<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
<TABLE>
<CAPTION>
Commission
File Registrant; State of Incorporation; IRS Employer
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>
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
Common Stock outstanding at October 31, 1999:
Unicom Corporation 217,516,983 shares
Commonwealth Edison Company 213,973,242 shares
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
Unicom Corporation
and
Commonwealth Edison Company
Quarterly Reports on Form 10-Q
to the Securities and Exchange Commission
for the Quarterly Period Ended September 30, 1999
This document contains the Quarterly Reports on Form 10-Q for the quarterly
period ended September 30, 1999 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. In addition, several
portions of these Quarterly Reports contain forward-looking statements; and
reference is made to pages 61-62 for the location and character of such
statements.
INDEX
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Definitions.............................................................. 3
PART I. FINANCIAL INFORMATION
Unicom Corporation and Subsidiary Companies:
Financial Statements--
Report of Independent Public Accountants............................. 4
Statements of Consolidated Operations for the three months, nine
months and twelve months ended September 30, 1999 and 1998.......... 5
Consolidated Balance Sheets--September 30, 1999 and December 31,
1998................................................................ 6-7
Statements of Consolidated Capitalization--September 30, 1999 and De-
cember 31, 1998..................................................... 8
Statements of Consolidated Retained Earnings/(Deficit) for the three
months, nine months and twelve months ended September 30, 1999 and
1998................................................................ 9
Statements of Consolidated Cash Flows for the three months, nine
months and twelve months ended September 30, 1999 and 1998.......... 10
Notes to Financial Statements........................................ 11-40
Management's Discussion and Analysis of Financial Condition and Results
of
Operations............................................................ 41-62
Commonwealth Edison Company and Subsidiary Companies:
Financial Statements--
Report of Independent Public Accountants............................. 63
Statements of Consolidated Operations for the three months, nine
months and twelve months ended September 30, 1999 and 1998.......... 64
Consolidated Balance Sheets--September 30, 1999 and December 31,
1998................................................................ 65-66
Statements of Consolidated Capitalization--September 30, 1999 and De-
cember 31, 1998..................................................... 67
Statements of Consolidated Retained Earnings/(Deficit) for the three
months, nine months and twelve months ended September 30, 1999 and
1998................................................................ 68
Statements of Consolidated Cash Flows for the three months, nine
months and twelve months ended September 30, 1999 and 1998.......... 69
Notes to Financial Statements........................................ 70-75
Management's Discussion and Analysis of Financial Condition and Results
of
Operations............................................................ 76
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 77
Item 6. Exhibits and Reports on Form 8-K............................... 78-79
SIGNATURES............................................................... 80
</TABLE>
2
<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, as amended
AFUDC Allowance for funds used during construction
APB Accounting Principles Board
APX Automated Power Exchange Inc., a California company
ARES Alternative Retail Electric Suppliers
CERCLA Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended
City City of Chicago
ComEd Commonwealth Edison Company, a Unicom subsidiary
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
Edison Development Edison Development Canada Inc., a ComEd subsidiary
EEI Edison Electric Institute
EME Edison Mission Energy, an Edison International
subsidiary
EMS Energy Management System
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
Fossil Plant ComEd's six coal-fired generating plants, an oil and
gas-fired plant, and nine peaking unit sites
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
Merger Agreement Agreement and Plan of Exchange and Merger, dated
September 22, 1999, among PECO, Unicom and Newco
MGP Manufactured gas plant
NEI Nuclear Energy Institute
NEIL Nuclear Electric Insurance Limited
NERC North American Electric Reliability Council
Northwind Midway Northwind Midway, LLC, a UT Holdings subsidiary
NPL National Priorities List
NRC Nuclear Regulatory Commission
O&M Operation and maintenance
PECO PECO Energy Company, a Pennsylvania company
RES Retail Electric Supplier
SCADA Supervisory Control And Data Acquisition
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 Investment Unicom Investment 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>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To 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 September 30, 1999 and December 31, 1998, and
the related statements of consolidated operations, retained earnings/(deficit)
and cash flows for the three-month, nine-month and twelve-month periods ended
September 30, 1999 and 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 September 30, 1999 and December 31, 1998, and the
results of their operations and their cash flows for the three-month, nine-
month and twelve-month periods ended September 30, 1999 and 1998, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois
November 12, 1999
4
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED OPERATIONS
The following Statements of Consolidated Operations for the three months,
nine months and twelve months ended September 30, 1999 and 1998 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, asset dispositions, 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>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
---------------------- ---------------------- -----------------------
1999 1998 1999 1998 1999 1998
---------- ---------- ---------- ---------- ---------- -----------
(Thousands Except Per Share Data)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues...... $2,084,454 $2,095,699 $5,307,972 $5,539,742 $6,871,640 $ 7,179,643
---------- ---------- ---------- ---------- ---------- -----------
Operating Expenses and
Taxes:
Fuel................... $ 302,181 $ 340,317 $ 796,654 $ 804,483 $1,049,699 $ 1,062,539
Purchased power........ 249,375 193,637 419,358 646,388 520,987 751,325
Operation and
maintenance........... 581,937 568,815 1,787,435 1,703,409 2,369,062 2,353,968
Depreciation and
amortization.......... 202,109 232,461 700,388 713,944 929,731 963,524
Taxes (except income).. 144,791 179,385 407,286 571,873 535,247 757,692
Income taxes........... 181,654 187,787 305,265 303,878 354,131 339,241
Investment tax credits
deferred--net ........ (7,021) (6,889) (21,063) (20,937) (27,856) (28,588)
---------- ---------- ---------- ---------- ---------- -----------
$1,655,026 $1,695,513 $4,395,323 $4,723,038 $5,731,001 $ 6,199,701
---------- ---------- ---------- ---------- ---------- -----------
Operating Income........ $ 429,428 $ 400,186 $ 912,649 $ 816,704 $1,140,639 $ 979,942
---------- ---------- ---------- ---------- ---------- -----------
Other Income and
(Deductions):
Interest on long-term
debt, net of interest
capitalized........... $ (134,622) $ (111,535) $ (413,132) $ (334,929) $ (522,526) $ (454,260)
Interest on notes
payable............... (5,282) (6,170) (13,003) (15,186) (17,377) (15,817)
Allowance for funds
used during
construction.......... 6,581 4,467 15,982 12,325 20,121 24,217
Income taxes
applicable to
nonoperating
activities............ 2,080 1,671 (1,169) 18,946 (17,418) 31,151
Provisions for
dividends and
redemption premiums--
Preferred and
preference stocks of
ComEd............... (1,830) (14,053) (20,170) (43,062) (33,991) (57,635)
ComEd-obligated
mandatorily
redeemable preferred
securities of
subsidiary trusts
holding solely
ComEd's subordinated
debt securities..... (7,428) (7,428) (22,283) (22,283) (29,710) (29,710)
Loss on nuclear plant
closure............... -- -- -- -- -- (885,611)
Income tax effects of
nuclear plant
closure............... -- -- -- -- -- 362,952
Miscellaneous--net..... (9,175) (2,316) 37,492 (33,520) 67,816 (106,960)
---------- ---------- ---------- ---------- ---------- -----------
$ (149,676) $ (135,364) $ (416,283) $ (417,709) $ (533,085) $(1,131,673)
---------- ---------- ---------- ---------- ---------- -----------
Net Income/(Loss) before
Extraordinary Items.... $ 279,752 $ 264,822 $ 496,366 $ 398,995 $ 607,554 $ (151,731)
Extraordinary Losses,
less Applicable Income
Taxes.................. -- -- (27,579) -- (27,579) (810,335)
---------- ---------- ---------- ---------- ---------- -----------
Net Income/(Loss)....... $ 279,752 $ 264,822 $ 468,787 $ 398,995 $ 579,975 $ (962,066)
========== ========== ========== ========== ========== ===========
Earnings/(loss) per
common share before
extraordinary items--
Basic.................. $ 1.29 $ 1.22 $ 2.29 $ 1.84 $ 2.80 $ (0.69)
Diluted................ $ 1.28 $ 1.22 $ 2.28 $ 1.83 $ 2.79 $ (0.69)
Extraordinary losses,
less applicable income
taxes (basic and
diluted)............... -- -- (0.13) -- (0.13) (3.75)
Earnings/(loss) per
common share--
Basic.................. $ 1.29 $ 1.22 $ 2.16 $ 1.84 $ 2.67 $ (4.44)
Diluted................ $ 1.28 $ 1.22 $ 2.15 $ 1.83 $ 2.66 $ (4.44)
Cash Dividends Declared
per Common Share....... $ 0.40 $ 0.40 $ 1.20 $ 1.20 $ 1.60 $ 1.60
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
5
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1999 1998
------ ------------- ------------
(Thousands of Dollars)
<S> <C> <C>
Utility Plant:
Plant and equipment, at original cost (includes
construction work in progress of $959 million and
$858 million, respectively)....................... $28,501,029 $27,801,246
Less--Accumulated provision for depreciation....... 15,749,560 15,234,320
----------- -----------
$12,751,469 $12,566,926
Nuclear fuel, at amortized cost.................... 864,229 874,979
----------- -----------
$13,615,698 $13,441,905
----------- -----------
Investments and Other Property:
Nuclear decommissioning funds...................... $ 2,340,005 $ 2,267,317
Subsidiary companies............................... 42,908 41,150
Other, at cost..................................... 310,030 275,794
----------- -----------
$ 2,692,943 $ 2,584,261
----------- -----------
Current Assets:
Cash............................................... $ 43,300 $ 28,893
Temporary cash investments......................... 38,229 26,935
Cash held for redemption of securities............. 606,822 3,062,816
Special deposits................................... 382 271
Receivables--
Customers........................................ 1,307,554 1,369,701
Forward share repurchase contract................ 678,016 --
Other............................................ 148,933 136,701
Provisions for uncollectible accounts............ (62,718) (48,645)
Coal and fuel oil, at average cost................. 131,272 135,415
Materials and supplies, at average cost............ 242,342 232,246
Deferred income taxes related to current assets and
liabilities....................................... 30,872 24,339
Prepayments and other.............................. 37,976 20,301
----------- -----------
$ 3,202,980 $ 4,988,973
----------- -----------
Deferred Charges and Other Noncurrent Assets:
Regulatory assets.................................. $ 4,473,652 $ 4,578,427
Other.............................................. 113,031 96,907
----------- -----------
$ 4,586,683 $ 4,675,334
----------- -----------
$24,098,304 $25,690,473
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
6
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
CAPITALIZATION AND LIABILITIES 1999 1998
------------------------------ ------------- ------------
(Thousands of Dollars)
<S> <C> <C>
Capitalization (see accompanying statements):
Common stock equity................................. $ 5,296,088 $ 5,099,444
Preferred and preference stocks of ComEd--
Without mandatory redemption requirements......... 1,829 74,488
Subject to mandatory redemption requirements...... -- 69,475
ComEd-obligated mandatorily redeemable preferred se-
curities of subsidiary trusts holding solely
ComEd's subordinated debt securities*.............. 350,000 350,000
Long-term debt...................................... 7,195,732 7,792,502
----------- -----------
$12,843,649 $13,385,909
----------- -----------
Current Liabilities:
Notes payable....................................... $ 448,750 $ 292,963
Current portion of long-term debt, redeemable pref-
erence stock
and capitalized lease obligations of subsidiary
companies.......................................... 1,292,606 2,314,443
Accounts payable.................................... 499,405 604,936
Accrued interest.................................... 131,174 180,674
Accrued taxes....................................... 274,210 134,976
Dividends payable................................... 90,859 105,133
Customer deposits................................... 62,211 56,954
Accrued plant closing costs......................... 15,198 78,430
Other............................................... 137,476 155,262
----------- -----------
$ 2,951,889 $ 3,923,771
----------- -----------
Deferred Credits and Other Noncurrent Liabilities:
Deferred income taxes............................... $ 3,719,866 $ 3,805,460
Nuclear decommissioning liability for retired
plants............................................. 1,266,900 1,215,400
Accumulated deferred investment tax credits......... 535,089 562,285
Accrued spent nuclear fuel disposal fee and related
interest........................................... 753,926 728,413
Obligations under capital leases of subsidiary com-
panies............................................. 213,736 333,653
Regulatory liabilities.............................. 599,739 595,005
Other............................................... 1,213,510 1,140,577
----------- -----------
$ 8,302,766 $ 8,380,793
----------- -----------
Commitments and Contingent Liabilities (Note 21)
$24,098,304 $25,690,473
=========== ===========
</TABLE>
*As described in Note 10 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.
7
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CAPITALIZATION
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Thousands of Dollars)
<S> <C> <C>
Common Stock Equity:
Common stock, without par value--
Outstanding--217,443,205 shares and 217,094,560
shares, respectively.............................. $ 4,958,853 $ 4,966,630
Preference stock expense of ComEd................... (72) (3,199)
Retained earnings................................... 347,402 142,813
Treasury stock--264,406 shares and 178,982 shares,
respectively....................................... (10,095) (6,800)
----------- -----------
$ 5,296,088 $ 5,099,444
----------- -----------
Preferred and Preference Stocks of ComEd--
Without Mandatory Redemption Requirements:
Preference stock, cumulative, without par value--
Outstanding--No shares and 13,499,549 shares,
respectively.................................... $ -- $ 504,957
Current redemption requirements for preference
stock included in current liabilities............ -- (432,320)
$1.425 convertible preferred stock, cumulative,
without par value--
Outstanding--57,526 shares and 58,211 shares,
respectively.................................... 1,829 1,851
Prior preferred stock, cumulative, $100 par value
per share--
No shares outstanding............................ -- --
----------- -----------
$ 1,829 $ 74,488
----------- -----------
Subject to Mandatory Redemption Requirements:
Preference stock, cumulative, without par value--
Outstanding--700,000 shares and 1,720,345 shares,
respectively ................................... $ 69,475 $ 171,348
Current redemption requirements for preference
stock included
in current liabilities........................... (69,475) (101,873)
----------- -----------
$ -- $ 69,475
----------- -----------
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 1999 through 2003--6 3/8% to 9 3/8%...... $ 672,245 $ 1,080,000
Maturing 2004 through 2013--4.40% to 8 3/8%....... 1,305,400 1,485,400
Maturing 2014 through 2023--5.85% to 9 7/8%....... 1,609,443 1,981,000
----------- -----------
$ 3,587,088 $ 4,546,400
Transitional trust notes, due 2000 through 2008--
5.29% to 5.74%..................................... 3,162,955 3,400,000
Sinking fund debentures, due 1999 through 2011--2
3/4% to 7 5/8%..................................... 31,383 94,159
Pollution control obligations, due 2007 through
2014--3.75% to 5 7/8%.............................. 139,200 140,700
Other long-term debt................................ 1,390,738 1,259,204
Current maturities of long-term debt included in
current liabilities................................ (1,064,841) (1,585,281)
Unamortized net debt discount and premium........... (50,791) (62,680)
----------- -----------
$ 7,195,732 $ 7,792,502
----------- -----------
$12,843,649 $13,385,909
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
8
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS/(DEFICIT)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
------------------- ----------------- -------------------
1999 1998 1999 1998 1999 1998
--------- --------- -------- -------- -------- ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Balance at Beginning of
Period................. $ 156,743 $ (60,832) $142,813 $(21,184) $117,109 $1,426,479
Add--Net income/(loss).. 279,752 264,822 468,787 398,995 579,975 (962,066)
--------- --------- -------- -------- -------- ----------
$ 436,495 $ 203,990 $611,600 $377,811 $697,084 $ 464,413
--------- --------- -------- -------- -------- ----------
Deduct--
Cash dividends
declared on
common stock........ $ 86,979 $ 86,842 $260,760 $260,355 $347,566 $ 346,965
Other capital stock
transactions--net... 2,114 39 3,438 347 2,116 339
--------- --------- -------- -------- -------- ----------
$ 89,093 $ 86,881 $264,198 $260,702 $349,682 $ 347,304
--------- --------- -------- -------- -------- ----------
Balance at End of Period
(Includes $702 million
and $470 million of
appropriated retained
earnings at September
30, 1999 and 1998,
respectively).......... $ 347,402 $ 117,109 $347,402 $117,109 $347,402 $ 117,109
========= ========= ======== ======== ======== ==========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
9
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
-------------------- ---------------------- ------------------------
1999 1998 1999 1998 1999 1998
--------- --------- ----------- --------- ----------- -----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Cash Flow from Operating
Activities:
Net income/(loss)...... $ 279,752 $ 264,822 $ 468,787 $ 398,995 $ 579,975 $ (962,066)
Adjustments to
reconcile net
income/(loss) to net
cash provided by
operating activities:
Depreciation and
amortization........ 210,648 246,815 742,432 755,593 976,815 1,018,754
Deferred income taxes
and investment tax
credits--net........ (10,983) (10,773) (109,303) (4,647) (35,026) (348,512)
Extraordinary loss
related to write-off
of certain net
regulatory assets... -- -- -- -- -- 810,335
Loss on nuclear plant
closure............. -- -- -- -- -- 885,611
Provisions/(payments)
for revenue
refunds--net........ (2,439) -- (22,297) (45,470) 306 --
Equity component of
allowance for funds
used during
construction........ (2,243) (1,814) (5,999) (5,358) (7,600) (12,570)
Provisions/(payments)
for liability for
separation costs--
net................. (1,746) (9,853) (11,544) (2,817) 1,029 (11,779)
Net effect on cash
flows of changes in:
Receivables........ 15,208 (292,026) 48,085 (435,280) 13,931 (509,733)
Coal and fuel oil.. 14,753 52,848 4,143 (31,660) 21,052 (7,878)
Materials and
supplies.......... (2,829) 13,452 (10,096) 1,559 8,150 42,996
Accounts payable
excluding nuclear
fuel lease
principal payments
and separation
costs--net........ 10,016 (124,957) (92,907) (23,915) 26,894 67,779
Accrued interest
and taxes......... 3,198 100,645 107,785 183,672 (123,605) 42,009
Other changes in
certain current
assets and
liabilities....... 37,883 29,731 89,881 83,382 152,030 188,004
Other--net........... (10,811) 31,410 111,496 76,249 58,954 104,423
--------- --------- ----------- --------- ----------- -----------
$ 540,407 $ 300,300 $ 1,320,463 $ 950,303 $ 1,672,905 $ 1,307,373
--------- --------- ----------- --------- ----------- -----------
Cash Flow from Investing
Activities:
Construction
expenditures.......... $(271,921) $(202,930) $ (752,614) $(635,668) $(1,042,735) $ (983,117)
Nuclear fuel
expenditures.......... (90,926) (28,616) (204,873) (123,583) (247,458) (151,686)
Sales of generating
plants................ -- -- -- 177,454 -- 238,245
Equity component of
allowance for funds
used during
construction.......... 2,243 1,814 5,999 5,358 7,600 12,570
Contributions to
nuclear
decommissioning
funds................. -- -- (39,426) (80,077) (96,120) (114,721)
Other investments and
special deposits...... (26,644) $ (6,001) (39,345) (10,863) (47,603) 10,083
--------- --------- ----------- --------- ----------- -----------
$(387,248) $(235,733) $(1,030,259) $(667,379) $(1,426,316) $ (988,626)
--------- --------- ----------- --------- ----------- -----------
Cash Flow from Financing
Activities:
Issuance of
securities--
Transitional trust
notes................ $ -- $ -- $ -- $ -- $ 3,382,629 $ --
Other long-term debt.. 98,025 347,068 161,155 382,068 161,357 387,068
Capital stock......... 3,763 4,141 8,175 10,908 13,912 17,246
Retirement and
redemption of
securities--
Transitional trust
notes................ (97,045) -- (237,045) -- (237,045) --
Other long-term debt.. (28,017) (151,008) (1,089,027) (525,656) (1,179,228) (585,660)
Capital stock......... (75,034) (24,270) (639,298) (30,495) (649,669) (34,066)
Deposits and
securities held for
retirement and
redemption of
securities............ -- 995 -- -- -- --
Prepayment of forward
share repurchase
contract.............. -- -- (662,113) -- (662,113) --
Cash dividends paid on
common stock.......... (86,915) (86,763) (260,585) (260,111) (347,428) (346,678)
Proceeds from
sale/leaseback of
nuclear fuel.......... -- 39,612 -- 101,038 -- 146,768
Nuclear fuel lease
principal payments.... (55,610) (43,321) (157,546) (204,330) (208,820) (246,681)
Increase/(decrease) in
short-term
borrowings............ 36,900 (81,200) 155,787 250,496 40,104 365,896
--------- --------- ----------- --------- ----------- -----------
$(203,933) $ 5,254 $(2,720,497) $(276,082) $ 313,699 $ (296,107)
--------- --------- ----------- --------- ----------- -----------
Change in Net Cash
Balance................ $ (50,774) $ 69,821 $(2,430,293) $ 6,842 $ 560,288 $ 22,640
Cash, Temporary Cash
Investments and Cash
Held for Redemption of
Securities:
Balance at Beginning
of Period........... 739,125 58,242 3,118,644 121,221 128,063 105,423
--------- --------- ----------- --------- ----------- -----------
Balance at End of
Period.............. $ 688,351 $ 128,063 $ 688,351 $ 128,063 $ 688,351 $ 128,063
========= ========= =========== ========= =========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
10
<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,
Indiana Company, Edison Development, 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 net receivables has been based on estimates since July 1998 than in
previous periods.
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 3 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, not subject to
cost-based rate regulation, including construction work in progress and
nuclear fuel, and excluding the decommissioning costs included in the
accumulated provision for depreciation was $9.2 billion as of September 30,
1999 and December 31, 1998. See "Regulatory Assets and Liabilities" below
regarding the plant impairment recorded by ComEd in the second quarter of
1998.
11
<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 September 30, 1999 and December 31, 1998
were as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Thousands of Dollars)
<S> <C> <C>
Regulatory assets:
Impaired production
plant.................. $2,856,254 $2,955,154
Deferred income taxes
(1).................... 678,583 680,356
Nuclear decommissioning
costs--Dresden Unit 1.. 206,803 255,031
Nuclear decommissioning
costs--Zion Units 1 and
2...................... 514,052 443,130
Coal reserves........... 178,038 197,975
Unamortized loss on re-
acquired debt (2)...... 39,922 46,781
---------- ----------
$4,473,652 $4,578,427
========== ==========
Regulatory liabilities:
Deferred income taxes
(1).................... $ 599,739 $ 595,005
========== ==========
</TABLE>
- --------
(1) Recorded in compliance with SFAS No. 109, Accounting for Income Taxes, for
non-generation related temporary differences.
(2) 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.
ComEd performed a SFAS No. 121 impairment analysis in 1998 which concluded
that future revenues, excluding the collection of the CTC expected to be
recovered from electric supply services, would be insufficient to cover the
costs of certain of its generating assets. Because future regulated cash
flows, which include the CTC, tariff revenues and gains from the disposition
of assets, are expected to provide recovery of the impaired plant assets, a
regulatory asset was recorded for the same amount. This regulatory asset is
currently being amortized as it is recovered through regulated cash flows and,
along with the coal reserves regulatory asset, is expected to be substantially
recovered at the completion of the fossil plant sale. See Note 3 for
additional information regarding amortization of regulatory assets with
respect to limits on ComEd's earnings due to statutory sharing provisions. See
Note 4 for additional information regarding the fossil plant sale.
Recovery of the regulatory asset for Dresden Unit 1 and Zion Units 1 and 2
represents unrecovered nuclear decommissioning costs, which are expected to be
recovered over the periods 1999-2011 and 1999-2013, respectively, through a
separate rate recovery rider provided for by the 1997 Act. See "Depreciation,
Amortization of Regulatory Assets and Decommissioning" below for additional
information.
