the Trust will promptly file a
post-effective amendment to the Registration Statement. In such event,
ComEd and the Trust will extend the Exchange Offer to the extent required
by Rule 14e-1 under the Exchange Act.
Any such delay in acceptance, extension, termination or amendment
will be followed promptly by oral or written notice thereof to the Exchange
Agent and by making a public announcement thereof, and such announcement in
the case of an extension will be made no later than 9:00 a.m., New York
City time, on the next business day after the previously scheduled
Expiration Date. Without limiting the manner in which ComEd and the Trust
may choose to make any public announcement and subject to applicable law,
ComEd and the Trust shall have no obligation to publish, advertise or
otherwise communicate any such public announcement other than by issuing a
release to an appropriate news agency.
Acceptance for Exchange and Issuance of New Capital Securities
Upon the terms and subject to the conditions of the Exchange
Offer, the Trust will exchange New Capital Securities for Old Capital
Securities validly tendered and not withdrawn (pursuant to the withdrawal
rights described under "--Withdrawal Rights") promptly after the Expiration
Date.
Subject to the conditions set forth under "--Conditions to the
Exchange Offer," delivery of New Capital Securities in exchange for Old Capital
Securities tendered and accepted for exchange pursuant to the Exchange Offer
will be made only after timely receipt by the Exchange Agent of (i) certificates
for Old Capital Securities or a book-entry confirmation of a book-entry transfer
of Old Capital Securities into the Exchange Agent's account at DTC, including an
Agent's Message if the tendering holder does not deliver a Letter of
Transmittal, (ii) a completed and signed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees, or, in the case of a book-
entry transfer, an Agent's Message in lieu of the Letter of Transmittal, and
(iii) any other documents required by the Letter of Transmittal. Accordingly,
the delivery of New Capital Securities might not be made to all tendering
holders at the same time, and will depend upon when Old Capital Securities,
book-entry confirmations with respect to Old Capital Securities and other
required documents are received by the Exchange Agent.
The term "book-entry confirmation" means a timely confirmation of
a book-entry transfer of Old Capital Securities into the Exchange Agent's
account at DTC. See "--Procedures for Tendering Old Capital Securities--
Book-Entry Transfer." The term "Agent's Message" means a message,
transmitted by DTC to and received by the Exchange Agent and forming a part
of a book-entry confirmation, which states that DTC has received an express
acknowledgment from the tendering participant, which acknowledgment states
that such participant has received and agrees to be bound by the Letter of
Transmittal and that the Trust and ComEd may enforce such Letter of
Transmittal against such participant.
Subject to the terms and conditions of the Exchange Offer, ComEd
and the Trust will be deemed to have accepted for exchange, and thereby
exchanged, Old Capital Securities validly tendered and not withdrawn as, if
and when the Trust gives oral or written notice to the Exchange Agent of
ComEd's and the Trust's acceptance of such Old Capital Securities for
exchange pursuant to the Exchange Offer. The Exchange Agent will act as
agent for ComEd and the Trust for the purpose of receiving tenders of Old
Capital Securities, Letters of Transmittal and related documents, and as
agent for tendering holders for the purpose of receiving Old Capital
Securities, Letters of Transmittal and related documents and transmitting
New Capital Securities which will not be held in global form by DTC or a
nominee of DTC to validly tendering holders. Such exchange will be made
promptly after the Expiration Date. If for any reason whatsoever,
acceptance for exchange or the exchange of any Old Capital Securities
tendered pursuant to the Exchange Offer is delayed (whether before or after
ComEd's and the Trust's acceptance for exchange of Old Capital Securities)
or
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ComEd and the Trust extend the Exchange Offer or are unable to accept for
exchange or exchange Old Capital Securities tendered pursuant to the
Exchange Offer, then, without prejudice to ComEd's and the Trust's rights
set forth herein, the Exchange Agent may, nevertheless, on behalf of ComEd
and the Trust and subject to Rule 14e-1(c) under the Exchange Act, retain
tendered Old Capital Securities and such Old Capital Securities may not be
withdrawn except to the extent tendering holders are entitled to withdrawal
rights as described under "--Withdrawal Rights."
Pursuant to an Agent's Message or a Letter of Transmittal, a
holder of Old Capital Securities will represent, warrant and agree in the
Letter of Transmittal that it has full power and authority to tender,
exchange, sell, assign and transfer Old Capital Securities, that the Trust
will acquire good, marketable and unencumbered title to the tendered Old
Capital Securities, free and clear of all liens, restrictions, charges and
encumbrances, and the Old Capital Securities tendered for exchange are not
subject to any adverse claims or proxies. The holder also will warrant and
agree that it will, upon request, execute and deliver any additional
documents deemed by the Trust or the Exchange Agent to be necessary or
desirable to complete the exchange, sale, assignment, and transfer of the
Old Capital Securities tendered pursuant to the Exchange Offer.
Procedures for Tendering Old Capital Securities
Valid Tender. Except as set forth below, in order for Old
Capital Securities to be validly tendered by book-entry transfer, an
Agent's Message or a completed and signed Letter of Transmittal (or
facsimile thereof), with any required signature guarantees, and in either
case any other documents required by the Letter of Transmittal, must be
delivered to the Exchange Agent by mail, facsimile, hand delivery or
overnight carrier at one of the Exchange Agent's addresses set forth under
"-Exchange Agent" on or prior to the Expiration Date and either (i) such
Old Capital Securities must be tendered pursuant to the procedures for
book-entry transfer set forth below or (ii) the guaranteed delivery
procedures set forth below must be complied with.
Except as set forth below, in order for Old Capital Securities to
be validly tendered by a means other than by book-entry transfer, a
completed and signed Letter of Transmittal (or facsimile thereof), with any
required signature guarantees, and any other documents required by the
Letter of Transmittal, must be delivered to the Exchange Agent by mail,
facsimile, hand delivery or overnight carrier at one of the Exchange
Agent's addresses set forth under "-Exchange Agent" on or prior to the
Expiration Date and either (i) such Old Capital Securities must be
delivered to the Exchange Agent on or prior to the Expiration Date or (ii)
the guaranteed delivery procedures set forth below must be complied with.
If less than all Old Capital Securities are tendered, a tendering
holder should fill in the amount of Old Capital Securities being tendered
in the appropriate box on the Letter of Transmittal. The entire amount of
Old Capital Securities delivered to the Exchange Agent will be deemed to
have been tendered unless otherwise indicated.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING
HOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. IF DELIVERY IS TO BE BY MAIL, THE USE OF REGISTERED MAIL, RETURN
RECEIPT REQUESTED, PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY.
Book-Entry Transfer. The Exchange Agent and DTC have confirmed
that any Participant (as defined in "Description of Securities--Description
of Capital Securities--Form, Denomination, Book-Entry Procedures and
Transfer" and "--Depositary Procedures") in DTC's book-entry transfer
facility system may utilize DTC's
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ATOP procedures to tender Old Capital Securities. The Exchange Agent will
establish an account with respect to the Old Capital Securities at DTC for
purposes of the Exchange Offer within two business days after the date of
this Prospectus. Any Participant may make a book-entry delivery of the Old
Capital Securities by causing DTC to transfer such Old Capital Securities
into the Exchange Agent's account at DTC in accordance with DTC's ATOP
procedures for transfer. However, although delivery of Old Capital
Securities may be effected through book-entry transfer into the Exchange
Agent's account at DTC, an Agent's Message or a completed and signed Letter
of Transmittal (or facsimile thereof), with any required signature
guarantees and any other documents required by the Letter of Transmittal,
must in any case be delivered to and received by the Exchange Agent at one
of its addresses set forth under "--Exchange Agent" on or prior to the
Expiration Date, or the guaranteed delivery procedure set forth below must
be complied with. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S
PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
Signature Guarantees. Certificates for Old Capital Securities
need not be endorsed and signature guarantees on a Letter of Transmittal
are unnecessary unless (a) a certificate for the Old Capital Securities is
registered in a name other than that of the person surrendering the
certificate or (b) such registered holder completes the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" in the
Letter of Transmittal. In the case of (a) or (b) above, such certificates
for Old Capital Securities must be duly endorsed or accompanied by a
properly executed bond power, with the endorsement or signature on the bond
power and on the Letter of Transmittal guaranteed by a firm or other entity
identified in Rule 17Ad-15 under the Exchange Act as an "eligible guarantor
institution," including (as such terms are defined therein): (i) a bank;
(ii) a broker, dealer, municipal securities broker or dealer or government
securities broker or dealer; (iii) a credit union; (iv) a national
securities exchange, registered securities association or clearing agency;
or (v) a savings association that is a participant in a Securities Transfer
Association (an "Eligible Institution"), unless surrendered on behalf of
such Eligible Institution. See Instructions 4 and 7 to the Letter of
Transmittal.
Guaranteed Delivery. If a holder desires to tender Old Capital
Securities pursuant to the Exchange Offer and the certificates for such Old
Capital Securities are not immediately available or time will not permit
all required documents to reach the Exchange Agent on or before the
Expiration Date, or the procedures for book-entry transfer cannot be
completed on a timely basis, such Old Capital Securities may nevertheless
be tendered, provided that all of the following guaranteed delivery
procedures are complied with:
(i) such tenders are made by or through an Eligible Institution;
(ii) a completed and signed Notice of Guaranteed Delivery,
substantially in the form accompanying the Letter of Transmittal, is
delivered to the Exchange Agent, as provided below, on or prior to
Expiration Date; and
(iii) the certificates (or a book-entry confirmation)
representing all tendered Old Capital Securities, in proper form for
transfer, together with a completed and signed Letter of Transmittal
(or facsimile thereof) or, in the case of a book-entry transfer, an
Agent's Message in lieu of the Letter of Transmittal), with any
required signature guarantees and any other documents required by the
Letter of Transmittal, are received by the Exchange Agent within five
New York Stock Exchange trading days after the date of execution of
such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, or
transmitted by facsimile or mail to the Exchange Agent and must include a
guarantee by an Eligible Institution in the form set forth in such notice.
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ComEd's and the Trust's acceptance for exchange of Old Capital Securities
tendered pursuant to any of the procedures described above will constitute a
binding agreement between the tendering holder, ComEd and the Trust upon the
terms and subject to the conditions of the Exchange Offer.
Determination of Validity. All questions as to the form of documents,
validity, eligibility (including time of receipt) and acceptance for exchange of
any tendered Old Capital Securities will be determined by ComEd and the Trust,
in their sole discretion, whose determination shall be final and binding on all
parties. ComEd and the Trust reserve the absolute right, in their sole and
absolute discretion, to reject any and all tenders determined by them not to be
in proper form or the acceptance of which, or exchange for, may, in the view of
counsel to ComEd and the Trust, be unlawful. ComEd and the Trust also reserve
the right, in their reasonable discretion and subject to applicable law, to
waive any of the conditions of the Exchange Offer as set forth under "--
Conditions to the Exchange Offer" or any condition, defect or irregularity in
any tender of Old Capital Securities of any particular holder whether or not
similar conditions, defects or irregularities are waived in the case of other
holders.
ComEd's and the Trust's interpretation of the terms and conditions of the
Exchange Offer (including the Letter of Transmittal and the instructions
thereto) will be final and binding on all parties. No tender of Old Capital
Securities will be deemed to have been validly made until all irregularities
with respect to such tender have been cured or waived. Neither ComEd, the Trust,
any affiliates or assigns of ComEd or the Trust, the Exchange Agent nor any
other person shall be under any duty to give any notification of any defects or
irregularities in tenders or incur any liability for failure to give any such
notification.
If any Letter of Transmittal, endorsement, bond power, power of attorney,
or any other document required by the Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing and, unless waived by ComEd and the
Trust, proper evidence satisfactory to ComEd and the Trust, in their sole
discretion, of such person's authority to so act must be submitted.
A beneficial owner of Old Capital Securities that are held by or registered
in the name of a broker, dealer, commercial bank, trust company or other nominee
or custodian is urged to contact such entity promptly if such beneficial holder
wishes to participate in the Exchange Offer.
Resales of New Capital Securities
The Trust is making the Exchange Offer for the Capital Securities in
reliance on the position of the staff of the Division of Corporation Finance of
the Commission as set forth in certain interpretive letters addressed to third
parties in other transactions. However, neither ComEd nor the Trust sought its
own interpretive letter and there can be no assurance that the staff of the
Division of Corporation Finance of the Commission would make a similar
determination with respect to the Exchange Offer as it has in such interpretive
letters to third parties. Based on these interpretations by the staff of the
Division of Corporation Finance, and subject to the conditions described below,
the Company and the Trust believe that a holder of Old Capital Securities (other
than a holder who is (a) a broker-dealer who purchased the Old Capital
Securities directly from the Trust to resell pursuant to Rule 144A or any other
available exemption under the Securities Act, (b) a person participating in the
distribution of the Old Capital Securities or (c) a person who is an "affiliate"
of the Company or the Trust) who exchanges Old Capital Securities in the
Exchange Offer for New Capital Securities and then resells such New Capital
Securities will be viewed by the staff no differently than a non-affiliated
purchaser of registered securities who purchases such securities in a registered
primary offering of securities and, after completion of such registered
offering, may resell the New Capital Securities without further compliance with
the registration and prospectus delivery requirements of the Securities Act,
provided that such New Capital Securities are acquired in the ordinary course of
such holder's business and
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that such holder is not participating, and has no arrangement or understanding
with any person to participate, in a distribution (within the meaning of the
Securities Act) of such New Capital Securities. Any holder of Old Capital
Securities who uses the Exchange Offer to participate in a distribution of the
New Capital Securities to be acquired in the Exchange Offer, any broker-dealer
who receives New Capital Securities in exchange for Old Capital Securities that
were purchased directly from the Trust to resell pursuant to Rule 144A or any
other available exemption under the Securities Act, any person participating in
the distribution of the Old Capital Securities who receives New Capital
Securities in the Exchange Offer and any "affiliate" of the Company or the Trust
who receives New Capital Securities in the Exchange Offer (a) will not be able
to rely on the interpretations of the staff of the Division of Corporation
Finance set forth in the above-described interpretive letters and (b) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any sale or other transfer of such New Capital
Securities, unless such sale is made pursuant to an exemption from such
requirements. Any such resale transaction must be made by delivery of a
prospectus containing the selling securityholder information required by the
rules of the Commission under the Securities Act.
Each holder (including any broker-dealer) of Old Capital Securities who
wishes to exchange Old Capital Securities for New Capital Securities in the
Exchange Offer will be required to represent that (i) it is not an "affiliate"
of ComEd or the Trust, (ii) any New Capital Securities to be received by it are
being acquired in the ordinary course of its business, (iii) it has no
arrangement or understanding with any person to participate in a distribution
(within the meaning of the Securities Act) of such New Capital Securities, and
(iv) such holder is not engaged in, and does not intend to engage in, a
distribution (within the meaning of the Securities Act) of such New Capital
Securities. The Letter of Transmittal contains the foregoing representations. In
addition, ComEd and the Trust may require a holder, as a condition to such
holder's eligibility to participate in the Exchange Offer, to furnish to ComEd
and the Trust (or an agent thereof) in writing information as to the number of
"beneficial owners" (within the meaning of Rule 13d-3 under the Exchange Act) on
behalf of whom such holder holds the Capital Securities to be exchanged in the
Exchange Offer.
