<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark
one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<CAPTION>
Commission Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification No.
----------- ----------------------------------- ------------------
<C> <S> <C>
1-11375 UNICOM CORPORATION 36-3961038
(an Illinois corporation)
37th Floor, 10 South Dearborn Street
Post Office Box A-3005
Chicago, Illinois 60690-3005
312/394-7399
1-1839 COMMONWEALTH EDISON COMPANY 36-0938600
(an Illinois corporation)
37th Floor, 10 South Dearborn Street
Post Office Box 767
Chicago, Illinois 60690-0767
312/394-4321
</TABLE>
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange
- --------------------------- on Which Registered
-------------------------
Unicom Corporation
- ------------------
Common Stock, without par value New York, Chicago and Pacific
Commonwealth Edison Company
- ---------------------------
(Listed on inside cover)
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) have been subject to such filing
requirements for the past 90 days.
Yes X . No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrants' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
Commonwealth Edison Company Securities Registered Pursuant to Section 12(b) of
the Act:
Name of Each Exchange
Title of Each Class on Which Registered
- --------------------------------------- ---------------------------
Sinking Fund Debentures:
3%, due April 1, 1999
2 7/8%, due April 1, 2001 New York
2 3/4%, due April 1, 1999 New York and Chicago
Cumulative Preference Stock, without par value:
$2.425 New York
Company-Obligated Mandatorily
Redeemable Preferred Securities of
Subsidiary Trust Holding Solely the
Company's 8.48% Subordinated Debt
Securities New York
The estimated aggregate market value of Unicom Corporation's 217,059,469
shares of outstanding Common Stock, without par value, was approximately
$7,719 million as of February 28, 1999. Approximately 99.9% of Unicom
Corporation's voting stock was owned by non-affiliates as of that date.
The estimated aggregate market value of Commonwealth Edison Company's
outstanding $1.425 Convertible Preferred Stock, Cumulative Preference Stock
and Company-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts Holding Solely the Company's Subordinated Debt Securities
was approximately $520 million as of February 28, 1999. Unicom Corporation
held in excess of 99.99% of the 214,002,000 shares of outstanding Common
Stock, $12.50 par value, of Commonwealth Edison Company as of that date.
Documents Incorporated by Reference:
Portions of Unicom Corporation's Current Report on Form 8-K dated February
19, 1999 are incorporated by reference into Parts I, II and IV of the Unicom
Corporation Annual Report on Form 10-K and portions of its definitive Proxy
Statement to be filed prior to April 30, 1999, relating to its Annual Meeting
of shareholders to be held on May 25, 1999, are incorporated by reference into
Part III of the Unicom Corporation Annual Report on Form 10-K.
Portions of Commonwealth Edison Company's Current Report on Form 8-K dated
February 19, 1999 are incorporated by reference into Parts I, II and IV of the
Commonwealth Edison Company Annual Report on Form 10-K and portions of its
definitive Information Statement to be filed prior to April 30, 1999, relating
to its Annual Meeting of shareholders to be held on May 25, 1999, are
incorporated by reference into Part III of the Commonwealth Edison Company
Annual Report on Form 10-K.
<PAGE>
UNICOM CORPORATION
and
COMMONWEALTH EDISON COMPANY
FORM 10-K
For the Fiscal Year Ended December 31, 1998
This document contains the Annual Reports on Form 10-K for the fiscal year
ended December 31, 1998 for each of Unicom Corporation and Commonwealth Edison
Company. Information contained herein relating to an individual registrant is
filed by such registrant on its own behalf. Accordingly, except for its
subsidiaries, Commonwealth Edison Company makes no representation as to
information relating to Unicom Corporation or to any other companies affiliated
with Unicom Corporation.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Definitions............................................................... 1
Annual Report on Form 10-K for Unicom Corporation:
Part I
Item 1. Business........................................................ 2
General............................................................ 2
Changes in the Electric Utility Industry........................... 2
Construction Program............................................... 7
Rate Matters....................................................... 8
Fuel Supply........................................................ 9
Regulation......................................................... 10
Employees.......................................................... 15
Interconnections................................................... 15
Franchises......................................................... 16
Executive Officers of the Registrant............................... 17
Operating Statistics............................................... 19
Year 2000 Conversion............................................... 20
Market Risks....................................................... 20
Forward-Looking Information........................................ 20
Item 2. Properties...................................................... 21
Item 3. Legal Proceedings............................................... 22
Item 4. Submission of Matters to a Vote of Security Holders............. 25
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters................................................................ 25
Item 6. Selected Financial Data......................................... 26
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of
Operations...................................................... 26
Item 8. Financial Statements and Supplementary Data..................... 26
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................ 26
Part III
Item 10. Directors and Executive Officers of the Registrant............. 27
Item 11. Executive Compensation......................................... 27
Item 12. Security Ownership of Certain Beneficial Owners and Manage-
ment................................................................... 27
Item 13. Certain Relationships and Related Transactions................. 27
</TABLE>
i
<PAGE>
UNICOM CORPORATION
and
COMMONWEALTH EDISON COMPANY
FORM 10-K
For the Fiscal Year Ended December 31, 1998
TABLE OF CONTENTS (Concluded)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Annual Report on Form 10-K for Commonwealth Edison Company:
Part I
Item 1. Business........................................................ 28
Executive Officers of the Registrant............................... 28
Item 2. Properties...................................................... 30
Item 3. Legal Proceedings............................................... 30
Item 4. Submission of Matters to a Vote of Security Holders............. 30
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters................................................................ 30
Item 6. Selected Financial Data......................................... 30
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of
Operations...................................................... 30
Item 8. Financial Statements and Supplementary Data..................... 30
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................ 30
Part III
Item 10. Directors and Executive Officers of the Registrant............. 30
Item 11. Executive Compensation......................................... 31
Item 12. Security Ownership of Certain Beneficial Owners and Management. 31
Item 13. Certain Relationships and Related Transactions................. 31
Annual Reports on Form 10-K for Unicom Corporation and Commonwealth Edison
Company:
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-
K...................................................................... 32
(a) Financial Statements, Financial Statement Schedules and Exhib-
its............................................................... 32
(b) Reports on Form 8-K............................................ 39
Report of Independent Public Accountants on Supplemental Schedule to
Unicom
Corporation............................................................ 40
Report of Independent Public Accountants on Supplemental Schedule to
Commonwealth Edison Company............................................ 41
Schedule II--Valuation and Qualifying Accounts.......................... 42
Signature Page to Unicom Corporation Annual Report on Form 10-K......... 43
Signature Page to Commonwealth Edison Company Annual Report on Form 10-
K...................................................................... 44
</TABLE>
ii
<PAGE>
DEFINITIONS
The following terms are used in this document with the following meanings:
<TABLE>
<CAPTION>
Term Meaning
---------------------- -------------------------------------------------------
<C> <S>
1997 Act Illinois Electric Service Customer Choice and Rate
Relief Law of 1997
CERCLA Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended
CHA Chicago Housing Authority
City City of Chicago
ComEd Commonwealth Edison Company
ComEd Funding ComEd Funding, LLC, a ComEd subsidiary
ComEd Funding Trust ComEd Transitional Funding Trust, a ComEd Funding
subsidiary
Congress U.S. Congress
Cotter Cotter Corporation, a ComEd subsidiary
CTC Non-bypassable "competitive transition charge"
DOE U.S. Department of Energy
EME Edison Mission Energy, an Edison International
subsidiary
FAC Fuel adjustment clause
FERC Federal Energy Regulatory Commission
IBEW International Brotherhood of Electrical Workers (AFL-
CIO)
ICC Illinois Commerce Commission
IDNS Illinois Department of Nuclear Safety
IDR Illinois Department of Revenue
Illinois EPA Illinois Environmental Protection Agency
Indiana Company Commonwealth Edison Company of Indiana, Inc., a ComEd
subsidiary
INPO Institute of Nuclear Power Operations
IPCB Illinois Pollution Control Board
ISO Independent System Operator
February 19, 1999 Unicom's Current Report on Form 8-K including auditor's
Form 8-K Reports opinion dated February 19, 1999 and ComEd's Current
Report on Form 8-K including auditor's opinion dated
February 19, 1999
MAIN Mid-America Interconnected Network
MGP Manufactured gas plant
NERC North American Electric Reliability Council
NPDES National Pollutant Discharge Elimination System
NPL National Priorities List
NRC Nuclear Regulatory Commission
O&M Operation and maintenance
OSHA Occupational Safety and Health Administration
SEC Securities and Exchange Commission
SPEs Special purpose entities
S&P Standard & Poor's
Trust Securities ComEd-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely ComEd's
subordinated debt securities
Unicom Unicom Corporation
Unicom Energy Services Unicom Energy Services Inc., a Unicom Enterprises
subsidiary
Unicom Enterprises Unicom Enterprises Inc., a Unicom subsidiary
Unicom Thermal Unicom Thermal Technologies Inc., a UT Holdings
subsidiary
U.S. EPA U.S. Environmental Protection Agency
UT Holdings UT Holdings Inc., a Unicom Enterprises subsidiary
</TABLE>
1
<PAGE>
ANNUAL REPORT ON FORM 10-K FOR UNICOM CORPORATION
PART I
Item 1. Business.
General
Unicom was incorporated in January 1994. ComEd, a regulated electric
utility, is the principal subsidiary of Unicom. Unicom Enterprises is an
unregulated subsidiary of Unicom and is engaged, through its subsidiaries, in
energy service activities. Unicom's principal executive offices are located at
Ten South Dearborn Street, Post Office Box A-3005, Chicago, Illinois 60690-
3005, and its telephone number is 312/394-7399.
ComEd represents substantially all of the assets, revenues and net income
(loss) of Unicom; and Unicom's resources and results of operations are largely
dependent on, and reflect, those of ComEd. Consequently, the following
discussion focuses on ComEd's utility operations although information is also
provided about Unicom's unregulated operations.
Utility Operations. ComEd is engaged principally in the production,
purchase, transmission, distribution and sale of electricity to a diverse base
of residential, commercial, industrial and wholesale customers. ComEd was
organized in the state of Illinois on October 17, 1913 as a result of the
merger of Cosmopolitan Electric Company into the original corporation named
Commonwealth Edison Company. The latter had been incorporated on September 17,
1907. ComEd's electric service territory has an area of approximately 11,300
square miles and an estimated population of approximately eight million as of
December 31, 1998. 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 1998. ComEd had 3.5 million electric customers at December 31, 1998.
ComEd's principal executive offices are located at Ten South Dearborn Street,
Post Office Box 767, Chicago, Illinois 60690-0767, and its telephone number is
312/394-4321.
Unregulated Operations. Unicom Enterprises is engaged, through subsidiaries,
in energy service activities which are not subject to utility regulation by
federal or state agencies. One of these subsidiaries, UT Holdings, provides
district cooling and related services to offices and other buildings in the
central business district of the City and in other cities in North America,
generally working with local utilities. District cooling involves, in essence,
the production of chilled water at one or more central locations and its
circulation to customers' buildings through a closed circuit of supply and
return piping. Such water is circulated through customers' premises primarily
for air conditioning. This process is used by customers in lieu of self-
generated cooling.
Unicom Energy Services, another subsidiary of Unicom Enterprises, is engaged
in providing energy services including gas services, performance contracting,
distributed energy and active energy management systems. In 1997, Unicom
Energy Services entered into a joint venture with Sonat Marketing Company L.P.
to market natural gas and related services to larger gas purchasers within
ComEd's service area in Northern Illinois and other Midwestern areas. As an
entry into the distributed energy market, Unicom Energy Services also entered
into an alliance with AlliedSignal Power Systems, Inc., a subsidiary of
AlliedSignal Inc., to market, install and service an electric energy generator
developed by AlliedSignal, known as a TurboGenerator, in a 12-state region,
the province of Ontario, Canada and Puerto Rico.
Changes in the Electric Utility Industry
Unicom and its predominant business, electric energy generation,
transmission and distribution, are in a period of fundamental change. These
changes are attributable to changes in technology and
2
<PAGE>
regulation. Federal law and regulations have been amended to provide for open
transmission system access, and various states, including Illinois, are
considering, or have adopted, new regulatory structures to allow access by
some or all customers to energy suppliers in addition to the local utility.
Electric Utility Industry. The electric utility industry historically has
consisted of vertically integrated companies which combine generation,
transmission and distribution assets; serve customers within relatively
defined service territories; and operate under extensive regulation with
respect to rates, operations and other matters. Utilities have operated under
a regulatory compact with the state, with a statutory obligation to serve all
of the electricity needs within their service territory in a nondiscriminatory
manner. Historically, investment and operating decisions have been made based
upon the utilities' respective assessment of the current and projected needs
of their customers. In view of this obligation, regulation has focused on
investment and operating costs, and rates have been based on a recovery of
some or all of such prudently incurred costs plus a return on invested
capital. Such rate regulation, and the ability of utilities to recover
investment and other costs through rates, have provided the basis for
recording certain costs as regulatory assets. These assets represent costs
which are allocated over future periods reflecting related regulatory
treatment, rather than expensed in the current period.
Federal Regulation. The Energy Policy Act of 1992, among other things,
empowered FERC to introduce a greater level of competition into the wholesale
marketplace for electric energy. Under FERC Order No. 888, utilities are
required to file open access tariffs with regard to their transmission
systems. These tariffs set forth the terms, including prices, under which
other parties and the utility's wholesale marketing function may use the
utility's transmission system. ComEd has an approved open access tariff with
the FERC. A companion FERC rule, Order No. 889, requires the separation of the
transmission operations and wholesale marketing functions so as to ensure that
unaffiliated third parties have access to the same information as to system
availability and other requirements. The FERC Order further requires utilities
to operate an electronic bulletin board to make transmission price and access
data available to all potential users. A key feature of FERC Order No. 888 is
that it contemplates full recovery of a utility's costs "stranded" by
competition. These costs are "stranded" or "strandable" to the extent market-
based rates would be insufficient to allow for their full recovery. To recover
stranded costs, the utility must show that it had a reasonable expectation
that it would continue to serve the customer in question under its regulatory
compact. In addition, some government entities, such as cities, may elect to
"municipalize" a utility's distribution facilities through condemnation
proceedings. Such municipalities would then be able to purchase electric power
on a wholesale basis and resell it to customers over the newly acquired
facilities. The FERC Order provides for the recovery of a utility's investment
stranded by municipalization.
The 1997 Act. In December 1997, the Governor of Illinois signed into law the
1997 Act, which established a phased process to introduce competition into the
electric industry in Illinois under a less regulated structure. Major
provisions of the 1997 Act applicable to ComEd include a 15% residential base
rate reduction which became effective August 1, 1998, an additional 5%
residential base rate reduction commencing on May 1, 2002 and gradual customer
access to other electric suppliers. Access for commercial and industrial
customers will occur over a period from October 1999 to December 2000, and
access for residential customers will occur after May 1, 2002. ComEd's
operating revenues were reduced by approximately $170 million in 1998 due to
the rate reduction. ComEd is engaged in certain pricing experiments
contemplated by the 1997 Act, which reduced ComEd's operating revenues by
approximately $30 million in 1998 and are expected to reduce operating
revenues by $55 million in 1999, compared to 1997 rate levels; however, such
reductions are expected to be offset by the effects of customer growth. ComEd
expects that the 15% residential base rate reduction will reduce ComEd's
operating revenues by approximately $380 million in 1999, compared to 1997
rate levels.
The 1997 Act also provides for the collection of a CTC from customers who
choose another electric service provider during a transition period that
extends through 2006, and can be extended through
3
<PAGE>
2008 with ICC approval. The CTC will be established in accordance with a
formula defined in the 1997 Act. The CTC, which will be applied on a cents per
kilowatthour basis, considers the revenue which would have been collected from
a customer under tariffed rates, reduced by the revenue the utility will
receive for providing delivery services to the customer, the market price for
electricity and a defined mitigation factor, which represents the utility's
opportunity to develop new revenue sources and achieve cost savings.
Notwithstanding these rate reductions, and subject to certain earnings
tests, a rate freeze will generally be in effect until at least January 1,
2005. During this period, utilities may reorganize, sell or assign assets,
retire or remove plants from service, and accelerate depreciation or
amortization of assets with limited ICC regulatory review. A utility may
request a rate increase during the rate freeze period only when necessary to
ensure the utility's financial viability, but not before January 1, 2000.
Under the earnings provision of the 1997 Act, if the earned return on common
equity of a utility during this period exceeds an established threshold, one-
half of the excess earnings must be refunded to customers. The threshold rate
of return on common equity is based on the 30-Year Treasury Bond rate, plus
5.5% in the years 1998 through 1999 and plus 6.5% in the years 2000 through
2004. The utility's earned return on common equity and the threshold return on
common equity are each calculated on a two year average basis. The earnings
sharing provision is applicable only to utility earnings. Increased
amortization of regulatory assets may be recorded, thereby reducing the earned
return on common equity, if earnings otherwise would have exceeded the maximum
allowable rate of return. The potential for earnings sharing or increased
amortization of regulatory assets could limit earnings in future periods.
Under the 1997 Act, utilities are required to continue to offer delivery
services, including the transmission and distribution of electric energy, such
that customers who select an alternative energy supplier can receive electric
energy from that supplier using existing transmission and distribution
facilities. Such services will continue to be offered under cost-based,
regulated rates. The 1997 Act also requires utilities to establish or join an
ISO that will independently manage and control utility transmission systems.
Additionally, the 1997 Act includes the leveling of certain regulatory
requirements to permit operational flexibility, the leveling of certain
regulatory and tax provisions as applied to various electric suppliers and a
new, more stringent, liability standard applicable to ComEd in the event of a
major outage. See "Response to Regulatory Changes" below for additional
information.
The 1997 Act also allows a portion of ComEd's future revenues to be
segregated and used to support the issuance of securities by ComEd or a SPE.
The proceeds, net of transaction costs, from such securities issuances must be
used to refinance outstanding debt and equity to lower ComEd's overall cost of
capital. The total amount of such securities that may be issued is
approximately $6.8 billion; approximately one-half of that amount can be
issued in the twelve-month period which commenced on August 1, 1998. In
December 1998, ComEd initiated the issuance of $3.4 billion of transitional
trust notes through its SPEs, ComEd Funding and ComEd Funding Trust. See
"Liquidity and Capital Resources," subcaption "UTILITY OPERATIONS--Capital
Resources", and Notes 2, 7 and 24 of Notes to Financial Statements, in the
February 19, 1999 Form 8-K Reports, which are incorporated herein by
reference, for additional information regarding the issuance of transitional
trust notes and the planned use of the proceeds.
As a result of the 1997 Act and the FERC rules, prices for the supply of
electric energy are expected to change from cost-based, regulated rates to
rates determined by competitive market forces. The CTC allows ComEd to recover
some of its costs which might otherwise be unrecoverable under market-based
rates. Nonetheless, ComEd will need to take steps to address the portion of
such costs which are not recoverable through the CTC. Such steps include cost
control efforts, developing new
4
<PAGE>
sources of revenue and asset dispositions. See "Response to Regulatory
Changes" below for additional information.
See Note 2 of Notes to Financial Statements in the February 19, 1999 Form 8-
K Reports, which are incorporated herein by reference, for the accounting
effects related to the 1997 Act.
Response to Regulatory Changes. Unicom has announced several business and
operational objectives designed to focus efforts in responding to the energy
market changes that are expected to develop from the 1997 Act. These
objectives contemplate that ComEd will seek additional improvements in its
transmission and distribution operations in order to meet customers'
expectations for reliable delivery and will seek to refocus its generation
activities, with a concentration on improved nuclear generation, and that
Unicom and ComEd will seek to expand their offerings of energy-related
products and services. See Unicom and ComEd's Current Report on Form 8-K dated
July 6, 1998 for more information regarding the objectives announced by
Unicom.
Under the 1997 Act, the role of electric utilities in the supply and
delivery of energy is expected to change. Utilities, such as ComEd,
traditionally have been responsible for providing both adequate supply and
reliable delivery of electricity to customers within their service areas. In
the future, ComEd will continue to be obligated to provide a reliable delivery
system. However, ComEd will be obligated to supply electricity only to those
customers that it continues to serve under tariffs for electricity, but not to
those customers who choose to rely on the marketplace. Nonetheless, during the
transition period to a competitive supply marketplace, ComEd must provide both
an adequate supply and reliable delivery of electricity. Given the tight
capacity situation in ComEd's market, ComEd will continue working to restore
and maintain its available capacity, as well as working to assist in the
development of a competitive supply marketplace in Illinois.
ComEd has a significant commitment to, and investment in, nuclear generating
capacity. ComEd has installed a new management team responsible for improving
nuclear operations. Such improvements are aimed at increasing levels of energy
generation, or capacity factors, at ComEd's nuclear generating units while
simultaneously improving ComEd's record of meeting NRC requirements and INPO
performance standards. Increased capacity factors generally result in lower
unit production costs and an improved opportunity to generate and sell
electricity in a competitive marketplace. Efforts are also being made to
control capital and operating costs through increased efficiencies, such as
the reduction of downtime and expenses associated with generating unit
maintenance and refueling outages.
ComEd also evaluated the recoverability of its generating plant investment
as a result of the 1997 Act. This evaluation, based upon interpretative
guidance issued by the SEC, resulted in a conclusion that the investment was
impaired and should be reduced. See Note 2 of Notes to Financial Statements in
the February 19, 1999 Form 8-K Reports, which are incorporated herein by
reference, for additional information. Notwithstanding these efforts, there
continues to be an ongoing analysis of the ability of ComEd's various nuclear
plants to generate and deliver electric energy safely at competitive prices in
the competitive market for energy. Although short-term system reliability and
capacity constraints are likely to support the continued operation of ComEd's
nuclear units in the near term, expected longer term developments are likely
to make decision-making a function of economic considerations. In the absence
of short-term reliability and capacity constraints, if a generating plant
cannot produce power safely at a cost below the competitive market price, it
will be disposed of or closed. Plant impairment adjustments have reduced the
carrying value of nuclear plants, and depreciation rates reflecting shortened
estimated useful lives for certain stations will reduce the carrying value
further during the next several years. However, closure of a plant could
involve additional charges associated with the write-off of its then-current
carrying value. In January 1998, Unicom and ComEd announced its decision to
permanently cease nuclear generating operations at ComEd's Zion Station. The
related retirement resulted in a charge in 1997 of $523 million (after-tax),
or $2.42 per common share (basic), reflecting both a write down of the plant's
carrying value and a liability for future closing costs. A
5
<PAGE>
portion of Zion Station is used to provide voltage support in the transmission
system that serves ComEd's northern region. See Note 5 of Notes to Financial
Statements in the February 19, 1999 Form 8-K Reports, which are incorporated
herein by reference, for additional information.
In response to customer expectations and more stringent reliability
standards provided for by the 1997 Act, ComEd's Board of Directors approved a
$307 million increase in capital expenditures on its transmission and
distribution systems over the next three years. See "Construction Program--
Utility Operations" below, for additional information regarding capital
spending for the transmission and distribution systems.
ComEd joined with other Midwestern utilities to form a regional Midwest ISO
in January 1998. Presently, a number of these utilities, including ComEd, have
agreed to place their transmission systems under the control of the Midwest
ISO. The Midwest ISO is a key element in accommodating the restructuring of
the electric industry and will promote enhanced reliability of the
transmission system, equal access to the transmission system and increased
competition. The Midwest ISO has established an independent body that will
ultimately direct the planning and operation of the transmission system for
the utilities involved. The Midwest ISO will have operational control over the
transmission system and will have authority to require modification in the
operation of generators connected to that system during system emergencies.
ComEd will retain ownership of its transmission system. The formation of the
Midwest ISO was approved by FERC in September 1998, subject to certain
conditions. The Midwest ISO members elected a Board of Directors in December
1998.
Fossil Plants Sale Agreement. On March 22, 1999, ComEd entered into an Asset
Sale Agreement providing for the sale of substantially all of the assets of
its fossil generation business to EME for a cash purchase price of $4.813
billion. The assets include ComEd's six coal-fired generating plants, an oil
and gas-fired plant, and nine peaking unit sites, which together represent an
aggregate generating capacity of approximately 9,772 megawatts. Completion of
the sale is subject to certain regulatory filings and approvals and is
expected to occur during the fourth quarter of 1999.
The sale is expected to produce a net after-tax gain of approximately $1.7
billion after recognizing the costs associated with ComEd's long-term coal
contract obligations and certain employee-related costs. However, the net gain
will be utilized to recover the after-tax effect of the amortization of
regulatory asset established in 1998 as a result of an impairment evaluation
of production plant costs. At December 31, 1998, the regulatory asset for
impaired production plant was approximately $3.0 billion and is expected to be
fully recovered and amortized by year-end 1999 as a result of the gain on the
fossil plants. Net cash proceeds from the sale are expected to exceed $3.0
billion and will be used to fund ComEd's program to reinforce and enhance its
transmission and distribution system, to support ComEd's improvement of its
nuclear generation operations and to provide a foundation for growth in other
business opportunities.
As part of the sale transaction, ComEd will enter into transitional power
purchase agreements with the buyer. The agreement regarding the coal-fired
units would cover a declining number of generating units over a five-year
term, subject to an option in favor of ComEd to restore some or all of the
units in later years of the agreement. The agreements regarding the oil and
gas-fired plant and the peaking units cover the entire capacity of such
generating units for a five-year term, subject to ComEd's option commencing in
year three to terminate the agreements as to some or all of the generating
units. The options will provide some flexibility to ComEd to adjust its power
purchase needs to match its obligations to its customers during the transition
period to open access for customers. Each of the agreements provides for a
monthly capacity charge, based upon the capacity of the generating units under
contract and subject to adjustment based upon the availability of those
generating units, as well as charges for delivered energy. Such charges will
increase ComEd's purchased power costs. However, the disposition of the fossil
generation business will reduce ComEd's operation and maintenance expenditures
and its depreciation charges.
6
<PAGE>
Construction Program
Utility Operations. ComEd has a construction program for the years 1999-
2001, which consists principally of improvements to its existing nuclear and
other electric production, transmission and distribution facilities. The
program, as currently approved by ComEd, includes the following estimated
expenditures (excluding nuclear fuel expenditures of approximately $676
million).
<TABLE>
<CAPTION>
1999 2000 2001 Total
------ ---- ---- ------
(Millions of Dollars)
<S> <C> <C> <C> <C>
Nuclear............................................. $ 265 $158 $167 $ 590
Fossil.............................................. 155 106 66 327
Transmission and Distribution....................... 515 527 529 1,571
General............................................. 109 83 80 272
------ ---- ---- ------
$1,044 $874 $842 $2,760
====== ==== ==== ======
</TABLE>
The above fossil plant construction expenditures may not be required after
the sale of the plants is completed.
This program includes an increase in capital expenditures on ComEd's
transmission and distribution systems of approximately $307 million over the
next three years, in addition to the estimated $1.3 billion previously planned
to be spent on these systems over the same time period. A significant portion
of such additional expenditures is intended to increase the reliability of
ComEd's distribution system by replacing certain equipment and increasing
automation to identify distribution problems faster and more quickly restore
power to customers.
ComEd's construction expenditures during 1998 were $912 million.
ComEd's net nuclear generating plant, including construction work in
progress and nuclear fuel, and excluding the decommissioning costs included in
the accumulated provision for depreciation, is $7.9 billion at December 31,
1998. The net nuclear generating plant does not include the impact of the $3.0
billion plant impairment recorded in June 1998. Gross additions to and
retirements from utility property, excluding nuclear fuel, of ComEd and the
Indiana Company for the five years ended December 31, 1998 were $4,422 million
and $1,564 million, respectively (after reflecting the closure of Zion Station
and the sales of State Line and Kincaid Stations).
ComEd periodically reviews its projection of probable future demand for
electricity in its service territory. It currently projects average annual
growth of 1.75% in annual peak load and 1.5% in total annual electricity
requirements, excluding sales to other utilities. ComEd's forecasts of peak
load indicate a need for additional resources to meet demand, either through
generating capacity, equivalent purchased power and/or the development of
additional demand-side management resources, in 1999 and each year thereafter
for the foreseeable future. However, ComEd believes that adequate resources,
including cost-effective, demand-side management resources, non-utility
generation resources and other-utility power purchases, can be obtained in
sufficient quantities to meet such forecasted needs. The growth projections do
not reflect the impact of customer access to other suppliers which begins on a
phased basis on October 1, 1999.
Purchase commitments for ComEd, principally related to construction and
nuclear fuel, approximated $335 million at December 31, 1998. In addition,
ComEd's estimated commitments for the purchase of coal are as follows:
<TABLE>
<CAPTION>
Contract Period Commitment (1)
-------- --------- --------------
<S> <C> <C>
Black Butte Coal Co.............................. 1999-2000 $434
Decker Coal Co. ................................. 1999-2014 478
Other commitments ............................... 1999-2000 38
----
$950
====
</TABLE>
--------
(1) In millions of dollars, excluding transportation costs. No
estimate of future costescalation has been made.
7
<PAGE>
Upon completion of the Asset Sale Agreement, ComEd expects to enter into
arrangements to assign or buyout the coal purchase commitments. For additional
information concerning these coal contracts and ComEd's fuel supply, see "Fuel
Supply" below and Note 22 of Notes to Financial Statements in the February 19,
1999 Form 8-K Reports, which are incorporated herein by reference.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations," subcaption "Liquidity and Capital Resources--UTILITY
OPERATIONS--Capital Resources," in the February 19, 1999 Form 8-K Reports,
which are incorporated herein by reference, for information regarding the
capital resources of ComEd.
Unregulated Operations. Unicom has approved capital expenditures for 1999 of
approximately $88 million for UT Holdings, primarily related to an expansion
of its Chicago district cooling facilities and the related distribution piping
and plants in other cities. As of December 31, 1998, UT Holdings' purchase
commitments, principally related to construction, were approximately $21
million.
Unicom has approved capital expenditures for 1999 of approximately $47
million for Unicom Energy Services. As of December 31, 1998, Unicom Energy
Services had purchase commitments of approximately $10 million.
Unicom expects to obtain funds to invest in its unregulated subsidiaries
principally from dividends received on its ComEd common stock and from bank
borrowings. The availability of ComEd's dividends to Unicom is dependent on
ComEd's financial performance and cash position. Other forms of financing by
ComEd to Unicom or the unregulated subsidiaries of Unicom, such as loans or
additional equity investments would be subject to prior approval by the ICC.
Unicom Enterprises has a $200 million credit facility which will expire on
November 15, 1999, of which $115 million was unused as of December 31, 1998.
The credit facility can be used by Unicom Enterprises to finance investments
in unregulated businesses and projects, including UT Holdings and Unicom
Energy Services, and for general corporate purposes. The credit facility is
guaranteed by Unicom and includes certain covenants with respect to Unicom and
Unicom Enterprises' operations. Interest rates for borrowings under the credit
facility are set at the time of a borrowing and are based on either a prime
interest rate or a floating rate bank index plus a spread which varies with
the credit rating of ComEd's outstanding first mortgage bonds.
In July 1998, Unicom Thermal issued $120 million of 7.38% unsecured
guaranteed senior Notes due May 2012, the proceeds of which were used to
refinance existing debt. The Notes are guaranteed by Unicom and include
certain covenants with respect to Unicom and Unicom Thermal's operations.
See Notes 12 and 13 of Notes to Financial Statements in Unicom's February
19, 1999 Form 8-K Report, which is incorporated herein by reference, for
additional information regarding certain covenants with respect to Unicom,
Unicom Enterprises and Unicom Thermals' operations.
Rate Matters
Final ICC orders have been issued in fuel reconciliation proceedings related
to ComEd's FAC collections for all years except for 1994. On November 5, 1998,
the ICC issued an order in the proceeding for the year 1994 providing for a
refund of approximately $3 million related to nuclear station performance. On
February 9, 1999, an intervenor moved to dismiss its appeal of the 1994 ICC
order. On December 29, 1998, the ICC issued an order for the 1996 fuel
reconciliation proceeding requiring ComEd to refund approximately $19 million
related to nuclear station performance. The 1997 Act provides that, because
ComEd eliminated its FAC effective January 1, 1997, the ICC shall not conduct
a fuel reconciliation proceeding for the year 1997 and subsequent years. For
information regarding the 1997 Act and the elimination of ComEd's FAC, see
Note 2 of Notes to Financial Statements in the February 19, 1999 Form 8-K
Reports, which are incorporated herein by reference.
8
<PAGE>
Three of ComEd's wholesale municipal customers filed a complaint and request
for refund with the FERC alleging that ComEd failed to properly adjust their
rates, as provided for under the terms of their electric service contracts, to
track certain refunds made to ComEd's retail customers in the years 1992
through 1994. In the third quarter of 1998, the FERC granted the complaint and
directed that refunds be made, with interest. ComEd filed and was granted a
request for rehearing for purposes of reconsideration with the FERC. If the
order is upheld, ComEd must make refunds within 15 days of the resolution for
rehearing.
ComEd's management believes adequate reserves have been established in
connection with the cases discussed above.
See "Changes in the Electric Utility Industry--The 1997 Act" above for
information regarding the 1997 Act.
Fuel Supply
The kilowatthour generation of ComEd for 1998 was provided from the
following fuel sources: nuclear 65%, coal 30% and natural gas 5%. Net
generation of electric energy for 1998, compared to prior years, decreased
primarily due to the sales of State Line and Kincaid Stations in December 1997
and February 1998, respectively. Lower nuclear generation as a percentage of
total generation for 1997, compared to recent prior years, was primarily due
to outages at certain of ComEd's nuclear generating stations. See
"Regulation--Nuclear" below for information regarding outages at certain of
ComEd's nuclear generating stations.
Nuclear Fuel. ComEd has uranium concentrate inventory and supply contracts
sufficient to meet all of its uranium concentrate requirements through 1999
and portions of its uranium concentrate requirements for periods beyond 1999.
ComEd's contracted conversion services are sufficient to meet all of its
uranium conversion requirements through 2000 and portions beyond 2000. All of
ComEd's enrichment requirements have been contracted through 2003 and portions
of its enrichment requirements for periods beyond 2003. Commitments for fuel
fabrication have been obtained for ComEd's nuclear units at least through
2005. ComEd does not anticipate that it will have any difficulty in
negotiating contracts for uranium concentrates, conversion, enrichment and
fuel fabrication services for its remaining requirements.
Under the Energy Policy Act of 1992, investor-owned electric utilities that
have purchased enrichment services from the DOE are being assessed amounts to
fund a portion of the cost for the decontamination and decommissioning of
uranium enrichment facilities owned and previously operated by the DOE.
ComEd's portion of such assessments is estimated to be approximately $17
million per year (to be adjusted annually for inflation) to 2007. The Act
provides that such assessments are to be treated as a cost of fuel. See Note 1
of Notes to Financial Statements, under "Nuclear Fuel," in the February 19,
1999 Form 8-K Reports, which are incorporated herein by reference, for
information related to the accounting for such costs.
See "Regulation--Nuclear" below for information concerning the disposal of
radioactive waste.
Coal. ComEd burns low sulfur western coal at all of its coal-fired stations.
ComEd generally maintains a coal inventory equal to 30 to 45 days of high
utilization. In view of the general concern regarding the ability of
electronic processing systems to recognize the date change on January 1, 2000,
ComEd intends to increase its coal inventory to a 60 day supply in order to
provide an additional reserve in the event that transportation or supply
disruptions are experienced in connection with the date change. As of February
28, 1999, coal inventories approximated 50 days. The average cost per ton of
coal consumed by ComEd for the years 1998, 1997 and 1996, including
transportation charges, was $38.55, $38.47 and $41.16, respectively.
9
<PAGE>
Compared to other utilities, ComEd has relatively low average fuel costs as
a result of its reliance predominantly on lower cost nuclear generation.
ComEd's coal costs, however, are high compared to those of other utilities.
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. Upon completion of the Asset Sale Agreement,
ComEd expects to enter into arrangements to assign or buyout the coal purchase
commitments. For additional information concerning ComEd's coal purchase
commitments, see "Construction Program--Utility Operations" above. For
information regarding the agreement to sell the fossil units, including
peaking units, see "Changes in the Electric Utility Industry--Fossil Plants
Sale Agreement" above.
Oil and Gas. ComEd's fast-start peaking units use middle distillate oils.
Approximately half of this capacity can also be fueled with natural gas.
ComEd's 2,698,000 kilowatt Collins Station is fueled with natural gas and
residual oil. ComEd purchases oil and gas in the spot market as needed. ComEd
has a contract for the delivery and storage of natural gas from gas pipelines
to Collins Station, which expires in 2003. Upon completion of the Asset Sale
Agreement, ComEd expects to enter into arrangements to assign or buyout the
contract for the delivery and storage of natural gas for Collins Station. For
information regarding the announced sale of the fossil units, including
peaking units, see "Changes in the Electric Utility Industry--Fossil Plants
Sale Agreement" above.
Regulation
ComEd and the Indiana Company are subject to federal and state regulation in
the conduct of their respective businesses, including the operations of
Cotter. Such regulation includes rates, securities issuance, nuclear
operations, environmental and other matters. Particularly in the cases of
nuclear operations and environmental matters, such regulation can and does
affect operational and capital expenditures. ComEd is subject to regulation by
the ICC as to rates and charges, issuance of most of its securities, service
and facilities, classification of accounts, transactions with affiliated
interests, as defined in the Illinois Public Utilities Act, and other matters.
In addition, the ICC in certain of its rate orders has exercised jurisdiction
over ComEd's environmental control program. See "Changes in the Electric
Utility Industry--The 1997 Act" above for information regarding the 1997 Act.
ComEd is subject to the jurisdiction of the FERC with respect to the
issuance of certain of its securities. ComEd is also subject to the
jurisdiction of the FERC and the DOE under the Federal Power Act with respect
to certain other matters, including the sale for resale of electric energy and
the transmission of electric energy in interstate commerce, and to the
jurisdiction of the DOE with respect to the disposal of spent nuclear fuel and
other radioactive wastes. See "Changes in the Electric Utility Industry--
Federal Regulation" above for information regarding the recent FERC Orders and
the Energy Policy Act of 1992.
Unicom is a public utility holding company, as defined by the Public Utility
Holding Company Act of 1935, because of its majority ownership of ComEd's
common stock, and ComEd is a public utility holding company as defined in such
Act because of its ownership of the Indiana Company. However, both Unicom and
ComEd are exempt from most provisions of such Act.
The Indiana Company, an "affiliated interest" of ComEd within the meaning of
the Illinois Public Utilities Act, is subject to regulation by the Indiana
Utility Regulatory Commission and to the jurisdiction of the FERC, the DOE and
federal and state of Indiana pollution control and other agencies.
Nuclear. Under the Nuclear Waste Policy Act of 1982, the DOE is responsible
for the selection and development of repositories for, and the disposal of,
spent nuclear fuel and high-level radioactive
10
<PAGE>
waste. The costs incurred by the DOE for disposal activities will be paid out
of fees charged to owners and generators of spent nuclear fuel and high-level
radioactive waste. ComEd, as required by that Act, has signed a contract with
the DOE to provide for the disposal of spent nuclear fuel and high-level
radioactive waste from ComEd's nuclear generating stations. That contract
provided for acceptance by the DOE of such materials to begin in January 1998;
however, that date was not met by the DOE and is expected to be delayed
significantly. The DOE's current estimate for opening a facility to accept
such waste is 2010. This extended delay in spent nuclear fuel acceptance by
the DOE has led to ComEd's consideration of additional dry storage
alternatives. On July 30, 1998, ComEd filed a complaint against the United
States in the United States Court of Federal Claims, seeking to recover
damages caused by the DOE's failure to honor its contractual obligation to
begin disposing of spent nuclear fuel in January 1998.
The contract with the DOE requires ComEd to pay the DOE a one-time fee
applicable to nuclear generation through April 6, 1983 of $277 million, with
interest to date of payment, and a fee payable quarterly equal to one mill per
kilowatthour of nuclear-generated and sold electricity after April 6, 1983.
Pursuant to the contract, ComEd has elected to pay the one-time fee, with
interest, just prior to the first delivery of spent nuclear fuel to the DOE.
The liability for the one-time fee and related interest is reflected on the
Consolidated Balance Sheets in the February 19, 1999 Form 8-K Reports, which
are incorporated herein by reference.
ComEd has responsibility for the storage of its spent nuclear fuel until it
is accepted by the DOE. Dresden Station has spent fuel capacity through the
year 2001, Zion Station has capacity for all of its spent fuel, Byron and
Braidwood Stations have spent fuel capacity through approximately 2009, Quad
Cities Station has spent fuel capacity through 2006 and LaSalle Station has
spent fuel capacity through at least 2011. ComEd is developing on site dry
cask spent fuel storage for Dresden Unit 1, which is expected to be funded by
the external decommissioning trusts. See "Depreciation, Amortization of
Regulatory Assets and Decommissioning" under Note 1 of Notes to Financial
Statements in the February 19, 1999 Form 8-K Reports, which are incorporated
herein by reference, for information regarding the external decommissioning
trusts. The Dresden Unit 1 dry storage canisters will meet the federal
requirements for both storage and transportation of spent nuclear fuel. The
storage canisters could be used by the year 2000. Meeting spent fuel storage
requirements beyond the years stated above could require new and separate
storage facilities.
The federal Low-Level Radioactive Waste Policy Act of 1980 provides that
states may enter into compacts to provide for regional disposal facilities for
low-level radioactive waste and restrict use of such facilities to waste
generated within the region. Illinois has entered into a compact with the
state of Kentucky, which has been approved by Congress as required by the
Waste Policy Act. Neither Illinois nor Kentucky currently has an operational
site, and none is currently expected to be operational until after the year
2011. ComEd has temporary on-site storage capacity at its nuclear generating
stations for a limited amount of low-level radioactive waste and has been
shipping such waste to a low-level radioactive waste site in Barnwell, South
Carolina. ComEd anticipates the possibility of continuing difficulties in
disposing of low-level radioactive waste. ComEd continues to evaluate its
options relating to the disposal of low-level radioactive waste.
ComEd is subject to the jurisdiction of the NRC with respect to its nuclear
generating stations. The NRC regulations control the granting of permits and
licenses for the construction and operation of nuclear generating stations and
subject such stations to continuing review and regulation. The NRC review and
regulatory process covers, among other things, the operations, maintenance,
and environmental and radiological aspects of such stations. The NRC may
modify, suspend or revoke licenses and impose civil penalties for failure to
comply with the Atomic Energy Act, the regulations under such Act or the terms
of such licenses.
Nuclear operations have been, and remain, an important focus of ComEd--given
the impact of such operations on overall O&M expenses and the ability of
nuclear power plants to produce electric
11
<PAGE>
energy at a relatively low marginal cost. ComEd operates five nuclear power
plants, ranging from the older Dresden and Quad Cities Stations to the more
recently completed LaSalle, Byron and Braidwood Stations, and is intent upon
safe, reliable and efficient operation. See "Changes in the Electric Utility
Industry--Response to Regulatory Changes" above for information regarding
ComEd's permanent cessation of nuclear generation operations at its Zion
Station.
ComEd's LaSalle Station is currently on the NRC's list of plants that
require increased regulatory scrutiny. Dresden Station had been included on
the list since 1992 and LaSalle and Zion Stations were added in January 1997.
In July 1998, the NRC removed Dresden Station from the list because of
improved performance at the station, and also administratively removed Zion
Station from the list because of ComEd's decision to permanently cease further
nuclear operations at that plant. The listing of LaSalle Station does not
prevent ComEd from operating the generating units; however, it does mean that
the NRC will devote additional resources to monitoring ComEd's operating
performance and that ComEd will need to work to demonstrate to the NRC the
sustainability of improvements which it believes it has undertaken and is
continuing to implement. In January 1998, the NRC noted a declining
performance trend at Quad Cities Station. In March 1998, the NRC stated that
weaknesses were observed with respect to certain operations, maintenance and
engineering activities at Quad Cities Station. In July 1998, the NRC stated
that there had not been sufficient operational data to enable it to assess
Quad Cities Station's performance. The NRC indicated that it is monitoring
ComEd's ability to manage its nuclear operations in their entirety and that
the performance at any one facility will be viewed by the NRC in context with
the performance of ComEd's nuclear generating fleet as a whole. The NRC and
representatives of ComEd's management have met, and will continue to meet
periodically in the future, to discuss the status of recovery and restart
efforts and overall performance of the ComEd nuclear program.
ComEd has devoted, and intends to continue to devote, significant resources
to the management and operations of its nuclear generating stations. In recent
years, it has increased and reinforced the Nuclear Generation Group executive
leadership and station management with executives and managers drawn from
other utilities that have resolved similar operational and performance issues.
These efforts include the appointment of a new Chief Nuclear Officer in late
1997. ComEd has also sought to identify, anticipate and address operating and
performance issues in a safe, cost-effective manner, while seeking to improve
the availability and capacity factors of its nuclear generating units.
ComEd's activities, with respect to its nuclear generating stations, have
included improvements in operating and personnel procedures and repair and
replacement of equipment. Although performing such improvements can result in
longer unit outages, the improvements are expected to result in improved
operational performance when completed. LaSalle Units 1 and 2 were shut down
for extensive improvement work in September 1996. LaSalle Unit 1 was returned
to service in August 1998 after the NRC determined that ComEd had made
sufficient improvements at LaSalle Unit 1 for the unit to resume operations.
LaSalle Unit 2 is expected to restart during the second quarter of 1999. The
restart of LaSalle Unit 2 requires the resolution of material condition issues
similar to those of LaSalle Unit 1.
The NERC forecasted the possibility of electric energy shortages in the
summer of 1998 in light of continued outages at nuclear plants operated by
ComEd and other utilities in the Midwest power grid. ComEd took numerous steps
to support the reliability of its system during the summer of 1998. Such steps
included maximizing available on-system generating capacity during periods of
peak demand, arrangements to purchase power from other utilities,
reinforcements to the transmission systems of ComEd and neighboring utilities
to increase capacity and to provide voltage support, and working with
customers to manage the use of and demand for power. As a result of a unique
combination of heat, storms and equipment problems affecting utilities
throughout the Midwest region, on June 25, 1998, ComEd declared a NERC
generation deficiency alert Level 3, which is a statement that a firm load
loss is possible. No firm load losses were experienced in 1998.
12
<PAGE>
Generating station availability and performance during a year have been
issues in fuel reconciliation proceedings in assessing the prudence of fuel
and purchased power costs during such year. See "Rate Matters" above, for
information regarding the elimination of ComEd's FAC.
Based on ComEd's most recent study approved by the ICC, decommissioning
costs, including the cost of decontamination and dismantling, are estimated to
aggregate to $4.6 billion in current-year (1999) dollars, including a
contingency allowance. ComEd estimates that it will expend approximately $11.6
billion, including a contingency allowance, for decommissioning costs
primarily during the period from 2007 through 2034. Additionally, ComEd
estimates that it will expend an aggregate of approximately $226 million in
current-year (1999) dollars during the period 2000 through 2014 to maintain
Zion Station in a secured mode until decommissioning begins. All such costs
are expected to be funded by external decommissioning trusts, which ComEd
established in compliance with Illinois law and into which ComEd has been
making annual contributions. Future decommissioning cost estimates may be
significantly affected by the adoption of or changes to NRC regulations, as
well as changes in the assumptions used in making such estimates, including
changes in technology, available alternatives for the disposal of nuclear
waste and inflation. See Note 1 of Notes to Financial Statements, under
"Depreciation, Amortization of Regulatory Assets and Decommissioning," in the
February 19, 1999 Form 8-K Reports, which are incorporated herein by
reference, for additional information regarding decommissioning costs.
During the year 1998, civil penalties were imposed on ComEd on six occasions
for violations of NRC regulations in amounts aggregating $583,000. To ComEd's
knowledge, there is one current enforcement issue outstanding and under review
by the NRC.
The IDNS has jurisdiction over certain activities in Illinois relating to
nuclear power and safety, and radioactive materials. Effective June 1, 1987,
the IDNS replaced the NRC as the regulator and licensor of certain source, by-
product and special nuclear material in quantities not sufficient to form a
critical mass, including such material contained in various measuring devices
used at fossil-fuel power plants. The IDNS does not regulate ComEd's nuclear
generating stations. The IDNS has promulgated regulations which are
substantially similar to the corresponding federal regulations. The IDNS also
has authority to license a low-level radioactive waste disposal facility and
to regulate alternative methods for disposing of materials which contain only
trace amounts of radioactivity.
The uranium mining and milling operations of Cotter are subject to
regulation by the state of Colorado and the NRC.
Environmental. ComEd is subject to regulation regarding environmental
matters by the United States and by the states of Illinois, Iowa and, in the
case of Cotter, Colorado, and by local jurisdictions where ComEd operates its
facilities. The IPCB has jurisdiction over environmental control in the state
of Illinois, which includes authority to regulate air, water and noise
emissions and solid waste disposal, together with the Illinois EPA, which
enforces regulations of the IPCB and issues permits in connection with
environmental control. The U.S. EPA administers certain federal statutes
relating to such matters. The IPCB has published a proposed rule under which
it would have the power to regulate radioactive air pollutants under the
Illinois Environmental Protection Act and the Federal Clean Air Act Amendments
of 1977.
Air quality regulations, promulgated by the IPCB in accordance with federal
standards, impose restrictions on the emission of particulates, sulfur
dioxide, nitrogen oxides and other air pollutants and require permits from the
respective state and local environmental protection agencies for the operation
of emission sources. Permits authorizing operation of ComEd's fossil fuel
generating facilities subject to this requirement have been obtained and,
where such permits are due to expire, ComEd has, in a timely manner, filed
applications for renewal or requested extensions of the existing permits.
13
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Under the Federal Clean Water Act, NPDES permits for discharges into
waterways are required to be obtained from the U.S. EPA or from the state
environmental agency to which the permit program has been delegated. Those
permits must be renewed periodically. ComEd either has NPDES permits for all
of its generating stations or has pending applications for such permits under
the current delegation of the program to the Illinois EPA. ComEd is also
subject to the jurisdiction of certain pollution control agencies of the state
of Iowa with respect to the discharge into the Mississippi River from Quad
Cities Station.
The Clean Air Act Amendments require reductions in nitrogen oxide emissions
from ComEd's fossil fuel generating units. In January 1996, the U.S. EPA
issued a final rule exempting existing sources inside the Chicago ozone non-
attainment area from further nitrogen oxide emission reductions; however, this
exemption is limited pending the finalization of the U.S. EPA Clean Air Act,
Section 110. The U.S. EPA issued a final rule in late 1998 which mandates
reductions in nitrogen oxide emissions to address ozone transport problems in
much of the eastern United States. In its current form, the final rule
requires electric utility sources in a 22-state region to meet a nitrogen
oxide equivalent of 0.15 lbs/MBtu, implemented by a cap and trade program.
Under the Acid Rain program, the U.S. EPA prepared nitrogen oxide emission
regulations that apply to all of ComEd's boilers with a compliance date of
January 1, 2000. These regulations include limits for cyclone and tangentially
fired boilers of 0.86 and 0.40 lbs/mm Btu, respectively.
CERCLA provides for immediate response and removal actions coordinated by
the U.S. EPA to releases of hazardous substances into the environment and
authorizes the U.S. Government either to clean up sites at which hazardous
substances have created actual or potential environmental hazards or to order
persons responsible for the situation to do so. Under CERCLA, generators and
transporters of hazardous substances, as well as past and present owners and
operators of hazardous waste sites, are made strictly, jointly and severally
liable for the cleanup costs of waste at sites, most of which are listed by
the U.S. EPA on the NPL. These responsible parties can be ordered to perform a
cleanup, can be sued for costs associated with a U.S. EPA directed cleanup,
may voluntarily settle with the U.S. Government concerning their liability for
cleanup costs, or may voluntarily begin a site investigation and site
remediation prior to listing on the NPL under state oversight. Various states,
including Illinois, have enacted statutes which contain provisions
substantially similar to CERCLA. ComEd and its subsidiaries are or are likely
to become parties to proceedings initiated by the U.S. EPA, state agencies
and/or other responsible parties under CERCLA with respect to a number of
sites, including MGP sites, or may voluntarily undertake to investigate and
remediate sites for which they may be liable under CERCLA.
MGPs manufactured gas in Illinois from approximately 1850 to 1950. ComEd
generally did not operate MGPs as a corporate entity but did, however, acquire
MGP sites as part of the absorption of smaller utilities. Approximately half
of these sites were transferred to Northern Illinois Gas Company as part of a
general conveyance in 1954. ComEd also acquired former MGP sites as vacant
real estate on which ComEd facilities have been constructed. To date, ComEd
has identified 44 former MGP sites for which it may be liable for remediation.
ComEd presently estimates that its costs of former MGP site investigation and
remediation will aggregate from $25 million to $150 million in current-year
(1999) dollars. It is expected that the costs associated with investigation
and remediation of former MGP sites will be incurred over a period not to
exceed 30 years. Because ComEd is not able to determine the most probable
liability for such MGP costs, in accordance with accounting standards, a
reserve of $25 million has been included in other noncurrent liabilities on
the Consolidated Balance Sheets in the February 19, 1999 Form 8-K Reports,
which are incorporated herein by reference, as of December 31, 1998 and 1997,
which reflects the low end of the range of ComEd's estimate of the liability
associated with former MGP sites. In addition, as of December 31, 1998 and
1997, a reserve of $8 million has been included in other noncurrent
liabilities on the Consolidated Balance Sheets in the February 19, 1999 Form
8-K Reports, which are incorporated herein by reference, representing
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ComEd's estimate of the liability associated with cleanup costs of remediation
sites other than former MGP sites. Approximately half of this reserve relates
to anticipated cleanup costs associated with a property formerly used as a
tannery which was purchased by ComEd in 1973. Unicom and ComEd presently
estimate that ComEd's costs of investigating and remediating the former MGP
and other remediation sites, pursuant to CERCLA and state environmental laws,
will not have a material impact on the financial position or results of
operations of Unicom or ComEd. These cost estimates are based on currently
available information regarding the responsible parties likely to share in the
costs of responding to site contamination, the extent of contamination at
sites for which the investigation has not yet been completed and the cleanup
levels to which sites are expected to have to be remediated.
The outcome of many of the regulatory proceedings referred to above, if not
favorable, could have a material adverse effect on Unicom and ComEd's future
business and operating results.
From time to time, Unicom and its subsidiaries are, or are claimed to be, in
violation of or in default under orders, statutes, rules or regulations
relating to environmental controls and other matters, compliance plans imposed
upon or agreed to by them or permits issued by various state and federal
agencies for the construction or operation of their facilities. Unicom and
ComEd do not believe, so far as they now foresee, that such violations or
defaults will have a material adverse effect on their future business and
operating results, except for events otherwise described in these Annual
Reports on Form 10-K, which could have such an effect.
See "Item 3. Legal Proceedings" regarding Cotter.
Employees
Unicom and its subsidiary companies had approximately 15,962 employees as of
December 31, 1998. ComEd had approximately 15,859 employees as of December 31,
1998 of which approximately 8,921 ComEd employees were represented by IBEW
Local 15.
The Collective Bargaining Agreement with Local 15 became effective August
25, 1997, and provides, among other things, for a term expiring on March 31,
2001. A previously negotiated general wage increase of 1.5% was effective
April 1, 1997, for all employees covered by the Collective Bargaining
Agreement. Additionally, a general wage increase of 1.5% was effective October
13, 1997, and was applied on a retroactive basis to March 31, 1997. For each
of the remaining three years, a 3% general wage increase will be granted to
employees covered by the Collective Bargaining Agreement, effective the
beginning of the pay period that includes April 1st of each such year.
The supplemental agreements covering the life insurance, savings and
investment plan, and health care plans are effective through March 31, 2001.
The supplemental agreement covering pension benefits is effective through
September 30, 1999.
Interconnections
ComEd has interconnections for the transmission of electricity with Central
Illinois Light Company, Central Illinois Public Service Company (a subsidiary
of Ameren), Illinois Power Company, Indiana Michigan Power Company (a
subsidiary of American Electric Power Company), Alliant West, MidAmerican
Energy Company, Northern Indiana Public Service Company, Wisconsin Electric
Power Company and Alliant East for the purpose of exchanging energy and for
other forms of mutual assistance.
ComEd and 44 other Midwest power systems are regular members of MAIN, which
also includes 20 associate members. The members have entered into an agreement
to work together to ensure the reliability of electric power production and
transmission throughout the area they serve.
15
<PAGE>
ComEd joined with other Midwestern utilities to form a regional Midwest ISO
in January 1998. See "Changes in the Electric Utility Industry--Response to
Regulatory Changes" above for additional information.
Franchises
ComEd's franchises are, in general, deemed adequate to permit it to engage
in the business it now conducts.
In the City, ComEd operates under a nonexclusive electric franchise
ordinance, effective January 1, 1992, and continuing in force until December
31, 2020. ComEd derives approximately one-third of its ultimate consumer
revenues from customers located within the City. See "Item 3. Legal
Proceedings" regarding a settlement agreement reached with the City.
The electric business outside of the City is conducted in municipalities
under nonexclusive franchises and, where required, under certificates of
convenience and necessity granted by the ICC. The following tabulation
summarizes, as of December 31, 1998, the expiration dates of the electric
franchises held in the 395 municipalities outside of the City capable of
granting franchises and in which ComEd currently provides electric service.
<TABLE>
<CAPTION>
Estimated
Number of Aggregate
Franchise Expiration Periods Municipalities Population
- ---------------------------- -------------- ----------
<S> <C> <C>
1999-2006............................................. 2 82,000
2007-2017............................................. 10 96,000
2018-2028............................................. 3 4,000
2029-2039............................................. 1 *
2040 and subsequent years............................. 376 4,127,000
No stated time limit.................................. 3 61,000
</TABLE>
- --------
*Less than 1,000 people.
16
<PAGE>
Executive Officers of the Registrant
The effective year of election of the officers to their present positions and
the prior positions they have held with Unicom or other companies, since
January 1, 1994, are described below.
<TABLE>
<CAPTION>
Name and Age Position
---------------------------- -----------------------------------------------
<C> <S>
*John W. Rowe, 53 Chairman, President and Chief Executive Officer
of Unicom and ComEd since March 1998; previ-
ously President and Chief Executive Officer of
New England Electric System.
*Oliver D. Kingsley, Jr., 56 Executive Vice President and President and
Chief Nuclear Officer--Nuclear Generation
Group of ComEd since October 1997; previously
Chief Nuclear Officer at the Tennessee Valley
Authority.
*Robert J. Manning, 56 Executive Vice President and President--Compet-
itive Operations since March 1998; previously
Executive Vice President of ComEd since Janu-
ary 1997 and President--Fossil Generation
Group of ComEd since October 1997; previously
Senior Vice President of ComEd.
*Pamela B. Strobel, 46 Executive Vice President and General Counsel of
Unicom and ComEd since January 1999; previ-
ously Senior Vice President and General Coun-
sel of Unicom and ComEd, October 1997 to De-
cember 1998; previously Vice President and
General Counsel of ComEd.
*John C. Bukovski, 56 Senior Vice President and Chief Financial Offi-
cer of Unicom and ComEd since October 1997;
previously Vice President and Chief Financial
Officer of Unicom and ComEd.
Frank M. Clark, 53 Senior Vice President of Unicom and ComEd since
January 1999; previously Vice President of
ComEd, January 1997 to December 1998; previ-
ously Governmental Affairs Vice President 1996
to January 1997 and Governmental Affairs Man-
ager.
Ruth Ann M. Gillis, 44 Senior Vice President of Unicom and ComEd since
January 1999; previously Vice President and
Treasurer of Unicom and ComEd, September 1997
to December 1998; previously Vice President,
Chief Financial Officer and Treasurer of the
University of Chicago Hospitals and Health
System from 1996 to 1997 and Senior Vice Pres-
ident and Chief Financial Officer of American
Bank and Trust Company.
*Paul D. McCoy, 48 Senior Vice President of Unicom and ComEd since
October 1997; previously Vice President of
ComEd.
*S. Gary Snodgrass, 47 Senior Vice President of Unicom and ComEd since
October 1997; Vice President of Unicom and
ComEd, September 1997 to October 1997; previ-
ously Vice President of USG Corporation.
*Robert E. Berdelle, 43 Vice President and Comptroller of Unicom and
ComEd since January 1999; previously Comptrol-
ler of Unicom and ComEd, July 1997 to December
1998; previously held various financial
reporting and analysis positions within ComEd.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Name and Age Position
------------------------ -------------------------------------------------------------
<C> <S>
John T. Costello, 50 Vice President of Unicom and ComEd since 1996; previously
Manager of Corporate Relations of ComEd, 1995 to 1996 and
Manager of Public Affairs of ComEd.
Patricia L. Kampling, 39 Treasurer of Unicom and ComEd since February 1999; previously
Manager of Finance of Unicom and ComEd, May 1998 to February
1999; previously Assistant Treasurer of Unicom and ComEd.
John P. McGarrity, 37 Associate General Counsel and Secretary of Unicom and ComEd
since January 1999; previously Associate General Counsel of
Unicom and ComEd, February 1998 to January 1999; previously
a partner with Sidley and Austin.
</TABLE>
--------
* Executive Officers for Section 16 reporting purposes.
The present term of office of each of the above executive officers extends
to the first meeting of Unicom's Board of Directors after the next annual
election of Directors scheduled to be held on May 25, 1999.
There are no family relationships among the executive officers, directors
and nominees for director of Unicom.
18
<PAGE>
Operating Statistics
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Operating Revenues (thousands of dol-
lars)(1):
Residential.............................. $2,551,741 $2,552,742 $2,541,873
Small commercial and industrial.......... 2,187,532 2,153,113 2,113,716
Large commercial and industrial.......... 1,406,720 1,467,574 1,445,708
Public authorities....................... 510,185 505,907 503,004
Electric railroads....................... 31,022 29,785 29,651
Provisions for revenue refunds--ultimate
consumers............................... (21,848) (45,470) --
Sales for resale......................... 397,157 336,480 235,041
Other revenues........................... 88,744 82,891 68,031
---------- ---------- ----------
Total................................. $7,151,253 $7,083,022 $6,937,024
========== ========== ==========
Sales (millions of kilowatthours):
Residential.............................. 23,942 22,151 22,310
Small commercial and industrial.......... 27,005 25,859 25,131
Large commercial and industrial.......... 24,043 24,074 23,896
Public authorities....................... 7,472 7,323 7,336
Electric railroads....................... 433 418 424
Sales for resale......................... 14,744 15,679 12,178
---------- ---------- ----------
Total................................. 97,639 95,504 91,275
========== ========== ==========
Sources of Electric Energy (millions of
kilowatthours):
Generation--
Nuclear................................. 53,958 49,136 62,610
Fossil.................................. 29,212 36,604 30,315
Fast-start peaking units................ 132 121 123
---------- ---------- ----------
Net generation........................ 83,302 85,861 93,048
Purchased power.......................... 20,704 16,672 6,129
Company use and losses................... (6,367) (7,029) (7,902)
---------- ---------- ----------
Total................................. 97,639 95,504 91,275
========== ========== ==========
Cost of Fuel Consumed (per million Btu):
Nuclear.................................. $0.57 $0.57 $0.53
Coal..................................... $2.38 $2.28 $2.41
Oil...................................... $3.49 $3.90 $3.41
Natural gas.............................. $2.39 $2.69 $2.75
Average all fuels........................ $1.23 $1.33 $1.17
Peak Load (kilowatts)..................... 19,012,000 18,497,000 18,916,000
Number of Customers (at end of year):
Residential.............................. 3,134,490 3,123,364 3,102,101
Small commercial and industrial.......... 304,208 291,143 289,803
Large commercial and industrial.......... 1,794 1,566 1,550
Public authorities and electric rail-
roads................................... 14,051 12,182 12,144
Sales for resale......................... 62 51 44
---------- ---------- ----------
Total................................. 3,454,605 3,428,306 3,405,642
========== ========== ==========
Average Annual Revenue per Residential
Customer................................. $814.08 $817.31 $819.40
Average Kilowatthour Use per Residential
Customer................................. 7,642 7,108 7,213
Average Revenue per Kilowatthour:
Residential.............................. 10.66c 11.52c 11.39c
Small commercial and industrial.......... 8.10c 8.33c 8.41c
Large commercial and industrial.......... 5.85c 6.10c 6.05c
</TABLE>
- --------
(1) See "Rate Matters" on page 8.
19
<PAGE>
Year 2000 Conversion
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations," subcaption "Liquidity and Capital Resources--Year 2000
Conversion" in the February 19, 1999 Form 8-K Reports, which are incorporated
herein by reference, for information regarding Unicom and ComEd's Year 2000
conversion.
Market Risks
ComEd is exposed to market risk due to changes in interest rates and the
market price for electricity. Exposure for interest rate changes relates to
its long-term debt and preferred equity obligations. Exposure to electricity
market price risk relates to forward activities taken to manage effectively
the supply of, and demand for, the electric generation capability of ComEd's
generating plants. ComEd has implemented an integrated risk management
framework to manage such risks. A corporate Risk Management Committee defines
the Company's risk tolerance and establishes appropriate position limits, and
corporate policies and procedures have been implemented to minimize the
exposure to market risk. ComEd does not currently utilize derivative commodity
or financial instruments for trading or speculative purposes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," subcaption "Liquidity and Capital Resources--Interest Rate
Exposure and Market Price Exposure," in the February 19, 1999 Form 8-K
Reports, which are incorporated herein by reference, for additional
information.
Forward-Looking Information
Except for historical data, the information contained in these Annual
Reports constitutes forward-looking statements. Forward-looking statements are
inherently uncertain and subject to risks. Such statements should be viewed
with caution. Actual results or experience could differ materially from the
forward-looking statements as a result of many factors. Forward-looking
statements in this report include, but are not limited to: (1) statements
regarding expectations of revenue reductions and collections of future CTC
revenues as a result of the 1997 Act in "Item 1. Business," subcaption
"Changes in the Electric Utility Industry--The 1997 Act," (2) statements
regarding estimated capital expenditures in "Item 1. Business," subcaption
"Construction Program," (3) statements regarding the estimated return to
service of certain nuclear generating units and the costs of purchased power
in "Item 1. Business," subcaption "Regulation--Nuclear," (4) statements
regarding the costs of decommissioning nuclear generating stations in "Item 1.
Business," subcaption "Regulation--Nuclear," (5) statements regarding cleanup
costs associated with MGPs and other remediation sites in "Item 1. Business,"
subcaption "Regulation--Environmental," and (6) "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Item 8. Financial Statements and Supplementary Data" which, in the case of
Unicom, incorporate portions of Unicom's February 19, 1999 Form 8-K Report,
which is incorporated herein by reference, which contain forward-looking
information as described therein, and in the case of ComEd, incorporate
portions of ComEd's February 19, 1999 Form 8-K Report, which is incorporated
herein by reference, which contain forward-looking information as described
therein. Management cannot predict the course of future events or anticipate
the interaction of multiple factors beyond management's control and their
effect on revenues, project timing and costs. The statements regarding revenue
reductions and collections of future CTC revenues are subject to unforeseen
developments in the market for electricity in Illinois resulting from
regulatory changes. The statements regarding estimated capital expenditures,
estimated return to service of nuclear generation units, decommissioning costs
and cleanup costs are subject to changes in the scope of work and manner in
which the work is performed and consequent changes in the timing and level of
the projected expenditure, and are also subject to changes in laws and
regulations or their interpretation or enforcement. The statements regarding
the estimated return to service of nuclear generating units are subject to the
concurrence of the NRC with proceeding to power operations. Unicom and ComEd
make no commitment to disclose any revisions to the forward-looking
statements, or any facts, events or circumstances after the date hereof that
may bear upon forward-looking statements.
20
<PAGE>
Item 2. Properties.
ComEd's electric properties are located in Illinois and the Indiana
Company's electric facilities are located in Indiana. In management's
opinion, ComEd and the Indiana Company's operating properties are adequately
maintained and are substantially in good operating condition. The electric
generating, transmission, distribution and general facilities of ComEd and the
Indiana Company represent approximately 58%, 13%, 23% and 6%, respectively, of
their net investment in electric plant and equipment in service (after
reflecting the closure of Zion Station and the sales of State Line and Kincaid
Stations). The net investment percentages include the impact of the $3.0
billion plant impairment recorded in June 1998.
The electric generating stations, substations and a portion of the
transmission rights of way of ComEd and the Indiana Company are owned in fee.
A significant portion of the electric transmission and distribution facilities
is located over or under highways, streets, other public places or property
owned by others, for which permits, grants, easements or licenses, deemed
satisfactory by ComEd, but without examination of underlying land titles, have
been obtained. The principal plants and properties of ComEd are subject to
the lien of ComEd's Mortgage dated July 1, 1923, as amended and supplemented,
under which ComEd's first mortgage bonds are issued.
The net generating capability of ComEd, as of December 31, 1998, is derived
from the following electric generating facilities:
<TABLE>
<CAPTION>
Net Generating Capability
Station Location (kilowatts)(1)
------- -------------- -------------------------
<S> <C> <C>
Nuclear--
Dresden Near Morris 1,588,000
Quad Cities Near Cordova 1,183,000(2)
LaSalle County Near Seneca 2,156,000
Byron Near Byron 2,240,000
Braidwood Near Braidwood 2,240,000
Fossil--
Collins Near Morris 2,698,000
Powerton Near Pekin 1,538,000
Joliet 6 Near Joliet 314,000
Joliet 7 & 8 Near Joliet 1,044,000
Will County Near Lockport 1,092,000
Waukegan Waukegan 789,000
Crawford Chicago 542,000
Fisk Chicago 326,000
Fast-Start Peaking Units Various 1,429,000(3)
----------
Company owned net non-summer
generating capability 19,179,000
Deduct--Summer limitations 544,000
----------
Company owned net summer
generating capability 18,635,000
Add--Capability under long-term
purchase power agreements 1,598,000(4)
----------
Net summer generating capability 20,233,000
==========
</TABLE>
- --------
(1) Reflects a re-rating of certain generating stations as of January 1, 1999.
(2) Excludes the 25% undivided interest of MidAmerican Energy Company in the
Quad Cities Station.
(3) Such generating units are normally designed for use primarily during the
maximum load periods of the year or during system operating emergencies.
Such units are capable of starting and coming on-line quickly.
(4) ComEd sold its Kincaid and State Line generating stations in February 1998
and December 1997, respectively. Under the terms of the sales, ComEd
entered into exclusive 15-year purchase power agreements for the output of
the plants.
The net generating capability available for operation at any time may be
less due to regulatory restrictions, fuel restrictions, efficiency of cooling
facilities and generating units being temporarily out of service for
inspection, maintenance, refueling, repairs or modifications required by
regulatory
21
<PAGE>
authorities. ComEd's highest peak load experienced to date occurred on August
14, 1995 and was 19,212,000 kilowatts; and the highest peak load experienced
to date during a winter season occurred on January 5, 1999 and was 14,222,000
kilowatts. ComEd's kilowatthour sales and generation are generally higher,
primarily during the summer periods but also during the winter periods, when
temperature extremes create demand for either summer cooling or winter
heating.
On March 22, 1999, ComEd entered into an Asset Sale Agreement providing for
the sale of substantially all of the assets of its fossil generation business
to EME for a cash purchase price of $4.813 billion. See "Changes in the
Electric Utility Industry--Fossil Plants Sale Agreement" above for additional
information.
Major electric transmission lines owned and in service are as follows:
<TABLE>
<CAPTION>
Voltage Circuit
(Volts) Miles
------- -------
<S> <C>
765,000........................................................... 90
345,000........................................................... 2,545
138,000........................................................... 2,755
</TABLE>
ComEd's electric distribution system includes 39,299 pole line miles of
overhead lines and 38,235 cable miles of underground lines. A total of
approximately 1,353,115 poles are included in ComEd's distribution system, of
which about 593,481 poles are owned jointly with telephone companies.
Item 3. Legal Proceedings.
During 1989 and 1991, actions were brought in federal and state courts in
Colorado against ComEd and Cotter seeking unspecified damages and injunctive
relief based on allegations that Cotter has permitted radioactive and other
hazardous material to be released from its mill into areas owned or occupied
by the plaintiffs resulting in property damage and potential adverse health
effects. With respect to Cotter, in 1994 a federal jury returned nominal
dollar verdicts on eight bellwether plaintiffs' claims in the 1989 cases,
which verdicts were upheld on appeal. The remaining claims in the 1989 actions
have been settled and dismissed. On July 15, 1998, a jury verdict was rendered
in Dodge v. Cotter (United States District Court for the District of Colorado,
Civil Action No. 91-Z-1861), a case relating to 14 of the plaintiffs in the
1991 cases. The verdict against Cotter included compensatory and punitive
damages totaling approximately $3 million (not including prejudgment interest,
which has not yet been calculated, and which Cotter anticipates may bring the
total award to under $6 million), together with medical monitoring. The matter
is currently on appeal. Although the other 1991 cases will necessarily involve
the resolution of numerous contested issues of fact and law, Unicom and
ComEd's determination is that these actions will not have a material impact on
their financial position or results of operations.
In July 1995, the Chicago area experienced several consecutive days of
unusually high temperatures coupled with high humidity. Between July 12 and
14, 1995, ComEd experienced record demand for electricity. On July 14, 1995, a
fire in a substation caused a power outage to approximately 40,000 customers.
Other equipment failures in the same general area caused certain of these
customers to be without power for up to 48 hours. In the wake of these power
outages, three class action lawsuits were filed against ComEd seeking recovery
of damages for property losses allegedly suffered. One suit seeks at least $10
million in damages; the other two suits seek unspecified damages. One
individual suit was also filed seeking damages of less than $100,000 for
property losses. ComEd believes it has a meritorious defense to these actions
and intends to vigorously defend. Nonetheless, ComEd may consider settlement
if it appears economically prudent to do so.
ComEd also has several matters pending before various local and state
agencies which pertain to the assessment of Company property for local tax
purposes. ComEd has instituted several proceedings in the courts challenging
adverse determinations by certain of these state and local agencies. All taxes
22
<PAGE>
attributable to such determinations have been paid and reflected on the
financial statements of ComEd. ComEd also has appeals pending in applicable
counties concerning property tax assessments for its Braidwood nuclear
generating station. This proceeding seeks refunds and reduced valuations
resulting in lower property taxes for the challenged and subsequent years.
ComEd recently modified an agreement with respect to LaSalle nuclear
generating station that levelled tax rates and tax assessments through 2004,
payable in 2005, and extended the agreement to include all applicable taxing
bodies, thereby avoiding litigation of this issue.
The Montana Department of Revenue has made additional tax assessments on
Decker Coal Company ("Decker") for severance taxes, gross proceeds taxes and
resource indemnity trust taxes covering the years 1993-1995. The amount of
additional taxes assessed, including interest, is approximately $5 million.
Under the terms of a tax and royalty indemnity agreement, ComEd may be
responsible for some or all of these additional taxes and interest, to the
extent they are shown to be payable. ComEd has the right to direct the
challenge of these assessments and may be responsible for the cost of
conducting the defense of Decker from these assessments.
On March 22, 1999, ComEd reached a settlement agreement with the City to end
the arbitration proceeding between ComEd and the City regarding the January 1,
1992 franchise agreement and a supplemental agreement between them. Under the
terms of the settlement agreement, the pending arbitration is to be dismissed
with prejudice and the City is to release ComEd from all claims the City may
have under the supplemental agreement. The settlement agreement is subject to
the approval of the City Council.
As part of the settlement agreement, ComEd and the City have agreed to a
revised combination of ongoing work under the franchise agreement and new
initiatives that will result in defined transmission and distribution
expenditures by ComEd to improve electric service in the City. The settlement
agreement provides that ComEd will be subject to liquidated damages if the
projects are not completed by various dates, unless it is prevented from doing
so by events beyond its reasonable control. In addition, ComEd and the City
have agreed to establish an Energy Reliability and Capacity Account, into
which ComEd would deposit $25 million following the effectiveness of the
settlement agreement and up to $25 million at the end of each of the years
2000, 2001 and 2002, to help ensure an adequate and reliable electric supply
for the City. ComEd's current construction budget considers the expenditures
discussed above related to transmission and distribution projects, and
therefore, no changes to that budget are expected. However, ComEd does expect
to record a charge to earnings of approximately $15 million (after-tax), in
the first quarter of 1999, primarily related to its obligation to establish
and contribute to the Reliability Account.
The IDR has issued Notices of Tax Liability to ComEd alleging deficiencies
in Illinois invested capital tax payments for the years 1988 through 1996. The
alleged deficiencies including interest and penalties totaled approximately
$45 million as of December 31, 1998. ComEd has protested the notices, and the
matter is currently pending before the IDR's Office of Administrative
Hearings. Interest will continue to accrue on the alleged tax deficiencies.
In November and December of 1997, Unicom and its directors were served with
seven shareholder derivative lawsuits in federal and state court. All of the
suits asserted identical claims that the directors breached fiduciary duties
to the shareholders by allegedly failing to properly supervise ComEd's nuclear
program. Each plaintiff alleged that this caused ComEd to violate NRC rules,
which has cost ComEd millions of dollars. The plaintiffs sought to have the
directors reimburse ComEd for these costs. The suits have been dismissed
because no demand was made upon ComEd's board to pursue a derivative action on
behalf of ComEd, and demand was not excused. In September 1998, the plaintiffs
made such a demand on ComEd's board. On October 22, 1998, the board appointed
a special committee to review the merits of the demand. The special committee
is conducting its review and will report its findings to the full board.
Unicom and ComEd's preliminary assessment of these claims is that they are
without merit.
23
<PAGE>
In October 1997, six ComEd employees, who were formerly located at ComEd's
nuclear station in Zion, Illinois, brought federal and state claims against
ComEd alleging that they were relocated and demoted as the result of raising
nuclear safety concerns. They filed an eighteen-count complaint in Cook County
claiming retaliatory demotion, retaliatory constructive discharge and
intentional infliction of emotional distress. They requested reinstatement in
their former positions, back pay, compensatory damages, attorneys' fees and
punitive damages. The aggregate amount of punitive damages requested equals
$180 million. On May 19, 1998, the state court dismissed the state claims in
their entirety. They also filed a claim with the U.S. Department of Labor
under the Energy Reorganization Act. The Department of Labor, OSHA Division,
has issued an investigative finding in favor of the six employees. ComEd has
filed for a full de novo hearing before an Administrative Law Judge and does
not believe that its exposure with respect to these claims is material to
ComEd's financial position or results of operations.
On April 28, 1997, Tower Leasing, Inc. ("Tower") and QST Energy, Inc.
("QST") filed a complaint with the ICC alleging that ComEd violated Illinois
law and its own tariffs by preventing Tower and QST from installing a
cogeneration facility at Sears Tower in Chicago, Illinois and interconnecting
such facility with ComEd's system in that building. Tower and QST asked the
ICC to enter an order that would essentially require ComEd to assist in the
implementation of the proposed facility. If Tower and QST are allowed to
pursue the installation and interconnection of their proposed facility, ComEd
could lose customers providing up to approximately $10 million in annual
revenues. ComEd does not believe that it is obligated to allow Tower and QST
to implement their proposed facility. ComEd also believes that the proposed
facility would degrade reliability of service to Sears Tower and would be
inconsistent with Illinois law. The ICC issued an order dismissing the
complaint and denying the relief requested by Tower. Tower's petition for
rehearing was denied on July 10th. In August 1998, Tower and QST appealed the
ICC's decision to the state appellate court. No decision is expected before
the third quarter of 1999. ComEd believes that the ICC's order will be upheld
on appeal.
On November 14, 1997, the CHA filed an application with the FERC, seeking to
require ComEd to provide transmission service to some of CHA's buildings so
that those buildings may take electric service from an alternate electric
supplier. ComEd maintains that the CHA is a retail customer ineligible for
transmission service. ComEd and the CHA have asked the FERC to hold
proceedings in abeyance pending the outcome of settlement negotiations. On
September 10, 1998, Prairieland Energy, Inc. ("Prairieland") filed an
application with the FERC, seeking to require ComEd to transmit power and
energy on behalf of Prairieland to the Chicago campus of its parent, the
University of Illinois. ComEd protested the filing because the application
either seeks prohibited retail wheeling or seeks approval of a sham wholesale
transaction between Prairieland and its parent. On December 28, 1998, the FERC
issued an order denying Prairieland's application. Should either of these
proceedings be resolved adversely to ComEd, ComEd could lose substantial
revenue. This revenue loss may be offset, however, by a stranded cost
obligation the CHA and the University of Illinois would owe ComEd under FERC
Order No. 888.
In June 1997, Torco Energy Marketing, Inc. filed an action against ComEd in
the Circuit Court of Cook County, Illinois, alleging that ComEd tortiously
interfered with Torco's proposed arrangement between Torco and Sargent & Lundy
LLC. Torco claims that, but for actions by ComEd, Sargent & Lundy would have
paid Torco $20 million to purchase a portion of the equity in Torco, and that
the venture would have had revenues of $2.6 billion. ComEd is vigorously
defending this matter. One count of the complaint has been dismissed. ComEd
intends to file a motion for summary judgment at the appropriate time.
On April 18, 1996, a ComEd truck driver struck a car that had slowed or
stopped to make a turn. The company truck pushed this car into oncoming
traffic causing a head-on collision with a third vehicle. The driver of this
third vehicle suffered extensive injuries resulting in numerous surgical
24
<PAGE>
procedures. The plaintiff, who is wheelchair bound, and the plaintiff's spouse
have made a combined demand of $55 million upon ComEd. Insurance coverage
above ComEd's $5 million self-insured retention should be available. The case
is currently scheduled for trial on May 17, 1999 in the Circuit Court of Cook
County, Illinois.
See "Item 1. Business," subcaptions "Rate Matters" and "Regulation" above,
for information concerning other legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
ComEd's securities and other securities guaranteed by ComEd are currently
rated by three principal securities rating agencies as follows:
<TABLE>
<CAPTION>
Standard Duff &
Moody's & Poor's Phelps
------- -------- ------
<S> <C> <C> <C>
First mortgage and secured pollution control bonds.. Baa2 BBB BBB
Publicly-held debentures and unsecured pollution
control obligations................................ Baa3 BBB- BBB-
Convertible preferred stock......................... baa3 BB+ BBB-
Preference stock.................................... baa3 BB+ BBB-
Trust Securities.................................... baa3 BB+ BBB-
Commercial paper.................................... P-2 A-2 D-2
</TABLE>
ComEd Funding Trust's securities are currently rated by three principal
securities rating agencies as follows:
<TABLE>
<CAPTION>
Standard Duff &
Moody's & Poors Phelps
------- -------- ------
<S> <C> <C> <C>
Transitional trust notes............................. Aaa AAA AAA
</TABLE>
As of March 1999, S&P's current rating outlook on ComEd's securities is
"Positive." In March 1999, S&P placed ComEd's securities on CreditWatch with
positive implications and Duff & Phelps placed ComEd's securities on "Rating
Watch-Up." Also, in March 1999, Moody's rating outlook on ComEd's securities
changed from "Stable" to "Positive."
In February 1999, S&P revised the general ratings scale for evaluating
preferred and preference stock issues of corporations. As a result of this
change in scale, ratings on ComEd's preferred and preference stocks, and Trust
Securities were lowered in February 1999.
On April 1, 1998, S&P issued a rating on Unicom's senior debt obligations of
BBB-. Ratings have not been obtained from Moody's or Duff & Phelps.
The above ratings reflect only the views of such rating agencies and each
rating should be evaluated independently from any other rating. Generally,
rating agencies base their ratings on information furnished to them by the
issuing company and on investigations, studies and assumptions by the rating
agencies. There is no assurance that any particular rating will continue for
any given period of time or that it will not be changed or withdrawn entirely
if, in the judgment of the rating agency, circumstances so warrant. Such
ratings are not a recommendation to buy, sell or hold securities.
25
<PAGE>
The following is a brief summary of the meanings of the above ratings and
the relative rank of the above ratings within each rating agency's
classification system.
Moody's top four long-term debt ratings (Aaa, Aa, A and Baa) are generally
considered "investment grade." Obligations rated Baa are considered as medium
grade obligations, neither highly protected nor poorly secured. Such
obligations lack outstanding investment characteristics and in fact have
speculative characteristics. A numerical modifier in Moody's system shows
relative standing within the principal rating category, with 1 indicating the
high end of that category, 2 the mid-range and 3 the low end. S&P's top four
bond ratings (AAA, AA, A and BBB) are generally considered to describe
obligations in which investment characteristics predominate. Obligations rated
BBB are regarded as having an adequate capacity to pay interest and repay
principal. Such obligations normally exhibit adequate protection parameters,
but adverse economic conditions or changing circumstances are more likely to
lead to weakened capacity to pay. A plus or minus sign in S&P's system shows
relative standing within its rating categories.
Both S&P and Moody's preferred stock ratings represent relative security of
dividends. Moody's top four preferred stock ratings (aaa, aa, a and baa) are
generally considered "investment grade." Moody's baa rating describes a
medium grade preferred stock, neither highly protected nor poorly secured.
S&P's top four preferred stock ratings (AAA, AA, A and BBB) are generally
considered "investment grade." S&P's BBB rating applies to medium grade
preferred stock which is below A ("sound") and above BB ("lower grade").
Duff & Phelps' credit rating scale has 17 alphabetical categories, of which
ratings AAA through BBB (with AAA being the highest rating) represent
investment grade securities. Ratings of BBB+, BBB and BBB- represent the
lowest category of "investment grade" rating. This category describes
securities with below average protection factors but which are considered
sufficient for institutional investment. Considerable variability in risk
occurs during economic cycles.
Moody's P-2 rating of commercial paper is the second highest of three
possible ratings. P-2 describes a strong capacity for repayment of short-term
promissory obligations. S&P rates commercial paper in four basic categories
with A-2 being the second highest category. Duff & Phelps rates commercial
paper in three basic categories, with D-2 indicating the middle category.
Further explanations of the significance of ratings may be obtained from the
rating agencies.
Additional information required by Item 5 is incorporated herein by
reference to the "Price Range and Cash Dividends Paid per Share of Common
Stock" on page 4 of Unicom's February 19, 1999 Form 8-K Report.
Item 6. Selected Financial Data.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Item 8. Financial Statements and Supplementary Data.
The information required by Items 6, 7 and 8 is incorporated herein by
reference to the "Summary of Selected Consolidated Financial Data" on page 4,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 5 through 23, and the audited consolidated financial
statements and notes thereto on pages 25 through 59 of Unicom's February 19,
1999 Form
8-K Report. Reference is also made to "Item 1. Business," subcaptions "Changes
in the Electric Utility Industry," "Construction Program" and "Regulation,"
for additional information.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
26
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by Item 10 relating to directors and nominees for
election as directors at Unicom's Annual Meeting of shareholders to be held on
May 25, 1999 is incorporated herein by reference to the information under the
heading "Security Ownership of Certain Beneficial Owners and Management" in
Unicom's definitive Proxy Statement ("1999 Proxy Statement") to be filed with
the SEC prior to April 30, 1999, pursuant to Regulation 14A under the
Securities Exchange Act of 1934. The information required by Item 10 relating
to executive officers is set forth under "Item 1. Business," subcaption
"Executive Officers of the Registrant" and under the heading "Security
Ownership of Certain Beneficial Owners and Management" in Unicom's 1999 Proxy
Statement, which is incorporated herein by reference.
Item 11. Executive Compensation.
The information required by Item 11 is incorporated herein by reference to
the information labelled "Compensation of Directors" and the paragraphs under
the heading "Executive Compensation" (other than the paragraphs under the
heading "Corporate Governance and Compensation Committee Report on Executive
Compensation") in Unicom's 1999 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by Item 12 is incorporated herein by reference to
the stock ownership information under the heading "Security Ownership of
Certain Beneficial Owners and Management" in Unicom's 1999 Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
None.
27
<PAGE>
ANNUAL REPORT ON FORM 10-K FOR COMMONWEALTH EDISON COMPANY
PART I
Item 1. Business.
See Unicom's "Item 1. Business" (other than the paragraphs under the
headings "General--Unregulated Operations," "Construction Program--Unregulated
Operations" and "Executive Officers of the Registrant"), which is incorporated
herein by this reference.
Executive Officers of the Registrant
The effective year of election of the officers to their present positions
and the prior positions they have held with ComEd or other companies, since
January 1, 1994, are described below.
<TABLE>
<CAPTION>
Name and Age Position
---------------------------- -----------------------------------------------
<C> <S>
*John W. Rowe, 53 Chairman, President and Chief Executive Officer
of ComEd and Unicom since March 1998; previ-
ously President and Chief Executive Officer of
New England Electric System.
*Oliver D. Kingsley, Jr., 56 Executive Vice President and President and
Chief Nuclear Officer--Nuclear Generation
Group of ComEd since October 1997; previously
Chief Nuclear Officer at the Tennessee Valley
Authority.
*Robert J. Manning, 56 Executive Vice President and President--Compet-
itive Operations since March 1998; previously
Executive Vice President of ComEd since Janu-
ary 1997 and President--Fossil Generation
Group of ComEd since October 1997; previously
Senior Vice President of ComEd.
*Pamela B. Strobel, 46 Executive Vice President and General Counsel of
ComEd and Unicom since January 1999; previ-
ously Senior Vice President and General Coun-
sel of ComEd and Unicom, October 1997 to De-
cember 1998; previously Vice President and
General Counsel of ComEd.
*John C. Bukovski, 56 Senior Vice President and Chief Financial Offi-
cer of ComEd and Unicom since October 1997;
previously Vice President and Chief Financial
Officer of ComEd and Unicom.
Frank M. Clark, 53 Senior Vice President of ComEd and Unicom since
January 1999; previously Vice President of
ComEd, January 1997 to December 1998; previ-
ously Governmental Affairs Vice President 1996
to January 1997 and Governmental Affairs Man-
ager.
Ruth Ann M. Gillis, 44 Senior Vice President of ComEd and Unicom since
January 1999; previously Vice President and
Treasurer of ComEd and Unicom, September 1997
to December 1998; previously Vice President,
Chief Financial Officer and Treasurer of the
University of Chicago Hospitals and Health
System from 1996 to 1997 and Senior Vice Pres-
ident and Chief Financial Officer of American
National Bank and Trust Company.
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Name and Age Position
------------------------ ---------------------------------------------------
<C> <S>
David R. Helwig, 48 Senior Vice President of ComEd since January 1999;
previously Vice President of ComEd, January 1998
to December 1998; previously General Manager of
General Electric Company's Nuclear Services Compa-
ny, 1997 to January 1998 and Vice President at
PECO Energy.
*Paul D. McCoy, 48 Senior Vice President of ComEd and Unicom since Oc-
tober 1997; previously Vice President of ComEd.
*S. Gary Snodgrass, 47 Senior Vice President of ComEd and Unicom since Oc-
tober 1997; Vice President of ComEd and Unicom,
September 1997 to October 1997; previously Vice
President of USG Corporation.
*Robert E. Berdelle, 43 Vice President and Comptroller of ComEd and Unicom
since January 1999; previously Comptroller of
ComEd and Unicom, July 1997 to December 1998; pre-
viously held various financial reporting and anal-
ysis positions within ComEd.
T. Oliver Butler, 47 Vice President of ComEd since July 1997; previously
Purchasing Vice President of ComEd, 1994 to 1997
and European Acquisition Manager--Geneva of Digi-
tal Corporation.
John T. Costello, 50 Vice President of ComEd and Unicom since 1996; pre-
viously Manager of Corporate Relations of ComEd,
1995 to 1996 and Manager of Public Affairs of
ComEd.
Christopher M. Crane, 40 Vice President of ComEd since October 1998; previ-
ously Vice President at the Tennessee Valley Au-
thority.
Louis O. DelGeorge, 51 Vice President of ComEd.
Emerson W. Lacey, 57 Vice President of ComEd.
J. Stephen Perry, 60 Vice President of ComEd since 1994; previously Se-
nior Vice President of Illinois Power Company.
James A. Small, 55 Vice President of ComEd.
Harold Gene Stanley, 58 Vice President of ComEd since September 1997; Site
Vice President at Braidwood Station, 1996 to 1997;
previously Vice President at Pennsylvania Power
and Light Company.
Patricia L. Kampling, 39 Treasurer of ComEd and Unicom since February 1999;
previously Manager of Finance of ComEd and Unicom,
May 1998 to February 1999; previously Assistant
Treasurer of ComEd and Unicom.
John P. McGarrity, 37 Associate General Counsel and Secretary of ComEd
and Unicom since January 1999; previously Associ-
ate General Counsel of ComEd and Unicom, February
1998 to January 1999; previously a partner with
Sidley and Austin.
</TABLE>
--------
* Executive Officers for Section 16 reporting purposes.
The present term of office of each of the above executive officers extends
to the first meeting of ComEd's Board of Directors after the next annual
election of Directors scheduled to be held on May 25, 1999.
There are no family relationships among the executive officers, directors
and nominees for director of ComEd.
29
<PAGE>
Item 2. Properties.
See Unicom's "Item 2. Properties," which is incorporated herein by this
reference.
Item 3. Legal Proceedings.
See Unicom's "Item 3. Legal Proceedings," which is incorporated herein by
this reference.
Item 4. Submission of Matters to a Vote by Security Holders.
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
See Unicom's "Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters", other than the last paragraph thereof and any references
to Unicom's senior debt obligations rating, which is incorporated herein by
reference.
Additional information required by Item 5 is incorporated herein by
reference to the "Cash Dividends Paid per Share of Common Stock" on page 4 of
ComEd's February 19, 1999 Form 8-K Report.
Item 6. Selected Financial Data.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Item 8. Financial Statements and Supplementary Data.
The information required by Items 6, 7 and 8 is incorporated herein by
reference to the "Summary of Selected Consolidated Financial Data" on page 4,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 5 through 22, and the audited consolidated financial
statements and notes thereto on pages 24 through 57 of ComEd's February 19,
1999 Form
8-K Report. Reference is also made to "Item 1. Business," subcaptions "Changes
in the Electric Utility Industry," "Construction Program" and "Regulation,"
for additional information.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by Item 10 relating to directors and nominees for
election as directors at ComEd's Annual Meeting of shareholders to be held on
May 25, 1999 is incorporated herein by reference to information under the
heading "Security Ownership of Certain Beneficial Owners and Management" in
ComEd's definitive Information Statement ("1999 Information Statement") to be
filed with the SEC prior to April 30, 1999, pursuant to Regulation 14C under
the Securities Exchange Act of 1934. The information required by Item 10
relating to executive officers is set forth under "Item 1. Business,"
subcaption "Executive Officers of the Registrant" and under the heading
"Security Ownership of Certain Beneficial Owners and Management" in ComEd's
1999 Information Statement, which is incorporated herein by reference.
30
<PAGE>
Item 11. Executive Compensation.
The information required by Item 11 is incorporated herein by reference to
the paragraph labelled "Compensation of Directors" and the paragraphs under
the heading "Executive Compensation" (other than the paragraphs under the
heading "Corporate Governance and Compensation Committee Report on Executive
Compensation") in ComEd's 1999 Information Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by Item 12 is incorporated herein by reference to
the stock ownership information under the heading "Security Ownership of
Certain Beneficial Owners and Management" in ComEd's 1999 Information
Statement.
Item 13. Certain Relationships and Related Transactions.
None.
31
<PAGE>
ANNUAL REPORTS ON FORM 10-K FOR UNICOM CORPORATION AND COMMONWEALTH EDISON
COMPANY
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)Financial Statements, Financial Statement Schedules and Exhibits:
<TABLE>
<CAPTION>
Page of
February 19, 1999
Form 8-K Report
------------------
Unicom ComEd
--------- --------
<S> <C> <C>
The following financial statements are incorporated into
the Unicom Annual Report on Form 10-K by reference to
the indicated page or pages of Unicom's February 19,
1999 Form 8-K Report, and into the ComEd Annual Report
on Form 10-K by reference to the indicated page or
pages of ComEd's February 19, 1999 Form 8-K Report:
Report of Independent Public Accountants.............. 24 23
Statements of Consolidated Operations for the years
1998, 1997 and 1996.................................. 25 24
Consolidated Balance Sheets--December 31, 1998 and
1997................................................. 26-27 25-26
Statements of Consolidated Capitalization--December
31, 1998 and 1997.................................... 28 27
Statements of Consolidated Retained Earnings (Deficit)
for the years 1998, 1997 and 1996.................... 29 28
Statements of Consolidated Cash Flows for the years
1998, 1997 and 1996.................................. 30 29
Notes to Financial Statements......................... 31-59 30-57
</TABLE>
<TABLE>
<CAPTION>
Annual
Report on
Page of Form 10-K
This ------------
Document Unicom ComEd
-------- ------ -----
<S> <C> <C> <C>
The following supplemental schedules are included in
the indicated Annual Report on Form 10-K:
Report of Independent Public Accountants on
Supplemental Schedule............................. 40 x
Report of Independent Public Accountants on
Supplemental Schedule............................. 41 x
Schedule II--Valuation and Qualifying Accounts for
each of the three years in the period
ended
December 31, 1998....................... 42 x x
</TABLE>
The following schedules are omitted as not applicable or not required
under rules of Regulation S-X: I, III, IV and V.
32
<PAGE>
The individual financial statements and schedules of ComEd's
nonconsolidated wholly owned subsidiaries have been omitted from Unicom and
ComEd's Annual Reports on Form 10-K because the investments are not
material in relation to ComEd's financial position or results of
operations. As of December 31, 1998, the assets of the nonconsolidated
subsidiaries, in the aggregate, were less than 1% of ComEd's consolidated
assets. The 1998 revenues of the nonconsolidated subsidiaries, in the
aggregate, were less than 1% of ComEd's consolidated annual revenues.
The following exhibits are filed with the indicated Annual Report on Form
10-K or incorporated therein by reference. Documents indicated by an
asterisk (*) are incorporated by reference to the File No. indicated.
Documents indicated by a plus sign (+) identify management contracts or
compensatory plans or arrangements.
<TABLE>
<CAPTION>
Exhibit
Number Description of Document Unicom ComEd
------- --------------------------------------------- ------ -----
<C> <S> <C> <C>
(2)-1 Asset Sale Agreement dated March 22, 1999. x
*(3)-1 Articles of Incorporation of Unicom effective
January 28, 1994. (File No. 1-11375, Form 10-K
for the year ended December 31, 1994,
Exhibit (3)-1). x
*(3)-2 Restated Articles of Incorporation of ComEd
effective February 20, 1985, including
Statements of Resolution Establishing Se-
ries, relating to the establishment of three
new series of ComEd preference stock known
as the "$9.00 Cumulative Preference Stock,"
the "$6.875 Cumulative Preference Stock" and
the "$2.425 Cumulative Preference Stock."
(File No. 1-1839, Form 10-K for the year ended
December 31, 1994, Exhibit (3)-2). x
*(3)-3 By-Laws of Unicom Corporation, effective Jan-
uary 28, 1994 as amended through May 28,
1998 (File No. 1-11375, Form 10-Q for the
quarter ended June 30, 1998, Exhibit (3)-3). x
*(3)-4 By-Laws of Commonwealth Edison Company, ef-
fective September 2, 1988 as amended through
May 28, 1998 (File No. 1-839, Form 10-Q for
the quarter ended June 30, 1998, Exhibit
(3)-4). x
*(4)-1 Mortgage of ComEd to Illinois Merchants Trust
Company, Trustee (Harris Trust and Savings
Bank, as current successor Trustee), dated
July 1, 1923, Supplemental Indenture thereto
dated August 1, 1944, and amendments and
supplements thereto dated, respectively, Au-
gust 1, 1946, April 1, 1953, March 31, 1967,
April 1, 1967, July 1, 1968, October 1,
1968, February 28, 1969, May 29, 1970, Janu-
ary 1, 1971, June 1, 1971, May 31, 1972,
June 1, 1973, June 15, 1973, October 15,
1973, May 31, 1974, June 13, 1975, May 28,
1976, January 15, 1977 and June 3, 1977
(File No. 2-60201, Form S-7, Exhibit
2-1). x
*(4)-2 Supplemental Indentures to Mortgage dated
July 1, 1923 dated, respectively, May 17,
1978, August 31, 1978, June 18, 1979, June
20, 1980, April 16, 1981, April 30, 1982,
April 15, 1983, April 13, 1984 and April 15,
1985 (File No. 2-99665, Form S-3, Exhibit
(4)-3). x
*(4)-3 Supplemental Indenture to Mortgage dated July
1, 1923 dated April 15, 1986 (File No. 33-
6879, Form S-3, Exhibit (4)-9). x
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document Unicom ComEd
------- --------------------------------------------- ------ -----
<C> <S> <C> <C>
*(4)-4 Supplemental Indentures to Mortgage dated
July 1, 1923 dated, respectively, February
15, 1990 and June 15, 1990 (File No. 33-
38232, Form S-3, Exhibits (4)-11 and (4)-
12). x
*(4)-5 Supplemental Indentures to Mortgage dated
July 1, 1923 dated, respectively, June 1,
1991, October 1, 1991 and October 15, 1991
(File No. 33-44018, Form S-3, Exhibits (4)-
12, (4)-13 and (4)-14). x
*(4)-6 Supplemental Indenture to Mortgage dated July
1, 1923 dated February 1, 1992 (File No. 1-
1839, Form 10-K for the year ended December
31, 1991, Exhibit (4)-18). x
*(4)-7 Supplemental Indenture to Mortgage dated July
1, 1923 dated May 15, 1992 (File No. 33-
48542, Form S-3, Exhibit (4)-14). x
*(4)-8 Supplemental Indentures to Mortgage dated
July 1, 1923 dated, respectively, July 15,
1992 and September 15, 1992 (File No. 33-
53766, Form S-3, Exhibits (4)-13 and (4)-
14). x
*(4)-9 Supplemental Indenture to Mortgage dated July
1, 1923 dated February 1, 1993 (File No. 1-
1839, Form 10-K for the year ended December
31, 1992, Exhibit (4)-14). x
*(4)-10 Supplemental Indentures to Mortgage dated
July 1, 1923 dated, respectively, April 1,
1993 and April 15, 1993 (File No. 33-64028,
Form S-3, Exhibits (4)-12 and (4)-13). x
*(4)-11 Supplemental Indentures to Mortgage dated
July 1, 1923 dated, respectively, June 15,
1993 and July 1, 1993 (File No. 1-1839, Form
8-K dated May 21, 1993, Exhibits (4)-1 and
(4)-2). x
*(4)-12 Supplemental Indenture to Mortgage dated July
1, 1923 dated July 15, 1993 (File No. 1-
1839, Form 10-Q for the quarter ended June
30, 1993, Exhibit (4)-1). x
*(4)-13 Supplemental Indenture to Mortgage dated July
1, 1923 dated January 15, 1994 (File No. 1-
1839, Form 10-K for the year ended December
31, 1993, Exhibit (4)-15). x
*(4)-14 Supplemental Indenture to Mortgage dated July
1, 1923 dated December 1, 1994 (File No. 1-
1839, Form 10-K for the year ended December
31, 1994, Exhibit (4)-16). x
*(4)-15 Supplemental Indenture to Mortgage dated July
1, 1923 dated June 1, 1996. (File No. 1-
1839, Form 10-K for the year ended December
31, 1996, Exhibit (4)-16). x
*(4)-16 Instrument of Resignation, Appointment and
Acceptance dated January 31, 1996, under the
provisions of the Mortgage dated July 1,
1923, and Indentures Supplemental thereto
(File No. 1-1839, Form 10-K for the year
ended December 31, 1995, Exhibit (4)-28). x
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document Unicom ComEd
------- --------------------------------------------- ------ -----
<C> <S> <C> <C>
*(4)-17 Instrument dated as of January 31, 1996, for
trustee under the Mortgage dated July 1,
1923 and Indentures Supplemental thereto
(File No. 1-1839, Form 10-K for the year
ended December 31, 1995, Exhibit (4)-29). x
*(4)-18 Indentures of ComEd to The First National
Bank of Chicago, Trustee (Amalgamated Bank
of Chicago, as current successor Trustee),
dated April 1, 1949, October 1, 1949, Octo-
ber 1, 1950, October 1, 1954, January 1,
1958, January 1, 1959 and December 1, 1961
(File No. 1-1839, Form 10-K for the year
ended December 31, 1982, Exhibit (4)-20). x
*(4)-19 Indenture of ComEd dated February 15, 1973 to
The First National Bank of Chicago, Trustee
(LaSalle National Bank, successor Trustee),
and Supplemental Indenture thereto dated
July 13, 1973 (File No. 2-66100, Form S-16,
Exhibit (b)-2). x
*(4)-20 Indenture dated as of September 1, 1987 be-
tween ComEd and Citibank, N.A., Trustee re-
lating to Notes (File No. 33-20619, Form S-
3, Exhibit (4)-13). x
*(4)-21 Supplemental Indenture to Indenture dated
September 1, 1987 dated July 14, 1989 (File
No. 33-32929, Form S-3, Exhibit (4)-16). x
*(4)-22 Supplemental Indenture to Indenture dated
September 1, 1987 dated January 1, 1997. x
(4)-23 Credit Agreement dated as of October 8, 1998,
among ComEd, as borrower, the Banks named
therein and the other Lenders from time to
time parties thereto, and Citibank, N.A. x
(4)-24 Credit Agreement dated as of October 8, 1998,
among ComEd, as borrower, the Banks named
therein and the other Lenders from time to
time parties thereto, and Citibank, N.A. x
*(4)-25 Amended and Restated Credit Agreement dated
as of November 15, 1996, among Unicom
Enterprises, the Banks Named Therein and
Citibank, N.A. (File No. 1-11375, Form 10-K
for the year ended December 31, 1996,
Exhibit (4)-31). x
*(4)-26 Amended and Restated Guaranty dated as of No-
vember 15, 1996, by Unicom in favor of the
Lenders and LC Banks parties to the afore-
mentioned Credit Agreement with Unicom En-
terprises (File No. 1-11375, Form 10-K for
the year ended December 31, 1996, Exhibit
(4)-32). x
*(4)-27 Indenture dated September 1, 1995 between
ComEd and Wilmington Trust Company. (File
No. 1-1839, Form 10-K for the year ended De-
cember 31, 1996, Exhibit (4)-34). x
*(4)-28 First Supplemental Indenture dated September
19, 1995 to Indenture dated September 1,
1995. (File No. 1-1839, Form 10-K for the
year ended December 31, 1996, Exhibit (4)-
35). x
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document Unicom ComEd
------- ------------------------------------------------- ------ -----
<C> <S> <C> <C>
*(4)-29 Second Supplemental Indenture dated January 24,
1997 to Indenture dated September 1, 1995. (File
No. 1-1839, Form 10-K for the year ended Decem-
ber 31, 1996, Exhibit (4)-36). x
*(4)-30 Rights Agreement dated as of February 2, 1998 be-
tween Unicom Corporation and First Chicago Trust
Company of New York, as Rights Agent, which in-
cludes as Exhibit A the form of Rights Certifi-
cate and as Exhibit B, the Summary of Rights to
Purchase Common Stock (File No. 1-11375, Current
Report on Form 8-K dated February 2, 1998, Ex-
hibit 4). x
*(10)-1 Nuclear Fuel Lease Agreement dated as of November
23, 1993, between CommEd Fuel Company, Inc., as
Lessor, and ComEd, as Lessee (File No. 1-1839,
Form 10-K for the year ended December 31, 1993,
Exhibit (10)-1). x
+*(10)-2 Unicom Corporation Amended and Restated Long-Term
Incentive Plan (File No. 1-11375, Unicom Proxy
Statement dated April 9, 1998, Exhibit A). x
+*(10)-3 1996 Long-Term Performance Unit Award for Execu-
tive and Group Level Employees Payable in 1999
under the Unicom Corporation Long-Term Incentive
Plan (File Nos. 1-11375 and 1-1839, Form 10-K
for the year ended December 31, 1995, Exhibit
(10)-9). x x
+*(10)-4 1997 Long-Term Performance Unit Award for Execu-
tive and Group Level Employees Payable in 2000
under the Unicom Corporation Long-Term Incentive
Plan. (File Nos. 1-11375 and 1-1839, Form 10-K
for the year ended December 31, 1996, Exhibit
(10)-12). x x
+*(10)-5 1998 Long-Term Performance Unit Award for
Executive and Group Level Employees Payable in
2001 under the Unicom Corporation Long-Term
Incentive Plan. (File Nos. 1-11375 and 1-1839,
Form 10-K for the year ended December 31, 1997,
Exhibit (10)-6). x x
+*(10)-6 Unicom Corporation General Provisions Regarding
1996 Stock Option Awards Granted under the
Unicom Corporation Long-Term Incentive Plan.
(File Nos. 1-11375 and 1-1839, Form 10-K for the
year ended December 31, 1996, Exhibit (10)-9). x x
+*(10)-7 Unicom Corporation General Provisions Regarding
1996B Stock Option Awards Granted under the
Unicom Corporation Long-Term Incentive Plan.
(File Nos. 1-11375 and 1-1839, Form 10-K for the
year ended December 31, 1996, Exhibit (10)-11). x x
+(10)-8 Unicom Corporation General Provisions Regarding
Stock Option Awards Granted under the Unicom
Corporation Long-Term Incentive Plan (Effective
July 10, 1997). x x
+*(10)-9 1998 Annual Incentive Award for Management
Employees under the Unicom Corporation Long-Term
Incentive Plan. (File Nos. 1-11375 and 1-1839,
Form 10-K for the year ended December 31, 1997,
Exhibit (10)-12). x x
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document Unicom ComEd
------- -------------------------------------------- ------ -----
<C> <S> <C> <C>
+*(10)-10 Unicom Corporation Deferred Compensation
Unit Plan, as amended (File Nos. 1-11375
and 1-1839, Form 10-K for the year ended
December 31, 1995, Exhibit (10)-12). x x
+*(10)-11 Deferred Compensation Plan (included in
Article Five of Exhibit (3)-2 above). x
+*(10)-12 Management Incentive Compensation Plan,
effective January 1, 1989 (File No. 1-1839,
Form 10-K for the year ended December 31,
1988, Exhibit (10)-4). x
+*(10)-13 Amendments to Management Incentive
Compensation Plan, dated December 14, 1989
and March 21, 1990 (File No. 1-1839, Form
10-K for the year ended December 31, 1989,
Exhibit (10)-5). x
+*(10)-14 Amendment to Management Incentive
Compensation Plan, dated March 21, 1991
(File No. 1-1839, Form 10-K for the year
ended December 31, 1991, Exhibit (10)-6). x
+*(10)-15 Retirement Plan for Directors, effective
September 1, 1994, as amended through March
12, 1997. (File No. 1-11375, Form 10-K for
the year ended December 31, 1996, Exhibit
(10)-19). x
+*(10)-16 Retirement Plan for Directors, effective
January 1, 1987, as amended through March
12, 1997. (File No. 1-1839 Form 10-K for
the year ended December 31, 1996, Exhibit
(10)-20) x
+*(10)-17 Unicom Corporation 1996 Directors' Fee Plan
(File No. 1-11375, Unicom Proxy Statement
dated April 8, 1996, Appendix A). x x
+*(10)-18 Employment Agreement among Unicom, ComEd and
John W. Rowe dated as of March 10, 1998.
(File Nos. 1-11375 and 1-1839, Form 10-Q
for the quarter ended March 31, 1998,
Exhibit (10)-3). x x
+(10)-19 First Amendment dated December 1, 1998 to
Employment Agreement dated March 10, 1998
between Unicom, ComEd and John Rowe. x x
+(10)-20 Second Amendment dated January 27, 1997 to
Employment Agreement dated March 10, 1998
between Unicom, ComEd and John Rowe. x x
+(10)-21 Third Amendment dated March 8, 1999 to
Employment Agreement dated March 10, 1998
between Unicom, ComEd and John Rowe. x x
+(10)-22 Employment Agreement dated November 1, 1997
between ComEd and Oliver D. Kingsley, Jr. x x
+(10)-23 Unicom Corporation Stock Award Agreement
dated January 25, 1999 between Unicom
Corporation and Oliver D. Kingsley, Jr. x x
+(10)-24 Change in Control Agreement between Unicom
Corporation, ComEd and certain senior
executives. x x
+*(10)-25 Executive Group Life Insurance Plan (File
No. 1-1839, Form 10-K for the year ended
December 31, 1980, Exhibit (10)-3). x
+*(10)-26 Amendment to the Executive Group Life Insur-
ance Plan (File No. 1-1839, Form 10-K for
the year ended December 31, 1981, Exhibit
(10)-4). x
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document Unicom ComEd
------- --------------------------------------------- ------ -----
<C> <S> <C> <C>
+*(10)-27 Amendment to the Executive Group Life Insur-
ance Plan dated December 12, 1986 (File No.
1-1839, Form 10-K for the year ended Decem-
ber 31, 1986, Exhibit (10)-6). x
+*(10)-28 Amendment of Executive Group Life Insurance
Plan to implement program of "split dollar
life insurance" dated December 13, 1990
(File No. 1-1839, Form 10-K for the year
ended December 31, 1990, Exhibit (10)-10). x
+(10)-29 Commonwealth Edison Company Supplemental Man-
agement Retirement Plan. x
+*(10)-30 Amendment of Executive Group Life Insurance
Plan to stabilize the death benefit applica-
ble to participants dated July 22, 1992
(File No. 1-1839, Form 10-K for the year
ended December 31, 1992, Exhibit (10)-13). x
+*(10)-31 Commonwealth Edison Company Excess Benefit
Savings Plan (File No. 1-1839, Form 10-Q for
the quarter ended September 30, 1998, Ex-
hibit (10)-1). x
+*(10)-32 Amendment No. 1 to Commonwealth Edison Com-
pany Excess Benefit Savings Plan dated May
24, 1995 (File No. 1-1839, Form 10-K for the
year ended December 31, 1995, Exhibit
(10)-30). x
+*(10)-33 Amendment No. 2 to Commonwealth Edison Com-
pany Excess Benefit Savings Plan effective
as of September 1, 1997. (File No. 1-1839,
Form 10-K for the year ended December 31,
1997, Exhibit (10)-34) x
+*(10)-34 Unicom Corporation Stock Bonus Deferral Plan
(File Nos. 1-11375 and 1-1839, Form 10-Q for
the quarter ended September 30, 1998, Ex-
hibit (10)-3) x x
+*(10)-35 Form of Stock Award Agreement under the
Unicom Corporation Long-Term Incentive Plan
(File Nos. 1-11375 and 1-1839, Form 10-K for
the year ended December 31, 1997, Exhibit
(10)-37). x x
*(10)-37 Retirement and Separation Agreement dated as
of March 30, 1998 among Unicom, ComEd and
James J. O'Connor (File Nos. 1-11375 and
1-1839, Form 10-Q for the quarter ended
March 31, 1998, Exhibit (10)-2). x x
(10)-38 Key Management Severance Plan for Unicom Cor-
poration and Commonwealth Edison Company. x x
(12) Statement re computation of ratios of earn-
ings to fixed charges and ratios of earnings
to fixed charges and preferred and prefer-
ence stock dividend requirements for ComEd. x
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document Unicom ComEd
------- --------------------------------------------- ------ -----
<C> <S> <C> <C>
*(18) Letter from independent public accountants
regarding change in accounting principle
(File Nos. 1-11375 and 1-1839, Form 10-K for
the year ended December 31, 1997, Exhibit
(18)). x x
(21)-1 Subsidiaries of Unicom. x
(21)-2 Subsidiaries of ComEd. x
(23)-1 Consent of experts for Unicom. x
(23)-2 Consent of experts for ComEd. x
(24)-1 Powers of attorney of Directors whose names
are signed to the Unicom and ComEd Annual
Report on Form 10-K pursuant to such powers. x x
(99)-1 Unicom's Current Report on Form 8-K dated
February 19, 1999. x
(99)-2 ComEd's Current Report on Form 8-K dated Feb-
ruary 19, 1999. x
</TABLE>
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, Unicom and ComEd
hereby agree to furnish to the SEC, upon request, any instrument
defining the rights of holders of long-term debt of ComEd not filed as
an exhibit herein. No such instrument authorizes securities in excess
of 10% of the total assets of ComEd.
(b) Reports on Form 8-K:
A Current Report on Form 8-K dated October 27, 1998 was filed by
Unicom and ComEd announcing that up to $200 million in funds obtained
from operations or other sources may be used to repurchase shares of
common stock either before or after the receipt of funds from the
issuance of certain asset-backed securities known as "transitional
funding instruments". The transitional funding instruments are expected
to be the ultimate source of funding for the stock repurchases.
A Current Report on Form 8-K dated December 17, 1998 was filed by
Unicom and ComEd announcing the redemption of long-term debt and
preference stock using the proceeds from the issuance of the asset-
backed securities.
39
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTAL SCHEDULE
To Unicom Corporation:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Unicom Corporation and subsidiary
companies incorporated by reference in this Annual Report on Form 10-K, and
have issued our report thereon dated February 19, 1999.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Item 14.(a), is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Chicago, Illinois
February 19, 1999
40
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTAL SCHEDULE
To Commonwealth Edison Company:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Commonwealth Edison Company and
subsidiary companies incorporated by reference in this Annual Report on Form
10-K, and have issued our report thereon dated February 19, 1999.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Item 14.(a), is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Chicago, Illinois
February 19, 1999
41
<PAGE>
SCHEDULE II
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(Thousands of Dollars)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ---------------------------- --------- ----------------- ---------- --------
Additions
-----------------
Balance Charged
at to Costs Charged Balance
Beginning and to Other at End
Description of Year Expenses Accounts Deductions of Year
- ---------------------------- --------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
For the Year Ended December
31, 1996
- ----------------------------
Reserve Deducted From Assets
in Consolidated Balance
Sheet:
Provision for uncollectible
accounts (a).............. $ 11,828 $ 1,065 $ -- $ -- $ 12,893
======== ======== ====== ========= ========
Estimated obsolete materi-
als....................... $ 16,175 $ 12,000 $ -- $ (15,873)(b) $ 12,302
======== ======== ====== ========= ========
Other Reserves:
Estimated liabilities asso-
ciated with remediation
costs and former manufac-
tured gas plant sites..... $ 32,522 $ 1,728 $ -- $ (1,728)(c) $ 32,522
======== ======== ====== ========= ========
Accumulated provision for
injuries and damages...... $ 57,976 $ 10,892 $5,713 $ (20,609)(d) $ 53,972
======== ======== ====== ========= ========
For the Year Ended December
31, 1997
- ----------------------------
Reserve Deducted From Assets
in Consolidated Balance
Sheet:
Provision for uncollectible
accounts (a).............. $ 12,893 $ 4,651 $ -- $ -- $ 17,544
======== ======== ====== ========= ========
Estimated obsolete materi-
als....................... $ 12,302 $ 62,000 $ -- $ (32,559)(b) $ 41,743
======== ======== ====== ========= ========
Other Reserves:
Estimated closing costs for
Zion Station (e).......... $ -- $194,000 $ -- $ -- $194,000
======== ======== ====== ========= ========
Estimated liabilities asso-
ciated with remediation
costs and former manufac-
tured gas plant sites..... $ 32,522 $ 2,410 $ -- $ (2,910)(c) $ 32,022
======== ======== ====== ========= ========
Accumulated provision for
injuries and damages...... $ 53,972 $ 8,565 $4,939 $(18,213)(d) $ 49,263
======== ======== ====== ========= ========
For the Year Ended December
31, 1998
- ----------------------------
Reserve Deducted From Assets
in Consolidated Balance
Sheet:
Provision for uncollectible
accounts (a).............. $ 17,544 $ 31,101 $ -- $ -- $ 48,645
======== ======== ====== ========= ========
Estimated obsolete materi-
als....................... $ 41,743 $ 23,945 $ -- $ (41,928)(b) $ 23,760
======== ======== ====== ========= ========
Other Reserves:
Estimated closing costs for
Zion Station (e).......... $194,000 $ -- $ -- $(114,970) $ 79,030
======== ======== ====== ========= ========
Estimated liabilities asso-
ciated with remediation
costs and former manufac-
tured gas plant sites..... $ 32,022 $ 6,950 $ -- $ (6,950)(c) $ 32,022
======== ======== ====== ========= ========
Accumulated provision for
injuries and damages...... $ 49,263 $ 10,114 $8,875 $ (20,796)(d) $ 47,456
======== ======== ====== ========= ========
</TABLE>
Notes:
(a) Bad debt losses, net of recoveries, and provisions for uncollectible
accounts were charged to operating expense and amounted to $61,344,000,
$50,574,000 and $41,846,000 in 1998, 1997 and 1996, respectively.
(b) Write-off of obsolete materials.
(c) Expenditures for site investigation and cleanup costs.
(d) Payments of claims and related costs.
(e) Estimated closing costs related to the permanent cessation of nuclear
generation operations and retirement of facilities at ComEd's Zion Station.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Chicago and state of Illinois on the 30th
day of March, 1999.
UNICOM CORPORATION
John W. Rowe
By
--------------------------------
John W. Rowe, Chairman,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the registrant and in the capacities indicated on the 30th day of
March, 1999.
Signature
- ----------------------------
Title
---------------------
John W. Rowe Chairman, President and
- ---------------------------- Chief Executive Officer
John W. Rowe and Director (principal
executive officer)
John C. Bukovski
- ---------------------------- Senior Vice
John C. Bukovski President(principal
financial officer)
Robert E. Berdelle Vice President and Comptroller
- ---------------------------- (principal accounting officer)
Robert E. Berdelle
Edward A. Brennan* Director
Carlos Cantu* Director
James W. Compton* Director
Bruce DeMars* Director
Sue L. Gin* Director
Donald P. Jacobs* Director
Edgar D. Jannotta* Director
George E. Johnson* Director
Elizabeth Anne Moler* Director
Richard L. Thomas* Director
John P. McGarrity
*By
--------------------------------
John P. McGarrity, Attorney-
in-fact
[Signature page to Unicom Corporation Annual Report on Form 10-K]
43
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Chicago and state of Illinois on the 30th
day of March, 1999.
COMMONWEALTH EDISON COMPANY
John W. Rowe
By
--------------------------------
John W. Rowe, Chairman,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the registrant and in the capacities indicated on the 30th day of
March, 1999.
Signature
- ----------------------------
Title
---------------------
John W. Rowe Chairman, President and
- ---------------------------- Chief Executive Officer
John W. Rowe and Director (principal
executive officer)
John C. Bukovski
- ---------------------------- Senior Vice
John C. Bukovski President(principal
financial officer)
Robert E. Berdelle Vice President and Comptroller
- ---------------------------- (principal accounting officer)
Robert E. Berdelle
Edward A. Brennan* Director
Carlos Cantu* Director
James W. Compton* Director
Bruce DeMars* Director
Sue L. Gin* Director
Donald P. Jacobs* Director
Edgar D. Jannotta* Director
George E. Johnson* Director
Elizabeth Anne Moler* Director
Richard L. Thomas* Director
John P. McGarrity
*By
--------------------------------
John P. McGarrity, Attorney-
in-fact
[Signature page to Commonwealth Edison Company Annual Report on Form 10-K]
44
<PAGE>
Exhibit (2)-1
Commonwealth Edison Company
Form 10-K File No. 1-1839
================================================================================
ASSET SALE AGREEMENT
BY AND BETWEEN
COMMONWEALTH EDISON COMPANY
AND
EDISON MISSION ENERGY
AS TO FOSSIL FUEL GENERATING ASSETS
DATED AS OF MARCH 22, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
DEFINITIONS
1.1 Defined Terms......................................................................................... 1
1.2 Interpretation........................................................................................ 15
1.3 Captions.............................................................................................. 15
1.4 No Joint Venture...................................................................................... 16
1.5 Construction of Agreement............................................................................. 16
ARTICLE 2
PURCHASE AND SALE OF ASSETS
2.1 Transfer of Assets.................................................................................... 16
2.2 Excluded Assets....................................................................................... 17
2.3 Purchaser's Liabilities............................................................................... 18
2.4 Excluded Liabilities.................................................................................. 19
2.5 Closing............................................................................................... 21
2.6 Purchase Price........................................................................................ 21
2.7 Certain Provisions With Respect to Switchyard Property................................................ 23
2.8 ComEd Marks........................................................................................... 25
2.9 Software License...................................................................................... 25
ARTICLE 3
REPRESENTATIONS, WARRANTIES AND DISCLAIMERS OF COMED
3.1 Transaction Representations........................................................................... 26
3.2 Disclaimers Regarding Assets.......................................................................... 27
3.3 Compliance with Laws.................................................................................. 28
3.4 Permits, Licenses, Etc................................................................................ 28
3.5 Litigation............................................................................................ 28
3.6 Zoning and Condemnation............................................................................... 28
3.7 Brokers............................................................................................... 29
3.8 Contracts............................................................................................. 29
3.9 Assets Used in the Operation of the Facilities........................................................ 29
3.10 Casualty; Operations.................................................................................. 29
3.11 Taxes................................................................................................. 29
3.12 Public Utility Holding Company Act.................................................................... 30
3.13 ERISA; Benefit Plans.................................................................................. 30
3.14 Title to Tangible Personal Property................................................................... 31
3.15 Environmental Matters................................................................................. 31
3.16 Data Room............................................................................................. 32
</TABLE>
- i -
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
3.17 Labor Matters......................................................................................... 32
3.18 Financial Statements.................................................................................. 32
3.19 No Other Representations.............................................................................. 32
ARTICLE 4
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF PURCHASER
4.1 Transaction Representations........................................................................... 33
4.2 Litigation............................................................................................ 34
4.3 Brokers............................................................................................... 34
4.4 Financial Statements.................................................................................. 34
4.5 Financial Ability..................................................................................... 35
4.6 Disclosures........................................................................................... 35
4.7 Public Utility Holding Company Act.................................................................... 35
4.8 "AS IS" SALE.......................................................................................... 35
ARTICLE 5
CERTAIN AGREEMENTS
5.1 Due Diligence Inspections and Reviews................................................................. 35
5.2 Consents and Approvals................................................................................ 36
5.3 Confidentiality....................................................................................... 38
5.4 Labor Matters......................................................................................... 38
5.5 Employee Benefits Matters............................................................................. 39
5.6 Cooperation........................................................................................... 41
5.7 Taxes, Prorations and Closing Costs................................................................... 42
5.8 1997 Act.............................................................................................. 46
5.9 Environmental Matters................................................................................. 46
5.10 No Recourse........................................................................................... 48
5.11 Advice of Changes..................................................................................... 48
5.12 Maintenance of Assets Pending Closing................................................................. 48
5.13 Capital Expenditures Prior to Closing................................................................. 49
5.14 Post Closing Information and Records................................................................. 49
5.15 Liability Only Pursuant to Closing Certificate........................................................ 51
5.16 Casualty Loss......................................................................................... 51
5.17 Crawford Dredge Material.............................................................................. 52
5.18 Electric Junction Access.............................................................................. 52
5.19 Illinois Responsible Property Transfer Act............................................................ 53
</TABLE>
ARTICLE 6
INDEMNIFICATION
- ii -
<PAGE>
<TABLE>
<CAPTION>
Page
---
<S> <C> <C>
6.1 Survival of the Parties' Representations and Warranties............................................... 53
6.2 Indemnification by ComEd.............................................................................. 54
6.3 Indemnification by Purchaser.......................................................................... 54
6.4 Notice of Claim....................................................................................... 56
6.5 Defense of Third Party Claims......................................................................... 57
6.6 Cooperation........................................................................................... 57
6.7 Mitigation and Limitation on Claims................................................................... 58
6.8 Survival of Certain Obligations....................................................................... 58
6.9 Remedies Exclusive.................................................................................... 58
ARTICLE 7
CONDITIONS PRECEDENT TO OBLIGATIONS OF
PURCHASER AT THE CLOSING
7.1 Compliance with Provisions............................................................................ 59
7.2 ComEd's Receipt of Approvals of Governmental Authorities.............................................. 59
7.3 Purchaser's Receipt of Approvals of Governmental Authorities.......................................... 59
7.4 No Adverse Proceedings................................................................................ 59
7.5 Deliveries............................................................................................ 60
7.6 Purchaser Title Policy................................................................................ 60
7.7 HSR Act................................................................................................60
7.8 No Material Adverse Effect............................................................................ 60
7.9 Facility Performance.................................................................................. 60
7.10 Year 2000 Status...................................................................................... 60
7.11 Illinois Legislation.................................................................................. 61
ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS OF
COMED AT THE CLOSING
8.1 Compliance with Provisions............................................................................ 61
8.2 ComEd's Receipt of Approvals of Governmental Authorities.............................................. 61
8.3 ComEd's Receipt of Approvals.......................................................................... 61
8.4 No Adverse Proceeding................................................................................. 62
8.5 Deliveries............................................................................................ 62
8.6 ComEd Title Policy.................................................................................... 62
8.7 HSR Act............................................................................................... 62
8.8 Illinois Legislation.................................................................................. 62
</TABLE>
ARTICLE 9
CLOSING DELIVERIES
- iii -
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
9.1 Purchaser's Additional Deliveries..................................................................... 62
9.2 ComEd's Additional Deliveries......................................................................... 63
9.3 Delayed Recordation of Easement Agreements............................................................ 64
ARTICLE 10
TERMINATION
10.1 Rights To Terminate................................................................................... 65
10.2 Non-Solicitation...................................................................................... 66
10.3 Effect of Termination................................................................................. 66
ARTICLE 11
MISCELLANEOUS AGREEMENTS AND ACKNOWLEDGMENTS
11.1 Expenses.............................................................................................. 67
11.2 Entire Document....................................................................................... 67
11.3 Schedules............................................................................................. 67
11.4 Counterparts.......................................................................................... 67
11.5 Severability.......................................................................................... 68
11.6 Successors and Assigns................................................................................ 68
11.7 Governing Law......................................................................................... 70
11.8 Dispute Resolution.................................................................................... 70
11.9 Notices............................................................................................... 72
11.10 Time is of the Essence................................................................................ 73
11.11 No Third Party Beneficiaries.......................................................................... 73
11.12 Effect of Closing..................................................................................... 73
11.13 Conflicts............................................................................................. 74
11.14 CONSENT TO JURISDICTION............................................................................... 74
11.15 No Public Announcement................................................................................ 74
11.16 New Generation Capacity............................................................................... 74
</TABLE>
- iv -
<PAGE>
<TABLE>
<CAPTION>
Exhibits Title
- -------- -----
<S> <C>
A Form of Bill of Sale and Instrument of Assignment
B Forms of Easement Agreements
C-1 Form of Facilities, Interconnection and Easement Agreements
(Stations)
C-2 Form of Facilities, Interconnection and Easement Agreements (Peaking Sites)
C-3 Form of Facilities, Interconnection and Easement Agreement (Sabrooke Peaking Site)
D Forms of Grant Deeds
E Form of Instrument of Assumption
F-1 Form of Power Purchase Agreement (Coal-Fired Stations)
F-2 Form of Power Purchase Agreement (Peaking Units)
F-3 Form of Power Purchase Agreement (Collins)
G Preliminary Title Reports
H Form of Tax Reproration Agreements
I Form of Opinion of Counsel to Purchaser
J Form of Opinion of Counsel to ComEd
K Form of Agency Agreement
L Form of FIRPTA Affidavit
</TABLE>
- v -
<PAGE>
<TABLE>
<CAPTION>
Schedules Title
- --------- -----
<S> <C>
1.1 ComEd Officers and Employees
1.2 Purchaser Officers and Employees
2.1(a) Transferred Land
2.1(c) Specific Permits, Licenses and Variances
2.1(d) Personal Property
2.1(e)(1) Assigned Leases and Licenses
2.1(e)(2) Assigned Fuel Contracts
2.1(e)(3) Other Assigned Contracts
2.1(e)(4) Causes of Action
2.1(f) SO2 Trading Allowances
2.2(a) Switchyard Property
2.2(b) Transmission Excluded Assets
2.2(c) Other Excluded Assets
2.6(b) Inventory Valuation Methodologies
2.9 Software License
3.1(c) Violations
3.1(d) Consents
3.3 Compliance Exceptions
3.5 ComEd Litigation
3.6 Notice of Government Action
3.8 Contractual Defaults
3.10(a) Casualty Losses
3.10(b) Operations Outside of the Ordinary Course
3.11 Taxes
3.13(a) Benefit Plans
3.14 Tangible Personal Property Encumbrances
3.15 Environmental Matters
3.17 Labor Matters
4.1(d) Purchaser Consents
4.2 Purchaser Litigation
5.13 Pre-Approved Capital Expenditures
7.3(b) Purchaser Consents Required for Closing
7.9 Facility Performance Tests
7.10 Year 2000 Test Procedures
8.2 Required Governmental Approvals
8.3 ComEd Consents for Closing
</TABLE>
- vi -
<PAGE>
ASSET SALE AGREEMENT
--------------------
This ASSET SALE AGREEMENT (this "AGREEMENT") is made, as of March 22,
1999, by and between Commonwealth Edison Company, an Illinois corporation
("COMED"), and Edison Mission Energy, a California corporation ("PURCHASER").
BACKGROUND
----------
A. ComEd owns and operates fossil-fired generation facilities known
as Crawford Station, Fisk Station, Waukegan Station, Will County Station, Joliet
Station, Powerton Station and Collins Station, together with certain additional
generating assets known as the Calumet, Bloom, Electric Junction, Lombard and
Sabrooke off-site peaking units.
B. ComEd desires to sell to Purchaser, and Purchaser desires to
purchase from ComEd, said generation facilities and assets on and subject to the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the respective representations,
warranties, covenants and agreements contained in this Agreement, each of ComEd
and Purchaser agrees as follows:
ARTICLE I
---------
DEFINITIONS
-----------
1.1 DEFINED TERMS. The following capitalized terms when used in
-------------
this Agreement (or in the Schedules and Exhibits to this Agreement) have the
respective meanings set forth below:
"ACCOUNTANT'S REPORT" means the auditor's report with respect to any
-------------------
Audited Financial Statements.
"AFFILIATE" means, with respect to any Person, any other Person that
---------
(i) directly or indirectly controls the specified Person or (ii) is controlled
directly or indirectly by or is under direct or indirect common control with the
specified Person.
"AGENCY AGREEMENT" has the meaning set forth in Section 5.2(c) (Joint
---------------- --------------
Cooperation).
"AGREEMENT" means this Asset Sale Agreement, together with the
---------
Schedules and Exhibits, as the same may be amended from time to time.
"ALLOCATION SCHEDULE" has the meaning set forth in Section 2.6(c)
------------------- --------------
(Purchase Price--Allocation of Purchase Price).
<PAGE>
"APPROVED CAPITAL EXPENDITURES" means all Capital Expenditures
-----------------------------
approved by Purchaser, which approval will not be unreasonably withheld,
conditioned or delayed and will, in all events, be deemed given for any
individual Capital Expenditure under Two Hundred and Fifty Thousand Dollars
($250,000).
"ASSETS" has the meaning set forth in Section 2.1 (Transfer of
------ -----------
Assets).
"ASSIGNED CONTRACTS" means the Assigned Fuel Contracts and the
------------------
Assigned Other Contracts.
"ASSIGNED FUEL CONTRACTS" has the meaning set forth in Section 2.1(e)
----------------------- --------------
(Transfer of Assets--Other Assets).
"ASSIGNED LEASES" has the meaning set forth in Section 2.1(e)
--------------- --------------
(Transfer of Assets--Other Assets).
"ASSIGNED OTHER CONTRACTS" has the meaning set forth in Section 2.1(e)
------------------------ --------------
(Transfer of Assets--Other Assets).
"AUDITED FINANCIAL STATEMENTS" means, with respect to any Person, its
----------------------------
audited balance sheet as of the last day of its most recently completed fiscal
year, and the related audited statements of operations, stockholders' equity and
cash flow for the year then ended.
"BENEFIT PLANS" has the meaning set forth in Section 3.13(a) (ERISA;
------------- ---------------
Benefit Plans).
"BILL OF SALE AND INSTRUMENT OF ASSIGNMENT" means the Bill of Sale and
-----------------------------------------
Instrument of Assignment in the form of Exhibit A.
---------
"BUSINESS DAY" means a day other than (i) Saturday or Sunday or (ii) a
------------
day on which (A) banks are closed for business in the State of Illinois or (B)
ComEd's principal corporate offices are closed for business.
"CAPITAL EXPENDITURE" means (i) any additions to or replacements of
-------------------
property, plant and/or equipment and (ii) any other expenditures that would be
capitalized on ComEd's balance sheet in accordance with ComEd's capitalization
policy.
"CASUALTY" means any damage to or destruction of all or any portion of
--------
the Facilities as a result of fire (including fire caused by lightning), wind,
hail, ice, snow, hurricane, tornado, freezing, earthquake, earth movement or
flood which, in ComEd's reasonable judgment, exceeds Five Hundred Thousand
Dollars ($500,000) per occurrence.
"CASUALTY BETTERMENT" means the portion, as reasonably determined by
-------------------
ComEd, of any Capital Expenditure incurred by ComEd pursuant to Section 5.16
------------
(Casualty Loss) that constitutes a betterment or improvement of the condition of
the Facilities from the condition
-2-
<PAGE>
immediately prior to the Casualty, provided such betterment or improvement was
approved by Purchaser, which approval will not be unreasonably withheld,
conditioned or delayed and in any case will be deemed given if the aggregate
amount of all betterments or improvements following a Casualty is less than Two
Million and Five Hundred Thousand Dollars ($2,500,000).
"CASUALTY ESTIMATE" has the meaning set forth in Section 5.16(a)
----------------- ---------------
(Casualty Estimate).
"CERCLA" means the Comprehensive Environmental Response, Compensation
------
and Liability Act (42 U.S.C. (S) 9601 et seq.).
"CHANGE OF LAW" means the adoption, promulgation, repeal, modification
-------------
or reinterpretation of any law, rule, regulation, ordinance or order or any
other Requirement of Law of any federal, state, county or local government,
governmental agency, court, commission, department or other such entity which
occurs subsequent to the Effective Date.
"CHILD CARE PLAN" has the meaning set forth in Section 5.5(b)
--------------- --------------
(Employee Benefits Matters--Employee Benefit Plans).
"CLOSING" has the meaning set forth in Section 2.5 (Closing).
------- -----------
"CLOSING DATE" has the meaning set forth in Section 2.5 (Closing).
------------ -----------
"CLOSING DATE INVENTORY AMOUNT" has the meaning set forth in Section
----------------------------- -------
2.6(b) (Purchase Price--Inventory Adjustment).
- ------
"CODE" means the Internal Revenue Code of 1986.
----
"COLLECTIVE BARGAINING AGREEMENT" means: (i) as specifically
-------------------------------
applicable to the relevant transferred assets, the express language contained in
those portions of (A) the Collective Bargaining Agreement between ComEd and
Local 15 of the International Brotherhood of Electrical Workers (August 25,
1997 to March 31, 2001) (the "CBA"), (B) the separately bound 140-page
Supplement to Collective Bargaining Agreement Memorandum and Letters (which
contains twenty memorandums and letters), the Supplemental Agreements governing
the provision of pension, 401(k) and welfare benefit plans (including medical,
dental, vision, flexible spending account, disability and life insurance) and
(C) the agreements expressly referred to in the CBA; and (ii) that portion of
the Memorandum of Understanding dated February 26, 1999, between ComEd and IBEW
Local Union 15 relating to the sale of ComEd's fossil generating assets that
imposes obligations on a new owner.
"COMED" has the meaning set forth in the introductory paragraph of
-----
this Agreement.
"COMED CLAIMS" has the meaning set forth in Section 6.3(a)
------------ --------------
(Indemnification by Purchaser--ComEd Claims).
-3-
<PAGE>
"COMED ESIP" has the meaning set forth in Section 5.5(b) (Employee
---------- --------------
Benefits Matters--Employee Benefit Plans).
"COMED GENERATION SYSTEMS" has the meaning set forth in Section 7.10
------------------------ ------------
(Year 2000 Status).
"COMED GROUP" has the meaning set forth in Section 6.3(a)
----------- --------------
(Indemnification by Purchaser--ComEd Claims).
"COMED MARKS" has the meaning set forth in Section 2.8 (ComEd Marks).
----------- -----------
"COMED PENSION PLAN" has the meaning set forth in Section 5.5(b)
------------------ --------------
(Employee Benefits Matters--Employee Benefit Plans).
"COMED REDUCTION" has the meaning set forth in Section 5.7(a) (Taxes,
--------------- --------------
Prorations and Closing Costs--Taxes).
"COMED SOFTWARE" has the meaning set forth in Section 2.9 (Software
-------------- -----------
License).
"COMMERCIALLY REASONABLE EFFORTS" means efforts by a Party to perform
-------------------------------
the particular obligation under this Agreement that do not require such Party to
expend any funds other than expenditures which are customary and reasonable in
transactions of the kind and nature contemplated by this Agreement in order for
such Party to satisfy such obligation under this Agreement.
"CONFIDENTIALITY AGREEMENT" means that certain letter agreement dated
-------------------------
October 1, 1998 between ComEd and Purchaser.
"CRAWFORD DREDGE MATERIAL" has the meaning set forth in Section 5.17
------------------------ ------------
(Crawford Dredge Material).
"DATA ROOM" means the data room(s) maintained by ComEd in connection
---------
with the transactions contemplated herein.
"DELAYED RECORDING" has the meaning set forth in Section 9.3 (Delayed
----------------- -----------
Recordation of Easement Agreements).
"DETERMINATION DATE" has the meaning set forth in Section 2.6(b)
------------------ --------------
(Purchase Price --Inventory Adjustment).
"DIVISIBLE TAX BILL" has the meaning set forth in Section 5.7(a)
------------------ --------------
(Taxes, Prorations and Closing Costs--Taxes).
-4-
<PAGE>
"EASEMENT AGREEMENTS" means, collectively, the following: (i) for each
-------------------
of the Sites, a Transmission Facilities Easement in the form of Exhibit B-1,
-----------
(ii) for each of the Sites other than the Powerton Site and the Bloom Site, a
Distribution Facilities Easement in the form of Exhibit B-2, (iii) for each of
-----------
the Sites other than the Sabrooke Site, a Seller Ingress-Egress and Utility
Facilities Easement in the form of Exhibit B-3, (iv) for the Calumet, Crawford,
-----------
Fisk, Joliet #9, Joliet #29, Powerton, Collins and Electric Junction Sites only,
an Air Rights Easement in the form of Exhibit B-4, (v) for each of the Sites
-----------
other than the Will County Site, the Crawford Site, the Joliet #29 Site, the
Electric Junction Site, the Collins Site and the Lombard Site, a Purchaser
Ingress-Egress Easement in the form of Exhibit B-5, (vi) for the Will County
-----------
Site only, a Frontage Easement in the form of Exhibit B-6, (vii) for the Calumet
-----------
Site only, a Microwave Facilities Easement in the form of Exhibit B-7, (viii)
-----------
for the Electric Junction Site only, a Purchaser Drainage Easement in the form
of Exhibit B-8, (ix) for the Collins Site only, an Emergency Response Training
-----------
Facility Facilities Easement in the form of Exhibit B-9, (x) for the Sabrooke
-----------
Site only, a Seller Ingress-Egress, Parking and Utility Facilities Easement in
the form of Exhibit B-10, (xi) for the Fisk/Sampsons Canal Site only, a
------------
Purchaser Foundation Facilities Easement in the form of Exhibit B-11, and (xii)
------------
for the Will County Site only, a Purchaser Rail Track Right of Way in the form
of Exhibit B-12.
------------
"EFFECTIVE DATE" means the date on which this Agreement has been
--------------
executed and delivered by the Parties.
"EMPLOYMENT LAWS" means any applicable Requirements of Laws, permits,
---------------
orders or published decisions relating to: (i) any aspect of employment or (ii)
employee benefits, including those matters governed by the Age Discrimination in
Employment Act of 1967 (29 U.S.C. (S) 621 et seq.), the Americans with
Disabilities Act of 1990 (42 U.S.C. (S) 12101 et seq.), the Civil Rights Act of
1964 (42 U.S.C. (S) 2000e, including Title VII thereunder, and as amended by the
Civil Rights Act of 1991), ERISA, the Equal Employment Act of 1972 (42 U.S.C.
(S) 2000e et seq.), the Equal Pay Act of 1963 (29 U.S.C. (S) 206), the Fair
Labor Standards Act of 1938 (29 U.S.C. (S) 201 et seq.), the Family and Medical
Leave Act of 1993 (29 U.S.C. (S) 260 et seq.), the Immigration Reform and
Control Act of 1986 (8 U.S.C. (S) 1324a et seq.), the Labor Management Relations
Act (29 U.S.C. (S) 141 et seq.), the National Labor Relations Act (29 U.S.C. (S)
151 et seq.), the Occupational Safety and Health Act of 1970 (29 U.S.C. (S) 651
et seq.), the Older Workers Benefit Protection Act ( 29 U.S.C. (S) 621 et seq.),
the Pregnancy Discrimination Act (423 U.S.C. (S) 2000e(k), the Privacy Act of
1974 (5 U.S.C. (S) 552a), the Social Security Act (42 U.S.C. (S) 301 et seq.)
and the WARN Act, and all state counterpart statutes.
"ENVIRONMENTAL CONDITIONS" means the presence of Hazardous Substances
------------------------
on, over, under or about the Transferred Real Property or any portion thereof or
other real property subject to an Assigned Lease, or in soil, sediment, surface
water or groundwater at the Transferred Real Property or any portion thereof or
other real property subject to an Assigned Lease, whether occurring before or
after the Closing (other than Transmission Environmental Conditions), and
including any migration of such Hazardous Substances either before or after the
Closing, including migration to a location off the Transferred Real Property or
other real property subject to an Assigned Lease. Environmental Conditions
include any Hazardous Substances present in, on, or
-5-
<PAGE>
incorporated into any drums, equipment or debris that are or were discarded or
abandoned or buried at the Transferred Real Property or any portion thereof or
other real property subject to an Assigned Lease prior to or after the Closing.
"ENVIRONMENTAL LAWS" means any applicable Requirements of Laws,
------------------
permits, orders or published decisions of Government Authorities relating to:
(i) air emissions, hazardous materials, storage, use and release to the
environment of Hazardous Substances, generation, treatment, storage, and
disposal of hazardous wastes, wastewater discharges and similar environmental
matters or (ii) the impact of the matters described in the preceding clause upon
human health or the environment, including those matters governed by CERCLA, the
Resource Conservation and Recovery Act (42 U.S.C. (S) 6901 et seq.), the Federal
Water Pollution Control Act (33 U.S.C. (S) 1251 et seq.), the Clean Air Act (42
U.S.C. (S) 740l et seq.), the Toxic Substances Control Act (15 U.S.C. (S) 2601
et seq.), the Oil Pollution Act (33 U.S.C. (S) 2701 et seq.), the Occupational
Safety and Health Act (29 U.S.C. (S) 651 et seq.), the Emergency Planning and
Community Right-to-Know Act (42 U.S.C. (S) 11001 et seq.), and the Atomic Energy
Act (42 U.S.C. (S) 2011 et seq.), and all state counterpart statutes.
"ENVIRONMENTAL LIABILITIES" has the meaning set forth in Section
------------------------- -------
2.3(a) (Purchaser's Liabilities--Environmental Liabilities).
- ------
"ENVIRONMENTAL PERMITS" has the meaning set forth in Section 3.15(a)
--------------------- ---------------
(Environmental Matters).
"ERISA" means the Employee Retirement Income Security Act of 1974 (29
-----
U.S.C. (S) 1001 et seq.).
"ERISA AFFILIATE" means any trade or business (whether or not
---------------
incorporated) which would be considered a single employer with ComEd pursuant to
Section 414(b), (c), (m) or (o) of the Code and the regulations promulgated
under those sections or pursuant to Section 4001(b) of ERISA and the regulations
promulgated thereunder.
"EVENT OF LOSS" has the meaning set forth in Section 5.16(a) (Casualty
------------- ---------------
Estimate).
"EXCLUDED ASSETS" has the meaning set forth in Section 2.2 (Excluded
--------------- -----------
Assets).
"EXCLUDED LIABILITIES" has the meaning set forth in Section 2.4
-------------------- -----------
(Excluded Liabilities).
"FACILITIES" means, collectively, the land described on Schedule
---------- --------
2.1(a) (Transferred Land), the Transferred Improvements and the tangible
- ------
personal property described in Section 2.1(d) (Transfer of Assets--Personal
--------------
Property), but, for the avoidance of doubt, excluding the Excluded Assets.
-6-
<PAGE>
"FACILITIES AGREEMENTS" means, for each Site (with Joliet #9 and
---------------------
Joliet #29, for this purpose, being treated as separate Sites), a Facilities,
Interconnection and Easement Agreement (Stations), a Facilities, Interconnection
and Easement Agreements (Peaking Sites) or the Facilities, Interconnection and
Easement Agreement (Sabrooke Peaking Site), as applicable, in the forms of
Exhibit C-1, C-2 and C-3, respectively, together with the Exhibits relating to
- ----------- --- ---
the applicable Site.
"FERC" means the Federal Energy Regulatory Commission.