Depreciation, Amortization of Regulatory Assets and Decommissioning.
Depreciation, amortization of regulatory assets and decommissioning for the
three months, nine months and twelve months ended September 30, 1999 and 1998
were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
------------------- ----------------- -------------------
1999 1998 1999 1998 1999 1998
--------- --------- -------- -------- --------- ---------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Depreciation expense.... $180,598 $ 178,788 $538,623 $612,161 $ 714,518 $ 830,767
Amortization of
regulatory assets...... 556 32,718 98,900 32,718 131,393 36,536
--------- --------- -------- -------- --------- ---------
$ 181,154 $ 211,506 $637,523 $644,879 $ 845,911 $ 867,303
Decommissioning expense. 20,955 20,955 62,865 69,065 83,820 96,221
--------- --------- -------- -------- --------- ---------
$ 202,109 $ 232,461 $700,388 $713,944 $ 929,731 $ 963,524
========= ========= ======== ======== ========= =========
</TABLE>
12
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Provisions for depreciation, including nuclear plant, were at average annual
rates of average depreciable utility plant and equipment for the three months,
nine months and twelve months ended September 30, 1999 and 1998 as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
-------------------- ------------------ --------------------
1999 1998 1999 1998 1999 1998
--------- --------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Average annual
depreciation rates..... 2.65% 2.74% 2.65% 3.12% 2.67% 3.18%
</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. The decrease in the average depreciation rates for the periods in 1999,
compared to 1998, 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. See "Regulatory Assets and
Liabilities" above for additional information on the partial impairment of
production plant.
Nuclear plant decommissioning costs generally 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--Depreciation,
Amortization and 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 28
years. ComEd's Zion Station and its first nuclear unit, Dresden Unit 1, are
retired and are expected to be dismantled beginning in the years 2014 and
2011, respectively, which is consistent with the regulatory treatment for the
related decommissioning costs.
Based on ComEd's most recent study, decommissioning costs are estimated to
be $5.4 billion in current-year (1999) dollars, including a contingency
allowance. This estimate includes $588 million of non-radiological costs,
which are included in ComEd's proposed rider for recovery, as discussed below.
ComEd's decommissioning cost expenditures at the end of the units' operating
lives are estimated to total approximately $13.8 billion. These expenditures
will occur primarily during the period from 2007 through 2034. 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
13
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
amounts for alternative spent fuel storage installations, which may be
necessary to store spent fuel during the period beginning at the end of the
NRC license lives 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 reflected stronger than expected after-tax returns on
the external trust funds and lower than expected escalation in low-level waste
disposal costs, partially offset by the higher current-year cost estimates,
including a contingency allowance.
Under its most recent annual rider, filed with the ICC on February 26, 1999,
ComEd has proposed to increase its estimated annual decommissioning cost
accrual from $84 million to $130 million. The proposed increase primarily
reflects an increase in low-level waste disposal cost escalation, the
inclusion of $209 million in current-year (1999) dollars for safety-related
costs of maintaining Zion Station in a mothballed condition until
dismantlement begins, and the inclusion of non-radiological costs in the
decommissioning cost estimates for recovery under the rider.
The proposed annual decommissioning cost accrual of $130 million was
determined using the following assumptions: the decommissioning cost estimate
of $5.4 billion in current-year (1999) dollars, after-tax earnings on the tax-
qualified and nontax-qualified decommissioning funds of 7.49% and 6.83%,
respectively, and an escalation rate for future decommissioning costs of
4.84%. The proposed annual accrual 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 $13.8
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
September 30, 1999, the total decommissioning costs included in the
accumulated provision for depreciation were $1,938 million.
For ComEd's retired nuclear units, the total estimated liability for nuclear
decommissioning in current-year (1999) dollars is recorded as a noncurrent
liability. The unrecovered portion of the liability is recorded as a
regulatory asset. The nuclear decommissioning liability for retired plants as
of September 30, 1999 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.................................... $118,497 $427,548 $ 546,045
Unrecovered portion of the liability.............. 206,803 514,052 720,855
-------- -------- ----------
Nuclear decommissioning liability for retired
plants.......................................... $325,300 $941,600 $1,266,900
======== ======== ==========
</TABLE>
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 September 30,
14
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
1999 was $2,340 million, which includes pre-tax unrealized appreciation of
$573 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 September 30, 1999 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)...................... $1,937,533
Amounts recovered through rates and investment fund
earnings for retired plants............................ 546,045
Less past accruals not yet contributed to the trusts.... 143,573
----------
Fair value of external trust funds..................... $2,340,005
==========
</TABLE>
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
September 30, 1999. It includes the City, an area of about 225 square miles
with an estimated population of approximately three million from which ComEd
derived approximately 30 percent of its ultimate consumer revenues for the
three months, nine months and twelve months ended September 30, 1999. ComEd
had approximately 3.5 million electric customers at September 30, 1999.
As a result of the implementation of a new customer billing and information
system in July 1998, billing and collection delays have temporarily increased
accounts receivable from customers and decreased cash flow from operations as
compared to normal levels. ComEd has recorded increased provisions for
uncollectible accounts to recognize the estimated portion of the receivables
that are not expected to be recoverable. Such provisions increased O&M
expenses by $25 million in the nine-month period ended September 30, 1999 and
$35 million for the twelve-month period ended September 30, 1999. Although
ComEd has undertaken significant steps to reduce the billing and collection
delays, limited delays continue and further increases to the provision for
uncollectible accounts may be required in future periods. See "Use of
Estimates" above for additional information regarding ComEd's revenues and net
receivables.
See Notes 3 and 18 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 13 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 $107 million and $92 million for the three months
ended September 30, 1999 and 1998, respectively, $288 million and $233 million
for the nine months ended September 30, 1999 and 1998, respectively, and $372
million and $301 million for the twelve months ended September 30, 1999 and
1998, respectively.
15
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
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 7.87% and 8.18% for the three months
ended September 30, 1999 and 1998, respectively, 7.85% and 8.41% for the nine
months ended September 30, 1999 and 1998, respectively, and 7.92% and 8.76%
for the twelve months ended September 30, 1999 and 1998, respectively. ComEd
discontinued SFAS No. 71 regulatory accounting practices in December 1997 for
the generation portion of its business, and as a result began capitalizing
interest in 1998. ComEd capitalized $4 million and $6 million for the three
months ended September 30, 1999 and 1998, respectively, $16 million and $14
million for the nine months ended September 30, 1999 and 1998, respectively,
and $31 million and $14 million for the twelve months ended September 30, 1999
and 1998, respectively, 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 $160 million and $135 million for the three months ended
September 30, 1999 and 1998, respectively, $484 million and $412 million for
the nine months ended September 30, 1999 and 1998, respectively, and $611
million and $557 million for the twelve months ended September 30, 1999 and
1998, 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 3 for additional information.
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 7 for
additional information.
16
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Average Common Shares Outstanding. Under the provisions of SFAS No. 128,
Earnings per Share, Unicom has presented basic and diluted EPS on the
Statements of Consolidated Operations for the three months, nine months and
twelve months ended September 30, 1999 and 1998. The number of average
outstanding common shares used to compute basic and diluted EPS for the three
months, nine months and twelve months ended September 30, 1999 and 1998 were
as follows:
<TABLE>
<CAPTION>
Nine Months
Three Months Ended Ended September Twelve Months Ended
September 30 30 September 30
------------------- --------------- -------------------
1999 1998 1999 1998 1999 1998
--------- --------- ------- ------- --------- ---------
(Thousands of Shares)
<S> <C> <C> <C> <C> <C> <C>
Average Number of Common
Shares Outstanding:
Average Number of Com-
mon Shares--Basic..... 217,375 217,024 217,231 216,876 217,208 216,779
Potentially Dilutive
Common Shares--Trea-
sury Method:
Stock Options........ 801 647 777 583 777 529
Other Convertible
Securities.......... 89 90 89 90 89 90
--------- --------- ------- ------- --------- ---------
Average Number of Com-
mon Shares--Diluted... 218,265 217,761 218,097 217,549 218,074 217,398
========= ========= ======= ======= ========= =========
</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 terms of such contracts.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which 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.
The effective date of SFAS No. 133 has been delayed for one year, to fiscal
years beginning after June 15, 2000. SFAS No. 133 may be implemented prior to
June 15, 2000, 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 January 1, 1998 or January 1, 1999
at the Company's election.
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 their adoption of 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.
17
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Cash Held for Redemption of Securities. As of September 30, 1999, the cash
held for redemption of securities reported on the Consolidated Balance Sheets
includes $536 million in unused cash proceeds from the issuance of the
transitional trust notes and $71 million of escrowed cash and pending
instrument funding charges collected from ComEd customers to be applied to the
principal and interest payment on the transitional trust notes. See Note 3 for
additional information.
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 three months,
nine months and twelve months ended September 30, 1999 and 1998 was as
follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
------------------------------------ -------------------
1999 1998 1999 1998 1999 1998
--------- ----------------- -------- --------- ---------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Supplemental Cash Flow
Information:
Cash paid during the
period for:
Interest (net of
amount capitalized). $158,363 $98,722 $485,881 $352,057 $572,934 $451,027
Income taxes (net of
refunds)............ $ 140,915 $ 23,040 $225,022 $ 23,546 $ 484,873 $ 206,663
Supplemental Schedule of
Non-Cash Investing and
Financing Activities:
Capital lease
obligations incurred
by subsidiary
companies............. $ 189 $40,954 $ 1,625 $104,933 $ 3,062 $ 152,812
</TABLE>
(2) Merger Agreement. On September 22, 1999, Unicom and PECO, along with a
wholly-owned subsidiary of PECO, Newco, entered into a definitive Merger
Agreement providing for a merger of equals. The Merger Agreement has been
unanimously approved by Unicom and PECO's Boards of Directors. The merger is
conditioned, among other things, upon the approvals of the shareholders of
both companies and is subject to approval by various regulatory bodies.
Under the Merger Agreement, PECO and ComEd will become the principal utility
subsidiaries of Newco. This result will be achieved by a mandatory exchange of
the outstanding common stock of PECO for common stock of Newco or cash,
subject to proration, and a merger of Unicom with and into Newco wherein
holders of Unicom common stock will exchange their shares for Newco common
stock or cash, subject to proration. The merger transaction will be accounted
for as a purchase of Unicom by PECO.
(3) 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. The 1997 Act was amended in June 1999.
As a result of the 1997 Act and FERC rules, prices for the supply of
electric energy are expected to transition from cost-based, regulated rates to
rates determined by competitive market forces. Accordingly, the 1997 Act
provides for, among other things, gradual customer access to other electric
suppliers or a power purchase option which allows the purchase of electric
energy from ComEd at market based prices, and the collection of a CTC from
customers who choose to purchase electric energy from a RES or elect the power
purchase option during a transition period that extends through 2006.
Effective October 1, 1999, the CTC was established in accordance with a
formula defined in the
18
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
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. 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 asset
dispositions. See Note 4 for additional information.
Access for non-residential customers will occur over a period from October
1999 to December 31, 2000, and access for residential customers will occur
after May 1, 2002. On October 1, 1999, more than 41,000 non-residential
customers became eligible to choose their electric supplier or elect the
purchase power option. As of November 1, 1999, over 2,250 non-residential
customers, representing approximately five percent of ComEd's 1998 retail
kilowatthour sales, elected to receive their electric energy from a RES or
chose the purchase power option. As a result of the collection of CTC's from
customers who choose to receive their electric energy from a RES or elect the
purchase power option, ComEd does not expect these elections to have a
material effect on its results of operations in the near term.
Utilities are required to continue to offer delivery services, including the
transmission and distribution of electric energy, such that customers who
select a RES 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 ICC issued orders in August and
September approving, with modifications, ComEd's delivery service tariffs.
The 1997 Act also provides for a 15% residential base rate reduction which
became effective August 1, 1998 and an additional 5% residential base rate
reduction in October 2001.
Notwithstanding the 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
and 1999, and plus 8.5% 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.
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
19
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
such security issuances must be used to refinance outstanding debt or equity
or for certain other limited purposes. The total amount of such securities
that may be issued is approximately $6.8 billion. 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, were, as required, used to
redeem $1,021 million of long-term debt and $607 million of preference stock
in 1999 and reduce $500 million of ComEd's outstanding short-term debt. During
the first nine months of 1999, ComEd recorded an extraordinary loss related to
the early redemptions of such long-term debt, which reduced net income on
common stock by approximately $28 million (after-tax), or $0.13 per common
share (diluted). ComEd also recorded $10 million (after-tax), or $0.04 per
common share (diluted), for premiums paid in connection with the redemption of
such preference stock. The preference stock premiums were included in the
provision for dividends for preference stocks of ComEd on the Statements of
Consolidated Operations. In addition, Unicom has announced plans to repurchase
approximately $750 million of Unicom common stock using the proceeds it will
receive from ComEd's repurchase of its common stock held by Unicom. The
remaining proceeds from the issuance of the transitional trust notes will be
used for the payment of fees and additional debt and equity redemptions and
repurchases. See Note 6 for additional information regarding Unicom's share
repurchase plans.
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
(diluted). The fourth quarter of 1997 also reflected charges totaling $44
million (after-tax), or $0.20 per common share (diluted), as a result of
ComEd's elimination of its FAC pursuant to an option in the 1997 Act, and a
charge of $60 million (after-tax), or $0.28 per common share (diluted), for a
write down of ComEd's investment in uranium-related properties to realizable
value. Projections of the market price for uranium indicated that the expected
incremental costs of mining and milling uranium at the properties would exceed
the expected market price for uranium and such costs are not expected to be
recoverable in a competitive market.
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.
(4) 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 in the fourth quarter
of 1997 of $523 million (after-tax), or $2.42 per common share (diluted).
The write-off included a liability for estimated future closing costs
associated with the retirement of Zion Station, excluding severance costs,
resulting in a charge of $117 million (after-tax). ComEd has
20
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
recorded reductions to the expected liability for future closing costs of $14
million (after-tax), or $0.07 per common share (diluted), and $15 million
(after-tax), or $0.07 per common share (diluted), during the first nine months
of 1999 and in the year 1998, respectively, to reflect employees being
reassigned or removed from the payroll sooner than anticipated, and lower
support costs and use of contractors. See Note 16 for information regarding
costs of voluntary employee separation plans.
ComEd completed the sale of its State Line and Kincaid coal-fired generating
stations (representing 1,598 megawatts of generating capacity) 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. ComEd has entered into 15-year purchased power agreements for the output
of the stations.
On March 22, 1999, ComEd entered into an Asset Sale Agreement providing for
the sale of substantially all of its fossil generating assets to EME for a
cash purchase price of $4.813 billion. The fossil generating assets 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 ICC approved the
fossil plant sale on August 3, 1999, and FERC issued its approval on November
8, 1999.
Just prior to the consummation of the fossil plant sale, ComEd expects to
transfer these assets to an affiliate, Unicom Investment. In consideration for
the transferred assets, Unicom Investment will pay ComEd consideration
totaling $4.813 billion in the form of a Demand Note in the amount of
approximately $2.350 billion and an interest-bearing Note with a maturity of
twelve years. Unicom Investment will immediately sell the fossil plant assets
to EME, in consideration of which Unicom Investment will receive $4.813
billion in cash from EME. Immediately after its receipt of the cash payment
from EME, Unicom Investment will pay the $2.350 billion aggregate principal
due to ComEd under the Demand Note. Unicom Investment will use the remainder
of the cash received from EME to fund other business opportunities, including
the merger with PECO. Of the cash received by ComEd, $1.680 billion is
expected to be used to pay the costs and taxes associated with the fossil
plant sale. The remainder of the Demand Note proceeds will be available to
ComEd to fund, among other things, transmission and distribution projects,
nuclear generation station projects, and environmental and other initiatives.
The sale is expected to produce an after-tax gain of approximately $1.6
billion, after settling commitments associated with certain coal contracts,
recognizing employee-related costs and funding certain environmental
initiatives. The gain on the sale will be utilized to substantially recover
certain regulatory assets and as a result, the sale is not expected to have a
significant impact on net income in 1999. See Note 1, under "Regulatory Assets
and Liabilities," for additional information.
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.
21
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
(5) Authorized Shares, Voting Rights and Stock Rights of Capital Stock. At
September 30, 1999, Unicom's authorized shares consisted of 400,000,000 shares
of common stock. The authorized shares of ComEd preferred and preference
stocks at September 30, 1999 were: preference stock--7,510,451 shares; $1.425
convertible preferred stock--57,526 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 plan was amended on September 22, 1999 to render
the Rights inapplicable to the transactions contemplated by the Merger
Agreement. 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 $0.01 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.
(6) Common Equity. In the fourth quarter of 1998, Unicom entered into a
forward purchase arrangement for the repurchase of $200 million of its common
stock. This contract, which was accounted for as an equity instrument as of
December 31, 1998, was settled on a net cash basis in February 1999, resulting
in a $16 million reduction to common stock equity on the Consolidated Balance
Sheets.
In February 1999, Unicom also entered into a prepaid forward purchase
agreement with a financial institution for the repurchase of approximately 15
million shares of Unicom common stock. This forward purchase arrangement was
amended to also include the repurchase of approximately 5.1 million shares for
a total of 20.1 million shares, subsequent to the net cash settlement of the
$200 million repurchase program, as described above. The repurchase
arrangement, as amended, provides for final settlement no later than February
2000, on either a physical (share) basis, or a net cash basis. 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 does not currently anticipate that settlement will
occur in 1999. The repurchase
22
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
arrangement has been recorded as a receivable on the Consolidated Balance
Sheets and has been adjusted at the end of each reporting period to reflect
the aggregate market value of the shares deliverable under the arrangement.
Consequently, the arrangement has increased earnings volatility in 1999. An
unrealized loss of $18 million (after-tax), or $0.08 per common share
(diluted), for the three months ended September 30, 1999 and net unrealized
gains of $16 million (after-tax), or $0.07 per common share (diluted), for the
nine and twelve months ended September 30, 1999 have been recorded related to
the arrangement.
At September 30, 1999, shares of Unicom common stock were reserved for the
following purposes:
<TABLE>
<S> <C>
Long-Term Incentive Plan........................................ 2,295,078
Employee Stock Purchase Plan.................................... 368,171
Shareholder Rights Plan......................................... 400,000
Exchange for ComEd common stock not held by Unicom.............. 88,526
1996 Directors' Fee Plan........................................ 163,893
---------
3,315,668
=========
</TABLE>
Common stock issued for the three months, nine months and twelve months
ended September 30, 1999 and 1998 was as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
------------------- ------------------- --------------------
1999 1998 1999 1998 1999 1998
--------- --------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Shares of Common Stock
Issued:
Long-Term Incentive
Plan.................. 154,971 167,847 388,186 371,638 510,850 534,598
Employee Stock Purchase
Plan.................. -- -- 45,126 52,512 86,884 133,551
Exchange for ComEd com-
mon stock not held by
Unicom................ -- 1,160 (3,330) 7,700 1,727 7,816
1996 Directors' Fee
Plan.................. 739 3,055 4,087 9,732 7,088 13,084
--------- --------- --------- -------- ---------- ---------
155,710 172,062 434,069 441,582 606,549 689,049
========= ========= ========= ======== ========== =========
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Changes in Common Stock
Accounts:
Total shares issued.... $ 3,756 $ 4,162 $ 8,533 $ 10,918 $ 14,463 $ 17,260
Net cash settlement of
forward share repur-
chase contract........ -- -- (16,454) -- (16,454) --
Shares held by trustee
for Unicom Stock Bonus
Deferral Plan......... -- 1,295 -- (652) 7,428 (697)
Other.................. 7 (22) 144 (10) (51) (14)
--------- --------- --------- -------- ---------- ---------
$ 3,763 $ 5,435 $ (7,777) $ 10,256 $ 5,386 $ 16,549
========= ========= ========= ======== ========== =========
</TABLE>
As of September 30, 1999 and December 31, 1998, 264,406 and 178,982 shares,
respectively, of Unicom common stock were reacquired and held as treasury
stock at a cost of $10 million and $7 million, respectively.
At September 30, 1999 and December 31, 1998, 75,791 and 76,079,
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.
23
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
As of September 30, 1999 and December 31, 1998, $702 million and $494
million, respectively, of retained earnings had been appropriated for future
dividend payments.
(7) 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 will become fully vested immediately if
the holder dies, retires, is terminated by the Company, other than for cause,
or qualifies for long-term disability. Options granted before July 22, 1998
also vest in full upon a change in control, while options granted on or after
July 22, 1998 vest in full if the option holder is terminated within 24 months
after a change of control.
Stock option transactions through September 30, 1999 are summarized as
follows:
<TABLE>
<CAPTION>
Number of Weighted Average
Options Exercise Price
--------- ----------------
<S> <C> <C>
Outstanding as of January 1, 1997.................. 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.................. (123,928) 25.715
---------
Outstanding as of December 31, 1998................ 3,142,893 28.694
Granted during the nine months ended September 30,
1999.............................................. 1,781,050 35.750
Exercised during the nine months ended September
30, 1999.......................................... (264,916) 24.192
Expired/cancelled during the nine months ended Sep-
tember 30, 1999................................... (127,048) 33.408
---------
Outstanding as of September 30, 1999............... 4,531,979 31.598
=========
</TABLE>
Of the stock options outstanding at September 30, 1999, 1,667,025 had vested
with a weighted average exercise price of $27.
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
-----------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Expected option life.................................. 7 years 7 years 7 years
Dividend yield........................................ 4.50% 4.54% 7.20%
Expected volatility................................... 23.02% 21.95% 22.29%
Risk-free interest rate............................... 4.83% 5.58% 6.25%
</TABLE>
The estimated weighted average fair value for each stock option granted in
1999, 1998 and 1997 was $6.48, $6.62 and $2.79, respectively.
The ESPP allows employees to purchase Unicom common stock at a ten percent
discount from market value. Substantially all of the employees of Unicom,
ComEd and their subsidiaries are eligible to participate in the ESPP. Unicom
issued 86,884 and 133,551 shares of common stock during the twelve months
ended September 30, 1999 and 1998, respectively, under the ESPP at a weighted
average annual purchase price of $34.34 and $25.55, respectively.
24
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
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 charge to operations would have been $4 million (after-tax), or
$0.02 per common share (diluted), and $2 million (after-tax), or $0.01 per
common share (diluted), for the twelve months ended September 30, 1999 and
1998, respectively.
(8) ComEd Preferred and Preference Stocks Without Mandatory Redemption
Requirements. During the twelve months ended September 30, 1999, 13,499,549
shares of preferred or preference stock without mandatory redemption
requirements were redeemed and no shares were issued. No shares of ComEd
preferred or preference stocks without mandatory redemption requirements were
issued or redeemed during the twelve months ended September 30, 1998. ComEd
redeemed $73 million of preference stock without mandatory redemption
requirements on August 1, 1999. Accordingly, all series other than Series
$1.425 have been redeemed.
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.
(9) ComEd Preference Stock Subject to Mandatory Redemption Requirements.
During the twelve months ended September 30, 1999 and 1998, no shares of ComEd
preference stock subject to mandatory redemption requirements were issued.
During the twelve months ended September 30, 1999 and 1998, 1,056,060 and
338,215 shares, respectively, of ComEd preference stock subject to mandatory
redemption requirements were reacquired to meet sinking fund requirements or
were part of the early redemption in 1999. There were 700,000 shares of Series
$6.875 preference stock outstanding at September 30, 1999, at an aggregate
stated value of $69 million. This series is non-callable and is required to be
redeemed on May 1, 2000. The sinking fund price is $100 and the involuntary
liquidation price is $99.25 per share, plus accrued and unpaid dividends, if
any. The $69 million is included in current liabilities.