A broker-dealer who holds Old Capital Securities for its own account as a
result of market-making activities or other trading activities and who receives
New Capital Securities in exchange for such Old Capital Securities pursuant to
the Exchange Offer may be deemed to be an "underwriter" within the meaning of
the Securities Act and will be required to deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Capital Securities. Based upon the position taken by the staff of the Division
of Corporation Finance of the Commission in the interpretive letters referred to
above, the Company and the Trust believe that a broker-dealer may participate in
the Exchange Offer with respect to Old Capital Securities acquired for its own
account as a result of market-making activities or other trading activities (a
"Participating Broker-Dealer"), provided that in connection with any resales of
New Capital Securities received in exchange for such Old Capital Securities,
such broker-dealer delivers a prospectus meeting the requirements of the
Securities Act, which may be the prospectus prepared for an exchange offer so
long as it contains a description of the plan of distribution with respect to
the resale of such New Capital Securities. Accordingly, the Company and the
Trust will require each broker-dealer who tenders, pursuant to the Exchange
Offer, Old Capital Securities that were acquired for its own account as the
result of market-making activities or other trading activities to acknowledge
that it will deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of New Capital Securities received in exchange for
such Old Capital Securities pursuant to the Exchange Offer. However, the Letter
of Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. Also based upon the position taken by the staff
of the Division of Corporation Finance of the Commission in the interpretive
letters referred to above, the Company and the Trust believe that a
Participating Broker-Dealer may fulfill its prospectus delivery requirement in
connection with resales of New Capital Securities received in exchange for Old
Capital Securities that were
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acquired by such Participating Broker-Dealer for its own account as a result of
market-making activities or other trading activities with this Prospectus, as it
may be amended or supplemented from time to time, during the 90-day period
referred to below. Subject to certain provisions set forth in the Registration
Rights Agreement and to the limitations described herein, ComEd and the Trust
have agreed that this Prospectus, as it may be amended or supplemented from time
to time, may be used by a Participating Broker-Dealer in connection with resales
of such New Capital Securities for a period ending 90 days after the Expiration
Date or, if earlier, when all such New Capital Securities have been disposed of
by such Participating Broker-Dealer. See "Plan of Distribution." However, a
Participating Broker-Dealer who intends to use this Prospectus in connection
with the resale of New Capital Securities received in exchange for Old Capital
Securities pursuant to the Exchange Offer must notify ComEd or the Trust, or
cause ComEd or the Trust to be notified, on or prior to the Expiration Date,
that it is a Participating Broker-Dealer. Such notice may be given in the space
provided for that purpose in the Letter of Transmittal or may be delivered to
the Exchange Agent at one of the addresses set forth herein under "--Exchange
Agent."
In that regard, each Participating Broker-Dealer who surrenders Old Capital
Securities pursuant to the Exchange Offer will be deemed to have agreed, by
execution of the Letter of Transmittal or delivery of any Agent's Message in
lieu thereof, that, upon receipt of notice from ComEd or the Trust of the
occurrence of any event or the discovery of any fact which makes any statement
contained or incorporated by reference in this Prospectus untrue in any material
respect or which causes this Prospectus to omit to state a material fact
necessary in order to make the statements contained or incorporated by reference
herein, in light of the circumstances under which they were made, not misleading
or of the occurrence of certain other events specified in the Registration
Rights Agreement, such Participating Broker-Dealer will suspend the sale of New
Capital Securities (or the New Guarantee or the New Subordinated Debentures, as
applicable) pursuant to this Prospectus until ComEd or the Trust has amended or
supplemented this Prospectus to correct such misstatement or omission and has
furnished copies of the amended or supplemented Prospectus to such Participating
Broker-Dealer or ComEd or the Trust has given notice that the sale of the New
Capital Securities (or the New Guarantee or the New Subordinated Debentures, as
applicable) may be resumed, as the case may be.
Withdrawal Rights
As set forth below, tenders of Old Capital Securities may be withdrawn at
any time on or prior to the Expiration Date.
In order for a withdrawal to be effective a written or facsimile
transmission of such notice of withdrawal must be received by the Exchange Agent
at one of its addresses set forth under "--Exchange Agent" on or prior to the
Expiration Date. Any such notice of withdrawal must specify the name of the
person who tendered the Old Capital Securities to be withdrawn, the aggregate
Liquidation Amount of Old Capital Securities to be withdrawn, and (if
certificates for such Old Capital Securities have been tendered) the name of the
registered holder of the Old Capital Securities as set forth on the certificate
for the Old Capital Securities, if different from that of the person who
tendered such Old Capital Securities. If certificates for the Old Capital
Securities have been delivered or otherwise identified to the Exchange Agent,
then prior to the physical release of such certificates for the Old Capital
Securities, the tendering holder must submit the serial numbers shown on the
particular certificates for the Old Capital Securities to be withdrawn and the
signature on the notice of withdrawal must be guaranteed by an Eligible
Institution, except in the case of Old Capital Securities tendered for the
account of an Eligible Institution. If Old Capital Securities have been tendered
pursuant to the procedures for book-entry transfer set forth in "--Procedures
for Tendering Old Capital Securities," the notice of withdrawal must specify the
name and number of the account at DTC to be credited with the withdrawn Old
Capital Securities. Withdrawals of tenders of Old Capital Securities may not be
rescinded. Old Capital Securities properly withdrawn will not be deemed validly
tendered for purposes of the
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Exchange Offer, but may be retendered at any subsequent time on or prior to the
Expiration Date by following any of the procedures described above under
"--Procedures for Tendering Old Capital Securities."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by ComEd and the Trust,
in their sole discretion, whose determination shall be final and binding on all
parties. Neither ComEd, the Trust, any affiliates or assigns of ComEd or the
Trust, the Exchange Agent nor any other person shall be under any duty to give
any notification of any irregularities in any notice of withdrawal or incur any
liability for failure to give any such notification. Any Old Capital Securities
which have been tendered but which are withdrawn will be returned to the holder
thereof promptly after withdrawal.
Distributions on New Capital Securities
Each New Capital Security will accumulate Distributions from the most
recent Distribution Date on the Old Capital Securities surrendered in exchange
for such New Capital Securities or, if no Distributions have been paid or
provided for on such Old Capital Securities, from January 24, 1997. As a result,
holders of Old Capital Securities that are accepted for exchange will not
receive accumulated Distributions on such Old Capital Securities for any period
from and after the most recent Distribution Date on such Old Capital Securities
or, if no Distributions have been paid or provided for on such Old Capital
Securities, from and after January 24, 1997, and such holders will be deemed to
have waived the right to receive any Distributions on such Old Capital
Securities.
Conditions to the Exchange Offer
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, ComEd and the Trust will not be required to
accept for exchange, or to exchange, any New Capital Securities for any Old
Capital Securities, and, as described below, may terminate the Exchange Offer
(whether or not any Old Capital Securities have been accepted for exchange) or
may waive any conditions to or amend the Exchange Offer, if any of the following
conditions have occurred or exists or have not been satisfied:
(a) there shall occur a change in the current interpretation by the
staff of the Commission which permits the New Capital Securities issued
pursuant to the Exchange Offer in exchange for Old Capital Securities to be
offered for resale, resold and otherwise transferred by holders thereof
(other than broker-dealers and any such holder which is an "affiliate" of
ComEd or the Trust within the meaning of Rule 405 under the Securities Act)
without compliance with the registration and prospectus delivery provisions
of the Securities Act provided that such New Capital Securities are
acquired in the ordinary course of such holders' business and such holders
have no arrangement or understanding with any person to participate in the
distribution of such New Capital Securities;
(b) any action or proceeding shall have been instituted or threatened
in any court or by or before any governmental agency or body with respect
to the Exchange Offer which, in ComEd's and the Trust's judgment, would
reasonably be expected to impair the ability of ComEd or the Trust to
proceed with the Exchange Offer;
(c) any law, statute, rule or regulation shall have been adopted or
enacted which, in ComEd's and the Trust's judgment, would reasonably be
expected to impair the ability of ComEd or the Trust to proceed with the
Exchange Offer;
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(d) trading on the New York Stock Exchange or generally in the United
States over-the-counter market shall have been suspended by order of the
Commission or any other governmental authority which, in ComEd's and the
Trust's judgment, would reasonably be expected to impair the ability of
ComEd or the Trust to proceed with the Exchange Offer;
(e) a stop order shall have been issued by the Commission or any
state securities authority suspending the effectiveness of the Registration
Statement or proceedings shall have been initiated or, to the knowledge of
ComEd or the Trust, threatened for that purpose, or any governmental
approval has not been obtained, which approval ComEd and the Trust shall,
in their reasonable discretion, deem necessary for the consummation of the
Exchange Offer as contemplated hereby; or
(f) any change, or any development involving a prospective change, in
the business or financial affairs of ComEd or any of its subsidiaries has
occurred which, in the reasonable judgment of ComEd and the Trust, might
materially impair the ability of ComEd or the Trust to proceed with the
Exchange Offer.
If ComEd and the Trust determine in their reasonable discretion that any of
the foregoing events or conditions has occurred or exists or has not been
satisfied, ComEd and the Trust may, subject to applicable law, terminate the
Exchange Offer (whether or not any Old Capital Securities have theretofore been
accepted for exchange) or may waive any such condition or otherwise amend the
terms of the Exchange Offer in any respect. If such waiver or amendment
constitutes a material change to the Exchange Offer, ComEd and the Trust will
promptly disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders of the Old Capital Securities, and ComEd
and the Trust will extend the Exchange Offer to the extent required by Rule 14e-
1 under the Exchange Act.
Exchange Agent
Wilmington Trust Company has been appointed as Exchange Agent for the
Exchange Offer. Delivery of a Letter of Transmittal and any other documents
required by the Letter of Transmittal, questions, requests for assistance, and
requests for additional copies of this Prospectus or of a Letter of Transmittal
should be directed to the Exchange Agent as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
By Registered or Certified Mail: By Facsimile: By Hand/Overnight Carrier:
Wilmington Trust Company Wilmington Trust Company Wilmington Trust Company
1100 North Market Street Attn: Corporate Trust 1100 North Market Street
Rodney Square North Operations Rodney Square North
Wilmington, Delaware 19890 (302) 651-1079 Wilmington, Delaware 19890
Attn: Corporate Trust Attn: Corporate Trust
Operations (For Eligible Institutions Only) Operations
Confirm by Telephone
(302) 651-8869
For Information Call:
(302) 651-8869
</TABLE>
Delivery to other than the above addresses or facsimile number will
not constitute a valid delivery.
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Fees and Expenses
ComEd has agreed to pay all expenses of the Trust, including expenses
related to the Exchange Offer. ComEd has agreed to pay the Exchange Agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection therewith. ComEd will also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this Prospectus
and related documents to the beneficial owners of Old Capital Securities, and in
handling or tendering for their customers.
Holders who tender their Old Capital Securities for exchange will not be
obligated to pay any transfer taxes in connection therewith. If, however, New
Capital Securities are to be delivered to, or are to be issued in the name of,
any person other than the registered holder of the Old Capital Securities
tendered, or if a transfer tax is imposed for any reason other than the exchange
of Old Capital Securities in connection with the Exchange Offer, then the amount
of any such transfer taxes (whether imposed on the registered holder or any
other persons) will be payable by the tendering holder. If satisfactory evidence
of payment of such taxes or exemption therefrom is not submitted with the Letter
of Transmittal, the amount of such transfer taxes will be billed directly to
such tendering holder.
Neither ComEd nor the Trust will make any payment to brokers, dealers or
others soliciting acceptances of the Exchange Offer.
DESCRIPTION OF SECURITIES
Description of Capital Securities
Pursuant to the terms of the Trust Agreement, the Trust has issued Old
Capital Securities and Common Securities and, in the event the Exchange Offer is
consummated, will issue New Capital Securities. New Capital Securities will
represent undivided beneficial interests in the assets of the Trust and the
holders thereof will be entitled to a preference in certain circumstances with
respect to Distributions and amounts payable on redemption of the Trust
Securities or liquidation of the Trust over the Common Securities. See
"--Subordination of Common Securities." The Trust Agreement has been qualified
under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
The forms and terms of the New Capital Securities are identical in all material
respects to the forms and terms of the Old Capital Securities, except that the
New Capital Securities have been registered under the Securities Act and
therefore are not subject to certain restrictions on transfer applicable to the
Old Capital Securities. See"--Removal of Certain Restrictions on Transfer."
Accordingly, as the context may require, unless expressly stated otherwise,
"Capital Securities" means the Old Capital Securities and, in the event the
Exchange Offer is consummated, the New Capital Securities. The following is a
summary of all material provisions of the Capital Securities, the Common
Securities and the Trust Agreement; however, the summary does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Trust Agreement, including the definitions therein of
certain terms.
General
The Capital Securities (including the Old Capital Securities and the New
Capital Securities) are limited to $150,000,000 aggregate Liquidation Amount at
any one time outstanding. The Capital Securities rank on a parity, and payments
are made thereon pro rata, with the Common Securities except as described under
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"--Subordination of Common Securities." The New Capital Securities and any Old
Capital Securities that remain outstanding after consummation of the Exchange
Offer will constitute a single series of Capital Securities under the Trust
Agreement and, accordingly, will vote together as a single class for purposes of
determining whether holders of the requisite percentage in outstanding
Liquidation Amount thereof have taken certain actions or exercised certain
rights under the Trust Agreement. Legal title to the Old Subordinated Debentures
is (and legal title to the New Subordinated Debentures will be) held by the
Property Trustee in trust for the benefit of the holders of Capital Securities
and Common Securities. The New Guarantee to be executed by ComEd for the benefit
of the holders of Capital Securities will be a guarantee on a subordinated basis
but will not guarantee payment of Distributions or amounts payable on redemption
of Capital Securities or on liquidation of the Trust when the Trust does not
have funds on hand available to make such payments. See "Description of
Guarantee."
Distributions
Distributions on the Capital Securities are cumulative, accumulate from
January 24, 1997 and are payable semi-annually in arrears on January 15 and July
15 of each year, commencing July 15, 1997, at the annual rate of 8.50% of the
Liquidation Amount to the holders of record of the Capital Securities on the
January 1 or July 1 immediately preceding such date. The amount of Distributions
payable for any period is computed on the basis of a 360-day year consisting of
twelve 30-day months and for any period less than a full calendar month on the
basis of the actual number of days elapsed in such month. In the event that any
date on which Distributions are payable on the Capital Securities is not a
Business Day (as defined below), payment of the Distributions payable on such
date will be made on the next succeeding day that is a Business Day (and without
any interest or other payment in respect to any such delay), in each case with
the same force and effect as if made on such date (each date on which
Distributions are payable in accordance with the foregoing, a "Distribution
Date"). A "Business Day" shall mean any day other than a Saturday or a Sunday,
or a day on which banking institutions in Wilmington, Delaware or New York, New
York are authorized or required by law or executive order to remain closed.