----
"FUELS INVENTORY" has the meaning set forth in Section 2.6(b)
--------------- --------------
(Purchase Price--Inventory Adjustment).
"GOVERNMENTAL AUTHORITY" means any foreign, federal, state, local or
----------------------
other governmental authority or regulatory agency, commission, department, or
other governmental subdivision, court, tribunal or body, but excluding Purchaser
and any subsequent owner of the Facilities (if otherwise a Governmental
Authority under this definition).
"GRANT DEEDS" means the quitclaim deeds in the forms attached to
-----------
Exhibit D, except that, with respect to the portion of the Transferred Real
- ---------
Property located at the Collins Station Site which is owned by a land trust, the
term "Grant Deed" shall mean the standard form of trustee's deed of the trustee
of such land trust.
"HAZARDOUS SUBSTANCES" means any chemical, material or substance that
--------------------
is listed or regulated under applicable Environmental Laws as a "hazardous" or
"toxic" substance or waste, or as a "contaminant," or is otherwise listed or
regulated, or for which liability or standards of care are imposed under
applicable Environmental Laws, including, for purposes of this Agreement, coal
combustion byproducts, petroleum products, asbestos, polychlorinated biphenyls
and similar substances and materials.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
-------
1976.
"IBEW" means the International Brotherhood of Electrical Workers.
----
"ICC" means the Illinois Commerce Commission.
---
"ILLINOIS AUTHORITY" means (i) a final, non-appealable order of the
------------------
ICC, approving on terms and conditions acceptable to ComEd in its reasonable
discretion, or (ii) fulfillment of applicable notice requirements which would
permit, absent a decision and order of the ICC, the consummation by ComEd of the
transactions contemplated hereby and ComEd's proposed accounting treatment of
the sale; provided, however, that ComEd shall not be required to accept an order
which would cause a material adverse effect on the economic benefit that ComEd
derives from the transaction or materially restricts ComEd's use of the proceeds
from the transaction.
"INDEMNIFIABLE CLAIM" has the meaning set forth in Section 6.7
------------------- -----------
(Mitigation and Limitation on Claims).
-7-
<PAGE>
"INDEMNITEE" has the meaning set forth in Section 6.4 (Notice of
---------- -----------
Claim).
"INDEMNITOR" has the meaning set forth in Section 6.4 (Notice of
---------- -----------
Claim).
"INSTRUMENT OF ASSUMPTION" means the Instrument of Assumption in the
------------------------
form of Exhibit E.
---------
"INVESTMENT BANKER" means Merrill Lynch & Co.
-----------------
"KEY CHOICES PROGRAM" has the meaning set forth in Section 5.5(b)
------------------- --------------
(Employee Benefits Matters--Employee Benefit Plans).
"KNOWLEDGE" or similar phrases in this Agreement means: (i) in the
---------
case of ComEd, the actual knowledge of the ComEd officers and employees listed
in Schedule 1.1 (ComEd Officers and Employees) at the date to which the
------------
representation, warranty or covenant refers, and (ii) in the case of Purchaser,
the actual knowledge of the Purchaser's officers and employees listed in
Schedule 1.2 (Purchaser Officers and Employees) at the date to which the
- ------------
representation, warranty or covenant refers.
"LAND TRUST" has the meaning set forth in Section 2.7 (Certain
---------- -----------
Provisions With Respect to Switchyard Property).
"LAND TRUST PROPERTY" has the meaning set forth in Section 2.7
------------------- -----------
(Certain Provisions With Respect to Switchyard Property).
"LAND TRUSTEE" has the meaning set forth in Section 2.7 (Certain
------------ -----------
Provisions With Respect to Switchyard Property).
"MATERIAL ADVERSE EFFECT" means any change or effect that is
-----------------------
materially adverse to the operation or condition of the Assets, taken as a
whole, other than (i) any change or effect resulting from changes in the
international, national, regional or local wholesale or retail markets for
electric power, (ii) any change or effect resulting from changes in the
international, national, regional or local markets for any fuel used at the
Facilities, (iii) any change or effect resulting from changes in the North
American, national, regional or local electric transmission systems, (iv) any
Change of Law and (v) any materially adverse change in or effect on the Assets
which is cured (including by the payment of money) before the Termination Date.
"MORTGAGE" means the Mortgage dated July 1, 1923, as amended and
--------
supplemented, between ComEd and the Trustee named therein.
"NECESSARY CAPITAL EXPENDITURE" means any Capital Expenditure that, in
-----------------------------
the exercise of Prudent Utility Practices, is reasonably necessary for the
continued operation or maintenance of the Facilities or any of the other Assets
or is required by applicable law (except for any Remediation required by
applicable Environmental Laws), in each case as determined by
-8-
<PAGE>
ComEd in its reasonable discretion. "Necessary Capital Expenditure" does not
include any Capital Expenditure undertaken primarily to increase the efficiency
of, expand or repower the Facilities.
"1997 ACT" means Illinois Public Act 90-561.
--------
"NOTICE OF CLAIM" has the meaning set forth in Section 6.4 (Notice of
--------------- -----------
Claim).
"OFF-SITE DISPOSAL LOCATION" means any third party off-site disposal
--------------------------
location utilized by ComEd in the normal course of business prior to the Closing
for the treatment, disposal, storage, discharge or recycling of Hazardous
Substances or other materials generated by the Facilities; but, for the
avoidance of doubt, shall not include any disposal site located on or beneath
the Transferred Real Property or on or beneath other real property subject to an
Assigned Lease.
"OPTIONS PROGRAM" has the meaning set forth in Section 5.5(b)
--------------- --------------
(Employee Benefits Matters--Employee Benefit Plans).
"OTHER INVENTORIES" has the meaning set forth in Section 2.6(b)
----------------- --------------
(Purchase Price--Inventory Adjustment).
"PARTY" means either ComEd or Purchaser, as the context requires;
-----
"Parties" means, collectively, ComEd and Purchaser.
"PATENT RIGHTS" means all patents (including "Method of Gas Blanketing
-------------
a Boiler" (Patent No. 5,050,540), "Apparatus and Method of Removing Microfouling
from the Waterside of a Heat Exchanger" (Patent No. 5,558,157), "Refractory
Block Slag Dam" (Patent No. 5,800,775) and "Replacement of Cam-Operated Control
Board Switches" (Patent No. 4,916,628)) owned by ComEd or in which ComEd holds
any right, license or interest.
"PBGC" has the meaning set forth in Section 3.13(b) (ERISA; Benefit
---- ---------------
Plans).
"PERMITTED ENCUMBRANCES" means, collectively: (i) liens, charges,
----------------------
encumbrances and exceptions for taxes and other governmental charges and
assessments (including special assessments) that are not yet due and payable;
(ii) other liens, charges, encumbrances or title exceptions or imperfections
with respect to any of the Assets that do not materially detract from the value
of or materially impair the existing use of the Assets affected by such lien,
charge, encumbrance or title exception or imperfection, expressly excluding any
monetary liens or encumbrances (other than income tax liens, judgments, fines or
penalties (other than mortgages), which ComEd shall remove at or before
Closing); (iii) all leases, licenses and occupancy and/or use agreements
affecting the Assets (or any portion thereof) (including those leases, licenses
and occupancy and/or use agreements that constitute an Assigned Lease or an
Assigned Contract) whether or not recorded against the Transferred Real
Property; (iv) all matters and exceptions set forth in the Preliminary Title
Reports; (v) liens, charges, encumbrances or title exceptions or imperfections
with respect to the Assets created by or resulting from the acts or omissions of
Purchaser or any of its Affiliates, employees, officers, directors, agents,
representatives, contractors,
-9-
<PAGE>
invitees or licenses; (vi) liens, charges, encumbrances and/or title exceptions
or imperfections created by any of the documents to be executed in connection
with the Closing or this Agreement (including any reservations, easements,
restrictions, covenants and other matters set forth in the Grant Deeds) whether
prior to, at or after the Closing; (vii) all matters shown on or referenced in
the Surveys; (viii) encumbrances, liens, charges or title exceptions or
imperfections created or arising out of any subdivision, reparcelization, lot
line adjustment or other action contemplated by Section 2.7 (Certain Provisions
-----------
With Respect to Switchyard Property); (ix) local, county, state and federal
laws, ordinances or governmental regulations, including building and zoning
laws, ordinances and regulations now or hereafter in effect relating to the
Assets; (x) any and all service contracts and agreements affecting the Assets as
of the date hereof (including the Assigned Contracts and the Assigned Leases),
and any and all service contracts and agreements entered into after the
Effective Date in accordance with the provisions of this Agreement, in each
case, to the extent in effect as of the Closing; (xi) violations of laws,
regulations, ordinances, orders or requirements, if any, arising out of any
Change of Law; and (xii) all matters disclosed in or ascertainable from the
materials, documents and reports included in the Data Room. Notwithstanding the
foregoing, for purposes of this Agreement, the lien of the Mortgage shall not be
a Permitted Encumbrance.
"PERSON" means an individual, partnership, joint venture, corporation,
------
limited liability company, trust, association or unincorporated organization, or
any Governmental Authority.
"POWER PURCHASE AGREEMENTS" means the Power Purchase Agreement
-------------------------
(Stations), the Power Purchase Agreement (Peaking Units) and the Power Purchase
Agreement (Collins) in the forms of Exhibit F-1, F-2 and F-3, respectively.
----------- --- ---
"PRE-APPROVED CAPITAL EXPENDITURE" has the meaning set forth in
--------------------------------
Section 5.13 (Capital Expenditures Prior to Closing).
- ------------
"PRE-CLOSING REMEDIATION EXPENDITURE" shall mean expenditures by ComEd
-----------------------------------
after the Effective Date and prior to the Closing Date relating to Remediation
of an Environmental Condition to the extent required by a Governmental Authority
or pursuant to the Environmental Laws to be incurred by ComEd prior to the
Closing Date.
"PRELIMINARY TITLE REPORTS" means the preliminary title reports issued
-------------------------
by the Title Company as attached to Exhibit G.
---------
"PROPRIETARY INFORMATION" has the meaning set forth in the
-----------------------
Confidentiality Agreement.
"PRUDENT UTILITY PRACTICES" means any of the practices, methods and
-------------------------
acts engaged in or approved by a significant portion of the electric utility
industry in the United States of America during the relevant time period, or any
of the practices, methods or acts which, in the exercise of reasonable judgment
in light of the facts known at the time the decision was made, could have been
expected to accomplish the desired result at a reasonable cost consistent with
good business practices, reliability, safety and expedition. "Prudent Utility
Practices" is not intended to be limited
-10-
<PAGE>
to the optimum practice, method or act to the exclusion of all others, but
rather to be acceptable practices, methods or acts generally accepted in the
electric utility industry in the United Stated of America.
"PURCHASE PRICE" means the sum of (i) Four Billion Eight Hundred
--------------
Thirteen Million One Hundred Twenty-One Thousand Dollars ($4,813,121,000) for
the Assets at Crawford Generating Station, Fisk Generating Station, Waukegan
Generating Station, Will County Generating Station, Joliet Generating Station,
Powerton Generating Station and Collins Generating Station, together with the
Assets at the Off-Site Calumet, Bloom, Electric Junction, Lombard and Sabrooke
Peaking Sites and (ii) the amounts called for by Section 5.13 (Capital
------------
Expenditures Prior to Closing), as such sum is adjusted pursuant to Section
-------
2.6(b) (Purchase Price--Inventory Adjustment). The Parties acknowledge that
- ------
Purchaser has satisfied its Competitive Transition Charge (as defined in the
1997 Act) obligations with respect to the Facilities by prepayment, which is
included in the Purchase Price.
"PURCHASER" has the meaning set forth in the introductory paragraph of
---------
this Agreement.
"PURCHASER CLAIMS" has the meaning set forth in Section 6.2(a)
---------------- --------------
(Indemnification by ComEd--Purchaser Claims).
"PURCHASER GROUP" has the meaning set forth in Section 6.2(a)
--------------- --------------
(Indemnification by ComEd--Purchaser Claims).
"PURCHASER TITLE POLICY" has the meaning set forth in Section 7.6
---------------------- -----------
(Purchaser Title Policy).
"PURCHASER'S 401(K) PLAN" has the meaning set forth in Section 5.5(b)
----------------------- --------------
(Employee Benefits Matters--Employee Benefit Plans).
"PURCHASER'S LIABILITIES" has the meaning set forth in Section 2.3
----------------------- -----------
(Purchaser's Liabilities).
"RELATED AGREEMENTS" means the Agency Agreement, Bill of Sale and
------------------
Instrument of Assignment, the Confidentiality Agreement, the Easement
Agreements, the Facilities Agreements, the Grant Deeds, the Instrument of
Assumption, the Power Purchase Agreements and the Reproration Agreements.
"REMEDIATION" means any or all of the following activities to the
-----------
extent they relate to or arise from the presence of an Environmental Condition
and are required to be addressed either as a requirement of Environmental Laws
or as a result of a claim or demand of a Third Party or Governmental Authority:
(i) monitoring, investigation, cleanup, containment, remediation, removal,
mitigation, response or restoration work required by Environmental Laws, (ii)
obtaining any permits, consents, approvals or authorizations of any Governmental
Authority necessary to conduct any such
-11-
<PAGE>
work, (iii) preparing and implementing any plans or studies for such work, (iv)
where required or desired, obtaining a written notice from a Governmental
Authority with jurisdiction over the Assets or any portion thereof under
Environmental Laws that no material additional work is required by such
Governmental Authority and (v) any other activities reasonably necessary or
appropriate or required under Environmental Laws to address or mitigate such
Environmental Condition. In the case of ComEd, Remediation shall mean all of the
foregoing to the extent related to a Transmission Environmental Condition.
Remediation shall be understood to encompass cost effective, risk-based
remedies, to the extent permitted under applicable Environmental Laws, including
the use of engineering and institutional controls, such as deed restrictions,
reflecting the industrial nature of the Assets and the Transmission Excluded
Assets.
"REPRORATION AGREEMENT" has the meaning set forth in Section 5.7(a)(i)
--------------------- -----------------
(Taxes, Prorations and Closing Costs--Taxes).
"REQUIRED CONSENTS" means all authorizations, consents, licenses,
-----------------
permits, notices and approvals necessary or appropriate to consummate the
transactions contemplated hereby.
"REQUIREMENTS OF LAWS" means any foreign, federal, state, county or
--------------------
local laws, statutes, regulations, rules, codes or ordinances enacted, adopted,
issued or promulgated by any Governmental Authority.
"SECTION 125 PLANS" has the meaning set forth in Section 5.5(b)
----------------- --------------
(Employee Benefits Matters--Employee Benefit Plans).
"SITES" means the generating facilities known as Crawford Station,
-----
Fisk Station, Waukegan Station, Will County Station, Joliet Station, Powerton
Station and Collins Station and the off-site combustion turbine generating units
known as the Calumet, Bloom, Electric Junction, Lombard and Sabrooke Peaking
Units, and all associated improvements, equipment, personal property, fixtures
and real property and including both the Assets and the Excluded Assets.
"SPARE PARTS" means the spare parts and supplies identified on
-----------
Schedule 2.1(d) (Personal Property) and all other spare parts and supplies, if
- ---------------
any, on the Transferred Real Property or at ComEd's central warehouse location
on the Closing Date to the extent such have ordinarily been allocated to the
operation or maintenance of the generation business at the Transferred Real
Property (all of which will be included in the calculation set forth in Section
-------
2.6(b) (Purchase Price--Inventory Adjustment)), but, for the avoidance of doubt,
- ------
excluding any of the foregoing which constitute Excluded Assets.
"SURVEYS" means, collectively, the following plats of survey:
-------
(i) for the Crawford Station Site, a Plat of Survey of said Site
identifying the Transferred Real Property and the Switchyard Property
thereat, last revised February 19, 1999, prepared by SDI Consultants Ltd.,
consisting of 7 sheets;
-12-
<PAGE>
(ii) for the Fisk Station Site, (x) a Plat of Survey of a portion of
said Site identifying a portion of the Transferred Real Property and the
Switchyard Property thereat, last revised February 19, 1999, prepared by
SDI Consultants Ltd., consisting of 6 sheets, and (y) a Plat of Survey of
Sampsons Canal identifying the remainder of the Transferred Real Property
thereat, last revised February 19, 1999, prepared by Chicago Guarantee
Survey Company, consisting of 1 sheet;
(iii) for the Waukegan Station Site, a Plat of Survey of said Site
identifying the Transferred Real Property and the Switchyard Property
thereat, last revised February 19, 1999, prepared by SDI Consultants Ltd.,
consisting of 6 sheets;
(iv) for the Will County Station Site, a Plat of Survey of said Site
identifying the Transferred Real Property and the Switchyard Property
thereat, last revised February 19, 1999, prepared by SDI Consultants Ltd.,
consisting of 6 sheets;
(v) for the Calumet Off-Site Peaking Site, a Plat of Survey
identifying the Transferred Real Property and a portion of the Switchyard
Property thereat, last revised February 19, 1999, prepared by SDI
Consultants Ltd., consisting of 1 sheet;
(vi) for the Joliet Station #9 Site, a Plat of Survey of said Site
identifying the Transferred Real Property and the Switchyard Property
thereat, last revised February 19, 1999, prepared by SDI Consultants Ltd.,
consisting of 11 sheets;
(vii) for the Joliet Station #29 Site, a Plat of Survey of said Site
identifying the Transferred Real Property and the Switchyard Property
thereat, last revised February 19, 1999, prepared by SDI Consultants Ltd.,
consisting of 12 sheets;
(viii) for the Powerton Station Site, a Plat of Survey of said Site
identifying the Transferred Real Property and the Switchyard Property
thereat, last revised February 15, 1999, prepared by Maurer Stutz, Inc.
consisting of 12 sheets;
(ix) for the Collins Station Site, a Plat of Survey of said Site
identifying the Transferred Real Property and the Switchyard Property
thereat, last revised February 19, 1999, prepared by SDI Consultants Ltd.,
consisting of 21 sheets;
(x) for the Bloom Off-Site Peaking Site, a Plat of Survey
identifying the Transferred Real Property and a portion of the Switchyard
Property thereat, last revised February 19, 1999, prepared by SDI
Consultants Ltd., consisting of 2 sheets;
(xi) for the Sabrooke Off-Site Peaking Site, a Plat of Survey
identifying the Transferred Real Property and a portion of the Switchyard
Property thereat, last revised February 19, 1999, prepared by SDI
Consultants Ltd., consisting of 4 sheets;
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<PAGE>
(xii) for the Lombard Off-Site Peaking Site, a Plat of Survey
identifying the Transferred Real Property and a portion of the Switchyard
Property thereat, last revised February 19, 1999, prepared by SDI
Consultants Ltd., consisting of 1 sheet; and
(xiii) for the Electric Junction Off-Site Peaking Units Site, a Plat
of Survey identifying the Transferred Real Property and a portion of the
Switchyard Property thereat, last revised February 19, 1999, prepared by
SDI Consultants Ltd., consisting of 3 sheets.
"SWITCHYARD PROPERTY" has the meaning set forth in Section 2.7
------------------- -----------
(Certain Provisions With Respect to Switchyard Property).
"TANNERY SITE" has the meaning set forth in Section 2.4(k) (Excluded
------------ --------------
Liabilities).
"TAX" means any federal, state, local or foreign income, gross
---
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Section 59A of
the Code), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property,
utilities, fixtures or improvements (including assessments, fees or other
charges based on the use, occupancy or ownership of real property), personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated tax, retirement, railroad or other tax of any kind
whatsoever, including any interest, penalty or addition thereto, whether
disputed or not, including any item for which liability arises as a transferee
or successor-in-interest.
"TAX CLAIM" has the meaning set forth in Section 5.7(a) (Taxes,
--------- --------------
Prorations and Closing Costs--Taxes).
"TAX RETURN" means any return, report or similar statement required to
----------
be filed with respect to any Taxes (including any attached schedules), including
any information return, claim for refund, amended return and declaration of
estimated Tax.
"TERMINATION DATE" has the meaning set forth in Section 10.1(e)
---------------- ---------------
(Rights to Terminate).
"THIRD PARTY CLAIM" means a claim by a Person that is not a member of
-----------------
the ComEd Group or the Purchaser Group, as the case may be.
"TITLE COMPANY" means Chicago Title Insurance Company.
-------------
"TRANSFERRED EMPLOYEES" has the meaning set forth in Section 5.5(a)
--------------------- --------------
(Employee Benefits Matters--ComEd Transferred Employees).
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<PAGE>
"TRANSFERRED IMPROVEMENTS" has the meaning set forth in Section 2.1(b)
------------------------ --------------
(Transfer of Assets--Improvements, Buildings, Structures and Fixtures).
"TRANSFERRED LAND" has the meaning set forth in Section 2.1(a)
---------------- --------------
(Transfer of Assets--Real Property Rights).
"TRANSFERRED NON-SUPERVISORY EMPLOYEES" has the meaning set forth in
-------------------------------------
Section 5.5(a) (Employee Benefits Matters--ComEd Transferred Employees).
- --------------
"TRANSFERRED REAL PROPERTY" has the meaning set forth in Section
------------------------- -------
2.1(b) (Transfer of Assets--Improvements, Buildings, Structures and Fixtures).
- ------
"TRANSMISSION ENVIRONMENTAL CONDITIONS" means Hazardous Substances in
-------------------------------------
the soil, sediment, surface water or groundwater at the Transferred Real
Property caused by or arising from ComEd's use or operation of the Transmission
Excluded Assets after the Closing.
"TRANSMISSION EXCLUDED ASSETS" has the meaning set forth in Section
---------------------------- -------
2.2 (Excluded Assets).
- ---
"WARN ACT" means the Worker Adjustment and Retraining Notification Act
--------
(29 U.S.C. (S) 2101 et. seq.).
"YEAR 2000 READY" has the meaning set forth in Section 7.10 (Year 2000
--------------- ------------
Status).
1.2 INTERPRETATION. In this Agreement, unless a clear contrary
--------------
intention appears:
(a) the singular includes the plural and vice versa;
(b) reference to any Person includes such Person's successors and
assigns but, in the case of a Party, only if such successors and assigns
are permitted by this Agreement, and reference to a Person in a particular
capacity excludes such Person in any other capacity;
(c) reference to any gender includes each other gender;
(d) reference to any agreement (including this Agreement), document or
instrument means such agreement, document or instrument as amended or
modified and in effect from time to time in accordance with the terms
thereof and, to the extent applicable, the terms hereof;
(e) reference to any Article, Section, Schedule or Exhibit means such
Article, Section, Schedule or Exhibit to this Agreement, and references in
any Article, Section, Schedule, Exhibit or definition to any clause means
such clause of such Article, Section, Schedule, Exhibit or definition;
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<PAGE>
(f) "hereunder," "hereof," "hereto," "herein" and words of similar
import are references to this Agreement as a whole and not to any
particular Section or other provision hereof;
(g) "including" (and with correlative meaning "include") means
including without limiting the generality of any description preceding such
term;
(h) relative to the determination of any period of time, "from" means
"from and including," "to" means "to but excluding" and "through" means
"through and including;"
(i) reference to any law (including statutes and ordinances) means
such law as amended, modified, codified or reenacted, in whole or in part,
and in effect from time to time, including rules and regulations
promulgated thereunder; and
(j) the capitalized terms in Section 7.9 (Facility Performance) not
-----------
otherwise defined herein have the meanings set forth in the Power Purchase
Agreements.
1.3 CAPTIONS. The captions of the various Articles, Sections,
--------
Exhibits and Schedules of this Agreement have been inserted only for convenience
of reference and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement.
1.4 NO JOINT VENTURE. Nothing contained in this Agreement creates or
----------------
is intended to create an association, trust, partnership or joint venture or
impose a trust or partnership duty, obligation or liability on or with regard to
either Party. Neither Party shall be empowered, except as expressly stated
herein, to act as the other Party's agent or to represent to any third party
that it has the ability to bind the other Party, without the express permission
of the Party to be bound.
1.5 CONSTRUCTION OF AGREEMENT. This Agreement was negotiated by the
-------------------------
Parties with the benefit of legal representation and any rule of construction or
interpretation otherwise requiring this Agreement to be construed or interpreted
against any Party shall not apply to any construction or interpretation hereof.
ARTICLE 2
---------
PURCHASE AND SALE OF ASSETS
---------------------------
2.1 TRANSFER OF ASSETS. Subject to the Permitted Encumbrances and
---- ------------------
the terms and conditions of this Agreement, including Section 2.2 (Excluded
-----------
Assets), the Facilities Agreements, the Easement Agreements and reservations in
the Grant Deeds, ComEd will sell, convey, assign, transfer and deliver to
Purchaser and Purchaser will purchase, assume and acquire
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<PAGE>
from ComEd, all of ComEd's right, title and interest in and to the following
assets (collectively, "ASSETS") on the Closing Date:
(a) REAL PROPERTY RIGHTS. Each parcel of real property (identified as
--------------------
the "Sale Tract") described or depicted in Schedule 2.1(a) (Transferred
---------------
Land) (the "TRANSFERRED LAND").
(b) IMPROVEMENTS, BUILDINGS, STRUCTURES AND FIXTURES. The
------------------------------------------------
improvements, buildings, structures and fixtures that are located on the
Transferred Land or any portion thereof, including the cooling towers being
built for the Joliet Station to the extent completed on the Closing Date
(collectively, the "TRANSFERRED IMPROVEMENTS" and, together with the
Transferred Land, the "TRANSFERRED REAL PROPERTY").
(c) PERMITS, LICENSES, ETC. The governmental authorizations,
----------------------
consents, approvals, permits, licenses, orders, exceptions, exemptions or
allowances, including applications for any of the foregoing, described in
Schedule 2.1(c) (Specific Permits, Licenses and Variances), to the extent
---------------
transferable.
(d) PERSONAL PROPERTY. The machinery, equipment, vehicles, tools,
-----------------
furniture and other tangible personal property of ComEd which is located on
or in transit to the Transferred Real Property on the Closing Date and used
primarily in connection with the Transferred Real Property or otherwise
described in Schedule 2.1(d) (Personal Property), including (1) the
---------------
equipment, facilities and other items identified on such Schedule as being
located at the Switchyard Property and (2) all inventories of fuel and
Spare Parts to the extent such are located on the Transferred Real Property
or have ordinarily been allocated to the operation or maintenance of the
Transferred Real Property (all of which fuels and Spare Parts will be
included in the calculation set forth in Section 2.6(b) (Purchase Price--
--------------
Inventory Adjustment)).
(e) OTHER ASSETS (1) The leases and licenses of personal property or
------------
real property listed on Schedule 2.1(e)(1) (Assigned Leases and Licenses)
------------------
(collectively, "ASSIGNED LEASES"); (2) the fuel supply and transportation
contracts and agreements listed on Schedule 2.1(e)(2) (Assigned Fuel
------------------
Contracts) (collectively, "ASSIGNED FUEL CONTRACTS"); (3) the other
contracts and agreements listed on Schedule 2.1(e)(3) (collectively,
------------------
"ASSIGNED OTHER CONTRACTS"); and (4) the causes of action of ComEd listed
on Schedule 2.1(e)(4) (Causes of Action) (collectively, "CAUSES OF
------------------
ACTION").
(f) SO\\2\\TRADING ALLOWANCES. Future SO\\2\\ trading allowances, to
--------------------------
the extent owned by ComEd as of the date hereof and transferrable, in the
quantities set forth in Schedule 2.1(f) (SO\\2\\ Trading Allowances)
---------------
relating to the Facilities.
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<PAGE>
(g) NOX TRADING ALLOWANCES. Future NOx trading allowances, to the
----------------------
extent owned by ComEd as of the date hereof and transferable, in the
quantities allocable to the Facilities upon finalization of the
Environmental Laws authorizing allocations, purchases and sales of NOx
allowances.
(h) VOM TRADING ALLOWANCES. Future VOM trading allowances, to the
----------------------
extent owned by ComEd as of the date hereof and transferable, in the
quantities allocable to the Facilities upon implementation of any
Environmental Laws authorizing allocation, purchases and sales of VOM
allowances.
(i) RECORDS. The books, records, documents, drawings, reports,
-------
operating data and similar items of ComEd relating directly and
specifically to the aforementioned assets.
2.2 EXCLUDED ASSETS. Notwithstanding anything to the contrary
---------------
contained herein, nothing in this Agreement will constitute or be construed as
conferring on Purchaser, and Purchaser is not acquiring, any right, title or
interest in or to the following, all of the following being specifically
excluded from the sale of assets contemplated by this Agreement (collectively,
the "EXCLUDED ASSETS"): (a) the land (including any land identified as the
"Retained Tract" in Schedule 2.1(a) (Transferred Land)) owned by ComEd which is
---------------
shown on the Surveys as being located outside of the "Sale Tract," together with
all real and personal property and improvements thereon (including those
constituting the switchyard and associated relays, cabling and batteries) and
the equipment and facilities described in Schedule 2.2(a) (Switchyard Property),
---------------
(b) the transmission, distribution and communication towers, poles, lines,
cables, conduit, facilities and related support equipment and other items
described in Schedule 2.2(b) (Transmission Excluded Assets) (collectively with
---------------
the Switchyard Property, the "TRANSMISSION EXCLUDED ASSETS"), including any and
all related operating, instruction and/or maintenance manuals, leaflets, records
or other documents related to the foregoing, (c) the assets (including
contracts) listed or described on Schedule 2.2(c) (Other Excluded Assets), (d)
---------------
the ComEd Marks, the Patent Rights, the ComEd Software and any other software
used at the Facilities, (e) any assets of the ComEd Pension Plan, the
Commonwealth Edison Employees' Benefit Trust, the Commonwealth Edison Employees'
Benefit Trust for Management Employees or the Commonwealth Edison Employees'
Benefit Trust for Union Employees, (f) any causes of action against a third
Person relating to the period prior to the Closing Date, (g) any properties,
assets, business, operation, subsidiary or division of ComEd or any Affiliate of
ComEd, whether tangible or intangible, real, personal or mixed, not set forth in
Section 2.1 (Transfer of Assets), including any cash or working capital of
- -----------
ComEd, even if the working capital or cash relates to the Facilities, and all
accounting or general ledger records of ComEd, (h) all records and files
relating to ComEd employees, (i) any communications between ComEd and its
counsel, including attorney-client privileged or work product material and (j)
any abatement or refund of any Tax for which ComEd is liable pursuant to Section
-------
5.7 (Taxes, Prorations and Closing Costs).
- ---
2.3 PURCHASER'S LIABILITIES. On the Closing Date, Purchaser will
-----------------------
assume and be responsible and liable for (i) all obligations and liabilities
related to, arising from or associated with ownership, occupancy, use or
operation of the Assets from and after the Closing (other than
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<PAGE>
Excluded Liabilities) and (ii) the following obligations and liabilities
(collectively, "PURCHASER'S LIABILITIES"):
(a) ENVIRONMENTAL LIABILITIES. Subject to and except for ComEd's
-------------------------
obligations pursuant to Section 2.4(d), Section 2.4(e) and Section 5.9(b)
-------------- -------------- --------------
(Environmental Matters--ComEd's Responsibilities): (i) responsibility for
compliance and liability for any non-compliance by the Assets with
Environmental Laws (including fines, penalties and costs to correct); (ii)
all Environmental Conditions and Remediation thereof; (iii) responsibility
and liability for all Hazardous Substances, and Remediation thereof,
present in, on or incorporated into the improvements, buildings,
structures, fixtures or equipment which constitute the Assets or which are
otherwise located on or have migrated from the Transferred Real Property,
including responsibility and liability for: (1) bodily injury to any Person
or damages to any property or natural resources to the extent arising from
exposure to or release of such Hazardous Substances and Remediation thereof
and (2) any Hazardous Substances present in, on, under or about, or
incorporated into any drums, equipment or debris that were discarded or
abandoned and buried in the ground at the Transferred Real Property or any
portion thereof; (iv) liability arising from the ownership, possession, use
or operation of equipment, fixtures, structures, surface impoundments or
any other improvement at the Transferred Real Property, or at owned or
leased adjacent properties, used for the treatment, storage, handling or
disposal of Hazardous Substances; and (v) any obligation to decommission,
deactivate, dismantle, demolish or close the Facilities or any portion
thereof, or any surface impoundments or other waste or effluent handling or
storage units on owned or leased adjacent properties used in connection
with the operation of the Facilities and, in the case of any of subsections
(i) through (v) above, whether occurring, existing or arising on, before or
after the Closing (collectively, "ENVIRONMENTAL LIABILITIES").
(b) COMPLIANCE LIABILITIES. Obligations to comply with, and all
----------------------
liabilities connected with or arising out of, the permits, licenses,
exemptions, allowances, approvals and other items (including applications)
listed in Schedule 2.1(c) (Specific Permits, Licenses and Variances) and
---------------
other permits, licenses, exemptions, allowances and approvals obtained or
required in connection with the Assets, including the obligations and
liabilities arising from or related to emission and discharge allowances,
any zoning, land use, building, construction, demolition, setback and
subdivision permits, licenses, approvals and authorizations, and the
obligation to cure any violation or default under any of the foregoing and
pay any resultant penalties, irrespective of whether such violation or
default arose or occurred prior to the Closing Date.
(c) PERMIT RENEWALS. Obligations and liabilities under any
---------------
amendments, modifications, extensions or renewals of any existing permits,
variances, certificates, licenses, consents, authorizations and approvals
relating to the Assets.
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<PAGE>
(d) ASSIGNED LIABILITIES. Obligations and liabilities under the
--------------------
Assigned Leases and the Assigned Contracts relating to the period from and
after the Closing Date.
(e) EMPLOYMENT LAWS. Obligations and liabilities under the
---------------
Employment Laws to Transferred Employees arising or relating to the period
from and after the Closing Date.
(f) OTHER SPECIFIED LIABILITIES. All other obligations and
---------------------------
liabilities allocated to Purchaser in this Agreement.
2.4 EXCLUDED LIABILITIES. Purchaser shall not assume or be obligated
--------------------
to pay, perform or otherwise discharge the following excluded obligations and
liabilities (collectively, the "EXCLUDED LIABILITIES"):
(a) Obligations and liabilities of ComEd in respect of any Excluded
Assets or other assets of ComEd which are not Assets (other than
obligations or liabilities relating to Environmental Liabilities or
described in any subsection below);
(b) Obligations and liabilities of ComEd under any of the Assigned
Leases or Assigned Contracts relating to the period prior to the Closing
Date (other than obligations or liabilities relating to Environmental
Liabilities);
(c) Obligations and liabilities for personal injury or property loss
or damages (but only to the extent the alleged personal injury or property
loss or damage occurred before the Closing Date) resulting from or arising
out of the ownership or operation of the Assets by ComEd prior to the
Closing Date (other than obligations or liabilities relating to
Environmental Liabilities or described in subsection (d) below);
(d) Obligations and liabilities resulting from or arising out of any
Transmission Environmental Conditions, except to the extent that the
obligation or liability is for or based upon personal injury or property
damage that resulted from any Person (other than any member of the ComEd
Group) taking an action on or after the Closing Date (including any
disruption of the soil or groundwater or changes in the use of the Sites or
any portion thereof that could enhance the risks of human exposure to
Hazardous Substances) that increased the risk that such liability or
obligation would arise, unless such action was required by Environmental
Laws;
(e) Obligations and liabilities resulting from or arising out of any
arrangement by ComEd for the treatment or disposal of any Hazardous
Substance generated by the operation of the Facilities at any Off-Site
Disposal Location, to the extent such treatment or disposal occurred prior
to the Closing Date; provided that, for any obligation or liability related
to an Off-Site Disposal Location that was used
-20-
<PAGE>
by ComEd prior to Closing and by Purchaser on and after the Closing, this
Excluded Liability shall include only that portion of any resulting
liability that is attributable to ComEd's pre-Closing use of such Off-Site
Disposal Location;
(f) Any fines or penalties imposed by a Governmental Authority to the
extent resulting from acts or omissions of ComEd prior to the Closing Date
(other than relating to Environmental Liabilities);
(g) Except as provided in Section 5.7 (Taxes, Prorations and Closing
-----------
Costs) and Section 5.13 (Capital Expenditures Prior to Closing), any
------------
payment obligations of ComEd for goods delivered or services rendered prior
to the Closing Date, including rental payments pursuant to the Assigned
Leases;
(h) Except as provided in Section 5.5 (Employee Benefits Matters),
-----------
any obligations and liabilities relating to any Benefit Plan, including any
liability (i) under Title IV of ERISA, (ii) relating to a multi-employer
plan, (iii) with respect to the continuation coverage requirements of
COBRA, (iv) with respect to any noncompliance with ERISA, the Code or any
other applicable laws, or (v) with respect to any suit, proceeding or claim
which is brought regarding any Benefit Plan or any fiduciary or former
fiduciary of any such Benefit Plan;
(i) Obligations and liabilities relating to the employment or
termination of employment of ComEd employees, including discrimination,
wrongful discharge or unfair labor practices by ComEd of any individual, in
each case arising or accruing prior to the Closing Date regardless of when
asserted;
(j) Obligations and liabilities, whether known or unknown, resulting
from or arising out of any release of Hazardous Substances associated with
or migrating from any former manufactured gas plant of ComEd located on
property other than Transferred Land; and
(k) Obligations and liabilities resulting from or arising out of the
release of Hazardous Substances at the former Greiss-Pfleger Tannery
located on property adjacent to the Waukegan Station Site ("TANNERY SITE"),
including the migration of such Hazardous Substances on or beneath any
Transferred Land, except to the extent such obligation or liability results
from the action of any Person (other than a member of the ComEd Group) on
or after the Closing Date (including any disruption of the soil or
groundwater or changes in use of the Waukegan Station Site or any portion
thereof that could enhance the risk of human exposure to the Hazardous
Substances) that increases the risk that such obligations or liability
would arise, unless such action was required by Environmental Laws.
2.5 CLOSING. The closing of the sale of the Assets to, and the
-------
acceptance of the Purchaser's Liabilities by, Purchaser (the "CLOSING") shall
take place at the offices of Sidley &
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<PAGE>
Austin, One First National Plaza, Chicago, Illinois at 9:00 a.m. local time no
later than ten (10) Business Days following the date on which the last of the
conditions set forth in ARTICLE 7 (Conditions Precedent to Obligations of
---------
Purchaser at the Closing) and ARTICLE 8 (Conditions Precedent to Obligations of
---------
ComEd at the Closing) have been either satisfied or waived by the Party for
whose benefit such conditions precedent exist, provided that such date does not
occur prior to September 30, 1999, or on such other date and at such other place
as the Parties may mutually agree. Each Party will use Commercially Reasonable
Efforts to cause the Closing to occur as soon as reasonably possible, but not
before September 30, 1999 (unless the Parties otherwise mutually agree). The
date of Closing is referred to herein as the "CLOSING DATE" and shall be deemed
to be effective for all purposes at 12:01 a.m. on the Closing Date. Purchaser
will take physical possession of the Assets at the Closing.
2.6 PURCHASE PRICE. (A) PURCHASE PRICE AND PAYMENT. The
--------------- --------------------------
consideration for the purchase of the Assets is the Purchase Price (which shall
be paid by Purchaser to ComEd at the Closing in U.S. Dollars by wire transfer of
immediately available funds) and the assumption by Purchaser of the Purchaser's
Liabilities. ComEd will designate the account or accounts of ComEd to which the
Purchase Price will be wire transferred. Notwithstanding the foregoing, any
portion of the Purchase Price may, at ComEd's sole election, be separately used
to satisfy any lien, charge, exception or encumbrance affecting the Assets, or
for such other purpose as ComEd may determine, in which event the amount of the
Purchase Price paid to ComEd shall be reduced by any amount so used in the
manner determined by ComEd. Any such separate payments designated by ComEd
shall, at the election of ComEd, be made either via wire transfer of immediately
available funds or by unendorsed certified checks(s) or bank check(s) drawn
directly to the order of the requested payee(s) or accounts designated by ComEd.
(b) INVENTORY ADJUSTMENT. (i) On or promptly following the Closing
--------------------
Date (unless otherwise agreed to by the parties), ComEd shall cause a physical
inventory to be made of the quantities of fuels and Spare Parts located at the
Transferred Real Property or at locations off-site to the extent such fuels and
Spare Parts have ordinarily been allocated to the operation or maintenance of
the generation business at the Transferred Real Property. Purchaser may have
its representatives observe the taking of such physical inventory. Purchaser
hereby agrees that ComEd and its employees, agents, representatives and
contractors shall have the right and license to enter the Facilities after the
Closing, from time to time upon reasonable advance notice, for the purpose of
conducting such physical inventory and other purposes incidental thereto. The
right and license granted by Purchaser to ComEd pursuant to the immediately
preceding sentence shall be irrevocable, but shall automatically expire on the
Determination Date. Promptly after the Closing Date, and in any event within
sixty days thereof, ComEd shall prepare and forward to Purchaser, (1) a
valuation of such physical inventory of such fuels located at the Transferred
Real Property, together with the natural gas inventory allocated to the
Facilities, any coal in transit and the handling expenses associated with the
foregoing (collectively, the "FUELS INVENTORY"), using the principles and
---------------
methods set forth in Schedule 2.6(b) (Inventory Valuation Methodologies) and (2)
---------------
a valuation of such physical inventory of the Spare Parts located at the
Transferred Real Property or at ComEd's central warehouse location to the extent
such have ordinarily been allocated to the operation or maintenance of the
generation business at the Transferred Real Property, together with any handling
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<PAGE>
expenses associated with the foregoing (the "OTHER INVENTORIES"), using the
-----------------
principles and methods set forth in Schedule 2.6(b) (Inventory Valuation
---------------
Methodologies).
(ii) Purchaser shall have thirty days from its receipt of such
valuation to raise in writing by notice to ComEd any objections it has to the
inclusion or exclusion of items in or from such valuations or that such
valuations were not prepared in accordance with the requirements of this
Section. Any objection so raised shall be referred to, and resolved by,
representatives of Purchaser and ComEd or, if a Party fails to appoint a
representative for such purpose within ten days or such representatives fail to
agree on a resolution within ten days after the expiration of the thirty day
period referenced in the immediately preceding sentence, an independent
accountant selected by the Parties (who shall be provided with the Parties'
respective positions and access to relevant records and instructed to issue a
decision within thirty days of his or her selection). The resolution by the
independent accountant shall be final, conclusive and binding upon the Parties.
The fees and expenses of the independent accountant shall be borne one-half by
Purchaser and one-half by ComEd.
(iii) The term "CLOSING DATE INVENTORY AMOUNT" means (1) if Purchaser
-----------------------------
has no objections as aforesaid or fails to object to the valuation in writing to
ComEd within the required thirty-day period, the aggregate valuation of the
Fuels Inventory and the Other Inventories as determined by ComEd, or (2) if
Purchaser objects as and when provided in subparagraph (ii) above, such
aggregate valuation as adjusted to reflect the resolution of any such objections
as provided in subparagraph (ii) above and the term "DETERMINATION DATE" means
------------------
the date on which such Closing Date Inventory Amount is so determined.
(iv) In the event that:
(1) the Closing Date Inventory Amount exceeds Eighty-Three Million
Eight Hundred Eighty-Three Thousand One Hundred Thirty-Six Dollars
($83,883,136), then promptly following the Determination Date, Purchaser
shall pay to ComEd, by wire transfer of funds to an account designated by
ComEd, an amount equal to such excess; or
(2) the Closing Date Inventory Amount is less than Eighty-Three
Million Eight Hundred Eighty-Three Thousand One Hundred Thirty-Six Dollars
($83,883,136), then promptly following the Determination Date, ComEd shall
pay to Purchaser, by wire transfer of funds to an account designated by
Purchaser, an amount equal to such deficiency.
(c) ALLOCATION OF PURCHASE PRICE. ComEd and Purchaser shall
----------------------------
endeavor to agree upon an allocation of the Purchase Price (including, for
purposes of this Section 2.6(c) (Purchase Price--Allocation of Purchase Price),
--------------
the assumption of the Purchaser's Liabilities) solely among the Assets
consistent with the provisions of 1060 of the Code and the regulations
thereunder. Any such agreed-upon allocation shall be adjusted after the Closing
to the extent necessary to reflect the inventory adjustment contemplated by
Section 2.6(b) (Purchase Price--Inventory Adjustment).
- --------------
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<PAGE>
ComEd and Purchaser each agrees to file Internal Revenue Service Form 8594 and
all Tax Returns in accordance with any such agreed-upon allocation, but if no
agreement is reached each shall file its separate Form 8594 in accordance with
its best judgment. ComEd and Purchaser each agrees to provide the other promptly
with any other information required to complete Form 8594. ComEd and Purchaser
shall notify each other and provide each other reasonable assistance in the
event of an examination audit or other proceeding regarding the allocation
agreed to pursuant to this Section 2.6(c) (Purchase Price -- Allocation of
--------------
Purchase Price).
2.7 CERTAIN PROVISIONS WITH RESPECT TO SWITCHYARD PROPERTY. (a)
------------------------------------------------------
Purchaser acknowledges and agrees that ComEd intends to retain all of its right,
title and interest in and to the real property portion of the Excluded Assets
(the "SWITCHYARD PROPERTY"). If and to the extent deemed necessary by ComEd (in
its reasonable judgment) prior to Closing (and, to the extent necessary, at and
after the Closing), ComEd and, to the extent ComEd requests, Purchaser, will use
Commercially Reasonably Efforts to obtain and/or effectuate all federal, state,
county and local approvals, including subdivision approvals, required such that
the conveyance of the Transferred Real Property and the retention of the
Switchyard Property by ComEd results in the creation, as of the Closing (or such
later date, as applicable), of legally subdivided parcels which comply with all
applicable local, county, state and federal land use, zoning, subdivision,
setback and similar Requirements of Law (including the Illinois Plat Act (765
ILCS 205/1, et. seq.)).
-- ---
(b) Purchaser and ComEd acknowledge and agree that, notwithstanding
anything in this Agreement to the contrary, in the event that the condition set
forth in Schedule 8.2 (Required Governmental Approvals) which relates to the
------------
acquisition of state, county and local zoning, land use and subdivision
approvals with respect to the transfer of the Transferred Real Property and
retention of the Switchyard Property is not satisfied prior to Closing, then
ComEd shall have the right (in addition to, and not in lieu of, ComEd's other
rights under this Agreement with respect to such condition) to possess, use and
occupy the Switchyard Property (or any portion thereof) by means (including by
lease or easement) other than by retention of ownership of fee title to the
Switchyard Property (or any portion thereof) in such a manner as ComEd deems
acceptable to satisfy such condition (an "Alternative Structure"); provided,
--------
that such Alternative Structure shall not materially adversely affect Purchaser
or the economic benefit of the transactions contemplated by this Agreement or
the Related Agreements. In the event that ComEd employs an Alternative
Structure, then (i) ComEd and Purchaser shall reasonably cooperate in making any
amendments required to the Related Agreements necessary to reflect such
Alternative Structure, and (ii) ComEd and Purchaser shall execute and deliver
such other documents and instruments, and take such other action as may be
reasonably required, to effectuate such Alternative Structure. If and when
ComEd requests, Purchaser agrees to execute and deliver such documents and
instruments, and take such other action as may be reasonably required, to
terminate the Alternative Structure and to cause ComEd to own in fee simple the
Switchyard Property, subject only to liens and encumbrances (other than the
Related Agreements) that the Switchyard Property was subject to immediately
prior to the Closing, and to cooperate in making any amendments required to the
Related Agreements necessary to reflect the termination of the Alternative
Structure.
(c) Purchaser hereby acknowledges and confirms that:
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<PAGE>
(i) ComEd may at any time prior to Closing convey all of its right,
title and interest in and to a portion of the Transferred Land applicable
to the Will County Generating Station (any such portion being referred to
herein as the "LAND TRUST PROPERTY") designated on Schedule 2.1(a)
---------------
(Transferred Land) to an Illinois land trust (the "LAND TRUST") with
Chicago Title Insurance Company, as land trustee (in such capacity, the
"LAND TRUSTEE"), with respect to which Land Trust ComEd shall be the owner
of both 100% of the beneficial interest and 100% of the power of direction;
(ii) ComEd may at any time prior to Closing obtain an easement from
the Land Trustee (in the form of the Seller Ingress-Egress & Utility
Facilities Agreement attached to Exhibit B or other form reasonably
---------
satisfactory to Purchaser) for the benefit of the Switchyard Property with
respect to a portion of the Land Trust Property for purposes of gaining
vehicular and pedestrian ingress and egress on and over such portion of the
Land Trust Property;
(iii) the easement for ingress and egress described in clause (ii)
above shall constitute a Permitted Encumbrance under this Agreement; and
(iv) the transfer of the Land Trust Property to Purchaser at Closing
may not be effectuated pursuant to the Grant Deed, but rather may be
effectuated (upon and subject to the terms and conditions set forth in this
Agreement) either (at ComEd's sole election):
(A) by transfer of all of the Land Trustee's right, title and
interest in and to the Land Trust Property to Purchaser pursuant to
the Land Trustee's standard form of trustee's deed, or
(B) by assignment by ComEd to Purchaser of 100% of the
beneficial interest and power of direction in the Land Trust pursuant
to the Land Trustee's standard form of assignment of beneficial
interest and power of direction in a land trust;
provided, that, in either case, such transfer shall be subject to terms,
--------
provisions, conditions and reservations substantially similar to those set
forth in the Grant Deed.
2.8 COMED MARKS. The names "Commonwealth Edison Company," "Unicom
-----------
Corporation," "ComEd" or "Unicom," the names of predecessor entities to ComEd,
or related or similar trade names, trademarks, service marks or logos
(collectively, the "COMED MARKS") may appear on some of the Assets, including
supplies, materials, stationery and similar consumable items located at the
Transferred Real Property on the Closing Date. The Parties agree that the ComEd
Marks and all rights related thereto are part of the Excluded Assets. Purchaser
shall, within a reasonable time after the written request of ComEd, remove the
ComEd Marks from any Assets; provided, however, that Purchaser need not remove
--------
the ComEd Marks from consumable Assets which will be consumed by Purchaser
within 90 days of the Closing Date. Purchaser agrees never
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<PAGE>
to challenge ComEd's ownership of the ComEd Marks or any application for
registration thereof or any registration thereof or any rights of ComEd therein.
Purchaser will not do any business or offer any goods or services under the
ComEd Marks. Purchaser will not send, or cause to be sent, any correspondence or
other materials to any Person on any stationery that contains any ComEd Marks or
otherwise use the Assets in any manner which would or might confuse any Person
into believing that Purchaser has any right, title, interest or license to use
the ComEd Marks.
2.9 SOFTWARE LICENSE. Purchaser acknowledges and agrees that all
----------------
computer software is part of the Excluded Assets. From and after the Closing
Date, ComEd hereby grants, without representation, warranty, promise or covenant
of any kind or nature, to Purchaser, for consideration in the amount of $1,000
(regardless of the number of workstations), a fully paid-up, royalty-free, non-
exclusive, perpetual right and license to use (solely in connection with the
operation of the Facilities) the computer software set forth in Schedule 2.9
------------
(Software License) as it exists on the Closing Date (the "COMED SOFTWARE").
Purchaser acknowledges and agrees that (a) it has no right under such license
to, and agrees that it will not, access ComEd's own computer networks or those
of any of ComEd's Affiliates or use any computer software that is designed to be
part of a networked computer system providing data processing capabilities or
services beyond the Facilities, (b) it will not challenge ComEd's ownership of
the ComEd Software or any application for registration thereof or any
registration thereof or any rights of ComEd therein, (c) it will not cause or
permit reverse compilation or reverse assembly of all or any portion of the
ComEd Software and will not modify or enhance the ComEd Software without the
prior written consent of ComEd (any of such modifications or enhancements being
the sole property of ComEd), (d) Purchaser is not entitled to receive any
modifications, enhancements, updates or revisions to the ComEd Software created
by or on behalf of ComEd, and (e) the ComEd Software constitutes confidential
information and is the valuable, copyrighted and trade secret property of ComEd.
Notwithstanding the foregoing, Purchaser and any successor in interest of
Purchaser may sell, assign or sublicense the Purchaser's license to use the
ComEd Software granted hereby, on the terms of and subject to the license
granted hereunder, to any subsequent owner, lessee or operator of the
Facilities, for use solely in connection with the operation of the Facilities,
provided that (i) such subsequent owner, lessee or operator agrees in writing to
be bound by the terms of this Section 2.9 (Software License), (ii) written
-----------
notice of the identity and address for notices of such subsequent owner, lessee
or operator is delivered to ComEd prior to such sale, assignment or sublicense
and (iii) Purchaser remains primarily liable and responsible for all of its
duties, responsibilities and liabilities set forth in this Section 2.9 (Software
-----------
License). THE COMED SOFTWARE IS PROVIDED ON AN "AS IS, WHERE IS" BASIS WITHOUT
WARRANTY OF ANY KIND. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING AND OF
SECTION 3.2 (DISCLAIMERS REGARDING ASSETS), COMED HEREBY DISCLAIMS ANY EXPRESS
OR IMPLIED REPRESENTATIONS AND WARRANTIES, INCLUDING ANY IMPLIED WARRANTIES OF
MERCHANTABILITY, TITLE OR FITNESS FOR A PARTICULAR PURPOSE, AND COMED WILL HAVE
NO LIABILITY WITH RESPECT TO ANY INFRINGEMENT, OR CLAIM OF INFRINGEMENT, OF
INTELLECTUAL PROPERTY RIGHTS OF ANY PERSON AS A RESULT OF THE LICENSE OR USE OF
THE COMED SOFTWARE. COMED FURTHER DISCLAIMS THAT THE OPERATION OF THE SOFTWARE
WILL BE ERROR OR BUG-FREE, OR UNINTERRUPTED.
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<PAGE>
ARTICLE 3
---------
REPRESENTATIONS, WARRANTIES AND DISCLAIMERS OF COMED
----------------------------------------------------
Subject to Section 4.6 (Disclosures), ComEd represents, warrants and,
----------------------
where specified, disclaims to Purchaser as follows, which representations and
warranties will survive the Closing until the first anniversary of the Closing
Date as provided in Section 6.1 (Survival of the Parties' Representations and
-----------
Warranties):
3.1 TRANSACTION REPRESENTATIONS.
---------------------------
(a) ORGANIZATION AND EXISTENCE. ComEd is a duly organized and
--------------------------
validly existing corporation in good standing under the laws of the State of
Illinois. ComEd has all requisite corporate power and authority to own and lease
its properties and operate its business as it is now being operated.
(b) EXECUTION, DELIVERY AND ENFORCEABILITY. ComEd has full corporate
--------------------------------------
power to enter into, and carry out its obligations under, this Agreement and the
Related Agreements to which ComEd is a party. The execution and delivery of
this Agreement and the Related Agreements to which ComEd is a party, and the
consummation of the transactions contemplated hereby and thereby, have been duly
authorized by all necessary corporate action required on the part of ComEd.
Assuming Purchaser's due authorization, execution and delivery of this Agreement
and the Related Agreements to which Purchaser is a party, and assuming the
receipt of all Required Consents, this Agreement constitutes and, upon execution
and delivery by ComEd, the Related Agreements will constitute, the valid and
legally binding obligations of ComEd, enforceable against ComEd in accordance
with its and their terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws of
general application relating to or affecting the enforcement of creditors'
rights and by general equitable principles.
(c) NO VIOLATION. Subject to the Parties obtaining or processing (as
------------
applicable) the consents, approvals, permits, licenses, filings and notices
described in Section 3.1(d) (No Consents) and Schedule 3.1(d) (Consents), except
-------------- ---------------
as set forth in Schedule 3.1(c) (Violations), neither the execution and delivery
---------------
of this Agreement or any of the Related Agreements to which ComEd is a party,
nor compliance with any provision hereof or thereof, nor consummation of the
transactions contemplated hereby or thereby will result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give to
others a right of termination, cancellation or acceleration of any obligation or
result in the loss of a material benefit under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the Assets under, any
provision of (i) the Restated Articles of Incorporation or Bylaws of ComEd, each
as amended, (ii) any loan or credit agreement, note, bond, mortgage, indenture,
lease or other agreement (including the Assigned Contracts and the Assigned
Leases), instrument, permit, concession, franchise or license applicable to
ComEd or any of the Assets or (iii) any Requirements of Laws or any judgment,
order or decree applicable to ComEd or the Assets, other than, in the case of
clauses (ii) or (iii), any such violations, defaults, rights, liens, security
interests, charges or encumbrances that, individually or in the
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<PAGE>
aggregate, would not have a Material Adverse Effect, materially impair the
ability of ComEd to perform its obligations hereunder or under the Related
Agreements or prevent the consummation by ComEd of any of the transactions
contemplated hereby or thereby.
(d) NO CONSENTS. Except as set forth in Schedule 3.1(d) (Consents),
----------- ---------------
no consent or approval of, filing with or notice to any Person is required to be
obtained or made by ComEd in connection with ComEd's execution, delivery and
performance of this Agreement and the Related Agreements to which ComEd is a
party, or the consummation of the transactions contemplated hereby or thereby,
except (i) in connection, or in compliance, with the provisions of the HSR Act,
(ii) in connection, or in compliance, with the provisions of the Illinois Public
Utilities Act and the Federal Power Act, (iii) such consents, approvals, filings
and notices as may be required under any Environmental Laws pertaining to any
notification, disclosure or required approval triggered by ComEd's performance
of its obligations under this Agreement and the Related Agreements to which
ComEd is a party, (iv) such consents, approvals, filings and notices as may be
required in connection with the real property matters contemplated by this
Agreement, (v) such filings as may be required in connection with the Taxes
described in Section 5.7 (Taxes, Prorations and Closing Costs) and (vi) such
-----------
other consents, approvals, filings and notices the failure of which to be
obtained or made would not, individually or in the aggregate, have a Material
Adverse Effect or prevent the consummation by ComEd of any of the transactions
contemplated under this Agreement or the Related Agreements.
3.2 DISCLAIMERS REGARDING ASSETS. EXCEPT AS OTHERWISE EXPRESSLY
----------------------------
PROVIDED HEREIN, COMED EXPRESSLY DISCLAIMS ANY REPRESENTATIONS OR WARRANTIES OF
ANY KIND OR NATURE, EXPRESS OR IMPLIED, AS TO THE CONDITION, VALUE OR QUALITY OF
THE ASSETS OR THE PROSPECTS (FINANCIAL AND OTHERWISE), RISKS AND OTHER INCIDENTS
OF THE ASSETS AND COMED SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY OF
MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE WITH
RESPECT TO THE ASSETS, OR ANY PART THEREOF, OR AS TO THE WORKMANSHIP THEREOF, OR
THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR PATENT, OR AS TO
COMPLIANCE WITH ENVIRONMENTAL LAWS OR REQUIREMENTS THEREOF, OR AS TO THE
CONDITION OF, OR COMED'S RIGHTS IN, OR ITS TITLE TO, THE ASSETS, OR ANY PART
THEREOF, OR WHETHER COMED POSSESSES SUFFICIENT REAL PROPERTY OR PERSONAL
PROPERTY INTERESTS TO OWN OR OPERATE THE ASSETS OR TO CONVEY THE ASSETS. WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED
HEREIN, COMED EXPRESSLY DISCLAIMS ANY REPRESENTATION OR WARRANTY OF ANY KIND
REGARDING THE SUITABILITY OF THE FACILITIES FOR OPERATION AS POWER GENERATION
FACILITIES AND NO SCHEDULE OR EXHIBIT TO THIS AGREEMENT, NOR ANY OTHER MATERIAL
OR INFORMATION PROVIDED BY OR COMMUNICATIONS MADE BY COMED (INCLUDING THE
INFORMATION MEMORANDUM DATED OCTOBER 1998, THE SUPPLEMENT TO INFORMATION
MEMORANDUM DATED NOVEMBER 1998, THE RESPONSES TO BIDDERS' QUESTIONS DATED
NOVEMBER 13, 1998, AND THE REQUEST FOR PROPOSALS DATED DECEMBER 1998), WILL
CAUSE OR CREATE ANY WARRANTY, EXPRESS OR IMPLIED, AS TO THE CONDITION, VALUE OR
QUALITY OF THE ASSETS, OR OTHERWISE AS TO ANY MATTER OR THING.
3.3 COMPLIANCE WITH LAWS. Except as set forth on Schedule 3.3
-------------------- ------------
(Compliance Exceptions), ComEd's current use and operation of the Facilities
complies in all material respects with material Requirements of Laws in
existence as of the Effective Date and any court orders
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<PAGE>
applicable to ComEd with respect to the Assets. ComEd has no Knowledge of any
decommissioning work that is currently required with respect to any of the
Assets.
3.4 PERMITS, LICENSES, ETC. Schedule 2.1(c) (Specific Permits,
----------------------- ---------------
Licenses and Variances) lists all material permits, licenses and variances that
directly and specifically relate to the current use and operation of the
Facilities by ComEd and have been obtained by ComEd from Governmental
Authorities or any third Person. ComEd is in compliance in all material
respects with such permits, licenses and variances, and ComEd has no Knowledge
of any other material permit, license or variance that must be obtained from
Governmental Authorities or any third Person for ComEd's current use and
operation of the Assets (in each case under this Section 3.4 (Permits, Licenses,
-----------
Etc.) excluding Environmental Permits, which are the subject of Section 3.15
------------
(Environmental Matters)).
3.5 LITIGATION. Except for (i) any matters set forth on Schedule 3.5
---------- ------------
(ComEd Litigation) and (ii) actions, investigations and requests for information
relating to the consents, approvals, permits, filings and notices described in
Section 5.2 (Consents and Approvals), there is no pending or, to ComEd's
- -----------
Knowledge, threatened action, investigation or request for information by any
Governmental Authority or third Person related to the transactions contemplated
by this Agreement that would reasonably be expected to result, or has resulted,
in (a) the institution of legal proceedings to prohibit or restrain the
performance of this Agreement or any of the Related Agreements, or the
consummation of the transactions contemplated hereby or thereby, (b) a claim
against Purchaser or its Affiliates for damages as a result of ComEd entering
into this Agreement or any of the Related Agreements with Purchaser, or the
consummation by ComEd of the transactions contemplated hereby or thereby, or (c)
a material impairment of ComEd's ability to perform its obligations under this
Agreement or any of the Related Agreements. Except as set forth on Schedule 3.5
------------
(ComEd Litigation) and as to any employee-related or personal injury claims, (i)
there is no material pending or, to ComEd's Knowledge, threatened litigation,
claim, investigation or proceeding, private or governmental, and (ii) ComEd has
not been served with any legal process pertaining to a material claim, that, in
the case of clause (i) or (ii), directly and specifically relates to the Assets
or ComEd's ownership, management, operation, use or maintenance of the
Facilities or the Assigned Leases and Assigned Contracts.
3.6 ZONING AND CONDEMNATION. Except as set forth on Schedule 3.6
----------------------- ------------
(Notice of Government Action), (i) ComEd has not received any written notice
from a Governmental Authority of any pending or threatened proceeding or
governmental action, and (ii) ComEd has not been served with any legal process,
that, in the case of clause (i) or (ii), seeks to modify the zoning
classification of, or to condemn or take by power of eminent domain or to
classify as a landmark, all or any part of the Assets, that, if decided
adversely to ComEd, would have a Material Adverse Effect. Notwithstanding
anything in this Agreement to the contrary, Purchaser hereby acknowledges and
agrees that ComEd has not made any representation, warranty, covenant,
certification, promise or agreement of any kind or nature that the Transferred
Real Property, the Switchyard Property or any structures, buildings,
improvements or fixtures (whether principal or accessory) will, as of the
Closing (or at any time before or after the Closing), comply or conform with any
local, county, state
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<PAGE>
or federal land use, zoning, subdivision, setback or similar Requirements of Law
(including the Illinois Plat Act).
3.7 BROKERS. Except for the Investment Banker, whose fees will be
-------
paid by ComEd pursuant to Section 5.7(f) (Taxes, Prorations and Closing Costs--
--------------
ComEd's Closing Costs), all negotiations relating to this Agreement and the
transactions contemplated hereby have been carried on by ComEd in such a manner
as not to give rise to any claim against Purchaser (by reason of ComEd's
actions) for a brokerage commission, finder's fee or other like payment to any
Person.
3.8 CONTRACTS. Except as set forth on Schedule 3.8 (Contractual
--------- ------------
Defaults), (a) ComEd has received no written notice from a third Person that it
intends to cancel or terminate any Assigned Contract or Assigned Lease or that
ComEd is in default in any material respect under any of the material terms,
conditions or provisions of any Assigned Contract or Assigned Lease, (b) to
ComEd's Knowledge, the other party to any Assigned Contract or Assigned Lease is
not in default under any of the material terms, conditions or provisions of such
Assigned Contract or Assigned Lease and (c) each Assigned Contract and each
Assigned Lease constitutes a valid and binding obligation of ComEd and, to
ComEd's Knowledge, the other parties thereto and is in full force and effect.
To ComEd's Knowledge, ComEd has fulfilled and performed in all material respects
its obligations under each of the Assigned Contracts and Assigned Leases.
3.9 ASSETS USED IN THE OPERATION OF THE FACILITIES. The assets being
----------------------------------------------
conveyed pursuant to Section 2.1 (Transfer of Assets) and the assets described
-----------
in clauses (a) through (d) of Section 2.2 (Excluded Assets) constitute all of
-----------
the material assets and properties (excluding cash) currently used by ComEd for
the operation of the Facilities.
3.10 CASUALTY; OPERATIONS. (a) Except as set forth in Schedule
-------------------- --------
3.10(a) (Casualty Losses), since January 1, 1999, there has been no Casualty
- -------
which has had or would reasonably be expected to have a Material Adverse Effect.
(b) Except as set forth in Schedule 3.10(b) (Operations Outside of
----------------
the Ordinary Course), since January 1, 1999 through the Effective Date, ComEd
has operated the Facilities in the ordinary course and in conformity with past
practice.
3.11 TAXES. Except as set forth in Schedule 3.11 (Taxes), (i)
----- -------------
ComEd has, in respect of the Assets, filed all material Tax Returns which are
required to be filed and has paid all Taxes which have become due pursuant to
such Tax Returns or pursuant to any assessment which has become payable; (ii)
all such Tax Returns are complete and accurate in all material respects and
disclose all material Taxes required to be paid in respect of the Assets; (iii)
there is no action, suit, investigation, audit, claim or assessment pending or,
to ComEd's Knowledge, threatened with respect to Taxes relating to the Assets
and, to ComEd's Knowledge, no basis exists therefor; (iv) ComEd has received no
written notice of any special assessment, adopted or proposed, with respect to
the Assets; (v) ComEd has not waived or been requested to waive any statute of
limitations in respect of Taxes associated with the Assets; and (vi) no
transaction contemplated by this Agreement is subject to
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<PAGE>
withholding under Section 1445 of the Code. There are no liens with respect to
Taxes (other than liens for current Taxes not yet due and payable) upon the
Assets.
3.12 PUBLIC UTILITY HOLDING COMPANY ACT. ComEd is a "holding
----------------------------------
company" within the meaning of the Public Utility Holding Company Act of 1935,
but ComEd is exempt from the provisions of that Act, except Section 9(a)(2)
---------------
thereof, by virtue of an order issued by the Securities and Exchange Commission
on June 30, 1948. Such exemption is in full force and effect and, to ComEd's
Knowledge, there are no existing or proposed proceedings contemplating the
revocation or modification of such exemption.
3.13 ERISA; BENEFIT PLANS. (a) Other than transition plans
--------------------
established by ComEd in connection with ComEd's sale of the Assets, whether as
provided in the February 26, 1999 Memorandum of Understanding between ComEd and
Local 15 of the IBEW or otherwise, Schedule 3.13(a) (Benefit Plans) lists all
----------------
deferred compensation, profit-sharing, welfare, retirement and pension plans,
and all material bonus and other employee benefit or fringe benefit plans
maintained or with respect to which contributions are made by ComEd in respect
of current or former nonsupervisory employees employed at the Facilities
(collectively, "BENEFIT PLANS"). Accurate and complete copies of all such
Benefit Plans and any related summary plan descriptions, trust agreements and
annual reports on Form 5500 have been made available to Purchaser.
(b) ComEd and the ERISA Affiliates have fulfilled their respective
obligations under the minimum funding requirements of section 302 of ERISA, and
section 412 of the Code, with respect to each Benefit Plan which is an "employee
pension benefit plan" as defined in section 3(2) of ERISA and which is subject
to section 302 of ERISA or section 412 of the Code. Each Benefit Plan is, and
has been administered, in compliance in all material respects with its terms,
the presently applicable provisions of ERISA and the Code, and the regulations
thereunder. Except for premiums due in the ordinary course, which have been
timely paid, neither ComEd nor any ERISA Affiliate has incurred any liability to
the Pension Benefit Guaranty Corporation ("PBGC") under Title IV of ERISA.
There has not been a "reportable event" (as defined in section 4043 of ERISA)
with respect to any Benefit Plan (other than a reportable event with respect to
which the notice requirement has been waived by the PBGC). No person has
engaged in any non-exempt prohibited transaction within the meaning of section
4975 of the Code or section 406 of ERISA that would subject ComEd to a material
liability. The Internal Revenue Service has issued a current letter for each
Benefit Plan which is intended to be qualified under section 401(a) of the Code
determining that such plan is so qualified and, to ComEd's Knowledge, nothing
has occurred since the date of such letter that would adversely affect such
determination.
(c) Neither ComEd nor any ERISA Affiliate is required (or has, within
the preceding six years, been required) to contribute to a "multiemployer plan"
as defined in Section 3(37) of ERISA.
(d) ComEd has operated each Benefit Plan that is a "group health
plan" as defined in section 607(1) of ERISA in material compliance with the
notice and continuation requirements
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<PAGE>
of section 4980B of the Code, the Consolidated Omnibus Budget Reconciliation Act
of 1985, Part 6 of Subtitle B of Title 1 of ERISA and the respective regulations
thereunder.
(e) Neither ComEd nor any ERISA Affiliate has taken or failed to take
any action with respect to any "plan" (within the meaning of section 3(3) of
ERISA) which has resulted or would reasonably be expected to result in the
imposition of any lien on the assets of the Facilities.
(f) There are no pending or, to ComEd's Knowledge, threatened claims
(other than claims for benefits in the ordinary course), lawsuits, audits,
investigations or arbitrations which have been asserted or instituted against
the Benefits Plans, any fiduciaries with respect to their duties to the Benefit
Plans or the assets of any of the respective trusts which would reasonably be
expected to result in any material liability.
3.14 TITLE TO TANGIBLE PERSONAL PROPERTY. Except for the
-----------------------------------
Mortgage and as set forth on Schedule 3.14 (Tangible Personal Property
-------------
Encumbrances), ComEd has good and marketable title (free and clear of any
monetary liens or encumbrances) to the tangible personal property constituting
part of the Assets located at the Transferred Real Property purported to be
owned by it and has full right to sell, convey, transfer and assign such
tangible personal property to Purchaser.
3.15 ENVIRONMENTAL MATTERS. Except as disclosed in Schedule 3.15
--------------------- -------------
(Environmental Matters):
(a) ComEd holds, and is in substantial compliance with, all material
permits, licenses and governmental authorizations ("ENVIRONMENTAL PERMITS")
required for ComEd to own, use and operate the Facilities under applicable
Environmental Laws, which Environmental Permits are listed in Schedule
--------
2.1(c) (Specific Permits, Licenses and Variances), and ComEd is otherwise
------
in compliance with applicable Environmental Laws with respect to the
ownership, use and operation of the Facilities, except for such failures to
hold or comply with required Environmental Permits, or such failures to be
in compliance with applicable Environmental Laws, which would not,
individually or in the aggregate, have a Material Adverse Effect;
(b) Since January 1, 1996, ComEd has not received any written request
for information, or been notified that it is a potentially responsible
party, under CERCLA or any similar state law with respect to Environmental
Conditions on any of the Facilities, except where any resulting liability
would not, individually or in the aggregate, have a Material Adverse
Effect;
(c) Since January 1, 1996, ComEd has not received any notice of
violation of any applicable Environmental Law, has not entered into or
agreed to any consent decree or order, and is not subject to any
outstanding judgment, decree or
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<PAGE>
judicial order relating to compliance with any Environmental Law or to
investigation or cleanup of Hazardous Substances under any Environmental
Law with respect to the Facilities where its obligations have not been
fully and finally resolved, and is not a party to any such administrative
or judicial proceedings, except for any such consent decree or order,
judgment, decree, judicial order or administrative or judicial proceeding
that would not, individually or in the aggregate, have a Material Adverse
Effect.
The representations and warranties made in this Section 3.15
------------
(Environmental Matters) are ComEd's exclusive representations and warranties
relating to Environmental Conditions, Environmental Laws, Environmental Permits
or any other environmental matter; and no representation or warranty as to such
Environmental Conditions, Environmental Laws, Environmental Permits or other
matters is intended, or shall be implied, from any of the other provisions of
this Agreement.
3.16 DATA ROOM. To ComEd's Knowledge, the copies of the Assigned
---------
Leases, Assigned Contracts and the items listed in Schedule 2.1(c) (Specific
---------------
Permits, Licenses and Variances) which are in the Data Room are true, correct
and complete in all material respects.
3.17 LABOR MATTERS. ComEd has made available to Purchaser a true
-------------
and correct copy of the Collective Bargaining Agreement. There are no strikes
or work stoppages pending or, to ComEd's Knowledge, threatened against ComEd
which relate to the Facilities, and there have been no such strikes or work
stoppages during the past five years. Except for the Collective Bargaining
Agreement, the agreements specifically referred to therein and as set forth in
Schedule 3.17 (Labor Matters), ComEd is not a party to any collective bargaining
- -------------
or other union agreement covering ComEd's employees at the Facilities. Except
as set forth on Schedule 3.17 (Labor Matters), there is no unfair labor
-------------
practice, charge or complaint pending that relates to the Facilities. ComEd has
not received notice of any pending representation petition with the National
Labor Relations Board regarding ComEd employees.
3.18 FINANCIAL STATEMENTS. ComEd has delivered to Purchaser true
--------------------
and complete copies of its Audited Financial Statements together with the
related Accountant's Report. Except as may otherwise be indicated in the
Accountant's Report, the Audited Financial Statements have been prepared in
conformity with generally accepted accounting principles, consistently applied,
and present fairly with respect to ComEd the financial position and results of
ComEd's operations and its cash flows at the dates and for the periods stated.
3.19 NO OTHER REPRESENTATIONS. Except for the representations
------------------------
and warranties contained in this ARTICLE 3 (Representations, Warranties and
---------
Disclaimers of ComEd), ComEd makes no representation or warranty, express or
implied, written or oral, with respect to the matters contemplated in this
Agreement.
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<PAGE>
ARTICLE 4
---------
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF PURCHASER
---------------------------------------------------------
Purchaser represents and warrants to ComEd as follows, which
representations and warranties will survive the Closing until the first
anniversary of the Closing Date as provided in Section 6.1 (Survival of the
-----------
Parties' Representations and Warranties):
4.1 TRANSACTION REPRESENTATIONS.
---------------------------
(a) ORGANIZATION AND EXISTENCE. Purchaser is a duly organized and
--------------------------
validly existing corporation in good standing under the laws of the State of
California. Prior to Closing, Purchaser will be qualified to do business in the
State of Illinois.
(b) EXECUTION, DELIVERY AND ENFORCEABILITY. Purchaser has full
--------------------------------------
corporate power and authority to execute and deliver, and consummate the
transactions under, this Agreement and the Related Agreements to which Purchaser
is a party. The execution and delivery of this Agreement and the Related
Agreements to which Purchaser is a party, and the consummation of the
transactions contemplated hereby and thereby, have been duly authorized by all
necessary corporate action required on the part of Purchaser. Assuming ComEd's
due authorization, execution and delivery of this Agreement and the Related
Agreements to which ComEd is a party, and assuming the receipt of all Required
Consents, this Agreement constitutes, and upon execution and delivery by
Purchaser, the Related Agreements will constitute, the valid and legally binding
obligations of Purchaser, enforceable against Purchaser in accordance with its
and their terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws of general
application relating to or affecting the enforcement of creditors' rights and by
general equitable principles.
(c) NO VIOLATION. Subject to the Parties satisfying their respective
------------
obligations to obtain or process (as applicable) the consents, approvals,
permits, licenses, filings and notices described in Section 5.2 (Consents and
-----------
Approvals), neither the execution and delivery of this Agreement or any of the
Related Agreements to which Purchaser is a party, nor compliance with any
provision hereof or thereof, nor consummation of the transactions contemplated
hereby or thereby will result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give to others a right of
termination, cancellation or acceleration of any obligation or result in the
loss of a material benefit under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
Purchaser under, any provision of (i) the organizational documents of Purchaser,
each as amended to date, (ii) any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit concession,
franchise or license applicable to Purchaser or (iii) any Requirements of Laws
or any judgment, order or decree applicable to Purchaser or any of its
properties or assets, other than, in the case of clauses (ii) or (iii), any such
violations, defaults, rights, liens, security interests, charges or encumbrances
that, individually or in the aggregate, would not have a material adverse effect
on Purchaser, materially impair the ability of Purchaser to perform its
obligations hereunder or under the Related Agreements
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<PAGE>
or prevent the consummation by Purchaser of any of the transactions contemplated
hereby or thereby.
(d) NO CONSENTS. Except as set forth in Schedule 4.1(d) (Purchaser
----------- ---------------
Consents), no consent or approval of, filing with or notice to any Person is
required to be obtained or made by Purchaser in connection with Purchaser's
execution, delivery and performance of this Agreement and the Related Agreements
to which Purchaser is a party, or the consummation of the transactions
contemplated hereby or thereby, except for (i) in connection, or in compliance,
with the provisions of the HSR Act, (ii) in connection, or in compliance, with
the provisions of the Illinois Public Utilities Act and the Federal Power Act,
(iii) such consents, approvals, filings and notices as may be required under any
Environmental Laws pertaining to any notification, disclosure or required
approval triggered by Purchaser's performance of its obligations under this
Agreement and the Related Agreements to which Purchaser is a party, (iv) such
consents, approvals, filings and notices as may be required in connection with
the real property matters contemplated by this Agreement, (v) such filings as
may be required in connection with the Taxes described in Section 5.7 (Taxes,
-----------
Prorations and Closing Costs) and (vi) such other consents, approvals, filings
and notices the failure of which to be obtained or made would not, individually
or in the aggregate, materially impair Purchaser's ability to perform its
obligations under this Agreement or prevent the consummation by Purchaser of any
of the transactions contemplated under this Agreement or the Related Agreements.
4.2 LITIGATION. Except for (i) any matters set forth on Schedule 4.2
---------- ------------
(Purchaser Litigation) and (ii) actions, investigations and requests for
information relating to the consents, approvals, permits and notices described
in Section 5.2 (Consents and Approvals), there is no pending or, to Purchaser's
-----------
Knowledge, threatened action, investigation or request for information by any
Governmental Authority or third Person related to the transactions contemplated
by this Agreement that would reasonably be expected to result, or has resulted,
in (a) the institution of legal proceedings to prohibit or restrain the
performance of this Agreement or any of the Related Agreements, or the
consummation by Purchaser of the transactions contemplated hereby or thereby,
(b) a claim for damages against ComEd or any of its Affiliates as a result of
Purchaser entering into this Agreement or any of the Related Agreements, or the
consummation by Purchaser of the transactions contemplated hereby or thereby, or
(c) a material impairment of Purchaser's ability to perform its obligations
under this Agreement or any of the Related Agreements. Except as set forth on
Schedule 4.2 (Purchaser Litigation), there is no material pending or, to
- ------------
Purchaser's Knowledge, threatened litigation, claim, investigation or
proceeding, private or governmental, that directly and specifically relates to
Purchaser's contemplated ownership, management, operation, use or maintenance of
the Facilities.
4.3 BROKERS. Except for any advisors to Purchaser, whose fees will
-------
be paid by Purchaser pursuant to Section 5.7(e) (Taxes, Prorations and Closing
--------------
Costs--Purchaser's Closing Costs), all negotiations relating to this Agreement
and the transactions contemplated hereby have been carried on by Purchaser in
such a manner as not to give rise to any claim against ComEd (by reason of
Purchaser's actions) for a brokerage commission, finder's fee or other like
payment to any Person.
-35-
<PAGE>
4.4 FINANCIAL STATEMENTS. Purchaser has delivered to ComEd true and
--------------------
complete copies of its Audited Financial Statements together with the related
Accountant's Report, and Purchaser's quarterly financial statements for each of
the fiscal quarters ended after the date of its most recent Audited Financial
Statements. Except as may otherwise be indicated in the Accountant's Report,
the Audited Financial Statements have been prepared in conformity with generally
accepted accounting principles, consistently applied, and present fairly with
respect to Purchaser the financial position and results of Purchaser's
operations and its cash flows at the dates and for the periods stated; and since
the end of the period covered by the Audited Financial Statements, there has
been no material adverse change in the business, condition (financial or
otherwise) or results of operations of Purchaser and its subsidiaries, taken as
a whole.
4.5 FINANCIAL ABILITY. Purchaser has the financial ability to
-----------------
consummate the transactions contemplated by this Agreement to be performed by
Purchaser and has furnished ComEd with evidence thereof.
4.6 DISCLOSURES. Purchaser understands and agrees that (a) the
-----------
materials, documents and reports in the Data Room qualify and limit the
representations and warranties set forth in ARTICLE 3 (Representations,
---------
Warranties and Disclaimers of ComEd) (other than Section 3.16 (Data Room)) and
------------
(b) except as expressly set forth in this Agreement, ComEd shall have no
liability, obligation or responsibility in connection with, or arising out of,
any matters disclosed in, or ascertainable from, the materials, documents and
reports included in the Data Room. Purchaser also acknowledges that any written
disclosures made by ComEd prior to the Closing shall constitute notice to
Purchaser of the matter disclosed, and ComEd shall have no liability to
Purchaser on account of the matter disclosed if Purchaser thereafter consummates
the transaction contemplated hereby; provided, however, that this sentence shall
not limit the provisions of ARTICLE 7 (Conditions Precedent to Obligations of
---------
Purchaser at Closing).
4.7 PUBLIC UTILITY HOLDING COMPANY ACT. Purchaser is not a "holding
----------------------------------
company" within the meaning of the Public Utility Holding Company Act of 1935.
Purchaser's ultimate parent company is a "holding company" within the meaning
of that Act, but is exempt pursuant to Section 3(a)(1) thereof.
4.8 "AS IS" SALE. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN,
------------
PURCHASER UNDERSTANDS AND AGREES THAT THE ASSETS ARE BEING ACQUIRED "AS IS,
WHERE IS" ON THE CLOSING DATE, AND IN THEIR CONDITION ON THE CLOSING DATE, AND
THAT PURCHASER IS RELYING SOLELY ON ITS OWN EXAMINATION OF THE ASSETS.
ARTICLE 5
---------
CERTAIN AGREEMENTS
------------------
5.1 DUE DILIGENCE INSPECTIONS AND REVIEWS. Purchaser acknowledges
-------------------------------------
and agrees that it has, prior to its execution of this Agreement, fully
completed and approved the results
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<PAGE>
of all of its due diligence inspections and reviews of the Assets. Purchaser
will bear all of its own costs, expenses and charges incurred in connection with
its due diligence inspections and reviews.
5.2 CONSENTS AND APPROVALS.
----------------------
(a) COMED RESPONSIBILITY. ComEd will use Commercially Reasonable
--------------------
Efforts to obtain the Illinois Authority, any approval required to be obtained
by it from FERC under applicable law and any other authorization, consent,
license, permit and approval that ComEd deems necessary or appropriate for its
use and operation of the Excluded Assets after the Closing.
(b) PURCHASER RESPONSIBILITY. (i) Except as set forth in Section
------------------------ -------
5.2(a) (Consents and Approvals--ComEd Responsibility) and except to the extent
- ------
set forth in Section 2.7 (Certain Provisions With Respect to Switchyard
-----------
Property), Purchaser will use Commercially Reasonable Efforts to obtain all
authorizations, consents, licenses, permits, notices and approvals of
Governmental Authorities required by applicable law or required by the terms of
the applicable authorization, consent, license, permit or approval of or
agreement with such Governmental Authorities in connection with the consummation
of the transactions contemplated by this Agreement and the Related Agreements,
including the specific consents to the assignment or transfer from ComEd to
Purchaser of (or, as applicable, the reissuance of) the permits, licenses,
approvals, exceptions, exemptions and allowances, including applications for any
of the foregoing, listed in Schedule 2.1(c) (Specific Permits, Licenses and
---------------
Variances); provided that Purchaser shall not have any obligation to offer or
pay any consideration (other than filing fees and related costs payable to
Government Authorities) in order to obtain any such authorizations, consents,
licenses, permits, notices or approvals.
(ii) In connection with obtaining any Required Consents from third
Persons, Purchaser will use Commercially Reasonable Efforts to obtain a release
of ComEd from any and all liabilities and obligations arising from the use or
ownership of the Assets being assigned or transferred arising after the Closing
Date; provided that Purchaser shall not have any obligation to offer or pay any
consideration (other than filing fees payable to Government Authorities) in
order to obtain any such release. Purchaser will not reject any transfer (or,
as applicable, reissuance) of any permit, license or approval held by ComEd with
respect to the Facilities with terms and conditions substantially similar to
those in effect on the Effective Date. After the Closing, Purchaser will notify
promptly all relevant Governmental Authorities and all third Persons of the
change in ownership of the Assets resulting from the transactions contemplated
herein, to the extent required by applicable law or the specific underlying
agreements.
(c) JOINT RESPONSIBILITY. Each of ComEd and Purchaser will use
--------------------
Commercially Reasonable Efforts to obtain all consents from third Persons listed
in Schedule 3.1(d) (Consents), including all consents to the assignment from
---------------
ComEd to Purchaser of ComEd's rights and obligations under the Assigned Leases
and Assigned Contracts required by the terms of the Assigned Leases and Assigned
Contracts (including those specified on Schedule 3.1(d) (Consents)); provided
---------------
that neither Party shall have any obligation to offer or pay any consideration
in order to obtain any such consents. In the event consents are not received
from the parties to any of the Assigned
-37-
<PAGE>
Contracts which are referenced in the form of Agency Agreement which is attached
hereto as Exhibit K, the Parties agree to enter into the Agency Agreement in
---------
such form (the "AGENCY AGREEMENT") at Closing.
(d) ANTITRUST LAW COMPLIANCE. As promptly as practicable after the
-------------------------
date hereof, Purchaser and Unicom Corporation shall file with the Federal Trade
Commission and the Antitrust Division of the Department of Justice the
notifications and other information required to be filed under the HSR Act, or
any rules and regulations promulgated thereunder, with respect to the
transactions contemplated hereby. Purchaser warrants with respect to itself,
and ComEd warrants with respect to Unicom Corporation, that all such filings by
or on behalf of it will be, as of the date filed, true and accurate and in
accordance with the requirements of the HSR Act and any such rules and
regulations. Each of Purchaser and ComEd agrees to make available to the other
such information as each of them may reasonably request relative to its
business, assets and property as may be required of each of them to file any
additional information requested by such agencies under the HSR Act and any such
rules and regulations. If any Governmental Authority having jurisdiction under
the HSR Act requires the filing of any additional information with respect to
the transactions contemplated hereunder, each Party will provide such
information in a prompt and diligent manner. Purchaser will pay all filing fees
under the HSR Act, but each Party will bear its own costs of the preparation of
any filing.
(e) COOPERATION. Each Party will assist the other Party's efforts to
-----------
obtain the consents, authorizations, approvals, permits and licenses required
pursuant to this Section 5.2 (Consents and Approvals) and will cooperate with
-----------
the other Party in executing such applications and other documents as are
reasonably required. Each of ComEd and Purchaser will use Commercially
Reasonable Efforts to avoid an action or proceeding by any Governmental
Authority (including those in connection with the HSR Act) and to defend any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
hereby, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Authority vacated or reversed. Each
Party will bear its own costs for these applications and proceedings, except as
otherwise provided in Section 5.7 (Taxes, Prorations and Closing Costs.)
-----------
(f) NO TRANSFER IF CONSENT OR APPROVAL NOT OBTAINED. Notwithstanding
-----------------------------------------------
anything in this Agreement to the contrary, this Agreement shall not constitute
an agreement by ComEd to assign or transfer any Asset or any claim, right or
benefit arising under or resulting from such Asset if an assignment or transfer
or an attempt to make such an assignment or transfer of such Asset would, in
ComEd's reasonable judgment, constitute a breach thereof or a violation of any
law, decree, order or regulation of any Governmental Authority. Nothing
contained in this Section 5.2(f) (Consents and Approvals--No Transfer if Consent
--------------
or Approval Not Obtained) shall limit or modify the Parties' respective
obligations under the other provisions of this Section 5.2 (Consents and
-----------
Approvals) or the rights of the respective Parties under Section 7.3(b)
--------------
(Purchaser's Receipt of Approvals of Governmental Authorities--Other Approvals)
and 8.3 (ComEd's Receipt of Approvals). Notwithstanding the foregoing, ComEd and
---
Purchaser shall cooperate, to the maximum extent permitted by law and the Asset
(but excluding any obligation of ComEd or Purchaser to offer
-38-
<PAGE>
or pay any consideration therefor), with each other in any legal and reasonable
arrangement (including the Agency Agreement) designed to provide any claim,
right or benefit arising under or resulting from the Assets to Purchaser and to
relieve ComEd from any obligation, liability or burden associated therewith.
5.3 CONFIDENTIALITY. All information obtained by Purchaser from
---------------
ComEd (or its officers, employees, counsels, representatives or agents) shall be
kept confidential in accordance with the terms of the Confidentiality Agreement
until the Closing, at which time the Confidentiality Agreement shall terminate.
Without limiting the foregoing, each Party agrees that it will treat in
confidence all documents, materials and other information which it shall have
obtained regarding the other Party during the course of the negotiations leading
to the consummation of the transactions contemplated hereby (whether obtained
before or after the Effective Date) or which are referred to herein as
"confidential information." Such documents, materials and information shall not
be communicated to any third Person (other than each Party's counsel,
accountants, financial advisors or lenders, which in each case shall agree to be
bound by the confidentiality obligations set forth herein, and other than any
other third Person which reasonably requires such information in order to
facilitate the consummation of the transactions contemplated hereby, provided
that prior to any disclosure, the disclosing Party shall seek to obtain a
customary confidentiality agreement from any such other third Person (excluding
any rating agency or Governmental Authority) . No other party shall use any
confidential information in any manner whatsoever except solely for the purpose
of evaluating the proposed purchase and sale of the Assets; provided, however,
-------- -------
that after the Closing, Purchaser may use or disclose any confidential
information included in the Assets. The obligation of each Party to treat such
documents, materials and other information in confidence shall not apply to any
information which (i) is or becomes available to such Party from a source other
than the other Party or its agents, (ii) is or becomes available to the public
other than as a result of disclosure by such Party or its agents, (iii) is
required to be disclosed under applicable law or judicial process or by a
regulatory body, but, in each case, only to the extent it must be disclosed, or
(iv) such Party reasonably deems necessary to disclose to obtain any of the
consents or approvals contemplated hereby.
5.4 LABOR MATTERS.
-------------
(a) Purchaser will, at the Closing Date and in accordance with the
requirements of applicable federal labor laws, recognize Local 15 of the IBEW as
the exclusive representative of those employees accepting continued employment
by Purchaser at the Facilities who are represented by the IBEW for the purpose
of collective bargaining. Purchaser will assume the Collective Bargaining
Agreement that is in effect on the Closing Date.
(b) Purchaser will hire a sufficient number of non-supervisory
employees to operate and maintain the Assets by initially making offers of
employment to ComEd's non-supervisory workforce in the fossil division at no
less than the wage rates and substantially equivalent fringe benefits and terms
and conditions of employment that are in effect at the Closing Date, and
Purchaser agrees that said wage rates and substantially equivalent fringe
benefits and terms and conditions of employment shall continue for at least 30
months from the Closing Date (unless
-39-
<PAGE>
the covered employees or their representative agree to different terms and
conditions of employment with the Purchaser within such 30-month period).
Purchaser shall use Commercially Reasonable Efforts to make such offers not less
than sixty (60) days prior to the Closing Date, and each offer of employment
pursuant to this Section 5.4(b) (Labor Matters) will be acceptable by the
--------------
offeree for a period of thirty (30) days, irrespective of the Closing Date.
(c) Purchaser agrees to consult with ComEd regarding a transition
plan for the workforce at the Facilities and agrees that it will not solicit or
make offers of employment to any ComEd employee (supervisory or non-supervisory)
without the prior written approval of ComEd, which approval shall not be
unreasonably withheld; provided, however, that ComEd may (in its sole
-------- -------
discretion) withhold such approval in order to structure the solicitation and
hiring process in a manner that does not interfere unreasonably with the
operation of the Facilities.
(d) Purchaser shall notify ComEd in writing of the names of those
ComEd employees who (i) received offers of employment, (ii) accepted such offers
and (iii) rejected such offers, in each case no later than thirty (30) days
prior to the Closing Date.
(e) ComEd shall be responsible for the severance pay, if any, to be
paid to ComEd employees who are not offered employment with Purchaser.
Purchaser shall be responsible for the severance pay, if any, to be paid to any
ComEd employees who are employed by Purchaser or its Affiliates and thereafter
terminated by Purchaser or its Affiliates on or after the Closing Date. In
addition, Purchaser shall be responsible for reimbursing ComEd for any severance
pay that is paid by ComEd to any ComEd employee who accepts an offer of
employment by and becomes an employee of Purchaser or any of its Affiliates on,
or within one hundred eighty (180) days after, the Closing Date; provided,
however, that Purchaser shall not be required to reimburse ComEd under this
Section 5.4(e) for any amounts related to severance pay in excess of 30% of the
- --------------
total severance payments made by ComEd to its employees as a result of the sale
of the Assets. Purchaser acknowledges that it has not informed ComEd of any
planned or contemplated decisions or actions by Purchaser that would require the
service of notice under the WARN Act. Purchaser agrees that it shall not take
any action which causes the notice provisions of the WARN Act to be applicable
to the transactions contemplated by this Agreement.
(f) For purposes of this Section 5.4 (Labor Matters), a ComEd
-----------
employee includes any employee who is actually working and any employee who
would be working but is absent from employment due to illness, injury, military
service, family-medical leave, short-term disability, workers' compensation
leave and any other approved leave of absence of twelve months or less.
(g) Purchaser shall recognize length of service with ComEd for
purposes of determining matters pertaining to the timing and eligibility for
vacation days under the Collective Bargaining Agreement for those employees who
accept offers of employment with Purchaser or its Affiliates on or after the
Closing Date.
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<PAGE>
5.5 EMPLOYEE BENEFITS MATTERS.
-------------------------
(a) COMED TRANSFERRED EMPLOYEES. As of the Closing Date, Purchaser
---------------------------
will continue to employ those employees accepting continued employment pursuant
to the offers made by Purchaser in accordance with Section 5.4(b) (Labor
--------------
Matters) ("TRANSFERRED NON-SUPERVISORY EMPLOYEES") at the compensation levels
and with fringe benefits and terms and conditions of employment required by
Section 5.4(a) and Section 5.4(b) (Labor Matters). In addition, Purchaser will
- -------------- --------------
credit each Transferred Non-Supervisory Employee with all service recognized by
ComEd under the applicable Benefit Plan for purposes of determining eligibility
for and vesting of benefits provided by Purchaser. Purchaser shall be
responsible for (i) all liabilities, obligations and commitments relating to all
wages, salaries, bonuses and other forms of compensation (including vacation
pay) and related expenses incurred or accrued on or after the Closing Date with
respect to Transferred Non-Supervisory Employees and other ComEd employees hired
by Purchaser on the Closing Date (such employees and the Transferred Non-
Supervisory Employees being referred to herein collectively as the "TRANSFERRED
EMPLOYEES") and (ii) all employee benefits accrued after the Closing Date under
any and all plans, programs or arrangements maintained or contributed to by
Purchaser for the benefit of Transferred Employees.
(b) EMPLOYEE BENEFIT PLANS.
-----------------------
(i) At least fifteen days prior to the Closing Date, ComEd shall take
any and all actions necessary to cease benefit accruals and fully vest all
Transferred Employees in their pension benefits under the Commonwealth
Edison Company Service Annuity System (the "COMED PENSION PLAN") as of the
earlier of the Closing Date and the Transferred Employee's termination
date.
(ii) As soon as practicable after the Closing Date, there shall be a
transfer from the Commonwealth Edison Employee Savings and Investment Plan
(the "COMED ESIP") to a replacement plan maintained or established by
Purchaser (the "PURCHASER'S 401(K) PLAN") of (i) the obligation for benefit
payments to Transferred Employees under the ComEd ESIP and (ii) an amount
of assets, in cash or kind, as agreed to by ComEd and Purchaser, and
participant loan promissory notes, equal to the aggregate account balances
of the Transferred Employees under the ComEd ESIP, determined as of a
valuation date agreed to by ComEd and Purchaser. Purchaser's 401(k) Plan
shall, both at the time of its adoption and when the transfers described
herein are made, (i) be tax-qualified under Section 401(a) of the Code,
(ii) preserve all optional forms of benefits and other rights within the
scope of Section 411(d)(6) of the Code as provided in applicable
regulations thereunder and (iii) meet all the requirements of Section
401(k) of the Code with respect to amounts being transferred hereunder
which originally were contributed pursuant to a qualified cash or deferred
arrangement under Section 401(k) of the Code. Notwithstanding anything
contained herein, no transfer of assets from the ComEd ESIP shall occur
until Purchaser delivers to ComEd a copy of a favorable determination
letter issued
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<PAGE>
by the Internal Revenue Service with respect to Purchaser's 401(k) Plan or
a letter from counsel to Purchaser, satisfactory to ComEd, that Purchaser's
401(k) Plan and related trust satisfies all of the qualification
requirements of Sections 401(a) and 501(a) of the Code and Purchaser will
timely request a favorable determination letter from the IRS and make any
and all amendments as may be required by the IRS to receive such
determination letter.
(iii) Purchaser shall cause Purchaser's medical, dental and other
health plans to (A) waive for Transferred Employees any waiting period and
any restrictions and limitations for pre-existing conditions and (B) take
into account expenses incurred by Transferred Employees under ComEd's
medical, dental and vision and hearing care plans during the plan year in
which the Closing Date occurs, for purposes of determining for Transferred
Employees deductibles and out-of-pocket limits under Purchaser's medical,
dental and other health plans for the remainder of the plan year under such
plans of Purchaser.
(iv) On the Closing Date, ComEd shall cause the credits and debits
of the accounts of the Transferred Employees as of the close of business on
the day immediately preceding the Closing Date under the Commonwealth
Edison Company Key Choices Program ("KEY CHOICES PROGRAM"), the
Commonwealth Edison Benefit Contributions Options (the "OPTIONS PROGRAM")
and the Commonwealth Edison Child Care Flexible Spending Account (the
"CHILD CARE PLAN") to be segregated into identical separate plans ("SECTION
125 PLANS") to be maintained and continued by Purchaser. Transferred
Employees shall cease participation in the Key Choices Program, the Options
Program and the Child Care Plan as of the Closing Date. The Section 125
Plans to be maintained by Purchaser shall give full effect to, and continue
in effect, salary reduction elections made under the Key Choices Program,
the Options Program and the Child Care Program.
(v) Prior to the Closing Date, ComEd and Purchaser shall provide
each other with IRS determination letters relating to the tax-qualified
status of their respective qualified plans and their related trusts. In the
absence of such determination letters, Purchaser or ComEd (as the case may
be) shall, within the applicable remedial amendment period, apply for a
favorable determination letter regarding the plan's qualification and take
all actions necessary to obtain such letter.
(vi) Except as specifically set forth in clauses (ii) and (iv) of
this Section 5.5 (Employee Benefits Matters), no assets or liabilities of
-----------
ComEd with respect to any Benefit Plan and no assets of any Benefit Plan or
related trust maintained by ComEd shall be transferred or assigned to
Purchaser.
5.6 COOPERATION. Upon reasonable advance written notice by Purchaser
-----------
to ComEd, (i) ComEd shall afford Purchaser and its representatives access during
normal business hours to the Assets and books and records of ComEd related
specifically thereto and (ii) ComEd
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shall reasonably cooperate with Purchaser regarding the transition of ownership
and operation of the Assets to Purchaser, including access to facilitate
Purchaser's integration of accounting, insurance and management information
systems at the Facilities and other operations with Purchaser's programs and
systems. In addition, Purchaser shall be entitled to conduct a reasonable
inspection of the Assets, the Excluded Assets and the Switchyard Property as
close to the Closing as practicable in order to verify the accuracy of the
Schedules relating thereto. After the Closing, each Party will, upon the
reasonable request of the other Party, execute and deliver any further
instruments or documents, including instruments granting ComEd rights of ingress
and egress to the Excluded Assets on terms and conditions reasonably
satisfactory to the Parties, and take such further actions using Commercially
Reasonable Efforts as may reasonably be required to fulfill and implement the
terms of this Agreement and the Related Agreements or realize the benefits
intended to be afforded hereby. If any Excluded Assets are inadvertently
delivered to Purchaser, Purchaser will promptly return the same to ComEd to the
extent Purchaser obtains Knowledge of the existence of such Excluded Assets.
5.7 TAXES, PRORATIONS AND CLOSING COSTS.
-----------------------------------
(a) TAXES.
-----
(i) Purchaser shall pay all Taxes, including sales, use, transfer and
documentary transfer Taxes, arising in connection with the sale and
transfer of the Assets (other than all local, county and state real estate
transfer taxes); provided, however, that ComEd shall bear the sole
-------- -------
responsibility for ComEd's income Taxes and all local, county and state
real estate transfer taxes arising in connection with the sale and
transfer of the Assets. State and local real and personal property (if
any) Taxes relating to the Assets for the tax year which includes the
Closing Date shall be prorated between Purchaser and ComEd on the following
basis: ComEd shall be responsible for all such Taxes for the period up to
the Closing Date; and Purchaser shall be responsible for all such Taxes for
the period on and after the Closing Date. With respect to any Taxes
applicable to the Assets not described in the preceding two sentences,
ComEd shall be liable for and shall pay all such Taxes (whether assessed or
unassessed) attributable to taxable years or periods (or portions thereof)
ending on or prior to the Closing Date and Purchaser shall be liable for
and shall pay all such Taxes (whether assessed or unassessed) attributable
to taxable years or periods (or portions thereof) beginning after the
Closing Date. All Taxes assessed on a periodic basis (such as property
taxes) shall be prorated on the assumption that an equal amount of Taxes
applies to each day of the applicable period, regardless of how any
installment payments are billed or made. Any other Taxes attributable to
taxable years or periods beginning before and ending after the Closing Date
shall be allocated on a "closing of the books" basis as two partial
periods, one ending at the Closing Date and the other beginning immediately
after the Closing Date. In the event that the amount of any real estate or
personal property (if any) Taxes affecting the Assets and allocable to the
tax year within which the Closing Date occurs is not known or ascertainable
as of the Closing Date, then ComEd and Purchaser shall, at
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<PAGE>
Closing, prorate the amount of such Taxes on the basis of the last
ascertainable tax bill or bills, and shall reprorate such Taxes upon the
terms, provisions and conditions set forth in the Tax Reproration
Agreements, which, for each Site, shall be in the form of Exhibit H (the
---------
"REPRORATION AGREEMENT"). For purposes of prorating real estate Taxes which
are payable under any real property Tax bill (a "DIVISIBLE TAX BILL") which
affects both the Transferred Real Property and other real property owned by
ComEd (including the Switchyard Property), (A) the amount of property Taxes
set forth in each Divisible Tax Bill shall be separated into a land
component and an improvements component based on the applicable tax
assessor's records, and (B) the following amount of each Divisible Tax Bill
shall be allocated to the Transferred Real Property and prorated as
provided above: (x) the entire amount of the improvements component for
such Divisible Tax Bill, plus (y) an amount equal to (1) the land component
----
for such Divisible Tax Bill, multiplied by (2) a quotient, the denominator
-------------
of which shall be the total acreage of the tax parcel which is the subject
of such Divisible Tax Bill and the numerator of which shall be the acreage
of the portion of the Transferred Real Property which comprises part of the
tax parcel which is the subject of such Divisible Tax Bill. For purposes of
this Agreement, references to Taxes "for" a period or which are "allocable"
to a period shall mean the Taxes which accrue during the applicable period,
and not necessarily the Taxes which are due and payable within such period.
(ii) Notwithstanding anything to the contrary contained herein,
ComEd and Purchaser acknowledge and agree that each intends that any
credit, reduction or abatement of real and/or personal property Taxes (or,
if applicable, any other Taxes) applicable to the Assets and allocable to
the period (or portion thereof) prior to the Closing Date (a "COMED
REDUCTION") shall run to the benefit and/or (as applicable) be the property
of ComEd. Without limiting the generality of the foregoing, ComEd and
Purchaser acknowledge and agree that any credit, reduction or abatement of
the real and/or personal property Taxes applicable to the Assets and
allocable to the period (or portion thereof) prior to the Closing Date
which result from or arise out of either (or both) (i) any overcharging or
overassessment of real and/or personal property Taxes applicable to the
Assets and the Excluded Assets by the municipalit(ies), count(ies) and
state in which the Assets and the Excluded Assets are located with respect
to any period (or portion thereof) prior to the Closing Date and/or (ii)
any challenge or contest of the amount of real and/or personal property
Taxes applicable to the Assets and the Excluded Assets undertaken by or on
behalf of ComEd with respect to any period (or portion thereof) prior to
the Closing Date, shall constitute "ComEd Reductions." In the event that
any ComEd Reduction takes the form of a sum which is paid to Purchaser,
then Purchaser shall, no later than thirty (30) days after its receipt of
such amount, pay the same to ComEd. In the event that any ComEd Reduction
takes the form of a reduction, abatement or credit against one or more
installments of real or personal property Taxes applicable to the Sites and
levied after the date hereof, then Purchaser shall, no later than thirty
(30) days after its receipt of notice of the amount of such credit,
abatement or reduction,
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<PAGE>
pay the amount of such credit, abatement or reduction to ComEd,
notwithstanding the fact that any one or more of the installments of Taxes
against which such abatement, credit or reduction is to be applied may not
be due or payable within said thirty (30) day period. Purchaser hereby
assigns, conveys, transfers and sets over all of its right, title and
interest in and to any ComEd Reduction to ComEd, and agrees to execute any
and all documents reasonably necessary to effectuate such assignment,
conveyance and transfer (including financing statements) and to notify
third parties (including Governmental Authorities) thereof. All credits,
reductions or abatements of real and personal property Taxes applicable to
the Assets and allocable to the period (or portion thereof) after the
Closing Date shall be the property of Purchaser.
(iii) Purchaser and ComEd agree to reasonably cooperate in
effectuating the division of the real estate tax parcels affecting the
Transferred Real Property and the Switchyard Property, such that no portion
of any real estate tax parcels affecting the Switchyard Property affect the
Transferred Real Property (and vice versa), and Purchaser acknowledges and
agrees that ComEd shall have the right (but not the obligation) to take any
and all actions, execute and deliver all documents, instruments and
agreements, and make any and all necessary contacts, negotiations and
discussions with Governmental Authorities as ComEd shall deem necessary or
desirable, to effectuate such division. The Parties acknowledge that their
respective post-Closing rights and responsibilities with respect to the
division of the real estate tax parcels affecting the Transferred Real
Property and the Switchyard Property are set forth in the Reproration
Agreement.
(iv) After the Closing Date, Purchaser shall notify ComEd in
writing, within thirty (30) days after its receipt of any correspondence,
notice or other communication from a taxing authority or any representative
thereof, of any pending or threatened tax audit, or any pending or
threatened judicial or administrative proceeding that involves Taxes
relating to the Assets allocable to the period (or any portion thereof)
ending on or prior to the Closing Date, and furnish ComEd with copies of
all correspondence received from any taxing authority in connection with
any audit or information request with respect to any such Taxes. After the
Closing Date, ComEd shall notify Purchaser in writing, within thirty (30)
days after its receipt of any correspondence, notice or other communication
from a taxing authority or any representative thereof, of any pending or
threatened Tax audit, or any pending or threatened judicial or
administrative proceeding that involves Taxes relating to the Assets
allocable to periods (or any portion thereof) beginning after the Closing
Date (or portion thereof), and furnish Purchaser with copies of all
correspondence received from any taxing authority in connection with any
audit or information request with respect to any such Taxes.
(v) Notwithstanding any provision of this Agreement to the
contrary, with respect to any claim for refund, audit, examination, notice
of deficiency or assessment or any judicial or administrative proceeding
that involves Taxes relating
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to the Assets (collectively, "TAX CLAIM"), each Party shall reasonably
cooperate with the other Party in prosecuting and/or contesting any Tax
Claim, including making available original books, records, documents and
information for inspection, copying and, if necessary, introduction as
evidence at any such Tax Claim contest or proceeding and making employees
available on a mutually convenient basis to provide additional information
or explanation of any material provided hereunder with respect to such Tax
Claim or to testify at proceedings relating to such Tax Claim. ComEd shall
control (and be responsible for the costs of) all proceedings taken in
connection with any Tax Claim that pertains entirely to any period ending
on or prior to the Closing Date or pertains to the period in which the
Closing occurs if the primary portion of such period (based on actual days
during such period) is prior to the Closing Date. Purchaser shall control
(and be responsible for the costs of) all proceedings taken in connection
with any Tax Claim that pertains entirely to any period beginning after the
Closing Date or pertains to the period in which the Closing occurs if the
primary portion of such period (based on actual days during such period) is
after the Closing Date; provided that, to the extent that any action with
--------
respect to any such Tax Claim is required to be taken prior to the Closing
in order to preserve such Tax Claim, ComEd shall have the right to take
such action. Purchaser has no right to settle or otherwise compromise any
Tax Claim that pertains entirely to any period ending on or prior to the
Closing Date or pertains to the period in which the Closing occurs if the
primary portion of such period (based on actual days during such period) is
prior to the Closing Date; and, except as provided above, ComEd has no
right to settle or otherwise compromise any Tax Claim that pertains to the
period in which the Closing occurs if the primary portion of such period
(based on actual days during such period) is after the Closing Date.
(b) INCOME AND EXPENSES. Except as set forth in this Section 5.7
------------------- -----------
(Taxes, Prorations and Closing Costs), all items of income and expense related
to the Assets, including rents and other charges under the Assigned Leases and
Assigned Contracts, in each case, for the period prior to the Closing Date will
be for the account of ComEd and all items of income and expense, including rents
and other charges under the Assigned Leases and Assigned Contracts, for the
period on and after the Closing Date will be for the account of Purchaser, all
as determined by the accrual method of accounting. If either Party actually
receives any rents or other charges under the Assigned Leases and Assigned
Contracts that are, in whole or in part, designated as payments for the period
credited to the other Party under this Section 5.7(b) (Taxes, Prorations and
--------------
Closing Costs--Income and Expenses), the recipient will, within a reasonable
period of time, remit such amounts to the other Party.
(c) PRORATION METHOD. For purposes of calculating prorations,
----------------
Purchaser will be deemed to own the Assets, and, therefore, entitled to the
income therefrom and responsible for the expenses thereof, as of 11:59 p.m.
local time on the day prior to Closing. All prorations will be made on the
basis of the actual number of days of the month that will have elapsed as of the
Closing Date and based upon a 365 or 366 day year (as applicable). The amount
of the prorations will be subject to adjustment in cash after the Closing, as
and when complete and accurate information
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<PAGE>
becomes available, and the Parties agree to cooperate and use their good faith
efforts to make such adjustments.
(d) GOVERNMENTAL FEES. Any fees imposed by any Governmental Authority
-----------------
related to or arising from operations of the Assets (including fees relating to
air emissions pursuant to any permit to operate) will be prorated between
Purchaser and ComEd on the following basis: ComEd is responsible for the portion
of such fees relating to the period up to the Closing Date; and Purchaser is
responsible for the portion of such fees relating to the period on and after the
Closing Date. All fees will be prorated on the assumption that an equal amount
of fees applies to each day of the year, regardless of how or when any
installment payments are billed or made. Notwithstanding the foregoing,
Purchaser will bear all fees that arise out of a change in ownership of the
Assets, including the transfer of the governmental permits, licenses and
approvals described in Schedule 2.1(c) (Specific Permits, Licenses and
---------------
Variances), and all fees and expenses (including expenses related to or arising
from the preparation of a renewal application, such as environmental
consultants' fees) associated with a renewal of a license or permit where the
expiration date occurs after the Closing.
(e) PURCHASER'S CLOSING COSTS. In addition to (and not in lieu of)
-------------------------
each of the other costs and expenses for which Purchaser is responsible under
this Agreement (including elsewhere in this Section 5.7 (Taxes, Prorations and
-----------
Closing Costs)), Purchaser will pay: (i) all costs of (1) any changes,
alterations, updates and/or modifications to the Surveys or Preliminary Title
Reports, (2) the Purchaser Title Policies and any other title policies and all
coverages and endorsements thereto that Purchaser elects to obtain pursuant to
Section 7.6 (Purchaser Title Policy) (but not including costs and expenses
- -----------
necessary to clear ComEd's title of matters other than the Permitted
Encumbrances), (3) all filing fees required under the HSR Act, (4) Purchaser's
due diligence inspections and reviews, and (5) obtaining the Required Consents
(other than the approvals described in Section 5.2(a) (Consents and Approvals--
--------------
ComEd Responsibility) and the costs and expenses incurred by ComEd in assisting
Purchaser in obtaining such consents); (ii) all fees of any Person, other than
the Investment Banker, that is entitled to a brokerage commission, finder's fee
or other like payment by reason of Purchaser's actions; (iii) document
recordation costs (excluding releases, satisfactions and similar documents
necessary to clear ComEd's title of matters other than the Permitted
Encumbrances); and (iv) all fees and expenses of Purchaser's counsel.
(f) COMED'S CLOSING COSTS. In addition to (and not in lieu of) each
---------------------
of the other costs and expenses for which ComEd is responsible under this
Agreement (including elsewhere in this Section 5.7 (Taxes, Proration and Closing
-----------
Costs), ComEd will pay: (i) all fees payable to the Investment Banker in
connection with this transaction or any other Person that is entitled to a
brokerage commission, finder's fee or other like payment by reason of ComEd's
actions, (ii) all costs of obtaining the approvals described in Section 5.2(a)
--------------
(ComEd Responsibility) and all costs incurred by ComEd in assisting Purchaser in
obtaining the Required Consents, (iii) all costs of the Preliminary Title
Reports and Surveys (but not any costs of any changes, alterations, updates or
modifications to either), and (iv) all fees and expenses of ComEd's counsel.
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5.8 1997 ACT. From and after the Effective Date, Purchaser
--------
covenants and agrees that neither it nor any of its Affiliates will initiate any
proceeding, or take any other action that may reasonably be expected to lead to
a proceeding, to contest or challenge the provisions of section 16-128(c) of the
1997 Act.
5.9 ENVIRONMENTAL MATTERS.
---------------------
(a) PURCHASER'S RESPONSIBILITIES.
----------------------------
(i) PURCHASER'S ACKNOWLEDGMENT. Purchaser acknowledges that (A)
--------------------------
Environmental Conditions or other Environmental Liabilities exist or may
exist with respect to the Sites or in connection with the Assets, (B)
Purchaser has received ComEd's environmental reports and has had the
opportunity to perform such other due diligence and investigations as it
deems reasonable and necessary, (C) the economic and legal consequences of
Environmental Liabilities associated with the Assets and the Sites,
including Environmental Conditions, have been the subject of negotiation
between the parties, and the Purchase Price reflects any actual or
potential environmental impairment whether known or unknown, fixed or
contingent, and (D) except as set forth in Section 3.15 (Environmental
------------
Matters), ComEd has not made any representation or warranty, whether
express or implied, with respect to any environmental, health or safety
matter, including natural resources, related in any way to the Sites, the
Assets or to this Agreement or its subject matter. Purchaser acknowledges
and agrees that the representations and warranties contained in Section
-------
3.15 (Environmental Matters) shall expire with, and be terminated and
----
extinguished by, the consummation of the sale of the Assets pursuant to
this Agreement, and ComEd shall have no liability whatsoever with respect
to such representations and warranties before or after the Closing Date.
(ii) EXISTING ENVIRONMENTAL LIABILITIES. From and after the Closing
----------------------------------
Date, Purchaser shall assume all responsibility and liability for, and
ComEd shall have no responsibility or liability for, any matter within the
scope of Section 2.3(a) (Purchaser's Liabilities--Environmental
--------------
Liabilities).
(iii) COOPERATION, ACCESS AND USE OF PROPERTY FOR REMEDIATION. So
-------------------------------------------------------
long as ComEd is in substantial compliance with its obligations under
Section 5.9(b) (Environmental Matters--ComEd's Responsibilities), Purchaser
--------------
agrees to: (A) cooperate with ComEd's Remediation of any Transmission
Environmental Condition or the Tannery Site, (B) give ComEd and its agents
and contractors reasonable access to the Facilities, as necessary, to
conduct or investigate the need for such Remediation, (C) use Commercially
Reasonable Efforts to obtain access to leased or other offsite property for
ComEd if necessary for the implementation of such Remediation work, and (D)
support ComEd in its negotiations with any Governmental Authority with
respect to such Remediation to the extent consistent with Environmental
Laws and the protection of human health.
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<PAGE>
(b) COMED'S RESPONSIBILITIES.
------------------------
(i) REMEDIATION. Subject to the terms and conditions described in
-----------
this Section 5.9 (Environmental Matters), ComEd agrees: (A) to undertake
-----------
any Remediation relating to any Transmission Environmental Condition that
is, and to the extent, required by any Governmental Authority with
jurisdiction over the Transmission Excluded Assets or any portion thereof
under Environmental Laws in a written order, notice or directive that
identifies the Transmission Environmental Condition with respect to the
Transmission Excluded Assets or any portion thereof for which Remediation
is required, and (B) to make Commercially Reasonable Efforts to proceed
with such Remediation in a reasonably diligent manner and in conformance
with instructions and requirements of such Governmental Authority.
(ii) EXCLUSIVE RIGHT TO NEGOTIATE. ComEd reserves the exclusive
----------------------------
right to negotiate and enter into agreements with any Person regarding the
nature, technical remediation approach, scope, cleanup objectives or any
other aspect of any Remediation undertaken by ComEd pursuant to clause (b)
(i) above. Purchaser may retain technical consultants, at Purchaser's sole
cost and expense, to advise Purchaser on such Remediation.
(iii) NOX ALLOWANCES. Prior to the Closing Date, ComEd agrees to
--------------
negotiate in good faith with the Illinois Environmental Protection Agency
("IEPA") and the United States Environmental Protection Agency ("EPA") (if
applicable) with respect to maximizing the number of NOx trading allowances
that will be allocated to the ComEd coal-fired generating stations.
Purchaser shall be permitted to participate with ComEd in any further
negotiations, including (A) attending any further meetings with the IEPA
and/or the EPA regarding the allocation of NOx trading allowances; (B)
being provided with copies of all further correspondence from and to the
IEPA and/or the EPA relating to the allocation of NOx trading allowances;
and (C) being provided with a reasonable and fair opportunity to comment on
ComEd's further submissions to the IEPA and/or the EPA regarding NOx
trading allowances. Nothing herein shall limit Purchaser's right to
independently discuss any proposed NOx trading allowance allocation
directly with the IEPA or the EPA.
5.10 NO RECOURSE. To the extent the transfer, conveyance, assignment
-----------
and delivery of Assets to Purchaser as provided in this Agreement is
accomplished by deeds, assignments, sublicenses, subleases, subcontracts or
other instruments of transfer and conveyance, whether executed at the Closing or
thereafter, these instruments are made without representation or warranty by, or
recourse against, ComEd, except as expressly provided in this Agreement or any
deed, assignment or other instrument of transfer and conveyance.
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5.11 ADVICE OF CHANGES. Prior to the Closing, each Party will advise
-----------------
the other in writing with respect to any matter arising after execution of this
Agreement of which that Party obtains Knowledge and which, if existing or
occurring at the Effective Date, would have been required to be set forth in any
of the Schedules.
5.12 MAINTENANCE OF ASSETS PENDING CLOSING. From the Effective Date
-------------------------------------
through the Closing, except as expressly contemplated by this Agreement or to
the extent Purchaser otherwise consents in writing, which consent will not be
unreasonably withheld, delayed or conditioned, ComEd will not:
(a) CAPITAL EXPENDITURES. Except as allowed pursuant to Section 5.13
-------------------- ------------
(Capital Expenditures Prior to Closing), make any Capital Expenditure with
respect to the Facilities or enter into any contract or commitment
therefor;
(b) TRANSFERS. Sell, lease (as lessor), transfer or otherwise
---------
dispose of any of the Assets, other than Assets used, consumed or replaced
in the ordinary course of business and the sale of materials and supplies
in the ordinary course of business.
(c) MODIFICATION, AMENDMENT AND TERMINATION. Modify, amend or
---------------------------------------
voluntarily terminate, or fail to use Commercially Reasonable Efforts
(excluding any obligation to offer or pay any consideration therefor) to
prevent any other party from voluntarily terminating, any of the Assigned
Leases or Assigned Contracts or any of the permits, licenses or approvals
listed on Schedule 2.1(c), (Specific Permits, Licenses and Variances),
---------------
other than (i) in the ordinary course of business and provided such change
does not cause any of the Assigned Leases or Assigned Contracts, permits,
licenses or approvals to have materially more onerous terms or conditions
to Purchaser, (ii) in connection with an amendment of the Collective
Bargaining Agreement that is otherwise prohibited by this subsection (c),
provided that ComEd reimburses Purchaser for any amendments to the
Collective Bargaining Agreement related to a material net increase in
hourly wage rates and benefits provided to fossil division bargaining unit
employees who are hired by Purchaser in an amount equal to the present
value of such net increase, as of the Closing Date, over the 30-month
period following the Closing Date, using a discount rate of 10%, (iii) as
may be required in connection with transferring ComEd's rights or
obligations thereunder to Purchaser in connection with the transactions
contemplated by this Agreement or with ComEd and Purchaser obtaining the
Required Consents or (iv) as may be required by a Governmental Authority.
(d) OPERATION AND MAINTENANCE. Operate or maintain the Facilities in
-------------------------
a manner inconsistent with Prudent Utility Practices.
(e) ADDITIONAL TITLE ENCUMBRANCES AND TITLE IMPERFECTIONS. Grant or
-----------------------------------------------------
create any lien, easement, encumbrance or title imperfection on any of the
Assets, other than (i) in the ordinary course of business to the extent
consistent with Prudent
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Utility Practices, (ii) those liens, easements, encumbrances or title
imperfections that, if in existence prior to the Effective Date, would have
been Permitted Encumbrances, (iii) the lien of the Mortgage or (iv) as may
be required in connection with transferring ComEd's rights or obligations
with respect to the Assets to Purchaser in connection with the transactions
contemplated by this Agreement or with Purchaser obtaining the Required
Consents.
5.13 CAPITAL EXPENDITURES PRIOR TO CLOSING. Notwithstanding anything
-------------------------------------
to the contrary contained herein, ComEd may (without Purchaser's consent) make
(and undertake any work contemplated by): (i) Capital Expenditures described on
Schedule 5.13 (Pre-Approved Capital Expenditures) (collectively, the "PRE-
- -------------
APPROVED CAPITAL EXPENDITURES"), (ii) Necessary Capital Expenditures, (iii)
Approved Capital Expenditures and (iv) Pre-Closing Remediation Expenditures.
Purchaser will at Closing pay to ComEd the amount expended by ComEd on account
of all Pre-Approved Capital Expenditures, Necessary Capital Expenditures,
Approved Capital Expenditures and Pre-Closing Remediation Expenditures made or
completed by the Closing, and Purchaser will assume responsibility for and
release ComEd from liability for all such expenditures.
5.14 POST CLOSING - INFORMATION AND RECORDS
--------------------------------------
(a) INFORMATION AND ADMINISTRATIVE SUPPORT. Each Party agrees that,
--------------------------------------
from and after the Closing Date, it will, promptly following the written request
of the other Party, provide such information (other than privileged and/or
attorney work product documents or information) and administrative support as
will be reasonably requested by the other Party to enable the requesting Party
to comply with its obligations to Governmental Authorities or its obligations
with respect to the issuance of Forms W-2, 1099 and other tax reports, reports
and notices relating to pension, profit sharing, health and other plans, income
tax returns, preparation of financial statements and completion of the
requesting Party's audit for the two fiscal years ending December 31 following
the Closing Date, and other similar matters.
(b) BOOKS AND RECORDS.
------------------
(i) For a period of seven (7) years after the Closing (or, if
requested in writing by ComEd within seven (7) years after the Closing,
until the closing of the applicable statute of limitations of ComEd's
federal income tax returns for all periods prior to and including the
Closing, if later), Purchaser will not dispose of any books, records,
documents or information relating to any of the Assets without first giving
notice to ComEd thereof and permitting ComEd to retain or copy such books
and records as it may select (other than privileged and/or attorney work
product documents and information). During such period, Purchaser will
permit ComEd to examine and make copies, at ComEd's expense, of such books,
records, documents and information for any reasonable purpose, including
any litigation pending on the Effective Date, or commenced thereafter, by
or against ComEd, or the preparation of income or other tax returns. ComEd
will provide reasonable notice to Purchaser of its need to access such
books, records, documents or other information, and such
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books, records, documents or other information shall be deemed to
constitute confidential information.
(ii) If privileged and/or attorney work product documents or
information, including communications between ComEd and its counsel, are
disclosed to Purchaser in the books, records, documents or other
information located at the Sites, or if any other document or information
constituting Excluded Assets remains on the Sites after the Closing,
Purchaser agrees that (1) such disclosure is inadvertent, (2) such
disclosure will not constitute a waiver, in whole or in part, of any
privilege or work product, (3) such information will constitute
confidential information, and (4) it will promptly return to ComEd all
copies of such information in the possession of Purchaser to the extent
Purchaser obtains actual knowledge of the existence of such information.
(iii) Nothing contained in this Section 5.14(b) (Post Closing-
---------------
Information and Records--Books and Records) shall require Purchaser to
provide to ComEd any books and records and other information relating to
the Assets prepared by Purchaser, either before or after the Closing,
except upon a valid order of a court of law or Governmental Authority
having jurisdiction over Purchaser in the context of a proceeding before
such body.
(c) EMPLOYEES. Each Party will make available to the other Party
---------
on a reasonable basis and as requested from time to time by the other Party
after Closing, those employees of such Party with knowledge of or relevant to
the matters described in this Section 5.14 (Post Closing-Information and
------------
Records) for the purpose of consultation, investigation and/or testimony in
connection therewith by any Person (other than such other Party).
5.15 LIABILITY ONLY PURSUANT TO CLOSING CERTIFICATE. Notwithstanding
----------------------------------------------
anything to the contrary contained in this Agreement, if the Closing occurs,
ComEd shall have no liability under Section 5.11 (Advice of Changes) or Section
------------ -------
5.12 (Maintenance of Assets Pending Closing) other than pursuant to the
- ----
certificate delivered by ComEd pursuant to Section 7.1 (Compliance With
-----------
Provisions) as to which a Notice of Claim is received by ComEd prior to the
first anniversary of the Closing Date.
5.16 CASUALTY LOSS.
-------------
(a) CASUALTY ESTIMATE. If, at any time after the Effective Date and
-----------------
prior to Closing, any Facility suffers a total or partial Casualty ("EVENT OF
LOSS"), ComEd will promptly inform Purchaser of the Event of Loss. As soon as
practicable following any Casualty, ComEd will provide to Purchaser a detailed
written estimate from an independent third party appraiser mutually acceptable
to ComEd and Purchaser ("CASUALTY ESTIMATE") setting forth the estimated amount
required to repair or replace the damaged Asset and the estimated time period
for completion of such repair or replacement.
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(b) COMED'S ELECTION. Concurrently with the delivery of a Casualty
----------------
Estimate indicating that an Event of Loss has occurred, ComEd will notify
Purchaser whether it elects (i) to repair or replace the damaged Asset or (ii)
to accept a reduction in the Purchase Price by an amount equal to the Casualty
Estimate (less any Casualty Betterments), in which case ComEd will have no
obligation to repair the damaged Asset as a result of such Event of Loss. If
ComEd elects to repair or replace the damaged Asset, ComEd shall promptly
commence and diligently proceed to complete the repair or replacement of the
damaged Asset in a good and workmanlike manner at ComEd's sole cost, provided
--------
that Purchaser shall reimburse ComEd for the full cost of any Casualty
Betterments. The damaged Asset shall be restored in a manner consistent with the
condition of the Asset immediately prior to the occurrence of the Event of Loss,
except for any Casualty Betterments.
(c) CLOSING MATTERS. Notwithstanding anything contained herein to the
---------------
contrary, in the event that one or more generating units being sold to Purchaser
pursuant to this Agreement suffers an Event of Loss (each such unit being
referred to herein as an "AFFECTED UNIT") prior to Closing such that such
Affected Unit(s) cannot, or the parties agree that such Affected Unit(s) will
not, satisfy the requirements of Section 7.9 (Facility Performance) at a time
-----------
when all other conditions to the respective obligations of the Parties to
consummate the transaction contemplated under this Agreement have been or are
reasonably expected to be met, the Parties shall discuss mechanisms by which the
transactions may be completed with or without the Affected Unit(s). In the
event that the Parties reach agreement with respect to such mechanism so that
the Closing proceeds with or without the Affected Unit(s), it is understood that
the requirements of the related Power Purchase Agreement(s) may need to be
adjusted in a mutually satisfactory manner to reflect the expected period of
repair or replacement of the Affected Unit(s). In the event that the Closing
proceeds without the Affected Unit(s), it is understood that, in addition to the
foregoing, the Parties may need to make amendments to various other Related
Agreements in order to reflect the retention by ComEd of the Affected Unit(s)
and related assets, may need to make changes to reflect a partial transfer of
assets and liabilities in connection with such a Closing, and may need to make
provision for the eventual transfer of the Affected Unit(s) and related assets
and liabilities from ComEd to Purchaser.
5.17 CRAWFORD DREDGE MATERIAL. Notwithstanding the foregoing or
------------------------
anything to the contrary contained in this Agreement, ComEd and Purchaser agree
that ComEd shall have the right (but not the obligation), prior to Closing, to:
(a) construct a bermed area (which bermed area may consist of approximately 2
acres) at an unimproved location at the Transferred Real Property at the
Crawford Station Site designated by ComEd, (b) dredge the intake and discharge
channel which serves the Crawford Station Site, (c) store any and all dredge
spoils, sludge, dredge materials and other by-products of such dredging
(collectively, "CRAWFORD DREDGE MATERIAL") at the bermed area described above
until such time as such Crawford Dredge Material is sufficiently dry, as
determined by ComEd, and (d) amend any existing (or apply for and obtain any
new) permits, licenses, consents and/or approvals which ComEd determines are
necessary and/or appropriate to conduct the activities described above. ComEd
and Purchaser further acknowledge and agree that, on the Closing Date, all of
such Crawford Dredge Material may not yet be sufficiently dry, and that,
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in such event, Purchaser shall assume any and all post-Closing obligations to
complete dewatering and off-site disposal of such material, together with any
related liabilities.
5.18 ELECTRIC JUNCTION ACCESS. With respect to the Electric Junction
------------------------
Site, prior to Closing, ComEd shall be obligated to take one (at ComEd's sole
election), but not more than one, of the following actions:
(i) Obtain the consent of the DuPage County Highway Authority (or
other appropriate entity) as required to give effect to the Purchaser
Ingress-Egress Right of Way in the form of Exhibit B-13 hereto (including
------------
the "Option (i) Provisions" thereof, as defined in the Notes to said
Ingress-Egress Right of Way) and an access endorsement issued by the Title
Company in favor of Purchaser with respect to the rights of ingress and
egress described therein. In the event that ComEd exercises its rights set
forth in this Subparagraph (i), then ComEd and Purchaser shall, at the
Closing, execute, deliver and record the Purchaser Ingress-Egress Right of
Way (and such Purchaser Ingress-Egress Right of Way shall contain the
Option (i) Provisions);
(ii) Construct (at ComEd's cost and expense) an access drive
providing an alternative means of ingress and egress to and from the
peaking units located on the Transferred Real Property and Eola Road. In
the event that ComEd elects to construct such alternative means of access,
ComEd shall have the right to construct such alternative access drive as
follows:
(a) ComEd may locate the driveway over (x) such portions of
the Transferred Real Property as ComEd determines are feasible for
such construction (in which event Purchaser and ComEd shall not
execute, deliver or record the Purchaser Ingress-Egress Right of Way),
and/or (y) ComEd's adjacent property (in which event Purchaser and
ComEd shall execute, deliver and record the Purchaser Ingress-Egress
Right of Way (but such Purchaser Ingress-Egress Right of Way shall not
contain the Option (i) Provisions);
(b) ComEd may utilize the existing curb cut on Eola Road or
obtain approval for a new curb cut; and
(c) ComEd may utilize such materials and design as ComEd deems
appropriate (which design and materials may involve construction of a
paved or unpaved (gravel) drive).
or
(iii) Provide such other assurances and/or documentation as Purchaser
shall find reasonably acceptable (which may include affirmative title
insurance
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coverage issued by the Title Company in favor of the Purchaser) conferring
upon Purchaser the right to gain access to the peakers at the Transferred
Real Property from Eola Road. In the event that ComEd exercises its rights
under this Subparagraph (iii), then Purchaser and ComEd shall execute,
deliver and record the Purchaser Ingress-Egress Right of Way, with such
modifications as are reasonably acceptable to the parties, and as are
warranted by the facts and circumstances.
Purchaser agrees that it shall execute and deliver such documents and
take such actions as may be reasonably requested by ComEd in order to effectuate
the intention of the terms of this Section 5.18.
------------
5.19 ILLINOIS RESPONSIBLE PROPERTY TRANSFER ACT. ComEd and Purchaser
------------------------------------------
acknowledge that: (a) they are fully aware of the purpose and intent of the
Illinois Responsible Property Transfer Act (765 ILCS 90/1 et seq.) (the "ACT")
-- ----
and the disclosure document called for by the Act; (b) they knowingly and
voluntarily waive the requirement that the disclosure document be delivered at
least 30 days before the transfer and agree that the disclosure document may be
delivered at Closing; and (c) Purchaser further waives any and all rights it may
have under the Act and agrees that the rights and remedies pursuant to this
Agreement shall be the sole rights and remedies available to it relating to
environmental matters or the presence of any Environmental Condition on the
Transferred Real Property.
ARTICLE 6
---------
INDEMNIFICATION
---------------
6.1 SURVIVAL OF THE PARTIES' REPRESENTATIONS AND WARRANTIES.
-------------------------------------------------------
The representations and warranties of the Parties contained in this Agreement or
any breach of the certificate delivered by a Party pursuant to Section 7.1
-----------
(Compliance With Provisions) or Section 8.1 (Compliance With Provisions) will
-----------
survive the Closing until the first anniversary of the Closing Date, at which
time these representations and warranties and any liability under such
certificates will terminate. Any Purchaser Claim or ComEd Claim with respect to
the foregoing must be made by written notice writing to the other Party prior to
the first anniversary of the Closing Date. Notwithstanding anything contained in
this Agreement to the contrary, the representation and warranties contained in
Section 3.15 (Environmental Matters) shall expire with, and be terminated and
- ------------
extinguished by, the consummation of the sale of the Assets pursuant to this
Agreement, and ComEd shall have no liability whatsoever with respect to such
representations and warranties before or after the Closing Date, including
pursuant to the certificate delivered by ComEd pursuant to Section 7.1
-----------
(Compliance With Provisions).
6.2 INDEMNIFICATION BY COMED.
------------------------
(a) PURCHASER CLAIMS. ComEd will indemnify and hold harmless
----------------
Purchaser and its Affiliates, and each of their officers, directors, employees,
partners, attorneys, agents and successors and assigns (collectively, the
"PURCHASER GROUP"), from and against all damages, claims,
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losses, fines, penalties, liabilities and expenses, including reasonable legal,
accounting and other expenses, which arise out of or relate to the following
(collectively, "PURCHASER CLAIMS"):
(1) any breach by ComEd of any of its covenants in this Agreement or
any failure of ComEd to perform any of its obligations in this Agreement;
(2) any breach of any warranty or the inaccuracy of any
representation of ComEd contained in this Agreement (excluding Section 3.15
------------
(Environmental Matters)) or any breach of the certificate delivered by
ComEd pursuant to Section 7.1 (Compliance With Provisions) as to which a
-----------
Notice of Claim is received by ComEd prior to the first anniversary of the
Closing Date; and
(3) any Excluded Liabilities;
provided, however, that ComEd shall be required to indemnify and hold harmless
under clause (2) of this Section 6.2(a) (Indemnification by ComEd--Purchaser
--------------
Claims) with respect to Purchaser Claims incurred by the Purchaser Group only to
the extent that the aggregate amount of such Purchaser Claims exceeds Twenty
Million Dollars ($20,000,000) (but only in the amount of such excess); and
provided further, that the aggregate liability of ComEd under clause (2) of this
Section 6.2(a) (Indemnification by ComEd--Purchaser Claims) shall not exceed
- --------------
twenty percent (20%) of the Purchase Price. For purposes of computing the
amount of any indemnification payment under this Section 6.2 (Indemnification by
-----------
ComEd), any such indemnification payment shall be treated as an adjustment to
the Purchase Price for all Tax purposes.
(b) COMED LIMITATIONS. The Purchaser Group will not in any event be
-----------------
entitled to any punitive, incidental, indirect, special or consequential damages
resulting from or arising out of any Purchaser Claims, including damages for
lost revenues, income, profits or tax benefits, diminution in value of the Sites
or any portion thereof or any other damage or loss resulting from any disruption
to or loss of operation of the Assets.
6.3 INDEMNIFICATION BY PURCHASER.
----------------------------
(a) COMED CLAIMS. Purchaser will indemnify and hold harmless ComEd
------------
and its Affiliates, and each of their officers, directors, employees, partners,
attorneys, agents and successors and assigns (collectively, the "COMED GROUP"),
from and against all damages, claims, losses, fines, penalties, liabilities and
expenses, including reasonable legal, accounting and other expenses, which arise
out of or relate to the following (collectively, "COMED CLAIMS"):
(1) any breach by Purchaser of any of its covenants in this Agreement
or any failure of Purchaser to perform any of its obligations under this
Agreement;
(2) any breach of any warranty or the inaccuracy of any
representation of Purchaser contained in this Agreement or any breach of
the certificate delivered by
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Purchaser pursuant to Section 8.1 (Compliance With Provisions) as to which
-----------
a Notice of Claim is received by Purchaser prior to the first anniversary
of the Closing Date;
(3) any Third Party Claims against any member of the ComEd Group
(other than the Third Party Claims described in subsections (4) and (6)
below) for personal injury or property loss or damages resulting from or
arising out of the ownership or operation of the Assets from and after the
Closing, but only to the extent the alleged personal injury or property
damage occurred on or after the Closing Date;
(4) any Third Party Claims against any member of the ComEd Group
resulting from or arising out of any Environmental Liability within the
scope of Section 2.3(a) (Purchaser's Liabilities--Environmental
--------------
Liabilities) or otherwise assumed by Purchaser pursuant to this Agreement;
(5) Purchaser's Liabilities; or
(6) any personal injury or property damage resulting from or arising
out of Purchaser's due diligence inspections and reviews or the presence of
Purchaser or any member of the Purchaser Group at or on any of the Sites
prior to Closing;
provided, however, that Purchaser shall be required to indemnify and hold
harmless under clause (2) of this Section 6.3(a) (Indemnification by ComEd--
--------------
Purchaser Claims) with respect to ComEd Claims incurred by the ComEd Group only
to the extent that the aggregate amount of such ComEd Claims exceeds Twenty
Million Dollars ($20,000,000) (but only in the amount of such excess). For
purposes of computing the amount of any indemnification payment under this
Section 6.3 (Indemnification by Purchaser), any such indemnification payment
- -----------
shall be treated as an adjustment to the Purchase Price for all Tax purposes.
(b) PURCHASER LIMITATIONS. Except as provided in the Power Purchase
---------------------
Agreements, the ComEd Group will not in any event be entitled to any punitive,
incidental, indirect, special or consequential damages resulting from or arising
out of any ComEd Claim, including damages for lost revenues, income, profits or
tax benefits, diminution in the value of the Sites or any portion thereof or any
other damage or loss resulting from any disruption to or loss of operation of
the Assets.
(c) PURCHASER'S RELEASE OF COMED. PURCHASER, FOR ITSELF AND ON BEHALF
----------------------------
OF THE PURCHASER GROUP, DOES HEREBY RELEASE, HOLD HARMLESS AND FOREVER DISCHARGE
EACH MEMBER OF THE COMED GROUP FROM ANY AND ALL CLAIMS, DEMANDS, LIABILITIES
(INCLUDING FINES AND CIVIL PENALTIES) OR CAUSES OF ACTION AT LAW OR IN EQUITY
(INCLUDING ANY ACTIONS ARISING UNDER ENVIRONMENTAL LAWS), DESTRUCTION, LOSS OR
DAMAGE OF ANY KIND OR CHARACTER, WHETHER KNOWN OR UNKNOWN, HIDDEN OR CONCEALED,
TO THE PERSON OR PROPERTY OF ANY MEMBER OF THE PURCHASER GROUP RESULTING FROM OR
ARISING OUT OF (I) THE CONDITION (PHYSICAL OR OTHERWISE) OF THE ASSETS OR (II)
ANY ENVIRONMENTAL LIABILITY (AS SUCH TERM IS DEFINED IN SECTION 2.3(A)
(PURCHASER'S
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LIABILITIES--ENVIRONMENTAL LIABILITIES)) EXCEPT, IN THE CASE OF CLAUSE (II), AS
TO COMED'S OBLIGATIONS UNDER SECTION 5.9(B) (ENVIRONMENTAL MATTERS--COMED'S
--------------
RESPONSIBILITIES) AND SECTION 6.2 (INDEMNIFICATION BY COMED). PURCHASER HEREBY
-----------
WAIVES ANY AND ALL RIGHTS AND BENEFITS THAT IT NOW HAS, OR IN THE FUTURE MAY
HAVE CONFERRED UPON IT, BY VIRTUE OF THE PROVISIONS OF ANY LAW OR REGULATION
THAT DOES OR MAY PROVIDE IN WHOLE OR IN PART AS FOLLOWS:
A GENERAL RELEASE MAY NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR. IN THIS CONNECTION, PURCHASER HEREBY AGREES, REPRESENTS AND WARRANTS
THAT IT REALIZES AND ACKNOWLEDGES THAT FACTUAL MATTERS NOW UNKNOWN TO IT MAY
HAVE GIVEN OR MAY HEREAFTER GIVE RISE TO CLAIMS THAT ARE PRESENTLY UNKNOWN,
UNANTICIPATED AND UNSUSPECTED, AND IT FURTHER AGREES, REPRESENTS AND WARRANTS
THAT THIS RELEASE HAS BEEN NEGOTIATED AND AGREED UPON IN LIGHT OF THAT
REALIZATION AND IT NEVERTHELESS HEREBY INTENDS TO RELEASE EACH MEMBER OF THE
COMED GROUP FROM THE CLAIMS, DEMANDS AND LIABILITIES DESCRIBED IN THE FIRST
SENTENCE OF THIS SECTION 6.3(C) (INDEMNIFICATION BY PURCHASER--PURCHASER'S
--------------
RELEASE OF COMED).
6.4 NOTICE OF CLAIM. (a) Subject to the terms of this Agreement and
---------------
upon obtaining knowledge of a claim for which it is entitled to indemnity under
this ARTICLE 6 (Indemnification), the Party seeking indemnification hereunder
---------
(the "INDEMNITEE") will promptly provide written notice (a "Notice of Claim") to
the Party against whom indemnification is sought (the "INDEMNITOR") of any
damage, claim, loss, fine, penalty, liability or expense that the Indemnitee has
determined has given or could give rise to a claim under Section 6.2
-----------
(Indemnification by ComEd) or Section 6.3 (Indemnification by Purchaser). A
-----------
Notice of Claim will specify, in reasonable detail, the facts known to the
Indemnitee regarding the claim. Subject to the terms of this Agreement, the
failure to provide (or timely provide) a Notice of Claim will not affect the
Indemnitee's rights to indemnification; provided, however, the Indemnitor is not
obligated to indemnify the Indemnitee to the extent that the Indemnitor is
materially prejudiced by the failure to deliver timely a Notice of Claim.
(b) After the giving of any Notice of Claim pursuant hereto, the
amount of indemnification to which an Indemnitee shall be entitled under this
ARTICLE 6 (Indemnification) shall be determined: (i) by the written agreement
- ---------
between the Indemnitee and the Indemnitor; (ii) by a final determination of the
arbitrator(s) (in accordance with the provisions of Section 11.8 (Dispute
------------
Resolution)) or a final judgment or decree of any court of competent
jurisdiction; or (iii) by any other means to which the Indemnitee and the
Indemnitor shall agree. The judgment or decree of a court shall be deemed final
when the time for appeal, if any, shall have expired and no appeal shall have
been taken or when all appeals taken shall have been finally determined. The
Indemnitee shall have the burden of proof in establishing the amount of actual
damages suffered by it.
6.5 DEFENSE OF THIRD PARTY CLAIMS. The Indemnitor will defend, in
-----------------------------
good faith and at its expense, with counsel selected by the Indemnitor after
reasonable consultation with the Indemnitee, any claim or demand set forth in a
Notice of Claim relating to a Third Party Claim and the Indemnitee, at its
expense, may participate in the defense. The Indemnitee cannot settle or
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compromise any Third Party Claim so long as the Indemnitor is defending it in
good faith, except that the Indemnitee may settle or compromise any claim with
respect to which it releases the Indemnitor from its obligations under this
ARTICLE 6 (Indemnification). If the Indemnitor elects not to contest a Third
- ---------
Party Claim or if and to the extent that, in the opinion of the Indemnitee and
its counsel, such Third Party Claim involves the potential imposition of
criminal liability on the Indemnitee, the Indemnitee may assume and control the
defense of such claim; provided, however, that the Indemnitee may not settle any
such claim which settlement requires the Indemnitor to pay money, perform
obligations or admit liability without the consent of the Indemnitor, such
consent not to be unreasonably withheld. The Indemnitor may at any time request
the Indemnitee to agree to the abandonment of the contest of the Third Party
Claim or to the payment or compromise by the Indemnitor of the asserted claim or
demand. If the Indemnitee does not object in writing within fifteen (15) days
of the Indemnitor's request, the Indemnitor may proceed with the action stated
in the request. If within that fifteen (15) day period the Indemnitee notifies
the Indemnitor in writing that it has determined that the contest should be
continued, the Indemnitor will be liable under this ARTICLE 6 (Indemnification)
---------
only for an amount up to the amount that the third party to the contested Third
Party Claim had agreed to accept in payment or compromise as of the time the
Indemnitor made its request. This Section 6.5 (Defense of Third Party Claims)
-----------
is subject to the rights of any Indemnitee's insurance carrier that is defending
the Third Party Claim. If there shall be any conflict between the provisions of
this Section 6.5 (Defense of Third Party Claims) and Section 5.7(a)(v) (Taxes,
----------- -----------------
Prorations and Closing Costs--Taxes), the provisions of Section 5.7(a)(v) shall
-----------------
control with respect to Tax Claims.
6.6 COOPERATION. The Party defending the Third Party Claim will (a)
-----------
consult with the other Party throughout the pendency of the Third Party Claim
regarding the investigation, defense, settlement, trial, appeal or other
resolution of the Third Party Claim and (b) afford the other Party the
opportunity to be associated in the defense of the Third Party Claim. The
Parties will cooperate in the defense of the Third Party Claim. The Indemnitee
will make available to the Indemnitor or its representatives all records and
other materials reasonably required by them for use in contesting any Third
Party Claim (subject to obtaining a joint defense agreement to maintain the
confidentiality of confidential or proprietary materials in a form reasonably
acceptable to the Indemnitor and the Indemnitee). If requested by the
Indemnitor, the Indemnitee will cooperate with the Indemnitor and its counsel in
contesting any Third Party Claim that the Indemnitor elects to contest or, if
appropriate, in making any counterclaim against the Person asserting the claim
or demand, or any cross-complaint against any Person. The Indemnitor will
reimburse the Indemnitee for any expenses incurred by Indemnitee in cooperating
with or acting at the request of the Indemnitor.
6.7 MITIGATION AND LIMITATION ON CLAIMS. As used in this Agreement,
-----------------------------------
the term "INDEMNIFIABLE CLAIM" means any Purchaser Claims or ComEd Claims.