(10) 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
25
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
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 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 subordinated 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.
(11) 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. The current amount outstanding is as
follows:
<TABLE>
<CAPTION>
Series Principal Amount
------------------------ ----------------------
(Thousands of Dollars)
<S> <C>
5.38% due March 25, 2000........................... $ 187,922
5.29% due June 25, 2001............................ 425,033
5.34% due March 25, 2002........................... 258,861
5.39% due June 25, 2003............................ 421,139
5.44% due March 25, 2005........................... 598,511
5.63% due June 25, 2007............................ 761,489
5.74% due December 25, 2008........................ 510,000
----------
$3,162,955
==========
</TABLE>
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.
The proceeds, net of transaction costs, from the transitional trust notes
have been used, as required, to redeem debt and equity. During the first nine
months of 1999, ComEd redeemed or reacquired $1,021 million of long-term debt.
Sinking fund requirements and scheduled maturities remaining through 2003
for ComEd's first mortgage bonds, transitional trust notes, sinking fund
debentures and other long-term debt outstanding at September 30, 1999, after
deducting deposits made for the retirement of sinking fund debentures, are
summarized as follows: 1999--$237 million; 2000--$727 million; 2001--$346
million; 2002--$645 million; and 2003--$445 million. Unicom Enterprises' note
payable to bank of $185 million will mature in 1999.
26
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
At September 30, 1999, 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....................... $ 42,245
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
--------
$672,245
========
</TABLE>
Other long-term debt outstanding at September 30, 1999 is summarized as
follows:
<TABLE>
<CAPTION>
Principal
Debt Security Amount Interest Rate
- ----------------------------------------- ---------- -------------------------------------------------------
(Thousands
of
Dollars)
<S> <C> <C>
Unicom--
Loans Payable:
Loan due January 1, 2003 $ 5,519 Interest rate of 8.31%
Loan due January 1, 2004 6,371 Interest rate of 8.44%
Loan due January 15, 2009 6,025 Interest rate of 8.30%
----------
$ 17,915
----------
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 $ 301 Interest rate of 3.00%
----------
Total ComEd $1,056,301
----------
Unicom Enterprises--
Notes:
Long-Term Note Payable to Bank
due November 15, 1999 $ 185,000 Prevailing interest rate of 6.37% at September 30, 1999
Unicom Thermal Guaranteed Senior Note
due May 30, 2012 120,000 Interest rate of 7.38%
Northwind Midway Guaranteed Senior Notes
due June 30, 2023 11,522 Interest rate of 7.68%
----------
Total Unicom Enterprises $ 316,522
----------
Total Unicom $1,390,738
==========
</TABLE>
Long-term debt maturing within one year has 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 a $120 million 7.38% unsecured
guaranteed senior Note due May 2012, the proceeds of which were used to
refinance existing debt. The Note is guaranteed by Unicom and includes certain
covenants with respect to Unicom and Unicom Thermal's operations.
27
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Such covenants include, among other things, (i) a requirement that Unicom and
its 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.
In June 1999, Northwind Midway issued $12 million of 7.68% guaranteed senior
Notes due June 2023, the proceeds of which will be used primarily to finance
certain project construction costs. The Notes are guaranteed by Unicom and
include certain covenants with respect to Unicom and Northwind Midway's
operations. Such covenants include, among other things, a requirement that
Unicom and its consolidated subsidiaries own no less than 65% of the voting
membership interest of Northwind Midway.
(12) Lines of Credit. ComEd has a bank line of credit of $500 million, all
of which was unused at September 30, 1999. The line of credit expires on
January 31, 2000. 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 and facility fees
with respect to the line of credit.
Unicom Enterprises has a $200 million credit facility which has been
extended to December 17, 1999, of which $15 million was unused as of September
30, 1999. 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.
(13) 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 entered into 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. 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
28
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
one-time fee and the related interest is reflected on the Consolidated Balance
Sheets. The contract also 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.
(14) 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 September 30, 1999 and
December 31, 1998 was as follows:
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
-------------------------------- --------------------------------
Unrealized
Gains/ Unrealized
Cost Basis (Losses) Fair Value Cost Basis Gains Fair Value
---------- ---------- ---------- ---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Short-term investments.. $ 51,582 $ 101 $ 51,683 $ 40,907 $ 42 $ 40,949
U.S. Government and
Agency issues.......... 246,613 3,430 250,043 197,240 20,213 217,453
Municipal bonds......... 392,883 1,096 393,979 416,121 24,124 440,245
Corporate bonds......... 200,538 (3,072) 197,466 241,111 8,790 249,901
Common stock............ 762,246 568,151 1,330,397 740,956 565,630 1,306,586
Other................... 112,978 3,459 116,437 11,345 838 12,183
---------- -------- ---------- ---------- -------- ----------
$1,766,840 $573,165 $2,340,005 $1,647,680 $619,637 $2,267,317
========== ======== ========== ========== ======== ==========
</TABLE>
At September 30, 1999, 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....................................... $ 50,418 $ 50,874
1 through 5 years................................... 267,931 270,322
5 through 10 years.................................. 249,139 251,628
Over 10 years....................................... 385,658 381,688
</TABLE>
29
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
The net earnings of the nuclear decommissioning funds, which are recorded in
the accumulated provision for depreciation, for the three months, nine months
and twelve months ended September 30, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
-------------------- ---------------------- ---------------------
1999 1998 1999 1998 1999 1998
--------- --------- ---------- ---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Gross proceeds from
sales of securities.... $ 399,024 $ 451,896 $1,241,887 $1,400,360 $1,637,011 $1,892,110
Less cost based on spe-
cific identification... 386,970 441,379 1,205,155 1,334,763 1,598,484 1,802,350
--------- --------- ---------- ---------- ---------- ----------
Realized gains on sales
of securities.......... $ 12,054 $ 10,517 $ 36,732 $ 65,597 $ 38,527 $ 89,760
Other realized fund
earnings, net of
expenses............... 12,186 10,545 43,002 23,393 59,983 30,255
--------- --------- ---------- ---------- ---------- ----------
Total realized net earn-
ings of the funds...... $ 24,240 $ 21,062 $ 79,734 $ 88,990 $ 98,510 $ 120,015
Unrealized
gains/(losses)......... (135,210) (112,678) (46,472) 1,884 142,147 (1,122)
--------- --------- ---------- ---------- ---------- ----------
Total net
earnings/(losses) of
the funds............. $(110,970) $ (91,616) $ 33,262 $ 90,874 $ 240,657 $ 118,893
========= ========= ========== ========== ========== ==========
</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 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 September 30, 1999 and December 31, 1998 were as follows:
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
--------------------------------- --------------------------------
Unrealized
Carrying Losses/ Carrying Unrealized Fair
Value (Gains) Fair Value Value Losses Value
---------- ---------- ---------- ---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
ComEd preferred and
preference stocks...... $ 71,304 $ 208 71,512 $ 678,156 $ 11,500 $ 689,656
ComEd-obligated
mandatorily redeemable
preferred securities of
subsidiary trusts
holding solely ComEd's
subordinated debt
securities............. $ 350,000 $ (1,234) $ 348,766 $ 350,000 $ 20,678 $ 370,678
Transitional trust
notes.................. $3,162,955 $(116,799) $3,046,156 $3,382,821 $ 67,168 $3,449,989
Long-term debt.......... $4,896,727 $ 126,586 $5,023,313 $5,911,757 $451,240 $6,362,997
</TABLE>
Long-term notes payable, which are not included in the above table, amounted
to $214 million and $100 million as of September 30, 1999 and December 31,
1998, 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
30
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
instruments. See "Capitalization" above for a discussion of the fair value of
the current portion 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
September 30, 1999 and December 31, 1998; therefore, the carrying value is
equal to the fair value.
(15) Pension and Postretirement Benefits. As of September 30, 1999, 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 September 30, 1999 and December 31, 1998 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. In 1998, Indiana Company's qualified defined benefit
pension plan was merged into ComEd's 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 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. Generally, the employees become eligible for postretirement benefits
if they retire no earlier than 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 September
30, 1999 and December 31, 1998 postretirement benefit liabilities and related
data were determined using the January 1, 1998 actuarial valuations.
31
<PAGE>
UNICOM CORPORATION 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 nine months ended
September 30, 1999 and the twelve months ended December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
Nine Months Ended Twelve Months Ended
September 30, 1999 December 31, 1998
-------------------------- --------------------------
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.... $4,327,000 $1,249,000 $4,010,000 $1,139,000
Service cost............ 94,000 31,000 115,000 38,000
Interest cost........... 213,000 62,000 273,000 78,000
Plan participants' con-
tributions............. -- 3,000 -- 3,000
Actuarial loss.......... 11,000 -- 166,000 38,000
Benefits paid........... (181,000) (37,000) (237,000) (47,000)
---------- ---------- ---------- ----------
Benefit obligation at
end of period......... $4,464,000 $1,308,000 $4,327,000 $1,249,000
---------- ---------- ---------- ----------
<CAPTION>
Change in plan assets
- ---------------------
<S> <C> <C> <C> <C>
Fair value of plan as-
sets at beginning of
period................. $4,015,000 $ 865,000 $3,706,000 $ 767,000
Actual return on plan
assets................. 128,000 26,000 535,000 122,000
Employer contribution... 2,000 -- 11,000 20,000
Plan participants' con-
tributions............. -- 3,000 -- 3,000
Benefits paid........... (181,000) (37,000) (237,000) (47,000)
---------- ---------- ---------- ----------
Fair value of plan as-
sets at end of period. $3,964,000 $ 857,000 $4,015,000 $ 865,000
---------- ---------- ---------- ----------
Plan assets less than
benefit obligation..... $ (500,000) $ (451,000) $ (312,000) $ (384,000)
Unrecognized net actuar-
ial loss/(gain)........ 188,000 (319,000) 37,000 (358,000)
Unrecognized prior serv-
ice cost/(asset)....... (57,000) 45,000 (60,000) 48,000
Unrecognized transition
obligation/(asset)..... (92,000) 306,000 (101,000) 323,000
---------- ---------- ---------- ----------
Accrued liability for
benefits.............. $ (461,000) $ (419,000) $ (436,000) $ (371,000)
========== ========== ========== ==========
</TABLE>
The assumed discount rate used to determine the benefit obligation as of
September 30, 1999 and December 31, 1998 was 6.75%. The fair value of pension
plan assets excludes $22 million and $21 million held in grantor trust as of
September 30, 1999 and December 31, 1998, respectively, for the payment of
benefits under the supplemental plan.
32
<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 three
months, nine months and twelve months ended September 30, 1999 and 1998 were
as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
-------------------- -------------------- --------------------
1999 1998 1999 1998 1999 1998
Pension Benefit Costs --------- --------- --------- --------- --------- ---------
- --------------------- (Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Service cost............ $ 31,000 $ 31,000 $ 94,000 $ 93,000 $ 116,000 $ 118,000
Interest cost on pro-
jected benefit obliga-
tion................... 71,000 69,000 213,000 208,000 278,000 274,000
Expected return on plan
assets................. (90,000) (86,000) (271,000) (257,000) (356,000) (335,000)
Amortization of transi-
tion asset............. (3,000) (3,000) (9,000) (9,000) (12,000) (13,000)
Amortization of prior
service asset.......... (1,000) (1,000) (3,000) (3,000) (4,000) (4,000)
Recognized loss......... 1,000 1,000 3,000 1,000 4,000 2,000
Curtailment gain........ -- -- -- -- -- (5,000)
--------- --------- --------- --------- --------- ---------
Net periodic benefit
cost.................. $ 9,000 $ 11,000 $ 27,000 $ 33,000 $ 26,000 $ 37,000
========= ========= ========= ========= ========= =========
<CAPTION>
Other Postretirement
Benefit Costs
- --------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost............ $ 10,000 $ 9,000 $ 31,000 $ 27,000 $ 42,000 $ 36,000
Interest cost on accumu-
lated benefit
obligation............. 21,000 19,000 62,000 56,000 84,000 75,000
Expected return on plan
assets................. (19,000) (18,000) (56,000) (52,000) (73,000) (68,000)
Amortization of transi-
tion obligation........ 6,000 6,000 17,000 17,000 22,000 22,000
Amortization of prior
service cost........... 1,000 1,000 3,000 3,000 4,000 4,000
Recognized gain......... (3,000) (5,000) (9,000) (14,000) (9,000) (17,000)
Severance plan cost..... -- -- 1,000 2,000 5,000 4,000
--------- --------- --------- --------- --------- ---------
Net periodic benefit
cost.................. $16,000 $ 12,000 $ 49,000 $ 39,000 $ 75,000 $ 56,000
========= ========= ========= ========= ========= =========
</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 periods during 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Other
Pension Benefits Postretirement Benefits
----------------- -----------------------
1999 1998 1997 1999 1998 1997
----- ----- ----- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Annual discount rate................. 6.75% 7.00% 7.50% 6.75% 7.00% 7.50%
Annual long-term rate of return on
plan assets......................... 9.25% 9.50% 9.75% 8.97% 9.20% 9.40%
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
Indiana Company's sale of State Line Station.
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 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...................................... $ 27,000 $ (21,000)
Effect on postretirement benefit obligation...... 232,000 (182,000)
</TABLE>
33
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
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 and 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 $9 million for
each of the three months ended September 30, 1999 and 1998, $24 million for
each of the nine months ended September 30, 1999 and 1998, and $32 million and
$33 million for the twelve months ended September 30, 1999 and 1998,
respectively.
(16) Separation Plan Costs. O&M expenses included $2 million and $9 million
for the three months ended September 30, 1999 and 1998, respectively, $7
million and $33 million for the nine months ended September 30, 1999 and 1998,
respectively, and $23 million and $38 million for the twelve months ended
September 30, 1999 and 1998, respectively, for costs related to voluntary
separation offers to certain employees of ComEd and Indiana Company, as well
as certain other employee-related costs. Such costs resulted in charges of $1
million (after-tax), or $0.01 per common share (diluted), and $6 million
(after-tax), or $0.03 per common share (diluted), for the three months ended
September 30, 1999 and 1998, respectively, $4 million (after-tax), or $0.02
per common share (diluted), and $20 million (after-tax), or $0.09 per common
share (diluted), for the nine months ended September 30, 1999 and 1998,
respectively, and $14 million (after-tax), or $0.06 per common share
(diluted), and $23 million (after-tax), or $0.11 per common share (diluted),
for the twelve months ended September 30, 1999 and 1998, respectively.
(17) Income Taxes. The components of the net deferred income tax liability
at September 30, 1999 and December 31, 1998 were as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Thousands of Dollars)
<S> <C> <C>
Deferred income tax liabilities:
Accelerated cost recovery and liberalized deprecia-
tion, net of removal costs........................ $3,992,558 $4,028,351
Overheads capitalized.............................. 136,193 140,922
Repair allowance................................... 225,100 233,861
Regulatory assets recoverable through future rates. 678,583 680,356
Deferred income tax assets:
Postretirement benefits............................ (360,450) (331,651)
Unamortized investment tax credits................. (181,467) (191,135)
Regulatory liabilities to be settled through future
rates............................................. (599,739) (595,005)
Nuclear plant closure.............................. (13,238) (38,354)
Other--net......................................... (188,546) (146,224)
---------- ----------
Net deferred income tax liability................... $3,688,994 $3,781,121
========== ==========
</TABLE>
The $92 million decrease in the net deferred income tax liability from
December 31, 1998 to September 30, 1999 is comprised of an $86 million credit
to net deferred income tax expense and a $6 million decrease in regulatory
assets net of regulatory liabilities pertaining to income taxes for the
period. The amount of accelerated cost recovery and liberalized depreciation
included in deferred income tax liabilities for both periods 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.
34
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
The components of net income tax expense charged/(credited) to continuing
operations for the three months, nine months and twelve months ended September
30, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
-------------------- ------------------ ---------------------
1999 1998 1999 1998 1999 1998
--------- --------- -------- -------- --------- ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Operating income:
Current income taxes... $ 193,103 $ 191,998 $405,482 $327,911 $ 380,183 $ 316,337
Deferred income taxes.. (11,449) (4,211) (100,217) (24,033) (26,052) 22,904
Investment tax credits
deferred--net......... (7,021) (6,889) (21,063) (20,937) (27,856) (28,588)
Other (income) and
deductions:
Current income taxes... (5,809) (1,802) (4,057) (59,016) 5,160 (58,661)
Deferred income taxes.. 6,159 364 12,238 47,908 23,787 (337,039)
Investment tax credits. (2,153) -- (6,133) (7,472) (10,768) (29,997)
--------- --------- -------- -------- --------- ----------
Net income taxes
charged/(credited) to
continuing operations.. $ 172,830 $179,460 $286,250 $264,361 $ 344,454 $ (115,044)
========= ========= ======== ======== ========= ==========
</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 three months, nine months and twelve months ended
September 30, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
-------------------- ------------------ ---------------------
1999 1998 1999 1998 1999 1998
--------- --------- -------- -------- --------- ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Net income/(loss) before extraordi-
nary items........................ $ 279,755 $264,822 $496,366 $398,995 $607,554 $ (151,731)
Net income taxes charged/(credited)
to continuing operations.......... 172,830 179,460 286,250 264,361 344,454 (115,044)
Provision for dividends on ComEd
preferred and preference stocks... 1,830 14,053 20,170 43,062 33,991 57,635
--------- --------- -------- -------- --------- ----------
Pre-tax income/(loss) before
extraordinary items and provision
for dividends..................... $ 454,415 $458,335 $802,786 $706,418 $ 985,999 $ (209,140)
========= ========= ======== ======== ========= ==========
Effective income tax rate.......... 38.0% 39.2% 35.7% 37.4% 34.9% 55.0%
========= ========= ======== ======== ========= ==========
</TABLE>
35
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
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 three months, nine months and twelve months ended September 30,
1999 and 1998 were as follows:
<TABLE>
<CAPTION>
Twelve
Three Months Ended Nine Months Ended Months Ended
September 30 September 30 September 30
-------------------- ------------------ -------------------
1999 1998 1999 1998 1999 1998
--------- --------- -------- -------- -------- ---------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes
computed at statutory
rate................... $159,045 $160,417 $280,975 $247,246 $345,100 $ (73,199)
Equity component of
AFUDC which was
excluded from taxable
income................. (126) (102) (336) (300) (426) (2,824)
Amortization of
investment tax credits,
net of deferred income
taxes.................. (5,907) (4,517) (17,525) (18,246) (24,782) (40,221)
State income taxes, net
of federal income
taxes.................. 21,958 21,040 37,394 33,693 44,566 (3,510)
Unrealized loss/(gain)
on forward share
repurchase contract.... 6,130 -- (5,566) -- (5,566) --
Earnings on nontax-
qualified
decommissioning fund... (951) -- (3,719) -- (3,719) --
Differences between book
and tax accounting,
primarily property-
related deductions..... (7,319) 2,622 (4,973) 1,968 (10,719) 4,710
--------- --------- -------- -------- -------- ---------
Net income taxes
charged/(credited) to
continuing operations.. $ 172,830 $179,460 $286,250 $264,361 $344,454 $(115,044)
========= ========= ======== ======== ======== =========
</TABLE>
(18) Taxes, Except Income Taxes. Provisions for taxes, except income taxes,
for the three months, nine months and twelve months ended September 30, 1999
and 1998 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
-------------------- ----------------- -------------------
1999 1998 1999 1998 1999 1998
--------- --------- -------- -------- --------- ---------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Illinois public utility
revenue................ $ (601) $ 5,983 $ 1,296 $107,911 $ 8,365 $ 161,257
Illinois invested capi-
tal.................... -- -- -- -- -- 21,229
Illinois electricity
distribution tax....... 32,942 29,950 87,615 81,580 116,061 81,580
Municipal utility gross
receipts............... 29,832 53,001 80,418 134,108 98,811 171,506
Real estate............. 33,801 34,559 97,034 99,638 122,916 140,401
Municipal compensation.. 23,714 26,819 60,515 70,904 78,821 88,382
Energy assistance and
renewable energy
charge................. 8,117 8,273 25,562 24,545 33,753 24,545
Other--net.............. 16,986 20,800 54,846 53,187 76,520 68,792
--------- --------- -------- -------- --------- ---------
$ 144,791 $ 179,385 $407,286 $571,873 $ 535,247 $ 757,692
========= ========= ======== ======== ========= =========
</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, replacing the Illinois public utility revenue 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 net reduction in operating revenues and taxes, except
income taxes, due to the change in presentation for such taxes was
approximately $30 million, $160 million and $226 million for the three months,
nine months and twelve months ended September 30, 1999, respectively, compared
to the same periods in 1998. This change in the presentation for such taxes
did not have an effect on results of operations.
36
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UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
See Note 21 for additional information regarding Illinois invested capital
taxes.
(19) 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 $627 million, consisting of $300 million of commercial
paper/bank borrowings and $327 million of intermediate term notes, to finance
the transactions. The commercial paper/bank borrowing portion will expire on
November 23, 1999. ComEd does not currently intend to renew the commercial
paper/bank borrowing portion. 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 September 30, 1999, ComEd's
obligation to the lessor for leased nuclear fuel amounted to approximately
$329 million. 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 September 30, 1999, future minimum rental payments, net of executory
costs, for capital leases are estimated to aggregate to $406 million,
including $105 million in 1999, $113 million in 2000, $104 million in 2001,
$51 million in 2002, $24 million in 2003 and $9 million in 2004-2006. The
estimated interest component of such rental payments aggregates $40 million.
The estimated portions of obligations due within one year under capital leases
of $158 million and $195 million at September 30, 1999 and December 31, 1998,
respectively, were included in current liabilities on the Consolidated Balance
Sheets.
Future minimum rental payments at September 30, 1999 for operating leases
are estimated to aggregate to $415 million, including $10 million in 1999, $41
million in 2000, $33 million in 2001, $33 million in 2002, $30 million in 2003
and $268 million in 2004-2043.
(20) 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 $14 million at September 30, 1999, after reflecting the
accounting impairment recorded in the second quarter of 1998. See Note 1,
under "Regulatory Assets and Liabilities," for additional information.
(21) Commitments and Contingent Liabilities. Purchase commitments,
principally related to construction and nuclear fuel, approximated $511
million at September 30, 1999, comprised of $468 million for ComEd, $38
million for UT Holdings and $5 million for Unicom Energy Services. In
addition, ComEd has substantial commitments for the purchase of coal. Upon
completion of the transactions contemplated in the Asset Sale Agreement with
EME, ComEd expects to enter into arrangements to assign or settle a
substantial portion of the coal purchase commitments. 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
37
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
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.
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.
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 an adequate reserve has been
established in connection with this case.
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 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 and in favor of the plaintiff, after an
amended judgement was issued March 11, 1999, totaled approximately $6 million,
including compensatory and punitive damages, interest, and medical monitoring.
The matter is currently on appeal. Oral argument was heard in the Tenth
Circuit Court of Appeals on September 23, 1999. A decision is expected before
the end of the year. A case involving the next group of plaintiffs is set for
trial in federal district court in Denver on October 2, 2000. 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 August 1999, three class action lawsuits were filed against ComEd related
to a series of service interruptions during the summer of 1999. The combined
effect of these events resulted in over 100,000 customers losing service. On
August 12, 1999, service was interrupted to ComEd customers on the near north
and near west side of the City's central business district. While major
commercial customers
38
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
were affected, all service was restored on the same date. The class action
complaints have been consolidated and seek to recover damages for personal
injuries and property damage, as well as economic loss for these events.