So long as no Debenture Event of Default has occurred and is continuing,
the Company has the right under the Indenture to defer the payment of interest
on the Subordinated Debentures by extending the interest payment period at any
time and from time to time for a period not exceeding 10 consecutive semi-annual
periods with respect to each Extension Period, provided that no Extension Period
may extend beyond the Stated Maturity Date. Upon any such election, semi-annual
Distributions on the Capital Securities will be deferred by the Trust during any
such Extension Period. Distributions to which holders of the Capital Securities
are entitled during any such Extension Period will accumulate additional
Distributions thereon at the rate per annum of 8.50% thereof, compounded semi-
annually from the relevant Distribution Date. The term "Distributions," as used
herein, shall include any such additional Distributions.
Prior to the termination of any such Extension Period, the Company may
further extend such Extension Period, provided that such extension does not
cause such Extension Period to exceed 10 consecutive semi-annual periods or to
extend beyond the Stated Maturity Date. Upon the termination of any such
Extension Period and the payment of all amounts then due, and subject to the
foregoing limitations, the Company may elect to begin a new Extension Period.
The Company must give the Property Trustee, the Administrative Trustees and the
Debenture Trustee notice of its election of any such Extension Period at least
10 days prior to the earlier of (i) the date the Distributions on the Capital
Securities would have been payable except for the election to begin such
Extension Period or (ii) the date the Administrative Trustees are required to
give notice to any securities exchange or to holders of such Capital Securities
of the record date or the date such Distributions are payable but in any event
not less than 10 days prior to such record date. There is no limitation on the
number of times that the Company may elect to begin an Extension Period. See
"Description
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of Subordinated Debentures--Option to Extend Interest Payment Date" and "Certain
Federal Income Tax Consequences--Interest Income and Original Issue Discount."
During any such Extension Period, the Company may not (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock (which
includes common, preference and preferred stock) or (ii) make any payment of
principal of or premium, if any, or interest on or repay, repurchase or redeem
any debt securities of the Company (including Other Indebtedness) that rank pari
passu with or junior in right of payment to the Subordinated Debentures,
including the 8.48% Debentures, or (iii) make any guarantee payments with
respect to the foregoing.
Although the Company may in the future exercise its option to defer
payments of interest on the Subordinated Debentures, the Company has no such
current intention.
The revenue of the Trust available for distribution to holders of the
Capital Securities will be limited to payments under the Subordinated Debentures
in which the Trust will invest the proceeds from the issuance and sale of the
Trust Securities. See "Description of Subordinated Debentures--General." If the
Company does not make interest payments on the Subordinated Debentures, the
Property Trustee will not have funds available to pay Distributions on the
Capital Securities. The payment of Distributions (if and to the extent the Trust
has funds on hand legally available for the payment of such Distributions) is
guaranteed by the Company on a limited basis as set forth herein under
"Description of Guarantee."
Redemption
Upon the repayment on the Stated Maturity Date or prepayment prior to the
Stated Maturity Date of the Subordinated Debentures, the proceeds from such
repayment or prepayment shall be applied by the Property Trustee to redeem a
Like Amount (as defined below) of the Trust Securities, upon not less than 30
nor more than 60 days' notice of a date of redemption (the "Redemption Date"),
at the applicable Redemption Price, which shall be equal to (i) in the case of
the repayment of the Subordinated Debentures on the Stated Maturity Date, the
Maturity Redemption Price (equal to the principal of, and accrued interest on,
the Subordinated Debentures), (ii) in the case of the optional prepayment of the
Subordinated Debentures prior to January 15, 2007 upon the occurrence and
continuation of a Tax Event, the Tax Event Redemption Price (equal to the Tax
Event Prepayment Price in respect of the Subordinated Debentures) and (iii) in
the case of the optional prepayment of the Subordinated Debentures on or after
January 15, 2007, the Optional Redemption Price (equal to the Optional
Prepayment Price in respect of the Subordinated Debentures). See "Description of
Subordinated Debentures--Optional Prepayment" and "--Tax Event Prepayment."
"Like Amount" means (i) with respect to a redemption of the Trust
Securities, Trust Securities having a Liquidation Amount equal to the principal
amount of Subordinated Debentures to be paid in accordance with their terms and
(ii) with respect to a distribution of Subordinated Debentures upon the
liquidation of the Trust, Subordinated Debentures having a principal amount
equal to the Liquidation Amount of the Trust Securities of the holder to whom
such Subordinated Debentures are distributed.
Liquidation of the Trust and Distribution of Subordinated Debentures
The Company has the right at any time to terminate the Trust and cause the
Subordinated Debentures to be distributed to the holders of the Trust Securities
in liquidation of the Trust. Such right is subject to the Company having
received an opinion of counsel to the effect that holders of the Capital
Securities will not
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recognize any gain or loss for United States federal income tax purposes as a
result of the dissolution of the Trust and the distribution of the Subordinated
Debentures.
The Trust shall automatically terminate upon the first to occur of: (i)
certain events of bankruptcy, dissolution or liquidation of the Company; (ii)
the distribution of a Like Amount of the Subordinated Debentures to the holders
of the Trust Securities, if the Company, as Sponsor, has given written direction
to the Property Trustee to terminate the Trust (which direction is optional and,
except as described above, wholly within the discretion of the Company, as
Sponsor); (iii) redemption of all of the Trust Securities as described under
"--Redemption"; (iv) expiration of the term of the Trust; and (v) the entry of
an order for the dissolution of the Trust by a court of competent jurisdiction.
If a termination occurs as described in clause (i), (ii), (iv), or (v)
above, the Trust shall be liquidated by the ComEd Trustees as expeditiously as
the ComEd Trustees determine to be possible by distributing, after satisfaction
of liabilities to creditors of the Trust as provided by applicable law, to the
holders of the Trust Securities a Like Amount of the Subordinated Debentures,
unless such distribution is determined by the Property Trustee not to be
practicable, in which event such holders will be entitled to receive out of the
assets of the Trust legally available for distribution to holders, after
satisfaction of liabilities to creditors of the Trust as provided by applicable
law, an amount equal to the aggregate of the Liquidation Amount plus accumulated
and unpaid Distributions thereon to the date of payment (such amount being the
"Liquidation Distribution"). If such Liquidation Distribution can be paid only
in part because the Trust has insufficient assets on hand legally available to
pay in full the aggregate Liquidation Distribution, then the amounts payable
directly by the Trust on the Capital Securities and the Common Securities shall
be paid on a pro rata basis, except that if a Debenture Event of Default has
occurred and is continuing, the Capital Securities shall have a priority over
the Common Securities. See "--Subordination of Common Securities."
After the liquidation date is fixed for any distribution of Subordinated
Debentures to holders of the Trust Securities, (i) the Trust Securities will no
longer be deemed to be outstanding, (ii) each registered global certificate, if
any, representing Trust Securities and held by DTC or its nominee will receive a
registered global certificate or certificates representing the Subordinated
Debentures to be delivered upon such distribution and (iii) any certificates
representing Trust Securities not held by DTC or its nominee will be deemed to
represent Subordinated Debentures having a principal amount equal to the
Liquidation Amount of such Trust Securities, and bearing accrued and unpaid
interest in an amount equal to the accumulated and unpaid Distributions on such
Trust Securities until such certificates are presented to the Administrative
Trustees or their agent for cancellation, whereupon the Company will issue to
such holder, and the Debenture Trustee will authenticate, a certificate
representing such Subordinated Debentures.
There can be no assurance as to the market prices for the Capital
Securities or the Subordinated Debentures that may be distributed in exchange
for the Trust Securities if a dissolution and liquidation of the Trust were to
occur. Accordingly, the Capital Securities that an investor may purchase, or the
Subordinated Debentures that the investor may receive on dissolution and
liquidation of the Trust, may trade at a discount to the price that the investor
paid to purchase the Capital Securities offered hereby.
Redemption Procedures
If applicable, Trust Securities shall be redeemed at the applicable
Redemption Price with the proceeds from the contemporaneous repayment or
prepayment of the Subordinated Debentures. Any redemption of Trust Securities
shall be made and the applicable Redemption Price shall be payable on the
Redemption Date only to the extent that the Trust has funds legally available
for the payment of such applicable Redemption Price.
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If the Trust gives a notice of redemption in respect of the Capital
Securities, then, by 12:00 noon, New York City time, on the Redemption Date, to
the extent funds are legally available, with respect to the Capital Securities
held by DTC or its nominees, the Property Trustee will deposit irrevocably with
DTC funds sufficient to pay the applicable Redemption Price. See "--Form,
Denomination, Book-Entry Procedures and Transfer." With respect to the Capital
Securities held in certificated form, the Property Trustee, to the extent funds
are legally available, will pay the applicable Redemption Price to holders of
Capital Securities by check mailed to the address of the relevant holder. See
"--Payment and Paying Agency." Notwithstanding the foregoing, Distributions
payable on or prior to the Redemption Date shall be payable to the holders of
such Capital Securities on the relevant record dates for the related
Distribution Dates. If notice of redemption shall have been given and funds
deposited as required, then upon the date of such deposit, all rights of the
holders of the Capital Securities will cease, except the right of the holders of
the Capital Securities to receive the applicable Redemption Price, but without
interest on such Redemption Price, and the Capital Securities will cease to be
outstanding. In the event that any Redemption Date of Capital Securities is not
a Business Day, then the applicable Redemption Price payable on such date will
be paid on the next succeeding day that is a Business Day (and without any
interest or other payment in respect of any such delay). In the event that
payment of the Redemption Price in respect of any Capital Securities is
improperly withheld or refused and not paid either by the Trust or by the
Company pursuant to the Guarantee as described under "Description of Guarantee,"
Distributions on such Capital Securities will continue to accumulate at the then
applicable rate, from the Redemption Date originally established by the Trust to
the date such Redemption Price is actually paid, in which case the actual
payment date will be the Redemption Date for purposes of calculating the
Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities law), provided the acquirer is not the holder of Common
Securities or an obligor under the Indenture, the Company or its subsidiaries
may at any time and from time to time purchase outstanding Capital Securities by
tender, in the open market or by private agreement.
Notice of any redemption will be mailed at least 30 days but not more than
60 days prior to the Redemption Date to each holder of Trust Securities at its
registered address. Unless the Company defaults in payment of the applicable
Prepayment Price on, or in the repayment of, the Subordinated Debentures, on and
after the Redemption Date Distributions will cease to accrue on the Trust
Securities called for redemption.
Subordination of Common Securities
Payment of Distributions on, and the Redemption Price of, the Capital
Securities and Common Securities, as applicable, shall be made pro rata based on
the Liquidation Amount of the Capital Securities and Common Securities;
provided, however, that if on any Distribution Date or Redemption Date an Event
of Default under the Trust Agreement shall have occurred and be continuing, no
payment of any Distribution on, or applicable Redemption Price of, any of the
Common Securities, and no other payment on account of the redemption,
liquidation or other acquisition of the Common Securities, shall be made unless
payment in full in cash of all accumulated and unpaid Distributions on all of
the outstanding Capital Securities for all Distribution periods terminating on
or prior thereto, or in the case of payment of the applicable Redemption Price
the full amount of such Redemption Price, shall have been made or provided for,
and all funds available to the Property Trustee shall first be applied to the
payment in full in cash of all Distributions on, or Redemption Price of, the
Capital Securities then due and payable.
In the case of any Event of Default under the Trust Agreement, the Company
as holder of the Common Securities will be deemed to have waived any right to
act with respect to such Event of Default until
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the effect of such Event of Default shall have been cured, waived or otherwise
eliminated. Until any such Event of Default has been so cured, waived or
otherwise eliminated, the Property Trustee shall act solely on behalf of the
holders of the Capital Securities and not on behalf of the Company as holder of
the Common Securities, and only the holders of the Capital Securities will have
the right to direct the Property Trustee to act on their behalf.
Events of Default; Notice
The occurrence of a Debenture Event of Default (see "Description of
Subordinated Debentures--Debenture Events of Default") constitutes an "Event of
Default" under the Trust Agreement.
Within five Business Days after the occurrence of any Event of Default
under the Trust Agreement actually known to the Property Trustee, the Property
Trustee shall transmit notice of such Event of Default to the holders of the
Capital Securities, the Administrative Trustees and the Company, as Sponsor,
unless such Event of Default shall have been cured or waived. The Company, as
Sponsor, and the Administrative Trustees are required to file annually with the
Property Trustee a certificate as to whether or not they are in compliance with
all the conditions and covenants applicable to them under the Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the Capital
Securities shall have a preference over the Common Securities as described under
"--Liquidation of the Trust and Distribution of Subordinated Debentures" and
"--Subordination of Common Securities."
Removal of ComEd Trustees
Unless a Debenture Event of Default shall have occurred and be continuing,
any ComEd Trustee may be removed at any time by the holder of the Common
Securities. If a Debenture Event of Default has occurred and is continuing, the
Property Trustee and the Delaware Trustee may be removed during such time by the
holders of a majority in Liquidation Amount of the outstanding Capital
Securities. In no event will the holders of the Capital Securities have the
right to vote to appoint, remove or replace the Administrative Trustees, which
voting rights are vested exclusively in the Company as the holder of the Common
Securities. No resignation or removal of the Property Trustee or the Delaware
Trustee and no appointment of a successor trustee thereto shall be effective
until the acceptance of appointment by the successor trustee in accordance with
the provisions of the Trust Agreement.
Merger or Consolidation of ComEd Trustees
Any corporation into which the Property Trustee, the Delaware Trustee or
any Administrative Trustee that is not a natural person may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Property Trustee or
the Delaware Trustee shall be a party, or any corporation succeeding to all or
substantially all the corporate trust business of the Property Trustee or the
Delaware Trustee, shall be the successor of such ComEd Trustee under the Trust
Agreement, provided such corporation shall be otherwise qualified and eligible.