Notwithstanding anything to the contrary contained herein:
(a) REASONABLE STEPS TO MITIGATE. The Indemnitee will take all
----------------------------
reasonable steps to mitigate all losses, damages and the like relating to
an Indemnifiable Claim, including availing itself of any defenses,
limitations, rights of
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contribution, claims against third Persons and other rights at law or
equity, and will provide such evidence and documentation of the nature and
extent of the Indemnifiable Claim as may be reasonably requested by the
Indemnitor. The Indemnitee's reasonable steps include the reasonable
expenditure of money to mitigate or otherwise reduce or eliminate any loss
or expense for which indemnification would otherwise be due under this
ARTICLE 6 (Indemnification), and the Indemnitor will reimburse the
---------
Indemnitee for the Indemnitee's reasonable expenditures in undertaking the
mitigation.
(b) NET OF BENEFITS. Any Indemnifiable Claim is limited to the
---------------
amount of actual damages sustained by the Indemnitee by reason of such
breach or nonperformance, net of the dollar amount of (i) any insurance
proceeds receivable by the Indemnitee or any of its Affiliates from any
third party insurer with respect to the Indemnifiable Claim, and (ii) any
federal, state or local tax benefits realizable by the Indemnitee or any of
its Affiliates as the result of the loss related to such breach or
nonperformance.
(c) COORDINATION WITH SECTION 5.9 (ENVIRONMENTAL MATTERS) AND
---------------------------------------------------------
FACILITIES AGREEMENTS. With respect to any Third Party Claim for
---------------------
Remediation, the Parties' obligations under Section 6.5 (Defense of Third
------------
Party Claims), Section 6.6 (Cooperation) and this Section 6.7 (Mitigation
----------- -----------
and Limitation on Claims), on the one hand, are subject to the Parties'
rights and obligations under Section 5.9 (Environmental Matters) and the
-----------
Facilities Agreements, on the other hand, and in the event of any
inconsistency between the Parties' rights and obligations under Sections
--------
6.5, 6.6 and 6.7, on the one hand, and Section 5.9 or the Facilities
--- --- ---- -----------
Agreements on the other hand, the provisions of Section 5.9 and the
-----------
Facilities Agreements shall control.
6.8 SURVIVAL OF CERTAIN OBLIGATIONS. The obligations of the Parties
-------------------------------
set forth in Section 5.8 (1997 Act), Section 5.9 (Environmental Matters) and in
----------- -----------
this ARTICLE 6 (Indemnification) shall survive without limitation in time
---------
(except as otherwise provided herein) regardless of whether Purchaser continues
to own all or any portion of the Assets or the Facilities.
6.9 REMEDIES EXCLUSIVE. Except for intentional fraud and for
------------------
injunctive relief to enforce a Party's rights under this Agreement, if the
Closing occurs, the remedies set forth in this ARTICLE 6 (Indemnification)
---------
constitute the sole and exclusive remedy for breaches of this Agreement
(including any covenant, obligation, representation or warranty contained in
this Agreement or in any certificate delivered pursuant to this Agreement) or
otherwise in respect of the sale of the Assets contemplated hereby. Each Party
waives any provision of law to the extent that it would limit or restrict the
agreements contained in this ARTICLE 6 (Indemnification).
---------
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ARTICLE 7
---------
CONDITIONS PRECEDENT TO OBLIGATIONS OF
--------------------------------------
PURCHASER AT THE CLOSING
------------------------
The obligations of Purchaser to consummate the transactions contemplated
by this Agreement are subject to the satisfaction or waiver (to the extent
permitted by law), on or prior to the Closing, of each of the following
conditions precedent:
7.1 COMPLIANCE WITH PROVISIONS. ComEd has performed or complied
--------------------------
in all material respects with all of its covenants and agreements contained in
this Agreement required to be performed or complied with at or prior to the
Closing; the representations and warranties of ComEd contained in this Agreement
(disregarding for this purpose any qualifications with respect to materiality or
Material Adverse Effect) shall be true and correct on the Closing Date as though
made on the Closing Date (other than representations and warranties that address
matters only as of a certain date which shall be true and correct as of such
certain date), except for any failures to be true and correct which,
individually or in the aggregate, would not have a Material Adverse Effect and
except for changes specifically permitted by this Agreement or resulting from
any transaction expressly consented to in writing by Purchaser or any
transaction permitted by Section 5.12 (Maintenance of Assets Pending Closing)
------------
and Section 5.13 (Capital Expenditures Prior to Closing); and there shall have
------------
been delivered to Purchaser a certificate to such effect, dated the Closing
Date, signed on behalf of ComEd by the President or any Executive Vice
President, Senior Vice President or Vice President of ComEd.
7.2 COMED'S RECEIPT OF APPROVALS OF GOVERNMENTAL AUTHORITIES. The
--------------------------------------------------------
condition set forth in Section 8.2 (ComEd's Receipt of Approvals of Governmental
-----------
Authorities) has been satisfied or waived by ComEd.
7.3 PURCHASER'S RECEIPT OF APPROVALS OF GOVERNMENTAL AUTHORITIES.
------------------------------------------------------------
(a) ILLINOIS AUTHORITY The Illinois Authority shall have been
------------------
received.
(b) OTHER APPROVALS. Purchaser has received all Required Consents
---------------
which are specified in Schedule 7.3(b) (Purchaser Consents Required for Closing)
---------------
or are otherwise necessary to prevent a Material Adverse Effect.
7.4 NO ADVERSE PROCEEDINGS. No order or injunction by any court of
----------------------
competent jurisdiction which restrains or prohibits any material transaction
contemplated hereby shall have been issued and remain in effect (each Party
agreeing to use Commercially Reasonable Efforts to have any such order or
injunction lifted).
7.5 DELIVERIES. ComEd has delivered, or caused to be delivered, to
----------
Purchaser at the Closing the documents referenced in Section 9.2 (ComEd's
-----------
Additional Deliveries).
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7.6 PURCHASER TITLE POLICY. The Title Company shall be committed
----------------------
(subject to Purchaser's obligation to pay all costs and fees associated
therewith and subject to ComEd's receipt of the Purchase Price (adjusted by
prorations as set forth herein)) to issue to Purchaser a policy of title
insurance, as evidenced by a title insurance binder that has been marked by an
authorized representative of the Title Company or other evidence reasonably
satisfactory to the Purchaser, naming Purchaser as insured, covering the state
of title to the Transferred Real Property, subject only to Permitted
Encumbrances and otherwise in the form of the Preliminary Title Report
("PURCHASER TITLE POLICY").
7.7 HSR ACT. The waiting period under the HSR Act applicable to the
-------
sale of the Assets shall have expired or been terminated.
7.8 NO MATERIAL ADVERSE EFFECT. Between the Effective Date and the
--------------------------
Closing Date, there shall have been no Material Adverse Effect which remains in
effect.
7.9 FACILITY PERFORMANCE. The test of Facility performance described
--------------------
in the next sentence shall have verified that the requirements set forth therein
have been satisfied. Within thirty (30) days prior to the Closing, Purchaser
and ComEd shall jointly conduct a test at each Facility in accordance with the
procedures set forth in Schedule 7.9 (Facility Performance Tests) to verify that
------------
the Net Dependable Capacity of each unit at each Site, the Regulating
Performance Value (RPV) for such unit (other than any peaking unit) and the
minimum operating level for each such unit satisfy the applicable requirements
of Appendix B of the Power Purchase Agreements (and, in the case of peaking
units, Appendix A of the Power Purchase Agreement (Peaking Units)); provided,
--------
however, that if a Site is in an Outage during such thirty (30)-day period, then
- -------
this condition shall be deemed satisfied with respect to the units at such Site
if Purchaser has observed such units operating at the levels required by this
Section 7.9 (Facility Performance) within ninety (90) days prior to the Closing;
- -----------
and provided, further, that if any unit at a Site cannot satisfy the RPV
-------- -------
requirement set forth in this Section 7.9 (Facility Performance), such RPV
-----------
requirement shall nevertheless be deemed satisfied with respect to such unit to
the extent ComEd adjusts the RPV requirement in Appendix B of the Power Purchase
Agreement to reflect the RPV actually demonstrated; and provided, further, that
-------- -------
the failure of one or more peaking units to meet the Net Dependable Capacity
and/or minimum operating level for such unit or units shall not be deemed a
failure to satisfy this Section 7.9 (Facility Performance) unless such failures
-----------
in the aggregate constitute a Material Adverse Effect.
7.10 YEAR 2000 STATUS. ComEd shall have reasonably demonstrated that
----------------
the software, equipment and systems owned by ComEd which are material to the
generation of electric energy at the Facilities (the "COMED GENERATION SYSTEMS")
are Year 2000 Ready (as defined below). "YEAR 2000 READY" means that individual
ComEd Generation Systems, when used in accordance with their associated
documentation, will be either compliant or their characteristics which are non-
compliant have been evaluated and determined to be suitable for use into the
year 2000. For purposes of the preceding sentence, "compliant" means that the
individual ComEd Generation Systems will be capable of accurately processing,
providing and/or receiving date data from, into and between the twentieth and
twenty first centuries, including the years 1999 and 2000, provided that all
third party products used in combination with the ComEd Generation Systems
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properly exchange date data with the ComEd Generation Systems. ComEd's
reasonably satisfactory completion of the material test procedures set forth in
Schedule 7.10 (Year 2000 Test Procedures) with respect to the ComEd Generation
- -------------
Systems shall be conclusive evidence that such ComEd Generation Systems are Year
2000 Ready.
7.11 ILLINOIS LEGISLATION. Between the Effective Date and the Closing
--------------------
Date, no law shall have been enacted by the Illinois General Assembly which, as
a condition to the sale of the Facilities, requires Purchaser to reduce
emissions of sulfur dioxides at the Facilities to a level which would reasonably
be expected to result in a material adverse effect on the operation of the
Assets, taken as a whole.
ARTICLE 8
---------
CONDITIONS PRECEDENT TO OBLIGATIONS OF
--------------------------------------
COMED AT THE CLOSING
--------------------
The obligations of ComEd to consummate the transactions contemplated
by this Agreement are subject to the satisfaction or waiver (to the extent
permitted by law), on or prior to the Closing, of each of the following
conditions precedent:
8.1 COMPLIANCE WITH PROVISIONS. Purchaser has performed or complied
--------------------------
in all material respects with all of its covenants and agreements contained in
this Agreement required to be performed or complied with at or prior to the
Closing; the representations and warranties of Purchaser contained in this
Agreement and the Related Agreements shall be true and correct in all material
respects on the Closing Date as though made on the Closing Date (other than
representations and warranties which address matters only as of a certain date
which shall be true and correct in all material respects as of such certain
date), except for changes therein specifically permitted by this Agreement or
resulting from any transaction expressly consented to in writing by ComEd; and
there shall have been delivered to ComEd a certificate to such effect, dated the
Closing Date, signed on behalf of Purchaser by the President or any Vice
President of Purchaser.
8.2 COMED'S RECEIPT OF APPROVALS OF GOVERNMENTAL AUTHORITIES. ComEd
--------------------------------------------------------
has received and approved (in its reasonable discretion) the Illinois Authority,
any approval required to be obtained from FERC and all other approvals from the
other Governmental Authorities listed on Schedule 8.2 (Required Governmental
------------
Approvals), as such Schedule may be amended prior to Closing by mutual agreement
of the Parties prior to the Closing, and which approvals are in full force and
effect on the Closing.
8.3 COMED'S RECEIPT OF APPROVALS. ComEd has received all Required
----------------------------
Consents which are specified in Schedule 8.3 (ComEd Consents Required for
------------
Closing) or, with respect to the Coal Contracts and Transportation Contracts (as
such terms are defined in the Agency Agreement), Purchaser shall have entered
into the Agency Agreement.
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8.4 NO ADVERSE PROCEEDING. No order or injunction by a court of
---------------------
competent jurisdiction which restrains or prohibits any material transaction
contemplated hereby shall have been issued and remain in effect (each Party
agreeing to use Commercially Reasonable Efforts to have any such order or
injunction lifted).
8.5 DELIVERIES. Purchaser has delivered, or caused to be delivered,
----------
to ComEd at the Closing the documents referenced in Section 9.1 (Purchaser's
-----------
Additional Deliveries).
8.6 COMED TITLE POLICY. The Title Company shall be committed
------------------
(subject to ComEd's obligation to pay all costs and fees associated therewith)
to issue to ComEd a policy of title insurance, as evidenced by a title insurance
binder that has been marked by an authorized representative of the Title Company
or other evidence reasonably satisfactory to ComEd, naming ComEd as insured,
covering the state of title to the Switchyard Property (and insuring as
appurtenances thereto the Easement Agreements and easements in the Facilities
Agreement which benefit ComEd).
8.7 HSR ACT. The waiting period under the HSR Act applicable to the
-------
sale of the Assets shall have expired or been terminated.
8.8 ILLINOIS LEGISLATION. Between the Effective Date and the Closing
--------------------
Date, no law (other than a law relating to income taxes) shall have been enacted
by the Illinois General Assembly which, as a condition to the sale of the
Facilities, materially restricts ComEd's ability to use all or any portion of
the proceeds or requires ComEd to ensure the performance by Purchaser of any
material aspect of the operation of the Assets following the Closing.
ARTICLE 9
---------
CLOSING DELIVERIES
------------------
9.1 PURCHASER'S ADDITIONAL DELIVERIES. Subject to fulfillment or
---------------------------------
waiver of the conditions set forth in ARTICLE 7 (Conditions Precedent to
---------
Obligations of Purchaser at the Closing), at Closing Purchaser shall deliver to
ComEd all the following:
(a) Copies of the Articles of Incorporation of Purchaser certified as
of a recent date by the Secretary of State of the State of California;
(b) Certificate of good standing of Purchaser issued as of a recent
date by the Secretary of State of California and of Illinois;
(c) Certificate of the secretary or an assistant secretary of
Purchaser dated the Closing Date, in form and substance reasonably
satisfactory to ComEd, as to (i) no amendments to the Articles of
Incorporation of Purchaser since a specified date; (ii) the by-laws of
Purchaser; (iii) the resolutions of the Board of Directors of Purchaser
authorizing the execution and performance of this Agreement and the
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transactions contemplated hereby; and (iv) incumbency and signatures of the
officers of Purchaser executing this Agreement and any Related Agreement;
(d) Opinion of counsel(s) to Purchaser containing the opinions
substantially as set forth in Exhibit I;
---------
(e) The Instrument of Assumption duly executed by Purchaser;
(f) The certificate contemplated by Section 8.1 (Compliance With
-----------
Provisions), duly executed by an officer of Purchaser;
(g) The Power Purchase Agreements, the Easement Agreements, the
Facilities Agreements, the Reproration Agreements and the Agency Agreement
(if necessary), in each case duly executed by Purchaser;
(h) Any documents and/or instruments of subordination required under
Section 9.3 (Delayed Recordation of Easement Agreements), in form and
-----------
substance reasonably satisfactory to ComEd, duly executed by all
appropriate Persons;
(i) Any real estate transfer Tax declarations required to be executed
or filed in connection with the transfer of the Assets; and
(j) Any documents or instruments required by the Title Company for
the issuance of the Purchaser Title Policy.
9.2 COMED'S ADDITIONAL DELIVERIES. Subject to fulfillment or waiver
-----------------------------
of the conditions set forth in ARTICLE 8 (Conditions Precedent to Obligations of
---------
ComEd at the Closing), at Closing ComEd shall deliver to Purchaser all the
following:
(a) Copies of the Restated Articles of Incorporation of ComEd
certified as of a recent date by the Secretary of State of the State of
Illinois;
(b) Certificate of good standing of ComEd issued as of a recent date
by the Secretary of State of Illinois;
(c) Certificate of the secretary or an assistant secretary of ComEd,
dated the Closing Date, in form and substance reasonably satisfactory to
Purchaser, as to (i) no amendments to the Restated Articles of
Incorporation of ComEd since a specified date; (ii) the by-laws of ComEd;
(iii) the resolutions of the Board of Directors of ComEd authorizing the
execution and performance of this Agreement and the transactions
contemplated hereby; and (iv) incumbency and signatures of the officers of
ComEd executing this Agreement and any Related Agreement;
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(d) Opinion of counsel to ComEd substantially in the form contained
in Exhibit J;
---------
(e) The Bill of Sale and Instrument of Assignment duly executed by
ComEd;
(f) Certificates of title or origin (or like documents) with respect
to any vehicles or other equipment included in the Assets for which a
certificate of title or origin is required in order to transfer title;
(g) The Power Purchase Agreements, the Easement Agreements to which
ComEd is a party, the Facilities Agreements, the Reproration Agreements and
the Agency Agreement (if necessary), in each case duly executed by ComEd;
(h) The certificate contemplated by Section 7.1 (Compliance With
-----------
Provisions), duly executed by an officer of ComEd;
(i) Grant Deeds with respect to the Transferred Real Property, duly
executed by ComEd and/or such other instrument of transfer as provided in
the last sentence of Section 2.7 (Certain Provisions With Respect to
-----------
Switchyard Property);
(j) Any real estate transfer Tax declarations required to be executed
or filed in connection with the transfer of the Assets; and
(k) An affidavit, as shown in Exhibit L, made under penalty of
---------
perjury and duly executed by ComEd that provides ComEd's United States
taxpayer identification number and states that ComEd is not a foreign
person for purposes of Section 1445 of the Code.
9.3 DELAYED RECORDATION OF EASEMENT AGREEMENTS. Notwithstanding
------------------------------------------
anything to the contrary contained in this Agreement, ComEd may (but shall not
be required to) elect (in ComEd's sole and absolute discretion) to cause any or
all of the Easement Agreements executed at or in connection with the Closing to
be recorded against the Transferred Real Property (or applicable portion
thereof) or Switchyard Property (or applicable portion thereof) at any time
designated by ComEd within the forty-eight (48) hour period immediately after
the recordation of the Grant Deeds which convey the Transferred Real Property
(or applicable portion thereof) which such Easement Agreement(s) benefits or
burdens (a "DELAYED RECORDING"). In the event ComEd elects as set forth in the
immediately preceding sentence, then Purchaser shall ensure that (other than
other Easement Agreements, the Facilities Agreements and the Grant Deeds) no
lien, charge, encumbrance or title exception of any kind or nature (including
any mortgage or other document or instrument which secures any indebtedness of
Purchaser) is recorded, placed or created on or with respect to any Transferred
Real Property or Switchyard Property which is benefited or burdened by any
Easement Agreement(s) which is the subject of a Delayed Recording between the
Closing and the Delayed Recording of such Easement Agreement(s), unless the
holder(s) of, and/or Person benefited by, any
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such lien, charge, encumbrance or title exception expressly subordinates (in
form and substance reasonably satisfactory to ComEd) such lien, charge,
encumbrance or title exception to the Easement Agreement(s) which is the subject
of the Delayed Recording, and to all rights, privileges, duties and obligations
resulting from or arising under such Easement Agreement(s). In addition to (and
not in lieu of) its other duties and obligations set forth in this Section 9.3
-----------
(Delayed Recordation of Easement Agreements), Purchaser agrees that it will, if
ComEd elects as provided in the first sentence of this Section 9.3 (Delayed
-----------
Recordation of Easement Agreements), (i) cooperate with ComEd in causing the
Delayed Recording of any Easement Agreement(s) which ComEd designates to be the
subject of a Delayed Recording, and in ensuring that no lien, charge,
encumbrance or title exception of any kind (other than other Easement
Agreements, the Facilities Agreements and the Grant Deeds) is recorded between
the Closing and the recordation of such Easement Agreement(s), and (ii) execute
and deliver any and all documents, instruments and agreements necessary to
effectuate the intent and the terms and provisions of this Section 9.3 (Delayed
-----------
Recordation of Easement Agreements).
ARTICLE 10
----------
TERMINATION
-----------
10.1 RIGHTS TO TERMINATE. This Agreement may, by written notice
-------------------
given on or prior to the Closing Date, in the manner provided in Section 11.9
------------
(Notices), be terminated at any time prior to the Closing Date:
(a) by ComEd if there has been a material breach by Purchaser with
respect to any of Purchaser's agreements, representations and warranties in
this Agreement or in the Confidentiality Agreement and such breach is not
cured within sixty (60) days after receipt by Purchaser of written notice
specifying particularly such breach; provided, however, that if such breach
cannot reasonably be cured within sixty (60) days and Purchaser has
promptly commenced and is diligently proceeding to cure such breach, this
Agreement may not be terminated pursuant to this subsection (a);
(b) by Purchaser if there has been a material breach by ComEd with
respect to ComEd's agreements, representations and warranties in this
Agreement and such breach is not cured within sixty (60) days after receipt
by ComEd of written notice specifying particularly such breach; provided,
however, that if such breach cannot reasonably be cured within sixty (60)
days and ComEd has promptly commenced and is diligently proceeding to cure
such breach, this Agreement may not be terminated pursuant to this
subsection (b);
(c) by ComEd or Purchaser if (i) any Governmental Authority, the
consent or approval of which is a condition to the obligations of the
Parties to consummate the Closing, shall have determined not to grant its
consent or approval and all rehearings and appeals of such determination
shall have been taken and have
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been unsuccessful or (ii) a court of competent jurisdiction shall have
issued an order or injunction permanently restraining or otherwise
prohibiting the Closing, and such order or injunction shall have become
final and nonappealable;
(d) by ComEd on thirty (30) days' written notice given within thirty
(30) days after the Illinois Authority, if ComEd in its reasonable
discretion does not accept one or more of the terms and conditions of such
Illinois Authority;
(e) by ComEd or Purchaser if the Closing contemplated hereby shall
have not occurred on or before the first anniversary of the date of this
Agreement (the "TERMINATION DATE"); provided that the right to terminate
this Agreement under this Section 10.1(e) (Rights to Terminate) shall not
---------------
be available to any party whose failure to fulfill any obligation under
this Agreement has been the cause of, or resulted in, the failure of the
Closing to occur on or before such date; and provided, further, that if on
-------- -------
the first anniversary of the date of this Agreement the conditions to the
Closing set forth in Section 7.3 (Purchaser's Receipt of Approvals of
-----------
Governmental Authorities), Section 7.7 (HSR Act), Section 8.2 (ComEd's
-----------
Receipt of Approvals of Governmental Authorities) or Section 8.6 (HSR Act)
-----------
shall not have been fulfilled but all other conditions to the Closing shall
be fulfilled or shall be capable of being fulfilled, then the Termination
Date shall be the day which is eighteen months from the date of this
Agreement; and provided, further, that notwithstanding anything contained
-------- -------
herein to the contrary, in the event of an Event of Loss which ComEd elects
to repair or replace pursuant to Section 5.16 (Casualty Loss), ComEd may
------------
extend the Termination Date for a period of up to twelve months from the
date of the Event of Loss in order to repair or replace the damaged Asset
in accordance with Section 5.16 (Casualty Loss); or
------------
(f) by mutual written agreement of ComEd and Purchaser.
10.2 NON-SOLICITATION. If this Agreement is terminated, neither
----------------
Purchaser nor any of its Affiliates will, for a period of three years
thereafter, without the prior written approval of ComEd, directly or indirectly
solicit, induce or attempt to persuade any person who is an employee of ComEd on
the date hereof or at any time hereafter that precedes such termination, to
terminate his or her employment with ComEd; provided, however, that Purchaser
shall not be prohibited from conducting generalized solicitations for employees
(which solicitations were not specifically targeted at employees of ComEd)
through the use of media advertisements, professional search firms or otherwise.
Without limiting the rights of ComEd to pursue all other legal and equitable
rights available for a violation of this Section 10.2 (Non-Solicitation) by
------------
Purchaser or its Affiliates, it is agreed that other remedies cannot fully
compensate ComEd for such a violation and that ComEd shall be entitled to
injunctive relief to prevent a violation or continuing violation hereof. It is
the intent and understanding of each Party that if, in any action before any
arbitrator or any court or agency legally empowered to enforce this Section 10.2
------------
(Non-Solicitation), any term, restriction, covenant or promise in this Section
-------
10.2 (Non-Solicitation) is found to be unreasonable and for that
- ----
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<PAGE>
reason unenforceable, then such term, restriction, covenant or promise shall be
deemed modified to the extent necessary to make it enforceable by such court or
agency.
10.3 EFFECT OF TERMINATION. If this Agreement is terminated
---------------------
pursuant to Section 10.1 (Rights To Terminate), all further obligations of the
------------
Parties hereunder (other than (i) the obligations set forth in Section 5.3
-----------
(Confidentiality), Section 6.3(a)(6) (Indemnification by Purchaser), Section
----------------- -------
10.2 (Non-Solicitation), Section 11.1 (Expenses), Section 11.7 (Governing Law)
- ---- ------------ ------------
and Section 11.8 (Dispute Resolution), Section 11.14 (Consent to Jurisdiction)
------------ --------------
and Section 11.15 (No Public Announcement) and (ii) the obligations of the
-------------
Parties set forth in the Confidentiality Agreement) shall be terminated without
further liability of any Party to the other, provided that nothing herein shall
relieve any Party from liability for its willful breach of this Agreement. Upon
termination, the originals of any items, documents or written materials provided
by one Party to the other Party will be returned by the receiving Party to the
providing Party, and any Proprietary Information retained by the receiving Party
will be kept confidential.
ARTICLE 11
-----------
MISCELLANEOUS AGREEMENTS AND ACKNOWLEDGMENTS
--------------------------------------------
11.1 EXPENSES. Except as otherwise provided herein, each Party
--------
is responsible for its own costs and expenses (including attorneys' and
consultants' fees, costs and expenses) incurred in connection with this
Agreement and the consummation of the transactions contemplated by this
Agreement.
11.2 ENTIRE DOCUMENT. This Agreement (including the Exhibits and
---------------
Schedules to this Agreement) and the Related Agreements contain the entire
agreement between the Parties with respect to the transactions contemplated
hereby, and supersede all negotiations, representations, warranties,
commitments, offers, contracts and writings (except as contemplated by Section
-------
4.6 (Disclosures) with respect to ComEd's disclosures referred to therein) prior
- ---
to the execution date of this Agreement, written or oral. No waiver and no
modification or amendment of any provision of this Agreement is effective unless
made in writing and duly signed by the Parties referring specifically to this
Agreement, and then only to the specific purpose and extent so provided.
11.3 SCHEDULES. The inclusion of any item in any Schedule to
---------
this Agreement shall not constitute an admission that any such item is or is not
material or otherwise required to be included on such Schedule. All documents
or information disclosed in any Schedule are intended to be disclosed for all
purposes and will be deemed incorporated by reference in each other Schedule to
which they may be relevant. ComEd may, from time to time prior to or at the
Closing, by notice in accordance with the terms of this Agreement, supplement,
amend or create any Schedule, in order to add information or correct previously
supplied information. No such amendment shall be evidence, in and of itself,
that the representations and warranties in the corresponding section are no
longer true and correct. It is specifically agreed that such Schedules may be
amended to add immaterial, as well as material, items thereto. No such
supplemental, amended or additional Schedule shall be deemed to cure any breach
for purposes of Section 7.1 (Compliance with
-----------
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<PAGE>
Provisions). If, however, the Closing occurs, any such supplement, amendment or
addition will be effective to cure and correct for all other purposes any breach
of any representation, warranty or covenant which would have existed if ComEd
had not made such supplement, amendment or addition, and all references to any
Schedule hereto which is supplemented or amended as provided in this Section
-------
11.3 (Schedules) shall for all purposes after the Closing be deemed to be a
- ----
reference to such Schedule as so supplemented or amended.
11.4 COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which is an original, but all of which together constitute
one and the same instrument.
11.5 SEVERABILITY. If any provision hereof is held invalid or
------------
unenforceable by any arbitrator, court or as a result of future legislative
action, this holding or action will be strictly construed and will not affect
the validity or effect of any other provision hereof. To the extent permitted
by law, the Parties waive, to the maximum extent permissible, any provision of
law that renders any provision hereof prohibited or unenforceable in any
respect.
11.6 SUCCESSORS AND ASSIGNS. (a) The rights of either Party
----------------------
under this Agreement shall not be assignable by such Party prior to the Closing
without the written consent of the other Party, except that prior to Closing,
(i) without the consent of Purchaser, ComEd may assign the Assets in whole or in
part, together with its related rights, to a corporation, partnership or limited
liability company all of the outstanding equity interests of which are owned or
controlled by Unicom Corporation and (ii) without the consent of ComEd,
Purchaser may assign its rights hereunder and its right to enter into any
Related Agreements to a corporation, partnership or limited liability company
all of the outstanding-equity interests of which are owned or controlled by
Purchaser. In connection with any such assignment by ComEd, such assignee shall
assume in writing all of ComEd's obligations hereunder with respect to the
Assets and rights so assigned and, at the Closing, shall convey such Assets to
Purchaser pursuant to documents in the forms of the Grant Deed and the Bill of
Sale and Instrument of Assignment. In connection with any such assignment by
Purchaser, such assignee shall assume in writing all of Purchaser's obligations
hereunder or to perform any applicable Related Agreement with respect to the
rights so assigned. Following the Closing, neither Party may assign any of its
rights hereunder to any third Person without the written consent of the other
Party, except that either Party may assign its rights hereunder to an Affiliate.
Any assignment hereunder (whether before or after the Closing) shall not relieve
the assigning Party of its obligations hereunder. This Agreement shall be
binding upon and inure to the benefit of the Parties and their successors and
permitted assigns. The successors and permitted assigns hereunder shall
include, in the case of Purchaser, any permitted assignee as well as the
successors in interest to such permitted assignee (whether by merger,
liquidation (including successive mergers or liquidations) or otherwise).
(b) In the event that Purchaser assigns its rights and obligations
under any of the Related Agreements pursuant to the terms hereof, Purchaser does
hereby unconditionally and irrevocably guarantee (the "GUARANTEE") to ComEd, and
all of its successors and assigns, the due and punctual performance by any
assignee of all covenants, agreements, terms, conditions, undertakings,
indemnities and other obligations to be performed and observed by such assignee
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under the Related Agreements. Purchaser hereby waives promptness, diligence and
notice of acceptance of the Guarantee, of any action taken or omitted in
reliance hereon or of any default in the payment of any such sums or in the
performance of any covenants, agreements, terms, conditions, and any
presentment, demand, protest or other notice of any kind. Purchaser expressly
waives the right to require ComEd to exhaust any right or take any action
against such assignee or any other Person. Purchaser further agrees that the
execution and delivery of this Agreement by Purchaser shall be conclusive
evidence against Purchaser that its obligations under the Guarantee are
unconditional and absolute.
(c) The obligations of Purchaser under the Guarantee constitute a
present and continuing guarantee of payment and not of collectibility, shall be
absolute and unconditional, shall not be subject to any counterclaim, set-off,
deduction or defense based upon any claim Purchaser, ComEd, any assignee or any
of their respective Affiliates may have against each other or any other Person
and shall remain in full force and effect without regard to and shall not be
released, discharged or in any way affected or impaired by, any of the following
(whether or not Purchaser shall have any knowledge or notice thereof or consent
thereto): (i) any amendment or modification of or supplement to this Agreement
or any of the Related Agreements or in connection herewith agreed to by the
requisite parties specified therein, or any assignment or transfer of any
interest of Purchaser or ComEd therein, including any renewal or extension of
the terms of payment of any sums due or contingently due hereunder or in any of
the Related Agreements or the granting of time in respect of any payment; (ii)
any waiver, consent, extension, granting of time, forbearance, indulgence or
other action or inaction under or in respect of this Agreement or any of the
Related Agreements or any exercise or nonexercise of any right, remedy or power
in respect thereof; (iii) any bankruptcy, insolvency, reorganization,
arrangement, readjustment, composition, liquidation or similar proceedings with
respect to any assignee or any other Person, or the properties or creditors of
any of them and the disallowance of any claim of ComEd in any such bankruptcy;
(iv) any transfer or purported transfer, any consolidation or merger of either
ComEd, Purchaser or any assignee with or into any other corporation or entity,
or any change whatsoever in the objects, capital structure, constitution or
business of either ComEd, Purchaser or any assignee; (v) any failure on the part
of any assignee to perform or comply with any terms of this Agreement or any
Related Agreement or any other document to be delivered in connection therewith;
or (vi) any other event, happening, matter, circumstance or condition which
might otherwise constitute a legal or equitable discharge or defense of a
guarantor under applicable law.
(d) The obligations of Purchaser in respect of the Guarantee shall
continue to be effective or shall be reinstated, as the case may be, if at any
time any payment of any obligations guaranteed hereunder is rescinded or must
otherwise be returned by ComEd upon the insolvency, bankruptcy or reorganization
of any assignee or any other Person, all as though such payment had not been
made.
(e) If Purchaser shall make any payment due in respect of this
Agreement or any of the Related Agreements pursuant to this Guarantee, it shall,
to the extent permitted by applicable law, be subrogated to the rights of ComEd
in respect of which such payment was made; provided, however, that such rights
-------- -------
of subrogation and all indebtedness and claims arising therefrom shall be,
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and Purchaser hereby declares that they are, and shall at all times be, in all
respects subordinate and junior to all sums due or contingently due under this
Agreement or any of the Related Agreements in respect of which payment was not
made. Purchaser hereby agrees that the foregoing right of subrogation shall not
be effective until, and that it shall not be entitled to receive any payment,
under any condition, in respect of any such subrogated claim unless and until
assignee (or Purchaser on its behalf) has fully performed all obligations
hereunder to be performed by either such party and all sums which may become
due, or are stated in this Agreement or the Related Agreements to become due,
shall have become due and shall have been paid in full or funds for their
payment shall have been duly and sufficiently provided.
Notwithstanding the above, ComEd hereby consents to the assignment by
Purchaser of a security interest in this Agreement to any lenders; provided that
Purchaser shall have provided notice of any such assignment to ComEd. ComEd
further agrees to evidence such consent by executing documents reasonably
acceptable to ComEd, provided that ComEd shall have no obligation to waive any
of its rights under this Agreement.
11.7 GOVERNING LAW. The validity, interpretation and effect of
-------------
this Agreement are governed by and will be construed in accordance with the laws
of the State of Illinois applicable to contracts made and performed in such
State and without regard to conflicts of law doctrines, except as otherwise
provided in Section 11.8(b) (Dispute Resolution--Arbitration) or to the extent
---------------
that certain matters are preempted by Federal law.
11.8 DISPUTE RESOLUTION. (a) ADMINISTRATIVE COMMITTEE
------------------ ------------------------
PROCEDURE. If any disagreement arises on matters concerning this Agreement, the
- ---------
disagreement shall be referred to representatives of each Party, who shall
attempt to timely resolve the disagreement. If such representatives can resolve
the disagreement, such resolution shall be reported in writing to and shall be
binding upon the Parties. If such representatives cannot resolve the
disagreement within a reasonable time, or a Party fails to appoint a
representative within ten days of written notice of the existence of a
disagreement, then the matter shall proceed to arbitration as provided in
Section 11.8(b) (Arbitration).
- ---------------
(b) ARBITRATION. If pursuant to Section 11.8(a) (Administrative
----------- ---------------
Committee Procedure) the Parties are unable to resolve a disagreement arising on
a matter pertaining to this Agreement, such disagreement shall be settled by
arbitration in Chicago, Illinois. The arbitration shall be governed by the
United States Arbitration Act (9 U.S.C. Section 1 et seq.), and any award issued
pursuant to such arbitration may be enforced in any court of competent
jurisdiction. This agreement to arbitrate and any other agreement or consent to
arbitrate entered into in accordance herewith will be specifically enforceable
under the prevailing arbitration law of any court having jurisdiction. Notice of
demand for arbitration must be filed in writing with the other Party to this
Agreement. Arbitration shall be conducted as follows:
(i) Either Party may give the other Party written notice in
sufficient detail of the disagreement and the specific provision of this
Agreement under which the disagreement arose. The demand for arbitration
must be made within a reasonable
-72-
<PAGE>
time after the disagreement has arisen. In no event may the demand for
arbitration be made if the institution of legal or equitable proceedings
based on such disagreement is barred by the applicable statute of
limitations. Any arbitration may be consolidated with any other arbitration
proceedings relating to this Agreement.
(ii) The Parties shall attempt to agree on a person with special
knowledge and expertise with respect to the matter at issue to serve as
arbitrator. If the Parties cannot agree on an arbitrator within ten days,
each shall then appoint one person to serve as an arbitrator and the two
thus appointed shall select a third arbitrator with such special knowledge
and expertise to serve as Chairman of the panel of arbitrators; and such
three arbitrators shall determine all matters by majority vote; provided
however, if the two arbitrators appointed by the Parties are unable to
agree upon the appointment of the third arbitrator with five days after
their appointment, both shall give written notice of such failure to agree
to the Parties, and, if the Parties fail to agree upon the selection of
such third arbitrator within five days thereafter, then either of the
Parties upon written notice to the other may require appointment from, and
pursuant to the rules of, the Chicago office of the American Arbitration
Association for commercial arbitration. Prior to appointment, each
arbitrator shall agree to conduct such arbitration in accordance with the
terms of this Agreement.
(iii) The Parties shall have sixty days from the appointment of
the arbitrator(s) to perform discovery and present evidence and argument to
the arbitrator(s). During that period, the arbitrator(s) shall be available
to receive and consider all such evidence as is relevant and, within
reasonable limits due to the restricted time period, to hear as much
argument as is feasible, giving a fair allocation of time to each Party to
the arbitration. The arbitrator(s) shall use all reasonable means to
expedite discovery and to sanction noncompliance with reasonable discovery
requests or any discovery order. The arbitrator(s) shall not consider any
evidence or argument not presented during such period and shall not extend
such period except by the written consent of both Parties. At the
conclusion of such period, the arbitrator(s) shall have forty-five calendar
days to reach a determination. To the extent not in conflict with the
procedures set forth herein, which shall govern, such arbitration shall be
held in accordance with the prevailing rules of the Chicago office of the
American Arbitration Association for commercial arbitration.
(iv) The arbitrator(s) shall have the right only to interpret and
apply the terms and conditions of this Agreement and to order any remedy
allowed by this Agreement, but may not change any term or condition of this
Agreement, deprive either Party of any right or remedy expressly provided
hereunder, or provide any right or remedy that has been excluded hereunder.
(v) The arbitrator(s) shall give a written decision to the
Parties stating their findings of fact, conclusions of law and order, and
shall furnish to each Party
-73-
<PAGE>
a copy thereof signed by them within five calendar days from the date of
their determination.
(vi) Each Party shall pay the cost of the arbitrator(s) with
respect to those issues as to which they do not prevail, as determined by
the arbitrator or arbitrators.
(c) PRELIMINARY INJUNCTIVE RELIEF. Nothing in this Section 11.8
----------------------------- ------------
(Dispute Resolution) shall preclude, or be construed to preclude, the resort by
either Party to a court of competent jurisdiction solely for the purposes of
securing a temporary or preliminary injunction to preserve the status quo or
avoid irreparable harm pending arbitration pursuant to this Section 11.8
------------
(Dispute Resolution).
(d) SETTLEMENT DISCUSSIONS. The Parties agree that no written
----------------------
statements of position or offers of settlement made in the course of the dispute
process described in this Section 11.8 (Dispute Resolution) will be offered into
------------
evidence for any purpose in any litigation or arbitration between the Parties,
nor will any such written statements or offers of settlement be used in any
manner against either Party in any such litigation or arbitration. Further, no
such written statements or offers of settlement shall constitute an admission or
waiver of rights by either Party in connection with any such litigation or
arbitration. At the request of either Party, any such written statements and
offers of settlement, and all copies thereof, shall be promptly returned to the
Party providing the same.
(e) EXCEPTIONS. Notwithstanding the provisions of this Section
---------- -------
11.8 (Dispute Resolution), a disagreement as to the valuation of inventories
- ----
under Section 2.6(b) (Purchase Price--Inventory Adjustment) shall be resolved as
--------------
provided in such Section.
11.9 NOTICES. All notices, requests, demands and other
-------
communications under this Agreement must be in writing and must be delivered in
person or sent by certified mail, postage prepaid, or by overnight delivery, and
properly addressed as follows:
-74-
<PAGE>
If to ComEd (prior to Closing):
Commonwealth Edison Company
One First National Plaza - 34th Floor
10 South Dearborn Street
Chicago, Illinois 60603
Attn: Vice President - Fossil Divestiture
or, after Closing, to:
Commonwealth Edison Company
One First National Plaza - 37th Floor
10 South Dearborn Street
Chicago, Illinois 60603
Attn: Executive Vice President - Fossil
With a copy to:
Commonwealth Edison Company
Law Department
Room 1535
125 South Clark Street
Chicago, Illinois 60603
Attn: Associate General Counsel and Corporate Secretary
If to Purchaser:
Edison Mission Energy
18101 Von Karman Avenue
Suite 1700
Irvine, California 92612
Attn: President-Americas Division
With a copy to:
Edison Mission Energy
18101 Von Karman Avenue
Suite 1700
Irvine, California 92612
Attn: General Counsel
-75-
<PAGE>
Any Party may from time to time change its address for the purpose of notices to
that Party by a similar notice specifying a new address, but no such change
shall be effective until it is actually received by the Party sought to be
charged with its contents.
All notices and other communications required or permitted under this Agreement
that are addressed as provided in this Section 11.9 (Notices) are effective upon
------------
delivery, if delivered personally or by overnight mail, and are effective five
(5) days following deposit in the United States mail, postage prepaid, if
delivered by mail.
11.10 TIME IS OF THE ESSENCE. Time is of the essence to each term
----------------------
of this Agreement. Without limiting the generality of the foregoing, all times
provided for in this Agreement for the performance of any act will be strictly
construed.
11.11 NO THIRD PARTY BENEFICIARIES. Except as may be specifically
----------------------------
set forth in this Agreement, nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any Persons other than the Parties and their respective permitted
successors and assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability of any third Persons to either Party, nor
to give any third Persons any right of subrogation or action against either
Party.
11.12 EFFECT OF CLOSING. If ComEd or Purchaser elects to proceed
-----------------
with the Closing with Knowledge of any failure to be satisfied of any condition
in its favor or the breach of any representation, warranty or covenant by the
other Party, the condition that is unsatisfied or the representation, warranty
or covenant that is breached at the Closing Date will be deemed waived by such
Party, and such Party will be deemed to release fully and forever discharge the
other Party on account of any and all claims, demands or charges with respect to
the same.
11.13 CONFLICTS. In the event of any conflicts or inconsistencies
---------
between the terms of this Agreement and the terms of any of the Related
Agreements, the terms of the Related Agreement will govern and prevail.
11.14 CONSENT TO JURISDICTION. EACH OF COMED AND PURCHASER
-----------------------
CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED
WITHIN THE STATE OF ILLINOIS FOR ADJUDICATION OF A PRELIMINARY INJUNCTION OR
OTHER PROVISIONAL JUDICIAL REMEDY AS PROVIDED IN SECTION 11.8 (DISPUTE
------------
RESOLUTION). EACH OF COMED AND PURCHASER ACCEPTS FOR ITSELF AND IN CONNECTION
WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION
OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS. IF NOT
A RESIDENT OF THE STATE OF ILLINOIS, PURCHASER SHALL APPOINT AND MAINTAIN AN
AGENT FOR SERVICE OF PROCESS IN THE STATE OF ILLINOIS. NOTHING IN THIS SECTION
-------
11.14 (CONSENT TO JURISDICTION) IS INTENDED TO MODIFY OR EXPAND THE TERMS AND
- -----
PROVISIONS OF SECTION 11.8 (DISPUTE RESOLUTION).
------------
-76-
<PAGE>
11.15 NO PUBLIC ANNOUNCEMENT. Neither Purchaser nor ComEd shall,
-----------------------
without the approval of the other, make any press release or other public
announcement concerning the transactions contemplated by this Agreement, except
as and to the extent that any such Party shall be so obligated by law, in which
case the other Party shall be advised and the Parties shall use their
Commercially Reasonable Efforts to cause a mutually agreeable release or
announcement to be issued; provided that the foregoing shall not preclude
communications or disclosures necessary to implement the provisions of this
Agreement or to comply with accounting and Securities and Exchange Commission
disclosure obligations.
11.16 NEW GENERATION CAPACITY. (a)(i) No later than the fourth
-----------------------
anniversary of the Closing Date, Purchaser shall have completed the installation
of one or more gas-fired electric generating units having an additional gross
dependable capacity of 500MW at Crawford Station, Fisk Station, the Off-Site
Calumet Peaking Site or at property in Illinois which is adjacent to such Sites
and shall have made such unit(s) operational in accordance with Prudent Utility
Practices. Purchaser agrees to notify ComEd in writing within eighteen months
of the Closing Date as to the precise location it has selected for such
installation. In connection with the addition of such generating capacity,
Purchaser agrees to cause such unit(s) to comply in all material respects with
applicable Requirements of Laws. ComEd will cooperate with Purchaser with
respect to siting and permitting of the new unit(s).
(ii) From and after the Closing, upon any request from ComEd,
Purchaser shall provide ComEd with reasonable evidence of its efforts to comply
with this Section 11.16(a) (New Generation Capacity). Such evidence shall
----------------
include, among other things, a demonstration of sufficient lead-time to obtain
necessary combustion turbines and environmental permits and to complete the
required construction no later than the fourth anniversary of the Closing Date.
(iii) In the event Purchaser violates its obligations under this
Section 11.16(a) (New Generation Capacity), ComEd may proceed against it in law
- ----------------
or in equity for such damages or other relief as a court may deem appropriate.
Purchaser acknowledges that a violation of this Section 11.16(a) (New Generation
----------------
Capacity) may cause ComEd irreparable harm which may not be adequately
compensated for by money damages. Purchaser therefore agrees that in the event
of any actual or threatened violation of this Section 11.16(a) (New Generation
----------------
Capacity), ComEd shall be entitled, in addition to other remedies that it may
have, to preliminary and final injunctive relief against Purchaser to prevent
any violations of this Section 11.16(a) (New Generation Capacity), without the
----------------
necessity of posting a bond.
(b) In the event that Purchaser shall propose to offer the
capacity contemplated by Section 11.16(a) (New Generation Capacity) and
----------------
associated electric energy on a firm, committed basis, Purchaser shall offer
such capacity and associated electric energy to ComEd prior to offering it to
any other Person. If ComEd shall refuse such offer in whole or in part,
Purchaser may market and sell such capacity and/or electric energy to any other
Person on terms no more favorable than the terms offered to ComEd.
Notwithstanding the foregoing, if ComEd shall have refused any such offer and
shall subsequently determine to accept the portion so refused, it may do so
provided (i)
-77-
<PAGE>
Purchaser has not entered into a binding commitment with another Person with
respect thereto and (ii) the offer has not expired by its terms.
-78-
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written.
COMMONWEALTH EDISON COMPANY
By: /s/ John W. Rowe
-----------------------------------------
John W. Rowe
Chairman, President and
Chief Executive Officer
EDISON MISSION ENERGY
By: /s/ Georgia R. Nelson
----------------------------------------
Georgia R. Nelson
Senior Vice President
-79-
<PAGE>
Exhibit (4)-23
Commonwealth Edison Company
Form 10-K File No. 1-1839
================================================================================
$500,000,000
5-YEAR
CREDIT AGREEMENT
Dated as of October 8, 1998
Among
COMMONWEALTH EDISON COMPANY
as Borrower
and
THE BANKS NAMED HEREIN
as Banks
and
CITIBANK, N.A.
as Administrative Agent
and
BANK OF AMERICA NT & SA
THE BANK OF NEW YORK
THE FIRST NATIONAL BANK OF CHICAGO
THE CHASE MANHATTAN BANK
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
as Co-Agents
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C>
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms............................................ 1
SECTION 1.02. Computation of Time Periods...................................... 16
SECTION 1.03. Computations of Outstandings..................................... 16
SECTION 1.04. Accounting Terms................................................. 16
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The A Advances................................................... 16
SECTION 2.02. Making the A Advances............................................ 17
SECTION 2.03. The B Advances................................................... 18
SECTION 2.04. Fees............................................................. 22
SECTION 2.05. Reduction of the Commitments..................................... 22
SECTION 2.06. Repayment of A Advances.......................................... 23
SECTION 2.07. Interest on A Advances........................................... 23
SECTION 2.08. Additional Interest on Eurodollar Rate Advances.................. 23
SECTION 2.09. Interest Rate Determination...................................... 24
SECTION 2.10. Voluntary Conversion of A Advances............................... 26
SECTION 2.11. Optional Prepayments of A Advances............................... 26
SECTION 2.12. Mandatory Prepayments............................................ 27
SECTION 2.13. Increased Costs.................................................. 27
SECTION 2.14. Illegality....................................................... 28
SECTION 2.15. Payments and Computations........................................ 29
SECTION 2.16. Taxes............................................................ 30
SECTION 2.17. Sharing of Payments, Etc......................................... 32
SECTION 2.18. Extension of Termination Date.................................... 32
SECTION 2.19. Increase in Commitments.......................................... 34
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Conditions Precedent to Closing.................................. 35
SECTION 3.02. Conditions Precedent to Each A Borrowing......................... 37
SECTION 3.03. Conditions Precedent to Each B Borrowing......................... 38
SECTION 3.04. Conditions Precedent to Each Extension of the Termination Date... 38
SECTION 3.05. Reliance on Certificates......................................... 39
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 4.01. Representations and Warranties of the Borrower.................... 40
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants............................................. 42
SECTION 5.02. Negative Covenants................................................ 47
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default................................................. 50
ARTICLE VII
THE ADMINISTRATIVE AGENT
SECTION 7.01. Authorization and Action.......................................... 53
SECTION 7.02. Administrative Agent's Reliance, Etc.............................. 53
SECTION 7.03. Citibank, N.A. and Affiliates..................................... 54
SECTION 7.04. Lender Credit Decision............................................ 54
SECTION 7.05. Indemnification................................................... 54
SECTION 7.06. Successor Administrative Agent.................................... 55
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc................................................... 55
SECTION 8.02. Notices, Etc...................................................... 56
SECTION 8.03. No Waiver; Remedies............................................... 57
SECTION 8.04. Costs, Expenses, Taxes and Indemnification........................ 57
SECTION 8.05. Right of Set-off.................................................. 58
SECTION 8.06. Binding Effect.................................................... 59
SECTION 8.07. Assignments and Participations.................................... 59
SECTION 8.08. Confidentiality................................................... 63
SECTION 8.09. Waiver of Jury Trial.............................................. 63
SECTION 8.10. Consent........................................................... 64
SECTION 8.11. Governing Law..................................................... 64
SECTION 8.12. Relation of the Parties; No Beneficiary........................... 64
SECTION 8.13. Execution in Counterparts......................................... 64
</TABLE>
ii
<PAGE>
SCHEDULES
---------
Schedule I: Commitment Allocations
Schedule II: List of Fossil Plants to be Offered for Sale
EXHIBITS
--------
Exhibit 1.01A-1: Form of A Note
Exhibit 1.01A-2: Form of B Note
Exhibit 2.02(a): Form of Notice of A Borrowing
Exhibit 2.03(a)(i): Form of Notice of B Borrowing
Exhibit 2.10: Form of Notice of Conversion
Exhibit 2.18(a): Form of Request for Extension of the Termination Date
Exhibit 3.01(a)(vii)-1: Form of Opinion of Counsel to the Borrower
Exhibit 3.01(a)(vii)-2: Form of Opinion of Counsel to the Agent
Exhibit 8.07: Form of Lender Assignment
iii
<PAGE>
5-YEAR
CREDIT AGREEMENT
Dated as of October 8, 1998
THIS 5-YEAR CREDIT AGREEMENT (this "AGREEMENT") is made by and among:
(i) COMMONWEALTH EDISON COMPANY, an Illinois corporation (the
"BORROWER"),
(ii) the banks (the "BANKS") listed on the signature pages hereof and the
other Lenders (as hereinafter defined) from time to time party
hereto, and
(iii) CITIBANK, N.A., as agent (the "ADMINISTRATIVE AGENT") for the
Lenders hereunder.
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.0 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"A ADVANCE" means an advance by a Lender to the Borrower as part of
an A Borrowing and refers to a Base Rate Advance or a Eurodollar Rate
Advance, each of which shall be a "TYPE" of A Advance.
"A BORROWING" means a borrowing consisting of simultaneous A Advances
of the same Type, having the same Interest Period and ratably made or
Converted on the same day by each of the Lenders pursuant to Section 2.02
or 2.10, as the case may be. All Advances of the same Type, having the same
Interest Period and made or Converted on the same day shall be deemed a
single Borrowing hereunder until repaid or next Converted.
"A NOTE" means a promissory note of the Borrower payable to the order
of any Lender, in substantially the form of Exhibit 1.01A-1 hereto,
evidencing the aggregate indebtedness of the Borrower to such Lender
resulting from the A Advances made by such Lender.
<PAGE>
2
"ADVANCE" means an A Advance or a B Advance.
"AFFILIATE" means, with respect to any Person, any other Person
directly or indirectly controlling (including but not limited to all
directors and any officer who possesses the power described in the next
sentence), controlled by, or under direct or indirect common control with
such Person. A Person shall be deemed to control another entity if such
Person possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such entity, whether through
the ownership of voting securities, by contract, or otherwise.
"ALTERNATE BASE RATE" means a fluctuating interest rate per annum as
shall be in effect from time to time which rate per annum shall at all
times be equal to the higher of:
(a) the rate of interest announced publicly by Citibank, N.A. in
New York, New York, from time to time, as Citibank, N.A.'s base rate; and
(b) 1/2 of one percent per annum above the Federal Funds Rate.
Each change in the Alternate Base Rate shall take effect concurrently with
any change in such base rate or the Federal Funds Rate.
"APPLICABLE LENDING OFFICE" means, with respect to each Lender, such
Lender's Domestic Lending Office in the case of a Base Rate Advance and
such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate
Advance and, in the case of a B Advance, the office of such Lender notified
by such Lender to the Administrative Agent as its Applicable Lending Office
with respect to such B Advance.
"APPLICABLE MARGIN" means, on any date, for a Eurodollar Rate Advance
or Base Rate Advance, the number of basis points set forth below in the
columns identified as Level 1, Level 2, Level 3, Level 4 and Level 5, as
determined by the respective ratings issued by S&P and Moody's for non-
credit-enhanced long-term senior secured debt of the Borrower (the
"REFERENCE RATINGS") and in effect on such date.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
LEVEL 1 LEVEL 2 LEVEL 3 LEVEL 4 LEVEL 5
------------ ------- ------- ------- -------
S&P A- OR BETTER BBB+ BBB BBB- LOWER THAN
AND AND AND AND LEVEL 4 OR
MOODY' A3 OR BETTER BAA1 BAA2 BAA3 UNRATED
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Basis Points Per Annum
-------------------------------------------------------------------------------
</TABLE>
<PAGE>
3
<TABLE>
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Eurodollar Rate Advance 20.0 22.5 27.5 38.0 75.0
-------------------------------------------------------------------------------
Base Rate Advance 0 0 0 0 0
-------------------------------------------------------------------------------
</TABLE>
Any change in the Reference Ratings shall effect an immediate change in the
Applicable Margin.
"APPLICABLE RATE" means:
(i) in the case of each Base Rate Advance, a rate per annum equal at
all times to the sum of the Alternate Base Rate in effect from time to time
plus the Applicable Margin in effect from time to time; and
(ii) in the case of each Eurodollar Rate Advance comprising part of
the same A Borrowing, a rate per annum during each Interest Period equal at
all times to the sum of the Eurodollar Rate for such Interest Period plus
the Applicable Margin in effect from time to time during such Interest
Period.
"AVAILABLE COMMITMENT" means, for each Lender at any time on any day,
the unused portion of such Lender's Commitment, computed after giving
effect to all Extensions of Credit made or to be made on such day, the
application of proceeds therefrom and all prepayments and repayments of
Advances made on such day.
"AVAILABLE COMMITMENTS" means the aggregate of the Lenders' Available
Commitments hereunder.
"B ADVANCE" means an advance by a Lender to the Borrower as part of a
B Borrowing resulting from the auction bidding procedure described in
Section 2.03.
"B BORROWING" means a borrowing consisting of simultaneous B Advances
from each of the Lenders whose offer to make one or more B Advances as part
of such borrowing has been accepted by the Borrower under the auction
bidding procedure described in Section 2.03.
"B NOTE" means a promissory note of the Borrower payable to the order
of any Lender, in substantially the form of Exhibit 1.01A-2 hereto,
evidencing the aggregate indebtedness of the Borrower to such Lender
resulting from a B Advance made by such Lender.
<PAGE>
4
"B REDUCTION" has the meaning assigned to that term in Section 2.01.
"BASE RATE ADVANCE" means an A Advance that bears interest as provided
in Section 2.07(a).
"BORROWING" means an A Borrowing or a B Borrowing. Any A Borrowing
consisting of A Advances of a particular Type may be referred to as being
an A Borrowing of such "Type".
"BUSINESS DAY" means a day of the year on which banks are not required
or authorized to close in New York City or Chicago, Illinois, and, if the
applicable Business Day relates to any Eurodollar Rate Advance, on which
dealings are carried on in the London interbank market.
"CAPITALIZED LEASE OBLIGATIONS" means obligations to pay rent or other
amounts under any lease of (or other arrangement conveying the right to
use) real and/or personal property which obligation is required to be
classified and accounted for as a capital lease on a balance sheet prepared
in accordance with GAAP, and for purposes hereof the amount of such
obligations shall be the capitalized amount determined in accordance with
GAAP.
"CHANGE OF CONTROL" means the occurrence, after the date of this
Agreement, of (i) any Person or two or more Persons acting in concert
acquiring beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended), directly or indirectly, of securities of the Borrower
(or other securities convertible into such securities) representing 50% of
more of the combined voting power of all securities of the Borrower
entitled to vote in the election of directors; or (ii) commencing after the
date of this Agreement, individuals who as of the date of this Agreement
were directors ceasing for any reason to constitute a majority of the Board
of Directors of the Borrower unless the Persons replacing such individuals
were nominated by the stockholders or the Board of Directors of the
Borrower in accordance with the Borrower's Bylaws; or (iii) any Person or
two or more Persons acting in concert acquiring by contract or otherwise,
or entering into a contract or arrangement which upon consummation will
result in its or their acquisition of, or control over, securities of the
Borrower (or other securities convertible into such securities)
representing 50% or more of the combined voting power of all securities of
the Borrower entitled to vote in the election of directors.
<PAGE>
5
"CLOSING" means the day upon which each of the applicable conditions
precedent enumerated in Section 3.01 shall be fulfilled to the satisfaction
of, or waived with the consent of, the Lenders, the Administrative Agent
and the Borrower. All transactions contemplated by the Closing shall take
place on a Business Day on or prior to October 8, 1998, at the offices of
King & Spalding, 1185 Avenue of the Americas, New York, New York 10036, at
10:00 a.m., or such later Business Day as the parties hereto may mutually
agree.
"COMMITMENT" means, for each Lender, the obligation of such Lender to
make Advances to the Borrower in an amount no greater than the amount set
forth on Schedule I hereto or, if such Lender has entered into one or more
Lender Assignments, set forth for such Lender in the Register maintained by
the Administrative Agent pursuant to Section 8.07(c), in each such case as
such amount may be reduced from time to time pursuant to Section 2.05.
"COMMITMENTS" means the total of the Lenders' Commitments hereunder. The
Commitments shall in no event exceed $500,000,000.
"CONSOLIDATED CAPITAL" means, with respect to any Person, at any date
of determination, the sum of (a) Consolidated Debt of such Person, (b)
consolidated equity of the common stockholders of such Person and its
Consolidated Subsidiaries, (c) consolidated equity of the preference
stockholders of such Person and its Consolidated Subsidiaries, (d)
consolidated equity of the preferred stockholders of such Person and its
Consolidated Subsidiaries, in each case determined at such date in
accordance with GAAP and (e) the aggregate principal amount of Subordinated
Deferrable Interest Securities of such Person and its Consolidated
Subsidiaries.
"CONSOLIDATED DEBT" means, with respect to any Person, at any date of
determination, the aggregate Debt of such Person and its Consolidated
Subsidiaries determined on a consolidated basis in accordance with GAAP,
but shall not include (i) Nonrecourse Debt of any Subsidiary of the
Borrower, (ii) the aggregate principal amount of Subordinated Deferrable
Interest Securities of such Person and its Consolidated Subsidiaries and
(iii) the aggregate principal amount of Transitional Funding Instruments of
such Person and its Consolidated Subsidiaries.
"CONSOLIDATED SUBSIDIARY" means, with respect to any Person, any
Subsidiary of such Person whose accounts are or are required to be
consolidated with the accounts of such Person in accordance with generally
accepted accounting principles.
"CONVERT", "CONVERSION" and "CONVERTED" each refers to a conversion of
Advances of one Type into Advances of another Type, or to the selection of
a new, or the
<PAGE>
6
renewal of the same, Interest Period for Advances, as the case may be,
pursuant to Section 2.09 or 2.10.
"DEBT" means, for any Person, any and all indebtedness, liabilities
and other monetary obligations of such Person (i) for borrowed money or
evidenced by bonds, debentures, notes or other similar instruments, (ii) to
pay the deferred purchase price of property or services (except trade
accounts payable arising and repaid in the ordinary course of business),
(iii) Capitalized Lease Obligations, (iv) under reimbursement or similar
agreements with respect to letters of credit (other than trade letters of
credit) issued to support indebtedness or obligations of such Person or of
others of the kinds referred to in clauses (i) through (iii) above and
clause (v) below, (v) reasonably quantifiable obligations under direct
guaranties or indemnities, or under support agreements, in respect of, and
reasonably quantifiable obligations (contingent or otherwise) to purchase
or otherwise acquire, or otherwise to assure a creditor against loss in
respect of, or to assure an obligee against failure to make payment in
respect of, indebtedness or obligations of others of the kinds referred to
in clauses (i) through (iv) above, and (vi) in respect of unfunded vested
benefits under Plans. In determining Debt for any Person, (A) there shall
be included accrued interest on the principal amount thereof to the extent
such interest has accrued for more than six months and (B) in the cases of
clauses (iv) and (v), such obligation shall be excluded to the extent that
the primary obligation has been included under the preceding clauses.
"DEFAULT RATE" means (i) with respect to the unpaid principal of or
interest on any Advance, the greater of (A) 2% per annum above the
Applicable Rate in effect from time to time for such Advance and (B) 2% per
annum above the Applicable Rate in effect from time to time for Base Rate
Advances and (ii) with respect to any other unpaid amount hereunder, 2% per
annum above the Applicable Rate in effect from time to time for Base Rate
Advances.
"DOLLARS" and the sign "$" each means lawful money of the United
States.
"DOMESTIC LENDING OFFICE" means, with respect to any Lender, the
office or affiliate of such Lender specified as its "Domestic Lending
Office" opposite its name on Schedule I hereto or in the Lender Assignment
pursuant to which it became a Lender, or such other office or affiliate of
such Lender as such Lender may from time to time specify in writing to the
Borrower and the Administrative Agent.
"ELIGIBLE ASSIGNEE" means (a) a commercial bank or trust company
organized under the laws of the United States, or any State thereof; (b) a
commercial bank organized
<PAGE>
7
under the laws of any other country that is a member of the OECD, or a
political subdivision of any such country, provided that such bank is
acting through a branch or agency located in the United States; (c) the
central bank of any country that is a member of the OECD; and (d) any other
commercial bank or other financial institution engaged generally in the
business of extending credit or purchasing debt instruments; provided,
however, that (A) any such Person shall also (i) have outstanding unsecured
long-term indebtedness that is rated A- or better by S&P or A3 or better by
Moody's (or an equivalent rating by another nationally-recognized credit
rating agency of similar standing if neither of such corporations is then
in the business of rating unsecured indebtedness of entities engaged in
such businesses) or (ii) have combined capital and surplus (as established
in its most recent report of condition to its primary regulator) of not
less than $250,000,000 (or its equivalent in foreign currency), (B) any
Person described in clause (a), (b), (c) or (d) above, shall, on the date
on which it is to become a Lender hereunder, (i) be entitled to receive
payments hereunder without deduction or withholding of any United States
Federal income taxes (as contemplated by Section 2.16) and (ii) not be
incurring any losses, costs or expenses of the type for which such Person
could demand payment under Section 2.13, and (C) any Person described in
clause (a), (b), (c) or (d) above shall, in addition, be reasonably
acceptable to the Administrative Agent and the Borrower.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"ERISA AFFILIATE" means, with respect to any Person, any trade or
business (whether or not incorporated) which is a member of a group of
which such Person is a member and which is under common control within the
meaning of the regulations under Section 414(b) or (c) of the Internal
Revenue Code of 1986, as amended from time to time.
"ERISA EVENT" means (i) the occurrence of a reportable event, within
the meaning of Section 4043 of ERISA, unless the 30-day notice requirement
with respect thereto has been waived by the PBGC; (ii) the provision by the
administrator of any Plan of notice of intent to terminate such Plan,
pursuant to Section 4041(a)(2) of ERISA (including any such notice with
respect to a plan amendment referred to in Section 4041(e) of ERISA); (iii)
except in connection with the sale of certain fossil-fired generating
facilities listed on Schedule II hereto, the cessation of operations at a
facility in the circumstances described in Section 4062(e) of ERISA; (iv)
the withdrawal by the Borrower or an ERISA Affiliate of the Borrower from a
Multiple Employer Plan during a plan year for which it was a "substantial
employer", as defined in Section 4001(a)(2) of ERISA; (v) the failure by
the
<PAGE>
8
Borrower or an ERISA Affiliate of the Borrower to make a payment to a Plan
required under Section 302(f)(1) of ERISA, which failure results in the
imposition of a lien for failure to make required payments; (vi) the
adoption of an amendment to a Plan requiring the provision of security to
such Plan, pursuant to Section 307 of ERISA; or (vii) the institution by
the PBGC of proceedings to terminate a Plan, pursuant to Section 4042 of
ERISA, or the occurrence of any event or condition which might reasonably
be expected to constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, a Plan.
"EUROCURRENCY LIABILITIES" has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
"EURODOLLAR LENDING OFFICE" means, with respect to any Lender, the
office or affiliate of such Lender specified as its "Eurodollar Lending
Office" opposite its name on Schedule I hereto or in the Lender Assignment
pursuant to which it became a Lender (or, if no such office is specified,
its Domestic Lending Office), or such other office or affiliate of such
Lender as such Lender may from time to time specify in writing to the
Borrower and the Administrative Agent.
"EURODOLLAR RATE" means, for each Interest Period for each Eurodollar
Rate Advance made as part of the same A Borrowing, an interest rate per
annum equal to the average (rounded upward to the nearest whole multiple of
1/16 of 1% per annum, if such average is not such a multiple) of the rate
per annum at which deposits in Dollars are offered by the principal office
of each of the Reference Banks in London, England to prime banks in the
London interbank market at 11:00 a.m. (London time) two Business Days
before the first day of such Interest Period in an amount substantially
equal to such Reference Bank's Eurodollar Rate Advance made as part of such
A Borrowing and for a period equal to such Interest Period. The Eurodollar
Rate for the Interest Period for each Eurodollar Rate Advance made as part
of the same A Borrowing shall be determined by the Administrative Agent on
the basis of applicable rates furnished to and received by the
Administrative Agent from the Reference Banks two Business Days before the
first day of such Interest Period, subject, however, to the provisions of
Section 2.09.
"EURODOLLAR RATE ADVANCE" means an A Advance that bears interest as
provided in Section 2.07(b).
"EURODOLLAR RESERVE PERCENTAGE" of any Lender for each Interest Period
for each Eurodollar Rate Advance means the reserve percentage applicable to
such Lender during such Interest Period (or if more than one such
percentage shall be so applicable, the daily
<PAGE>
9
average of such percentages for those days in such Interest Period during
which any such percentage shall be so applicable) under Regulation D or
other regulations issued from time to time by the Board of Governors of the
Federal Reserve System (or any successor) for determining the maximum
reserve requirement (including, without limitation, any emergency,
supplemental or other marginal reserve requirement) then applicable to such
Lender with respect to liabilities or assets consisting of or including
Eurocurrency Liabilities having a term equal to such Interest Period.
"EVENTS OF DEFAULT" has the meaning assigned to that term in Section
6.01.
"EXISTING FACILITY" means the Credit Agreement, dated as of October 1,
1991, among the Borrower, the Administrative Agent and certain lenders
party thereto, as amended or modified as of the date hereof.
"EXTENSION DATE" has the meaning assigned to that term in Section
2.18(b).
"EXTENSION OF CREDIT" means the making of a Borrowing. For purposes
of this Agreement, a Conversion shall not constitute an Extension of
Credit.
"FACILITY FEE" means a fee which shall be payable on the aggregate
amount of the Commitments, irrespective of usage, to the Lenders pro rata
on the amounts of their respective Commitments at the rate (expressed in
basis points per annum) set forth below in the columns identified as Level
1, Level 2, Level 3, Level 4 and Level 5, as determined by the respective
ratings issued by S&P and Moody's for non-credit-enhanced long-term senior
secured debt of the Borrower.
<TABLE>
<CAPTION>
--------------------------------------------------------------------
LEVEL 1 LEVEL 2 LEVEL 3 LEVEL 4 LEVEL 5
S&P ------------ ------- ------- ------- -----------
A- OR BBB+ BBB BBB- LOWER THAN
MOODY'S BETTER AND AND AND LEVEL 4 OR
AND BAA1 BAA2 BAA3 UNRATED
A3 OR BETTER
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Basis Points 10.0 12.5 15.0 17.0 25.0
--------------------------------------------------------------------
</TABLE>
The Facility Fee will be based upon the level corresponding to the
Reference Ratings at the time of determination. Any change in the
Reference Ratings shall effect an immediate change in the Facility Fee.
"FEDERAL FUNDS RATE" means, for any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted
average of the rates on overnight Federal funds transactions with members
of the Federal Reserve System arranged by
<PAGE>
10
Federal funds brokers, as published for such day (or, if such day is not a
Business Day, for the next preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is
a Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
"GAAP" means generally accepted accounting principles in effect from
time to time, consistent with the principles used in preparing the
financial statements referred to in Section 4.01(g) hereof.
"GOVERNMENTAL APPROVAL" means any authorization, consent, approval,
license, franchise, lease, ruling, tariff, rate, permit, certificate,
exemption of, or filing or registration with, any governmental authority or
other legal or regulatory body.
"HAZARDOUS SUBSTANCE" means any waste, substance, or material
identified as hazardous, dangerous or toxic by any office, agency,
department, commission, board, bureau, or instrumentality of the United
States or of the State or locality in which the same is located having or
exercising jurisdiction over such waste, substance or material.
"INFORMATION MEMORANDUM" means the Confidential Information Memorandum
dated August 1998 relating to this Agreement and the Other Credit Agreement
delivered (or to be delivered) by Citicorp Securities, Inc. at the
direction of the Borrower to the Lenders.
"INTEREST PERIOD" means, for each A Advance made as part of the same A
Borrowing, the period commencing on the date of such A Advance or the date
of the Conversion of any A Advance into such an A Advance and ending on the
last day of the period selected by the Borrower pursuant to the provisions
below and, thereafter, each subsequent period commencing on the last day of
the immediately preceding Interest Period and ending on the last day of the
period selected by the Borrower pursuant to the provisions below. The
duration of each such Interest Period shall be 1, 2, 3 or 6 months in the
case of a Eurodollar Rate Advance, in each case as the Borrower may, upon
notice received by the Administrative Agent not later than 12:00 noon (New
York City time) on the third Business Day prior to the first day of such
Interest Period in the case of a Eurodollar Rate Advance, select; provided,
however, that:
(i) the Borrower may not select any Interest Period that ends
after the Termination Date;
<PAGE>
11
(ii) Interest Periods commencing on the same date for A
Advances comprising part of the same A Borrowing shall be of the same
duration; and
(iii) whenever the last day of any Interest Period would
otherwise occur on a day other than a Business Day, the last day of
such Interest Period shall be extended to occur on the next succeeding
Business Day, provided, in the case of any Interest Period for a
Eurodollar Rate Advance, that if such extension would cause the last
day of such Interest Period to occur in the next following calendar
month, the last day of such Interest Period shall occur on the next
preceding Business Day.
"LENDERS" means the Banks listed on the signature pages hereof and
each Eligible Assignee that shall become a party hereto pursuant to Section
8.07.
"LENDER ASSIGNMENT" means an assignment and acceptance agreement
entered into by a Lender and an Eligible Assignee, and accepted by the
Administrative Agent, in substantially the form of Exhibit 8.07.
"LIEN" has the meaning assigned to that term in Section 5.02(a).
"LOAN DOCUMENTS" means this Agreement, the Notes, the Fee Letter and
all other agreements, instruments and documents now or hereafter executed
and/or delivered pursuant hereto or thereto.
"MAJORITY LENDERS" means, on any date of determination, Lenders that,
collectively, on such date (i) hold greater than 50% of the then aggregate
unpaid principal amount of the A Advances owing to Lenders and (ii) if no A
Advances are then outstanding, have Percentages in the aggregate greater
than 50%. Any determination of those Lenders constituting the Majority
Lenders shall be made by the Administrative Agent and shall be conclusive
and binding on all parties absent manifest error.
"MATERIAL ADVERSE EFFECT" means, relative to any occurrence of
whatever nature (including, without limitation, any adverse determination
in any litigation, arbitration or governmental investigation or
proceedings), a material adverse effect on:
(i) the consolidated business, assets, revenues, financial
condition, results of operations, operations or prospects of the
Borrower and its Subsidiaries; or
<PAGE>
12
(ii) the ability of the Borrower to make any payment when due
under this Agreement or to perform any of its other obligations under
the Loan Documents.
"MOODY'S" means Moody's Investors Service, Inc. or any successor
thereto.
"MULTIEMPLOYER PLAN" means a multiemployer plan, as defined in Section
4001(a)(3) of ERISA, which is subject to Title IV of ERISA and to which the
Borrower or any ERISA Affiliate of the Borrower is making or accruing an
obligation to make contributions, or has within any of the preceding five
plan years made or accrued an obligation to make contributions, such plan
being maintained pursuant to one or more collective bargaining agreements.
"MULTIPLE EMPLOYER PLAN" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, which is subject to Title IV of ERISA and
which (i) is maintained for employees of the Borrower or an ERISA Affiliate
of the Borrower and at least one Person other than the Borrower and its
ERISA Affiliates or (ii) was so maintained and in respect of which the
Borrower or an ERISA Affiliate of the Borrower could have liability under
Section 4064 or 4069 of ERISA in the event such plan has been or were to be
terminated.
"NONRECOURSE DEBT" means any Debt that finances the acquisition,
development, ownership or operation of an asset in respect of which the
Person to which such Debt is owed has no recourse whatsoever to the
Borrower or any of its Affiliates other than:
(i) recourse to the named obligor with respect to such Debt (the
"DEBTOR") for amounts limited to the cash flow or net cash flow
(other than historic cash flow) from the asset; and
(ii) recourse to the Debtor for the purpose only of enabling amounts
to be claimed in respect of such Debt in an enforcement of any
security interest or lien given by the Debtor over the asset or
the income, cash flow or other proceeds deriving from the asset
(or given by any shareholder or the like in the Debtor over its
shares or like interest in the capital of the Debtor) to secure
the Debt, but only if:
(A) the extent of the recourse to the Debtor is limited solely
to the amount of any recoveries made on any such
enforcement; and
<PAGE>
13
(B) the Person to which such Debt is owed is not entitled, by
virtue of any right or claim arising out of or in connection
with such Debt, to commence proceedings for the winding up
or dissolution of the Debtor or to appoint or procure the
appointment of any receiver, trustee, or similar Person or
officer in respect of the Debtor or any of its assets (other
than the assets subject to the security interest or lien
referred to above); and
(iii) recourse to the Debtor generally or indirectly to any Affiliate
of the Debtor, under any form of assurance, undertaking or
support, which recourse is limited to a claim for damages (other
than liquidated damages and damages required to be calculated in
a specified way) for a breach of an obligation (other than a
payment obligation or an obligation to comply or to procure
compliance by another with any financial ratios or other tests of
financial condition) by the Person against which such recourse is
available.
"NOTE" means an A Note or a B Note.
"NOTICE OF A BORROWING" has the meaning assigned to that term in
Section 2.02(a).
"NOTICE OF B BORROWING" has the meaning assigned to that term in
Section 2.03(a).
"NOTICE OF CONVERSION" has the meaning assigned to that term in Section
2.10.
"OTHER CREDIT AGREEMENT" means the 364-Day Credit Agreement, dated as of
October 8, 1998, among the Borrower, the lenders from time to time parties
thereto and Citibank, N.A., as agent for such lenders.
"PBGC" means the Pension Benefit Guaranty Corporation (or any successor
entity) established under ERISA.
"PERCENTAGE" means, for any Lender on any date of determination, the
percentage obtained by dividing such Lender's Commitment on such day by the
total of the Commitments on such date, and multiplying the quotient so
obtained by 100%.
"PERSON" means an individual, partnership, corporation (including a
business trust), limited liability company, joint stock company, trust,
unincorporated association,
<PAGE>
14
joint venture or other entity, or a government or any political subdivision or
agency thereof.
"PLAN" means a Single Employer Plan or a Multiple Employer Plan.
"PUHCA" means the Public Utility Holding Company Act of 1935, as
amended from time to time.
"REFERENCE BANKS" means Citibank, N.A., and any additional or
substitute Lenders as may be selected from time to time to act as Reference
Banks hereunder by the Administrative Agent, the Majority Lenders and the
Borrower.
"REGISTER" has the meaning assigned to that term in Section 8.07(c).
"S&P" means Standard & Poor's Ratings Services, a division of the
McGraw-Hill Companies, Inc., or any successor thereto.
"SENIOR FINANCIAL OFFICER" means the President, the Chief Executive
Officer, the Chief Financial Officer or the Treasurer of the Borrower.
"SIGNIFICANT SUBSIDIARY" means any direct or indirect Subsidiary of
the Borrower that, on a consolidated basis with any of its Subsidiaries as
of any date of determination, accounts for more than 20% of the
consolidated assets (valued at book value) of the Borrower and its
Subsidiaries; but shall not include any Subsidiary set up for the sole
purpose of facilitating the issuance of Transitional Funding Instruments.
"SINGLE EMPLOYER PLAN" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, which is subject to Title IV of ERISA and
which (i) is maintained for employees of the Borrower or an ERISA Affiliate
of the Borrower and no Person other than the Borrower and its ERISA
Affiliates, or (ii) was so maintained and in respect of which the Borrower
or an ERISA Affiliate of the Borrower could have liability under Section
4069 of ERISA in the event such plan has been or were to be terminated.
"SUBORDINATED DEFERRABLE INTEREST SECURITIES" means all obligations of
the Borrower and its Subsidiaries in respect of "ComEd-Obligated
Mandatorily Redeemable Preferred Securities of Subsidiary Trusts", as set
forth from time to time in the consolidated balance sheets of the Borrower
and its Consolidated Subsidiaries delivered pursuant to Section 5.01(i).
<PAGE>
15
"SUBSIDIARY" means, with respect to any Person, any corporation or
unincorporated entity of which more than 50% of the outstanding capital
stock (or comparable interest) having ordinary voting power (irrespective
of whether at the time capital stock (or comparable interest) of any other
class or classes of such corporation or entity shall or might have voting
power upon the occurrence of any contingency) is at the time directly or
indirectly owned by said Person (whether directly or through one of more
other Subsidiaries). In the case of an unincorporated entity, a Person
shall be deemed to have more than 50% of interests having ordinary voting
power only if such Person's vote in respect of such interests comprises
more than 50% of the total voting power of all such interests in the
unincorporated entity.
"TERMINATION DATE" means the earliest to occur of (i) October 8, 2003
or such later date to which the Termination Date is extended in accordance
with Section 2.18, (ii) the expiration by its terms of the authorization
referred to in Section 4.01(c) hereof and (iii) the date of termination or
reduction in whole of the Commitments pursuant to Section 2.05 or 6.01.
"TRANSITIONAL FUNDING INSTRUMENTS" means any instruments, pass-through
certificates, notes, debentures, certificates of participation, bonds,
certificates of beneficial interest or other evidences of indebtedness or
instruments evidencing a beneficial interest which (i) are issued pursuant
to a "transitional funding order" (as such term is defined in Section 18-
102 of the Illinois Public Utilities Act, as amended) issued by the
Illinois Commerce Commission at the request of an electric utility and (ii)
are secured by or otherwise payable from non-bypassable cent per kilowatt
hour charges authorized pursuant to such order to be applied and invoiced
to customers of such utility. The instrument funding charges so applied
and invoiced must be deducted and stated separately from the other charges
invoiced by such utility against its customers.
"TYPE" has the meaning assigned to that term (i) in the definition of
"A ADVANCE" when used in such context and (ii) in the definition of
"BORROWING" when used in such context.
"UNMATURED DEFAULT" means an event that, with the giving of notice or
lapse of time, or both, would constitute an Event of Default.
"YEAR 2000 ISSUES" means, in respect of a person or entity,
anticipated costs, problems and uncertainties associated with the inability
of certain computer applications to effectively handle data including dates
on and after January 1, 2000, as such inability affects the business,
operations and financial condition of such person or entity.
<PAGE>
16
"YEAR 2000 PROGRAM" means, in respect of a person or entity, a program
for remediating on a timely basis any Year 2000 Issues of or relating to
such person or entity that if not remediated on a timely basis, could
reasonably be expected to result in a Material Adverse Effect on such
person or entity.
SECTION 1.02. COMPUTATION OF TIME PERIODS. Unless otherwise indicated,
each reference in this Agreement to a specific time of day is a reference to New
York City time. In the computation of periods of time under this Agreement, any
period of a specified number of days or months shall be computed by including
the first day or month occurring during such period and excluding the last such
day or month. In the case of a period of time "from" a specified date "to" or
"until" a later specified date, the word "from" means "from and including" and
the words "to" and "until" each means "to but excluding".
SECTION 1.03. COMPUTATIONS OF OUTSTANDINGS. Whenever reference is made in
this Agreement to the "principal amount outstanding" on any date under this
Agreement, such reference shall refer to the aggregate principal amount of all
Advances outstanding on such date after giving effect to all Extensions of
Credit to be made on such date and the application of the proceeds thereof.
SECTION 1.04. ACCOUNTING TERMS. Except as otherwise provided herein, all
accounting terms not specifically defined herein shall be construed in
accordance with generally accepted accounting principles.
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. THE A ADVANCES. (a) Each Lender severally agrees, on the
terms and conditions hereinafter set forth, to make A Advances to the Borrower
from time to time on any Business Day during the period from the Closing until
the Termination Date in an aggregate outstanding amount not to exceed at any
time such Lender's Available Commitment, provided that the aggregate amount of
the Commitments of the Lenders shall be deemed used from time to time to the
extent of the aggregate amount of the B Advances then outstanding and such
deemed use of the aggregate amount of the Commitments shall be applied to the
Lenders ratably according to their respective Percentages (such deemed use of
the aggregate amount of the Commitments being a "B REDUCTION"). Each A
Borrowing shall be in an aggregate amount not less than $10,000,000 (or, if
lower, the amount of the Available Commitments) or an integral multiple of
$1,000,000 in excess thereof and shall consist of A Advances of the same Type
made on the same day by the Lenders ratably according to their respective
Percentages. Within the limits of each Lender's
<PAGE>
17
Commitment and as hereinabove and hereinafter provided, the Borrower may request
Extensions of Credit hereunder, and repay or prepay Advances pursuant to Section
2.11 and utilize the resulting increase in the Available Commitments for further
Extensions of Credit in accordance with the terms hereof.
(b) In no event shall the Borrower be entitled to request or receive any
Extensions of Credit that would cause the principal amount outstanding hereunder
to exceed the Commitments.
SECTION 2.02. MAKING THE A ADVANCES. (a) Each A Borrowing shall be made
on notice, given not later than 12:00 noon (i) on the third Business Day prior
to the date of the proposed A Borrowing, in the case of an A Borrowing comprised
of Eurodollar Rate Advances, and (ii) on the date of the proposed A Borrowing,
in the case of an A Borrowing comprised of Base Rate Advances, in each case by
the Borrower to the Administrative Agent, which shall give to each Lender prompt
notice thereof by telecopier, telex or cable. Each such notice of an A
Borrowing (a "NOTICE OF A BORROWING") shall be by telecopier, telex or cable, in
substantially the form of Exhibit 2.02(a) hereto, specifying therein the
requested (A) date of such A Borrowing, (B) Type of A Advances comprising such
A Borrowing, (C) aggregate amount of such A Borrowing and (D) in the case of an
A Borrowing comprised of Eurodollar Rate Advances, initial Interest Period for
each such A Advance. Each Lender shall, before (x) 12:00 noon on the date of
such A Borrowing, in the case of an A Borrowing comprised of Eurodollar Rate
Advances, and (y) 1:00 p.m. on the date of such A Borrowing, in the case of an A
Borrowing comprised of Base Rate Advances, make available for the account of its
Applicable Lending Office to the Administrative Agent at its address referred to
in Section 8.02, in same day funds, such Lender's ratable portion of such A
Borrowing. After the Administrative Agent's receipt of such funds and upon
fulfillment of the applicable conditions set forth in Article III, the
Administrative Agent will promptly make such funds available to the Borrower at
the Administrative Agent's aforesaid address.
(b) Each Notice of A Borrowing shall be irrevocable and binding on the
Borrower. In the case of any A Borrowing which the related Notice of A Borrowing
specifies is to be comprised of Eurodollar Rate Advances, the Borrower shall
indemnify each Lender against any loss, cost or expense incurred by such Lender
as a result of any failure to fulfill on or before the date specified in such
Notice of A Borrowing for such A Borrowing the applicable conditions set forth
in Article III, including, without limitation, any loss, cost or expense
incurred by reason of the liquidation or reemployment of deposits or other funds
acquired by such Lender to fund the A Advance to be made by such Lender as part
of such A Borrowing when such A Advance, as a result of such failure, is not
made on such date.
<PAGE>
18
(c) Unless the Administrative Agent shall have received notice from a
Lender prior to the date of any A Borrowing that such Lender will not make
available to the Administrative Agent such Lender's A Advance as part of such A
Borrowing, the Administrative Agent may assume that such Lender has made such A
Advance available to the Administrative Agent on the date of such A Borrowing in
accordance with subsection (a) of this Section 2.02 and the Administrative Agent
may, in reliance upon such assumption, make available to the Borrower on such
date a corresponding amount. If and to the extent that such Lender shall not
have so made such A Advance available to the Administrative Agent, such Lender
and the Borrower severally agree to repay to the Administrative Agent forthwith
on demand such corresponding amount, together with interest thereon, for each
day from the date such amount is made available to the Borrower until the date
such amount is repaid to the Administrative Agent, at (i) in the case of the
Borrower, the interest rate applicable at the time to A Advances comprising such
A Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If
such Lender shall repay to the Administrative Agent such corresponding amount,
such amount so repaid shall constitute such Lender's A Advance as part of such A
Borrowing for purposes of this Agreement.
(d) The failure of any Lender to make the A Advance to be made by it as
part of any A Borrowing shall not relieve any other Lender of its obligation, if
any, hereunder to make its A Advance on the date of such A Borrowing, but no
Lender shall be responsible for the failure of any other Lender to make the A
Advance to be made by such other Lender on the date of any A Borrowing.
SECTION 2.03. THE B ADVANCES. (a) Each Lender severally agrees that the
Borrower may request B Borrowings under this Section 2.03 from time to time on
any Business Day during the period from the date hereof until the date occurring
30 days prior to the Termination Date in the manner, and subject to the terms
and conditions, set forth below. The rates of interest offered by the Lenders
and accepted by the Borrower for each B Borrowing shall be fixed rates per annum
or LIBOR based bids.
(i) The Borrower may request a B Borrowing under this Section 2.03
by delivering to the Administrative Agent, by telecopier, telex or cable, a
notice of a B Borrowing (a "NOTICE OF B BORROWING"), in substantially the
form of Exhibit 2.03(a)(i) hereto, specifying the date and aggregate amount
of the proposed B Borrowing, the maturity date for repayment of each B
Advance to be made as part of such B Borrowing (which maturity date may not
be earlier than the date occurring 30 days after the date of such B
Borrowing nor later than the earlier to occur of the then-scheduled
Termination Date and the date occurring 180 days following the date of such
B Borrowing), the interest payment date or dates relating thereto, the
interest rate basis to be used by the Lenders and any other terms to be
applicable to such B Borrowing, not later than 3:00 p.m. at least one
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19
Business Day prior to the date of the proposed B Borrowing for fixed rate
bids and not later than 3:00 p.m. at least four Business Days prior to the
date of the proposed B Borrowing for LIBOR based bids. The Administrative
Agent shall in turn promptly notify each Lender of each request for a B
Borrowing received by it from the Borrower by sending such Lender a copy of
the related Notice of B Borrowing.
(ii) Each Lender may, if, in its sole discretion, it elects to do so,
irrevocably offer to make one or more B Advances to the Borrower as part of
such proposed B Borrowing at a rate or rates of interest specified by such
Lender in its sole discretion, by notifying the Administrative Agent (which
shall give prompt notice thereof to the Borrower), before 11:00 a.m., on
the date of such proposed B Borrowing, of the minimum amount and maximum
amount of each B Advance which such Lender would be willing to make as part
of such proposed B Borrowing (which amounts may, subject to the limitation
contained in subsection (d) below, exceed such Lender's Commitment), the
rate or rates of interest therefor and such Lender's Applicable Lending
Office with respect to such B Advance; provided that if the Administrative
Agent in its capacity as a Lender shall, in its sole discretion, elect to
make any such offer, it shall notify the Borrower of such offer before
10:30 a.m. on the date on which notice of such election is to be given to
the Administrative Agent by the other Lenders. If any Lender shall elect
not to make such an offer, such Lender shall so notify the Administrative
Agent before 11:00 a.m. on the date on which notice of such election is to
be given to the Administrative Agent by the other Lenders, and such Lender
shall not be obligated to, and shall not, make any B Advance as part of
such B Borrowing; provided that the failure by any Lender to give such
notice shall not cause such Lender to be obligated to make any B Advance as
part of such proposed B Borrowing.
(iii) The Borrower shall, in turn, before 12:00 noon on the date of
such proposed B Borrowing either
(x) cancel such B Borrowing by either giving the Administrative
Agent notice to that effect or failing to accept one or more offers as
provided in clause (y) below, or
(y) accept one or more of the offers, in its sole discretion,
made by any Lender or Lenders pursuant to paragraph (ii) above, in
order of the lowest to the highest rates of interest, with pro rata
allocation of any matching rates of interest, by giving written notice
to the Administrative Agent of the amount of each B Advance (which
amount shall be equal to or greater than the minimum amount, and equal
to or less than the maximum amount, notified to the Borrower by the
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20
Administrative Agent on behalf of such Lender for such B Advance
pursuant to paragraph (ii) above) to be made by each Lender as part of
such B Borrowing, and reject any remaining offers made by Lenders
pursuant to paragraph (ii) above, by giving the Administrative Agent
written notice to that effect.
(iv) If the Borrower cancels such B Borrowing pursuant to paragraph
(iii)(x) above, the Administrative Agent shall give prompt notice thereof
to the Lenders and such B Borrowing shall not be made.
(v) If the Borrower accepts one or more of the offers made by any
Lender or Lenders pursuant to paragraph (iii)(y) above, such acceptance
shall be irrevocable and binding on the Borrower and, subject to the
satisfaction of the applicable conditions set forth in Article III, on such
Lender or Lenders. The Borrower shall indemnify each such Lender against
any loss, cost or expense incurred by such Lender as a result of any
failure to fulfill, on or before the date specified in the notice provided
pursuant to paragraph (vii)(A) below, the applicable conditions set forth
in Article III, including, without limitation, any loss, cost or expense
incurred by reason of the liquidation or reemployment of deposits or other
funds acquired by such Lender to fund the B Advance to be made by such
Lender as part of such B Borrowing when such B Advance, as a result of such
failure, is not made on such date.
(vi) Unless the Administrative Agent shall have received notice from
a Lender prior to the date of any B Borrowing in which such Lender is
required to participate that such Lender will not make available to the
Administrative Agent such Lender's B Advance as part of such B Borrowing,
the Administrative Agent may assume that such Lender has made such B
Advance available to the Administrative Agent on the date of such B
Borrowing in accordance with paragraph (vii) below, and the Administrative
Agent may, in reliance upon such assumption, make available to the Borrower
on such date a corresponding amount. If and to the extent that such Lender
shall not have so made such B Advance available to the Administrative
Agent, such Lender and the Borrower severally agree to repay to the
Administrative Agent forthwith on demand such corresponding amount together
with interest thereon, for each day from the date such amount is made
available to the Borrower until the date such amount is repaid to the
Administrative Agent, at (i) in the case of the Borrower, the interest rate
applicable to such B Advance and (ii) in the case of such Lender, the
Federal Funds Rate. If such Lender shall repay to the Administrative Agent
such corresponding amount, such amount so repaid shall constitute such
Lender's B Advance as part of such B Borrowing for purposes of this
Agreement.
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21
(vii) If the Borrower accepts one or more of the offers made by any
Lender or Lenders pursuant to paragraph (iii)(y) above, the Administrative
Agent shall in turn promptly notify (A) each Lender that has made an offer
as described in paragraph (ii) above, of the date and aggregate amount of
such B Borrowing and whether or not any offer or offers made by such Lender
pursuant to paragraph (ii) above, have been accepted by the Borrower, (B)
each Lender that is to make a B Advance as part of such B Borrowing of the
amount of the B Advance to be made by such Lender as part of such B
Borrowing and (C) each Lender that is to make a B Advance as part of such B
Borrowing, upon receipt, that the Administrative Agent has received forms
of documents appearing to fulfill the applicable conditions set forth in
Article III. Each Lender that is to make a B Advance as part of such B
Borrowing shall, before 1:00 p.m. on the date of such B Borrowing specified
in the notice received from the Administrative Agent pursuant to clause (A)
of the preceding sentence or any later time when such Lender shall have
received notice from the Administrative Agent pursuant to clause (C) of the
preceding sentence, make available for the account of its Applicable
Lending Office to the Administrative Agent at its address referred to in
Section 8.02 such Lender's B Advance, in same day funds. Upon fulfillment
of the applicable conditions set forth in Article III and after receipt by
the Administrative Agent of such funds, the Administrative Agent will
promptly make such funds available to the Borrower at the Administrative
Agent's aforesaid address. Promptly after each B Borrowing the
Administrative Agent will notify each Lender of the amount of the B
Borrowing, the consequent B Reduction and the dates upon which such B
Reduction commenced and will terminate.
(b) Each B Borrowing shall be in an aggregate amount not less than
$10,000,000 or an integral multiple of $1,000,000 in excess thereof.
(c) Within the limits and on the conditions set forth in this Section 2.03,
the Borrower may from time to time borrow under this Section 2.03, repay
pursuant to subsection (e) below and reborrow under this Section 2.03, provided
that a B Borrowing shall not be made within three Business Days of the date of
any other B Borrowing.
(d) In no event shall the Borrower be entitled to request or receive any B
Advances that would cause the principal amount outstanding hereunder to exceed
the Commitments.
(e) The Borrower shall repay to the Administrative Agent for the account of
each Lender which has made a B Advance, or each other holder of a B Note, on the
maturity date of each B Advance (such maturity date being that specified by the
Borrower for repayment of such B Advance in the related Notice of B Borrowing
delivered pursuant to subsection (a)(i) above, and
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22
provided in the B Note evidencing such B Advance), the then unpaid principal
amount of such B Advance.
(f) The Borrower shall pay interest on the unpaid principal amount of each
B Advance from the date of such B Advance to the date the principal amount of
such B Advance is repaid in full, at the rate of interest for such B Advance
specified by the Lender making such B Advance in its notice with respect thereto
delivered pursuant to subsection (a)(ii) above, payable on the interest payment
date or dates specified by the Borrower for such B Advance in the related Notice
of B Borrowing delivered pursuant to subsection (a)(i) above, as provided in the
B Note evidencing such B Advance, provided, however, that upon the occurrence
and during the continuance of any Event of Default, each B Advance shall bear
interest at the Default Rate.
(g) The indebtedness of the Borrower resulting from each B Advance made to
the Borrower as part of a B Borrowing shall be evidenced by a separate B Note of
the Borrower payable to the order of the Lender making such B Advance.
SECTION 2.04. FEES. (a) The Borrower agrees to pay to the Administrative
Agent for the account of each Lender the Facility Fee from the date hereof, in
the case of each Bank, and from the effective date specified in the Lender
Assignment pursuant to which it became a Lender, in the case of each other
Lender, until the Termination Date, payable quarterly in arrears on the last day
of each December, March, June and September during the term of such Lender's
Commitment, commencing December 31, 1998, and on the Termination Date.
(b) In addition to the fee provided for in subsection (a) above, the
Borrower shall pay to the Administrative Agent, for the account of the
Administrative Agent, such fees as are provided for in the Fee Letter.
SECTION 2.05. REDUCTION OF THE COMMITMENTS. (a) The Borrower shall have
the right, upon at least three Business Days' notice to the Administrative
Agent, to terminate in whole or reduce ratably in part the unused portions of
the respective Commitments of the Lenders; provided that the aggregate amount of
the Commitments of the Lenders shall not be reduced to an amount which is less
than the aggregate principal amount of the A and B Advances then outstanding;
and provided, further, that each partial reduction shall be in a minimum amount
of $10,000,000 or any whole multiple of $1,000,000 in excess thereof. Any
termination or reduction of the Commitments shall be irrevocable, and the
Commitments shall not thereafter be reinstated.
(b) On the Termination Date, and upon the occurrence of a Change of
Control, the Commitments of the Lenders shall be reduced to zero.
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23
SECTION 2.06. REPAYMENT OF A ADVANCES. The Borrower shall repay the
principal amount of each A Advance made by each Lender in accordance with the A
Note to the order of such Lender.
SECTION 2.07. INTEREST ON A ADVANCES. The Borrower shall pay interest on
the unpaid principal amount of each A Advance owing to each Lender from the date
of such A Advance until such principal amount shall be paid in full, at the
Applicable Rate for such A Advance (except as otherwise provided in this Section
2.07), payable as follows:
(a) Base Rate Advances. If such A Advance is a Base Rate Advance,
interest thereon shall be payable quarterly in arrears on the last day of
each March, June, September and December, on the date of any Conversion of
such Base Rate Advance and on the date such Base Rate Advance shall become
due and payable or shall otherwise be paid in full; provided that at any
time an Event of Default shall have occurred and be continuing, thereafter
each Base Rate Advance shall bear interest payable on demand, at a rate per
annum equal at all times to the Default Rate.
(b) Eurodollar Rate Advances. If such A Advance is a Eurodollar Rate
Advance, interest thereon shall be payable on the last day of such Interest
Period and, if the Interest Period for such A Advance has a duration of
more than three months, on that day of each third month during such
Interest Period that corresponds to the first day of such Interest Period
(or, if any such month does not have a corresponding day, then on the last
day of such month); provided that at any time an Event of Default shall
have occurred and be continuing, thereafter each Eurodollar Rate Advance
shall bear interest payable on demand, at a rate per annum equal at all
times to the Default Rate.
SECTION 2.08. ADDITIONAL INTEREST ON EURODOLLAR RATE ADVANCES. The
Borrower shall pay to Administrative Agent for the account of each Lender any
costs actually incurred by such Lender with respect to Eurodollar Rate Advances
which are attributable to such Lender's compliance with regulations of the Board
of Governors of the Federal Reserve System requiring the maintenance of reserves
with respect to liabilities or assets consisting of or including Eurocurrency
Liabilities. Such costs shall be paid to the Administrative Agent for the
account of such Lender in the form of additional interest on the unpaid
principal amount of each Eurodollar Rate Advance of such Lender, from the date
of such A Advance until such principal amount is paid in full, at an interest
rate per annum equal at all times to the remainder obtained by subtracting (i)
the Eurodollar Rate for the Interest Period for such A Advance from (ii) the
rate obtained by dividing such Eurodollar Rate by a percentage equal to 100%
minus the Eurodollar Reserve Percentage of such Lender for such Interest Period,
payable on each date on which interest is payable on such A Advance. Such
additional interest shall be determined by such
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24
Lender and notified to the Borrower through the Administrative Agent. A
certificate as to the amount of such additional interest, submitted to the
Borrower and the Administrative Agent by such Lender, shall be conclusive and
binding for all purposes, absent manifest error, provided that the determination
thereof shall have been made by such Lender in good faith.
SECTION 2.09. INTEREST RATE DETERMINATION. (a) Each Reference Bank agrees
to furnish to the Administrative Agent timely information for the purpose of
determining each Eurodollar Rate. If any one or more of the Reference Banks
shall not furnish such timely information to the Administrative Agent for the
purpose of determining any such interest rate, the Administrative Agent shall
determine such interest rate on the basis of timely information furnished by the
remaining Reference Banks.
(b) The Administrative Agent shall give prompt notice to the Borrower and
the Lenders of the applicable interest rate determined by the Administrative
Agent for purposes of Section 2.07(a) or (b), and the applicable rate, if any,
furnished by each Reference Bank for the purpose of determining the applicable
interest rate under Section 2.07(b).
(c) If fewer than two Reference Banks furnish timely information to the
Administrative Agent for determining the Eurodollar Rate for any Eurodollar Rate
Advances, due to the unavailability of funds to such Reference Banks in the
relevant financial markets:
(i) the Administrative Agent shall forthwith notify the Borrower and
the Lenders that the interest rate cannot be determined for such Eurodollar
Rate Advances;
(ii) each such Advance will automatically, on the last day of the then
existing Interest Period therefor, Convert into a Base Rate Advance (or if
such Advance is then a Base Rate Advance, will continue as a Base Rate
Advance); and
(iii) the obligation of the Lenders to make, or to Convert A Advances
into, Eurodollar Rate Advances shall be suspended until the Administrative
Agent shall notify the Borrower and the Lenders that the circumstances
causing such suspension no longer exist.
(d) If, with respect to any Eurodollar Rate Advances, the Majority Lenders
notify the Administrative Agent that the Eurodollar Rate for any Interest Period
for such Advances will not adequately reflect the cost to such Majority Lenders
of making, funding or maintaining their respective Eurodollar Rate Advances for
such Interest Period, the Administrative Agent shall forthwith so notify the
Borrower and the Lenders, whereupon:
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25
(i) each Eurodollar Rate Advance will automatically, on the last day
of the then existing Interest Period therefor, Convert into a Base Rate
Advance; and
(ii) the obligation of the Lenders to make, or to Convert A Advances
into, Eurodollar Rate Advances shall be suspended until the Administrative
Agent shall notify the Borrower and the Lenders that the circumstances
causing such suspension no longer exist.
(e) If the Borrower shall fail to (i) select the duration of any Interest
Period for any Eurodollar Rate Advances in accordance with the provisions
contained in the definition of "INTEREST PERIOD" in Section 1.01, (ii) provide a
Notice of Conversion with respect to any Eurodollar Rate Advances on or prior to
12:00 noon on the third Business Day prior to the last day of the Interest
Period applicable thereto, in the case of a Conversion to or in respect of
Eurodollar Rate Advances, or (iii) satisfy the applicable conditions precedent
set forth in Section 3.02 with respect to the Conversion to or in respect of any
Eurodollar Rate Advances, the Administrative Agent will forthwith so notify the
Borrower and the Lenders and such Advances will automatically, on the last day
of the then existing Interest Period therefor, Convert into Base Rate Advances;
provided, however, that if, in the case of any failure by the Borrower pursuant
to clause (iii) above, the Majority Lenders do not notify the Borrower within 30
days after such Conversion into Base Rate Advances that they have agreed to
waive, or have decided not to waive, the applicable conditions precedent set
forth in Section 3.02 that the Borrower failed to satisfy, the Majority Lenders
shall be deemed to have waived such conditions precedent solely with respect to
the Advances so Converted, and the Borrower shall, at any time after such 30-day
period, be permitted to Convert such Advances into Eurodollar Rate Advances; and
provided further, however, that such deemed waiver shall be of no further force
or effect if, at any time after such 30-day period, the Majority Lenders notify
the Borrower that they no longer agree to waive such conditions precedent, in
which case any such Advances so Converted into Eurodollar Rate Advances shall
automatically Convert into Base Rate Advances on the last day of the then
existing Interest Period therefor.
(f) On the date on which the aggregate unpaid principal amount of A
Advances comprising any A Borrowing shall be reduced, by payment or prepayment
or otherwise, to less than the product of (i) $1,000,000 and (ii) the number of
Lenders on such date, such A Advances shall, if they are Advances of a Type
other than Base Rate Advances, automatically Convert into Base Rate Advances,
and on and after such date the right of the Borrower to Convert such A Advances
into Advances of a Type other than Base Rate Advances shall terminate; provided,
however, that if and so long as each such A Advance shall be of the same Type
and have the same Interest Period as A Advances comprising another A Borrowing
or other A Borrowings, and the aggregate unpaid principal amount of all such A
Advances shall equal or exceed the product of
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26
(i) $1,000,000 and (ii) the number of Lenders on such date, the Borrower shall
have the right to continue all such A Advances as, or to Convert all such A
Advances into, Advances of such Type having such Interest Period.
(g) Upon the occurrence and during the continuance of any Event of Default,
each outstanding Eurodollar Rate Advance shall automatically Convert to a Base
Rate Advance at the end of the Interest Period then in effect for such
Eurodollar Rate Advance.
SECTION 2.10. VOLUNTARY CONVERSION OF A ADVANCES. Subject to the
applicable conditions set forth in Section 3.02, the Borrower may on any
Business Day, by delivering a notice of Conversion (a "NOTICE OF CONVERSION") to
the Administrative Agent not later than 12:00 noon (i) on the third Business Day
prior to the date of the proposed Conversion, in the case of a Conversion to or
in respect of Eurodollar Rate Advances and (ii) on the date of the proposed
Conversion, in the case of a Conversion to or in respect of Base Rate Advances,
and subject to the provisions of Sections 2.09 and 2.13, Convert all A Advances
of one Type comprising the same A Borrowing into Advances of another Type;
provided, however, that, in the case of any Conversion of any Eurodollar Rate
Advances into Advances of another Type on a day other than the last day of an
Interest Period for such Eurodollar Rate Advances, the Borrower shall be
obligated to reimburse the Lenders in respect thereof pursuant to Section
8.04(b). Each such Notice of Conversion shall be in substantially the form of
Exhibit 2.10 and shall, within the restrictions specified above, specify (A) the
date of such Conversion, (B) the A Advances to be Converted, (C) if such
Conversion is into Eurodollar Rate Advances, the duration of the Interest Period
for each such A Advance, and (D) the aggregate amount of A Advances proposed to
be Converted.
SECTION 2.11. OPTIONAL PREPAYMENTS OF A ADVANCES. The Borrower may, upon
at least three Business Days notice to the Administrative Agent stating the
proposed date and aggregate principal amount of the prepayment, and if such
notice is given the Borrower shall, prepay the outstanding principal amounts of
the A Advances comprising part of the same Borrowing in whole or ratably in
part, together with accrued interest to the date of such prepayment on the
principal amount prepaid; provided, however, that each partial prepayment shall
be in an aggregate principal amount not less than $10,000,000 (or, if lower, the
principal amount outstanding hereunder on the date of such prepayment) or an
integral multiple of $1,000,000 in excess thereof. In the case of any such
prepayment of a Eurodollar Rate Advance, the Borrower shall be obligated to
reimburse the Lender(s) in respect thereof pursuant to Section 8.04(b). Except
as provided in this Section 2.11, the Borrower shall have no right to prepay any
principal amount of any Advances. The Borrower shall have no right to optionally
prepay any principal amount of any B Advances.
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27
SECTION 2.12. MANDATORY PREPAYMENTS. (a) On the date of any termination
or reduction of the Commitments pursuant to Section 2.05, the Borrower shall pay
or prepay for the ratable accounts of the Lenders so much of the principal
amount outstanding under this Agreement as shall be necessary in order that the
principal amount outstanding (after giving effect to such prepayment) will not
exceed the amount of Commitments following such termination or reduction,
together with (A) accrued interest to the date of such prepayment on the
principal amount repaid or prepaid and (B) in the case of prepayments of
Eurodollar Rate Advances or B Advances, any amount payable to the Lenders
pursuant to Section 8.04(b).
(b) The Borrower shall pay or prepay for the ratable account of the
Lenders the aggregate principal amount outstanding hereunder such that, for a
period of at least one day during any 364-day period, the principal amount
outstanding hereunder shall be zero.
(c) All prepayments required to be made pursuant to this Section 2.12
shall be applied by the Administrative Agent as follows:
(i) first, to the prepayment of the A Advances (without reference to
minimum dollar requirements), applied to outstanding Base Rate Advances up
to the full amount thereof before they are applied to the ratable
prepayment of Eurodollar Rate Advances; and
(ii) second, to the prepayment of the B Advances (without reference
to minimum dollar requirements), applied ratably among all the Lenders
holding B Advances.
SECTION 2.13. INCREASED COSTS. (a) If, due to either (i) the introduction
of or any change (other than any change by way of imposition or increase of
reserve requirements included in the Eurodollar Rate Reserve Percentage) in or
in the interpretation of any law or regulation or (ii) the compliance with any
guideline or request from any central bank or other governmental authority
(whether or not having the force of law), there shall be any increase in the
cost to any Lender of agreeing to make or making, funding or maintaining
Eurodollar Rate Advances, then the Borrower shall from time to time, upon demand
by such Lender (with a copy of such demand to the Administrative Agent), pay to
the Administrative Agent for the account of such Lender additional amounts
sufficient to compensate such Lender for such increased cost. A certificate as
to the amount of such increased cost, submitted to the Borrower and the
Administrative Agent by such Lender, shall be conclusive and binding for all
purposes, absent manifest error, provided that the determination thereof shall
have been made by such Lender in good faith.
(b) If any Lender determines that compliance with any law or regulation or
any guideline or request from any central bank or other governmental authority
(whether or not having
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28
the force of law) affects or would affect the amount of capital required or
expected to be maintained by such Lender or any corporation controlling such
Lender and that the amount of such capital is increased by or based upon the
existence of such Lender's commitment to lend hereunder and other commitments of
this type, then, upon demand by such Lender (with a copy of such demand to the
Administrative Agent), the Borrower shall immediately pay to the Administrative
Agent for the account of such Lender, from time to time as specified by such
Lender, additional amounts sufficient to compensate such Lender or such
corporation in the light of such circumstances, to the extent that such Lender
reasonably determines such increase in capital to be allocable to the existence
of such Lender's Commitment. A certificate as to such amounts submitted to the
Borrower and the Administrative Agent by such Lender, describing in reasonable
detail the manner in which such amounts have been calculated, shall be
conclusive and binding for all purposes, absent manifest error, provided that
the determination and allocation thereof shall have been made by such Lender in
good faith.
(c) Notwithstanding the provisions of subsection (a) or (b) to the
contrary, no Lender shall be entitled to demand compensation or be compensated
hereunder to the extent that such compensation relates to any period of time
more than 180 days prior to the date upon which such Lender first notified the
Borrower of the occurrence of the event entitling such Lender to such
compensation (unless, and to the extent that, any such compensation so demanded
shall relate to the retroactive application of any event so notified to the
Borrower).
SECTION 2.14. ILLEGALITY. Notwithstanding any other provision of this
Agreement to the contrary, if any Lender (the "AFFECTED LENDER") shall notify
the Administrative Agent and the Borrower that the introduction of or any change
in or in the interpretation of any law or regulation makes it unlawful, or any
central bank or other governmental authority asserts that it is unlawful, for
the Affected Lender or its Eurodollar Lending Office to perform its obligations
hereunder to make Eurodollar Rate Advances or to fund or maintain Eurodollar
Rate Advances hereunder, (i) all Eurodollar Rate Advances of the Affected Lender
shall, on the fifth Business Day following such notice from the Affected Lender,
automatically be Converted into a like number of Base Rate Advances, each in the
amount of the corresponding Eurodollar Rate Advance of the Affected Lender being
so Converted (each such Advance, as so Converted, being an "AFFECTED LENDER
ADVANCE"), and the obligation of the Affected Lender to make, maintain, or
Convert A Advances into Eurodollar Rate Advances shall thereupon be suspended
until the Administrative Agent shall notify the Borrower and the Lenders that
the circumstances causing such suspension no longer exist, or the Affected
Lender has been replaced pursuant to Section 8.07(g), and (ii) in the event
that, on the last day of each of the then-current Interest Periods for each
Eurodollar Rate Advance (each such Advance being an "UNAFFECTED LENDER ADVANCE")
of each of the other Lenders (each such Lender being an "UNAFFECTED LENDER"),
the Administrative Agent shall have yet to notify the Borrower and the Lenders
that the circumstances causing such suspension of the Affected
<PAGE>
29
Lender's obligations as aforesaid no longer exist, or the Affected Lender has
not yet been replaced pursuant to Section 8.07(g), such Unaffected Lender
Advance shall be Converted by the Borrower in accordance with Section 2.10 into
an Advance of another Type (or, in the event that the Borrower shall fail to
duly deliver a Notice of Conversion with respect thereto, into a Base Rate
Advance), and the obligation of such Unaffected Lender to make, maintain, or
Convert A Advances into Eurodollar Rate Advances shall be suspended until the
Administrative Agent shall so notify the Borrower and the Lenders, or the
Affected Lender shall be so replaced. For purposes of any prepayment under this
Agreement, each Affected Lender Advance shall be deemed to continue to be part
of the same Borrowing as the Unaffected Lender Advance to which it corresponded
at the time of the Conversion of such Affected Lender Advance pursuant to clause
(i) above.
SECTION 2.15. PAYMENTS AND COMPUTATIONS. (a) The Borrower shall make each
payment hereunder and under the Notes not later than 1:00 p.m. on the day when
due in Dollars to the Administrative Agent at its address referred to in Section
8.02 in same day funds. The Administrative Agent will promptly thereafter cause
to be distributed like funds relating to the payment of principal or interest or
fees ratably (other than amounts payable pursuant to Section 2.03, 2.08,
2.12(b)(iii), 2.16 or 8.04(b)) to the Lenders for the account of their
respective Applicable Lending Offices, and like funds relating to the payment of
any other amount payable to any Lender to such Lender for the account of its
Applicable Lending Office, in each case to be applied in accordance with the
terms of this Agreement. Upon its acceptance of a Lender Assignment and
recording of the information contained therein in the Register pursuant to
Section 8.07(d), from and after the effective date specified in such Lender
Assignment, the Administrative Agent shall make all payments hereunder and under
the Notes in respect of the interest assigned thereby to the Lender assignee
thereunder, and the parties to such Lender Assignment shall make all appropriate
adjustments in such payments for periods prior to such effective date directly
between themselves.
(b) The Borrower hereby authorizes each Lender, if and to the extent
payment owed to such Lender is not made when due hereunder or under any Note
held by such Lender, to charge from time to time against any or all of the
Borrower's accounts with such Lender any amount so due.
(c) All computations of interest based on the Alternate Base Rate and the
Federal Funds Rate and of fees shall be made by the Administrative Agent on the
basis of a year of 365 or 366 days, as the case may be, and all computations of
interest based on the Eurodollar Rate shall be made by the Administrative Agent,
and all computations of interest pursuant to Section 2.09 shall be made by a
Lender, on the basis of a year of 360 days, in each case for the actual number
of days (including the first day but excluding the last day) occurring in the
period for
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30
which such interest or fees are payable. Each determination by the
Administrative Agent (or, in the case of Section 2.09, by a Lender) of an
interest rate hereunder shall be conclusive and binding for all purposes, absent
manifest error.
(d) Whenever any payment hereunder or under the Notes shall be stated to be
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or fees, as the case may be;
provided, however, that if such extension would cause payment of interest on or
principal of Eurodollar Rate Advances to be made in the next following calendar
month, such payment shall be made on the next preceding Business Day.
(e) Unless the Administrative Agent shall have received notice from the
Borrower prior to the date on which any payment is due to the Lenders hereunder
that the Borrower will not make such payment in full, the Administrative Agent
may assume that the Borrower has made such payment in full to the Administrative
Agent on such date and the Administrative Agent may, in reliance upon such
assumption, cause to be distributed to each Lender on such due date an amount
equal to the amount then due such Lender. If and to the extent that the
Borrower shall not have so made such payment in full to the Administrative
Agent, each Lender shall repay to the Administrative Agent forthwith on demand
such amount distributed to such Lender together with interest thereon, for each
day from the date such amount is distributed to such Lender until the date such
Lender repays such amount to the Administrative Agent, at the Federal Funds
Rate.
SECTION 2.16. TAXES. (a) Any and all payments by the Borrower hereunder
and under the other Loan Documents shall be made, in accordance with Section
2.15, free and clear of and without deduction for any and all present or future
taxes, levies, imposts, deductions, charges or withholdings, and all liabilities
with respect thereto, excluding, in the case of each Lender and the
Administrative Agent, taxes imposed on its overall net income and franchise
taxes imposed on it by the jurisdiction under the laws of which such Lender or
the Administrative Agent (as the case may be) is organized or any political
subdivision thereof and, in the case of each Lender, taxes imposed on its
overall net income and franchise taxes imposed on it by the jurisdiction of such
Lender's Applicable Lending Office or any political subdivision thereof (all
such non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "TAXES"); provided, however, that,
notwithstanding the foregoing, Taxes shall not include any taxes otherwise
required to be deducted by the Borrower pursuant to this subsection (a) as a
result of activities of any Lender or the Administrative Agent in the State of
Iowa (other than as a result, or in respect, of this Agreement). If the
Borrower shall be required by law to deduct any Taxes from or in respect of any
sum payable hereunder or under any other Loan Document to any Lender or the
Administrative Agent, (i) the sum payable shall be increased as may be necessary
so that after making all required deductions (including deductions applicable to
additional sums
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31
payable under this Section 2.16) such Lender or the Administrative Agent (as the
case may be) receives an amount equal to the sum it would have received had no
such deductions been made, (ii) the Borrower shall make such deductions and
(iii) the Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law.
(b) In addition, the Borrower agrees to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made hereunder or under any other Loan
Document or from the execution, delivery or registration of, or otherwise with
respect to, this Agreement or any other Loan Document (hereinafter referred to
as "OTHER TAXES").
(c) The Borrower will indemnify each Lender and the Administrative Agent
for the full amount of Taxes or Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this
Section 2.16) paid by such Lender or the Administrative Agent (as the case may
be) and any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto, whether or not such Taxes or Other Taxes were
correctly or legally asserted. This indemnification shall be made within 30
days from the date such Lender or the Administrative Agent (as the case may be)
makes written demand therefor. Nothing herein shall preclude the right of the
Borrower to contest any such Taxes or Other Taxes so paid, and the Lenders in
question or the Administrative Agent (as the case may be) will, following notice
from, and at the expense of, the Borrower, reasonably cooperate with the
Borrower to preserve the Borrower's rights to contest such Taxes or Other Taxes.
(d) Within 30 days after the date of any payment of Taxes, the Borrower
will furnish to the Administrative Agent, at its address referred to in Section
8.02, the original or a certified copy of a receipt evidencing payment thereof.
(e) Each Lender agrees that, on or prior to the date upon which it shall
become a party hereto, and upon the reasonable request from time to time of the
Borrower or the Administrative Agent, such Lender will deliver to the Borrower
and the Administrative Agent either (i) a statement that it is organized under
the laws of a jurisdiction within the United States or (ii) duly completed
copies of such form or forms as may from time to time be prescribed by the
United States Internal Revenue Service indicating that such Lender is entitled
to receive payments without deduction or withholding of any United States
federal income taxes, as permitted by the Internal Revenue Code of 1986, as
amended from time to time. Each Lender that delivers to the Borrower and the
Administrative Agent the form or forms referred to in the preceding sentence
further undertakes to deliver to the Borrower and the Administrative Agent
further copies of such form or forms, or successor applicable form or forms, as
the case may be, as and when any previous form filed by it hereunder shall
expire or shall become incomplete or inaccurate in any respect.
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32
Each Lender represents and warrants that each such form supplied by it to the
Administrative Agent and the Borrower pursuant to this subsection (e), and not
superseded by another form supplied by it, is or will be, as the case may be,
complete and accurate.
(f) Any Lender claiming any additional amounts payable pursuant to this
Section 2.16 shall use its best efforts (consistent with its internal policy and
legal and regulatory restrictions) to change the jurisdiction of its Applicable
Lending Office if the making of such a change would avoid the need for, or
reduce the amount of, any such additional amounts which may thereafter accrue
and would not, in the reasonable judgment of such Lender, be otherwise
disadvantageous to such Lender.
(g) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 2.16 shall survive the payment in full of principal and interest
hereunder and under the Notes.
SECTION 2.17. SHARING OF PAYMENTS, ETC. If any Lender shall obtain any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) on account of the A Advances made by it (other than
pursuant to Section 2.08, 2.13, 2.16 or 8.04(b)) in excess of its ratable share
of payments on account of the A Advances obtained by all the Lenders, such
Lender shall forthwith purchase from the other Lenders such participations in
the Advances made by them as shall be necessary to cause such purchasing Lender
to share the excess payment ratably with each of them; provided, however, that
if all or any portion of such excess payment is thereafter recovered from such
purchasing Lender, such purchase from each Lender shall be rescinded and such
Lender shall repay to the purchasing Lender the purchase price to the extent of
such recovery, together with an amount equal to such Lender's ratable share
(according to the proportion of (i) the amount of such Lender's required
repayment to (ii) the total amount so recovered from the purchasing Lender) of
any interest or other amount paid or payable by the purchasing Lender in respect
of the total amount so recovered. The Borrower agrees that any Lender so
purchasing a participation from another Lender pursuant to this Section 2.17
may, to the fullest extent permitted by law, exercise all its rights of payment
(including the right of set-off) with respect to such participation as fully as
if such Lender were the direct creditor of the Borrower in the amount of such
participation.
SECTION 2.18. EXTENSION OF TERMINATION DATE. (a) At least 45 days but not
more than 60 days prior to the then-current Termination Date, the Borrower may
request that the Lenders, by written notice to the Administrative Agent (in
substantially the form attached hereto as Exhibit 2.18(a)), consent to a one-
year extension of the Termination Date. Each Lender shall, in its sole
discretion, determine whether to consent to such request and shall notify the
Administrative Agent of its determination at least 20 days but not more than 30
days prior to the then-current
<PAGE>
33
Termination Date. The failure to respond by any Lender within such time period
shall be deemed a denial of such request. The Administrative Agent shall
deliver a notice to the Borrower and the Lenders at least 15 days prior to the
then-current Termination Date of the identity of the Lenders that have consented
to such extension and the Lenders that have declined such consent (the
"DECLINING LENDERS"). If Lenders holding in the aggregate more than 50% of the
Commitments have not consented to the requested extension, the Termination Date
shall not be extended, and the Commitments of all Lenders shall terminate on the
then-current Termination Date.
(b) If Lenders holding in the aggregate more than 50% of the Commitments
have consented to the requested extension, the Termination Date shall be
extended as to such consenting Lenders only (and not as to any Declining Lender)
for a period of one year from the then-current Termination Date (for purposes of
this Section 2.18, the "EXTENSION DATE"), and the Commitments of any Declining
Lenders shall terminate on the Extension Date (as theretofore in effect) and all
Advances of such Declining Lenders shall be repaid to them on such date. If the
Borrower so requests, each Lender consenting to such request shall be given the
opportunity at least seven days but not more than 15 days prior to the Extension
Date, in each Lender's sole discretion, to commit to increase its Commitment by
submission of a written notice setting forth the desired increase in such
Lender's Commitment to the Administrative Agent in amounts such that the
aggregate Commitments hereunder after giving effect to any such extension and
increase in the Commitments shall not exceed the aggregate Commitment
immediately prior to the Extension Date. If the Administrative Agent receives
Commitments to increase the Commitments from the Lenders, which, when aggregated
with the existing Commitments, (A) are less than or equal to the Commitments
immediately prior to the Extension Date, the Administrative Agent shall accept
all such Commitments, (B) are greater than the Commitments on the date hereof,
the Administrative Agent may determine, in its reasonable discretion, which
Commitments to accept and the amounts by which each submitting Lender's
Commitments shall be increased so that the aggregate Commitments after such
Extension Date shall equal the aggregate Commitments immediately prior to such
Extension Date (any Lender whose commitment to increase its Commitment hereunder
is accepted by the Administrative Agent, an "INCREASING COMMITMENT LENDER"). If
Lenders do not consent to increase the aggregate Commitments to an amount equal
to the Commitments immediately prior to such Extension Date, the Borrower may,
at least two days but not more than seven days prior to such Extension Date,
request that the Administrative Agent, in its sole discretion, accept the
Commitment or Commitments of an Eligible Assignee or Eligible Assignees such
that the aggregate Commitments hereunder after such Extension Date shall not be
greater than Commitments hereunder immediately prior to such Extension Date. If
the Administrative Agent shall accept the Commitment of any Increasing
Commitment Lender or Eligible Assignee, the Commitments of the Declining Lenders
shall terminate on such Extension Date, and any Advances made by such Declining
Lenders shall be repaid on such date in accordance with this Agreement.
<PAGE>
34
(c) Each such accepted Eligible Assignee and each Increasing Commitment
Lender shall deliver a signature page hereto indicating that it is bound by the
terms hereof and setting forth its aggregate Commitment hereunder. Such new
signature page shall constitute a part hereof upon acceptance by the
Administrative Agent and, in the case of any signature page submitted by any
Increasing Commitment Lender, shall replace such Increasing Commitment Lender's
previously delivered signature page. Any such extension shall become effective
upon the satisfaction of the conditions set forth in Section 3.04 hereof. Upon
satisfaction of such conditions and the effectiveness of such extension, each
new Lender and Increasing Commitment Lender shall make A Advances to the
Borrower (1) in the case of each new Lender, equal to such Lender's ratable
portion of the A Advances outstanding immediately prior to such Extension Date
and (2) in the case of each Increasing Commitment Lender, equal to such portion
of such Lender's ratable portion of the A Advances (assuming that such Lender's
Commitment consists only of the increased portion thereof) outstanding
immediately prior to such Extension Date, in each case, without giving effect to
any repayment of A Advances to Declining Lenders made on such Extension Date.
SECTION 2.19. INCREASE IN COMMITMENTS. (a) If at any time the
Commitments shall be less than $500,000,000, the Borrower may, by written
request to the Administrative Agent, request that the Lenders increase the
Commitments hereunder in such amount that, when added together with the then-
outstanding Commitments, shall not exceed $500,000,000, which amount shall be an
integral multiple of $10,000,000; provided that, on and as of the Increase Date
(as defined below), (i) if the aggregate commitments under the Other Credit
Agreement are less than $500,000,000, then such aggregate commitments shall be
increased accordingly to preserve the ratio of the aggregate commitments under
the Other Credit Agreement to the sum of (A) the Commitments hereunder plus (B)
the aggregate commitments under the Other Credit Agreement, and (ii) no Event of
Default or Unmatured Default has occurred and is continuing. Such increase
shall be effective as of a date which shall be any Business Day occurring not
less than 25 days (unless otherwise agreed to by the Borrower and the
Administrative Agent) nor more than 30 days from the date of such written
request (such date herein referred to as the "INCREASE DATE"). Upon receipt of
written notice of such request from the Administrative Agent, each Lender shall
have the opportunity, in its sole discretion, no later than 20 days after the
date on which the Borrower's request shall have been received by the
Administrative Agent, to commit to increase its Commitment by written notice to
the Administrative Agent setting forth the amount by which such Lender proposes
to increase its Commitment (each such Lender an "EXISTING LENDER"). To the
extent that the aggregate amount of the proposed increases is less than the
aggregate amount of the increase requested by the Borrower, the Borrower may
either (x) request the Administrative Agent to solicit the Lenders for further
increases in their respective Commitments, (y) amend the original request by
reducing the amount by which the Commitments are requested to be increased to an
amount equal to the aggregate amount of the proposed increases of the
Commitments or (z)
<PAGE>
35
request that the Administrative Agent, in its reasonable discretion, accept the
participation in the proposed increase of one or more additional financial
institutions (each an "ADDITIONAL LENDER"), provided that the minimum commitment
of each such Additional Lender equals or exceeds $10,000,000. If the
Administrative Agent shall accept the proposed increases of the Existing Lenders
and the Additional Lenders, the Commitments shall be increased by the aggregate
amount of the proposed increases on and as of the Increase Date. The
Administrative Agent shall allocate the increased amount pro rata among the
Existing Lenders and the Additional Lenders in accordance with their respective
Commitments.
(b) Upon the effectiveness of the increase in Commitments hereunder, (i)
each Existing Lender and each Additional Lender shall deliver a signature page
hereto indicating that it is bound by the terms hereof, such new signature page
constituting a part hereof and, in the case of any such signature page submitted
by any Existing Lender, replacing such Existing Lender's previously delivered
signature page, (ii) Schedule I shall be amended by the Borrower and the
Administrative Agent to reflect the increase in the Commitment of such Existing
Lenders and such Additional Lenders and (iii) such Additional Lenders shall be
and become Lenders hereunder for all purposes hereof. In connection with any
such increase, the Borrower shall execute and deliver new Notes to reflect such
new Commitments, and the Lenders party hereto (including any Additional Lenders)
shall effect such purchases and sales among themselves of portions of the
outstanding A Advances as shall be necessary to reflect such new Commitments, as
specified by the Administrative Agent.
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. CONDITIONS PRECEDENT TO CLOSING. The Commitments of the
Lenders shall not become effective unless the following conditions precedent
shall have been fulfilled on or prior to October 8, 1998 (or such later Business
Day as the parties hereto may mutually agree):
(a) The Administrative Agent shall have received the following, each
dated the date of the Closing, in form and substance satisfactory to the
Lenders and (except for the Notes) in sufficient copies for each Lender:
(i) this Agreement, duly executed by the Borrower, each Bank and
the Administrative Agent;
(ii) the A Notes payable to the order of the Lenders,
respectively, duly completed and executed by the Borrower;
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36
(iii) certified copies of the resolutions of the Board of
Directors of the Borrower approving this Agreement, the Notes and the
other Loan Documents to which it is, or is to be, a party, and of all
documents evidencing other necessary corporate action with respect to
this Agreement, the Notes and such Loan Documents;
(iv) a certificate of the Secretary or an Assistant Secretary of
the Borrower certifying the names, true signatures and incumbency of
the officers of the Borrower authorized to sign this Agreement, the
Notes and the other Loan Documents to which it is, or is to be, a
party;
(v) copies of the Restated Articles of Incorporation (or
comparable charter document) and by-laws of the Borrower, together
with all amendments thereto, certified by the Secretary or an
Assistant Secretary of the Borrower;
(vi) certified copies of all Governmental Approvals, if any,
required in connection with the execution, delivery and performance of
this Agreement and the other Loan Documents;
(vii) favorable opinions of:
(A) Sidley & Austin, counsel for the Borrower, in
substantially the form of Exhibit 3.01(a)(vii)-1 and as to such
other matters as the Majority Lenders, through the Administrative
Agent, may reasonably request;
(B) King & Spalding, counsel to the Administrative Agent,
in substantially the form of Exhibit 3.01(a)(vii)-2 and as to such
other matters as the Majority Lenders, through the Administrative
Agent, may reasonably request; and
(viii) such other approvals, opinions and documents as any Lender,
through the Administrative Agent, may reasonably request.
(b) The following statements shall be true and correct and the
Administrative Agent shall have received a certificate of a duly
authorized officer of the Borrower, dated the date of the Closing and
in sufficient copies for each Lender, stating that:
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37
(i) the representations and warranties set forth in Section
4.01 of this Agreement are true and correct on and as of the date of
the Closing as though made on and as of such date, and
(ii) no event has occurred and is continuing that constitutes an
Unmatured Default or an Event of Default.
(c) The Borrower shall have paid (i) all fees under or referenced in
Section 2.04 hereof, to the extent then due and payable, and (ii) all costs
and expenses of the Administrative Agent (including counsel fees and
disbursements) incurred through (and for which statements have been
provided prior to) the Closing.
(d) The Borrower shall have paid in full all debt outstanding under
the Existing Facility, and the commitments of all the lenders thereunder
shall have been terminated.
(e) The Borrower shall have executed and delivered the Other Credit
Agreement and the "Loan Documents" referred to therein, and all conditions
precedent set forth in Section 3.01 thereof shall have been satisfied.
SECTION 3.02. CONDITIONS PRECEDENT TO EACH A BORROWING. The obligation of
each Lender to make an A Advance on the occasion of each A Borrowing (including
the initial A Borrowing) shall be subject to the conditions precedent that, on
the date of such A Borrowing,
(a) the following statements shall be true and correct (and each of
the giving of the applicable Notice of A Borrowing and the acceptance by
the Borrower of the proceeds therefrom shall constitute a representation
and warranty by the Borrower that, on the date of such A Borrowing, such
statements are true and correct):
(i) the representations and warranties contained in Section
4.01 are true and correct in all material respects on and as of the
date of such A Borrowing, before and after giving effect to the
application of the proceeds therefrom, as though made on and as of
such date; and
(ii) no event has occurred and is continuing, or would result
from such A Borrowing or from the application of the proceeds
therefrom, which constitutes an Event of Default or an Unmatured
Default; and
(b) the Administrative Agent shall have received such other
approvals, opinions, or documents as the Administrative Agent, or the
Majority Lenders through the
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38
Administrative Agent, may reasonably request, and such approvals, opinions,
and documents shall be satisfactory in form and substance to the
Administrative Agent.
SECTION 3.03. CONDITIONS PRECEDENT TO EACH B BORROWING. The obligation of
each Lender to make a B Advance on the occasion of a B Borrowing (including the
initial B Borrowing) shall be subject to the conditions precedent that (a) the
Administrative Agent shall have received the written confirmatory Notice of B
Borrowing with respect thereto; (b) on or before the date of such B Borrowing,
but prior to such B Borrowing, the Administrative Agent shall have received a B
Note payable to the order of such Lender for each of the one or more B Advances
to be made by such Lender as part of such B Borrowing, in a principal amount
equal to the principal amount of the B Advance to be evidenced thereby and
otherwise on such terms as were agreed to for such B Advance in accordance with
Section 2.03; (c) on the date of such B Borrowing the following statements shall
be true and correct (and each of the giving of the applicable Notice of B
Borrowing and the acceptance by the Borrower of the proceeds therefrom shall
constitute a representation and warranty by the Borrower that, on the date of
such B Borrowing, such statements are true and correct):
(i) the representations and warranties contained in Section
4.01 are true and correct in all material respects on and as of the date of
such B Borrowing, before and after giving effect to such B Borrowing and to
the application of the proceeds therefrom, as though made on and as of such
date; and
(ii) no event has occurred and is continuing, or would result
from such B Borrowing or from the application of the proceeds therefrom,
which constitutes an Event of Default or an Unmatured Default; and
(d) the Administrative Agent shall have received such other approvals,
opinions, or documents as the Administrative Agent, or the Majority Lenders
through the Administrative Agent, may reasonably request, and such approvals,
opinions, and documents shall be satisfactory in form and substance to the
Administrative Agent.
SECTION 3.04. CONDITIONS PRECEDENT TO EACH EXTENSION OF THE TERMINATION
DATE. In the event that the Borrower shall request an extension of the
Termination Date pursuant to Section 2.18, such extension shall take effect only
upon the satisfaction of the following conditions precedent, together with such
other conditions precedent as the extending Lenders may require in connection
with such extension:
(a) The Administrative Agent shall have prepared and delivered to the
Borrower and each Lender (including each new bank and other financial
institution to
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39
which a non-extending Lender's Commitment has been assigned pursuant to
Section 8.07 hereof) a revised Schedule I which reflects the Commitments,
as applicable, of each Lender.
(b) The Borrower shall have paid all fees under or referenced in
Section 2.04 hereof, to the extent then due and payable.
(c) The Administrative Agent shall have received such other documents
and legal opinions in respect of any aspect or consequence of the
transactions contemplated by Section 2.18 as the Administrative Agent shall
reasonably request, including, without limitation, copies of the
resolutions, in form and substance satisfactory to the Administrative
Agent, of the Board of Directors of the Borrower authorizing the extension
of the then-current Termination Date.
(d) The following statements shall be true on and as of the Extension
Date:
(i) The representations and warranties contained in Section 4.01
are correct, provided that the representation and warranty contained
in Section 4.01(g) shall be true and correct in all material respects
with respect to the financial statements most recently delivered to
the Banks; and
(ii) No event has occurred and is continuing, or would result
from such extension of the then-current Termination Date, that
constitutes an Event of Default or an Unmatured Default.
SECTION 3.05. RELIANCE ON CERTIFICATES. The Lenders and the
Administrative Agent shall be entitled to rely conclusively upon the
certificates delivered from time to time by officers of the Borrower as to the
names, incumbency, authority and signatures of the respective Persons named
therein until such time as the Administrative Agent may receive a replacement
certificate, in form acceptable to the Administrative Agent, from an officer of
such Person identified to the Administrative Agent as having authority to
deliver such certificate, setting forth the names and true signatures of the
officers and other representatives of such Person thereafter authorized to act
on behalf of such Person.
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40
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. The
Borrower represents and warrants as follows:
(a) The Borrower and each of its Significant Subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and is duly qualified to do business
in, and is in good standing in, all other jurisdictions where the nature of its
business or the nature of property owned or used by it makes such qualification
necessary (except where the failure to so qualify would not have a material
adverse affect on the business, financial condition, operations, results of
operations or prospects of the Borrower and its Subsidiaries, taken as a whole).
(b) The execution, delivery and performance by the Borrower of this
Agreement, the Notes and the other Loan Documents to which it is or will be a
party are within the Borrower's corporate powers, have been duly authorized by
all necessary corporate action, and do not and will not contravene (i) the
Borrower's Restated Articles of Incorporation or by-laws, (ii) law, or (iii) any
legal or contractual restriction binding on or affecting the Borrower; and such
execution, delivery and performance do not and will not result in or require the
creation of any Lien upon or with respect to any of its properties.
(c) No Governmental Approval is required in connection with the
execution, delivery or performance of any Loan Document, except for the
authorization issued by the Federal Energy Regulatory Commission to the Borrower
dated November 18, 1996, which authorization is in full force and effect and not
the subject of any pending or threatened appeal, stay or other challenge, but
which authorization shall timely and appropriately be extended, renewed or
replaced in order to permit the Borrower to incur indebtedness under this
Agreement beyond December 31, 1999. The Borrower will have obtained and made,
on or before each date on which this representation shall be made or reaffirmed,
all necessary notices to or filings with the Federal Energy Regulatory
Commission with respect to the transactions contemplated by this Agreement and
the other Loan Documents, and all such notices and filings will have been duly
made, and will be in full force and effect.
(d) There is no pending or threatened action or proceeding affecting
the Borrower or any of its Subsidiaries or properties before any court,
governmental agency or arbitrator, that might reasonably be expected to
materially adversely affect (i) the business, condition (financial or otherwise)
or results of operations of the Borrower and its Subsidiaries,
<PAGE>
41
taken as a whole, or (ii) the ability of the Borrower to perform its obligations
under this Agreement or any other Loan Document to which the Borrower is or is
to be a party.
(e) Since June 30, 1998 or, in connection with any extension of the
then-current Termination Date, the June 30 for which financial statements have
been delivered to the Lenders in the same calendar year as an Extension Date,
there has been no material adverse change in the business, condition (financial
or otherwise) or results of operations of the Borrower and its Subsidiaries,
taken as a whole, or in the Borrower's ability to perform its obligations under
this Agreement or any other Loan Document to which it is or will be a party.
(f) Neither this Agreement nor any other document, certificate or
statement furnished to the Administrative Agent by the Borrower in connection
herewith contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein and
therein, under the circumstances in which they were made, not misleading.
(g) The consolidated balance sheets of the Borrower and its
Consolidated Subsidiaries as at June 30, 1998, and the related consolidated
statements of operations of the Borrower and its Consolidated Subsidiaries for
the three months, six months and twelve months then ended, copies of each of
which have been furnished to each Bank, fairly present (subject to year-end
adjustments) the consolidated financial condition of the Borrower and its
Consolidated Subsidiaries as at such dates and the consolidated results of
operations of the Borrower and its Consolidated Subsidiaries for the periods
ended on such date, all in accordance, in all material respects, with generally
accepted accounting principles consistently applied (except for changes in such
principles required by generally accepted accounting principles and noted in
such financial statements).
(h) No ERISA Event has occurred or is reasonably expected to occur
with respect to any Plan of the Borrower or any of its ERISA Affiliates which
would result in a liability of $25,000,000 or more to the Borrower. Since the
most recent June 30 for which financial statements have been delivered to the
Lenders in accordance with Section 5.01(i) hereof, there has been no material
adverse change in the funding status of the Plans and no "prohibited
transaction" has occurred with respect thereto which is in either event
reasonably expected to result in a liability of $25,000,000 or more to the
Borrower. Neither the Borrower nor any of its ERISA Affiliates has incurred nor
reasonably expects to incur any material withdrawal liability under ERISA to any
Multiemployer Plan.
(i) The Borrower has filed all tax returns (Federal, state and local)
required to be filed and paid all taxes shown thereon to be due, including
interest and penalties, or, to the
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42
extent the Borrower is contesting in good faith an assertion of liability based
on such returns, has provided adequate reserves for payment thereof in
accordance with generally accepted accounting principles.
(j) This Agreement is, and each other Loan Document to which the
Borrower will be a party when executed and delivered hereunder will be, legal,
valid and binding obligations of the Borrower enforceable against the Borrower
in accordance with their respective terms, subject to the qualifications,
however, that the enforcement of the rights and remedies herein and therein is
subject to bankruptcy and other similar laws of general application affecting
rights and remedies of creditors and that the remedy of specific performance or
of injunctive relief is subject to the discretion of the court before which any
proceedings therefor may be brought.
(k) Following application of the proceeds of each Advance, not more
than 25 percent of the value of the assets of the Borrower and its Subsidiaries
on a consolidated basis will be margin stock (within the meaning of Regulation U
issued by the Board of Governors of the Federal Reserve System).
(l) The Borrower is not an "investment company" or a company
"controlled" by an "investment company", within the meaning of the Investment
Company Act of 1940, as amended.
(m) The Borrower is a "holding company" within the meaning of PUHCA,
but the Borrower and its Subsidiaries are exempt from the provisions of that
Act, except Section 9(a)(2) thereof, by virtue of an order issued by the
Securities and Exchange Commission on June 30, 1948. Such exemption is in full
force and effect and the Borrower is not aware of any existing or proposed
proceedings contemplating the revocation or modification of such exemption.
(n) The Borrower has made a reasonable assessment of its Year 2000
Issues and has a realistic and achievable Year 2000 Program. Based on such
assessment and on its Year 2000 Program, the Borrower does not reasonably
anticipate that Year 2000 Issues will have a Material Adverse Effect.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. AFFIRMATIVE COVENANTS. So long as any amount in respect
of any Note shall remain unpaid or any Lender shall have any Commitment, the
Borrower will, unless the Majority Lenders shall otherwise consent in writing:
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43
(a) Preservation of Existence, Etc. Preserve and maintain, and cause
each of its Significant Subsidiaries to preserve and maintain, its corporate
existence, material rights (statutory and otherwise) and franchises; provided,
however, that neither the Borrower nor any of its Significant Subsidiaries shall
be required to preserve and maintain any such right or franchise, and no such
Significant Subsidiary shall be required to preserve and maintain its corporate
existence, unless the failure to do so would have a material adverse effect on
the business, condition (financial or otherwise) or results of operations of the
Borrower and its Subsidiaries, taken as a whole, or on the Borrower's ability to
perform its obligations under this Agreement or any other Loan Document to which
it is or will be a party.
(b) Compliance with Laws, Etc. Comply, and cause each of its
Subsidiaries to comply, with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority, including without
limitation any such laws, rules, regulations and orders relating to zoning,
environmental protection, use and disposal of Hazardous Substances, land use,
ERISA, construction and building restrictions, and employee safety and health
matters relating to business operations, the non-compliance with which would
have a material adverse effect on the business, condition (financial or
otherwise) or results of operations of the Borrower and its Subsidiaries, taken
as a whole, or on the Borrower's ability to perform its obligations under this
Agreement or any other Loan Document to which it is or will be a party.
(c) Payment of Taxes, Etc. Pay and discharge, and cause each of its
Significant Subsidiaries to pay and discharge, before the same shall become
delinquent, all taxes, assessments and governmental charges, royalties or levies
imposed upon it or upon its property, except to the extent the Borrower or such
Significant Subsidiary is contesting the same in good faith and by appropriate
proceedings and has set aside adequate reserves for the payment thereof in
accordance with generally accepted accounting principles.
(d) Payment of Material Obligations. Pay, and cause each Significant
Subsidiary to pay, promptly as the same shall become due each material
obligation of the Borrower or such Significant Subsidiary, except to the extent
that the Borrower or such Significant Subsidiary is contesting the same in good
faith and by appropriate proceedings and has set aside adequate reserves for the
payment thereof in accordance with generally accepted accounting principles.
(e) Inspection Rights. At any reasonable time and from time to time
upon reasonable notice, permit or arrange for the Administrative Agent, the
Lenders and their respective agents and representatives to examine and make
copies of and abstracts from the records and books of account of, and, to the
extent permitted by applicable law, permit an examination of the properties of,
the Borrower and each of its Subsidiaries, and to discuss the
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44
affairs, finances and accounts of the Borrower and its Subsidiaries with the
Borrower and its Subsidiaries and their respective officers and directors and,
following the occurrence and during the continuance of an Event of Default,
their respective accountants; provided, however, that, prior to the disclosure
of any information or materials of the Borrower or its Subsidiaries relating to
wholesale transactions, customers, pricing methods or formulae, transmission and
distribution system utilization or pricing, or proprietary methods or processes,
the Borrower may require the Lender seeking to inspect the same to enter into a
confidentiality and nondisclosure agreement with respect to the use and
disclosure of such information or materials in form and substance reasonably
satisfactory to the Borrower and such Lender and otherwise containing customary
terms.
(f) Keeping of Books. Keep, and cause its Subsidiaries to keep,
proper records and books of account, in which full and correct entries shall be
made of all financial transactions of the Borrower and its Subsidiaries and the
assets and business of the Borrower and its Subsidiaries, in accordance with
generally accepted accounting principles.
(g) Maintenance of Properties, Etc. Maintain, and cause each of its
Subsidiaries to maintain, good and marketable title to, and preserve, maintain,
develop, and operate in substantial conformity with all laws and material
contractual obligations, all of its properties which are used or useful in the
conduct of its business in good working order and condition, ordinary wear and
tear excepted, except where the failure to do so would not have a material
adverse effect on the business, condition (financial or otherwise) or results of
operations of the Borrower and its Subsidiaries, taken as a whole, or on the
Borrower's ability to perform its obligations under this Agreement or any other
Loan Document to which it is or will be a party.
(h) Maintenance of Insurance. Maintain, or cause to be maintained,
insurance covering the Borrower and each of its Subsidiaries and their
respective properties in effect at all times as may be required by law and such
other insurance in such amounts and covering such risks as is usually carried by
companies similarly situated.