Further, ComEd initiated expedited claim settlements for those with primarily
food spoilage claims. Conditional class certification has been approved by the
Court for the sole purpose of exploring settlement talks. The lawsuits are
pending in the Circuit Court of Cook County where the next status hearing is
scheduled for November 15, 1999. ComEd's management believes adequate reserves
have been established in connection with these cases.
Following the above-referenced series of service interruptions, the ICC
opened a three-phase investigation of the design and reliability of ComEd's
transmission and distribution system. At the conclusion of each phase of the
investigation, the ICC will issue a report that will include specific
recommendations for ComEd and a timetable for executing the recommendations.
The final phase of the investigation is expected to conclude in early 2001.
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 September 30,
1999 and December 31, 1998, which reflects the low end of the range of ComEd's
estimate of the liability associated with former MGP sites. In addition, as of
September 30, 1999 and December 31, 1998, 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. 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. ComEd is currently re-evaluating its
environmental remediation strategies. The final results of this re-evaluation
cannot be determined at this time, but could result in an increase to the
estimated liability.
The IDR has issued Notices of Tax Liability to ComEd alleging deficiencies
in Illinois invested capital tax payments for the years 1988 through 1997. The
alleged deficiencies, including interest and penalties, totaled approximately
$51 million as of September 30, 1999. ComEd has protested the notices, and the
matter is currently pending before the IDR's Office of Administrative
Hearings. Interest will continue to accumulate on the alleged tax
deficiencies.
39
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Concluded
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 was approved
by the City Council on May 12, 1999.
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. ComEd's current construction
budget considers these projects, and therefore, no changes to that budget are
expected. In addition, ComEd and the City established an Energy Reliability
and Capacity Account, into which ComEd deposited $25 million following the
effectiveness of the settlement agreement and ComEd has conditionally agreed
to deposit 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.
The 1997 Act also committed ComEd to spend at least $2 billion through 2004
on transmission and distribution facilities outside of the City and $250
million in environmental funding initiatives, pending the close of the fossil
plant sale.
40
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
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 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 the 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 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. The 1997 Act
was amended in June 1999.
As a result of the 1997 Act and 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. Accordingly, the 1997 Act
provides for, among other things, gradual customer access to other electric
41
<PAGE>
suppliers or a power purchase option which allows the purchase of electric
energy from ComEd at market based prices, and the collection of a CTC from
customers who choose to purchase electric energy from a RES or elect the power
purchase option during a transition period that extends through 2006.
Effective October 1, 1999, the CTC was 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. 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 asset dispositions. See "Response to Regulatory Changes" and
"Fossil Plant Sale" below for additional information.
Access for non-residential customers will occur over a period from October
1999 to December 31, 2000, and access for residential customers will occur
after May 1, 2002. On October 1, 1999, more than 41,000 non-residential
customers became eligible to choose their electric supplier or elect the
purchase power option. As of November 1, 1999, over 2,250 non-residential
customers, representing approximately five percent of ComEd's 1998 retail
kilowatthour sales, elected to receive their electric energy from a RES or
chose the purchase power option. As a result of the collection of CTC's from
customers who choose to receive their electric energy from a RES or elect the
purchase power option, ComEd does not expect these elections to have a
material effect on its results of operations in the near term.
Utilities are required to continue to offer delivery services, including the
transmission and distribution of electric energy, such that customers who
select a RES 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 ICC issued orders in August and
September approving, with modifications, ComEd's delivery service tariffs.
The 1997 Act committed ComEd to spend at least $2 billion through 2004 on
transmission and distribution facilities outside of the City and $250 million
in environmental funding initiatives, pending the close of the fossil plant
sale.
The 1997 Act also provides for a 15% residential base rate reduction which
became effective August 1, 1998 and an additional 5% residential base rate
reduction in October 2001. ComEd's operating revenues were reduced by
approximately $170 million in 1998 due to the 15% residential base rate
reduction. ComEd expects that the 15% rate reduction will further reduce
ComEd's operating revenues by approximately $210 million in 1999, compared to
1998 rate levels.
Notwithstanding the 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
and 1999, and plus 8.5% 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
42
<PAGE>
return. The potential for earnings sharing or increased amortization of
regulatory assets could limit earnings in future periods.
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 security issuances must be
used to refinance outstanding debt or equity or for certain other limited
purposes. The total amount of such securities that may be issued is
approximately $6.8 billion. 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 3 and 6 of Notes to
Financial Statements, for additional information regarding the redemptions and
repurchases of debt and equity.
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.
See Notes 1, under "Regulatory Assets and Liabilities," and 3 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. Among other
things, these strategic objectives call for a focus on operations to: (i)
provide a reliable supply of electricity as the competitive marketplace
evolves, (ii) become a top quartile operator of competitive nuclear plants,
(iii) consummate the fossil plant sale by the end of 1999, (iv) deliver
competitive earnings while restructuring the balance sheet to reflect the
realities of the marketplace, (v) expand the offering of energy-related
products and services, and (vi) transform the corporate culture of Unicom. See
Unicom and ComEd's Current Report on Form 8-K dated July 1, 1999 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
for 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 be 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 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.
43
<PAGE>
ComEd also evaluated the recoverability of its generating plant investment
in 1998 as a result of the 1997 Act. See Note 1 of Notes to Financial
Statements, under "Regulatory Assets and Liabilities," 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 (diluted), 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 4 of Notes to Financial Statements 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
$352 million of additional capital expenditures for 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 design a regional Midwest
ISO in January 1998. These utilities have agreed to place their transmission
systems under the control of the Midwest ISO as soon as it achieves
operational status in 2001. 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 foster increased competition. The Midwest ISO will control the
transmission system and will have authority to require modification in the
operation of generators connected to that system during system emergencies.
ComEd, like other utilities, will retain ownership of its transmission lines.
The formation of the Midwest ISO was approved by the FERC in September 1998,
subject to certain conditions.
In the absence of an ISO-related power exchange, ComEd has also agreed to
cooperate with APX in the creation of the first electronic energy exchange in
Illinois. Initial products may include hourly, daily and weekly electricity
delivered to and from interconnection points on ComEd's transmission system,
and a standard system of credit and trading interfaces. Unicom has made a $3
million venture capital investment in APX in order to help finance its
expansion in Midwest. But neither ComEd nor Unicom will receive any voting
rights. The power exchange will be independently owned and managed by APX and
will allow wholesale and retail market participants to trade electricity
anonymously through an internet-based computerized system. ComEd will be
treated like any other market participant and plans to be an active
participant when the power exchange opens in Illinois in the fourth quarter of
1999.
Merger Agreement. On September 22, 1999, Unicom and PECO, along with a
wholly-owned subsidiary of PECO, Newco, entered into a definitive Merger
Agreement providing for a merger of equals. The Merger Agreement has been
unanimously approved by Unicom and PECO's Boards of Directors. The merger is
conditioned, among other things, upon the approvals of the shareholders of
both companies and is subject to approval by various regulatory bodies.
44
<PAGE>
Under the Merger Agreement, PECO and ComEd will become the principal utility
subsidiaries of Newco. This result will be achieved by a mandatory exchange of
the outstanding common stock of PECO for common stock of Newco or cash,
subject to proration, and a merger of Unicom with and into Newco wherein
holders of Unicom common stock will have the opportunity to elect to receive
for each Unicom share either 0.95 Newco common share or $42.75 in cash,
subject to proration; the cash election is limited to 17,543,859 Unicom shares
or $750 million. Each shareholder of PECO will have the opportunity to elect
to receive for each PECO share either one Newco common share or $45.00 in
cash, subject to proration; the cash election is limited to 16,666,666 PECO
shares or $750 million. The merger transaction will be accounted for as a
purchase of Unicom by PECO.
The merger transaction requires Unicom to purchase approximately 26.1
million shares of Unicom common stock prior to the closing of that
transaction. Unicom expects to meet this requirement through a currently
existing prepaid forward purchase arrangement for the purchase of 20.1 million
shares and the purchase of approximately six million additional shares from
available funds. Unicom anticipates that the $750 million cash consideration
to be paid to its shareholders in the merger transaction will be provided from
available funds, including funds resulting from the fossil plant sale.
The Merger Agreement and an amendment to Unicom's stock rights plan were
filed on September 29, 1999 by Unicom with the SEC as exhibits to a Form 8-K,
and reference to that filing is made for more detailed information.
Fossil Plant Sale. On March 22, 1999, ComEd entered into an Asset Sale
Agreement providing for the sale of substantially all of its fossil generating
assets to EME for a cash purchase price of $4.813 billion. The fossil plant
assets 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 ICC
approved the fossil plant sale on August 3, 1999, and FERC issued its approval
on November 8, 1999.
Just prior to the consummation of the fossil plant sale, ComEd expects to
transfer these assets to an affiliate, Unicom Investment. In consideration for
the transferred assets, Unicom Investment will pay ComEd consideration
totaling $4.813 billion in the form of a Demand Note in the amount of
approximately $2.350 billion and an interest-bearing Note with a maturity of
twelve years. Unicom Investment will immediately sell the fossil plant assets
to EME, in consideration of which Unicom Investment will receive $4.813
billion in cash from EME. Immediately after its receipt of the cash payment
from EME, Unicom Investment will pay the $2.350 billion aggregate principal
due to ComEd under the Demand Note. Unicom Investment will use the remainder
of the cash received from EME to fund other business opportunities, including
the merger with PECO. Of the cash received by ComEd, $1.680 billion is
expected to be used to pay the costs and taxes associated with the fossil
plant sale. The remainder of the Demand Note proceeds will be available to
ComEd to fund, among other things, transmission and distribution projects,
nuclear generation station projects, and environmental and other initiatives.
The sale is expected to produce an after-tax gain of approximately $1.6
billion, after settling commitments associated with certain coal contracts,
recognizing employee-related costs and funding certain environmental
initiatives. The gain on the sale will be utilized to substantially recover
certain regulatory assets and as a result, the sale is not expected to have a
significant impact on net income in 1999. See Note 1, under "Regulatory Assets
and Liabilities" of Notes to Financial Statements for additional information.
As part of the sale transaction, ComEd will enter into transitional power
purchase agreements with the buyer. The agreement regarding the coal-fired
units will 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
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<PAGE>
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 O&M and fuel
expenditures, and its depreciation charges.
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
fossil 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....................... 560 527 529 1,616
General............................................. 109 83 80 272
------ ---- ---- ------
$1,089 $874 $842 $2,805
====== ==== ==== ======
</TABLE>
The above fossil construction expenditures will not be required after the
fossil plant sale is completed.
In response to several outages in the summer of 1999, ComEd conducted an
extensive evaluation of the reliability of its transmission and distribution
systems. The 1999 construction program above includes an increase of $45
million in capital expenditures for improvements to ComEd's transmission and
distribution systems identified as a result of the evaluation. The $45 million
increase is in addition to the $307 million increase in capital expenditures
previously planned to be spent on these systems during 1999 through 2001.
ComEd is currently evaluating its construction program for the years 2000
through 2002. The final results of this planning process cannot be determined
at this time, but could result in an increase to the above construction
expenditures for 2000 and 2001.
ComEd's forecasts of peak load for its traditional service territory
indicate a need for additional resources to meet demand, 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. ComEd believes that adequate resources, including cost-
effective demand-side management resources, non-utility generation resources,
other-utility power purchases and generation resources from ARES, can be
obtained in sufficient quantities to meet such forecasted needs. See
"Unregulated Operations," subcaption "Construction Program" below, for
additional information.
Purchase commitments for ComEd, principally related to construction and
nuclear fuel, approximated $468 million at September 30, 1999. In addition,
ComEd's estimated commitments for the purchase of coal were as follows:
<TABLE>
<CAPTION>
Contract Period Commitment(1)
-------- --------- -------------
<S> <C> <C>
Black Butte Coal Co. ............................. 1999-2000 $256
Decker Coal Co. .................................. 1999-2012 436
Other commitments................................. 1999 8
----
$700
====
</TABLE>
--------
(1) In millions of dollars, excluding transportation costs. No
estimate of future cost escalation has been made.
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<PAGE>
Upon completion of the Asset Sale Agreement, ComEd expects to enter into
arrangements to assign or settle a substantial portion of the coal purchase
commitments. See "Changes in the Electric Utility Industry," subcaptions "The
1997 Act" and "Fossil Plant Sale" 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, were, as required, used to redeem $1,021 million of long-
term debt and $607 million of preference stock in 1999 and reduce $500 million
of ComEd's outstanding short-term debt. During the first nine months of 1999,
ComEd recorded an extraordinary loss related to the early redemptions of such
long-term debt, which reduced net income on common stock by approximately $28
million (after-tax), or $0.13 per common share (diluted). ComEd also recorded
$10 million (after-tax), or $0.04 per common share (diluted), for premiums
paid in connection with the redemption of such preference stock. As more fully
described below, Unicom has announced plans to repurchase approximately $750
million of Unicom common stock using the proceeds it will receive from ComEd's
repurchase of its common stock held by Unicom. The remaining proceeds from the
issuance of the transitional trust notes will be used for the payment of fees
and additional debt and equity redemptions and repurchases.
In the fourth quarter of 1998, Unicom entered into a forward purchase
arrangement for the repurchase of $200 million of its common stock. This
contract, which was accounted for as an equity instrument as of December 31,
1998, was settled on a net cash basis in February 1999.
In February 1999, Unicom also entered into a prepaid forward purchase
agreement with a financial institution for the repurchase of approximately 15
million shares of Unicom common stock. This forward purchase arrangement was
amended to also include the repurchase of approximately 5.1 million shares for
a total of 20.1 million shares, subsequent to the net cash settlement of the
$200 million repurchase program, as described above. The repurchase
arrangement, as amended, provides for final settlement no later than February
2000, on either a physical (share) basis, or a net cash basis. 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 does not currently anticipate that settlement will
occur in 1999. The repurchase arrangement has been recorded as a receivable on
the Consolidated Balance Sheets and has been adjusted at the end of each
reporting period to reflect the aggregate market value of the shares
deliverable under the arrangement. Consequently, the arrangement has increased
earnings volatility in 1999.
See Notes 3 and 6 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 1999-2001 construction program and
other capital requirements, including nuclear fuel expenditures, contributions
to nuclear decommissioning funds, sinking fund obligations and scheduled debt
maturities, and excluding the effects of the fossil plant sale. See Notes 9
and 11 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.
See "Changes in the Electric Utility Industry," subcaption "Fossil Plant
Sale" above, for a description of ComEd's planned uses of the fossil plant
sale proceeds.
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<PAGE>
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. ComEd has $500 million of unused bank lines of credit at September
30, 1999, which may be borrowed at various interest rates. 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 ratings of ComEd's
outstanding first mortgage bonds or on a prime interest rate. See Note 12 of
Notes to Financial Statements for additional information concerning lines of
credit. See the Statements of Consolidated Cash Flows for the construction
expenditures and cash flow from operating activities for the three months,
nine months and twelve months ended September 30, 1999. Cash flows from
operating activities increased temporarily for the three, nine and twelve
months ended September 30, 1999, compared to the same periods ended September
30, 1998, as a result of a decrease in net customer receivables due to the
collection of delayed billings related to the transition to a new customer
information and billing system in July 1998. See Note 1 of Notes to Financial
Statements, under "Customer Receivables and Revenues", for additional
information.
As of November 15, 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..... Baa1 BBB+ BBB+
Publicly-held debentures and unsecured pollution con-
trol obligations...................................... Baa2 BBB BBB
Convertible preferred stock............................ baa3 BBB- BBB-
Preference stock....................................... Baa2 BBB- BBB-
Trust Securities....................................... baa3 BBB- 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>
On September 15, 1999, Moody's upgraded the long-term securities of ComEd.
S&P raised its ratings for ComEd in June 1999. In July 1999, Duff & Phelps
upgraded ComEd's ratings for secured and unsecured debt, and announced that
ComEd's securities remain on "Rating Watch-Up."
On September 23, 1999 in response to the announced Unicom and PECO Merger
Agreement, Moody's and Duff & Phelps confirmed their ratings, and S&P placed
ComEd on credit watch with positive implications.
Capital Structure. ComEd's ratio of long-term debt to total capitalization
has decreased to 55.6% at September 30, 1999 from 58.0% at December 31, 1998.
As of September 30, 1999 and December 31, 1998, $702 million and $494 million,
respectively, of retained earnings had been appropriated for Unicom's future
dividend payments. As of September 30, 1999 and December 31, 1998, $827
million and $580 million, respectively, of retained earnings had been
appropriated for ComEd's future dividend payments.
48
<PAGE>
Year 2000 Conversion. Unicom, including ComEd, uses various software
applications and embedded systems throughout its businesses that will be
affected by the 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.
As of June 30, 1999, Unicom declared all of its systems and applications
"Year 2000 ready" in accordance with goals and criteria recommended by the
NERC. Even though Unicom has achieved Year 2000 ready status, the remainder of
1999 will be used to continue quality reviews, contingency planning efforts
and internal as well as external readiness drills; specifically, the focus of
the project has moved from "find it-fix it" activities to "increase certainty,
strengthen readiness-demonstration" activities. Key accomplishments of the
Unicom Year 2000 project included the following:
. All nuclear stations are Year 2000 ready
. All fossil stations are Year 2000 ready
. Transmission and distribution systems and computers are Year 2000 ready
. Distributed operations (LAN, WAN and related systems) are Year 2000 ready
. All office facilities are Year 2000 ready
. Mission critical products and services of supply chain are Year 2000
ready
. Completed independent verification and validation of the corporate
project
. The NRC conducted a Year 2000 readiness audit of the Braidwood Nuclear
Station and reviewed the contingency plans for nuclear operations
. Implemented "Clean Management" procedures to ensure newly renovated
applications and inventory remain Year 2000 ready
. Unicom Contingency Plan/Operating Plan is Year 2000 ready--submitted
final version of plans to MAIN
The Unicom Year 2000 readiness program included the detailed review of more
than 15 million lines of code and 30,000 embedded systems. At the height of
the project, which began in mid-1996, more than 300 people were assigned to
the company-wide Year 2000 team representing every business segment with many
others assisting the core team. The Unicom Year 2000 team focused on three
elements that were integral to the project: business continuity, project
management and risk management. Business continuity involved the continuation
of reliable electric supply and service in a safe, cost-effective manner.
Project management involved defining and meeting the project scope, schedule
and budget. Risk management involved customer communications, contingency
planning and legal issues.
Unicom's Year 2000 project focused 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
49
<PAGE>
payroll and customer service and billing software with new software that is
Year 2000 ready and that addresses Unicom's strategic needs as it enters a
less regulated environment.
A Year 2000 Moratorium is in effect from July 1, 1999 to March 31, 2000 and
during this time there is a company-wide freeze on configuration changes or
additions to existing information systems to ensure hardware, software and
embedded systems remain Year 2000 ready.
In addition to its internal efforts, Unicom has been working and will
continue to work 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. On August 3, 1999, NERC presented to the DOE its final status
report and a letter of assurance that the electric systems of North America
are ready to operate into the Year 2000 and beyond.
Additionally, Unicom participated in two industry-wide NERC readiness drills
that provided an opportunity to test personnel and processes in advance of the
roll-over. The first drill conducted on April 9, 1999 simulated the partial
loss of voice and data communications and tested Unicom's ability to maintain
bulk power system operations in the event of a loss of microwave communication
with partial EMS/SCADA functionality. The successful completion of the drill
demonstrated Unicom's ability to continue its bulk power operations in the
event this data is not available through normal means during the Year 2000
rollover period. The second drill, that involved approximately 338 people and
was conducted at various times between September 7-9, 1999, was comprised of
three phases and tested the team's ability to respond in certain conditions.
The phases of the drill included varying load conditions on the ComEd
transmission and distribution system, a partial loss of voice and data
communications and a full rehearsal of the transition to the Year 2000. The
drill also tested the team's internal and external communications processes.
The results were used to refine the plans and processes the team has already
assembled for the roll-over to 2000. The drill did not affect normal electric
operations and was seamless to customers and employees that were not a part of
the drill.
In addition to completing the drill, Unicom successfully transitioned
through an important Year 2000 date without incident with the change from
9/8/99 to 9/9/99. Other key Year 2000 dates that Unicom has completed without
Year 2000 problems are 1/1/99, 4/9/99 (99th day of 1999) and 8/21/99 (Global
Positioning System roll-over).
Unicom also depends upon third parties, including customers, suppliers,
government agencies and financial institutions, to reliably deliver its
products and services. Unicom completed additional initiatives to assess the
degree to which third parties with whom it has business relationships are
addressing Year 2000 issues. These initiatives included analysis of the Year
2000 readiness 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
ready on a continuing basis. Unicom's contingency planning addressed
mechanisms for preventing or mitigating interruption caused by its suppliers.
Unicom has an outreach program in place for communicating Year 2000 project
information to residential and business customers and this activity will
continue for the remainder of 1999.
As of October 31, 1999, approximately $36 million has been expended 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.
50
<PAGE>
Unicom has existing contingency plans in place for events such as extreme
heat, storms, equipment failures and accidents. Unicom prepared its Year 2000
contingency plans based on the framework of existing emergency management
system preparation and scenario development to address the possibility that
applications and systems may not be Year 2000 ready at the end of the five
step remediation process.
Unicom developed contingency plans that identify key risks and address the
most reasonably likely worst case scenarios that could occur in the event that
various Year 2000 issues were not resolved in a timely manner. Unicom used an
approach in its contingency planning process that has been recognized by NERC
and NEI. Key risks identified in Unicom's contingency plans include:
uncharacteristic load patterns, human behavior, availability of key personnel,
loss of critical business systems, readiness of supply base, loss of EMS/SCADA
functionality, readiness of neighboring utilities, loss of critical voice and
data communications, security, constrained fuel supplies and increased risk of
generator trips/unit availability. Unicom submitted its Year 2000 contingency
plans to MAIN in June 1999. Contingency planning is an ongoing process and
will continue through the fourth quarter of 1999.
Unicom also performed activities beyond contingency planning to further
increase certainty and strengthen readiness. An independent consultant was
engaged and performed an assessment of the process used to address the Year
2000 issue.
Based on Unicom's current status with regard to Year 2000 tasks, it believes
that its planning was adequate to secure Year 2000 readiness of its critical,
medium priority and low priority 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. The estimated fair value of the forward energy contracts, including
options at September 30, 1999, was approximately $(35) 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 ten
percent rate. 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 Unicom and ComEd's
Current Reports on Form 8-K dated February 19, 1999. There has not been a
material change in ComEd's exposure to interest rate or market price risk
since December 31, 1998. See "Energy Risk Management Contracts" in Note 1 of
Notes to Financial Statements regarding the accounting for energy risk
management contracts.
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
51
<PAGE>
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 energy management systems. Through an alliance with
AlliedSignal Power Systems, Inc., a subsidiary of AlliedSignal Inc., Unicom
Energy Services is an exclusive distributor for the Parallon 75(TM)
TurboGenerator system, which was developed by AlliedSignal to provide
customers with on-site electricity production. Unicom Energy Services'
exclusive territory for distributing the Parallon 75(TM) system encompasses 12
Midwest states, Ontario, Canada and Puerto Rico.
Unicom Power Holdings, another subsidiary of Unicom Enterprises, is
developing certain generation and cogeneration projects.
Unicom Energy Inc. and Unicom Gas Services, LLC, also subsidiaries of Unicom
Enterprises, are currently engaged in providing retail gas services to
commercial and industrial customers in the Midwest region. Unicom Energy Inc.
provides retail electric services as an unregulated retail energy supplier.
On August 30, 1999, UMS Acquisition Corp., a subsidiary of Unicom
Enterprises, acquired all of the capital stock of KHB Inc., MMSD, Inc. and
MMCD, Inc. These three companies, which conduct business under the name
"Midwest Mechanical", design, install and service heating, ventilation and air
conditioning facilities for commercial and industrial customers in the City
and the surrounding area. The final price did not have a material impact on
Unicom's cash flows related to investing activities.