Mergers, Consolidations, Amalgamations or Replacements of the Trust
The Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to any Person, except as described
below. The Trust may, at the request of the Company, as Sponsor, with the
consent of the Administrative Trustees but without the consent of the holders of
the Capital Securities, the Property Trustee
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or the Delaware Trustee, merge with or into, consolidate, amalgamate, or be
replaced by or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to a trust organized as such under the
laws of any State; provided, that (i) such successor entity either (a) expressly
assumes all of the obligations of the Trust with respect to the Capital
Securities or (b) substitutes for the Capital Securities other securities having
substantially the same terms as the Capital Securities (the "Successor
Securities") so long as the Successor Securities rank the same as the Capital
Securities rank in priority with respect to Distributions and payments upon
liquidation, redemption and otherwise, (ii) the Company expressly appoints a
trustee of such successor entity possessing the same powers and duties as the
Property Trustee with respect to the Subordinated Debentures, (iii) the
Successor Securities are listed, or any Successor Securities will be listed upon
notification of issuance, on any national securities exchange or other
organization on which the Capital Securities are then listed, if any, (iv) such
merger, consolidation, amalgamation, replacement, conveyance, transfer or lease
does not cause the Capital Securities (including any Successor Securities) to be
downgraded by any nationally recognized statistical rating organization, (v)
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not adversely affect the rights, preferences and privileges of the
holders of the Capital Securities (including any Successor Securities) in any
material respect (other than with respect to any dilution of such holders'
interest in the new entity), (vi) such successor entity has a purpose
substantially identical to that of the Trust, (vii) prior to such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, the
Company has received an opinion from independent counsel to the Trust
experienced in such matters to the effect that (a) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the holders of the Capital
Securities (including any Successor Securities) in any material respect (other
than with respect to any dilution of such holders' interest in the new entity),
and (b) following such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, neither the Trust nor such successor entity will
be required to register as an investment company under the Investment Company
Act of 1940, as amended (the "Investment Company Act"), and (viii) the Company
or any permitted successor or assignee owns all of the common securities of such
successor entity and guarantees the obligations of such successor entity under
the Successor Securities at least to the extent provided by the Guarantee.
Notwithstanding the foregoing, the Trust shall not, except with the consent of
holders of 100% in Liquidation Amount of the Trust Securities, consolidate,
amalgamate, merge with or into, or be replaced by or convey, transfer or lease
its properties and assets as an entirety or substantially as an entirety to any
other entity or permit any other entity to consolidate, amalgamate, merge with
or into, or replace it if such consolidation, amalgamation, merger, replacement,
conveyance, transfer or lease would cause the Trust or the successor entity not
to be classified as a grantor trust for United States federal income tax
purposes.
Voting Rights; Amendment of the Trust Agreement
Except as provided below and under "--Mergers, Consolidations,
Amalgamations or Replacements of the Trust" and "Description of Guarantee--
Amendments and Assignment" and as otherwise required by law and the Trust
Agreement, the holders of the Capital Securities will have no voting rights.
The Trust Agreement may be amended from time to time by the Company, the
Property Trustee and the Administrative Trustees, without the consent of the
holders of the Trust Securities (i) to cure any ambiguity, correct or supplement
any provisions in the Trust Agreement that may be inconsistent with any other
provision, or to make any other provisions with respect to matters or questions
arising under the Trust Agreement which shall not be inconsistent with the other
provisions of the Trust Agreement, or (ii) to modify, eliminate or add to any
provisions of the Trust Agreement to such extent as shall be necessary to ensure
that the Trust will be classified for United States federal income tax purposes
as a grantor trust at all times that any Trust Securities are outstanding or to
ensure that the Trust will not be required to register as an "investment
company" under the Investment Company Act; provided, however, that such action
shall not adversely affect
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in any material respect the interests of the holders of the Trust Securities,
and any amendments of the Trust Agreement shall become effective when notice
thereof is given to the holders of the Trust Securities. The Trust Agreement may
be amended by the Administrative Trustees and the Company (i) with the consent
of holders representing a majority (based upon Liquidation Amount) of the
outstanding Trust Securities, and (ii) upon receipt by the Administrative
Trustees of an opinion of counsel to the effect that such amendment or the
exercise of any power granted to the Administrative Trustees in accordance with
such amendment will not affect the Trust's status as a grantor trust for United
States federal income tax purposes or the Trust's exemption from status as an
"investment company" under the Investment Company Act, provided that, without
the consent of each holder of Trust Securities, the Trust Agreement may not be
amended to (i) change the amount or timing of any Distribution on the Trust
Securities or otherwise adversely affect the amount of any Distribution required
to be made in respect of the Trust Securities as of a specified date or (ii)
restrict the right of a holder of Trust Securities to institute suit for the
enforcement of any such payment on or after such date.
So long as any Subordinated Debentures are held by the Property Trustee,
the ComEd Trustees shall not (i) direct the time, method and place of conducting
any proceeding for any remedy available to the Debenture Trustee, or executing
any trust or power conferred on such Property Trustee with respect to the
Subordinated Debentures, (ii) waive certain past defaults under the Indenture,
(iii) exercise any right to rescind or annul a declaration of acceleration of
the maturity of the principal of the Subordinated Debentures or (iv) consent to
any amendment, modification or termination of the Indenture or the Subordinated
Debentures, where such consent shall be required, without, in each case,
obtaining the prior approval of the holders of a majority in Liquidation Amount
of all outstanding Capital Securities; provided, however, that where a consent
under the Indenture would require the consent of each holder of Subordinated
Debentures affected thereby, no such consent shall be given by the Property
Trustee without the prior approval of each holder of the Capital Securities. The
ComEd Trustees shall not revoke any action previously authorized or approved by
a vote of the holders of the Capital Securities except by subsequent vote of
such holders. The Property Trustee shall notify each holder of Capital
Securities of any notice of default with respect to the Subordinated Debentures.
In addition to obtaining the foregoing approvals of such holders of the Capital
Securities, prior to taking any of the foregoing actions, the ComEd Trustees
shall obtain an opinion of counsel experienced in such matters to the effect
that the Trust will not cease to be classified as a grantor trust for United
States federal income tax purposes on account of such action.
Any required approval of holders of Capital Securities may be given at a
meeting of such holders convened for such purpose or pursuant to written
consent. The Property Trustee will cause a notice of any meeting at which
holders of Capital Securities are entitled to vote, or of any matter upon which
action by written consent of such holders is to be taken, to be given to each
holder of record of Capital Securities in the manner set forth in the Trust
Agreement.
No vote or consent of the holders of Capital Securities will be required
for the Trust to redeem and cancel or distribute the Capital Securities in
accordance with the Trust Agreement.
Notwithstanding that holders of the Capital Securities are entitled to vote
or consent under any of the circumstances described above, any of the Capital
Securities that are owned by the Company, the ComEd Trustees or any affiliate of
the Company or any ComEd Trustees, shall, for purposes of such vote or consent,
be treated as if they were not outstanding.
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Form, Denomination, Book-Entry Procedures and Transfer
In the event that New Capital Securities are issued in certificated form,
such New Capital Securities will be in a Liquidation Amount of $1,000 (1 New
Capital Security) or any integral multiple in excess thereof and may be
transferred or exchanged in such amounts in the manner and at the offices
described below.
In the event that New Capital Securities are issued in registered, global
form (collectively, the "Global Capital Securities"), the Global Capital
Securities will be deposited upon issuance with the Property Trustee as
custodian for DTC, in New York, New York, and registered in the name of DTC or
its nominee, in each case for credit to an account of a direct or indirect
participant in DTC as described below.
Except as set forth below, the Global Capital Securities may be
transferred, in whole and not in part, only to another nominee of DTC or to a
successor of DTC or its nominee. Beneficial interests in the Global Capital
Securities may not be exchanged for New Capital Securities in certificated form
except in the limited circumstances described below. See "--Exchange of Book-
Entry New Capital Securities for Certificated New Capital Securities."
Depositary Procedures
DTC has advised the Trust and the Company that DTC is a limited-purpose
trust company created to hold securities for its participating organizations
(collectively, the "Participants") and to facilitate the clearance and
settlement of transactions in those securities between Participants through
electronic book-entry changes in accounts of its Participants. The Participants
include securities brokers and dealers (including the Initial Purchasers),
banks, trust companies, clearing companies and certain other organizations.
Access to DTC's system is also available to other entities such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may beneficially
own securities held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interest and transfer of ownership interest
of each actual purchaser of each security held by or on behalf of DTC are
recorded on the records of the Participants and Indirect Participants.
DTC has also advised the Trust and the Company that, pursuant to procedures
established by it, (i) upon deposit of the Global Capital Securities, DTC will
credit the accounts of Participants designated by the Initial Purchasers with
portions of the Liquidation Amount of the Global Capital Securities and (ii)
ownership of such interests in the Global Capital Securities will be shown on,
and the transfer of ownership thereof will be effected only through, records
maintained by DTC (with respect to the Participants) or by the Participants and
the Indirect Participants (with respect to other owners of beneficial interests
in the Global Capital Securities).
Investors in the Global Capital Securities may hold their interests
therein directly through DTC if they are Participants in such system, or
indirectly through organizations which are Participants in such system.
All interests in a Global Capital Security may be subject to the procedures
and requirements of DTC. The laws of some states require that certain
persons take physical delivery in certificated form of securities that they
own. Consequently, the ability to transfer beneficial interests in a
Global Capital Security to such persons will be limited to that extent.
Because DTC can act only on behalf of Participants, which in turn act on
behalf of Indirect Participants and certain banks, the ability of a person
having beneficial interests in a Global Capital Security to pledge such
interests to persons or entities that do not participate in the DTC system,
or otherwise
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take actions in respect of such interests, may be affected by the lack of a
physical certificate evidencing such interests.
Except as described below, owners of interests in the Global Capital
Securities will not have New Capital Securities registered in their name, will
not receive physical delivery of New Capital Securities in certificated form and
will not be considered the registered owners or holders thereof under the Trust
Agreement for any purpose.
Payments in respect of the Global Capital Security registered in the name
of DTC or its nominee will be payable by the Property Trustee to DTC in its
capacity as the registered holder under the Trust Agreement. Under the terms of
the Trust Agreement, the Property Trustee will treat the persons in whose names
the New Capital Securities, including the Global Capital Securities, are
registered as the owners thereof for the purpose of receiving such payments and
for any and all other purposes whatsoever. Consequently, neither the Property
Trustee nor any agent thereof has or will have any responsibility or liability
for (i) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interests in the Global Capital Securities, or for maintaining,
supervising or reviewing any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in the
Global Capital Securities or (ii) any other matter relating to the actions and
practices of DTC or any of its Participants or Indirect Participants. DTC has
advised the Trust and the Company that its current practice, upon receipt of any
payment in respect of securities such as the New Capital Securities, is to
credit the accounts of the relevant Participants with the payment on the payment
date, in amounts proportionate to their respective holdings in Liquidation
Amount of beneficial interests in the relevant security as shown on the records
of DTC unless DTC has reason to believe it will not receive payment on such
payment date. Payments by the Participants and the Indirect Participants to the
beneficial owners of New Capital Securities will be governed by standing
instructions and customary practices and will be the responsibility of the
Participants or the Indirect Participants and will not be the responsibility of
DTC, the Property Trustee, the Trust or the Company. Neither the Trust or the
Company nor the Property Trustee will be liable for any delay by DTC or any of
its Participants in identifying the beneficial owners of the New Capital
Securities, and the Trust or the Company and the Property Trustee may
conclusively rely on and will be protected in relying on instructions from DTC
or its nominee for all purposes.
Secondary market trading activity in interests in the Global Capital
Securities will settle in immediately available funds, subject in all cases to
the rules and procedures of DTC and its participants. Transfers between
Participants in DTC will be effected in accordance with DTC's procedures, and
will be settled in same-day funds.
DTC has advised the Trust and the Company that it will take any action
permitted to be taken by a holder of New Capital Securities only at the
direction of one or more Participants to whose account with DTC interests in the
Global Capital Securities are credited and only in respect of such portion of
the Liquidation Amount of the New Capital Securities as to which such
Participant or Participants has or have given such direction. However, if there
is an Event of Default under the Trust Agreement, DTC reserves the right to
exchange the Global Capital Securities for legended New Capital Securities in
certificated form and to distribute such New Capital Securities to its
Participants.
The information in this section concerning DTC and its book-entry systems
has been obtained from sources that the Trust and the Company believe to be
reliable, but neither the Trust nor the Company takes responsibility for the
accuracy thereof.
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<PAGE>
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global Capital Securities among participants in DTC, DTC is
under no obligation to perform or to continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the Trust or the
Company nor the Property Trustee will have any responsibility for the
performance by DTC or its Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations.
Exchange of Book-Entry New Capital Securities for Certificated New Capital
Securities
A Global Capital Security is exchangeable for New Capital Securities in
registered certificated form if (i) DTC (x) notifies the Trust that it is
unwilling or unable to continue as Depositary for the Global Capital Security
and the Trust thereupon fails to appoint a successor Depositary within 90 days
or (y) has ceased to be a clearing agency registered under the Exchange Act,
(ii) the Company in its sole discretion elects to cause the issuance of the New
Capital Securities in certificated form or (iii) there shall have occurred and
be continuing an Event of Default or any event which after notice or lapse of
time or both would be an Event of Default under the Trust Agreement. In
addition, beneficial interests in a Global Capital Security may be exchanged for
certificated New Capital Securities upon request but only upon at least 20 days
prior written notice given to the Property Trustee by or on behalf of DTC in
accordance with customary procedures. In all cases, certificated New Capital
Securities delivered in exchange for any Global Capital Security or beneficial
interests therein will be registered in the names, and issued in any approved
denominations, requested by or on behalf of the Depositary (in accordance with
its customary procedures).
Payment and Paying Agency
Payments in respect of the New Capital Securities held in global form shall
be made to the Depositary, which shall credit the relevant accounts at the
Depositary on the applicable Distribution Dates or in respect of the New Capital
Securities that are not held by the Depositary, such payments shall be made by
check mailed to the address of the holder entitled thereto as such address shall
appear on the register. The paying agent (the "Paying Agent") shall initially be
the Property Trustee and any co-paying agent chosen by the Property Trustee and
acceptable to the Administrative Trustees and the Company. The Paying Agent
shall be permitted to resign as Paying Agent upon 30 days' written notice to the
Property Trustee and the Company. In the event that the Property Trustee shall
no longer be the Paying Agent, the Administrative Trustees shall appoint a
successor (which shall be a bank or trust company acceptable to the
Administrative Trustees and the Company) to act as Paying Agent.
Removal of Certain Restrictions on Transfer
The Old Capital Securities may be transferred only in blocks having a
Liquidation Amount of not less than $100,000 (100 Old Capital Securities). New
Capital Securities acquired in accordance with the Exchange Offer will not
contain such a restriction on transfer.
The Old Capital Securities have not been registered under the Securities
Act or any state securities laws and therefore may not be offered, sold or
otherwise transferred except in compliance with the registration requirements of
the Securities Act and any other applicable securities laws, or pursuant to an
exemption therefrom or in a transaction not subject thereto, and in each case in
compliance with certain other conditions and restrictions. Old Capital
Securities which remain outstanding after consummation of the Exchange Offer
will continue to bear a legend reflecting such restrictions on transfer. New
Capital Securities acquired in accordance with the Exchange Offer will not bear
a legend reflecting such restrictions on transfer.
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<PAGE>
Rating
The Capital Securities have been rated BBB- by S&P and baa3 by
Moody's.