(i) Reporting Requirements. Furnish to each Lender:
(i) as soon as possible and in any event within five Business
Days after the occurrence of each Unmatured Default or Event of Default
continuing on the date of such statement, a statement of a Senior Financial
Officer setting forth details of such Unmatured Default or Event of Default
and the action that the Borrower proposes to take with respect thereto;
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45
(ii) as soon as available and in any event within 60 days after the
end of each of the first three quarters of each fiscal year of the
Borrower, a consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries as at the end of such quarter and statements of income,
consolidated operations, consolidated retained earnings and consolidated
cash flows of the Borrower and its Consolidated Subsidiaries for the period
commencing at the end of the previous fiscal year and ending with the end
of such quarter, all in reasonable detail and duly certified (subject to
year-end audit adjustments) by a Senior Financial Officer as having been
prepared in accordance (in all material respects) with generally accepted
accounting principles together with a certificate of said officer stating
that no Unmatured Default or Event of Default has occurred and is
continuing or, if an Unmatured Default or Event of Default has occurred and
is continuing, a statement as to the nature thereof and the action that the
Borrower proposes to take with respect thereto; provided that delivery of a
copy of the Borrower's Quarterly Report on Form 10-Q for such quarter shall
be deemed to satisfy such financial statement delivery requirements;
(iii) as soon as available and in any event within 120 days after
the end of each fiscal year of the Borrower, a copy of the consolidated
balance sheet of the Borrower and its Consolidated Subsidiaries as at the
end of such fiscal year and statements of consolidated operations,
consolidated retained earnings and consolidated cash flows of the Borrower
and its Consolidated Subsidiaries for such fiscal year, in each case in
reasonable detail and duly certified by a Senior Financial Officer as
having been prepared in accordance (in all material respects) with
generally accepted accounting principles, together with a certificate of a
Senior Financial Officer stating that no Unmatured Default or Event of
Default has occurred and is continuing or, if an Unmatured Default or Event
of Default has occurred and is continuing, a statement as to the nature
thereof and the action that the Borrower proposes to take with respect
thereto; provided that delivery of a copy of the Borrower's Annual Report
on Form 10-K (containing such statements) or Current Report on Form 8-K
(containing such statements) for such year shall be deemed to satisfy such
financial statement delivery requirements;
(iv) as soon as possible and in any event (A) within 30 days
after any ERISA Event described in clause (i) of the definition of ERISA
Event with respect to any Plan of the Borrower or any ERISA Affiliate of
the Borrower has occurred and (B) within 10 days after any other ERISA
Event with respect to any Plan of the Borrower or any ERISA Affiliate of
the Borrower has occurred, a statement of a Senior Financial Officer
describing such ERISA Event and the action, if any, which the Borrower or
such ERISA Affiliate proposes to take with respect thereto;
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46
(v) promptly after receipt thereof by the Borrower or any of its
ERISA Affiliates from the PBGC copies of each notice received by the
Borrower or such ERISA Affiliate of the PBGC's intention to terminate any
Plan of the Borrower or such ERISA Affiliate or to have a trustee appointed
to administer any such Plan;
(vi) promptly after receipt thereof by the Borrower or any ERISA
Affiliate of the Borrower from a Multiemployer Plan sponsor, a copy of each
notice received by the Borrower or such ERISA Affiliate concerning the
imposition or amount of withdrawal liability in an aggregate principal
amount of at least $25,000,000 pursuant to Section 4202 of ERISA in respect
of which the Borrower or such ERISA Affiliate is reasonably expected to be
liable;
(vii) promptly after the Borrower becomes aware of the occurrence
thereof, notice of all actions, suits, proceedings or other events of (A)
of the type described in Section 4.01(d) or (B) for which the
Administrative Agent, the Lenders will be entitled to indemnity under
Section 8.04(c);
(viii) promptly after the sending or filing thereof, copies of all
such information statements, financial statements, and reports which the
Borrower sends to its public security holders (if any), and copies of all
regular, periodic and special reports, and all registration statements and
periodic or special reports, if any, which the Borrower files with the
Securities and Exchange Commission or any governmental authority which may
be substituted therefor, or with any national securities exchange;
(ix) such information concerning the Borrower's Year 2000 Programs
as the Administrative Agent may reasonably request; and
(x) promptly after requested, such other information respecting the
business, properties, results of operations, prospects, revenues, condition
or operations, financial or otherwise, of the Borrower or any of its
Subsidiaries (including, but not limited to, copies of each Schedule B
(Actuarial Information) to the annual report (Form 5500 Series) filed with
the Internal Revenue Service) as the Administrative Agent or any Lender
through the Administrative Agent may from time to time reasonably request.
(j) Use of Proceeds. Use the proceeds of the initial Advances and
any other Advances hereunder solely for the Borrower's general corporate
purposes.
(k) Debt to Capitalization. Maintain at all times a ratio of
Consolidated Debt to Consolidated Capital of not more than 65%.
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47
(l) Further Assurances. At the expense of the Borrower, promptly
execute and deliver, or cause to be promptly executed and delivered, all further
instruments and documents, and take and cause to be taken all further actions,
that may be necessary or that the Majority Lenders through the Administrative
Agent may reasonably request to enable the Lenders and the Administrative Agent
to enforce the terms and provisions of this Agreement and to exercise their
rights and remedies hereunder or under any other Loan Document. In addition,
the Borrower will use all reasonable efforts to duly obtain Governmental
Approvals required in connection with the Loan Documents from time to time on or
prior to such date as the same may become legally required, and thereafter to
maintain all such Governmental Approvals in full force and effect.
(m) Year 2000. Take all such actions as are reasonably necessary to
successfully implement its Year 2000 Program and to assure that Year 2000 Issues
will not have a Material Adverse Effect. At the request of the Administrative
Agent, the Borrower will provide a description of its Year 2000 Program,
together with any updates or progress reports with respect thereto.
SECTION 5.02. NEGATIVE COVENANTS. So long as any amount in respect of any
Note shall remain unpaid or any Lender shall have any Commitment, the Borrower
will not, without the written consent of the Majority Lenders:
(a) Liens, Etc. Create, incur, assume, or suffer to exist, or
permit any of its Significant Subsidiaries to create, incur, assume, or suffer
to exist, any lien, security interest, or other charge or encumbrance (including
the lien or retained security title of a conditional vendor) of any kind, or any
other type of arrangement intended or having the effect of conferring upon a
creditor a preferential interest upon or with respect to any of its properties
of any character, in each case to secure or provide for the payment of any Debt
of any Person (any of the foregoing being referred to herein as a "LIEN"),
excluding, however, from the operation of the foregoing restrictions the Liens
created under the Loan Documents and the following:
(i) Liens for taxes, assessments or governmental charges or levies
to the extent not past due or contested in good faith by appropriate
proceedings, with adequate reserves set aside for the payment thereof in
accordance with generally accepted accounting principles;
(ii) Liens imposed by law, such as materialmen's, mechanics',
carriers', workmen's, repairmen's, warehousemen's and landlord's liens and
other similar Liens arising in the ordinary course of business securing
obligations which are not overdue or which are being contested in good
faith by appropriate proceedings, with adequate reserves
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48
set aside for the payment thereof in accordance with generally accepted
accounting principles;
(iii) pledges or deposits to secure obligations under workmen's
compensation laws or similar legislation, to secure obligations
individually or in the aggregate equal to or less than $25,000,000 referred
to in clause (vi) of the definition of Debt, to secure public or statutory
obligations of the Borrower or such Significant Subsidiary, or to secure
the utility obligations of the Borrower or any such Significant Subsidiary
incurred in the ordinary course of business;
(iv) (A) purchase money Liens upon or in property now owned or
hereafter acquired by the Borrower or any of its Significant Subsidiaries
in the ordinary course of business (consistent with present practices) to
secure (1) the purchase price of such property or (2) Debt incurred solely
for the purpose of financing the acquisition, construction or improvement
of any such property to be subject to such Liens, or (B) Liens existing on
any such property at the time of acquisition, or extensions, renewals or
replacements of any of the foregoing for the same or a lesser amount,
provided that no such Lien shall extend to or cover any property other than
the property being acquired, constructed or improved and replacements,
modifications and proceeds of such property, and no such extension, renewal
or replacement shall extend to or cover any property not theretofore
subject to the Lien being extended, renewed or replaced;
(v) attachment, judgment or other similar Liens arising in
connection with court proceedings, provided that, with respect to any Lien
involving an amount of $25,000,000 or more, the execution or other
enforcement of such Liens is effectively stayed and the claims secured
thereby are being actively contested in good faith by appropriate
proceedings or the payment of which is covered in full (subject to
customary deductible amounts) by insurance maintained with responsible
insurance companies and the applicable insurance company has acknowledged
its liability therefor in writing;
(vi) Liens arising under the Mortgage dated July 1, 1923, as
supplemented and amended by a Supplemental Indenture dated August 1, 1944
and other supplemental indentures, from the Borrower, as mortgagor, to
Harris Trust and Savings Bank and D.G. Donovan, as trustees, pursuant to
which the Borrower has issued, and may hereafter issue, its mortgage bonds;
(vii) Liens, if any, arising in connection with (A) the sale or
sale/leaseback of nuclear fuel to the extent permitted in clause (w) of the
proviso to Section 5.02(d) hereof, but only to the extent that the Liens so
arising are placed upon the nuclear fuel so sold or
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49
sold/leased back, or (B) the sale, pledge or other disposition of accounts
receivable to the extent permitted by clause (y) of the proviso of Section
5.02(d) hereof, but only to the extent that the Liens so arising are placed
upon the accounts receivable so sold, pledged or otherwise disposed of;
(viii) Liens, if any, arising in connection with Capitalized Lease
Obligations, but only on the equipment or property subject to such
Capitalized Lease Obligations;
(ix) Liens on the capital stock of or any other equity interest in
any of the Borrower's Subsidiaries (which are not Significant Subsidiaries)
or any such Subsidiary's assets to secure the payment and performance of
Debt obligations in connection with any project financing for such
Subsidiary (provided that the obligee of such obligations shall have no
recourse to the Borrower to satisfy such obligations, other than pursuant
to any such Liens on the Borrower's equity interests in such Subsidiary);
(x) Liens on the assets and/or rights to receive income of any
Person that exist at the time that such Person becomes a Significant
Subsidiary and the continuation of such Liens in connection with any
refinancing or restructuring of the obligations secured by such Liens; and
(xi) other Liens which, taken together with the Liens arising
pursuant to the foregoing clauses or individually, do not have a Material
Adverse Effect.
(b) Compliance with ERISA. (i) Permit to exist any "accumulated
funding deficiency" (as defined in Section 412(a) of the Internal Revenue Code
of 1986, as amended from time to time) (unless such deficiency exists with
respect to a Multiple Employer Plan or Multiemployer Plan and the Borrower has
no control over the reduction or elimination of such deficiency), (ii)
terminate, or permit any ERISA Affiliate of the Borrower to terminate, any Plan
of the Borrower or such ERISA Affiliate so as to result in a liability of
$25,000,000 or more of the Borrower to the PBGC, or (iii) permit to exist any
occurrence of any Reportable Event (as defined in Title IV of ERISA), other than
a Reportable Event for which the 30-day notice requirement with respect thereto
has been waived by the PBGC or any other event or condition, which presents a
material (in the reasonable opinion of the Majority Lenders) risk of such a
termination by the PBGC of any Plan of the Borrower or such ERISA Affiliate and
such a liability to the Borrower.
(c) Transactions with Affiliates. Enter into, or permit any of its
Subsidiaries to enter into, any transaction with an Affiliate of the Borrower,
unless (i) such transaction is on terms no less favorable to the Borrower or
such Subsidiary, as the case may be, than if the
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50
transaction had been negotiated in good faith on an arm's length basis with a
Person which was not an Affiliate of the Borrower or (ii) such transaction is
conducted pursuant to the Affiliated Interests Agreement dated as of December 4,
1995 among the Borrower, Unicom Corporation and the other entities named
therein, as it may be amended or modified from time to time.
(d) Mergers, Etc. Merge or consolidate with or into any Person, or
convey, transfer, lease or otherwise dispose of (whether in one transaction or
in a series of transactions, and whether in a sale/leaseback transaction or
otherwise) more than 10% of its assets (whether now owned or hereafter
acquired), unless, in the case of a merger, immediately after giving effect
thereto, (i) no event shall occur and be continuing that constitutes an
Unmatured Default or an Event of Default, (ii) the Borrower is the surviving
corporation, and (iii) the Borrower shall not be liable with respect to any Debt
or allow its property to be subject to any Lien which it could not become liable
with respect to or allow its property to become subject to under this Agreement
on the date of such transaction; provided, however, that so long as no Unmatured
Default or Event of Default has occurred and is continuing or would result from
such transaction, (w) the Borrower may engage in sale or sale/leaseback
transactions with respect to nuclear fuel, (x) the Borrower may sell, pledge or
otherwise dispose of its accounts receivable, (y) the Borrower may engage in
transactions involving the issuance of Transitional Funding Instruments, and (z)
the Borrower may sell its electric generating assets in one or a series of arms-
length transactions for not less than the fair market value of such assets.
(e) Maintenance of Ownership of Significant Subsidiaries. Sell,
assign, transfer, pledge or otherwise dispose of any shares of capital stock of
any of its Significant Subsidiaries or any warrants, rights or options to
acquire such capital stock, or permit any of its Significant Subsidiaries to
issue, sell or otherwise dispose of any shares of such Significant Subsidiary's
capital stock, except (and only to the extent) as may be necessary to give
effect to a transaction permitted by subsection (d) above.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. EVENTS OF DEFAULT. If any of the following events (each an
"EVENT OF DEFAULT") shall occur and be continuing after the applicable grace
period and notice requirement (if any):
(a) The Borrower shall fail to pay any principal of any Note when the
same becomes due and payable; or
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51
(b) The Borrower shall fail to pay any interest on any Note or any
other amount due under this Agreement for three Business Days after the same
becomes due; or
(c) The Borrower or any of its Subsidiaries shall fail to pay any
principal of or premium or interest on any Debt of the Borrower that is
outstanding in a principal amount of $25,000,000 or more in the aggregate (but
excluding Debt evidenced by the Notes) when the same becomes due and payable
(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise), and such failure shall continue after the applicable grace period,
if any, specified in the agreement or instrument relating to such Debt; or
(d) The Borrower or any of its Subsidiaries shall fail to observe any
term or covenant on its part to be performed or observed and the effect of such
failure is to accelerate or permit acceleration of any Debt of the Borrower that
is outstanding in a principal amount of $25,000,000 or more in the aggregate
(but excluding Debt evidenced by the Notes); or
(e) Any representation or warranty made by or on behalf of the
Borrower in any Loan Document or in any certificate or other writing delivered
pursuant thereto shall prove to have been incorrect in any material respect when
made or deemed made; or
(f) The Borrower shall fail to perform or observe any term or
covenant on its part to be performed or observed contained in Section 5.01(k) or
5.02 (other than subsection (c) thereof); or
(g) The Borrower shall fail to perform or observe any other term or
covenant on its part to be performed or observed contained in Section 5.01 or in
any other Loan Document, and any such failure shall remain unremedied, after
written notice thereof shall have been given to the Borrower by the
Administrative Agent, for a period of 30 days; or
(h) Any judgment or order for the payment of money in excess of
$25,000,000 shall be rendered against the Borrower or any of its Subsidiaries
and either (i) enforcement proceedings shall have been commenced by any creditor
upon such judgment or order or (ii) there shall be any period of ten consecutive
Business Days during which a stay of enforcement of such judgment or order, by
reason of a pending appeal or otherwise, shall not be in effect; or
(i) The Borrower shall generally not pay its debts as such debts
become due, or shall admit in writing its inability to pay its debts generally,
or shall make an assignment for the benefit of creditors; or any proceeding
shall be instituted by or against the Borrower seeking to adjudicate it a
bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of its debts under
any law relating to
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52
bankruptcy, insolvency, or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee, or other
similar official for it or for any substantial part of its property and, in the
case of a proceeding instituted against the Borrower, either such proceeding
shall remain undismissed or unstayed for a period of 60 days or any of the
actions sought in such proceeding (including without limitation the entry of an
order for relief against the Borrower or the appointment of a receiver, trustee,
custodian or other similar official for the Borrower or any of its property)
shall occur; or the Borrower shall take any corporate or other action to
authorize any of the actions set forth above in this subsection (i); or
(j) Any Governmental Approval required in connection with the
execution, delivery and performance of the Loan Documents shall be rescinded,
revoked, otherwise terminated, or amended or modified in any manner which is
materially adverse to the interests of the Lenders and the Administrative Agent;
or
(k) Any ERISA Event shall have occurred with respect to a Plan which
could reasonably be expected to result in a liability of $25,000,000 or more to
the Borrower, and, 30 days after notice thereof shall have been given to the
Borrower by the Administrative Agent or any Lender, such ERISA Event shall still
exist; or
(l) An "event of default" (as defined therein) shall occur and be
continuing under the Other Credit Agreement;
then, and in any such event, the Administrative Agent (i) shall at the request,
or may with the consent, of the Majority Lenders or, if no A Advances are then
outstanding, Banks having greater than 50% of the Commitments (without giving
effect to any B Reduction), by notice to the Borrower, declare the obligation of
each Lender to make Advances to be terminated, whereupon the same shall
forthwith terminate, and (ii) shall at the request, or may with the consent, of
the Majority Lenders or, if no A Advances are then outstanding, Lenders having
greater than 50% of the Commitments, by notice to the Borrower, declare the
Notes (if any), all interest thereon and all other amounts payable under this
Agreement to be forthwith due and payable, whereupon the Notes, all such
interest and all such amounts shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Borrower; provided, however, that in the
event of an actual or deemed entry of an order for relief with respect to the
Borrower under the Federal Bankruptcy Code, (A) the Commitments and the
obligation of each Lender to make Advances shall automatically be terminated and
(B) the Notes, all such interest and all such amounts shall automatically become
and be due and payable, without presentment, demand, protest or any notice of
any kind, all of which are hereby expressly waived by the Borrower.
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53
ARTICLE VII
THE ADMINISTRATIVE AGENT
SECTION 7.01. AUTHORIZATION AND ACTION. Each Lender hereby appoints and
authorizes the Administrative Agent to take such action as agent on its behalf
and to exercise such powers under this Agreement as are delegated to the
Administrative Agent by the terms hereof, together with such powers as are
reasonably incidental thereto. As to any matters not expressly provided for by
this Agreement or any other Loan Document (including, without limitation,
enforcement or collection of the Notes), the Administrative Agent shall not be
required to exercise any discretion or take any action, but shall be required to
act or to refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the instructions of the Majority Lenders, and such
instructions shall be binding upon all Lenders and all holders of Notes;
provided, however, that the Administrative Agent shall not be required to take
any action which exposes the Administrative Agent to personal liability or which
is contrary to this Agreement or applicable law. The Administrative Agent
agrees to give to each Lender prompt notice of each notice given to it by the
Borrower pursuant to the terms of this Agreement. The Administrative Agent
shall be deemed to have exercised reasonable care in the administration and
enforcement of this Agreement and the other Loan Documents if it undertakes such
administration and enforcement in a manner substantially equal to that which the
Administrative Agent accords credit facilities similar to the credit facility
hereunder for which it is the sole lender.
SECTION 7.02. ADMINISTRATIVE AGENT'S RELIANCE, ETC. Neither the
Administrative Agent nor any of its directors, officers, agents or employees
shall be liable for any action taken or omitted to be taken by it or them under
or in connection with this Agreement or any other Loan Document, except for its
or their own gross negligence or willful misconduct. Without limitation of the
generality of the foregoing, the Administrative Agent: (i) may treat the payee
of any Note as the holder thereof until the Administrative Agent receives and
accepts a Lender Assignment entered into by the Lender which is the payee of
such Note, as assignor, and an Eligible Assignee, as assignee, as provided in
Section 8.07; (ii) may consult with legal counsel (including counsel for the
Borrower), independent public accountants and other experts selected by it and
shall not be liable for any action taken or omitted to be taken in good faith by
it in accordance with the advice of such counsel, accountants or experts; (iii)
makes no warranty or representation to any Lender and shall not be responsible
to any Lender for any statements, warranties or representations (whether written
or oral) made in or in connection with this Agreement or any other Loan
Document; (iv) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of this
Agreement or any other Loan Document on the part of the Borrower or to inspect
the property (including the books and records) of the Borrower; (v) shall not be
responsible to any Lender for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement, any other
Loan
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54
Document or any other instrument or document furnished pursuant hereto or
thereto; and (vi) shall incur no liability under or in respect of this Agreement
or any other Loan Document by acting upon any notice, consent, certificate or
other instrument or writing (which may be by telecopier, telegram, cable or
telex) believed by it to be genuine and signed or sent by the proper party or
parties.
SECTION 7.03. CITIBANK, N.A. AND AFFILIATES. With respect to its
Commitment, the Advances made by it and the Notes issued to it, Citibank, N.A.
shall have the same rights and powers under this Agreement as any other Lender
and may exercise the same as though it were not the Administrative Agent; and
the term "Bank" or "Banks" and "Lender" or "Lenders" shall, unless otherwise
expressly indicated, include Citibank, N.A. in its individual capacity.
Citibank, N.A. and its Affiliates may accept deposits from, lend money to, act
as trustee under indentures of, and generally engage in any kind of business
with, the Borrower, any of its Subsidiaries or Affiliates and any Person who may
do business with or own securities of the Borrower or any such Subsidiary or
Affiliate, all as if Citibank, N.A. were not the Administrative Agent and
without any duty to account therefor to the Lenders.
SECTION 7.04. LENDER CREDIT DECISION. Each Lender acknowledges that it
has, independently and without reliance upon the Administrative Agent or any
other Lender and based on such documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Lender also acknowledges that it will, independently and without
reliance upon the Administrative Agent or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement.
SECTION 7.05. INDEMNIFICATION. The Lenders agree to indemnify the
Administrative Agent (to the extent not reimbursed by the Borrower), ratably
according to (a) on or before the Termination Date, the respective principal
amounts of the A Notes then held by each of them (or if no A Notes are at the
time outstanding or if any A Notes are held by Persons which are not Lenders,
ratably according to the respective Percentages of the Lenders), or (b) after
the Termination Date, the respective principal amounts of the Notes then held by
each of them (or if no Notes are at the time outstanding or if any Notes are
held by Persons which are not Lenders, ratably according to the respective
unpaid principal amounts of the Advances made by each Lender), from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by, or asserted against the
Administrative Agent in any way relating to or arising out of this Agreement or
any action taken or omitted by the Administrative Agent under this Agreement,
provided that no Lender shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or
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55
disbursements resulting from the Administrative Agent's gross negligence or
willful misconduct. Without limitation of the foregoing, each Lender agrees to
reimburse the Administrative Agent promptly upon demand for its ratable share of
any out-of-pocket expenses (including counsel fees) incurred by the
Administrative Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement, to the extent that the
Administrative Agent is not reimbursed for such expenses by the Borrower.
SECTION 7.06. SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent
may resign at any time by giving written notice thereof to the Lenders and the
Borrower and may be removed at any time with or without cause by the Majority
Lenders, with any such resignation or removal to become effective only upon the
appointment of a successor Administrative Agent pursuant to this Section 7.06.
Upon any such resignation or removal, the Majority Lenders shall have the right
to appoint a successor Administrative Agent, which shall be a Lender or shall be
another commercial bank or trust company reasonably acceptable to the Borrower
organized under the laws of the United States or of any State thereof. If no
successor Administrative Agent shall have been so appointed by the Majority
Lenders, and shall have accepted such appointment, within 30 days after the
retiring Administrative Agent's giving of notice of resignation or the Majority
Lenders' removal of the retiring Administrative Agent, then the retiring
Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent, which shall be a Lender or shall be another commercial
bank or trust company organized under the laws of the United States of any State
thereof reasonably acceptable to the Borrower. Upon the acceptance of any
appointment as Administrative Agent hereunder by a successor Administrative
Agent, such successor Administrative Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring
Administrative Agent, and the retiring Administrative Agent shall be discharged
from its duties and obligations under this Agreement. After any retiring
Administrative Agent's resignation or removal hereunder as Administrative Agent,
the provisions of this Article VII shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Administrative Agent under this
Agreement.
ARTICLE VII
MISCELLANEOUS
SECTION 8.01. AMENDMENTS, ETC. No amendment or waiver of any provision of
any Loan Document, nor consent to any departure by the Borrower therefrom, shall
in any event be effective unless the same shall be in writing and signed by the
Majority Lenders and, in the case of any amendment, the Borrower, and then such
waiver or consent shall be effective only in the
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56
specific instance and for the specific purpose for which given; provided,
however, that no amendment, waiver or consent shall, unless in writing and
signed by all the Lenders, do any of the following: (a) waive, modify or
eliminate any of the conditions specified in Section 3.01 or 3.02, (b) increase
the Commitments of the Lenders (except as provided in Section 2.19), change or
extend the Termination Date (except as provided in Section 2.18) or subject the
Lenders to any additional obligations, (c) reduce the principal of, or interest
on, the A Notes, any Applicable Margin or any fees or other amounts payable
hereunder, (d) postpone any date fixed for any payment of principal of, or
interest on, the A Notes or any fees or other amounts payable hereunder, (e)
change the percentage of the Commitments or of the aggregate unpaid principal
amount of the A Notes, or the number of Lenders, which shall be required for the
Lenders or any of them to take any action hereunder or (f) amend this Section
8.01; and provided, further, that no amendment, waiver or consent shall, unless
in writing and signed by the Lenders making or maintaining such B Advances, do
any of the following: (a) waive, modify or eliminate any of the conditions to
any B Advance specified in Section 3.03, (b) reduce the principal of, or
interest on, any B Note or other amounts payable in respect thereof, (c)
postpone any date fixed for any payment of principal of, or interest on, any B
Note or any other amounts payable in respect thereof; and provided, further,
that no amendment, waiver or consent shall, unless in writing and signed by the
Administrative Agent in addition to the Lenders required above to take such
action, affect the rights or duties of the Administrative Agent under this
Agreement or any Note.
SECTION 8.02. NOTICES, ETC. All notices and other communications provided
for hereunder and under the other Loan Documents shall be in writing (including
telecopier, telegraphic, telex or cable communication) and mailed, telecopied,
telegraphed, telexed, cabled or delivered, if to the Borrower, at its address at
One First National Plaza - 37th Floor, 10 South Dearborn Street, Chicago,
Illinois 60603 (or P.O. Box 767, Chicago, Illinois 60690-0767, if mailed),
Attention: Treasurer (telephone: 312-394-3149; and telecopier: 312-394-3110),
with a copy to the same address, attention: Associate General Counsel-Corporate
and Commercial (telephone: 312-394-3179; and telecopier: 312-394-3950); if to
any Bank, at its Domestic Lending Office specified opposite its name on Schedule
I hereto; if to any other Lender, at its Domestic Lending Office specified in
the Lender Assignment pursuant to which it became a Lender; and if to the
Administrative Agent, at its address at Two Pennsway, Ste. 200, New Castle,
Delaware 19720, Attention: Bank Loan Syndications; or, as to each party, at such
other address as shall be designated by such party in a written notice to the
other parties. All such notices and communications shall, when mailed,
telecopied, telegraphed, telexed or cabled, be effective five days after being
deposited in the mails, or when delivered to the telegraph company, telecopied,
confirmed by telex answerback or delivered to the cable company, respectively,
except that notices and communications to the Administrative Agent pursuant to
Article II or VII shall not be effective until received by the Administrative
Agent.
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57
SECTION 8.03. NO WAIVER; REMEDIES. No failure on the part of any Lender
or the Administrative Agent to exercise, and no delay in exercising, any right
hereunder or under any Note shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
SECTION 8.04. COSTS, EXPENSES, TAXES AND INDEMNIFICATION. (a) The
Borrower agrees to pay on demand all costs and expenses of the Administrative
Agent in connection with the preparation (including, without limitation,
printing costs), negotiation, execution, delivery, modification and amendment of
this Agreement and the other Loan Documents, and the other documents and
instruments to be delivered hereunder and thereunder, including, without
limitation, the reasonable fees and out-of-pocket expenses of counsel for the
Administrative Agent with respect thereto and with respect to the administration
of, and advising the Administrative Agent as to its rights and responsibilities
under, this Agreement and the other Loan Documents. The Borrower further agrees
to pay on demand all costs and expenses, if any (including, without limitation,
reasonable counsel fees and expenses), in connection with the enforcement
(whether through negotiations, legal proceedings or otherwise) of this Agreement
and the other Loan Documents and the other documents and instruments to be
delivered hereunder and thereunder, including, without limitation, reasonable
counsel fees and expenses in connection with the enforcement of rights under
this Section 8.04(a). In addition, the Borrower shall pay any and all stamp and
other taxes payable or determined to be payable in connection with the execution
and delivery of this Agreement and the other Loan Documents, and the other
documents and instruments to be delivered hereunder and thereunder, and agrees
to save the Administrative Agent and each Lender harmless from and against any
and all liabilities with respect to or resulting from any delay in paying or
omission to pay such taxes.
(b) If any payment of principal of, or Conversion of, any Eurodollar
Rate Advance or B Advance is made other than on the last day of the Interest
Period for such A Advance or other than on the maturity date of such B Advance,
as a result of a payment or Conversion pursuant to Section 2.10, 2.11, 2.12 or
2.14 or acceleration of the maturity of the Notes pursuant to Section 6.01 or
for any other reason, the Borrower shall, upon demand by any Lender (with a copy
of such demand to the Administrative Agent), pay to the Administrative Agent for
the account of such Lender any amounts required to compensate such Lender for
any additional losses, costs or expenses which it may reasonably incur as a
result of such payment or Conversion, including, without limitation, any loss,
cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by any Lender to fund or maintain such Advance.
(c) The Borrower hereby agrees to indemnify and hold each Lender, the
Administrative Agent and their respective officers, directors, employees,
professional advisors
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58
and affiliates (each, an "INDEMNIFIED PERSON") harmless from and against any and
all claims, damages, losses, liabilities, costs or expenses (including
reasonable attorney's fees and expenses, whether or not such Indemnified Person
is named as a party to any proceeding or is otherwise subjected to judicial or
legal process arising from any such proceeding) which any of them may incur or
which may be claimed against any of them by any Person (except for such claims,
damages, losses, liabilities, costs and expenses resulting from such Indemnified
Person's gross negligence or willful misconduct):
(i) by reason of or in connection with the execution, delivery or
performance of any of the Loan Documents or any transaction contemplated
thereby, or the use by the Borrower of the proceeds of any Extension of
Credit;
(ii) in connection with any documentary taxes, assessments or charges
made by any governmental authority by reason of the execution and delivery
of any of the Loan Documents; or
(iii) in connection with or resulting from the utilization, storage,
disposal, treatment, generation, transportation, release or ownership of
any Hazardous Substance (i) at, upon, or under any property of the Borrower
or any of its Affiliates or (ii) by or on behalf of the Borrower or any of
its Affiliates at any time and in any place.
(d) The Borrower's obligations under this Section 8.04 shall survive
the repayment of all amounts owing to the Lenders under the Notes and the
termination of the Commitments. If and to the extent that the obligations of
the Borrower under this Section 8.04 are unenforceable for any reason, the
Borrower agrees to make the maximum contribution to the payment and satisfaction
thereof which is permissible under applicable law.
SECTION 8.05. RIGHT OF SET-OFF. (a) Upon (i) the occurrence and during
the continuance of any Event of Default and (ii) the making of the request or
the granting of the consent by the Majority Lenders specified by Section 6.01 to
authorize the Administrative Agent to declare the Notes due and payable pursuant
to the provisions of Section 6.01, each Lender is hereby authorized at any time
and from time to time, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by such Lender
to or for the credit or the account of the Borrower against any and all of the
obligations of the Borrower now or hereafter existing under any Loan Document
and any Note held by such Lender, irrespective of whether or not such Lender
shall have made any demand under such Loan Document or such Note and although
such obligations may be unmatured. Each Lender agrees promptly to notify the
Borrower after any such set-off and application made by such Lender, provided
that the failure
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59
to give such notice shall not affect the validity of such set-off and
application. The rights of each Lender under this Section are in addition to
other rights and remedies (including, without limitation, other rights of set-
off) which such Lender may have.
(b) The Borrower agrees that it shall have no right of set-off,
deduction or counterclaim in respect of its obligations hereunder, and that the
obligations of the Lenders hereunder are several and not joint. Nothing
contained herein shall constitute a relinquishment or waiver of the Borrower's
rights to any independent claim that the Borrower may have against the
Administrative Agent or any Lender for the Administrative Agent's or such
Lender's, as the case may be, gross negligence or wilful misconduct, but no
Lender shall be liable for the conduct of the Administrative Agent or any other
Lender, and the Administrative Agent shall not be liable for the conduct of any
Lender.
SECTION 8.06. BINDING EFFECT. This Agreement shall become effective when
it shall have been executed by the Borrower and the Administrative Agent and
when the Administrative Agent shall have been notified in writing by each Bank
that such Bank has executed it and thereafter shall be binding upon and inure to
the benefit of the Borrower, the Administrative Agent and each Lender and their
respective successors and assigns, except that the Borrower shall not have the
right to assign its rights hereunder or any interest herein without the prior
written consent of the Lenders.
SECTION 8.07. ASSIGNMENTS AND PARTICIPATIONS. (a) Each Lender may upon the
written consent of the Administrative Agent and the Borrower (such consent not
to be unreasonably withheld), assign to one or more Eligible Assignees all or a
portion of its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Commitment, the Advances owing to it and the
Note or Notes held by it); provided, however, that (i) each such assignment
shall be of a constant, and not a varying, percentage of all of the assigning
Lender's rights and obligations under this Agreement, (ii) the amount of the
Commitment of the assigning Lender being assigned pursuant to each such
assignment (determined as of the date of the Lender Assignment with respect to
such assignment) shall in no event be less than the lesser of the amount of such
Lender's then remaining Commitment and $15,000,000 (except in the case of
assignments between Lenders at the time already parties hereto), and (iii) the
parties to each such assignment shall execute and deliver to the Administrative
Agent, for its acceptance and recording in the Register, a Lender Assignment,
together with any Note or Notes subject to such assignment and a processing and
recordation fee of $3,000. Promptly following its receipt of such Lender
Assignment, Note or Notes and fee, the Administrative Agent shall accept and
record such Lender Assignment in the Register. Upon such execution, delivery,
acceptance and recording, from and after the effective date specified in each
Lender Assignment, (x) the assignee thereunder shall be a party hereto and, to
the extent that rights and obligations hereunder have been assigned to it
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60
pursuant to such Lender Assignment, have the rights and obligations of a Lender
hereunder and (y) the Lender assignor thereunder shall, to the extent that
rights and obligations hereunder have been assigned by it pursuant to such
Lender Assignment, relinquish its rights and be released from its obligations
under this Agreement (and, in the case of a Lender Assignment covering all or
the remaining portion of an assigning Lender's rights and obligations under this
Agreement, such Lender shall cease to be a party hereto). Notwithstanding
anything to the contrary contained in this Agreement, any Lender may at any time
assign all or any portion of the Advances owing to it to any Affiliate of such
Lender. No such assignment, other than to an Eligible Assignee, shall release
the assigning Lender from its obligations hereunder.
(b) By executing and delivering a Lender Assignment, the Lender
assignor thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than as provided in
such Lender Assignment, such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with any Loan Document or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of any Loan Document or any other instrument or document furnished
pursuant thereto; (ii) such assigning Lender makes no representation or warranty
and assumes no responsibility with respect to the financial condition of the
Borrower or the performance or observance by the Borrower of any of its
obligations under any Loan Document or any other instrument or document
furnished pursuant thereto; (iii) such assignee confirms that it has received a
copy of each Loan Document, together with such documents and information as it
has deemed appropriate to make its own credit analysis and decision to enter
into such Lender Assignment; (iv) such assignee will, independently and without
reliance upon the Administrative Agent, such assigning Lender or any other
Lender and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under the Loan Documents; (v) such assignee confirms that it is an
Eligible Assignee; (vi) such assignee appoints and authorizes the Administrative
Agent to take such action as agent on its behalf and to exercise such powers
under the Loan Documents as are delegated to the Administrative Agent by the
terms thereof, together with such powers as are reasonably incidental thereto;
and (vii) such assignee agrees that it will perform in accordance with their
terms all of the obligations which by the terms of the Loan Documents are
required to be performed by it as a Lender.
(c) The Administrative Agent shall maintain at its address referred to
in Section 8.02 a copy of each Lender Assignment delivered to and accepted by it
and a register for the recordation of the names and addresses of the Lenders and
the Commitment of, and principal amount of the Advances owing to, each Lender
from time to time (the "REGISTER"). The entries in the Register shall be
conclusive and binding for all purposes, absent manifest error, and the
Borrower, the Administrative Agent and the Lenders may treat each Person whose
name is
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recorded in the Register as a Lender hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrower or
any Lender at any reasonable time and from time to time upon reasonable prior
notice.
(d) Upon its receipt of a Lender Assignment executed by an assigning
Lender and an assignee representing that it is an Eligible Assignee, together
with any Note or Notes subject to such assignment, the Administrative Agent
shall, with the consent of the Borrower (such consent not to be unreasonably
withheld), and provided that such Lender Assignment has been completed and is in
substantially the form of Exhibit 8.07 hereto, (i) accept such Lender
Assignment, (ii) record the information contained therein in the Register and
(iii) give prompt notice thereof to the Borrower. Within 10 Business Days after
its receipt of such notice, the Borrower, at its own expense, shall execute and
deliver to the Administrative Agent in exchange for the surrendered Note or
Notes a new Note to the order of such Eligible Assignee in an amount equal to
the Commitment assumed by it pursuant to such Lender Assignment and, if the
assigning Lender has retained a Commitment hereunder, a new Note to the order of
the assigning Lender in an amount equal to the Commitment retained by it
hereunder. Such new Note or Notes shall be in an aggregate principal amount
equal to the aggregate principal amount of such surrendered Note or Notes, shall
be dated the effective date of such Lender Assignment and shall otherwise be in
substantially the form of Exhibit 1.01A-1 hereto.
(e) Each Lender may sell participations to one or more banks,
financial institutions or other entities in all or a portion of its rights and
obligations under the Loan Documents (including, without limitation, all or a
portion of its Commitment, the Advances owing to it and the Note or Notes held
by it); provided, however, that (i) such Lender's obligations under this
Agreement (including, without limitation, its Commitment to the Borrower
hereunder) shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) such Lender shall remain the holder of any such Note for all purposes of
this Agreement, and (iv) the Borrower, the Administrative Agent and the other
Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement.
(f) Any Lender may, in connection with any assignment or participation
or proposed assignment or participation pursuant to this Section 8.07, disclose
to the assignee or participant or proposed assignee or participant, any
information relating to the Borrower furnished to such Lender by or on behalf of
the Borrower; provided that, prior to any such disclosure, the assignee or
participant or proposed assignee or participant shall agree, in accordance with
the terms of Section 8.08, to preserve the confidentiality of any Confidential
Information relating to the Borrower received by it from such Lender.
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(g) If any Lender (or any bank, financial institution, or other entity
to which such Lender has sold a participation) shall (i) make any demand for
payment under Section 2.08, 2.13 or 2.16, (ii) give notice to the Administrative
Agent pursuant to Section 2.14, (iii) either (A) not have outstanding unsecured
long-term indebtedness rated at or above "investment grade" by each of Moody's
and S&P, or (B) not have outstanding short-term unsecured indebtedness rated at
or above A-2 or P-2 by each of Moody's and S&P or (iv) determine not to extend
the Termination Date in response to any request by the Borrower pursuant to
Section 2.18, then (1) in the case of any demand made under clause (i) above, or
the occurrence of the event described in clause (ii) above, within 30 days after
any such demand or occurrence (if, but only if, in the case of any demanded
payment described in clause (i), such demanded payment has been made by the
Borrower), and (2) in the case of the occurrence of the event described in
clause (iii) or (iv) above, at any time prior to the then-scheduled Termination
Date, the Borrower may, with the approval of the Administrative Agent (which
approval shall not be unreasonably withheld), and provided that no Event of
Default or Unmatured Default shall then have occurred and be continuing, demand
that such Lender assign in accordance with this Section 8.07 to one or more
Eligible Assignees designated by the Borrower all (but not less than all) of
such Lender's Commitment and the Advances owing to it within the period ending
on the latest to occur of (x) the last day in the period described in clause (1)
or (2) above, as applicable, (y) the last day of the longest of the then current
Interest Periods for such Advances, and (z) the latest maturity date of any B
Advances owing to such Lender. If any such Eligible Assignee designated by the
Borrower shall fail to consummate such assignment on terms acceptable to such
Lender, or if the Borrower shall fail to designate any such Eligible Assignees
for all or part of such Lender's Commitment or Advances, then such demand by the
Borrower shall become ineffective; it being understood for purposes of this
subsection (g) that such assignment shall be conclusively deemed to be on terms
acceptable to such Lender, and such Lender shall be compelled to consummate such
assignment to an Eligible Assignee designated by the Borrower, if such Eligible
Assignee (x) shall agree to such assignment by entering into a Lender Assignment
with such Lender and (y) shall offer compensation to such Lender in an amount
equal to all amounts then owing by the Borrower to such Lender hereunder and
under the Note made by the Borrower to such Lender, whether for principal,
interest, fees, costs or expenses (other than the demanded payment referred to
above and payable by the Borrower as a condition to the Borrower's right to
demand such assignment), or otherwise.
(h) Anything in this Section 8.07 to the contrary notwithstanding, any
Lender may assign and pledge all or any portion of its Commitment and the
Advances owing to it (i) with notice to the Borrower and the Agent, to any of
its affiliates and (ii) without the consent of the Borrower or the Agent, to any
Federal Reserve Bank (and its transferees) as collateral security pursuant to
Regulation A of the Board of Governors of the Federal Reserve System and any
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63
Operating Circular issued by such Federal Reserve Bank. No such assignment
shall release the assigning Lender from its obligations hereunder.
SECTION 8.08. CONFIDENTIALITY. In connection with the negotiation and
administration of this Agreement and the other Loan Documents, the Borrower has
furnished and will from time to time furnish to the Administrative Agent and the
Lenders (each, a "RECIPIENT") written information which is identified to the
Recipient in writing when delivered as confidential (such information, other
than any such information which (i) is publicly available, or otherwise known to
the Recipient, at the time of disclosure, (ii) subsequently becomes publicly
available other than through any act or omission by the Recipient or (iii)
otherwise subsequently becomes known to the Recipient other than through a
Person whom the Recipient knows to be acting in violation of his or its
obligations to the Borrower, being hereinafter referred to as "CONFIDENTIAL
INFORMATION"). The Recipient will maintain the confidentiality of any
Confidential Information in accordance with such procedures as the Recipient
applies generally to information of that nature. It is understood, however, that
the foregoing will not restrict the Recipient's ability to freely exchange such
Confidential Information with current or prospective participants in or
assignees of the Recipient's position herein, but the Recipient's ability to so
exchange Confidential Information shall be conditioned upon any such prospective
participant's or assignee's entering into an understanding as to confidentiality
similar to this provision. It is further understood that the foregoing will not
prohibit the disclosure of any or all Confidential Information if and to the
extent that such disclosure may be required (i) by a regulatory agency or
otherwise in connection with an examination of the Recipient's records by
appropriate authorities, (ii) pursuant to court order, subpoena or other legal
process or in connection with any pending or threatened litigation, (iii)
otherwise as required by law, or (iv) in order to protect its interests or its
rights or remedies hereunder or under the other Loan Documents; in the event of
any required disclosure under clause (ii) or (iii) above, the Recipient agrees
to use reasonable efforts to inform the Borrower as promptly as practicable.
SECTION 8.09. WAIVER OF JURY TRIAL. THE ADMINISTRATIVE AGENT, THE LENDERS
AND THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY
RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED
HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE ADMINISTRATIVE AGENT, SUCH
LENDERS OR THE BORROWER. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
ADMINISTRATIVE AGENT AND THE LENDERS ENTERING INTO THIS AGREEMENT.
<PAGE>
64
SECTION 8.10. CONSENT. Unless otherwise specified as being within the
sole discretion of the Administrative Agent, the Lenders, the Majority Lenders
or the Borrower, whenever the consent or approval of the Administrative Agent,
the Lenders, the Majority Lenders or the Borrower, respectively, is required
herein, such consent or approval shall not be unreasonably withheld or delayed.
SECTION 8.11. GOVERNING LAW. This Agreement and the other Loan Documents
shall be governed by, and construed in accordance with, the laws of the State of
New York. The Borrower, each Lender, and the Administrative Agent (i)
irrevocably submits to the non-exclusive jurisdiction of any New York State
court or Federal court sitting in New York City in any action arising out of any
Loan Document, (ii) agrees that all claims in such action may be decided in such
court, (iii) waives, to the fullest extent it may effectively do so, the defense
of an inconvenient forum and (iv) consents to the service of process by mail. A
final judgment in any such action shall be conclusive and may be enforced in
other jurisdictions. Nothing herein shall affect the right of any party to
serve legal process in any manner permitted by law or affect its right to bring
any action in any other court.
SECTION 8.12. RELATION OF THE PARTIES; NO BENEFICIARY. No term, provision
or requirement, whether express or implied, of any Loan Document, or actions
taken or to be taken by any party thereunder, shall be construed to create a
partnership, association, or joint venture between such parties or any of them.
No term or provision of the Loan Documents shall be construed to confer a
benefit upon, or grant a right or privilege to, any Person other than the
parties thereto.
SECTION 8.13. EXECUTION IN COUNTERPARTS. This Agreement may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
<PAGE>
S - 1
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
COMMONWEALTH EDISON COMPANY
By /s/ RuthAnn M. Gill
------------------------------
Treasurer
SIGNATURE PAGE TO THE CREDIT AGREEMENT
<PAGE>
S - 2
ADMINISTRATIVE AGENT
--------------------
CITIBANK, N.A.,
as Administrative Agent and as Bank
By /s/ Anita J. Brickell
--------------------------------
Managing Partner
CO-AGENTS
---------
BANK OF AMERICA NT & SA
By /s/ Robert M. Eaton
--------------------------------
Vice President
THE BANK OF NEW YORK
By /s/ Nathan S. Howard
--------------------------------
Vice President
THE FIRST NATIONAL BANK OF CHICAGO
By /s/ Robert Bussa
--------------------------------
1st Vice President
SIGNATURE PAGE TO THE CREDIT AGREEMENT
<PAGE>
S - 3
THE CHASE MANHATTAN BANK
By /s/ Thomas L. Casey
--------------------------------
Vice President
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ Kathryn Sayko-Yanes
--------------------------------
Vice President
SIGNATURE PAGE TO THE CREDIT AGREEMENT
<PAGE>
S - 4
BANKS
-----
ABN AMRO BANK N.V.
By /s/ Kevin S. McFadden
---------------------------
Vice President
By /s/ Robert E. Lee IV
---------------------------
Assistant Vice President
BANK OF MONTREAL
By /s/ Howard H. Turner
---------------------------
Director
THE NORTHERN TRUST COMPANY
By /s/ Joseph A. Wemhoff
---------------------------
Vice President
SIGNATURE PAGE TO THE CREDIT AGREEMENT
<PAGE>
S - 5
CREDIT SUISSE FIRST BOSTON
By /s/ James P. Moran /s/ Douglas E. Maher
---------------------------------------------
Director Vice President
SIGNATURE PAGE TO THE CREDIT AGREEMENT
<PAGE>
SCHEDULE I
COMMONWEALTH EDISON COMPANY
5-Year Credit Agreement, dated as of October 8, 1998, among
Commonwealth Edison Company, the Banks named therein and Citibank, N.A., as
Administrative Agent
<TABLE>
<CAPTION>
Name of Bank Commitment Domestic Lending Office Eurodollar Lending Office
- ------------ ----------- ----------------------- -------------------------------
<S> <C> <C> <C>
Citibank, N.A. $62,500,000 Two Pennsway, Ste. 200, Same as Domestic Lending Office
New Castle, Delaware 19720
Attention: Bank Loan Syndications
Bank of America NT & SA $62,500,000 Account Administration # 4976 Same as Domestic Lending Office
200 West Jackson Boulevard
Dept. 4976
Chicago, Illinois 60606
The Bank of New York $62,500,000 One Wall Street, 19th Floor Same as Domestic Lending Office
New York, New York 10286
The First National Bank of $62,500,000 One First National Plaza, Ste. 0363 Same as Domestic Lending Office
Chicago Chicago, Illinois 60670
The Chase Manhattan Bank $62,500,000 One Chase Manhattan Plaza, 8th Floor Same as Domestic Lending Office
New York, New York 10080
Morgan Guaranty Trust $62,500,000 60 Wall Street Nassau Bahamas Office
Company New York, New York 10260-0060 c/o J. P. Morgan Services, Inc.
Euro-Loan Servicing Unit
500 Stanton Christiana Road
Newark, Delaware 19713
ABN AMRO Bank N.V. $37,500,000 135 South LaSalle Street, Suite 2805 Same as Domestic Lending Office
Chicago, Illinois 60603
Attention: Loan Administration
Bank of Montreal $37,500,000 115 South LaSalle, Floor 12W Same as Domestic Lending Office
Chicago, Illinois 60603
Credit Suisse First Boston $25,000,000 11 Madison Avenue Same as Domestic Lending Office
New York, New York 10010
The Northern Trust Company $25,000,000 50 South LaSalle Street Same as Domestic Lending Office
Chicago, Illinois 60675
</TABLE>
<PAGE>
SCHEDULE II
Fossil-Fired Generating Facilities
Collins Station, Morris, Illinois
Crawford Station, Chicago, Illinois
Fisk Station, Chicago, Illinois
Joliet Station, Joliet, Illinois
Powerton Station, Pekin, Illinois
Waukegan Station, Waukegan, Illinois
Will County Station, Lockport, Illinois
<PAGE>
Exhibit (4)-24
Commmonwealth Edison Company
Form 10-K File No. 1-1839
=============================================================================
$500,000,000
364-DAY
CREDIT AGREEMENT
Dated as of October 8, 1998
Among
COMMONWEALTH EDISON COMPANY
as Borrower
and
THE BANKS NAMED HEREIN
as Banks
and
CITIBANK, N.A.
as Administrative Agent
and
BANK OF AMERICA NT & SA
THE BANK OF NEW YORK
THE FIRST NATIONAL BANK OF CHICAGO
THE CHASE MANHATTAN BANK
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
as Co-Agents
=============================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
<S> <C> <C>
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms........................................1
SECTION 1.02. Computation of Time Periods.................................14
SECTION 1.03. Computations of Outstandings................................15
SECTION 1.04. Accounting Terms............................................15
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The A Advances..............................................15
SECTION 2.02. Making the A Advances.......................................15
SECTION 2.03. The B Advances..............................................17
SECTION 2.04. Fees........................................................20
SECTION 2.05. Reduction of the Commitments................................20
SECTION 2.06. Repayment of A Advances.....................................21
SECTION 2.07. Interest on A Advances......................................21
SECTION 2.08. Additional Interest on Eurodollar Rate Advances.............21
SECTION 2.09. Interest Rate Determination.................................22
SECTION 2.10. Voluntary Conversion of A Advances..........................24
SECTION 2.11. Optional Prepayments of A Advances..........................24
SECTION 2.12. Mandatory Prepayments.......................................24
SECTION 2.13. Increased Costs.............................................25
SECTION 2.14. Illegality..................................................26
SECTION 2.15. Payments and Computations...................................26
SECTION 2.16. Taxes.......................................................27
SECTION 2.17. Sharing of Payments, Etc....................................29
SECTION 2.18. Extension of Termination Date...............................30
SECTION 2.19. Increase in Commitments.....................................31
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Conditions Precedent to Closing.............................32
SECTION 3.02. Conditions Precedent to Each A Borrowing....................34
SECTION 3.03. Conditions Precedent to Each B Borrowing....................34
SECTION 3.04. Conditions Precedent to Each Extension of the
Termination Date............................................35
SECTION 3.05. Reliance on Certificates....................................36
</TABLE>
i
<PAGE>
<TABLE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
<S> <C> <C>
SECTION 4.01. Representations and Warranties of the Borrower..............36
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants.......................................39
SECTION 5.02. Negative Covenants..........................................43
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default...........................................46
ARTICLE VII
THE ADMINISTRATIVE AGENT
SECTION 7.01. Authorization and Action....................................48
SECTION 7.02. Administrative Agent's Reliance, Etc........................48
SECTION 7.03. Citibank, N.A. and Affiliates...............................49
SECTION 7.04. Lender Credit Decision......................................49
SECTION 7.05. Indemnification.............................................49
SECTION 7.06. Successor Administrative Agent..............................50
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc.............................................50
SECTION 8.02. Notices, Etc................................................51
SECTION 8.03. No Waiver; Remedies.........................................51
SECTION 8.04. Costs, Expenses, Taxes and Indemnification..................52
SECTION 8.05. Right of Set-off............................................53
SECTION 8.06. Binding Effect..............................................54
SECTION 8.07. Assignments and Participations..............................54
SECTION 8.08. Confidentiality.............................................57
SECTION 8.09. Waiver of Jury Trial........................................58
SECTION 8.10. Consent.....................................................58
SECTION 8.11. Governing Law...............................................58
SECTION 8.12. Relation of the Parties; No Beneficiary.....................58
SECTION 8.13. Execution in Counterparts...................................58
</TABLE>
ii
<PAGE>
<TABLE>
SCHEDULES
---------
<S> <C>
Schedule I: Commitment Allocations
Schedule II: List of Fossil Plants to be Offered for Sale
EXHIBITS
--------
Exhibit 1.01A-1: Form of A Note
Exhibit 1.01A-2: Form of B Note
Exhibit 2.02(a): Form of Notice of A Borrowing
Exhibit 2.03(a)(i): Form of Notice of B Borrowing
Exhibit 2.10: Form of Notice of Conversion
Exhibit 2.18(a): Form of Request for Extension of the
Termination Date
Exhibit 3.01(a)(vii)-1: Form of Opinion of Counsel to the Borrower
Exhibit 3.01(a)(vii)-2: Form of Opinion of Counsel to the Agent
Exhibit 8.07: Form of Lender Assignment
</TABLE>
iii
<PAGE>
364-DAY
CREDIT AGREEMENT
Dated as of October 8, 1998
THIS 364-DAY CREDIT AGREEMENT (this "Agreement") is made by and
among:
(i) COMMONWEALTH EDISON COMPANY, an Illinois corporation (the
"Borrower"),
(ii) the banks (the "Banks") listed on the signature pages
hereof and the other Lenders (as hereinafter defined) from
time to time party hereto, and
(iii) CITIBANK, N.A., as agent (the "Administrative Agent") for
the Lenders hereunder.
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"A Advance" means an advance by a Lender to the Borrower as
part of an A Borrowing and refers to a Base Rate Advance or a
Eurodollar Rate Advance, each of which shall be a "Type" of A
Advance.
"A Borrowing" means a borrowing consisting of simultaneous
A Advances of the same Type, having the same Interest Period and
ratably made or Converted on the same day by each of the Lenders
pursuant to Section 2.02 or 2.10, as the case may be. All Advances of
the same Type, having the same Interest Period and made or Converted
on the same day shall be deemed a single Borrowing hereunder until
repaid or next Converted.
"A Note" means a promissory note of the Borrower payable to
the order of any Lender, in substantially the form of Exhibit 1.01A-1
hereto, evidencing the aggregate indebtedness of the Borrower to such
Lender resulting from the A Advances made by such Lender.
"Advance" means an A Advance or a B Advance.
<PAGE>
2
"Affiliate" means, with respect to any Person, any other
Person directly or indirectly controlling (including but not limited
to all directors and any officer who possesses the power described in
the next sentence), controlled by, or under direct or indirect common
control with such Person. A Person shall be deemed to control another
entity if such Person possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of such
entity, whether through the ownership of voting securities, by
contract, or otherwise.
"Alternate Base Rate" means a fluctuating interest rate per
annum as shall be in effect from time to time which rate per annum
shall at all times be equal to the higher of:
(a) the rate of interest announced
publicly by Citibank, N.A. in New York, New York, from time
to time, as Citibank, N.A.'s base rate; and
(b) 1/2 of one percent per annum above the
Federal Funds Rate.
Each change in the Alternate Base Rate shall take effect concurrently
with any change in such base rate or the Federal Funds Rate.
"Applicable Lending Office" means, with respect to each
Lender, such Lender's Domestic Lending Office in the case of a Base
Rate Advance and such Lender's Eurodollar Lending Office in the case
of a Eurodollar Rate Advance and, in the case of a B Advance, the
office of such Lender notified by such Lender to the Administrative
Agent as its Applicable Lending Office with respect to such B
Advance.
"Applicable Margin" means, on any date, for a Eurodollar
Rate Advance or Base Rate Advance, the number of basis points set
forth below in the columns identified as Level 1, Level 2, Level 3,
Level 4 and Level 5, as determined by the respective ratings issued
by S&P and Moody's for non-credit-enhanced long-term senior secured
debt of the Borrower (the "Reference Ratings") and in effect on such
date.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Level 1 Level 2 Level 3 Level 4 Level 5
------- ------- ------- ------- -------
S&P A- or better BBB+ BBB BBB- Lower than
and and and and Level 4 or
Moody's A3 or better Baa1 Baa2 Baa3 unrated
- ---------------------------------------------------------------------------------------------------------
Basis Points Per Annum
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Eurodollar Rate 22.0 25.0 30.0 40.0 80.0
Advance
- ---------------------------------------------------------------------------------------------------------
Base Rate Advance 0 0 0 0 0
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
3
Any change in the Reference Ratings shall effect an immediate change
in the Applicable Margin.
"Applicable Rate" means:
(i) in the case of each Base Rate Advance, a rate per annum
equal at all times to the sum of the Alternate Base Rate in effect
from time to time plus the Applicable Margin in effect from time to
time; and
(ii) in the case of each Eurodollar Rate Advance comprising
part of the same A Borrowing, a rate per annum during each Interest
Period equal at all times to the sum of the Eurodollar Rate for such
Interest Period plus the Applicable Margin in effect from time to
time during such Interest Period.
"Available Commitment" means, for each Lender at any time
on any day, the unused portion of such Lender's Commitment, computed
after giving effect to all Extensions of Credit made or to be made on
such day, the application of proceeds therefrom and all prepayments
and repayments of Advances made on such day.
"Available Commitments" means the aggregate of the Lenders'
Available Commitments hereunder.
"B Advance" means an advance by a Lender to the Borrower as
part of a B Borrowing resulting from the auction bidding procedure
described in Section 2.03.
"B Borrowing" means a borrowing consisting of simultaneous
B Advances from each of the Lenders whose offer to make one or more B
Advances as part of such borrowing has been accepted by the Borrower
under the auction bidding procedure described in Section 2.03.
"B Note" means a promissory note of the Borrower payable to
the order of any Lender, in substantially the form of Exhibit 1.01A-2
hereto, evidencing the aggregate indebtedness of the Borrower to such
Lender resulting from a B Advance made by such Lender.
"B Reduction" has the meaning assigned to that term in
Section 2.01.
"Base Rate Advance" means an A Advance that bears interest
as provided in Section 2.07(a).
"Borrowing" means an A Borrowing or a B Borrowing. Any A
Borrowing consisting of A Advances of a particular Type may be
referred to as being an A Borrowing of such "Type".
<PAGE>
4
"Business Day" means a day of the year on which banks are
not required or authorized to close in New York City or Chicago,
Illinois, and, if the applicable Business Day relates to any
Eurodollar Rate Advance, on which dealings are carried on in the
London interbank market.
"Capitalized Lease Obligations" means obligations to pay
rent or other amounts under any lease of (or other arrangement
conveying the right to use) real and/or personal property which
obligation is required to be classified and accounted for as a
capital lease on a balance sheet prepared in accordance with GAAP,
and for purposes hereof the amount of such obligations shall be the
capitalized amount determined in accordance with GAAP.
"Change of Control" means the occurrence, after the date of
this Agreement, of (i) any Person or two or more Persons acting in
concert acquiring beneficial ownership (within the meaning of Rule
13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended), directly or indirectly, of
securities of the Borrower (or other securities convertible into such
securities) representing 50% of more of the combined voting power of
all securities of the Borrower entitled to vote in the election of
directors; or (ii) commencing after the date of this Agreement,
individuals who as of the date of this Agreement were directors
ceasing for any reason to constitute a majority of the Board of
Directors of the Borrower unless the Persons replacing such
individuals were nominated by the stockholders or the Board of
Directors of the Borrower in accordance with the Borrower's Bylaws;
or (iii) any Person or two or more Persons acting in concert
acquiring by contract or otherwise, or entering into a contract or
arrangement which upon consummation will result in its or their
acquisition of, or control over, securities of the Borrower (or other
securities convertible into such securities) representing 50% or more
of the combined voting power of all securities of the Borrower
entitled to vote in the election of directors.
"Closing" means the day upon which each of the applicable
conditions precedent enumerated in Section 3.01 shall be fulfilled to
the satisfaction of, or waived with the consent of, the Lenders, the
Administrative Agent and the Borrower. All transactions contemplated
by the Closing shall take place on a Business Day on or prior to
October 8, 1998, at the offices of King & Spalding, 1185 Avenue of
the Americas, New York, New York 10036, at 10:00 a.m., or such later
Business Day as the parties hereto may mutually agree.
"Commitment" means, for each Lender, the obligation of such
Lender to make Advances to the Borrower in an amount no greater than
the amount set forth on Schedule I hereto or, if such Lender has
entered into one or more Lender Assignments, set forth for such
Lender in the Register maintained by the Administrative Agent
pursuant to Section 8.07(c), in each such case as such amount may be
reduced from time to time pursuant to
<PAGE>
5
Section 2.05. "Commitments" means the total of the Lenders'
Commitments hereunder. The Commitments shall in no event exceed
$500,000,000.
"Consolidated Capital" means, with respect to any Person,
at any date of determination, the sum of (a) Consolidated Debt of
such Person, (b) consolidated equity of the common stockholders of
such Person and its Consolidated Subsidiaries, (c) consolidated
equity of the preference stockholders of such Person and its
Consolidated Subsidiaries, (d) consolidated equity of the preferred
stockholders of such Person and its Consolidated Subsidiaries, in
each case determined at such date in accordance with GAAP and (e) the
aggregate principal amount of Subordinated Deferrable Interest
Securities of such Person and its Consolidated Subsidiaries.
"Consolidated Debt" means, with respect to any Person, at
any date of determination, the aggregate Debt of such Person and its
Consolidated Subsidiaries determined on a consolidated basis in
accordance with GAAP, but shall not include (i) Nonrecourse Debt of
any Subsidiary of the Borrower, (ii) the aggregate principal amount
of Subordinated Deferrable Interest Securities of such Person and its
Consolidated Subsidiaries and (iii) the aggregate principal amount of
Transitional Funding Instruments of such Person and its Consolidated
Subsidiaries.
"Consolidated Subsidiary" means, with respect to any
Person, any Subsidiary of such Person whose accounts are or are
required to be consolidated with the accounts of such Person in
accordance with generally accepted accounting principles.
"Convert", "Conversion" and "Converted" each refers to a
conversion of Advances of one Type into Advances of another Type, or
to the selection of a new, or the renewal of the same, Interest
Period for Advances, as the case may be, pursuant to Section 2.09 or
2.10.
"Debt" means, for any Person, any and all indebtedness,
liabilities and other monetary obligations of such Person (i) for
borrowed money or evidenced by bonds, debentures, notes or other
similar instruments, (ii) to pay the deferred purchase price of
property or services (except trade accounts payable arising and
repaid in the ordinary course of business), (iii) Capitalized Lease
Obligations, (iv) under reimbursement or similar agreements with
respect to letters of credit (other than trade letters of credit)
issued to support indebtedness or obligations of such Person or of
others of the kinds referred to in clauses (i) through (iii) above
and clause (v) below, (v) reasonably quantifiable obligations under
direct guaranties or indemnities, or under support agreements, in
respect of, and reasonably quantifiable obligations (contingent or
otherwise) to purchase or otherwise acquire, or otherwise to assure a
creditor against loss in respect of, or to assure an obligee against
failure to make payment in respect of, indebtedness or obligations of
others of the kinds referred to in clauses (i) through (iv) above,
and (vi) in respect of unfunded vested benefits under Plans. In
determining Debt for any Person, (A) there shall
<PAGE>
6
be included accrued interest on the principal amount thereof to the
extent such interest has accrued for more than six months and (B) in
the cases of clauses (iv) and (v), such obligation shall be excluded
to the extent that the primary obligation has been included under the
preceding clauses.
"Default Rate" means (i) with respect to the unpaid
principal of or interest on any Advance, the greater of (A) 2% per
annum above the Applicable Rate in effect from time to time for such
Advance and (B) 2% per annum above the Applicable Rate in effect from
time to time for Base Rate Advances and (ii) with respect to any
other unpaid amount hereunder, 2% per annum above the Applicable Rate
in effect from time to time for Base Rate Advances.
"Dollars" and the sign "$" each means lawful money of the
United States.
"Domestic Lending Office" means, with respect to any
Lender, the office or affiliate of such Lender specified as its
"Domestic Lending Office" opposite its name on Schedule I hereto or
in the Lender Assignment pursuant to which it became a Lender, or
such other office or affiliate of such Lender as such Lender may from
time to time specify in writing to the Borrower and the
Administrative Agent.
"Eligible Assignee" means (a) a commercial bank or trust
company organized under the laws of the United States, or any State
thereof; (b) a commercial bank organized under the laws of any other
country that is a member of the OECD, or a political subdivision of
any such country, provided that such bank is acting through a branch
or agency located in the United States; (c) the central bank of any
country that is a member of the OECD; and (d) any other commercial
bank or other financial institution engaged generally in the business
of extending credit or purchasing debt instruments; provided,
however, that (A) any such Person shall also (i) have outstanding
unsecured long-term indebtedness that is rated A- or better by S&P or
A3 or better by Moody's (or an equivalent rating by another
nationally-recognized credit rating agency of similar standing if
neither of such corporations is then in the business of rating
unsecured indebtedness of entities engaged in such businesses) or
(ii) have combined capital and surplus (as established in its most
recent report of condition to its primary regulator) of not less than
$250,000,000 (or its equivalent in foreign currency), (B) any Person
described in clause (a), (b), (c) or (d) above, shall, on the date on
which it is to become a Lender hereunder, (i) be entitled to receive
payments hereunder without deduction or withholding of any United
States Federal income taxes (as contemplated by Section 2.16) and
(ii) not be incurring any losses, costs or expenses of the type for
which such Person could demand payment under Section 2.13, and (C)
any Person described in clause (a), (b), (c) or (d) above shall, in
addition, be reasonably acceptable to the Administrative Agent and
the Borrower.
<PAGE>
7
"ERISA" means the Employee Retirement Income Security Act
of 1974, as amended from time to time, and the regulations
promulgated and rulings issued thereunder.
"ERISA Affiliate" means, with respect to any Person, any
trade or business (whether or not incorporated) which is a member of
a group of which such Person is a member and which is under common
control within the meaning of the regulations under Section 414(b) or
(c) of the Internal Revenue Code of 1986, as amended from time to
time.
"ERISA Event" means (i) the occurrence of a reportable
event, within the meaning of Section 4043 of ERISA, unless the 30-day
notice requirement with respect thereto has been waived by the PBGC;
(ii) the provision by the administrator of any Plan of notice of
intent to terminate such Plan, pursuant to Section 4041(a)(2) of
ERISA (including any such notice with respect to a plan amendment
referred to in Section 4041(e) of ERISA); (iii) except in connection
with the sale of certain fossil-fired generating facilities listed on
Schedule II hereto, the cessation of operations at a facility in the
circumstances described in Section 4062(e) of ERISA; (iv) the
withdrawal by the Borrower or an ERISA Affiliate of the Borrower from
a Multiple Employer Plan during a plan year for which it was a
"substantial employer", as defined in Section 4001(a)(2) of ERISA;
(v) the failure by the Borrower or an ERISA Affiliate of the Borrower
to make a payment to a Plan required under Section 302(f)(1) of
ERISA, which failure results in the imposition of a lien for failure
to make required payments; (vi) the adoption of an amendment to a
Plan requiring the provision of security to such Plan, pursuant to
Section 307 of ERISA; or (vii) the institution by the PBGC of
proceedings to terminate a Plan, pursuant to Section 4042 of ERISA,
or the occurrence of any event or condition which might reasonably be
expected to constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, a
Plan.
"Eurocurrency Liabilities" has the meaning assigned to that
term in Regulation D of the Board of Governors of the Federal Reserve
System, as in effect from time to time.
"Eurodollar Lending Office" means, with respect to any
Lender, the office or affiliate of such Lender specified as its
"Eurodollar Lending Office" opposite its name on Schedule I hereto or
in the Lender Assignment pursuant to which it became a Lender (or, if
no such office is specified, its Domestic Lending Office), or such
other office or affiliate of such Lender as such Lender may from time
to time specify in writing to the Borrower and the Administrative
Agent.
"Eurodollar Rate" means, for each Interest Period for each
Eurodollar Rate Advance made as part of the same A Borrowing, an
interest rate per annum equal to the average (rounded upward to the
nearest whole multiple of 1/16 of 1% per annum, if such average is
not such a multiple) of the rate per annum at which deposits in
Dollars are offered by the principal office of each of the Reference
Banks in London, England to
<PAGE>
8
prime banks in the London interbank market at 11:00 a.m. (London
time) two Business Days before the first day of such Interest Period
in an amount substantially equal to such Reference Bank's Eurodollar
Rate Advance made as part of such A Borrowing and for a period equal
to such Interest Period. The Eurodollar Rate for the Interest Period
for each Eurodollar Rate Advance made as part of the same A Borrowing
shall be determined by the Administrative Agent on the basis of
applicable rates furnished to and received by the Administrative
Agent from the Reference Banks two Business Days before the first day
of such Interest Period, subject, however, to the provisions of
Section 2.09.
"Eurodollar Rate Advance" means an A Advance that bears
interest as provided in Section 2.07(b).
"Eurodollar Reserve Percentage" of any Lender for each
Interest Period for each Eurodollar Rate Advance means the reserve
percentage applicable to such Lender during such Interest Period (or
if more than one such percentage shall be so applicable, the daily
average of such percentages for those days in such Interest Period
during which any such percentage shall be so applicable) under
Regulation D or other regulations issued from time to time by the
Board of Governors of the Federal Reserve System (or any successor)
for determining the maximum reserve requirement (including, without
limitation, any emergency, supplemental or other marginal reserve
requirement) then applicable to such Lender with respect to
liabilities or assets consisting of or including Eurocurrency
Liabilities having a term equal to such Interest Period.
"Events of Default" has the meaning assigned to that term
in Section 6.01.
"Existing Facility" means the Credit Agreement, dated as of
October 1, 1991, among the Borrower, the Administrative Agent and
certain lenders party thereto, as amended or modified as of the date
hereof.
"Extension Date" has the meaning assigned to that term in
Section 2.18(b).
"Extension of Credit" means the making of a Borrowing. For
purposes of this Agreement, a Conversion shall not constitute an
Extension of Credit.
"Facility Fee" means a fee which shall be payable on the
aggregate amount of the Commitments, irrespective of usage, to the
Lenders pro rata on the amounts of their respective Commitments at
the rate (expressed in basis points per annum) set forth below in the
columns identified as Level 1, Level 2, Level 3, Level 4 and Level 5,
as determined by the respective ratings issued by S&P and Moody's for
non-credit-enhanced long-term senior secured debt of the Borrower.
<PAGE>
9
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Level 1 Level 2 Level 3 Level 4 Level 5
------- ------- ------- ------- -------
S&P A- or better BBB+ BBB BBB- Lower than
and and and and Level 4 or
Moody's A3 or better Baa1 Baa2 Baa3 unrated
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Basis Points 8.0 10.0 12.5 15.0 20.0
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The Facility Fee will be based upon the level corresponding to the
Reference Ratings at the time of determination. Any change in the
Reference Ratings shall effect an immediate change in the Facility
Fee.
"Federal Funds Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to the
weighted average of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by Federal funds
brokers, as published for such day (or, if such day is not a Business
Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three Federal
funds brokers of recognized standing selected by it.
"GAAP" means generally accepted accounting principles in
effect from time to time, consistent with the principles used in
preparing the most recent June 30 financial statements that have been
delivered to the Lenders in accordance with Section 5.01(i) (provided
that, prior to the first delivery under said Section, such financial
statements shall be the financial statements referred to in Section
4.01(g) hereof).
"Governmental Approval" means any authorization, consent,
approval, license, franchise, lease, ruling, tariff, rate, permit,
certificate, exemption of, or filing or registration with, any
governmental authority or other legal or regulatory body.
"Hazardous Substance" means any waste, substance, or
material identified as hazardous, dangerous or toxic by any office,
agency, department, commission, board, bureau, or instrumentality of
the United States or of the State or locality in which the same is
located having or exercising jurisdiction over such waste, substance
or material.
"Information Memorandum" means the Confidential Information
Memorandum dated August 1998 relating to this Agreement and the Other
Credit Agreement delivered (or to be delivered) by Citicorp
Securities, Inc. at the direction of the Borrower to the Lenders.
"Interest Period" means, for each A Advance made as part of
the same A Borrowing, the period commencing on the date of such A
Advance or the date of the Conversion of any A Advance into such an A
Advance and ending on the last day of the
<PAGE>
10
period selected by the Borrower pursuant to the provisions below and,
thereafter, each subsequent period commencing on the last day of the
immediately preceding Interest Period and ending on the last day of
the period selected by the Borrower pursuant to the provisions below.
The duration of each such Interest Period shall be 1, 2, 3 or 6
months in the case of a Eurodollar Rate Advance, in each case as the
Borrower may, upon notice received by the Administrative Agent not
later than 12:00 noon (New York City time) on the third Business Day
prior to the first day of such Interest Period in the case of a
Eurodollar Rate Advance, select; provided, however, that:
(i) the Borrower may not select any Interest
Period that ends after the Termination Date;
(ii) Interest Periods commencing on the same date
for A Advances comprising part of the same A Borrowing
shall be of the same duration; and
(iii) whenever the last day of any Interest
Period would otherwise occur on a day other than a Business
Day, the last day of such Interest Period shall be extended
to occur on the next succeeding Business Day, provided, in
the case of any Interest Period for a Eurodollar Rate
Advance, that if such extension would cause the last day of
such Interest Period to occur in the next following
calendar month, the last day of such Interest Period shall
occur on the next preceding Business Day.
"Lenders" means the Banks listed on the signature pages
hereof and each Eligible Assignee that shall become a party hereto
pursuant to Section 8.07.
"Lender Assignment" means an assignment and acceptance
agreement entered into by a Lender and an Eligible Assignee, and
accepted by the Administrative Agent, in substantially the form of
Exhibit 8.07.
"Lien" has the meaning assigned to that term in Section
5.02(a).
"Loan Documents" means this Agreement, the Notes, the Fee
Letter and all other agreements, instruments and documents now or
hereafter executed and/or delivered pursuant hereto or thereto.
"Majority Lenders" means, on any date of determination,
Lenders that, collectively, on such date (i) hold greater than 50% of
the then aggregate unpaid principal amount of the A Advances owing to
Lenders and (ii) if no A Advances are then outstanding, have
Percentages in the aggregate greater than 50%. Any determination of
those Lenders constituting the Majority Lenders shall be made by the
Administrative Agent and shall be conclusive and binding on all
parties absent manifest error.
<PAGE>
11
"Material Adverse Effect" means, relative to any occurrence
of whatever nature (including, without limitation, any adverse
determination in any litigation, arbitration or governmental
investigation or proceedings), a material adverse effect on:
(a) the consolidated business, assets, revenues,
financial condition, results of operations, operations or
prospects of the Borrower and its Subsidiaries; or
(b) the ability of the Borrower to make any
payment when due under this Agreement or to perform any of
its other obligations under the Loan Documents.
"Moody's" means Moody's Investors Service, Inc. or any
successor thereto.
"Multiemployer Plan" means a multiemployer plan, as defined
in Section 4001(a)(3) of ERISA, which is subject to Title IV of ERISA
and to which the Borrower or any ERISA Affiliate of the Borrower is
making or accruing an obligation to make contributions, or has within
any of the preceding five plan years made or accrued an obligation to
make contributions, such plan being maintained pursuant to one or
more collective bargaining agreements.
"Multiple Employer Plan" means a single employer plan, as
defined in Section 4001(a)(15) of ERISA, which is subject to Title IV
of ERISA and which (i) is maintained for employees of the Borrower or
an ERISA Affiliate of the Borrower and at least one Person other than
the Borrower and its ERISA Affiliates or (ii) was so maintained and
in respect of which the Borrower or an ERISA Affiliate of the
Borrower could have liability under Section 4064 or 4069 of ERISA in
the event such plan has been or were to be terminated.
"Nonrecourse Debt" means any Debt that finances the
acquisition, development, ownership or operation of an asset in
respect of which the Person to which such Debt is owed has no
recourse whatsoever to the Borrower or any of its Affiliates other
than:
(i) recourse to the named obligor with respect to
such Debt (the "Debtor") for amounts limited to
the cash flow or net cash flow (other than
historic cash flow) from the asset; and
(ii) recourse to the Debtor for the purpose only of
enabling amounts to be claimed in respect of such
Debt in an enforcement of any security interest
or lien given by the Debtor over the asset or the
income, cash flow or other proceeds deriving from
the asset (or given by any shareholder or the
like in the Debtor over its shares or like
interest in the capital of the Debtor) to secure
the Debt, but only if:
<PAGE>
12
(A) the extent of the recourse to the
Debtor is limited solely to the amount
of any recoveries made on any such
enforcement; and
(B) the Person to which such Debt is owed
is not entitled, by virtue of any
right or claim arising out of or in
connection with such Debt, to commence
proceedings for the winding up or
dissolution of the Debtor or to
appoint or procure the appointment of
any receiver, trustee, or similar
Person or officer in respect of the
Debtor or any of its assets (other
than the assets subject to the
security interest or lien referred to
above); and
(iii) recourse to the Debtor generally or indirectly to
any Affiliate of the Debtor, under any form of
assurance, undertaking or support, which recourse
is limited to a claim for damages (other than
liquidated damages and damages required to be
calculated in a specified way) for a breach of an
obligation (other than a payment obligation or an
obligation to comply or to procure compliance by
another with any financial ratios or other tests
of financial condition) by the Person against
which such recourse is available.
"Note" means an A Note or a B Note.
"Notice of A Borrowing" has the meaning assigned to that
term in Section 2.02(a).
"Notice of B Borrowing" has the meaning assigned to that
term in Section 2.03(a).
"Notice of Conversion" has the meaning assigned to that
term in Section 2.10.
"Other Credit Agreement" means the 5-Year Credit Agreement,
dated as of October 8, 1998, among the Borrower, the lenders from
time to time parties thereto and Citibank, N.A., as agent for such
lenders.
"PBGC" means the Pension Benefit Guaranty Corporation (or
any successor entity) established under ERISA.
"Percentage" means, for any Lender on any date of
determination, the percentage obtained by dividing such Lender's
Commitment on such day by the total of the Commitments on such date,
and multiplying the quotient so obtained by 100%.
"Person" means an individual, partnership, corporation
(including a business trust), limited liability company, joint stock
company, trust, unincorporated association, joint venture or other
entity, or a government or any political subdivision or agency
thereof.
<PAGE>
13
"Plan" means a Single Employer Plan or a Multiple Employer
Plan.
"PUHCA" means the Public Utility Holding Company Act of
1935, as amended from time to time.
"Reference Banks" means Citibank, N.A., and any additional
or substitute Lenders as may be selected from time to time to act as
Reference Banks hereunder by the Administrative Agent, the Majority
Lenders and the Borrower.
"Register" has the meaning assigned to that term in Section
8.07(c).
"S&P" means Standard & Poor's Ratings Services, a division
of the McGraw-Hill Companies, Inc., or any successor thereto.
"Senior Financial Officer" means the President, the Chief
Executive Officer, the Chief Financial Officer or the Treasurer of
the Borrower.
"Significant Subsidiary" means any direct or indirect
Subsidiary of the Borrower that, on a consolidated basis with any of
its Subsidiaries as of any date of determination, accounts for more
than 20% of the consolidated assets (valued at book value) of the
Borrower and its Subsidiaries; but shall not include any Subsidiary
set up for the sole purpose of facilitating the issuance of
Transitional Funding Instruments.
"Single Employer Plan" means a single employer plan, as
defined in Section 4001(a)(15) of ERISA, which is subject to Title IV
of ERISA and which (i) is maintained for employees of the Borrower or
an ERISA Affiliate of the Borrower and no Person other than the
Borrower and its ERISA Affiliates, or (ii) was so maintained and in
respect of which the Borrower or an ERISA Affiliate of the Borrower
could have liability under Section 4069 of ERISA in the event such
plan has been or were to be terminated.
"Subordinated Deferrable Interest Securities" means all
obligations of the Borrower and its Subsidiaries in respect of
"ComEd-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts", as set forth from time to time in the
consolidated balance sheets of the Borrower and its Consolidated
Subsidiaries delivered pursuant to Section 5.01(i).
"Subsidiary" means, with respect to any Person, any
corporation or unincorporated entity of which more than 50% of the
outstanding capital stock (or comparable interest) having ordinary
voting power (irrespective of whether at the time capital stock (or
comparable interest) of any other class or classes of such
corporation or entity shall or might have voting power upon the
occurrence of any contingency) is at the time directly or indirectly
owned by said Person (whether directly or through one of more other
Subsidiaries). In the case of an unincorporated entity, a Person
shall be deemed to have
<PAGE>
14
more than 50% of interests having ordinary voting power only if such
Person's vote in respect of such interests comprises more than 50% of
the total voting power of all such interests in the unincorporated
entity.
"Termination Date" means the earlier to occur of (i) the
date 364 days from the date hereof (or such later date as the Lenders
may from time to time agree pursuant to Section 2.18(a)) and (ii) the
date of termination or reduction in whole of the Commitments pursuant
to Section 2.05 or 6.01.
"Transitional Funding Instruments" means any instruments,
pass-through certificates, notes, debentures, certificates of
participation, bonds, certificates of beneficial interest or other
evidences of indebtedness or instruments evidencing a beneficial
interest which (i) are issued pursuant to a "transitional funding
order" (as such term is defined in Section 18-102 of the Illinois
Public Utilities Act, as amended) issued by the Illinois Commerce
Commission at the request of an electric utility and (ii) are secured
by or otherwise payable from non-bypassable cent per kilowatt hour
charges authorized pursuant to such order to be applied and invoiced
to customers of such utility. The instrument funding charges so
applied and invoiced must be deducted and stated separately from the
other charges invoiced by such utility against its customers.
"Type" has the meaning assigned to that term (i) in the
definition of "A Advance" when used in such context and (ii) in the
definition of "Borrowing" when used in such context.
"Unmatured Default" means an event that, with the giving of
notice or lapse of time, or both, would constitute an Event of
Default.
"Year 2000 Issues" means, in respect of a person or entity,
anticipated costs, problems and uncertainties associated with the
inability of certain computer applications to effectively handle data
including dates on and after January 1, 2000, as such inability
affects the business, operations and financial condition of such
person or entity.
"Year 2000 Program" means, in respect of a person or
entity, a program for remediating on a timely basis any Year 2000
Issues of or relating to such person or entity that if not remediated
on a timely basis, could reasonably be expected to result in a
Material Adverse Effect on such person or entity.
SECTION 1.02. Computation of Time Periods. Unless otherwise
indicated, each reference in this Agreement to a specific time of day is a
reference to New York City time. In the computation of periods of time under
this Agreement, any period of a specified number of days or months shall be
computed by including the first day or month occurring during such period and
excluding the last such day or month. In the case of a period of time "from" a
<PAGE>
15
specified date "to" or "until" a later specified date, the word "from" means
"from and including" and the words "to" and "until" each means "to but
excluding".
SECTION 1.03. Computations of Outstandings. Whenever reference is
made in this Agreement to the "principal amount outstanding" on any date under
this Agreement, such reference shall refer to the aggregate principal amount of
all Advances outstanding on such date after giving effect to all Extensions of
Credit to be made on such date and the application of the proceeds thereof.
SECTION 1.04. Accounting Terms. Except as otherwise provided
herein, all accounting terms not specifically defined herein shall be construed
in accordance with generally accepted accounting principles.
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The A Advances. (a) Each Lender severally agrees, on
the terms and conditions hereinafter set forth, to make A Advances to the
Borrower from time to time on any Business Day during the period from the
Closing until the Termination Date in an aggregate outstanding amount not to
exceed at any time such Lender's Available Commitment, provided that the
aggregate amount of the Commitments of the Lenders shall be deemed used from
time to time to the extent of the aggregate amount of the B Advances then
outstanding and such deemed use of the aggregate amount of the Commitments shall
be applied to the Lenders ratably according to their respective Percentages
(such deemed use of the aggregate amount of the Commitments being a "B
Reduction"). Each A Borrowing shall be in an aggregate amount not less than
$10,000,000 (or, if lower, the amount of the Available Commitments) or an
integral multiple of $1,000,000 in excess thereof and shall consist of A
Advances of the same Type made on the same day by the Lenders ratably according
to their respective Percentages. Within the limits of each Lender's Commitment
and as hereinabove and hereinafter provided, the Borrower may request Extensions
of Credit hereunder, and repay or prepay Advances pursuant to Section 2.11 and
utilize the resulting increase in the Available Commitments for further
Extensions of Credit in accordance with the terms hereof.
(b) In no event shall the Borrower be entitled to request or receive
any Extensions of Credit that would cause the principal amount outstanding
hereunder to exceed the Commitments.
SECTION 2.02. Making the A Advances. (a) Each A Borrowing shall be
made on notice, given not later than 12:00 noon (i) on the third Business Day
prior to the date of the proposed A Borrowing, in the case of an A Borrowing
comprised of Eurodollar Rate Advances, and (ii) on the date of the proposed A
Borrowing, in the case of an A Borrowing comprised of Base Rate Advances, in
each case by the Borrower to the Administrative Agent, which shall give to each
Lender prompt notice thereof by telecopier, telex or cable. Each such notice of
an A
<PAGE>
16
Borrowing (a "Notice of A Borrowing") shall be by telecopier, telex or cable, in
substantially the form of Exhibit 2.02(a) hereto, specifying therein the
requested (A) date of such A Borrowing, (B) Type of A Advances comprising such A
Borrowing, (C) aggregate amount of such A Borrowing and (D) in the case of an A
Borrowing comprised of Eurodollar Rate Advances, initial Interest Period for
each such A Advance. Each Lender shall, before (x) 12:00 noon on the date of
such A Borrowing, in the case of an A Borrowing comprised of Eurodollar Rate
Advances, and (y) 1:00 p.m. on the date of such A Borrowing, in the case of an A
Borrowing comprised of Base Rate Advances, make available for the account of its
Applicable Lending Office to the Administrative Agent at its address referred to
in Section 8.02, in same day funds, such Lender's ratable portion of such A
Borrowing. After the Administrative Agent's receipt of such funds and upon
fulfillment of the applicable conditions set forth in Article III, the
Administrative Agent will promptly make such funds available to the Borrower at
the Administrative Agent's aforesaid address.
(b) Each Notice of A Borrowing shall be irrevocable and binding on
the Borrower. In the case of any A Borrowing which the related Notice of A
Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrower
shall indemnify each Lender against any loss, cost or expense incurred by such
Lender as a result of any failure to fulfill on or before the date specified in
such Notice of A Borrowing for such A Borrowing the applicable conditions set
forth in Article III, including, without limitation, any loss, cost or expense
incurred by reason of the liquidation or reemployment of deposits or other funds
acquired by such Lender to fund the A Advance to be made by such Lender as part
of such A Borrowing when such A Advance, as a result of such failure, is not
made on such date.
(c) Unless the Administrative Agent shall have received notice from a
Lender prior to the date of any A Borrowing that such Lender will not make
available to the Administrative Agent such Lender's A Advance as part of such A
Borrowing, the Administrative Agent may assume that such Lender has made such A
Advance available to the Administrative Agent on the date of such A Borrowing in
accordance with subsection (a) of this Section 2.02 and the Administrative Agent
may, in reliance upon such assumption, make available to the Borrower on such
date a corresponding amount. If and to the extent that such Lender shall not
have so made such A Advance available to the Administrative Agent, such Lender
and the Borrower severally agree to repay to the Administrative Agent forthwith
on demand such corresponding amount, together with interest thereon, for each
day from the date such amount is made available to the Borrower until the date
such amount is repaid to the Administrative Agent, at (i) in the case of the
Borrower, the interest rate applicable at the time to A Advances comprising such
A Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such
Lender shall repay to the Administrative Agent such corresponding amount, such
amount so repaid shall constitute such Lender's A Advance as part of such A
Borrowing for purposes of this Agreement.
(d) The failure of any Lender to make the A Advance to be made by it
as part of any A Borrowing shall not relieve any other Lender of its obligation,
if any, hereunder to make its A Advance on the date of such A Borrowing, but no
Lender shall be responsible for the failure
<PAGE>
17
of any other Lender to make the A Advance to be made by such other Lender on the
date of any A Borrowing.
SECTION 2.03. The B Advances. (a) Each Lender severally agrees that
the Borrower may request B Borrowings under this Section 2.03 from time to time
on any Business Day during the period from the date hereof until the date
occurring 30 days prior to the Termination Date in the manner, and subject to
the terms and conditions, set forth below. The rates of interest offered by the
Lenders and accepted by the Borrower for each B Borrowing shall be fixed rates
per annum or LIBOR based bids.
(i) The Borrower may request a B Borrowing under this
Section 2.03 by delivering to the Administrative Agent, by
telecopier, telex or cable, a notice of a B Borrowing (a "Notice of B
Borrowing"), in substantially the form of Exhibit 2.03(a)(i) hereto,
specifying the date and aggregate amount of the proposed B Borrowing,
the maturity date for repayment of each B Advance to be made as part
of such B Borrowing (which maturity date may not be earlier than the
date occurring 30 days after the date of such B Borrowing nor later
than the earlier to occur of the then-scheduled Termination Date and
the date occurring 180 days following the date of such B Borrowing),
the interest payment date or dates relating thereto, the interest
rate basis to be used by the Lenders and any other terms to be
applicable to such B Borrowing, not later than 3:00 p.m. at least one
Business Day prior to the date of the proposed B Borrowing for fixed
rate bids and not later than 3:00 p.m. at least four Business Days
prior to the date of the proposed B Borrowing for LIBOR based bids.
The Administrative Agent shall in turn promptly notify each Lender of
each request for a B Borrowing received by it from the Borrower by
sending such Lender a copy of the related Notice of B Borrowing.
(ii) Each Lender may, if, in its sole discretion, it elects
to do so, irrevocably offer to make one or more B Advances to the
Borrower as part of such proposed B Borrowing at a rate or rates of
interest specified by such Lender in its sole discretion, by
notifying the Administrative Agent (which shall give prompt notice
thereof to the Borrower), before 11:00 a.m., on the date of such
proposed B Borrowing, of the minimum amount and maximum amount of
each B Advance which such Lender would be willing to make as part of
such proposed B Borrowing (which amounts may, subject to the
limitation contained in subsection (d) below, exceed such Lender's
Commitment), the rate or rates of interest therefor and such Lender's
Applicable Lending Office with respect to such B Advance; provided
that if the Administrative Agent in its capacity as a Lender shall,
in its sole discretion, elect to make any such offer, it shall notify
the Borrower of such offer before 10:30 a.m. on the date on which
notice of such election is to be given to the Administrative Agent by
the other Lenders. If any Lender shall elect not to make such an
offer, such Lender shall so notify the Administrative Agent before
11:00 a.m. on the date on which notice of such election is to be
given to the Administrative Agent by the other Lenders, and such
Lender shall not be obligated to, and shall not, make any B Advance
as part of such B Borrowing; provided that the failure by any Lender
to give such notice
<PAGE>
18
shall not cause such Lender to be obligated to make any B Advance as
part of such proposed B Borrowing.
(iii) The Borrower shall, in turn, before 12:00 noon on the
date of such proposed B Borrowing either
(x) cancel such B Borrowing by either giving the
Administrative Agent notice to that effect or failing to
accept one or more offers as provided in clause (y) below,
or
(y) accept one or more of the offers, in its sole
discretion, made by any Lender or Lenders pursuant to
paragraph (ii) above, in order of the lowest to the highest
rates of interest, with pro rata allocation of any matching
rates of interest, by giving written notice to the
Administrative Agent of the amount of each B Advance (which
amount shall be equal to or greater than the minimum
amount, and equal to or less than the maximum amount,
notified to the Borrower by the Administrative Agent on
behalf of such Lender for such B Advance pursuant to
paragraph (ii) above) to be made by each Lender as part of
such B Borrowing, and reject any remaining offers made by
Lenders pursuant to paragraph (ii) above, by giving the
Administrative Agent written notice to that effect.
(iv) If the Borrower cancels such B Borrowing pursuant to
paragraph (iii)(x) above, the Administrative Agent shall give prompt
notice thereof to the Lenders and such B Borrowing shall not be made.
(v) If the Borrower accepts one or more of the offers made
by any Lender or Lenders pursuant to paragraph (iii)(y) above, such
acceptance shall be irrevocable and binding on the Borrower and,
subject to the satisfaction of the applicable conditions set forth in
Article III, on such Lender or Lenders. The Borrower shall indemnify
each such Lender against any loss, cost or expense incurred by such
Lender as a result of any failure to fulfill, on or before the date
specified in the notice provided pursuant to paragraph (vii)(A)
below, the applicable conditions set forth in Article III, including,
without limitation, any loss, cost or expense incurred by reason of
the liquidation or reemployment of deposits or other funds acquired
by such Lender to fund the B Advance to be made by such Lender as
part of such B Borrowing when such B Advance, as a result of such
failure, is not made on such date.
(vi) Unless the Administrative Agent shall have received
notice from a Lender prior to the date of any B Borrowing in which
such Lender is required to participate that such Lender will not make
available to the Administrative Agent such Lender's B Advance as part
of such B Borrowing, the Administrative Agent may assume that such
Lender has made such B Advance available to the Administrative Agent
on the date of such B Borrowing in accordance with paragraph (vii)
below, and the Administrative Agent may,
<PAGE>
19
in reliance upon such assumption, make available to the Borrower on
such date a corresponding amount. If and to the extent that such
Lender shall not have so made such B Advance available to the
Administrative Agent, such Lender and the Borrower severally agree to
repay to the Administrative Agent forthwith on demand such
corresponding amount together with interest thereon, for each day
from the date such amount is made available to the Borrower until the
date such amount is repaid to the Administrative Agent, at (i) in the
case of the Borrower, the interest rate applicable to such B Advance
and (ii) in the case of such Lender, the Federal Funds Rate. If such
Lender shall repay to the Administrative Agent such corresponding
amount, such amount so repaid shall constitute such Lender's B
Advance as part of such B Borrowing for purposes of this Agreement.
(vii) If the Borrower accepts one or more of the offers
made by any Lender or Lenders pursuant to paragraph (iii)(y) above,
the Administrative Agent shall in turn promptly notify (A) each
Lender that has made an offer as described in paragraph (ii) above,
of the date and aggregate amount of such B Borrowing and whether or
not any offer or offers made by such Lender pursuant to paragraph
(ii) above, have been accepted by the Borrower, (B) each Lender that
is to make a B Advance as part of such B Borrowing of the amount of
the B Advance to be made by such Lender as part of such B Borrowing
and (C) each Lender that is to make a B Advance as part of such B
Borrowing, upon receipt, that the Administrative Agent has received
forms of documents appearing to fulfill the applicable conditions set
forth in Article III. Each Lender that is to make a B Advance as part
of such B Borrowing shall, before 1:00 p.m. on the date of such B
Borrowing specified in the notice received from the Administrative
Agent pursuant to clause (A) of the preceding sentence or any later
time when such Lender shall have received notice from the
Administrative Agent pursuant to clause (C) of the preceding
sentence, make available for the account of its Applicable Lending
Office to the Administrative Agent at its address referred to in
Section 8.02 such Lender's B Advance, in same day funds. Upon
fulfillment of the applicable conditions set forth in Article III and
after receipt by the Administrative Agent of such funds, the
Administrative Agent will promptly make such funds available to the
Borrower at the Administrative Agent's aforesaid address. Promptly
after each B Borrowing the Administrative Agent will notify each
Lender of the amount of the B Borrowing, the consequent B Reduction
and the dates upon which such B Reduction commenced and will
terminate.
(b) Each B Borrowing shall be in an aggregate amount not less than
$10,000,000 or an integral multiple of $1,000,000 in excess thereof.
(c) Within the limits and on the conditions set forth in this Section
2.03, the Borrower may from time to time borrow under this Section 2.03, repay
pursuant to subsection (e) below and reborrow under this Section 2.03, provided
that a B Borrowing shall not be made within three Business Days of the date of
any other B Borrowing.
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20
(d) In no event shall the Borrower be entitled to request or receive
any B Advances that would cause the principal amount outstanding hereunder to
exceed the Commitments.
(e) The Borrower shall repay to the Administrative Agent for the
account of each Lender which has made a B Advance, or each other holder of a B
Note, on the maturity date of each B Advance (such maturity date being that
specified by the Borrower for repayment of such B Advance in the related Notice
of B Borrowing delivered pursuant to subsection (a)(i) above, and provided in
the B Note evidencing such B Advance), the then unpaid principal amount of such
B Advance.
(f) The Borrower shall pay interest on the unpaid principal amount of
each B Advance from the date of such B Advance to the date the principal amount
of such B Advance is repaid in full, at the rate of interest for such B Advance
specified by the Lender making such B Advance in its notice with respect thereto
delivered pursuant to subsection (a)(ii) above, payable on the interest payment
date or dates specified by the Borrower for such B Advance in the related Notice
of B Borrowing delivered pursuant to subsection (a)(i) above, as provided in the
B Note evidencing such B Advance, provided, however, that upon the occurrence
and during the continuance of any Event of Default, each B Advance shall bear
interest at the Default Rate.
(g) The indebtedness of the Borrower resulting from each B Advance
made to the Borrower as part of a B Borrowing shall be evidenced by a separate B
Note of the Borrower payable to the order of the Lender making such B Advance.
SECTION 2.04. Fees. (a) The Borrower agrees to pay to the
Administrative Agent for the account of each Lender the Facility Fee from the
date hereof, in the case of each Bank, and from the effective date specified in
the Lender Assignment pursuant to which it became a Lender, in the case of each
other Lender, until the Termination Date, payable quarterly in arrears on the
last day of each December, March, June and September during the term of such
Lender's Commitment, commencing December 31, 1998, and on the Termination Date.
(b) In addition to the fee provided for in subsection (a) above, the
Borrower shall pay to the Administrative Agent, for the account of the
Administrative Agent, such fees as are provided for in the Fee Letter.
SECTION 2.05. Reduction of the Commitments. (a) The Borrower shall
have the right, upon at least three Business Days' notice to the Administrative
Agent, to terminate in whole or reduce ratably in part the unused portions of
the respective Commitments of the Lenders; provided that the aggregate amount of
the Commitments of the Lenders shall not be reduced to an amount which is less
than the aggregate principal amount of the A and B Advances then outstanding;
and provided, further, that each partial reduction shall be in a minimum amount
of $10,000,000 or any whole multiple of $1,000,000 in excess thereof. Any
termination or reduction of the Commitments shall be irrevocable, and the
Commitments shall not thereafter be reinstated.
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21
(b) On the Termination Date, and upon the occurrence of a Change of
Control, the Commitments of the Lenders shall be reduced to zero.
SECTION 2.06. Repayment of A Advances. The Borrower shall repay the
principal amount of each A Advance made by each Lender in accordance with the A
Note to the order of such Lender.
SECTION 2.07. Interest on A Advances. The Borrower shall pay interest
on the unpaid principal amount of each A Advance owing to each Lender from the
date of such A Advance until such principal amount shall be paid in full, at the
Applicable Rate for such A Advance (except as otherwise provided in this Section
2.07), payable as follows:
(a) Base Rate Advances. If such A Advance is a Base Rate
Advance, interest thereon shall be payable quarterly in arrears on
the last day of each March, June, September and December, on the date
of any Conversion of such Base Rate Advance and on the date such Base
Rate Advance shall become due and payable or shall otherwise be paid
in full; provided that at any time an Event of Default shall have
occurred and be continuing, thereafter each Base Rate Advance shall
bear interest payable on demand, at a rate per annum equal at all
times to the Default Rate.
(b) Eurodollar Rate Advances. If such A Advance is a
Eurodollar Rate Advance, interest thereon shall be payable on the
last day of such Interest Period and, if the Interest Period for such
A Advance has a duration of more than three months, on that day of
each third month during such Interest Period that corresponds to the
first day of such Interest Period (or, if any such month does not
have a corresponding day, then on the last day of such month);
provided that at any time an Event of Default shall have occurred and
be continuing, thereafter each Eurodollar Rate Advance shall bear
interest payable on demand, at a rate per annum equal at all times to
the Default Rate.
SECTION 2.08. Additional Interest on Eurodollar Rate Advances. The
Borrower shall pay to Administrative Agent for the account of each Lender any
costs actually incurred by such Lender with respect to Eurodollar Rate Advances
which are attributable to such Lender's compliance with regulations of the Board
of Governors of the Federal Reserve System requiring the maintenance of reserves
with respect to liabilities or assets consisting of or including Eurocurrency
Liabilities. Such costs shall be paid to the Administrative Agent for the
account of such Lender in the form of additional interest on the unpaid
principal amount of each Eurodollar Rate Advance of such Lender, from the date
of such A Advance until such principal amount is paid in full, at an interest
rate per annum equal at all times to the remainder obtained by subtracting (i)
the Eurodollar Rate for the Interest Period for such A Advance from (ii) the
rate obtained by dividing such Eurodollar Rate by a percentage equal to 100%
minus the Eurodollar Reserve Percentage of such Lender for such Interest Period,
payable on each date on which interest is payable on such A Advance. Such
additional interest shall be determined by such Lender and notified to the
Borrower through the Administrative Agent. A certificate as to the
<PAGE>
22
amount of such additional interest, submitted to the Borrower and the
Administrative Agent by such Lender, shall be conclusive and binding for all
purposes, absent manifest error, provided that the determination thereof shall
have been made by such Lender in good faith.
SECTION 2.09. Interest Rate Determination. (a) Each Reference Bank
agrees to furnish to the Administrative Agent timely information for the purpose
of determining each Eurodollar Rate. If any one or more of the Reference Banks
shall not furnish such timely information to the Administrative Agent for the
purpose of determining any such interest rate, the Administrative Agent shall
determine such interest rate on the basis of timely information furnished by the
remaining Reference Banks.
(b) The Administrative Agent shall give prompt notice to the Borrower
and the Lenders of the applicable interest rate determined by the Administrative
Agent for purposes of Section 2.07(a) or (b), and the applicable rate, if any,
furnished by each Reference Bank for the purpose of determining the applicable
interest rate under Section 2.07(b).
(c) If fewer than two Reference Banks furnish timely information to
the Administrative Agent for determining the Eurodollar Rate for any Eurodollar
Rate Advances, due to the unavailability of funds to such Reference Banks in the
relevant financial markets:
(i) the Administrative Agent shall forthwith notify the
Borrower and the Lenders that the interest rate cannot be determined
for such Eurodollar Rate Advances;
(ii) each such Advance will automatically, on the last day
of the then existing Interest Period therefor, Convert into a Base
Rate Advance (or if such Advance is then a Base Rate Advance, will
continue as a Base Rate Advance); and
(iii) the obligation of the Lenders to make, or to Convert
A Advances into, Eurodollar Rate Advances shall be suspended until
the Administrative Agent shall notify the Borrower and the Lenders
that the circumstances causing such suspension no longer exist.
(d) If, with respect to any Eurodollar Rate Advances, the Majority
Lenders notify the Administrative Agent that the Eurodollar Rate for any
Interest Period for such Advances will not adequately reflect the cost to such
Majority Lenders of making, funding or maintaining their respective Eurodollar
Rate Advances for such Interest Period, the Administrative Agent shall forthwith
so notify the Borrower and the Lenders, whereupon:
(i) each Eurodollar Rate Advance will automatically, on the
last day of the then existing Interest Period therefor, Convert into
a Base Rate Advance; and
(ii) the obligation of the Lenders to make, or to Convert A
Advances into, Eurodollar Rate Advances shall be suspended until the
Administrative Agent shall notify
<PAGE>
23
the Borrower and the Lenders that the circumstances causing such
suspension no longer exist.
(e) If the Borrower shall fail to (i) select the duration of any
Interest Period for any Eurodollar Rate Advances in accordance with the
provisions contained in the definition of "Interest Period" in Section 1.01,
(ii) provide a Notice of Conversion with respect to any Eurodollar Rate Advances
on or prior to 12:00 noon on the third Business Day prior to the last day of the
Interest Period applicable thereto, in the case of a Conversion to or in respect
of Eurodollar Rate Advances, or (iii) satisfy the applicable conditions
precedent set forth in Section 3.02 with respect to the Conversion to or in
respect of any Eurodollar Rate Advances, the Administrative Agent will forthwith
so notify the Borrower and the Lenders and such Advances will automatically, on
the last day of the then existing Interest Period therefor, Convert into Base
Rate Advances; provided, however, that if, in the case of any failure by the
Borrower pursuant to clause (iii) above, the Majority Lenders do not notify the
Borrower within 30 days after such Conversion into Base Rate Advances that they
have agreed to waive, or have decided not to waive, the applicable conditions
precedent set forth in Section 3.02 that the Borrower failed to satisfy, the
Majority Lenders shall be deemed to have waived such conditions precedent solely
with respect to the Advances so Converted, and the Borrower shall, at any time
after such 30-day period, be permitted to Convert such Advances into Eurodollar
Rate Advances; and provided further, however, that such deemed waiver shall be
of no further force or effect if, at any time after such 30-day period, the
Majority Lenders notify the Borrower that they no longer agree to waive such
conditions precedent, in which case any such Advances so Converted into
Eurodollar Rate Advances shall automatically Convert into Base Rate Advances on
the last day of the then existing Interest Period therefor.
(f) On the date on which the aggregate unpaid principal amount of A
Advances comprising any A Borrowing shall be reduced, by payment or prepayment
or otherwise, to less than the product of (i) $1,000,000 and (ii) the number of
Lenders on such date, such A Advances shall, if they are Advances of a Type
other than Base Rate Advances, automatically Convert into Base Rate Advances,
and on and after such date the right of the Borrower to Convert such A Advances
into Advances of a Type other than Base Rate Advances shall terminate; provided,
however, that if and so long as each such A Advance shall be of the same Type
and have the same Interest Period as A Advances comprising another A Borrowing
or other A Borrowings, and the aggregate unpaid principal amount of all such A
Advances shall equal or exceed the product of (i) $1,000,000 and (ii) the number
of Lenders on such date, the Borrower shall have the right to continue all such
A Advances as, or to Convert all such A Advances into, Advances of such Type
having such Interest Period.
(g) Upon the occurrence and during the continuance of any Event of
Default, each outstanding Eurodollar Rate Advance shall automatically Convert to
a Base Rate Advance at the end of the Interest Period then in effect for such
Eurodollar Rate Advance.
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24
SECTION 2.10. Voluntary Conversion of A Advances. Subject to the
applicable conditions set forth in Section 3.02, the Borrower may on any
Business Day, by delivering a notice of Conversion (a "Notice of Conversion") to
the Administrative Agent not later than 12:00 noon (i) on the third Business Day
prior to the date of the proposed Conversion, in the case of a Conversion to or
in respect of Eurodollar Rate Advances and (ii) on the date of the proposed
Conversion, in the case of a Conversion to or in respect of Base Rate Advances,
and subject to the provisions of Sections 2.09 and 2.13, Convert all A Advances
of one Type comprising the same A Borrowing into Advances of another Type;
provided, however, that, in the case of any Conversion of any Eurodollar Rate
Advances into Advances of another Type on a day other than the last day of an
Interest Period for such Eurodollar Rate Advances, the Borrower shall be
obligated to reimburse the Lenders in respect thereof pursuant to Section
8.04(b). Each such Notice of Conversion shall be in substantially the form of
Exhibit 2.10 and shall, within the restrictions specified above, specify (A) the
date of such Conversion, (B) the A Advances to be Converted, (C) if such
Conversion is into Eurodollar Rate Advances, the duration of the Interest Period
for each such A Advance, and (D) the aggregate amount of A Advances proposed to
be Converted.
SECTION 2.11. Optional Prepayments of A Advances. The Borrower may,
upon at least three Business Days notice to the Administrative Agent stating the
proposed date and aggregate principal amount of the prepayment, and if such
notice is given the Borrower shall, prepay the outstanding principal amounts of
the A Advances comprising part of the same Borrowing in whole or ratably in
part, together with accrued interest to the date of such prepayment on the
principal amount prepaid; provided, however, that each partial prepayment shall
be in an aggregate principal amount not less than $10,000,000 (or, if lower, the
principal amount outstanding hereunder on the date of such prepayment) or an
integral multiple of $1,000,000 in excess thereof. In the case of any such
prepayment of a Eurodollar Rate Advance, the Borrower shall be obligated to
reimburse the Lender(s) in respect thereof pursuant to Section 8.04(b). Except
as provided in this Section 2.11, the Borrower shall have no right to prepay any
principal amount of any Advances. The Borrower shall have no right to optionally
prepay any principal amount of any B Advances.
SECTION 2.12. Mandatory Prepayments. (a) On the date of any
termination or reduction of the Commitments pursuant to Section 2.05, the
Borrower shall pay or prepay for the ratable accounts of the Lenders so much of
the principal amount outstanding under this Agreement as shall be necessary in
order that the principal amount outstanding (after giving effect to such
prepayment) will not exceed the amount of Commitments following such termination
or reduction, together with (A) accrued interest to the date of such prepayment
on the principal amount repaid or prepaid and (B) in the case of prepayments of
Eurodollar Rate Advances or B Advances, any amount payable to the Lenders
pursuant to Section 8.04(b).
(b) The Borrower shall pay or prepay for the ratable account of the
Lenders the aggregate principal amount outstanding hereunder such that, for a
period of at least one day during any 364-day period, the principal amount
outstanding hereunder shall be zero.
<PAGE>
25
(c) All prepayments required to be made pursuant to this Section 2.12
shall be applied by the Administrative Agent as follows:
(i) first, to the prepayment of the A Advances (without
reference to minimum dollar requirements), applied to outstanding
Base Rate Advances up to the full amount thereof before they are
applied to the ratable prepayment of Eurodollar Rate Advances; and
(ii) second, to the prepayment of the B Advances (without
reference to minimum dollar requirements), applied ratably among all
the Lenders holding B Advances.
SECTION 2.13. Increased Costs. (a) If, due to either (i) the
introduction of or any change (other than any change by way of imposition or
increase of reserve requirements included in the Eurodollar Rate Reserve
Percentage) in or in the interpretation of any law or regulation or (ii) the
compliance with any guideline or request from any central bank or other
governmental authority (whether or not having the force of law), there shall be
any increase in the cost to any Lender of agreeing to make or making, funding or
maintaining Eurodollar Rate Advances, then the Borrower shall from time to time,
upon demand by such Lender (with a copy of such demand to the Administrative
Agent), pay to the Administrative Agent for the account of such Lender
additional amounts sufficient to compensate such Lender for such increased cost.
A certificate as to the amount of such increased cost, submitted to the Borrower
and the Administrative Agent by such Lender, shall be conclusive and binding for
all purposes, absent manifest error, provided that the determination thereof
shall have been made by such Lender in good faith.
(b) If any Lender determines that compliance with any law or
regulation or any guideline or request from any central bank or other
governmental authority (whether or not having the force of law) affects or would
affect the amount of capital required or expected to be maintained by such
Lender or any corporation controlling such Lender and that the amount of such
capital is increased by or based upon the existence of such Lender's commitment
to lend hereunder and other commitments of this type, then, upon demand by such
Lender (with a copy of such demand to the Administrative Agent), the Borrower
shall immediately pay to the Administrative Agent for the account of such
Lender, from time to time as specified by such Lender, additional amounts
sufficient to compensate such Lender or such corporation in the light of such
circumstances, to the extent that such Lender reasonably determines such
increase in capital to be allocable to the existence of such Lender's
Commitment. A certificate as to such amounts submitted to the Borrower and the
Administrative Agent by such Lender, describing in reasonable detail the manner
in which such amounts have been calculated, shall be conclusive and binding for
all purposes, absent manifest error, provided that the determination and
allocation thereof shall have been made by such Lender in good faith.
(c) Notwithstanding the provisions of subsection (a) or (b) to the
contrary, no Lender shall be entitled to demand compensation or be compensated
hereunder to the extent that such compensation relates to any period of time
more than 180 days prior to the date upon which such
<PAGE>
26
Lender first notified the Borrower of the occurrence of the event entitling such
Lender to such compensation (unless, and to the extent that, any such
compensation so demanded shall relate to the retroactive application of any
event so notified to the Borrower).
SECTION 2.14. Illegality. Notwithstanding any other provision of this
Agreement to the contrary, if any Lender (the "Affected Lender") shall notify
the Administrative Agent and the Borrower that the introduction of or any change
in or in the interpretation of any law or regulation makes it unlawful, or any
central bank or other governmental authority asserts that it is unlawful, for
the Affected Lender or its Eurodollar Lending Office to perform its obligations
hereunder to make Eurodollar Rate Advances or to fund or maintain Eurodollar
Rate Advances hereunder, (i) all Eurodollar Rate Advances of the Affected Lender
shall, on the fifth Business Day following such notice from the Affected Lender,
automatically be Converted into a like number of Base Rate Advances, each in the
amount of the corresponding Eurodollar Rate Advance of the Affected Lender being
so Converted (each such Advance, as so Converted, being an "Affected Lender
Advance"), and the obligation of the Affected Lender to make, maintain, or
Convert A Advances into Eurodollar Rate Advances shall thereupon be suspended
until the Administrative Agent shall notify the Borrower and the Lenders that
the circumstances causing such suspension no longer exist, or the Affected
Lender has been replaced pursuant to Section 8.07(g), and (ii) in the event
that, on the last day of each of the then-current Interest Periods for each
Eurodollar Rate Advance (each such Advance being an "Unaffected Lender Advance")
of each of the other Lenders (each such Lender being an "Unaffected Lender"),
the Administrative Agent shall have yet to notify the Borrower and the Lenders
that the circumstances causing such suspension of the Affected Lender's
obligations as aforesaid no longer exist, or the Affected Lender has not yet
been replaced pursuant to Section 8.07(g), such Unaffected Lender Advance shall
be Converted by the Borrower in accordance with Section 2.10 into an Advance of
another Type (or, in the event that the Borrower shall fail to duly deliver a
Notice of Conversion with respect thereto, into a Base Rate Advance), and the
obligation of such Unaffected Lender to make, maintain, or Convert A Advances
into Eurodollar Rate Advances shall be suspended until the Administrative Agent
shall so notify the Borrower and the Lenders, or the Affected Lender shall be so
replaced. For purposes of any prepayment under this Agreement, each Affected
Lender Advance shall be deemed to continue to be part of the same Borrowing as
the Unaffected Lender Advance to which it corresponded at the time of the
Conversion of such Affected Lender Advance pursuant to clause (i) above.
SECTION 2.15. Payments and Computations. (a) The Borrower shall make
each payment hereunder and under the Notes not later than 1:00 p.m. on the day
when due in Dollars to the Administrative Agent at its address referred to in
Section 8.02 in same day funds. The Administrative Agent will promptly
thereafter cause to be distributed like funds relating to the payment of
principal or interest or fees ratably (other than amounts payable pursuant to
Section 2.03, 2.08, 2.12(b)(iii), 2.16 or 8.04(b)) to the Lenders for the
account of their respective Applicable Lending Offices, and like funds relating
to the payment of any other amount payable to any Lender to such Lender for the
account of its Applicable Lending Office, in each case to be applied in
accordance with the terms of this Agreement. Upon its acceptance of a Lender
<PAGE>
27
Assignment and recording of the information contained therein in the Register
pursuant to Section 8.07(d), from and after the effective date specified in such
Lender Assignment, the Administrative Agent shall make all payments hereunder
and under the Notes in respect of the interest assigned thereby to the Lender
assignee thereunder, and the parties to such Lender Assignment shall make all
appropriate adjustments in such payments for periods prior to such effective
date directly between themselves.
(b) The Borrower hereby authorizes each Lender, if and to the extent
payment owed to such Lender is not made when due hereunder or under any Note
held by such Lender, to charge from time to time against any or all of the
Borrower's accounts with such Lender any amount so due.
(c) All computations of interest based on the Alternate Base Rate and
the Federal Funds Rate and of fees shall be made by the Administrative Agent on
the basis of a year of 365 or 366 days, as the case may be, and all computations
of interest based on the Eurodollar Rate shall be made by the Administrative
Agent, and all computations of interest pursuant to Section 2.09 shall be made
by a Lender, on the basis of a year of 360 days, in each case for the actual
number of days (including the first day but excluding the last day) occurring in
the period for which such interest or fees are payable. Each determination by
the Administrative Agent (or, in the case of Section 2.09, by a Lender) of an
interest rate hereunder shall be conclusive and binding for all purposes, absent
manifest error.
(d) Whenever any payment hereunder or under the Notes shall be stated
to be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or fees, as the case may be;
provided, however, that if such extension would cause payment of interest on or
principal of Eurodollar Rate Advances to be made in the next following calendar
month, such payment shall be made on the next preceding Business Day.
(e) Unless the Administrative Agent shall have received notice from
the Borrower prior to the date on which any payment is due to the Lenders
hereunder that the Borrower will not make such payment in full, the
Administrative Agent may assume that the Borrower has made such payment in full
to the Administrative Agent on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each Lender on such
due date an amount equal to the amount then due such Lender. If and to the
extent that the Borrower shall not have so made such payment in full to the
Administrative Agent, each Lender shall repay to the Administrative Agent
forthwith on demand such amount distributed to such Lender together with
interest thereon, for each day from the date such amount is distributed to such
Lender until the date such Lender repays such amount to the Administrative
Agent, at the Federal Funds Rate.
SECTION 2.16. Taxes. (a) Any and all payments by the Borrower
hereunder and under the other Loan Documents shall be made, in accordance with
Section 2.15, free and clear of and without deduction for any and all present or
future taxes, levies, imposts, deductions, charges or
<PAGE>
28
withholdings, and all liabilities with respect thereto, excluding, in the case
of each Lender and the Administrative Agent, taxes imposed on its overall net
income and franchise taxes imposed on it by the jurisdiction under the laws of
which such Lender or the Administrative Agent (as the case may be) is organized
or any political subdivision thereof and, in the case of each Lender, taxes
imposed on its overall net income and franchise taxes imposed on it by the
jurisdiction of such Lender's Applicable Lending Office or any political
subdivision thereof (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as "Taxes");
provided, however, that, notwithstanding the foregoing, Taxes shall not include
any taxes otherwise required to be deducted by the Borrower pursuant to this
subsection (a) as a result of activities of any Lender or the Administrative
Agent in the State of Iowa (other than as a result, or in respect, of this
Agreement). If the Borrower shall be required by law to deduct any Taxes from or
in respect of any sum payable hereunder or under any other Loan Document to any
Lender or the Administrative Agent, (i) the sum payable shall be increased as
may be necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section 2.16) such
Lender or the Administrative Agent (as the case may be) receives an amount equal
to the sum it would have received had no such deductions been made, (ii) the
Borrower shall make such deductions and (iii) the Borrower shall pay the full
amount deducted to the relevant taxation authority or other authority in
accordance with applicable law.
(b) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder or under any other
Loan Document or from the execution, delivery or registration of, or otherwise
with respect to, this Agreement or any other Loan Document (hereinafter referred
to as "Other Taxes").
(c) The Borrower will indemnify each Lender and the Administrative
Agent for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts
payable under this Section 2.16) paid by such Lender or the Administrative Agent
(as the case may be) and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto, whether or not such Taxes
or Other Taxes were correctly or legally asserted. This indemnification shall be
made within 30 days from the date such Lender or the Administrative Agent (as
the case may be) makes written demand therefor. Nothing herein shall preclude
the right of the Borrower to contest any such Taxes or Other Taxes so paid, and
the Lenders in question or the Administrative Agent (as the case may be) will,
following notice from, and at the expense of, the Borrower, reasonably cooperate
with the Borrower to preserve the Borrower's rights to contest such Taxes or
Other Taxes.
(d) Within 30 days after the date of any payment of Taxes, the
Borrower will furnish to the Administrative Agent, at its address referred to in
Section 8.02, the original or a certified copy of a receipt evidencing payment
thereof.
(e) Each Lender agrees that, on or prior to the date upon which it
shall become a party hereto, and upon the reasonable request from time to time
of the Borrower or the Administrative
<PAGE>
29
Agent, such Lender will deliver to the Borrower and the Administrative Agent
either (i) a statement that it is organized under the laws of a jurisdiction
within the United States or (ii) duly completed copies of such form or forms as
may from time to time be prescribed by the United States Internal Revenue
Service indicating that such Lender is entitled to receive payments without
deduction or withholding of any United States federal income taxes, as permitted
by the Internal Revenue Code of 1986, as amended from time to time. Each Lender
that delivers to the Borrower and the Administrative Agent the form or forms
referred to in the preceding sentence further undertakes to deliver to the
Borrower and the Administrative Agent further copies of such form or forms, or
successor applicable form or forms, as the case may be, as and when any previous
form filed by it hereunder shall expire or shall become incomplete or inaccurate
in any respect. Each Lender represents and warrants that each such form supplied
by it to the Administrative Agent and the Borrower pursuant to this subsection
(e), and not superseded by another form supplied by it, is or will be, as the
case may be, complete and accurate.
(f) Any Lender claiming any additional amounts payable pursuant to
this Section 2.16 shall use its best efforts (consistent with its internal
policy and legal and regulatory restrictions) to change the jurisdiction of its
Applicable Lending Office if the making of such a change would avoid the need
for, or reduce the amount of, any such additional amounts which may thereafter
accrue and would not, in the reasonable judgment of such Lender, be otherwise
disadvantageous to such Lender.
(g) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 2.16 shall survive the payment in full of principal and interest
hereunder and under the Notes.
SECTION 2.17. Sharing of Payments, Etc. If any Lender shall obtain
any payment (whether voluntary, involuntary, through the exercise of any right
of set-off, or otherwise) on account of the A Advances made by it (other than
pursuant to Section 2.08, 2.13, 2.16 or 8.04(b)) in excess of its ratable share
of payments on account of the A Advances obtained by all the Lenders, such
Lender shall forthwith purchase from the other Lenders such participations in
the Advances made by them as shall be necessary to cause such purchasing Lender
to share the excess payment ratably with each of them; provided, however, that
if all or any portion of such excess payment is thereafter recovered from such
purchasing Lender, such purchase from each Lender shall be rescinded and such
Lender shall repay to the purchasing Lender the purchase price to the extent of
such recovery, together with an amount equal to such Lender's ratable share
(according to the proportion of (i) the amount of such Lender's required
repayment to (ii) the total amount so recovered from the purchasing Lender) of
any interest or other amount paid or payable by the purchasing Lender in respect
of the total amount so recovered. The Borrower agrees that any Lender so
purchasing a participation from another Lender pursuant to this Section 2.17
may, to the fullest extent permitted by law, exercise all its rights of payment
(including the right of set-off) with respect to such participation as fully as
if such Lender were the direct creditor of the Borrower in the amount of such
participation.
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SECTION 2.18. Extension of Termination Date. (a) At least 45 days but
not more than 60 days prior to the then-current Termination Date, the Borrower
may request that the Lenders, by written notice to the Administrative Agent (in
substantially the form attached hereto as Exhibit 2.18(a)), consent to a 364-day
extension of the Termination Date. Each Lender shall, in its sole discretion,
determine whether to consent to such request and shall notify the Administrative
Agent of its determination at least 20 days but not more than 30 days prior to
the then-current Termination Date. The failure to respond by any Lender within
such time period shall be deemed a denial of such request. The Administrative
Agent shall deliver a notice to the Borrower and the Lenders at least 15 days
prior to the then-current Termination Date of the identity of the Lenders that
have consented to such extension and the Lenders that have declined such consent
(the "Declining Lenders"). If Lenders holding in the aggregate more than 50% of
the Commitments have not consented to the requested extension, the Termination
Date shall not be extended, and the Commitments of all Lenders shall terminate
on the then-current Termination Date.
(b) If Lenders holding in the aggregate more than 50% of the
Commitments have consented to the requested extension, the Termination Date
shall be extended as to such consenting Lenders only (and not as to any
Declining Lender) for a period of 364 days from the then-current Termination
Date (for purposes of this Section 2.18, the "Extension Date"), and the
Commitments of any Declining Lenders shall terminate on the Extension Date (as
theretofore in effect) and all Advances of such Declining Lenders shall be
repaid to them on such date. If the Borrower so requests, each Lender consenting
to such request shall be given the opportunity at least seven days but not more
than 15 days prior to the Extension Date, in each Lender's sole discretion, to
commit to increase its Commitment by submission of a written notice setting
forth the desired increase in such Lender's Commitment to the Administrative
Agent in amounts such that the aggregate Commitments hereunder after giving
effect to any such extension and increase in the Commitments shall not exceed
the aggregate Commitment immediately prior to the Extension Date. If the
Administrative Agent receives Commitments to increase the Commitments from the
Lenders, which, when aggregated with the existing Commitments, (A) are less than
or equal to the Commitments immediately prior to the Extension Date, the
Administrative Agent shall accept all such Commitments, (B) are greater than the
Commitments on the date hereof, the Administrative Agent may determine, in its
reasonable discretion, which Commitments to accept and the amounts by which each
submitting Lender's Commitments shall be increased so that the aggregate
Commitments after such Extension Date shall equal the aggregate Commitments
immediately prior to such Extension Date (any Lender whose commitment to
increase its Commitment hereunder is accepted by the Administrative Agent, an
"Increasing Commitment Lender"). If Lenders do not consent to increase the
aggregate Commitments to an amount equal to the Commitments immediately prior to
such Extension Date, the Borrower may, at least two days but not more than seven
days prior to such Extension Date, request that the Administrative Agent, in its
sole discretion, accept the Commitment or Commitments of an Eligible Assignee or
Eligible Assignees such that the aggregate Commitments hereunder after such
Extension Date shall not be greater than Commitments hereunder immediately prior
to such Extension Date. If the Administrative Agent shall accept the Commitment
of any Increasing Commitment Lender or Eligible Assignee, the Commitments of the
Declining Lenders shall terminate on such Extension
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31
Date, and any Advances made by such Declining Lenders shall be repaid on such
date in accordance with this Agreement.
(c) Each such accepted Eligible Assignee and each Increasing
Commitment Lender shall deliver a signature page hereto indicating that it is
bound by the terms hereof and setting forth its aggregate Commitment hereunder.
Such new signature page shall constitute a part hereof upon acceptance by the
Administrative Agent and, in the case of any signature page submitted by any
Increasing Commitment Lender, shall replace such Increasing Commitment Lender's
previously delivered signature page. Any such extension shall become effective
upon the satisfaction of the conditions set forth in Section 3.04 hereof. Upon
satisfaction of such conditions and the effectiveness of such extension, each
new Lender and Increasing Commitment Lender shall make A Advances to the
Borrower (1) in the case of each new Lender, equal to such Lender's ratable
portion of the A Advances outstanding immediately prior to such Extension Date
and (2) in the case of each Increasing Commitment Lender, equal to such portion
of such Lender's ratable portion of the A Advances (assuming that such Lender's
Commitment consists only of the increased portion thereof) outstanding
immediately prior to such Extension Date, in each case, without giving effect to
any repayment of A Advances to Declining Lenders made on such Extension Date.
SECTION 2.19. Increase in Commitments. (a) If at any time the
Commitments shall be less than $500,000,000, the Borrower may, by written
request to the Administrative Agent, request that the Lenders increase the
Commitments hereunder in such amount that, when added together with the
then-outstanding Commitments, shall not exceed $500,000,000, which amount shall
be an integral multiple of $10,000,000; provided that, on and as of the Increase
Date (as defined below), (i) if the aggregate commitments under the Other Credit
Agreement are less than $500,000,000, then such aggregate commitments shall be
increased accordingly to preserve the ratio of the aggregate commitments under
the Other Credit Agreement to the sum of (A) the Commitments hereunder plus (B)
the aggregate commitments under the Other Credit Agreement, and (ii) no Event of
Default or Unmatured Default has occurred and is continuing. Such increase shall
be effective as of a date which shall be any Business Day occurring not less
than 25 days (unless otherwise agreed to by the Borrower and the Administrative
Agent) nor more than 30 days from the date of such written request (such date
herein referred to as the "Increase Date"). Upon receipt of written notice of
such request from the Administrative Agent, each Lender shall have the
opportunity, in its sole discretion, no later than 20 days after the date on
which the Borrower's request shall have been received by the Administrative
Agent, to commit to increase its Commitment by written notice to the
Administrative Agent setting forth the amount by which such Lender proposes to
increase its Commitment (each such Lender an "Existing Lender"). To the extent
that the aggregate amount of the proposed increases is less than the aggregate
amount of the increase requested by the Borrower, the Borrower may either (x)
request the Administrative Agent to solicit the Lenders for further increases in
their respective Commitments, (y) amend the original request by reducing the
amount by which the Commitments are requested to be increased to an amount equal
to the aggregate amount of the proposed increases of the Commitments or (z)
request that the Administrative Agent, in its reasonable discretion, accept the
participation in the
<PAGE>
32
proposed increase of one or more additional financial institutions (each an
"Additional Lender"), provided that the minimum commitment of each such
Additional Lender equals or exceeds $10,000,000. If the Administrative Agent
shall accept the proposed increases of the Existing Lenders and the Additional
Lenders, the Commitments shall be increased by the aggregate amount of the
proposed increases on and as of the Increase Date. The Administrative Agent
shall allocate the increased amount pro rata among the Existing Lenders and the
Additional Lenders in accordance with their respective Commitments.
(b) Upon the effectiveness of the increase in Commitments hereunder,
(i) each Existing Lender and each Additional Lender shall deliver a signature
page hereto indicating that it is bound by the terms hereof, such new signature
page constituting a part hereof and, in the case of any such signature page
submitted by any Existing Lender, replacing such Existing Lender's previously
delivered signature page, (ii) Schedule I shall be amended by the Borrower and
the Administrative Agent to reflect the increase in the Commitment of such
Existing Lenders and such Additional Lenders and (iii) such Additional Lenders
shall be and become Lenders hereunder for all purposes hereof. In connection
with any such increase, the Borrower shall execute and deliver new Notes to
reflect such new Commitments, and the Lenders party hereto (including any
Additional Lenders) shall effect such purchases and sales among themselves of
portions of the outstanding A Advances as shall be necessary to reflect such new
Commitments, as specified by the Administrative Agent.
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Conditions Precedent to Closing. The Commitments of the
Lenders shall not become effective unless the following conditions precedent
shall have been fulfilled on or prior to October 8, 1998 (or such later Business
Day as the parties hereto may mutually agree):
(a) The Administrative Agent shall have received the
following, each dated the date of the Closing, in form and substance
satisfactory to the Lenders and (except for the Notes) in sufficient
copies for each Lender:
(i) this Agreement, duly executed by the
Borrower, each Bank and the Administrative Agent;
(ii) the A Notes payable to the order of the
Lenders, respectively, duly completed and executed by the
Borrower;
(iii) certified copies of the resolutions of the
Board of Directors of the Borrower approving this
Agreement, the Notes and the other Loan Documents to which
it is, or is to be, a party, and of all documents
evidencing other necessary
<PAGE>
33
corporate action with respect to this Agreement, the Notes
and such Loan Documents;
(iv) a certificate of the Secretary or an
Assistant Secretary of the Borrower certifying the names,
true signatures and incumbency of the officers of the
Borrower authorized to sign this Agreement, the Notes and
the other Loan Documents to which it is, or is to be, a
party;
(v) copies of the Restated Articles of
Incorporation (or comparable charter document) and by-laws
of the Borrower, together with all amendments thereto,
certified by the Secretary or an Assistant Secretary of the
Borrower;
(vi) certified copies of all Governmental
Approvals, if any, required in connection with the
execution, delivery and performance of this Agreement and
the other Loan Documents;
(vii) favorable opinions of:
(A) Sidley & Austin, counsel for the
Borrower, in substantially the form of Exhibit
3.01(a)(vii)-1 and as to such other matters as
the Majority Lenders, through the Administrative
Agent, may reasonably request;
(B) King & Spalding, counsel to the
Administrative Agent, in substantially the form
of Exhibit 3.01(a)(vii)-2 and as to such other
matters as the Majority Lenders, through the
Administrative Agent, may reasonably request; and
(viii) such other approvals, opinions and
documents as any Lender, through the Administrative Agent,
may reasonably request.
(b) The following statements shall be true and correct and
the Administrative Agent shall have received a certificate of a duly
authorized officer of the Borrower, dated the date of the Closing and
in sufficient copies for each Lender, stating that:
(i) the representations and warranties set forth
in Section 4.01 of this Agreement are true and correct on
and as of the date of the Closing as though made on and as
of such date, and
(ii) no event has occurred and is continuing that
constitutes an Unmatured Default or an Event of Default.
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34
(c) The Borrower shall have paid (i) all fees under or
referenced in Section 2.04 hereof, to the extent then due and
payable, and (ii) all costs and expenses of the Administrative Agent
(including counsel fees and disbursements) incurred through (and for
which statements have been provided prior to) the Closing.
(d) The Borrower shall have paid in full all debt
outstanding under the Existing Facility, and the commitments of all
the lenders thereunder shall have been terminated.
(e) The Borrower shall have executed and delivered the
Other Credit Agreement and the "Loan Documents" referred to therein,
and all conditions precedent set forth in Section 3.01 thereof shall
have been satisfied.
SECTION 3.02. Conditions Precedent to Each A Borrowing. The
obligation of each Lender to make an A Advance on the occasion of each A
Borrowing (including the initial A Borrowing) shall be subject to the conditions
precedent that, on the date of such A Borrowing,
(a) the following statements shall be true and correct (and
each of the giving of the applicable Notice of A Borrowing and the
acceptance by the Borrower of the proceeds therefrom shall constitute
a representation and warranty by the Borrower that, on the date of
such A Borrowing, such statements are true and correct):
(i) the representations and warranties contained
in Section 4.01 are true and correct in all material
respects on and as of the date of such A Borrowing, before
and after giving effect to the application of the proceeds
therefrom, as though made on and as of such date; and
(ii) no event has occurred and is continuing, or
would result from such A Borrowing or from the application
of the proceeds therefrom, which constitutes an Event of
Default or an Unmatured Default; and
(b) the Administrative Agent shall have received such other
approvals, opinions, or documents as the Administrative Agent, or the
Majority Lenders through the Administrative Agent, may reasonably
request, and such approvals, opinions, and documents shall be
satisfactory in form and substance to the Administrative Agent.
SECTION 3.03. Conditions Precedent to Each B Borrowing. The
obligation of each Lender to make a B Advance on the occasion of a B Borrowing
(including the initial B Borrowing) shall be subject to the conditions precedent
that (a) the Administrative Agent shall have received the written confirmatory
Notice of B Borrowing with respect thereto; (b) on or before the date of such B
Borrowing, but prior to such B Borrowing, the Administrative Agent shall have
received a B Note payable to the order of such Lender for each of the one or
more B Advances to be made by such Lender as part of such B Borrowing, in a
principal amount equal to the principal amount of the B Advance to be evidenced
thereby and otherwise on such terms as were agreed to for such
<PAGE>
35
B Advance in accordance with Section 2.03; (c) on the date of such B Borrowing
the following statements shall be true and correct (and each of the giving of
the applicable Notice of B Borrowing and the acceptance by the Borrower of the
proceeds therefrom shall constitute a representation and warranty by the
Borrower that, on the date of such B Borrowing, such statements are true and
correct):
(i) the representations and warranties contained
in Section 4.01 are true and correct in all material respects on and
as of the date of such B Borrowing, before and after giving effect to
such B Borrowing and to the application of the proceeds therefrom, as
though made on and as of such date; and
(ii) no event has occurred and is continuing, or
would result from such B Borrowing or from the application of the
proceeds therefrom, which constitutes an Event of Default or an
Unmatured Default; and
(d) the Administrative Agent shall have received such other approvals, opinions,
or documents as the Administrative Agent, or the Majority Lenders through the
Administrative Agent, may reasonably request, and such approvals, opinions, and
documents shall be satisfactory in form and substance to the Administrative
Agent.
SECTION 3.04. Conditions Precedent to Each Extension of the
Termination Date. In the event that the Borrower shall request an extension of
the Termination Date pursuant to Section 2.18, such extension shall take effect
only upon the satisfaction of the following conditions precedent, together with
such other conditions precedent as the extending Lenders may require in
connection with such extension:
(a) The Administrative Agent shall have prepared and
delivered to the Borrower and each Lender (including each new bank
and other financial institution to which a non-extending Lender's
Commitment has been assigned pursuant to Section 8.07 hereof) a
revised Schedule I which reflects the Commitments, as applicable, of
each Lender.
(b) The Borrower shall have paid all fees under or
referenced in Section 2.04 hereof, to the extent then due and
payable.
(c) The Administrative Agent shall have received such other
documents and legal opinions in respect of any aspect or consequence
of the transactions contemplated by Section 2.18 as the
Administrative Agent shall reasonably request, including, without
limitation, copies of the resolutions, in form and substance
satisfactory to the Administrative Agent, of the Board of Directors
of the Borrower authorizing the extension of the then-current
Termination Date.
(d) The following statements shall be true on and as of the
Extension Date:
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36
(i) The representations and warranties contained
in Section 4.01 are correct, provided that the
representation and warranty contained in Section 4.01(g)
shall be true and correct in all material respects with
respect to the financial statements most recently delivered
to the Banks; and
(ii) No event has occurred and is continuing, or
would result from such extension of the then-current
Termination Date, that constitutes an Event of Default or
an Unmatured Default.
SECTION 3.05. Reliance on Certificates. The Lenders and the
Administrative Agent shall be entitled to rely conclusively upon the
certificates delivered from time to time by officers of the Borrower as to the
names, incumbency, authority and signatures of the respective Persons named
therein until such time as the Administrative Agent may receive a replacement
certificate, in form acceptable to the Administrative Agent, from an officer of
such Person identified to the Administrative Agent as having authority to
deliver such certificate, setting forth the names and true signatures of the
officers and other representatives of such Person thereafter authorized to act
on behalf of such Person.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower. The
Borrower represents and warrants as follows:
(a) The Borrower and each of its Significant
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and is duly
qualified to do business in, and is in good standing in, all other jurisdictions
where the nature of its business or the nature of property owned or used by it
makes such qualification necessary (except where the failure to so qualify would
not have a material adverse affect on the business, financial condition,
operations, results of operations or prospects of the Borrower and its
Subsidiaries, taken as a whole).
(b) The execution, delivery and performance by the
Borrower of this Agreement, the Notes and the other Loan Documents to which it
is or will be a party are within the Borrower's corporate powers, have been duly
authorized by all necessary corporate action, and do not and will not contravene
(i) the Borrower's Restated Articles of Incorporation or by-laws, (ii) law or
(iii) any legal or contractual restriction binding on or affecting the Borrower;
and such execution, delivery and performance do not and will not result in or
require the creation of any Lien upon or with respect to any of its properties.
(c) No Governmental Approval is required in
connection with the execution, delivery or performance of any Loan Document,
except for the authorization issued by the Federal
<PAGE>
37
Energy Regulatory Commission to the Borrower dated November 18, 1996, which
authorization is in full force and effect and not the subject of any pending or
threatened appeal, stay or other challenge, but which authorization must timely
and appropriately be extended, renewed or replaced (since such authorization, as
in effect on the date hereof, allows the Borrower to incur, among other things,
short-term debt not exceeding, in the aggregate at any time outstanding,
$1,200,000,000 prior to December 31, 1998 and requires that such debt mature on
or prior to December 31, 1999. The Borrower will have obtained and made, on or
before each date on which this representation shall be made or reaffirmed, all
necessary notices to or filings with the Federal Energy Regulatory Commission
with respect to the transactions contemplated by this Agreement and the other
Loan Documents, and all such notices and filings will have been duly made, and
will be in full force and effect.
(d) There is no pending or threatened action or
proceeding affecting the Borrower or any of its Subsidiaries or properties
before any court, governmental agency or arbitrator, that might reasonably be
expected to materially adversely affect (i) the business, condition (financial
or otherwise) or results of operations of the Borrower and its Subsidiaries,
taken as a whole, or (ii) the ability of the Borrower to perform its obligations
under this Agreement or any other Loan Document to which the Borrower is or is
to be a party.
(e) Since June 30, 1998 or, in connection with any
extension of the then-current Termination Date, the June 30 for which financial
statements have been delivered to the Lenders the same calendar year as an
Extension Date, there has been no material adverse change in the business,
condition (financial or otherwise) or results of operations of the Borrower and
its Subsidiaries, taken as a whole, or in the Borrower's ability to perform its
obligations under this Agreement or any other Loan Document to which it is or
will be a party.
(f) Neither this Agreement nor any other document,
certificate or statement furnished to the Administrative Agent by the Borrower
in connection herewith contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements contained
herein and therein, under the circumstances in which they were made, not
misleading.
(g) The consolidated balance sheets of the Borrower
and its Consolidated Subsidiaries as at June 30, 1998, and the related
consolidated statements of operations of the Borrower and its Consolidated
Subsidiaries for the three months, six months and twelve months then ended,
copies of each of which have been furnished to each Bank, fairly present
(subject to year-end adjustments) the consolidated financial condition of the
Borrower and its Consolidated Subsidiaries as at such dates and the consolidated
results of operations of the Borrower and its Consolidated Subsidiaries for the
periods ended on such date, all in accordance, in all material respects, with
generally accepted accounting principles consistently applied (except for
changes in such principles required by generally accepted accounting principles
and noted in such financial statements).
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38
(h) No ERISA Event has occurred or is reasonably
expected to occur with respect to any Plan of the Borrower or any of its ERISA
Affiliates which would result in a liability of $25,000,000 or more to the
Borrower. Since the most recent June 30 for which financial statements have been
delivered to the Lenders in accordance with Section 5.01(i) hereof, there has
been no material adverse change in the funding status of the Plans and no
"prohibited transaction" has occurred with respect thereto which is in either
event reasonably expected to result in a liability of $25,000,000 or more to the
Borrower. Neither the Borrower nor any of its ERISA Affiliates has incurred nor
reasonably expects to incur any material withdrawal liability under ERISA to any
Multiemployer Plan.
(i) The Borrower has filed all tax returns (Federal,
state and local) required to be filed and paid all taxes shown thereon to be
due, including interest and penalties, or, to the extent the Borrower is
contesting in good faith an assertion of liability based on such returns, has
provided adequate reserves for payment thereof in accordance with generally
accepted accounting principles.
(j) This Agreement is, and each other Loan Document
to which the Borrower will be a party when executed and delivered hereunder will
be, legal, valid and binding obligations of the Borrower enforceable against the
Borrower in accordance with their respective terms, subject to the
qualifications, however, that the enforcement of the rights and remedies herein
and therein is subject to bankruptcy and other similar laws of general
application affecting rights and remedies of creditors and that the remedy of
specific performance or of injunctive relief is subject to the discretion of the
court before which any proceedings therefor may be brought.
(k) Following application of the proceeds of each
Advance, not more than 25 percent of the value of the assets of the Borrower and
its Subsidiaries on a consolidated basis will be margin stock (within the
meaning of Regulation U issued by the Board of Governors of the Federal Reserve
System).
(l) The Borrower is not an "investment company" or a
company "controlled" by an "investment company", within the meaning of the
Investment Company Act of 1940, as amended.
(m) The Borrower is a "holding company" within the
meaning of PUHCA, but the Borrower and its Subsidiaries are exempt from the
provisions of that Act, except Section 9(a)(2) thereof, by virtue of an order
issued by the Securities and Exchange Commission on June 30, 1948. Such
exemption is in full force and effect and the Borrower is not aware of any
existing or proposed proceedings contemplating the revocation or modification of
such exemption.
(n) The Borrower has made a reasonable assessment of
its Year 2000 Issues and has a realistic and achievable Year 2000 Program. Based
on such assessment and on its Year 2000 Program, the Borrower does not
reasonably anticipate that Year 2000 Issues will have a Material Adverse Effect.
<PAGE>
39
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants. So long as any
amount in respect of any Note shall remain unpaid or any Lender shall have any
Commitment, the Borrower will, unless the Majority Lenders shall otherwise
consent in writing:
(a) Preservation of Existence, Etc. Preserve and
maintain, and cause each of its Significant Subsidiaries to preserve and
maintain, its corporate existence, material rights (statutory and otherwise) and
franchises; provided, however, that neither the Borrower nor any of its
Significant Subsidiaries shall be required to preserve and maintain any such
right or franchise, and no such Significant Subsidiary shall be required to
preserve and maintain its corporate existence, unless the failure to do so would
have a material adverse effect on the business, condition (financial or
otherwise) or results of operations of the Borrower and its Subsidiaries, taken
as a whole, or on the Borrower's ability to perform its obligations under this
Agreement or any other Loan Document to which it is or will be a party.
(b) Compliance with Laws, Etc. Comply, and cause
each of its Subsidiaries to comply, with the requirements of all applicable
laws, rules, regulations and orders of any governmental authority, including
without limitation any such laws, rules, regulations and orders relating to
zoning, environmental protection, use and disposal of Hazardous Substances, land
use, ERISA, construction and building restrictions, and employee safety and
health matters relating to business operations, the non-compliance with which
would have a material adverse effect on the business, condition (financial or
otherwise) or results of operations of the Borrower and its Subsidiaries, taken
as a whole, or on the Borrower's ability to perform its obligations under this
Agreement or any other Loan Document to which it is or will be a party.
(c) Payment of Taxes, Etc. Pay and discharge, and
cause each of its Significant Subsidiaries to pay and discharge, before the same
shall become delinquent, all taxes, assessments and governmental charges,
royalties or levies imposed upon it or upon its property, except to the extent
the Borrower or such Significant Subsidiary is contesting the same in good faith
and by appropriate proceedings and has set aside adequate reserves for the
payment thereof in accordance with generally accepted accounting principles.
(d) Payment of Material Obligations. Pay, and cause
each Significant Subsidiary to pay, promptly as the same shall become due each
material obligation of the Borrower or such Significant Subsidiary, except to
the extent that the Borrower or such Significant Subsidiary is contesting the
same in good faith and by appropriate proceedings and has set aside adequate
reserves for the payment thereof in accordance with generally accepted
accounting principles.
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40
(e) Inspection Rights. At any reasonable time and
from time to time upon reasonable notice, permit or arrange for the
Administrative Agent, the Lenders and their respective agents and
representatives to examine and make copies of and abstracts from the records and
books of account of, and, to the extent permitted by applicable law, permit an
examination of the properties of, the Borrower and each of its Subsidiaries, and
to discuss the affairs, finances and accounts of the Borrower and its
Subsidiaries with the Borrower and its Subsidiaries and their respective
officers and directors and, following the occurrence and during the continuance
of an Event of Default, their respective accountants; provided, however, that,
prior to the disclosure of any information or materials of the Borrower or its
Subsidiaries relating to wholesale transactions, customers, pricing methods or
formulae, transmission and distribution system utilization or pricing, or
proprietary methods or processes, the Borrower may require the Lender seeking to
inspect the same to enter into a confidentiality and nondisclosure agreement
with respect to the use and disclosure of such information or materials in form
and substance reasonably satisfactory to the Borrower and such Lender and
otherwise containing customary terms.
(f) Keeping of Books. Keep, and cause its
Subsidiaries to keep, proper records and books of account, in which full and
correct entries shall be made of all financial transactions of the Borrower and
its Subsidiaries and the assets and business of the Borrower and its
Subsidiaries, in accordance with generally accepted accounting principles.
(g) Maintenance of Properties, Etc. Maintain, and
cause each of its Subsidiaries to maintain, good and marketable title to, and
preserve, maintain, develop, and operate in substantial conformity with all laws
and material contractual obligations, all of its properties which are used or
useful in the conduct of its business in good working order and condition,
ordinary wear and tear excepted, except where the failure to do so would not
have a material adverse effect on the business, condition (financial or
otherwise) or results of operations of the Borrower and its Subsidiaries, taken
as a whole, or on the Borrower's ability to perform its obligations under this
Agreement or any other Loan Document to which it is or will be a party.
(h) Maintenance of Insurance. Maintain, or cause to
be maintained, insurance covering the Borrower and each of its Subsidiaries and
their respective properties in effect at all times as may be required by law and
such other insurance in such amounts and covering such risks as is usually
carried by companies similarly situated.