Construction Program. Unicom has approved capital expenditures for 1999 of
approximately $40 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 September 30, 1999, UT Holdings' purchase
commitments, principally related to construction, were approximately $38
million.
Unicom has approved capital expenditures for 1999 of approximately $47
million for Unicom Energy Services. As of September 30, 1999, Unicom Energy
Services had purchase commitments of approximately $5 million.
Unicom Power Holdings intends to purchase and install up to 600 megawatts of
additional combustion turbine generators prior to the summer of 2000. Such
generators have a fast-start generating capability and would be used to assist
in meeting peak demand for electricity. Unicom Power Holdings expects to spend
approximately $165 million to purchase such generators, and it will incur
significant additional costs for related equipment and to site and install
such generators. Unicom Power Holdings is evaluating the amount of such
additional costs.
Capital Resources. Unicom expects to obtain funds to invest in its
unregulated subsidiaries principally from the fossil plant sale proceeds to be
received by Unicom Investment, although it may also obtain funds from
dividends received on its ComEd common stock and from borrowings. The
availability of ComEd's dividends to Unicom is dependent on ComEd's financial
performance and cash position, as well as legal restrictions on the payment of
dividends by public utilities. Other forms of financing by ComEd to Unicom or
the unregulated subsidiaries of Unicom, such as additional loans or additional
equity investments, which are not expected, would be subject to prior approval
by the ICC.
The fossil plant sale proceeds received by Unicom Investment, after the
payment of the Demand Note to ComEd, will be used to invest in business
opportunities.
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<PAGE>
Unicom Enterprises has a $200 million credit facility which has been
extended to December 17, 1999, of which $15 million was unused as of September
30, 1999. 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. The
credit facility is expected to be refinanced by Unicom Enterprises in the
fourth quarter of 1999. See Note 12 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 a $120 million 7.38% unsecured
guaranteed senior Note due May 2012, the proceeds of which were used to
refinance existing debt. The Note is guaranteed by Unicom and includes certain
covenants with respect to Unicom and Unicom Thermal's operations.
In June 1999, Northwind Midway issued $12 million of 7.68% guaranteed senior
Notes due June 2023, the proceeds of which will be used primarily to finance
certain project construction costs. The Notes are guaranteed by Unicom and
include certain covenants with respect to Unicom and Northwind Midway's
operations.
On November 5, 1999, Duff & Phelps assigned an initial implied senior
unsecured debt rating of BBB- to Unicom, and placed the rating on "Rating
Watch-Up." S&P's current corporate credit rating for Unicom is BBB. On
September 23, 1999, in response to the announced Unicom and PECO merger
agreement, S&P placed Unicom on credit watch with positive implications, and
Moody's confirmed the first-time issuer rating of Baa3 it had assigned to
Unicom on September 15, 1999.
Regulation
ComEd and 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 effect of the 1997 Act on
rate matters.
Nuclear Matters. Nuclear operations have been, and remain, an important
focus of ComEd. ComEd operates five nuclear plants--Braidwood, Byron, Dresden,
LaSalle and Quad Cities Stations, and is committed to 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.
On May 6, 1999, ComEd's LaSalle Station was officially removed from the
NRC's listing of plants that require increased regulatory scrutiny. LaSalle
Station had been on this list since January 1997. Concurrent with the LaSalle
Station action, the NRC announced the formal removal of the Quad Cities
Station from its list of plants with declining performance trends. Quad Cities
Station had been on the declining trend list since January 1998. With these
actions, all of ComEd's nuclear plants are now placed in the NRC's "routine
oversight" category. This represents the first time since 1990 that none of
ComEd's nuclear generating units are under special NRC oversight.
53
<PAGE>
The NRC and representatives of ComEd's management have met, and will
continue to meet periodically as part of the NRC's normal oversight process,
to discuss the overall performance of the ComEd nuclear program.
Based on ComEd's most recent study, decommissioning costs are estimated to
be $5.4 billion in current-year (1999) dollars, including a contingency
allowance. This estimate includes $588 million of non-radiological costs,
which are included in ComEd's proposed rider for recovery, as discussed below.
ComEd's decommissioning cost expenditures at the end of the units' operating
lives are estimated to total approximately $13.8 billion. These expenditures
will occur primarily during the period from 2007 through 2034. 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 alternative spent fuel storage installations,
which may be necessary to store spent fuel during the period beginning at the
end of the NRC license lives 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. Under its most recent annual rider,
filed with the ICC on February 26, 1999, ComEd has proposed to increase its
estimated annual decommissioning cost accrual from $84 million to $130
million. The proposed increase primarily reflects an increase in low-level
waste disposal cost escalation, the inclusion of $209 million in current-year
(1999) dollars for safety-related costs of maintaining Zion Station in a
mothballed condition until dismantlement begins, and the inclusion of non-
radiological costs in the decommissioning cost estimates for recovery under
the rider. 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 21 of Notes to Financial Statements for additional information.
Results of Operations
Unicom's basic and diluted earnings/(loss) per common share for the three
months, nine months and twelve months ended September 30, 1999 and 1998 were
as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
-------------------- ----------------- -------------------
1999 1998 1999 1998 1999 1998
--------- --------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic Earnings/(Loss) per
Common Share............... $1.29 $1.22 $2.16 $1.84 $2.67 $(4.44)
===== ===== ===== ===== ===== ======
Diluted Earnings/(Loss)
per Common Share........... $1.28 $1.22 $2.15 $1.83 $2.66 $(4.44)
===== ===== ===== ===== ===== ======
</TABLE>
54
<PAGE>
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 diluted EPS.
Net Income for the Three Months Ended September 30, 1999. The increase in
ComEd's net income in the recent three-month period reflects, among other
factors, increased energy sales, lower regulatory asset amortization charges,
lower-than-expected closing costs for Zion nuclear station and outstanding
nuclear performance.
Kilowatthour sales increased 11% for the third quarter of 1999, compared to
the same period in 1998. Both periods benefited from warmer than normal
weather. The increase in kilowatthour sales included a 42% increase in
kilowatthour sales to other utilities, which represented a $22 million (after-
tax), or $0.10 per common share, increase in earnings helping to offset the
15% residential base rate reduction. See "Operating Revenues" below for
additional information.
Fuel and purchased power costs increased 3% in the third quarter of 1999,
compared to the same period in 1998, reflecting increased kilowatthour sales.
See "Fuel Costs" and "Purchased Power" below for additional information.
O&M expenses decreased 1% for the third quarter of 1999, compared to the
third quarter of 1998, as discussed in "Operation and Maintenance Expenses"
below.
Earnings for the third quarter of 1999 were positively impacted by lower
regulatory asset amortization expense of $19 million (after-tax), or $0.09 per
common share. A reduction in the estimated liability for closing costs related
to the Zion Station also increased earnings by $8 million (after-tax), or
$0.04 per common share. Partially offsetting the increases to earnings was an
unrealized loss of $18 million (after-tax), or $0.08 per common share, related
to a forward share repurchase arrangement.
Net Income for the Nine Months Ended September 30, 1999. The increase in
ComEd's net income in the recent nine-month period reflects, among other
factors, the continued improvement of ComEd's nuclear fleet, which reduced
energy costs. The reduction in energy costs helped to offset the reduction in
revenues due to the 15% residential base rate reduction and increased O&M
expenditures.
Kilowatthour sales increased 10% for the nine months ended September 30,
1999, compared to the same period in 1998, which included a 57% increase in
kilowatthour sales to other utilities, representing a $71 million (after-tax),
or $0.33 per common share, increase in earnings during the nine months ended
September 30, of 1999, as well as continued economic growth in ComEd's service
territory. See "Operating Revenues" below for additional information.
Fuel and purchased power costs decreased 16% during the nine months ended
September 30, 1999, compared to the same period in 1998, reflecting the
effects of improvement of ComEd's nuclear fleet. See "Fuel Costs" and
"Purchased Power" below for additional information.
O&M expenses increased 3% for the nine months ended September 30, 1999,
compared to the same period in 1998, as discussed in "Operation and
Maintenance Expenses" below.
Earnings for the nine months ended September 30, 1999 were also positively
impacted by a net unrealized gain of $16 million (after-tax), or $0.07 per
common share, recorded related to a forward share repurchase arrangement. A
reduction in the estimated liability for closing costs related to the
55
<PAGE>
Zion Station also increased earnings by $14 million (after-tax), or $0.07 per
common share. Partially offsetting the increases in earnings were charges
totaling $38 million (after-tax), or $0.17 per common share, related to the
early redemption of long-term debt, sinking fund debentures and preference
stock completed in 1999.
Net Income for the Twelve Months Ended September 30, 1999. The increase in
ComEd's net income in the recent twelve-month period was primarily due to the
continued improvement of the nuclear fleet, which reduced energy costs. Also
increasing operating results were lower O&M expenses, lower depreciation and
amortization expense, gains from certain asset sales and a reduction in the
estimated liability for Zion Station closing costs. The twelve months ended
September 30, 1998 included write downs associated with the discontinuation of
regulatory accounting practices for the generation portion of its business and
other charges recorded in response to the 1997 Act. The twelve months ended
September 30, 1998 also included a write-off in connection with the closure of
Zion Station.
ComEd's kilowatthour sales increased 9% for the twelve months ended
September 30, 1999, compared to the same period last year, as discussed in
"Operating Revenues" below. O&M expenses decreased 1% during the same period,
as discussed in "Operation and Maintenance Expenses" below.
Fuel and purchased power costs decreased 13% for the twelve months ended
September 30, 1999, compared to the same period last year, due to overall
improved performance at ComEd's nuclear stations, which helped to reduce
purchased power requirements. See "Fuel Costs" and "Purchased Power" below for
additional information.
The twelve months ended September 30, 1999 also included a 4% reduction in
depreciation and amortization expense, see "Depreciation, Amortization and
Decommissioning" below, and a $20 million (after-tax), or $0.09 per common
share, reduction in the estimated liability for closing costs related to the
Zion Station, both of which increased operating results.
Also, the twelve months ended September 30, 1999 reflected gains on the
sales of certain assets of $20 million (after-tax), or $0.09 per common share,
consisting principally of surplus inventory of emission allowances. In
addition, operating results increased for the recent period due to a net
unrealized gain of $16 million (after-tax), or $0.07 per common share,
recorded during 1999 related to the forward share repurchase arrangement.
Partially offsetting the increases in earnings were charges totaling $38
million (after-tax), or $0.17 per common share, related to the early
redemption of long-term debt, sinking fund debentures and preference stock
completed during 1999.
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
for the twelve months ended June 30, 1998 of $810 million (after-tax), or
$3.75 per common share.
Also, the twelve months ended September 30, 1998 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 of $60 million (after-tax), or $0.28 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 for the twelve months ended
September 30, 1998 of $44 million (after-tax), or $0.20 per common share.
56
<PAGE>
The twelve months ended September 30, 1998 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.
Operating Revenues. ComEd's electric operating revenues reflect revenues
from sales to ultimate consumers (including residential, commercial and
industrial customers within its service territory) and revenues from sales for
resale (i.e., sales to wholesale customers, principally other electric
utilities). 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. See Note 1
of Notes to Financial Statements, under "Use of Estimates" and "Customer
Receivables and Revenues", for additional information.
Operating revenues decreased $26 million in the three months ended September
30, 1999, compared to the three months ended September 30, 1998, due in part
to the approximately $46 million impact of the 15% residential base rate
reduction that took effect August 1, 1998. Kilowatthour sales increased 11%,
primarily due to sales to other utilities. Operating revenues decreased
approximately $257 million in the nine months ended September 30, 1999,
compared to the nine months ended September 30, 1998, primarily due to the
approximately $226 million impact of the 15% residential base rate reduction
that took effect August 1, 1998. Kilowatthour sales increased 10%, compared to
the same period in 1998, primarily due to sales to other utilities. Operating
revenues decreased $332 million in the twelve months ended September 30, 1999,
compared to the same period in 1998, primarily due to the approximately $318
million impact of the 15% residential base rate reduction that took effect
August 1, 1998. Kilowatthour sales increased 9%, compared to the same period
last year, primarily due to sales to other utilities. In addition, due to a
change in presentation for certain state and municipal taxes, operating
revenues reflected a net reduction of approximately $30 million, $160 million
and $226 million for the three months, nine months and twelve months ended
September 30, 1999, respectively, compared to the same periods in 1998.
Fuel Costs. Changes in fuel expense for the three months, nine months and
twelve months ended September 30, 1999, compared to the same periods ended
September 30, 1998, 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>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
-------------------- ------------------ --------------------
1999 1998 1999 1998 1999 1998
--------- --------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Cost of fuel consumed (per million Btu):
Nuclear..................................... $0.50 $0.54 $0.50 $0.58 $0.50 $0.59
Coal........................................ $2.09 $2.59 $2.20 $2.35 $2.26 $2.28
Oil......................................... $5.01 $3.71 $4.37 $3.49 $4.17 $3.56
Natural gas................................. $2.14 $2.27 $2.22 $2.38 $2.25 $2.53
Average all fuels........................... $0.99 $1.29 $0.99 $1.28 $1.00 $1.31
Net generation of electric energy (millions of
kilowatthours)............................... 28,630 25,110 76,319 60,600 99,021 80,770
Fuel sources of kilowatthour generation:
Nuclear..................................... 70% 63% 72% 62% 72% 59%
Coal........................................ 26 31 25 31 25 34
Oil......................................... -- -- -- 1 -- 1
Natural gas................................. 4 6 3 6 3 6
--------- --------- -------- -------- --------- ---------
100% 100% 100% 100% 100% 100%
========= ========= ======== ======== ========= =========
</TABLE>
57
<PAGE>
The increases in net generation of electric energy and nuclear generation
for the periods ended September 30, 1999, compared to the prior periods, are
primarily due to significant improvement in ComEd's nuclear fleet. The overall
nuclear capacity factor was 97% for the third quarter of 1999, compared to 77%
for the third quarter of 1998. See "Regulation," subcaption "Nuclear Matters"
above, for information regarding 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," subcaption "UTILITY OPERATIONS--Construction Program,"
above and Note 21 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 increased $56 million for
the three months ended September 30, 1999, compared to the same period ended
September 30, 1998. The increase in purchased power is primarily due to the
record-breaking heat wave which occurred in July 1999 when ComEd set a new
peak energy demand. Purchased power decreased $227 million and $230 million
for the nine and twelve months ended September 30, 1999, respectively,
compared to the same period ended September 30, 1998, primarily due to
increased output from ComEd's nuclear fleet, which reduced purchased power
requirements. See "Regulation," subcaption "Nuclear Matters" above, for
information regarding ComEd's nuclear generating stations.
The number and average cost of kilowatthours purchased were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
--------------------- -------------------- ----------------------
1999 1998 1999 1998 1999 1998
--------- --------- -------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Kilowatthours
(millions)............. 3,222 4,025 7,215 18,474 9,445 23,158
Cost per kilowatthour... 7.74c 4.81c 5.81c 3.76c 5.52c 3.52c
</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. See
"Liquidity and Capital Resources," subcaption "UTILITY OPERATIONS--Market
Risks" above, for additional information.
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 period. 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 and cost control efforts.
During the three months and twelve months ended September 30, 1999, the
aggregate level of O&M expenses decreased 1%, compared to the same periods
ended September 30, 1998. O&M expenses for the nine months ended
September 30, 1999 increased 3%, compared to the same period last year.
58
<PAGE>
O&M expenses associated with nuclear generating stations decreased $18
million, $37 million and $45 million during the three months, nine months and
twelve months ended September 30, 1999, respectively, compared to the same
periods ended September 30, 1998. The decreases in the recent periods were due
to shorter refueling outages and fewer forced outages. The nuclear O&M
decrease in the recent twelve-month period was also due to the permanent
cessation of nuclear generation operations at Zion Station in December 1997.
See "Changes in the Electric Utility Industry," subcaption "Response to
Regulatory Changes" above, regarding the permanent cessation of nuclear
operations at Zion Station.
During the three months, nine months and twelve months ended September 30,
1999, O&M expenses associated with fossil generating stations decreased $2
million, $14 million and $8 million, respectively, compared to the same
periods ended September 30, 1998. The decreases in the recent periods for the
fossil generating stations were primarily due to reductions in general plant
maintenance costs. Also, the twelve months ended September 30, 1999 fossil O&M
expenses were lower due to the sales of State Line and Kincaid Stations in
December 1997 and February 1998, respectively.
O&M expenses associated with ComEd's transmission and distribution system
increased $22 million, $58 million and $74 million during the three months,
nine months and twelve months ended September 30, 1999, respectively,
compared to the same periods last year. The increases in the recent three-
month, nine-month and twelve-month periods reflect higher maintenance costs,
which include an increase in tree trimming expenses and the costs associated
with ComEd's extensive evaluation of the reliability of its transmission and
distribution system following outages which occurred during the summer of
1999. The increase also reflects restoration and other outage-related costs
associated with the summer heat wave. O&M expenses associated with customer-
related activities increased $9 million, $27 million and $31 million for the
three months, nine months and twelve months ended September 30, 1999,
respectively, compared to the same periods ended September 30, 1998, primarily
due to the implementation of a new customer information and billing system.
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 postretirement health care benefits, in addition
to certain other employee-related costs, resulting in charges of $2 million
and $9 million for the three months ended September 30, 1999 and 1998,
respectively, $7 million and $33 million for the nine months ended September
30, 1999 and 1998, respectively, and $23 million and $38 million for the
twelve months ended September 30, 1999 and 1998, respectively.
Other employee benefits expenses, excluding the effects of employee
separation plans and certain other employee-related costs decreased
$11 million and increased $22 million and $26 million for the three months,
nine months and twelve months ended September 30, 1999, respectively, compared
to the same periods ended September 30, 1998. The decrease for the recent
three-month period was primarily due to lower accruals for incentive
compensation. The increases in the recent nine-month and twelve-month periods
were primarily due to higher medical costs for active and retired employees
and accruals for incentive compensation.
O&M expenses included a $25 million charge for the nine months and twelve
months ended September 30, 1999 as a result of a settlement agreement with the
City during the first quarter of 1999. O&M expenses for the twelve months
ended September 30, 1999 also reflect a reduction of $34 million in certain
nuclear maintenance costs due to technological improvements, compared to the
same period last year. In addition, O&M expenses for the twelve months ended
September 30, 1998 included $25 million for the additional write-off of
obsolete materials and supplies.
O&M expenses associated with certain administrative and general costs
increased $2 million and decreased $13 million and $53 million for the three
months, nine months and twelve months ended
59
<PAGE>
September 30, 1999, respectively, compared to the same periods ended September
30, 1998. The decreases in the recent periods were due to a variety of
reasons, including reductions in nuclear insurance and fees partially offset
by additional charges for uncollectible accounts. 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, Amortization and Decommissioning. Depreciation, amortization
and decommissioning expense decreased $31 million, $14 million and $35 million
for the three months, nine months and twelve months ended September 30, 1999,
respectively, compared to the same periods ended September 30, 1998. The
decrease in the recent three-month period was primarily due to no additional
regulatory asset amortization expense being recorded due to lower than
previously estimated annual recovery of such cost through regulated cash
flows. The decrease in the recent nine-month period was due to the retirement
of steam generators at Braidwood Station in early 1998, which increased
depreciation expense for the 1998 period. The decrease in the recent twelve-
month period was primarily due to the retirement of Zion Station in December
1997 as well as increased depreciation in 1998 related to the replacement of
steam generators. See Note 1 of Notes to Financial Statements, under
"Depreciation, Amortization of Regulatory Assets and Decommissioning," for
additional information.
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 asset
removal costs including those related to nuclear decommissioning. If current
electric utility industry accounting practices for such decommissioning costs
are changed, annual provisions for decommissioning could increase and the
estimated costs of 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 their results
of operations due to ComEd's ability to recover decommissioning costs through
rates.
Interest on Debt. Changes in interest on long-term debt and notes payable
for the three months, nine months and twelve months ended September 30, 1999,
compared to the same periods ended September 30, 1998, were due to changes in
average interest rates and in the amounts of long-term debt and notes payable
outstanding. Changes in interest on ComEd's 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. See Notes 3 and 6 of Notes to Financial Statements for
information regarding the redemptions and repurchases of debt and equity. The
average amounts of ComEd's long-term debt and notes payable outstanding and
average interest rates thereon were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
--------------------- --------------------- ---------------------
1999 1998 1999 1998 1999 1998
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Long-term debt outstand-
ing:
Average amount (mil-
lions)................ $7,998 $5,823 $8,227 $5,852 $7,671 $5,906
Average interest rate.. 6.77% 7.37% 6.76% 7.40% 7.01% 7.47%
Notes payable outstand-
ing:
Average amount (mil-
lions)................ $ 381 $ 412 $ 298 $ 343 $ 311 $ 266
Average interest rate.. 5.50% 5.94% 5.84% 5.92% 5.59% 5.94%
</TABLE>
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, and as a result, began capitalizing interest in 1998. ComEd
capitalized $4 million and $6 million for the three
60
<PAGE>
months ended September 30, 1999 and 1998, $16 million and $14 million for the
nine months ended September 30, 1999 and 1998, respectively, and $31 million
and $14 million for the twelve months ended September 30, 1999 and 1998,
respectively, 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 twelve months ended
September 30, 1999 and December 31, 1998 were 2.56 and 2.59, respectively.
ComEd's ratios of earnings to fixed charges and preferred and preference stock
dividend requirements for the twelve months ended September 30, 1999 and
December 31, 1998 were 2.36 and 2.24, respectively.
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.
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 Notes 1 and 3
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" and "Liquidity and Capital
Resources--UNREGULATED OPERATIONS--Construction Program," and "Changes in the
Electric Utility Industry--Response to Regulatory Changes," (3) 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," (4) statements regarding cleanup costs associated
with MGPs and other remediation sites in Note 21 of Notes to Financial
Statements, (5) 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 Risks," (6) 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 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,
(7) statements regarding the fossil plant sale in "Management's Discussion and
Analysis of Financial Condition and Results of Operations," subcaptions
"Changes in the Electric Utility Industry--Fossil Plant Sale," "Liquidity and
Capital Resources--UTILITY OPERATIONS--Construction Program," and "Liquidity
and Capital Resources--UNREGULATED OPERATIONS--Capital Resources," and in Note
4 of Notes to Financial Statements,
61
<PAGE>
(8) statements regarding estimates of claims resulting from the summer of 1999
outages set forth in Note 21 of Notes to Financial Statements and (9)
statements regarding the Merger Agreement in Note 2 of Notes to Financial
Statements and in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" subcaption "Changes in the Electric Utility
Industry--Merger Agreement." 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, 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 also
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 fair value of forward energy
contracts are subject to changes in generating capability and a reduction in
the demand for electricity. The statement regarding the use of proceeds from
the fossil plant sale is subject to the possibility that regulatory action
might affect the amount and use of such proceeds and the possibility that, due
to changing market conditions, Unicom and ComEd may determine that other uses
of the proceeds may be in their best interest. The statements regarding
estimates of claims resulting from the summer of 1999 outages are subject to
the risk that the actual amount of losses suffered by customers and
restoration costs may exceed the estimated amounts. The statements regarding
the Merger Agreement and the associated repurchase of shares are subject to
the risk of a significant delay in the expected completion of, and unexpected
consequences resulting from, the transactions contemplated by the Merger
Agreement, including the inability to close the transaction, and to changes in
the number of shares of outstanding common stock of Unicom and PECO for
unforeseen reasons. 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.