Registrar and Transfer Agent
The Property Trustee will act as registrar and transfer agent for the New
Capital Securities. The Property Trustee also acts as registrar and transfer
agent for the Old Capital Securities.
Registration of transfers of the Capital Securities will be effected
without charge by or on behalf of the Trust, but upon payment of any tax or
other governmental charges that may be imposed in connection with any transfer
or exchange. The Trust will not be required to register or cause to be
registered the transfer of the Capital Securities after they have been called
for redemption.
Information Concerning the Property Trustee
The Property Trustee, other than during the occurrence and continuance of
an Event of Default under the Trust Agreement, undertakes to perform only such
duties as are specifically set forth in the Trust Agreement and, after such
Event of Default, must exercise the same degree of care and skill as a prudent
person would exercise or use in the conduct of his or her own affairs. Subject
to this provision, the Property Trustee is under no obligation to exercise any
of the powers vested in it by the Trust Agreement at the request of any holder
of Trust Securities unless it is offered reasonable indemnity against the costs,
expenses and liabilities that might be incurred thereby. The Property Trustee
will have no liability except for its own bad faith, negligence or willful
misconduct.
Miscellaneous
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the Trust in such a way that the Trust will not be
deemed to be an "investment company" required to be registered under the
Investment Company Act or classified as other than a grantor trust for United
States federal income tax purposes and so that the Subordinated Debentures will
be treated as indebtedness of the Company for United States federal income tax
purposes. In this connection, the Company and the Administrative Trustees are
authorized to take any action, not inconsistent with applicable law, the
certificate of trust of the Trust or the Trust Agreement, that the Company and
the Administrative Trustees determine in their discretion to be necessary or
desirable for such purposes, as long as such action does not materially
adversely affect the interests of the holders of the Trust Securities.
Holders of the Trust Securities have no preemptive or similar rights.
The Trust may not borrow money, issue debt, execute mortgages or
pledge any of its assets.
Description of Subordinated Debentures
The Old Subordinated Debentures were issued and the New Subordinated
Debentures will be issued as a separate series under the Indenture. The
Indenture has been qualified under the Trust Indenture Act. In the event the
Exchange Offer is consummated, ComEd will exchange the New Subordinated
Debentures for the Old Subordinated Debentures. The forms and terms of the New
Subordinated Debentures are identical in all material respects to the forms and
terms of the Old Subordinated Debentures, except that the New Subordinated
Debentures have been registered under the Securities Act and therefore are not
subject to certain
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restrictions on transfer applicable to the Old Subordinated Debentures.
Accordingly, as the context may require, unless expressly stated otherwise,
"Subordinated Debentures" means the Old Subordinated Debentures and, in the
event the Exchange Offer is consummated, the New Subordinated Debentures. The
following is a summary of all material terms and provisions of the Subordinated
Debentures and the Indenture; however, the summary does not purport to be
complete, and where reference is made to particular provisions of the Indenture,
such provisions, including the definitions of certain terms, some of which are
not otherwise defined herein, are qualified in their entirety by reference to
all of the provisions of the Indenture and those terms made a part of the
Indenture by the Trust Indenture Act.
General
Concurrently with the issuance of the Old Capital Securities, the Trust
invested the proceeds thereof, together with the consideration paid by ComEd for
the Common Securities, in the Old Subordinated Debentures. Pursuant to the
Exchange Offer, ComEd will exchange the Old Subordinated Debentures as soon as
practicable after the consummation of the Exchange Offer and the Old
Subordinated Debentures will be retired and cancelled.
The Subordinated Debentures bear interest at the annual rate of 8.50% of
the principal amount thereof, payable semi-annually in arrears on January 15 and
July 15 of each year (each, an "Interest Payment Date"), commencing July 15,
1997, to the person in whose name each Subordinated Debenture is registered,
subject to certain exceptions, at the close of business on the first day of the
month in which the relevant payment date falls (the "Regular Record Date"). It
is anticipated that, until the liquidation, if any, of the Trust, each
Subordinated Debenture will be held in the name of the Property Trustee in trust
for the benefit of the holders of the Trust Securities. The amount of interest
payable for any period will be computed on the basis of a 360-day year
consisting of twelve 30-day months. In the event that any date on which interest
is payable on the Subordinated Debentures is not a Business Day, then payment of
the interest payable on such date will be made on the next succeeding day that
is a Business Day (and without any interest or other payment in respect of any
such delay) with the same force and effect as if made on the date such payment
was originally payable. The amount of interest payable for any period shorter
than a full month shall be computed on the basis of the actual number of days
elapsed in such period. Accrued interest that is not paid on the applicable
Interest Payment Date will bear additional interest on the amount thereof (to
the extent permitted by law) at the rate per annum of 8.50% thereof, compounded
semi-annually. The term "interest," as used herein, shall include semi-annual
interest payments, interest on semi-annual interest payments not paid on the
applicable Interest Payment Date and Additional Sums (as defined below), as
applicable.
The New Subordinated Debentures will be issued in denominations of $1,000
and integral multiples thereof. The Subordinated Debentures mature on January
15, 2027 (the "Stated Maturity Date"). The Subordinated Debentures are not
subject to a sinking fund provision.
The Subordinated Debentures rank pari passu with all Other Indebtedness,
including the 8.48% Debentures, and are unsecured and subordinate and junior in
right of payment to the extent and in the manner set forth in the Indenture to
all Senior Indebtedness. See "--Subordination." The Indenture does not limit the
incurrence or issuance of other secured or unsecured debt of the Company,
including Senior Indebtedness. See "--Subordination."
Form, Registration and Transfer
If the Subordinated Debentures are distributed to the holders of the Trust
Securities, the Subordinated Debentures may be represented by one or more global
certificates registered in the name of Cede & Co. as
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the nominee of DTC. The depositary arrangements for such Subordinated
Debentures are expected to be substantially similar to those in effect for
the Capital Securities. For a description of DTC and the terms of the
depositary arrangements relating to payments, transfers, voting rights,
redemptions and other notices and other matters, see "Description of
Capital Securities--Form, Denomination, Book-Entry Procedures and
Transfer."
Payment and Paying Agents
Payment of principal of and premium (if any) on the Subordinated
Debentures will be made only against surrender to the Paying Agent of the
Subordinated Debentures. Principal of and any premium and interest, if
any, on Subordinated Debentures will be payable, subject to any applicable
laws and regulations, at the office of such Paying Agent or Paying Agents
as ComEd may designate from time to time, except that at the option of
ComEd, payment of any interest may be made by check mailed to the address
of the person entitled thereto as such address shall appear in the
Debenture register with respect to the Subordinated Debentures. Payment of
interest on the Subordinated Debentures on any Interest Payment Date will
be made to the person in whose name the Subordinated Debenture (or
predecessor security) is registered at the close of business on the Regular
Record Date for such interest payment.
The Debenture Trustee will act as Paying Agent with respect to the
Subordinated Debentures. ComEd may at any time designate additional Paying
Agents or rescind the designation of any Paying Agents or approve a change
in the office through which any Paying Agent acts, except that ComEd will
be required to maintain a Paying Agent at the place of payment.
All moneys paid by ComEd to a Paying Agent for the payment of the
principal of or premium or interest, if any, on the Subordinated Debentures
which remain unclaimed at the end of two years after such principal,
premium, if any, or interest shall have become due and payable will be
repaid to ComEd and the holder of such Subordinated Debentures will
thereafter look only to ComEd for payment thereof.
Option to Extend Interest Payment Date
So long as no Debenture Event of Default has occurred and is
continuing, the Company has the right under the Indenture at any time
during the term of the Subordinated Debentures to defer the payment of
interest by extending the interest payment period at any time and from time
to time for a period not exceeding 10 consecutive semi-annual periods with
respect to each Extension Period, provided that no Extension Period may
extend beyond the Stated Maturity Date. At the end of such Extension
Period, the Company must pay all interest then accrued and unpaid (together
with interest thereon at the annual rate of 8.50%, compounded semi-
annually, to the extent permitted by applicable law). During an Extension
Period, interest will continue to accrue and holders of Subordinated
Debentures (and holders of the Trust Securities while Trust Securities are
outstanding) will be required to accrue interest income for United States
federal income tax purposes prior to the receipt of cash attributable to
such income. See "Certain Federal Income Tax Consequences--Interest Income
and Original Issue Discount."
During any such Extension Period, the Company may not (i) declare or
pay any dividends on, make any distributions with respect to, or redeem,
purchase or make a liquidation payment with respect to, any of the
Company's capital stock (which includes common, preference and preferred
stock) or (ii) make any payment of principal, interest or premium, if any,
on or repay, repurchase or redeem any debt securities (including
guarantees) issued by the Company that rank pari passu with or junior in
right of payment to the Subordinated Debentures, including the 8.48%
Debentures, or (iii) make any guarantee payments with respect to the
foregoing.
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Prior to the termination of any such Extension Period, the Company may
further extend such Extension Period, provided that such extension does not
cause such Extension Period to exceed 10 consecutive semi-annual periods or to
extend beyond the Stated Maturity Date. Upon the termination of any such
Extension Period and the payment of all amounts then due on any Interest Payment
Date, the Company may elect to begin a new Extension Period, subject to the
above requirements. No interest shall be due and payable during an Extension
Period, except at the end thereof. As long as the Property Trustee is the only
holder of the Subordinated Debentures, the Company must give the Property
Trustee, the Administrative Trustees and the Debenture Trustee notice of its
election of any Extension Period (or an extension thereof) at least ten days
prior to the earlier of (i) the date Distributions on the Trust Securities would
have been payable except for the election to begin or extend such Extension
Period or (ii) the date the Trust or the Administrative Trustees are required to
give notice to the New York Stock Exchange or other applicable self-regulatory
organization or to holders of Capital Securities of the record date or the date
such Distributions are payable, but in any event not less than 10 days prior to
such record date. The Property Trustee shall give notice of the Company's
election to begin or extend a new Extension Period to the holders of the Capital
Securities. There is no limitation on the number of times that the Company may
elect to begin an Extension Period.
Optional Prepayment
The Subordinated Debentures will be prepayable, in whole or in part, at the
option of the Company on or after January 15, 2007, at a prepayment price (the
"Optional Prepayment Price") equal to the percentage of the outstanding
principal amount of the Subordinated Debentures specified below, plus, in each
case, accrued and unpaid interest thereon to the date of prepayment if redeemed
during the 12-month period beginning January 15 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2007.................... 104.250
2008.................... 103.825
2009.................... 103.400
2010.................... 102.975
2011.................... 102.550
2012.................... 102.125
2013.................... 101.700
2014.................... 101.275
2015.................... 100.850
2016.................... 100.425
2017 and thereafter..... 100.000
</TABLE>
Tax Event Prepayment
If a Tax Event shall occur and be continuing, the Company may, at its
option, prepay the Subordinated Debentures in whole (but not in part) at any
time prior to January 15, 2007 and within 90 days of the occurrence of such Tax
Event, at a prepayment price (the "Tax Event Prepayment Price") equal to the
greater of (i) 100% of the principal amount of such Subordinated Debentures or
(ii) the sum, as determined by a Quotation Agent, of the present values of the
principal amount and premium payable with respect to an optional redemption of
Subordinated Debentures on January 15, 2007, together with scheduled payments of
interest on the Subordinated Debentures accruing from the prepayment date to and
including January 15, 2007, in each case discounted to the prepayment date on a
semi-annual basis (assuming a 360-day year consisting
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of twelve 30-day months) at the Adjusted Treasury Rate, plus, in each case,
accrued interest thereon to the date of prepayment.
Notice of any prepayment will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of Subordinated Debentures to
be prepaid at its registered address. Unless the Company defaults in payment of
the prepayment price, on and after the prepayment date interest ceases to accrue
on such Subordinated Debentures called for prepayment.
If the Trust is required to pay any additional taxes, duties or other
governmental charges, the Company will pay as additional amounts on the
Subordinated Debentures the Additional Sums.
A "Tax Event" means the receipt by the Company and the Trust of an opinion
of nationally recognized independent tax counsel experienced in such matters to
the effect that, as a result of (a) any amendment to, or change (including any
announced prospective change) in, the laws or any regulations thereunder of the
United States or any political subdivision or taxing authority thereof or
therein, or (b) any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or such pronouncement or decision is announced on or after January 24,
1997, there is more than an insubstantial risk that (i) the Trust is, or will be
within 90 days of the date of such opinion, subject to United States federal
income tax with respect to income received or accrued on the Subordinated
Debentures, (ii) interest payable by the Company on the Subordinated Debentures
is not, or within 90 days of the date of such opinion will not be, deductible by
the Company, in whole or in part, for United States federal income tax purposes,
or (iii) the Trust is, or will be within 90 days of the date of such opinion,
subject to more than a de minimis amount of other taxes, duties or other
governmental charges.
"Adjusted Treasury Rate" means, with respect to any prepayment date, the
rate per annum equal to (i) the yield, under the heading which represents the
average for the immediately prior week, appearing in the most recently published
statistical release designated "H.15(519)" or any successor publication which is
published weekly by the Federal Reserve and which establishes yields on actively
traded United States Treasury securities adjusted to constant maturity under the
caption "Treasury Constant Maturities," for the maturity date corresponding to
the Initial Optional Prepayment Date (if no maturity date is within three months
before or after the Initial Optional Prepayment Date, yields for the first two
published maturities most closely corresponding to the Initial Optional
Prepayment Date shall be determined and the Adjusted Treasury Rate shall be
interpolated or extrapolated from such yields on a straight-line basis, rounding
to the nearest month) or (ii) if such release (or any successor release) is not
published during the week preceding the calculation date or does not contain
such yields, the rate per annum equal to the semi-annual equivalent yield to
maturity of the Comparable Treasury Issue, assuming a price for the Comparable
Treasury Issue (expressed as a percentage of its principal amount) equal to the
Comparable Treasury Price for such prepayment date plus, in either case (A)
1.25% if such prepayment date occurs on or prior to January 15, 1998 and (B)
0.50% in all other cases.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Quotation Agent as having a maturity date corresponding to the
Initial Optional Prepayment Date that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities with a maturity date corresponding to the
Initial Optional Prepayment Date. If no United States Treasury security has a
maturity date which is within three months before or after the Initial Optional
Prepayment Date, the two most closely corresponding United States Treasury
securities shall be used as the Comparable Treasury Issue, and the calculation
of the Adjusted Treasury Rate pursuant to clause (ii) of the definition thereof
shall be interpolated or extrapolated on a straight-line basis, rounding to the
nearest month.
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"Comparable Treasury Price" means, with respect to any prepayment date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
Business Day preceding such prepayment date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (ii) if such release (or any successor release) is not
published or does not contain such prices on such Business Day, (A) the average
of three Reference Treasury Dealer Quotations for such prepayment date, after
excluding the highest and lowest such Reference Treasury Dealer Quotations, or
(B) if the Debenture Trustee obtains fewer than three such Reference Treasury
Dealer Quotations, the average of all such Quotations.