(i) Reporting Requirements. Furnish to each Lender:
(i) as soon as possible and in any event within
five Business Days after the occurrence of each Unmatured Default or
Event of Default continuing on the date of such statement, a
statement of a Senior Financial Officer setting forth details of such
Unmatured Default or Event of Default and the action that the
Borrower proposes to take with respect thereto;
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41
(ii) as soon as available and in any event within
60 days after the end of each of the first three quarters of each
fiscal year of the Borrower, a consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries as at the end of such
quarter and statements of income, consolidated operations,
consolidated retained earnings and consolidated cash flows of the
Borrower and its Consolidated Subsidiaries for the period commencing
at the end of the previous fiscal year and ending with the end of
such quarter, all in reasonable detail and duly certified (subject to
year-end audit adjustments) by a Senior Financial Officer as having
been prepared in accordance (in all material respects) with generally
accepted accounting principles together with a certificate of said
officer stating that no Unmatured Default or Event of Default has
occurred and is continuing or, if an Unmatured Default or Event of
Default has occurred and is continuing, a statement as to the nature
thereof and the action that the Borrower proposes to take with
respect thereto; provided that delivery of a copy of the Borrower's
Quarterly Report on Form 10-Q for such quarter shall be deemed to
satisfy such financial statement delivery requirements;
(iii) as soon as available and in any event
within 120 days after the end of each fiscal year of the Borrower, a
copy of the consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as at the end of such fiscal year and
statements of consolidated operations, consolidated retained earnings
and consolidated cash flows of the Borrower and its Consolidated
Subsidiaries for such fiscal year, in each case in reasonable detail
and duly certified by a Senior Financial Officer as having been
prepared in accordance (in all material respects) with generally
accepted accounting principles, together with a certificate of a
Senior Financial Officer stating that no Unmatured Default or Event
of Default has occurred and is continuing or, if an Unmatured Default
or Event of Default has occurred and is continuing, a statement as to
the nature thereof and the action that the Borrower proposes to take
with respect thereto; provided that delivery of a copy of the
Borrower's Annual Report on Form 10-K (containing such statements) or
Current Report on Form 8-K (containing such statements) for such year
shall be deemed to satisfy such financial statement delivery
requirements;
(iv) as soon as possible and in any event (A)
within 30 days after any ERISA Event described in clause (i) of the
definition of ERISA Event with respect to any Plan of the Borrower or
any ERISA Affiliate of the Borrower has occurred and (B) within 10
days after any other ERISA Event with respect to any Plan of the
Borrower or any ERISA Affiliate of the Borrower has occurred, a
statement of a Senior Financial Officer describing such ERISA Event
and the action, if any, which the Borrower or such ERISA Affiliate
proposes to take with respect thereto;
(v) promptly after receipt thereof by the
Borrower or any of its ERISA Affiliates from the PBGC copies of each
notice received by the Borrower or such ERISA Affiliate of the PBGC's
intention to terminate any Plan of the Borrower or such ERISA
Affiliate or to have a trustee appointed to administer any such Plan;
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42
(vi) promptly after receipt thereof by the
Borrower or any ERISA Affiliate of the Borrower from a Multiemployer
Plan sponsor, a copy of each notice received by the Borrower or such
ERISA Affiliate concerning the imposition or amount of withdrawal
liability in an aggregate principal amount of at least $25,000,000
pursuant to Section 4202 of ERISA in respect of which the Borrower or
such ERISA Affiliate is reasonably expected to be liable;
(vii) promptly after the Borrower becomes aware
of the occurrence thereof, notice of all actions, suits, proceedings
or other events of (A) of the type described in Section 4.01(d) or
(B) for which the Administrative Agent, the Lenders will be entitled
to indemnity under Section 8.04(c);
(viii) promptly after the sending or filing
thereof, copies of all such information statements, financial
statements, and reports which the Borrower sends to its public
security holders (if any), and copies of all regular, periodic and
special reports, and all registration statements and periodic or
special reports, if any, which the Borrower files with the Securities
and Exchange Commission or any governmental authority which may be
substituted therefor, or with any national securities exchange;
(ix) such information concerning the Borrower's
Year 2000 Programs as the Administrative Agent may reasonably
request; and
(x) promptly after requested, such other
information respecting the business, properties, results of
operations, prospects, revenues, condition or operations, financial
or otherwise, of the Borrower or any of its Subsidiaries (including,
but not limited to, copies of each Schedule B (Actuarial Information)
to the annual report (Form 5500 Series) filed with the Internal
Revenue Service) as the Administrative Agent or any Lender through
the Administrative Agent may from time to time reasonably request.
(j) Use of Proceeds. Use the proceeds of the initial
Advances and any other Advances hereunder solely for the Borrower's general
corporate purposes.
(k) Debt to Capitalization. Maintain at all times a
ratio of Consolidated Debt to Consolidated Capital of not more than 65%.
(l) Further Assurances. At the expense of the
Borrower, promptly execute and deliver, or cause to be promptly executed and
delivered, all further instruments and documents, and take and cause to be taken
all further actions, that may be necessary or that the Majority Lenders through
the Administrative Agent may reasonably request to enable the Lenders and the
Administrative Agent to enforce the terms and provisions of this Agreement and
to exercise their rights and remedies hereunder or under any other Loan
Document. In addition, the Borrower will use all reasonable efforts to duly
obtain Governmental Approvals required in connection with the
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43
Loan Documents from time to time on or prior to such date as the same may become
legally required, and thereafter to maintain all such Governmental Approvals in
full force and effect.
(m) Year 2000. Take all such actions as are
reasonably necessary to successfully implement its Year 2000 Program and to
assure that Year 2000 Issues will not have a Material Adverse Effect. At the
request of the Administrative Agent, the Borrower will provide a description of
its Year 2000 Program, together with any updates or progress reports with
respect thereto.
SECTION 5.02. Negative Covenants. So long as any amount in respect of
any Note shall remain unpaid or any Lender shall have any Commitment, the
Borrower will not, without the written consent of the Majority Lenders:
(a) Liens, Etc. Create, incur, assume, or suffer to
exist, or permit any of its Significant Subsidiaries to create, incur, assume,
or suffer to exist, any lien, security interest, or other charge or encumbrance
(including the lien or retained security title of a conditional vendor) of any
kind, or any other type of arrangement intended or having the effect of
conferring upon a creditor a preferential interest upon or with respect to any
of its properties of any character, in each case to secure or provide for the
payment of any Debt of any Person (any of the foregoing being referred to herein
as a "Lien"), excluding, however, from the operation of the foregoing
restrictions the Liens created under the Loan Documents and the following:
(i) Liens for taxes, assessments or governmental charges or
levies to the extent not past due or contested in good faith by
appropriate proceedings, with adequate reserves set aside for the
payment thereof in accordance with generally accepted accounting
principles;
(ii) Liens imposed by law, such as materialmen's,
mechanics', carriers', workmen's, repairmen's, warehousemen's and
landlord's liens and other similar Liens arising in the ordinary
course of business securing obligations which are not overdue or
which are being contested in good faith by appropriate proceedings,
with adequate reserves set aside for the payment thereof in
accordance with generally accepted accounting principles;
(iii) pledges or deposits to secure obligations under
workmen's compensation laws or similar legislation, to secure
obligations individually or in the aggregate equal to or less than
$25,000,000 referred to in clause (vi) of the definition of Debt, to
secure public or statutory obligations of the Borrower or such
Significant Subsidiary, or to secure the utility obligations of the
Borrower or any such Significant Subsidiary incurred in the ordinary
course of business;
(iv) (A) purchase money Liens upon or in property now owned
or hereafter acquired by the Borrower or any of its Significant
Subsidiaries in the ordinary course of
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44
business (consistent with present practices) to secure (1) the
purchase price of such property or (2) Debt incurred solely for the
purpose of financing the acquisition, construction or improvement of
any such property to be subject to such Liens, or (B) Liens existing
on any such property at the time of acquisition, or extensions,
renewals or replacements of any of the foregoing for the same or a
lesser amount, provided that no such Lien shall extend to or cover
any property other than the property being acquired, constructed or
improved and replacements, modifications and proceeds of such
property, and no such extension, renewal or replacement shall extend
to or cover any property not theretofore subject to the Lien being
extended, renewed or replaced;
(v) attachment, judgment or other similar Liens arising in
connection with court proceedings, provided that, with respect to any
Lien involving an amount of $25,000,000 or more, the execution or
other enforcement of such Liens is effectively stayed and the claims
secured thereby are being actively contested in good faith by
appropriate proceedings or the payment of which is covered in full
(subject to customary deductible amounts) by insurance maintained
with responsible insurance companies and the applicable insurance
company has acknowledged its liability therefor in writing;
(vi) Liens arising under the Mortgage dated July 1, 1923,
as supplemented and amended by a Supplemental Indenture dated August
1, 1944 and other supplemental indentures, from the Borrower, as
mortgagor, to Harris Trust and Savings Bank and D.G. Donovan, as
trustees, pursuant to which the Borrower has issued, and may
hereafter issue, its mortgage bonds;
(vii) Liens, if any, arising in connection with (A) the
sale or sale/leaseback of nuclear fuel to the extent permitted in
clause (w) of the proviso to Section 5.02(d) hereof, but only to the
extent that the Liens so arising are placed upon the nuclear fuel so
sold or sold/leased back, or (B) the sale, pledge or other
disposition of accounts receivable to the extent permitted by clause
(y) of the proviso of Section 5.02(d) hereof, but only to the extent
that the Liens so arising are placed upon the accounts receivable so
sold, pledged or otherwise disposed of;
(viii) Liens, if any, arising in connection with
Capitalized Lease Obligations, but only on the equipment or property
subject to such Capitalized Lease Obligations;
(ix) Liens on the capital stock of or any other equity
interest in any of the Borrower's Subsidiaries (which are not
Significant Subsidiaries) or any such Subsidiary's assets to secure
the payment and performance of Debt obligations in connection with
any project financing for such Subsidiary (provided that the obligee
of such obligations shall have no recourse to the Borrower to satisfy
such obligations, other than pursuant to any such Liens on the
Borrower's equity interests in such Subsidiary);
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45
(x) Liens on the assets and/or rights to receive income of
any Person that exist at the time that such Person becomes a
Significant Subsidiary and the continuation of such Liens in
connection with any refinancing or restructuring of the obligations
secured by such Liens; and
(xi) other Liens which, taken together with the Liens
arising pursuant to the foregoing clauses or individually, do not
have a Material Adverse Effect.
(b) Compliance with ERISA. (i) Permit to exist any
"accumulated funding deficiency" (as defined in Section 412(a) of the Internal
Revenue Code of 1986, as amended from time to time) (unless such deficiency
exists with respect to a Multiple Employer Plan or Multiemployer Plan and the
Borrower has no control over the reduction or elimination of such deficiency),
(ii) terminate, or permit any ERISA Affiliate of the Borrower to terminate, any
Plan of the Borrower or such ERISA Affiliate so as to result in a liability of
$25,000,000 or more of the Borrower to the PBGC, or (iii) permit to exist any
occurrence of any Reportable Event (as defined in Title IV of ERISA), other than
a Reportable Event for which the 30-day notice requirement with respect thereto
has been waived by the PBGC or any other event or condition, which presents a
material (in the reasonable opinion of the Majority Lenders) risk of such a
termination by the PBGC of any Plan of the Borrower or such ERISA Affiliate and
such a liability to the Borrower.
(c) Transactions with Affiliates. Enter into, or
permit any of its Subsidiaries to enter into, any transaction with an Affiliate
of the Borrower, unless (i) such transaction is on terms no less favorable to
the Borrower or such Subsidiary, as the case may be, than if the transaction had
been negotiated in good faith on an arm's length basis with a Person which was
not an Affiliate of the Borrower or (ii) such transaction is conducted pursuant
to the Affiliated Interests Agreement dated as of December 4, 1995 among the
Borrower, Unicom Corporation and the other entities named therein, as it may be
amended or modified from time to time.
(d) Mergers, Etc. Merge or consolidate with or into
any Person, or convey, transfer, lease or otherwise dispose of (whether in one
transaction or in a series of transactions, and whether in a sale/leaseback
transaction or otherwise) more than 10% of its assets (whether now owned or
hereafter acquired), unless, in the case of a merger, immediately after giving
effect thereto, (i) no event shall occur and be continuing that constitutes an
Unmatured Default or an Event of Default, (ii) the Borrower is the surviving
corporation, and (iii) the Borrower shall not be liable with respect to any Debt
or allow its property to be subject to any Lien which it could not become liable
with respect to or allow its property to become subject to under this Agreement
on the date of such transaction; provided, however, that so long as no Unmatured
Default or Event of Default has occurred and is continuing or would result from
such transaction, (w) the Borrower may engage in sale or sale/leaseback
transactions with respect to nuclear fuel, (x) the Borrower may sell, pledge or
otherwise dispose of its accounts receivable, (y) the Borrower may engage in
transactions involving the issuance of Transitional Funding Instruments, and (z)
the Borrower may
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46
sell its electric generating assets in one or a series of arms-length
transactions for not less than the fair market value of such assets.
(e) Maintenance of Ownership of Significant
Subsidiaries. Sell, assign, transfer, pledge or otherwise dispose of any shares
of capital stock of any of its Significant Subsidiaries or any warrants, rights
or options to acquire such capital stock, or permit any of its Significant
Subsidiaries to issue, sell or otherwise dispose of any shares of such
Significant Subsidiary's capital stock, except (and only to the extent) as may
be necessary to give effect to a transaction permitted by subsection (d) above.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following events (each
an "Event of Default") shall occur and be continuing after the applicable grace
period and notice requirement (if any):
(a) The Borrower shall fail to pay any principal of
any Note when the same becomes due and payable; or
(b) The Borrower shall fail to pay any interest on
any Note or any other amount due under this Agreement for three Business Days
after the same becomes due; or
(c) The Borrower or any of its Subsidiaries shall
fail to pay any principal of or premium or interest on any Debt of the Borrower
that is outstanding in a principal amount of $25,000,000 or more in the
aggregate (but excluding Debt evidenced by the Notes) when the same becomes due
and payable (whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise), and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating to such Debt;
or
(d) The Borrower or any of its Subsidiaries shall
fail to observe any term or covenant on its part to be performed or observed and
the effect of such failure is to accelerate or permit acceleration of any Debt
of the Borrower that is outstanding in a principal amount of $25,000,000 or more
in the aggregate (but excluding Debt evidenced by the Notes); or
(e) Any representation or warranty made by or on
behalf of the Borrower in any Loan Document or in any certificate or other
writing delivered pursuant thereto shall prove to have been incorrect in any
material respect when made or deemed made; or
(f) The Borrower shall fail to perform or observe any
term or covenant on its part to be performed or observed contained in Section
5.01(k) or 5.02 (other than subsection (c) thereof); or
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47
(g) The Borrower shall fail to perform or observe any
other term or covenant on its part to be performed or observed contained in
Section 5.01 or in any other Loan Document, and any such failure shall remain
unremedied, after written notice thereof shall have been given to the Borrower
by the Administrative Agent, for a period of 30 days; or
(h) Any judgment or order for the payment of money in
excess of $25,000,000 shall be rendered against the Borrower or any of its
Subsidiaries and either (i) enforcement proceedings shall have been commenced by
any creditor upon such judgment or order or (ii) there shall be any period of
ten consecutive Business Days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect; or
(i) The Borrower shall generally not pay its debts as
such debts become due, or shall admit in writing its inability to pay its debts
generally, or shall make an assignment for the benefit of creditors; or any
proceeding shall be instituted by or against the Borrower seeking to adjudicate
it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of its debts under
any law relating to bankruptcy, insolvency, or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of a
receiver, trustee, or other similar official for it or for any substantial part
of its property and, in the case of a proceeding instituted against the
Borrower, either such proceeding shall remain undismissed or unstayed for a
period of 60 days or any of the actions sought in such proceeding (including
without limitation the entry of an order for relief against the Borrower or the
appointment of a receiver, trustee, custodian or other similar official for the
Borrower or any of its property) shall occur; or the Borrower shall take any
corporate or other action to authorize any of the actions set forth above in
this subsection (i); or
(j) Any Governmental Approval required in connection
with the execution, delivery and performance of the Loan Documents shall be
rescinded, revoked, otherwise terminated, or amended or modified in any manner
which is materially adverse to the interests of the Lenders and the
Administrative Agent; or
(k) Any ERISA Event shall have occurred with respect
to a Plan which could reasonably be expected to result in a liability of
$25,000,000 or more to the Borrower, and, 30 days after notice thereof shall
have been given to the Borrower by the Administrative Agent or any Lender, such
ERISA Event shall still exist; or
(l) An "event of default" (as defined therein) shall
occur and be continuing under the Other Credit Agreement;
then, and in any such event, the Administrative Agent (i) shall at the request,
or may with the consent, of the Majority Lenders or, if no A Advances are then
outstanding, Banks having greater than 50% of the Commitments (without giving
effect to any B Reduction), by notice to the Borrower, declare the obligation of
each Lender to make Advances to be terminated, whereupon the same shall
forthwith terminate, and (ii) shall at the request, or may with the consent, of
the
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48
Majority Lenders or, if no A Advances are then outstanding, Lenders having
greater than 50% of the Commitments, by notice to the Borrower, declare the
Notes (if any), all interest thereon and all other amounts payable under this
Agreement to be forthwith due and payable, whereupon the Notes, all such
interest and all such amounts shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Borrower; provided, however, that in the
event of an actual or deemed entry of an order for relief with respect to the
Borrower under the Federal Bankruptcy Code, (A) the Commitments and the
obligation of each Lender to make Advances shall automatically be terminated and
(B) the Notes, all such interest and all such amounts shall automatically become
and be due and payable, without presentment, demand, protest or any notice of
any kind, all of which are hereby expressly waived by the Borrower.
ARTICLE VII
THE ADMINISTRATIVE AGENT
SECTION 7.01. Authorization and Action. Each Lender hereby appoints
and authorizes the Administrative Agent to take such action as agent on its
behalf and to exercise such powers under this Agreement as are delegated to the
Administrative Agent by the terms hereof, together with such powers as are
reasonably incidental thereto. As to any matters not expressly provided for by
this Agreement or any other Loan Document (including, without limitation,
enforcement or collection of the Notes), the Administrative Agent shall not be
required to exercise any discretion or take any action, but shall be required to
act or to refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the instructions of the Majority Lenders, and such
instructions shall be binding upon all Lenders and all holders of Notes;
provided, however, that the Administrative Agent shall not be required to take
any action which exposes the Administrative Agent to personal liability or which
is contrary to this Agreement or applicable law. The Administrative Agent agrees
to give to each Lender prompt notice of each notice given to it by the Borrower
pursuant to the terms of this Agreement. The Administrative Agent shall be
deemed to have exercised reasonable care in the administration and enforcement
of this Agreement and the other Loan Documents if it undertakes such
administration and enforcement in a manner substantially equal to that which the
Administrative Agent accords credit facilities similar to the credit facility
hereunder for which it is the sole lender.
SECTION 7.02. Administrative Agent's Reliance, Etc. Neither the
Administrative Agent nor any of its directors, officers, agents or employees
shall be liable for any action taken or omitted to be taken by it or them under
or in connection with this Agreement or any other Loan Document, except for its
or their own gross negligence or willful misconduct. Without limitation of the
generality of the foregoing, the Administrative Agent: (i) may treat the payee
of any Note as the holder thereof until the Administrative Agent receives and
accepts a Lender Assignment entered into by the Lender which is the payee of
such Note, as assignor, and an Eligible Assignee, as assignee, as provided in
Section 8.07; (ii) may consult with legal counsel (including counsel for the
Borrower), independent public accountants and other experts selected by it and
shall not
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49
be liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants or experts; (iii) makes
no warranty or representation to any Lender and shall not be responsible to any
Lender for any statements, warranties or representations (whether written or
oral) made in or in connection with this Agreement or any other Loan Document;
(iv) shall not have any duty to ascertain or to inquire as to the performance or
observance of any of the terms, covenants or conditions of this Agreement or any
other Loan Document on the part of the Borrower or to inspect the property
(including the books and records) of the Borrower; (v) shall not be responsible
to any Lender for the due execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement, any other Loan Document or
any other instrument or document furnished pursuant hereto or thereto; and (vi)
shall incur no liability under or in respect of this Agreement or any other Loan
Document by acting upon any notice, consent, certificate or other instrument or
writing (which may be by telecopier, telegram, cable or telex) believed by it to
be genuine and signed or sent by the proper party or parties.
SECTION 7.03. Citibank, N.A. and Affiliates. With respect to its
Commitment, the Advances made by it and the Notes issued to it, Citibank, N.A.
shall have the same rights and powers under this Agreement as any other Lender
and may exercise the same as though it were not the Administrative Agent; and
the term "Bank" or "Banks" and "Lender" or "Lenders" shall, unless otherwise
expressly indicated, include Citibank, N.A. in its individual capacity.
Citibank, N.A. and its Affiliates may accept deposits from, lend money to, act
as trustee under indentures of, and generally engage in any kind of business
with, the Borrower, any of its Subsidiaries or Affiliates and any Person who may
do business with or own securities of the Borrower or any such Subsidiary or
Affiliate, all as if Citibank, N.A. were not the Administrative Agent and
without any duty to account therefor to the Lenders.
SECTION 7.04. Lender Credit Decision. Each Lender acknowledges that
it has, independently and without reliance upon the Administrative Agent or any
other Lender and based on such documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Lender also acknowledges that it will, independently and without
reliance upon the Administrative Agent or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement.
SECTION 7.05. Indemnification. The Lenders agree to indemnify the
Administrative Agent (to the extent not reimbursed by the Borrower), ratably
according to (a) on or before the Termination Date, the respective principal
amounts of the A Notes then held by each of them (or if no A Notes are at the
time outstanding or if any A Notes are held by Persons which are not Lenders,
ratably according to the respective Percentages of the Lenders), or (b) after
the Termination Date, the respective principal amounts of the Notes then held by
each of them (or if no Notes are at the time outstanding or if any Notes are
held by Persons which are not Lenders, ratably according to the respective
unpaid principal amounts of the Advances made by each Lender), from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
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50
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by, or asserted against the
Administrative Agent in any way relating to or arising out of this Agreement or
any action taken or omitted by the Administrative Agent under this Agreement,
provided that no Lender shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from the Administrative Agent's gross
negligence or willful misconduct. Without limitation of the foregoing, each
Lender agrees to reimburse the Administrative Agent promptly upon demand for its
ratable share of any out-of-pocket expenses (including counsel fees) incurred by
the Administrative Agent in connection with the preparation, execution,
delivery, administration, modification, amendment or enforcement (whether
through negotiations, legal proceedings or otherwise) of, or legal advice in
respect of rights or responsibilities under, this Agreement, to the extent that
the Administrative Agent is not reimbursed for such expenses by the Borrower.
SECTION 7.06. Successor Administrative Agent. The Administrative
Agent may resign at any time by giving written notice thereof to the Lenders and
the Borrower and may be removed at any time with or without cause by the
Majority Lenders, with any such resignation or removal to become effective only
upon the appointment of a successor Administrative Agent pursuant to this
Section 7.06. Upon any such resignation or removal, the Majority Lenders shall
have the right to appoint a successor Administrative Agent, which shall be a
Lender or shall be another commercial bank or trust company reasonably
acceptable to the Borrower organized under the laws of the United States or of
any State thereof. If no successor Administrative Agent shall have been so
appointed by the Majority Lenders, and shall have accepted such appointment,
within 30 days after the retiring Administrative Agent's giving of notice of
resignation or the Majority Lenders' removal of the retiring Administrative
Agent, then the retiring Administrative Agent may, on behalf of the Lenders,
appoint a successor Administrative Agent, which shall be a Lender or shall be
another commercial bank or trust company organized under the laws of the United
States of any State thereof reasonably acceptable to the Borrower. Upon the
acceptance of any appointment as Administrative Agent hereunder by a successor
Administrative Agent, such successor Administrative Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Administrative Agent, and the retiring Administrative Agent
shall be discharged from its duties and obligations under this Agreement. After
any retiring Administrative Agent's resignation or removal hereunder as
Administrative Agent, the provisions of this Article VII shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Agreement.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. No amendment or waiver of any
provision of any Loan Document, nor consent to any departure by the Borrower
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Majority Lenders and, in the case
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51
of any amendment, the Borrower, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, however, that no amendment, waiver or consent shall, unless in
writing and signed by all the Lenders, do any of the following: (a) waive,
modify or eliminate any of the conditions specified in Section 3.01 or 3.02, (b)
increase the Commitments of the Lenders (except as provided in Section 2.19),
change or extend the Termination Date (except as provided in Section 2.18) or
subject the Lenders to any additional obligations, (c) reduce the principal of,
or interest on, the A Notes, any Applicable Margin or any fees or other amounts
payable hereunder, (d) postpone any date fixed for any payment of principal of,
or interest on, the A Notes or any fees or other amounts payable hereunder, (e)
change the percentage of the Commitments or of the aggregate unpaid principal
amount of the A Notes, or the number of Lenders, which shall be required for the
Lenders or any of them to take any action hereunder or (f) amend this Section
8.01; and provided, further, that no amendment, waiver or consent shall, unless
in writing and signed by the Lenders making or maintaining such B Advances, do
any of the following: (a) waive, modify or eliminate any of the conditions to
any B Advance specified in Section 3.03, (b) reduce the principal of, or
interest on, any B Note or other amounts payable in respect thereof, (c)
postpone any date fixed for any payment of principal of, or interest on, any B
Note or any other amounts payable in respect thereof; and provided, further,
that no amendment, waiver or consent shall, unless in writing and signed by the
Administrative Agent in addition to the Lenders required above to take such
action, affect the rights or duties of the Administrative Agent under this
Agreement or any Note.
SECTION 8.02. Notices, Etc. All notices and other communications
provided for hereunder and under the other Loan Documents shall be in writing
(including telecopier, telegraphic, telex or cable communication) and mailed,
telecopied, telegraphed, telexed, cabled or delivered, if to the Borrower, at
its address at One First National Plaza - 37th Floor, 10 South Dearborn Street,
Chicago, Illinois 60603 (or P.O. Box 767, Chicago, Illinois 60690-0767, if
mailed), Attention: Treasurer (telephone: 312-394-3149; and telecopier:
312-394-3110), with a copy to the same address, attention: Associate General
Counsel-Corporate and Commercial (telephone: 312-394-3179; and telecopier:
312-394-3950); if to any Bank, at its Domestic Lending Office specified opposite
its name on Schedule I hereto; if to any other Lender, at its Domestic Lending
Office specified in the Lender Assignment pursuant to which it became a Lender;
and if to the Administrative Agent, at its address at Two Pennsway, Ste. 200,
New Castle, Delaware 19720, Attention: Bank Loan Syndications; or, as to each
party, at such other address as shall be designated by such party in a written
notice to the other parties. All such notices and communications shall, when
mailed, telecopied, telegraphed, telexed or cabled, be effective five days after
being deposited in the mails, or when delivered to the telegraph company,
telecopied, confirmed by telex answerback or delivered to the cable company,
respectively, except that notices and communications to the Administrative Agent
pursuant to Article II or VII shall not be effective until received by the
Administrative Agent.
SECTION 8.03. No Waiver; Remedies. No failure on the part of any
Lender or the Administrative Agent to exercise, and no delay in exercising, any
right hereunder or under any Note shall operate as a waiver thereof; nor shall
any single or partial exercise of any such right
<PAGE>
52
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
SECTION 8.04. Costs, Expenses, Taxes and Indemnification. (a) The
Borrower agrees to pay on demand all costs and expenses of the Administrative
Agent in connection with the preparation (including, without limitation,
printing costs), negotiation, execution, delivery, modification and amendment of
this Agreement and the other Loan Documents, and the other documents and
instruments to be delivered hereunder and thereunder, including, without
limitation, the reasonable fees and out-of-pocket expenses of counsel for the
Administrative Agent with respect thereto and with respect to the administration
of, and advising the Administrative Agent as to its rights and responsibilities
under, this Agreement and the other Loan Documents. The Borrower further agrees
to pay on demand all costs and expenses, if any (including, without limitation,
reasonable counsel fees and expenses), in connection with the enforcement
(whether through negotiations, legal proceedings or otherwise) of this Agreement
and the other Loan Documents and the other documents and instruments to be
delivered hereunder and thereunder, including, without limitation, reasonable
counsel fees and expenses in connection with the enforcement of rights under
this Section 8.04(a). In addition, the Borrower shall pay any and all stamp and
other taxes payable or determined to be payable in connection with the execution
and delivery of this Agreement and the other Loan Documents, and the other
documents and instruments to be delivered hereunder and thereunder, and agrees
to save the Administrative Agent and each Lender harmless from and against any
and all liabilities with respect to or resulting from any delay in paying or
omission to pay such taxes.
(b) If any payment of principal of, or Conversion of,
any Eurodollar Rate Advance or B Advance is made other than on the last day of
the Interest Period for such A Advance or other than on the maturity date of
such B Advance, as a result of a payment or Conversion pursuant to Section 2.10,
2.11, 2.12 or 2.14 or acceleration of the maturity of the Notes pursuant to
Section 6.01 or for any other reason, the Borrower shall, upon demand by any
Lender (with a copy of such demand to the Administrative Agent), pay to the
Administrative Agent for the account of such Lender any amounts required to
compensate such Lender for any additional losses, costs or expenses which it may
reasonably incur as a result of such payment or Conversion, including, without
limitation, any loss, cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by any Lender to fund or
maintain such Advance.
(c) The Borrower hereby agrees to indemnify and hold
each Lender, the Administrative Agent and their respective officers, directors,
employees, professional advisors and affiliates (each, an "Indemnified Person")
harmless from and against any and all claims, damages, losses, liabilities,
costs or expenses (including reasonable attorney's fees and expenses, whether or
not such Indemnified Person is named as a party to any proceeding or is
otherwise subjected to judicial or legal process arising from any such
proceeding) which any of them may incur or which may be claimed against any of
them by any Person (except for such claims,
<PAGE>
53
damages, losses, liabilities, costs and expenses resulting from such Indemnified
Person's gross negligence or willful misconduct):
(i) by reason of or in connection with the execution,
delivery or performance of any of the Loan Documents or any
transaction contemplated thereby, or the use by the Borrower of the
proceeds of any Extension of Credit;
(ii) in connection with any documentary taxes, assessments
or charges made by any governmental authority by reason of the
execution and delivery of any of the Loan Documents; or
(iii) in connection with or resulting from the utilization,
storage, disposal, treatment, generation, transportation, release or
ownership of any Hazardous Substance (i) at, upon, or under any
property of the Borrower or any of its Affiliates or (ii) by or on
behalf of the Borrower or any of its Affiliates at any time and in
any place.
(d) The Borrower's obligations under this Section
8.04 shall survive the repayment of all amounts owing to the Lenders under the
Notes and the termination of the Commitments. If and to the extent that the
obligations of the Borrower under this Section 8.04 are unenforceable for any
reason, the Borrower agrees to make the maximum contribution to the payment and
satisfaction thereof which is permissible under applicable law.
SECTION 8.05. Right of Set-off. (a) Upon (i) the occurrence and
during the continuance of any Event of Default and (ii) the making of the
request or the granting of the consent by the Majority Lenders specified by
Section 6.01 to authorize the Administrative Agent to declare the Notes due and
payable pursuant to the provisions of Section 6.01, each Lender is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by such Lender to or for the credit or the account of the Borrower
against any and all of the obligations of the Borrower now or hereafter existing
under any Loan Document and any Note held by such Lender, irrespective of
whether or not such Lender shall have made any demand under such Loan Document
or such Note and although such obligations may be unmatured. Each Lender agrees
promptly to notify the Borrower after any such set-off and application made by
such Lender, provided that the failure to give such notice shall not affect the
validity of such set-off and application. The rights of each Lender under this
Section are in addition to other rights and remedies (including, without
limitation, other rights of set-off) which such Lender may have.
(b) The Borrower agrees that it shall have no right
of set-off, deduction or counterclaim in respect of its obligations hereunder,
and that the obligations of the Lenders hereunder are several and not joint.
Nothing contained herein shall constitute a relinquishment or waiver of the
Borrower's rights to any independent claim that the Borrower may have against
the Administrative Agent or any Lender for the Administrative Agent's or such
Lender's, as the
<PAGE>
54
case may be, gross negligence or wilful misconduct, but no Lender shall be
liable for the conduct of the Administrative Agent or any other Lender, and the
Administrative Agent shall not be liable for the conduct of any Lender.
SECTION 8.06. Binding Effect. This Agreement shall become effective
when it shall have been executed by the Borrower and the Administrative Agent
and when the Administrative Agent shall have been notified in writing by each
Bank that such Bank has executed it and thereafter shall be binding upon and
inure to the benefit of the Borrower, the Administrative Agent and each Lender
and their respective successors and assigns, except that the Borrower shall not
have the right to assign its rights hereunder or any interest herein without the
prior written consent of the Lenders.
SECTION 8.07. Assignments and Participations. (a) Each Lender may
upon the written consent of the Administrative Agent and the Borrower (such
consent not to be unreasonably withheld), assign to one or more Eligible
Assignees all or a portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Commitment, the Advances
owing to it and the Note or Notes held by it); provided, however, that (i) each
such assignment shall be of a constant, and not a varying, percentage of all of
the assigning Lender's rights and obligations under this Agreement, (ii) the
amount of the Commitment of the assigning Lender being assigned pursuant to each
such assignment (determined as of the date of the Lender Assignment with respect
to such assignment) shall in no event be less than the lesser of the amount of
such Lender's then remaining Commitment and $15,000,000 (except in the case of
assignments between Lenders at the time already parties hereto), and (iii) the
parties to each such assignment shall execute and deliver to the Administrative
Agent, for its acceptance and recording in the Register, a Lender Assignment,
together with any Note or Notes subject to such assignment and a processing and
recordation fee of $3,000. Promptly following its receipt of such Lender
Assignment, Note or Notes and fee, the Administrative Agent shall accept and
record such Lender Assignment in the Register. Upon such execution, delivery,
acceptance and recording, from and after the effective date specified in each
Lender Assignment, (x) the assignee thereunder shall be a party hereto and, to
the extent that rights and obligations hereunder have been assigned to it
pursuant to such Lender Assignment, have the rights and obligations of a Lender
hereunder and (y) the Lender assignor thereunder shall, to the extent that
rights and obligations hereunder have been assigned by it pursuant to such
Lender Assignment, relinquish its rights and be released from its obligations
under this Agreement (and, in the case of a Lender Assignment covering all or
the remaining portion of an assigning Lender's rights and obligations under this
Agreement, such Lender shall cease to be a party hereto). Notwithstanding
anything to the contrary contained in this Agreement, any Lender may at any time
assign all or any portion of the Advances owing to it to any Affiliate of such
Lender. No such assignment, other than to an Eligible Assignee, shall release
the assigning Lender from its obligations hereunder.
(b) By executing and delivering a Lender Assignment,
the Lender assignor thereunder and the assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other than as
provided in such Lender Assignment, such assigning Lender
<PAGE>
55
makes no representation or warranty and assumes no responsibility with respect
to any statements, warranties or representations made in or in connection with
any Loan Document or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of any Loan Document or any other instrument
or document furnished pursuant thereto; (ii) such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of the Borrower or the performance or observance by the
Borrower of any of its obligations under any Loan Document or any other
instrument or document furnished pursuant thereto; (iii) such assignee confirms
that it has received a copy of each Loan Document, together with such documents
and information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Lender Assignment; (iv) such assignee will,
independently and without reliance upon the Administrative Agent, such assigning
Lender or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Loan Documents; (v) such assignee confirms
that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the
Administrative Agent to take such action as agent on its behalf and to exercise
such powers under the Loan Documents as are delegated to the Administrative
Agent by the terms thereof, together with such powers as are reasonably
incidental thereto; and (vii) such assignee agrees that it will perform in
accordance with their terms all of the obligations which by the terms of the
Loan Documents are required to be performed by it as a Lender.
(c) The Administrative Agent shall maintain at its
address referred to in Section 8.02 a copy of each Lender Assignment delivered
to and accepted by it and a register for the recordation of the names and
addresses of the Lenders and the Commitment of, and principal amount of the
Advances owing to, each Lender from time to time (the "Register"). The entries
in the Register shall be conclusive and binding for all purposes, absent
manifest error, and the Borrower, the Administrative Agent and the Lenders may
treat each Person whose name is recorded in the Register as a Lender hereunder
for all purposes of this Agreement. The Register shall be available for
inspection by the Borrower or any Lender at any reasonable time and from time to
time upon reasonable prior notice.
(d) Upon its receipt of a Lender Assignment executed
by an assigning Lender and an assignee representing that it is an Eligible
Assignee, together with any Note or Notes subject to such assignment, the
Administrative Agent shall, with the consent of the Borrower (such consent not
to be unreasonably withheld), and provided that such Lender Assignment has been
completed and is in substantially the form of Exhibit 8.07 hereto, (i) accept
such Lender Assignment, (ii) record the information contained therein in the
Register and (iii) give prompt notice thereof to the Borrower. Within 10
Business Days after its receipt of such notice, the Borrower, at its own
expense, shall execute and deliver to the Administrative Agent in exchange for
the surrendered Note or Notes a new Note to the order of such Eligible Assignee
in an amount equal to the Commitment assumed by it pursuant to such Lender
Assignment and, if the assigning Lender has retained a Commitment hereunder, a
new Note to the order of the assigning Lender in an amount equal to the
Commitment retained by it hereunder. Such new Note or Notes shall be in an
aggregate principal amount equal to the aggregate principal amount of such
surrendered
<PAGE>
56
Note or Notes, shall be dated the effective date of such Lender Assignment and
shall otherwise be in substantially the form of Exhibit 1.01A-1 hereto.
(e) Each Lender may sell participations to one or
more banks, financial institutions or other entities in all or a portion of its
rights and obligations under the Loan Documents (including, without limitation,
all or a portion of its Commitment, the Advances owing to it and the Note or
Notes held by it); provided, however, that (i) such Lender's obligations under
this Agreement (including, without limitation, its Commitment to the Borrower
hereunder) shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) such Lender shall remain the holder of any such Note for all purposes of
this Agreement, and (iv) the Borrower, the Administrative Agent and the other
Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement.
(f) Any Lender may, in connection with any assignment
or participation or proposed assignment or participation pursuant to this
Section 8.07, disclose to the assignee or participant or proposed assignee or
participant, any information relating to the Borrower furnished to such Lender
by or on behalf of the Borrower; provided that, prior to any such disclosure,
the assignee or participant or proposed assignee or participant shall agree, in
accordance with the terms of Section 8.08, to preserve the confidentiality of
any Confidential Information relating to the Borrower received by it from such
Lender.
(g) If any Lender (or any bank, financial
institution, or other entity to which such Lender has sold a participation)
shall (i) make any demand for payment under Section 2.08, 2.13 or 2.16, (ii)
give notice to the Administrative Agent pursuant to Section 2.14, (iii) either
(A) not have outstanding unsecured long-term indebtedness rated at or above
"investment grade" by each of Moody's and S&P, or (B) not have outstanding
short-term unsecured indebtedness rated at or above A-2 or P-2 by each of
Moody's and S&P or (iv) determine not to extend the Termination Date in response
to any request by the Borrower pursuant to Section 2.18, then (1) in the case of
any demand made under clause (i) above, or the occurrence of the event described
in clause (ii) above, within 30 days after any such demand or occurrence (if,
but only if, in the case of any demanded payment described in clause (i), such
demanded payment has been made by the Borrower), and (2) in the case of the
occurrence of the event described in clause (iii) or (iv) above, at any time
prior to the then-scheduled Termination Date, the Borrower may, with the
approval of the Administrative Agent (which approval shall not be unreasonably
withheld), and provided that no Event of Default or Unmatured Default shall then
have occurred and be continuing, demand that such Lender assign in accordance
with this Section 8.07 to one or more Eligible Assignees designated by the
Borrower all (but not less than all) of such Lender's Commitment and the
Advances owing to it within the period ending on the latest to occur of (x) the
last day in the period described in clause (1) or (2) above, as applicable, (y)
the last day of the longest of the then current Interest Periods for such
Advances, and (z) the latest maturity date of any B Advances owing to such
Lender. If any such Eligible Assignee designated by the Borrower shall fail to
consummate such assignment on terms acceptable to such Lender, or if the
Borrower
<PAGE>
57
shall fail to designate any such Eligible Assignees for all or part of such
Lender's Commitment or Advances, then such demand by the Borrower shall become
ineffective; it being understood for purposes of this subsection (g) that such
assignment shall be conclusively deemed to be on terms acceptable to such
Lender, and such Lender shall be compelled to consummate such assignment to an
Eligible Assignee designated by the Borrower, if such Eligible Assignee (x)
shall agree to such assignment by entering into a Lender Assignment with such
Lender and (y) shall offer compensation to such Lender in an amount equal to all
amounts then owing by the Borrower to such Lender hereunder and under the Note
made by the Borrower to such Lender, whether for principal, interest, fees,
costs or expenses (other than the demanded payment referred to above and payable
by the Borrower as a condition to the Borrower's right to demand such
assignment), or otherwise.
(h) Anything in this Section 8.07 to the contrary
notwithstanding, any Lender may assign and pledge all or any portion of its
Commitment and the Advances owing to it (i) with notice to the Borrower and the
Agent, to any of its affiliates and (ii) without the consent of the Borrower or
the Agent, to any Federal Reserve Bank (and its transferees) as collateral
security pursuant to Regulation A of the Board of Governors of the Federal
Reserve System and any Operating Circular issued by such Federal Reserve Bank.
No such assignment shall release the assigning Lender from its obligations
hereunder.
SECTION 8.08. Confidentiality. In connection with the negotiation and
administration of this Agreement and the other Loan Documents, the Borrower has
furnished and will from time to time furnish to the Administrative Agent and the
Lenders (each, a "Recipient") written information which is identified to the
Recipient in writing when delivered as confidential (such information, other
than any such information which (i) is publicly available, or otherwise known to
the Recipient, at the time of disclosure, (ii) subsequently becomes publicly
available other than through any act or omission by the Recipient or (iii)
otherwise subsequently becomes known to the Recipient other than through a
Person whom the Recipient knows to be acting in violation of his or its
obligations to the Borrower, being hereinafter referred to as "Confidential
Information"). The Recipient will maintain the confidentiality of any
Confidential Information in accordance with such procedures as the Recipient
applies generally to information of that nature. It is understood, however, that
the foregoing will not restrict the Recipient's ability to freely exchange such
Confidential Information with current or prospective participants in or
assignees of the Recipient's position herein, but the Recipient's ability to so
exchange Confidential Information shall be conditioned upon any such prospective
participant's or assignee's entering into an understanding as to confidentiality
similar to this provision. It is further understood that the foregoing will not
prohibit the disclosure of any or all Confidential Information if and to the
extent that such disclosure may be required (i) by a regulatory agency or
otherwise in connection with an examination of the Recipient's records by
appropriate authorities, (ii) pursuant to court order, subpoena or other legal
process or in connection with any pending or threatened litigation, (iii)
otherwise as required by law, or (iv) in order to protect its interests or its
rights or remedies hereunder or under the other Loan Documents; in the event of
any required disclosure under
<PAGE>
58
clause (ii) or (iii) above, the Recipient agrees to use reasonable efforts to
inform the Borrower as promptly as practicable.
SECTION 8.09. Waiver of Jury Trial. THE ADMINISTRATIVE AGENT, THE
LENDERS AND THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE
ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED
HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE ADMINISTRATIVE AGENT, SUCH
LENDERS OR THE BORROWER. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
ADMINISTRATIVE AGENT AND THE LENDERS ENTERING INTO THIS AGREEMENT.
SECTION 8.10. Consent. Unless otherwise specified as being within the
sole discretion of the Administrative Agent, the Lenders, the Majority Lenders
or the Borrower, whenever the consent or approval of the Administrative Agent,
the Lenders, the Majority Lenders or the Borrower, respectively, is required
herein, such consent or approval shall not be unreasonably withheld or delayed.
SECTION 8.11. Governing Law. This Agreement and the other Loan
Documents shall be governed by, and construed in accordance with, the laws of
the State of New York. The Borrower, each Lender, and the Administrative Agent
(i) irrevocably submits to the non-exclusive jurisdiction of any New York State
court or Federal court sitting in New York City in any action arising out of any
Loan Document, (ii) agrees that all claims in such action may be decided in such
court, (iii) waives, to the fullest extent it may effectively do so, the defense
of an inconvenient forum and (iv) consents to the service of process by mail. A
final judgment in any such action shall be conclusive and may be enforced in
other jurisdictions. Nothing herein shall affect the right of any party to serve
legal process in any manner permitted by law or affect its right to bring any
action in any other court.
SECTION 8.12. Relation of the Parties; No Beneficiary. No term,
provision or requirement, whether express or implied, of any Loan Document, or
actions taken or to be taken by any party thereunder, shall be construed to
create a partnership, association, or joint venture between such parties or any
of them. No term or provision of the Loan Documents shall be construed to confer
a benefit upon, or grant a right or privilege to, any Person other than the
parties thereto.
SECTION 8.13. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.
<PAGE>
S - 1
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
COMMONWEALTH EDISON COMPANY
By /s/ RuthAnn M. Gill
-------------------------
Treasurer
SIGNATURE PAGE TO THE CREDIT AGREEMENT
<PAGE>
S - 2
Administrative Agent
CITIBANK, N.A.,
as Administrative Agent and as Bank
By /s/ Anita J. Brickell
---------------------------------
Managing Director
Co-Agents
BANK OF AMERICA NT & SA
By /s/ Robert M. Eaton
---------------------------------
Vice President
THE BANK OF NEW YORK
By /s/ Nathan S. Howard
---------------------------------
Vice President
THE FIRST NATIONAL BANK OF CHICAGO
By /s/ Robert Bussa
---------------------------------
1st Vice President
SIGNATURE PAGE TO THE CREDIT AGREEMENT
<PAGE>
S - 3
THE CHASE MANHATTAN BANK
By /s/ Thomas L. Casey
---------------------------------
Vice President
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ Kathryn Sayko-Yanes
---------------------------------
Vice President
SIGNATURE PAGE TO THE CREDIT AGREEMENT
<PAGE>
S - 4
Banks
-----
ABN AMRO BANK N.V.
By /s/ Kevin S. McFadden
---------------------------------
Vice President
By /s/ Robert E. Lee IV
---------------------------------
Assistant Vice President
BANK OF MONTREAL
By /s/ Howard H. Turner
---------------------------------
Director
THE NORTHERN TRUST COMPANY
By /s/ Joseph A. Wemhoff
---------------------------------
Vice President
SIGNATURE PAGE TO THE CREDIT AGREEMENT
<PAGE>
S - 5
CREDIT SUISSE FIRST BOSTON
By /s/ James P. Moran /s/ Douglas E. Maher
--------------------------------------------
Director Vice President
SIGNATURE PAGE TO THE CREDIT AGREEMENT
<PAGE>
1
SCHEDULE I
COMMONWEALTH EDISON COMPANY
364-Day Credit Agreement, dated as of October 8, 1998, among
Commonwealth Edison Company, the Banks named therein and Citibank, N.A., as
Administrative Agent
<TABLE>
<CAPTION>
Name of Bank Commitment Domestic Lending Office Eurodollar Lending Office
- ------------ ---------- ----------------------- -------------------------
<S> <C> <C> <C>
Citibank, N.A. $ 62,500,000 Two Pennsway, Ste. 200, Same as Domestic Lending Office
New Castle, Delaware 19720
Attention: Bank Loan Syndications
Bank of America NT & SA $ 62,500,000 Account Administration # 4976 Same as Domestic Lending Office
200 West Jackson Boulevard
Dept. 4976
Chicago, Illinois 60606
The Bank of New York $ 62,500,000 One Wall Street, 19th Floor Same as Domestic Lending Office
New York, New York 10286
The First National Bank of $ 62,500,000 One First National Plaza, Ste. 0363 Same as Domestic Lending Office
Chicago Chicago, Illinois 60670
The Chase Manhattan Bank $ 62,500,000 One Chase Manhattan Plaza, 8th Floor Same as Domestic Lending Office
New York, New York 10080
Morgan Guaranty Trust $ 62,500,000 60 Wall Street Nassau Bahamas Office
Company New York, New York 10260-0060 c/o J. P. Morgan Services, Inc.
Euro-Loan Servicing Unit
500 Stanton Christiana Road
Newark, Delaware 19713
ABN AMRO Bank N.V. $ 37,500,000 135 South LaSalle Street, Suite 2805 Same as Domestic Lending Office
Chicago, Illinois 60603
Attention: Loan Administration
Bank of Montreal $ 37,500,000 115 South LaSalle, Floor 12W Same as Domestic Lending Office
Chicago, Illinois 60603
Credit Suisse First Boston $ 25,000,000 11 Madison Avenue Same as Domestic Lending Office
New York, New York 10010
The Northern Trust $ 25,000,000 50 South LaSalle Street Same as Domestic Lending Office
Company Chicago, Illinois 60675
</TABLE>
<PAGE>
II - 1
SCHEDULE II
Fossil-Fired Generating Facilities
Collins Station, Morris, Illinois
Crawford Station, Chicago, Illinois
Fisk Station, Chicago, Illinois
Joliet Station, Joliet, Illinois
Powerton Station, Pekin, Illinois
Waukegan Station, Waukegan, Illinois
Will County Station, Lockport, Illinois
<PAGE>
EXHIBIT (10)-8
UNICOM CORPORATION AND
COMMONWEALTH EDISON COMPANY
FORM 10-K FILE NOS. 1-11375 AND 1-1839
APPENDIX A
GENERAL PROVISIONS REGARDING STOCK OPTION AWARDS
GRANTED UNDER THE UNICOM CORPORATION LONG TERM INCENTIVE PLAN
The purpose of these General Provisions Regarding Stock Option Awards Granted
Under the Unicom Corporation Long Term Incentive Plan, effective July 10, 1997
and as amended from time to time (the "General Provisions") is to set forth
certain provisions which shall be deemed a part of, and to govern, options to
purchase shares of the Common Stock, without par value (the "Common Stock"), of
Unicom Corporation, an Illinois corporation (the "Company"), granted by the
Company under the provisions of the Unicom Corporation Long Term Incentive Plan
(the "Plan"), unless otherwise provided in the Option Agreement (as hereinafter
defined) evidencing any such option or options.
1. Form of Stock Option Grant. Each such stock option ("Option") shall be in
---------------------------
writing (an "Option Agreement") and shall specify (i) the name of the recipient
of the Option (the "Optionee"), (ii) the number of shares of Common Stock
subject to such Option, and (iii) the terms applicable to the exercise of such
Option, including the exercise price, any restrictions applicable to such
exercise and the expiration date (the "Expiration Date") for such exercise.
2. Time and Manner of Exercise.
----------------------------
2.1. Exercise of Option.
-------------------
(a) Except as otherwise provided herein, an Option shall become
exercisable as described under the caption "When Exercisable" in the Option
Agreement.
(b) If an Optionee's employment by the Company terminates by reason
of Retirement, death or Disability, then on the date of such Retirement, death
or Disability, such Optionee's Option shall, notwithstanding Section 2.1(a)
hereof, become exercisable as to all of the shares of Common Stock remaining
subject to such Option and may (1) in the cases of Retirement or Disability, be
exercised by such Optionee or his or her Legal Representative or Permitted
Transferees, as the case may be, until the Expiration Date or (2) in the case of
death, be exercised by such Optionee's Legal Representative or Permitted
Transferees, as the case may be, until 11:59 p.m. (Chicago time) on the third
anniversary of the date of death; provided, however, that in any case such
exercisability is conditioned upon such Optionee's or his or her Legal
Representative's or Permitted Transferees', as the case may be, continued
"acceptable conduct," as determined by the Committee in its sole discretion.
For purposes of the foregoing, "acceptable conduct" shall
mean,without limitation, refraining from engaging in activities which (i) are
competitive to the business of the Company or its subsidiaries, (ii) promote or
assist competitors of the Company or its subsidiaries, or (iii) reflect
negatively on the Company, its subsidiaries or any of their directors, officers,
employees or agents.
<PAGE>
(c) If an Optionee's employment is terminated by the Company for
Cause or by the Optionee (other than Retirement or for Good Reason following a
Change in Control), such Optionee's Option shall expire on the effective date of
such termination of employment and shall not thereafter be exercisable.
(d) Except as provided in Section 4, hereof, if an Optionee's
employment by the Company terminates for any reason other than Retirement,
death, or Disability, or as specified in Section 2.1(c), such Optionee's Option
shall be exercisable only to the extent it is exercisable on the effective date
of such termination of employment and may thereafter be exercised by such
Optionee or his or her Legal Representative until and including the earlier to
occur of (i) the date which is three months after the effective date of such
termination of employment and (ii) the Expiration Date.
2.2. Method of Exercise. Subject to the limitations set forth in the
-------------------
Option Agreement and these General Provisions, an Option may be exercised by the
Optionee:
(a) by giving written notice to the Company specifying the number of whole
shares of Common Stock to be purchased and accompanied by payment therefor in
full (or arrangement made for such payment to the Company's satisfaction) (1) in
cash, (2) by delivery of previously owned whole shares of Common Stock (which
such Optionee has held for at least six months prior to the delivery of such
shares or which such Optionee purchased on the open market and for which such
Optionee has good title, free and clear of all liens and encumbrances) having an
aggregate Fair Market Value determined as of the date of exercise equal to the
aggregate purchase price payable pursuant to such Option by reason of such
exercise, (3) in cash by a broker-dealer acceptable to the Company to whom such
Optionee has submitted an irrevocable notice of exercise or (4) a combination of
(1) and (2), and
(b) by executing such documents as the Company may reasonably request.
The Company shall have sole discretion to disapprove of an
election pursuant to any of subclauses (2) through (4) of clause (a) of this
Section 2.2. Any fraction of a share of Common Stock which would be required to
pay such purchase price shall be disregarded and the remaining amount due shall
be paid in cash by the Optionee. No certificate representing a share of Common
Stock shall be delivered until the full purchase price therefore has been paid.
2.3. Termination of Option.
----------------------
(a) In no event may an Option be exercised after it terminates as
set forth in this Section 2.3. An Option shall terminate, to the extent not
exercised pursuant to Section 2.2 or earlier terminated pursuant to Section 2.1,
on the Expiration Date stated in the Option Agreement.
(b) In the event that rights to purchase all or a portion of the
shares of Common Stock subject to an Option expire or are exercised, cancelled
or forfeited, the Optionee shall, upon the Company's request, promptly return
the related Option Agreement to the Company for full or partial cancellation, as
the case may be. Such cancellation shall be effective regardless of whether the
Optionee returns said Option Agreement. If the Optionee continues to have
rights to purchase shares of Common Stock under said Option Agreement, the
Company shall, within 10 days of the Optionee's delivery of said Option
Agreement to the Company, either (i) mark said Option Agreement to indicate the
extent to which said Option has expired or been exercised, cancelled or
<PAGE>
forfeited or (ii) issue to the Optionee a substitute option agreement applicable
to such rights, which agreement shall otherwise be substantially similar to said
Option Agreement in form and substance.
3. Additional Terms and Conditions of Options.
-------------------------------------------
3.1. Nontransferability of Options. Except as may otherwise be
permitted by the Plan or authorized in accordance with the terms of the Plan, an
Option may not be transferred by the Optionee other than by will or the laws of
descent and distribution or pursuant to beneficiary designation procedures
approved by the Company. Except to the extent permitted by the foregoing
sentence, during the Optionee's lifetime such Optionee's Option is exercisable
only by the Optionee or his or her Legal Representative. Except to the extent
permitted by the foregoing, an Option may not be sold, transferred, assigned,
pledged, hypothecated, encumbered or otherwise disposed of (whether by operation
of law or otherwise) or be subject to execution, attachment or similar process.
Upon any attempt so to sell, transfer, assign, pledge, hypothecate, encumber or
otherwise dispose of an Option, such Option and all rights thereunder shall
immediately become null and void.
3.2. Withholding Taxes.
------------------
(a) As a condition precedent to the delivery of shares of Common
Stock upon exercise of an Option, the Optionee shall, upon request by the
Company, pay to the Company in addition to the purchase price of the shares,
such amount of cash as the Company may be required, under all applicable
federal, state, local or other laws or regulations, to withhold and pay over as
income or other with-holding taxes (the "Required Tax Payments") with respect to
such exercise of such Option. If the Optionee shall fail to advance the
Required Tax Payments after request by the Company, the Company may, in its
discretion, deduct any Required Tax Payments from any amount then or thereafter
payable by the Company to the Optionee.
(b) The Optionee may elect to satisfy his or her obligation to
advance the Required Tax Payments by any of the following means: (1) a cash
payment to the Company pursuant to Section 3.2(a), (2) delivery to the Company
of previously owned whole shares of Common Stock (which the Optionee has held
for at least six months prior to the delivery of such shares or which the
Optionee purchased on the open market and for which the Optionee has good title,
free and clear of all liens and encumbrances) having an aggregate Fair Market
Value, determined as of the date the obligation to withhold or pay taxes first
arises in connection with such Optionee's Option (the "Tax Date"), equal to the
Required Tax Payments, (3) authorizing the Company to withhold whole shares of
Common Stock which would otherwise be delivered to the Optionee upon exercise of
such Option having an aggregate Fair Market Value, determined as of the Tax
Date, equal to the Required Tax Payments, (4) a cash payment by a broker-
dealer acceptable to the Company to whom the Optionee has submitted an
irrevocable notice of exercise or (5) any combination of (1), (2) and (3). The
Company shall have sole discretion to disapprove of an election pursuant to any
of clauses (2) through (5). Shares of Common Stock to be delivered or withheld
may not have an aggregate Fair Market Value in excess of the minimum amount of
the Required Tax Payments. Any fraction of a share of Common Stock which would
be required to satisfy any such obligation shall be disregarded and the
remaining amount due shall be paid in cash by the Optionee. No certificate
representing a share of Common Stock shall be delivered until the Required Tax
Payments have been satisfied in full.
<PAGE>
(c) Unless the Committee otherwise determines, if an Optionee is
subject to Section 16 of the Exchange Act, the following provisions shall apply
to such Optionee's election to deliver to the Company whole shares of Common
Stock or to authorize the Company to withhold whole shares of Common Stock
purchasable upon exercise of such Optionee's Option in payment of all or a
portion of such Optionee's tax liability in connection with such exercise:
(1) Such Optionee may deliver to the Company previously owned
whole shares of Common Stock in accordance with Section 3.2(b), if such delivery
is in connection with the delivery of shares of Common Stock in payment of the
exercise price of such Optionee's Option.
(2) Such Optionee may authorize the Company to withhold whole
shares of Common Stock purchasable upon exercise of such Optionee's Option in
accordance with Section 3.2(b); provided that the following provisions shall
apply to such election:
(i) such election may apply only to such Option or any or all other
options held by such Optionee, shall be filed with the Secretary at least six
months prior to the exercise date of such Option and may not take effect during
the six-month period beginning on the Grant Date (as specified in the Option
Agreement) of such Option (other than in the event of such Optionee's death) or
(ii) such election (A) shall be subject to approval by the Committee,
(B) may not take effect during the six-month period beginning on the Grant Date
(as specified in the Option Agreement) of such Option (other than in the event
of such Optionee's death), (C) must be filed with the Secretary during (or must
be filed with the Secretary in advance of, but take effect during) the ten
business day period beginning on the third business day following the date of
release of the Company's quarterly or annual summary statements of sales and
earnings and (D) the exercise of such Option must occur during such ten business
day period.
Unless the Committee otherwise determines, any election pursuant to
clause (i) may be revoked or changed only if such revocation or change is made
at least six months prior to the exercise of the Option. Any election made
pursuant to clause (ii) may be revoked or changed prior to the exercise of the
Option during the ten business day period.
3.3. Adjustment. The number and class of securities subject to an
----------
Option and the purchase price per security shall be subject to adjustment as
provided in Section 4.2 of the Plan. If any such adjustment would result in a
fractional security being subject to such Option, the Company shall pay the
Optionee, in connection with the first exercise of such Option, in whole or in
part, occurring after such adjustment, an amount in cash determined by
multiplying (i) the fraction of such security (rounded to the nearest hundredth)
by (ii) the excess, if any, of (A) the Fair Market Value on the exercise date
over (B) the exercise price per share of such Option. The decision of the
Committee regarding any such adjustment shall be final, binding and conclusive.
3.4. Compliance with Applicable Law. Each Option is subject to the
-------------------------------
condition that if the listing, registration or qualification of the shares
subject to such Option upon any securities exchange or under any law, or the
consent or approval of any governmental body, or the taking of any other action
<PAGE>
is necessary or desirable as a condition of, or in connection with, the purchase
or delivery of shares hereunder, such Option may not be exercised, in whole or
in part, unless such listing, registration, qualification, consent or approval
shall have been effected or obtained, free of any conditions not acceptable to
the Company. The Company agrees to use reasonable efforts to effect or obtain
any such listing, registration, qualification, consent or approval.
3.5. Delivery of Certificates. Upon the exercise of an Option, in
-------------------------
whole or in part, the Company shall credit to a book-entry or other electronic
account maintained for the Optionee, or deliver or cause to be delivered one or
more certificates representing, the number of shares purchased against full
payment therefor. The Company shall pay all original issue or transfer taxes
and all fees and expenses incident to such delivery, except as otherwise
provided in Section 3.2.
3.6. Rights as a Stockholder. An Optionee shall not be entitled to
------------------------
any privileges of ownership with respect to shares of Common Stock subject to an
Option unless and until purchased and credited to an account maintained for such
Optionee or delivered to such Optionee upon the exercise of such Option, in
whole or in part, and such Optionee becomes a stockholder of record with respect
to such shares; and such Optionee shall not be considered a stockholder of the
Company with respect to any such shares not so purchased and credited or
delivered.
3.7. Company to Reserve Shares. The Company shall at all times prior
--------------------------
to the expiration or termination of an Option reserve and keep available, either
in its treasury or out of its authorized but unissued shares of Common Stock,
the full number of shares subject to such Option from time to time.
3.8. Agreement Subject to the Plan. Each Option Agreement, and the
------------------------------
Option thereby granted, are subject to the provisions of the Plan, including,
without limitation, Sections 5.1 and 13.2 of the Plan, and shall be interpreted
in accordance therewith.
4. Change in Control.
------------------
(a) Notwithstanding any provision hereof, of the Plan or any Option
Agreement to the contrary, if within 24 months following a Change in Control, an
Optionee's employment is terminated (i) by the Company other than for Cause, or
(ii) by the Optionee for Good Reason, outstanding Options which were granted on
or after July 22, 1998 shall immediately become fully exercisable; provided
however, that a termination of employment with the Company or a subsidiary
thereof and immediate reemployment by an entity which purchases or otherwise
acquired Company assets shall not be a termination of employment within the
meaning of this Section 4(a). Outstanding Options which were granted prior to
July 22, 1998 shall become fully exercisable upon a Change in Control without
regard to whether the Optionee has had a termination of employment.
(b) "Change in Control" shall mean:
(1) the acquisition by any individual, entity or group (a "Person"),
including any "person" within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act, of beneficial ownership within the meaning of Rule 13d-3
promulgated under the Exchange Act, of 20% or more of either (i) the then
outstanding shares of Common Stock (the "Outstanding Company Common Stock") or
(ii) the combined voting power of the then outstanding securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
<PAGE>
Company Voting Securities"); excluding, however, the following: (A) any
acquisition directly from the Company (excluding any acquisition resulting from
the exercise of an exercise, conversion or exchange privilege unless the
security being so exercised, converted or exchanged was acquired directly from
the Company), (B) any acquisition by the Company, (C) any acquisition by an
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company or (D) any acquisition by any
corporation pursuant to a transaction which complies with clauses (i), (ii) and
(iii) of sub-section (3) of this Section 4(b); provided further, that for
purposes of clause (B), if any Person (other than the Company or any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company) shall become the beneficial owner of 20%
or more of the Outstanding Company Common Stock or 20% or more of the
Outstanding Company Voting Securities by reason of an acquisition by the
Company, and such Person shall, after such acquisition by the Company, become
the beneficial owner of any additional shares of the Outstanding Company Common
Stock or any additional Outstanding Company Voting Securities (other than
pursuant to any dividend reinvestment plan or arrangement maintained by the
Company) and such beneficial ownership is publicly announced, such additional
beneficial ownership shall constitute a Change in Control;
(2) individuals who, as of the date hereof, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of such Board; provided that any individual who becomes a director of
the Company subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by the vote of at least a
majority of the directors then comprising the Incumbent Board shall be deemed a
member of the Incumbent Board; and provided further, that any individual who was
initially elected as a director of the Company as a result of an actual or
threatened election con-test, as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act, or any other actual or
threatened solicitation of proxies or consents by or on behalf of any Person
other than the Board shall not be deemed a member of the Incumbent Board;
(3) approval by the stockholders of the Company of a reorganization,
merger or consolidation of the Company (a "Corporate Transaction"); excluding,
however, a Corporate Transaction pursuant to which (i) all or substantially all
of the individuals or entities who are the beneficial owners, respectively, of
the Outstanding Company Common Stock and the Outstanding Company Voting
Securities immediately prior to such Corporate Transaction will beneficially
own, directly or indirectly, more than 60% of, respectively, the outstanding
shares of common stock, and the combined voting power of the outstanding
securities of such corporation entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Corporate
Transaction (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or in-directly) in substantially the same proportions
relative to each other as their ownership, immediately prior to such Corporate
Transaction, of the Outstanding Company Common Stock and the Outstanding Company
Voting Securities, as the case may be, (ii) no Person (other than: the Company;
any employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company; the corporation resulting
from such Corporate Transaction; and any Person which beneficially owned,
immediately prior to such Corporate Transaction, directly or indirectly, 20% or
more of the Outstanding Company Common Stock or the Outstanding Company Voting
Securities, as the case may be) will beneficially own, directly or indirectly,
20% or more of, respectively, the
<PAGE>
outstanding shares of common stock of the corporation resulting from such
Corporate Transaction or the combined voting power of the outstanding securities
of such corporation entitled to vote generally in the election of directors and
(iii) individuals who were members of the Incumbent Board will constitute at
least a majority of the members of the board of directors of the corporation
resulting from such Corporate Transaction; or
(4) the approval by the shareholders of a plan of complete
liquidation or dissolution of the Company, other than a plan of liquidation or
dissolution which results in the acquisition of all or substantially all of the
assets of Commonwealth Edison by the Company or any affiliate thereof.
5. Miscellaneous Provisions.
-------------------------
5.1. Meaning of Certain Terms.
-------------------------
(a) As used herein, employment by the Company shall include
employment by a corporation which is a "subsidiary corporation" of the Company,
as such term is defined in section 424 of the Code. References in these General
Provisions to sections of the Code shall be deemed to refer to any successor
section of the Code or any successor internal revenue law.
(b) As used herein, the terms defined elsewhere in these General
Provisions shall have the respective specified meanings and the following terms
shall have the following respective meanings:
"Cause" means:
(a) the Optionee's willful commission of acts or omissions which
have, have had, or are likely to have a material adverse effect on the business,
operations, financial condition or reputation of the Company or any of its
affiliates;
(b) the Optionee's conviction (including a plea of guilty or nolo
contendre) of a felony or any crime of fraud, theft, dishonesty or moral
turpitude; or,
(c) the Optionee's material violation of any statutory or common law
duty of loyalty to the Company or any of its affiliates.
"Committee" shall have the meaning specified in the Plan.
"Disability" shall have the meaning specified in any Long Term
disability plan or arrangement maintained by the Company or, if no such plan or
arrangement is then in effect, as determined by the Committee.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" means the closing transaction price of a
share of Common Stock, as reported on the New York Stock Exchange Composite
Transactions on the date of exercise or, if there shall be no reported
transaction for such date, on the next preceding date for which a transaction
was reported.
"Good Reason" means the occurrence of any of the following:
<PAGE>
(a) the failure to maintain the Optionee in the office or
position, or in a substantially equivalent office or position, held by the
Optionee immediately prior to Change in Control;
(b) a material adverse alteration in the nature or scope of
the Optionee's position, duties, functions, responsibilities or authority;
(c) a material reduction of the Optionee's salary, incentive
compensation or benefits, unless such reduction is part of a policy, program or
arrangement applicable to peer executives of the Company and its subsidiaries of
any successor entity;
(d) a determination by the Optionee, made in good faith,
that, as a result of Change in Control, the Optionee is substantially unable to
perform, or that there has been a material reduction in, any of the Optionee's
duties, functions, responsibility or authority.
(e) the failure of any successor to the Company to assume
any agreement or arrangement made with respect to an Optionee which provides
benefits in the event of a Change in Control, or a material breach of any such
agreement or arrangement by the Company or its successor;
(f) a relocation of more than 50 miles of (i) the Optionee's
workplace, or (ii) the principal offices of the Company (if such offices are the
Optionee's workplace), in each case without consent of the Optionee; or
(g) a requirement of at least 20% more business travel than
was required of the Optionee prior to Change in Control.
"Legal Representative" shall include an executor, administrator, legal
representative, guardian or similar person.
"Permitted Transferee" shall include any transferee (i) pursuant to a
transfer permitted under Section 13.5 of the Plan and Section 3.1 of these
General Provisions or (ii) designated pursuant to beneficiary designation
procedures approved by the Company.
"Retirement" shall mean retirement from the employment of the Company
(as defined in Section 5.1(a) hereof) on or after attaining the minimum age
specified for early or normal retirement in any then effective retirement policy
of the Company, after a minimum of ten years employment with the Company.
5.2. Successors. These General Provisions shall be binding upon and
-----------
inure to the benefit of any successor or successors of the Company and any
person or persons who shall, upon the death of an Optionee, acquire any rights
under such Optionee's Option Agreement in accordance with such Option Agreement,
these General Provisions or the Plan.
5.3. Notices. All notices, requests or other communications provided
--------
for in an Option Agreement shall be made, if to the Company, to Unicom
Corporation, 10 South Dearborn Street - 37th Floor, P.O. Box A-3005, Chicago,
Illinois 60690-3005, Attention: Secretary, and if to the Optionee under such
Option Agreement, to the address for such Optionee set forth in the records of
the Company. All notices, requests or other communications provided for in an
Option Agreement shall be made in writing either (a) by personal delivery to the
party entitled
<PAGE>
thereto, (b) by facsimile transmission with confirmation of receipt, (c) by
mailing in the United States mails to the last known address of the party
entitled thereto or (d) by express courier service. The notice, request or other
communication shall be deemed to be received upon personal delivery, upon
confirmation of receipt of facsimile transmission or upon receipt by the party
entitled thereto if sent by United States mail or express courier service;
provided, however, that if a notice, request or other communication is not
received during regular business hours, it shall be deemed to be received on the
next succeeding business day of the Company.
5.4. Governing Law. Each Option Agreement (including these General
--------------
Provisions) and all determinations made and actions taken pursuant thereto, to
the extent not governed by the laws of the United States, shall be governed by
the laws of the State of Illinois and construed in accordance therewith without
giving effect to principles of conflicts of laws.
<PAGE>
Exhibit (10)-19
Unicom Corporation and
Commonwealth Edison Company
Form 10-K File Nos. 1-11375 and 1-1839
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This FIRST AMENDMENT (the "First Amendment") dated as of December 1, 1998 to
the Employment Agreement dated as of March 10, 1998 by and among the parties
hereto (the "Employment Agreement") is made by and among Unicom Corporation, an
Illinois corporation ("Unicom"), Commonwealth Edison Company, an Illinois
corporation ("ComEd"), and John W. Rowe ("Executive").
WHEREAS, the Compensation Committee of the Board of Directors of each of
Unicom and ComEd and Executive have determined that it is desirable to amend
that portion of the Employment Agreement relating to Executive's Annual
Incentive; and
WHEREAS, such Compensation Committees approved such amendment at their
meetings on July 22, 1998;
NOW THEREFORE, in consideration of their mutual undertakings set forth in this
First Amendment, the parties hereto agree as follows:
I
Unless otherwise specifically defined herein, each term used herein which is
defined in the Employment Agreement shall have the meaning specified in the
Employment Agreement. Each reference to "this Agreement" and each similar
reference in the Employment Agreement shall, from and after the date hereof,
refer to the Employment Agreement as amended hereby.
II
Section 4.3 is amended by substituting a reference to "$300,000" for each
reference to "$600,000".
III
A new Section 4.5 is added to read in full as follows:
"4.5 Deferred Stock and Additional Option.
------------------------------------
<PAGE>
(a) Deferred Stock. Effective on the date in 1999 on which
--------------
Executive's Annual Incentive with respect to 1998 first becomes payable
pursuant to Section 4.3 (the "Grant Date"), Unicom grants to Executive a
right to receive, on the Payment Date (as defined in the last sentence of
this Section 4.5(b)) a number of shares of Common Stock (the "Deferred
Shares") equal to the sum of:
(i) a number of shares (the "Initial Deferred Shares") equal to
$600,000 divided by 100% of the fair market value (determined in
accordance with the LTIP or any applicable successor plan (the "Fair
Market Value")) of a share of the Common Stock on the Grant Date (such
price, the "Grant Price"), and
(ii) the aggregate number of shares of Common Stock that would
be issued from time to time if all dividends (other than dividends
payable in Common Stock) payable in respect of the Initial Deferred
Shares were reinvested in additional shares of Common Stock (assuming
for this purposes that the Initial Deferred Shares were outstanding
throughout the period beginning on the Grant Date and ending the
Payment Date) based on the Fair Market Value of the Common Stock as of
the applicable dividend payment date;
provided, however, that the aggregate number and kind of Deferred Shares
shall from time to time be equitably adjusted to prevent any material
dilution or enlargement of the aggregate value of the Deferred Shares that
may otherwise occur by reason of a change in the number or kind of
outstanding shares of Common Stock resulting from any recapitalization,
reorganization, merger, consolidation, stock split, stock dividend or any
similar change affecting the Common Stock (other than a dividend which is
deemed to have been reinvested pursuant to clause (ii) of this Section
4.5(a)).
(b) Vesting. The Deferred Shares shall vest as follows: as to
-------
50% of the Deferred Shares specified in clause (i) of Section 4.5(a), on
the Grant Date, and as to all remaining Deferred Shares (the "Unvested
Deferred Shares") on the date in 2000 on which Executive's Annual Incentive
with respect to 1999 first becomes payable pursuant to Section 4.3 (the
"Year 2000 Bonus Date"). On or before the fifth business day following
Executive's Termination Date (such day, the "Payment Date"), Unicom shall
deliver to Executive a number of shares of Common Stock equal to the number
of Deferred Shares that have become vested on or before the Termination
Date, including Deferred Shares that have become vested pursuant to Section
4.5(e).
-2-
<PAGE>
(c) Effect on SERP Benefit. Solely for purposes of determining
----------------------
the amount of Executive's SERP Benefit pursuant to Section 6.3, Executive's
Annual Incentive with respect to each of 1998 and 1999 shall be deemed to
have been $300,000 greater than the Annual Incentive actually paid to
Executive in respect of such year; provided that, in the event of any
Termination of Employment (regardless of the circumstances thereof) at any
time during 1998 or 1999, then each such $300,000 amount shall be reduced
(but not below zero) by an amount equal to $821.92 (i.e., $300,000 divided
by 365) for each calendar day remaining in such year after Executive's
Termination Date.
(d) Additional Option. Effective as of the Grant Date, Unicom
-----------------
grants to Executive an Option (the "Additional Option") with an exercise
price equal to the Grant Price and subject to such other terms and
conditions as are applicable to other stock options granted to senior
executives of the Company under the LTIP. The number of shares of Common
Stock subject to such Additional Option shall be such as to cause the
Additional Option to have a value as of the Grant Date (determined pursuant
to the Black-Scholes option pricing model with such assumptions and
adjustments as the Compensation Committee in its sole discretion deem
appropriate using the methodology in use by the Compensation Committee as
of the date of this First Amendment) equal to $90,000. The Additional
Option shall be exercisable during its term as follows: (i) as to 50% of
the shares subject thereto, at any time on or after the Grant Date, and
(ii) as to all of the other shares subject thereto (the "Unvested Option
Shares"), at any time on or after the Year 2000 Bonus Date.
(e) Effect of Termination of Employment. If at any time during
-----------------------------------
the period beginning on the Grant Date and ending on December 31, 1999 (the
"Vesting Period"), a Termination Date occurs by reason of a Termination
Without Cause, a Termination for Good Reason, or any other Termination of
Employment due to Executive's death, Disability, Early Retirement or Normal
Retirement, then:
(i) Unicom shall pay to Executive a number of shares of Common
Stock equal to the product of the number of Unvested Deferred Shares
multiplied by the Proration Factor (as defined below); and
(ii) the Additional Option shall immediately become exercisable
as to a number of additional shares of Common Stock equal to the
product of the number of Unvested Option Shares multiplied by the
Proration Factor.
For purposes of this Section 4.5, "Proration Factor" means a fraction, the
numerator of which equals the number of days, if any, during the period
beginning on January 1, 1999 and ending on the Termination Date, and the
denominator of
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<PAGE>
which is 365, but which fraction shall in no event be less than zero or
greater than one.
If at any time during the Vesting Period, Executive's employment is
terminated by the Company for Cause or by Executive for any reason other
than as set forth in the preceding paragraph of this Section 4.5(e), then
all Unvested Deferred Shares shall be forfeited as of the Termination Date
and the Additional Option shall expire as of such Date as to all Unvested
Option Shares.
In the event of any Termination of Employment for which the
Termination Date occurs before the Grant Date, this Section 4.5 shall be of
no effect and the provisions of Article VII of the Agreement as in effect
on the Agreement Date shall control."
IV
Except as amended hereby, the Employment Agreement remains in full force
and effect.
-4-
<PAGE>
V
This First Amendment may be executed in any number of counterparts, each of
which shall be deemed to be an original, but all of which together shall be
deemed to be one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this First Amendment as of
the first date written above.
UNICOM CORPORATION
By: _______________________________________
Edward A. Brennan,
Chairman of the Compensation
Committee of the Board of Directors
By: _______________________________________
Donald P. Jacobs
Lead Non-employee Director
COMMONWEALTH EDISON COMPANY
By: _______________________________________
Edward A. Brennan,
Chairman of the Compensation
Committee of the Board of Directors
By: _______________________________________
Donald P. Jacobs
Lead Non-employee Director
EXECUTIVE:
_______________________________
John W. Rowe
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<PAGE>
Exhibit (10)-20
Unicom Corporation and
Commonwealth Edison Company
Form 10-K File Nos. 1-11375 and 1-1839
SECOND AMENDMENT TO
EMPLOYMENT AGREEMENT
This SECOND AMENDMENT (the "Second Amendment") dated as of January 27, 1999 to
the Employment Agreement dated as of March 10, 1998 by and among the parties
hereto (the "Employment Agreement"), as subsequently amended by the First
Amendment to Employment Agreement (as so amended, the "Existing Employment
Agreement"), is made by and among Unicom Corporation, an Illinois corporation
("Unicom"), Commonwealth Edison Company, an Illinois corporation ("ComEd"), and
John W. Rowe ("Executive").
WHEREAS, the Compensation Committee of the Board of Directors of each of
Unicom and ComEd and Executive have determined that it is desirable to amend
that portion of the Existing Employment Agreement relating to Executive's Annual
Incentive; and
WHEREAS, such Compensation Committees approved and adopted such amendment at
their meetings on January 27, 1999;
NOW THEREFORE, in consideration of their mutual undertakings set forth in this
Amendment, the parties hereto agree as follows:
I
Unless otherwise specifically defined herein, each term used herein which is
defined in the Existing Employment Agreement shall have the meaning assigned to
such term in the Existing Employment Agreement. Each reference to "this
Agreement" and each other similar reference contained in the Existing Employment
Agreement shall refer, from and after the date hereof, to the Existing
Employment Agreement as amended hereby.
II
<PAGE>
The last sentence of Section 4.3 is hereby amended to read as follows:
"During each of 1998 and 1999, the Annual Incentive shall be paid in
cash as to the first $300,000 thereof and the excess, if any, shall be
paid 50% in cash and 50% in shares of Common Stock."
III
Except as amended herein, the Existing Employment Agreement remains in full
force and effect.
2
<PAGE>
IV
This Second Amendment may be executed in any number of counterparts, each of
which shall be deemed to be an original, but all of which together shall be
deemed to be one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Second Amendment as of the
date first written above.
UNICOM CORPORATION
By:______________________________________
Edward A. Brennan,
Chairman of the Compensation
Committee of the Board of Directors
By:_______________________________________
Donald P. Jacobs
Lead Non-employee Director
COMMONWEALTH EDISON COMPANY
By:_______________________________________
Edward A. Brennan,
Chairman of the Compensation
Committee of the Board of Directors
By:_______________________________________
Donald P. Jacobs
Lead Non-employee Director
EXECUTIVE:
__________________________________________
John W. Rowe
3
<PAGE>
Exhibit (10)-21
Unicom Corporation and
Commonwealth Edison Company
Form 10-K File Nos. 1-11375 and 1-1839
THIRD AMENDMENT TO EMPLOYMENT AGREEMENT
This THIRD AMENDMENT dated as of March 8th, 1999 (the "Third Amendment")
to the Employment Agreement dated as of March 10, 1998 by and among the parties
hereto, as previously amended by the First and Second Amendments thereto (as so
amended, the "Existing Employment Agreement"), is made by and among Unicom
Corporation, an Illinois corporation ("Unicom"), Commonwealth Edison Company, an
Illinois corporation ("ComEd"), and John W. Rowe ("Executive").
WHEREAS, the Compensation Committee of the Board of Directors of each of
Unicom and ComEd and Executive have determined that it is desirable to amend and
supplement certain provisions of the Existing Employment Agreement relating to a
potential Change in Control of ComEd or Unicom and to clarify certain other
provisions of the Existing Employment Agreement; and
NOW THEREFORE, in consideration of their mutual undertakings set forth
in this Third Amendment, the parties hereto agree as follows:
I
Each term used in this Third Amendment which is defined in the Existing
Employment Agreement shall have the meaning specified in therein unless
otherwise defined in this Third Amendment. Each reference to "this Agreement"
in the Existing Employment Agreement shall, from and after the date hereof,
refer to the Existing Employment Agreement as amended by this Third Amendment.
II
Section 1.9 is amended by substituting "Article IX" for "Article VIII."
III
Section 1.39 is amended by substituting "the first 24 months" for the words
"two years" immediately preceding "after a Change in Control" in the proviso at
the end of such Section.
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<PAGE>
IV
Section 1.41 is amended and restated to read in its entirety as follows:
1.41 "Taxes" means federal, state, local or other income,
-----
employment or other taxes.
V
Sections 6.3(a) and 6.3(b) are amended and restated to read in their
entirety as follows:
6.3 Retirement Benefits.
-------------------
(a) Upon the first to occur of Executive's Early Retirement or
Normal Retirement, a Termination Without Cause, a Termination for Good
Reason, or a Termination of Employment by reason of death or Disability
(any of the foregoing, a "SERP Payment Event"), Executive (or, in the
event of his death, his surviving spouse) shall thereafter receive a
retirement benefit (the "SERP Benefit") determined pursuant to Section
6.3(b).
(b) The SERP Benefit to be provided to Executive during any year
shall equal an amount which, when added to all other retirement benefits
provided to Executive by the Company and its Affiliates during such year
(including payments under the Service Annuity System, the Supplemental
Retirement Plan, the Social Security supplement paid by ComEd until
Executive attains age 65, any retirement benefit paid pursuant to
Section 8.3(c), and any other sources) results an aggregate annual
retirement benefit equal to the annual retirement benefit that would
have been payable under the Service Annuity System (including under the
Supplemental Retirement Plan) as in effect on the Agreement Date,
calculated as though Executive had:
(i) retired at age 60 (or, if greater, his attained age upon
the first SERP Payment Event), and
(ii) accrued 20 years of service on the Commencement Date and
one additional year of service on each Anniversary Date occurring on
or before the Termination Date;
provided, however, that in no event shall any SERP Benefit be payable:
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<PAGE>
(A) during the Severance Period,
(B) in the event that, before the first SERP Payment Event,
Executive shall have received a Notice of Termination and his
employment is subsequently terminated by the Company for Cause, or
(C) in the event of any Termination of Employment other than in
connection with a SERP Payment Event.
In addition, Executive's right to receive the SERP Benefit shall be
subject to Section 7.7.
VI
Section 7.3 is amended by revising the introductory phrase before paragraph
(a) of such Section to read in full as follows:
Except as otherwise provided in Section 8.3, in the event of a
Termination Without Cause or a Termination for Good Reason:
VII
Section 7.7 is amended by substituting "Article IX" for all references to
"Article VIII" included therein.
VIII
Article IX is redesignated as Article X; Article VIII is redesignated as
Article IX, and a new Article VIII is added to read in full as follows:
ARTICLE VIII
EFFECTS OF CERTAIN CONTROL CHANGES
8.1 Effect on Certain Defined Terms. In the event of a Termination
-------------------------------
Without Cause or a Termination for Good Reason for which the Termination
Date occurs at any time during the period beginning on the date on which
a Change in Control first occurs and ending 24 months after such date
(such period, the "Post-Change Period"):
(a) the term "Formula Annual Incentive" shall mean the greater of (i)
------------------------
that amount determined pursuant to Section 1.23 or (ii) Executive's
target Annual Incentive determined as of the Termination Date; and
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<PAGE>
(b) the term "Good Reason" shall have the meaning specified in
-----------
Section 1.24, except that, subject to the proviso at the end of
Section 1.24, any one or more of the following acts or omissions
shall also constitute Good Reason:
(i) a determination by Executive, made in good faith at any time during the
Post-Change Period, that, as a result of a Change in Control, he
is substantially unable to perform, or that there has been a
material reduction in, any of his duties, functions,
responsibilities or authority;
(ii) the failure for any reason of any successor to the
Company to assume this Agreement in writing as required by
Section 8.2;
(iii) a relocation of the principal offices of the Company
at any time during the Post-Change Period by more than 50 miles
from the location of such offices immediately before the date on
which such Post-Change Period begins; or
(iv) during any 12-month period commencing after the Change
of Control, any increase of at least 20% in the amount of time
that Executive is required to devote to business-related travel
outside of the metropolitan Chicago, Illinois area relative to
the amount of time that Executive devoted to such business
travel during the 12-month period immediately prior to the
Change in Control, but only to the extent that such increase is
attributable to requirements imposed upon Executive by the
Board.
8.2 Successor(s). Before the consummation of any Change in Control,
------------
the Company shall obtain from each Person that becomes a successor of
the Company by reason of the Change in Control, the unconditional
written agreement of such Person to assume this Agreement and to perform
all of the obligations of the Company hereunder.
8.3 Termination Without Cause or for Good Reason During Post-Change
---------------------------------------------------------------
Period. In the event of a Termination Without Cause or a Termination
------
for Good Reason for which the Termination Date occurs during a Post-
Change Period, the provisions of Section 7.3 shall be inapplicable and,
in lieu thereof:
(a) Executive shall receive a lump sum equal to his Accrued Base
Salary, Accrued Annual Incentive, and Prorated
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<PAGE>
Annual Incentive (determined by reference to the Formula Annual
Incentive computed in accordance with Section 8.1(a));
(b) Executive shall receive a lump sum equal to three (3.0)
times the sum of (x) his Base Salary in effect during the calendar
year preceding the Termination Date and (y) his Formula Annual
Incentive (computed in accordance with Section 8.1(a)) determined as
of the Termination Date;
(c) Executive and his family shall receive for the duration of
the Severance Period, a continuation of the benefits described in
Section 6.4 to which Executive and his family are entitled as of the
Termination Date (or, if such benefits are not available, the
economic equivalent thereof) and, upon the expiration of the
Severance Period, Executive and his spouse shall be entitled to
Post-Retirement Health Care Coverage in accordance with the
provisions of Section 7.6;
(d) ComEd shall, at its expense, engage a professional
outplacement organization which shall provide individual
outplacement services to Executive for a period of six months
commencing on the Termination Date, subject to extension for an
additional period of six months in the sole discretion of ComEd;
(e) each of Executive's Options that is exercisable on the
Termination Date shall remain exercisable until the applicable
Option Expiration Date;
(f) each of Executive's Options that is not fully exercisable as
of the Termination Date shall immediately become fully exercisable
and shall thereafter remain exercisable until the applicable Option
Expiration Date;
(g) all forfeiture conditions which as of the Termination Date
are applicable to any deferred stock unit, restricted stock or
restricted share units awarded to Executive by the Company pursuant
to the LTIP, a successor plan, or otherwise at any time during the
Contract Term shall lapse immediately; and
(h) If all or any portion of any of Executive's awards under any other bonus
or incentive arrangement under the LTIP shall for any reason
be unvested as of the Termination Date, the Company shall pay
Executive a benefit equal to the increase in the benefit that
Executive would have received if the unvested portion of such
benefit had become fully vested as of the Termination Date.
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<PAGE>
8.4 Enhanced Retirement Benefit.
---------------------------
(a) In the event of a Termination Without Cause or a Termination
for Good Reason for which the Termination Date occurs during the Post-
Change Period, the aggregate amount of Executive's annual retirement
benefit pursuant to Section 6.3(a) shall be computed on the basis of the
assumptions set forth in such Section 6.3(a), together with the
additional assumptions that Executive had:
(x) attained as of the Termination Date an age that is three
greater than the age determined pursuant to clause (x) of Section
6.3(a),
(y) accrued a number of years of service that is three years
greater than the number of years of service determined pursuant to
clause (y) of Section 6.3(a), and
(z) received the lump-sum severance benefit specified in Section
8.3(b) in equal monthly installments during the Severance Period.
(b) For purposes of applying the adjustments necessary to give
effect to the form in which Executive may from time to time elect to
receive his SERP Benefit pursuant to Section 6.3(c), the term "Service
Annuity System" shall refer to Service Annuity System as in effect on
the last date preceding the Post-Change Period if the amount of the SERP
Benefit (in the form in which Executive elects to receive it) would
otherwise be reduced by application of the adjustments provided for
under the Service Annuity System as in effect as of the Termination
Date.
8.5 Gross-Up for Certain Taxes.
--------------------------
(a) If it is determined by the Company's independent auditors
that any monetary or other benefit received or deemed received by
Executive from the Company or any Affiliate pursuant to this Agreement
or otherwise, whether or not in connection with a Change in Control
(such monetary or other benefits collectively, the "Potential Parachute
Payments"), is or will become subject to any excise tax under Section
4999 of the Code or any similar tax under any United States federal,
state, local or other law (such excise tax and all such similar taxes
collectively, "Excise Taxes"), then the Company shall, subject to
Sections 8.10 and 8.11, within five business days after such
determination, pay Executive an amount (the "Gross-Up Payment") equal to
the product of:
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<PAGE>
(i) the amount of such Excise Taxes multiplied by
(ii) the Gross-Up Multiple (as defined in Section 8.8).
The Gross-Up Payment is intended to compensate Executive for all Excise
Taxes payable by Executive with respect to Potential Parachute Payments
and all Taxes or Excise Taxes payable by Executive with respect to the
Gross-Up Payment.
(b) The determination of the Company's independent auditors
described in Section 8.5(a), including the detailed calculations of the
amounts of the Potential Parachute Payments, Excise Taxes and Gross-Up
Payment and the assumptions relating thereto, shall be set forth in a
written certificate of such auditors (the "Company Certificate")
delivered to Executive. Executive or the Company may at any time request
the preparation and delivery to Executive of a Company Certificate. The
Company shall cause the Company Certificate to be delivered to Executive
as soon as reasonably possible after such request.
8.6 Determination by Executive.
--------------------------
(a) If (i) the Company shall fail to deliver a Company
Certificate to Executive within 30 days after its receipt of his written
request therefor, or (ii) at any time after Executive's receipt of a
Company Certificate, Executive disputes either (x) the amount of the
Gross-Up Payment set forth therein or (y) the determination set forth
therein to the effect that no Gross-Up Payment is due (whether by reason
of Section 8.11 or otherwise), then Executive may elect to require the
Company to pay a Gross-Up Payment in the amount determined by Executive
as set forth in an Executive Counsel Opinion (as defined in Section
8.9). Any such demand by Executive shall be made by delivery to the
Company of a written notice which specifies the Gross-Up Payment
determined by Executive (together with the detailed calculations of the
amounts of Potential Parachute Payments, Excise Taxes and Gross-Up
Payment and the assumptions relating thereto) and an Executive Counsel
Opinion regarding such Gross-Up Payment (such written notice and opinion
collectively, the "Executive's Determination"). Within 30 days after
delivery of an Executive's Determination to the Company, the Company
shall either (i) pay Executive the Gross-Up Payment set forth in the
Executive's Determination (less the portion thereof, if any, previously
paid to Executive by the Company) or (ii) deliver to Executive a Company
Certificate and a Company Counsel Opinion (as defined in Section 8.9),
and pay Executive the Gross-Up Payment specified in such Company
-7-
<PAGE>
Certificate. If for any reason the Company fails to comply with the
preceding sentence, the Gross-Up Payment specified in the Executive's
Determination shall be controlling for all purposes.
(b) If Executive does not request a Company Certificate, and the
Company does not deliver a Company Certificate to Executive, then (i)
the Company shall, for purposes of Section 8.11, be deemed to have
determined that no Gross-Up Payment is due and (ii) Executive shall not
pay any Excise Taxes in respect of Potential Parachute Payments except
in accordance with Sections 8.10(a) or (d).
8.7 Additional Gross-Up Amounts. If for any reason (whether
---------------------------
pursuant to subsequently enacted provisions of the Code, final
regulations or published rulings of the IRS, a final judgment of a court
of competent jurisdiction, a determination of the Company's independent
auditors set forth in a Company Certificate or, subject to the last two
sentences of Section 8.6(a), an Executive's Determination) it is later
determined that the amount of Excise Taxes payable by Executive is
greater than the amount determined by the Company or Executive pursuant
to Section 8.5 or 8.6, as applicable, then the Company shall, subject to
Sections 8.10 and 8.11, pay Executive an amount (which shall also be
deemed a Gross-Up Payment) equal to the product of:
(a) the sum of (1) such additional Excise Taxes and (2) any
interest, penalties, expenses or other costs incurred by Executive
as a result of having taken a position in accordance with a
determination made pursuant to Section 8.5 or 8.6, as applicable,
multiplied by
(b) the Gross-Up Multiple.
8.8 Gross-Up Multiple. The Gross-Up Multiple shall equal a
-----------------
fraction, the numerator of which is one (1.0), and the denominator of
which is one (1.0) minus the lesser of (i) the sum, expressed as a
decimal fraction, of the effective after-tax marginal rates of all Taxes
and any Excise Taxes applicable to the Gross-Up Payment or (ii) 0.80, it
being intended that the Gross-Up Multiple shall in no event exceed five
(5.0). (If different rates of tax are applicable to various portions of
a Gross-Up Payment, the weighted average of such rates shall be used.)
8.9 Opinion of Counsel. "Executive Counsel Opinion" means an
------------------
opinion of nationally-recognized executive compensation counsel to the
effect (i) that the amount of the Gross-Up Payment determined by
Executive pursuant to Section 8.6 is the amount that a court of
competent jurisdiction, based on a final judgment not subject to further
appeal, is
-8-
<PAGE>
most likely to decide to have been calculated in accordance with this
Article and applicable law and (ii) if the Company has previously
delivered a Company Certificate to Executive, that there is no
reasonable basis or no substantial authority for the calculation of the
Gross-Up Payment set forth in the Company Certificate. "Company Counsel
Opinion" means an opinion of nationally-recognized executive
compensation counsel to the effect that (i) the amount of the Gross-Up
Payment set forth in the Company Certificate is the amount that a court
of competent jurisdiction, based on a final judgment not subject to
further appeal, is most likely to decide to have been calculated in
accordance with this Article and applicable law and (ii) for purposes of
Section 6662 of the Code, Executive has substantial authority to report
on his federal income tax return the amount of Excise Taxes set forth in
the Company Certificate.
8.10 Amount Increased or Contested.
-----------------------------
(a) Executive shall notify the Company in writing (an
"Executive's Notice") of any claim by the IRS or other taxing authority
(an "IRS Claim") that, if successful, would require the payment by
Executive of Excise Taxes in respect of Potential Parachute Payments in
an amount in excess of the amount of such Excise Taxes determined in
accordance with Section 8.5 or 8.6, as applicable. Such Executive's
Notice shall include the nature and amount of such IRS Claim, the date
on which such IRS Claim is due to be paid (the "IRS Claim Deadline"),
and a copy of all notices and other documents or correspondence received
by Executive in respect of such IRS Claim. Executive shall give his
Executive's Notice as soon as practicable, but no later than the earlier
of (i) 10 business days after Executive first obtains actual knowledge
of such IRS Claim or (ii) five business days before the IRS Claim
Deadline; provided, however, that Executive's failure to give such
notice shall affect the Company's obligations under this Article only to
the extent that the Company is actually prejudiced by such failure. If
at least one business day before the IRS Claim Deadline the Company
shall:
(1) deliver to Executive a Company Certificate to the effect
that the IRS Claim has been reviewed by the Company's independent
auditors and, notwithstanding the IRS Claim, the amount of Excise
Taxes, interest and penalties payable by Executive is either zero or
an amount less than the amount specified in the IRS Claim,
(2) pay to Executive an amount (which shall also be deemed a
Gross-Up Payment) equal to the positive difference between (x) the
product of the amount of Excise Taxes, interest and penalties
specified in the Company Certificate, if any,
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<PAGE>
multiplied by the Gross-Up Multiple, and (y) the portion of such
product, if any, previously paid to Executive by the Company, and
(3) direct Executive pursuant to Section 8.10(d) to contest the
balance of the IRS Claim,
then Executive shall pay only the amount, if any, of Excise Taxes,
interest and penalties specified in the Company Certificate. In no
event shall Executive pay an IRS Claim earlier than 30 days after having
given an Executive's Notice to the Company (or, if sooner, the IRS Claim
Deadline).
(b) At any time after the payment by Executive of any amount of
Excise Taxes or related interest or penalties in respect of Potential
Parachute Payments (whether or not such amount was based upon a Company
Certificate, an Executive's Determination or an IRS Claim), the Company
may in its discretion require Executive to pursue a claim for a refund
(a "Refund Claim") of all or any portion of such Excise Taxes, interest
or penalties as the Company may specify by written notice to Executive.
(c) If the Company notifies Executive in writing that the
Company desires Executive to contest an IRS Claim or to pursue a Refund
Claim, Executive shall:
(i) give the Company all information that it reasonably
requests in writing from time to time relating to such IRS Claim or
Refund Claim, as applicable,
(ii) take such action in connection with such IRS Claim or
Refund Claim (as applicable) as the Company reasonably requests in
writing from time to time, including accepting legal representation
with respect thereto by an attorney selected by the Company, subject
to the approval of Executive (which approval shall not be
unreasonably withheld or delayed),
(iii) cooperate with the Company in good faith to contest such
IRS Claim or pursue such Refund Claim, as applicable,
(iv) permit the Company to participate in any proceedings
relating to such IRS Claim or Refund Claim, as applicable, and
(iv) contest such IRS Claim or prosecute such Refund Claim (as
applicable) to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate
courts, as the Company may from time to time determine
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<PAGE>
in its discretion.
The Company shall control all proceedings in connection with such IRS
Claim or Refund Claim (as applicable) and in its discretion may cause
Executive to pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the IRS or other taxing
authority in respect of such IRS Claim or Refund Claim (as applicable);
provided that (i) any extension of the statute of limitations relating
to payment of taxes for the taxable year of Executive relating to the
IRS Claim is limited solely to such IRS Claim, (ii) the Company's
control of the IRS Claim or Refund Claim (as applicable) shall be
limited to issues with respect to which a Gross-Up Payment would be
payable, and (iii) Executive shall be entitled to settle or contest, as
the case may be, any other issue raised by the IRS or other taxing
authority.
(d) The Company may at any time in its discretion direct
Executive to (i) contest the IRS Claim in any lawful manner or (ii) pay
the amount specified in an IRS Claim and pursue a Refund Claim;
provided, however, that if the Company directs Executive to pay an IRS
Claim and pursue a Refund Claim, the Company shall advance the amount of
such payment to Executive on an interest-free basis and shall indemnify
Executive, on an after-tax basis, for any Taxes, Excise Taxes, and any
related interest or penalties imposed with respect to such advance.
(e) The Company shall pay directly all legal, accounting and
other costs and expenses (including additional interest and penalties)
incurred by the Company or Executive in connection with any IRS Claim or
Refund Claim, as applicable, and shall indemnify Executive, on an after-
tax basis, for any Taxes, Excise Taxes and related interest and
penalties imposed on Executive as a result of such payment of costs and
expenses.
8.11 Limitation on Gross-Up Payments.
-------------------------------
(a) Notwithstanding any other provision of this Article VIII, if the
aggregate After-Tax Amount (as defined below) of the Potential Parachute
Payments and Gross-Up Payment that, but for this Section 8.11, would be
payable to Executive, does not exceed 110% of the After-Tax Floor Amount
(as defined below), then no Gross-Up Payment shall be made to Executive
and the aggregate amount of Potential Parachute Payments payable to
Executive shall be reduced (but not below the Floor Amount) to the
largest amount which would both (i) not cause any Excise Taxes to be
payable by Executive and (ii) not cause any Potential Parachute Payments
to become nondeductible by the Company by reason of Section 280G of the
Code (or any successor provision). For purposes of the preceding
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<PAGE>
sentence, Executive shall be deemed to be subject to the highest
effective after-tax marginal rate of Taxes.
(b) For purposes of this Section:
(i) "After-Tax Amount" means the portion of a specified
amount that would remain after payment of all Taxes and Excise
Taxes paid or payable by Executive in respect of such specified
amount;
(ii) "Floor Amount" means the greatest pre-tax amount of
Potential Parachute Payments that could be paid to Executive
without causing him to become liable for any Excise Taxes in
connection therewith; and
(iii) "After-Tax Floor Amount" means the After-Tax Amount
----------------------
of the Floor Amount.
8.12 Refunds. If, after the receipt by Executive of any payment or
-------
advance of Excise Taxes by the Company pursuant to this Article,
Executive receives any refund with respect to such Excise Taxes,
Executive shall (subject to the Company's complying with any applicable
requirements of Section 8.10) promptly pay the Company the amount of
such refund (together with any interest paid or credited thereon after
Taxes applicable thereto). If, after the receipt by Executive of an
amount advanced by the Company pursuant to Section 8.10, a determination
is made that Executive shall not be entitled to any refund with respect
to such claim and the Company does not notify Executive in writing of
its intent to contest such determination within 30 days after the
Company receives written notice of such determination, then such advance
shall be forgiven and shall not be required to be repaid and the amount
of such advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid. Any contest of a denial of refund
shall be controlled by Section 8.10.
8.13 No Adverse Effect on Pooling of Interests. Any benefits
-----------------------------------------
provided to Executive under this Article VIII may be reduced or
eliminated to the extent necessary, in the reasonable judgment of the
Unicom Board, to enable the Company to account for a merger,
consolidation or similar transaction as a pooling of interests; provided
that (i) the Unicom Board shall have exercised such judgment and given
Executive written notice thereof prior to the Effective Date, (ii) the
determination of the Unicom Board shall be supported by a written
certificate of the Company's independent auditors, a copy of which shall
be provided to the Executive before the Effective Date, and (iii) if for
any reason the Company shall, notwithstanding such exercise of
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<PAGE>
judgment by the Unicom Board, fail to account for such
merger, consolidation or other transaction as a pooling
of interests for any fiscal period that includes the
Termination Date, the Company shall, as soon as
practicable after the end of such fiscal period and, in
any event, within 10 business days after the its audited
financial statements for such fiscal period first become
publicly available, provide to Executive the excess, if
any, of (x) each severance or other benefit determined
pursuant to Article VIII (without giving effect to this
Section 8.13) over (y) each corresponding severance or
other benefit previously provided to Executive pursuant
to Article VII or Article VIII.
IX
Sections 9.1 through 9.17 are redesignated as Sections 10.1 through 10.17,
respectively, and Sections 8.1 through 8.6 are redesignated as Sections 9.1
through 9.6, respectively.
X
Section 9.2(a) is amended by substituting "8.2(c)" for "9.2(c)" at the end
of such Section.
XI
Section 9.2(b) is amended by substituting "held on the Agreement Date" for
each reference to "now held" in the last sentence of such Section.
XII
Sections 9.4(a), 9.4(b) and 9.5(a) are each amended by substituting "9.1,
9.2 and 9.3" for each reference to "8.1, 8.2 and 8.3" included therein.
XIII
Sections 9.5(b), 9.5(c) and 10.17 are each amended by substituting "Article
IX" for all references to "Article VIII" therein.
XIV
Section 10.10 is amended by substituting "9.1, 9.6 and 10.9" for the
reference to "8.1, 8.6 and 9.9" included therein.
-13-
<PAGE>
XV
Except as amended hereby, the Existing Employment Agreement, as previously
amended, remains in full force and effect.
XVI
This Third Amendment may be executed in any number of counterparts, each of
which shall be deemed to be an original, but all of which together shall be
deemed to be one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Third Amendment as of the
first date written above.
UNICOM CORPORATION
By:________________________________________
Edward A. Brennan,
Chairman of the Compensation
Committee of the Board of Directors
By:________________________________________
Donald P. Jacobs
Lead Non-employee Director
COMMONWEALTH EDISON COMPANY
By:________________________________________
Edward A. Brennan,
Chairman of the Compensation
Committee of the Board of Directors
By:________________________________________
Donald P. Jacobs
Lead Non-employee Director
EXECUTIVE:
______________________________________
John W. Rowe
-14-
<PAGE>
Exhibit (10)-22
Unicom Corporation and
Commonwealth Edison Company
Form 10-K File Nos. 1-11375 and 1-1839
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT ("Agreement") dated November 1, 1997 is made and
entered into between Commonwealth Edison Company ("ComEd") and Oliver D.
Kingsley, Jr. ("Kingsley").
1. EMPLOYMENT
----------
ComEd hereby employs Kingsley and Kingsley hereby accepts such employment on
the terms and conditions as hereinafter set forth.
2. TERM OF EMPLOYMENT
------------------
Subject to the provisions of Section 12, ComEd shall employ Kingsley as
Executive Vice President of ComEd and President and Chief Nuclear Officer -
Nuclear Group from November 1, 1997 to and including October 31, 2001 ("Initial
Term"), provided that upon the expiration of the Initial Term, this Agreement
shall be renewed automatically for successive periods of one year each (the
"Term"), unless written notice of the intention not to renew this Agreement is
provided by either ComEd or Kingsley within 90 days prior to the expiration of
any Term.
3. DESCRIPTION OF DUTIES
---------------------
Kingsley shall have overall accountability for nuclear operations and shall
perform to the best of his ability and to the reasonable satisfaction of ComEd
all duties normally attendant to his position. Kingsley shall have such
authority and responsibility as described in the attached Guidelines.
4. EXCLUSIVITY OF EMPLOYMENT
-------------------------
Kingsley represents and warrants that there are no agreements or
arrangements, whether written or oral, in effect which would prevent him from
rendering exclusive services to ComEd during the Initial Term or any additional
Term, and that he has not made and will not make any commitment, agreement or
arrangement, or do any act in conflict with this Agreement. Kingsley shall
devote his full employment energies, interest, abilities and time to the
performance of his obligations hereunder.
<PAGE>
5. COMPENSATION AND BONUS
----------------------
A. Salary
------
For services to be rendered by Kingsley pursuant to this Agreement, and
provided that Kingsley has kept and performed all of his obligations
hereunder, ComEd shall pay to Kingsley an annual salary ("Salary") for
calendar years 1997 and 1998 of $475,000, to be paid in accordance with
ComEd's normal payroll practices as such practices may be modified from
time to time. Kingsley shall receive the above-named Salary for all hours
worked by him in a week regardless of the number of hours he may work.
Effective beginning with calendar year 1999, ComEd may increase
Kingsley's Salary, provided that it shall not be reduced after any such
increase, and the term Salary as used in this Agreement shall refer to
the Salary as so increased.
B. Employment Sign-On Payment
--------------------------
ComEd shall pay to Kingsley, no later than December 1, 1997; an
employment sign-on payment of $375,000, provided however, that such
payment shall not be taken into account in determining Kingley's
compensation for purposes of any tax-qualified retirement plan sponsored
by ComEd or the Commonwealth Edison Supplemental Management Retirement
Plan . In the event that Kingsley resigns his employment with ComEd prior
to November 1, 1999, Kingsley agrees promptly to repay $250,000 to ComEd.
C. Incentive Compensation
----------------------
(i) Beginning in 1998, Kingsley shall participate in Unicom
Corporation's Annual Incentive Award Program in accordance with
the terms and conditions thereof; provided, however that for each
of 1998 and 1999, Kingsley shall be guaranteed the target award
under such Program for the applicable year or, if greater, the
actual award for such year.
(ii) Effective immediately, Kingsley shall participate in Unicom
Corporation's Long Term Performance Unit Award Program in
accordance with the terms and conditions thereof; provided,
however that any award payable to Kingsley under such Program
with respect to 1997, 1998 or 1999 will be made as though
Kingsley participated in the Program for the entire cycle with
respect to which such awards are payable.
ComEd may take such deductions, withholdings or payments from sums payable
to Kingsley pursuant to the provisions of this Agreement as are required by law
for taxes and similar charges.
2
<PAGE>
6. STOCK AWARDS
------------
ComEd shall make the following stock awards to Kingsley on the date
determined by the Board of Directors of ComEd (the "Grant Date"):
A. A grant of 25,000 non-qualified stock options, one third of which shall
vest on each of the first, second and third anniversaries of the Grant
Date; and
B. A grant of 20,000 shares of restricted stock one-third of which shall
vest on each of the second, third and fourth anniversaries of the date
hereof.
7. LIVING COST ALLOWANCE
---------------------
ComEd shall pay to Kingsley an annual living cost allowance of $75,000
(increased by the amount necessary to reimburse Kingsley for any federal, state,
local or other income taxes payable by Kingsley with respect to (a) the living
cost allowance and (b) the amount paid as reimbursement of any such income
taxes) during the first three years of the Initial Term, which shall be payable
in annual installments commencing December 1, 1997. Any payment made under this
Section 7 shall not be taken into account in determining Kingley's compensation
for purposes of any tax-qualified retirement plan sponsored by ComEd or the
Commonwealth Edison Supplemental Management Retirement Plan.
8. EMPLOYEE BENEFITS
-----------------
During the Initial Term and any subsequent Term, Kingsley shall be eligible
to participate in such ComEd benefit plans as are generally made available to
ComEd peer executives, as those plans may be modified from time to time,
including, but not limited to, medical, dental and vision care benefits, life
insurance, retirement benefits and vacation benefits; provided, however that
Kingsley shall be entitled to paid time off of 30 days per year.
In addition, Kingsley shall be credited with years of service and entitled
to payment under the Commonwealth Edison Supplemental Management Retirement Plan
in accordance with the provisions of Attachment A.
9. NONDISCLOSURE OF EMPLOYER INFORMATION AND NONSOLICITATION
---------------------------------------------------------
Kingsley acknowledges that the successful operation of ComEd's Nuclear
Operations requires substantial time and expense and that such efforts generate
for ComEd valuable and proprietary information, which gives ComEd business
advantages over others who do not have such information. For purposes of this
Agreement, "confidential information" is information which: (a) is known or
reasonably should be known by Kingsley to be confidential; (b) is identified
orally to Kingsley as information that is confidential; or (c) is identified in
writing as information that is confidential. Confidential information includes
but is not limited to information relating to: contracts involved in ComEd's
business, information regarding acquisitions and sales of entities under
consideration by ComEd, and
3
<PAGE>
specific contracts with customers of ComEd. Kingsley acknowledges that during
the course of his employment under this Agreement, he will obtain knowledge of
such confidential information, and Kingsley agrees to undertake the following
obligations which he acknowledges to be reasonably designed to protect ComEd's
legitimate business interests without unnecessarily or unreasonably restricting
Kingsley's business opportunities:
A. Upon termination of this Agreement for any reason, regardless of how
such termination may be effected, or whenever requested by ComEd,
Kingsley shall immediately turn over to ComEd all of ComEd's property,
including but not limited to originals and copies of computer
programs, files, notes, records, charts, or other documents or things
containing in whole or in part any of ComEd's confidential
information;
B. During the Initial Term and any subsequent Term, and after termination
of this Agreement for any reason (with or without cause), Kingsley
agrees to forever hold in confidence and not at any time, in any way,
directly or indirectly, to use for his own benefit or the benefit of
some other person, firm, corporation or other entity, or to divulge,
disclose or communicate to any person, firm, corporation or other
entity, any confidential information unless (1) at that time the
information has become, without any action by Kingsley in breach of
this Agreement, generally and lawfully known to the public or in
Kingsley's trade or industry; (2) the information has been disclosed
to a third party by ComEd without restrictions similar to those
contained herein; (3) the information is disclosed by Kingsley
pursuant to the order or requirement of a court or other governmental
body; (4) the information is known to Kingsley before disclosure by
ComEd; or (5) the information becomes lawfully known to Kingsley
independent of, and unrelated to, Kingsley's employment by ComEd; and
C. During the Initial Term and any subsequent Term and for a one year
period from the date of termination of this Agreement for any reason,
Kingsley shall not actively solicit or assist in the active
solicitation of any employee away from ComEd's employ or to in any way
impede the faithful discharge of such ComEd's agent's or employee's
contractual and fiduciary obligations to serve ComEd's interests with
undivided loyalty.
10. OWNERSHIP OF INVENTIONS AND BUSINESS IDEAS
------------------------------------------
Inventions, innovations, or ideas (hereinafter "inventions") that Kingsley
develops or conceives, alone or together with others, belong to ComEd if: they
were conceived or developed at the time Kingsley was employed under this
Agreement; they were financed by ComEd or Kingsley used or relied on ComEd's
resources, materials, facilities, funds, information, agents, or employees; or,
they related to ComEd's business activities and used information that Kingsley
acquired in the course of working for ComEd. Kingsley will assign to ComEd as
its exclusive property the entire right, title and interest in all inventions
that belong to ComEd under this Section 10. Kingsley will keep written records
of all inventions
4
<PAGE>
belonging to ComEd under this Section 10 and shall promptly submit those records
to ComEd. Further, Kingsley will execute all papers and provide any other
assistance that ComEd may reasonably request, to enable ComEd or anyone it
designates to obtain, at its expense, patents, copyrights and legal protection
in any country for the inventions which belong to ComEd under this Section 10.
11. BREACH
------
In the event that Kingsley breaches any term of this Agreement including,
without limitation, the provisions set forth in Sections 9 and 10 hereof, the
parties agree that ComEd may seek, but is not obligated to seek, equitable
relief, including, but not limited to, specific performance, as a remedy.
12. TERMINATION
-----------
A. ComEd may immediately terminate this Agreement for "cause" by giving
notice of such termination to Kingsley. Immediately upon receipt of
notice of termination, Kingsley shall no longer be entitled to
participate in the management or other operations of ComEd. "Cause"
shall mean:
(i) Kingsley's material breach of any of the terms of this
Agreement;
(ii) Kingsley's willful commission of acts(s) or omissions(s) which
have, have had, or are likely to have a material adverse effect
on the business, operations, financial condition or reputation
of ComEd;
(iii) Kingsley's conviction (including a plea of guilty or nolo
contendere) of a felony or any crime of fraud, theft,
dishonesty or moral turpitude; or,
(iv) Kingsley's material violation of any statutory or common law
duty of loyalty to ComEd.
If ComEd terminates this Agreement for "cause" as defined above, or
if Kingsley dies, becomes disabled or resigns from his employment
with ComEd other than for "good reason" as defined below, during the
Initial Term or any subsequent Term, Kingsley shall be paid all
accrued compensation and benefits through the date of termination of
employment, death or disability, but shall not be entitled to any
continued Salary, bonuses, or benefits except as required under the
law or under the terms of the benefits plans as in effect on the date
of such termination of employment, death or disability.
B. ComEd may terminate this Agreement at any time for reasons other than
"cause" as defined in this Section 12(A) or Kingsley may resign his
employment with ComEd at any time for "good reason." "Good reason"
shall mean:
5
<PAGE>
(i) ComEd's material breach of any of the terms of this Agreement;
(ii) A material reduction of Kingsley's Salary, incentive
compensation or benefits; or
(iii) A material reduction or adverse alteration in the nature of
Kingsley's position, responsibilities or authority, or
Kingsley's becoming the holder of a lesser office or title than
that provided under this Agreement.
If ComEd terminates this Agreement for reasons other than "cause" or
if Kingsley resigns for "good reason":
(i) ComEd shall pay to Kingsley all accrued compensation (Salary and
incentive pay) and benefits through the date of termination of
employment;
(ii) ComEd shall pay to Kingsley a lump sum amount equal to his then
current Salary;
(iii) Any unvested shares of restricted stock granted pursuant to this
Agreement shall immediately become fully vested and
nonforfeitable;
(iv) Kingsley shall receive executive outplacement assistance from a
firm of Kingsley's selection; and
(v) ComEd shall continue to provide, at its expense, the health care
and life insurance coverage Kingsley has elected under ComEd's
health care and group term life insurance plans for a period of
twelve months beginning on the date of termination of
employment; provided that continuation coverage under this
Section 12(B) shall be in lieu of any continuation coverage to
which Kingsley would be entitled under applicable law.
In the event of a termination of employment under this Section 12(B),
the compensation and benefits provided to Kingsley hereunder shall be
his sole remedy and Kingsley shall not be entitled to any additional
compensation or benefits except as required under applicable law or
under the terms of the ComEd benefit plans as in effect on the date of
termination.
13. ASSIGNMENT AND SURVIVAL OF OBLIGATIONS
--------------------------------------
A. Kingsley acknowledges that his services are unique and personal.
Accordingly, Kingsley may not assign his rights or delegate his duties
or obligations under this Agreement, and all of Kingsley's rights and
obligations shall terminate
6
<PAGE>
upon Kingsley's death other than such compensation and benefits as
have accrued on or before his death.
B. ComEd's rights and obligations under this Agreement shall inure to the
benefit of and shall be binding upon ComEd's successors and assigns.
C. Kingsley agrees that all obligations under this Agreement that survive
by their terms shall survive the termination of his employment with
ComEd.
14. ENTIRE AGREEMENT
----------------
This Agreement contains the entire understanding of the parties, and
supersedes all prior written or oral agreements or understandings. This
Agreement may be modified only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification, extension, or
discharge is sought.
15. DISPUTE RESOLUTION
------------------
ComEd shall be entitled to seek injunctive relief for any violation of the
provisions of Sections 9 and 10 of this Agreement. All other disputes that
relate in any way to Kingsley's employment or to the provisions of this
Agreement shall be resolved by binding arbitration held in the State of Illinois
pursuant to the rules of the American Arbitration Association.
16. COUNTERPARTS
------------
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original but all of which together shall constitute one and
the same instrument.
17. NO WAIVER
---------
Either party's failure to insist upon strict compliance with any of the
terms, conditions or covenants expressed in this Agreement shall not be deemed a
waiver of such term, condition or covenant, or any other term, condition or
covenant, nor shall any waiver or relinquishment of any right or power under
this Agreement at one time or times be deemed a waiver or relinquishment of such
right or power or any other right or power at any other time or times.
18. APPLICABLE LAW
--------------
This Agreement shall be governed by and construed in accordance with the
laws of the State of Illinois.
7
<PAGE>
19. NOTICES
-------
All notices required or permitted under this Agreement shall be deemed to
have been duly given and made if in writing and if served either by personal
delivery to the party to whom intended or by being deposited, postage paid,
certified or registered mail, return receipt requested, in the United States
mail. Notices to Kingsley shall be addressed to the personal address that
Kingsley provides to ComEd. Notices to ComEd should be sent to Pamela B.
Strobel, Vice President and General Counsel, Commonwealth Edison Company, One
First National Plaza, 10 S. Dearborn, 37th Floor, Chicago, Illinois 60603.
20. SAVINGS CLAUSE
--------------
Whenever possible, each provision of this Agreement shall be interpreted in
such manner as to be effective and valid under applicable law; but if any
provision of this Agreement is held to be prohibited by or invalid under
applicable law, such provision will be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
Kingsley has read, understands, and accepts all of the provisions in this
Agreement and in all documents incorporated herein.
IN WITNESS WHEREOF, the parties have executed this Agreement.
Employer: Employee:
COMMONWEALTH EDISON COMPANY
By:__________________________________ __________________________
James J. O'Connor Oliver D. Kingsley, Jr.
Chairman & Chief Executive Officer
Date: October ___________, 1997 Date: October ___________, 1997
8
<PAGE>
ATTACHMENT A
For purposes of determining Kingsley's Credited Service under the
Commonwealth Edison Company Supplemental Management Retirement Plan (the
"Plan"), Kingsley shall be credited with years of service in accordance with the
following schedule:
Years of Employment Years of Credited Service
------------------- -------------------------
Less than 2 0
2 but less than 3 15
3 but less than 4 20
4 but less than 5 25
5 or more Additional service determined in
accordance with the terms of the Plan
If, prior to the date Kingsley would be eligible to receive an annuity
under the Commonwealth Edison Service Annuity System (the "Service Annuity
System"), Kingsley (a) becomes entitled to payment under the Plan, or (b) dies
while employed, then, as applicable, Kingsley shall be entitled to elect payment
in the form of a service annuity or a marital annuity, or his surviving spouse
shall be immediately entitled to a surviving spouse benefit , any of which shall
be determined as though he (or his surviving spouse) were entitled to such
annuities under the Service Annuity System, taking into account Kingsley's
service as credited above.
<PAGE>
Exhibit (10)-23
Unicom Corporation and
Commonwealth Edison Company
Form 10-K File Nos. 1-11375 and 1-1839
UNICOM CORPORATION
STOCK AWARD AGREEMENT
Unicom Corporation, an Illinois corporation (the "Company"), hereby grants
Oliver D. Kingsley, Jr., (the "Holder") as of January 25, 1999, (the "Grant
Date"), pursuant to the provisions of the Unicom Corporation Long-Term Incentive
Plan (the "Plan"), a stock award (the "Award") of 6,500 shares of the Company's
Common Stock, without par value ("Common Stock"), upon and subject to the terms
and conditions set forth below. Capitalized terms not defined herein shall have
the meanings specified in the Plan.
1. Award Subject to Acceptance of Agreement.
----------------------------------------
The Award shall be subject to all the terms of this Agreement and the Plan.
2. Rights as a Stockholder; Dividend Equivalents.
---------------------------------------------
The Holder shall not be entitled to any privileges of ownership with respect to
the shares of Common Stock subject to the Award unless and until, and only to
the extent, such shares become vested pursuant to Section 3 hereof and the
Holder becomes a stockholder of record with respect to such shares. The Company
shall pay to the Holder a cash payment equal to the amount of any dividends he
would have received had the shares of Common Stock covered by this Award been
issued to him on the date hereof and such payment shall be made when and as
dividends are paid on outstanding shares of Common Stock until such shares
either vest or are forfeited, as provided in Section 3.
3. Vesting.
-------
(a) The Award shall vest with respect to 6,500 shares of Common Stock on
January 25, 2000, or earlier pursuant to Sections 3(b) and 3(c) hereof
(such period hereinafter referred to as the "Vesting Period").
(b) If (i) the Holder's employment by the Company or its successors
terminates by reason of the Holder's retirement, Disability or death,
the Award shall become fully vested as of the date of such retirement,
Disability or death.
(c) If (i) the Holder's employment is terminated by the Company or its
successors for any reason other than a reason described in Section
3(d), the Award shall become fully vested as of the effective date of
such termination of employment, as applicable.
(d) If the Holder's employment is terminated by the Company for Cause, the
portion of the Award that is not vested as of the effective date of
such termination of employment shall be forfeited by the Holder, and
such portion shall be canceled by the Company.
4. Termination of Award.
--------------------
In the event that the Holder shall forfeit all or a portion of the shares of
Common Stock subject to the Award, this Award shall terminate. The Holder
shall, upon the Company's request, promptly return this Agreement to the Company
for cancellation. Such cancellation shall be effective regardless of whether
the Holder returns this Agreement.
<PAGE>
Stock Award Agreement-Oliver D. Kingsley, Jr.
Page 2
5. Additional Terms and Conditions of Award.
----------------------------------------
5.1. Nontransferability of Award.
---------------------------
During the Vesting Period, this Award may not be sold, transferred,
assigned, pledged, hypothecated, encumbered or otherwise disposed of
(whether by operation of law or otherwise) or be subject to execution,
attachment or similar process, other than by will or the laws of descent
and distribution. Upon any attempt to so sell, transfer, assign, pledge,
hypothecate or encumber, or otherwise dispose of this Award or any shares
subject hereto that have not been issued pursuant to Section 5.5 shall
immediately become null and void.
5.2. Withholding Taxes.
-----------------
(a) As a condition precedent to the delivery to the Holder of any
shares of Common Stock subject to the Award, the Holder shall, upon
request by the Company, pay to the Company (or shall cause a broker-
dealer on behalf of the Holder to pay to the Company) such amount of
cash as the Company may be required, under all applicable federal,
state, local or other laws or regulations, to withhold and pay over as
income or other withholding taxes (the "Required Tax Payments") with
respect to the Award. If the Holder shall fail to advance the
Required Tax Payments after request by the Company, the Company may,
in its discretion, deduct any Required Tax Payments from any amount
then or thereafter payable by the Company to the Holder.
(b) The Holder may elect to satisfy his or her obligation to advance
the Required Tax Payments by any of the following means: (1) a cash
payment to the Company pursuant to Section 5.2(a), (2) delivery to the
Company of previously owned whole shares of Common Stock (which the
Holder has held for at least six months prior to the delivery of such
shares or which the Holder purchased on the open market and for which
the Holder has good title, free and clear of all liens and
encumbrances) having a Fair Market Value, determined as of the date
the obligation to withhold or pay taxes first arises in connection
with the Award (the "Tax Date"), equal to the Required Tax Payments,
(3) authorizing the Company to withhold from the shares of Common
Stock otherwise to be delivered to the Holder pursuant to the Award, a
number of whole shares of Common Stock having a Fair Market Value,
determined as of the Tax Date, equal to the Required Tax Payments, (4)
a cash payment by a broker-dealer acceptable to the Company through
whom the Holder has sold the shares with respect to which the Required
Tax Payments have arisen or (5) any combination of (1), (2) and (3).
The Committee shall have sole discretion to disapprove of an election
pursuant to any of clauses (2)-(5). Shares of Common Stock to be
delivered or withheld may have a Fair Market Value in excess of the
minimum amount of the Required Tax Payments, but not in excess of the
amount determined by applying the Holder's maximum marginal tax rate.
Any fraction of a share of Common Stock which would be required to
satisfy such an obligation shall be disregarded and the remaining
amount due shall be paid in cash by the Holder. No certificate
representing a share of Common Stock shall be delivered until the
Required Tax Payments have been satisfied in full.
5.3. Adjustment.
----------
In the event of any stock split, stock dividend, recapitalization,
reorganization, merger, consolidation, combination, exchange of shares,
liquidation, spin-off or other similar change in capitalization or event,
or any distribution to holders of Common Stock other than a regular cash
dividend, the number and class of securities subject to the Award shall be
appropriately adjusted by the Committee. If any adjustment would result in
a fractional security being subject to the Award, the Company shall pay the
Holder, in connection with the vesting, if any, of such
<PAGE>
Stock Award Agreement-Oliver D. Kingsley, Jr.
Page 3
fractional security, an amount in cash determined by multiplying (i) such
fraction (rounded to the nearest hundredth) by (ii) the Fair Market Value
on the vesting date. The decision of the Committee regarding any such
adjustment shall be final, binding and conclusive.
5.4. Compliance with Applicable Law.
------------------------------
The Award is subject to the condition that if the listing, registration or
qualification of the shares subject to the Award upon any securities
exchange or under any law, or the consent or approval of any governmental
body, or the taking of any other action is necessary or desirable as a
condition of, or in connection with, the vesting or delivery of shares
hereunder, the shares of Common Stock subject to the Award shall not vest
or be delivered, in whole or in part, unless such listing, registration,
qualification, consent or approval shall have been effected or obtained,
free of any conditions not acceptable to the Company. The Company agrees
to use reasonable efforts to effect or obtain any such listing,
registration, qualification, consent or approval.
5.5. Delivery of Certificates.
------------------------
Subject to Section 5.2, as soon as practicable after the vesting of the
Award, in whole or in part, the Company shall deliver or cause to be
delivered one or more certificates issued in the Holder's name representing
the number of vested shares. The Company shall pay all original issue or
transfer taxes and all fees and expenses incident to such delivery, except
as otherwise provided in Section 5.2.
5.6. Award Confers No Rights to Continued Employment.
-----------------------------------------------
In no event shall the granting of the Award or its acceptance by the Holder
give or be deemed to give the Holder any right to continued employment by
the Company or any affiliate of the Company.
5.7. Decisions of Committee.
----------------------
The Committee shall have the right to resolve all questions which may arise
in connection with the Award. Any interpretation, determination or other
action made or taken by the Committee regarding the Plan or this Agreement
shall be final, binding and conclusive.
5.8. Company to Reserve Shares.
-------------------------
The Company shall at all times prior to the cancellation of the Award
reserve and keep available, either in its treasury or out of its authorized
but unissued shares of Common Stock, the full number of unvested shares
subject to the Award from time to time.
5.9. Agreement Subject to the Plan.
-----------------------------
This Agreement is subject to the provisions of the Plan and shall be
interpreted in accordance therewith. The Holder hereby acknowledges
receipt of a copy of the Plan.
6. Miscellaneous Provisions.
------------------------
6.1. Meaning of Certain Terms.
------------------------
As used herein, the following terms shall have the respective meanings set
forth below:
"Cause" shall mean:
(1) the Holder's willful commission of acts or omissions which have,
have had, or are
<PAGE>
Stock Award Agreement-Oliver D. Kingsley, Jr.
Page 4
likely to have a material adverse effect on the business,
operations, financial condition or reputation of the Company or any of its
affiliates;
(2) the Holder's conviction (including a plea of guilty or nolo
contendere) of a felony or any crime of fraud, theft, dishonesty or moral
turpitude; or,
(3) the Holder's material violation of any statutory or common law
duty of loyalty to the Company or any of its affiliates.
"Disability" shall have the meaning specified in any long-term disability
plan or arrangement maintained by the Company or an affiliate under which
the Holder is covered or, if no such plan or arrangement is then in effect,
as determined by the Committee.
"Fair Market Value" means the closing transaction price of a share of
Common Stock, as reported on the New York Stock Exchange Composite
Transactions on the date in question or, if there shall be no reported
transaction for such date, on the next preceding date for which a
transaction was reported.
"vest" means no longer subject to forfeiture.
As used herein, employment by the Company shall include employment by a
corporation which is a "subsidiary corporation" of the Company, as such
term is defined in section 424 of the Code. References in this Agreement
to sections of the Code shall be deemed to refer to any successor section
of the Code or any successor internal revenue law.
6.2. Successors.
----------
This Agreement shall be binding upon and inure to the benefit of any
successor or successors of the Company and any person or persons who shall,
upon the death of the Holder, acquire any rights hereunder in accordance
with this Agreement or the Plan.
6.3. Notices.
-------
All notices, requests or other communications provided for in this
Agreement shall be made, if to the Company, to Unicom Corporation, 10 South
Dearborn Street -- 37th Floor, Chicago, Illinois 60603, Attention:
Secretary, and if to the Holder, ____________________________. All
notices, requests or other communications provided for in this Agreement
shall be made in writing (a) by personal delivery to the party entitled
thereto, (b) by facsimile transmission with confirmation of receipt, (c) by
mailing in the United States mails to the last known address of the party
entitled thereto or (d) by express courier service. The notice, request or
other communication shall be deemed to be received upon personal delivery,
upon confirmation of receipt of facsimile transmission, or upon receipt by
the party entitled thereto if by United States mail or express courier
service; provided, however, that if a notice, request or other
communication is not received during regular business hours, it shall be
deemed to be received on the next succeeding business day of the Company.
6.4. Governing Law.
-------------
This Agreement, the Award and all determinations made and actions taken
pursuant hereto and thereto, to the extent not otherwise governed by the
laws of the United States, shall be governed by the laws of the State of
Illinois and construed in accordance therewith without giving effect to
conflicts of laws principles.
<PAGE>
Stock Award Agreement-Oliver D. Kingsley, Jr.
Page 5
6.5. Counterparts.
------------
This Agreement may be executed in two or more counterparts each of which
shall be deemed an original and both of which together shall constitute one
and the same instrument.
UNICOM CORPORATION
By:______________________________
John P. McGarrity
Secretary
<PAGE>
Exhibit (10)-24
Unicom Corporation and
Commonwealth Edison Company
Form 10-K File Nos. 1-11375 and 1-1839
CHANGE IN CONTROL AGREEMENT
<PAGE>
CHANGE IN CONTROL AGREEMENT
---------------------------
THIS AGREEMENT dated as of __________________, 1999 (the "Agreement Date")
is made by and among Unicom Corporation ("Unicom"), an Illinois corporation,
Commonwealth Edison Company ("ComEd"), an Illinois corporation (and, together
with Unicom, the "Company") each having its principal place of business in
Chicago, Illinois and ______________________ (the "Executive").
ARTICLE I
PURPOSES
The Boards of Directors of Unicom and ComEd (the "Boards") have determined that
it is in the best interests of the Company and its shareholders to assure that
the Company will have the continued services of the Executive, despite the
possibility or occurrence of a Change in Control of the Company. The Boards
believe it is imperative to reduce the distraction of the Executive that would
result from the personal uncertainties caused by a pending or threatened Change
in Control, to encourage the Executive's full attention and dedication to the
Company, and to provide the Executive with compensation and benefits
arrangements upon a Change in Control which are competitive with those of
similarly-situated corporations. This Agreement is intended to accomplish these
objectives.
ARTICLE II
CERTAIN DEFINITIONS
When used in this Agreement, the terms specified below shall have the
following meanings:
2.1 "Agreement Term" means the period commencing on the Agreement Date and
ending on the second anniversary of the Agreement Date; provided, however, that
commencing on the first anniversary of the Agreement Date, the Agreement Term
shall be automatically extended each day by one day to create a new two-year
term, unless at least 60 days prior to the last day of any such extended
Agreement Term, the Company shall give notice to the Executive that the
Agreement Term shall not be so extended. The Agreement Term shall
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include the Employment Period and the Severance Period (each as defined below).
2.2 "Effective Date" means the first date during the Agreement Term on which a
Change in Control occurs. Anything in this Agreement to the contrary
notwithstanding, if a Change in Control occurs and the Executive's employment
with the Company is terminated prior to the date on which the Change in Control
occurs, and if it is reasonably demonstrated by the Executive that such
termination of employment (a) was at the request of a third party who has taken
steps reasonably calculated to effect a Change in Control, or (b) otherwise
arose in connection with or in anticipation of a Change in Control, then for all
purposes of this Agreement, the "Effective Date" shall mean the date immediately
prior to the date of such termination of employment.
2.3 "Change in Control" means:
(a) The acquisition by any individual, entity or group (within the meaning
of Section 13 (d) (3) or 14 (d) (2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
20% or more of either (i) the then-outstanding shares of common stock of
Unicom (the "Outstanding Company Common Stock"), or (ii) the combined
voting power of the then outstanding voting securities of Unicom entitled
to vote generally in the election of directors (the "Outstanding Company
Voting Securities"); provided, however, that for purposes of this
subsection (a), the following acquisitions shall not constitute a Change in
Control: (A) any acquisition directly from Unicom (excluding any
acquisition resulting from the exercise of an exercise, conversion or
exchange privilege unless the security being so exercised, converted or
exchanged was acquired directly from Unicom), (B) any acquisition by
Unicom, (C) any acquisition by an employee benefit plan (or related trust)
sponsored or maintained by Unicom or any corporation controlled by Unicom
(a "Company Plan"), or (D) any acquisition by any corporation pursuant to a
transaction which complies with clauses (i), (ii) and (iii) of subsection
(c) of this definition; provided further, that for purposes of clause (B),
if any Person (other than Unicom or any Company Plan) shall become the
beneficial owner of 20% or more of the Outstanding Unicom Common Stock or
20% or more of the Outstanding Unicom Voting Securities by reason of an
acquisition by Unicom, and such
2
<PAGE>
Person shall, after such acquisition by Unicom, become the beneficial owner
of any additional shares of the Outstanding Unicom Common Stock or any
additional Outstanding Unicom Voting Securities (other than pursuant to any
dividend reinvestment plan or arrangement maintained by Unicom) and such
beneficial ownership is publicly announced, such additional beneficial
ownership shall constitute a Change in Control; or
(b) Individuals who, as of the date hereof, constitute the Board of
Directors of Unicom (for purposes of this Section 2.3, the "Incumbent
Board") cease for any reason to constitute at least a majority of the
Incumbent Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
Unicom shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office occurs
as a result of an actual or threatened election contest (as such terms are
used in Rule 14a-11 promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board of Directors of Unicom; or
(c) Approval by the shareholders of the Company of a reorganization, merger
or consolidation, or the sale or other disposition of more than 50% of the
operating assets of Unicom (determined on a consolidated basis), other than
in connection with a sale-leaseback or other arrangement resulting in the
continued utilization of such assets (or the operating products of such
assets) by the Company (such sale or other disposition, a "Corporate
Transaction"); excluding, however, a Corporate Transaction pursuant to
which:
(i) all or substantially all of the individuals and entities who are
the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
Corporate Transaction beneficially own, directly or indirectly, more than
60% of, respectively, the then-outstanding shares of common stock and the
combined voting power of the then-outstanding voting securities entitled to
vote generally in the election of directors, as the case may be, of the
corporation resulting from such Corporate Transaction (including, without
limitation, a
3
<PAGE>
corporation which, as a result of such transaction, owns the Company or all
or substantially all of the assets of the Company either directly or
through one or more subsidiaries) in substantially the same proportions as
their ownership, immediately prior to such Corporate Transaction of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be;
(ii) no Person (other than Unicom, any Company Plan or related trust
of the Company, the corporation resulting from such Corporate Transaction,
and any Person which beneficially owned, immediately prior to such
Corporate Transaction, directly or indirectly, 20% or more of the
Outstanding Company Common Stock or the Outstanding Company Voting
Securities, as the case may be) will beneficially own, directly or
indirectly, 20% or more of, respectively, the then-outstanding common stock
of the corporation resulting from such Corporate Transaction or the
combined voting power of the outstanding voting securities of such
corporation; and
(iii) individuals who were members of the Incumbent Board will
constitute at least a majority of the members of the board of directors of
the corporation resulting from such Corporate Transaction; or
(d) Approval by the shareholders of Unicom of a plan of complete
liquidation or dissolution of Unicom or ComEd, other than a plan of
liquidation or dissolution which results in the acquisition of all or
substantially all of the assets of ComEd by Unicom or an affiliated
company.
2.4 "Code" means the Internal Revenue Code of 1986, as amended.
2.5 "Employment Period" means the period commencing on the Effective Date and
ending on the second anniversary of such date.
2.6 "Incentive Plan" See Section 3.2(b).
2.7 "Notice of Termination" means a written notice given in accordance with
Section 12.8 which sets forth (a) the specific termination provision in this
Agreement relied upon by the party giving such notice, (b) in reasonable detail
the facts and circumstances claimed to provide a basis for termination of the
Executive's employment under such termination provision, and (c) if the
4
<PAGE>
Termination Date is other than the date of receipt of such Notice of
Termination, the Termination Date.
2.8 "Plans" See Section 3.2(c).
2.9 "Severance Incentive" means the greater of (i) the target annual incentive
under an Incentive Plan applicable to the Executive for the Performance Period
in which the Termination Date occurs, or (ii) the average of the actual annual
incentives paid (or payable, to the extent not previously paid) to the Executive
under the Incentive Plan for each of the two calendar years preceding the
calendar year in which the Termination Date occurs.
2.10 "Severance Period" means the period beginning on the Executive's
Termination Date and ending on the third anniversary thereof.
2.11 "Termination Date" means the date of termination of the Executive's
employment; provided, however, that (a) if the Company terminates the
Executive's employment other than for Cause or Disability (as defined in Section
4.1(b)), then the Termination Date shall be the date of receipt of the Notice of
Termination and (b) if the Executive's employment is terminated by reason of
death or Disability, then the Termination Date shall be the date of death of the
Executive or the Disability Effective Date (as defined in Section 4.1 (a)), as
the case may be.
2.12 "Welfare Plans" See Section 3.2(d).
ARTICLE III
TERMS OF EMPLOYMENT
3.1 Position and Duties.
-------------------
(a) The Company hereby agrees to continue the Executive in its employ
during the Employment Period and, subject to Article IV of this Agreement,
the Executive agrees to remain in the employ of the Company subject to the
terms and conditions hereof. During the Employment Period, (i) the
Executive's position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of those
held, exercised and assigned to the Executive at any time during the 90-
day period immediately preceding
5
<PAGE>
the Effective Date, and (ii) the Executive's services shall be performed at
the location where the Executive was employed immediately preceding the
Effective Date or any office or location less than 50 miles from such
location.
(b) During the Employment Period, and excluding any periods of vacation and
sick leave to which the Executive is entitled, the Executive agrees to
devote reasonable attention and time during normal business hours to the
business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use
the Executive's reasonable best efforts to perform faithfully and
efficiently such responsibilities. During the Employment Period it shall
not be a violation of this Agreement for the Executive (i) to serve on
corporate, civic or charitable boards or committees, (ii) to deliver
lectures, fulfill speaking engagements or teach at educational institutions
and (iii) to manage personal investments, so long as such activities do not
significantly interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with this
Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the
Effective Date, the continued conduct of such activities (or the conduct of
activities similar in nature and scope thereto) subsequent to the Effective
Date shall not thereafter be deemed to interfere with the performance of
the Executive's responsibilities to the Company.
3.2 Compensation.
------------
(a) Base Salary. During the Employment Period, the Executive shall receive
-----------
an annual base salary ("Annual Base Salary"), which shall be paid at a
monthly rate at least equal to twelve times the highest monthly base salary
paid or payable, including any base salary which has been earned but
deferred, to the Executive by the Company in respect of the twelve-month
period immediately preceding the month in which the Effective Date occurs.
During the Employment Period, the Annual Base Salary shall be reviewed no
more than 12 months after the last salary increase awarded to the Executive
prior to the Effective Date and, thereafter, at least annually, and shall
be increased at any time and from time to time as shall be substantially
consistent with increases in base salary awarded to other peer executives
of the Company. Annual Base Salary shall not be reduced after any such
increase unless such reduction is part of a
6
<PAGE>
policy, program or arrangement applicable to peer executives of the Company
and of any successor entity, and the term Annual Base Salary as used in
this Agreement shall refer to Annual Base Salary as so increased. Any
increase in Annual Base Salary shall not limit or reduce any other
obligation of the Company to the Executive under this Agreement.
7
<PAGE>
(b) Annual Incentive. In addition to Annual Base Salary, the Company shall
----------------
pay or cause to be paid to the Executive an incentive award (the "Annual
Incentive") for each Performance Period which ends during the Employment
Period. "Performance Period" means each period of time designated in
accordance with any annual incentive award arrangement ("Incentive Plan")
which is based upon performance and approved by the Board of Directors of
Unicom (hereinafter, the "Board") or any committee of the Board, or in the
absence of any Incentive Plan or any such designated period of time,
Performance Period shall mean each calendar year. The Executive's target
and maximum Annual Incentive with respect to any Performance Period shall
not be less than the target and maximum annual incentive award payable with
respect to the Executive under the Company's annual incentive program as in
effect immediately preceding the Effective Date.
(c) Incentive, Savings and Retirement Plans. During the Employment Period,
---------------------------------------
the Executive shall be entitled to participate in all incentive, savings
and retirement plans, practices, policies and programs ("Plans") applicable
generally to other peer executives of the Company, but in no event shall
such Plans provide the Executive with incentives (measured with respect to
long term and special incentives, to the extent, if any, that such
distinctions are applicable) or savings and retirement benefits which, in
each case, are less favorable, in the aggregate than the greater of (i)
those provided by the Company for the Executive under such Plans as in
effect at any time during the 90-day period immediately preceding the
Effective Date, or (ii) those provided generally at any time after the
Effective Date to other peer executives of the Company.
(d) Welfare Benefit Plans. During the Employment Period, the Executive
---------------------
and/or the Executive's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit
plans, practices, policies and programs ("Welfare Plans") provided by the
Company (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental death
and travel accident insurance benefits), but in no event shall such Welfare
Plans provide the Executive with benefits which are less favorable, in the
aggregate than the greater of (i) those provided by the Company for the
Executive under such Welfare Plans as were in effect at any time during the
90-day period immediately
8
<PAGE>
preceding the Effective Date, or (ii) those provided generally at any time
after the Effective Date to other peer executives of the Company.
(e) Other Employee Benefits. During the Employment Period, the Executive
-----------------------
shall be entitled to other employee benefits and perquisites in accordance
with the most favorable plans, practices, programs and policies of the
Company, as in effect with respect to the Executive at any time during the
90-day period immediately preceding the Effective Date, or if more
favorable, as in effect generally with respect to other peer executives of
the Company.
(f) Expenses. During the Employment Period, the Executive shall be
--------
entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the policies, practices and
procedures of the Company as in effect with respect to the Executive at any
time during the 90-day period immediately preceding the Effective Date, or
if more favorable, as in effect generally with respect to other peer
executives of the Company.
(g) Office and Support Staff. During the Employment Period, the Executive
------------------------
shall be entitled to an office or offices of a size and with furnishings
and other appointments, and to exclusive personal secretarial and other
assistance, as in effect with respect to the Executive at any time during
the 90-day period immediately preceding the Effective Date, or if more
favorable, as provided generally with respect to other peer executives of
the Company.
(h) Paid Time Off. During the Employment Period, the Executive shall be
-------------
entitled to paid time off in accordance with the plans, policies, programs
and practices of the Company as in effect with respect to the Executive at
any time during the 90-day period immediately preceding the Effective Date,
or if more favorable, as provided generally with respect to other peer
executives of the Company.
(i) Subsidiaries. To the extent that immediately prior to the Effective
------------
Date, the Executive has been on the payroll of, and participated in the
incentive or employee benefit plans of, a subsidiary of Unicom, the
references to the Company contained in Sections 3.2(a) through 3.2(h) and
the other Sections of this Agreement referring to benefits to which the
Executive may be entitled shall be read to refer to such subsidiary.
9
<PAGE>
ARTICLE IV
TERMINATION OF EMPLOYMENT
4.1 Disability.
----------
(a) During the Agreement Term, the Company may terminate the Executive's
employment upon the Executive's Disability (as defined in Section 4.1(b))
by giving the Executive or his legal representative, as applicable, (1)
written notice in accordance with Section 12.8 of the Company's intention
to terminate the Executive's employment pursuant to this Section, and (2) a
certification of the Executive's Disability by a physician selected by the
Company or its insurers and reasonably acceptable to the Executive or the
Executive's legal representative. The Executive's employment shall
terminate effective on the 30th day (the "Disability Effective Date") after
the Executive's receipt of such notice unless, before the Disability
Effective Date, the Executive shall have resumed the full-time performance
of the Executive's duties.
(b) "Disability" means any medically determinable physical or mental
impairment that has lasted for a continuous period of not less than six
months and can be expected to be permanent or of indefinite duration, and
which renders the Executive unable to perform the duties required under
this Agreement.
4.2 Death. The Executive's employment shall terminate automatically upon the
-----
Executive's death during the Agreement Term.
4.3 Cause. The Company may terminate the Executive's employment during the
-----
Employment Period for Cause. For purposes of this Agreement, "Cause" means:
(a) the Executive's willful commission of acts or omissions which have,
have had, or are likely to have a material adverse effect on the business,
operations, financial condition or reputation of the Company;
(b) the Executive's conviction (including a plea of guilty or nolo
contendere) of a felony or any crime of fraud, theft, dishonesty or moral
turpitude; or
10
<PAGE>
(c) the Executive's material violation of any statutory or common law duty
of loyalty to the Company.
For purposes of this Agreement, no act, or failure to act, on the part of
the Executive shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company, or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than 60% of the entire
membership of the Board at a meeting of such Board called and held for such
purpose (after reasonable notice is provided to the Executive and the Executive
is given an opportunity, together with counsel, to be heard before the Board),
finding that, in the good faith opinion of the Board, the Executive is guilty of
the conduct described in paragraph (a) or (c) above, and specifying the
particulars thereof in detail].
4.4 Good Reason. During the Employment Period, the Executive's employment may
-----------
be terminated by the Executive for Good Reason. For purposes of this Agreement,
"Good Reason" means any material breach of this Agreement by the Company,
including:
(a) the failure to maintain the Executive in the office or position, or in
a substantially equivalent office or position, held by the Executive
immediately prior to the Change in Control;
(b) a material adverse alteration in the nature or scope of the Executive's
position, duties, functions, responsibilities or authority;
(c) a material reduction of the Executive's salary, incentive compensation
or benefits, unless such reduction is part of a policy, program or
arrangement applicable to peer executives of the Company and of any
successor entity;
11
<PAGE>
(d) a determination by the Executive, made in good faith during the
Agreement Term, that, as a result of the Change in Control, the Executive
is substantially unable to perform, or that there has been a material
reduction in, any of the Executive's duties, functions responsibilities or
authority;
(e) the failure of any successor to the Company to assume this Agreement,
or a material breach of the Agreement by the Company or its successor;
(f) a relocation of more than 50 miles of (i) the Executive's workplace, or
(ii) the principal offices of the Company (if such offices are the
Executive's workplace), in each case without the consent of the Executive;
(g) a requirement of at least 20% more business travel than was required of
the Executive prior to the Change in Control; or
(h) any failure by the Company to comply with any of the provisions of
Section 3.2 of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
provided, however, that an act or omission shall not constitute a material
breach of this Agreement by the Company:
(i) unless the Executive gives the Company 30 days' prior notice of
such act or omission and the Company fails to cure such act or omission
within the 30-day period;
(ii) if the Executive first acquired knowledge of such act or omission
more than 12 months before the Executive gives the Company such notice; or
(iii) if the Executive has consented in writing to such act or
omission in a document that makes specific reference to this Section.
