<PAGE>
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- -------------------------------------------------------------------------------
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark
one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<CAPTION>
Commission Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification No.
----------- ----------------------------------- ------------------
<C> <S> <C>
1-11375 UNICOM CORPORATION 36-3961038
(an Illinois corporation)
37th Floor, 10 South Dearborn Street
Post Office Box A-3005
Chicago, Illinois 60690-3005
312/394-7399
1-1839 COMMONWEALTH EDISON COMPANY 36-0938600
(an Illinois corporation)
37th Floor, 10 South Dearborn Street
Post Office Box 767
Chicago, Illinois 60690-0767
312/394-4321
</TABLE>
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange
- --------------------------- on Which Registered
-------------------------
Unicom Corporation
Common Stock, without par value New York, Chicago and Pacific
Commonwealth Edison Company
(Listed on inside cover)
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) have been subject to such filing
requirements for the past 90 days.
Yes X . No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrants' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
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Commonwealth Edison Company Securities Registered Pursuant to Section 12(b) of
the Act:
Name of Each Exchange
Title of Each Class on Which Registered
- --------------------------------------- ---------------------------
Sinking Fund Debentures:
2 7/8%, due April 1, 2001 New York
Company-Obligated Mandatorily
Redeemable Preferred Securities of
Subsidiary Trust Holding Solely the
Company's 8.48% Subordinated Debt
Securities
New York
The estimated aggregate market value of Unicom Corporation's 184,283,802
shares of outstanding Common Stock, without par value, was approximately
$6,968 million as of February 29, 2000. Approximately 99.9% of Unicom
Corporation's voting stock was owned by non-affiliates as of that date.
The estimated aggregate market value of Commonwealth Edison Company's
outstanding $1.425 Convertible Preferred Stock, Cumulative Preference Stock
and Company-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts Holding Solely the Company's Subordinated Debt Securities
was approximately $411 million as of February 29, 2000. Unicom Corporation
held in excess of 99.99% of the 180,854,004 shares of outstanding Common
Stock, $12.50 par value, of Commonwealth Edison Company as of that date.
Documents Incorporated by Reference:
Portions of Unicom Corporation's definitive Proxy Statement to be filed
prior to April 30, 2000, relating to its Annual Meeting of shareholders, are
incorporated by reference into Part III of the Unicom Corporation Annual
Report on Form 10-K.
Portions of Commonwealth Edison Company's Current Report on Form 8-K dated
March 30, 2000 are incorporated by reference into Parts I, II and IV of the
Commonwealth Edison Company Annual Report on Form 10-K and portions of
Commonwealth Edison Company's definitive Information Statement to be filed
prior to April 30, 2000, relating to its Annual Meeting of shareholders, are
incorporated by reference into Part III of the Commonwealth Edison Company
Annual Report on Form 10-K.
<PAGE>
UNICOM CORPORATION
and
COMMONWEALTH EDISON COMPANY
FORM 10-K
For the Fiscal Year Ended December 31, 1999
This document contains the Annual Reports on Form 10-K for the fiscal year
ended December 31, 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.
TABLE OF CONTENTS
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Page
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<S> <C>
Definitions............................................................... 1
Annual Report on Form 10-K for Unicom Corporation:
Part I
Item 1. Business........................................................ 2
General............................................................ 2
Changes in the Electric Utility Industry........................... 3
Construction Program............................................... 8
Fuel Supply........................................................ 10
Regulation......................................................... 10
Employees.......................................................... 14
Interconnections................................................... 15
Franchises......................................................... 15
Executive Officers of the Registrant............................... 16
Year 2000 Conversion............................................... 17
Forward-Looking Information........................................ 17
Item 2. Properties...................................................... 18
Item 3. Legal Proceedings............................................... 19
Item 4. Submission of Matters to a Vote of Security Holders............. 22
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters................................................................ 23
Item 6. Selected Financial Data......................................... 24
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of
Operations...................................................... 24
Item 7A Quantitative and Qualitative Disclosures About Market Risks.....