"Quotation Agent" means the Reference Treasury Dealer appointed by the
Trustee after consultation with the Company.
"Reference Treasury Dealer" means: (i) Merrill Lynch Government Securities,
Inc. and its successors; provided, however, that if the foregoing shall cease to
be a primary U.S. Government securities dealer in New York City (a "Primary
Treasury Dealer"), the Company shall substitute therefor another Primary
Treasury Dealer; and (ii) any other Primary Treasury Dealer selected by the
Trustee after consultation with the Company.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any prepayment date, the average, as determined by
the Debenture Trustee, of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) quoted in
writing to the Debenture Trustee by such Reference Treasury Dealer at 5:00 p.m.,
New York City time, on the third Business Day preceding such prepayment date.
"Additional Sums" means the additional amounts as may be necessary in order
that the amount of Distributions then due and payable by the Trust on the
outstanding Capital Securities and Common Securities shall not be reduced as a
result of any additional taxes, duties, assessments and other governmental
charges to which the Trust has become subject as a result of a Tax Event.
Restrictions on Certain Payments
If (i) there shall have occurred any event that would constitute a
Debenture Event of Default or (ii) ComEd shall be in default with respect to its
payment of any obligations under the Guarantee or the Common Securities
Guarantee (as defined under "Description of Guarantee--General"), then (a) ComEd
shall not declare or pay any dividend on, make any distributions with respect
to, or redeem, purchase or make a liquidation payment with respect to, any of
its capital stock, (b) ComEd shall not make any payment of interest, principal
or premium, if any, on or repay, repurchase or redeem any debt securities
(including guarantees) issued by ComEd which rank pari passu with or junior to
the Subordinated Debentures, including the 8.48% Debentures, and (c) ComEd shall
not make any guarantee payments with respect to the foregoing (other than
pursuant to the Guarantee).
If ComEd shall have given notice of its election of an Extension Period as
provided in the Indenture and such period, or any extension thereof, shall be
continuing, then (a) ComEd shall not declare or pay any dividend on, make any
distributions with respect to, or redeem, purchase or make a liquidation payment
with respect to, any of its capital stock, (b) ComEd shall not make any payment
of interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities (including guarantees) issued by ComEd which rank pari passu
with or junior to the Subordinated Debentures, including the 8.48% Debentures,
and (c)
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ComEd shall not make any guarantee payments with respect to the foregoing (other
than pursuant to the Guarantee).
For so long as the Trust Securities remain outstanding, ComEd has
covenanted (i) to directly or indirectly maintain 100% direct or indirect
ownership of the Common Securities of the Trust; provided, however, that any
permitted successor of ComEd under the Indenture may succeed to ComEd's
ownership of such Common Securities, (ii) not to cause, as sponsor of the Trust,
or to permit, as holder of the Common Securities, the dissolution, winding-up or
termination of the Trust, except in connection with a distribution of the
Subordinated Debentures as provided in the Trust Agreement and in connection
with certain mergers, consolidations or amalgamations and (iii) to use its
reasonable efforts to cause the Trust (a) to remain a business trust, except in
connection with the distribution of Subordinated Debentures to the holders of
Trust Securities in liquidation of the Trust, the redemption of all of the Trust
Securities of the Trust, or certain mergers, consolidations or amalgamations,
each as permitted by the Trust Agreement, and (b) to otherwise continue to be
classified as a grantor trust for United States federal income tax purposes.
Modification of Indenture
The Indenture contains provisions permitting ComEd and the Debenture
Trustee, with the consent of the holders of not less than a majority in
principal amount of the Subordinated Debentures, to modify the Indenture or any
supplemental indenture affecting that series or the rights of the holders of the
Subordinated Debentures; provided that no such modification may, without the
consent of the holder of each outstanding Subordinated Debenture affected
thereby, (i) extend the Stated Maturity Date of the Subordinated Debentures, or
reduce the principal amount thereof, or reduce the rate or extend the time of
payment of interest thereon, or reduce any premium payable upon the redemption
thereof, without the consent of the holders of the Subordinated Debentures so
affected or (ii) reduce the percentage of Subordinated Debentures, the holders
of which are required to consent to any such supplemental indenture, without the
consent of the holders of each Subordinated Debenture then outstanding and
affected thereby.
In addition, ComEd and the Debenture Trustee may execute, without the
consent of holders of the Subordinated Debentures, any supplemental indenture
for certain other usual purposes including the creation of any new series of
subordinated debt securities.
Debenture Events of Default
In case any Debenture Event of Default shall occur and be continuing, the
Property Trustee, as the holder of the Subordinated Debentures, will have the
right to declare the principal of and the interest on the Subordinated
Debentures (including any Additional Interest, if any) and any other amounts
payable under the Indenture to be forthwith due and payable and to enforce its
other rights as a creditor with respect to the Subordinated Debentures.
The Indenture provides that any one or more of the following described
events, which has occurred and is continuing, constitutes an "Event of Default"
with respect to the Subordinated Debentures (a "Debenture Event of Default"):
(a) failure for 30 days to pay interest on the Subordinated
Debentures, including any Additional Interest in respect thereof, when due;
provided, however, that a valid extension of the interest payment period by
ComEd shall not constitute a default in the payment of interest for this
purpose; or
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(b) failure to pay principal or premium, if any, on the
Subordinated Debentures when due whether at maturity, upon earlier
redemption or otherwise; or
(c) failure to observe or perform any other covenant (other than
those specifically relating to another series of subordinated debt
securities) contained in the Indenture for 90 days after written
notice to ComEd from the Debenture Trustee or the holders of at least
25% in principal amount of the outstanding Subordinated Debentures; or
(d) certain events of bankruptcy, insolvency or reorganization of
ComEd; or
(e) the voluntary or involuntary dissolution, winding-up or
termination of the Trust, except in connection with the distribution
of Subordinated Debentures to the holders of Capital Securities in
liquidation of the Trust, the redemption of all outstanding Trust
Securities of the Trust and certain mergers, consolidations or
amalgamations permitted by the Trust Agreement.
The holders of a majority in aggregate outstanding principal amount of the
Subordinated Debentures have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee. The
Debenture Trustee or the holders of not less than 25% in aggregate outstanding
principal amount of the Subordinated Debentures may declare the principal due
and payable immediately on default, but the holders of a majority in aggregate
outstanding principal amount may annul such declaration and waive the default if
the default has been cured and a sum sufficient to pay all matured installments
of interest and principal due otherwise than by acceleration and any applicable
premium has been deposited with the Debenture Trustee.
The holders of a majority in aggregate outstanding principal amount of the
Subordinated Debentures affected thereby may, on behalf of the holders of all
the Subordinated Debentures, waive any past default, except (i) a default in the
payment of principal, premium, if any, or interest (unless such default has been
cured and a sum sufficient to pay all matured installments of interest and
principal due otherwise than by acceleration and any applicable premium has been
deposited with the Debenture Trustee) or (ii) a default in the covenant of ComEd
not to declare or pay dividends on, or make distributions with respect to, or
redeem, purchase or acquire any of its capital stock during an Extension Period.
A Debenture Event of Default also constitutes an Event of Default under the
Trust Agreement. The holders of Capital Securities in certain circumstances have
the right to direct the Property Trustee to exercise its rights as the holder of
the Subordinated Debentures. See "Description of Capital Securities -- Events of
Default; Notice" and "-- Voting Rights; Amendment of the Trust Agreement."
Enforcement of Certain Rights by Holders of Capital Securities
If a Debenture Event of Default shall have occurred and be continuing and
shall be attributable to the failure of the Company to pay interest (or premium,
if any) on, or principal of, the Subordinated Debentures on the due date, a
holder of Capital Securities may institute a Direct Action. The Company may not
amend the Indenture to remove the foregoing right to bring a Direct Action
without the prior written consent of the holders of all of the Capital
Securities. If the right to bring a Direct Action is removed following the
Exchange Offer, the Trust may become subject to the reporting obligations under
the Exchange Act. Notwithstanding any payments made to a holder of Capital
Securities by the Company in connection with a Direct Action, the Company shall
remain obligated to pay the principal of (or premium, if any) or interest on the
Subordinated Debentures, and the Company shall be subrogated to the rights of
the holder of such Capital Securities with
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respect to payments on the Capital Securities to the extent of any payments
made by the Company to such holder in any Direct Action.
The holders of the Capital Securities will not be able to exercise directly
any remedies, other than those set forth in the preceding paragraph, available
to the holders of the Subordinated Debentures unless there shall have been an
Event of Default under the Trust Agreement. See "Description of Capital
Securities--Events of Default; Notice."
Consolidation, Merger, Sale of Assets and Other Transactions
The Indenture does not contain any covenant which restricts the Trust's or
ComEd's ability to merge or consolidate with or into any other corporation, sell
or convey all or substantially all of its assets to any person, firm or
corporation or otherwise engage in restructuring transactions.
The general provisions of the Indenture do not afford holders of the
Subordinated Debentures protection in the event of a highly leveraged or other
transaction involving ComEd that may adversely affect holders of the
Subordinated Debentures.
Satisfaction and Discharge
Under the terms of the Indenture, ComEd will be discharged from any and all
obligations in respect of the Subordinated Debentures (except in each case for
certain obligations with respect to denominations and provisions for payment of
the Subordinated Debentures and obligations to register the transfer or exchange
of Subordinated Debentures, replace stolen, lost or mutilated Subordinated
Debentures, maintain paying agencies and hold moneys for payment in trust) if
ComEd (i) deposits with the Debenture Trustee, in trust, moneys or governmental
obligations, in an amount sufficient to pay all the principal of, and interest
on, the Subordinated Debentures on the dates such payments are due in accordance
with the terms of such Subordinated Debentures and (ii) delivers to the
Debenture Trustee an opinion of counsel to the effect that, based upon ComEd's
receipt from, or the publication by, the Internal Revenue Service of a ruling or
a change in law, the holders of the Subordinated Debentures will not recognize
income, gain or loss for United States federal income tax purposes as a result
of the deposit, defeasance and discharge and will be subject to United States
federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such deposit, defeasance or discharge had
not occurred.
Subordination
The Indenture provides that the Subordinated Debentures are subordinated
and junior in right of payment to all Senior Indebtedness of ComEd, whether now
existing or hereafter incurred. No payment of principal of (including redemption
payments, if any), premium, if any, or interest on, the Subordinated Debentures
may be made if (a) any Senior Indebtedness of ComEd is not paid when due and any
applicable grace period with respect to such default has ended with such default
not being cured or waived or ceasing to exist, or (b) the maturity of any Senior
Indebtedness has been accelerated because of a default. Upon any distribution of
assets of ComEd to creditors upon any dissolution, winding-up, liquidation or
reorganization, whether voluntary or involuntary, or in bankruptcy, insolvency,
receivership or other proceedings, all principal of, premium, if any, and
interest due or to become due on, all Senior Indebtedness must be paid in full
before the holders of the Subordinated Debentures are entitled to receive or
retain any payment. The rights of the holders of the Subordinated Debentures
will be subrogated to the rights of the holders of Senior Indebtedness to
receive payments or distributions applicable to such Senior Indebtedness until
all amounts owing on the Subordinated Debentures are paid in full.
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The term "Senior Indebtedness" means (i) any payment in respect of (a)
indebtedness of ComEd for money borrowed and (b) indebtedness evidenced by
securities, debentures, bonds, notes or other similar instruments issued by
ComEd including, without limitation, indebtedness evidenced by securities issued
pursuant to its Mortgage dated July 1, 1923, as supplemented, and indentures
with various trustees (other than the Indenture); (ii) all capital lease
obligations of ComEd; (iii) all obligations of ComEd issued or assumed as the
deferred purchase price of property, all conditional sale obligations of ComEd
and all obligations of ComEd under any title retention agreement (but excluding
trade accounts payable arising in the ordinary course of business); (iv) all
obligations of ComEd for the reimbursement on any letter of credit, banker's
acceptance, security purchase facility or similar credit transaction; (v) all
obligations of the type referred to in clauses (i) through (iv) above of other
persons for the payment of which ComEd is responsible or liable as obligor,
guarantor or otherwise; and (vi) all obligations of the type referred to in
clauses (i) through (v) above of other persons secured by any lien on any
property or asset of ComEd (whether or not such obligation is assumed by ComEd),
except for (1) any such indebtedness that is by its terms subordinated to or
pari passu with the Subordinated Debentures, as the case may be, including all
other debt securities and guarantees in respect of those debt securities, issued
to any other trusts, partnerships or other entities affiliated with ComEd which
act as a financing vehicle of ComEd in connection with the issuance of preferred
securities by such entity or other securities which rank pari passu with, or
junior to, the Capital Securities, and (2) any indebtedness between or among
ComEd and its affiliates. Such Senior Indebtedness shall continue to be Senior
Indebtedness and be entitled to the benefits of the subordination provisions
irrespective of any amendment, modification or waiver of any term of such Senior
Indebtedness.
The Indenture does not limit the aggregate amount of Senior Indebtedness
which may be issued by ComEd. As of March 31, 1997, Senior Indebtedness of ComEd
aggregated approximately $7,072 million. The Company expects from time to time
to incur additional indebtedness constituting Senior Indebtedness.
Removal of Restrictions on Transfer
The Old Subordinated Debentures may be transferred only in blocks having an
aggregate principal amount of not lees than $100,000. New Subordinated
Debentures will not contain such a restriction on transfer.
Governing Law
The Indenture and the New Subordinated Debentures will be governed by and
construed in accordance with the laws of the State of New York.
Information Concerning the Debenture Trustee
Following the Exchange Offer and the qualification of the Indenture under
the Trust Indenture Act, the Debenture Trustee shall have and be subject to all
the duties and responsibilities specified with respect to an indenture trustee
under the Trust Indenture Act. The Debenture Trustee, prior to default,
undertakes to perform only such duties as are specifically set forth in the
Indenture and, after default, shall exercise the same degree of care as a
prudent individual would exercise in the conduct of his or her own affairs.
Subject to such provision, the Debenture Trustee is under no obligation to
exercise any of the powers vested in it by the Indenture at the request of any
holder of Subordinated Debentures, unless offered reasonable indemnity by such
holder against the costs, expenses and liabilities which might be incurred
thereby; but the foregoing shall not relieve the Debenture Trustee, upon the
occurrence of a Debenture Event of Default, from exercising the rights and
powers vested in it by the Indenture. The Debenture Trustee is not required to
expand or risk its
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own funds or otherwise incur personal financial liability in the performance of
its duties if the Debenture Trustee reasonably believes that repayment or
adequate indemnity is not reasonably assured to it.