12
<PAGE>
ARTICLE V
OBLIGATIONS OF THE COMPANY UPON TERMINATION
5.1 If by the Executive for Good Reason or by the Company Other Than for Cause
--------------------------------------------------------------------------
or Disability. If, during the Employment Period, the Company shall terminate
- --------------
the Executive's employment other than for Cause or Disability, or if the
Executive shall terminate employment for Good Reason, the Company's obligations
to the Executive shall be as follows:
(a) The Company shall, within five business days of such termination of
employment, pay the Executive a cash payment equal to the sum of the
following amounts:
(1) to the extent not previously paid, the Annual Base Salary and any
accrued paid time off through the Termination Date;
(2) an amount equal to the product of (i) the Annual Incentive (as
defined in Section 3.2(b)) for the Performance Period in which the
Termination Date occurs multiplied by (ii) a fraction, the numerator of
which is the number of days actually worked during such Performance
Period, and the denominator of which is 365; or, if greater, the amount
of any Annual Incentive paid or payable to the Executive with respect
to the Performance Period for the year in which the Termination Date
occurs; and
(3) all amounts previously deferred by or accrued to the benefit of the
Executive under any nonqualified deferred compensation plan sponsored
by the Company, excluding the Commonwealth Edison Company Supplemental
Management Retirement Plan (the "SERP"), together with any accrued
earnings thereon, and not yet paid by the Company; and
(4) an amount equal to the product of (A) three (3) multiplied by (B)
the sum of (i) the Executive's Annual Base Salary, and (ii) the
Severance Incentive.
(b) The Company agrees to secure the lump sum actuarial present value of
any benefits payable with respect to the Executive under the SERP by
obtaining an irrevocable bank letter of credit issued by a bank that is a
member of the Federal Reserve system until such benefits become payable to
the Executive under the terms of the SERP.
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<PAGE>
(c) Each of the Executive's stock options granted under the Unicom
Corporation Long Term Incentive Plan (the "LTIP"), any successor plan or
otherwise that is exercisable on the Termination Date shall remain
exercisable until the applicable option expiration date.
(d) On the Termination Date (1) the Executive shall become fully vested in,
and may thereupon and until the applicable expiration date of such stock
incentive awards exercise in whole or in part, any and all stock incentive
awards granted to the Executive under the LTIP, any successor plan or
otherwise which have not become exercisable as the Termination Date, and
(2) the Executive shall become fully vested at the target level in any cash
incentive awards granted under the LTIP, a successor plan or otherwise
which have not, as of the Termination Date, become fully vested.
(e) All forfeiture conditions that as of the Termination Date are
applicable to any deferred stock unit, restricted stock or restricted share
units awarded to the Executive by the Company pursuant to the LTIP, a
successor plan or otherwise shall lapse immediately.
(f) During the Severance Period (or until such later date as any Welfare
Plan of the Company may specify), the Company shall continue to provide to
the Executive and the Executive's family welfare benefits (including,
without limitation, medical, prescription, dental, disability, individual
life and group life insurance benefits) which are at least as favorable as
those provided under the most favorable Welfare Plans of the Company
applicable (i) with respect to the Executive and his family during the 90-
day period immediately preceding the Termination Date, or (ii) with respect
to other peer executives and their families during the Severance Period.
In determining benefits under such Welfare Plans, the Executive's annual
compensation attributable to base salary and incentives for any plan year
or calendar year, as applicable, shall be deemed to be not less than the
Executive's Annual Base Salary and Annual Incentive. The cost of the
welfare benefits provided under this Section 5.1(f) shall not exceed the
cost of such benefits to the Executive immediately before the Termination
Date or, if less, the Effective Date. Notwithstanding the foregoing, if
the Executive obtains comparable coverage under any Welfare Plans sponsored
by another employer, then the amount of coverage required to be provided by
the Company hereunder shall be reduced by the amount of coverage provided
by such other employer's
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<PAGE>
Welfare Plans. The Executive's rights under this Section shall be in
addition to and not in lieu of any post-termination continuation coverage
or conversion rights the Executive may have pursuant to applicable law,
including, without limitation, continuation coverage required by Section
4980B of the Code. For purposes of determining eligibility for (but not the
time of commencement of) retiree benefits under any Welfare Plans of the
Company, the Executive shall be considered (i) to have remained employed
until the last day of the Severance Period and to have retired on the last
day of such period, and (ii) to have attained the age the Executive would
have attained on the last day of the Severance Period.
(g) The amount payable under Section 5.1(a)(4) of this Agreement shall be
taken into account for purposes of determining the amount of benefits to
which the Executive is entitled under the SERP; provided that such amount
shall be taken into account as though it was earned equally over the
Severance Period, and further provided that the Executive shall be deemed
to have attained the age he or she would have attained as of the last day
of the Severance Period, and completed the number of years of service he or
she would have completed as of the last day of the Severance Period. To
the extent that the Executive, under the terms of an employment contract or
offer of employment with ComEd or the Company has received a grant of years
of service for purposes of the SERP and the Executive either (i) has, as of
the Termination Date, completed the number of years of service required in
order to be entitled to benefits under the SERP, or (ii) would, taking into
account the Severance Period, satisfy the service requirement for such
benefits, the Severance Period shall be taken into account for purposes of
determining the amount of and eligibility to begin to receive benefits
under the SERP.
(h) The Company shall, at its sole expense, as incurred, pay on behalf of
Executive all fees and costs charged by a nationally recognized
outplacement firm selected by the Executive to provide outplacement
service.
5.2 If by the Company for Cause. If the Company terminates the Executive's
---------------------------
employment for Cause during the Employment Period, this Agreement shall
terminate without further obligation by the Company to the Executive, other than
the obligation immediately to pay the Executive in cash the Executive's Annual
Base Salary through the Termination Date, plus any accrued paid time off, in
each case to the extent not previously paid.
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5.3 If by the Executive Other Than for Good Reason. If the Executive
----------------------------------------------
terminates employment during the Employment Period other than for Good Reason,
Disability or death, this Agreement shall terminate without further obligation
by the Company, other than the obligation immediately to pay the Executive in
cash the Executive's Annual Base Salary through the Termination Date, plus any
accrued paid time off, in each case to the extent not previously paid.
5.4 If by the Company for Disability. If the Company terminates the
--------------------------------
Executive's employment by reason of the Executive's Disability during the
Employment Period, this Agreement shall terminate without further obligation to
the Executive, other than:
(a) the Company's obligation immediately to pay the Executive in cash all
amounts specified in clauses (1), (2) and (3) of Section 5.1(a), in each
case, to the extent unpaid as of the Termination Date (such amounts
collectively, the "Accrued Obligations"), and
(b) the Executive's right after the Disability Effective Date to receive
disability and other benefits at least equal to the greater of (1) those
provided under the most favorable disability Plans applicable to disabled
peer executives of the Company in effect immediately before the Termination
Date, or (2) those provided under the most favorable disability Plans of
the Company in effect at any time during the 90-day period immediately
before the Effective Date.
5.5 If upon Death. If the Executive's employment is terminated by reason of
-------------
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligation to the Executive's legal representatives
under this Agreement, other than the obligation immediately to pay the
Executive's estate or beneficiary in cash all Accrued Obligations.
Notwithstanding anything in this Agreement to the contrary, the Executive's
family shall be entitled to receive benefits at least equal to the most
favorable benefits provided under Plans of the Company to the surviving families
of peer executives of the Company, but in no event shall such Plans provide
benefits which in each case are less favorable, in the aggregate, than the most
favorable of those provided by the Company to the Executive under such Plans in
effect at any time during the 90-day period immediately before the Effective
Date.
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<PAGE>
ARTICLE VI
CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY
6.1 Gross-up for Certain Taxes.
--------------------------
(a) If it is determined by the Company's independent auditors that any
benefit received or deemed received by the Executive from the Company
pursuant to this Agreement or otherwise, whether or not in connection with
a Change in Control (such monetary or other benefits collectively, the
"Potential Parachute Payments") is or will become subject to any excise tax
under Section 4999 of the Code or any similar tax payable under any United
States federal, state, local or other law (such excise tax and all such
similar taxes collectively, "Excise Taxes"), then the Company shall,
subject to Sections 6.6 and 6.7, within five business days after such
determination, pay the Executive an amount (the "Gross-up Payment") equal
to the product of:
(i) the amount of such Excise Taxes multiplied by
(ii) the Gross-up Multiple (as defined in Section 6.4).
The Gross-up Payment is intended to compensate the Executive for all Excise
Taxes payable by the Executive with respect to the Potential Parachute Payments
and any federal, state, local or other income or other taxes or Excise Taxes
payable by the Executive with respect to the Gross-up Payment.
(b) The determination of the Company's independent auditors described in
Section 6.1(a), including the detailed calculations of the amounts of the
Potential Parachute Payments, Excise Taxes and Gross-Up Payment and the
assumptions relating thereto, shall be set forth in a written certificate
of such auditors (the "Company Certificate") delivered to the Executive.
The Executive or the Company may at any time request the preparation and
delivery to the Executive of a Company Certificate. The Company shall
cause the Company Certificate to be delivered to the Executive as soon as
reasonably possible after such request.
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<PAGE>
6.2 Determination by the Executive.
------------------------------
(a) If (i) the Company shall fail to deliver a Company Certificate to the
Executive within 30 days after its receipt of his written request therefor,
or (ii) at any time after the Executive's receipt of a Company Certificate,
the Executive disputes either (x) the amount of the Gross-Up Payment set
forth therein, or (y) the determination set forth therein to the effect
that no Gross-Up Payment is due (whether by reason of Section 6.7 or
otherwise), then the Executive may elect to require the Company to pay a
Gross-Up Payment in the amount determined by the Executive as set forth in
an Executive Counsel Opinion (as defined in Section 6.5). Any such demand
by the Executive shall be made by delivery to the Company of a written
notice which specifies the Gross-Up Payment determined by the Executive
(together with the detailed calculations of the amounts of Potential
Parachute Payments, Excise Taxes and Gross-Up Payment and the assumptions
relating thereto) and an Executive Counsel Opinion regarding such Gross-Up
Payment (such written notice and opinion collectively, the "Executive's
Determination"). Within 30 days after delivery of an Executive's
Determination to the Company, the Company shall either (i) pay the
Executive the Gross-Up Payment set forth in Executive's Determination (less
the portion thereof, if any, previously paid to Executive by the Company)
or (ii) deliver to the Executive a Company Certificate and a Company
Counsel Opinion (as defined in Section 6.5), and pay the Executive the
Gross-Up Payment specified in such Company Certificate. If for any reason
the Company fails to comply with the preceding sentence, the Gross-Up
Payment specified in the Executive's Determination shall be controlling for
all purposes.
(b) If the Executive does not request a Company Certificate, and the
Company does not deliver a Company Certificate to the Executive, then (i)
the Company shall, for purposes of Section 6.7, be deemed to have
determined that no Gross-up Payment is due, and (ii) the Executive shall
not pay any Excise Taxes in respect of Potential Parachute Payments, except
in accordance with Sections 6.6(a) or (d).
6.3 Additional Gross-up Amounts. If for any reason it is later determined
---------------------------
(whether pursuant to the subsequently-enacted provisions of the Code, final
regulations or published rulings of the IRS, a final judgment of a court of
competent jurisdiction, a determination of the Company's independent auditors
set forth in a Company Certificate or, subject to the last two sentences of
Section 6.2(a), an Executive's Determination) that the amount of Excise Taxes
payable by the Executive is greater than the amount determined by the Company or
the
18
<PAGE>
Executive pursuant to Section 6.1 or 6.2, as applicable, then the Company shall,
subject to Sections 6.6 and 6.7, pay the Executive an amount (which shall also
be deemed a Gross-up Payment) equal to the product of:
(a) the sum of (1) such additional Excise Taxes and (2) any interest,
fines, penalties, expenses or other costs incurred by the Executive as a
result of having taken a position in accordance with a determination made
pursuant to Section 6.1 or 6.2, as applicable,
multiplied by
(b) the Gross-up Multiple.
6.4 Gross-up Multiple. The Gross-up Multiple shall equal a fraction, the
-----------------
numerator of which is one (1.0), and the denominator of which is one (1.0) minus
the lesser of (i) the sum, expressed as a decimal fraction, of the effective
after-tax marginal rates of all federal, state, local and other income and other
taxes and any Excise Taxes applicable to the Gross-up Payment; or (ii) 0.80, it
being intended that the Gross-up Multiple shall in no event exceed five (5.0).
(If different rates of tax are applicable to various portions of a Gross-up
Payment, the weighted average of such rates shall be used.)
6.5 Opinion of Counsel. "Executive Counsel Opinion" means an opinion of
------------------
nationally-recognized executive compensation counsel to the effect (i) that the
amount of the Gross-Up Payment determined by the Executive pursuant to Section
6.2 is the amount that a court of competent jurisdiction, based on a final
judgment not subject to further appeal, is most likely to decide to have been
calculated in accordance with this Article and applicable law and (ii) if the
Company has previously delivered a Company Certificate to the Executive, that
there is no reasonable basis or no substantial authority for the calculation of
the Gross-Up Payment set forth in the Company Certificate. "Company Counsel
Opinion" means an opinion of nationally-recognized executive compensation
counsel to the effect that (i) the amount of the Gross-Up Payment set forth in
the Company Certificate is the amount that a court of competent jurisdiction,
based on a final judgment not subject to further appeal, is most likely to
decide to have been calculated in accordance with this Article and applicable
law and (ii) for purposes of Section 6662 of the Code, the Executive has
substantial authority to report on his federal income tax return the amount of
Excise Taxes set forth in the Company Certificate.
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<PAGE>
6.6 Amount Increased or Contested.
-----------------------------
(a) The Executive shall notify the Company in writing (an "Executive's
Notice") of any claim by the IRS or other taxing authority (an "IRS Claim")
that, if successful, would require the payment by the Executive of Excise
Taxes in respect of Potential Parachute Payments in an amount in excess of
the amount of such Excise Taxes determined in accordance with Section 6.1
or 6.2, as applicable. Such Executive's Notice shall include the nature and
amount of such IRS Claim, the date on which such IRS Claim is due to be
paid (the "IRS Claim Deadline"), and a copy of all notices and other
documents or correspondence received by the Executive in respect of such
IRS Claim. The Executive shall give the Executive's Notice as soon as
practicable, but no later than the earlier of (i) 10 business days after
the Executive first obtains actual knowledge of such IRS Claim or (ii) five
business days after the IRS Claim Deadline; provided, however, that the
Executive's failure to give such notice shall affect the Company's
obligations under this Article only to the extent that the Company is
actually prejudiced by such failure. If at least one business day before
the IRS Claim Deadline the Company shall:
(i) deliver to the Executive a Company Certificate to the effect that
the IRS Claim has been reviewed by the Company's independent auditors
and, notwithstanding the IRS Claim, the amount of Excise Taxes, interest
and penalties payable by the Executive is either zero or an amount less
than the amount specified in the IRS Claim,
(ii) pay to the Executive an amount (which shall also be deemed a
Gross-Up Payment) equal to the positive difference between (x) the
product of the amount of Excise Taxes, interest and penalties specified
in the Company Certificate, if any, multiplied by the Gross-Up Multiple,
and (y) the portion of such product, if any, previously paid to
Executive by the Company, and
(iii) direct the Executive pursuant to Section 6.6(d) to contest the
balance of the IRS Claim,
20
<PAGE>
then the Executive shall pay only the amount, if any, of Excise Taxes,
interest and penalties specified in the Company Certificate. In no event
shall the Executive pay an IRS Claim earlier than 30 days after having
given an Executive's Notice to the Company (or, if sooner, the IRS Claim
Deadline).
(b) At any time after the payment by the Executive of any amount of Excise
Taxes or related interest or penalties in respect of Potential Parachute
Payments (whether or not such amount was based upon a Company Certificate
or an Executive's Determination), the Company may in its discretion require
the Executive to pursue a claim for a refund (a "Refund Claim") of all or
any portion of such Excise Taxes, interest or penalties as the Company may
specify by written notice to the Executive.
(c) If the Company notifies the Executive in writing that the Company
desires the Executive to contest an IRS Claim or to pursue a Refund Claim,
the Executive shall:
(i) give the Company all information that it reasonably requests in
writing from time to time relating to such IRS Claim or Refund Claim, as
applicable,
(ii) take such action in connection with such IRS Claim or Refund
Claim (as applicable) as the Company reasonably requests in writing from
time to time, including accepting legal representation with respect thereto
by an attorney selected by the Company, subject to the approval of the
Executive (which approval shall not be unreasonably withheld or delayed),
(iii) cooperate with the Company in good faith to contest such IRS
Claim or pursue such Refund Claim, as applicable,
(iv) permit the Company to participate in any proceedings relating to
such IRS Claim or Refund Claim, as applicable, and
(v) contest such IRS Claim or prosecute such Refund Claim (as
applicable) to a determination before any administrative tribunal, in a
court of initial jurisdiction and in one or more appellate courts, as the
Company may from time to time determine in its discretion.
21
<PAGE>
The Company shall control all proceedings in connection with such IRS
Claim or Refund Claim (as applicable) and in its discretion may cause
the Executive to pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the IRS or other taxing
authority in respect of such IRS Claim or Refund Claim (as
applicable); provided that (i) any extension of the statute of
limitations relating to payment of taxes for the taxable year of the
Executive relating to the IRS Claim is limited solely to such IRS
Claim, (ii) the Company's control of the IRS Claim or Refund Claim (as
applicable) shall be limited to issues with respect to which a Gross-
Up Payment would be payable, and (iii) the Executive shall be entitled
to settle or contest, as the case may be, any other issue raised by
the IRS or other taxing authority.
(d) The Company may at any time in its discretion direct the Executive
to (i) contest the IRS Claim in any lawful manner or (ii) pay the
amount specified in an IRS Claim and pursue a Refund Claim; provided,
however, that if the Company directs the Executive to pay an IRS Claim
and pursue a Refund Claim, the Company shall advance the amount of
such payment to the Executive on an interest-free basis and shall
indemnify the Executive, on an after-tax basis, for any income or
other applicable taxes or Excise Tax, and any related interest or
penalties imposed with respect to such advance.
(e) The Company shall pay directly all legal, accounting and other
costs and expenses (including additional interest and penalties)
incurred by the Company or the Executive in connection with any IRS
Claim or Refund Claim, as applicable, and shall indemnify the
Executive, on an after-tax basis, for any income or other applicable
taxes, Excise Tax and related interest and penalties imposed on the
Executive as a result of such payment of costs and expenses.
6.7 Limitation on Gross-up Payments.
-------------------------------
(a) Notwithstanding any other provision of this Article VI, if the
aggregate After-Tax Amount (as defined below) of the Potential
Parachute Payments and Gross-up Payments that, but for this Section
6.7 would be payable to the Executive, does not exceed 110% of the
After-Tax Floor Amount (as defined below), then no Gross-up Payment
shall be made to
22
<PAGE>
the Executive, and the aggregate amount of Potential Parachute
Payments payable to the Executive shall be reduced (but not below the
Floor Amount) to the largest amount which would both (i) not cause any
Excise Taxes to be payable by Executive and (ii) not cause any
Potential Parachute Payments to become nondeductible by the Company by
reason of Section 280G of the Code (or any successor provision). For
purposes of the preceding sentence, the Executive shall be deemed to
be subject to the highest effective after-tax marginal rate of federal
and Illinois taxes.
(b) For purposes of this Section:
(i) "After-Tax Amount" means the portion of a specified amount
that would remain after payment of all federal, state and local income
or other taxes and Excise Taxes paid or payable by Executive in
respect of such specified amount;
(ii) "Floor Amount" means the greatest pre-tax amount of
Potential Parachute Payments that could be paid to Executive without
causing him to become liable for any Excise Taxes in connection
therewith; and
(iii) "After-Tax Floor Amount" means the After-Tax Amount of the
Floor Amount.
6.8 Refunds. If, after the receipt by the Executive of any payment or
-------
advance of Excise Taxes advanced by the Company pursuant to Section 6.6,
the Executive receives any refund with respect to such claim, the Executive
shall (subject to the Company's complying with the requirements of Section
6.6) promptly pay the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If,
after the receipt by the Executive of an amount advanced by the Company
pursuant to Section 6.6, a determination is made that the Executive shall
not be entitled to any refund with respect to such claim and the Company
does not notify the Executive in writing of its intent to contest such
determination within 30 days after the Company receives written notice of
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-up Payment required to be paid. Any
contest of a denial of refund shall be controlled by Section 6.6.
23
<PAGE>
ARTICLE VII
EXPENSES AND INTEREST
7.1 Legal Fees and Other Expenses.
-----------------------------
(a) If the Executive incurs legal fees or other expenses in an effort
to secure, preserve, establish entitlement to, or obtain benefits
under this Agreement (including, without limitation, the fees and
other expenses of the Executive's legal counsel in connection with the
delivery of the Executive Counsel Opinion referred to in Section 6.5),
the Company shall, regardless of the outcome of such effort, promptly
reimburse the Executive on a current basis for such fees and expenses
following the Executive's written submission of a request for
reimbursement together with evidence that such fees and expenses were
incurred.
(b) If the Executive does not prevail (after exhaustion of all
available judicial remedies) in respect of a claim by the Executive or
by the Company hereunder, and the Company establishes before a court
of competent jurisdiction, by clear and convincing evidence, that the
Executive had no reasonable basis for his claim hereunder, or for his
response to the Company's claim hereunder, and acted in bad faith, no
further reimbursement for legal fees and expenses shall be due to the
Executive in respect of such claim and the Executive shall refund any
amounts previously reimbursed hereunder with respect to such claim.
7.2 Interest. If the Company does not pay any amount due to the Executive
--------
under this Agreement within three days after such amount became due and
owing, interest shall accrue on such amount from the date it became due and
owing until the date of payment at a annual rate equal to 200 basis points
above the base commercial lending rate published in The Wall Street Journal
in effect from time to time during the period of such nonpayment.
ARTICLE VIII
NO ADVERSE EFFECT ON POOLING OF INTERESTS
Any benefits provided to the Executive under this Agreement may be reduced
or eliminated to the extent necessary, in the reasonable judgment of the
Board of Directors of Unicom, to enable the Company to account for a
merger, consolidation or similar transaction as a pooling of interests;
provided that (i) the
24
<PAGE>
Unicom Board shall have exercised such judgment and given the Executive
written notice thereof prior to the Effective Date and (ii) the
determination of the Unicom Board shall be supported by a written
certificate of the Company's independent auditors, a copy of which shall be
provided to the Executive before the Effective Date.
ARTICLE IX
NO SET-OFF OR MITIGATION
9.1 No Set-off by Company. The Executive's right to receive when due the
---------------------
payments and other benefits provided for under this Agreement is absolute,
unconditional and subject to no set-off, counterclaim or legal or equitable
defense. Any claim which the Company may have against the Executive,
whether for a breach of this Agreement or otherwise, shall be brought in a
separate action or proceeding and not as part of any action or proceeding
brought by the Executive to enforce any rights against the Company under
this Agreement.
9.2 No Mitigation. The Executive shall not have any duty to mitigate the
-------------
amounts payable by the Company under this Agreement by seeking new
employment following termination. Except as specifically otherwise provided
in this Agreement, all amounts payable pursuant to this Agreement shall be
paid without reduction regardless of any amounts of salary, compensation or
other amounts which may be paid or payable to the Executive as the result
of the Executive's employment by another employer.
ARTICLE X
NON-EXCLUSIVITY OF RIGHTS
10.1 Waiver of Other Severance Rights. To the extent that payments are
--------------------------------
made to the Executive pursuant to Section 5.1 of this Agreement, the
Executive hereby waives the right to receive benefits under the terms of
the Unicom Corporation Key Management Severance Plan or any other plan or
agreement (including an offer of employment or employment contract) of the
Company or its subsidiaries which provides for severance benefits.
10.2 Other Rights. Except as provided in Section 9.1, this Agreement shall
------------
not prevent or limit the Executive's continuing or future participation in
any benefit,
25
<PAGE>
bonus, incentive or other plans provided by the Company or any of its
subsidiaries and for which the Executive may qualify, nor shall this
Agreement limit or otherwise affect such rights as the Executive may have
under any other agreements with the Company or any of its subsidiaries.
Amounts which are vested benefits or which the Executive is otherwise
entitled to receive under any plan of the Company or any of its
subsidiaries and any other payment or benefit required by law at or after
the Termination Date shall be payable in accordance with such Plan or
applicable law except as expressly modified by this Agreement.
ARTICLE XI
CONFIDENTIALITY
11.1 Confidentiality. The Executive acknowledges that it is the policy of
---------------
the Company and its subsidiaries to maintain as secret and confidential all
valuable and unique information and techniques acquired, developed or used
by the Company and its subsidiaries relating to their business, operations,
employees and customers, which gives the Company and its subsidiaries a
competitive advantage in the transmission, distribution, marketing, or sale
of electricity or in the energy services industry and other businesses in
which the Company and its subsidiaries are engaged ("Confidential
Information"). The Executive recognizes that all such Confidential
Information is the sole and exclusive property of the Company and its
subsidiaries, and that disclosure of Confidential Information would cause
damage to the Company and its subsidiaries. The Executive agrees that,
except as required by the duties of his employment with the Company or its
subsidiaries and except in connection with enforcing the Executive's rights
under this Agreement or if compelled by a court or governmental agency, he
will not, without the consent of the Company, disseminate or otherwise
disclose any Confidential Information obtained during his employment with
the Company or its subsidiaries for so long as such information is valuable
and unique.
11.2 Remedy. The Executive and the Company specifically agree that, in the
------
event that Executive shall breach his obligations under this Article XI,
the Company and its subsidiaries will suffer irreparable injury and shall
be entitled to injunctive relief therefor, and shall not be precluded from
pursuing any and all remedies it may have at law or in equity for breach of
such obligations; provided, however, that such breach shall not in any
manner or degree whatsoever limit, reduce or otherwise affect the
obligations of the Company under this Agreement, and in no event shall an
asserted breach of the Executive's obligations under this Article XI
constitute a basis for deferring or withholding any amounts otherwise
payable to the Executive under this Agreement.
26
<PAGE>
ARTICLE XII
MISCELLANEOUS
12.1 No Assignability. This Agreement is personal to the Executive and
----------------
without the prior written consent of the Company shall not be assignable by
the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
12.2 Successors. Before or upon the consummation of any Change in Control,
----------
Company shall obtain from each individual, group or entity that becomes a
successor of the Company by reason of the Change in Control, the
unconditional written agreement of such individual, group or entity to
assume this Agreement and to perform all of the obligations of the Company
hereunder.
12.3 Payments to Beneficiary. If the Executive dies before receiving
-----------------------
amounts to which the Executive is entitled under this Agreement, such
amounts shall be paid in a lump sum to the beneficiary designated in
writing by the Executive, or if none is so designated, to the Executive's
estate.
12.4 Nonalienation of Benefits. Benefits payable under this Agreement
-------------------------
shall not be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, charge, garnishment, execution
or levy of any kind, either voluntary or involuntary, before actually being
received by the Executive, and any such attempt to dispose of any right to
benefits payable under this Agreement shall be void.
12.5 Severability. If any one or more articles, sections or other
------------
portions of this Agreement are declared by any court or governmental
authority to be unlawful or invalid, such unlawfulness or invalidity shall
not serve to invalidate any article, section or other portion not so
declared to be unlawful or invalid. Any article, section or other portion
so declared to be unlawful or invalid shall be construed so as to
effectuate the terms of such article, section or other portion to the
fullest extent possible while remaining lawful and valid.
12.6 Arbitration. Any and all disputes between the parties hereto arising
-----------
out of this Agreement (other than disputes related to Article VI or to an
alleged breach of the covenant contained in Article XI) shall be settled by
arbitration before an impartial arbitrator pursuant to the rules and
regulations of the American
27
<PAGE>
Arbitration Association (AAA) pertaining to the arbitration of labor
disputes. Either party may invoke the right to arbitration. The arbitrator
shall be selected by means of the parties striking alternatively from a
panel of seven arbitrators supplied by the Chicago office of AAA. The
Arbitrator shall have the authority to interpret and apply the provisions
of this Agreement, consistent with Section 12.10 below. The decision of the
arbitrator shall be final and binding upon the parties. Judgment may be
entered on the award in any court of competent jurisdiction.
12.7 Amendments. This Agreement shall not be altered, amended or modified
----------
except by written instrument executed by the Company and the Executive.
12.8 Notices. All notices and other communications under this Agreement
-------
shall be in writing and delivered by hand or by first-class registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
________________________________
________________________________
________________________________
If to the Company:
Unicom Corporation
Attn: Pamela B. Strobel
Executive Vice President and
General Counsel
37th Floor
10 S. Dearborn Street
Chicago, IL 60690
or to such other address as either party shall have furnished to the other
in writing. Notice and communications shall be effective when actually
received by the addressee.
12.9 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together constitute one and the same instrument.
28
<PAGE>
12.10 Governing Law. This Agreement is intended to be a plan subject to
-------------
the provisions of the Employee Retirement Income Security Act of 1974, as
amended, and shall be interpreted and construed in accordance with the
terms thereof; provided, however, that to the extent not preempted thereby,
this Agreement is intended to be interpreted and construed in accordance
with the laws of the State of Illinois, without regard to its choice of law
principles.
12.11 Captions. The captions of this Agreement are not a part of the
--------
provisions hereof and shall have no force or effect.
12.12 Tax Withholding. The Company may withhold from any amounts
---------------
payable under this Agreement any federal, state or local taxes that are
required to be withheld pursuant to any applicable law or regulation.
12.13 No Waiver. A waiver of any provision of this Agreement shall not be
---------
deemed a waiver of any other provision, and any waiver of any default in
any such provision shall not be deemed a waiver of any later default
thereof or of any other provision.
12.14 Entire Agreement. This Agreement contains the entire understanding
----------------
of the Company and the Executive with respect to its subject matter.
IN WITNESS WHEREOF, the Executive and the Company have executed
this Agreement as of the date first above written.
__________________________
[Executive]
UNICOM CORPORATION
By:________________________
Title:_______________________
COMMONWEALTH EDISON COMPANY.
By:________________________
Title:_______________________
29
<PAGE>
EXHIBIT (10)-29
Commonwealth Edison Company
Form 10-K File No. 1-1839
COMMONWEALTH EDISON COMPANY
SUPPLEMENTAL MANAGEMENT RETIREMENT PLAN
<PAGE>
COMMONWEALTH EDISON COMPANY
SUPPLEMENTAL MANAGEMENT RETIREMENT PLAN
ARTICLE I
Amendment and Restatement; Purpose
1.1 Amendment and Restatement; Purpose. The Commonwealth Edison Company
----------------------------------
Supplemental Management Retirement Plan, as established, effective July 1, 1985
and as amended by the First Amendment, effective January 1, 1989 and the Second
Amendment, effective January 1, 1997 (the "Supplemental Plan"), is hereby
amended and restated, effective January 1, 1998, except as specifically
otherwise provided herein.
Commonwealth Edison Company (the "Company") maintains the Commonwealth
Edison Company Service Annuity System (the "Qualified Plan") to provide
retirement benefits to its employees and those of certain affiliated entities
which have adopted the Qualified Plan (collectively, the "Employers"). The
Supplemental Plan is intended to provide benefits equal to the benefits that
would be paid under the Qualified Plan but for the application of Sections
401(a)(17) and 415 of the Internal Revenue Code of 1986, as amended (the "Code")
and any other similar provisions set forth in the Code that limit or reduce such
benefits (hereinafter collectively referred to as the "Limitations".)
In addition, the Employers have adopted certain arrangements and entered
into certain agreements with employees or former employees which are not
intended to be qualified under Code Section 401(a) and which provide for payment
of deferred compensation or retirement benefits, or which credit service or
compensation for the purpose of supplementing the benefits payable to such
employees and former employees under the Qualified Plan (collectively, the
"Agreements"). The Company intends by this amendment and restatement to
implement payment of benefits under such Agreements and under other similar
arrangements or agreements that may in the future be entered into by an
Employer.
1.2 References to the Qualified Plan. References to the Qualified Plan,
--------------------------------
whenever used herein, shall mean the Qualified Plan as in effect on the date a
determination of benefits is made under the Supplemental Plan.
<PAGE>
ARTICLE II
Definitions
2.1 All capitalized terms used herein shall have the respective meanings
assigned to such terms under the Qualified Plan, except as otherwise set forth
herein.
2
<PAGE>
ARTICLE III
Eligibility and Participation
3.1 Qualified Plan Participants. Each individual who was a Participant
---------------------------
under the Supplemental Plan on the day before the effective date of this
amendment and restatement shall continue to be a Participant hereunder. Each
Eligible Employee who is on the management payroll of an Employer and who
becomes entitled to a benefit under the Qualified Plan which is reduced or
limited by the Limitations shall participate in the Supplemental Plan when such
individual would be entitled to receive benefits hereunder if such individual's
employment then terminated.
3.2 Agreement Participants. Each individual who, under the terms of an
----------------------
Agreement, is entitled to deferred compensation, retirement benefits or a grant
of compensation or service credit shall participate in the Supplemental Plan
when such individual would be entitled to receive benefits hereunder (or would,
after giving effect to the terms of the applicable Agreement, be entitled to
receive benefits) if such individual's employment then terminated under the
Qualified Plan.
3.3 Other Participants. Each individual entitled to a survivors' benefit
------------------
with respect to a Participant described in Sections 3.1 or 3.2 shall participate
in this Supplemental Plan when such individual becomes entitled to receive
benefits (or would, under the terms of the applicable Agreement, become entitled
to receive benefits) under the Qualified Plan.
3.4 Termination of Participation. Each Participant shall remain a
----------------------------
Participant until such individual is no longer entitled to benefits hereunder.
ARTICLE IV
Benefits
4.1 Restored Benefits. If the retirement benefit payable under the
-----------------
Qualified Plan to a Participant described in Section 3.1 is less than the
retirement benefit that would be payable to such Participant under the Qualified
Plan but for the application of the Limitations, then such Participant shall be
entitled to an annual benefit under the Supplemental Plan in an amount equal to
the excess of (A) minus (B) where:
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<PAGE>
(A) equals the amount of the annual benefit payable to such Participant
under the Qualified Plan if payments thereunder were calculated
without regard to the Limitations, and
(B) equals the amount of the annual benefit payable to such Participant
under the Qualified Plan.
4.2 Supplemental Benefits. The benefits, if any, payable under Section
---------------------
4.1 to a Participant described in Section 3.2 shall be increased by an amount
equal to the excess of (A) minus (B) where:
(A) equals the amount of the annual benefit payable to such Participant
under the Qualified Plan if payments thereunder were calculated taking
into account the compensation deferred, benefits provided or the
compensation and/or years of service credited under the Agreement
under which the Participant is covered, and
(B) equals the amount of the annual benefit payable to such Participant
under the Qualified Plan.
Any payments made under this Section 4.2 shall be in satisfaction of the
obligations of the Participant's Employer under the Agreement and under this
Supplemental Plan.
4.3 Pre-Retirement Survivors' Benefits. Except as otherwise provided in
----------------------------------
an Agreement, if a Participant dies prior to his or her Annuity Starting Date
and the benefit payable under the Qualified Plan to a Participant described in
Section 3.3 is less than the survivors' benefit that would be payable under the
Qualified Plan (I) but for the application of any Limitations, and (II) treating
any benefits, service or compensation payable or credited under the terms of an
Agreement as having accrued under the Qualified Plan, then such Participant
shall be entitled to receive a supplemental survivor benefit under this Plan in
an amount equal to (A) minus (B) where:
(A) equals the survivors' benefit that would be payable under the
Qualified Plan if such benefit were determined (I) without giving
effect to any Limitations, and (II) by treating any benefits, service
or compensation payable or credited under the terms of an Agreement as
having accrued under the Qualified Plan; and
(B) equals the survivors' benefit actually payable to the Participant
under the Qualified Plan.
4
<PAGE>
Any payments made to a Participant under this Section 4.3 shall be in
satisfaction of any obligations of the Employer under an Agreement under which
the Participant described in Section 3.3 is covered and under this Supplemental
Plan.
ARTICLE V
Time and Manner of Payments
5.1 Manner of Payment. Except as otherwise provided in an Agreement
-----------------
or under Section 5.3, Supplemental Plan benefits shall be paid in the same
manner, including optional forms of payment, and shall be subject to the same
conditions (other than the application of the Limitations) as are applicable to
benefits payable (or which would, after giving effect to the terms of the
applicable Agreement, be payable) to the Participant under the Qualified Plan.
5.2 Time of Payment. Benefits described in Section 4.1 or 4.2 of the
---------------
Supplemental Plan shall become payable at such time as the Participant becomes
entitled to receive (or would become entitled to receive, after giving effect to
the terms of the applicable Agreement) benefits under the Qualified Plan.
Except as otherwise provided in an Agreement, benefits described in Section 4.3
of the Supplemental Plan shall become payable at the same time as benefits would
become payable (after giving effect to the terms of an Agreement, if applicable)
to such Participant under the Qualified Plan. Plan benefits shall be paid at
the same time as benefits are paid under the Qualified Plan.
5.3 Lump Sum Option. Except as otherwise provided in an Agreement,
---------------
and notwithstanding the provisions of Section 5.1, each Participant described in
Section 3.1 or 3.2 shall be entitled to elect, by written election to the
Company, to receive his or her benefits hereunder in a single lump sum payment.
Any such election shall be required to be made no later than the last day of the
calendar year preceding the year in which occurs the Participant's termination
of employment; provided, however, that with respect to a Participant receiving
periodic payments of severance benefits, such election shall be required to be
made no later than the last day of the calendar year preceding the year in which
occurs the last day of such payment period. An election under this Section 5.3
shall be revocable until the last day prescribed for an election under the
preceding sentence of this Section 5.3, and thereafter shall be irrevocable.
Payment of benefits in a lump sum will be made as soon as practicable following
such termination of employment or last day of severance payment period, as
applicable.
5
<PAGE>
The amount of the lump sum payment shall be equal to the actuarial present value
of the participant's benefit determined under Article III as of the date of the
Participant's termination of employment (or, with respect to a Participant
receiving periodic payments of severance benefits, as of the last day of such
payment period), as determined by the independent actuaries then engaged with
respect to the Qualified Plan using the life expectancies and interest
assumptions then used under the Qualified Plan, but also taking into account
such actuaries' reasonable projections regarding future increases in the
Limitations during the period that benefits would have been payable under the
Supplemental Plan but for the Participant's election under this Section 5.3.
Payment pursuant to this Section 5.3 shall be in lieu of any other benefits
payable hereunder and shall be in complete satisfaction of all of the Employer's
and the Company's liabilities to or on behalf of the Participant, including
Section 4.3, notwithstanding any subsequent amendment of the Qualified Plan or
of this Supplemental Plan.
5.4 Withholding. Notwithstanding any provision of this Supplemental
-----------
Plan to the contrary, amounts payable hereunder shall be reduced by the amounts
required to be withheld by the Company under federal or state law.
5.5 Facility of Payment. Whenever and as often as any Participant
-------------------
entitled to payments under the Supplemental Plan shall be incompetent or, in the
opinion of the Committee would fail to derive benefit from distribution of funds
under the Supplemental Plan, the Committee, in its sole and exclusive
discretion, may direct that any or all payments hereunder be made (a) directly
to or for the benefit of such Participant, (b) to the Participant's legal
guardian or conservator; or (c) to relatives of the Participant. The decision
of the Committee in such matters shall be final, binding and conclusive upon
each Employer and Participant and every other person or party interested or
concerned. An Employer and the Committee shall not be under any duty to see to
the proper application of such payments made to a Participant, conservator,
guardian or relatives of a Participant.
ARTICLE VI
Application of ERISA, Funding
6.1 Application of ERISA. Benefits provided under Section 4.1 (and, to
--------------------
the extent they restore benefits reduced by application of the Limitations,
benefits provided under Section 4.3) of the Supplemental Plan are intended to be
an excess benefit plan within the meaning of Section 3(36) of the Employee
Retirement Income Security Act of 1974, as amended (ERISA). Benefits provided
under Sections 4.2 (and,
6
<PAGE>
to the extent they provide benefits that supplement those payable to the
Participant under the Qualified Plan other than as described in Section 4.1,
benefits provided under Section 4.3) are intended to constitute an unfunded plan
maintained primarily for the purpose of providing deferred compensation to a
select group of management or highly compensated employees within the meaning of
sections 201(2), 301(a) (3) and 401 (a) (1) of ERISA and Department of Labor
Regulation Section 2520.104-23.
6.2 Funding. The Supplemental Plan shall not be a funded plan, and
-------
neither the Company nor any of the Employers shall be under any obligation to
set aside any funds for the purpose of making payments under this Supplemental
Plan. Any payments hereunder shall be made out of the general assets of the
Company and the Employers.
6.3 Trust. Effective January 1, 1997, the Company, in its sole
-----
discretion, may establish, but is not required to establish, a trust for the
purpose of administering assets of the Company and the Employers to be used for
the purpose of satisfying their obligations under the Supplemental Plan. Any
such trust shall be established in such manner so as to be a "grantor trust" of
which the Company is the grantor, within the meaning of section 671 et. seq. of
-- ---
the Code. The existence of any such trust shall not relieve the Company or any
Employer of their liabilities under the Supplemental Plan, but the obligation of
the Company and the Employers under the Supplemental Plan shall be deemed
satisfied to the extent paid from the trust.
ARTICLE VII
Administration
7.1 Committee. The Supplemental Plan shall be administered by the
---------
administrative committee created under the Qualified Plan (the "Committee").
The Committee shall have such duties and powers as may be necessary to discharge
its duties, including, but not by way of limitation, to construe and interpret
the Supplemental Plan and determine the amount and time of payment of benefits
hereunder. The Committee shall have no power to add to, subtract from or modify
any of the terms of the Supplemental Plan, or to change or add to any benefits
provided under the Supplemental Plan, or to waive or fail to apply any
requirements of eligibility for a benefit under the Supplemental Plan. The
Committee's decisions in any matter involving the Supplemental Plan shall be
final, binding and conclusive.
7
<PAGE>
7.2 Administration. The provisions of Article 10 of the Qualified Plan
--------------
(other than Sections 10.3, 10.4 and 10.5) are hereby incorporated by reference,
and shall be applicable as if such provisions were set forth herein.
7.3 Expenses. All costs and expenses incurred in administering the
--------
Supplemental Plan, including the expenses of the Committee, the fees of counsel
and any agents of the Committee and other administrative expenses shall be paid
by the Company and the Employers. The Committee, in its sole discretion, having
regard to the nature of a particular expense, shall determine the portion of
such expense which is to be borne by the Company or a particular Employer.
ARTICLE VIII
Amendment and Termination
Amendment and Termination. The Company intends to maintain the
-------------------------
Supplemental Plan indefinitely. However, the Supplemental Plan shall be subject
to the same reserved powers of amendment and termination as the Qualified Plan
(without regard to any limitations imposed on such powers by the Code or ERISA),
except that no such amendment or termination shall reduce or otherwise adversely
affect the rights of Participants in respect of amounts accrued hereunder as of
the date of such amendment or termination without their written consent.
ARTICLE IX
Miscellaneous
9.1 Nonassignment of Benefits. Notwithstanding anything contained in the
-------------------------
Qualified Plan to the contrary, it shall be a condition of the payment of
benefits under this Supplemental Plan that neither such benefits nor any portion
thereof shall be assigned, alienated or transferred to any person voluntarily or
by operation of any law, including any assignment, division or awarding of
property under state domestic relations law (including community property law).
If any person shall endeavor or purport to make any such assignment, alienation
or transfer, amounts otherwise provided hereunder shall cease to be payable to
any person.
9.2 No Guarantee of Employment. Nothing contained in this Supplemental
--------------------------
Plan shall be construed as a contract of employment between any Employer and any
employee or as conferring a right on any employee to be continued
8
<PAGE>
in the employment of any Employer, or as a limitation of the right of an
Employer to discharge any of its Employees, with or without cause.
9.3. Adoption By Employers. Any business entity which is or becomes an
---------------------
"Employer" under the Qualified Plan may, with the consent of the Company, become
an Employer under this Supplemental Plan by delivery to the Company of a
resolution of its board of directors or duly authorized committee to such
effect, which resolution shall specify the date for which this Supplemental Plan
shall be effective with respect to the employees of such business entity.
9.4 Gender and Number. Except when the context indicates to the
-----------------
contrary, when used herein, masculine terms shall be deemed to include the
feminine and singular the plural.
9.5 Headings. The headings of Articles and Sections are included
--------
solely for convenience of reference, and if there is any conflict between such
headings and the text of the Supplemental Plan, the text shall control.
9.6 Invalidity. If any provision of this Supplemental Plan shall be
----------
held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions hereof, and the Supplemental Plan shall be enforced
and construed as if such provisions, to the extent invalid or unenforceable, had
not been included.
9.7 Successors and Assigns. The provisions of the Supplemental Plan shall
----------------------
bind and inure to the benefit of the Company and each Employer and their
successors and assigns, as well as each Participant and his successors.
9.8 Law Governing. Except as provided by any federal law, the
-------------
provisions of the Supplemental Plan shall be construed in accordance with and
governed by the laws of the state of Illinois.
EXECUTED this ____ day of _____________, 1998.
COMMONWEALTH EDISON COMPANY
By: _______________________________
S. Gary Snodgrass
Senior Vice President
9
<PAGE>
Exhibit (10)-38
Unicom Corporation and
Commonwealth Edison Company
Form 10-K File Nos. 1-11375 and 1-1839
UNICOM CORPORATION
KEY MANAGEMENT
SEVERANCE PLAN
As Amended and Restated, effective
March 8, 1999
<PAGE>
UNICOM CORPORATION
KEY MANAGEMENT SEVERANCE PLAN
1. AMENDMENT AND RESTATEMENT; PURPOSE OF THE PLAN
----------------------------------------------
The Unicom Corporation Key Management Severance Plan (the "Plan") was
established, effective June 15, 1998, by Unicom Corporation ("Unicom") to
provide certain key employees of Commonwealth Edison Company ("ComEd") and other
subsidiaries of Unicom (jointly and severally referred to herein as the
"Company") certain severance benefits in the event the employment of such
employees terminates under the circumstances described herein. The Plan was
amended and restated, effective March 8, 1999, to reflect a policy approved by
the Board of Directors of the Company which provides benefits in the event a key
employee's employment is terminated by the Company other than for Cause or the
employee resigns for Good Reason within 24 months following a Change in Control
of the Company. This document serves as both the Plan document and the summary
plan description which is required to be provided to participants under the
Employee Retirement Income Security Act of 1974 (ERISA).
2. ELIGIBILITY
-----------
Each individual who is on the executive payroll of ComEd or on the
equivalent payroll of any other subsidiary of Unicom (an "Executive") shall be
eligible for benefits hereunder in the event such Executive has a Termination of
Employment.
3. PARTICIPATION
-------------
Each eligible Executive shall become a participant in the Plan
("Participant") upon his or her execution of an agreement with the Company in
such form as the Company, in its sole discretion, shall require or permit (the
"Severance Agreement"). Except with respect to a Termination of Employment
within 24 months following a Change in Control, as described in Section 5, each
Severance Agreement shall include covenants not to compete which are
substantially in the form attached hereto and made a part hereof as Exhibit I,
and each Executive shall also be required to execute, no later than the date of
the Participant's Termination of Employment or, if later, such date indicated by
the Plan Administrator which shall be no less than 21 days after the date the
Executive is provided with a copy of a Severance Agreement, a waiver and release
of claims against the Company ("Waiver and Release").
4. BENEFITS
--------
Except as provided in Section 5 with respect to a Termination of
Employment on account of a Change in Control, benefits under the Plan shall be
those described in this Section 4; provided, however, that if, under the terms
of an offer of employment or employment agreement with the Company, a
Participant would be entitled to benefits which exceed the level of benefits
under the Plan, the terms of such offer of employment or other agreement shall
control.
4.1 Severance Pay. Each Participant shall receive severance pay at a monthly
-------------
rate equal to 1/12 of the sum of the Participant's annual base salary in effect
as of the date of Termination of Employment (plus Deferred Compensation Units,
if any) plus the Severance Incentive (as defined in Paragraph 7.5). Payment
shall be made biweekly for the duration of the applicable Salary Continuation
Period, as indicated below, commencing no later than the second paydate which
occurs after the date of the Participant's Termination of Employment, but in no
event earlier than the date which is eight days after the date the Participant
returns an executed Waiver and Release to the Plan Administrator. Payment will
be made in accordance with the Company's normal payroll practices, net of
applicable taxes and other deductions.
<PAGE>
Participant Title Salary Continuation Period
----------------- --------------------------
Senior Vice President and above 24 months
Other Officers 18 months
Executives (non-officers) 12 months
4.2 Incentive Programs. A Participant's Annual Incentive Award and Long Term
------------------
Performance Unit Awards made or payable under the Unicom Corporation Long Term
Incentive Plan (the "LTIP"), or any other annual incentive award and/or long
term performance awards to which a Participant is entitled under the terms of a
similar plan or arrangement(s) with respect to the calendar year in which occurs
the Participant's Termination of Employment shall be prorated by multiplying the
amount of such Awards, determined as described below, by a fraction the
numerator of which is the number of days of the Participant's active employment
during such calendar year and the denominator of which is 365. The amount of
any such Awards shall be determined based upon achievement of applicable
performance goals, in accordance with the terms of the applicable incentive
program for such calendar year; provided, however, that a Long Term Performance
Unit Award shall be payable hereunder with respect to any Participant (other
than a Participant who is or who, as of the last day of his or her Salary
Continuation Period would be, eligible to begin receiving retirement benefits
under the Commonwealth Edison Company Service Annuity System (the "Pension
Plan") or, if applicable, under the Commonwealth Edison Supplemental Management
Retirement Plan (the "SERP")) only if such Participant was an active employee
for at least 24 months of the performance period with respect to such Award.
Payment of Awards under this Section 4.2 shall be made in a lump sum net of
applicable taxes and other deductions at such time as the Awards for such
calendar year are payable to active employees.
4.3 Stock Options. No Participant shall be entitled to participate in any
-------------
grants of stock options under the LTIP made after such Participant's Termination
of Employment. Except as provided below, any stock options granted to a
Participant prior to such Participant's Termination of Employment shall be
exercisable only to the extent such options are exercisable as of the date of
such Termination of Employment and shall thereafter be exercised in accordance
with the provisions of the LTIP. Stock options which remain unexercisable as of
the date of a Participant's Termination of Employment shall be forfeited.
Notwithstanding the preceding, with respect to any Participant who, as of the
date of such Participant's Termination of Employment (or, if later, the last day
of such Participant's Salary Continuation Period) is eligible to begin receiving
retirement benefits under the Pension Plan or the SERP, as applicable, any stock
options granted to such Participant which have not become exercisable prior to
the date of the Termination of Employment shall become fully exercisable on such
date, and shall remain exercisable until the expiration of the option term(s).
4.4 Health Care Coverage. Each Participant shall continue to participate in
--------------------
the health care plans sponsored by ComEd during the Salary Continuation Period.
The premium for such coverage shall be the premium level in effect for active
employees during such period. Coverage under this Paragraph 4.4 shall be
provided for the duration of the Salary Continuation Period in lieu of
continuation coverage under the Consolidated Omnibus Budget Reconciliation Act
of 1985 (COBRA) for the same period. At the end of the Salary Continuation
Period, COBRA continuation coverage may be elected for the remaining balance of
the statutory coverage period, if any; provided, however that a Participant who,
as of the last day of the Salary Continuation Period has attained at least age
50 (but not age 55) and completed at least 10 years of service under the terms
of the Pension Plan (or who, pursuant to the terms of an offer of employment or
employment agreement, is credited with a number of additional years of age
and/or service that would enable such Participant to satisfy the above
eligibility requirements) shall be entitled to elect retiree health coverage
under the ComEd health care plans on the same terms and subject to the same
conditions as active employees who have attained age 55 and are eligible to
begin receiving early retirement benefits under the Pension Plan.
4.5 Retirement Plans. During the Salary Continuation Period, each Participant
----------------
shall accrue credited service under the SERP. The amount of any payment made
2
<PAGE>
under Section 4.1 to the Participant during such period shall be taken into
account for purposes of the SERP, and each Participant may also elect to
participate in the Commonwealth Edison Excess Benefit Savings Plan during the
Salary Continuation Period with respect to the portion of any such payment which
is attributable to base salary. A Participant in the Plan shall not accrue
service or otherwise actively participate in any tax-qualified retirement or
savings plan sponsored by ComEd or the Company during the Salary Continuation
Period, and shall not be entitled to commence to receive benefits under any such
plan until after the expiration of the Salary Continuation Period.
4.6 Life Insurance and Disability Coverage. Continued coverage under the life
--------------------------------------
insurance and long term disability plans sponsored by the Company shall be
extended to each Participant through the last day of the Salary Continuation
Period applicable to such Participant on the same terms and subject to the same
conditions as are applicable to active employees.
4.7 Deferred Compensation Plans. The elections, if any, made by an Executive
---------------------------
under any deferred compensation plan sponsored by the Company shall remain in
effect through the last day of such participant's Salary Continuation Period,
but such individual shall not be entitled to make any additional elections
during such period.
4.8 Executive Perquisites. Executive perquisites shall terminate effective as
---------------------
of the date of a Participant's Termination of Employment, and any Company-owned
property shall be required to be returned to the Company no later than such
date; provided, however, that each Participant who is an officer of the Company
shall be entitled to financial counseling services for a period of 24 months
following the date of such Participant's Termination of Employment.
4.9 Outplacement Services. Each Participant shall be entitled to outplacement
---------------------
services at the expense of the Company for such period and subject to such terms
and conditions as the Plan Administrator, in its sole discretion, determines are
appropriate.
5. CHANGE IN CONTROL BENEFITS
--------------------------
Notwithstanding the provisions of Section 4, if, within 24 months following
a Change in Control, an Executive below the level of senior vice president has a
Termination of Employment, the Company's obligations to such Executive shall be
as follows:
5.1 Severance Pay. Each Executive shall receive, in a single cash lump sum
-------------
within five business days following his Termination of Employment and net of
applicable taxes, a severance payment equal to the product of (i) the
Executive's then-current annual base salary, (ii) the Severance Incentive (as
defined in Section 7.5), or, if greater, the target award under the annual
incentive award program in which the Executive participates for the year in
which the Termination of Employment occurs, and (iii) the multiplier indicated
below:
Participant Title Multiplier
----------------- ----------
Officers 2
Other Executives 1.5
5.2 Incentive Compensation.
----------------------
(a) Each Executive shall receive in a cash lump sum, as soon as
practicable following his Termination of Employment and net of
applicable taxes, an amount equal to the target award under the annual
incentive award program in which the Executive participates for the
calendar year (or other performance period, if applicable) in which
such Termination of Employment occurs, multiplied by a fraction the
numerator of which is the number of days of the Participant's active
employment during such calendar year and the denominator of which is
365.
(b) Each of the Executive's stock options granted under the LTIP, any
successor plan or otherwise that is exercisable on the date of the
Executive's Termination of Employment, shall remain exercisable until
the applicable option expiration date.
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<PAGE>
(c) On the date of the Executive's Termination of Employment (1) the
Executive shall become fully vested in, and may thereupon and until
the applicable expiration date of such stock incentive awards exercise
in whole or in part, any and all stock incentive awards granted to the
Executive under the LTIP, any successor plan or otherwise which have
not become exercisable as of such date, and (2) the Executive shall
become fully vested at the target level in any cash incentive awards
granted under the LTIP, a successor plan or otherwise which have not,
as of such date, become fully vested.
(d) All forfeiture conditions that as of the date of the Executive's
Termination of Employment are applicable to any deferred stock unit,
restricted stock or restricted share units awarded to the Executive by
the Company pursuant to the LTIP, a successor plan or otherwise shall
lapse immediately.
5.3 Deferred Compensation. The Executive shall receive immediate payment of
---------------------
all amounts previously deferred by or accrued to the benefit of the Executive
under any nonqualified deferred compensation plan sponsored by the Company,
excluding the SERP, together with any accrued earnings thereon, which are unpaid
as of the date of the Executive's Termination of Employment. The Company agrees
to secure the lump sum actuarial present value of any benefits payable with
respect to the Executive under the SERP by obtaining an irrevocable bank letter
of credit issued by a bank that is a member of the Federal Reserve system until
such benefits become payable to the Executive under the terms of the SERP.
5.4 Health Care Coverage. During the Severance Period (or until such later
--------------------
date as any welfare benefit plan program or policy of the Company may specify),
the Company shall continue to provide to the Executive and the Executive's
family welfare benefits (including, without limitation, medical, prescription,
dental, vision and hearing care, disability, individual life and group life
insurance benefits) which are at least as favorable as those provided under the
most favorable welfare plans of the Company applicable (i) with respect to the
Executive and his family during the 90-day period immediately preceding the date
of the Executive's Termination of Employment, or (ii) with respect to other peer
executives and their families during the Severance Period. In determining
benefits under such welfare plans, the Executive's annual compensation
attributable to base salary and incentives for any plan year or calendar year,
as applicable, shall be deemed to be not less than the Executive's annual base
salary and target annual incentive award for the calendar year or plan year, as
applicable. The cost of the welfare benefits provided under this Section 5.4
shall not exceed the cost of such benefits to the Executive immediately before
the date of the Executive's Termination of Employment. Notwithstanding the
foregoing, if the Executive obtains comparable coverage under any welfare plans
sponsored by another employer, then the amount of coverage required to be
provided by the Company hereunder shall be reduced by the amount of coverage
provided by such other employer's welfare plans. The Executive's rights under
this Section shall be in addition to, and not in lieu of, any post-termination
continuation coverage or conversion rights the Executive may have pursuant to
applicable law, including without limitation, COBRA continuation coverage. For
purposes of determining eligibility for (but not the time of commencement of)
retiree benefits under any welfare plans of the Company, the Executive shall be
considered (i) to have remained employed until the last day of the Severance
Period and to have retired on the last day of such period, and (ii) to have
attained the age the Executive would have attained on the last day of the
Severance Period.
5.5 Retirement Plans. The amount payable under Section 5.1 shall be taken into
----------------
account for purposes of determining the amount of benefits to which the
Executive is entitled under the SERP; provided that such amount shall be taken
into account as though it was earned equally over the Severance Period, and
further provided that the Executive shall be deemed to have attained the age he
or she would have attained as of the last day of the Severance Period, and
4
<PAGE>
completed the number of years of service he or she would have completed as of
the last day of the Severance Period. To the extent that the Executive, under
the terms of an employment contract or offer of employment with ComEd or the
Company has received a grant of years of service for purposes of the SERP and
the Executive either (i) has, as of the date of his Termination of Employment,
completed the number of years of service required in order to be entitled to
benefits under the SERP, or (ii) would, taking into account the Severance
Period, satisfy the service requirement for such benefits, the Severance Period
shall be taken into account for purposes of determining the amount of and
eligibility to begin to receive benefits under the SERP.
5.6 Outplacement Services. The Company shall, at its sole expense as incurred,
---------------------
pay on behalf of the Executive all fees and costs charged by a nationally
recognized outplacement firm selected by the Executive to provide outplacement
service.
5.7 Adjustments to Change in Control Benefits.
-----------------------------------------
(a) Excise Tax Gross-Up. If it is determined by the Company's independent
--------------------
auditors that any benefit received or deemed received by an Executive
who is an officer below the level of senior vice president, pursuant
to the Plan or otherwise, whether or not in connection with a Change
in Control (the "Potential Parachute Payments") is or will become
subject to any excise tax under Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code") or any similar tax payable under
any United States federal, state, local or other law (collectively,
"Excise Taxes"), then the Company shall, subject to subsection (b)(i),
pay the Executive an amount (the "Gross-up Payment") to compensate the
Executive for all Excise Taxes payable by the Executive with respect
to the Potential Parachute Payment and any federal, state, local or
other income or other taxes or Excise Taxes payable by the Executive
with respect to the Gross-up Payment.
(b) Limitations on Payments.
-----------------------
(i) Notwithstanding any other provision of this Section 5, if the
aggregate After-Tax Amount (as defined below) of the Potential
Parachute Payments and Gross-up Payments (both terms as defined
in subsection (a)) that, but for this subsection (b)(i) would be
payable to an Executive who is an officer below the level of
senior vice president, does not exceed 110% of the After-Tax
Floor Amount (as defined below), then no Gross-up Payment shall
be made to such Executive, and the aggregate amount of Potential
Parachute Payments payable to the Executive shall be reduced (but
not below the Floor Amount) to the largest amount which would
both (A) not cause any Excise Taxes to be payable by the
Executive and (B) not cause any Potential Parachute Payments to
become nondeductible by the Company by reason of Section 280G of
the Code (or any successor provision).
(ii) Further notwithstanding any other provision of this Section 5, if
it is determined by the Company's independent auditors that any
Potential Parachute Payments received or deemed received by an
Executive who is not an officer is or will become subject to any
Excise Taxes, then the aggregate amount of Potential Parachute
Payments payable to such Executive shall be reduced (but not
below the Floor Amount) to the largest amount which would both
(A) not cause any Excise Taxes to be payable by the Executive and
(B) not cause any Potential Parachute Payments to become
nondeductible by the Company by reason of Section 280G of the
Code (or any successor provision).
For purposes of this subsection (b), the Executive shall be deemed to be
subject to the highest effective after-tax marginal rate of federal and
Illinois taxes.
5
<PAGE>
(c) Definitions. For purposes of this Section 5.7:
-----------
(i) "After-Tax Amount" means the portion of a specified amount that
would remain after payment of all federal, state and local income
or other taxes and Excise Taxes paid or payable by an Executive
in respect of such specified amount;
(ii) "Floor Amount" means the greatest pre-tax amount of Potential
Parachute Payments that could be paid to an Executive without
causing him to become liable for any Excise Taxes in connection
therewith; and
(iii) "After-Tax Floor Amount" means the After-Tax Amount of the Floor
Amount.
5.8 Pooling of Interests Contingency. Any benefits provided to an
--------------------------------
Executive under this Section 5 may be reduced or eliminated to the extent
necessary, in the reasonable judgment of the Board of Directors of Unicom which
is supported by a written certificate of the Company's independent auditors, to
enable the Company to account for a merger, consolidation or similar transaction
as a pooling of interests, provided that the Unicom Board shall have exercised
such judgment and given the Executive written notice thereof prior to the
effective date of any Change in Control.
6. TERMINATION OF PARTICIPATION; CESSATION OF BENEFITS
---------------------------------------------------
A Participant's benefits under Section 4 of the Plan shall terminate
on the last day of the Participant's Salary Continuation Period or, if earlier,
on such date as the Company discovers that the Participant has breached any of
the restrictive covenants contained in the Severance Agreement between the
Executive and the Company which is a condition precedent to the payment of
benefits under Section 4 hereof. In the event of any such breach, the Company
may require the repayment of amounts paid prior to such breach in accordance
with Paragraph 4.1, and shall discontinue the payment of any additional amounts
under Section 4 of the Plan.
A Participant's benefits under Section 5 of the Plan shall terminate on the
last day of the Participant's Severance Period or, if later, on the date all
benefits to which the Participant is entitled have been paid from the Plan.
7. DEFINITIONS
-----------
In addition to terms previously defined, when used in the Plan, the
following capitalized terms shall have the following meanings unless the context
clearly indicates otherwise:
7.1 "Cause" means, with respect to any Executive:
-----
(a) the Executive's willful commission of acts(s) or omissions(s) which
have, have had, or are likely to have a material adverse effect on the
business, operations, financial condition or reputation of the Company
or any of its affiliates;
(b) the Executive's conviction (including a plea of guilty or nolo
contendere) of a felony or any crime of fraud, theft, dishonesty or
moral turpitude; or,
(c) the Executive's material violation of any statutory or common law duty
of loyalty to the Company or any of its affiliates.
6
<PAGE>
7.2 "Change in Control" means:
-----------------
(a) The acquisition by any individual, entity or group (within the meaning
of Section 13 (d) (3) or 14 (d) (2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (i) the then-outstanding shares
of common stock of Unicom (the "Outstanding Company Common Stock"), or
(ii) the combined voting power of the then-outstanding voting
securities of Unicom entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided,
however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change in Control: (A) any
acquisition directly from Unicom (excluding any acquisition resulting
from the exercise of an exercise, conversion or exchange privilege
unless the security being so exercised, converted or exchanged was
acquired directly from Unicom), (B) any acquisition by Unicom, (C) any
acquisition by an employee benefit plan (or related trust) sponsored
or maintained by Unicom or any corporation controlled by Unicom (a
"Company Plan"), or (D) any acquisition by any corporation pursuant to
a transaction which complies with clauses (i), (ii) and (iii) of
subsection (c) of this definition; provided further, that for purposes
of clause (B), if any Person (other than Unicom or any Company Plan)
shall become the beneficial owner of 20% or more of the Outstanding
Unicom Common Stock or 20% or more of the Outstanding Unicom Voting
Securities by reason of an acquisition by Unicom, and such Person
shall, after such acquisition by Unicom, become the beneficial owner
of any additional shares of the Outstanding Unicom Common Stock or any
additional Outstanding Unicom Voting Securities (other than pursuant
to any dividend reinvestment plan or arrangement maintained by Unicom)
and such beneficial ownership is publicly announced, such additional
beneficial ownership shall constitute a Change in Control; or
(b) Individuals who, as of the date hereof, constitute the Board of
Directors of Unicom (for purposes of this Section 7.2, the "Incumbent
Board") cease for any reason to constitute at least a majority of the
Incumbent Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination
for election by Unicom shareholders, was approved by a vote of at
least a majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result of an actual or
threatened election contest (as such terms are used in Rule 14a-11
promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other
than the Board of Directors of Unicom; or
(c) Approval by the shareholders of the Company of a reorganization,
merger or consolidation, or the sale or other disposition of more than
50% of the operating assets of Unicom (determined on a consolidated
basis), other than in connection with a sale-leaseback or other
arrangement resulting in the continued utilization of such assets (or
the operating products of such assets) by the Company (such sale or
other disposition, a "Corporate Transaction"); excluding, however, a
Corporate Transaction pursuant to which:
(i) all or substantially all of the individuals and entities who are
the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities
immediately prior to such
7
<PAGE>
Corporate Transaction beneficially own, directly or indirectly,
more than 60% of, respectively, the then-outstanding shares of
common stock and the combined voting power of the then-
outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation
resulting from such Corporate Transaction (including, without
limitation, a corporation which, as a result of such
transaction, owns the Company or all or substantially all of
the assets of the Company either directly or through one or
more subsidiaries) in substantially the same proportions as
their ownership, immediately prior to such Corporate
Transaction of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be;
(ii) no Person (other than Unicom, any Company Plan or related trust
of the Company, the corporation resulting from such Corporate
Transaction, and any Person which beneficially owned,
immediately prior to such Corporate Transaction, directly or
indirectly, 20% or more of the Outstanding Company Common Stock
or the Outstanding Company Voting Securities, as the case may
be) will beneficially own, directly or indirectly, 20% or more
of, respectively, the then-outstanding common stock of the
corporation resulting from such Corporate Transaction or the
combined voting power of the outstanding voting securities of
such corporation; and
(iii) individuals who were members of the Incumbent Board will
constitute at least a majority of the members of the board of
directors of the corporation resulting from such Corporate
Transaction; or
(d) Approval by the shareholders of the Unicom of a plan of complete
liquidation or dissolution of Unicom or ComEd, other than a plan of
liquidation or dissolution which results in the acquisition of all or
substantially all of the assets of ComEd by Unicom or an affiliated
company.
7.3 "Good Reason" means a material reduction of an Executive's salary,
-----------
incentive compensation or benefits, unless such reduction is part of a policy,
program or arrangement applicable to peer executives of the Company and of any
successor entity; or a material reduction or material adverse alteration in the
nature of the Executive's position, duties, function, responsibilities or
authority; provided, however, that for purposes of Section 5, "Good Reason"
-----------
shall also mean:
(a) the failure to maintain the Executive in the office or position, or in
a substantially equivalent office or position, held by the Executive
immediately prior to the Change in Control;
(b) a determination by the Executive, made in good faith, that, as a
result of the Change in Control, the Executive is substantially unable to
perform, or that there has been a material reduction in, any of the
Executive's duties, functions responsibilities or authority;
(c) the failure of any successor to the Company to assume the Plan, or a
material breach of the obligations hereunder by the Company or its
successor;
(d) a relocation of more than 50 miles of (i) the Executive's workplace,
or (ii) the principal offices of the Company (if such offices are the
Executive's workplace), in each case without the consent of the Executive;
or
8
<PAGE>
(e) a requirement of at least 20% more business travel than was required
of the Executive prior to the Change in Control.
7.4 "Salary Continuation Period" means the period indicated in Section 4.1
--------------------------
during which benefits are payable under the Plan.
7.5 "Severance Incentive" means the average of the annual incentive awards
--------------------
paid to a Participant under the LTIP (or such other annual incentive plan or
arrangement under which the Participant is entitled to such awards), a successor
plan or otherwise with respect to each of the two calendar years preceding the
year in which occurs the Participant's Termination of Employment.
7.6 "Severance Period" means, with respect to an officer below the level of
----------------
senior vice president, two years and, with respect to any other Executive who is
not an officer, 18 months.
7.7 "Termination of Employment" means:
-------------------------
(a) a termination of the Executive's employment by the Company or any
subsidiary for reasons other than for Cause; or
(b) a resignation by the Executive for Good Reason.
A termination of employment for Cause or an Executive's resignation other than
for Good Reason shall not be a Termination of Employment for purposes of the
Plan. Any dispute regarding whether an Executive's Termination of Employment
for purposes of Section 5 is based on Good Reason shall be submitted to binding
arbitration.
8. FUNDING
-------
Nothing in the Plan shall be interpreted as requiring Unicom to set aside
any of its assets for the purpose of funding its obligations under the Plan. No
person entitled to benefits under the Plan shall have any right, title or claim
in or to any specific assets of Unicom, but shall have the right only as a
general creditor of Unicom to receive benefits from Unicom on the terms and
conditions provided in the Plan.
9. ADMINISTRATION OF THE PLAN
--------------------------
Unicom is the "administrator" and a "named fiduciary" of the Plan for
purposes of the Employee Retirement Income Security Act of 1974, as amended
(ERISA). The Plan shall be administered on a day-to-day basis by the Director of
Compensation Planning of ComEd (the "Plan Administrator"). The Plan
Administrator has the sole and absolute power and authority to interpret and
apply the provisions of this Plan to a particular circumstance, make all factual
and legal determinations, construe uncertain or disputed terms and make
eligibility and benefit determinations in such manner and to such extent as the
Plan Administrator in his or her sole discretion may determine.
The Plan Administrator shall promulgate any rules and regulations necessary
to carry out the purposes of the Plan or to interpret the terms and conditions
of the Plan; provided, however, that no rule, regulation or interpretation shall
be contrary to the provisions of the Plan. The rules, regulations and
interpretations made by the Plan Administrator shall be applied on a uniform
basis and shall be final and binding on any Executive or former Executive of the
Company or any
9
<PAGE>
successor in interest of either.
The Plan Administrator may delegate any administrative duties, including,
without limitation, duties with respect to the processing, review,
investigation, approval and payment of severance pay and provision of severance
benefits, to designated individuals or committees.
10. CLAIMS PROCEDURE
----------------
The Plan Administrator shall determine the rights of any Executive or
former Executive of the Company to any severance pay or benefits hereunder. Any
Executive or former Executive of the Company who believes that he or she is
entitled to receive severance pay or benefits under the Plan, including
severance pay or benefits other than those initially determined by the Plan
Administrator, may file a claim in writing with the Plan Administrator. No later
than 90 days after the receipt of the claim the Plan Administrator shall either
allow or deny the claim in writing.
A denial of a claim, in whole or in part, shall be written in a manner
calculated to be understood by the claimant and shall include the specific
reason or reasons for the denial; specific reference to pertinent Plan
provisions on which the denial is based; a description of any additional
material or information necessary for the claimant to perfect the claim and an
explanation of why such material or information is necessary; and an explanation
of the claims review procedure.
A claimant whose claim is denied (or his or her duly authorized
representative), may, within 60 days after receipt of the denial of his or her
claim, request a review upon written application to an officer designated by
Unicom and specified in the claim denial; review pertinent documents; and submit
issues and comments in writing.
The designated officer shall notify the claimant of his or her decision on
review within 60 days after receipt of a request for review unless special
circumstances require an extension of time for processing, in which case a
decision shall be rendered as soon as possible, but not later than 120 days
after receipt of a request for review. Notice of the decision on review shall be
in writing. The officer's decision on review shall be final and binding on any
claimant or any successor in interest.
11. AMENDMENT OR TERMINATION OF PLAN
--------------------------------
Notwithstanding anything in the Plan to the contrary, Unicom's Senior Vice
President Corporate Resources or another designated officer of the Company may
amend, modify or terminate the Plan at any time by written instrument; provided,
however, that no amendment, modification or termination shall deprive any
Participant of any payment or benefit that the Plan Administrator previously has
determined is payable under the Plan.
12. MISCELLANEOUS
-------------
12.1 Limitation on Rights. Participation in the Plan is limited to the
--------------------
individuals described in Sections 2 and 3, and the Plan shall not apply to any
voluntary or involuntary termination of employment that is not a Termination of
Employment occurring on or after the effective date of the Plan.
12.2 No Mitigation. The Executive shall not have any duty to mitigate the
-------------
amounts payable by the Company under this Agreement by seeking new employment
following termination. Except as specifically otherwise provided in this
Agreement, all amounts payable pursuant to this Agreement
10
<PAGE>
shall be paid without reduction regardless of any amounts of salary,
compensation or other amounts which may be paid or payable to the Executive as
the result of the Executive's employment by another employer.
12.3 Headings. Headings of sections in this document are for convenience only,
--------
and do not constitute any part of the Plan.
12.4 Severability. If any provision of this Plan or the rules and regulations
------------
made pursuant to the Plan are held to be invalid or illegal for any reason, such
illegality or invalidity shall not affect the remaining portions of this Plan.
12.5 Governing Law. The Plan shall be construed and enforced in accordance
-------------
with ERISA and the laws of the State of Illinois to the extent such laws are not
preempted by ERISA.
12.6 Successors and Assigns. This Plan shall be binding upon and inure to the
----------------------
benefit of Unicom and its successors and assigns and shall be binding upon and
inure to the benefit of a Participant and his or her legal representatives,
heirs and assigns. Before or upon the consummation of any Change in Control, the
Company shall obtain from each individual, entity or group that becomes a
successor of the Company by reason of the Change in Control, the unconditional
written agreement of such individual, entity or group to assume this Plan and to
perform all of the obligations of the Company under Section 5 hereof.
No rights, obligations or liabilities of a Participant hereunder shall be
assignable without the prior written consent of Unicom. In the event of the
death of a Participant, prior to receipt of severance pay or benefits to which
he or she is entitled hereunder (and, with respect to benefits under Section 4,
after he or she has signed the Waiver and Release), the severance pay described
in Section 4.1 or 5.1, as applicable, shall be paid to his or her estate, and
the Participant's dependents who are covered under the ComEd health care plans
shall be entitled to continued rights under Section 4.4 or Section 5.4, as
applicable; provided that in the case of benefits provided under Section 4, the
estate or other successor of the Participant has not revoked such Waiver and
Release.
13. ADMINISTRATIVE INFORMATION
--------------------------
Plan Sponsor: Unicom Corporation
Address : 227 West Monroe Street, 12th Floor
Chicago, Illinois 60606
Employer Identification
Number: 36-3961038
Plan Administrator: Compensation Planning Vice President
Address and Telephone: Commonwealth Edison Company
PO Box 767
Chicago, Illinois 60690-0767
(312) 394-4015
Agent for Service of
Legal Process: Compensation Planning Vice President
Commonwealth Edison Company
PO Box 767
Chicago, Illinois 60690-0767
11
<PAGE>
Plan Number: 501
Type of Plan: severance benefit plan (welfare)
Plan Year: calendar year
14. ERISA RIGHTS
------------
As a Participant in the Plan, you are entitled to certain rights and
protections under ERISA. ERISA provides that all plan participants shall be
entitled to:
Examine, without charge, at the Plan Administrator's office at 10 S.
Dearborn Street, Chicago, Illinois 60603 all Plan documents and copies of
all documents filed by the Plan with the U.S. Department of Labor; and
Obtain copies of all Plan documents and other Plan information upon
written request to the Plan Administrator. The Plan Administrator may
make a reasonable charge for the copies.
In addition to creating rights for Participants, ERISA imposes duties
upon the people who are responsible for the operation of the Plan. The people
who operate the Plan, called "fiduciaries" of the Plan, have a duty to act
prudently and in the interest of you and other Participants and beneficiaries.
No one, including your employer, your union, or any other person, may fire you
or otherwise discriminate against you in any way to prevent you from obtaining
your interest in the Plan or from exercising your rights under ERISA. If your
claim for a benefit from the Plan is denied in whole or in part, you must
receive a written explanation of the reason for the denial. You have the right
to have your claim reviewed and reconsidered. Under ERISA, there are steps you
can take to enforce the above rights. For instance, if you request materials
from the Plan and do not receive them within 30 days, you may file suit in a
federal court. In such a case, the court may require the Plan Administrator to
provide the materials and pay you up to $110 a day until you receive the
materials, unless the materials were not sent because of reasons beyond the
control of the Plan Administrator. If you have a claim for benefits which is
denied or ignored, in whole or in part, you may file suit in a state or federal
court. If it should happen that Plan fiduciaries misuse the Plan's money, or if
you are discriminated against for asserting your rights, you may seek assistance
from the U.S. Department of Labor, or you may file suit in a federal court. The
court will decide who should pay court costs and legal fees. If you are
successful, the court may order the person you have sued to pay these costs and
fees. If you lose and the court finds your claim to be frivolous, the court may
order you to pay these costs and fees. If you have any questions about the Plan,
you should contact the Plan Administrator. If you have any questions about this
statement or about your rights under ERISA, you should contact the nearest Area
Office of the U.S. Labor-Management Services Administration, Department of
Labor.
March 8, 1999
12
<PAGE>
EXHIBIT I
---------
NON-COMPETITION COVENANTS
-------------------------
1. Confidential Information Defined. For the purposes hereof, the term
--------------------------------
"Confidential Information" shall mean any information not generally known
in the relevant trade or industry, which was obtained from Unicom
Corporation, Commonwealth Edison Company or any affiliate thereof (the
"Company"), or which was learned, discovered, developed, conceived,
originated or prepared during or as result of your performance of any
services on behalf of the Company and which falls within the following
general categories:
(a) information relating to trade secrets of the Company or any
customer or supplier of the Company;
(b) information relating to existing or contemplated products,
services, technology, designs, processes, formulae, algorithms,
research or product developments of the Company or any customer
or supplier of the Company;
(c) information relating to business plans or strategies, sales or
marketing methods, methods of doing business, customer lists,
customer usages and/or requirements, supplier information of the
Company or any customer or supplier of the Company;
(d) information subject to protection under the Uniform Trade Secrets
Act, as adopted by the State of Illinois, or to any comparable
protection afforded by applicable laws; and
(e) any other confidential information which either the Company or
any customer or supplier of the Company may reasonably have the
right to protect by patent, copyright or by keeping it secret and
confidential.
2. Nondisclosure of Confidential Information. You agree that you will not use
-----------------------------------------
for your own benefit, in any manner, or disclose any Confidential
Information obtained during your employment with the Company at any time,
to any other person, firm or corporation without the Company's prior
written consent, except as may be required by the lawful order of a court
or agency of competent jurisdiction. You agree to take all reasonable steps
to safeguard such Confidential Information and to protect such information
against disclosure, misuse, loss and theft. Your obligations under this
paragraph with respect to any specific Confidential Information shall cease
when that specific portion of Confidential Information becomes publicly
known.
<PAGE>
3. Non-Competition.
---------------
(a) You agree that for a period of two years beginning on the date of
termination of employment, without the prior written approval of
the Company you will not, directly or indirectly, in any
capacity, engage or participate in, become employed by, serve as
a director of, or render advisory or consulting or other services
in connection with, any Competitive Business (as defined below).
(b) You agree that for a period of two years beginning on the date of
termination of employment, without the prior written consent of
the Company, you will not at any time make any financial
investment, whether in the form of equity or debt, or own any
interest, directly or indirectly, in any Competitive Business.
Nothing in this subsection shall, however, restrict you from
making an investment in any Competitive Business if such
investment does not represent more than 1% of market value of the
outstanding capital stock or debt (as applicable) of such
Competitive Business.
"Competitive Business" means, as of any date, any individual or entity
(and any branch, office or operation thereof) which engages in, or
proposes to engage in (i) the production, transmission, distribution,
marketing or sale of electricity or (ii) any other business engaged in
by the Company prior to the separation date which represents for any
calendar year or is projected by the Company (as reflected in a
business plan adopted by the Company before the separation date) to
yield during any year during the first three-fiscal year period
commencing on or after the separation date, more than 5% of the gross
revenue of the Company, and which is located (i) anywhere in the
United States, or (ii) anywhere outside of the United States where the
Company is then engaged in, or proposes to engage in, any of such
activities.
4. Non-Solicitation. You agree that for a period of two years beginning on the
----------------
date of termination of employment, you will not, directly or indirectly:
(a) encourage any employee to terminate his or her employment;
(b) employ, engage as a consultant or adviser, or solicit the
employment or engagement as a consultant or adviser of, any
employee or cause any individual or entity to do any of the
foregoing;
(c) establish a business with, or encourage others to establish a
business with, any employee; or
(d) interfere with the relationship of the Company with, or endeavor
to entice away from the Company any individual or entity who or
which at any time during the period commencing one year prior to
the date of termination of employment was a material customer or
material supplier of, or maintained a material business
relationship with, the Company.
2
<PAGE>
5. Reasonableness of Restrictive Covenants.
---------------------------------------
You acknowledge that the covenants contained in Sections 2, 3 and 4
are reasonable in the scope of the activities restricted, the
geographic area covered by the restrictions, and the duration of the
restrictions, and that such covenants are reasonably necessary to
protect the Company's legitimate interests in its Confidential
Information and in its relationships with employees, customers and
suppliers. You further acknowledge such covenants are essential
elements of this [A]greement and that, but for such covenants, the
Company would not have entered into this [A]greement. You further
acknowledge that you have consulted with legal counsel and have been
advised concerning the reasonableness and propriety of such covenants.
You acknowledge that your observance of the covenants contained in
Sections 2, 3 and 4 will not deprive you of the ability to earn a
livelihood or to support your dependents.
6. Right to Injunction; Survival of Undertakings.
---------------------------------------------
(a) In recognition of the confidential nature of the Confidential
Information, and in recognition of the necessity of the limited
restrictions imposed by Sections 2, 3 and 4, the parties agree
that it would be impossible to measure solely in money the
damages which the Company would suffer you were to breach any of
your obligations under such paragraphs. You acknowledge that any
breach of any provision of such paragraphs would irreparably
injure the Company. Accordingly, you agree that if you breach any
of the provisions of such paragraphs, the Company shall be
entitled, in addition to any other remedies to which the Company
may be entitled under this letter agreement or otherwise, to an
injunction to be issued by a court of competent jurisdiction, to
restrain any breach, or threatened breach, of such provisions,
and you hereby waive any right to assert any claim or defense
that the Company has an adequate remedy at law for any such
breach.
(b) If a court determines that any of the covenants included in
Sections 2, 3 and 4 is unenforceable in whole or in part because
of such covenant's duration or geographical or other scope, such
court shall have the power to reduce the duration or scope of
such provision, as the case may be, so as to cause such covenant
to be thereafter enforceable.
3
<PAGE>
Exhibit (12)
Commonwealth Edison Company
Form 10-K File No. 1-1839
Commonwealth Edison Company and Subsidiary Companies Consolidated
-----------------------------------------------------------------
Computation of Ratios of Earnings to Fixed Charges
and Ratios of Earnings to Fixed Charges and
Preferred and Preference Stock Dividend Requirements
----------------------------------------------------
(Thousands of Dollars)
<TABLE>
<CAPTION>
Twelve Months Ended
Line -----------------------------------
December 31, December 31,
No. 1998 1997
- ---- ---------------- ----------------
<S> <C> <C>
1 Net income (loss) before extraordinary item and cumulative effect of
2 change in accounting principle $ 594,206 $ (160,138)
----------- -----------
3 Net provisions for income taxes and investment tax credits deferred
4 charged to-
5 Operations $ 355,667 $ 307,056
6 Other income (4,741) (405,599)
----------- -----------
7 $ 350,926 $ (98,543)
----------- -----------
8 Fixed charges-
9 Interest on debt $ 450,226 $ 487,749
10 Estimated interest component of nuclear fuel and
11 other lease payments, rentals and other interest 74,568 70,468
12 Amortization of debt discount, premium and expense 10,369 21,951
13 Company-obligated mandatorily redeemable preferred securities
14 dividend requirements of subsidiary trusts holding solely the
15 Company's subordinated debt securities 29,710 28,860
----------- ------------
16 $ 564,873 $ 609,028
----------- ------------
17 Preferred and preference stock dividend requirements-
18 Provisions for preferred and preference stock dividends $ 56,884 $ 60,486
19 Taxes on income required to meet provisions for
20 preferred and preference stock dividends 37,232 39,623
----------- ------------
21 $ 94,116 $ 100,109
----------- ------------
22 Fixed charges and preferred and preference stock
23 dividend requirements $ 658,989 $ 709,137
----------- ------------
24 Earned for fixed charges and preferred and preference stock
25 dividend requirements $ 1,510,005 $ 350,347
----------- ------------
26 Ratios of earnings to fixed charges (line 25 divided by line 16) 2.67 0.58
==== ====
27 Ratios of earnings to fixed charges and preferred and preference
28 stock dividend requirements (line 25 divided by line 23) 2.29 0.49
==== ====
</TABLE>
<PAGE>
Exhibit (21)-1
Unicom Corporation
Form 10-K File No. 1-11375
Unicom Corporation
Subsidiaries of the Company
---------------------------
<TABLE>
<CAPTION>
State or
Jurisdiction
in Which
Incorporated
Name or Organized
- ------------------------------------------------ -------------
<S> <C>
Commonwealth Edison Company Illinois
Commonwealth Edison Company of Indiana, Inc. Indiana
ComEd Financing I (Subsidiary Trust) Delaware
ComEd Financing II (Subsidiary Trust) Delaware
ComEd Funding, LLC Delaware
ComEd Transitional Funding Trust Delaware
Commonwealth Research Corporation Illinois
Concomber Ltd. Bermuda
Cotter Corporation New Mexico
Edison Development Company Delaware
Edison Development Canada Inc. Canada
Unicom Enterprises Inc. Illinois
Unicom Energy Inc. Delaware
Unicom Energy Services Inc. Illinois
Unicom Power Holding Inc. Delaware
Unicom Power Marketing Inc. Delaware
Unicom Technology Development Inc. Illinois
UT Holdings Inc. Delaware
Northwind Development Inc. Delaware
Unicom Thermal Technologies Inc. Illinois
Unicom Thermal Technologies Boston Inc. Delaware
Unicom Thermal Technologies Houston Inc. Delaware
Unicom Thermal Technologies North America Inc. Delaware
Northwind Thermal Technologies Canada Inc. New Brunswick
Unicom Thermal Technologies Inc. New Brunswick
UTT National Power Inc. Illinois
UTT Nevada Inc. Nevada
Northwind Aladdin LLC Nevada
Unicom Resources Inc. Illinois
</TABLE>
<PAGE>
Exhibit (21)-2
Commonwealth Edison Company
Form 10-K File No. 1-1839
Commonwealth Edison Company
Subsidiaries of the Company
---------------------------
<TABLE>
<CAPTION>
State or
Jurisdiction
in Which
Incorporated
Name or Organized
- ------------------------------------------------ -------------
<S> <C>
Commonwealth Edison Company Illinois
Commonwealth Edison Company of Indiana, Inc. Indiana
ComEd Financing I (Subsidiary Trust) Delaware
ComEd Financing II (Subsidiary Trust) Delaware
ComEd Funding, LLC Delaware
ComEd Transitional Funding Trust Delaware
Commonwealth Research Corporation Illinois
Concomber Ltd. Bermuda
Cotter Corporation New Mexico
Edison Development Company Delaware
Edison Development Canada Inc. Canada
</TABLE>
<PAGE>
Exhibit (23)-1
Unicom Corporation
Form 10-K File No. 1-11375
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the
incorporation by reference in this Form 10-K of our report dated February 19,
1999 on Unicom Corporation and Subsidiary Companies' consolidated financial
statements as of and for the year ended December 31, 1998, included in
Unicom Corporation's Current Report on Form 8-K dated February, 19, 1999, to the
inclusion in this Form 10-K of our report dated February 19, 1999, on the
supplemental schedule of Unicom Corporation as of and for the year ended
December 31, 1998, and to the incorporation of such reports into Unicom
Corporation's previously filed prospectuses dated March 18, 1994, constituting
part of Form S-4 Registration Statement File No. 33-52109, as amended (relating
to Common Stock of Unicom Corporation), as further amended by Post-Effective
Amendment No. 1 on Form S-8 (relating to Commonwealth Edison Company's Employee
Savings and Investment Plan) and Post-Effective Amendment No. 2 on Form S-8
(relating to Unicom Corporation's Employee Stock Purchase Plan), Form S-8
Registration Statement File No. 33-56991 (relating to Unicom Corporation's
Long-Term Incentive Plan), Form S-4 Registration Statement File No. 333-01003
(relating to the common stock of Unicom Corporation), Form S-8 Registration
Statement File No. 333-04749 (relating to Unicom Corporation's 1996 Directors'
Fee Plan), Form S-8 Registration Statement File Nos. 333-10613 and 333-26779
(relating to Commonwealth Edison Company's Employee Savings and Investment Plan)
and Form S-8 Registration Statement File No. 333-39677 (relating to the Unicom
Corporation Management Deferred Compensation Plan). We also consent to the
application of our report, incorporated by reference in this Form 10-K, to
Commonwealth Edison Company and Subsidiary Companies' ratios of earnings to
fixed charges and the ratios of earnings to fixed charges and preferred and
preference stock dividend requirements for each of the years ended December 31,
1998, 1997 and 1996 appearing in Exhibit 99 of Unicom Corporation's Current
Report on Form 8-K dated February 19, 1999.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 29, 1999
<PAGE>
Exhibit (23)-2
Commonwealth Edison Company
Form 10-K File No. 1-1839
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the
incorporation by reference in this Form 10-K of our report dated February 19,
1999, on Commonwealth Edison Company and Subsidiary Companies' consolidated
financial statements as of and for the year ended December 31, 1998, included in
Commonwealth Edison Company's Current Report on Form 8-K dated February 19,
1999, to the inclusion in this Form 10-K of our report dated February 19, 1999,
on the supplemental schedule of Commonwealth Edison Company as of and for the
year ended December 31, 1998, and to the incorporation of such reports into
Commonwealth Edison Company's previously filed prospectuses as follows: (1)
prospectus dated August 21, 1986, constituting part of Form S-3 Registration
Statement File No. 33-6879, as amended (relating to the Company's Debt
Securities and Common Stock); (2) prospectus dated January 7, 1994, constituting
part of Form S-3 Registration Statement File No. 33-51379 (relating to the
Company's Debt Securities and Cumulative Preference Stock); (3) prospectus dated
September 19, 1995, constituting part of Amendment No. 1 to Form S-3
Registration Statement File No. 33-61343, as amended (relating to
Company-Obligated Mandatorily Redeemable Preferred Securities of ComEd Financing
I); (4) prospectus dated June 13, 1997, constituting part of Form S-4
Registration Statement File No. 333-28369 (relating to Company-Obligated
Mandatorily Redeemable Preferred Securities of ComEd Financing II); and (5) Form
S-8 Registration Statement File No. 333-33847 (relating to the Commonwealth
Edison Company Excess Benefit Savings Plan). We also consent to the application
of our report, incorporated by reference in this Form 10-K, to the ratios of
earnings to fixed charges and the ratios of earnings to fixed charges and
preferred and preference stock dividend requirements for each of the years ended
December 31, 1998, 1997 and 1996 appearing in Exhibit 99 of Commonwealth Edison
Company's Current Report on Form 8-K dated February 19, 1999.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 29, 1999
<PAGE>
Exhibit (24)-1
Unicom Corporation and
Commonwealth Edison Company
Form 10-K File Nos. 1-11375 and 1-1839
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Unicom Corporation and Commonwealth
Edison Company, each an Illinois corporation, does hereby constitute and appoint
JOHN W. ROWE, JOHN C. BUKOSVKI and JOHN P. MCGARRITY, and each of them, his true
and lawful attorneys and agents, each with full power and authority (acting
alone and without the others) to execute in the name and on behalf of the
undersigned as such Director, the Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 for Unicom Corporation and Commonwealth Edison Company,
to be filed with the Securities and Exchange Commission pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that such
attorneys and agents, or any of them, may do or cause to be done by virtue of
these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 18/th/ day of
------
March, 1999.
/s/ Edward A. Brennan
----------------------------------------
Edward A. Brennan
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, Mary L. Kwilos, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that EDWARD A. BRENNAN, personally known to me to
be the same person whose name is subscribed to the foregoing instrument,
appeared before me this day in person, and acknowledged that he signed and
delivered said instrument as his free and voluntary act, for the uses and
purposes therein set forth.
GIVEN under my hand and the notarial seal this 18/th/ day of March,
------
1999.
/s/ Mary L. Kwilos
----------------------------------------
Mary L. Kwilos
Notary Public
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Unicom Corporation and Commonwealth
Edison Company, each an Illinois corporation, does hereby constitute and appoint
JOHN W. ROWE, JOHN C. BUKOSVKI and JOHN P. MCGARRITY, and each of them, his true
and lawful attorneys and agents, each with full power and authority (acting
alone and without the others) to execute in the name and on behalf of the
undersigned as such Director, the Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 for Unicom Corporation and Commonwealth Edison Company,
to be filed with the Securities and Exchange Commission pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that such
attorneys and agents, or any of them, may do or cause to be done by virtue of
these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 18/th/ day of
------
March, 1999.
/s/ Carlos H. Cantu
----------------------------------------
Carlos H. Cantu
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, Mary L. Kwilos, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that CARLOS H. CANTU, personally known to me to be
the same person whose name is subscribed to the foregoing instrument, appeared
before me this day in person, and acknowledged that he signed and delivered said
instrument as his free and voluntary act, for the uses and purposes therein set
forth.
GIVEN under my hand and the notarial seal this 18/th/ day of March,
------
1999.
/s/ Mary L. Kwilos
----------------------------------------
Mary L. Kwilos
Notary Public
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Unicom Corporation and Commonwealth
Edison Company, each an Illinois corporation, does hereby constitute and appoint
JOHN W. ROWE, JOHN C. BUKOSVKI and JOHN P. MCGARRITY, and each of them, his true
and lawful attorneys and agents, each with full power and authority (acting
alone and without the others) to execute in the name and on behalf of the
undersigned as such Director, the Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 for Unicom Corporation and Commonwealth Edison Company,
to be filed with the Securities and Exchange Commission pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that such
attorneys and agents, or any of them, may do or cause to be done by virtue of
these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 22 day of
--
March, 1999.
/s/ James W. Compton
----------------------------------------
James W. Compton
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, Mary L. Kwilos, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that JAMES W. COMPTON, personally known to me to be
the same person whose name is subscribed to the foregoing instrument, appeared
before me this day in person, and acknowledged that he signed and delivered said
instrument as his free and voluntary act, for the uses and purposes therein set
forth.
GIVEN under my hand and the notarial seal this 22 day of March,
--
1999.
/s/ Mary L. Kwilos
----------------------------------------
Mary L. Kwilos
Notary Public
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Unicom Corporation and Commonwealth
Edison Company, each an Illinois corporation, does hereby constitute and appoint
JOHN W. ROWE, JOHN C. BUKOSVKI and JOHN P. MCGARRITY, and each of them, his true
and lawful attorneys and agents, each with full power and authority (acting
alone and without the others) to execute in the name and on behalf of the
undersigned as such Director, the Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 for Unicom Corporation and Commonwealth Edison Company,
to be filed with the Securities and Exchange Commission pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that such
attorneys and agents, or any of them, may do or cause to be done by virtue of
these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 17/th/ day of
------
March, 1999.
/s/ Bruce DeMars
----------------------------------------
Bruce DeMars
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, Mary L. Kwilos, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that BRUCE DEMARS, personally known to me to be the
same person whose name is subscribed to the foregoing instrument, appeared
before me this day in person, and acknowledged that he signed and delivered said
instrument as his free and voluntary act, for the uses and purposes therein set
forth.
GIVEN under my hand and the notarial seal this 17/th/ day of March,
------
1999.
/s/ Mary L. Kwilos
----------------------------------------
Mary L. Kwilos
Notary Public
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Unicom Corporation and Commonwealth
Edison Company, each an Illinois corporation, does hereby constitute and appoint
JOHN W. ROWE, JOHN C. BUKOSVKI and JOHN P. MCGARRITY, and each of them, his true
and lawful attorneys and agents, each with full power and authority (acting
alone and without the others) to execute in the name and on behalf of the
undersigned as such Director, the Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 for Unicom Corporation and Commonwealth Edison Company,
to be filed with the Securities and Exchange Commission pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that such
attorneys and agents, or any of them, may do or cause to be done by virtue of
these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 17/th/ day of
------
March, 1999.
/s/ Donald P. Jacobs
----------------------------------------
Donald P. Jacobs
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, Mary L. Kwilos, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that DONALD P. JACOBS, personally known to me to be
the same person whose name is subscribed to the foregoing instrument, appeared
before me this day in person, and acknowledged that he signed and delivered said
instrument as his free and voluntary act, for the uses and purposes therein set
forth.
GIVEN under my hand and the notarial seal this 17/th/ day of March,
------
1999.
/s/ Mary L. Kwilos
----------------------------------------
Mary L. Kwilos
Notary Public
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Unicom Corporation and Commonwealth
Edison Company, each an Illinois corporation, does hereby constitute and appoint
JOHN W. ROWE, JOHN C. BUKOSVKI and JOHN P. MCGARRITY, and each of them, his true
and lawful attorneys and agents, each with full power and authority (acting
alone and without the others) to execute in the name and on behalf of the
undersigned as such Director, the Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 for Unicom Corporation and Commonwealth Edison Company,
to be filed with the Securities and Exchange Commission pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that such
attorneys and agents, or any of them, may do or cause to be done by virtue of
these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 18/th/ day of
------
March, 1999.
/s/ Edgar D. Jannotta
----------------------------------------
Edgar D. Jannotta
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, Mary L. Kwilos, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that EDGAR D. JANNOTTA, personally known to me to
be the same person whose name is subscribed to the foregoing instrument,
appeared before me this day in person, and acknowledged that he signed and
delivered said instrument as his free and voluntary act, for the uses and
purposes therein set forth.
GIVEN under my hand and the notarial seal this 18/th/ day of March,
------
1999.
/s/ Mary L. Kwilos
----------------------------------------
Mary L. Kwilos
Notary Public
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Unicom Corporation and Commonwealth
Edison Company, each an Illinois corporation, does hereby constitute and appoint
JOHN W. ROWE, JOHN C. BUKOSVKI and JOHN P. MCGARRITY, and each of them, his true
and lawful attorneys and agents, each with full power and authority (acting
alone and without the others) to execute in the name and on behalf of the
undersigned as such Director, the Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 for Unicom Corporation and Commonwealth Edison Company,
to be filed with the Securities and Exchange Commission pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that such
attorneys and agents, or any of them, may do or cause to be done by virtue of
these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 17/th/ day of
------
March, 1999.
/s/ George E. Johnson
----------------------------------------
George E. Johnson
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, Mary L. Kwilos, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that GEORGE E. JOHNSON, personally known to me to
be the same person whose name is subscribed to the foregoing instrument,
appeared before me this day in person, and acknowledged that he signed and
delivered said instrument as his free and voluntary act, for the uses and
purposes therein set forth.
GIVEN under my hand and the notarial seal this 17/th/ day of March,
------
1999.
/s/ Mary L. Kwilos
----------------------------------------
Mary L. Kwilos
Notary Public
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Unicom Corporation and Commonwealth
Edison Company, each an Illinois corporation, does hereby constitute and appoint
JOHN W. ROWE, JOHN C. BUKOSVKI and JOHN P. MCGARRITY, and each of them, his true
and lawful attorneys and agents, each with full power and authority (acting
alone and without the others) to execute in the name and on behalf of the
undersigned as such Director, the Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 for Unicom Corporation and Commonwealth Edison Company,
to be filed with the Securities and Exchange Commission pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that such
attorneys and agents, or any of them, may do or cause to be done by virtue of
these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 17/th/ day of
------
March, 1999.
/s/ Richard L. Thomas
----------------------------------------
Richard L. Thomas
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, Mary L. Kwilos, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that RICHARD L. THOMAS, personally known to me to
be the same person whose name is subscribed to the foregoing instrument,
appeared before me this day in person, and acknowledged that he signed and
delivered said instrument as his free and voluntary act, for the uses and
purposes therein set forth.
GIVEN under my hand and the notarial seal this 17/th/ day of March,
------
1999.
/s/ Mary L Kwilos
----------------------------------------
Mary L. Kwilos
Notary Public
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Unicom Corporation and Commonwealth
Edison Company, each an Illinois corporation, does hereby constitute and appoint
JOHN W. ROWE, JOHN C. BUKOVSKI and JOHN P. MCGARRITY, and each of them, her true
and lawful attorneys and agents, each with full power and authority (acting
alone and without the others) to execute in the name and on behalf of the
undersigned as such Director, the Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 for Unicom Corporation and Commonwealth Edison Company,
to be filed with the Securities and Exchange Commission pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that such
attorneys and agents, or any of them, may do or cause to be done by virtue of
these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 22 day of
--
March, 1999.
/s/ Sue L. Gin
----------------------------------------
Sue L. Gin
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, Mary L. Kwilos, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that SUE L. GIN, personally known to me to be the
same person whose name is subscribed to the foregoing instrument, appeared
before me this day in person, and acknowledged that she signed and delivered
said instrument as her free and voluntary act, for the uses and purposes therein
set forth.
GIVEN under my hand and the notarial seal this 22 day of March,
--
1999.
/s/ Mary L. Kwilos
----------------------------------------
Mary L. Kwilos
Notary Public
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Unicom Corporation and Commonwealth
Edison Corporation, each an Illinois corporation, does hereby constitute and
appoint JOHN W. ROWE, JOHN C. BUKOVSKI and JOHN P. MCGARRITY, and each of them,
her true and lawful attorneys and agents, each with full power and authority
(acting alone and without the others) to execute in the name and on behalf of
the undersigned as such Director, the Annual Report on Form 10-K for the fiscal
year ended December 31, 1998 for Unicom Corporation and Commonwealth Edison
Company, to be filed with the Securities and Exchange Commission pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934, hereby granting to
such attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that such
attorneys and agents, or any of them, may do or cause to be done by virtue of
these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 17/th/ day of
------
March, 1999.
/s/ Elizabeth A. Moler
----------------------------------------
Elizabeth A. Moler
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, Mary L. Kwilos, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that ELIZABETH A. MOLER, personally known to me to
be the same person whose name is subscribed to the foregoing instrument,
appeared before me this day in person, and acknowledged that she signed and
delivered said instrument as her free and voluntary act, for the uses and
purposes therein set forth.
GIVEN under my hand and the notarial seal this 17/th/ day of March,
------
1999.
/s/ Mary L. Kwilos
----------------------------------------
Mary L. Kwilos
Notary Public
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 19, 1999
Unicom Corporation
(Exact name of registrant as specified in its charter)
Illinois 1-11375 36-3961038
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification No.)
incorporation)
37th Floor, 10 South Dearborn Street, 60690-3005
Post Office Box A-3005, (Zip Code)
Chicago, Illinois
(Address of principal executive
offices)
Registrant's telephone number, including area code: (312) 394-7399
<PAGE>
Item 5. Other Events
The purpose of this Current Report is to file certain financial information
regarding the Registrant (Unicom Corporation) and its subsidiaries. Such
financial information is set forth in the exhibits to this Current Report.
Exhibits
<TABLE>
<C> <S>
(23) Consent of Independent Public Accountants
(27) Financial Data Schedule of Unicom Corporation
(99) Unicom Corporation and Subsidiary Companies--Certain Financial
Information as of and for the Year Ended December 31, 1998:
--Summary of Selected Consolidated Financial Data
--Price Range and Cash Dividends Paid per Share of Common Stock
--1998 Consolidated Revenues and Sales
--Management's Discussion and Analysis of Financial Condition and
Results of Operations
--Report of Independent Public Accountants
--Statements of Consolidated Operations for the years 1998, 1997 and
1996
--Consolidated Balance Sheets as of December 31, 1998 and 1997
--Statements of Consolidated Capitalization as of December 31, 1998
and 1997
--Statements of Consolidated Retained Earnings (Deficit) for the
years 1998, 1997 and 1996
--Statements of Consolidated Cash Flows for the years 1998, 1997 and
1996
--Notes to Financial Statements
</TABLE>
2
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Unicom Corporation
(Registrant)
By: Robert E. Berdelle
----------------------------------
Robert E. Berdelle
Vice President and Comptroller
Date: February 24, 1999
3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description of
Number Exhibit
------- --------------
<C> <S>
(23) Consent of Independent Public Accountants
(27) Financial Data Schedule of Unicom Corporation
(99) Unicom Corporation and Subsidiary Companies--Certain Financial
Information as of and for the Year Ended December 31, 1998:
--Summary of Selected Consolidated Financial Data
--Price Range and Cash Dividends Paid per Share of Common Stock
--1998 Consolidated Revenues and Sales
--Management's Discussion and Analysis of Financial Condition and
Results of Operations
--Report of Independent Public Accountants
--Statements of Consolidated Operations for the years 1998, 1997 and
1996
--Consolidated Balance Sheets as of December 31, 1998 and 1997
--Statements of Consolidated Capitalization as of December 31, 1998
and 1997
--Statements of Consolidated Retained Earnings (Deficit) for the years
1998, 1997 and 1996
--Statements of Consolidated Cash Flows for the years 1998, 1997 and
1996
--Notes to Financial Statements
</TABLE>
<PAGE>
Exhibit (23)
Unicom Corporation
Form 8-K File No. 1-11375
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated February 19, 1999 on Unicom Corporation and
Subsidiary Companies' consolidated financial statements as of and for the year
ended December 31, 1998, included as an Exhibit to this Form 8-K Current
Report of Unicom Corporation, into Unicom Corporation's previously filed
prospectuses dated March 18, 1994, constituting part of Form S-4 Registration
Statement File No. 33-52109, as amended (relating to Common Stock of Unicom
Corporation), as further amended by Post-Effective Amendment No. 1 on Form S-8
(relating to Commonwealth Edison Company's Employee Savings and Investment
Plan) and Post-Effective Amendment No. 2 on Form S-8 (relating to Unicom
Corporation's Employee Stock Purchase Plan), Form S-8 Registration Statement
File No. 33-56991 (relating to Unicom Corporation's Long-Term Incentive Plan),
Form S-4 Registration Statement File No. 333-01003 (relating to Unicom
Corporation's Common Stock), Form S-8 Registration Statement File No. 333-
04749 (relating to Unicom Corporation's 1996 Directors' Fee Plan), Form S-8
Registration Statement File Nos. 333-10613 and 333-26779 (relating to
Commonwealth Edison Company's Employee Savings and Investment Plan) and Form
S-8 Registration Statement File No. 333-39677 (relating to Unicom
Corporation's Management Deferred Compensation Plan). We also consent to the
application of our report to Commonwealth Edison Company and Subsidiary
Companies' ratios of earnings to fixed charges and the ratios of earnings to
fixed charges and preferred and preference stock dividend requirements for
each of the years ended December 31, 1998, 1997 and 1996 appearing in Exhibit
99 of this Form 8-K.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 24, 1999
<PAGE>
Exhibit (99)
Unicom Corporation
Form 8-K File No. 1-11375
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
<PAGE>
Unicom Corporation and Subsidiary Companies
Forward-Looking Information
Except for historical data, the information contained herein constitutes
forward-looking statements. Forward-looking statements are inherently
uncertain and subject to risks. Such statements should be viewed with caution.
Actual results or experience could differ materially from the forward-looking
statements as a result of many factors. Forward-looking statements in this
report include, but are not limited to: (1) statements regarding expectations
of revenue reductions and collections of future CTC revenues as a result of
the 1997 Act in "Management's Discussion and Analysis of Financial Condition
and Results of Operations," subcaption "Changes in the Electric Utility
Industry--The 1997 Act," and in Note 2 of Notes to Financial Statements, (2)
statements regarding estimated capital expenditures in "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
subcaptions "Liquidity and Capital Resources--UTILITY OPERATIONS--Construction
Program," "Liquidity and Capital Resources--UNREGULATED OPERATIONS--
Construction Program" and "Changes in the Electric Utility Industry--Response
to Regulatory Changes," (3) statements regarding the estimated return to
service of certain nuclear generating units in "Management's Discussion and
Analysis of Financial Condition and Results of Operations," subcaption
"Regulation--Nuclear Matters," (4) statements regarding the costs of
decommissioning nuclear generating stations in "Management's Discussion and
Analysis of Financial Condition and Results of Operations," subcaption
"Regulation--Nuclear Matters," and in Note 1 of Notes to Financial Statements,
under "Depreciation, Amortization of Regulatory Assets and Decommissioning,"
(5) statements regarding cleanup costs associated with MGPs and other
remediation sites in Note 22 of Notes to Financial Statements, (6) statements
regarding the estimated fair value of forward energy contracts in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," subcaption "Liquidity and Capital Resources--UTILITY OPERATIONS--
Market Price Exposure," and (7) statements regarding the risks and
uncertainties relating to Year 2000 issues set forth in "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
subcaption "Liquidity and Capital Resources--UTILITY OPERATIONS--Year 2000
Conversion," including the projected completion dates in each of Unicom's four
critical business areas, Unicom's dependence upon the Year 2000 readiness of
third parties with whom it has significant business relationships, the
estimated costs of remediating or upgrading embedded systems and software that
would not otherwise be replaced in accordance with Unicom's business plans,
and Unicom's Year 2000 contingency planning process. Management cannot predict
the course of future events or anticipate the interaction of multiple factors
beyond management's control and their effect on revenues, project timing and
costs. The statements regarding revenue reductions and collections of future
CTC revenues are subject to unforeseen developments in the market for
electricity in Illinois resulting from regulatory changes. The statements
regarding estimated capital expenditures, estimated return to service of
nuclear generation units, decommissioning costs, cleanup costs and Year 2000
conversion costs are subject to changes in the scope of work and manner in
which the work is performed and consequent changes in the timing and level of
the projected expenditure, and are also subject to changes in laws and
regulations or their interpretation or enforcement. The statements regarding
expectations for Year 2000 readiness and Unicom's Year 2000 contingency
planning process are subject to the risk that Year 2000 remediation efforts of
Unicom and other parties with whom it has significant business relationships
are not successful. The statements regarding the estimated return to service
of nuclear generating units are subject to the concurrence of the NRC with
proceeding to power operations. The statements regarding the fair value of
forward energy contracts are subject to changes in generating capability and a
reduction in the demand for electricity. Unicom and ComEd make no commitment
to disclose any revisions to the forward-looking statements, or any facts,
events or circumstances after the date hereof that may bear upon forward-
looking statements.
1
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Definitions.............................................................. 3
Summary of Selected Consolidated Financial Data.......................... 4
Price Range and Cash Dividends Paid per Share of Common Stock............ 4
1998 Consolidated Revenues and Sales..................................... 4
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 5-23
Report of Independent Public Accountants................................. 24
Consolidated Financial Statements--
Statements of Consolidated Operations for the years 1998, 1997 and
1996.................................................................. 25
Consolidated Balance Sheets as of December 31, 1998 and 1997........... 26-27
Statements of Consolidated Capitalization as of December 31, 1998 and
1997.................................................................. 28
Statements of Consolidated Retained Earnings (Deficit) for the years
1998, 1997 and 1996................................................... 29
Statements of Consolidated Cash Flows for the years 1998, 1997 and
1996.................................................................. 30
Notes to Financial Statements.......................................... 31-59
</TABLE>
2
<PAGE>
DEFINITIONS
The following terms are used in this document with the following meanings:
<TABLE>
<CAPTION>
Term Meaning
- ---------------------- ------------------------------------------------------------------
<S> <C>
1997 Act Illinois Electric Service Customer Choice and Rate Relief Law of
1997
AFUDC Allowance for funds used during construction
APB Accounting Principles Board
CERCLA Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended
CFC Chlorofluorocarbon
Clean Air Amendments Clean Air Act Amendments of 1990
ComEd Commonwealth Edison Company
ComEd Funding ComEd Funding, LLC, a ComEd subsidiary
ComEd Funding Trust ComEd Transitional Funding Trust, a ComEd Funding subsidiary
Congress U.S. Congress
Cotter Cotter Corporation, a ComEd subsidiary
CTC Non-bypassable "competitive transition charge"
DOE U.S. Department of Energy
EEI Edison Electric Institute
EPRI Electric Power Research Institute
EPS Earnings (Loss) per Common Share
ESPP Employee Stock Purchase Plan
FAC Fuel adjustment clause
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
FERC Order FERC Open Access Order No. 888 issued in April 1996
GAAP Generally Accepted Accounting Principles
ICC Illinois Commerce Commission
IDR Illinois Department of Revenue
Indiana Company Commonwealth Edison Company of Indiana, Inc., a ComEd subsidiary
INPO Institute of Nuclear Power Operations
ISO Independent System Operator
MAIN Mid-America Interconnected Network
MGP Manufactured gas plant
NEI Nuclear Electric Institute
NEIL Nuclear Electric Insurance Limited
NERC North American Electric Reliability Council
NML Nuclear Mutual Limited
NPL Nuclear Priorities List
NRC Nuclear Regulatory Commission
O&M Operation and maintenance
SEC Securities and Exchange Commission
SFAS Statement of Financial Accounting Standards
SPEs Special purpose entities
S&P Standard & Poor's
Trusts ComEd Financing I and ComEd Financing II, ComEd subsidiaries
Trust Securities ComEd-obligated mandatorily redeemable preferred securities of
subsidiary trusts holding solely ComEd's subordinated debt
securities
Unicom Unicom Corporation
Unicom Energy Services Unicom Energy Services Inc., a Unicom Enterprises subsidiary
Unicom Enterprises Unicom Enterprises Inc., a Unicom subsidiary
Unicom Thermal Unicom Thermal Technologies Inc., a UT Holdings subsidiary
U.S. EPA U.S. Environmental Protection Agency
UT Holdings UT Holdings Inc., a Unicom Enterprises subsidiary
</TABLE>
3
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
Summary of Selected Consolidated Financial Data
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(Millions Except per Share Data)
<S> <C> <C> <C> <C> <C>
Operating revenues.............. $ 7,151 $ 7,083 $ 6,937 $ 6,910 $ 6,278
Net income (loss)............... $ 510 $ (853)(1) $ 666 $ 640(2) $ 355
Basic earnings (loss) per common
share.......................... $ 2.35 $ (3.94)(1) $ 3.09 $ 2.98(2) $ 1.66
Diluted earnings (loss) per
common share................... $ 2.34 $ (3.94)(1) $ 3.09 $ 2.98(2) $ 1.66
Cash dividends declared per
common share................... $ 1.60 $ 1.60 $ 1.60 $ 1.60 $ 1.60
Total assets (at end of year)... $25,707 $22,700 $23,388 $23,250 $23,121
Long-term obligations at end of
year excluding current portion:
Long-term debt, preference
stock and preferred securities
subject to mandatory
redemption requirements....... $ 8,229 $ 6,262 $ 6,487 $ 7,011 $ 7,745
Accrued spent nuclear fuel
disposal fee and related
interest...................... $ 728 $ 693 $ 657 $ 624 $ 590
Capital lease obligations...... $ 334 $ 438 $ 477 $ 376 $ 433
Other long-term obligations.... $ 2,951 $ 3,183 $ 1,991 $ 1,826 $ 1,754
</TABLE>
- --------
(1) Includes an extraordinary loss for the write-off of generation-related net
regulatory assets of $810 million (after-tax), or $3.75 per common share
(basic), the loss on the early retirement of Zion nuclear generating
station of $523 million (after-tax), or $2.42 per common share (basic),
and the positive impact of a one-time cumulative effect for a change in
accounting principle for revenue recognition of $197 million (after-tax),
or $0.91 per common share (basic).
(2) Includes an extraordinary loss related to the early redemption of long-
term debt of $20 million (after-tax), or $0.09 per common share (basic).
Price Range* and Cash Dividends Paid per Share of Common Stock
<TABLE>
<CAPTION>
1998 (by quarters) 1997 (by quarters)
--------------------------------- ---------------------------
Fourth Third Second First Fourth Third Second First
-------- ------ -------- -------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Price range:
High................... 41 3/16 38 36 15/16 35 13/16 30 3/4 25 5/8 24 1/4 28 1/4
Low.................... 36 13/16 33 3/8 32 9/16 30 18 1/2 21 18 1/2 19 1/4
Cash dividends paid..... 40c 40c 40c 40c 40c 40c 40c 40c
</TABLE>
* As reported as NYSE Composite Transactions.
- --------
Unicom's common stock is traded on the New York, Chicago and Pacific stock
exchanges, with the ticker symbol UCM. At December 31, 1998, there were
approximately 124,000 holders of record of Unicom's common stock.
1998 Consolidated Revenues and Sales
<TABLE>
<CAPTION>
% %
Operating Increase/ Kilowatthour Increase/ %
Revenues (Decrease) Sales (Decrease) Increase
(Thousands) Over 1997 (Millions) Over 1997 Customers Over 1997
----------- ---------- ------------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Residential............. $2,551,741 -- % 23,942 8.1% 3,134,490 0.4%
Small commercial and
industrial............. 2,187,532 1.6 27,005 4.4 304,208 4.5
Large commercial and
industrial............. 1,406,720 (4.1) 24,043 (0.1) 1,794 14.6
Public authorities...... 510,185 0.8 7,472 2.0 14,049 15.4
Electric railroads...... 31,022 4.2 433 3.6 3 50.0
---------- ------ ---------
Ultimate consumers..... $6,687,200 (0.3) 82,895 3.8 3,454,544 0.8
Provision for revenue
refunds................ (21,848) (52.1) -- -- -- --
---------- ------ ---------
Net ultimate consumers. $6,665,352 -- 82,895 3.8 3,454,544 0.8
Sales for resale........ 397,157 18.0 14,744 (6.0) 62 21.6
Other revenues.......... 88,744 7.1 -- -- -- --
---------- ------ ---------
Total.................. $7,151,253 1.0 97,639 2.2 3,454,606 0.8
========== ====== =========
</TABLE>
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Changes in the Electric Utility Industry
Unicom and its predominant business, electric energy generation,
transmission and distribution, are in a period of fundamental change. These
changes are attributable to changes in technology and regulation. Federal law
and regulations have been amended to provide for open transmission system
access, and various states, including Illinois, are considering, or have
adopted, new regulatory structures to allow access by some or all customers to
energy suppliers in addition to the local utility.
Electric Utility Industry. The electric utility industry historically has
consisted of vertically integrated companies which combine generation,
transmission and distribution assets; serve customers within relatively
defined service territories; and operate under extensive regulation with
respect to rates, operations and other matters. Utilities have operated under
a regulatory compact with the state, with a statutory obligation to serve all
of the electricity needs within their service territory in a nondiscriminatory
manner. Historically, investment and operating decisions have been made based
upon the utilities' respective assessment of the current and projected needs
of their customers. In view of this obligation, regulation has focused on
investment and operating costs, and rates have been based on a recovery of
some or all of such prudently incurred costs plus a return on invested
capital. Such rate regulation, and the ability of utilities to recover
investment and other costs through rates, have provided the basis for
recording certain costs as regulatory assets. These assets represent costs
which are allocated over future periods reflecting related regulatory
treatment, rather than expensed in the current period.
Federal Regulation. The Federal Energy Policy Act of 1992, among other
things, empowered FERC to introduce a greater level of competition into the
wholesale marketplace for electric energy. Under the FERC Order, utilities are
required to file open access tariffs with regard to their transmission
systems. These tariffs set forth the terms, including prices, under which
other parties and the utility's wholesale marketing function may use the
utility's transmission system. ComEd has an approved open access tariff with
the FERC. The FERC Order requires the separation of the transmission
operations and wholesale marketing functions so as to ensure that unaffiliated
third parties have access to the same information as to system availability
and other requirements. The FERC Order further requires utilities to operate
an electronic bulletin board to make transmission price and access data
available to all potential users. A key feature of the FERC Order is that it
contemplates full recovery of a utility's costs "stranded" by competition.
These costs are "stranded" or "strandable" to the extent market-based rates
would be insufficient to allow for their full recovery. To recover stranded
costs, the utility must show that it had a reasonable expectation that it
would continue to serve the customer in question under its regulatory compact.
In addition, some governmental entities, such as cities, may elect to
"municipalize" a utility's distribution facilities through condemnation
proceedings. Such municipalities would then be able to purchase electric power
on a wholesale basis and resell it to customers over the newly acquired
facilities. The FERC Order provides for the recovery of a utility's investment
stranded by municipalization.
The 1997 Act. In December 1997, the Governor of Illinois signed into law the
1997 Act, which established a phased process to introduce competition into the
electric industry in Illinois under a less regulated structure. Major
provisions of the 1997 Act applicable to ComEd include a 15% residential base
rate reduction which became effective August 1, 1998, an additional 5%
residential base rate reduction commencing on May 1, 2002 and gradual customer
access to other electric suppliers. Access for commercial and industrial
customers will occur over a period from October 1999 to December 2000, and
access for residential customers will occur after May 1, 2002. ComEd's
operating revenues were reduced by approximately $170 million in 1998 due to
the rate reduction. ComEd is engaged in certain pricing experiments
contemplated by the 1997 Act, which reduced
5
<PAGE>
ComEd's operating revenues by approximately $30 million in 1998 and are
expected to reduce operating revenues by $55 million in 1999, compared to 1997
rate levels; however, such reductions are expected to be offset by the effects
of customer growth. ComEd expects that the 15% residential base rate reduction
will reduce ComEd's operating revenues by approximately $380 million in 1999,
compared to 1997 rate levels.
The 1997 Act also provides for the collection of a CTC from customers who
choose another electric service provider during a transition period that
extends through 2006, and can be extended through 2008 with ICC approval. The
CTC will be established in accordance with a formula defined in the 1997 Act.
The CTC, which will be applied on a cents per kilowatthour basis, considers
the revenue which would have been collected from a customer under tariffed
rates, reduced by the revenue the utility will receive for providing delivery
services to the customer, the market price for electricity and a defined
mitigation factor, which represents the utility's opportunity to develop new
revenue sources and achieve cost savings.
Notwithstanding these rate reductions, and subject to certain earnings
tests, a rate freeze will generally be in effect until at least January 1,
2005. During this period, utilities may reorganize, sell or assign assets,
retire or remove plants from service, and accelerate depreciation or
amortization of assets with limited ICC regulatory review. A utility may
request a rate increase during the rate freeze period only when necessary to
ensure the utility's financial viability, but not before January 1, 2000.
Under the earnings provision of the 1997 Act, if the earned return on common
equity of a utility during this period exceeds an established threshold, one-
half of the excess earnings must be refunded to customers. The threshold rate
of return on common equity is based on the 30-Year Treasury Bond rate, plus
5.5% in the years 1998 through 1999 and plus 6.5% in the years 2000 through
2004. The utility's earned return on common equity and the threshold return on
common equity are each calculated on a two year average basis. The earnings
sharing provision is applicable only to utility earnings. Increased
amortization of regulatory assets may be recorded, thereby reducing the earned
return on common equity, if earnings otherwise would have exceeded the maximum
allowable rate of return. The potential for earnings sharing or increased
amortization of regulatory assets could limit earnings in future periods.
Under the 1997 Act, utilities are required to continue to offer delivery
services, including the transmission and distribution of electric energy, such
that customers who select an alternative energy supplier can receive electric
energy from that supplier using existing transmission and distribution
facilities. Such services will continue to be offered under cost-based,
regulated rates. The 1997 Act also requires utilities to establish or join an
ISO that will independently manage and control utility transmission systems.
Additionally, the 1997 Act includes the leveling of certain regulatory
requirements to permit operational flexibility, the leveling of certain
regulatory and tax provisions as applied to various electric suppliers and a
new, more stringent, liability standard applicable to ComEd in the event of a
major outage. See "Response to Regulatory Changes" below for additional
information.
The 1997 Act also allows a portion of ComEd's future revenues to be
segregated and used to support the issuance of securities by ComEd or a SPE.
The proceeds from such securities issuances must be used to refinance
outstanding debt and equity or for certain other limited purposes. The total
amount of such securities that may be issued is approximately $6.8 billion;
approximately one-half of that amount can be issued in the twelve-month period
which commenced on August 1, 1998. In December 1998, ComEd initiated the
issuance of $3.4 billion of transitional trust notes through its SPEs, ComEd
Funding and ComEd Funding Trust. See "Liquidity and Capital Resources,"
subcaption "UTILITY OPERATIONS--Capital Resources" below, and Notes 2, 7 and
24 of Notes to Financial Statements, for additional information regarding the
issuance of transitional trust notes and the planned use of the proceeds.
6
<PAGE>
As a result of the 1997 Act, prices for the supply of electric energy are
expected to change from cost-based, regulated rates to rates determined by
competitive market forces. The CTC allows ComEd to recover some of its costs
which might otherwise be unrecoverable under market-based rates. Nonetheless,
ComEd will need to take steps to address the portion of such costs which are
not recoverable through the CTC. Such steps may include cost control efforts,
developing new sources of revenue and potential asset dispositions. See
"Response to Regulatory Changes" below for additional information.
See Note 2 of Notes to Financial Statements for the accounting effects
related to the 1997 Act.
Response to Regulatory Changes. Unicom has announced several business and
operational objectives designed to focus efforts in responding to the energy
market changes that are expected to develop from the 1997 Act. These
objectives contemplate that ComEd will seek additional improvements in its
transmission and distribution operations in order to meet customers'
expectations for reliable delivery and will seek to refocus its generation
activities, with a concentration on improved nuclear generation, and that
Unicom and ComEd will seek to expand their offerings of energy-related
products and services. See Unicom and ComEd's Current Report on Form 8-K dated
July 6, 1998 for more information regarding the objectives announced by
Unicom.
Under the 1997 Act, the role of electric utilities in the supply and
delivery of energy is expected to change. Utilities, such as ComEd,
traditionally have been responsible for providing both adequate supply and
reliable delivery of electricity to customers within their service areas. In
the future, ComEd will continue to be obligated to provide a reliable delivery
system. However, ComEd will be obligated to supply electricity only to those
customers that it continues to serve under tariffs for electricity, but not to
those customers who choose to rely on the marketplace. Nonetheless, during the
transition period to a competitive supply marketplace, ComEd must provide both
an adequate supply and reliable delivery of electricity. Given the tight
capacity situation in ComEd's market, ComEd will continue working to restore
and maintain its available capacity, as well as working to assist in the
development of a competitive supply marketplace in Illinois.
ComEd has a significant commitment to, and investment in, nuclear generating
capacity. ComEd has installed a new management team responsible for improving
nuclear operations. Such improvements are aimed at increasing levels of energy
generation, or capacity factors, at ComEd's nuclear generating units while
simultaneously improving ComEd's record of meeting NRC requirements and INPO
performance standards. Increased capacity factors generally result in lower
unit production costs and an improved opportunity to generate and sell
electricity in a competitive marketplace. Efforts are also being made to
control capital and operating costs through increased efficiencies, such as
the reduction of downtime and expenses associated with generating unit
maintenance and refueling outages.
ComEd also evaluated the recoverability of its generating plant investment
as a result of the 1997 Act. This evaluation, based upon interpretative
guidance issued by the SEC, resulted in a conclusion that the investment was
impaired and should be reduced. See Note 2 of Notes to Financial Statements
for additional information. Notwithstanding these efforts, there continues to
be an ongoing analysis of the ability of ComEd's various nuclear plants to
generate and deliver electric energy safely at competitive prices in the
competitive market for energy. Although short-term system reliability and
capacity constraints are likely to support the continued operation of ComEd's
nuclear units in the near term, expected longer term developments are likely
to make decision-making a function of economic considerations. In the absence
of short-term reliability and capacity constraints, if a generating plant
cannot produce power safely at a cost below the competitive market price, it
will be disposed of or closed. Plant impairment adjustments have reduced the
carrying value of nuclear plants, and depreciation rates reflecting shortened
estimated useful lives for certain stations will reduce the
7
<PAGE>
carrying value further during the next several years. However, closure of a
plant could involve additional charges associated with the write-off of its
then-current carrying value. In January 1998, Unicom and ComEd announced its
decision to permanently cease nuclear generating operations at ComEd's Zion
Station. The related retirement resulted in a charge in 1997 of $523 million
(after-tax), or $2.42 per common share (basic), reflecting both a write down
of the plant's carrying value and a liability for future closing costs. A
portion of Zion Station is used to provide voltage support in the transmission
system that serves ComEd's northern region. See Note 5 of Notes to Financial
Statements for additional information.
ComEd is also undertaking steps to offer for sale approximately 9,700
megawatts of fossil generating capacity, representing seven fossil-fired
generating stations, and the oil and gas peaking units located in Illinois.
Such plants have an aggregate book value of approximately $1.3 billion. As a
part of such sales, ComEd expects to enter into transitional power purchase
agreements with the purchasers in order to assure the availability of power
during the period that the competitive market for electric generation is
developing in Illinois. Non-binding proposals from prospective qualified
buyers were received in late 1998, with final, binding proposals due in the
first quarter of 1999. The closing of the sale is anticipated for the fourth
quarter of 1999. Any net gain on the sale of the stations will be offset in
large part by increased amortization of the regulatory asset for impaired
production plant and therefore is not expected to have a material impact on
results of operations. In addition, ComEd continues to examine its other
operations and assets with a view to rationalizing their investment and
operating costs against their ability to contribute to the revenues and
profits of ComEd. As a result of such evaluations, additional asset sales may
be undertaken.
In response to customer expectations and more stringent reliability
standards provided for by the 1997 Act, ComEd's Board of Directors approved a
$307 million increase in capital expenditures on its transmission and
distribution systems over the next three years. See "Liquidity and Capital
Resources," subcaption "UTILITY OPERATIONS--Construction Program" below, for
additional information regarding capital spending for the transmission and
distribution systems.
ComEd joined with other Midwestern utilities to form a regional Midwest ISO
in January 1998. Presently, a number of these utilities have agreed to place
their transmission systems under the control of the Midwest ISO. The Midwest
ISO is a key element in accommodating the restructuring of the electric
industry and will promote enhanced reliability of the transmission system,
equal access to the transmission system and increased competition. The Midwest
ISO has established an independent body that will ultimately direct the
planning and operation of the transmission system for the utilities involved.
The Midwest ISO will have operational control over the transmission system and
will have authority to require modification in the operation of generators
connected to that system during system emergencies. ComEd will retain
ownership of its transmission system. The formation of the Midwest ISO was
approved by FERC in September 1998, subject to certain conditions. The ISO
members elected the Midwest ISO Board of Directors in December 1998.
8
<PAGE>
Liquidity and Capital Resources
UTILITY OPERATIONS
Construction Program. ComEd has a construction program for the years 1999-
2001, which consists principally of improvements to its existing nuclear and
other electric production, transmission and distribution facilities. The
program, as currently approved by ComEd, includes the following estimated
expenditures (excluding nuclear fuel expenditures of approximately $676
million):
<TABLE>
<CAPTION>
1999 2000 2001
------ ---- ----
(Millions
of Dollars)
<S> <C> <C> <C>
Production................................................. $ 420 $264 $233
Transmission and Distribution.............................. 515 527 529
General.................................................... 109 83 80
------ ---- ----
$1,044 $874 $842
====== ==== ====
</TABLE>
This program includes an increase in capital expenditures on ComEd's
transmission and distribution systems of approximately $307 million over the
next three years, in addition to the estimated $1.3 billion previously planned
to be spent on these systems over the same time period. A significant portion
of such additional expenditures is intended to increase the reliability of
ComEd's distribution system by replacing certain equipment and increasing
automation to identify distribution problems faster and more quickly restore
power to customers.
ComEd's forecasts of peak load indicate a need for additional resources to
meet demand, either through generating capacity, equivalent purchased power
and/or the development of additional demand-side management resources, in 1999
and each year thereafter for the foreseeable future. However, ComEd believes
that adequate resources, including cost-effective, demand-side management
resources, non-utility generation resources and other-utility power purchases,
can be obtained in sufficient quantities to meet such forecasted needs.
Purchase commitments for ComEd, principally related to construction and
nuclear fuel, approximated $335 million at December 31, 1998. In addition,
ComEd's estimated commitments for the purchase of coal are as follows:
<TABLE>
<CAPTION>
Contract Period Commitment (1)
-------------- --------- --------------
<S> <C> <C>
Black Butte Coal Co................................ 1999-2000 $434
Decker Coal Co..................................... 1999-2014 478
Other commitments.................................. 1999-2000 38
----
$950
====
</TABLE>
--------
(1) In millions of dollars, excluding transportation costs. No estimate of
future cost escalation has been made.
For additional information concerning these coal contracts, see Note 22 of
Notes to Financial Statements. See "Changes in the Electric Utility Industry,"
subcaption "Response to Regulatory Changes" above, for additional information.
Capital Resources. In December 1998, ComEd initiated the issuance of $3.4
billion of transitional trust notes through its SPEs, ComEd Funding and ComEd
Funding Trust. The proceeds from the transitional trust notes, net of
transaction costs, must be used to redeem or repurchase debt and equity to
lower ComEd's overall cost of capital. Accordingly, in early 1999 ComEd
redeemed $788 million of long-term debt and $534 million of preference stock,
and reacquired $229 million of outstanding ComEd long-term debt through a
tender offer. In addition, $500 million of the proceeds, of which
approximately $300 million has been utilized, is being used to reduce ComEd's
outstanding short-term debt. As more fully described below, Unicom has
announced plans to repurchase approximately $750 million of Unicom common
stock using the proceeds it receives from ComEd's repurchase of its common
stock held by Unicom. The remaining proceeds will be used for the payment of
fees and additional debt and equity redemptions and repurchases.
9
<PAGE>
Unicom has entered into a prepaid forward purchase arrangement with a
financial institution for the repurchase of approximately 15 million shares of
Unicom common stock. The repurchase arrangement provides for final settlement
no later than February 2000, on either a physical (share) basis, or a net cash
basis, at the option of the financial institution. The amount at which the
arrangement can be settled is dependent principally upon the average market
price at which the financial institution purchases such shares, compared to
the forward price per share. The share repurchases will not reduce shares
outstanding for purposes of EPS calculations or reduce common stock equity and
resulting return on common equity calculations until the date of physical
settlement. Unicom currently does not anticipate that settlement will occur in
1999. The repurchase arrangement will initially be recorded as a receivable on
Unicom's Consolidated Balance Sheets and will be adjusted at the end of each
reporting period to reflect the aggregate market value of the shares
deliverable under the arrangement. Consequently, the arrangement could
increase earnings volatility in 1999.
This arrangement supplements a previously announced program to repurchase up
to $200 million of Unicom common stock. Shares repurchased under that program
will also be outstanding for financial statement purposes until the time of
final settlement, which is currently expected to extend to February 2000, on
either a physical (share) basis, or a net cash basis, at the option of Unicom.
As of December 31, 1998, this arrangement has been accounted for as an equity
instrument. If this arrangement had been settled on a physical (share) basis
at December 31, 1998, Unicom would have received approximately 5.1 million
shares of its common stock.
See Note 24 of Notes to Financial Statements for additional information
regarding the redemptions and repurchases of debt and equity.
ComEd forecasts that internal sources will provide approximately three-
fourths of the funds required for ComEd's 1999 construction program and other
capital requirements, including nuclear fuel expenditures, contributions to
nuclear decommissioning funds, sinking fund obligations and scheduled debt
maturities. See Notes 10 and 12 of Notes to Financial Statements for the
summaries of the annual sinking fund requirements and scheduled maturities for
ComEd preference stock and long-term debt, respectively. The forecast takes
into consideration the effects of the 1997 Act and the issuance by ComEd
Funding Trust of $3.4 billion of transitional trust notes in 1998 to refinance
debt and equity, as discussed above.
The type and amount of external financing will depend on financial market
conditions and the needs and capital structure of ComEd at the time of such
financing. A portion of ComEd's financing may be provided through the
continued sale and leaseback of nuclear fuel through ComEd's existing nuclear
fuel lease facility. During 1998, ComEd sold and leased back $101 million of
nuclear fuel through its existing nuclear fuel lease facility. See Note 20 of
Notes to Financial Statements for additional information concerning ComEd's
nuclear fuel lease facility. In July 1998, ComEd issued $225 million principal
amount of 6.95% Notes due July 15, 2018, the proceeds of which were used for
general corporate purposes, including the refinancing of existing debt. ComEd
has $1 billion of unused bank lines of credit at December 31, 1998, which may
be borrowed at various interest rates. The interest rate is set at the time of
a borrowing and is based on floating rate bank indices plus a spread, which is
dependent upon the credit ratings of ComEd's outstanding first mortgage bonds
or on a prime interest rate. See Note 13 of Notes to Financial Statements for
information concerning lines of credit. See the Statements of Consolidated
Cash Flows for the construction expenditures and cash flow from operating
activities for the years 1998, 1997 and 1996. Cash flow from operating
activities decreased temporarily for the year 1998, compared to the previous
two years, as a result of an increase in customer receivables due to the
transition to a new customer information and billing system in the latter part
of 1998.
As of February 19, 1999, ComEd has an effective "shelf" registration
statement with the SEC for the future sale of up to an additional $280 million
of debt securities and cumulative preference stock for general corporate
purposes of ComEd, including the discharge or refund of other outstanding
securities.
10
<PAGE>
ComEd's securities and other securities guaranteed by ComEd are currently
rated by three principal securities rating agencies as follows:
<TABLE>
<CAPTION>
Standard Duff &
Moody's & Poor's Phelps
------- -------- ------
<S> <C> <C> <C>
First mortgage and secured pollution control
bonds............................................ Baa2 BBB BBB
Publicly-held debentures and unsecured pollution
control obligations.............................. Baa3 BBB- BBB-
Convertible preferred stock....................... baa3 BB+ BBB-
Preference stock.................................. baa3 BB+ BBB-
Trust Securities.................................. baa3 BB+ BBB-
Commercial paper.................................. P-2 A-2 D-2
</TABLE>
ComEd Funding Trust's securities are currently rated by three principal
securities rating agencies as follows:
<TABLE>
<CAPTION>
Standard Duff &
Moody's & Poor's Phelps
------- -------- ------
<S> <C> <C> <C>
Transitional trust notes........................... Aaa AAA AAA
</TABLE>
As of January 1999, Moody's rating outlook on ComEd's securities is "Stable"
and S&P's rating outlook is "Positive." Duff & Phelps removed ComEd's
securities from "Rating Watch-Down" in September 1998.
In February 1999, S&P revised the general ratings scale for evaluating
preferred and preference stock issues of corporations. As a result of this
change in scale, ratings on ComEd's preferred and preference stocks, and Trust
Securities were lowered in February 1999.
Capital Structure. ComEd's ratio of long-term debt to total capitalization
increased to 58.0% at December 31, 1998 from 48.5% at December 31, 1997. The
increase is primarily due to the issuance of $3.4 billion of transitional
trust notes, in late December, which had not been applied to redeem long-term
debt and equity as of December 31, 1998. Excluding the effect of the
transitional trust notes, ComEd's ratio of long-term debt to total
capitalization was 45.5% at December 31, 1998. ComEd does not expect the
issuance of the transitional trust notes to adversely affect security ratings
of other outstanding securities. Unicom's retained earnings account had a
positive balance of $143 million at December 31, 1998 and a deficit balance of
$21 million at December 31, 1997. As of December 31, 1998 and 1997, $494
million and $331 million, respectively, of retained earnings had been
appropriated for future dividend payments.
Year 2000 Conversion. Unicom, including ComEd, uses various software
applications and embedded systems throughout its businesses that will be
affected by so-called "Year 2000 issues." These issues may prevent an
application or system from correctly processing dates up to the year 2000 and
beyond. A failure to correct any critical Year 2000 processing problems prior
to January 1, 2000 could have material adverse operational and financial
consequences if the affected systems either cease to function or produce
erroneous data. At this time, Unicom believes the major risks associated with
the inability of systems and software to process Year 2000 data correctly are
a system failure or miscalculation causing disruption of operations, including
among other things, an inability to operate ComEd's nuclear or fossil
generating plants, disruption in the operation of its transmission and
distribution systems or an inability to access interconnections with the
systems of neighboring utilities. Such failures could materially and adversely
affect Unicom's results of operations, financial position and cash flows.
Unicom management established a Year 2000 project team to address Year 2000
issues. The Year 2000 project team is currently composed of over 300 members,
including members of Unicom's senior management. The team is focused on three
elements that are integral to the project: business continuity, project
management and risk management. Business continuity involves the continuation
of reliable electric supply and service in a safe, cost-effective manner.
Project management involves defining and meeting the project scope, schedule
and budget. Risk management involves customer communications, contingency
planning and legal issues.
11
<PAGE>
In addition to its internal efforts, Unicom is working with various industry
groups, including NERC, EPRI and EEI to coordinate electric utility industry
Year 2000 efforts with the Clinton Administration's Year 2000 Conversion
Council, the DOE and Congress. The DOE has asked NERC to report on the
integrity of the transmission system for North America and to coordinate and
assess the preparation of the electric systems in North America for the Year
2000. NERC submitted its initial status report and coordination plan to the
DOE in September 1998 and a second report in January 1999; a full status
report is due by July 1999.
Since July 1996, Unicom has been working to identify and address Year 2000
issues. Unicom's approach to identifying and addressing noncompliant software
applications and embedded systems consists of the following stages: inventory,
analysis, renovation, testing and deployment. The first stage is to inventory
all applications and systems. The analysis stage involves assessing whether
software applications and embedded systems are Year 2000 compliant. The
renovation stage involves remediating or upgrading applications and systems to
make them Year 2000 ready. The testing stage determines whether the renovated
applications and systems are Year 2000 ready. The deployment stage is when the
tested applications and systems are implemented. In addition, Unicom is
engaged in contingency planning for Year 2000 problems. Unicom is developing
contingency plans to address the possibility that the applications and systems
may not be Year 2000 ready at the end of this process. An independent
consultant has been engaged to assist Unicom in the assessment of the process
being used to address the Year 2000 issue.
Unicom's Year 2000 project focuses on those facets of its business that are
required to deliver reliable electric service. The project encompasses the
computer systems that support core business functions such as customer
information and billing, finance, procurement, supply and personnel as well as
the components of metering, transmission, distribution and generation support.
The project also focuses on embedded systems, instrumentation and control
systems in facilities and plants. In accordance with business plans, Unicom
has replaced certain of its financial, human resources and customer service
and billing software, and is in the process of replacing its payroll system,
with new software that is Year 2000 compliant, and that addresses Unicom's
strategic needs as it enters a less regulated environment.
The following table summarizes the status as of February 5, 1999 of Unicom's
progress toward achieving Year 2000 readiness. The figures set forth in the
table represent the estimated extent to which Unicom has completed each phase
of the Year 2000 project for software applications and embedded systems.
<TABLE>
<CAPTION>
Software Embedded
Applications Systems
------------ --------
<S> <C> <C>
Inventory........................................... 100% 100%
Analysis............................................ 93% 96%
Renovation.......................................... 87% 74%
Testing............................................. 79% 46%
Deployment.......................................... 78% 91%
</TABLE>
The renovation and testing phases include only those software applications
and embedded systems which are not Year 2000 compliant, and require renovation
and testing. The deployment phase includes all inventoried applications and
systems, including those applications and systems that are Year 2000 compliant
and required no renovation or testing. Accordingly, the percentage of
completion for testing and renovation may be lower than the percentage of
completion for deployment.
The following is a brief summary of estimates of the progress of the Year
2000 project and certain projected completion dates in each of Unicom's four
critical business areas--nuclear generation, fossil generation, transmission
and distribution, and corporate information services:
12
<PAGE>
. Nuclear Generation--Software applications analysis is 65% complete and
embedded systems analysis is 98% complete. Testing of software
applications is 36% complete and 55% complete for embedded systems.
Deployment of software applications is 23% complete and embedded systems
are 85% complete. All ten operating nuclear units are expected to be Year
2000 ready by June 30, 1999.
. Fossil Generation--Analysis is 100% complete for software applications
and 96% complete for embedded systems. Testing of software applications
is 63% complete and 4% complete for embedded systems. Deployment of
software applications is 80% complete and embedded systems are 97%
complete and both are expected to be completed by June 30, 1999.
. Transmission and Distribution--Analysis is 100% complete for software
applications and 98% complete for embedded systems. Testing of software
applications is 89% complete and 97% complete for embedded systems.
Deployment of software applications is 89% complete and 97% complete for
embedded systems. Deployment of software applications and embedded
systems is expected to be completed by June 30, 1999.
. Corporate Information Services--Inventory and analysis are 100% complete.
Renovation, testing and deployment are 99% complete. Enterprise-wide
mainframe applications and systems are 100% complete.
Unicom's current schedule is subject to change, depending on developments
that may arise through unforeseen business circumstances, and through the
remediation and testing phases of its compliance effort. Unicom also depends
upon third parties, including customers, suppliers, government agencies and
financial institutions, to reliably deliver its products and services. Unicom
has implemented additional initiatives to assess the degree to which third
parties with whom it has business relationships are addressing Year 2000
issues. These initiatives include analysis of the Year 2000 compliance
programs of Unicom's critical vendors and obtaining Year 2000 warranties in
certain new contracts and licenses. Unicom also has introduced protocols for
assuring that software and embedded systems remain Year 2000 compliant on a
continuing basis. Unicom's contingency planning is addressing mechanisms for
preventing or mitigating interruption caused by its suppliers. Unicom also has
an outreach program in place for communicating Year 2000 project information
to residential and business customers.
Unicom estimates that the total cost of remediating or upgrading software
which would not otherwise be replaced in accordance with its business plans is
approximately $20 million, and the total cost of remediating or upgrading
embedded systems is approximately $20-$40 million. Approximately $26 million
has been expended as of December 31, 1998 for external labor, hardware and
software costs, and for the costs of Unicom employees who are dedicated full-
time to the Year 2000 project. All of such costs are expensed as incurred. The
foregoing amounts do not include the cost of new software applications
installed as a result of strategic replacement projects described earlier.
Such replacement projects were not accelerated because of Year 2000 issues.
The cost of the project and the dates on which Unicom plans to complete its
Year 2000 modifications are based on management's best estimates, which were
derived utilizing numerous assumptions of future events, including the
continued availability of certain resources, third parties' Year 2000
readiness and other factors. Further, Unicom expects to incur additional costs
after 1999 to remediate and replace less critical software applications and
embedded systems.
Unicom has existing contingency plans in place for events such as extreme
heat, storms, equipment failures and accidents. Unicom is preparing Year 2000
contingency plans based on the framework of existing emergency management
system preparation and scenario development.
Unicom has begun the process of developing contingency plans to address the
most reasonably likely worst case scenarios that could occur in the event that
various Year 2000 issues are not resolved in a timely manner. Unicom submitted
the first draft of contingency plans to NERC prior to December 31, 1998, as
NERC requested. In addition, the first draft contingency plans were also
submitted to MAIN. Final plans are due to be submitted to NERC by June 30,
1999. Contingency planning is an ongoing process and will continue through the
fourth quarter of 1999.
13
<PAGE>
Unicom is using an approach in its contingency planning process that has
been recognized by NERC and NEI. The phases of the process include: business
impact analysis, contingency planning and testing. Unicom's business impact
analysis requires business unit personnel to evaluate the impact of mission-
critical systems failures on Unicom's core business operations, focusing on
specific failure scenarios and how they can be mitigated. The necessary
conditions for enacting the plans will be documented along with the
appropriate personnel responsible in each of the business units should a Year
2000 failure occur. Additionally, Unicom will participate in the NERC
industry-wide readiness drills scheduled for the spring and fall of 1999.
Based on Unicom's current schedule for completion of Year 2000 tasks, it
believes that its planning is adequate to secure Year 2000 readiness of its
critical systems. Nevertheless, achieving Year 2000 readiness is subject to
various risks and uncertainties, many of which are described above. Unicom is
not able to predict all the factors that could cause actual results to differ
materially from its current expectations as to its Year 2000 readiness.
However, if Unicom or third parties with whom it has significant business
relationships fail to achieve Year 2000 readiness with respect to critical
systems, there could be a material adverse effect on Unicom's results of
operations, financial position and cash flows.
Market Risks. ComEd is exposed to market risk due to changes in interest
rates and the market price for electricity. Exposure for interest rate changes
relates to its long-term debt and preferred equity obligations. Exposure to
electricity market price risk relates to forward activities taken to manage
effectively the supply of, and demand for, the electric generation capability
of ComEd's generating plants. ComEd has implemented an integrated risk
management framework to manage such risks. A corporate Risk Management
Committee defines the Company's risk tolerance and establishes appropriate
position limits, and corporate policies and procedures have been implemented
to minimize the exposure to market risk. ComEd does not currently utilize
derivative commodity or financial instruments for trading or speculative
purposes. See "Energy Risk Management Contracts" in Note 1 of Notes to
Financial Statements regarding the accounting for energy risk management
contracts.