62
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To 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 September 30, 1999 and December
31, 1998, and the related statements of consolidated operations, retained
earnings/(deficit) and cash flows for the three-month, nine-month and twelve-
month periods ended September 30, 1999 and 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 of September 30, 1999 and December 31,
1998, and the results of their operations and their cash flows for the three-
month, nine-month and twelve-month periods ended September 30, 1999 and 1998,
in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois
November 12, 1999
63
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED OPERATIONS
The following Statements of Consolidated Operations for the three months,
nine months and twelve months ended September 30, 1999 and 1998 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, asset dispositions, 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>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
---------------------- ---------------------- -----------------------
1999 1998 1999 1998 1999 1998
---------- ---------- ---------- ---------- ---------- -----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Electric Operating
Revenues............... $2,064,011 $2,089,547 $5,271,794 $5,528,794 $6,831,542 $ 7,163,379
---------- ---------- ---------- ---------- ---------- -----------
Electric Operating
Expenses and Taxes:
Fuel................... $ 302,181 $ 340,317 $ 796,654 $ 804,483 $1,049,699 $ 1,062,539
Purchased power........ 249,375 193,637 419,358 646,388 520,987 751,325
Operation.............. 383,438 388,357 1,133,360 1,077,611 1,513,094 1,539,085
Maintenance............ 168,993 169,536 590,572 603,666 776,169 772,637
Depreciation and
amortization.......... 200,284 231,008 695,387 709,774 923,216 958,400
Taxes (except income).. 143,912 178,800 405,454 570,365 532,241 755,814
Income taxes--
Current--Federal..... 164,697 171,051 350,417 293,191 343,217 297,201
--State.............. 34,704 29,603 74,805 55,113 71,521 57,871
Deferred--Federal--
net................. (10,944) (10,920) (86,319) (29,937) (25,621) 1,325
--State--net......... (1,385) 4,134 (17,204) 1,543 (6,210) 10,774
Investment tax credits
deferred--net......... (7,021) (6,889) (21,063) (20,937) (27,856) (28,588)
---------- ---------- ---------- ---------- ---------- -----------
$1,628,234 $1,688,634 $4,341,421 $4,711,260 $5,670,457 $ 6,178,383
---------- ---------- ---------- ---------- ---------- -----------
Electric Operating
Income................. $ 435,777 $ 400,913 $ 930,373 $ 817,534 $1,161,085 $ 984,996
---------- ---------- ---------- ---------- ---------- -----------
Other Income and
(Deductions):
Interest on long-term
debt, net of interest
capitalized........... $ (130,663) $ (107,356) $ (400,821) $ (324,693) $ (506,732) $ (441,178)
Interest on notes
payable............... (5,282) (6,170) (13,003) (15,186) (17,377) (15,817)
Allowance for funds
used during
construction.......... 6,581 4,467 15,982 12,325 20,121 24,217
Income taxes
applicable to
nonoperating
activities............ 2,080 1,671 (1,169) 18,946 (17,418) 31,151
Provision for
dividends on company-
obligated mandatorily
redeemable preferred
securities of
subsidiary trusts
holding solely the
Company's
subordinated debt
securities............ (7,428) (7,428) (22,283) (22,283) (29,710) (29,710)
Loss on nuclear plant
closure............... -- -- -- -- -- (885,611)
Income tax effect of
nuclear plant
closure............... -- -- -- -- -- 362,952
Miscellaneous--net..... (14,016) (26) 29,935 (24,286) 60,893 (96,071)
---------- ---------- ---------- ---------- ---------- -----------
$ (148,728) $ (114,842) $ (391,359) $ (355,177) $ (490,223) $(1,050,067)
---------- ---------- ---------- ---------- ---------- -----------
Net Income/(Loss) before
Extraordinary Items.... $ 287,049 $ 286,071 $ 539,014 $ 462,357 $ 670,862 $ (65,071)
Extraordinary Losses,
less Applicable Income
Taxes.................. -- -- (27,579) -- (27,579) (810,335)
---------- ---------- ---------- ---------- ---------- -----------
Net Income/(Loss)....... $ 287,049 $ 286,071 $ 511,435 $ 462,357 $ 643,283 $ (875,406)
Provision for Dividends
on Preferred and
Preference Stocks...... 1,830 14,053 20,170 43,062 33,991 57,635
---------- ---------- ---------- ---------- ---------- -----------
Net Income/(Loss) on
Common Stock........... $ 285,219 $ 272,018 $ 491,265 $ 419,295 $ 609,292 $ (933,041)
========== ========== ========== ========== ========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
64
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1999 1998
------ ------------- ------------
(Thousands of Dollars)
<S> <C> <C>
Utility Plant:
Plant and equipment, at original cost (includes
construction work in progress of $959 million and
$858 million, respectively)...................... $28,501,029 $27,801,246
Less--Accumulated provision for depreciation...... 15,749,560 15,234,320
----------- -----------
$12,751,469 $12,566,926
Nuclear fuel, at amortized cost................... 864,229 874,979
----------- -----------
$13,615,698 $13,441,905
----------- -----------
Investments:
Nuclear decommissioning funds..................... $ 2,340,005 $ 2,267,317
Subsidiary companies.............................. 69,032 48,636
Other investments, at cost........................ 45,800 57,031
----------- -----------
$ 2,454,837 $ 2,372,984
----------- -----------
Current Assets:
Cash.............................................. $ 10,043 $ 219
Temporary cash investments........................ 28,130 26,935
Cash held to redemption of securities............. 606,822 3,062,816
Special deposits.................................. 382 271
Receivables--
Customers....................................... 1,285,420 1,364,760
Forward share repurchase contract............... 678,016 --
Other........................................... 148,349 155,492
Provisions for uncollectible accounts........... (61,355) (48,008)
Coal and fuel oil, at average cost................ 130,662 134,965
Materials and supplies, at average cost........... 241,952 229,532
Deferred income taxes related to current assets
and liabilities.................................. 24,892 26,486
Prepayments and other............................. 33,555 18,387
----------- -----------
$ 3,126,868 $ 4,971,855
----------- -----------
Deferred Charges and Other Noncurrent Assets:
Regulatory assets................................. $ 4,473,652 $ 4,578,427
Other............................................. 91,123 85,406
----------- -----------
$ 4,564,775 $ 4,663,833
----------- -----------
$23,762,178 $25,450,577
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
65
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
CAPITALIZATION AND LIABILITIES 1999 1998
------------------------------ ------------- ------------
(Thousands of Dollars)
<S> <C> <C>
Capitalization (see accompanying statements):
Common stock equity.................................. $ 5,270,861 $ 5,055,854
Preferred and preference stocks without mandatory
redemption requirements............................. 18,820 91,479
Preference stock subject to mandatory redemption
requirements........................................ -- 69,475
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely the
Company's subordinated debt securities*............. 350,000 350,000
Long-term debt....................................... 7,049,748 7,677,219
----------- -----------
$12,689,429 $13,244,027
----------- -----------
Current Liabilities:
Notes payable........................................ $ 448,750 $ 276,356
Current portion of long-term debt, redeemable
preference stock and capitalized lease obligations.. 1,104,153 2,226,868
Accounts payable..................................... 486,158 605,712
Accrued interest..................................... 127,414 178,238
Accrued taxes........................................ 325,896 165,466
Dividends payable.................................... 89,469 104,022
Customer deposits.................................... 62,211 56,954
Accrued plant closing costs.......................... 15,198 78,430
Other................................................ 130,326 149,304
----------- -----------
$ 2,789,575 $ 3,841,350
----------- -----------
Deferred Credits and Other Noncurrent Liabilities:
Deferred income taxes................................ $ 3,688,501 $ 3,787,978
Nuclear decommissioning liability for retired plants. 1,266,900 1,215,400
Accumulated deferred investment tax credits.......... 535,089 562,285
Accrued spent nuclear fuel disposal fee and related
interest............................................ 753,926 728,413
Obligations under capital leases..................... 213,725 333,653
Regulatory liabilities............................... 599,739 595,005
Other................................................ 1,225,294 1,142,466
----------- -----------
$ 8,283,174 $ 8,365,200
----------- -----------
Commitments and Contingent Liabilities (Note 21)
$23,762,178 $25,450,577
=========== ===========
</TABLE>
*As described in Note 10 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.
66
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CAPITALIZATION
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------- -----------
(Thousands of Dollars)
<S> <C> <C>
Common Stock Equity:
Common stock, $12.50 par value per share--
Outstanding--213,972,524 shares and 214,057,171
shares, respectively............................. $ 2,677,979 $ 2,677,969
Premium on common stock and other paid-in capital.. 2,207,264 2,223,706
Capital stock and warrant expense.................. (12,537) (15,664)
Retained earnings.................................. 408,520 176,643
Treasury stock--264,406 shares and 178,982 shares,
respectively...................................... (10,365) (6,800)
----------- -----------
$ 5,270,861 $ 5,055,854
----------- -----------
Preferred and Preference Stocks Without Mandatory
Redemption Requirements:
Preference stock, non-cumulative, without par val-
ue--
Outstanding--2,600 shares......................... $ 16,991 $ 16,991
Preference stock, cumulative, without par value--
Outstanding--No shares and 13,499,549 shares,
respectively .................................... -- 504,957
Current redemption requirements for preference
stock included in current liabilities............. -- (432,320)
$1.425 convertible preferred stock, cumulative,
without par value--
Outstanding--57,526 shares and 58,211 shares, re-
spectively....................................... 1,829 1,851
Prior preferred stock, cumulative, $100 par value
per share--
No shares outstanding............................. -- --
----------- -----------
$ 18,820 $ 91,479
----------- -----------
Preference Stock Subject to Mandatory Redemption Re-
quirements:
Preference stock, cumulative, without par value--
Outstanding--700,000 shares and 1,720,345 shares,
respectively..................................... $ 69,475 $ 171,348
Current redemption requirements for preference
stock included in current liabilities............. (69,475) (101,873)
----------- -----------
$ -- $ 69,475
----------- -----------
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 1999 through 2003--6 3/8% to 9 3/8%..... $ 672,245 $ 1,080,000
Maturing 2004 through 2013--4.40% to 8 3/8%...... 1,305,400 1,485,400
Maturing 2014 through 2023--5.85% to 9 7/8%...... 1,609,443 1,981,000
----------- -----------
$ 3,587,088 $ 4,546,400
Transitional trust notes, due 2000 through 2008--
5.29% to 5.74%.................................... 3,162,955 3,400,000
Sinking fund debentures, due 1999 through 2011--
2 3/4% to 7 5/8%.................................. 31,383 94,159
Pollution control obligations, due 2007 through
2014--3.75% to 5 7/8%............................. 139,200 140,700
Other long-term debt............................... 1,056,300 1,056,346
Current maturities of long-term debt included in
current liabilities............................... (876,387) (1,497,706)
Unamortized net debt discount and premium.......... (50,791) (62,680)
----------- -----------
$ 7,049,748 $ 7,677,219
----------- -----------
$12,689,429 $13,244,027
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
67
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS/(DEFICIT)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
-------------------- ----------------- -------------------
1999 1998 1999 1998 1999 1998
--------- --------- -------- -------- -------- ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Balance at Beginning of
Period................. $ 211,003 $ (43,295) $176,643 $(19,172) $142,989 $1,418,848
Add--Net income/(loss).. 287,049 286,071 511,435 462,357 643,283 (875,406)
--------- --------- -------- -------- -------- ----------
$ 498,052 $ 242,776 $688,078 $443,185 $786,272 $ 543,442
--------- --------- -------- -------- -------- ----------
Deduct--
Dividends declared
on--
Common stock........ $ 85,589 $ 85,695 $256,695 $257,082 $342,388 $ 342,773
Preferred and
preference stocks.. 1,224 13,870 7,309 42,836 19,791 57,385
Preference stock
redemption premiums. (9,984) -- -- -- -- --
Other capital stock
transactions--net... 12,703 222 15,554 278 15,573 295
--------- --------- -------- -------- -------- ----------
$ 89,532 $ 99,787 $279,558 $300,196 $377,752 $ 400,453
--------- --------- -------- -------- -------- ----------
Balance at End of Period
(Includes $827 million
and $546 million of
appropriated retained
earnings at September
30, 1999 and 1998,
respectively).......... $ 408,520 $ 142,989 $408,520 $142,989 $408,520 $ 142,989
========= ========= ======== ======== ======== ==========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
68
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
-------------------- ----------------------- -----------------------
1999 1998 1999 1998 1999 1998
--------- --------- ----------- ---------- ----------- ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Cash Flow from Operating
Activities:
Net income/(loss)...... $ 287,049 $ 286,071 $ 511,435 $ 462,357 $ 643,283 $ (875,406)
Adjustments to
reconcile net
income/(loss) to net
cash provided by
operating activities:
Depreciation and
amortization........ 208,597 245,362 737,501 751,423 970,440 1,013,281
Deferred income taxes
and investment tax
credits--net........ (11,861) (13,348) (115,059) (9,008) (43,256) (352,101)
Extraordinary loss
related to write-off
of certain net
regulatory assets... - - - - - 810,335
Loss on nuclear plant
closure............. - - - - - 885,611
Provisions/(payments)
for revenue
refunds--net........ (2,439) - (22,297) (45,470) 306 -
Equity component of
allowance for funds
used during
construction........ (2,243) (1,814) (5,999) (5,358) (7,600) (12,570)
Provisions/(payments)
for liability for
separation costs--
net................. (1,746) (9,853) (11,544) (2,817) 1,029 (11,779)
Net effect on cash
flows of changes in:
Receivables........ 44,240 (281,151) 83,927 (430,553) 28,647 (510,533)
Coal and fuel oil.. 15,078 53,064 4,303 (31,444) 21,446 (7,662)
Materials and
supplies.......... (2,439) 14,324 (12,420) 7,686 2,413 49,123
Accounts payable
excluding nuclear
fuel lease
principal payments
and separation
costs--net........ 1,137 (131,869) (106,930) (15,106) 20,158 63,103
Accrued interest
and taxes......... 7,952 107,217 127,657 205,176 (118,229) 57,864
Other changes in
certain current
assets and
liabilities....... 36,964 31,780 91,196 83,468 148,914 189,403
Other--net........... 23,989 42,824 150,440 100,510 117,393 141,890
--------- --------- ----------- ---------- ----------- ----------
$ 604,278 $ 342,607 $ 1,432,210 $1,070,864 $ 1,784,944 $1,440,559
--------- --------- ----------- ---------- ----------- ----------
Cash Flow from Investing
Activities:
Construction
expenditures.......... $(262,946) $(198,155) $ (736,654) $ (618,277) $(1,021,602) $ (949,613)
Nuclear fuel
expenditures.......... (90,926) (28,616) (204,873) (123,583) (247,458) (151,686)
Sales of generating
plants................ - - - 177,454 - 238,245
Equity component of
allowance for funds
used during
construction.......... 2,243 1,814 5,999 5,358 7,600 12,570
Contributions to
nuclear
decommissioning
funds................. - - (39,426) (80,077) (96,120) (114,721)
Other investments and
special deposits...... (15,885) 658 (18,353) (288) (19,239) 19,618
--------- --------- ----------- ---------- ----------- ----------
$(367,514) $(224,299) $ (993,307) $ (639,413) $(1,376,819) $ (945,587)
--------- --------- ----------- ---------- ----------- ----------
Cash Flow from Financing
Activities:
Issuance of
securities--
Transitional trust
notes................ $ - $ - $ - $ - $ 3,382,629 $ -
Other long-term debt.. - 222,068 - 222,068 - 222,068
Capital stock......... 6 20 21 244 17,029 244
Retirement and
redemption of
securities--
Transitional trust
notes................ (97,045) - (237,045) - (237,045) -
Other long-term debt.. (1,017) (51,009) (1,059,452) (423,192) (1,134,452) (483,195)
Capital stock......... (75,034) (24,270) (639,298) (30,495) (649,669) (34,066)
Deposits and
securities held for
retirement and
redemption of
securities............ - 995 - - - -
Prepayment of forward
share repurchase
contract.............. - - (662,113) - (662,113) -
Cash dividends paid on
capital stock......... (99,246) (110,729) (300,839) (326,063) (404,644) (430,615)
Proceeds from
sale/leaseback of
nuclear fuel.......... - 39,612 - 101,038 - 146,768
Nuclear fuel lease
principal payments.... (55,610) (43,321) (157,546) (204,330) (208,820) (246,681)
Increase/(decrease) in
short-term
borrowings............ 36,900 (81,200) 172,394 250,496 40,104 365,896
--------- --------- ----------- ---------- ----------- ----------
$(291,046) $ (47,834) $(2,883,878) $ (410,234) $ 143,019 $ (459,581)
--------- --------- ----------- ---------- ----------- ----------
Change in Net Cash
Balance................ $ (54,282) $ 70,474 $(2,444,975) $ 21,217 $ 551,144 $ 35,391
Cash, Temporary Cash
Investments and Cash
Held for Redemption of
Securities:
Balance at Beginning
of Period............. 699,277 23,377 3,089,970 72,634 93,851 58,460
--------- --------- ----------- ---------- ----------- ----------
Balance at End of
Period................ $ 644,995 $ 93,851 $ 644,995 $ 93,851 $ 644,995 $ 93,851
========= ========= =========== ========== =========== ==========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
69
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies.
See Unicom's Note 1 of Notes to Financial Statements for a discussion of
significant accounting policies, except for the following specific policies
discussed below and the subcaption "Average Common Shares Outstanding" in
Unicom's Note 1.
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.
Interest. Total interest costs incurred on debt, leases and other
obligations were $155 million and $133 million for the three months ended
September 30, 1999 and 1998, respectively, $470 million and $404 million for
the nine months ended September 30, 1999 and 1998, respectively, and $593
million and $545 million for the twelve months ended September 30, 1999 and
1998, respectively.
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 three months,
nine months and twelve months ended September 30, 1999 and 1998 was as
follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
------------------------------------ -------------------
1999 1998 1999 1998 1999 1998
--------- ----------------- -------- --------- ---------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Supplemental Cash Flow
Information:
Cash paid during the
period for:
Interest (net of
amount capitalized). $156,159 $96,567 $479,015 $342,687 $561,107 $439,112
Income taxes (net of
refunds)............ $ 140,913 $ 23,040 $225,020 $ 23,546 $ 514,684 $ 222,230
Supplemental Schedule of
Non-Cash Investing and
Financing Activities:
Capital lease obliga-
tions incurred........ $ 189 $ 40,954 $ 1,625 $104,933 $ 3,062 $ 152,812
</TABLE>
(2) Merger Agreement. See Unicom's Note 2 of Notes to Financial Statements.
(3) Accounting Effects Related to the 1997 Act. See Unicom's Note 3 of Notes
to Financial Statements, except for EPS information.
(4) Closure and Sale of Plants. See Unicom's Note 4 of Notes to Financial
Statements, except for EPS information.
(5) Authorized Shares and Voting Rights of Capital Stock. At September 30,
1999, the authorized shares of capital stock were: common stock--250,000,000
shares; preference stock--7,510,451 shares; $1.425 convertible preferred
stock--57,526 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.
70
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
(6) Common Equity. In the fourth quarter of 1998, ComEd entered into a
forward purchase arrangement with Unicom for the repurchase of $200 million of
ComEd common stock. This contract, which was accounted for as an equity
instrument as of December 31, 1998, was settled on a net cash basis in
February 1999 resulting in a $16 million reduction to common stock equity on
the Consolidated Balance Sheets.
In February 1999, ComEd also entered into a prepaid forward purchase
agreement with Unicom for the repurchase of approximately 15 million shares of
Unicom common stock. This forward purchase arrangement was amended to also
include the repurchase of approximately 5.1 million shares for a total of 20.1
million shares, subsequent to the net cash settlement of the $200 million
repurchase program, as described above. The repurchase arrangement, as
amended, 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
agreement between ComEd and Unicom are identical to the terms of Unicom's
repurchase agreement with the financial institution. The repurchase agreement
between ComEd and Unicom is expected to be settled on the same basis Unicom
settles its repurchase arrangements with the financial institution. The amount
at which the arrangement can be settled is dependent principally upon the
average market price at which Unicom common shares have been repurchased under
its repurchase agreement, compared to the forward price per share. The share
repurchases will not reduce shares outstanding or common stock equity, and
resulting return on common equity calculations, until the date of physical
settlement. ComEd does not currently anticipate that settlement will occur in
1999. The repurchase arrangement has been recorded as a receivable on the
Consolidated Balance Sheets and has been adjusted at the end of each reporting
period to reflect the aggregate market value of the shares deliverable under
the arrangement. Consequently, the arrangement has increased earnings
volatility in 1999. An unrealized loss of $18 million (after-tax) for the
three months ended and net unrealized gains of $16 million (after-tax) for the
nine and twelve months ended September 30, 1999 have been recorded related to
the arrangement.
At September 30, 1999, shares of common stock were reserved for the
following purposes:
<TABLE>
<S> <C>
Conversion of $1.425 convertible preferred stock................... 58,676
Conversion of warrants............................................. 25,263
------
83,939
======
</TABLE>
Shares of common stock issued for the three months, nine months and twelve
months ended September 30, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
-------------------- ------------------ --------------------
1999 1998 1999 1998 1999 1998
--------- --------- -------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Conversion of $1.425
convertible preferred
stock.................. 202 652 697 7,848 697 7,848
Conversion of warrants.. 15 52 80 176 132 187
--------- --------- ------- --------- -------- ----------
217 704 777 8,024 829 8,035
========= ========= ======= ========= ======== ==========
</TABLE>
As of September 30, 1999 and December 31, 1998, 264,406 and 178,982 shares,
respectively, of ComEd common stock were reacquired and held as treasury stock
at a cost of $10 million and $7 million, respectively.
At September 30, 1999 and December 31, 1998, 75,791 and 76,079,
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.
71
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
As of September 30, 1999 and December 31, 1998, $827 million and $580
million, respectively, of retained earnings had been appropriated for future
dividend payments.
(7) Stock Option Awards/Employee Stock Purchase Plan. See Unicom's Note 7 of
Notes to Financial Statements, except for EPS information.
(8) Preferred and Preference Stocks Without Mandatory Redemption
Requirements. See Unicom's Note 8 of Notes to Financial Statements.
(9) Preference Stock Subject to Mandatory Redemption Requirements. See
Unicom's Note 9 of Notes to Financial Statements.
(10) Company-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts Holding Solely the Company's Subordinated Debt Securities.
See Unicom's Note 10 of Notes to Financial Statements.
(11) Long-Term Debt. See Unicom's Note 11 of Notes to Financial Statements,
except for the last two paragraphs regarding Unicom Thermal and Northwind
Midway's guaranteed senior Notes.
(12) Lines of Credit. See the first paragraph of Unicom's Note 12 of Notes
to Financial Statements.
(13) Disposal of Spent Nuclear Fuel. See Unicom's Note 13 of Notes to
Financial Statements.
(14) Fair Value of Financial Instruments. See Unicom's Note 14 of Notes to
Financial Statements, except for following section.
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 September 30, 1999 and December 31, 1998 were as follows:
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
--------------------------------- --------------------------------
Unrealized
Carrying Losses/ Carrying Unrealized Fair
Value (Gains) Fair Value Value Losses Value
---------- ---------- ---------- ---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Preferred and preference
stocks................. $ 71,304 $ 208 $ 71,512 $ 678,156 $ 11,500 $ 689,656
Company-obligated
mandatorily redeemable
preferred securities of
subsidiary trusts
holding solely the
Company's subordinated
debt securities........ $ 350,000 $ (1,234) $ 348,766 $ 350,000 $ 20,678 $ 370,678
Transitional trust
notes.................. $3,162,955 $(116,799) $3,046,156 $3,382,821 $ 67,168 $3,449,989
Long-term debt.......... $4,776,727 $ 125,838 $4,902,565 $5,791,757 $442,077 $6,233,834
</TABLE>
(15) Pension and Postretirement Benefits. See Unicom's Note 15 of Notes to
Financial Statements.