Description of Guarantee
The Old Guarantee was executed and delivered by ComEd concurrently with the
issuance by the Trust of the Old Capital Securities for the benefit of the
holders from time to time of the Old Capital Securities. In the event the
Exchange Offer is consummated, ComEd will exchange the New Guarantee for the Old
Guarantee. The New Guarantee Agreement has been qualified under the Trust
Indenture Act. The form and terms of the New Guarantee are identical in all
material respects to the form and terms of the Old Guarantee, except that the
New Guarantee has been registered under the Securities Act. Accordingly, as the
context may require, unless expressly stated otherwise, "Guarantee" means the
Old Guarantee and, in the event the Exchange Offer is consummated, the New
Guarantee. The following is a summary of all material terms and provisions of
the Old Guarantee Agreement and the New Guarantee Agreement; however, the
summary does not purport to be complete and is subject to, and qualified in its
entirety by reference to, all of the provisions of the Old Guarantee Agreement
and the New Guarantee Agreement, including the definitions therein of certain
terms, and the Trust Indenture Act. Wilmington Trust Company will act as
Guarantee Trustee and will hold the New Guarantee for the benefit of the holders
of all Capital Securities.
General
Under the New Guarantee ComEd will irrevocably agree (and under the Old
Guarantee has agreed) to pay in full on a subordinated basis, to the extent set
forth herein, the Guarantee Payments (as defined below) (without duplication of
amounts theretofore paid by the Trust) to the holders of the Capital Securities,
as and when due, regardless of any defense, right of set-off or counterclaim
that the Trust may have or assert other than the defense of payment. The
following payments with respect to the Capital Securities, to the extent not
paid by or on behalf of the Trust (the "Guarantee Payments"), will be subject to
the Guarantee: (i) any accumulated and unpaid Distributions required to be paid
on Capital Securities, to the extent that the Trust has funds on hand legally
available therefor at such time, (ii) the applicable Redemption Price with
respect to Capital Securities called for redemption, to the extent that the
Trust has funds on hand legally available therefor at such time, or (iii) upon a
voluntary or involuntary dissolution, winding-up or termination of the Trust
(other than in connection with the distribution of Subordinated Debentures to
the holders of Capital Securities), the lesser of (a) the Liquidation
Distribution and (b) the amount of assets of the Trust remaining available for
distribution to holders of Capital Securities. The Company's obligation to make
a Guarantee Payment may be satisfied by direct payment of the required amounts
by the Company to the holders of the Capital Securities or by causing the Trust
to pay such amounts to such holders.
The Guarantee ranks subordinate and junior in right of payment to all
Senior Indebtedness to the extent provided therein. See "--Status of the
Guarantee." The Guarantee does not limit the incurrence or issuance of other
secured or unsecured debt of the Company, including Senior Indebtedness, whether
under the Indenture, any other indenture that the Company may enter into in the
future or otherwise.
The Company has, through the Guarantee, the Trust Agreement, the
Subordinated Debentures and the Indenture, taken together, fully, irrevocably
and unconditionally guaranteed all of the Trust's obligations under the Capital
Securities.
ComEd has also agreed separately to irrevocably and unconditionally
guarantee the obligations of the Trust with respect to the Common Securities
(the "Common Securities Guarantee") to the same extent as the
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Guarantee, except that upon the occurrence and during the continuation of a
Debenture Event of Default, holders of Capital Securities shall have priority
over holders of Common Securities with respect to distributions and payments on
liquidation, redemption or otherwise.
Status of the Guarantee
The Guarantee constitutes an unsecured obligation of the Company and ranks
subordinate and junior in right of payment to all Senior Indebtedness in the
same manner as Subordinated Debentures. The Guarantee is also subordinate and
junior in right of payment to the Subordinated Debentures and any Other
Indebtedness issued by the Company, including its 8.48% Debentures.
The Guarantee ranks pari passu with all Other Guarantees issued by the
Company, including its guarantee of the 8.48% Preferred Securities. The
Guarantee constitutes a guarantee of payment and not of collection (i.e., the
guaranteed party may institute a legal proceeding directly against the Company
to enforce its rights under the Guarantee without first instituting a legal
proceeding against any other person or entity). The Guarantee is held for the
benefit of the holders of the Capital Securities. The Guarantee will not be
discharged except by payment of the Guarantee Payments in full to the extent not
paid by the Trust or upon distribution to the holders of the Capital Securities
of the Subordinated Debentures. The Guarantee does not place a limitation on the
amount of additional Senior Indebtedness that may be incurred by the Company.
The Company expects from time to time to incur additional indebtedness
constituting Senior Indebtedness.
Amendments and Assignment
Except with respect to any changes that do not materially adversely affect
the rights of holders of the Capital Securities (in which case no vote will be
required), the Guarantee may not be amended without the prior approval of the
holders of a majority of the Liquidation Amount of such outstanding Capital
Securities. The manner of obtaining any such approval will be as set forth under
"Description of Capital Securities--Voting Rights; Amendment of the Trust
Agreement." All guarantees and agreements contained in the Guarantee Agreement
shall bind the successors, assigns, receivers, trustees and representatives of
the Company and shall inure to the benefit of the holders of the Capital
Securities then outstanding.
Events of Default
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder. The
holders of a majority in Liquidation Amount of the Capital Securities will have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Guarantee Trustee in respect of the Guarantee or to
direct the exercise of any trust or power conferred upon the Guarantee Trustee
under the Guarantee provided, however, that the Guarantee Trustee shall have the
right to decline to follow any such direction in certain circumstances,
including in a circumstance where the Guarantee Trustee shall determine that
such direction would be unjustly prejudicial to holders not taking part in such
direction.
If the Guarantee Trustee fails to enforce the Guarantee, any holder of the
Capital Securities may institute a legal proceeding directly against the Company
to enforce its rights under the Guarantee without first instituting a legal
proceeding against the Trust, the Guarantee Trustee or any other person or
entity.
The Company, as guarantor, will be required to file annually with the
Guarantee Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants applicable to it under the
Guarantee.
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Information Concerning the Guarantee Trustee
The Guarantee Trustee, other than during the occurrence and continuance of
a default by the Company in performance of the Guarantee, undertakes to perform
only such duties as are specifically set forth in the Guarantee and, after
default with respect to the Guarantee, must exercise the same degree of care and
skill as a prudent person would exercise or use under the circumstances in the
conduct of his or her own affairs. Subject to this provision, the Guarantee
Trustee is under no obligation to exercise any of the powers vested in it by the
Guarantee at the request of any holder of the Capital Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
Termination of the Guarantee
The Guarantee will terminate and be of no further force and effect upon
full payment of the applicable Redemption Price of the Capital Securities, upon
full payment of the Liquidation Amount payable upon liquidation of the Trust or
upon distribution of the Subordinated Debentures to the holders of the Capital
Securities. The Guarantee will continue to be effective or will be reinstated,
as the case may be, if at any time any holder of the Capital Securities must
restore payment of any sums paid under the Capital Securities or the Guarantee.
Governing Law
The Old Guarantee is and the New Guarantee will be governed by and
construed in accordance with the laws of the State of New York.
DESCRIPTION OF OLD SECURITIES
The forms and terms of the Old Securities are identical in all material
respects to the forms and terms of the New Securities, except that the Old
Securities have not been registered under the Securities Act, are subject to
certain restrictions on transfer and are entitled to certain rights under the
Registration Rights Agreement (which rights will terminate upon consummation of
the Exchange Offer, except under limited circumstances). Holders of Old Capital
Securities should review the information set forth under "Risk Factors--
Consequences of a Failure to Exchange Old Capital Securities" and "Description
of Securities."
RELATIONSHIP AMONG THE CAPITAL SECURITIES, THE
SUBORDINATED DEBENTURES AND THE GUARANTEE
Full and Unconditional Guarantee
Payments of Distributions and other amounts due on the Capital Securities
(to the extent the Trust has funds on hand legally available for the payment of
such Distributions) will be irrevocably guaranteed by the Company as and to the
extent set forth under "Description of Securities--Description of Guarantee."
Taken together, the Company's obligations under the Subordinated Debentures, the
Indenture, the Trust Agreement and the Guarantee will provide, in the aggregate,
a full, irrevocable and unconditional guarantee of payments of Distributions and
other amounts due on the Capital Securities. No single document standing alone
or operating in conjunction with fewer than all of the other documents
constitutes such guarantee. It is only the combined operation of these documents
that provides a full, irrevocable and unconditional guarantee of the
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Trust's obligations under the Capital Securities. If and to the extent that the
Company does not make the required payments on the Subordinated Debentures, the
Trust will not have sufficient funds to make the related payments, including
Distributions, on the Capital Securities. The Guarantee does not cover any such
payment when the Trust does not have sufficient funds on hand legally available
therefor. In such event, the remedy of a holder of Capital Securities is to
institute a Direct Action. The obligations of the Company under the Guarantee
will be subordinate and junior in right of payment to all Senior Indebtedness.
Sufficiency of Payments
As long as payments of interest and other payments are made when due on the
Subordinated Debentures, such payments will be sufficient to cover Distributions
and other payments due on the Capital Securities, primarily because: (i) the
aggregate principal amount or Prepayment Price of the Subordinated Debentures
will be equal to the sum of the Liquidation Amount or Redemption Price, as
applicable, of the Capital Securities and Common Securities; (ii) the interest
rate and interest and other payment dates on the Subordinated Debentures will
match the Distribution rate and Distribution and other payment dates for the
Trust Securities; (iii) the Company shall pay for any and all costs, expenses
and liabilities of the Trust except the Trust's obligations to holders of Trust
Securities under such Trust Securities; and (iv) the Trust Agreement will
provide that the Trust is not authorized to engage in any activity that is not
consistent with the limited purposes thereof.
Enforcement Rights of Holders of Capital Securities
A holder of any Capital Security may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Guarantee Trustee, the Trust or any
other person or entity. A default or event of default under any Senior
Indebtedness would not constitute a default or Event of Default under the Trust
Agreement. However, in the event of payment defaults under, or acceleration of,
Senior Indebtedness, the subordination provisions of the Indenture will provide
that no payments may be made in respect of the Subordinated Debentures until
such Senior Indebtedness has been paid in full or any payment default thereunder
has been cured or waived. Failure to make required payments on Subordinated
Debentures would constitute an Event of Default under the Trust Agreement.
Limited Purpose of the Trust
The Capital Securities represent preferred beneficial interests in the
Trust, and the Trust exists for the sole purpose of issuing and selling the
Trust Securities, using the proceeds from the sale of the Trust Securities to
acquire the Subordinated Debentures and engaging in only those other activities
necessary, advisable or incidental thereto.
Rights Upon Termination
Unless the Subordinated Debentures are distributed to holders of the Trust
Securities, upon any voluntary or involuntary termination and liquidation of the
Trust, the holders of the Trust Securities will be entitled to receive, out of
assets held by the Trust, the Liquidation Distribution in cash. See "Description
of Securities--Description of Capital Securities--Liquidation of the Trust and
Distribution of Subordinated Debentures." Upon any voluntary or involuntary
liquidation or bankruptcy of the Company, the Property Trustee, as holder of the
Subordinated Debentures, would be a subordinated creditor of the Company,
subordinated in right of payment to all Senior Indebtedness as set forth in the
Indenture, but entitled to receive payment in full of principal (and premium, if
any) and interest, before any stockholders of the Company
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receive payments or distributions. Since the Company will be the guarantor under
the Guarantee and will agree to pay for all costs, expenses and liabilities of
the Trust (other than the Trust's obligations to the holders of its Trust
Securities), the positions of a holder of Capital Securities and a holder of
Subordinated Debentures relative to other creditors and to stockholders of the
Company in the event of liquidation or bankruptcy of the Company are expected to
be substantially the same.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
The following is a summary of certain of the material United States federal
income tax consequences of the purchase, ownership and disposition of Capital
Securities. Unless otherwise stated, this summary deals only with Capital
Securities held as capital assets. This summary does not address all the tax
consequences that may be relevant to holders that may be subject to special tax
treatment such as, for example, banks, real estate investment trusts, regulated
investment companies, insurance companies, dealers in securities or currencies,
tax-exempt investors, persons whose functional currency is other than the United
States dollar, persons who hold Capital Securities as part of a straddle,
hedging or conversion transaction or, except as specifically described herein,
foreign taxpayers. In addition, this summary does not address any aspects of
state, local or foreign laws. This summary is based on the Internal Revenue Code
of 1986, as amended (the "Code"), Treasury regulations promulgated thereunder
and administrative and judicial interpretations thereof, as of the date hereof,
all of which are subject to change, possibly on a retroactive basis. Each holder
should consult its tax advisor as to its particular tax consequences of
acquiring, holding and disposing of the Capital Securities, including the tax
consequences under state, local and foreign laws.
Under current United States federal income tax law, the exchange of Old
Capital Securities for New Capital Securities pursuant to the Exchange Offer
will not be a taxable event to holders. The New Capital Securities will be
treated as a continuation of the Old Capital Securities. Accordingly, a holder
will have the same adjusted tax basis and holding period in the New Capital
Securities that such holder had in the Old Capital Securities exchanged
therefor.
Classification of the Subordinated Debentures
In connection with the issuance of the Old Capital Securities, Sidley &
Austin, counsel to the Company, has rendered its opinion to the effect that,
under then current law and assuming full compliance with the terms of the
Indenture (and certain other documents), and based on certain facts and
assumptions contained in such opinion, the Subordinated Debentures held by the
Trust will be classified for United States federal income tax purposes as
indebtedness of the Company.
Classification of the Trust
In connection with the issuance of the Old Capital Securities, Sidley &
Austin, counsel to the Company and special counsel to the Trust, has rendered
its opinion to the effect that, under then current law and assuming full
compliance with the terms of the Trust Agreement and the Indenture (and certain
other documents), and based on certain facts and assumptions contained in such
opinion, the Trust will be classified for United States federal income tax
purposes as a grantor trust and not as an association taxable as a corporation.
Accordingly, for United States federal income tax purposes, each holder of
Capital Securities will generally be considered the owner of an undivided
interest in the Subordinated Debentures, and each holder will be required to
include in its gross income any interest paid or accrued (or original issue
discount ("OID")
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accrued) with respect to its allocable share of those Subordinated Debentures.
Corporate holders of Capital Securities will not be entitled to a dividends-
received deduction with respect to any income recognized with respect to the
Capital Securities. Investors should be aware that the foregoing opinions of
Sidley & Austin will not be confirmed by the Internal Revenue Service (the
"Service"), by private ruling or otherwise, and are not binding on the Service
or the courts. By its acceptance of a Capital Security, a holder agrees to treat
the Capital Security and the Subordinated Debentures consistently with the
foregoing opinions.
Interest Income and Original Issue Discount
Unless the Subordinated Debentures are considered issued with OID, stated
interest on the Subordinated Debentures will be taxable to a holder as ordinary
income at the time such interest is paid (if the holder uses the cash method of
accounting for tax purposes) or accrued (if the holder uses the accrual method
of accounting for tax purposes). Under regulations of the U.S. Treasury
Department, the Subordinated Debentures will not be considered issued with OID
if the Subordinated Debentures provide terms and conditions that make the
likelihood of the Company exercising its right to defer interest (as described
under "Description of Securities--Description of Subordinated Debentures--Option
to Extend Interest Payment Date") a "remote contingency" at the time the Old
Subordinated Debentures were issued. The Company believes that such likelihood
is remote, because exercise of its right to defer interest would prevent the
Company from declaring dividends on its capital stock. Accordingly, the Company
intends to take the position that the Subordinated Debentures were not issued
with OID. However, the definition of the term "remote" in the regulations has
not yet been addressed in any rulings or other interpretations by the Service,
and it is possible that the Service could assert that the Subordinated
Debentures were issued with OID.