Interest Rate Exposure. The table below provides the fair value and average
interest or fixed dividend rates of Unicom's outstanding debt and preferred
stock equity instruments as of December 31, 1998, excluding the January and
February redemptions of long-term debt and preference stock. See Note 24 of
Notes to Financial Statements for additional information on the redemptions.
<TABLE>
<CAPTION>
Fair
Expected Maturity Date Value as
Unicom and Subsidiary ---------------------------------------- of
Companies (millions) 1999 2000 2001 2002 2003 Thereafter Total 12/31/98
- --------------------- ---- ---- ---- ---- ---- ---------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-Term Debt-
Fixed Rate............. $153 $462 $ 9 $308 $108 $4,052 $5,092 $5,476
Average Interest Rate.. 8.7% 7.2% 5.6% 7.9% 6.6% 7.7%
Variable Rate.......... $ 85 $ 92 $ 177 $ 177
Average Interest Rate.. 6.2% 4.1%
Transitional Trust
Notes................. $330 $350 $340 $340 $340 $1,700 $3,400 $3,450
Average Interest Rate.. 5.4% 5.3% 5.3% 5.4% 5.4% 5.6%
Preferred and Preference
Stock-
Subject to Mandatory
Redemption............ $ 69 $ 69 $ 71
Average Dividend Rate.. 6.9%
Not Subject to Manda-
tory Redemption....... $ 75 $ 75 $ 77
Average Dividend Rate.. 9.9%
Trust Securities........ $ 350 $ 350 $ 371
Average Dividend Rate.. 8.5%
</TABLE>
Market Price Exposure. ComEd's energy purchases from other suppliers have
increased as a result of reductions in owned generating capability and system
load growth. The market price of energy is subject to price volatility
associated with changes in supply and demand in the electric supply markets.
In the normal course of business, ComEd utilizes contracts for the forward
sale and
14
<PAGE>
purchase of energy to assure system reliability and manage effectively the
utilization of its available generating capability. ComEd also utilizes put
and call option contracts and energy swap arrangements to limit the market
price risk associated with the forward commodity contracts. The estimated fair
value of the forward energy contracts, including options at December 31, 1998,
was approximately $22 million. The estimated fair value is based on the
estimated net settlement value of the contracts derived from forward price
curves and market quotes, discounted at a 10% rate. A sensitivity analysis has
been performed which indicates that the market price risk exposure of these
financial instruments is not material. Notwithstanding these price risk
management activities, an unexpected loss of generating capability or
reduction in demand could increase ComEd's exposure to market price risks and
could have a material adverse effect on operating results.
UNREGULATED OPERATIONS
Unicom Enterprises is engaged, through subsidiaries, in energy service
activities which are not subject to utility regulation by federal or state
agencies. One of these subsidiaries, UT Holdings, provides district cooling
and related services to offices and other buildings in the central business
district of the city of Chicago and in other cities in North America,
generally working with local utilities. District cooling involves, in essence,
the production of chilled water at one or more central locations and its
circulation to customers' buildings through a closed circuit of supply and
return piping. Such water is circulated through customers' premises primarily
for air conditioning. This process is used by customers in lieu of self-
generated cooling.
Unicom Energy Services, another subsidiary of Unicom Enterprises, is engaged
in providing energy services including gas services, performance contracting,
distributed energy and active energy management systems. In 1997, Unicom
Energy Services entered into a joint venture with Sonat Marketing Company L.P.
to market natural gas and related services to larger gas purchasers within
ComEd's service area in Northern Illinois and within other Midwestern areas.
As an entry into the distributed energy market, Unicom Energy Services also
entered into an alliance with AlliedSignal Power Systems, Inc., a subsidiary
of AlliedSignal Inc., to market, install and service an electric energy
generator developed by AlliedSignal, known as a TurboGenerator, in a 12-state
region, the providence of Ontario, Canada and Puerto Rico.
Construction Program. Unicom has approved capital expenditures for 1999 of
approximately $88 million for UT Holdings, primarily related to an expansion
of two of its four Chicago district cooling facilities and the related
distribution piping and plants in other cities. As of December 31, 1998, UT
Holdings' purchase commitments, principally related to construction, were
approximately $21 million.
Unicom has approved capital expenditures for 1999 of approximately $47
million for Unicom Energy Services. As of December 31, 1998, Unicom Energy
Services had purchase commitments of approximately $10 million.
Capital Resources. Unicom expects to obtain funds to invest in its
unregulated subsidiaries principally from dividends received on its ComEd
common stock and from bank borrowings. The availability of ComEd's dividends
to Unicom is dependent on ComEd's financial performance and cash position.
Other forms of financing by ComEd to Unicom or the unregulated subsidiaries of
Unicom, such as loans or additional equity investments, which are not
expected, would be subject to prior approval by the ICC.
Unicom Enterprises has a $200 million credit facility which will expire on
November 15, 1999, of which $115 million was unused as of December 31, 1998.
The credit facility can be used by Unicom Enterprises to finance investments
in unregulated businesses and projects, including UT Holdings and Unicom
Energy Services, and for general corporate purposes. The credit facility is
guaranteed by Unicom and includes certain covenants with respect to Unicom and
Unicom Enterprises' operations. Interest rates for borrowings under the credit
facility are set at the time of a borrowing and
15
<PAGE>
are based on either a prime interest rate or a floating rate bank index plus a
spread which varies with the credit rating of ComEd's outstanding first
mortgage bonds. See Note 13 of Notes to Financial Statements for additional
information regarding certain covenants with respect to Unicom and Unicom
Enterprises' operations.
In July 1998, Unicom Thermal issued $120 million of 7.38% unsecured
guaranteed senior Notes due May 2012, the proceeds of which were used to
refinance existing debt. The Notes are guaranteed by Unicom and include
certain covenants with respect to Unicom and Unicom Thermal's operations.
On April 1, 1998, S&P issued a rating on Unicom's senior debt obligations of
BBB-. Ratings have not been obtained from Moody's or Duff & Phelps.
Regulation
ComEd and the Indiana Company are subject to federal and state regulation in
the conduct of their respective businesses, including the operations of
Cotter. Such regulation includes rates, securities issuance, nuclear
operations, environmental and other matters. Particularly in the cases of
nuclear operations and environmental matters, such regulation can and does
affect operational and capital expenditures.
Rate Matters. See "Changes in the Electric Utility Industry," subcaption
"The 1997 Act" above, for information regarding the effects of the 1997 Act on
rate matters. See "Nuclear Matters" below for information regarding fuel
reconciliation proceedings for the years 1994 and 1996.
Nuclear Matters. Nuclear operations have been, and remain, an important
focus of ComEd--given the impact of such operations on overall O&M expenses
and the ability of nuclear power plants to produce electric energy at a
relatively low marginal cost. ComEd operates five nuclear power plants,
ranging from the older Dresden and Quad Cities Stations to the more recently
completed LaSalle, Byron and Braidwood Stations, and is intent upon safe,
reliable and efficient operation. See "Changes in the Electric Utility
Industry," subcaption "Response to Regulatory Changes" above, for information
regarding ComEd's permanent cessation of nuclear generation operations at its
Zion Station.
ComEd's LaSalle Station is currently on the NRC's list of plants that
require increased regulatory scrutiny. Dresden Station had been included on
the list since 1992 and LaSalle and Zion Stations were added in January 1997.
In July 1998, the NRC removed Dresden Station from the list because of
improved performance at the station, and also administratively removed Zion
Station from the list because of ComEd's decision to permanently cease further
nuclear operations at that plant. The listing of LaSalle Station does not
prevent ComEd from operating the generating units; however, it does mean that
the NRC will devote additional resources to monitoring ComEd's operating
performance and that ComEd will need to work to demonstrate to the NRC the
sustainability of improvements which it believes it has undertaken and is
continuing to implement. In January 1998, the NRC noted a declining
performance trend at Quad Cities Station. In March 1998, the NRC stated that
weaknesses were observed with respect to certain operations, maintenance and
engineering activities at Quad Cities Station. In July 1998, the NRC stated
that there has not been sufficient operational data to enable it to assess
Quad Cities Station's performance. The NRC indicated that it is monitoring
ComEd's ability to manage its nuclear operations in their entirety and that
the performance at any one facility will be viewed by the NRC in context with
the performance of ComEd's nuclear generating fleet as a whole. The NRC and
representatives of ComEd's management have met, and will continue to meet
periodically in the future, to discuss the status of recovery and restart
efforts and overall performance of the ComEd nuclear program.
ComEd has devoted, and intends to continue to devote, significant resources
to the management and operations of its nuclear generating stations. In recent
years, it has increased and reinforced the Nuclear Generation Group executive
leadership and station management with executives and managers drawn from
other utilities that have resolved similar operational and performance issues.
These efforts include the appointment of a new Chief Nuclear Officer in late
1997. ComEd has also
16
<PAGE>
sought to identify, anticipate and address operating and performance issues in
a safe, cost-effective manner, while seeking to improve the availability and
capacity factors of its nuclear generating units.
ComEd's activities, with respect to its nuclear generating stations, have
included improvements in operating and personnel procedures and repair and
replacement of equipment. Although performing such improvements can result in
longer unit outages, the improvements are expected to result in improved
operational performance when completed. LaSalle Units 1 and 2 were shut down
for extensive improvement work in September 1996. LaSalle Unit 1 was returned
to service in August 1998 after the NRC determined that ComEd had made
sufficient improvements at LaSalle Unit 1 for the unit to resume operations.
LaSalle Unit 2 is expected to restart during the second quarter of 1999. The
restart of LaSalle Unit 2 requires the resolution of material condition issues
similar to those of LaSalle Unit 1.
The NERC forecasted the possibility of electric energy shortages in the
summer of 1998 in light of continued outages at nuclear plants operated by
ComEd and other utilities in the Midwest power grid. ComEd took numerous steps
to support the reliability of its system during the summer of 1998. Such steps
included maximizing available on-system generating capacity during periods of
peak demand, arrangements to purchase power from other utilities,
reinforcements to the transmission systems of ComEd and neighboring utilities
to increase capacity and to provide voltage support, and working with
customers to manage the use of and demand for power. As a result of a unique
combination of heat, storms and equipment problems affecting utilities
throughout the Midwest region, on June 25, 1998, ComEd declared a NERC
generation deficiency alert Level 3, which is a statement that firm load loss
is possible. No firm load losses were experienced in 1998. See "Results of
Operations," subcaption "Purchased Power" below, regarding the increased
purchased power expense in 1998.
Generating station availability and performance during a year have been
issues in fuel reconciliation proceedings in assessing the prudence of fuel
and purchased power costs during such year. Final ICC orders have been issued
in fuel reconciliation proceedings related to ComEd's FAC collections for all
years except for 1994. On November 5, 1998, the ICC issued an order in the
proceeding for the year 1994 providing for a refund of approximately $3
million related to nuclear station performance. On February 9, 1999, an
intervenor moved to dismiss its appeal of the 1994 ICC order. On December 29,
1998, the ICC issued an order for the 1996 fuel reconciliation proceeding
requiring ComEd to refund approximately $19 million related to nuclear station
performance. The 1997 Act provides that, because ComEd eliminated its FAC
effective January 1, 1997, the ICC shall not conduct a fuel reconciliation
proceeding for the year 1997 and subsequent years.
Based on ComEd's most recent study approved by the ICC, decommissioning
costs, including the cost of decontamination and dismantling, are estimated to
aggregate to $4.6 billion in current-year (1999) dollars, including a
contingency allowance. ComEd estimates that it will expend approximately $11.6
billion, including a contingency allowance, for decommissioning costs
primarily during the period from 2007 through 2034. Additionally, ComEd
estimates that it will expend an aggregate of approximately $226 million in
current-year (1999) dollars during the period 2000 through 2014 to maintain
Zion Station in a secured mode until decommissioning begins. All such costs
are expected to be funded by external decommissioning trusts, which ComEd
established in compliance with Illinois law and into which ComEd has been
making annual contributions. Future decommissioning cost estimates may be
significantly affected by the adoption of or changes to NRC regulations, as
well as changes in the assumptions used in making such estimates, including
changes in technology, available alternatives for the disposal of nuclear
waste and inflation. See Note 1 of Notes to Financial Statements, under
"Depreciation, Amortization of Regulatory Assets and Decommissioning," for
additional information regarding decommissioning costs.
Environmental Matters. ComEd is involved in administrative and legal
proceedings concerning air quality, water quality and other matters. The
outcome of these proceedings may require increases in future construction
expenditures and operating expenses, and changes in operating procedures. See
Note 22 of Notes to Financial Statements for additional information.
17
<PAGE>
Results of Operations
Unicom's basic and diluted earnings (loss) per common share for 1998, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ------ -----
<S> <C> <C> <C>
Basic Earnings (Loss) per Common Share..................... $2.35 $(3.94) $3.09
===== ====== =====
Diluted Earnings (Loss) per Common Share................... $2.34 $(3.94) $3.09
===== ====== =====
</TABLE>
Substantially all of the results of operations for Unicom are the results of
operations for ComEd. The results of Unicom's unregulated subsidiaries
currently are not material to the results of Unicom and subsidiary companies
as a whole. As such, the following section discusses the effect of ComEd's
operations on Unicom's financial results. All EPS computations shown below
reflect the impact on Unicom's basic EPS.
Net Income for the Year 1998. The increase in earnings for 1998 was
primarily due to increased kilowatthour sales, which increased both operating
revenues and energy costs, reduced O&M expenses, lower depreciation and
amortization expenses, lower than expected Zion Station closing costs and
gains on the sales of certain assets. In December 1997, ComEd discontinued
regulatory accounting practices for the generation portion of its business and
recorded other non-recurring accounting charges as a result of the 1997 Act,
which are primarily attributable to the loss for 1997. The 1997 operating
results also include the write-off for the closure of the Zion nuclear
generating station, partially offset by a cumulative one-time positive impact
of $197 million (after-tax), or $0.91 per common share, for a change in
accounting method for revenue recognition to record ComEd's revenues
associated with service which has been provided to customers but has not yet
been billed at the end of each accounting period, retroactive to January 1,
1997.
Kilowatthour sales increased 2% for the year 1998, compared to 1997, driven
largely by increased sales to retail customers due to warmer weather
experienced during the recent year, as well as continued economic growth in
ComEd's service territory. Operating revenues increased 1% during 1998,
compared to 1997. See "Operating Revenues" below for additional information.
Fuel and purchased power costs increased 15% in 1998, compared to the year
1997, reflecting increased demand for electricity, as well as the effects of
higher purchased power prices. See "Purchased Power" below for additional
information.
O&M expenses decreased 7% for the year 1998, compared to the year 1997, as
discussed in "Operation and Maintenance Expenses" below.
The year 1998 includes a 6% decrease in depreciation and amortization
expenses, as discussed in "Depreciation and Amortization" below, and a $15
million (after-tax), or $0.07 per common share, reduction in the estimated
liability for closing costs related to the Zion nuclear generating station,
both of which increased operating results.
Also, 1998 operating results reflect realized gains on the sales of certain
assets of $31 million (after-tax), or $0.14 per common share. The sold assets
consisted principally of surplus inventory of emission allowances.
Net Loss for the Year 1997. ComEd's kilowatthour sales, including sales to
wholesale customers, increased 5% during 1997, compared to 1996, as discussed
below. In 1997, O&M expenses increased 12%, as discussed below.
Also, 1997 operating results were reduced by $336 million for increased fuel
and purchased power costs, as discussed below. In addition, a 4% increase in
depreciation expense, primarily due to an increase in certain nuclear plant
depreciation, resulted in a charge of $23 million (after-tax), or $0.11 per
common share.
18
<PAGE>
ComEd discontinued regulatory accounting practices for the generation
portion of its business in the fourth quarter of 1997 due to the expected
transition of electric generation services to market-based pricing as a result
of the 1997 Act. Accordingly, ComEd's generation-related net regulatory
assets, which represent assets and liabilities properly recorded under
regulatory accounting practices but which would not be recorded under GAAP for
non-regulated entities, were written off, resulting in an extraordinary charge
in 1997 of $810 million (after-tax), or $3.75 per common share.
In addition, as permitted under the 1997 Act, ComEd elected to eliminate its
FAC in December 1997, which resulted in a charge in the fourth quarter of 1997
of $44 million (after-tax), or $0.20 per common share. The reduction includes
$25 million (after-tax), or $0.12 per common share, in net FAC charges billed
to its customers in 1997, which were refunded to customers during the first
six months of 1998. The reduction also includes a write-off of $19 million
(after-tax), or $0.08 per common share, in underrecovered energy costs that
ComEd would have been entitled to recover if the FAC had remained in effect.
Also, 1997 operating results included the write down of ComEd's investment
in uranium-related properties to reflect costs which are not expected to be
recovered in a competitive market. The write down resulted in a charge in 1997
of $60 million (after-tax), or $0.28 per common share.
Partially offsetting the charges to operations for 1997 was a change in the
accounting method for revenue recognition to record ComEd's revenues
associated with service which has been provided to customers but has not yet
been billed at the end of each accounting period, retroactive to January 1,
1997. This change in accounting method had a one-time cumulative positive
impact for years prior to 1997 of $197 million (after-tax), or $0.91 per
common share.
The year 1997 also included a charge of $523 million (after-tax), or $2.42
per common share, reflecting the write-off of the unrecoverable portion of the
cost of ComEd's Zion Station plant and inventories, and a liability for future
closing costs, resulting from the decision in January 1998 to permanently
cease nuclear generation operations at Zion Station.
Net Income for the Year 1996. The 1996 operating results reflect, among
other factors, a 1% decrease in overall O&M expenses, compared to 1995, the
positive effects of an income tax refund related to prior years with an
increase in operating results of $26 million (after-tax), or $0.12 per common
share, and a reduction in real estate taxes with an increase in operating
results of $28 million (after-tax), or $0.13 per common share. Approximately
half of the reduction in real estate taxes in 1996 is related to the year
1995. The 1996 results also reflect a 9% reduction in the total interest
expense on debt and dividend requirements on preferred and preference stocks,
compared to 1995, largely due to the early retirement of debt at the end of
1995. In September 1996, the ICC approved ComEd's request to increase
depreciation charges on its nuclear generating units by $30 million for the
year 1996, resulting in a charge of $20 million (after-tax), or $0.09 per
common share.
Operating Revenues. ComEd's electric operating revenues reflect revenues
from sales to ultimate consumers (including residential, commercial and
industrial customers within its service territory), revenues from sales for
resale (i.e., sales to wholesale customers, principally other electric
utilities), and revenues from collections under its FAC for years prior to
1997, which were intended to recover variations in ComEd's fuel cost for
generating electric energy and the energy portion of purchased power cost in
relation to the amount included in ComEd's base rates. Operating revenues are
affected by kilowatthour sales and rate levels, kilowatthour sales, in turn,
are affected by weather, the level of economic activity within ComEd's service
area, and off-system or wholesale sales to other utilities. Off-system sales
are affected by a number of factors, including nuclear generating availability
and performance.
In 1998, operating revenues increased $63 million and kilowatthour sales
increased 2%, compared to the year 1997, primarily due to warmer summer
weather experienced in 1998 and continued economic growth in ComEd's service
territory, partially offset by a 15% residential rate reduction and reserves
for various federal and state litigation matters. Operating revenues for 1998
19
<PAGE>
also were reduced by approximately $95 million due to a change in presentation
for certain state and municipal taxes. During 1997, electric operating
revenues increased $139 million, primarily due to a 29% increase in
kilowatthour sales to wholesale customers. Kilowatthour sales to ultimate
consumers during 1997 increased 1%, compared to 1996, reflecting continued
economic growth in ComEd's service territory. Operating revenues in 1997 were
reduced by the provision for revenue refunds of $45 million, including revenue
taxes, related to the elimination of the FAC. Operating revenues increased $25
million in the year 1996, compared to 1995, principally reflecting increased
sales to other utilities and increased energy cost recoveries under ComEd's
then effective FAC, although kilowatthour sales to ultimate consumers were
down 1% from the prior year due to the cooler summer weather, compared to the
exceptionally hot summer in the year 1995.
Fuel Costs. Changes in fuel expense for the years 1998, 1997 and 1996
primarily resulted from changes in the average cost of fuel consumed, changes
in the mix of fuel sources of electric energy generated and changes in net
generation of electric energy. Fuel mix is determined primarily by system
load, the costs of fuel consumed and the availability of nuclear generating
units. The cost of fuel consumed, net generation of electric energy and fuel
sources of kilowatthour generation were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Cost of fuel consumed (per million Btu):
Nuclear........................................... $0.57 $0.57 $0.53
Coal.............................................. $2.38 $2.28 $2.41
Oil............................................... $3.49 $3.90 $3.41
Natural gas....................................... $2.39 $2.69 $2.75
Average all fuels................................. $1.23 $1.33 $1.17
Net generation of electric energy (millions of kilo-
watthours)......................................... 83,302 85,861 93,048
Fuel sources of kilowatthour generation:
Nuclear........................................... 65% 57% 67%
Coal.............................................. 30 39 30
Oil............................................... -- -- 1
Natural gas....................................... 5 4 2
------ ------ ------
100% 100% 100%
====== ====== ======
</TABLE>
The decreases in the net generation of electric energy for 1998 and 1997,
compared to the prior years, are primarily due to the sales of State Line and
Kincaid Stations in December 1997 and February 1998, respectively, and lower
nuclear plant availability in 1997. See "Regulation," subcaption "Nuclear
Matters" above, for information regarding outages at certain of ComEd's
nuclear generating stations.
Fuel Supply. Compared to other utilities, ComEd has relatively low average
fuel costs as a result of its reliance predominantly on lower cost nuclear
generation. ComEd's coal costs, however, are high compared to those of other
utilities. 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 concerning ComEd's coal purchase commitments, see "Liquidity and
Capital Resources" above and Note 22 of Notes to Financial Statements. For
additional information concerning ComEd's FAC, see Notes 2 and 4 of Notes to
Financial Statements.
Purchased Power. Amounts of purchased power are primarily affected by system
load, the availability of ComEd's generating units, and the availability and
cost of power from other utilities. Purchased power costs increased $395
million and $255 million in 1998 and 1997, compared to 1997 and 1996,
respectively. The increase in 1998 includes $161 million for the agreements
entered into in connection with the sales of State Line and Kincaid Stations
in December 1997 and February 1998, respectively. The increase in purchased
power costs in 1998 also reflects the effects of an extraordinary combination
of heat, storms and equipment problems experienced throughout the
20
<PAGE>
Midwest in late June 1998 which resulted in unprecedented purchased power
price levels. The increase in 1997 is primarily due to outages at certain of
ComEd's nuclear generating stations. See "Regulation," subcaption "Nuclear
Matters" above, for information regarding outages at certain of ComEd's
nuclear generating stations.
The number and average cost of kilowatthours purchased were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ -----
<S> <C> <C> <C>
Kilowatthours (millions).............................. 20,704 16,672 6,129
Cost per kilowatthour................................. 3.84c 2.40c 2.37c
</TABLE>
The market price for electricity is subject to price volatility associated
with changes in supply and demand in the electric supply markets. ComEd
utilizes energy put and call option contracts and energy swap arrangements to
limit market price risk associated with forward commodity contracts.
Operation and Maintenance Expenses. O&M expenses include the expenses
associated with operating and maintaining ComEd's generation, transmission and
distribution assets, as well as administrative overhead and support. Given the
variety of expense categories covered, there are a number of factors which
affect the level of such expenses within any given year. Two major components
of such expenses; however, are the costs associated with operating and
maintaining ComEd's nuclear and fossil generating facilities. Generating
station expenses are affected by the cost of materials, regulatory
requirements and expectations, the age of facilities, as well as cost control
efforts.
During the three years presented in the financial statements, the aggregate
level of O&M expenses decreased 7% in 1998 compared to 1997, increased 12% in
1997 compared to 1996, and decreased 1% in 1996 compared to 1995. The year to
year variations reflect increasing efforts in 1997 and 1996 to improve nuclear
generating station availability, as well as to meet regulatory requirements
and expectations. Additional factors in each year also affected the level of
O&M expenses.
O&M expenses associated with nuclear generating stations decreased $172
million and increased $122 million and $88 million for the years 1998, 1997
and 1996, respectively. The decrease in 1998 is principally due to the
permanent cessation of nuclear generation operations at Zion Station. The
increases in 1997 and 1996 were a result of increased levels of activities
associated with the repair, replacement and improvement of nuclear generating
facility equipment. Since 1995, ComEd has increased the number and scope of
maintenance activities associated with its nuclear generating stations. Such
efforts are the result of station performance evaluations performed to
identify the sources and causes of unplanned equipment repairs. The goal of
such efforts is to design and implement cost effective repairs and
improvements to increase station availability. See "Changes in the Electric
Utility Industry," subcaption "Response to Regulatory Changes" above,
regarding the permanent cessation of nuclear operations at Zion Station.
O&M expenses associated with nuclear generating stations have been driven by
ComEd's objective to improve station availability, as well as to meet
regulatory requirements and expectations. ComEd is pursuing a program to
improve the quality of nuclear operations, including safety and efficiency,
which is also expected to achieve a longer term goal of improved availability
and to be positioned to take advantage of opportunities in a more competitive
market. Over the past several years, ComEd has increased and reinforced
station management with managers drawn from other utilities which have
resolved similar operating issues. It has also sought to identify, anticipate
and address nuclear station operation and performance issues in a safe, cost-
effective manner, while seeking to improve the availability and capacity
factors of its nuclear generating units. Such activities have included
improvements in operating and personnel procedures and repair and replacement
of equipment, and can result in longer unit outages. Such activities have
involved increased maintenance and repair expenses in recent years.
O&M expenses associated with fossil generating stations decreased $5 million
and increased $31 million and $4 million for the years 1998, 1997 and 1996,
respectively. The decrease related to fossil generating stations in 1998,
compared to 1997, is primarily due to the sales of State Line and
21
<PAGE>
Kincaid Stations in December 1997 and February 1998, respectively, partially
offset by plant refurbishment costs. The increase related to fossil generating
stations in 1997 is primarily due to an increase in the repair and improvement
of fossil generating facility equipment in order to increase their general
availability, and to ensure their availability during the summer of 1997. That
increase was partially offset by a reduction in personnel.
O&M expenses associated with transmission and distribution systems increased
$32 million, $15 million and $11 million for the years 1998, 1997 and 1996,
respectively. The 1998 and 1997 increases are primarily due to increased
emergency restoration of electric service, higher maintenance expenses and
tree trimming costs. The 1996 increase reflects higher maintenance expenses.
O&M expenses associated with customer-related activities increased $19
million, $11 million and $17 million for the years 1998, 1997 and 1996,
respectively. The increase in 1998 is primarily due to increased marketing
initiatives, uncollectible accounts and customer service personnel costs. The
increase in 1997 is primarily due to an increase in uncollectible accounts.
O&M expenses also include employee benefits expenses. Since 1995, ComEd has
reduced the size of its workforce by offering incentives for employees to
leave the company voluntarily. Such incentives included both current payments
and earlier eligibility for post-retirement health care benefits, in addition
to certain one-time, employee-related costs, resulting in charges of $48
million, $39 million and $12 million for the years 1998, 1997 and 1996,
respectively.
Other employee-related expenses, excluding the effects of employee
separation plans and certain other one-time, employee-related costs, increased
$41 million and decreased $11 million and $47 million for the years 1998, 1997
and 1996, respectively. The increase for the year 1998 is primarily due to
accruals for estimated incentive compensation recorded in 1998. The decrease
in 1997 is primarily due to a reduction in medical costs for active employees.
The decrease in 1996 is primarily related to a reduction in post-retirement
health care benefit costs, primarily due to a plan amendment effected in mid-
1995 which required retired employee contributions to the plan for the first
time. Favorable experience also allowed the use of lower health care cost
trend rates, producing a lower charge in 1996.
O&M expenses in 1998 reflect a reduction of $34 million in certain nuclear
maintenance costs due to technological improvements, compared to 1997. O&M
expenses in 1997 include $25 million for the additional write-off of obsolete
materials and supplies. O&M expenses associated with certain administrative
and general costs decreased $22 million and increased $35 million for the
years 1998 and 1997, respectively. The 1997 increase was due to a variety of
reasons including an increase in the provision for vacation pay liability. The
effects of inflation have also increased O&M expenses during the years and are
also reflected in the increases and decreases discussed herein.
Depreciation and Amortization. Depreciation expense decreased in 1998 and
increased for the years 1997 and 1996. The decrease in 1998 reflects the
retirement of Zion Station and the plant impairment recorded by ComEd in the
second quarter of 1998, partially offset by plant additions and shortened
depreciable lives for certain nuclear stations. The decrease also reflects the
sales of State Line and Kincaid Stations in December 1997 and February 1998,
respectively. The increases in 1997 and 1996 are a result of additional
nuclear plant depreciation and additions to plant in service. Depreciation
expense for 1998 and 1997 includes depreciation related to the replacement of
the steam generators at Byron Unit 1 and Braidwood Unit 1 of $34 million and
$59 million for the years 1998 and 1997, respectively. The 1996 increase
includes the additional depreciation initiative of $30 million. See Note 1 of
Notes to Financial Statements, under "Depreciation, Amortization of Regulatory
Assets and Decommissioning," for additional information.
The amortization of the regulatory asset, related to impaired production
plant recorded by ComEd in the second quarter of 1998, partially offset the
reductions in depreciation expense. Such
22
<PAGE>
amortization was $65 million for the year 1998. See Note 1 of Notes to
Financial Statements, under "Depreciation, Amortization of Regulatory Assets
and Decommissioning," for additional information.
Interest on Debt. Changes in interest on long-term debt and notes payable
for the years 1998, 1997 and 1996 were due to changes in average interest
rates and in the amounts of long-term debt and notes payable outstanding.
Changes in interest on long-term debt also reflected new issues of debt, the
retirement and early redemption of debt, and the retirement and redemption of
issues which were refinanced at generally lower rates of interest. The average
amounts of ComEd's long-term debt and notes payable outstanding and average
interest rates thereon were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Long-term debt outstanding:
Average amount (millions).......................... $6,099 $6,256 $6,644
Average interest rate.............................. 7.06% 7.65% 7.67%
Notes payable outstanding:
Average amount (millions).......................... $ 344 $ 153 $ 230
Average interest rate.............................. 5.68% 5.95% 5.79%
</TABLE>
Decommissioning. The staff of the SEC has questioned certain of the current
accounting practices of the electric utility industry, including ComEd,
regarding the recognition, measurement and classification of decommissioning
costs for nuclear generating stations in the financial statements of electric
utilities. In response to these questions, the FASB is reviewing the
accounting for nuclear decommissioning costs. If current electric utility
industry accounting practices for such decommissioning costs are changed,
annual provisions for decommissioning could increase and the estimated cost
for decommissioning could be recorded as a liability rather than as
accumulated depreciation. Decommissioning costs of currently retired nuclear
plants are recorded as a liability. Unicom and ComEd do not believe that such
changes, if required, would have an adverse effect on results of operations
due to ComEd's ability to recover decommissioning costs through rates.
Other Items. The amounts of AFUDC reflect changes in the average levels of
investment subject to AFUDC and changes in the average annual capitalization
rates as discussed in Note 1 of Notes to Financial Statements, under "AFUDC
and Interest Capitalized." ComEd discontinued SFAS No. 71 regulatory
accounting practices in December 1997 for the generation portion of its
business. As a result, beginning in 1998, ComEd capitalized $28 million in
interest costs on its generation-related construction work in progress and
nuclear fuel in process. AFUDC and interest capitalized do not contribute to
the current cash flow of Unicom or ComEd.
ComEd's ratios of earnings to fixed charges for the years 1998, 1997 and
1996 were 2.67, 0.58 and 2.90, respectively. ComEd's ratios of earnings to
fixed charges and preferred and preference stock dividend requirements for the
years 1998, 1997 and 1996 were 2.29, 0.49 and 2.48, respectively. ComEd's
earnings for 1997 were inadequate to cover fixed charges by approximately $259
million and fixed charges and preferred and preference stock dividend
requirements by approximately $359 million. The deficiency in 1997 is
principally attributable to the earnings impact of the closure of Zion
Station.
Business corporations, in general, have been adversely affected by inflation
because amounts retained after the payment of all costs have been inadequate
to replace, at increased costs, the productive assets consumed. Electric
utilities, in particular, have been especially affected as a result of their
capital intensive nature and regulation which limits capital recovery and
prescribes installation or modification of facilities to comply with
increasingly stringent safety and environmental requirements. Because the
regulatory process limits the amount of depreciation expense included in
ComEd's revenue allowance to the original cost of utility plant investment,
the resulting cash flows are inadequate to provide for replacement of that
investment in future years or preserve the purchasing power of common equity
capital previously invested.
23
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Unicom Corporation:
We have audited the accompanying consolidated balance sheets and statements
of consolidated capitalization of Unicom Corporation (an Illinois corporation)
and subsidiary companies as of December 31, 1998 and 1997, and the related
statements of consolidated operations, retained earnings (deficit) and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Unicom Corporation and
subsidiary companies as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted
accounting principles.
As discussed in Note 3, effective January 1, 1997, the Company changed its
method of accounting for revenue recognition.
Arthur Andersen LLP
Chicago, Illinois
February 19, 1999
24
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED OPERATIONS
The following Statements of Consolidated Operations for the years 1998, 1997
and 1996 reflect the results of past operations and are not intended as any
representation as to results of operations for any future period. Future
operations will necessarily be affected by various and diverse factors and
developments, including changes in electric prices, regulation, population,
business activity, competition, taxes, environmental control, energy use,
fuel, cost of labor, purchased power and other matters, the nature and effect
of which cannot now be determined.
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ----------
(Thousands Except per Share Data)
<S> <C> <C> <C>
Operating Revenues....................... $ 7,151,253 $ 7,083,022 $6,937,024
----------- ----------- ----------
Operating Expenses and Taxes:
Fuel................................... $ 1,093,264 $ 1,239,438 $1,157,855
Purchased power........................ 795,355 400,055 145,299
Operation and maintenance.............. 2,285,525 2,438,944 2,162,279
Depreciation and amortization.......... 943,288 1,005,089 968,972
Taxes (except income).................. 699,834 800,886 783,531
Income taxes........................... 355,023 317,558 489,392
Investment tax credits deferred--net... (27,730) (31,015) (33,378)
----------- ----------- ----------
$ 6,144,559 $ 6,170,955 $5,673,950
----------- ----------- ----------
Operating Income......................... $ 1,006,694 $ 912,067 $1,263,074
----------- ----------- ----------
Other Income and (Deductions):
Interest on long-term debt, net of in-
terest capitalized.................... $ (444,322) $ (488,033) $ (515,285)
Interest on notes payable.............. (19,560) (9,134) (13,308)
Allowance for funds used during con-
struction............................. 16,464 42,325 40,202
Income taxes applicable to nonoperating
activities............................ 4,974 11,010 7,659
Provision for dividends--
Preferred and preference stocks of
ComEd............................... (56,884) (60,486) (64,424)
ComEd-obligated mandatorily redeem-
able preferred
securities of subsidiary trusts
holding solely ComEd's
subordinated debt securities........ (29,710) (28,860) (16,960)
Loss on nuclear plant closure.......... -- (885,611) --
Income tax effect of nuclear plant clo-
sure.................................. -- 362,952 --
Miscellaneous--net..................... 32,528 (95,445) (34,858)
----------- ----------- ----------
$ (496,510) $(1,151,282) $ (596,974)
----------- ----------- ----------
Net Income (Loss) before Extraordinary
Item and Cumulative Effect of Change in
Accounting Principle.................... $ 510,184 $ (239,215) $ 666,100
Extraordinary Loss, less Applicable In-
come Taxes.............................. -- (810,335) --
Cumulative Effect of Change in Accounting
Principle............................... -- 196,700 --
----------- ----------- ----------
Net Income (Loss)........................ $ 510,184 $ (852,850) $ 666,100
=========== =========== ==========
Earnings (loss) per common share before
extraordinary item and cumulative effect
of change in accounting principle--
Basic.................................. $ 2.35 $ (1.10) $ 3.09
Diluted................................ $ 2.34 $ (1.10) $ 3.09
Extraordinary loss, less applicable in-
come taxes (basic and diluted).......... $ -- $ (3.75) $ --
Cumulative effect of change in accounting
principle (basic and diluted)........... $ -- $ 0.91 $ --
Earnings (loss) per common share--
Basic.................................. $ 2.35 $ (3.94) $ 3.09
Diluted................................ $ 2.34 $ (3.94) $ 3.09
Cash Dividends Declared per Common Share. $ 1.60 $ 1.60 $ 1.60
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
25
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
------------------------
ASSETS 1998 1997
------ ----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Utility Plant:
Plant and equipment, at original cost (includes
construction work in progress of $858 million and
$1,131 million, respectively)..................... $27,801,246 $27,518,690
Less--Accumulated provision for depreciation....... 15,234,320 11,646,445
----------- -----------
$12,566,926 $15,872,245
Nuclear fuel, at amortized cost.................... 874,979 906,043
----------- -----------
$13,441,905 $16,778,288
----------- -----------
Investments and Other Property:
Nuclear decommissioning funds...................... $ 2,267,317 $ 1,855,697
Subsidiary companies............................... 41,643 41,830
Other, at cost..................................... 292,737 216,243
----------- -----------
$ 2,601,697 $ 2,113,770
----------- -----------
Current Assets:
Cash............................................... $ 28,743 $ 18,519
Temporary cash investments......................... 26,935 102,702
Cash held for redemption of securities............. 3,062,816 --
Special deposits................................... 271 271
Receivables--
Customers........................................ 1,369,701 873,418
Other............................................ 136,663 132,449
Provisions for uncollectible accounts............ (48,645) (17,544)
Coal and fuel oil, at average cost................. 135,415 120,664
Materials and supplies, at average cost............ 232,246 255,338
Deferred income taxes related to current assets and
liabilities....................................... 24,339 179,553
Prepayments and other.............................. 20,301 39,203
----------- -----------
$ 4,988,785 $ 1,704,573
----------- -----------
Deferred Charges and Other Noncurrent Assets:
Regulatory assets.................................. $ 4,578,427 $ 1,966,889
Other.............................................. 96,266 136,230
----------- -----------
$ 4,674,693 $ 2,103,119
----------- -----------
$25,707,080 $22,699,750
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
26
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
-----------------------
CAPITALIZATION AND LIABILITIES 1998 1997
------------------------------ ----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Capitalization (see accompanying statements):
Common stock equity.................................. $ 5,099,444 $ 4,918,687
Preferred and preference stocks of ComEd--
Without mandatory redemption requirements.......... 74,488 507,053
Subject to mandatory redemption requirements....... 69,475 174,328
ComEd-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely
ComEd's subordinated debt securities*............... 350,000 350,000
Long-term debt....................................... 7,809,109 5,737,348
----------- -----------
$13,402,516 $11,687,416
----------- -----------
Current Liabilities:
Notes payable........................................ $ 292,963 $ 158,150
Current portion of long-term debt, redeemable prefer-
ence stock and capitalized lease obligations of sub-
sidiary companies................................... 2,314,443 775,296
Accounts payable..................................... 604,936 505,444
Accrued interest..................................... 180,674 169,559
Accrued taxes........................................ 134,976 175,758
Dividends payable.................................... 105,133 107,001
Customer deposits.................................... 56,954 55,214
Accrued plant closing costs.......................... 78,430 135,000
Other................................................ 155,262 165,177
----------- -----------
$ 3,923,771 $ 2,246,599
----------- -----------
Deferred Credits and Other Noncurrent Liabilities:
Deferred income taxes................................ $ 3,805,460 $ 3,850,308
Nuclear decommissioning liability for retired plants. 1,215,400 1,301,000
Accumulated deferred investment tax credits.......... 562,285 602,122
Accrued spent nuclear fuel disposal fee and related
interest............................................ 728,413 692,673
Obligations under capital leases of subsidiary compa-
nies................................................ 333,653 437,950
Regulatory liabilities............................... 595,005 698,750
Other................................................ 1,140,577 1,182,932
----------- -----------
$ 8,380,793 $ 8,765,735
----------- -----------
Commitments and Contingent Liabilities (Note 22)
$25,707,080 $22,699,750
=========== ===========
</TABLE>
*As described in Note 11 of Notes to Financial Statements, the sole asset of
ComEd Financing I, a subsidiary trust of ComEd, is $206.2 million principal
amount of ComEd's 8.48% subordinated deferrable interest notes due
September 30, 2035. The sole asset of ComEd Financing II, also a subsidiary
trust of ComEd, is $154.6 million principal amount of ComEd's 8.50%
subordinated deferrable interest debentures due January 15, 2027.
The accompanying Notes to Financial Statements are an integral part of the
above statements.
27
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CAPITALIZATION
<TABLE>
<CAPTION>
December 31
------------------------
1998 1997
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Common Stock Equity:
Common stock, without par value--
Outstanding--217,094,560 shares and 216,659,480
shares, respectively............................. $ 4,966,630 $ 4,943,211
Preference stock expense of ComEd.................. (3,199) (3,340)
Retained earnings (deficit)........................ 142,813 (21,184)
Treasury stock--178,982 shares..................... (6,800) --
----------- -----------
$ 5,099,444 $ 4,918,687
----------- -----------
Preferred and Preference Stocks of ComEd--
Without Mandatory Redemption Requirements:
Preference stock, cumulative, without par value--
Outstanding--13,499,549 shares.................. $ 504,957 $ 504,957
Current redemption requirements for preference
stock included in current liabilities........... (432,320) --
$1.425 convertible preferred stock, cumulative,
without par value--
Outstanding--58,211 shares and 65,912 shares,
respectively................................... 1,851 2,096
Prior preferred stock, cumulative, $100 par value
per share-- No shares outstanding............... -- --
----------- -----------
$ 74,488 $ 507,053
----------- -----------
Subject to Mandatory Redemption Requirements:
Preference stock, cumulative, without par value--
Outstanding--1,720,345 shares and 2,058,560
shares, respectively........................... $ 171,348 $ 205,016
Current redemption requirements for preference
stock included in current liabilities........... (101,873) (30,688)
----------- -----------
$ 69,475 $ 174,328
----------- -----------
ComEd-Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trusts Holding Solely
ComEd's Subordinated Debt Securities................ $ 350,000 $ 350,000
----------- -----------
Long-Term Debt:
First mortgage bonds:
Maturing 1998 through 2003--6.00% to 9 3/8%...... $ 1,080,000 $ 1,385,000
Maturing 2004 through 2013--3.70% to 8 3/8%...... 1,485,400 1,485,400
Maturing 2014 through 2023--5.85% to 9 7/8%...... 1,981,000 1,981,000
----------- -----------
$ 4,546,400 $ 4,851,400
Transitional trust notes, due 2000 through 2008--
5.29% to 5.74%.................................... 3,400,000 --
Sinking fund debentures, due 1999 through 2011--2
3/4% to 7 5/8%.................................... 94,159 100,298
Pollution control obligations, due 2007 through
2014--3.70% to 5 7/8%............................. 140,700 142,200
Other long-term debt............................... 1,275,811 1,193,818
Current maturities of long-term debt included in
current liabilities............................... (1,585,281) (503,909)
Unamortized net debt discount and premium.......... (62,680) (46,459)
----------- -----------
$ 7,809,109 $ 5,737,348
----------- -----------
$13,402,516 $11,687,416
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
28
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
1998 1997 1996
-------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C>
Balance at Beginning of Year.................. $(21,184) $1,177,997 $ 856,893
Add--Net income (loss)........................ 510,184 (852,850) 666,100
-------- ---------- ----------
$489,000 $ 325,147 $1,522,993
-------- ---------- ----------
Deduct--
Cash dividends declared on common stock...... $347,161 $ 346,225 $ 344,892
Other capital stock transactions--net........ (974) 106 104
-------- ---------- ----------
$346,187 $ 346,331 $ 344,996
-------- ---------- ----------
Balance at End of Year (Includes $494 million
and $331 million of appropriated retained
earnings at December 31, 1998 and 1997, re-
spectively).................................. $142,813 $ (21,184) $1,177,997
======== ========== ==========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
29
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
(Thousands of Dollars)
<S> <C> <C> <C>
Cash Flow from Operating Activities:
Net income (loss)...................... $ 510,184 $ (852,850) $ 666,100
Adjustments to reconcile net income
(loss) to net cash provided by oper-
ating activities:
Depreciation and amortization........ 994,861 1,051,543 1,006,051
Deferred income taxes and investment
tax credits--net.................... 69,768 (345,042) 129,697
Extraordinary loss related to write-
off of certain net regulatory as-
sets................................ -- 810,335 --
Cumulative effect of change in ac-
counting principle.................. -- (196,700) --
Loss on nuclear plant closure........ -- 885,611 --
Provisions/(payments) for revenue re-
funds--net.......................... (23,622) 45,470 --
Equity component of allowance for
funds used during construction...... (6,959) (23,770) (20,776)
Provisions/(payments) for liability
for separation costs--net........... 9,757 15,986 (29,888)
Net effect on cash flows of changes
in:
Receivables........................ (469,940) 24,083 71,497
Coal and fuel oil.................. (14,751) 19,698 (11,186)
Materials and supplies............. 19,805 41,659 9,053
Accounts payable excluding nuclear
fuel lease principal payments and
separation costs--net............. 97,094 259,810 104,366
Accrued interest and taxes......... (27,201) (17,903) (47,291)
Other changes in certain current
assets and liabilities............ 144,290 39,005 13,850
Other--net........................... (773) 170,832 69,447
----------- ----------- -----------
$ 1,302,513 $ 1,927,767 $ 1,960,920
----------- ----------- -----------
Cash Flow from Investing Activities:
Construction expenditures.............. $ (933,367) $(1,043,311) $ (982,274)
Nuclear fuel expenditures.............. (166,168) (185,373) (281,833)
Sales of generating plants............. 177,454 60,791 --
Equity component of allowance for
funds used during construction........ 6,959 23,770 20,776
Contributions to nuclear
decommissioning funds................. (136,771) (114,825) (119,281)
Other investments and special depos-
its................................... (11,458) (13,246) (2,116)
----------- ----------- -----------
$(1,063,351) $(1,272,194) $(1,364,728)
----------- ----------- -----------
Cash Flow from Financing Activities:
Issuance of securities--
Transitional trust notes............. $ 3,382,629 $ -- $ --
Other long-term debt................. 382,270 362,663 251,902
ComEd-obligated mandatorily redeem-
able preferred securities of
subsidiary trusts holding solely
ComEd's subordinated debt securi-
ties................................ -- 150,000 --
Capital stock........................ 16,644 15,778 17,754
Retirement and redemption of securi-
ties--
Long-term debt....................... (615,858) (736,740) (433,084)
Capital stock........................ (34,066) (44,111) (44,513)
Repurchase of common stock............. (6,800) -- --
Premium paid on early redemption of
long-term debt........................ -- (9,500) --
Cash dividends paid on common stock.... (346,954) (345,936) (344,553)
Proceeds from sale/leaseback of nu-
clear fuel............................ 101,038 149,955 316,617
Nuclear fuel lease principal payments.. (255,605) (166,411) (211,741)
Increase/(decrease) in short-term
borrowings............................ 134,813 29,400 (139,400)
----------- ----------- -----------
$ 2,758,111 $ (594,902) $ (587,018)
----------- ----------- -----------
Change in Net Cash Balance.............. $ 2,997,273 $ 60,671 $ 9,174
Cash, Temporary Cash Investments and
Cash Held for Redemption of Securities:
Balance at Beginning of Year........... 121,221 60,550 51,376
----------- ----------- -----------
Balance at End of Year................. $ 3,118,494 $ 121,221 $ 60,550
=========== =========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
30
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Corporate Structure and Basis of Presentation. Unicom is the parent holding
company of ComEd and Unicom Enterprises. ComEd, a regulated electric utility,
is the principal subsidiary of Unicom. Unicom Enterprises is an unregulated
subsidiary of Unicom and is engaged, through its subsidiaries, in energy
service activities.
The consolidated financial statements include the accounts of Unicom, ComEd,
the Indiana Company, the Trusts, ComEd Funding, ComEd Funding Trust and
Unicom's unregulated subsidiaries. All significant intercompany transactions
have been eliminated. Although the accounts of ComEd Funding and ComEd Funding
Trust, which are SPEs, are included in the consolidated financial statements,
as required by GAAP, ComEd Funding and ComEd Funding Trust are legally
separated from Unicom and ComEd. The assets of the SPEs are not available to
creditors of Unicom or ComEd and the transitional property held by the SPEs
are not assets of Unicom or ComEd.
Use of Estimates. The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Due to the transition to a new
customer information and billing system, a larger portion of customer revenues
and receivables were based on estimates in 1998 than in previous years.
Regulation. ComEd is subject to regulation as to accounting and ratemaking
policies and practices by the ICC and FERC. ComEd's accounting policies and
the accompanying consolidated financial statements conform to GAAP applicable
to rate-regulated enterprises for the non-generation portion of its business,
including the effects of the ratemaking process in accordance with SFAS No.
71, Accounting for the Effects of Certain Types of Regulation. Such effects on
the non-generation portion of its business concern mainly the time at which
various items enter into the determination of operating results in order to
follow the principle of matching costs with the applicable revenues collected
from or returned to customers through future rates. See Note 2 for information
regarding the write-off of generation-related regulatory assets and
liabilities in December 1997.
ComEd's investment in generation-related, net utility plant, including
construction work in progress and nuclear fuel, and excluding the
decommissioning costs included in the accumulated provision for depreciation,
not subject to cost-based rate regulation, was $9.2 billion and $12.4 billion
at December 31, 1998 and 1997, respectively. See Note 2 regarding the plant
impairment recorded by ComEd in the second quarter of 1998.
31
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Regulatory Assets and Liabilities. Regulatory assets are incurred costs
which have been deferred and are amortized for ratemaking and accounting
purposes. Regulatory liabilities represent amounts to be settled with
customers through future rates. Regulatory assets and liabilities reflected on
the Consolidated Balance Sheets at December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
December 31
---------------------
1998 1997
---------- ----------
(Thousands of
Dollars)
<S> <C> <C>
Regulatory assets:
Impaired production plant (1)........................... $2,955,154 $ --
Deferred income taxes (2)............................... 680,356 785,354
Nuclear decommissioning costs--Dresden Unit 1 (3)....... 255,031 268,369
Nuclear decommissioning costs--Zion Units 1 and 2 (4)... 443,130 579,777
Coal reserves (5)....................................... 197,975 281,654
Unamortized loss on reacquired debt (6)................. 46,781 51,735
---------- ----------
$4,578,427 $1,966,889
========== ==========
Regulatory liabilities:
Deferred income taxes (2)............................... $ 595,005 $ 698,750
========== ==========
</TABLE>
- --------
(1) Amortized over a transition period which is expected to end by 2006, but
may be extended to 2008 with ICC approval. See Note 2 for additional
information.
(2) Recorded in compliance with SFAS No. 109, Accounting for Income Taxes, for
non-generation related temporary differences.
(3) Amortized over the period 1999 to 2011. See "Depreciation, Amortization of
Regulatory Assets and Decommissioning" below for additional information.
(4) Amortized over the period 1999 to 2013. See "Depreciation, Amortization of
Regulatory Assets and Decommissioning" below for additional information.
(5) Amortized through regulated cash flows as coal is used for the generation
of electricity. See "Depreciation, Amortization of Regulatory Assets and
Decommissioning" below for additional information.
(6) Amortized over the remaining lives of the non-generation related long-term
debt issued to finance the reacquisition. See "Loss on Reacquired Debt"
below for additional information.
Nuclear Fuel. The cost of nuclear fuel is amortized to fuel expense based on
the quantity of heat produced using the unit of production method. As
authorized by the ICC, provisions for spent nuclear fuel disposal costs have
been recorded at a level required to recover the fee payable on the current
nuclear-generated and sold electricity and the current interest accrual on the
one-time fee payable to the DOE for nuclear generation prior to April 7, 1983.
The one-time fee and interest thereon have been recovered and the current fee
and interest on the one-time fee are presently being recovered through base
rates. See Note 14 for additional information concerning the disposal of spent
nuclear fuel, one-time fee and interest accrual on the one-time fee. Nuclear
fuel expenses, including leased fuel costs and provisions for spent nuclear
fuel disposal costs, were $325 million, $298 million and $354 million for the
years 1998, 1997 and 1996, respectively.
Customer Receivables and Revenues. 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
December 31, 1998. 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 1998. ComEd had 3.5 million electric customers at December 31, 1998. See
Notes 3, 4 and 19 for additional information.
32
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Depreciation, Amortization of Regulatory Assets and Decommissioning.
Depreciation, decommissioning and amortization of regulatory assets for the
years 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- ---------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
Depreciation expense.............................. $788,057 $ 881,196 $843,516
Decommissioning expense........................... 90,020 108,621 110,184
Amortization of regulatory assets................. 65,211 15,272 15,272
-------- ---------- --------
$943,288 $1,005,089 $968,972
======== ========== ========
</TABLE>
Depreciation is provided on a straight-line basis by amortizing the cost of
depreciable plant and equipment over estimated service lives for each class of
plant. Provisions for depreciation, including nuclear plant, were at average
annual rates of 3.02%, 3.36% and 3.25% for the years 1998, 1997 and 1996,
respectively, of average depreciable utility plant and equipment. The decrease
for the year 1998, compared to 1997, in the average depreciation rates relates
primarily to a reduction in nuclear depreciation rates due to the partial
impairment of production plant, which was recorded as a component of
accumulated depreciation, partially offset by shortened depreciable lives for
certain nuclear stations. The annual rate for nuclear plant and equipment,
excluding separately collected decommissioning costs and depreciation related
to the replacement of the steam generators, was 2.88% for periods ending prior
to July 1, 1998. The nuclear depreciation rate applied to gross depreciable
nuclear plant, beginning July 1, 1998, is 2.16% reflecting the partial
impairment of production plant and shortened depreciable lives for certain
nuclear stations. See Note 2 for additional information on the partial
impairment of production plant.
The regulatory assets for impaired production plant and coal reserves are
being amortized as they are recovered through regulated cash flows over a
transition period which is expected to end by 2006, but may be extended to
2008 with ICC approval. Recovery of these regulatory assets will be realized
through future regulatory revenues, including CTC revenues, and potential
gains on generation asset sales, and will vary from year to year. The
amortization of coal reserves is included in fuel expense on the Statements of
Consolidated Operations.
Nuclear plant decommissioning costs are accrued over the current NRC license
lives of the related nuclear generating units. The accrual is based on an
annual levelized cost of the unrecovered portion of estimated decommissioning
costs, which are escalated for expected inflation to the expected time of
decommissioning and are net of expected earnings on the trust funds. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," subcaption "Results of Operations--Decommissioning," for a
discussion of questions raised by the staff of the SEC and a FASB review
regarding the electric utility industry's method of accounting for
decommissioning costs. Dismantling is expected to occur relatively soon after
the end of the current NRC license life of each generating station currently
operating. The accrual for decommissioning is based on the prompt removal
method authorized by NRC guidelines. ComEd's ten operating units have
remaining current NRC license lives ranging from 7 to 29 years. ComEd's Zion
Station and its first nuclear unit, Dresden Unit 1, are retired and expected
to be dismantled beginning in the years 2014 and 2012, respectively, which is
consistent with the regulatory treatment for the related decommissioning
costs.
Based on ComEd's most recent study approved by the ICC, decommissioning
costs, including the cost of decontamination and dismantling, are estimated to
aggregate to $4.6 billion in current-year (1999) dollars, including a
contingency allowance. ComEd estimates that it will expend approximately
33
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
$11.6 billion, including a contingency allowance, for decommissioning costs
primarily during the period from 2007 through 2034. Additionally, ComEd
estimates that it will expend an aggregate of approximately $226 million in
current-year (1999) dollars during the period 2000 through 2014 to maintain
Zion Station in a secured mode until decommissioning begins. All such costs
are expected to be funded by the external decommissioning trusts, which ComEd
established in compliance with Illinois law and into which ComEd has been
making annual contributions. Future decommissioning cost estimates may be
significantly affected by the adoption of or changes to NRC regulations, as
well as changes in the assumptions used in making such estimates, including
changes in technology, available alternatives for the disposal of nuclear
waste and inflation.
Since 1995, ComEd has collected decommissioning costs from its ratepayers in
conjunction with a rider to its tariffs. The rider allows annual adjustments
to decommissioning cost collections outside the context of a traditional rate
proceeding and will continue under the 1997 Act. The current estimated
decommissioning costs include a contingency allowance, but, except at Dresden
Unit 1, exclude amounts for spent fuel storage installations, which may be
necessary to store spent fuel during the period beginning at the end of the
NRC license life of the plants to the date when the DOE accepts the spent fuel
for permanent storage. Contingency allowances used in decommissioning cost
estimates provide for currently unspecifiable costs that are likely to occur
after decommissioning begins and generally range from 20% to 25% of the
currently specifiable costs.
In February 1998, the ICC authorized a reduction in the annual
decommissioning cost accrual from $109 million to $84 million. The reduction
primarily reflects stronger than expected after-tax returns on the external
trust funds in 1996 and lower than expected escalation in low-level waste
disposal costs, partially offset by the higher current-year cost estimates,
including a contingency allowance.
The approved annual decommissioning cost accrual of $84 million was
determined using the following assumptions: the decommissioning cost estimate
of $4.6 billion in current-year (1999) dollars, after-tax earnings on the tax-
qualified and nontax-qualified decommissioning funds of 7.30% and 6.26%,
respectively, and an escalation rate for future decommissioning costs of 4.1%.
The annual accrual of $84 million provided over the current NRC license lives
of the nuclear plants, coupled with the expected fund earnings and amounts
previously recovered in rates, is expected to aggregate to approximately $11.6
billion.
For the ten operating nuclear units, decommissioning cost accruals are
recorded as portions of depreciation expense and accumulated provision for
depreciation on the Statements of Consolidated Operations and the Consolidated
Balance Sheets, respectively, as such costs are recovered through rates. As of
December 31, 1998, the total decommissioning costs included in the accumulated
provision for depreciation were $1,870 million.
For ComEd's retired nuclear units, the total estimated liability for nuclear
decommissioning in current-year (1999) dollars is recorded as a liability. The
unrecovered portion of the liability was also recorded as a regulatory asset.
The nuclear decommissioning liability for retired plants as of December 31,
1998 was as follows:
<TABLE>
<CAPTION>
Zion
Dresden Units
Unit 1 1 and 2 Total
-------- -------- ----------
(Thousands of Dollars)
<S> <C> <C> <C>
Amounts recovered through rates and investment
fund earnings.................................... $101,469 $415,770 $ 517,239
Unrecovered portion of the liability.............. 255,031 443,130 698,161
-------- -------- ----------
Nuclear decommissioning liability for retired
plants.......................................... $356,500 $858,900 $1,215,400
======== ======== ==========
</TABLE>
34
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
The total estimated liability related to Zion Units 1 and 2, and the
unrecovered portion of that liability, decreased from December 31, 1997 to
December 31, 1998 due to the exclusion of estimated dry cask storage costs.
Under Illinois law, decommissioning cost collections are required to be
deposited into external trusts. Consequently, such collections do not add to
the cash flows available for general corporate purposes. The ICC has approved
ComEd's funding plan, which provides for annual contributions of current
accruals and ratable contributions of past accruals over the remaining current
NRC license lives of the nuclear plants. The fair value of funds accumulated
in the external trusts at December 31, 1998 was $2,267 million, which includes
pre-tax unrealized appreciation of $620 million. The earnings on the external
trusts for operating plants accumulate in the fund balance and accumulated
provision for depreciation. Nuclear decommissioning funding as of December 31,
1998 was as follows:
<TABLE>
<CAPTION>
(Thousands of Dollars)
<S> <C>
Amounts recovered through rates and investment fund
earnings for operating plants (included in the accumu-
lated provision for depreciation)...................... $1,870,213
Amounts recovered through rates and investment fund
earnings for retired plants............................ 517,239
Less past accruals not yet contributed to the trusts.... 120,135
----------
Fair value of external trust funds..................... $2,267,317
==========
</TABLE>
Income Taxes. Deferred income taxes are provided for income and expense
items recognized for financial accounting purposes in periods that differ from
those for income tax purposes. Income taxes deferred in prior years are
charged or credited to income as the book/tax temporary differences reverse.
Prior years' deferred investment tax credits are amortized through credits to
income generally over the lives of the related property. Income tax credits
resulting from interest charges applicable to nonoperating activities,
principally construction, are classified as other income.
AFUDC and Interest Capitalized. In accordance with the uniform systems of
accounts prescribed by regulatory authorities, ComEd capitalizes AFUDC,
compounded semiannually, which represents the estimated cost of funds used to
finance its construction program for the non-generation portion of its
business. The equity component of AFUDC is recorded on an after-tax basis and
the borrowed funds component of AFUDC is recorded on a pre-tax basis. The
average annual capitalization rates were 8.34%, 9.39% and 9.02% for the years
1998, 1997 and 1996, respectively. ComEd discontinued SFAS No. 71 regulatory
accounting practices in December 1997 for the generation portion of its
business. As a result, beginning in 1998, ComEd capitalized $28 million in
interest costs on its generation-related construction work in progress and
nuclear fuel in process. AFUDC and interest capitalized do not contribute to
the current cash flow of Unicom or ComEd.
Interest. Total interest costs incurred on debt, leases and other
obligations were $538 million, $598 million and $626 million for the years
1998, 1997 and 1996, respectively.
Debt Discount, Premium and Expense. Discount, premium and expense on long-
term debt of ComEd are being amortized over the lives of the respective
issues.
Loss on Reacquired Debt. Consistent with regulatory treatment, the net loss
from ComEd's reacquisition, in connection with the refinancing of first
mortgage bonds, sinking fund debentures and pollution control obligations
prior to their scheduled maturity dates, is deferred and amortized over the
lives of the long-term debt issued to finance the reacquisition for non-
generation related financings. See "Regulatory Assets and Liabilities" above
and Note 2 for additional information.
35
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Stock Option Awards/Employee Stock Purchase Plan. Unicom has elected to
adopt SFAS No. 123, Accounting for Stock-Based Compensation, for disclosure
purposes only. Unicom accounts for its stock option awards and ESPP under APB
Opinion No. 25, Accounting for Stock Issued to Employees. See Note 8 for
additional information.
Average Common Shares Outstanding. Unicom adopted SFAS No. 128, Earnings per
Share, which established standards for computing and presenting EPS. Unicom
has presented basic and diluted EPS on the Statements of Consolidated
Operations for the years 1998, 1997 and 1996. The number of average
outstanding common shares used to compute basic and diluted EPS for the years
1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(Thousands of Shares)
<S> <C> <C> <C>
Average Number of Common Shares Outstanding:
Average Number of Common Shares--Basic................. 216,942 216,330 215,500
Potentially Dilutive Common Shares--Treasury Method:
Stock Options......................................... 633 136 --
Other Convertible Securities.......................... 85 98 110
------- ------- -------
Average Number of Common Shares--Diluted............... 217,660 216,564 215,610
======= ======= =======
</TABLE>
Energy Risk Management Contracts. In the normal course of business, ComEd
utilizes contracts for the forward sale and purchase of energy to manage
effectively the utilization of its available generating capability. ComEd also
utilizes put and call option contracts and energy swap arrangements to limit
the market price risk associated with the forward commodity contracts. As
ComEd does not currently utilize financial or commodity instruments for
trading or speculative purposes, any gains or losses on forward commodity
contracts are recognized when the underlying transactions affect earnings.
Revenues and expenses associated with market price risk management contracts
are amortized over the term of such contracts.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument, including
certain derivative instruments embedded in other contracts, be recorded on the
Consolidated Balance Sheets as either an asset or liability measured at its
fair value. SFAS No. 133 requires that changes in the derivative's fair value
be recognized currently in earnings, unless specific hedge accounting criteria
are met. Special accounting for qualifying hedges allows a derivative's gains
and losses to offset related results on the hedged item on the Statements of
Consolidated Operations, and requires Unicom and ComEd to formally document,
designate, and assess the effectiveness of transactions that receive hedge
accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999.
SFAS No. 133 may be implemented prior to June 15, 1999, but such
implementation cannot be applied retroactively. SFAS No. 133 must be applied
to (i) derivative instruments and (ii) certain derivative instruments embedded
in hybrid contracts that were issued, acquired, or substantively modified
after December 31, 1997 (and, at the company's election, before January 1,
1998).
Unicom and ComEd have not yet quantified the effects on their financial
statements of adopting SFAS No. 133 and have not determined the timing or
method of adopting SFAS No. 133. However, adoption of SFAS No. 133 could
increase volatility in earnings and other comprehensive income.
Reclassifications. Certain prior year amounts have been reclassified to
conform with current period presentation. These reclassifications had no
effect on operating results.
36
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Statements of Consolidated Cash Flows. For purposes of the Statements of
Consolidated Cash Flows, temporary cash investments, generally investments
maturing within three months at the time of purchase, are considered to be
cash equivalents. Supplemental cash flow information for the years 1998, 1997
and 1996 was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
Supplemental Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized)............ $450,160 $512,050 $538,351
Income taxes (net of refunds)................... $272,476 $264,802 $234,743
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Capital lease obligations incurred by subsidiary
companies........................................ $106,370 $158,412 $320,975
</TABLE>
(2) Accounting Effects Related to the 1997 Act
In December 1997, the Governor of Illinois signed into law the 1997 Act,
which established a phased process to introduce competition into the electric
industry in Illinois under a less regulated structure. Major provisions of the
1997 Act applicable to ComEd include a 15% residential base rate reduction
which became effective August 1, 1998, an additional 5% residential base rate
reduction commencing on May 1, 2002 and gradual customer access to other
electric suppliers. Access for commercial and industrial customers will occur
over a period from October 1999 to December 2000, and access for residential
customers will occur after May 1, 2002. ComEd's operating revenues were
reduced by approximately $170 million in 1998 due to the rate reduction. ComEd
is engaged in certain pricing experiments contemplated by the 1997 Act, which
reduced ComEd's operating revenues by approximately $30 million in 1998 and
are expected to reduce operating revenues by $55 million in 1999, compared to
1997 rate levels; however, such reductions are expected to be offset by the
effects of customer growth. ComEd expects that the 15% residential base rate
reduction will reduce ComEd's operating revenues by approximately $380 million
in 1999, compared to 1997 rate levels.
The 1997 Act also provides for the collection of a CTC from customers who
choose another electric service provider during a transition period that
extends through 2006, and can be extended through 2008 with ICC approval. The
CTC will be established in accordance with a formula defined in the 1997 Act.
The CTC, which will be applied on a cents per kilowatthour basis, considers
the revenue which would have been collected from a customer under tariffed
rates, reduced by the revenue the utility will receive for providing delivery
services to the customer, the market price for electricity and a defined
mitigation factor, which represents the utility's opportunity to develop new
revenue sources and achieve cost savings.
Notwithstanding these rate reductions, and subject to certain earnings
tests, a rate freeze will generally be in effect until at least January 1,
2005. During this period, utilities may reorganize, sell or assign assets,
retire or remove plants from service, and accelerate depreciation or
amortization of assets with limited ICC regulatory review. A utility may
request a rate increase during the rate freeze period only when necessary to
ensure the utility's financial viability, but not before Janaury 1, 2000.
Under the earnings provision of the 1997 Act, if the earned return on common
equity of a utility during this period exceeds an established threshold, one-
half of the excess earnings must be refunded to customers. The threshold rate
of return on common equity is based on the 30-Year Treasury Bond rate, plus
5.5% in the years 1998 through 1999 and plus 6.5% in the years 2000 through
2004. The utility's earned return on common equity and the threshold return on
common equity are each calculated on a two year average basis. The earnings
sharing provision is applicable only to utility
37
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
earnings. Increased amortization of regulatory assets may be recorded, thereby
reducing the earned return on common equity, if earnings otherwise would have
exceeded the maximum allowable rate of return. The potential for earnings
sharing or increased amortization of regulatory assets could limit earnings in
future periods.
Under the 1997 Act, utilities are required to continue to offer delivery
services, including the transmission and distribution of electric energy, such
that customers who select an alternative energy supplier can receive electric
energy from that supplier using existing transmission and distribution
facilities. Such services will continue to be offered under cost-based,
regulated rates. The 1997 Act also requires utilities to establish or join an
ISO that will independently manage and control utility transmission systems.
Additionally, the 1997 Act includes the leveling of certain regulatory
requirements to permit operational flexibility, the leveling of certain
regulatory and tax provisions as applied to various electric suppliers and a
new, more stringent, liability standard applicable to ComEd in the event of a
major outage.
The 1997 Act also allows a portion of ComEd's future revenues to be
segregated and used to support the issuance of securities by ComEd or a SPE.
The proceeds from such securities issuances must be used to refinance
outstanding debt and equity or for certain other limited purposes. The total
amount of such securities that may be issued is approximately $6.8 billion;
approximately one-half of that amount can be issued in the twelve-month period
which commenced on August 1, 1998. In December 1998, ComEd initiated the
issuance of $3.4 billion of transitional trust notes through its SPEs, ComEd
Funding and ComEd Funding Trust. The proceeds from the transitional trust
notes, net of transaction costs, must be used to redeem or repurchase debt and
equity to lower ComEd's overall cost of capital. Accordingly, in early 1999
ComEd redeemed $788 million of long-term debt and $534 million of preference
stock, and reacquired $229 million of outstanding ComEd long-term debt through
a tender offer. In addition, $500 million of the proceeds, of which
approximately $300 million has been utilized, is being used to reduce ComEd's
outstanding short-term debt. Unicom has announced plans to repurchase
approximately $750 million of Unicom common stock using the proceeds it
receives from ComEd's repurchase of its common stock held by Unicom. The
remaining proceeds will be used for the payment of fees and additional debt
and equity redemptions. See Notes 7 and 24 for additional information
regarding Unicom's share repurchase plans.
As a result of the 1997 Act, prices for the supply of electric energy are
expected to change from cost-based, regulated rates to rates determined by
competitive market forces. The CTC allows ComEd to recover some of its costs
which might otherwise be unrecoverable under market-based rates. Nonetheless,
ComEd will need to take steps to address the portion of such costs which are
not recoverable through the CTC. Such steps may include cost control efforts,
developing new sources of revenue and potential asset dispositions.
Because the 1997 Act is expected ultimately to lead to market-based pricing
of electric generation services, ComEd discontinued SFAS No. 71 regulatory
accounting practices for the generation portion of its business in December
1997. ComEd evaluated the regulatory assets and liabilities related to the
generation portion of its business and determined that it was not probable
that such costs would be recovered through the cash flows from the regulated
portion of its business. Accordingly, the generation-related regulatory assets
and liabilities were written off in the fourth quarter of 1997, resulting in
an extraordinary charge of $810 million (after-tax), or $3.75 per common share
(basic). These write-offs related principally to previously incurred costs
originally expected to be collected through future revenues, including income
tax benefits previously flowed through to customers, deferred carrying charges
on the Byron Unit 2 and Braidwood Units 1 and 2 nuclear
38
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
generating plants, generation-related unamortized loss on reacquired debt and
other miscellaneous generation-related costs. The regulatory asset for the
unrecovered nuclear decommissioning costs of currently retired nuclear plants
was not written off, as the 1997 Act provides for the ongoing recovery of
decommissioning costs through regulated rates. See "Regulatory Assets and
Liabilities" and "Depreciation, Amortization of Regulatory Assets and
Decommissioning" in Note 1 for additional information.
Pursuant to an option contained in the 1997 Act, ComEd filed a tariff in
December 1997 to eliminate its FAC as of January 1, 1997. Under ComEd's
regulated rates, the FAC provided for the recovery of changes in fossil and
nuclear fuel costs and the energy portion of purchased power costs, compared
to the fuel and purchased energy costs included in ComEd's base rates. The
elimination of the FAC required ComEd to refund to customers the net FAC
charges billed during the calendar year 1997 of $25 million (after-tax), or
$0.12 per common share (basic). These costs, as well as deferred
underrecovered energy costs of $19 million (after-tax), or $0.08 per common
share (basic), which ComEd would have been entitled to recover if the FAC had
remained in effect, were recorded as a charge to operating results in the
fourth quarter of 1997.
Additionally, the elimination of the FAC and a transition to market-based
pricing for generation-related costs required ComEd to write down its
investment in uranium-related properties. Projections of the market price for
uranium indicated that the expected incremental costs of mining and milling
uranium at such properties would exceed the expected market price for uranium.
Such costs are not expected to be recoverable in a competitive market. A write
down of ComEd's investment in uranium-related properties to realizable value
resulted in a charge of $60 million (after-tax), or $0.28 per common share
(basic), in December 1997.
The staff of the SEC issued interpretive guidance in the second quarter of
1998 regarding the application of SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, when a
regulated enterprise such as an electric utility discontinues regulatory
accounting practices for separable portions of its operations and assets.
Under SFAS No. 121, an asset is considered impaired, and should be written
down to fair value, if its future cash flows are insufficient to recover the
carrying value of the asset. The interpretive guidance concludes that for
purposes of applying SFAS No. 121, supplemental regulated cash flows, such as
a CTC, should be excluded from the cash flows of assets in the portion of the
business not subject to regulatory accounting practices. If such assets are
determined to be impaired, a regulatory asset should be established if such
costs are recoverable through regulated cash flows. The guidance also
addresses the extent to which assets should be grouped to determine
impairment.
ComEd discontinued the application of regulatory accounting principles in
December 1997 for the generation portion of its business and performed a SFAS
No. 121 impairment analysis that concluded that future revenues, including the
collection of the CTC, expected to be recovered from electric supply services
would be sufficient to cover the costs of its generating assets. However,
reflecting the SEC's interpretive guidance, ComEd's revised impairment
evaluation resulted in a plant impairment of $3 billion. Because future CTC
revenues collected through regulated cash flows are expected to provide
recovery of the impaired plant assets, a regulatory asset was recorded for the
same amount. Accordingly, the impairment, recorded in the second quarter of
1998, had no effect on results of operations. The regulatory asset is being
amortized as it is recovered through regulated cash flows over a transition
period that ends in 2006, but may be extended to 2008 with ICC approval.
Recovery of the regulatory asset will be realized through future regulatory
revenues, including CTC revenues, and potential gains on generation asset
sales, and will vary from year to year.
39
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
(3) Cumulative Effect of a Change in Accounting Principle
In the fourth quarter of 1997, ComEd changed its accounting method for
revenue recognition to record revenues associated with service which has been
provided to customers but has not yet been billed at the end of each
accounting period, retroactive to January 1, 1997. This change in accounting
method increased operating results for the year 1997 to reflect the one-time
cumulative effect of the change for years prior to 1997 by $197 million
(after-tax), or $0.91 per common share. If the new accounting method had been
in effect for the years 1997 and 1996, the pro forma unaudited net income
(loss) would have been $(1,049,550,000), or $(4.85) per common share (basic),
and $698,229,000, or $3.24 per common share (basic), respectively, excluding
the one-time cumulative effect of a change in accounting principle.
(4) Rate Matters
Final ICC orders have been issued in fuel reconciliation proceedings related
to ComEd's FAC collections for all years except for 1994. On November 5, 1998,
the ICC issued an order in the proceeding for the year 1994 providing for a
refund of approximately $3 million related to nuclear station performance. On
February 9, 1999, an intervenor moved to dismiss its appeal of the 1994 ICC
order. On December 29, 1998, the ICC issued an order for the 1996 fuel
reconciliation proceeding requiring ComEd to refund approximately $19 million
related to nuclear station performance. The 1997 Act provides that, because
ComEd eliminated its FAC effective January 1, 1997, the ICC shall not conduct
a fuel reconciliation proceeding for the year 1997 and subsequent years. See
Note 2 for information regarding the 1997 Act and the elimination of ComEd's
FAC.
Three of ComEd's wholesale municipal customers filed a complaint and request
for refund with the FERC alleging that ComEd failed to properly adjust their
rates, as provided for under the terms of their electric service contracts, to
track certain refunds made to ComEd's retail customers in the years 1992
through 1994. In the third quarter of 1998, the FERC granted the complaint and
directed that refunds be made, with interest. ComEd filed and was granted a
request for rehearing for purposes of reconsideration with the FERC. If the
order is upheld, ComEd must make refunds within 15 days of the resolution for
rehearing.
ComEd's management believes adequate reserves have been established in
connection with the cases discussed above.
(5) Closure and Sale of Plants
In January 1998, the Boards of Directors of Unicom and ComEd authorized the
permanent cessation of nuclear generation operations and retirement of
facilities at ComEd's 2,080 megawatt Zion nuclear generating station. Such
retirement resulted in a charge for 1997 of $523 million (after-tax), or $2.42
per common share (basic). The decision to close Zion Station was a result of
ComEd's ongoing analysis of the economic value of its generating assets in
light of the expected changes in the manner in which electric energy is
marketed and sold. The passage of the 1997 Act provided a clearer basis for
evaluating the costs and benefits of alternative courses of action. In
reaching the decision to cease nuclear generation operations at Zion Station,
the Boards also considered the significant uncertainty associated with
continued operation of the station due to the degradation of the steam
generators and the expected operating costs associated with continued station
operation.
ComEd's fourth quarter 1997 financial results reflected a charge of $406
million (after-tax), representing the undepreciated costs of Zion Station
(excluding the portion which will remain in use to provide voltage support),
materials and supplies inventories, and nuclear fuel inventories. In
40
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
addition, as required by GAAP, a liability for future closing costs associated
with the retirement of Zion Station, excluding severance costs, was recorded
resulting in a charge of $117 million (after-tax) in the fourth quarter of
1997. ComEd recorded a reduction to the liability for future closing costs of
$15 million (after-tax), or $0.07 per common share (basic), in the year 1998
to reflect lower than expected closing costs due to employees being reassigned
or removed from payroll sooner than expected, and lower than anticipated
support costs and use of contractors. See Note 17 for information regarding
costs of voluntary employee separation plans.
ComEd completed the sale of two of its coal-fired generating stations,
representing 1,598 megawatts of generating capacity, and has exclusive 15-year
purchased power agreements for the output of the stations. The sales of State
Line and Kincaid Stations were completed in December 1997 and February 1998,
respectively. The net proceeds of the sales, after income tax effects and
closing costs, were approximately $190 million. The proceeds were used to
retire or redeem existing debt in the first quarter of 1998. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
subcaption "Response to Regulatory Changes," for information regarding ComEd's
fossil generating plants, and oil and gas peaking units being offered for
sale.
(6) Authorized Shares, Voting Rights and Stock Rights of Capital Stock
At December 31, 1998, Unicom's authorized shares consisted of 400,000,000
shares of common stock. The authorized shares of ComEd preferred and
preference stocks at December 31, 1998 were: preference stock--22,030,345
shares; $1.425 convertible preferred stock--58,211 shares; and prior preferred
stock--850,000 shares. The preference and prior preferred stocks are issuable
in series and may be issued with or without mandatory redemption requirements.
Holders of outstanding Unicom shares are entitled to one vote for each share
held on each matter submitted to a vote of such shareholders; and holders of
outstanding ComEd shares are entitled to one vote for each share held on each
matter submitted to a vote of such shareholders. All such shares have the
right to cumulate votes in elections for the directors of the corporation
which issued the shares.
Pursuant to a plan adopted by the Unicom Board of Directors on February 2,
1998, each share of Unicom's common stock carries the right (referred to
herein as a "Right") to purchase one-thousandth of one share of Unicom's
common stock at a purchase price of $100 per whole share of common stock,
subject to adjustment. The Rights are tradable only with Unicom's common stock
until they become exercisable. The Rights become exercisable upon the earlier
of ten days following a public announcement that a person (an "Acquiring
Person") has acquired 15% or more of Unicom's outstanding common stock or ten
business days (or such later date as may be determined by action of the Board
of Directors) following the commencement of a tender or exchange offer which,
if consummated, would result in a person or group becoming an Acquiring
Person. The Rights are subject to redemption by Unicom at a price of $.01 per
Right, subject to certain limitations, and will expire on February 2, 2008. If
a person or group becomes an Acquiring Person, each holder of a Right will
thereafter have the right to receive, upon exercise, Unicom common stock at a
50% discount from the then current market price. If Unicom is acquired in a
merger or other business combination transaction in which Unicom is not the
survivor, or 50% or more of Unicom's assets or earning power is sold or
transferred, each holder of a Right shall then have the right to receive, upon
exercise, common stock of the acquiring company at a 50% discount from the
then current market price of such common stock. Rights held by an Acquiring
Person become void upon the occurrence of such events.
41
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
(7) Common Equity
Unicom has entered into a prepaid forward purchase arrangement with a
financial institution for the repurchase of approximately 15 million shares of
Unicom common stock. The repurchase arrangement provides for final settlement
no later than February 2000, on either a physical (share) basis, or a net cash
basis, at the option of the financial institution. The amount at which the
arrangement can be settled is dependent principally upon the average market
price at which the financial institution purchases such shares, compared to
the forward price per share. The share repurchases will not reduce shares
outstanding for purposes of EPS calculations or reduce common stock equity and
resulting return on common equity calculations until the date of physical
settlement. Unicom currently does not anticipate that settlement will occur in
1999. The repurchase arrangement will initially be recorded as a receivable on
Unicom's Consolidated Balance Sheets and will be adjusted at the end of each
reporting period to reflect the aggregate market value of the shares
deliverable under the arrangement. Consequently, the arrangement could
increase earnings volatility in 1999.
This arrangement supplements a previously announced program to repurchase up
to $200 million of Unicom common stock. Shares repurchased under that program
will also be outstanding for financial statement purposes until the time of
final settlement, which is currently expected to extend to February 2000, on
either a physical (share) basis, or a net cash basis, at the option of Unicom.
As of December 31, 1998, this arrangement has been accounted for as an equity
instrument. If this arrangement had been settled on a physical (share) basis
at December 31, 1998, Unicom would have received approximately 5.1 million
shares of its common stock.
See Note 24 for additional information regarding the redemptions and
repurchases of debt and equity.
At December 31, 1998, shares of Unicom common stock were reserved for the
following purposes:
<TABLE>
<S> <C>
Long-Term Incentive Plan........................................ 2,683,264
Employee Stock Purchase Plan.................................... 413,297
Shareholder Rights Plan......................................... 400,000
Exchange for ComEd common stock not held by Unicom.............. 85,196
1996 Directors' Fee Plan........................................ 167,980
---------
3,749,737
=========
</TABLE>
Common stock for the years 1998, 1997 and 1996 was issued as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Shares of Common Stock Issued:
Long-Term Incentive Plan......................... 494,302 208,104 132,579
Employee Stock Purchase Plan..................... 94,270 196,003 196,513
Employee Savings and Investment Plan............. -- 274,203 339,100
Exchange for ComEd common stock not held by
Unicom.......................................... 12,757 12,370 25,323
1996 Directors' Fee Plan......................... 12,733 14,175 5,112
------- ------- -------
614,062 704,855 698,627
======= ======= =======
<CAPTION>
(Thousands of Dollars)
<S> <C> <C> <C>
Amount of Common Stock Issued:
Total issued..................................... $16,847 $15,768 $17,733
Held by trustee for Unicom Stock Bonus Deferral
Plan............................................ 6,775 (2,476) (4,300)
Other............................................ (203) 10 38
------- ------- -------
$23,419 $13,302 $13,471
======= ======= =======
</TABLE>
42
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
In December 1998, 178,982 shares of Unicom common stock were reacquired and
held as treasury stock at a cost of $6.8 million.
At December 31, 1998 and 1997, 76,079 and 76,868, respectively, of ComEd
common stock purchase warrants were outstanding. The warrants entitle the
holders to convert such warrants into common stock of ComEd at a conversion
rate of one share of common stock for three warrants.
Unicom's retained earnings account had a positive balance of $143 million at
December 31, 1998 and a deficit balance of $21 million at December 31, 1997.
As of December 31, 1998 and 1997, $494 million and $331 million, respectively,
of retained earnings had been appropriated for future dividend payments.
(8) Stock Option Awards/Employee Stock Purchase Plan
Unicom has a nonqualified stock option awards program under its Long-Term
Incentive Plan. The stock option awards program was adopted by Unicom in July
1996 to reward valued employees responsible for, or contributing to, the
management, growth and profitability of Unicom and its subsidiaries. The stock
options granted expire ten years from their grant date. One-third of the
shares subject to the options vest on each of the first three anniversaries of
the option grant date. In addition, the stock options become fully vested
immediately if the holder dies, retires, is terminated by the Company, other
than for cause, or qualifies for long-term disability and will also vest in
full upon a change in control.
Stock option transactions for the years 1998, 1997 and 1996 are summarized
as follows:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Options Price
--------- --------
<S> <C> <C>
Outstanding at the beginning of 1996........................ -- $ --
Granted during the year..................................... 1,205,500 25.500
Expired/cancelled during the year........................... (17,500) 25.500
---------
Outstanding as of December 31, 1996......................... 1,188,000 25.500
Granted during the year..................................... 1,339,350 22.313
Exercised during the year................................... (23,423) 25.500
Expired/cancelled during the year........................... (212,549) 23.632
---------
Outstanding as of December 31, 1997......................... 2,291,378 23.810
Granted during the year..................................... 1,379,525 35.234
Exercised during the year................................... (404,082) 24.244
Expired/cancelled during year............................... (124,594) 25.714
---------
Outstanding as of December 31, 1998......................... 3,142,227 28.694
=========
</TABLE>
Of the stock options outstanding at December 31, 1998, 943,851 have vested
with a weighted average exercise price of $24.234.
The fair value of each stock option is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
Stock Option Grant Date
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Expected option life............................... 7 years 7 years 7 years
Dividend yield..................................... 4.54% 7.20% 6.30%
Expected volatility................................ 21.95% 22.29% 20.98%
Risk-free interest rate............................ 5.58% 6.25% 6.64%
</TABLE>
43
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
The estimated weighted average fair value for each stock option granted for
the years 1998, 1997 and 1996 was $6.62, $2.79 and $3.74, respectively.
The ESPP allows employees to purchase Unicom common stock at a 10% discount
from market value. Substantially all of the employees of Unicom, ComEd and
certain subsidiaries are eligible to participate in the ESPP. Unicom issued
94,270, 196,003 and 196,513 shares of common stock for the years 1998, 1997
and 1996, respectively, under the ESPP at a weighted average annual purchase
price of $33.11, $19.15 and $23.52, respectively.
Unicom has adopted the disclosure-only provisions of SFAS No. 123. For
financial reporting purposes, Unicom has adopted APB No. 25 and thus no
compensation cost has been recognized for the stock option awards program or
ESPP. If Unicom had recorded compensation expense for the stock options
granted and the shares of common stock issued under the ESPP in accordance
with SFAS No. 123 using the fair value based method of accounting, the
additional charges to operations would have been $2 million (after-tax), or
$0.01 per common share (basic), $2 million (after-tax), or $0.01 per common
share (basic), and $1 million (after-tax), or less than $0.01 per common share
(basic), for the years 1998, 1997 and 1996, respectively.
(9) ComEd Preferred and Preference Stocks Without Mandatory Redemption
Requirements
No shares of ComEd preferred or preference stocks without mandatory
redemption requirements were issued or redeemed during 1998, 1997 and 1996.
The series of ComEd preference stock without mandatory redemption requirements
outstanding at December 31, 1998 are summarized as follows:
<TABLE>
<CAPTION>
Involuntary
Shares Aggregate Redemption Liquidation
Series Outstanding Stated Value Price(1) Price(1)
------ ----------- ------------ ---------- -----------
(Thousands
of Dollars)
<S> <C> <C> <C> <C>
$1.90 4,249,549 $106,239 $ 25.25 $25.00
$2.00 2,000,000 51,560 $ 26.04 $25.00
$1.96 2,000,000 52,440 $ 27.11 $25.00
$7.24 750,000 74,340 $101.00 $99.12
$8.40 750,000 74,175 $101.00 $98.90
$8.38 750,000 73,566 $100.16 $98.09
$2.425 3,000,000 72,637 $ 25.00 $25.00
---------- --------
13,499,549 $504,957
========== ========
</TABLE>
--------
(1) Per share plus accrued and unpaid dividends, if any.
The outstanding shares of ComEd's $1.425 convertible preferred stock are
convertible at the option of the holders thereof, at any time, into common
stock of ComEd at the rate of 1.02 shares of common stock for each share of
convertible preferred stock, subject to future adjustment. The convertible
preferred stock may be redeemed by ComEd at $42 per share, plus accrued and
unpaid dividends, if any. The involuntary liquidation price of the $1.425
convertible preferred stock is $31.80 per share, plus accrued and unpaid
dividends, if any.
ComEd redeemed $432 million of preference stock without mandatory redemption
requirements on January 19, 1999. The redemption retires all series other than
Series $2.425 and $1.425. See Note 24 for additional information regarding the
redemption of ComEd preference stocks.
44
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
(10) ComEd Preference Stock Subject to Mandatory Redemption Requirements
During 1998, 1997 and 1996, no shares of ComEd preference stock subject to
mandatory redemption requirements were issued. The series of ComEd preference
stock subject to mandatory redemption requirements outstanding at December 31,
1998 are summarized as follows:
<TABLE>
<CAPTION>
Shares Aggregate
Series Outstanding Stated Value Optional Redemption Price(1)
- -------------- ----------- ------------ -----------------------------------------------
(Thousands
of Dollars)
<S> <C> <C> <C>
$8.20 142,845 $ 14,285 $101
$8.40 Series B 240,000 23,838 $101
$8.85 187,500 18,750 $101
$9.25 450,000 45,000 $103 through July 31, 1999; and $101 thereafter
$6.875 700,000 69,475 Non-callable
--------- --------
1,720,345 $171,348
========= ========
</TABLE>
- --------
(1) Per share plus accrued and unpaid dividends, if any.
ComEd redeemed $102 million of preference stock with mandatory redemption
requirements on January 19, 1999. The redemption retires all series other than
Series $6.875, all of which is required to be redeemed on May 1, 2000. The
sinking fund price for Series $6.875 is $100 and the involuntary liquidation
price is $99.25 per share plus accrued and unpaid dividends, if any. See Note
24 for additional information regarding the redemption of ComEd preference
stocks.
After reflecting the redemption, the remaining sinking fund requirement is
$69 million in the year 2000. During 1998, 338,215 shares and in each of the
years 1997 and 1996, 438,215 shares of ComEd preference stock subject to
mandatory redemption requirements were reacquired to meet sinking fund
requirements plus any optional additional sinking fund payments.
Sinking fund requirements and the redemption due within one year are
included in current liabilities.
(11) ComEd-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary
Trusts Holding Solely ComEd's Subordinated Debt Securities
In September 1995, ComEd Financing I, a wholly-owned subsidiary trust of
ComEd, issued 8,000,000 of its 8.48% ComEd-obligated mandatorily redeemable
preferred securities. The sole asset of ComEd Financing I is $206.2 million
principal amount of ComEd's 8.48% subordinated deferrable interest notes due
September 30, 2035. In January 1997, ComEd Financing II, a wholly-owned
subsidiary trust of ComEd, issued 150,000 of its 8.50% ComEd-obligated
mandatorily redeemable capital securities. The sole asset of ComEd Financing
II is $154.6 million principal amount of ComEd's 8.50% subordinated deferrable
interest debentures due January 15, 2027. There is a full and unconditional
guarantee by ComEd of the Trusts' obligations under the securities issued by
the Trusts. However, ComEd's obligations are subordinate and junior in right
of payment to certain other indebtedness of ComEd. ComEd has the right to
defer payments of interest on the subordinated deferrable interest notes by
extending the interest payment period, at any time, for up to 20 consecutive
quarters. Similarly, ComEd has the right to defer payments of interest on the
subordinated deferrable interest debentures by extending the interest payment
period, at any time, for up to ten consecutive semi-annual periods. If
interest payments on the subordinated deferrable interest notes or debentures
are so deferred, distributions on the preferred securities will also be
45
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
deferred. During any deferral, distributions will continue to accrue with
interest thereon. In addition, during any such deferral, ComEd may not declare
or pay any dividend or other distribution on, or redeem or purchase, any of
its capital stock.
The subordinated deferrable interest notes are redeemable by ComEd, in whole
or in part, from time to time, on or after September 30, 2000, and with
respect to the subordinate deferrable interest debentures, on or after January
15, 2007, or at any time in the event of certain income tax circumstances. If
the subordinated deferrable interest notes or debentures are redeemed, the
Trusts must redeem preferred securities having an aggregate liquidation amount
equal to the aggregate principal amount of the subordinated deferrable
interest notes or debentures so redeemed. In the event of the dissolution,
winding up or termination of the Trusts, the holders of the preferred
securities will be entitled to receive, for each preferred security, a
liquidation amount of $25 for the securities of ComEd Financing I and $1,000
for the securities of ComEd Financing II, plus accrued and unpaid
distributions thereon, including interest thereon, to the date of payment,
unless in connection with the dissolution, the subordinated deferrable
interest notes or debentures are distributed to the holders of the preferred
securities.
(12) Long-Term Debt
ComEd initiated the issuance of $3.4 billion of transitional trust notes
through its SPEs, ComEd Funding and ComEd Funding Trust, in the fourth quarter
of 1998, as follows:
<TABLE>
<CAPTION>
Interest Principal
Rate Class and Scheduled Maturity Dates Amount
-------- ---------------------------------- ----------
(Thousands
of Dollars)
<C> <S> <C>
5.38% A-1 due March 25, 2000............................... $ 424,967
5.29% A-2 due June 25, 2001................................ 425,033
5.34% A-3 due March 25, 2002............................... 258,861
5.39% A-4 due June 25, 2003................................ 421,139
5.44% A-5 due March 25, 2005............................... 598,511
5.63% A-6 due June 25, 2007................................ 761,489
5.74% A-7 due December 25, 2008............................ 510,000
----------
$3,400,000
==========
</TABLE>
The proceeds, net of transaction costs, from the transitional trust notes
must be used to redeem debt and equity. On January 27, 1999, ComEd redeemed
$730 million of first mortgage bonds. On February 16, 1999, ComEd redeemed $58
million of sinking fund debentures. In response to a tender offer, ComEd
reacquired $229 million of first mortgage bonds in early February 1999. See
Note 24 for additional information regarding the redemptions of first mortgage
bonds and sinking fund debentures, and the reacquired first mortgage bonds.
For accounting purposes, the liabilities of ComEd Funding Trust for the
transitional trust notes are reflected as long-term debt on the Consolidated
Balance Sheets of Unicom and ComEd.
Sinking fund requirements and scheduled maturities remaining through 2003,
after reflecting the redemptions, for ComEd's first mortgage bonds,
transitional trust notes, sinking fund debentures and other long-term debt
outstanding at December 31, 1998, are summarized as follows: 1999--$481
million; 2000--$727 million; 2001--$346 million; 2002--$645 million; and
2003--$445 million. Unicom Enterprises' note payable to bank of $85 million
will mature in 1999.
46
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
After reflecting the redemptions of first mortgage bonds, ComEd's
outstanding first mortgage bonds maturing through 2003 were as follows:
<TABLE>
<CAPTION>
Principal Amount
Series ----------------------
(Thousands of Dollars)
<S> <C>
9 3/8% due February 15, 2000....................... $ 42,345
6 1/2% due April 15, 2000.......................... 230,000
6 3/8% due July 15, 2000........................... 100,000
7 3/8% due September 15, 2002...................... 200,000
6 5/8% due July 15, 2003........................... 100,000
--------
$672,345
========
</TABLE>
Other long-term debt outstanding at December 31, 1998 is summarized as
follows:
<TABLE>
<CAPTION>
Debt Principal
Security Amount Interest Rate
- ------------ ---------- ------------------------------------------------------
(Thousands
of
Dollars)
<S> <C> <C>
Unicom--
Loans Pay-
able:
Loan due $ 6,775
January
1, 2003 Interest rate of 8.31%
Loan due
January
1, 2004 7,690 Interest rate of 8.44%
----------
$ 14,465
----------
ComEd--
Notes:
Medium
Term
Notes,
Series
3N due
various
dates
through
October
15, 2004 $ 296,000 Interest rates ranging from 9.00% to 9.20%
Notes due
January
15, 2004 150,000 Interest rate of 7.375%
Notes due
October
15, 2005 235,000 Interest rate of 6.40%
Notes due
January
15, 2007 150,000 Interest rate of 7.625%
Notes due
July 15,
2018 225,000 Interest rate of 6.95%
----------
$1,056,000
----------
Purchase
Contract
Obligation
due April
30, 2005 $ 346 Interest rate of 3.00%
----------
Total ComEd $1,056,346
----------
Unicom En-
terprises--
Long-Term
Note Pay-
able to
Bank due
November
15, 1999 $ 85,000 Prevailing interest rate of 6.20% at December 31, 1998
----------
Unicom Ther-
mal--
Guaranteed
Senior
Note
due May
30, 2012 $ 120,000 Interest rate of 7.38%
----------
Total Unicom $1,275,811
==========
</TABLE>
Long-term debt maturing within one year, including long-term debt redeemed
in January and February of 1999, have been included in current liabilities.
ComEd's outstanding first mortgage bonds are secured by a lien on
substantially all property and franchises, other than expressly excepted
property, owned by ComEd.
In July 1998, Unicom Thermal issued $120 million of 7.38% unsecured
guaranteed senior Notes due May 2012, the proceeds of which were used to
refinance existing debt. The Notes are guaranteed by Unicom and include
certain covenants with respect to Unicom and Unicom Thermal's operations. Such
covenants include, among other things, (i) a requirement that Unicom and its
47
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
consolidated subsidiaries maintain a tangible net worth at least $10 million
greater than that of ComEd and its consolidated subsidiaries, (ii) a
requirement that Unicom's consolidated debt to consolidated capitalization not
exceed 0.65 to 1, (iii) restrictions on the indebtedness for borrowed money
that Unicom Thermal may incur, and (iv) a requirement that Unicom own,
directly or indirectly, 51% of the outstanding stock of Unicom Thermal and at
least 80% of the outstanding stock of ComEd.
(13) Lines of Credit
ComEd had total unused bank lines of credit of $1 billion at December 31,
1998. Of that amount, $500 million expires on October 7, 1999 and $500 million
expires on October 8, 2003. The interest rate is set at the time of a
borrowing and is based on several floating rate bank indices plus a spread,
which is dependent upon the credit rating of ComEd's outstanding first
mortgage bonds or on a prime interest rate. ComEd is obligated to pay
commitment fees with respect to the unused portion of such lines of credit.
Unicom Enterprises has a $200 million credit facility which will expire on
November 15, 1999, of which $115 million was unused as of December 31, 1998.
The credit facility can be used by Unicom Enterprises to finance investments
in unregulated businesses and projects, including UT Holdings and Unicom
Energy Services, and for general corporate purposes. The credit facility is
guaranteed by Unicom and includes certain covenants with respect to Unicom and
Unicom Enterprises' operations. Such covenants include, among other things,
(i) a requirement that Unicom and its consolidated subsidiaries maintain a
tangible net worth at least $10 million over that of ComEd and its
consolidated subsidiaries, (ii) a requirement that Unicom's consolidated debt
to consolidated capitalization not exceed 0.65 to 1, (iii) restrictions on the
indebtedness for borrowed money that Unicom (excluding ComEd) and Unicom
Enterprises may incur, and (iv) a requirement that Unicom own 100% of the
outstanding stock of Unicom Enterprises and at least 80% of the outstanding
stock of ComEd; and provide that Unicom may not declare or pay dividends
during the continuance of an event of default. Interest rates for borrowings
under the credit facility are set at the time of a borrowing and are based on
either a prime interest rate or a floating rate bank index plus a spread which
varies with the credit rating of ComEd's outstanding first mortgage bonds.
Unicom Enterprises is obligated to pay commitment fees with respect to the
unused portion of such lines of credit.
(14) Disposal of Spent Nuclear Fuel
Under the Nuclear Waste Policy Act of 1982, the DOE is responsible for the
selection and development of repositories for, and the disposal of, spent
nuclear fuel and high-level radioactive waste. ComEd, as required by that Act,
has signed a contract with the DOE to provide for the disposal of spent
nuclear fuel and high-level radioactive waste from ComEd's nuclear generating
stations. That contract provided for acceptance by the DOE of such materials
to begin in January 1998; however, that date was not met by the DOE and is
expected to be delayed significantly. The DOE's current estimate for opening a
facility to accept such waste is 2010. This extended delay in spent nuclear
fuel acceptance by the DOE has led to ComEd's consideration of additional dry
storage alternatives. On July 30, 1998, ComEd filed a complaint against the
United States in the United States Court of Federal Claims seeking to recover
damages caused by the DOE's failure to honor its contractual obligation to
begin disposing of spent nuclear fuel in January 1998. The contract with the
DOE requires ComEd to pay the DOE a one-time fee applicable to nuclear
generation through April 6, 1983 of $277 million, with interest to date of
payment, and a fee payable quarterly equal to one mill per kilowatthour of
nuclear-generated and sold electricity after April 6, 1983. Pursuant to the
48
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
contract, ComEd has elected to pay the one-time fee, with interest, just prior
to the first delivery of spent nuclear fuel to the DOE. The liability for the
one-time fee and related interest is reflected on the Consolidated Balance
Sheets.
(15) Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of financial instruments either held or issued and outstanding. The disclosure
of such information does not purport to be a market valuation of Unicom and
subsidiary companies as a whole. The impact of any realized or unrealized
gains or losses related to such financial instruments on the financial
position or results of operations of Unicom and subsidiary companies is
primarily dependent on the treatment authorized under future ComEd ratemaking
proceedings.
Investments. Securities included in the nuclear decommissioning funds have
been classified and accounted for as "available for sale" securities. The
estimated fair value of the nuclear decommissioning funds, as determined by
the trustee and based on published market data, as of December 31, 1998 and
1997 was as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
-------------------------------- --------------------------------
Cost Unrealized Fair Cost Unrealized Fair
Basis Gains Value Basis Gains Value
---------- ---------- ---------- ---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Short-term investments.. $ 40,907 $ 42 $ 40,949 $ 33,524 $ 2 $ 33,526
U.S. Government and
Agency issues.......... 197,240 20,213 217,453 170,240 15,882 186,122
Municipal bonds......... 416,121 24,124 440,245 306,104 20,598 326,702
Corporate bonds......... 241,111 8,790 249,901 231,738 4,293 236,031
Common stock............ 740,956 565,630 1,306,586 667,657 385,851 1,053,508
Other................... 11,345 838 12,183 17,300 2,508 19,808
---------- -------- ---------- ---------- -------- ----------
$1,647,680 $619,637 $2,267,317 $1,426,563 $429,134 $1,855,697
========== ======== ========== ========== ======== ==========
</TABLE>
At December 31, 1998, the debt securities held by the nuclear
decommissioning funds had the following maturities:
<TABLE>
<CAPTION>
Cost Basis Fair Value
---------- ----------
(Thousands of
Dollars)
<S> <C> <C>
Within 1 year....................................... $ 29,421 $ 29,431
1 through 5 years................................... 185,810 192,159
5 through 10 years.................................. 254,024 273,255
Over 10 years....................................... 411,607 439,643
</TABLE>
The net earnings of the nuclear decommissioning funds, which are recorded as
increases to the accumulated provision for depreciation, for the years 1998,
1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C>
Gross proceeds from sales of securities........ $1,795,484 $2,163,522 $2,335,974
Less cost based on specific identification..... 1,728,092 2,088,300 2,300,038
---------- ---------- ----------
Realized gains on sales of securities.......... $ 67,392 $ 75,222 $ 35,936
Other realized fund earnings net of expenses... 40,374 39,123 33,008
---------- ---------- ----------
Total realized net earnings of the funds....... $ 107,766 $ 114,345 $ 68,944
Unrealized gains .............................. 190,503 198,741 65,516
---------- ---------- ----------
Total net earnings of the funds............... $ 298,269 $ 313,086 $ 134,460
========== ========== ==========
</TABLE>
49
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Current Assets. Cash, temporary cash investments, cash held for redemption
of securities and other cash investments, which include U.S. Government
obligations and other short-term marketable securities, and special deposits,
which primarily includes cash deposited for the redemption, refund or
discharge of debt securities, are stated at cost, which approximates their
fair value because of the short maturity of these instruments. The securities
included in these categories have been classified as "available for sale"
securities.
Capitalization. The estimated fair values of ComEd preferred and preference
stocks, ComEd-obligated mandatorily redeemable preferred securities of
subsidiary trusts holding solely ComEd's subordinated debt securities,
transitional trust notes, and long-term debt were obtained from an independent
consultant. The estimated fair values, which include the current portions of
redeemable preference stock and long-term debt but exclude accrued interest
and dividends, as of December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
-------------------------------- ----------------------------------
Carrying Unrealized Fair Carrying Unrealized Fair
Value Losses Value Value Losses Value
---------- ---------- ---------- ----------- ---------- -----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
ComEd preferred and
preference stocks...... $ 678,156 $ 11,500 $ 689,656 $ 712,069 $ 11,970 $ 724,039
ComEd-obligated
mandatorily redeemable
preferred securities of
subsidiary trusts
holding solely ComEd's
subordinated debt
securities............. $ 350,000 $ 20,678 $ 370,678 $ 350,000 $ 21,701 $ 371,701
Transitional trust
notes.................. $3,382,821 $ 67,168 $3,449,989 $ -- $ -- $ --
Long-term debt.......... $5,911,757 $451,240 $6,362,997 $ 5,913,942 $ 380,890 $ 6,294,832
</TABLE>
Long-term notes payable, which are not included in the above table, amounted
to $100 million and $327 million at December 31, 1998 and 1997, respectively.
Such notes, for which interest is paid at fixed and prevailing rates, are
included in the consolidated financial statements at cost, which approximates
their fair value.
Current Liabilities. The carrying value of notes payable, which consists of
commercial paper and bank loans maturing within one year, approximates the
fair value because of the short maturity of these instruments. See
"Capitalization" above for a discussion of the fair value of the current
portions of long-term debt and redeemable preference stock.
Other Noncurrent Liabilities. The carrying value of accrued spent nuclear
fuel disposal fee and related interest represents the settlement value as of
December 31, 1998 and 1997; therefore, the carrying value is equal to the fair
value.
(16) Pension and Postretirement Benefits
As of December 31, 1998, ComEd had a qualified non-contributory defined
benefit pension plan which covers all regular employees of ComEd and certain
of Unicom's subsidiaries. Benefits under this plan reflect each employee's
compensation, years of service and age at retirement. Funding is based upon
actuarially determined contributions that take into account the amount
deductible for income tax purposes and the minimum contribution required under
the Employee Retirement Income Security Act of 1974, as amended. The December
31, 1998 and 1997 pension liabilities and related data were determined using
the January 1, 1998 actuarial valuation. Additionally, ComEd maintains a
50
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
nonqualified supplemental retirement plan which covers any excess pension
benefits that would be payable to management employees under the qualified
plan but which are limited by the Internal Revenue Code. On January 19, 1998,
Indiana Company's qualified defined benefit pension plan was merged into the
ComEd pension plan as a result of the sale of Indiana Company's State Line
Station and the transfer of its remaining employees to ComEd.
ComEd, the Indiana Company and certain of Unicom's subsidiaries provide
certain postretirement medical, dental and vision care, and life insurance for
retirees and their dependents and for the surviving dependents of eligible
employees and retirees. The employees become eligible for postretirement
benefits when they reach age 55 with ten years of service. The liability for
postretirement benefits is funded through trust funds based upon actuarially
determined contributions that take into account the amount deductible for
income tax purposes. The health care plans are contributory, funded jointly by
the companies and the participating retirees. The December 31, 1998 and 1997
postretirement benefit liabilities and related data were determined using the
January 1, 1998 actuarial valuations.
Reconciliations of the beginning and ending balances of the projected
pension benefit obligation and the accumulated postretirement benefit
obligation and the funded status of these plans for the years 1998 and 1997
are as follows:
<TABLE>
<CAPTION>
Twelve Months Ended Twelve Months Ended
December 31, 1998 December 31, 1997
-------------------------- --------------------------
Other Other
Pension Postretirement Pension Postretirement
Benefits Benefits Benefits Benefits
---------- -------------- ---------- --------------
(Thousands of Dollars)
Change in benefit
obligation
- -----------------
<S> <C> <C> <C> <C>
Benefit obligation at
beginning of period.... $4,010,000 $1,139,000 $3,579,000 $1,035,000
Service cost............ 115,000 38,000 100,000 34,000
Interest cost........... 273,000 78,000 261,000 76,000
Plan participants' con-
tributions............. -- 3,000 -- 3,000
Curtailment gain........ -- -- (5,000) --
Actuarial loss.......... 165,000 37,000 282,000 32,000
Benefits paid........... (236,000) (46,000) (207,000) (41,000)
---------- ---------- ---------- ----------
Benefit obligation at
end of period......... $4,327,000 $1,249,000 $4,010,000 $1,139,000
---------- ---------- ---------- ----------
<CAPTION>
Change in plan assets
- ---------------------
<S> <C> <C> <C> <C>
Fair value of plan as-
sets at beginning of
period................. $3,706,000 $ 767,000 $3,281,000 $ 665,000
Actual return on plan
assets................. 534,000 108,000 631,000 128,000
Employer contribution... 11,000 20,000 1,000 12,000
Plan participants' con-
tributions............. -- 3,000 -- 3,000
Benefits paid........... (236,000) (46,000) (207,000) (41,000)
---------- ---------- ---------- ----------
Fair value of plan as-
sets at end of period. $4,015,000 $ 852,000 $3,706,000 $ 767,000
---------- ---------- ---------- ----------
Plan assets less than
benefit obligation..... $ (312,000) $ (397,000) $ (304,000) $ (372,000)
Unrecognized net actuar-
ial loss (gain)........ 37,000 (345,000) 68,000 (350,000)
Unrecognized prior serv-
ice cost (asset)....... (60,000) 48,000 (64,000) 52,000
Unrecognized transition
obligation (asset)..... (101,000) 323,000 (114,000) 345,000
---------- ---------- ---------- ----------
Accrued liability for
benefits.............. $ (436,000) $ (371,000) $ (414,000) $ (325,000)
========== ========== ========== ==========
</TABLE>
The assumed discount rate used to determine the benefit obligation as of
December 31, 1998 and 1997 was 6.75% and 7.00%, respectively. The fair value
of pension plan assets excludes $21 million and $17 million held in grantor
trust as of December 31, 1998 and 1997, respectively, for the payment of
benefits under the supplemental plan.
51
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
The components of pension and other postretirement benefit costs, portions
of which were recorded as components of construction costs, for the years
1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
Pension Benefit Costs --------- --------- ---------
- --------------------- (Thousands of Dollars)
<S> <C> <C> <C>
Service cost............ $ 115,000 $ 100,000 $ 93,000
Interest cost on pro-
jected benefit
obligation............. 273,000 261,000 247,000
Expected return on plan
assets................. (342,000) (310,000) (289,000)
Amortization of transi-
tion asset............. (12,000) (13,000) (13,000)
Amortization of prior
service asset.......... (4,000) (4,000) (4,000)
Recognized loss......... 2,000 2,000 2,000
Curtailment gain........ -- (5,000) --
--------- --------- ---------
Net periodic benefit
cost.................. $ 32,000 $ 31,000 $ 36,000
========= ========= =========
<CAPTION>
Other Postretirement
Benefit Costs
- --------------------
<S> <C> <C> <C>
Service cost............ $ 38,000 $ 34,000 $ 32,000
Interest cost on accumu-
lated benefit
obligation............. 78,000 76,000 73,000
Expected return on plan
assets................. (69,000) (61,000) (55,000)
Amortization of transi-
tion obligation........ 22,000 22,000 22,000
Amortization of prior
service cost........... 4,000 4,000 3,000
Recognized gain......... (14,000) (13,000) (9,000)
Severance plan cost..... 6,000 8,000 4,000
--------- --------- ---------
Net periodic benefit
cost.................. $ 65,000 $ 70,000 $ 70,000
========= ========= =========
</TABLE>
In accounting for the pension costs and other postretirement benefit costs
under the plans, the following weighted average actuarial assumptions were
used for the years 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Other
Pension Benefits Postretirement Benefits
----------------- -----------------------
1998 1997 1996 1998 1997 1996
----- ----- ----- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Annual discount rate................. 7.00% 7.50% 7.50% 7.00% 7.50% 7.50%
Annual long-term rate of return on
plan assets......................... 9.50% 9.75% 9.75% 9.20% 9.40% 9.38%
Annual rate of increase in future
compensation levels................. 4.00% 4.00% 4.00% -- -- --
</TABLE>
The pension curtailment gain in December 1997 represents the recognition of
prior service costs, the transition asset and the decrease in the projected
benefit obligation related to the reduction in the number of employees due to
the sale of State Line Station by the Indiana Company.
Postretirement health care costs for the years 1998, 1997 and 1996 included
$6 million, $8 million and $4 million, respectively, related to voluntary
separation offers to certain employees of ComEd and the Indiana Company.
The health care cost trend rates used to measure the expected cost of the
postretirement medical benefits are assumed to be 8.5% for pre-Medicare
recipients and 6.5% for Medicare recipients for 1998. Those rates are assumed
to decrease in 0.5% annual increments to 5% for the years 2005 and 2001,
respectively, and to remain level thereafter. The health care cost trend
rates, used to measure the expected cost of postretirement dental and vision
benefits, are a level 3.5% and
52
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
2.0% per year, respectively. Assumed health care cost trend rates have a
significant effect on the amounts reported for the health care plans. A one
percentage point change in the assumed health care cost trend rates would have
the following effects:
<TABLE>
<CAPTION>
1 Percentage 1 Percentage
Point Increase Point Decrease
-------------- --------------
(Thousands of Dollars)
<S> <C> <C>
Effect on total annual service and interest cost
components...................................... $ 24,000 $ (18,000)
Effect on postretirement benefit obligation...... 225,000 (176,000)
</TABLE>
In addition, an employee savings and investment plan is available to
eligible employees of ComEd and certain of its and Unicom's subsidiaries.
Under the plan, each participating employee may contribute up to 20% of such
employee's base pay. The participating companies match the first 6% of such
contribution equal to 100% of the first 2% of contributed base salary, 70% of
the next 3% of contributed base salary and 25% of the next 1% of contributed
base salary. The participating companies' contributions were $32 million, $33
million and $30 million for the years 1998, 1997 and 1996, respectively.
(17) Separation Plan Costs
O&M expenses included $48 million, $39 million and $12 million for the years
1998, 1997 and 1996, respectively, for costs related to voluntary separation
offers to certain employees of ComEd and the Indiana Company, as well as
certain one-time, employee-related costs. Such costs resulted in charges of
$29 million (after-tax), or $0.13 per common share (basic), $24 million
(after-tax), or $0.11 per common share (basic), and $7 million (after-tax), or
$0.03 per common share (basic), for the years 1998, 1997 and 1996,
respectively.
(18) Income Taxes
The components of the net deferred income tax liability at December 31, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
December 31
----------------------
1998 1997
---------- ----------
(Thousands of
Dollars)
<S> <C> <C>
Deferred income tax liabilities:
Accelerated cost recovery and liberalized deprecia-
tion, net of removal costs........................... $4,028,351 $4,062,801
Overheads capitalized................................. 140,922 131,509
Repair allowance...................................... 233,861 231,697
Regulatory assets recoverable through future rates.... 680,356 785,354
Deferred income tax assets:
Postretirement benefits............................... (331,651) (305,242)
Unamortized investment tax credits.................... (191,135) (206,112)
Regulatory liabilities to be settled through future
rates................................................ (595,005) (698,750)
Nuclear plant closure................................. (38,354) (194,244)
Other--net............................................ (146,224) (136,258)
---------- ----------
Net deferred income tax liability...................... $3,781,121 $3,670,755
========== ==========
</TABLE>
The $110 million increase in the net deferred income tax liability from
December 31, 1997 to December 31, 1998 is comprised of $111 million of
deferred income tax expense and a $1 million decrease in regulatory assets net
of regulatory liabilities pertaining to income taxes for the year. The amount
of accelerated cost recovery and liberalized depreciation included in deferred
income tax
53
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
liabilities as of December 31, 1998 includes amounts related to the regulatory
asset for impaired production plant. The amount of regulatory assets included
in deferred income tax liabilities primarily relates to the equity component
of AFUDC which is recorded on an after-tax basis, the borrowed funds component
of AFUDC which was previously recorded net of tax and other temporary
differences for which the related tax effects were not previously recorded.
The amount of other regulatory liabilities included in deferred income tax
assets primarily relates to deferred income taxes provided at rates in excess
of the current statutory rate.
The components of net income tax expense charged (credited) to continuing
operations for the years 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
Operating income:
Current income taxes.......................... $304,889 $ 255,057 $328,216
Deferred income taxes......................... 50,134 62,501 161,176
Investment tax credits deferred--net.......... (27,730) (31,015) (33,378)
Other (income) and deductions:
Current income taxes.......................... (51,816) 1,116 (12,349)
Deferred income taxes......................... 59,458 (385,994) 5,117
Investment tax credits........................ (12,107) (22,526) --
-------- --------- --------
Net income taxes charged (credited) to continu-
ing operations................................ $322,828 $(120,861) $448,782
======== ========= ========
</TABLE>
Provisions for current and deferred federal and state income taxes and
amortization of investment tax credits resulted in the following effective
income tax rates for the years 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- ----------
(Thousands of Dollars)
<S> <C> <C> <C>
Net income (loss) before extraordinary item
and cumulative effect of change in accounting
principle.................................... $510,184 $(239,215) $ 666,100
Net income taxes charged (credited) to
continuing operations........................ 322,828 (120,861) 448,782
Provision for dividends on ComEd preferred and
preference stocks............................ 56,884 60,486 64,424
-------- --------- ----------
Pre-tax net income (loss) before extraordinary
item, cumulative effect and provision for
dividends.................................... $889,896 $(299,590) $1,179,306
======== ========= ==========
Effective income tax rate..................... 36.3% 40.3% 38.1%
======== ========= ==========
</TABLE>
The principal differences between net income taxes charged (credited) to
continuing operations and the amounts computed at the federal statutory rate
of 35% for the years 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
Federal income taxes computed at statutory rate. $311,464 $(104,857) $412,757
Equity component of AFUDC which was excluded
from taxable income............................ (390) (8,320) (7,272)
Amortization of investment tax credits.......... (25,503) (53,541) (33,378)
State income taxes, net of federal income taxes. 40,899 (682) 58,387
Differences between book and tax accounting,
primarily property-related deductions.......... (3,642) 46,539 18,288
-------- --------- --------
Net income taxes charged (credited) to
continuing operations.......................... $322,828 $(120,861) $448,782
======== ========= ========
</TABLE>
The effects of an income tax refund related to prior years were recorded in
1996, resulting in a positive impact of $26 million (after-tax), or $0.12 per
common share (basic).
54
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
(19) Taxes, Except Income Taxes
Provisions for taxes, except income taxes, for the years 1998, 1997 and 1996
were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
Illinois electricity excise tax............... $126,481 $228,350 $227,062
Illinois invested capital..................... -- 99,503 104,663
Illinois electricity distribution tax......... 110,025 -- --
Municipal utility gross receipts.............. 152,879 168,094 168,715
Real estate................................... 125,521 151,508 129,770
Municipal compensation........................ 78,010 78,286 78,544
Other--net.................................... 106,918 75,145 74,777
-------- -------- --------
$699,834 $800,886 $783,531
======== ======== ========
</TABLE>
Effective January 1, 1998, the Illinois invested capital tax was repealed
and the Illinois electricity distribution tax was enacted as a replacement.
The new tax is based on the kilowatthours delivered to ultimate consumers.
Effective August 1, 1998, as provided for by the 1997 Act, the Illinois
electricity excise tax and certain municipal utility taxes are recorded as
liabilities. Previously, similar taxes were presented on the Statements of
Consolidated Operations as revenue and expense. The reduction in operating
revenues and taxes, except income taxes, due to the change in presentation for
such taxes was approximately $95 million for 1998. This change in the
presentation for such taxes did not have an effect on results of operations.
ComEd's real estate taxes in 1996 reflect a credit of $23 million which
related to the year 1995.
See Note 22 for additional information regarding Illinois invested capital
taxes.
(20) Lease Obligations of Subsidiary Companies
Under its nuclear fuel lease arrangement, ComEd may sell and lease back
nuclear fuel from a lessor who may borrow an aggregate of $700 million,
consisting of $300 million of commercial paper/bank borrowings and $400
million of intermediate term notes, to finance the transactions. With respect
to the commercial paper/bank borrowings portion, $300 million will expire on
November 23, 1999. With respect to the intermediate term notes, $60 million
expires on November 23, 1999, and an additional portion each November 23
thereafter through November 23, 2003. At December 31, 1998, ComEd's obligation
to the lessor for leased nuclear fuel amounted to approximately $529 million.
As a result of the permanent cessation of nuclear generation operations at
Zion Station, ComEd repurchased approximately $100 million of nuclear fuel
assemblies held under the nuclear fuel lease arrangements at Zion Station in
June 1998. See Note 5 for additional information regarding the permanent
cessation of nuclear generation operations at Zion Station. ComEd has agreed
to make lease payments which cover the amortization of the nuclear fuel used
in ComEd's reactors plus the lessor's related financing costs. ComEd has an
obligation for spent nuclear fuel disposal costs of leased nuclear fuel.
As of December 31, 1998, future minimum rental payments, net of executory
costs, for capital leases are estimated to aggregate to $589 million,
including $217 million in 1999, $164 million in 2000, $99 million in 2001, $60
million in 2002, $33 million in 2003 and $16 million in 2004-2005. The
estimated interest component of such rental payments aggregates $64 million.
The estimated portions of obligations due within one year under capital leases
of $195 million and $241 million at December 31, 1998 and 1997, respectively,
were included in current liabilities on the Consolidated Balance Sheets.
55
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Future minimum rental payments at December 31, 1998 for operating leases are
estimated to aggregate to $316 million, including $38 million in 1999, $35
million in 2000, $30 million in 2001, $27 million in 2002, $25 million in 2003
and $161 million in 2004-2043.
(21) Joint Plant Ownership
ComEd has a 75% undivided ownership interest in the Quad Cities nuclear
generating station. Further, ComEd is responsible for 75% of all costs which
are charged to appropriate investment and O&M accounts, and provides its own
financing. ComEd's net plant investment, including construction work in
progress, in Quad Cities Station on the Consolidated Balance Sheets was $5
million at December 31, 1998, after reflecting the accounting impairment
recorded in the second quarter of 1998. See Note 2 for additional information.
(22) Commitments and Contingent Liabilities
Purchase commitments, principally related to construction and nuclear fuel,
approximated $366 million at December 31, 1998, comprised of $335 million for
ComEd, $21 million for UT Holdings and $10 million for Unicom Energy Services.
In addition, ComEd has substantial commitments for the purchase of coal.
ComEd's coal costs are high compared to those of other utilities. 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. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations," subcaption "Liquidity and
Capital Resources--UTILITY OPERATIONS--Construction Program," for additional
information regarding ComEd's purchase commitments.
ComEd is a member of NEIL which provides insurance coverage against property
damage and associated replacement power costs occurring at members' nuclear
generating facilities. All companies insured with NEIL are subject to
retrospective premium adjustments if losses exceed accumulated reserve funds.
Capital has been accumulated in the reserve funds such that ComEd would not be
liable for any single incident. However, ComEd could be subject to assessments
in any policy year for each of three types of coverage provided. The maximum
assessments are approximately $53 million for primary property damage, $73
million for excess property damage and $22 million for replacement power.
Prior to January 1, 1998, the primary property damage coverage described was
provided by NML, another mutual insurance company which merged into NEIL. The
merger did not affect ComEd's obligations or coverage.
The NRC's indemnity for public liability coverage under the Price-Anderson
Act is supported by a mandatory industry-wide program under which owners of
nuclear generating facilities could be assessed in the event of nuclear
incidents. Based on the number of nuclear reactors with operating licenses,
ComEd would currently be subject to a maximum assessment of $1,145 million in
the event of an incident, limited to a maximum of $130 million in any calendar
year.
In addition, ComEd participates in the American Nuclear Insurers Master
Worker Program, which provides coverage for worker tort claims filed for
bodily injury caused by the nuclear energy hazard. This program was modified,
effective January 1, 1998, to provide coverage to all workers whose "nuclear-
related employment" began on or after the commencement date of reactor
operations. ComEd will not be liable for a retrospective assessment under this
new policy. However, ComEd is still subject to a maximum retroactive assesment
of up to $36 million in the event losses incurred under the small number of
policies in the old program exceed accumulated reserves.
During 1989 and 1991, actions were brought in federal and state courts in
Colorado against ComEd and Cotter seeking unspecified damages and injunctive
relief based on allegations that
56
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Cotter has permitted radioactive and other hazardous material to be released
from its mill into areas owned or occupied by the plaintiffs resulting in
property damage and potential adverse health effects. With respect to Cotter,
in 1994 a federal jury returned nominal dollar verdicts against Cotter on
eight bellwether plaintiffs' claims in the 1989 cases, which verdicts were
upheld on appeal. The remaining claims in the 1989 actions have been settled
and dismissed. On July 15, 1998, a jury verdict was rendered in Dodge v.
Cotter (United States District Court for the District of Colorado, Civil
Action No. 91-Z-1861), a case relating to 14 of the plaintiffs in the 1991
cases. The verdict against Cotter included compensatory and punitive damages
totaling approximately $3 million (not including prejudgment interest, which
has not yet been calculated, and which Cotter anticipates may bring the total
award to under $6 million), together with medical monitoring. The matter is
currently on appeal. Although the other 1991 cases will necessarily involve
the resolution of numerous contested issues of fact and law, Unicom and
ComEd's determination is that these actions will not have a material impact on
their financial position or results of operations.
ComEd is involved in administrative and legal proceedings concerning air
quality, water quality and other matters. The outcome of these proceedings may
require increases in future construction expenditures and operating expenses
and changes in operating procedures. ComEd and its subsidiaries are or are
likely to become parties to proceedings initiated by the U.S. EPA, state
agencies and/or other responsible parties under CERCLA with respect to a
number of sites, including MGP sites, or may voluntarily undertake to
investigate and remediate sites for which they may be liable under CERCLA.
ComEd generally did not operate MGPs as a corporate entity but did, however,
acquire MGP sites as part of the absorption of smaller utilities.
Approximately half of these sites were transferred to Northern Illinois Gas
Company as part of a general conveyance in 1954. ComEd also acquired former
MGP sites as vacant real estate on which ComEd facilities have been
constructed. To date, ComEd has identified 44 former MGP sites for which it
may be liable for remediation. ComEd presently estimates that its costs of
former MGP site investigation and remediation will aggregate from $25 million
to $150 million in current-year (1999) dollars. It is expected that the costs
associated with investigation and remediation of former MGP sites will be
incurred over a period not to exceed 30 years. Because ComEd is not able to
determine the most probable liability for such MGP costs, in accordance with
accounting standards, a reserve of $25 million has been included in other
noncurrent liabilities on the Consolidated Balance Sheets as of December 31,
1998 and 1997, which reflects the low end of the range of ComEd's estimate of
the liability associated with former MGP sites. In addition, as of December
31, 1998 and 1997, a reserve of $8 million has been included in other
noncurrent liabilities on the Consolidated Balance Sheets, representing
ComEd's estimate of the liability associated with cleanup costs of remediation
sites other than former MGP sites. Approximately half of this reserve relates
to anticipated cleanup costs associated with a property formerly used as a
tannery which was purchased by ComEd in 1973. Unicom and ComEd presently
estimate that ComEd's costs of investigating and remediating the former MGP
and other remediation sites, pursuant to CERCLA and state environmental laws,
will not have a material impact on the financial position or results of
operations of Unicom or ComEd. These cost estimates are based on currently
available information regarding the responsible parties likely to share in the
costs of responding to site contamination, the extent of contamination at
sites for which the investigation has not yet been completed and the cleanup
levels to which sites are expected to have to be remediated.
The IDR has issued Notices of Tax Liability to ComEd alleging deficiencies
in Illinois invested capital tax payments for the years 1988 through 1996. The
alleged deficiencies including interest
57
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
and penalties totaled approximately $45 million as of December 31, 1998. ComEd
has protested the notices, and the matter is currently pending before the
IDR's Office of Administrative Hearings. Interest will continue to accrue on
the alleged tax deficiencies.
(23) Quarterly Financial Information
<TABLE>
<CAPTION>
Average Basic
Number of Earnings/
Common (Loss)
Net Shares Per
Operating Operating Income/ Outstanding Common
Three Months Ended(a) Revenues Income (Loss) (Basic) Share
- --------------------- ---------- --------- ----------- ----------- ---------
(Thousands Except per Share Data)
<S> <C> <C> <C> <C> <C>
March 31, 1998.......... $1,712,235 $190,414 $ 53,715 216,707 $ 0.25
June 30, 1998........... $1,779,146 $215,146 $ 80,458 216,897 $ 0.37
September 30, 1998...... $2,095,699 $394,707 $ 264,822 217,024 $ 1.22
December 31, 1998....... $1,564,173 $206,427 $ 111,189 217,141 $ 0.51
March 31, 1997.......... $1,670,722 $214,912 $ 262,370 216,053 $ 1.21
June 30, 1997........... $1,686,422 $153,076 $ 5,494 216,368 $ 0.03
September 30, 1997...... $2,070,912 $386,999 $ 240,332 216,409 $ 1.11
December 31, 1997....... $1,654,966 $157,080 $(1,361,046) 216,489 $(6.29)
</TABLE>
(a) The March 31, 1997 Net Income/(Loss) includes $197 million (after-tax), or
$0.91 per common share (basic), for the cumulative effect of a change in
accounting principle.
(24) Subsequent Events
ComEd redeemed the following preference stock, first mortgage bonds and
sinking fund debentures on January 19, 1999, January 27, 1999 and February 16,
1999, respectively.
<TABLE>
<CAPTION>
Preference Stock
--------------------------------------------------------------------------
Shares
Series Outstanding Principal Amount
------ ----------- ----------------------
(Thousands of Dollars)
<S> <C> <C>
$8.40.................................. 750,000 $ 74,175
$8.38.................................. 750,000 73,566
$2.00.................................. 2,000,000 51,560
$1.96.................................. 2,000,000 52,440
$1.90.................................. 4,249,549 106,239
$7.24.................................. 750,000 74,340
$9.25.................................. 450,000 45,000
$8.85.................................. 187,500 18,750
$8.40 Series B......................... 240,000 23,838
$8.20.................................. 142,845 14,285
---------- --------
11,519,894 $534,193
========== ========
</TABLE>
58
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Concluded
<TABLE>
<CAPTION>
First Mortgage Bonds
-------------------------------------------------------------------------
Principal Amount
Series ----------------------
------------------------------
(Thousands of Dollars)
<S> <C>
9 1/8% due October 15, 2021....................... $125,000
8 7/8% due October 1, 2021........................ 100,000
8 1/8% due January 15, 2007....................... 180,000
8% due October 15, 2003........................... 125,000
7 5/8% due June 1, 2003........................... 100,000
7 1/2% due January 1, 2001........................ 100,000
--------
$730,000
========
</TABLE>
<TABLE>
<CAPTION>
Sinking Fund Debentures
-------------------------------------------------------------------------
Principal Amount
Series ----------------------
------------------------------
(Thousands of Dollars)
<S> <C>
7 5/8% due February 15, 2003...................... $56,000(1)
7 5/8% due February 15, 2003...................... 2,000
-------
$58,000
=======
</TABLE>
--------
(1)Optional Redemption
In response to a tender offer, ComEd reacquired $229 million of the
following first mortgage bonds in early February 1999.
<TABLE>
<CAPTION>
Principal Amount
Series ----------------------
------------------------------
(Thousands of Dollars)
<S> <C>
9 3/8% due February 15, 2000...................... $ 82,655
9 3/4% due February 15, 2020...................... 146,547
----------------
$ 229,202
================
</TABLE>
In the first quarter of 1999, ComEd expects to record losses and premiums
related to the early redemptions and the tender offer of the above-mentioned
first mortgage bonds, preference stock and sinking fund debentures, which will
reduce net income on common stock by approximately $38 million (after-tax), or
$0.17 per common share.
In addition to the debt and preference stock redemptions and the tender
offer discussed above, Unicom also has announced plans to repurchase
approximately $750 million of Unicom common stock using the proceeds it
receives from ComEd's repurchase of its common stock held by Unicom. The
remaining proceeds will be used for the payment of fees and additional debt
and equity redemptions. See Note 7 for additional information.
59
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 19, 1999
Commonwealth Edison Company
(Exact name of registrant as specified in its charter)
Illinois 1-1839 36-0938600
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification No.)
incorporation)
37th Floor, 10 South Dearborn Street, 60690-0767
Post Office Box 767, Chicago, Illinois (Zip Code)
(Address of principal executive
offices)
Registrant's telephone number, including area code: (312) 394-4321
<PAGE>
Item 5. Other Events
The purpose of this Current Report is to file certain financial information
regarding the Registrant (Commonwealth Edison Company) and its subsidiaries.
Such financial information is set forth in the exhibits to this Current
Report.
Exhibits
<TABLE>
<C> <S>
(23) Consent of Independent Public Accountants
(27) Financial Data Schedule of Commonwealth Edison Company
(99) Commonwealth Edison Company and Subsidiary Companies--Certain
Financial Information as of and for the Year Ended December 31,
1998:
--Summary of Selected Consolidated Financial Data
--Cash Dividends Paid per Share of Common Stock
--1998 Consolidated Revenues and Sales
--Management's Discussion and Analysis of Financial Condition and
Results of Operations
--Report of Independent Public Accountants
--Statements of Consolidated Operations for the years 1998, 1997 and
1996
--Consolidated Balance Sheets as of December 31, 1998 and 1997
--Statements of Consolidated Capitalization as of December 31, 1998
and 1997
--Statements of Consolidated Retained Earnings (Deficit) for the
years 1998, 1997 and 1996
--Statements of Consolidated Cash Flows for the years 1998, 1997 and
1996
--Notes to Financial Statements
</TABLE>
2
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Commonwealth Edison Company
(Registrant)
By: Robert E. Berdelle
----------------------------------
Robert E. Berdelle
Vice President and
Comptroller
Date: February 24, 1999
3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
(23) Consent of Independent Public Accountants
(27) Financial Data Schedule of Commonwealth Edison Company
(99) Commonwealth Edison Company and Subsidiary Companies--Certain
Financial Information as of and for the Year Ended December 31,
1998:
--Summary of Selected Consolidated Financial Data
--Cash Dividends Paid per Share of Common Stock
--1998 Consolidated Revenues and Sales
--Management's Discussion and Analysis of Financial Condition
and Results of Operations
--Report of Independent Public Accountants
--Statements of Consolidated Operations for the years 1998, 1997
and 1996
--Consolidated Balance Sheets as of December 31, 1998 and 1997
--Statements of Consolidated Capitalization as of December 31,
1998 and 1997
--Statements of Consolidated Retained Earnings (Deficit) for the
years 1998, 1997 and 1996
--Statements of Consolidated Cash Flows for the years 1998, 1997
and 1996
--Notes to Financial Statements
</TABLE>
<PAGE>
Exhibit (23)
Commonwealth Edison Company
Form 8-K File No. 1-1839
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated February 19, 1999 on Commonwealth Edison Company
and Subsidiary Companies' consolidated financial statements as of and for the
year ended December 31, 1998, included as an Exhibit to this Form 8-K Current
Report of Commonwealth Edison Company, into Commonwealth Edison Company's
previously filed prospectuses as follows: (1) prospectus dated August 21,
1986, constituting part of Form S-3 Registration Statement File No. 33-6879,
as amended (relating to the Company's Debt Securities and Common Stock); (2)
prospectus dated January 7, 1994, constituting part of Form S-3 Registration
Statement File No. 33-51379 (relating to the Company's Debt Securities and
Cumulative Preference Stock); (3) prospectus dated September 19, 1995,
constituting part of Amendment No. 1 to Form S-3 Registration Statement File
No. 33-61343, as amended (relating to Company-Obligated Mandatorily Redeemable
Preferred Securities of ComEd Financing I); (4) prospectus dated June 13, 1997
constituting part of Form S-4 Registration Statement File No. 333-28369
(relating to Company-Obligated Mandatorily Redeemable Preferred Securities of
ComEd Financing II); and (5) Form S-8 Registration Statement File No. 333-
33847 (relating to the Commonwealth Edison Company Excess Benefit Savings
Plan). We also consent to the application of our report to the ratios of
earnings to fixed charges and the ratios of earnings to fixed charges and
preferred and preference stock dividend requirements for each of the years
ended December 31, 1998, 1997 and 1996 appearing in Exhibit 99 of this Form 8-
K.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 24, 1999
<PAGE>
Exhibit (99)
Commonwealth Edison Company
Form 8-K File No. 1-1839
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
<PAGE>
Commonwealth Edison Company and Subsidiary Companies
Forward-Looking Information
Except for historical data, the information contained herein constitutes
forward-looking statements. Forward-looking statements are inherently
uncertain and subject to risks. Such statements should be viewed with caution.
Actual results or experience could differ materially from the forward-looking
statements as a result of many factors. Forward-looking statements in this
report include, but are not limited to: (1) statements regarding expectations
of revenue reductions and collections of future CTC revenues as a result of
the 1997 Act in "Management's Discussion and Analysis of Financial Condition
and Results of Operations," subcaption "Changes in the Electric Utility
Industry--The 1997 Act," and in Note 2 of Notes to Financial Statements, (2)
statements regarding estimated capital expenditures in "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
subcaptions "Liquidity and Capital Resources--Construction Program" and
"Changes in the Electric Utility Industry--Response to Regulatory Changes,"
(3) statements regarding the estimated return to service of certain nuclear
generating units in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," subcaption "Regulation--Nuclear
Matters," (4) statements regarding the costs of decommissioning nuclear
generating stations in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," subcaption "Regulation--Nuclear
Matters," and in Note 1 of Notes to Financial Statements, under "Depreciation,
Amortization of Regulatory Assets and Decommissioning," (5) statements
regarding cleanup costs associated with MGPs and other remediation sites in
Note 22 of Notes to Financial Statements, (6) statements regarding the
estimated fair value of forward energy contracts in "Management's Discussion
and Analysis of Financial Condition and Results of Operations," subcaption
"Liquidity and Capital Resources--Market Price Exposure," and (7) statements
regarding the risks and uncertainties relating to Year 2000 issues set forth
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations," subcaption "Liquidity and Capital Resources--Year 2000
Conversion," including the projected completion dates in each of Unicom's four
critical business areas, Unicom's dependence upon the Year 2000 readiness of
third parties with whom it has significant business relationships, the
estimated costs of remediating or upgrading embedded systems and software that
would not otherwise be replaced in accordance with Unicom's business plans,
and Unicom's Year 2000 contingency planning process. Management cannot predict
the course of future events or anticipate the interaction of multiple factors
beyond management's control and their effect on revenues, project timing and
costs. The statements regarding revenue reductions and collections of future
CTC revenues are subject to unforeseen developments in the market for
electricity in Illinois resulting from regulatory changes. The statements
regarding estimated capital expenditures, estimated return to service of
nuclear generation units, decommissioning costs, cleanup costs and Year 2000
conversion costs are subject to changes in the scope of work and manner in
which the work is performed and consequent changes in the timing and level of
the projected expenditure, and are also subject to changes in laws and
regulations or their interpretation or enforcement. The statements regarding
expectations for Year 2000 readiness and Unicom's Year 2000 contingency
planning process are subject to the risk that Year 2000 remediation efforts of
Unicom and other parties with whom it has significant business relationships
are not successful. The statements regarding the estimated return to service
of nuclear generating units are subject to the concurrence of the NRC with
proceeding to power operations. The statements regarding the fair value of
forward energy contracts are subject to changes in generating capability and a
reduction in the demand for electricity. Unicom and ComEd make no commitment
to disclose any revisions to the forward-looking statements, or any facts,
events or circumstances after the date hereof that may bear upon forward-
looking statements.
1
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Definitions.............................................................. 3
Summary of Selected Consolidated Financial Data.......................... 4
Cash Dividends Paid per Share of Common Stock............................ 4
1998 Consolidated Revenues and Sales..................................... 4
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 5-22
Report of Independent Public Accountants................................. 23
Consolidated Financial Statements--
Statements of Consolidated Operations for the years 1998, 1997 and
1996.................................................................. 24
Consolidated Balance Sheets as of December 31, 1998 and 1997........... 25-26
Statements of Consolidated Capitalization as of December 31, 1998 and
1997.................................................................. 27
Statements of Consolidated Retained Earnings (Deficit) for the years
1998, 1997 and 1996................................................... 28
Statements of Consolidated Cash Flows for the years 1998, 1997 and
1996.................................................................. 29
Notes to Financial Statements.......................................... 30-57
</TABLE>
2
<PAGE>
DEFINITIONS
The following terms are used in this document with the following meanings:
<TABLE>
<CAPTION>
Term Meaning
- ------------------- ------------------------------------------------------------------
<S> <C>
1997 Act Illinois Electric Service Customer Choice and Rate Relief Law of
1997
AFUDC Allowance for funds used during construction
APB Accounting Principles Board
CERCLA Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended
ComEd Commonwealth Edison Company
ComEd Funding ComEd Funding, LLC, a ComEd subsidiary
ComEd Funding Trust ComEd Transitional Funding Trust, a ComEd Funding subsidiary
Congress U.S. Congress
Cotter Cotter Corporation, a ComEd subsidiary
CTC Non-bypassable "competitive transition charge"
DOE U.S. Department of Energy
EEI Edison Electric Institute
EPRI Electric Power Research Institute
ESPP Employee Stock Purchase Plan
FAC Fuel adjustment clause
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
FERC Order FERC Open Access Order No. 888 issued in April 1996
GAAP Generally Accepted Accounting Principles
ICC Illinois Commerce Commission
IDR Illinois Department of Revenue
Indiana Company Commonwealth Edison Company of Indiana, Inc., a ComEd subsidiary
INPO Institute of Nuclear Power Operations
ISO Independent System Operator
MAIN Mid-America Interconnected Network
MGP Manufactured gas plant
NEI Nuclear Electric Institute
NEIL Nuclear Electric Insurance Limited
NERC North American Electric Reliability Council
NML Nuclear Mutual Limited
NRC Nuclear Regulatory Commission
O&M Operation and maintenance
SEC Securities and Exchange Commission
SFAS Statement of Financial Accounting Standards
SPEs Special purpose entities
S&P Standard & Poor's
Trusts ComEd Financing I and ComEd Financing II, ComEd subsidiaries
Trust Securities Company-obligated mandatorily redeemable preferred securities of
subsidiary trusts holding solely the Company's subordinated debt
securities
Unicom Unicom Corporation
Unicom Enterprises Unicom Enterprises Inc., a Unicom subsidiary
U.S. EPA U.S. Environmental Protection Agency
</TABLE>
3
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
Summary of Selected Consolidated Financial Data
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(Millions Except per Share Data)
<S> <C> <C> <C> <C> <C>
Electric operating revenues.. $ 7,136 $ 7,073 $ 6,935 $ 6,910 $ 6,278
Net income (loss)............ $ 594 $ (774)(1) $ 743 $ 717(2) $ 424
Net income (loss) on common
stock....................... $ 537 $ (834)(1) $ 679 $ 647(2) $ 359
Cash dividends declared per
common share................ $ 1.60 $ 1.60 $ 1.60 $ 1.60 $ 1.60(3)
Total assets (at end of
year)....................... $25,434 $22,458 $23,217 $23,119 $23,076
Long-term obligations at end
of year excluding current
portion:
Long-term debt, preference
stock and preferred
securities subject to
mandatory redemption
requirements............... $ 8,097 $ 6,087 $ 6,376 $ 6,950 $ 7,745
Accrued spent nuclear fuel
disposal fee and related
interest................... $ 728 $ 693 $ 657 $ 624 $ 590
Capital lease obligations... $ 334 $ 438 $ 475 $ 374 $ 431
Other long-term obligations. $ 2,953 $ 3,177 $ 1,983 $ 1,819 $ 1,754
</TABLE>
- --------
(1) Includes an extraordinary loss for the write-off of generation-related net
regulatory assets of $810 million (after-tax), the loss on the early
retirement of Zion nuclear generating station of $523 million (after-tax)
and the positive impact of a one-time cumulative effect for a change in
accounting principle for revenue recognition of $197 million (after-tax).
(2) Includes an extraordinary loss related to the early redemption of long-term
debt of $20 million (after-tax).
(3) Excludes a special dividend (consisting of $40 million cash and the common
stock of Unicom Enterprises) effected on September 1, 1994 in connection
with the holding company corporate restructuring.
Cash Dividends Paid per Share of Common Stock
<TABLE>
<CAPTION>
1998 (by quarters) 1997 (by quarters)
------------------------- -------------------------
Fourth Third Second First Fourth Third Second First
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash dividends paid......... 40c 40c 40c 40c 40c 40c 40c 40c
</TABLE>
1998 Consolidated Revenues and Sales
<TABLE>
<CAPTION>
Electric % Increase/ %
Operating (Decrease) Kilowatthour Increase/ %
Revenues Over Sales (Decrease) Increase
(Thousands) 1997 (Millions) Over 1997 Customers Over 1997
----------- ----------- ------------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Residential............. $2,551,741 -- % 23,942 8.1% 3,134,490 0.4%
Small commercial and
industrial............. 2,187,532 1.6 27,005 4.4 304,208 4.5
Large commercial and
industrial............. 1,406,720 (4.1) 24,043 (0.1) 1,794 14.6
Public authorities...... 510,185 0.8 7,472 2.0 14,049 15.4
Electric railroads...... 31,022 4.2 433 3.6 3 50.0
---------- ------ ---------
Ultimate consumers..... $6,687,200 (0.3) 82,895 3.8 3,454,544 0.8
Provision for revenue
refunds................ (21,848) (52.1) -- -- -- --
---------- ------ ---------
Net ultimate consumers. $6,665,352 -- 82,895 3.8 3,454,544 0.8
Sales for resale........ 397,157 18.0 14,744 (6.0) 62 21.6
Other revenues.......... 73,371 0.6 -- -- -- --
---------- ------ ---------
Total.................. $7,135,880 0.9 97,639 2.2 3,454,606 0.8
========== ====== =========
</TABLE>
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Changes in the Electric Utility Industry
Unicom and its predominant business, electric energy generation,
transmission and distribution, are in a period of fundamental change. These
changes are attributable to changes in technology and regulation. Federal law
and regulations have been amended to provide for open transmission system
access, and various states, including Illinois, are considering, or have
adopted, new regulatory structures to allow access by some or all customers to
energy suppliers, in addition to the local utility.
Electric Utility Industry. The electric utility industry historically has
consisted of vertically integrated companies which combine generation,
transmission and distribution assets; serve customers within relatively
defined service territories; and operate under extensive regulation with
respect to rates, operations and other matters. Utilities have operated under
a regulatory compact with the state, with a statutory obligation to serve all
of the electricity needs within their service territory in a nondiscriminatory
manner. Historically, investment and operating decisions have been made based
upon the utilities' respective assessment of the current and projected needs
of their customers. In view of this obligation, regulation has focused on
investment and operating costs, and rates have been based on a recovery of
some or all of such prudently incurred costs plus a return on invested
capital. Such rate regulation, and the ability of utilities to recover
investment and other costs through rates, have provided the basis for
recording certain costs as regulatory assets. These assets represent costs
which are allocated over future periods reflecting related regulatory
treatment, rather than expensed in the current period.
Federal Regulation. The Federal Energy Policy Act of 1992, among other
things, empowered FERC to introduce a greater level of competition into the
wholesale marketplace for electric energy. Under the FERC Order, utilities are
required to file open access tariffs with regard to their transmission
systems. These tariffs set forth the terms, including prices, under which
other parties and the utility's wholesale marketing function may use the
utility's transmission system. ComEd has an approved open access tariff with
the FERC. The FERC Order requires the separation of the transmission
operations and wholesale marketing functions so as to ensure that unaffiliated
third parties have access to the same information as to system availability
and other requirements. The FERC Order further requires utilities to operate
an electronic bulletin board to make transmission price and access data
available to all potential users. A key feature of the FERC Order is that it
contemplates full recovery of a utility's costs "stranded" by competition.
These costs are "stranded" or "strandable" to the extent market-based rates
would be insufficient to allow for their full recovery. To recover stranded
costs, the utility must show that it had a reasonable expectation that it
would continue to serve the customer in question under its regulatory compact.
In addition, some governmental entities, such as cities, may elect to
"municipalize" a utility's distribution facilities through condemnation
proceedings. Such municipalities would then be able to purchase electric power
on a wholesale basis and resell it to customers over the newly acquired
facilities. The FERC Order provides for the recovery of a utility's investment
stranded by municipalization.