(16) Separation Plan Costs. See Unicom's Note 16 of Notes to Financial
Statements, except for EPS information.
72
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
(17) Income Taxes. The components of the net deferred income tax liability
at September 30, 1999 and December 31, 1998 were as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Thousands of Dollars)
<S> <C> <C>
Deferred income tax liabilities:
Accelerated cost recovery and liberalized deprecia-
tion, net of removal costs........................ $3,960,161 $4,007,681
Overheads capitalized.............................. 136,193 140,922
Repair allowance................................... 225,100 233,861
Regulatory assets recoverable through future rates. 678,583 680,356
Deferred income tax assets:
Postretirement benefits............................ (360,356) (331,566)
Unamortized investment tax credits................. (181,467) (191,135)
Regulatory liabilities to be settled through future
rates............................................. (599,739) (595,005)
Nuclear plant closure.............................. (13,238) (38,354)
Other--net......................................... (181,628) (145,268)
---------- ----------
Net deferred income tax liability................... $3,663,609 $3,761,492
========== ==========
</TABLE>
The $98 million decrease in the net deferred income tax liability from
December 31, 1998 to September 30, 1999 is comprised of an $91 million credit
to net deferred income tax expense and a $7 million decrease in regulatory
assets net of regulatory liabilities pertaining to income taxes for the
period. The amount of accelerated cost recovery and liberalized depreciation
included in deferred income tax liabilities for both periods, 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 three months, nine months and twelve months ended September
30, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
-------------------- ------------------- ---------------------
1999 1998 1999 1998 1999 1998
--------- --------- --------- -------- --------- ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Electric operating in-
come:
Current income taxes... $ 199,401 $ 200,654 $ 425,222 $348,304 $ 414,738 $ 355,072
Deferred income taxes.. (12,329) (6,786) (103,523) (28,394) (31,831) 12,099
Investment tax credits
deferred--net (7,021) (6,889) (21,063) (20,937) (27,856) (28,588)
Other (income) and de-
ductions:
Current income taxes... (5,809) (1,802) (4,057) (59,017) 5,160 (58,661)
Deferred income taxes.. 6,159 364 12,238 47,908 23,787 (337,039)
Investment tax credits. (2,153) -- (6,133) (7,472) (10,768) (29,997)
--------- --------- --------- -------- --------- ----------
Net income taxes
charged/(credited) to
continuing operations.. $ 178,248 $ 185,541 $ 302,684 $280,392 $ 373,230 $ (87,114)
========= ========= ========= ======== ========= ==========
</TABLE>
73
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
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 three months, nine months and twelve months ended
September 30, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
-------------------- ------------------ ---------------------
1999 1998 1999 1998 1999 1998
--------- --------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Pre-tax book
income/(loss) (thou-
sands)................. $465,300 $ 471,612 $841,698 $742,749 $1,044,092 $(152,185)
Effective income tax
rate................... 38.3% 39.3% 36.0% 37.8% 35.8% 57.2%
</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 three months, nine months and twelve months ended September 30,
1999 and 1998 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
-------------------- ------------------ --------------------
1999 1998 1999 1998 1999 1998
--------- --------- -------- -------- --------- ---------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes
computed at statutory
rate................... $ 162,855 $ 165,064 $294,594 $259,962 $ 365,432 $ (53,265)
Equity component of
AFUDC which was
excluded from taxable
income................. (126) (102) (336) (300) (426) (2,824)
Amortization of
investment tax credits,
net of deferred income
taxes ................. (5,907) (4,517) (17,525) (18,246) (24,782) (40,221)
State income taxes, net
of federal income
taxes.................. 22,511 21,689 39,100 35,350 47,414 2,723
Unrealized gain on for-
ward share repurchase
contract............... 6,130 -- (5,566) -- (5,566) --
Earnings on nontax-qual-
ified decommissioning
fund................... (951) -- (3,719) -- (3,719) --
Differences between book
and tax accounting,
primarily property-
related deductions..... (6,264) 3,407 (3,864) 3,626 (5,123) 6,473
--------- --------- -------- -------- --------- ---------
Net income taxes
charged/(credited) to
continuing operations.. $ 178,248 $185,541 $302,684 $280,392 $ 373,230 $ (87,114)
========= ========= ======== ======== ========= =========
</TABLE>
(18) Taxes, Except Income Taxes. Provisions for taxes, except income taxes,
for the three months, nine months and twelve months ended September 30, 1999
and 1998 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
-------------------- ----------------- -------------------
1999 1998 1999 1998 1999 1998
--------- --------- -------- -------- --------- ---------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Illinois public utility
revenue................ $ (601) $ 5,983 $ 1,296 $107,911 $ 8,365 $ 161,257
Illinois invested capi-
tal.................... -- -- -- -- -- 21,229
Illinois electricity
distribution tax....... 32,942 29,950 87,615 81,580 116,061 81,580
Municipal utility gross
receipts............... 29,832 53,001 80,418 134,108 98,811 171,506
Real estate............. 33,441 34,199 95,947 98,558 121,520 139,084
Municipal compensation.. 23,714 26,819 60,515 70,904 78,821 88,382
Energy assistance and
renewable energy
charge................. 8,117 8,273 25,562 24,545 33,753 24,545
Other--net.............. 16,467 20,574 54,101 52,759 74,910 68,231
--------- --------- -------- -------- --------- ---------
$ 143,912 $ 178,799 $405,454 $570,365 $ 532,241 $ 755,814
========= ========= ======== ======== ========= =========
</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, replacing the Illinois public utility revenue tax, and
certain municipal utility taxes are recorded as
74
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Concluded
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 $30 million, $160 million and $226 million for
the three months, nine months and twelve months ended September 30, 1999,
respectively. This change in the presentation for such taxes did not have an
effect on results of operations.
See Unicom's Note 21 for additional information regarding Illinois invested
capital taxes.
(19) Lease Obligations. See the first and second paragraphs of Unicom's Note
19 of Notes to Financial Statements.
Future minimum rental payments at September 30, 1999 for operating leases
are estimated to aggregate to $381 million, including $9 million in 1999, $38
million in 2000, $31 million in 2001, $31 million in 2002, $28 million in 2003
and $244 million in 2004-2024.
(20) Joint Plant Ownership. See Unicom's Note 20 of Notes to Financial
Statements.
(21) Commitments and Contingent Liabilities. See Unicom's Note 21 of Notes
to Financial Statements.
75
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Changes in the Electric Utility Industry. See Unicom's "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
subcaption "Changes in the Electric Utility Industry," which is incorporated
herein by this reference, except for EPS information.
Liquidity and Capital Resources. See Unicom's "Management's Discussion and
Analysis of Financial Condition and Results of Operations," subcaption
"Liquidity and Capital Resources--UTILITY OPERATIONS," which is incorporated
herein by this reference, except for EPS information.
Regulation. See Unicom's "Management's Discussion and Analysis of Financial
Condition and Results of Operations," subcaption "Regulation," which is
incorporated herein by this reference.
Results of Operations. See Unicom's "Management's Discussion and Analysis of
Financial Condition and Results of Operations," subcaption "Results of
Operations" (other than the first paragraph thereof), which is incorporated
herein by this reference, except for EPS information.
Forward-Looking Information. See Unicom's "Management's Discussion and
Analysis of Financial Condition and Results of Operations," subcaption
"Forward-Looking Information," which is incorporated herein by this reference,
except for references to Unregulated Operations.
76
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Two pending enforcement issues have been resolved. The first issue was
resolved on July 20, 1999 with ComEd receiving a Severity Level III violation
with no civil penalty. The second issue was resolved on November 3, 1999, with
ComEd receiving a Severity Level II violation, with a proposed civil penalty
of $110,000. ComEd does not plan to contest the penalty. To ComEd's knowledge,
there are no enforcement issues pending or under review by the NRC.
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 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 and in favor of the plaintiff, after an
amended judgement was issued March 11, 1999, totaled approximately $6 million,
including compensatory and punitive damages, interest, and medical monitoring.
The matter is currently on appeal. Oral argument was heard in the Tenth
Circuit Court of Appeals on September 23, 1999. A decision is expected before
the end of the year. A case involving the next group of plaintiffs is set for
trial in federal district court in Denver on October 2, 2000. 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 August 1999, three class action lawsuits were filed against ComEd related
to a series of service interruptions during the summer of 1999. The combined
effect of these events resulted in over 100,000 customers losing service. On
August 12, 1999, service was interrupted to ComEd customers on the near north
and near west side of the City's central business district. While major
commercial customers were affected, all service was restored on the same date.
The class action complaints have been consolidated and seek to recover damages
for personal injuries and property damage, as well as economic loss for these
events. Further, ComEd initiated expedited claim settlements for those with
primarily food spoilage claims. Conditional class certification has been
approved by the Court for the sole purpose of exploring settlement talks. The
lawsuits are pending in the Circuit Court of Cook County where the next status
hearing is scheduled for November 15, 1999. ComEd's management believes
adequate reserves have been established in connection with these cases.
Following the above-referenced series of service interruptions, the ICC
opened a three-phase investigation of the design and reliability of ComEd's
transmission and distribution system. At the conclusion of each phase of the
investigation, the ICC will issue a report that will include specific
recommendations for ComEd and a timetable for executing the recommendations.
The final phase of the investigation is expected to conclude in early 2001.
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,
77
<PAGE>
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. See Note 21 of
Notes to Financial Statements for information regarding costs associated with
investigating and remediating former MGP sites.
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 federal and state
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 Unicom and ComEd's
Annual Reports on Form 10-K for the year ended December 31, 1998 or in these
Quarterly Reports on Form 10-Q for the quarterly period ended September 30,
1999, which could have such an effect.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- -----------------------------------------------------------------
<C> <S>
(4)-1 Credit Agreement dated as of September 22, 1999, among ComEd, as
borrower, the Banks named therein and the other Lenders from time
to time parties thereto, and Citibank, N.A.
+(10)-1 Unicom Corporation Amended and Restated 1999 Long-Term
Performance Unit Award for Executive and Group Level Employees
Payable in 2002 under the Unicom Corporation Long-Term Incentive
Plan
(12) Statement computing Commonwealth Edison Company ratios of
earnings to fixed charges and ratios of earnings to fixed charges
and preferred and preference stock dividend requirements.
(23)-1 Consent of independent public accountants applicable to Unicom
Corporation.
(23)-2 Consent of independent public accountants applicable to
Commonwealth Edison Company.
(27)-1 Financial data schedule of Unicom Corporation.
(27)-2 Financial data schedule of Commonwealth Edison Company.
</TABLE>
Documents indicated by a plus sign (+) identify management contracts or
compensatory plans or arrangements.
(b) Reports on Form 8-K
A Current Report on Form 8-K dated July 1, 1999 was filed by Unicom and
ComEd announcing that the Company's second quarter earning is expected to
meet or exceed analyst earning expectations. The Company further indicated
its expected earnings goals for year 1999 and 2000.
A Current Report on Form 8-K dated July 1, 1999 was filed by Unicom and
ComEd announcing Unicom Destinations and Directions 1999, the new strategic
road map for the Company's business operations.
78
<PAGE>
A Current Report on Form 8-K dated September 15, 1999 was filed by Unicom
and ComEd announcing a five-point plan to improve the reliability of its
transmission and distribution system over the next two years.
A Current Report on Form 8-K dated September 23, 1999 was filed by Unicom
and ComEd announcing a plan of merger between Unicom Corporation and PECO
Energy Company.
A Current Report on Form 8-K dated September 27, 1999 was filed by Unicom
and ComEd disclosing the presentation material used in an investor meeting
relating to the merger announcement.
A Current Report on Form 8-K dated September 29, 1999 was filed by Unicom
and ComEd announcing the Merger Agreement and the Amendment to the Rights
Agreement.
79
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on the 15th day of November, 1999. The
signature for each undersigned company shall be deemed to relate only to
matters having reference to such company and its subsidiaries thereof.
Unicom Corporation
Registrant
Robert E. Berdelle
By __________________________________
Robert E. Berdelle
Vice President and Comptroller
(Chief accounting officer and
officer duly authorized to sign on
behalf of the registrant)
Commonwealth Edison Company
Registrant
Robert E. Berdelle
By __________________________________
Robert E. Berdelle
Vice President and Comptroller
(Chief accounting officer and
officer duly authorized to sign on
behalf of the registrant)
80
<PAGE>
Exhibit (4)-1
Commonwealth Edison Company
Form 10-Q file No. 1-1839
________________________________________________________________________________
$500,000,000
CREDIT AGREEMENT
Dated as of September 22, 1999
Among
COMMONWEALTH EDISON COMPANY
as Borrower
and
THE BANKS NAMED HEREIN
as Banks
and
CITIBANK, N.A.
as Administrative Agent
_______________________________________________________________________________
<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.............................. 14
Section 1.03. Computations of Outstandings............................. 14
Section 1.04. Accounting Terms......................................... 14
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........................................... 16
Section 2.04. Fees..................................................... 20
Section 2.05. Reduction of the Commitments............................. 20
Section 2.06. Repayment of A Advances.................................. 20
Section 2.07. Interest on A Advances................................... 20
Section 2.08. Additional Interest on Eurodollar Rate Advances.......... 21
Section 2.09. Interest Rate Determination.............................. 21
Section 2.10. Voluntary Conversion of A Advances....................... 23
Section 2.11. Optional Prepayments of A Advances....................... 23
Section 2.12. Mandatory Prepayments.................................... 24
Section 2.13. Increased Costs.......................................... 24
Section 2.14. Illegality............................................... 25
Section 2.15. Payments and Computations................................ 26
Section 2.16. Taxes.................................................... 27
Section 2.17. Sharing of Payments, Etc................................. 28
Section 2.18. Extension of Termination Date............................ 29
ARTICLE III
CONDITIONS OF LENDING
Section 3.01. Conditions Precedent to Closing.......................... 30
Section 3.02. Conditions Precedent to Each A Borrowing................. 32
Section 3.03. Conditions Precedent to Each B Borrowing................. 32
Section 3.04. Conditions Precedent to Each Extension of the
Termination Date......................................... 33
Section 3.05. Reliance on Certificates................................. 34
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01. Representations and Warranties of the Borrower........... 34
ARTICLE V
COVENANTS OF THE BORROWER
Section 5.01. Affirmative Covenants.................................... 36
Section 5.02. Negative Covenants....................................... 40
ARTICLE VI
EVENTS OF DEFAULT
Section 6.01. Events of Default........................................ 43
ARTICLE VII
THE ADMINISTRATIVE AGENT
Section 7.01. Authorization and Action................................. 45
Section 7.02. Administrative Agent's Reliance, Etc..................... 46
Section 7.03. Citibank, N.A. and Affiliates............................ 46
Section 7.04. Lender Credit Decision................................... 46
Section 7.05. Indemnification.......................................... 47
Section 7.06. Successor Administrative Agent........................... 47
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Amendments, Etc.......................................... 48
Section 8.02. Notices, Etc............................................. 48
Section 8.03. No Waiver; Remedies...................................... 49
Section 8.04. Costs, Expenses, Taxes and Indemnification............... 49
Section 8.05. Right of Set-off......................................... 50
Section 8.06. Binding Effect........................................... 51
Section 8.07. Assignments and Participations........................... 51
Section 8.08. Confidentiality.......................................... 54
Section 8.09. Waiver of Jury Trial..................................... 54
Section 8.10. Consent.................................................. 55
Section 8.11. Governing Law............................................ 55
Section 8.12. Relation of the Parties; No Beneficiary.................. 55
Section 8.13. Execution in Counterparts................................ 55
</TABLE>
<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>
CREDIT AGREEMENT
Dated as of September 22, 1999
THIS 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. ("Citibank"), 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.
"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
<PAGE>
2
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 (a) the higher of: (i) 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 (ii) 1/2 of one percent per annum above the
Federal Funds Rate and (b) for the period from December 1, 1999 through
(and including) January 31, 2000, a rate equal to 2% 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
Moody's and and and and Level 4 or
A3 or better Baa1 Baa2 Baa3 unrated
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Basis Points Per Annum
-------------------------------------------------------------------------------
Eurodollar Rate 27.50 37.50 60.00 70.00 105.00
Advance
-------------------------------------------------------------------------------
Base Rate Advance 0 0 0 0 100.00
-------------------------------------------------------------------------------
</TABLE>
The Applicable Margin shall increase (a)(i) by 12.50 basis points for any
Reference Rating designated as Level 1, Level 2, Level 3 or Level 4 and
(ii) by 25.00 basis points for any Reference Rating designated as Level 5,
in each case, at any time that more than 25% of the Commitments are
utilized, and (b) with respect to any Base Rate Advance, by 50.00 basis
points at any time any such Advance is outstanding during the period from
December 1, 1999 to (and including) December 31, 1999.
<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; provided,
however, that the proposed merger or consolidation of Unicom Corporation
into and with New Holdco. pursuant to the terms and conditions of the
Agreement and Plan of Exchange and Merger dated as of September 22, 1999
among Unicom Corporation, New Holdco. and PECO Energy Company shall not
constitute a Change of Control.
"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 September 22, 1999, 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
<PAGE>
5
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 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
<PAGE>
6
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.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings
issued thereunder.
<PAGE>
7
"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 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
<PAGE>
8
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 Facilities" means (a) the 364-Day Credit Agreement, dated as
of October 8, 1998 and (b) the 5-Year Credit Agreement, dated as of October
8, 1998, each 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 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 10.00 12.50 15.00 17.50 20.00
----------------------------------------------------------------------------
</TABLE>
<PAGE>
9
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.
"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 or 2 or 3 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) the Borrower may not select any Interest Period that begins on or
prior to December 31, 1999 and that ends on or after January 1, 2000;
<PAGE>
10
(iii) Interest Periods commencing on the same date for A Advances
comprising part of the same A Borrowing shall be of the same duration; and
(iv) 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 Syndication
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:
(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.
<PAGE>
11
"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
(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
<PAGE>
12
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.
"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.
"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.
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13
"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 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.
"Syndication Letter" means that certain Syndication Letter, dated the
date hereof, among the Borrower, Salomon Smith Barney Inc. and Citibank, in
form and substance satisfactory to the Agent.
"Termination Date" means the earlier to occur of (i) January 31, 2000
(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
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14
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 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.
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15
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 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.
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16
(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 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
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17
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 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
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18
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.
(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
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19
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 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.
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20
(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, 1999, 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 Syndication 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.
(c) So long as Citibank is the sole Lender hereunder, Citibank may, upon
notice to the Borrower, terminate its Commitment at any time under the
conditions set forth in the Syndication Letter.
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
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21
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 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 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.
(a) 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).
(b) If no Reference Bank furnishes 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:
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(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.
(c) 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 the Borrower and the Lenders that the circumstances
causing such suspension no longer exist.
(d) 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
<PAGE>
23
Rate Advances shall automatically Convert into Base Rate Advances on the last
day of the then existing Interest Period therefor.
(e) 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.
(f) 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
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24
$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.
(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
<PAGE>
25
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 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
<PAGE>
26
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 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
<PAGE>
27
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 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
<PAGE>
28
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. 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
<PAGE>
29
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 30 days but
not more than 20 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 15 days but not more than 20 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 10 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 10 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
<PAGE>
30
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.
(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 (i) 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 (ii) 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.
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 September 22, 1999 (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;
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31
(ii) the A Notes payable to the order of the Lenders, respectively,
duly completed and executed by the Borrower;
(iii) the Syndication Letter, duly executed by Citibank, Salomon Smith
Barney Inc. and the Borrower;
(iv) 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;
(v) 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;
(vi) 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;
(vii) 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;
(viii) favorable opinions of:
(A) Sidley & Austin, counsel for the Borrower, in
substantially the form of Exhibit 3.01(a)(viii)-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)(viii)-2 and as to such
other matters as the Majority Lenders, through the Administrative
Agent, may reasonably request; and
(ix) 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
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32
(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 the
Syndication Letter and 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 Facilities, and the commitments of all the lenders thereunder shall
have been terminated.
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 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
<PAGE>
33
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:
(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
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34
(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 Energy Regulatory Commission to the Borrower dated
December 15, 1998, which authorization is in full force and effect and not the
subject of any pending or threatened appeal, stay or other challenge. 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.
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35
(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, 1999 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, 1999, 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 extent the Borrower is contesting in good
faith an assertion of liability based on such returns, has
<PAGE>
36
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:
(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,
<PAGE>
37
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 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
<PAGE>
38
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;
(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
<PAGE>
39
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;
(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 and 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
<PAGE>
40
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 as a commercial paper backstop and 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 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:
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41
(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 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;
<PAGE>
42
(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);
(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
<PAGE>
43
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
(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,
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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 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
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45
(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.
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
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46
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 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.
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47
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 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 or any State
thereof and 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.
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48
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 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,
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 Bank One 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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49
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 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,
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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 case may be, gross negligence or willful misconduct, but no
Lender shall be liable for the conduct
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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
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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 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.
<PAGE>
53
(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 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
<PAGE>
54
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 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
<PAGE>
55
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. Each of 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_______________________________
Name:
Title:
<PAGE>
S-2
Administrative Agent
--------------------
CITIBANK, N.A.,
as Administrative Agent and as Bank
By_______________________________
Name:
Title:
<PAGE>
SCHEDULE I
COMMONWEALTH EDISON COMPANY
Credit Agreement, dated as of September 22, 1999, 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. $500,000,000 Two Pennsway, Ste. 200, Same as Domestic Lending
New Castle, Delaware 19720 Office
Attention: Bank Loan Syndications
</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>
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_________________________
Name:
Title:
<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_________________________
Name:
Title:
<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_________________________
Name:
Title:
<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_________________________
Name:
Title:
<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_________________________
Name:
Title:
<PAGE>
A NOTE
U.S. $500,000,000 September 22, 1999
FOR VALUE RECEIVED, the undersigned, COMMONWEALTH EDISON COMPANY, an
Illinois corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of
CITIBANK, N.A. (the "Lender") for the account of its Applicable Lending Office
(as defined in the Credit Agreement referred to below) the principal sum of
U.S. $500,000,000 or, if less, the aggregate principal amount of the A Advances
(as defined below) made by the Lender to the Borrower pursuant to the Credit
Agreement outstanding on the Termination Date (as defined in the Credit
Agreement).
The Borrower promises to pay interest on the unpaid principal amount of
each A Advance from the date of such A Advance until such principal amount is
paid in full, at such interest rates, and payable at such times, as are
specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Citibank, N.A., as Administrative Agent, at Two Pennsway,
Suite 200, New Castle, Delaware 19720, Attention: Bank Loan Syndications, in
same day funds. Each A Advance made by the Lender to the Borrower pursuant to
the Credit Agreement, and all payments made on account of principal thereof,
shall be recorded by the Lender and, prior to any transfer hereof, endorsed on
the grid attached hereto which is part of the Promissory Note, provided that the
failure to so record any A Advance or any payment thereof shall not affect the
payment obligations of the Borrower hereunder or under the Credit Agreement.
This promissory note is one of the A Notes referred to in, and is entitled
to the benefits of, the Credit Agreement, dated as of September 22, 1999 (as
amended, modified or supplemented from time to time, the "Credit Agreement"),
among the Borrower, the Lender and certain other lenders parties thereto, and
Citibank, N.A., as Administrative Agent for the Lender and such other lenders.