If, notwithstanding the Company's current belief, it does exercise its
right to defer interest payments, the Subordinated Debentures would be treated
as if they were retired and then reissued with OID at such time. In such case,
the amount of OID would generally be equal to the interest payable thereafter.
If the Subordinated Debentures were treated as having been issued or
reissued with OID (either because the likelihood of exercise of such right is
not considered a remote contingency at the time of issuance or because the
Company exercises its right to defer interest payments), holders would include
interest in income on an economic accrual basis, regardless of their method of
tax accounting. If interest payments were received later than the taxable year
in which income accrued, OID treatment would have the effect of accelerating the
reporting of interest income for holders who otherwise use a cash method of tax
reporting.
Distribution of Subordinated Debentures to Holders of Capital Securities
Under certain circumstances, as described under the caption "Description of
Securities--Description of Capital Securities-- Liquidation of the Trust and
Distribution of Subordinated Debentures," Subordinated Debentures may be
distributed to holders in exchange for the Capital Securities and in liquidation
of the Trust. Under current United States federal income tax law, such a
distribution would be treated as a non-taxable event to each holder, and each
holder would have an aggregate tax basis in the Subordinated Debentures equal to
such holder's aggregate tax basis in its Capital Securities. A holder's holding
period in the Subordinated Debentures so received in liquidation of the Trust
would include the period during which the Capital Securities were held by such
holder.
Sales or Redemption of Capital Securities
A holder that sells Capital Securities (including a redemption for cash)
will recognize gain or loss equal to the difference between such holder's
adjusted tax basis in the Capital Securities and the amount
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realized on the sale of such Capital Securities (other than amounts received
with respect to accrued and unpaid interest which has not yet been included in
income, which will be treated as ordinary income). A holder's adjusted tax basis
in the Capital Securities will generally be the initial purchase price increased
by any OID previously includible in such holder's gross income to the date of
disposition and decreased by all payments received on the Capital Securities
(other than payments of qualified stated interest). Such gain or loss will
generally be a capital gain or loss and will generally be a long-term capital
gain or loss if the Capital Securities have been held for more than one year.
United States Alien Holders
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that is, as to the United
States, a foreign corporation, a nonresident alien individual, a foreign
partnership, or a foreign estate or trust. The discussion assumes that income
with respect to the Capital Security is not effectively connected with a trade
or business in the United States in which the United States Alien Holder is
engaged.
Under current United States federal income tax law, and subject to the
discussion of backup withholding in the following section: (1) payments with
respect to principal and interest (including OID) by the Trust or any of its
paying agents to any holder of a Capital Security that is a United States Alien
Holder will not be subject to withholding of United States federal income tax;
provided that, in the case of interest, (a) the beneficial owner of the Capital
Security does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company entitled to vote,
(b) the beneficial owner of the Capital Security is not a controlled foreign
corporation that is related, directly or indirectly, to the Company through
stock ownership, and (c) either (A) the beneficial owner of the Capital Security
certifies to the Trust or its agent, under penalties of perjury, that it is a
United States Alien Holder and provides its name and address or (B) a securities
clearing organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "Financial
Institution"), and holds the Capital Securities in such capacity, certifies to
the Trust or its agent, under penalties of perjury, that such statement has been
received from the beneficial owner by it or by a Financial Institution between
it and the beneficial owner and furnishes the Trust or its agent with a copy
thereof; and (2) a United States Alien Holder of a Capital Security will
generally not be subject to withholding of United States federal income tax on
any gain realized upon the sale or other disposition of a Capital Security.
Backup Withholding Tax and Information Reporting
Under current United States federal income tax law, information reporting
requirements apply to interest (including OID) and principal payments made to,
and to the proceeds of sales before maturity by, certain non-corporate persons.
In addition, a 31% backup withholding tax applies if a non-corporate person (i)
fails to furnish such person's Taxpayer Identification Number ("TIN") (which,
for an individual, would be his or her Social Security Number) to the payor in
the manner required, (ii) furnishes an incorrect TIN and the payor is so
notified by the Service, (iii) is notified by the Service that such person has
failed properly to report payments of interest and dividends or (iv) in certain
circumstances, fails to certify, under penalties of perjury, that such person
has not been notified by the Service that such person is subject to backup
withholding for failure properly to report interest and dividend payments.
Backup withholding does not apply with respect to payments made to certain
exempt recipients, such as corporations and tax-exempt organizations.
In the case of a United States Alien Holder, backup withholding and
information reporting do not apply to payments with respect to principal and
interest on a Capital Security with respect to which such
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Holder has provided the required certification under penalties of perjury that
such Holder is a United States Alien Holder or has otherwise established an
exemption, provided that certain conditions are satisfied.
In general, (i) payments with respect to principal or interest on a Capital
Security collected outside the United States by a foreign office of a custodian,
nominee or other agent acting on behalf of a beneficial owner of a Capital
Security and (ii) payments on the sale, exchange or retirement of a Capital
Security to or through a foreign office of a broker are not subject to backup
withholding or information reporting. However, if such custodian, nominee, agent
or broker is a United States person, a controlled foreign corporation for United
States tax purposes, or a foreign person 50% of more of whose gross income is
effectively connected with the conduct of a United States trade or business for
a specified three-year period, such custodian, nominee, agent or broker may be
subject to certain information reporting (but not backup withholding)
requirements with respect to such payments.
Backup withholding tax is not an additional tax. Rather, any amounts
withheld from a payment to a person under the backup withholding rules are
allowed as a refund or a credit against such person's United States federal
income tax, provided that the required information is furnished to the Service.
Possible Tax Law Changes
On February 6, 1997, President Clinton's budget proposal for fiscal year
1998 was released. Included in the budget proposal is a provision which, if
enacted, would generally treat instruments such as the Subordinated Debentures
as equity for United States federal income tax purposes if the instruments (i)
have a maximum term of more than 15 years and (ii) are not shown as indebtedness
on the separate balance sheet of the issuer. The provision is proposed to be
effective generally for instruments issued on or after the date of first
committee action by Congress. As of the date hereof, no such action has been
taken. If the provision applied to the Subordinated Debentures, among other
things, the Company would be unable to deduct interest on the Subordinated
Debentures for United States federal income tax purposes. A similar provision
was included in President Clinton's budget proposal for fiscal year 1997, but
the 104th Congress adjourned without taking action on such provision. There can
be no assurance that the current budget provision or future legislative
proposals will not affect the ability of the Company to deduct interest on the
Subordinated Debentures. Such a change could give rise to a Tax Event, which may
permit the Company to redeem the Subordinated Debentures for cash. See
"Description of Securities--Description of the Capital Securities--Redemption"
and "Description of Securities--Description of Subordinated Debentures--Tax
Event Prepayment." Such a tax law change would not alter the United States
federal income tax consequences of the purchase, ownership and disposition of
Capital Securities to holders thereof.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR
SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE CAPITAL
SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER FEDERAL, STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX
LAWS.
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ERISA CONSIDERATIONS
Each of the Company (the obligor with respect to the Subordinated
Debentures held by the Trust), the Property Trustee and each of their respective
affiliates may be considered a "party in interest" (within the meaning of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) or a
"disqualified person" (within the meaning of Section 4975 of the Code) with
respect to employee benefit plans ("Plans") that are subject to ERISA or that
are described in Section 4975 of the Code. Any purchaser proposing to acquire
Capital Securities with assets of any Plan should consult with its counsel. The
purchase and/or holding of Capital Securities by a Plan that is subject to the
fiduciary responsibility provisions of ERISA or the prohibited transaction
provisions of Section 4975 of the Code (including individual retirement
arrangements and other plans described in Section 4975(e)(1) of the Code) and
with respect to which the Company, the Property Trustee or any of their
respective affiliates is a service provider (or otherwise is a party in interest
or a disqualified person) may constitute or result in a prohibited transaction
under ERISA or Section 4975 of the Code, unless such Capital Securities are
acquired pursuant to and in accordance with an applicable exemption, such as
Prohibited Transaction Class Exemption ("PTCE") 84-14 (an exemption for certain
transactions determined by an independent qualified professional asset manager),
PTCE 91-38 (an exemption for certain transactions involving bank collective
investment funds), PTCE 90-1 (an exemption for certain transactions involving
insurance company pooled separate accounts), PTCE 95-60 (an exemption for
transactions involving certain insurance company general accounts), or PTCE 96-
23 (an exemption for certain transactions determined by an in-house asset
manager). In addition, a Plan fiduciary considering the purchase of Capital
Securities should be aware that the assets of the Trust may be considered "plan
assets" for ERISA purposes. In such event, the Property Trustee and other
service providers with respect to the assets of the Trust may become parties in
interest or disqualified persons with respect to investing Plans, and any
discretionary authority exercised with respect to the Subordinated Debentures by
such persons could be deemed to constitute a prohibited transaction under ERISA
or the Code. To ensure that no prohibited transactions occur with respect to the
acquisition and holding of the Capital Securities and with respect to
transactions involving the assets of the Trust, each purchaser who acquires
Capital Securities with assets of any Plan will, by making such acquisition, be
deemed to represent and warrant that the acquisition and holding of the Capital
Securities by such purchaser does not constitute a nonexempt prohibited
transaction under ERISA or the Code. In this regard, in order to avoid
prohibited transactions, each investing Plan, by purchasing the Capital
Securities, will be deemed to have directed the Trust to invest in the
Subordinated Debentures and to have appointed the Property Trustee.
PLAN OF DISTRIBUTION
The Company and the Trust will require each broker-dealer who tenders,
pursuant to the Exchange Offer, Old Capital Securities that were acquired for
its own account as the result of market-making activities or other trading
activities to acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of New Capital
Securities received in exchange for such Old Capital Securities pursuant to the
Exchange Offer. The Company and the Trust believe that Participating Broker-
Dealers may fulfill their prospectus delivery requirement in connection with
resales of New Capital Securities received in exchange for Old Capital
Securities that were acquired by such Participating Broker-Dealer for its own
account as a result of market-making activities or other trading activities with
this Prospectus, as it may be amended or supplemented from time to time, during
the 90-day period referred to below. ComEd has agreed that this Prospectus, as
it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of such New Capital
Securities for a period ending 90 days after the Expiration Date (subject to
extension under certain limited circumstances described
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herein) or, if earlier, when all such New Capital Securities have been disposed
of by such Participating Broker-Dealer. However, a Participating Broker-Dealer
who intends to use this Prospectus in connection with the resale of New Capital
Securities received in exchange for Old Capital Securities pursuant to the
Exchange Offer must notify ComEd or the Trust, or cause ComEd or the Trust to be
notified, on or prior to the Expiration Date, that it is a Participating Broker-
Dealer. Such notice may be given in the space provided for that purpose in the
Letter of Transmittal or may be delivered to the Exchange Agent at one of the
addresses set forth herein under "The Exchange Offer--Exchange Agent." See "The
Exchange Offer--Resales of New Capital Securities."
ComEd will not receive any cash or other proceeds from the issuance of
the New Capital Securities offered hereby. New Capital Securities received
by broker-dealers for their own accounts in connection with the Exchange
Offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the New Capital Securities or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
New Capital Securities.
Any broker-dealer that resells New Capital Securities that were received by
it for its own account in connection with the Exchange Offer and any broker or
dealer that participates in a distribution of such New Capital Securities may be
deemed to be an "underwriter" within the meaning of the Securities Act, and any
profit on any such resale of New Capital Securities and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
VALIDITY OF SECURITIES
Certain matters of Delaware law relating to the validity of the New Capital
Securities have been passed upon by Richards, Layton & Finger, P.A., Wilmington,
Delaware, special Delaware counsel to the Trust. The validity of the New
Guarantee and the New Subordinated Debentures have been passed upon for ComEd by
Sidley & Austin, Chicago, Illinois. Certain matters relating to United States
federal income tax considerations have been passed upon for ComEd by Sidley &
Austin, Chicago, Illinois.
EXPERTS
The financial statements and schedules included or incorporated by
reference in the 1996 Form 10-K Report, the January 31, 1997 Form 8-K Report and
the March 31, 1997 Form 10-Q Report have been audited by Arthur Andersen LLP,
independent certified public accountants, as indicated in their reports with
respect thereto, and are incorporated herein in reliance upon the authority of
said firm as experts in accounting and auditing in giving said reports.
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No dealer, salesperson or other individual has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus in connection with the offer made
by this Prospectus and, if given or made, such information or representations
must not be relied upon as having been authorized by ComEd or the Trust.
Neither the delivery of this Prospectus nor any sale made hereunder shall under
any circumstance create an implication that there has been no change in the
affairs of ComEd or the Trust since the date hereof. This Prospectus does not
constitute an offer or solicitation by anyone in any jurisdiction in which such
offer or solicitation is not authorized or in which the person making such offer
or solicitation is not qualified to do so or to anyone to whom it is unlawful to
make such offer or solicitation.
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
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<S> <C>
Available Information............................................................................ 1
Incorporation of Certain Documents by Reference.................................................. 2
Summary.......................................................................................... 3
Risk Factors..................................................................................... 11
Use of Proceeds from the Sale of the Old Capital Securities...................................... 16
Summary Information.............................................................................. 17
Capitalization................................................................................... 21
Accounting Treatment for the Trust............................................................... 22
ComEd Financing II............................................................................... 22
The Exchange Offer............................................................................... 23
Description of Securities........................................................................ 33
Description of Capital Securities.............................................................. 33
Description of Subordinated Debentures......................................................... 44
Description of Guarantee....................................................................... 54
Description of Old Securities.................................................................... 56
Relationship Among the Capital Securities, the Subordinated Debentures and the Guarantee......... 56
Certain Federal Income Tax Consequences.......................................................... 58
ERISA Considerations............................................................................. 62
Plan of Distribution............................................................................. 62
Validity of Securities........................................................................... 63
Experts.......................................................................................... 63
</TABLE>
Until September 11, 1997, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a Prospectus. This is in addition to the obligations of dealers to
deliver a Prospectus when acting as underwriters and with respect to their
unsold allotment or subscriptions.
================================================================================
================================================================================
ComEd Financing II
Offer to Exchange its
8.50% Capital Securities which
have been registered under the
Securities Act of 1933 for any
and all of its outstanding 8.50%
Capital Securities
(Liquidation Amount $1,000
Per Capital Security)
Fully and Unconditionally
Guaranteed, as described herein, by
Commonwealth Edison Company
--------------------
PROSPECTUS
--------------------
June 13, 1997
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