The 1997 Act. In December 1997, the Governor of Illinois signed into law the
1997 Act, which established a phased process to introduce competition into the
electric industry in Illinois under a less regulated structure. Major
provisions of the 1997 Act applicable to ComEd include a 15% residential base
rate reduction which became effective August 1, 1998, an additional 5%
residential base rate reduction commencing on May 1, 2002 and gradual customer
access to other electric suppliers. Access for commercial and industrial
customers will occur over a period from October 1999 to December 2000, and
access for residential customers will occur after May 1, 2002. ComEd's
operating revenues were reduced by approximately $170 million in 1998 due to
the rate reduction. ComEd is engaged in certain pricing experiments
contemplated by the 1997 Act, which reduced ComEd's
5
<PAGE>
operating revenues by approximately $30 million in 1998 and are expected to
reduce operating revenues by $55 million in 1999, compared to 1997 rate
levels; however, such reductions are expected to be offset by the effects of
customer growth. ComEd expects that the 15% residential base rate reduction
will reduce ComEd's operating revenues by approximately $380 million in 1999,
compared to 1997 rate levels.
The 1997 Act also provides for the collection of a CTC from customers who
choose another electric service provider during a transition period that
extends through 2006, and can be extended through 2008 with ICC approval. The
CTC will be established in accordance with a formula defined in the 1997 Act.
The CTC, which will be applied on a cents per kilowatthour basis, considers
the revenue which would have been collected from a customer under tariffed
rates, reduced by the revenue the utility will receive for providing delivery
services to the customer, the market price for electricity and a defined
mitigation factor, which represents the utility's opportunity to develop new
revenue sources and achieve cost savings.
Notwithstanding these rate reductions, and subject to certain earnings
tests, a rate freeze will generally be in effect until at least January 1,
2005. During this period, utilities may reorganize, sell or assign assets,
retire or remove plants from service, and accelerate depreciation or
amortization of assets with limited ICC regulatory review. A utility may
request a rate increase during the rate freeze period only when necessary to
ensure the utility's financial viability, but not before January 1, 2000.
Under the earnings provision of the 1997 Act, if the earned return on common
equity of a utility during this period exceeds an established threshold, one-
half of the excess earnings must be refunded to customers. The threshold rate
of return on common equity is based on the 30-Year Treasury Bond rate, plus
5.5% in the years 1998 through 1999 and plus 6.5% in the years 2000 through
2004. The utility's earned return on common equity and the threshold return on
common equity are each calculated on a two year average basis. The earnings
sharing provision is applicable only to utility earnings. Increased
amortization of regulatory assets may be recorded, thereby reducing the earned
return on common equity, if earnings otherwise would have exceeded the maximum
allowable rate of return. The potential for earnings sharing or increased
amortization of regulatory assets could limit earnings in future periods.
Under the 1997 Act, utilities are required to continue to offer delivery
services, including the transmission and distribution of electric energy, such
that customers who select an alternative energy supplier can receive electric
energy from that supplier using existing transmission and distribution
facilities. Such services will continue to be offered under cost-based,
regulated rates. The 1997 Act also requires utilities to establish or join an
ISO that will independently manage and control utility transmission systems.
Additionally, the 1997 Act includes the leveling of certain regulatory
requirements to permit operational flexibility, the leveling of certain
regulatory and tax provisions as applied to various electric suppliers and a
new, more stringent, liability standard applicable to ComEd in the event of a
major outage. See "Response to Regulatory Changes" below for additional
information.
The 1997 Act also allows a portion of ComEd's future revenues to be
segregated and used to support the issuance of securities by ComEd or a SPE.
The proceeds from such securities issuances must be used to refinance
outstanding debt and equity or for certain other limited purposes. The total
amount of such securities that may be issued is approximately $6.8 billion;
approximately one-half of that amount can be issued in the twelve-month period
which commenced on August 1, 1998. In December 1998, ComEd initiated the
issuance of $3.4 billion of transitional trust notes through its SPEs, ComEd
Funding and ComEd Funding Trust. See "Liquidity and Capital Resources,"
subcaption "Capital Resources" below, and Notes 2, 7 and 24 of Notes to
Financial Statements, for additional information regarding the issuance of
transitional trust notes and the planned use of the proceeds.
6
<PAGE>
As a result of the 1997 Act, prices for the supply of electric energy are
expected to change from cost-based, regulated rates to rates determined by
competitive market forces. The CTC allows ComEd to recover some of its costs
which might otherwise be unrecoverable under market-based rates. Nonetheless,
ComEd will need to take steps to address the portion of such costs which are
not recoverable through the CTC. Such steps may include cost control efforts,
developing new sources of revenue and potential asset dispositions. See
"Response to Regulatory Changes" below for additional information.
See Note 2 of Notes to Financial Statements for the accounting effects
related to the 1997 Act.
Response to Regulatory Changes. Unicom has announced several business and
operational objectives designed to focus efforts in responding to the energy
market changes that are expected to develop from the 1997 Act. These
objectives contemplate that ComEd will seek additional improvements in its
transmission and distribution operations in order to meet customers'
expectations for reliable delivery and will seek to refocus its generation
activities, with a concentration on improved nuclear generation, and that
Unicom and ComEd will seek to expand their offerings of energy-related
products and services. See Unicom and ComEd's Current Report on Form 8-K dated
July 6, 1998 for more information regarding the objectives announced by
Unicom.
Under the 1997 Act, the role of electric utilities in the supply and
delivery of energy is expected to change. Utilities, such as ComEd,
traditionally have been responsible for providing both adequate supply and
reliable delivery of electricity to customers within their service areas. In
the future, ComEd will continue to be obligated to provide a reliable delivery
system. However, ComEd will be obligated to supply electricity only to those
customers that it continues to serve under tariffs for electricity, but not to
those customers who choose to rely on the marketplace. Nonetheless, during the
transition period to a competitive supply marketplace, ComEd must provide both
an adequate supply and reliable delivery of electricity. Given the tight
capacity situation in ComEd's market, ComEd will continue working to restore
and maintain its available capacity, as well as working to assist in the
development of a competitive supply marketplace in Illinois.
ComEd has a significant commitment to, and investment in, nuclear generating
capacity. ComEd has installed a new management team responsible for improving
nuclear operations. Such improvements are aimed at increasing levels of energy
generation, or capacity factors, at ComEd's nuclear generating units while
simultaneously improving ComEd's record of meeting NRC requirements and INPO
performance standards. Increased capacity factors generally result in lower
unit production costs and an improved opportunity to generate and sell
electricity in a competitive marketplace. Efforts are also being made to
control capital and operating costs through increased efficiencies, such as
the reduction of downtime and expense associated with generating unit
maintenance and refueling outages.
ComEd also evaluated the recoverability of its generating plant investment
as a result of the 1997 Act. This evaluation, based upon interpretative
guidance issued by the SEC, resulted in a conclusion that the investment was
impaired and should be reduced. See Note 2 of Notes to Financial Statements
for additional information. Notwithstanding these efforts, there continues to
be an ongoing analysis of the ability of ComEd's various nuclear plants to
generate and deliver electric energy safely at competitive prices in the
competitive market for energy. Although short-term system reliability and
capacity constraints are likely to support the continued operation of ComEd's
nuclear units in the near term, expected longer term developments are likely
to make decision-making a function of economic considerations. In the absence
of short-term reliability and capacity constraints, if a generating plant
cannot produce power safely at a cost below the competitive market price, it
will be disposed of or closed. Plant impairment adjustments have reduced the
carrying value of nuclear plants, and depreciation rates reflecting shortened
estimated useful lives for certain stations will reduce the
7
<PAGE>
carrying value further during the next several years. However, closure of a
plant could involve additional charges associated with the write-off of its
then-current carrying value. In January 1998, ComEd announced its decision to
permanently cease nuclear generating operations at its Zion Station. The
related retirement resulted in a charge in 1997 of $523 million (after-tax)
reflecting both a write down of the plant's carrying value and a liability for
future closing costs. A portion of Zion Station is used to provide voltage
support in the transmission system that serves ComEd's northern region. See
Note 5 of Notes to Financial Statements for additional information.
ComEd is also undertaking steps to offer for sale approximately 9,700
megawatts of fossil generating capacity, representing seven fossil-fired
generating stations, and the oil and gas peaking units located in Illinois.
Such plants have an aggregate book value of approximately $1.3 billion. As a
part of such sales, ComEd expects to enter into transitional power purchase
agreements with the purchasers in order to assure the availability of power
during the period that the competitive market for electric generation is
developing in Illinois. Non-binding proposals from prospective qualified
buyers were received in late 1998, with final, binding proposals due in the
first quarter of 1999. The closing of the sale is anticipated for the fourth
quarter of 1999. Any net gain on the sale of the stations will be offset in
large part by increased amortization of the regulatory asset for impaired
production plant and therefore is not expected to have a material impact on
results of operations. In addition, ComEd continues to examine its other
operations and assets with a view to rationalizing their investment and
operating costs against their ability to contribute to the revenues and
profits of ComEd. As a result of such evaluation, additional asset sales may
be undertaken.
In response to customer expectations and more stringent reliability
standards provided for by the 1997 Act, ComEd's Board of Directors approved a
$307 million increase in capital expenditures on its transmission and
distribution systems over the next three years. See "Liquidity and Capital
Resources," subcaption "Construction Program" below, for additional
information regarding capital spending for the transmission and distribution
systems.
ComEd joined with other Midwestern utilities in the formation of a regional
Midwest ISO in January 1998. Presently, a number of these utilities have
agreed to place their transmission systems under the control of the Midwest
ISO. The Midwest ISO is a key element in accommodating the restructuring of
the electric industry and will promote enhanced reliability of the
transmission system, equal access to the transmission system and increased
competition. The Midwest ISO has established an independent body that will
ultimately direct the planning and operation of the transmission system for
the utilities involved. The Midwest ISO will have operational control over the
transmission system and will have authority to require modification in the
operation of generators connected to that system during system emergencies.
ComEd will retain ownership of its transmission system. The formation of the
Midwest ISO was approved by FERC in September 1998, subject to certain
conditions. The ISO members elected the Midwest ISO Board of Directors in
December 1998.
Liquidity and Capital Resources
Construction Program. ComEd has a construction program for the years 1999-
2001, which consists principally of improvements to its existing nuclear and
other electric production, transmission and distribution facilities. The
program, as currently approved by ComEd, includes the following estimated
expenditures (excluding nuclear fuel expenditures of approximately $676
million):
<TABLE>
<CAPTION>
1999 2000 2001
------ ---- ----
(Millions of Dollars)
<S> <C> <C> <C>
Production.............................................. $ 420 $264 $233
Transmission and Distribution........................... 515 527 529
General................................................. 109 83 80
------ ---- ----
$1,044 $874 $842
====== ==== ====
</TABLE>
8
<PAGE>
This program includes an increase in capital expenditures on transmission
and distribution systems of approximately $307 million over the next three
years, in addition to the estimated $1.3 billion previously planned to be
spent on these systems over the same time period. A significant portion of
such additional expenditures is intended to increase the reliability of
ComEd's distribution system by replacing certain equipment and increasing
automation to identify distribution problems faster and more quickly restore
power to customers.
ComEd's forecasts of peak load indicate a need for additional resources to
meet demand, either through generating capacity, equivalent purchased power
and/or the development of additional demand-side management resources, in 1999
and each year thereafter for the foreseeable future. However, ComEd believes
that adequate resources, including cost-effective, demand-side management
resources, non-utility generation resources and other-utility power purchases,
can be obtained in sufficient quantities to meet such forecasted needs.
Purchase commitments for ComEd, principally related to construction and
nuclear fuel, approximated $335 million at December 31, 1998. In addition,
ComEd's estimated commitments for the purchase of coal are as follows:
<TABLE>
<CAPTION>
Contract Period Commitment (1)
-------------- --------- --------------
<S> <C> <C>
Black Butte Coal Co................................ 1999-2000 $434
Decker Coal Co..................................... 1999-2014 478
Other commitments.................................. 1999-2000 38
----
$950
====
</TABLE>
--------
(1) In millions of dollars, excluding transportation costs. No estimate of
future cost escalation has been made.
For additional information concerning these coal contracts, see Note 22 of
Notes to Financial Statements. See "Changes in the Electric Utility Industry,"
subcaption "Response to Regulatory Changes" above, for additional information.
Capital Resources. In December 1998, ComEd initiated the issuance of $3.4
billion of transitional trust notes through its SPEs, ComEd Funding and ComEd
Funding Trust. The proceeds from the transitional trust notes, net of
transaction costs, must be used to redeem or repurchase debt and equity to
lower ComEd's overall cost of capital. Accordingly, in early 1999 ComEd
redeemed $788 million of long-term debt and $534 million of preference stock,
and reacquired $229 million of outstanding long-term debt through a tender
offer. In addition, $500 million of the proceeds, of which approximately $300
million has been utilized, is being used to reduce ComEd's outstanding short-
term debt. As more fully described below, Unicom has announced plans to
repurchase approximately $750 million of Unicom common stock using the
proceeds it receives from ComEd's repurchase of its common stock held by
Unicom. The remaining proceeds will be used for the payment of fees and
additional debt and equity redemptions and repurchases.
ComEd has entered into a prepaid forward purchase arrangement with Unicom
for the repurchase of approximately 15 million shares of ComEd common stock.
The repurchase arrangement provides for final settlement no later than
February 2000, on either a physical (share) basis, or a net cash basis. The
terms of the repurchase agreements between ComEd and Unicom are identical to
the terms of Unicom's repurchase agreements with the financial institutions.
The repurchase agreements between ComEd and Unicom are expected to be settled
on the same basis Unicom settles its repurchase agreements with the financial
institutions. The amount at which the arrangement can be settled is dependent
principally upon the average market price at which Unicom's common shares have
been repurchased under its repurchase agreements, compared to the forward
price per share. The share repurchases will not reduce shares outstanding or
reduce common stock equity and resulting return on common equity calculations
until the date of physical settlement. ComEd currently does not anticipate
that settlement will occur in 1999. The repurchase arrangement will initially
be recorded as a receivable on ComEd's Consolidated Balance Sheets and will be
adjusted at the end of each
9
<PAGE>
reporting period to reflect the aggregate market value of the shares
deliverable under the arrangement. Consequently, the arrangement could
increase earnings volatility in 1999.
This arrangement supplements a previously announced program to repurchase up
to $200 million of ComEd common stock. Shares repurchased under that program
will also be outstanding for financial statement purposes until the time of
physical settlement, which is currently expected to extend to February 2000,
on either a physical (share) basis, or a net cash basis, at the option of
ComEd. As of December 31, 1998, this arrangement has been accounted for as an
equity instrument. If this arrangement had been settled on a physical (share)
basis at December 31, 1998, ComEd would have received approximately 5.1
million shares of its common stock.
See Note 24 of Notes to Financial Statements for additional information
regarding the redemptions and repurchases of debt and equity.
ComEd forecasts that internal sources will provide approximately three-
fourths of the funds required for ComEd's 1999 construction program and other
capital requirements, including nuclear fuel expenditures, contributions to
nuclear decommissioning funds, sinking fund obligations and scheduled debt
maturities. See Notes 10 and 12 of Notes to Financial Statements for the
summaries of the annual sinking fund requirements and scheduled maturities for
ComEd preference stock and long-term debt, respectively. The forecast takes
into consideration the effects of the 1997 Act and the issuance by ComEd
Funding Trust of $3.4 billion of transitional trust notes in 1998 to refinance
debt and equity, as discussed above.
The type and amount of external financing will depend on financial market
conditions and the needs and capital structure of ComEd at the time of such
financing. A portion of ComEd's financing may be provided through the
continued sale and leaseback of nuclear fuel through ComEd's existing nuclear
fuel lease facility. During 1998, ComEd sold and leased back $101 million of
nuclear fuel through its existing nuclear fuel lease facility. See Note 20 of
Notes to Financial Statements for additional information concerning ComEd's
nuclear fuel lease facility. In July 1998, ComEd issued $225 million principal
amount of 6.95% Notes due July 15, 2018, the proceeds of which were used for
general corporate purposes, including the refinancing of existing debt. ComEd
has $1 billion of unused bank lines of credit at December 31, 1998, which may
be borrowed at various interest rates. The interest rate is set at the time of
a borrowing and is based on floating rate bank indices plus a spread, which is
dependent upon the credit ratings of ComEd's outstanding first mortgage bonds
or on a prime interest rate. See Note 13 of Notes to Financial Statements for
information concerning lines of credit. See the Statements of Consolidated
Cash Flows for the construction expenditures and cash flow from operating
activities for the years 1998, 1997 and 1996. Cash flow from operating
activities decreased temporarily for the year 1998, compared to the previous
two years, as a result of an increase in customer receivables due to the
transition to a new customer information and billing system in the latter part
of 1998.
As of February 19, 1999, ComEd has an effective "shelf" registration
statement with the SEC for the future sale of up to an additional $280 million
of debt securities and cumulative preference stock for general corporate
purposes of ComEd, including the discharge or refund of other outstanding
securities.
ComEd's securities and other securities guaranteed by ComEd are currently
rated by three principal securities rating agencies as follows:
<TABLE>
<CAPTION>
Standard Duff &
Moody's & Poor's Phelps
------- -------- ------
<S> <C> <C> <C>
First mortgage and secured pollution control
bonds........................................... Baa2 BBB BBB
Publicly-held debentures and unsecured pollution
control obligations............................. Baa3 BBB- BBB-
Convertible preferred stock...................... baa3 BB+ BBB-
Preference stock................................. baa3 BB+ BBB-
Trust Securities................................. baa3 BB+ BBB-
Commercial paper................................. P-2 A-2 D-2
</TABLE>
10
<PAGE>
ComEd Funding Trust's securities are currently rated by three principal
securities rating agencies as follows:
<TABLE>
<CAPTION>
Standard Duff &
Moody's & Poors Phelps
------- -------- ------
<S> <C> <C> <C>
Transitional trust notes.......................... Aaa AAA AAA
</TABLE>
As of January 1999, Moody's rating outlook on ComEd's securities is "Stable"
and S&P's rating outlook is "Positive." Duff & Phelps removed ComEd's
securities from "Rating Watch-Down" in September 1998.
In February 1999, S&P revised the general ratings scale for evaluating
preferred and preference stock issues of corporations. As a result of this
change in scale, ratings on ComEd's preferred and preference stocks, and Trust
Securities were lowered in February 1999.
Capital Structure. The ratio of long-term debt to total capitalization
increased to 58.0% at December 31, 1998 from 48.5% at December 31, 1997. The
increase is primarily due to the issuance of $3.4 billion of transitional
trust notes in late December, which had not been applied to redeem long-term
debt and equity as of December 31, 1998. Excluding the effect of the
transitional trust notes, ComEd's ratio of long-term debt to total
capitalization was 45.5% at December 31, 1998. ComEd does not expect the
issuance of the transitional trust notes to adversely affect security ratings
of other outstanding securities. ComEd's retained earnings account had a
positive balance of $177 million at December 31, 1998 and a deficit balance of
$19 million at December 31, 1997. As of December 31, 1998 and 1997, $580
million and $384 million, respectively, of retained earnings had been
appropriated for future dividend payments.
Year 2000 Conversion. Unicom, including ComEd, uses various software
applications and embedded systems throughout its businesses that will be
affected by so-called "Year 2000 issues." These issues may prevent an
application or system from correctly processing dates up to the year 2000 and
beyond. A failure to correct any critical Year 2000 processing problems prior
to January 1, 2000 could have material adverse operational and financial
consequences if the affected systems either cease to function or produce
erroneous data. At this time, Unicom believes the major risks associated with
the inability of systems and software to process Year 2000 data correctly are
a system failure or miscalculation causing disruption of operations, including
among other things, an inability to operate ComEd's nuclear or fossil
generating plants, disruption in the operation of its transmission and
distribution systems or an inability to access interconnections with the
systems of neighboring utilities. Such failures could materially and adversely
affect Unicom's results of operations, financial position and cash flows.
Unicom management established a Year 2000 project team to address Year 2000
issues. The Year 2000 project team is currently composed of over 300 members,
including members of Unicom's senior management. The team is focused on three
elements that are integral to the project: business continuity, project
management and risk management. Business continuity involves the continuation
of reliable electric supply and service in a safe, cost-effective manner.
Project management involves defining and meeting the project scope, schedule
and budget. Risk management involves customer communications, contingency
planning and legal issues.
In addition to its internal efforts, Unicom is working with various industry
groups, including NERC, EPRI and EEI to coordinate electric utility industry
Year 2000 efforts with the Clinton Administration's Year 2000 Conversion
Council, the DOE and Congress. The DOE has asked NERC to report on the
integrity of the transmission system for North America and to coordinate and
assess the preparation of the electric systems in North America for the Year
2000. NERC submitted its initial status report and coordination plan to the
DOE in September 1998 and a second report in January 1999; a full status
report is due by July 1999.
Since July 1996, Unicom has been working to identify and address Year 2000
issues. Unicom's approach to identifying and addressing noncompliant software
applications and embedded systems consists of the following stages: inventory,
analysis, renovation, testing and deployment. The first stage
11
<PAGE>
is to inventory all applications and systems. The analysis stage involves
assessing whether software applications and embedded systems are Year 2000
compliant. The renovation stage involves remediating or upgrading applications
and systems to make them Year 2000 ready. The testing stage determines whether
the renovated applications and systems are Year 2000 ready. The deployment
stage is when the tested applications and systems are implemented. In
addition, Unicom is engaged in contingency planning for Year 2000 problems.
Unicom is developing contingency plans to address the possibility that the
applications and systems may not be Year 2000 ready at the end of this
process. An independent consultant has been engaged to assist Unicom in the
assessment of the process being used to address the Year 2000 issue.
Unicom's Year 2000 project focuses on those facets of its business that are
required to deliver reliable electric service. The project encompasses the
computer systems that support core business functions such as customer
information and billing, finance, procurement, supply and personnel as well as
the components of metering, transmission, distribution and generation support.
The project also focuses on embedded systems, instrumentation and control
systems in facilities and plants. In accordance with business plans, Unicom
has replaced certain of its financial, human resources and customer service
and billing software, and is in the process of replacing its payroll system,
with new software that is Year 2000 compliant, and that addresses Unicom's
strategic needs as it enters a less regulated environment.
The following table summarizes the status as of February 5, 1999 of Unicom's
progress toward achieving Year 2000 readiness. The figures set forth in the
table represent the estimated extent to which Unicom has completed each phase
of the Year 2000 project for software applications and embedded systems.
<TABLE>
<CAPTION>
Software Embedded
Applications Systems
------------ --------
<S> <C> <C>
Inventory........................................... 100% 100%
Analysis............................................ 93% 96%
Renovation.......................................... 87% 74%
Testing............................................. 79% 46%
Deployment.......................................... 78% 91%
</TABLE>
The renovation and testing phases include only those software applications
and embedded systems which are not Year 2000 compliant, and require renovation
and testing. The deployment phase includes all inventoried applications and
systems, including those applications and systems that are Year 2000 compliant
and required no renovation or testing. Accordingly, the percentage of
completion for testing and renovation may be lower than the percentage of
completion for deployment.
The following is a brief summary of estimates of the progress of the Year
2000 project and certain projected completion dates in each of Unicom's four
critical business areas--nuclear generation, fossil generation, transmission
and distribution, and corporate information services:
. Nuclear Generation--Software applications analysis is 65% complete and
embedded systems analysis is 98% complete. Testing of software
applications is 36% complete and 55% complete for embedded systems.
Deployment of software applications is 23% complete and embedded systems
are 85% complete. All ten operating nuclear units are expected to be Year
2000 ready by June 30, 1999.
. Fossil Generation--Analysis is 100% complete for software applications
and 96% complete for embedded systems. Testing of software applications
is 63% complete and 4% complete for embedded systems. Deployment of
software applications is 80% complete and embedded systems are 97%
complete and both are expected to be completed by June 30, 1999.
. Transmission and Distribution--Analysis is 100% complete for software
applications and 98% complete for embedded systems. Testing of software
applications is 89% complete and 97% complete for embedded systems.
Deployment of software applications is 89% complete and 97% complete for
embedded systems. Deployment of software applications and embedded
systems is expected to be completed by June 30, 1999.
12
<PAGE>
. Corporate Information Services--Inventory and analysis are 100% complete.
Renovation, testing and deployment are 99% complete. Enterprise-wide
mainframe applications and systems are 100% complete.
Unicom's current schedule is subject to change, depending on developments
that may arise through unforeseen business circumstances, and through the
remediation and testing phases of its compliance effort. Unicom also depends
upon third parties, including customers, suppliers, government agencies and
financial institutions, to reliably deliver its products and services. Unicom
has implemented additional initiatives to assess the degree to which third
parties with whom it has business relationships are addressing Year 2000
issues. These initiatives include analysis of the Year 2000 compliance
programs of Unicom's critical vendors and obtaining Year 2000 warranties in
certain new contracts and licenses. Unicom also has introduced protocols for
assuring that software and embedded systems remain Year 2000 compliant on a
continuing basis. Unicom's contingency planning is addressing mechanisms for
preventing or mitigating interruption caused by its suppliers. Unicom also has
an outreach program in place for communicating Year 2000 project information
to residential and business customers.
Unicom estimates that the total cost of remediating or upgrading software
which would not otherwise be replaced in accordance with its business plans is
approximately $20 million, and the total cost of remediating or upgrading
embedded systems is approximately $20-$40 million. Approximately $26 million
has been expended as of December 31, 1998 for external labor, hardware and
software costs, and for the costs of Unicom employees who are dedicated full-
time to the Year 2000 project. All of such costs are expensed as incurred. The
foregoing amounts do not include the cost of new software applications
installed as a result of strategic replacement projects described earlier.
Such replacement projects were not accelerated because of Year 2000 issues.
The cost of the project and the dates on which Unicom plans to complete its
Year 2000 modifications are based on management's best estimates, which were
derived utilizing numerous assumptions of future events, including the
continued availability of certain resources, third parties' Year 2000
readiness and other factors. Further, Unicom expects to incur additional costs
after 1999 to remediate and replace less critical software applications and
embedded systems.
Unicom has existing contingency plans in place for events such as extreme
heat, storms, equipment failures and accidents. Unicom is preparing Year 2000
contingency plans based on the framework of existing emergency management
system preparation and scenario development.
Unicom has begun the process of developing contingency plans to address the
most reasonably likely worst case scenarios that could occur in the event that
various Year 2000 issues are not resolved in a timely manner. Unicom submitted
the first draft of contingency plans to NERC prior to December 31, 1998, as
NERC requested. In addition, the first draft contingency plans were also
submitted to MAIN. Final plans are due to be submitted to NERC by June 30,
1999. Contingency planning is an ongoing process and will continue through the
fourth quarter of 1999.
Unicom is using an approach in its contingency planning process that has
been recognized by NERC and NEI. The phases of the process include: business
impact analysis, contingency planning and testing. Unicom's business impact
analysis requires business unit personnel to evaluate the impact of mission-
critical systems failures on Unicom's core business operations, focusing on
specific failure scenarios and how they can be mitigated. The necessary
conditions for enacting the plans will be documented along with the
appropriate personnel responsible in each of the business units should a Year
2000 failure occur. Additionally, Unicom will participate in the NERC
industry-wide readiness drills scheduled for the spring and fall of 1999.
Based on Unicom's current schedule for completion of Year 2000 tasks, it
believes that its planning is adequate to secure Year 2000 readiness of its
critical systems. Nevertheless, achieving Year 2000 readiness is subject to
various risks and uncertainties, many of which are described above.
13
<PAGE>
Unicom is not able to predict all the factors that could cause actual results
to differ materially from its current expectations as to its Year 2000
readiness. However, if Unicom or third parties with whom it has significant
business relationships fail to achieve Year 2000 readiness with respect to
critical systems, there could be a material adverse effect on Unicom's results
of operations, financial position and cash flows.
Market Risks. ComEd is exposed to market risk due to changes in interest
rates and the market price for electricity. Exposure for interest rate changes
relates to its long-term debt and preferred equity obligations. Exposure to
electricity market price risk relates to forward activities taken to manage
effectively the supply of, and demand for, the electric generation capability
of ComEd's generating plants. ComEd has implemented an integrated risk
management framework to manage such risks. A corporate Risk Management
Committee defines the Company's risk tolerance and establishes appropriate
position limits, and corporate policies and procedures have been implemented
to minimize the exposure to market risk. ComEd does not currently utilize
derivative commodity or financial instruments for trading or speculative
purposes. See "Energy Risk Management Contracts" in Note 1 of Notes to
Financial Statements regarding the accounting for energy risk management
contracts.
Interest Rate Exposure. The table below provides the fair value and average
interest or fixed dividend rates of ComEd's outstanding debt and preferred
stock equity instruments as of December 31, 1998, excluding the January and
February redemptions of long-term debt and preference stock. See Note 24 of
Notes to Financial Statements for additional information on the redemptions.
<TABLE>
<CAPTION>
Expected Maturity Date Fair Value
ComEd and Subsidiary ---------------------------------------- as of
Companies (millions) 1999 2000 2001 2002 2003 Thereafter Total 12/31/98
- -------------------- ---- ---- ---- ---- ---- ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-Term Debt--
Fixed Rate............. $151 $460 $ 6 $305 $105 $3,931 $4,958 $5,332
Average Interest Rate.. 8.7% 7.2% 4.3% 7.9% 6.5% 7.8%
Variable Rate.......... $ 92 $ 92 $ 92
Average Interest Rate.. 4.1%
Transitional Trust
Notes................. $330 $350 $340 $340 $340 $1,700 $3,400 $3,450
Average Interest Rate.. 5.4% 5.3% 5.3% 5.4% 5.4% 5.6%
Preferred and Preference
Stock--
Subject to Mandatory
Redemption............ $ 69 $ 69 $ 71
Average Dividend Rate.. 6.9%
Not Subject to Manda-
tory Redemption....... $ 75 $ 75 $ 77
Average Dividend Rate.. 9.9%
Trust Securities........ $ 350 $ 350 $ 371
Average Dividend Rate.. 8.5%
</TABLE>
Market Price Exposure. ComEd's energy purchases from other suppliers have
increased as a result of reductions in owned generating capability and system
load growth. The market price of energy is subject to price volatility
associated with changes in supply and demand in the electric supply markets.
In the normal course of business, ComEd utilizes contracts for the forward
sale and purchase of energy to assure system reliability and manage
effectively the utilization of its available generating capability. ComEd also
utilizes put and call option contracts and energy swap arrangements to limit
the market price risk associated with the forward commodity contracts. The
estimated fair value of the forward energy contracts, including options at
December 31, 1998, was approximately $22 million. The estimated fair value is
based on the estimated net settlement value of the contracts derived from
forward price curves and market quotes, discounted at a 10% rate. A
sensitivity analysis has been performed which indicates that the market price
risk exposure of these financial instruments is not material. Notwithstanding
these price risk management activities, an unexpected loss of generating
capability or reduction in demand could increase ComEd's exposure to market
price risks and could have a material adverse effect on operating results.
14
<PAGE>
Regulation
ComEd and the Indiana Company are subject to federal and state regulation in
the conduct of their respective businesses, including the operations of
Cotter. Such regulation includes rates, securities issuance, nuclear
operations, environmental and other matters. Particularly in the cases of
nuclear operations and environmental matters, such regulation can and does
affect operational and capital expenditures.
Rate Matters. See "Changes in the Electric Utility Industry," subcaption
"The 1997 Act" above, for information regarding the effects of the 1997 Act on
rate matters. See "Nuclear Matters" below for information regarding fuel
reconciliation proceedings for the years 1994 and 1996.
Nuclear Matters. Nuclear operations have been, and remain, an important
focus of ComEd--given the impact of such operations on overall O&M expenses
and the ability of nuclear power plants to produce electric energy at a
relatively low marginal cost. ComEd operates five nuclear power plants,
ranging from the older Dresden and Quad Cities Stations to the more recently
completed LaSalle, Byron and Braidwood Stations, and is intent upon safe,
reliable and efficient operation. See "Changes in the Electric Utility
Industry," subcaption "Response to Regulatory Changes" above, for information
regarding ComEd's permanent cessation of nuclear generation operations at its
Zion Station.
ComEd's LaSalle Station is currently on the NRC's list of plants that
require increased regulatory scrutiny. Dresden Station had been included on
the list since 1992 and LaSalle and Zion Stations were added in January 1997.
In July 1998, the NRC removed Dresden Station from the list because of
improved performance at the station, and also administratively removed Zion
Station from the list because of ComEd's decision to permanently cease further
nuclear operations at that plant. The listing of LaSalle Station does not
prevent ComEd from operating the generating units; however, it does mean that
the NRC will devote additional resources to monitoring ComEd's operating
performance and that ComEd will need to work to demonstrate to the NRC the
sustainability of improvements which it believes it has undertaken and is
continuing to implement. In January 1998, the NRC noted a declining
performance trend at Quad Cities Station. In March 1998, the NRC stated that
weaknesses were observed with respect to certain operations, maintenance and
engineering activities at Quad Cities Station. In July 1998, the NRC stated
that there has not been sufficient operational data to enable it to assess
Quad Cities Station's performance. The NRC indicated that it is monitoring
ComEd's ability to manage its nuclear operations in their entirety and that
the performance at any one facility will be viewed by the NRC in context with
the performance of ComEd's nuclear generating fleet as a whole. The NRC and
representatives of ComEd's management have met, and will continue to meet
periodically in the future, to discuss the status of recovery and restart
efforts and overall performance of the ComEd nuclear program.
ComEd has devoted, and intends to continue to devote, significant resources
to the management and operations of its nuclear generating stations. In recent
years, it has increased and reinforced the Nuclear Generation Group executive
leadership and station management with executives and managers drawn from
other utilities that have resolved similar operational and performance issues.
These efforts include the appointment of a new Chief Nuclear Officer in late
1997. ComEd has also sought to identify, anticipate and address operating and
performance issues in a safe, cost-effective manner, while seeking to improve
the availability and capacity factors of its nuclear generating units.
ComEd's activities, with respect to its nuclear generating stations, have
included improvements in operating and personnel procedures and repair and
replacement of equipment. Although performing such improvements can result in
longer unit outages, the improvements are expected to result in improved
operational performance when completed. LaSalle Units 1 and 2 were shut down
for extensive improvement work in September 1996. LaSalle Unit 1 was returned
to service in August 1998 after the NRC determined that ComEd had made
sufficient improvements at LaSalle Unit 1 for
15
<PAGE>
the unit to resume operations. LaSalle Unit 2 is expected to restart during
the second quarter of 1999. The restart of LaSalle Unit 2 requires the
resolution of material condition issues similar to those of LaSalle Unit 1.
The NERC forecasted the possibility of electric energy shortages in the
summer of 1998 in light of continued outages at nuclear plants operated by
ComEd and other utilities in the Midwest power grid. ComEd took numerous steps
to support the reliability of its system during the summer of 1998. Such steps
included maximizing available on-system generating capacity during periods of
peak demand, arrangements to purchase power from other utilities,
reinforcements to the transmission systems of ComEd and neighboring utilities
to increase capacity and to provide voltage support, and working with
customers to manage the use of and demand for power. As a result of a unique
combination of heat, storms and equipment problems affecting utilities
throughout the Midwest region, on June 25, 1998, ComEd declared a NERC
generation deficiency alert Level 3, which is a statement that firm load loss
is possible. No firm load losses were experienced in 1998. See "Results of
Operations," subcaption "Purchased Power" below, regarding the increased
purchased power expense in 1998.
Generating station availability and performance during a year have been
issues in fuel reconciliation proceedings in assessing the prudence of fuel
and purchased power costs during such year. Final ICC orders have been issued
in fuel reconciliation proceedings related to ComEd's FAC collections for all
years except for 1994. On November 5, 1998, the ICC issued an order in the
proceeding for the year 1994 providing for a refund of approximately $3
million related to nuclear station performance. On February 9, 1999, an
intervenor moved to dismiss its appeal of the 1994 ICC order. On December 29,
1998, the ICC issued an order for the 1996 fuel reconciliation proceeding
requiring ComEd to refund approximately $19 million related to nuclear station
performance. The 1997 Act provides that, because ComEd eliminated its FAC
effective January 1, 1997, the ICC shall not conduct a fuel reconciliation
proceeding for the year 1997 and subsequent years.
Based on ComEd's most recent study approved by the ICC, decommissioning
costs, including the cost of decontamination and dismantling, are estimated to
aggregate to $4.6 billion in current-year (1999) dollars, including a
contingency allowance. ComEd estimates that it will expend approximately $11.6
billion, including a contingency allowance, for decommissioning costs
primarily during the period from 2007 through 2034. Additionally, ComEd
estimates that it will expend an aggregate of approximately $226 million in
current-year (1999) dollars during the period 2000 through 2014 to maintain
Zion Station in a secured mode until decommissioning begins. All such costs
are expected to be funded by external decommissioning trusts, which ComEd
established in compliance with Illinois law and into which ComEd has been
making annual contributions. Future decommissioning cost estimates may be
significantly affected by the adoption of or changes to NRC regulations, as
well as changes in the assumptions used in making such estimates, including
changes in technology, available alternatives for the disposal of nuclear
waste and inflation. See Note 1 of Notes to Financial Statements, under
"Depreciation, Amortization of Regulatory Assets and Decommissioning," for
additional information regarding decommissioning costs.
Environmental Matters. ComEd is involved in administrative and legal
proceedings concerning air quality, water quality and other matters. The
outcome of these proceedings may require increases in future construction
expenditures and operating expenses, and changes in operating procedures. See
Note 22 of Notes to Financial Statements for additional information.
Results of Operations
ComEd's operating results for 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
Net Income (Loss) before Extraordinary Item and
Cumulative Effect of Change in Accounting
Principle..................................... $594,206 $(160,138) $743,368
======== ========= ========
Net Income (Loss) on Common Stock.............. $537,322 $(834,259) $678,944
======== ========= ========
</TABLE>
16
<PAGE>
Net Income on Common Stock for the Year 1998. The increase in earnings for
1998 was primarily due to increased kilowatthour sales, which increased both
operating revenues and energy costs, reduced O&M expenses, lower depreciation
and amortization expenses, lower than expected Zion Station closing costs and
gains on the sales of certain assets. In December 1997, ComEd discontinued
regulatory accounting practices for the generation portion of its business and
recorded other non-recurring accounting charges as a result of the 1997 Act,
which are primarily attributable to the loss for 1997. The 1997 operating
results also include the write-off for the closure of Zion nuclear generating
station, partially offset by a cumulative one-time positive impact of $197
million (after-tax) for a change in accounting method for revenue recognition
to record ComEd's revenues associated with service which has been provided to
customers but has not yet been billed at the end of each accounting period,
retroactive to January 1, 1997.
Kilowatthour sales increased 2% for the year 1998, compared to 1997, driven
largely by increased sales to retail customers due to warmer weather
experienced during the recent year, as well as continued economic growth in
ComEd's service territory. Operating revenues increased 1% during 1998,
compared to 1997. See "Operating Revenues" below for additional information.
Fuel and purchased power costs increased 15% in 1998, compared to the year
1997, reflecting increased demand for electricity, as well as the effects of
higher purchased power prices. See "Purchased Power" below for additional
information.
O&M expenses decreased 7% for the year 1998, compared to the year 1997, as
discussed in "Operation and Maintenance Expenses" below.
The year 1998 includes a 6% decrease in depreciation and amortization
expenses, as discussed in "Depreciation and Amortization" below, and a $15
million (after-tax) reduction in the estimated liability for closing costs
related to the Zion nuclear generating station, both of which increased
operating results.
Also, 1998 operating results reflect realized gains on the sales of certain
assets of $31 million (after-tax). The sold assets consisted principally of
surplus inventory of emission allowances.
Net Loss on Common Stock for the Year 1997. ComEd's kilowatthour sales,
including sales to wholesale customers, increased 5% during 1997, compared to
1996, as discussed below. In 1997, O&M expenses increased 12%, as discussed
below.
Also, 1997 operating results were reduced by $336 million for increased fuel
and purchased power costs, as discussed below. In addition, a 4% increase in
depreciation expense, primarily due to an increase in certain nuclear plant
depreciation, resulted in a charge of $23 million (after-tax).
ComEd discontinued regulatory accounting practices for the generation
portion of its business in the fourth quarter of 1997 due to the expected
transition of electric generation services to market-based pricing as a result
of the 1997 Act. Accordingly, ComEd's generation-related net regulatory
assets, which represent assets and liabilities properly recorded under
regulatory accounting practices but which would not be recorded under GAAP for
non-regulated entities, were written off, resulting in an extraordinary charge
in 1997 of $810 million (after-tax).
In addition, as permitted under the 1997 Act, ComEd elected to eliminate its
FAC in December 1997, which resulted in a charge in the fourth quarter of 1997
of $44 million (after-tax). The reduction includes $25 million (after-tax) in
net FAC charges billed to its customers in 1997, which were refunded to
customers during the first six months of 1998. The reduction also includes a
write-off of $19 million (after-tax) in underrecovered energy costs that ComEd
would have been entitled to recover if the FAC had remained in effect.
17
<PAGE>
Also, 1997 operating results included the write down of ComEd's investment
in uranium-related properties to reflect costs which are not expected to be
recovered in a competitive market. The write down resulted in a charge in 1997
of $60 million (after-tax).
Partially offsetting the charges to operations for 1997 was a change in the
accounting method for revenue recognition to record ComEd's revenues
associated with service which has been provided to customers but has not yet
been billed at the end of each accounting period, retroactive to January 1,
1997. This change in accounting method had a one-time cumulative positive
impact for years prior to 1997 of $197 million (after-tax).
The year 1997 also included a charge of $523 million (after-tax) reflecting
the write-off of the unrecoverable portion of the cost of ComEd's Zion Station
plant and inventories, and a liability for future closing costs, resulting
from the decision in January 1998 to permanently cease nuclear generation
operations at Zion Station.
Net Income on Common Stock for the Year 1996. The 1996 operating results
reflect, among other factors, a 1% decrease in overall O&M expenses, compared
to 1995, the positive effects of an income tax refund related to prior years
with an increase in operating results of $26 million (after-tax), and a
reduction in real estate taxes with an increase in operating results of $28
million (after-tax). Approximately half of the reduction in real estate taxes
in 1996 is related to the year 1995. The 1996 results also reflect a 9%
reduction in the total interest expense on debt and dividend requirements on
preferred and preference stocks, compared to 1995, largely due to the early
retirement of debt at the end of 1995. In September 1996, the ICC approved
ComEd's request to increase depreciation charges on its nuclear generating
units by $30 million for the year 1996, resulting in a charge of $20 million
(after-tax).
Operating Revenues. ComEd's electric operating revenues reflect revenues
from sales to ultimate consumers (including residential, commercial and
industrial customers within its service territory), revenues from sales for
resale (i.e., sales to wholesale customers, principally other electric
utilities), and revenues from collections under its FAC for years prior to
1997, which were intended to recover variations in ComEd's fuel cost for
generating electric energy and the energy portion of purchased power cost in
relation to the amount included in ComEd's base rates. Operating revenues are
affected by kilowatthour sales and rate levels, kilowatthour sales, in turn,
are affected by weather, the level of economic activity within ComEd's service
area, and off-system or wholesale sales to other utilities. Off-system sales
are affected by a number of factors, including nuclear generating availability
and performance.
In 1998, operating revenues increased $63 million and kilowatthour sales
increased 2%, compared to the year 1997, primarily due to warmer summer
weather experienced in 1998 and continued economic growth in ComEd's service
territory, partially offset by a 15% residential rate reduction and reserves
for various federal and state litigation matters. Operating revenues for 1998
also were reduced by approximately $95 million due to a change in presentation
for certain state and municipal taxes. During 1997, electric operating
revenues increased $139 million, primarily due to a 29% increase in
kilowatthour sales to wholesale customers. Kilowatthour sales to ultimate
consumers during 1997 increased 1%, compared to 1996, reflecting continued
economic growth in ComEd's service territory. Operating revenues in 1997 were
reduced by the provision for revenue refunds of $45 million, including revenue
taxes, related to the elimination of the FAC. Operating revenues increased $25
million in the year 1996, compared to the year 1995, principally reflecting
increased sales to other utilities and increased energy cost recoveries under
ComEd's then effective FAC, although kilowatthour sales to ultimate consumers
were down 1% from the prior year due to the cooler summer weather, compared to
the exceptionally hot summer in the year 1995.
Fuel Costs. Changes in fuel expense for the years 1998, 1997 and 1996
primarily resulted from changes in the average cost of fuel consumed, changes
in the mix of fuel sources of electric energy
18
<PAGE>
generated and changes in net generation of electric energy. Fuel mix is
determined primarily by system load, the costs of fuel consumed and the
availability of nuclear generating units. The cost of fuel consumed, net
generation of electric energy and fuel sources of kilowatthour generation were
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Cost of fuel consumed (per million Btu):
Nuclear........................................... $0.57 $0.57 $0.53
Coal.............................................. $2.38 $2.28 $2.41
Oil............................................... $3.49 $3.90 $3.41
Natural gas....................................... $2.39 $2.69 $2.75
Average all fuels................................. $1.23 $1.33 $1.17
Net generation of electric energy (millions of
kilowatthours).................................... 83,302 85,861 93,048
Fuel sources of kilowatthour generation:
Nuclear........................................... 65% 57% 67%
Coal.............................................. 30 39 30
Oil............................................... -- -- 1
Natural gas....................................... 5 4 2
------ ------ ------
100% 100% 100%
====== ====== ======
</TABLE>
The decreases in the net generation of electric energy for 1998 and 1997,
compared to the prior years, are primarily due to the sales of State Line and
Kincaid Stations in December 1997 and February 1998, respectively, and lower
nuclear plant availability in 1997. See "Regulation," subcaption "Nuclear
Matters" above, for information regarding outages at certain of ComEd's
nuclear generating stations.
Fuel Supply. Compared to other utilities, ComEd has relatively low average
fuel costs as a result of its reliance predominantly on lower cost nuclear
generation. ComEd's coal costs, however, are high compared to those of other
utilities. 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 concerning ComEd's coal purchase commitments, see "Liquidity and
Capital Resources" above and Note 22 of Notes to Financial Statements. For
additional information concerning ComEd's FAC, see Notes 2 and 4 of Notes to
Financial Statements.
Purchased Power. Amounts of purchased power are primarily affected by system
load, the availability of ComEd's generating units, and the availability and
cost of power from other utilities. Purchased power costs increased $395
million and $255 million in 1998 and 1997, compared to 1997 and 1996,
respectively. The increase in 1998 includes $161 million for the agreements
entered into in connection with the sales of State Line and Kincaid Stations
in December 1997 and February 1998, respectively. The increase in purchased
power costs in 1998 also reflects the effects of an extraordinary combination
of heat, storms and equipment problems experienced throughout the Midwest in
late June 1998 which resulted in unprecedented purchased power price levels.
The increase in 1997 is primarily due to outages at certain of ComEd's nuclear
generating stations. See "Regulation," subcaption "Nuclear Matters" above, for
information regarding outages at certain of ComEd's nuclear generating
stations.
The number and average cost of kilowatthours purchased were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ -----
<S> <C> <C> <C>
Kilowatthours (millions).............................. 20,704 16,672 6,129
Cost per kilowatthour................................. 3.84c 2.40c 2.37c
</TABLE>
The market price for electricity is subject to price volatility associated
with changes in supply and demand in the electric supply markets. ComEd
utilizes energy put and call option contracts and energy swap arrangements to
limit market price risk associated with forward commodity contracts.
19
<PAGE>
Operation and Maintenance Expenses. O&M expenses include the expenses
associated with operating and maintaining ComEd's generation, transmission and
distribution assets, as well as administrative overhead and support. Given the
variety of expense categories covered, there are a number of factors which
affect the level of such expenses within any given year. Two major components
of such expenses; however, are the costs associated with operating and
maintaining ComEd's nuclear and fossil generating facilities. Generating
station expenses are affected by the cost of materials, regulatory
requirements and expectations, the age of facilities, as well as cost control
efforts.
During the three years presented in the financial statements, the aggregate
level of O&M expenses decreased 7% in 1998 compared to 1997, increased 12% in
1997 compared to 1996, and decreased 1% in 1996 compared to 1995. The year to
year variations reflect increasing efforts in 1997 and 1996 to improve nuclear
generating station availability, as well as to meet regulatory requirements
and expectations. Additional factors in each year also affected the level of
O&M expenses.
O&M expenses associated with nuclear generating stations decreased $172
million and increased $122 million and $88 million for the years 1998, 1997
and 1996, respectively. The decrease in 1998 is principally due to the
permanent cessation of nuclear generation operations at Zion Station. The
increases in 1997 and 1996 were a result of increased levels of activities
associated with the repair, replacement and improvement of nuclear generating
facility equipment. Since 1995, ComEd has increased the number and scope of
maintenance activities associated with its nuclear generating stations. Such
efforts are the result of station performance evaluations performed to
identify the sources and causes of unplanned equipment repairs. The goal of
such efforts is to design and implement cost effective repairs and
improvements to increase station availability. See "Changes in the Electric
Utility Industry," subcaption "Response to Regulatory Changes" above,
regarding the permanent cessation of nuclear operations at Zion Station.
O&M expenses associated with nuclear generating stations have been driven by
ComEd's objective to improve station availability, as well as to meet
regulatory requirements and expectations. ComEd is pursuing a program to
improve the quality of nuclear operations, including safety and efficiency,
which is also expected to achieve a longer term goal of improved availability
and to be positioned to take advantage of opportunities in a more competitive
market. Over the past several years, ComEd has increased and reinforced
station management with managers drawn from other utilities which have
resolved similar operating issues. It has also sought to identify, anticipate
and address nuclear station operation and performance issues in a safe, cost-
effective manner, while seeking to improve the availability and capacity
factors of its nuclear generating units. Such activities have included
improvements in operating and personnel procedures and repair and replacement
of equipment, and can result in longer unit outages. Such activities have
involved increased maintenance and repair expenses in recent years.
O&M expenses associated with fossil generating stations decreased $5 million
and increased $31 million and $4 million for the years 1998, 1997 and 1996,
respectively. The decrease related to fossil generating stations in 1998,
compared to 1997, is primarily due to the sales of State Line and Kincaid
Stations in December 1997 and February 1998, respectively, partially offset by
plant refurbishment costs. The increase related to fossil generating stations
in 1997 is primarily due to an increase in the repair and improvement of
fossil generating facility equipment in order to increase their general
availability, and to ensure their availability during the summer of 1997. That
increase was partially offset by a reduction in personnel.
O&M expenses associated with ComEd's transmission and distribution systems
increased $32 million, $15 million and $11 million for the years 1998, 1997
and 1996, respectively. The 1998 and 1997 increases are primarily due to
increased emergency restoration of electric service, higher maintenance
expenses and tree trimming costs. The 1996 increase reflects higher
maintenance
20
<PAGE>
expenses. O&M expenses associated with customer-related activities increased
$19 million, $11 million and $17 million for the years 1998, 1997 and 1996,
respectively. The increase in 1998 is primarily due to increased marketing
initiatives, uncollectible accounts and customer service personnel costs. The
increase in 1997 is primarily due to an increase in uncollectible accounts.
O&M expenses also include employee benefits expenses. Since 1995, ComEd has
reduced the size of its workforce by offering incentives for employees to
leave the company voluntarily. Such incentives included both current payments
and earlier eligibility for post-retirement health care benefits, in addition
to certain one-time, employee-related costs, resulting in charges of $48
million, $39 million and $12 million for the years 1998, 1997 and 1996,
respectively.
Other employee-related expenses, excluding the effects of employee
separation plans and certain other one-time, employee-related costs, increased
$41 million and decreased $11 million and $47 million for the years 1998, 1997
and 1996, respectively. The increase for the year 1998 is primarily due to
accruals for estimated incentive compensation recorded in 1998. The decrease
in 1997 is primarily due to a reduction in medical costs for active employees.
The decrease in 1996 is primarily related to a reduction in post-retirement
health care benefit costs, primarily due to a plan amendment effected in mid-
1995 which required retired employee contributions to the plan for the first
time. Favorable experience also allowed the use of lower health care cost
trend rates, producing a lower charge in 1996.
O&M expenses in 1998 reflect a reduction of $34 million in certain nuclear
maintenance costs due to technological improvements, compared to 1997. O&M
expenses in 1997 include $25 million for the additional write-off of obsolete
materials and supplies. O&M expenses associated with certain administrative
and general costs decreased $22 million and increased $35 million for the
years 1998 and 1997, respectively. The 1997 increase was due to a variety of
reasons including an increase in the provision for vacation pay liability. The
effects of inflation have also increased O&M expenses during the years and are
also reflected in the increases and decreases discussed herein.
Depreciation and Amortization. Depreciation expense decreased in 1998 and
increased for the years 1997 and 1996. The decrease in 1998 reflects the
retirement of Zion Station and the plant impairment recorded by ComEd in the
second quarter of 1998, partially offset by plant additions and shortened
depreciable lives for certain nuclear stations. The decrease also reflects the
sales of State Line and Kincaid Stations in December 1997 and February 1998,
respectively. The increases in 1997 and 1996 are a result of additional
nuclear plant depreciation and additions to plant in service. Depreciation
expense for 1998 and 1997 includes depreciation related to the replacement of
the steam generators at Byron Unit 1 and Braidwood Unit 1 of $34 million and
$59 million for the years 1998 and 1997, respectively. The 1996 increase
includes the additional depreciation initiative of $30 million. See Note 1 of
Notes to Financial Statements, under "Depreciation, Amortization of Regulatory
Assets and Decommissioning," for additional information.
The amortization of the regulatory asset, related to impaired production
plant recorded by ComEd in the second quarter of 1998, partially offset the
reductions in depreciation expense. Such amortization was $65 million for the
year 1998. See Note 1 of Notes to Financial Statements, under "Depreciation,
Amortization of Regulatory Assets and Decommissioning," for additional
information.
Interest on Debt. Changes in interest on long-term debt and notes payable
for the years 1998, 1997 and 1996 were due to changes in average interest
rates and in the amounts of long-term debt and notes payable outstanding.
Changes in interest on long-term debt also reflected new issues of debt, the
retirement and early redemption of debt, and the retirement and redemption of
issues which
21
<PAGE>
were refinanced at generally lower rates of interest. The average amounts of
long-term debt and notes payable outstanding and average interest rates
thereon were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Long-term debt outstanding:
Average amount (millions).......................... $6,099 $6,256 $6,644
Average interest rate.............................. 7.06% 7.65% 7.67%
Notes payable outstanding:
Average amount (millions).......................... $ 344 $ 153 $ 230
Average interest rate.............................. 5.68% 5.95% 5.79%
</TABLE>
Decommissioning. The staff of the SEC has questioned certain of the current
accounting practices of the electric utility industry, including ComEd,
regarding the recognition, measurement and classification of decommissioning
costs for nuclear generating stations in the financial statements of electric
utilities. In response to these questions, the FASB is reviewing the
accounting for nuclear decommissioning costs. If current electric utility
industry accounting practices for such decommissioning costs are changed,
annual provisions for decommissioning could increase and the estimated cost
for decommissioning could be recorded as a liability rather than as
accumulated depreciation. Decommissioning costs of currently retired nuclear
plants are recorded as a liability. ComEd does not believe that such changes,
if required, would have an adverse effect on results of operations due to its
ability to recover decommissioning costs through rates.
Other Items. The amounts of AFUDC reflect changes in the average levels of
investment subject to AFUDC and changes in the average annual capitalization
rates as discussed in Note 1 of Notes to Financial Statements, under "AFUDC
and Interest Capitalized." ComEd discontinued SFAS No. 71 regulatory
accounting practices in December 1997 for the generation portion of its
business. As a result, beginning in 1998, ComEd capitalized $28 million in
interest costs on its generation-related construction work in progress and
nuclear fuel in process. AFUDC and interest capitalized do not contribute to
the current cash flow of ComEd.
The ratios of earnings to fixed charges for the years 1998, 1997 and 1996
were 2.67, 0.58 and 2.90, respectively. The ratios of earnings to fixed
charges and preferred and preference stock dividend requirements for the years
1998, 1997 and 1996 were 2.29, 0.49 and 2.48, respectively. Earnings for 1997
were inadequate to cover fixed charges by approximately $259 million and fixed
charges and preferred and preference stock dividend requirements by
approximately $359 million. The deficiency is principally attributable to the
earnings impact of the closure of Zion Station.
Business corporations, in general, have been adversely affected by inflation
because amounts retained after the payment of all costs have been inadequate
to replace, at increased costs, the productive assets consumed. Electric
utilities, in particular, have been especially affected as a result of their
capital intensive nature and regulation which limits capital recovery and
prescribes installation or modification of facilities to comply with
increasingly stringent safety and environmental requirements. Because the
regulatory process limits the amount of depreciation expense included in
ComEd's revenue allowance to the original cost of utility plant investment,
the resulting cash flows are inadequate to provide for replacement of that
investment in future years or preserve the purchasing power of common equity
capital previously invested.
22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Commonwealth Edison Company:
We have audited the accompanying consolidated balance sheets and statements
of consolidated capitalization of Commonwealth Edison Company (an Illinois
corporation) and subsidiary companies as of December 31, 1998 and 1997, and
the related statements of consolidated operations, retained earnings (deficit)
and cash flows for each of the three years in the period ended December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Commonwealth Edison
Company and subsidiary companies as ofDecember 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
As discussed in Note 3, effective January 1, 1997, the Company changed its
method of accounting for revenue recognition.
Arthur Andersen LLP
Chicago, Illinois
February 19, 1999
23
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED OPERATIONS
The following Statements of Consolidated Operations for the years 1998, 1997
and 1996 reflect the results of past operations and are not intended as any
representation as to results of operations for any future period. Future
operations will necessarily be affected by various and diverse factors and
developments, including changes in electric prices, regulation, population,
business activity, competition, taxes, environmental control, energy use,
fuel, cost of labor, purchased power and other matters, the nature and effect
of which cannot now be determined.
<TABLE>
<CAPTION>
1998 1997 1996
---------- ----------- ----------
(Thousands of Dollars)
<S> <C> <C> <C>
Electric Operating Revenues............... $7,135,880 $ 7,073,088 $6,934,547
---------- ----------- ----------
Electric Operating Expenses and Taxes:
Fuel.................................... $1,093,264 $ 1,239,438 $1,157,855
Purchased power......................... 795,355 400,055 145,299
Operation............................... 1,457,331 1,715,016 1,496,562
Maintenance............................. 789,262 689,729 652,495
Depreciation and amortization........... 937,604 1,001,149 967,137
Taxes (except income)................... 697,151 799,167 782,668
Income taxes--
Current--Federal...................... 287,865 214,168 265,199
--State................................ 52,233 65,248 74,165
Deferred--Federal--net................ 30,761 56,111 140,122
--State--net........................... 12,538 2,544 16,139
Investment tax credits deferred--net.... (27,730) (31,015) (33,378)
---------- ----------- ----------
$6,125,634 $ 6,151,610 $5,664,263
---------- ----------- ----------
Electric Operating Income................. $1,010,246 $ 921,478 $1,270,284
---------- ----------- ----------
Other Income and (Deductions):
Interest on long-term debt, net of
interest capitalized................... $ (430,602) $ (478,530) $ (509,898)
Interest on notes payable............... (19,560) (9,134) (13,308)
Allowance for funds used during
construction........................... 16,464 42,325 40,202
Income taxes applicable to nonoperating
activities............................. 4,974 11,010 7,659
Provision for dividends on company-
obligated mandatorily redeemable
preferred securities of subsidiary
trusts holding solely the Company's
subordinated debt securities........... (29,710) (28,860) (16,960)
Loss of nuclear plant closure........... -- (885,611) --
Income tax effect of nuclear plant
closure................................ -- 362,952 --
Miscellaneous--net...................... 42,394 (95,768) (34,611)
---------- ----------- ----------
$ (416,040) $(1,081,616) $ (526,916)
---------- ----------- ----------
Net Income (Loss) before Extraordinary
Item and Cumulative Effect of Change in
Accounting Principle..................... $ 594,206 $ (160,138) $ 743,368
Extraordinary Loss, less Applicable Income
Taxes.................................... -- (810,335) --
Cumulative Effect of Change in Accounting
Principle................................ -- 196,700 --
---------- ----------- ----------
Net Income (Loss)......................... $ 594,206 $ (773,773) $ 743,368
Provision for Dividends on Preferred and
Preference Stocks........................ 56,884 60,486 64,424
---------- ----------- ----------
Net Income (Loss) on Common Stock......... $ 537,322 $ (834,259) $ 678,944
========== =========== ==========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
24
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
------------------------
ASSETS 1998 1997
------ ----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Utility Plant:
Plant and equipment, at original cost (includes
construction work in progress of $858 million and
$1,131 million, respectively)..................... $27,801,246 $27,518,690
Less--Accumulated provision for depreciation....... 15,234,320 11,646,445
----------- -----------
$12,566,926 $15,872,245
Nuclear fuel, at amortized cost.................... 874,979 906,043
----------- -----------
$13,441,905 $16,778,288
----------- -----------
Investments:
Nuclear decommissioning funds...................... $ 2,267,317 $ 1,855,697
Subsidiary companies............................... 49,129 48,605
Other investments, at cost......................... 57,031 39,002
----------- -----------
$ 2,373,477 $ 1,943,304
----------- -----------
Current Assets:
Cash............................................... $ 69 $ --
Temporary cash investments......................... 26,935 72,634
Cash held for redemption of securities............. 3,062,816 --
Special deposits................................... 271 271
Receivables--
Customers........................................ 1,364,760 873,418
Other............................................ 138,594 130,537
Provisions for uncollectible accounts............ (48,008) (17,544)
Coal and fuel oil, at average cost................. 134,965 120,664
Materials and supplies, at average cost............ 229,532 255,338
Deferred income taxes related to current assets and
liabilities....................................... 26,486 179,493
Prepayments and other.............................. 18,387 38,622
----------- -----------
$ 4,954,807 $ 1,653,433
----------- -----------
Deferred Charges and Other Noncurrent Assets:
Regulatory assets.................................. $ 4,578,427 $ 1,966,889
Other.............................................. 84,953 116,489
----------- -----------
$ 4,663,380 $ 2,083,378
----------- -----------
$25,433,569 $22,458,403
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
25
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
-----------------------
CAPITALIZATION AND LIABILITIES 1998 1997
------------------------------ ----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Capitalization (see accompanying statements):
Common stock equity.................................. $ 5,055,837 $ 4,866,438
Preferred and preference stocks without mandatory
redemption requirements............................. 74,488 507,053
Preference stock subject to mandatory redemption re-
quirements.......................................... 69,475 174,328
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely the
Company's subordinated debt securities*............. 350,000 350,000
Long-term debt....................................... 7,677,219 5,562,883
----------- -----------
$13,227,019 $11,460,702
----------- -----------
Current Liabilities:
Notes payable........................................ $ 276,356 $ 158,150
Current portion of long-term debt, redeemable prefer-
ence stock and capitalized lease obligations........ 2,226,868 772,831
Accounts payable..................................... 605,712 490,124
Accrued interest..................................... 178,238 167,807
Accrued taxes........................................ 165,466 198,556
Dividends payable.................................... 104,022 106,083
Customer deposits.................................... 56,954 55,214
Accrued plant closing costs.......................... 78,430 135,000
Other................................................ 149,304 164,897
----------- -----------
$ 3,841,350 $ 2,248,662
----------- -----------
Deferred Credits and Other Noncurrent Liabilities:
Deferred income taxes................................ $ 3,787,978 $ 3,839,607
Nuclear decommissioning liability for retired plants. 1,215,400 1,301,000
Accumulated deferred investment tax credits.......... 562,285 602,122
Accrued spent nuclear fuel disposal fee and related
interest............................................ 728,413 692,673
Obligations under capital leases..................... 333,653 437,950
Regulatory liabilities............................... 595,005 698,750
Other................................................ 1,142,466 1,176,937
----------- -----------
$ 8,365,200 $ 8,749,039
----------- -----------
Commitments and Contingent Liabilities (Note 22)
$25,433,569 $22,458,403
=========== ===========
</TABLE>
*As described in Note 11 of Notes to Financial Statements, the sole asset of
ComEd Financing I, a subsidiary trust of ComEd, is $206.2 million principal
amount of ComEd's 8.48% subordinated deferrable interest notes due September
30, 2035. The sole asset of ComEd Financing II, also a subsidiary trust of
ComEd, is $154.6 million principal amount of ComEd's 8.50% subordinated
deferrable interest debentures due January 15, 2027.
The accompanying Notes to Financial Statements are an integral part of the
above statements.
26
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CAPITALIZATION
<TABLE>
<CAPTION>
December 31
------------------------
1998 1997
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Common Stock Equity:
Common stock, $12.50 par value per share--
Outstanding--214,236,153 shares and
214,228,077 shares, respectively......... $ 2,677,952 $ 2,677,851
Premium on common stock and other paid-in
capital................................... 2,223,706 2,223,564
Capital stock and warrant expense.......... (15,664) (15,805)
Retained earnings (deficit)................ 176,643 (19,172)
Treasury stock--178,982 shares............. (6,800) --
----------- -----------
$ 5,055,837 $ 4,866,438
----------- -----------
Preferred and Preference Stocks Without
Mandatory Redemption Requirements:
Preference stock, cumulative, without par
value--
Outstanding--13,499,549 shares............ $ 504,957 $ 504,957
Current redemption requirements for
preference stock included in current
liabilities............................... (432,320) --
$1.425 convertible preferred stock,
cumulative, without par value--
Outstanding--58,211 shares and 65,912
shares, respectively..................... 1,851 2,096
Prior preferred stock, cumulative, $100 par
value per share--
No shares outstanding..................... -- --
----------- -----------
$ 74,488 $ 507,053
----------- -----------
Preference Stock Subject to Mandatory Redemption
Requirements:
Preference stock, cumulative, without par
value--
Outstanding--1,720,345 shares and
2,058,560 shares, respectively........... $ 171,348 $ 205,016
Current redemption requirements for
preference stock included in current
liabilities............................... (101,873) (30,688)
----------- -----------
$ 69,475 $ 174,328
----------- -----------
Company-Obligated Mandatorily Redeemable
Preferred Securities of Subsidiary Trusts
Holding Solely the Company's Subordinated
Debt Securities............................. $ 350,000 $ 350,000
----------- -----------
Long-Term Debt:
First mortgage bonds:
Maturing 1998 through 2003--6.00% to
9 3/8%.................................. $ 1,080,000 $ 1,385,000
Maturing 2004 through 2013--3.70% to
8 3/8%.................................. 1,485,400 1,485,400
Maturing 2014 through 2023--5.85% to
9 7/8%.................................. 1,981,000 1,981,000
----------- -----------
$ 4,546,400 $ 4,851,400
Transitional trust notes, due 2000 through
2008--5.29% to 5.74%...................... 3,400,000 --
Sinking fund debentures, due 1999 through
2011--2 3/4% to 7 5/8%.................... 94,159 100,298
Pollution control obligations, due 2007
through 2014--3.70% to 5 7/8%............. 140,700 142,200
Other long-term debt....................... 1,056,346 1,016,889
Current maturities of long-term debt
included in current liabilities........... (1,497,706) (501,445)
Unamortized net debt discount and premium.. (62,680) (46,459)
----------- -----------
$ 7,677,219 $ 5,562,883
----------- -----------
$13,227,019 $11,460,702
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
27
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
1998 1997 1996
-------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C>
Balance at Beginning of Year.................. $(19,172) $1,157,956 $ 821,848
Add--Net income (loss)........................ 594,206 (773,773) 743,368
-------- ---------- ----------
$575,034 $ 384,183 $1,565,216
-------- ---------- ----------
Deduct--
Dividends declared on--
Common stock.............................. $342,776 $ 342,763 $ 342,732
Preferred and preference stocks........... 55,320 60,159 64,095
Other capital stock transactions--net....... 295 433 433
-------- ---------- ----------
$398,391 $ 403,355 $ 407,260
-------- ---------- ----------
Balance at End of Year (Includes $580 million
and $384 million of appropriated retained
earnings at December 31, 1998 and 1997, re-
spectively).................................. $176,643 $ (19,172) $1,157,956
======== ========== ==========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
28
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
(Thousands of Dollars)
<S> <C> <C> <C>
Cash Flow from Operating Activities:
Net income (loss)...................... $ 594,206 $ (773,773) $ 743,368
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization........ 989,147 1,047,603 1,004,216
Deferred income taxes and investment
tax credits--net.................... 62,775 (348,889) 124,857
Extraordinary loss related to write-
off of certain net regulatory as-
sets................................ -- 810,335 --
Cumulative effect of change in ac-
counting principle.................. -- (196,700) --
Loss on nuclear plant closure........ -- 885,611 --
Provisions/(payments) for revenue re-
funds--net.......................... (23,622) 45,470 --
Equity component of allowance for
funds used during construction...... (6,959) (23,770) (20,776)
Provisions/(payments) for liability
for separation costs--net........... 9,757 15,986 (29,888)
Net effect on cash flows of changes
in:
Receivables........................ (468,935) 21,194 67,888
Coal and fuel oil.................. (14,301) 19,698 (11,186)
Materials and supplies............. 22,519 41,659 9,053
Accounts payable excluding nuclear
fuel lease principal payments and
separation costs--net............. 111,981 233,360 110,437
Accrued interest and taxes......... (22,659) (6,465) (37,021)
Other changes in certain current
assets and liabilities............ 141,942 38,873 13,765
Other--net........................... 53,595 177,918 105,543
----------- ----------- -----------
$ 1,449,446 $ 1,988,110 $ 2,080,256
----------- ----------- -----------
Cash Flow from Investing Activities:
Construction expenditures.............. $ (912,215) $ (969,626) $ (949,871)
Nuclear fuel expenditures.............. (166,168) (185,373) (281,833)
Sales of generating plants............. 177,454 60,791 --
Equity component of allowance for
funds used during construction........ 6,959 23,770 20,776
Contributions to nuclear
decommissioning funds................. (136,771) (114,825) (119,281)
Other investments and special depos-
its................................... (1,174) (4,703) (52)
----------- ----------- -----------
$(1,031,915) $(1,189,966) $(1,330,261)
----------- ----------- -----------
Cash Flow from Financing Activities:
Issuance of securities--
Transitional trust notes............. $ 3,382,629 $ -- $ --
Other long-term debt................. 222,068 297,663 198,902
Company-obligated mandatorily redeem-
able preferred securities of
subsidiary trusts holding solely the
Company's subordinated debt
securities.......................... -- 150,000 --
Capital stock........................ 244 288 669
Retirement and redemption of securi-
ties--
Long-term debt....................... (498,192) (734,768) (431,985)
Capital stock........................ (34,066) (44,111) (44,513)
Repurchase of common stock............. (6,800) -- --
Premium paid on early redemption of
long-term debt........................ -- (9,500) --
Cash dividends paid on capital stock... (429,867) (426,916) (424,764)
Proceeds from sale/leaseback of nu-
clear fuel............................ 101,038 149,955 316,617
Nuclear fuel lease principal payments.. (255,605) (166,411) (211,741)
Increase/(decrease) in short-term
borrowings............................ 118,206 29,400 (139,400)
----------- ----------- -----------
$ 2,599,655 $ (754,400) $ (736,215)
----------- ----------- -----------
Change in Net Cash Balance.............. $ 3,017,186 $ 43,744 $ 13,780
Cash, Temporary Cash Investments and
Cash Held for Redemption of
Securities:
Balance at Beginning of Year........... 72,634 28,890 15,110
----------- ----------- -----------
Balance at End of Year................. $ 3,089,820 $ 72,634 $ 28,890
=========== =========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
29
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Corporate Structure and Basis of Presentation. Unicom is the parent holding
company of ComEd and other unregulated subsidiaries. ComEd, a regulated
electric utility, is the principal subsidiary of Unicom.
The consolidated financial statements include the accounts of ComEd, the
Indiana Company, the Trusts, ComEd Funding and ComEd Funding Trust. All
significant intercompany transactions have been eliminated. Although the
accounts of ComEd Funding and ComEd Funding Trust, which are SPEs, are
included in the consolidated financial statements, as required by GAAP, ComEd
Funding and ComEd Funding Trust are legally separated from Unicom and ComEd.
The assets of the SPEs are not available to creditors of Unicom or ComEd and
the transitional property held by the SPEs are not assets of Unicom or ComEd.
Use of Estimates. The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Due to the transition to a new
customer information and billing system, a larger portion of customer revenues
and receivables were based on estimates in 1998 than in previous years.
Regulation. ComEd is subject to regulation as to accounting and ratemaking
policies and practices by the ICC and FERC. ComEd's accounting policies and
the accompanying consolidated financial statements conform to GAAP applicable
to rate-regulated enterprises for the non-generation portion of its business,
including the effects of the ratemaking process in accordance with SFAS No.
71, Accounting for the Effects of Certain Types of Regulation. Such effects on
the non-generation portion of its business concern mainly the time at which
various items enter into the determination of operating results in order to
follow the principle of matching costs with the applicable revenues collected
from or returned to customers through future rates. See Note 2 for information
regarding the write-off of generation-related regulatory assets and
liabilities in December 1997.
ComEd's investment in generation-related, net utility plant, including
construction work in progress and nuclear fuel, and excluding the
decommissioning costs included in the accumulated provision for depreciation,
not subject to cost-based rate regulation, was $9.2 billion and $12.4 billion
at December 31, 1998 and 1997, respectively. See Note 2 regarding the plant
impairment recorded by ComEd in the second quarter of 1998.
30
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Regulatory Assets and Liabilities. Regulatory assets are incurred costs
which have been deferred and are amortized for ratemaking and accounting
purposes. Regulatory liabilities represent amounts to be settled with
customers through future rates. Regulatory assets and liabilities reflected on
the Consolidated Balance Sheets at December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
December 31
---------------------
1998 1997
---------- ----------
(Thousands of
Dollars)
<S> <C> <C>
Regulatory assets:
Impaired production plant (1)........................... $2,955,154 $ --
Deferred income taxes (2)............................... 680,356 785,354
Nuclear decommissioning costs--Dresden Unit 1 (3)....... 255,031 268,369
Nuclear decommissioning costs--Zion Units 1 and 2 (4)... 443,130 579,777
Coal reserves (5)....................................... 197,975 281,654
Unamortized loss on reacquired debt (6)................. 46,781 51,735
---------- ----------
$4,578,427 $1,966,889
========== ==========
Regulatory liabilities:
Deferred income taxes (2)............................... $ 595,005 $ 698,750
========== ==========
</TABLE>
- --------
(1) Amortized over a transition period which is expected to end by 2006, but
may be extended to 2008 with ICC approval. See Note 2 for additional
information.
(2) Recorded in compliance with SFAS No. 109, Accounting for Income Taxes, for
non-generation related temporary differences.
(3) Amortized over the period 1999 to 2011. See "Depreciation, Amortization of
Regulatory Assets and Decommissioning" below for additional information.
(4) Amortized over the period 1999 to 2013. See "Depreciation, Amortization of
Regulatory Assets and Decommissioning" below for additional information.
(5) Amortized through regulated cash flows as coal is used for the generation
of electricity. See "Depreciation, Amortization of Regulatory Assets and
Decommissioning" below for additional information.
(6) Amortized over the remaining lives of the non-generation related long-term
debt issued to finance the reacquisition. See "Loss on Reacquired Debt"
below for additional information.
Nuclear Fuel. The cost of nuclear fuel is amortized to fuel expense based on
the quantity of heat produced using the unit of production method. As
authorized by the ICC, provisions for spent nuclear fuel disposal costs have
been recorded at a level required to recover the fee payable on current
nuclear-generated and sold electricity and the current interest accrual on the
one-time fee payable to the DOE for nuclear generation prior to April 7, 1983.
The one-time fee and interest thereon have been recovered and the current fee
and interest on the one-time fee are presently being recovered through base
rates. See Note 14 for additional information concerning the disposal of spent
nuclear fuel, one-time fee and interest accrual on the one-time fee. Nuclear
fuel expenses, including leased fuel costs and provisions for spent nuclear
fuel disposal costs, were $325 million, $298 million and $354 million for the
years 1998, 1997 and 1996, respectively.
Customer Receivables and Revenues. 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
December 31, 1998. 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 1998. ComEd had 3.5 million electric customers at December 31, 1998. See
Notes 3, 4 and 19 for additional information.
31
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Depreciation, Amortization of Regulatory Assets and Decommissioning.
Depreciation, decommissioning and amortization of regulatory assets for the
years 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- ---------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
Depreciation expense.............................. $782,373 $ 877,256 $841,681
Decommissioning expense........................... 90,020 108,621 110,184
Amortization of regulatory assets................. 65,211 15,272 15,272
-------- ---------- --------
$937,604 $1,001,149 $967,137
======== ========== ========
</TABLE>
Depreciation is provided on a straight-line basis by amortizing the cost of
depreciable plant and equipment over estimated service lives for each class of
plant. Provisions for depreciation, including nuclear plant, were at average
annual rates of 3.02%, 3.36% and 3.25% for the years 1998, 1997 and 1996,
respectively, of average depreciable utility plant and equipment. The decrease
for the year 1998, compared to 1997, in the average depreciation rates relates
primarily to a reduction in nuclear depreciation rates due to the partial
impairment of production plant, which was recorded as a component of
accumulated depreciation, partially offset by shortened depreciable lives for
certain nuclear stations. The annual rate for nuclear plant and equipment,
excluding separately collected decommissioning costs and depreciation related
to the replacement of the steam generators, was 2.88% for periods ending prior
to July 1, 1998. The nuclear depreciation rate applied to gross depreciable
nuclear plant, beginning July 1, 1998, is 2.16% reflecting the partial
impairment of production plant and shortened depreciable lives for certain
nuclear stations. See Note 2 for additional information on the partial
impairment of production plant.
The regulatory assets for impaired production plant and coal reserves are
being amortized as they are recovered through regulated cash flows over a
transition period which is expected to end by 2006, but may be extended to
2008 with ICC approval. Recovery of these regulatory assets will be realized
through future regulatory revenues, including CTC revenues, and potential
gains on generation asset sales, and will vary from year to year. The
amortization of coal reserves is included in fuel expense on the Statements of
Consolidated Operations.
Nuclear plant decommissioning costs are accrued over the current NRC license
lives of the related nuclear generating units. The accrual is based on an
annual levelized cost of the unrecovered portion
of estimated decommissioning costs, which are escalated for expected inflation
to the expected time of decommissioning and are net of expected earnings on
the trust funds. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," subcaption "Results of Operations--
Decommissioning," for a discussion of questions raised by the staff of the SEC
and a FASB review regarding the electric utility industry's method of
accounting for decommissioning costs. Dismantling is expected to occur
relatively soon after the end of the current NRC license life of each
generating station currently operating. The accrual for decommissioning is
based on the prompt removal method authorized by NRC guidelines. ComEd's ten
operating units have remaining current NRC license lives ranging from 7 to 29
years. ComEd's Zion Station and its first nuclear unit, Dresden Unit 1, are
retired and expected to be dismantled beginning in the years 2014 and 2012,
respectively, which is consistent with the regulatory treatment for the
related decommissioning costs.
Based on ComEd's most recent study approved by the ICC, decommissioning
costs, including the cost of decontamination and dismantling, are estimated to
aggregate to $4.6 billion in current-year (1999) dollars, including a
contingency allowance. ComEd estimates that it will expend approximately $11.6
billion, including a contingency allowance, for decommissioning costs
primarily during the period
32
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
from 2007 through 2034. Additionally, ComEd estimates that it will expend an
aggregate of approximately $226 million in current-year (1999) dollars during
the period 2000 through 2014 to maintain Zion Station in a secured mode until
decommissioning begins. All such costs are expected to be funded by the
external decommissioning trusts, which ComEd established in compliance with
Illinois law and into which ComEd has been making annual contributions. Future
decommissioning cost estimates may be significantly affected by the adoption
of or changes to NRC regulations, as well as changes in the assumptions used
in making such estimates, including changes in technology, available
alternatives for the disposal of nuclear waste and inflation.
Since 1995, ComEd has collected decommissioning costs from its ratepayers in
conjunction with a rider to its tariffs. The rider allows annual adjustments
to decommissioning cost collections outside the context of a traditional rate
proceeding and will continue under the 1997 Act. The current estimated
decommissioning costs include a contingency allowance, but, except at Dresden
Unit 1, exclude amounts for spent fuel storage installations, which may be
necessary to store spent fuel during the period beginning at the end of the
NRC license life of the plants to the date when the DOE accepts the spent fuel
for permanent storage. Contingency allowances used in decommissioning cost
estimates provide for currently unspecifiable costs that are likely to occur
after decommissioning begins and generally range from 20% to 25% of the
currently specifiable costs.
In February 1998, the ICC authorized a reduction in the annual
decommissioning cost accrual from $109 million to $84 million. The reduction
primarily reflects stronger than expected after-tax returns on the external
trust funds in 1996 and lower than expected escalation in low-level waste
disposal costs, partially offset by the higher current-year cost estimates,
including a contingency allowance.
The approved annual decommissioning cost accrual of $84 million was
determined using the following assumptions: the decommissioning cost estimate
of $4.6 billion in current-year (1999) dollars, after-tax earnings on the tax-
qualified and nontax-qualified decommissioning funds of 7.30% and 6.26%,
respectively, and an escalation rate for future decommissioning costs of 4.1%.
The annual accrual of $84 million provided over the current NRC license lives
of the nuclear plants, coupled with the expected fund earnings and amounts
previously recovered in rates, is expected to aggregate to approximately $11.6
billion.
For the ten operating nuclear units, decommissioning cost accruals are
recorded as portions of depreciation expense and accumulated provision for
depreciation on the Statements of Consolidated Operations and the Consolidated
Balance Sheets, respectively, as such costs are recovered through rates. As of
December 31, 1998, the total decommissioning costs included in the accumulated
provision for depreciation were $1,870 million.
For ComEd's retired nuclear units, the total estimated liability for nuclear
decommissioning in current-year (1999) dollars is recorded as a liability. The
unrecovered portion of the liability was also recorded as a regulatory asset.
The nuclear decommissioning liability for retired plants as of December 31,
1998 was as follows:
<TABLE>
<CAPTION>
Zion
Dresden Units
Unit 1 1 and 2 Total
-------- -------- ----------
(Thousands of Dollars)
<S> <C> <C> <C>
Amounts recovered through rates and investment
fund earnings.................................... $101,469 $415,770 $ 517,239
Unrecovered portion of the liability.............. 255,031 443,130 698,161
-------- -------- ----------
Nuclear decommissioning liability for retired
plants.......................................... $356,500 $858,900 $1,215,400
======== ======== ==========
</TABLE>
33
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
The total estimated liability related to Zion Units 1 and 2, and the
unrecovered portion of that liability, decreased from December 31, 1997 to
December 31, 1998 due to the exclusion of estimated dry cask storage costs.
Under Illinois law, decommissioning cost collections are required to be
deposited into external trusts. Consequently, such collections do not add to
the cash flows available for general corporate purposes. The ICC has approved
ComEd's funding plan, which provides for annual contributions of current
accruals and ratable contributions of past accruals over the remaining current
NRC license lives of the nuclear plants. The fair value of funds accumulated
in the external trusts at December 31, 1998 was $2,267 million, which includes
pre-tax unrealized appreciation of $620 million. The earnings on the external
trusts for operating plants accumulate in the fund balance and accumulated
provision for depreciation. Nuclear decommissioning funding as of December 31,
1998 was as follows:
<TABLE>
<CAPTION>
(Thousands of Dollars)
<S> <C>
Amounts recovered through rates and investment fund
earnings for operating plants (included in the accumu-
lated provision for depreciation)...................... $1,870,213
Amounts recovered through rates and investment fund
earnings for retired plants............................ 517,239
Less past accruals not yet contributed to the trusts.... 120,135
----------
Fair value of external trust funds..................... $2,267,317
==========
</TABLE>
Income Taxes. ComEd is included in the consolidated federal and state income
tax returns filed by Unicom. Current and deferred income taxes of the
consolidated group are allocated to ComEd as if ComEd filed separate tax
returns. Deferred income taxes are provided for income and expense items
recognized for financial accounting purposes in periods that differ from those
for income tax purposes. Income taxes deferred in prior years are charged or
credited to income as the book/tax temporary differences reverse. Prior years'
deferred investment tax credits are amortized through credits to income
generally over the lives of the related property. Income tax credits resulting
from interest charges applicable to nonoperating activities, principally
construction, are classified as other income.
AFUDC and Interest Capitalized. In accordance with the uniform systems of
accounts prescribed by regulatory authorities, ComEd capitalizes AFUDC,
compounded semiannually, which represents the estimated cost of funds used to
finance its construction program for the non-generation portion of its
business. The equity component of AFUDC is recorded on an after-tax basis and
the borrowed funds component of AFUDC is recorded on a pre-tax basis. The
average annual capitalization rates were 8.34%, 9.39% and 9.02% for the years
1998, 1997 and 1996, respectively. ComEd discontinued SFAS No. 71 regulatory
accounting practices in December 1997 for the generation portion of its
business. As a result, beginning in 1998, ComEd capitalized $28 million in
interest costs on its generation-related construction work in progress and
nuclear fuel in process. AFUDC and interest capitalized do not contribute to
the current cash flow of ComEd.
Interest. Total interest costs incurred on debt, leases and other
obligations were $527 million, $588 million and $620 million for the years
1998, 1997 and 1996, respectively.
Debt Discount, Premium and Expense. Discount, premium and expense on long-
term debt are being amortized over the lives of the respective issues.
Loss on Reacquired Debt. Consistent with regulatory treatment, the net loss
from reacquisition, in connection with the refinancing of first mortgage
bonds, sinking fund debentures and pollution control obligations prior to
their scheduled maturity dates, is deferred and amortized over the lives of
the long-term debt issued to finance the reacquisition for non-generation
related financings. See "Regulatory Assets and Liabilities" above and Note 2
for additional information.
34
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Stock Option Awards/Employee Stock Purchase Plan. ComEd has elected to adopt
SFAS No. 123, Accounting for Stock-Based Compensation, for disclosure purposes
only. ComEd accounts for its stock option awards and ESPP under APB Opinion
No. 25, Accounting for Stock Issued to Employees. See Note 8 for additional
information.
Energy Risk Management Contracts. In the normal course of business, ComEd
utilizes contracts for the forward sale and purchase of energy to manage
effectively the utilization of its available generating capability. ComEd also
utilizes put and call option contracts and energy swap arrangements to limit
the market price risk associated with the forward commodity contracts. As
ComEd does not currently utilize financial or commodity instruments for
trading or speculative purposes, any gains or losses on forward commodity
contracts are recognized when the underlying transactions affect earnings.
Revenues and expenses associated with market price risk management contracts
are amortized over the terms of such contracts.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument, including
certain derivative instruments embedded in other contracts, be recorded on the
Consolidated Balance Sheets as either an asset or liability measured at its
fair value. SFAS No. 133 requires that changes in the derivative's fair value
be recognized currently in earnings, unless specific hedge accounting criteria
are met. Special accounting for qualifying hedges allows a derivative's gains
and losses to offset related results on the hedged item on the Statements of
Consolidated Operations, and requires ComEd to formally document, designate,
and assess the effectiveness of transactions that receive hedge accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999.
SFAS No. 133 may be implemented prior to June 15, 1999, but such
implementation cannot be applied retroactively. SFAS No. 133 must be applied
to (i) derivative instruments and (ii) certain derivative instruments embedded
in hybrid contracts that were issued, acquired, or substantively modified
after December 31, 1997 (and, at the company's election, before January 1,
1998).
ComEd has not yet quantified the effects on its financial statements of
adopting SFAS No. 133 and has not determined the timing or method of adopting
SFAS No. 133. However, adoption of SFAS No. 133 could increase volatility in
earnings and other comprehensive income.
Reclassifications. Certain prior year amounts have been reclassified to
conform with current period presentation. These reclassifications had no
effect on operating results.
Statements of Consolidated Cash Flows. For purposes of the Statements of
Consolidated Cash Flows, temporary cash investments, generally investments
maturing within three months at the time of purchase, are considered to be
cash equivalents. Supplemental cash flow information for the years 1998, 1997
and 1996 was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
Supplemental Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized)............ $439,706 $502,260 $533,498
Income taxes (net of refunds)................... $302,289 $280,368 $238,920
Supplemental Schedule of Non-Cash Investing and Fi-
nancing Activities:
Capital lease obligations incurred................ $106,370 $158,412 $320,975
</TABLE>
35
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
(2) Accounting Effects Related to the 1997 Act
In December 1997, the Governor of Illinois signed into law the 1997 Act,
which established a phased process to introduce competition into the electric
industry in Illinois under a less regulated structure. Major provisions of the
1997 Act applicable to ComEd include a 15% residential base rate reduction
which became effective August 1, 1998, an additional 5% residential base rate
reduction commencing on May 1, 2002 and gradual customer access to other
electric suppliers. Access for commercial and industrial customers will occur
over a period from October 1999 to December 2000, and access for residential
customers will occur after May 1, 2002. ComEd's operating revenues were
reduced by approximately $170 million in 1998 due to the rate reduction. ComEd
is engaged in certain pricing experiments contemplated by the 1997 Act, which
reduced ComEd's operating revenues by approximately $30 million in 1998 and
are expected to reduce operating revenues by $55 million in 1999, compared to
1997 rate levels; however, such reductions are expected to be offset by the
effects of customer growth. ComEd expects that the 15% residential base rate
reduction will reduce ComEd's operating revenues by approximately $380 million
in 1999, compared to 1997 rate levels.
The 1997 Act also provides for the collection of a CTC from customers who
choose another electric service provider during a transition period that
extends through 2006, and can be extended through 2008 with ICC approval. The
CTC will be established in accordance with a formula defined in the 1997 Act.
The CTC, which will be applied on a cents per kilowatthour basis, considers
the revenue which would have been collected from a customer under tariffed
rates, reduced by the revenue the utility will receive for providing delivery
services to the customer, the market price for electricity and a defined
mitigation factor, which represents the utility's opportunity to develop new
revenue sources and achieve cost savings.
Notwithstanding these rate reductions, and subject to certain earnings
tests, a rate freeze will generally be in effect until at least January 1,
2005. During this period, utilities may reorganize, sell or assign assets,
retire or remove plants from service, and accelerate depreciation or
amortization of assets with limited ICC regulatory review. A utility may
request a rate increase during the rate freeze period only when necessary to
ensure the utility's financial viability, but not before January 1, 2000.
Under the earnings provision of the 1997 Act, if the earned return on common
equity of a utility during this period exceeds an established threshold, one-
half of the excess earnings must be refunded to customers. The threshold rate
of return on common equity is based on the 30-Year Treasury Bond rate, plus
5.5% in the years 1998 through 1999 and plus 6.5% in the years 2000 through
2004. The utility's earned return on common equity and the threshold return on
common equity are each calculated on a two year average basis. The earnings
sharing provision is applicable only to utility earnings. Increased
amortization of regulatory assets may be recorded, thereby reducing the earned
return on common equity, if earnings otherwise would have exceeded the maximum
allowable rate of return. The potential for earnings sharing or increased
amortization of regulatory assets could limit earnings in future periods.
Under the 1997 Act, utilities are required to continue to offer delivery
services, including the transmission and distribution of electric energy, such
that customers who select an alternative energy supplier can receive electric
energy from that supplier using existing transmission and distribution
facilities. Such services will continue to be offered under cost-based,
regulated rates. The 1997 Act also requires utilities to establish or join an
ISO that will independently manage and control utility transmission systems.
Additionally, the 1997 Act includes the leveling of certain regulatory
requirements to permit operational flexibility, the leveling of certain
regulatory and tax provisions as applied to various electric suppliers and a
new, more stringent, liability standard applicable to ComEd in the event of a
major outage.
36
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
The 1997 Act also allows a portion of ComEd's future revenues to be
segregated and used to support the issuance of securities by ComEd or a SPE.
The proceeds from such securities issuances must be used to refinance
outstanding debt and equity or for certain other limited purposes. The total
amount of such securities that may be issued is approximately $6.8 billion;
approximately one-half of that amount can be issued in the twelve-month period
which commenced on August 1, 1998. In December 1998, ComEd initiated the
issuance of $3.4 billion of transitional trust notes through its SPEs, ComEd
Funding and ComEd Funding Trust. The proceeds from the transitional trust
notes, net of transaction costs, must be used to redeem or repurchase debt and
equity to lower ComEd's overall cost of capital. Accordingly, in early 1999
ComEd redeemed $788 million of long-term debt and $534 million of preference
stock, and reacquired $229 million of outstanding long-term debt through a
tender offer. In addition, $500 million of the proceeds, of which
approximately $300 million has been utilized, is being used to reduce ComEd's
outstanding short-term debt. Unicom has announced plans to repurchase
approximately $750 million of Unicom common stock using the proceeds it
receives from ComEd's repurchase of its common stock held by Unicom. The
remaining proceeds will be used for the payment of fees and additional debt
and equity redemptions. See Notes 7 and 24 for additional information
regarding Unicom's share repurchase plans.
As a result of the 1997 Act, prices for the supply of electric energy are
expected to change from cost-based, regulated rates to rates determined by
competitive market forces. The CTC allows ComEd to recover some of its costs
which might otherwise be unrecoverable under market-based rates. Nonetheless,
ComEd will need to take steps to address the portion of such costs which are
not recoverable through the CTC. Such steps may include cost control efforts,
developing new sources of revenue and potential asset dispositions.
Because the 1997 Act is expected ultimately to lead to market-based pricing
of electric generation services, ComEd discontinued SFAS No. 71 regulatory
accounting practices for the generation portion of its business in December
1997. ComEd evaluated the regulatory assets and liabilities related to the
generation portion of its business and determined that it was not probable
that such costs would be recovered through the cash flows from the regulated
portion of its business. Accordingly, the generation-related regulatory assets
and liabilities were written off in the fourth quarter of 1997, resulting in
an extraordinary charge of $810 million (after-tax). These write-offs related
principally to previously incurred costs originally expected to be collected
through future revenues, including income tax benefits previously flowed
through to customers, deferred carrying charges on the Byron Unit 2 and
Braidwood Units 1 and 2 nuclear generating plants, generation-related
unamortized loss on reacquired debt and other miscellaneous generation-related
costs. The regulatory asset for the unrecovered nuclear decommissioning costs
of currently retired nuclear plants was not written off, as the 1997 Act
provides for the ongoing recovery of decommissioning costs through regulated
rates. See "Regulatory Assets and Liabilities" and "Depreciation, Amortization
of Regulatory Assets and Decommissioning" in Note 1 for additional
information.
Pursuant to an option contained in the 1997 Act, ComEd filed a tariff in
December 1997 to eliminate its FAC as of January 1, 1997. Under ComEd's
regulated rates, the FAC provided for the recovery of changes in fossil and
nuclear fuel costs and the energy portion of purchased power costs, compared
to the fuel and purchased energy costs included in ComEd's base rates. The
elimination of the FAC required ComEd to refund to customers the net FAC
charges billed during the calendar year 1997 of $25 million (after-tax). These
costs, as well as deferred underrecovered energy costs of $19 million (after-
tax) which ComEd would have been entitled to recover if the FAC had remained
in effect, were recorded as a charge to operating results in the fourth
quarter of 1997.
37
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Additionally, the elimination of the FAC and a transition to market-based
pricing for generation-related costs required ComEd to write down its
investment in uranium-related properties. Projections of the market price for
uranium indicated that the expected incremental costs of mining and milling
uranium at such properties would exceed the expected market price for uranium.
Such costs are not expected to be recoverable in a competitive market. A write
down of ComEd's investment in uranium-related properties to realizable value
resulted in a charge of $60 million (after-tax) in December 1997.
The staff of the SEC issued interpretive guidance in the second quarter of
1998 regarding the application of SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, when a
regulated enterprise such as an electric utility discontinues regulatory
accounting practices for separable portions of its operations and assets.
Under SFAS No. 121, an asset is considered impaired, and should be written
down to fair value, if its future cash flows are insufficient to recover the
carrying value of the asset. The interpretive guidance concludes that for
purposes of applying SFAS No. 121, supplemental regulated cash flows, such as
a CTC, should be excluded from the cash flows of assets in the portion of the
business not subject to regulatory accounting practices. If such assets are
determined to be impaired, a regulatory asset should be established if such
costs are recoverable through regulated cash flows. The guidance also
addresses the extent to which assets should be grouped to determine
impairment.
ComEd discontinued the application of regulatory accounting principles in
December 1997 for the generation portion of its business and performed a SFAS
No. 121 impairment analysis that concluded that future revenues, including the
collection of the CTC, expected to be recovered from electric supply services
would be sufficient to cover the costs of its generating assets. However,
reflecting the SEC's interpretive guidance, ComEd's revised impairment
evaluation resulted in a plant impairment of $3 billion. Because future CTC
revenues collected through regulated cash flows are expected to provide
recovery of the impaired plant assets, a regulatory asset was recorded for the
same amount. Accordingly, the impairment, recorded in the second quarter of
1998, had no effect on results of operations. The regulatory asset is being
amortized as it is recovered through regulated cash flows over a transition
period that ends in 2006, but may be extended to 2008 with ICC approval.
Recovery of the regulatory asset will be realized through future regulatory
revenues, including CTC revenues, and potential gains on generation asset
sales, and will vary from year to year.
(3) Cumulative Effect of a Change in Accounting Principle
In the fourth quarter of 1997, ComEd changed its accounting method for
revenue recognition to record revenues associated with service which has been
provided to customers but has not yet been billed at the end of each
accounting period, retroactive to January 1, 1997. This change in accounting
method increased operating results for the year 1997 to reflect the one-time
cumulative effect of the change for years prior to 1997 by $197 million
(after-tax). If the new accounting method had been in effect for the years
1997 and 1996, the pro forma unaudited net income (loss) on common stock would
have been $(1,030,959,000) and $711,073,000, respectively, excluding the one-
time cumulative effect of a change in accounting principle.
(4) Rate Matters
Final ICC orders have been issued in fuel reconciliation proceedings related
to ComEd's FAC collections for all years except for 1994. On November 5, 1998,
the ICC issued an order in the proceeding for the year 1994 providing for a
refund of approximately $3 million related to nuclear station performance. On
February 9, 1999, an intervenor moved to dismiss its appeal of the 1994 ICC
38
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
order. On December 29, 1998, the ICC issued an order for the 1996 fuel
reconciliation proceeding requiring ComEd to refund approximately $19 million
related to nuclear station performance. The 1997 Act provides that, because
ComEd eliminated its FAC effective January 1, 1997, the ICC shall not conduct
a fuel reconciliation proceeding for the year 1997 and subsequent years. See
Note 2 for information regarding the 1997 Act and the elimination of ComEd's
FAC.
Three of ComEd's wholesale municipal customers filed a complaint and request
for refund with the FERC alleging that ComEd failed to properly adjust their
rates, as provided for under the terms of their electric service contracts, to
track certain refunds made to ComEd's retail customers in the years 1992
through 1994. In the third quarter of 1998, the FERC granted the complaint and
directed that refunds be made, with interest. ComEd filed and was granted a
request for rehearing for purposes of reconsideration with the FERC. If the
order is upheld, ComEd must make refunds within 15 days of the resolution for
rehearing.
ComEd's management believes adequate reserves have been established in
connection with the cases discussed above.
(5) Closure and Sale of Plants
In January 1998, the Boards of Directors of Unicom and ComEd authorized the
permanent cessation of nuclear generation operations and retirement of
facilities at ComEd's 2,080 megawatt Zion nuclear generating station. Such
retirement resulted in a charge for 1997 of $523 million (after-tax). The
decision to close Zion Station was a result of ComEd's ongoing analysis of the
economic value of its generating assets in light of the expected changes in
the manner in which electric energy is marketed and sold. The passage of the
1997 Act provided a clearer basis for evaluating the costs and benefits of
alternative courses of action. In reaching the decision to cease nuclear
generation operations at Zion Station, the Boards also considered the
significant uncertainty associated with continued operation of the station due
to the degradation of the steam generators and the expected operating costs
associated with continued station operation.
ComEd's fourth quarter 1997 financial results reflected a charge of $406
million (after-tax), representing the undepreciated costs of Zion Station
(excluding the portion which will remain in use to provide voltage support),
materials and supplies inventories, and nuclear fuel inventories. In addition,
as required by GAAP, a liability for future closing costs associated with the
retirement of Zion Station, excluding severance costs, was recorded resulting
in a charge of $117 million (after-tax) in the fourth quarter of 1997. ComEd
recorded a reduction to the liability for future closing costs of $15 million
(after-tax) in the year 1998 to reflect lower than expected closing costs due
to employees being reassigned or removed from payroll sooner than expected,
and lower than anticipated support costs and use of contractors. See Note 17
for information regarding costs of voluntary employee separation plans.
ComEd completed the sale of two of its coal-fired generating stations,
representing 1,598 megawatts of generating capacity, and has exclusive 15-year
purchased power agreements for the output of the stations. The sales of State
Line and Kincaid Stations were completed in December 1997 and February 1998,
respectively. The net proceeds of the sales, after income tax effects and
closing costs, were approximately $190 million. The proceeds were used to
retire or redeem existing debt in the first quarter of 1998. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
subcaption "Response to Regulatory Changes," for information regarding ComEd's
fossil generating plants, and oil and gas peaking units being offered for
sale.
39
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
(6) Authorized Shares and Voting Rights of Capital Stock
At December 31, 1998, the authorized shares of capital stock were: common
stock--250,000,000 shares; preference stock--22,030,345 shares; $1.425
convertible preferred stock--58,211 shares; and prior preferred stock--850,000
shares. The preference and prior preferred stocks are issuable in series and
may be issued with or without mandatory redemption requirements. Holders of
shares at any time outstanding, regardless of class, are entitled to one vote
for each share held on each matter submitted to a vote at a meeting of
shareholders, with the right to cumulate votes in all elections for directors.
(7) Common Equity
ComEd has entered into a prepaid forward purchase arrangement with Unicom
for the repurchase of approximately 15 million shares of ComEd common stock.
The repurchase arrangement provides for final settlement no later than
February 2000, on either a physical (share) basis, or a net cash basis. The
terms of the repurchase agreements between ComEd and Unicom are identical to
the terms of Unicom's repurchase agreements with the financial institutions.
The repurchase agreements between ComEd and Unicom are expected to be settled
on the same basis Unicom settles its repurchase agreements with the financial
institutions. The amount at which the arrangement can be settled is dependent
principally upon the average market price at which Unicom's common shares have
been repurchased under its repurchase agreements, compared to the forward
price per share. The share repurchases will not reduce shares outstanding or
reduce common stock equity and resulting return on common equity calculations
until the date of physical settlement. ComEd currently does not anticipate
that settlement will occur in 1999. The repurchase arrangement will initially
be recorded as a receivable on ComEd's Consolidated Balance Sheets and will be
adjusted at the end of each reporting period to reflect the aggregate market
value of the shares deliverable under the arrangement. Consequently, the
arrangement could increase earnings volatility in 1999.
This arrangement supplements a previously announced program to repurchase up
to $200 million of ComEd common stock. Shares repurchased under that program
will also be outstanding for financial statement purposes until the time of
physical settlement, which is currently expected to extend to February 2000,
on either a physical (share) basis, or a net cash basis, at the option of
ComEd. As of December 31, 1998, this arrangement has been accounted for as an
equity instrument. If this arrangement had been settled on a physical (share)
basis at December 31, 1998, ComEd would have received approximately 5.1
million shares of its common stock.
See Note 24 for additional information regarding the redemptions and
repurchases of debt and equity.
At December 31, 1998, shares of common stock were reserved for the following
purposes:
<TABLE>
<S> <C>
Conversion of $1.425 convertible preferred stock................... 59,375
Conversion of warrants............................................. 25,359
------
84,734
======
</TABLE>
Shares of common stock issued for the years 1998, 1997 and 1996 were as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- ------
<S> <C> <C> <C>
Conversion of $1.425 convertible preferred stock............. 7,848 9,261 22,146
Conversion of warrants....................................... 228 362 1,358
----- ----- ------
8,076 9,623 23,504
===== ===== ======
</TABLE>
In December 1998, 178,982 shares of ComEd common stock were reacquired and
held as treasury stock at a cost of $6.8 million.
40
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
At December 31, 1998 and 1997, 76,079 and 76,868, respectively, of common
stock purchase warrants were outstanding. The warrants entitle the holders to
convert such warrants into common stock at a conversion rate of one share of
common stock for three warrants.
ComEd's retained earnings had a positive balance of $177 million at December
31, 1998 and a deficit balance of $19 million at December 31, 1997. As of
December 31, 1998 and 1997, $580 million and $384 million, respectively, of
retained earnings had been appropriated for future dividend payments.
(8) Stock Option Awards/Employee Stock Purchase Plan
Unicom has a nonqualified stock option awards program under its Long-Term
Incentive Plan. The stock option awards program was adopted by Unicom in July
1996 to reward valued employees responsible for, or contributing to, the
management, growth and profitability of Unicom and its subsidiaries. The stock
options granted expire ten years from their grant date. One-third of the
shares subject to the options vest on each of the first three anniversaries of
the option grant date. In addition, the stock options become fully vested
immediately if the holder dies, retires, is terminated by the Company, other
than for cause, or qualifies for long-term disability and will also vest in
full upon a change in control.
Stock option transactions for the years 1998, 1997 and 1996 are summarized
as follows:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Options Price
--------- --------
<S> <C> <C>
Outstanding at the beginning of 1996.................. -- $ --
Granted during the year............................... 1,205,500 25.500
Expired/cancelled during the year..................... (17,500) 25.500
---------
Outstanding as of December 31, 1996................... 1,188,000 25.500
Granted during the year............................... 1,339,350 22.313
Exercised during the year............................. (23,423) 25.500
Expired/cancelled during the year..................... (212,549) 23.632
---------
Outstanding as of December 31, 1997................... 2,291,378 23.810
Granted during the year............................... 1,379,525 35.234
Exercised during the year............................. (404,082) 24.244
Expired/cancelled during the year..................... (124,594) 25.714
---------
Outstanding as of December 31, 1998................... 3,142,227 28.694
=========
</TABLE>
Of the stock options outstanding at December 31, 1998, 943,851 have vested
with a weighted average exercise price of $24.234.
The fair value of each stock option is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
Stock Option Grant Date
-----------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Expected option life.............................. 7 years 7 years 7 years
Dividend yield.................................... 4.54% 7.20% 6.30%
Expected volatility............................... 21.95% 22.29% 20.98%
Risk-free interest rate........................... 5.58% 6.25% 6.64%
</TABLE>
The estimated weighted average fair value for each stock option granted for
the years 1998, 1997 and 1996 was $6.62, $2.79 and $3.74, respectively.
41
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
The ESPP allows employees to purchase Unicom common stock at a 10% discount
from market value. Substantially all of the employees of Unicom, ComEd and
certain subsidiaries are eligible to participate in the ESPP. Unicom issued
94,270, 196,003 and 196,513 shares of common stock for the years 1998, 1997
and 1996, respectively, under the ESPP at a weighted average annual purchase
price of $33.11, $19.15 and $23.52, respectively.
ComEd has adopted the disclosure-only provisions of SFAS No. 123. For
financial reporting purposes, ComEd has adopted APB No. 25 and thus no
compensation cost has been recognized for the stock option awards program or
ESPP. If ComEd had recorded compensation expense for the stock options granted
and the shares of common stock issued under the ESPP in accordance with SFAS
No. 123 using the fair value based method of accounting, the additional charge
to operations would have been $2 million (after-tax), $2 million (after-tax)
and $1 million (after-tax) for the years 1998, 1997 and 1996, respectively.
(9) Preferred and Preference Stocks Without Mandatory Redemption Requirements
No shares of preferred or preference stocks without mandatory redemption
requirements were issued or redeemed during 1998, 1997 and 1996. The series of
preference stock without mandatory redemption requirements outstanding at
December 31, 1998 are summarized as follows:
<TABLE>
<CAPTION>
Involuntary
Shares Aggregate Redemption Liquidation
Series Outstanding Stated Value Price(1) Price(1)
------- ----------- ------------ ---------- -----------
(Thousands
of Dollars)
<S> <C> <C> <C> <C>
$1.90 4,249,549 $106,239 $ 25.25 $25.00
$2.00 2,000,000 51,560 $ 26.04 $25.00
$1.96 2,000,000 52,440 $ 27.11 $25.00
$7.24 750,000 74,340 $101.00 $99.12
$8.40 750,000 74,175 $101.00 $98.90
$8.38 750,000 73,566 $100.16 $98.09
$2.425 3,000,000 72,637 $ 25.00 $25.00
---------- --------
13,499,549 $504,957
========== ========
</TABLE>
--------
(1) Per share plus accrued and unpaid dividends, if any.
The outstanding shares of $1.425 convertible preferred stock are convertible
at the option of the holders thereof, at any time, into common stock at the
rate of 1.02 shares of common stock for each share of convertible preferred
stock, subject to future adjustment. The convertible preferred stock may be
redeemed by ComEd at $42 per share, plus accrued and unpaid dividends, if any.
The involuntary liquidation price of the $1.425 convertible preferred stock is
$31.80 per share, plus accrued and unpaid dividends, if any.
ComEd redeemed $432 million of preference stock without mandatory redemption
requirements on January 19, 1999. The redemption retires all series other than
Series $2.425 and $1.425. See Note 24 for additional information regarding the
redemption of ComEd preference stocks.
42
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
(10) Preference Stock Subject to Mandatory Redemption Requirements
During 1998, 1997 and 1996, no shares of preference stock subject to
mandatory redemption requirements were issued. The series of preference stock
subject to mandatory redemption requirements outstanding at December 31, 1998
are summarized as follows:
<TABLE>
<CAPTION>
Shares Aggregate
Series Outstanding Stated Value Optional Redemption Price(1)
- -------------- ----------- ------------ -----------------------------------------------
(Thousands
of Dollars)
<S> <C> <C> <C>
$8.20 142,845 $ 14,285 $101
$8.40 Series B 240,000 23,838 $101
$8.85 187,500 18,750 $101
$9.25 450,000 45,000 $103 through July 31, 1999; and $101 thereafter
$6.875 700,000 69,475 Non-callable
--------- --------
1,720,345 $171,348
========= ========
</TABLE>
- --------
(1) Per share plus accrued and unpaid dividends, if any.
ComEd redeemed $102 million of preference stock with mandatory redemption
requirements on January 19, 1999. The redemption retires all series other than
Series $6.875, all of which is required to be redeemed on May 1, 2000. The
sinking fund price for Series $6.875 is $100 and the involuntary liquidation
price is $99.25 per share plus accrued and unpaid dividends, if any. See Note
24 for additional information regarding the redemption of ComEd preference
stocks.
After reflecting the redemption, the remaining sinking fund requirement is
$69 million in the year 2000. During 1998, 338,215 shares and in each of the
years 1997 and 1996, 438,215 shares of preference stock subject to mandatory
redemption requirements were reacquired to meet sinking fund requirements plus
any optional additional sinking fund payments.
Sinking fund requirements and the redemption due within one year are
included in current liabilities.
(11) Company-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts Holding Solely the Company's Subordinated Debt
Securities
In September 1995, ComEd Financing I, a wholly-owned subsidiary trust of
ComEd, issued 8,000,000 of its 8.48% company-obligated mandatorily redeemable
preferred securities. The sole asset of ComEd Financing I is $206.2 million
principal amount of ComEd's 8.48% subordinated deferrable interest notes due
September 30, 2035. In January 1997, ComEd Financing II, a wholly-owned
subsidiary trust of ComEd, issued 150,000 of its 8.50% company-obligated
mandatorily redeemable capital securities. The sole asset of ComEd Financing
II is $154.6 million principal amount of ComEd's 8.50% subordinated deferrable
interest debentures due January 15, 2027. There is a full and unconditional
guarantee by ComEd of the Trusts' obligations under the securities issued by
the Trusts. However, ComEd's obligations are subordinate and junior in right
of payment to certain other indebtedness of ComEd. ComEd has the right to
defer payments of interest on the subordinated deferrable interest notes by
extending the interest payment period, at any time, for up to 20 consecutive
quarters. Similarly, ComEd has the right to defer payments of interest on the
subordinated deferrable interest debentures by extending the interest payment
period, at any time, for up to ten consecutive semi-annual periods. If
interest payments on the subordinated deferrable interest notes or
43
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
debentures are so deferred, distributions on the preferred securities will
also be deferred. During any deferral, distributions will continue to accrue
with interest thereon. In addition, during any such deferral, ComEd may not
declare or pay any dividend or other distribution on, or redeem or purchase,
any of its capital stock.
The subordinated deferrable interest notes are redeemable by ComEd, in whole
or in part, from time to time, on or after September 30, 2000, and with
respect to the subordinate deferrable interest debentures, on or after January
15, 2007, or at any time in the event of certain income tax circumstances. If
the subordinated deferrable interest notes or debentures are redeemed, the
Trusts must redeem preferred securities having an aggregate liquidation amount
equal to the aggregate principal amount of the subordinated deferrable
interest notes or debentures so redeemed. In the event of the dissolution,
winding up or termination of the Trusts, the holders of the preferred
securities will be entitled to receive, for each preferred security, a
liquidation amount of $25 for the securities of ComEd Financing I and $1,000
for the securities of ComEd Financing II, plus accrued and unpaid
distributions thereon, including interest thereon, to the date of payment,
unless in connection with the dissolution, the subordinated deferrable
interest notes or debentures are distributed to the holders of the preferred
securities.
(12) Long-Term Debt
ComEd initiated the issuance of $3.4 billion of transitional trust notes
through its SPEs, ComEd Funding and ComEd Funding Trust, in the fourth quarter
of 1998, as follows:
<TABLE>
<CAPTION>
Interest Principal
Rate Class and Scheduled Maturity Dates Amount
-------- ---------------------------------- ----------
(Thousands
of
Dollars)
<C> <S> <C>
5.38% A-1 due March 25, 2000............................... $ 424,967
5.29% A-2 due June 25, 2001................................ 425,033
5.34% A-3 due March 25, 2002............................... 258,861
5.39% A-4 due June 25, 2003................................ 421,139
5.44% A-5 due March 25, 2005............................... 598,511
5.63% A-6 due June 25, 2007................................ 761,489
5.74% A-7 due December 25, 2008............................ 510,000
----------
$3,400,000
==========
</TABLE>
The proceeds, net of transaction costs, from the transitional trust notes
must be used to redeem debt and equity. On January 27, 1999, ComEd redeemed
$730 million of first mortgage bonds. On February 16, 1999, ComEd redeemed $58
million of sinking fund debentures. In response to a tender offer, ComEd
reacquired $229 million of first mortgage bonds in early February 1999. See
Note 24 for additional information regarding the redemptions of first mortgage
bonds and sinking fund debentures, and the reacquired first mortgage bonds.
For accounting purposes, the liabilities of ComEd Funding Trust for the
transitional trust notes are reflected as long-term debt on the Consolidated
Balance Sheets of ComEd.
Sinking fund requirements and scheduled maturities remaining through 2003,
after reflecting the redemptions, for first mortgage bonds, transitional trust
notes, sinking fund debentures and other long-term debt outstanding at
December 31, 1998, are summarized as follows: 1999--$481 million; 2000--$727
million; 2001--$346 million; 2002--$645 million; and 2003--$445 million.
44
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
After reflecting the redemptions of first mortgage bonds, outstanding first
mortgage bonds maturing through 2003 were as follows:
<TABLE>
<CAPTION>
Series Principal Amount
------ ----------------------
(Thousands of Dollars)
<S> <C>
9 3/8% due February 15, 2000...................... $ 42,345
6 1/2% due April 15, 2000......................... 230,000
6 3/8% due July 15, 2000.......................... 100,000
7 3/8% due September 15, 2002..................... 200,000
6 5/8% due July 15, 2003.......................... 100,000
--------
$672,345
========
</TABLE>
Other long-term debt outstanding at December 31, 1998 is summarized as
follows:
<TABLE>
<CAPTION>
Principal
Debt Security Amount Interest Rate
- ------------------------ ---------- ------------------------------------------
(Thousands
of
Dollars)
<S> <C> <C>
Notes:
Medium Term Notes, Se-
ries 3N due various
dates through October
15, 2004 $ 296,000 Interest rates ranging from 9.00% to 9.20%
Notes due January 15, 150,000 Interest rate of 7.375%
2004
Notes due October 15, 235,000 Interest rate of 6.40%
2005
Notes due January 15, 150,000 Interest rate of 7.625%
2007
Notes due July 15, 2018 225,000 Interest rate of 6.95%
----------
$1,056,000
----------
Purchase Contract Obli-
gation
due April 30, 2005 $ 346 Interest rate of 3.00%
----------
$1,056,346
==========
</TABLE>
Long-term debt maturing within one year, including long-term debt redeemed
in January and February of 1999, have been included in current liabilities.
The outstanding first mortgage bonds are secured by a lien on substantially
all property and franchises, other than expressly excepted property, owned by
ComEd.
(13) Lines of Credit
ComEd had total unused bank lines of credit of $1 billion at December 31,
1998. Of that amount, $500 million expires on October 7, 1999 and $500 million
expires on October 8, 2003. The interest rate is set at the time of a
borrowing and is based on several floating rate bank indices plus a spread,
which is dependent upon the credit rating of ComEd's outstanding first
mortgage bonds or on a prime interest rate. ComEd is obligated to pay
commitment fees with respect to the unused portion of such lines of credit.
(14) Disposal of Spent Nuclear Fuel
Under the Nuclear Waste Policy Act of 1982, the DOE is responsible for the
selection and development of repositories for, and the disposal of, spent
nuclear fuel and high-level radioactive waste. ComEd, as required by that Act,
has signed a contract with the DOE to provide for the disposal of spent
nuclear fuel and high-level radioactive waste from ComEd's nuclear generating
stations. That
45
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
contract provided for acceptance by the DOE of such materials to begin in
January 1998; however, that date was not met by the DOE and is expected to be
delayed significantly. The DOE's current estimate for opening a facility to
accept such waste is 2010. This extended delay in spent nuclear fuel
acceptance by the DOE has led to ComEd's consideration of additional dry
storage alternatives. On July 30, 1998, ComEd filed a complaint against the
United States in the United States Court of Federal Claims seeking to recover
damages caused by the DOE's failure to honor its contractual obligation to
begin disposing of spent nuclear fuel in January 1998. The contract with the
DOE requires ComEd to pay the DOE a one-time fee applicable to nuclear
generation through April 6, 1983 of $277 million, with interest to date of
payment, and a fee payable quarterly equal to one mill per kilowatthour of
nuclear-generated and sold electricity after April 6, 1983. Pursuant to the
contract, ComEd has elected to pay the one-time fee, with interest, just prior
to the first delivery of spent nuclear fuel to the DOE. The liability for the
one-time fee and related interest is reflected on the Consolidated Balance
Sheets.
(15) Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of financial instruments either held or issued and outstanding. The disclosure
of such information does not purport to be a market valuation of ComEd and
subsidiary companies as a whole. The impact of any realized or unrealized
gains or losses related to such financial instruments on the financial
position or results of operations of ComEd and subsidiary companies is
primarily dependent on the treatment authorized under future ratemaking
proceedings.
Investments. Securities included in the nuclear decommissioning funds have
been classified
and accounted for as "available for sale" securities. The estimated fair value
of the nuclear decommissioning funds, as determined by the trustee and based
on published market data, as of December 31, 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
-------------------------------- --------------------------------
Unrealized Cost Unrealized Fair
Cost Basis Gains Fair Value Basis Gains Value
---------- ---------- ---------- ---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Short-term investments.. $ 40,907 $ 42 $ 40,949 $ 33,524 $ 2 $ 33,526
U.S. Government and
Agency issues.......... 197,240 20,213 217,453 170,240 15,882 186,122
Municipal bonds......... 416,121 24,124 440,245 306,104 20,598 326,702
Corporate bonds......... 241,111 8,790 249,901 231,738 4,293 236,031
Common stock............ 740,956 565,630 1,306,586 667,657 385,851 1,053,508
Other................... 11,345 838 12,183 17,300 2,508 19,808
---------- -------- ---------- ---------- -------- ----------
$1,647,680 $619,637 $2,267,317 $1,426,563 $429,134 $1,855,697
========== ======== ========== ========== ======== ==========
</TABLE>
At December 31, 1998, the debt securities held by the nuclear
decommissioning funds had the following maturities:
<TABLE>
<CAPTION>
Cost Basis Fair Value
---------- ----------
(Thousands of
Dollars)
<S> <C> <C>
Within 1 year....................................... $ 29,421 $ 29,431
1 through 5 years................................... 185,810 192,159
5 through 10 years.................................. 254,024 273,255
Over 10 years....................................... 411,607 439,643
</TABLE>
46
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
The net earnings of the nuclear decommissioning funds, which are recorded as
increases to the accumulated provision for depreciation, for the years 1998,
1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C>
Gross proceeds from sales of securities....... $1,795,484 $2,163,522 $2,335,974
Less cost based on specific identification.... 1,728,092 2,088,300 2,300,038
---------- ---------- ----------
Realized gains on sales of securities......... $ 67,392 $ 75,222 $ 35,936
Other realized fund earnings net of expenses.. 40,374 39,123 33,008
---------- ---------- ----------
Total realized net earnings of the funds...... $ 107,766 $ 114,345 $ 68,944
Unrealized gains.............................. 190,503 198,741 65,516
---------- ---------- ----------
Total net earnings of the funds.............. $ 298,269 $ 313,086 $ 134,460
========== ========== ==========
</TABLE>
Current Assets. Cash, temporary cash investments, cash held for redemption
of securities and other cash investments, which include U.S. Government
obligations and other short-term marketable securities, and special deposits,
which primarily includes cash deposited for the redemption, refund or
discharge of debt securities, are stated at cost, which approximates their
fair value because of the short maturity of these instruments. The securities
included in these categories have been classified as "available for sale"
securities.
Capitalization. The estimated fair values of preferred and preference
stocks, company-obligated mandatorily redeemable preferred securities of
subsidiary trusts holding solely the Company's subordinated debt securities,
transitional trust notes, and long-term debt were obtained from an independent
consultant. The estimated fair values, which include the current portions of
redeemable preference stock and long-term debt but exclude accrued interest
and dividends, as of December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
-------------------------------- --------------------------------
Carrying Unrealized Fair Carrying Unrealized Fair
Value Losses Value Value Losses Value
---------- ---------- ---------- ---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Preferred and preference
stocks................. $ 678,156 $ 11,500 $ 689,656 $ 712,069 $ 11,970 $ 724,039
Company-obligated
mandatorily redeemable
preferred securities of
subsidiary trusts
holding solely the
Company's subordinated
debt securities........ $ 350,000 $ 20,678 $ 370,678 $ 350,000 $ 21,701 $ 371,701
Transitional trust
notes.................. $3,382,821 $ 67,168 $3,449,989 $ -- $ -- $ --
Long-term debt.......... $5,791,757 $442,077 $6,233,834 $5,913,942 $380,890 $6,294,832
</TABLE>
A long-term note payable, which is not included in the above table, amounted
to $150 million at December 31, 1997. Such note, for which interest is paid at
fixed and prevailing rates, is included in the consolidated financial
statements at cost, which approximates its fair value.
Current Liabilities. The carrying value of notes payable, which consists of
commercial paper and bank loans maturing within one year, approximates the
fair value because of the short maturity of these instruments. See
"Capitalization" above for a discussion of the fair value of the current
portions of long-term debt and redeemable preference stock.
Other Noncurrent Liabilities. The carrying value of accrued spent nuclear
fuel disposal fee and related interest represents the settlement value as of
December 31, 1998 and 1997; therefore, the carrying value is equal to the fair
value.
47
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
(16) Pension and Postretirement Benefits
As of December 31, 1998, ComEd had a qualified non-contributory defined
benefit pension plan which covers all regular employees. Benefits under this
plan reflect each employee's compensation, years of service and age at
retirement. Funding is based upon actuarially determined contributions that
take into account the amount deductible for income tax purposes and the
minimum contribution required under the Employee Retirement Income Security
Act of 1974, as amended. The December 31, 1998 and 1997 pension liabilities
and related data were determined using the January 1, 1998 actuarial
valuation. Additionally, ComEd maintains a nonqualified supplemental
retirement plan which covers any excess pension benefits that would be payable
to management employees under the qualified plan but which are limited by the
Internal Revenue Code. On January 19, 1998, Indiana Company's qualified
defined benefit pension plan was merged into the ComEd pension plan as a
result of the sale of Indiana Company's State Line Station and the transfer of
its remaining employees to ComEd.
ComEd and the Indiana Company provide certain postretirement medical, dental
and vision care, and life insurance for retirees and their dependents and for
the surviving dependents of eligible employees and retirees. The employees
become eligible for postretirement benefits when they reach age 55 with ten
years of service. The liability for postretirement benefits is funded through
trust funds based upon actuarially determined contributions that take into
account the amount deductible for income tax purposes. The health care plans
are contributory, funded jointly by the companies and the participating
retirees. The December 31, 1998 and 1997 postretirement benefit liabilities
and related data were determined using the January 1, 1998 actuarial
valuations.
48
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Reconciliations of the beginning and ending balances of the projected
pension benefit obligation and the accumulated postretirement benefit
obligation and the funded status of these plans for the years 1998 and 1997
are as follows:
<TABLE>
<CAPTION>
Twelve Months Ended Twelve Months Ended
December 31, 1998 December 31, 1997
-------------------------- --------------------------
Other Other
Pension Postretirement Pension Postretirement
Benefits Benefits Benefits Benefits
---------- -------------- ---------- --------------
(Thousands of Dollars)
Change in benefit
obligation
- -----------------
<S> <C> <C> <C> <C>
Benefit obligation at
beginning of period.... $4,010,000 $1,139,000 $3,579,000 $1,035,000
Service cost............ 115,000 38,000 100,000 34,000
Interest cost........... 273,000 78,000 261,000 76,000
Plan participants' con-
tributions............. -- 3,000 -- 3,000
Curtailment gain........ -- -- (5,000) --
Actuarial loss.......... 165,000 37,000 282,000 32,000
Benefits paid........... (236,000) (46,000) (207,000) (41,000)
---------- ---------- ---------- ----------
Benefit obligation at
end of period......... $4,327,000 $1,249,000 $4,010,000 $1,139,000
---------- ---------- ---------- ----------
<CAPTION>
Change in plan assets
- ---------------------
<S> <C> <C> <C> <C>
Fair value of plan as-
sets at beginning of
period................. $3,706,000 $ 767,000 $3,281,000 $ 665,000
Actual return on plan
assets................. 534,000 108,000 631,000 128,000
Employer contribution... 11,000 20,000 1,000 12,000
Plan participants' con-
tributions............. -- 3,000 -- 3,000
Benefits paid........... (236,000) (46,000) (207,000) (41,000)
---------- ---------- ---------- ----------
Fair value of plan as-
sets at end of period. $4,015,000 $ 852,000 $3,706,000 $ 767,000
---------- ---------- ---------- ----------
Plan assets less than
benefit obligation..... $ (312,000) $ (397,000) $ (304,000) $ (372,000)
Unrecognized net actuar-
ial loss (gain)........ 37,000 (345,000) 68,000 (350,000)
Unrecognized prior serv-
ice cost (asset)....... (60,000) 48,000 (64,000) 52,000
Unrecognized transition
obligation (asset)..... (101,000) 323,000 (114,000) 345,000
---------- ---------- ---------- ----------
Accrued liability for
benefits.............. $ (436,000) $ (371,000) $ (414,000) $ (325,000)
========== ========== ========== ==========
</TABLE>
The assumed discount rate used to determine the benefit obligation as of
December 31, 1998 and 1997 was 6.75% and 7.00%, respectively. The fair value
of pension plan assets excludes $21 million and $17 million held in grantor
trust as of December 31, 1998 and 1997, respectively, for the payment of
benefits under the supplemental plan.
49
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
The components of pension and other postretirement benefit costs, portions of
which were recorded as components of construction costs, for the years 1998,
1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
Pension Benefit Costs (Thousands of Dollars)
- ---------------------
<S> <C> <C> <C>
Service cost............ $115,000 $100,000 $ 93,000
Interest cost on
projected benefit
obligation............. 273,000 261,000 247,000
Expected return on plan
assets................. (342,000) (310,000) (289,000)
Amortization of
transition asset....... (12,000) (13,000) (13,000)
Amortization of prior
service asset.......... (4,000) (4,000) (4,000)
Recognized loss......... 2,000 2,000 2,000
Curtailment gain........ -- (5,000) --
-------- -------- --------
Net periodic benefit
cost.................. $ 32,000 $ 31,000 $ 36,000
======== ======== ========
<CAPTION>
Other Postretirement
Benefit Costs
- --------------------
<S> <C> <C> <C>
Service cost............ $ 38,000 $ 34,000 $ 32,000
Interest cost on
accumulated benefit
obligation............. 78,000 76,000 73,000
Expected return on plan
assets................. (69,000) (61,000) (55,000)
Amortization of
transition obligation.. 22,000 22,000 22,000
Amortization of prior
service cost........... 4,000 4,000 3,000
Recognized gain......... (14,000) (13,000) (9,000)
Severance plan cost..... 6,000 8,000 4,000
-------- -------- --------
Net periodic benefit
cost.................. $ 65,000 $ 70,000 $ 70,000
======== ======== ========
</TABLE>
In accounting for the pension costs and other postretirement benefit costs
under the plans, the following weighted average actuarial assumptions were used
for the years 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Other
Pension Benefits Postretirement Benefits
----------------- -----------------------
1998 1997 1996 1998 1997 1996
----- ----- ----- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Annual discount rate................. 7.00% 7.50% 7.50% 7.00% 7.50% 7.50%
Annual long-term rate of return on
plan assets......................... 9.50% 9.75% 9.75% 9.20% 9.40% 9.38%
Annual rate of increase in future
compensation levels................. 4.00% 4.00% 4.00% -- -- --
</TABLE>
The pension curtailment gain in December 1997 represents the recognition of
prior service costs, the transition asset and the decrease in the projected
benefit obligation related to the reduction in the number of employees due to
the sale of State Line Station by the Indiana Company.
Postretirement health care costs for the years 1998, 1997 and 1996 included
$6 million, $8 million and $4 million, respectively, related to voluntary
separation offers to certain employees of ComEd and the Indiana Company.
The health care cost trend rates used to measure the expected cost of the
postretirement medical benefits are assumed to be 8.5% for pre-Medicare
recipients and 6.5% for Medicare recipients for 1998. Those rates are assumed
to decrease in 0.5% annual increments to 5% for the years 2005 and 2001,
respectively, and to remain level thereafter. The health care cost trend rates,
used to measure the expected cost of postretirement dental and vision benefits,
are a level 3.5% and 2.0% per year, respectively. Assumed health care cost
trend rates have a significant effect on the amounts reported
50
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
for the health care plans. A one percentage point change in the assumed health
care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1 Percentage 1 Percentage
Point Increase Point Decrease
-------------- --------------
(Thousands of Dollars)
<S> <C> <C>
Effect on total annual service and interest cost
components...................................... $ 24,000 $ (18,000)
Effect on postretirement benefit obligation...... 225,000 (176,000)
</TABLE>
In addition, an employee savings and investment plan is available to
eligible employees of ComEd and certain of its subsidiaries. Under the plan,
each participating employee may contribute up to 20% of such employee's base
pay. The participating companies match the first 6% of such contribution equal
to 100% of the first 2% of contributed base salary, 70% of the next 3% of
contributed base salary and 25% of the next 1% of contributed base salary. The
participating companies' contributions were $32 million, $33 million and
$30 million for the years 1998, 1997 and 1996, respectively.
(17) Separation Plan Costs
O&M expenses included $48 million, $39 million and $12 million for the years
1998, 1997 and 1996, respectively, for costs related to voluntary separation
offers to certain employees of ComEd and the Indiana Company, as well as
certain one-time, employee-related costs. Such costs resulted in charges of
$29 million (after-tax), $24 million (after-tax) and $7 million (after-tax)
for the years 1998, 1997 and 1996, respectively.
(18) Income Taxes
The components of the net deferred income tax liability at December 31, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
December 31
----------------------
1998 1997
---------- ----------
(Thousands of
Dollars)
<S> <C> <C>
Deferred income tax liabilities:
Accelerated cost recovery and liberalized deprecia-
tion, net of removal costs........................... $4,007,681 $4,051,191
Overheads capitalized................................. 140,922 131,509
Repair allowance...................................... 233,861 231,697
Regulatory assets recoverable through future rates.... 680,356 785,354
Deferred income tax assets:
Postretirement benefits............................... (331,566) (305,220)
Unamortized investment tax credits.................... (191,135) (206,112)
Regulatory liabilities to be settled through future
rates................................................ (595,005) (698,750)
Nuclear plant closure................................. (38,354) (194,244)
Other--net............................................ (145,268) (135,311)
---------- ----------
Net deferred income tax liability...................... $3,761,492 $3,660,114
========== ==========
</TABLE>
The $101 million increase in the net deferred income tax liability from
December 31, 1997 to December 31, 1998 is comprised of $102 million of
deferred income tax expense and a $1 million decrease in regulatory assets net
of regulatory liabilities pertaining to income taxes for the year. The amount
of accelerated cost recovery and liberalized depreciation included in deferred
income tax liabilities as of December 31, 1998 includes amounts related to the
regulatory asset for impaired production plant. The amount of regulatory
assets included in deferred income tax liabilities primarily relates to the
equity component of AFUDC which is recorded on an after-tax basis, the
borrowed funds component of AFUDC which was previously recorded net of tax and
other temporary differences for
51
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
which the related tax effects were not previously recorded. The amount of
other regulatory liabilities included in deferred income tax assets primarily
relates to deferred income taxes provided at rates in excess of the current
statutory rate.
The components of net income tax expense charged (credited) to continuing
operations for the years 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
Electric operating income:
Current income taxes.......................... $340,098 $279,416 $339,364
Deferred income taxes......................... 43,299 58,655 156,261
Investment tax credits deferred--net.......... (27,730) (31,015) (33,378)
Other (income) and deductions:
Current income taxes.......................... (51,816) 1,116 (12,348)
Deferred income taxes......................... 59,458 (385,994) 5,118
Investment tax credits........................ (12,107) (22,526) --
-------- --------- --------
Net income taxes charged (credited) to continu-
ing operations................................ $351,202 $(100,348) $455,017
======== ========= ========
</TABLE>
Provisions for current and deferred federal and state income taxes and
amortization of investment tax credits resulted in the following effective
income tax rates for the years 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- ----------
<S> <C> <C> <C>
Pre-tax book income (loss) (thousands)......... $945,408 $(260,486) $1,198,385
Effective income tax rate...................... 37.1% 38.5% 38.0%
</TABLE>
The principal differences between net income taxes charged (credited) to
continuing operations and the amounts computed at the federal statutory rate
of 35% for the years 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
Federal income taxes computed at statutory rate. $330,893 $ (91,170) $419,435
Equity component of AFUDC which was excluded
from taxable income............................ (390) (8,320) (7,272)
Amortization of investment tax credits, net of
deferred income taxes.......................... (25,503) (53,541) (33,378)
State income taxes, net of federal income taxes. 43,699 3,470 58,381
Differences between book and tax accounting,
primarily property-related deductions.......... 2,503 49,213 17,851
-------- --------- --------
Net income taxes charged (credited) to continu-
ing operations................................. $351,202 $(100,348) $455,017
======== ========= ========
</TABLE>
The effects of an income tax refund related to prior years were recorded in
1996, resulting in a positive impact of $26 million (after-tax).
(19) Taxes, Except Income Taxes
Provisions for taxes, except income taxes, for the years 1998, 1997 and 1996
were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
Illinois electricity excise tax............... $126,481 $228,350 $227,062
Illinois invested capital..................... -- 99,503 104,663
Illinois electricity distribution tax......... 110,025 -- --
Municipal utility gross receipts.............. 152,879 168,094 168,715
Real estate................................... 124,131 150,179 129,985
Municipal compensation........................ 78,010 78,286 78,544
Other--net.................................... 105,625 74,755 73,699
-------- -------- --------
$697,151 $799,167 $782,668
======== ======== ========
</TABLE>
52
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Effective January 1, 1998, the Illinois invested capital tax was repealed
and the Illinois electricity distribution tax was enacted as a replacement.
The new tax is based on the kilowatthours delivered to ultimate consumers.
Effective August 1, 1998, as provided for by the 1997 Act, the Illinois
electricity excise tax and certain municipal utility taxes are recorded as
liabilities. Previously, similar taxes were presented on the Statements of
Consolidated Operations as revenue and expense. The reduction in operating
revenues and taxes, except income taxes, due to the change in presentation for
such taxes was approximately $95 million for 1998. This change in the
presentation for such taxes did not have an effect on results of operations.
ComEd's real estate taxes in 1996 reflect a credit of $23 million which
related to the year 1995.
See Note 22 for additional information regarding Illinois invested capital
taxes.
(20) Lease Obligations
Under its nuclear fuel lease arrangement, ComEd may sell and lease back
nuclear fuel from a lessor who may borrow an aggregate of $700 million,
consisting of $300 million of commercial paper/bank borrowings and $400
million of intermediate term notes, to finance the transactions. With respect
to the commercial paper/bank borrowings portion, $300 million will expire on
November 23, 1999. With respect to the intermediate term notes, $60 million
expires on November 23, 1999, and an additional portion each November 23
thereafter through November 23, 2003. At December 31, 1998, ComEd's obligation
to the lessor for leased nuclear fuel amounted to approximately $529 million.
As a result of the permanent cessation of nuclear generation operations at
Zion Station, ComEd repurchased approximately $100 million of nuclear fuel
assemblies held under the nuclear fuel lease arrangements at Zion Station in
June 1998. See Note 5 for additional information regarding the permanent
cessation of nuclear generation operations at Zion Station. ComEd has agreed
to make lease payments which cover the amortization of the nuclear fuel used
in ComEd's reactors plus the lessor's related financing costs. ComEd has an
obligation for spent nuclear fuel disposal costs of leased nuclear fuel.
As of December 31, 1998, future minimum rental payments, net of executory
costs, for capital leases are estimated to aggregate to $589 million,
including $217 million in 1999, $164 million in 2000, $99 million in 2001, $60
million in 2002, $33 million in 2003 and $16 million in 2004-2005. The
estimated interest component of such rental payments aggregates $64 million.
The estimated portions of obligations due within one year under capital leases
of $195 million and $241 million at December 31, 1998 and 1997, respectively,
were included in current liabilities on the Consolidated Balance Sheets.
Future minimum rental payments at December 31, 1998 for operating leases are
estimated to aggregate to $286 million, including $37 million in 1999, $34
million in 2000, $28 million in 2001, $26 million in 2002, $24 million in 2003
and $137 million in 2004-2024.
(21) Joint Plant Ownership
ComEd has a 75% undivided ownership interest in the Quad Cities nuclear
generating station. Further, ComEd is responsible for 75% of all costs which
are charged to appropriate investment and O&M accounts, and provides its own
financing. ComEd's net plant investment, including construction work in
progress, in Quad Cities Station on the Consolidated Balance Sheets was $5
million at December 31, 1998, after reflecting the accounting impairment
recorded in the second quarter of 1998. See Note 2 for additional information.
53
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
(22) Commitments and Contingent Liabilities
Purchase commitments, principally related to construction and nuclear fuel,
approximated $335 million at December 31, 1998. In addition, ComEd has
substantial commitments for the purchase of coal. ComEd's coal costs are high
compared to those of other utilities. 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.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations," subcaption "Liquidity and Capital Resources--Construction
Program," for additional information regarding ComEd's purchase commitments.
ComEd is a member of NEIL which provides insurance coverage against property
damage and associated replacement power costs occurring at members' nuclear
generating facilities. All companies insured with NEIL are subject to
retrospective premium adjustments if losses exceed accumulated reserve funds.
Capital has been accumulated in the reserve funds such that ComEd would not be
liable for any single incident. However, ComEd could be subject to assessments
in any policy year for each of three types of coverage provided. The maximum
assessments are approximately $53 million for primary property damage, $73
million for excess property damage and $22 million for replacement power.
Prior to January 1, 1998, the primary property damage coverage described was
provided by NML, another mutual insurance company which merged into NEIL. The
merger did not affect ComEd's obligations or coverage.
The NRC's indemnity for public liability coverage under the Price-Anderson
Act is supported by a mandatory industry-wide program under which owners of
nuclear generating facilities could be assessed in the event of nuclear
incidents. Based on the number of nuclear reactors with operating licenses,
ComEd would currently be subject to a maximum assessment of $1,145 million in
the event of an incident, limited to a maximum of $130 million in any calendar
year.
In addition, ComEd participates in the American Nuclear Insurers Master
Worker Program, which provides coverage for worker tort claims filed for
bodily injury caused by the nuclear energy hazard. This program was modified,
effective January 1, 1998, to provide coverage to all workers whose "nuclear-
related employment" began on or after the commencement date of reactor
operations. ComEd will not be liable for a retrospective assessment under this
new policy. However, ComEd is still subject to a maximum retroactive
assessment of up to $36 million in the event losses incurred under the small
number of policies in the old program exceed accumulated reserves.
During 1989 and 1991, actions were brought in federal and state courts in
Colorado against ComEd and Cotter seeking unspecified damages and injunctive
relief based on allegations that Cotter has permitted radioactive and other
hazardous material to be released from its mill into areas owned or occupied
by the plaintiffs resulting in property damage and potential adverse health
effects. With respect to Cotter, in 1994 a federal jury returned nominal
dollar verdicts against Cotter on eight bellwether plaintiffs' claims in the
1989 cases, which verdicts were upheld on appeal. The remaining claims in the
1989 actions have been settled and dismissed. On July 15, 1998, a jury verdict
was rendered in Dodge v. Cotter (United States District Court for the District
of Colorado, Civil Action No. 91-Z-1861), a case relating to 14 of the
plaintiffs in the 1991 cases. The verdict against Cotter included compensatory
and punitive damages totaling approximately $3 million (not including
prejudgment interest, which has not yet been calculated, and which Cotter
anticipates may bring the total award to under $6 million), together with
medical monitoring. The matter is currently on appeal. Although the other 1991
cases will necessarily involve the resolution of numerous contested issues of
fact and law, ComEd's determination is that these actions will not have a
material impact on its financial position or results of operations.
54
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
ComEd is involved in administrative and legal proceedings concerning air
quality, water quality and other matters. The outcome of these proceedings may
require increases in future construction expenditures and operating expenses
and changes in operating procedures. ComEd and its subsidiaries are or are
likely to become parties to proceedings initiated by the U.S. EPA, state
agencies and/or other responsible parties under CERCLA with respect to a
number of sites, including MGP sites, or may voluntarily undertake to
investigate and remediate sites for which they may be liable under CERCLA.
ComEd generally did not operate MGPs as a corporate entity but did, however,
acquire MGP sites as part of the absorption of smaller utilities.
Approximately half of these sites were transferred to Northern Illinois Gas
Company as part of a general conveyance in 1954. ComEd also acquired former
MGP sites as vacant real estate on which ComEd facilities have been
constructed. To date, ComEd has identified 44 former MGP sites for which it
may be liable for remediation. ComEd presently estimates that its costs of
former MGP site investigation and remediation will aggregate from $25 million
to $150 million in current-year (1999) dollars. It is expected that the costs
associated with investigation and remediation of former MGP sites will be
incurred over a period not to exceed 30 years. Because ComEd is not able to
determine the most probable liability for such MGP costs, in accordance with
accounting standards, a reserve of $25 million has been included in other
noncurrent liabilities on the Consolidated Balance Sheets as of December 31,
1998 and 1997, which reflects the low end of the range of ComEd's estimate of
the liability associated with former MGP sites. In addition, as of December
31, 1998 and 1997, a reserve of $8 million has been included in other
noncurrent liabilities on the Consolidated Balance Sheets, representing
ComEd's estimate of the liability associated with cleanup costs of remediation
sites other than former MGP sites. Approximately half of this reserve relates
to anticipated cleanup costs associated with a property formerly used as a
tannery which was purchased by ComEd in 1973. ComEd presently estimates that
its costs of investigating and remediating the former MGP and other
remediation sites, pursuant to CERCLA and state environmental laws, will not
have a material impact on the financial position or results of operations of
ComEd. These cost estimates are based on currently available information
regarding the responsible parties likely to share in the costs of responding
to site contamination, the extent of contamination at sites for which the
investigation has not yet been completed and the cleanup levels to which sites
are expected to have to be remediated.
The IDR has issued Notices of Tax Liability to ComEd alleging deficiencies
in Illinois invested capital tax payments for the years 1988 through 1996. The
alleged deficiencies including interest and penalties totaled approximately
$45 million as of December 31, 1998. ComEd has protested the notices, and the
matter is currently pending before the IDR's Office of Administrative
Hearings. Interest will continue to accrue on the alleged tax deficiencies.
55
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
(23) Quarterly Financial Information
<TABLE>
<CAPTION>
Net Income/
Electric Electric (Loss) on
Operating Operating Net Common
Three Months Ended (a) Revenues Income Income/(Loss) Stock
- ----------------------- ---------- --------- ------------- -----------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
March 31, 1998.......... $1,709,613 $190,681 $ 71,833 $ 57,286
June 30, 1998........... $1,776,972 $214,982 $ 104,453 $ 89,991
September 30, 1998...... $2,089,547 $395,434 $ 286,071 $ 272,018
December 31, 1998....... $1,559,748 $209,149 $ 131,849 $ 118,027
March 31, 1997.......... $1,669,495 $214,310 $ 277,928 $ 262,401
June 30, 1997........... $1,685,196 $154,769 $ 25,063 $ 9,578
September 30, 1997...... $2,068,087 $390,345 $ 260,985 $ 246,083
December 31, 1997....... $1,650,310 $162,054 $(1,337,749) $(1,352,321)
</TABLE>
(a) The March 31, 1997 Net Income/(Loss) and Net Income/(Loss) on Common Stock
include $197 million (after-tax) for the cumulative effect of a change in
accounting principle.
(24) Subsequent Events
ComEd redeemed the following preference stock, first mortgage bonds and
sinking fund debentures on January 19, 1999, January 27, 1999 and February 16,
1999, respectively.
<TABLE>
<CAPTION>
Preference Stock
--------------------------------------------------------------------------
Shares
Series Outstanding Principal Amount
------ ----------- ----------------------
(Thousands of Dollars)
<S> <C> <C>
$8.40.................................. 750,000 $ 74,175
$8.38.................................. 750,000 73,566
$2.00.................................. 2,000,000 51,560
$1.96.................................. 2,000,000 52,440
$1.90.................................. 4,249,549 106,239
$7.24.................................. 750,000 74,340
$9.25.................................. 450,000 45,000
$8.85.................................. 187,500 18,750
$8.40 Series B......................... 240,000 23,838
$8.20.................................. 142,845 14,285
---------- --------
11,519,894 $534,193
========== ========
</TABLE>
<TABLE>
<CAPTION>
First Mortgage Bonds
--------------------------------------------------------------------------
Series Principal Amount
------ ----------------------
(Thousands of Dollars)
<S> <C>
9 1/8% due October 15, 2021.................... $125,000
8 7/8% due October 1, 2021..................... 100,000
8 1/8% due January 15, 2007.................... 180,000
8% due October 15, 2003........................ 125,000
7 5/8% due June 1, 2003........................ 100,000
7 1/2% due January 1, 2001..................... 100,000
--------
$730,000
========
</TABLE>
56
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Concluded
<TABLE>
<CAPTION>
Sinking Fund Debentures
----------------------------------------------------------------------
Principal Amount
Series ----------------------
-----------------------------
(Thousands of Dollars)
<S> <C>
7 5/8% due February 15, 2003................... $56,000(1)
7 5/8% due February 15, 2003................... 2,000
-------
$58,000
=======
</TABLE>
--------
(1)Optional Redemption
In response to a tender offer, ComEd reacquired $229 million of the
following first mortgage bonds in early February 1999.
<TABLE>
<CAPTION>
Series Principal Amount
------------------------------ ---------------------
(Thousands of Dollars)
<S> <C>
9 3/8% due February 15, 2000................... $ 82,655
9 3/4% due February 15, 2020................... 146,547
--------
$229,202
========
</TABLE>
In the first quarter of 1999, ComEd expects to record losses and premiums
related to the early redemptions and the tender offer of the above-mentioned
first mortgage bonds, preference stock and sinking fund debentures, which will
reduce net income on common stock by approximately $38 million (after-tax).
In addition to the debt and preference stock redemptions and the tender
offer discussed above, Unicom also has announced plans to repurchase
approximately $750 million of Unicom common stock using the proceeds it
receives from ComEd's repurchase of its common stock held by Unicom. The
remaining proceeds will be used for the payment of fees and additional debt
and equity redemptions. See Note 7 for additional information.
57