The Credit Agreement, among other things, (i) provides for the making of
advances (the "A Advances") by the Lender to the Borrower from time to time in
an aggregate amount not to exceed at any time outstanding the U.S. dollar amount
first above mentioned, the indebtedness of the Borrower resulting from each such
A Advance being evidenced by this promissory note, and (ii) contains provisions
for acceleration of the maturity hereof upon the happening of certain stated
events and also for prepayments on account of principal hereof prior to the
maturity hereof upon the terms and conditions therein specified.
<PAGE>
The Borrower hereby waives presentment, demand, protest and notice of any
kind. No failure to exercise, and no delay in exercising, any rights hereunder
on the part of the holder hereof shall operate as a waiver of such rights.
This Promissory Note shall be governed by, and construed in accordance
with, the laws of the State of New York. The Borrower (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 this promissory note, (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.
COMMONWEALTH EDISON COMPANY
By _____________________________
Name:
Title:
2
<PAGE>
ADVANCES, MATURITIES, AND PAYMENTS OF PRINCIPAL
- -------------------------------------------------------------------------------
Amount of
Maturity Principal Unpaid
Amount of of Paid or Principal Notation
Date Advance Advance Prepaid Balance Made By
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
Exhibit (10)-1
Unicom Corporation and Commonwealth Edison Company
Form 10-Q File Nos. 1-11375 and 1-1839
Unicom Corporation
1999 Annual Incentive Award for Management Employees
Under the Unicom Corporation Long-Term Incentive Plan
Unicom Corporation, an Illinois corporation (the "Company"), hereby
grants to each Employee (as hereinafter defined), as of January 1, 1999 or, if
later, the date of the commencement of such Employee's employment with an
Employer (as hereinafter defined) (the later of such dates being referred to
herein as the "Grant Date"), in accordance with the provisions of the Unicom
Corporation Long-Term Incentive Plan (as in effect from time to time, the
"Plan"), an incentive award (each, an "Award") in the amount and upon and
subject to the restrictions, terms and conditions set forth below. Capitalized
terms not defined herein shall have the meanings specified in the Plan.
1. Recipients of Awards. Subject in all respects to the provisions
hereof, recipients of Awards hereunder shall consist of:
(a) each employee of Commonwealth Edison Company ("ComEd") (other
than (i) the Chairman and Chief Executive Officer, and (ii) any temporary
employee) who is on the management or executive payroll during calendar
year 1999, provided such employee is placed on such payroll prior to
November 1, 1999; and
(b) each employee of any other Subsidiary/1/ selected from time to
time by the Committee/2/ to receive an Award hereunder.
Each such employee is referred to herein as an "Employee," and the term
"Employer" shall mean the employer of an Employee.
2. Award Amount.
- -------------------
/1/A "Subsidiary" is defined in the Plan as being 51% or more owned.
/2/"Committee" means the Corporate Governance and Compensation Committee of the
Board of Directors.
Page 1 of 7
<PAGE>
(a) The total amount payable to each Employee in connection with an
Award (the "Total Award Amount") shall be determined in accordance with the
following formula:
Individual
Total Employee's Payout Performance Performance
Award = Salary X Opportunity X Payout X Payout
Amount Percentage Percentage Percentage
"Employee's Salary" shall mean:
(i) if an Employee's position is in salary grade level 5 or above,
or equivalent, and the position or the Employee is classified as
working standard hours of 40 hours per week, the sum of (a) the
product of an Employee's monthly scheduled rate of pay,
determined as of the close of November 1, 1999 (or such earlier
date during 1999 in which the Employee's employment terminates
or the Employee ceases to be in a position in salary grade level
5 or above, or equivalent), multiplied by 12, plus (b) the
quarterly income from such Employee's Deferred Compensation
Units, if any (whether such Units were granted by the Company or
by ComEd), multiplied by 4; and
(ii) if an Employee's position is in salary grade level 5 or above,
or equivalent, and the position or the Employee is not
classified as working standard hours of 40 hours per week, the
sum of (a) the product of an Employee's hourly scheduled rate of
pay, determined as of the close of November 1, 1999 (or such
earlier date during 1999 in which the Employee's employment
terminates or the Employee ceases to be in a position in salary
grade level 5 or above, or equivalent), multiplied by 2080, plus
(b) the quarterly income from such Employee's Deferred
Compensation Units, if any (whether such Units were granted by
the Company or by ComEd), multiplied by 4; and
(iii) if an Employee's position is in salary grade level entry through
4, or equivalent, the sum of such payroll earnings as have been
determined by the Plan Administrator to be applicable for
purposes of an Award hereunder.
Page 2 of 7
<PAGE>
"Payout Opportunity Percentage" shall mean the percentage indicated on
the following table, based upon grade level and level of achievement of the
applicable goal:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Threshold Payout Target Payout Maximum Payout
Grade Level Percentage Percentage Percentage
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Rated - Grades Entry - 9 3.75 7.5 15.0
- ----------------------------------------------------------------------------------
Rated - Grades 10 -11 6.25 12.5 25.0
- ----------------------------------------------------------------------------------
Group -- Grade 12 10.0 20.0 40.0
- ----------------------------------------------------------------------------------
Group -- Grades 13 - 14 12.5 25.0 50.0
- ----------------------------------------------------------------------------------
Executive -- Grades 15 - 17 15.0 30.0 60.0
- ----------------------------------------------------------------------------------
Executive -- Grade 18 20.0 40.0 80.0
- ----------------------------------------------------------------------------------
Executive -- Grade 19 22.5 45.0 90.0
- ----------------------------------------------------------------------------------
Executive -- Grade 20 25.0 50.0 100.0
- ----------------------------------------------------------------------------------
Executive -- Grade 21 27.5 55.0 110.0
- ----------------------------------------------------------------------------------
Executive -- Grade 23 35.0 70.0 140.0
- ----------------------------------------------------------------------------------
</TABLE>
Percentage deviation from the Target Payout Percentage shall be used in
determining the applicable Payout Opportunity Percentage for goal
achievement between zero and the Maximum Payout Percentage level. With
respect to any Employee described in Section 1(b), the Payout Opportunity
Percentage shall mean such percentage(s) as may be established by the
Committee at the time of such Employee's selection by the Committee to
receive an Award hereunder.
"Performance Payout Percentage" shall mean for each Employee, the sum
of the weighted payout percentages for each assigned goal, as determined by
the Committee, based on the relative achievement of such goals.
"Individual Performance Payout Percentage" shall mean (i) in the case
of an Employee who is rated as performing in the "A" category, 120%, 115%,
or 110%, as determined by the Employee's supervisor, department head and/or
business unit leader, (ii) in the case of an Employee who is rated as
having performed in the "B" category," 100%, and (iii) in the case of an
Employee who is rated as performing in the "C" category, 0%.
The Total Award Amount determined for any Employee shall be subject to
adjustment as provided in Sections 3, 4, and 5 (as so adjusted, the
"Adjusted Total Award Amount").
(b) Subject to Section 7, the Adjusted Total Award Amount for any
Employee shall be paid (i) in the case of an Employee whose position is
Page 3 of 7
<PAGE>
in salary grade level entry to 11, or equivalent, 100% in cash after the
application of Section 9.2, and (ii) in the case of all other Employees,
25% in shares of Common Stock (the amount payable in shares of Common Stock
being referred to herein as the "Stock Payment Amount") and the remainder
in cash, after the application of Section 9.2.
3. Reduction of Total Award Amount in Certain Instances.
3.1 Partial Year of Employment. In the event that:
(a) during 1999, an Employee (i) is first placed on the management or
executive payroll after January 1st and prior to November 1st, (ii) is on a
voluntary leave of absence or long-term disability, (iii) retires under the
pension plan of any Employer, or (iv) dies; or
(b) an Employee's employment with the Employers is terminated during
1999 as a result of (i) the sale, permanent closure or other disposition of
any generation facility, (ii) the sale or other disposition of any business
unit or functional group (or portion thereof) that includes such Employee,
(iii) the Employer's decision to have a third party provide the services
provided by the functional group that includes such Employee; or
(c) an Employee accepts severance pay under a voluntary separation
plan or is entitled to payment under any other severance plan or
arrangement that provides for an Award,
then the Total Award Amount shall be determined as follows:
(i) with respect to an Employee whose position is in salary grade level
5 or above, or equivalent, the Total Award Amount will be prorated by
multiplying it by a fraction, the numerator of which is the number of
days during 1999 the Employee was employed by an Employer (or
Employers) in a position in salary grade level 5 or above, or
equivalent, and the denominator of which is 365; and
(ii) with respect to an Employee whose position is in salary grade level
entry through 4, or equivalent, the Total Award Amount will be based
on the sum of such payroll earnings as have been determined by the
Plan Administrator to be applicable for purposes of an Award
hereunder, for the period during 1999 in which the Employee was
Page 4 of 7
<PAGE>
employed by an Employer (or Employers) in a position in salary grade
level entry through 4, or equivalent.
3.2 Other Incentive Plans. In the event that during 1999, an
Employee participates in or becomes eligible to participate in, any sales
or group incentive plan that precludes receipt of an Award hereunder (such
incentive plans collectively referred to herein as "Other Incentive
Plans"), then the Total Award Amount shall be determined as follows:
(a) with respect to an Employee whose position is in salary grade
level 5 or above, or equivalent, the Total Award Amount will be prorated
(after any adjustment required by Section 3.1) by multiplying it by a
fraction, the numerator of which is the total number of days during 1999
that the Employee was employed by an Employer (or Employers) in a position
in salary grade level 5 or above, or equivalent, and was not a participant
in, or eligible to participate in, an Other Incentive Plan, and the
denominator of which is 365; and
(b) with respect to an Employee whose position is in salary grade
level entry through 4, or equivalent, the Total Award Amount will be based
on the sum of such payroll earnings as have been determined by the Plan
Administrator to be applicable for purposes of an Award hereunder (after
any adjustment required by Section 3.1), for the period during 1999 in
which the Employee was employed by an Employer (or Employers) in a position
in salary grade level entry through 4, or equivalent, and was not a
participant in, or eligible to participate in, an Other Incentive Plan.
4. Part-Time Employees. For an Employee who is a part-time Employee
(as determined in accordance with his or her Employer's personnel practices),
the Total Award Amount shall be determined as follows:
(a) with respect to an Employee whose position is in salary grade
level 5 or above, or equivalent, the Total Award Amount will be prorated by
multiplying it by a fraction, the numerator of which is the number of hours
the Employee was scheduled to work for an Employer (or Employers) during
1999 and the denominator of which is 2080; and
(b) with respect to an Employee whose position is in salary grade
level entry through 4, or equivalent, the Total Award Amount will be based
on the sum of such payroll earnings which have been determined by the Plan
Administrator to be applicable for purposes of an Award hereunder (after
any adjustment required by Section 3.1), for the period during 1999 in
Page 5 of 7
<PAGE>
which the Employee was employed by an Employer (or Employers) in a position
in salary grade level entry through 4, or equivalent.
This Section 4 shall be applied prior to the application of Section 3.1 for any
Employee who is described therein.
5. Transfer of Employee from One Business Unit or Production Facility
to Another Business Unit or Production Facility. In the event that an Employee
is transferred from one business unit to another business unit or production
facility prior to November 1, 1999, the Total Award Amount for such Employee
will equal the sum of the Award amounts determined on a prorated basis with
respect to each business unit. With respect to an Employee who transfers from
one business unit to another on or after November 1, 1999, the Award amount for
the remainder of the year will be determined entirely based upon the goals of
the business unit from which the Employee transferred.
6. Settlement of Awards. Payment of the Adjusted Total Award Amount,
if any, will be made to an Employee as soon as practicable after the Company's
audited financial results are available for calendar year 1999. The number of
shares of Common Stock payable as part of any Stock Payment Amount to an
Employee shall be computed by dividing the Stock Payment Amount by the value of
one share of Common Stock; provided, however, that shares that may become
payable to an Employee hereunder shall not be issued if the aggregate number of
shares payable to such Employee does not exceed 25 (and, in such case, cash
shall be paid in an amount equal to the value of the shares that would have been
issued but for this proviso). Fractional shares of Common Stock that may become
payable to an Employee hereunder shall be awarded if the shares awarded to such
Employee exceed 25 and are held in non-certificated, book-entry or electronic
form; otherwise, any such fractional shares shall be paid in cash. For purposes
of this Section, the value of a share of Common Stock shall be the average of
the closing prices of a share of Common Stock as reported in The Wall Street
Journal as New York Stock Exchange Composite Transactions during the last
calendar quarter of 1999 (appropriately adjusted for any stock-split, stock
dividend or other similar event).
7. Termination of Employment. An Employee whose employment with all
Employers terminates on or prior to December 31, 1999 for any reason other than
those described in Section 3.1 shall not be entitled to payment of any Award
hereunder.
8. Rights as a Stockholder. No Employee shall have any rights as a
stockholder of the Company with respect to any shares of Common Stock that
Page 6 of 7
<PAGE>
may be payable hereunder unless and until such shares shall have been issued to
such Employee or otherwise credited to an account for the benefit of such
Employee.
9. Additional Terms and Conditions of Award.
9.1. Non-Transferability of Award. In accordance with Section 13.5
of the Plan, except as otherwise specifically provided by the Plan or by law, no
Award may be transferable in any manner other than by will or the laws of
descent and distribution, and any attempt to transfer any such Award shall be
void; provided, however, that the foregoing shall not restrict the ability of
any Employee to transfer any cash or Common Stock received as part of the
payment of the Adjusted Total Award Amount. In accordance with Section 13.5 of
the Plan, Awards shall not in any manner be subject to the debts, contracts,
liabilities, engagements or torts of any person who shall be entitled to such
Award nor shall they be subject to attachment or legal process for or against
such person.
9.2. Withholding Taxes. As a condition precedent to the delivery to
the Employee of cash or Common Stock hereunder and in accordance with Section
13.4 of the Plan, the Company may deduct from any amount (including any payment
of the Adjusted Total Award Amount) payable then or thereafter payable by the
Company to the Employee, or may request the Employee to pay to the Company in
cash, such amount as the Company may be required, under all applicable federal,
state, local or other laws or regulations, to withhold and pay over with respect
to the Award.
9.3. Compliance with Applicable Law. Each Award is subject to the
condition that if the listing, registration or qualification of the shares of
Common Stock 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 such shares hereunder, such shares may not be delivered,
in whole or in part, unless such listing, registration, qualification, consent
or approval shall have been effected or obtained.
9.4. Award Subject to the Plan. This Award is subject to the
provisions of the Plan, and shall be interpreted in accordance therewith.
Page 7 of 7
<PAGE>
Exhibit (12)
Commonwealth Edison Company
Form 10-Q 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 September 30, December 31,
No. 1999 1998
- ---- ------------- ------------
<S> <C> <C>
1 Net income before extraordinary items $ 670,862 $ 594,206
---------- -----------
2 Net provisions for income taxes and investment tax credits deferred
3 charged to-
4 Operations $ 364,353 $ 355,667
5 Other income (7,355) (4,741)
---------- -----------
6 $ 356,998 $ 350,926
---------- -----------
7 Fixed charges-
8 Interest on debt $ 554,977 $ 478,404
9 Estimated interest component of nuclear fuel and
10 other lease payments, rentals and other interest 66,384 74,568
11 Amortization of debt discount, premium and expense 9,512 10,369
12 Company-obligated mandatorily redeemable preferred securities
13 dividend requirements of subsidiary trusts holding solely the
14 Company's subordinated debt securities 29,710 29,710
---------- -----------
15 $ 660,583 $ 593,051
---------- -----------
16 Preferred and preference stock dividend requirements-
17 Provisions for preferred and preference stock dividends $ 33,991 $ 56,884
18 Taxes on income required to meet provisions for
19 preferred and preference stock dividends 22,248 37,232
---------- -----------
20 $ 56,239 $ 94,116
---------- -----------
21 Fixed charges and preferred and preference stock
22 dividend requirements $ 716,822 $ 687,167
---------- -----------
23 Earnings for fixed charges and preferred and preference stock
24 dividend requirements $1,688,443 $1,538,183
---------- -----------
25 Ratio of earnings to fixed charges (line 24 divided by line 15) 2.56 2.59
==== ====
26 Ratio of earnings to fixed charges and preferred and preference 2.36 2.24
27 stock dividend requirements (line 24 divided by line 22) ==== ====
</TABLE>
<PAGE>
Exhibit (23)-1
Unicom Corporation
Form 10-Q File No. 1-11375
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation
by reference of our report in this Form 10-Q for the quarterly period ended
September 30, 1999, 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 Statements
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's Management Deferred
Compensation Plan).
Arthur Andersen LLP
Chicago, Illinois
November 15, 1999
<PAGE>
Exhibit (23)-2
Commonwealth Edison Company
Form 10-Q File No. 1-1839
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation
by reference of our report in this Form 10-Q for the quarterly period ended
September 30, 1999, into Commonwealth Edison Company's (the Company) 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).
Arthur Andersen LLP
Chicago, Illinois
November 15, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND> This schedule contains summary financial information extracted from
the Consolidated Balance Sheet and Statement of Consolidated Capitalization as
of September 30, 1999 and the related Statement of Consolidated Operations,
Retained Earnings and Cash Flows for the nine months ended September 30, 1999
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000918040
<NAME> Unicom Corporation
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 13,615,698
<OTHER-PROPERTY-AND-INVEST> 2,692,943
<TOTAL-CURRENT-ASSETS> 3,202,980
<TOTAL-DEFERRED-CHARGES> 0<F4>
<OTHER-ASSETS> 4,586,683
<TOTAL-ASSETS> 24,098,304
<COMMON> 4,958,853
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 347,402
<TOTAL-COMMON-STOCKHOLDERS-EQ> 5,296,088<F2>
0<F3>
1,829<F3>
<LONG-TERM-DEBT-NET> 7,195,732<F4>
<SHORT-TERM-NOTES> 0<F1>
<LONG-TERM-NOTES-PAYABLE> 0<F4>
<COMMERCIAL-PAPER-OBLIGATIONS> 0<F1>
<LONG-TERM-DEBT-CURRENT-PORT> 1,064,841
69,475<F3>
<CAPITAL-LEASE-OBLIGATIONS> 213,736
<LEASES-CURRENT> 158,290
<OTHER-ITEMS-CAPITAL-AND-LIAB> 10,098,313<F5>
<TOT-CAPITALIZATION-AND-LIAB> 24,098,304
<GROSS-OPERATING-REVENUE> 5,307,972
<INCOME-TAX-EXPENSE> 286,250<F6>
<OTHER-OPERATING-EXPENSES> 4,111,121
<TOTAL-OPERATING-EXPENSES> 4,395,323
<OPERATING-INCOME-LOSS> 912,649
<OTHER-INCOME-NET> (15,679)<F6><F7><F8>
<INCOME-BEFORE-INTEREST-EXPEN> 894,922
<TOTAL-INTEREST-EXPENSE> 426,135
<NET-INCOME> 468,787
0<F7>
<EARNINGS-AVAILABLE-FOR-COMM> 468,787
<COMMON-STOCK-DIVIDENDS> 260,760
<TOTAL-INTEREST-ON-BONDS> 0<F9>
<CASH-FLOW-OPERATIONS> 1,320,463
<EPS-BASIC> 2.16
<EPS-DILUTED> 2.15
<FN>
<F1> This item is not disclosed as a separate line item on the Consolidated
Balance Sheet.
<F2> Includes deductions of $72 thousand for preference stock expense of ComEd
and $10,095 thousand for treasury stock.
<F3> Preferred and preference stocks of ComEd.
<F4> $3,846,937 thousand of notes, guaranteed senior notes and transitional
trust notes are included in LONG-TERM-DEBT-NET.
<F5> Includes $350,000 thousand of ComEd-obligated mandatorily redeemable
preferred securities of subsidiary trusts holding solely ComEd's
subordinated debt securities.
<F6> Income tax expense of $2,048 thousand related to nonoperating activities
is included in INCOME-TAX-EXPENSE.
<F7> A $20,170 thousand provision for preferred and preference stock dividends
of ComEd and $22,283 thousand provision for preferred securities dividends
of subsidiary trusts holding solely ComEd's subordinated debt securities
are included in OTHER-INCOME-NET.
<F8> Includes an extraordinary loss of $27,579 thousand related to the early
redemption of long-term debt during the first nine months of 1999.
<F9> This item is not disclosed as a separate line item on the Statement of
Consolidated Operations.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND> This schedule contains summary financial information extracted from
the Consolidated Balance Sheet and Statement of Consolidated Capitalization as
of September 30, 1999 and the related Statement of Consolidated Operations,
Retained Earnings and Cash Flow for the nine months ended September 30, 1999
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000022606
<NAME> Commonwealth Edison Company
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 13,615,698
<OTHER-PROPERTY-AND-INVEST> 2,454,837
<TOTAL-CURRENT-ASSETS> 3,126,868
<TOTAL-DEFERRED-CHARGES> 0<F1>
<OTHER-ASSETS> 4,564,775
<TOTAL-ASSETS> 23,762,178
<COMMON> 2,677,979
<CAPITAL-SURPLUS-PAID-IN> 2,207,264
<RETAINED-EARNINGS> 408,520
<TOTAL-COMMON-STOCKHOLDERS-EQ> 5,270,861<F2>
0
18,820
<LONG-TERM-DEBT-NET> 7,049,748<F3>
<SHORT-TERM-NOTES> 0<F1>
<LONG-TERM-NOTES-PAYABLE> 0<F3>
<COMMERCIAL-PAPER-OBLIGATIONS> 0<F1>
<LONG-TERM-DEBT-CURRENT-PORT> 876,387
69,475
<CAPITAL-LEASE-OBLIGATIONS> 213,725
<LEASES-CURRENT> 158,291
<OTHER-ITEMS-CAPITAL-AND-LIAB> 10,104,871<F4>
<TOT-CAPITALIZATION-AND-LIAB> 23,762,178
<GROSS-OPERATING-REVENUE> 5,271,794
<INCOME-TAX-EXPENSE> 302,684<F5>
<OTHER-OPERATING-EXPENSES> 4,040,785
<TOTAL-OPERATING-EXPENSES> 4,341,421
<OPERATING-INCOME-LOSS> 930,373
<OTHER-INCOME-NET> (3,066)<F5><F6><F7>
<INCOME-BEFORE-INTEREST-EXPEN> 925,259
<TOTAL-INTEREST-EXPENSE> 413,824
<NET-INCOME> 511,435
20,170
<EARNINGS-AVAILABLE-FOR-COMM> 491,265
<COMMON-STOCK-DIVIDENDS> 256,695
<TOTAL-INTEREST-ON-BONDS> 0<F8>
<CASH-FLOW-OPERATIONS> 1,432,210
<EPS-BASIC> 0<F8>
<EPS-DILUTED> 0<F8>
<FN>
<F1> This item is not disclosed as a separate line item on the Consolidated
Balance Sheet.
<F2> Includes a deduction of $10,365 thousand for treasury stock.
<F3> $3,700,953 thousand of notes, guaranteed senior notes and transitional
trust notes are included in LONG-TERM-DEBT-NET.
<F4> Includes $350,000 thousand of Company-obligated mandatorily redeemable
preferred securities of subsidiary trusts holding solely the Company's
subordinated debt securities.
<F5> Income tax expense of $2,048 thousand related to nonoperating activities
is included in INCOME-TAX-EXPENSE.
<F6> Includes $22,283 thousand of provision for preferred securities dividends
of subsidiary trusts holding solely the Company's subordinated debt
securities.
<F7> Includes an extraordinary loss of $27,579 thousand related to the early
redemption of long-term debt during the first nine months of 1999.
<F8> This item is not disclosed as a separate line item on the Statement of
Consolidated Operations.
</FN>
</TABLE>