Item 8. Financial Statements and Supplementary Data..................... 24
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................ 24
Part III
Item 10. Directors and Executive Officers of the Registrant............. 24
Item 11. Executive Compensation......................................... 25
Item 12. Security Ownership of Certain Beneficial Owners and Manage-
ment................................................................... 25
Item 13. Certain Relationships and Related Transactions................. 25
</TABLE>
i
<PAGE>
UNICOM CORPORATION
and
COMMONWEALTH EDISON COMPANY
FORM 10-K
For the Fiscal Year Ended December 31, 1999
TABLE OF CONTENTS (Concluded)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Annual Report on Form 10-K for Commonwealth Edison Company:
Part I
Item 1.Business......................................................... 26
Executive Officers of the Registrant................................ 26
Item 2.Properties....................................................... 28
Item 3.Legal Proceedings................................................ 28
Item 4.Submission of Matters to a Vote of Security Holders.............. 28
Part II
Item 5.Market for Registrant's Common Equity and Related Stockholder
Matters................................................................ 28
Item 6.Selected Financial Data.......................................... 28
Item 7.Management's Discussion and Analysis of Financial Condition and
Results of
Operations..................................................... 28
Item 7A. Quantitative and Qualitative Disclosures About Market Risks.... 28
Item 8.Financial Statements and Supplementary Data...................... 28
Item 9.Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure........................................... 28
Part III
Item 10. Directors and Executive Officers of the Registrant............ 29
Item 11. Executive Compensation........................................ 29
Item 12. Security Ownership of Certain Beneficial Owners and
Management............................................................. 29
Item 13. Certain Relationships and Related Transactions................ 29
Annual Reports on Form 10-K for Unicom Corporation and Commonwealth Edison
Company:
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-
K...................................................................... 30
(a) Financial Statements, Financial Statement Schedules and Exhib-
its.............................................................. 30
(b) Reports on Form 8-K........................................... 36
Report of Independent Public Accountants on Supplemental Schedule to
Commonwealth Edison Company............................................ 37
Signature Page to Unicom Corporation Annual Report on Form 10-K......... 38
Signature Page to Commonwealth Edison Company Annual Report on Form 10-
K...................................................................... 39
</TABLE>
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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
APX Automated Power Exchange Inc., a California company
CERCLA Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended
CHA Chicago Housing Authority
ComEd Commonwealth Edison Company
ComEd Funding ComEd Funding, LLC, a ComEd subsidiary
ComEd Funding Trust ComEd Transitional Funding Trust, a ComEd Funding
subsidiary
Congress U.S. Congress
Cotter Cotter Corporation, a ComEd subsidiary
CTC Non-bypassable "competitive transition charge"
DOE U.S. Department of Energy
EME Edison Mission Energy, an Edison International
subsidiary
FERC Federal Energy Regulatory Commission
IBEW International Brotherhood of Electrical Workers (AFL-
CIO)
ICC Illinois Commerce Commission
IDNS Illinois Department of Nuclear Safety
IDR Illinois Department of Revenue
Illinois EPA Illinois Environmental Protection Agency
Indiana Company Commonwealth Edison Company of Indiana, Inc., a ComEd
subsidiary
INPO Institute of Nuclear Power Operations
IPCB Illinois Pollution Control Board
ISO Independent System Operator
MAIN Mid-America Interconnected Network
MGP Manufactured gas plant
NPDES National Pollutant Discharge Elimination System
NPL National Priorities List
NRC Nuclear Regulatory Commission
PECO PECO Energy Company, a Pennsylvania company
RES Retail Electric Supplier
SEC Securities and Exchange Commission
SPEs Special purpose entities
S&P Standard & Poor's
Trust Securities ComEd-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely ComEd's
subordinated debt securities
Unicom Unicom Corporation
Unicom Energy Services Unicom Energy Services Inc., a Unicom Enterprises
subsidiary
Unicom Enterprises Unicom Enterprises Inc., a Unicom subsidiary
Unicom Investment Unicom Investment, Inc., a Unicom Enterprises
subsidiary
Unicom Thermal Unicom Thermal Technologies Inc., a UT Holdings
subsidiary
U.S. EPA U.S. Environmental Protection Agency
UT Holdings UT Holdings Inc., a Unicom Enterprises subsidiary
</TABLE>
1
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ANNUAL REPORT ON FORM 10-K FOR UNICOM CORPORATION
PART I
Item 1. Business.
General
Unicom was incorporated in January 1994. ComEd, a regulated electric
utility, is the principal subsidiary of Unicom. Unicom Enterprises is an
unregulated subsidiary of Unicom and is engaged, through its subsidiaries, in
energy service activities. Unicom's principal executive offices are located at
Ten South Dearborn Street, Post Office Box A-3005, Chicago, Illinois 60690-
3005, and its telephone number is 312/394-7399.
ComEd represents substantially all of the results of operations of Unicom;
and Unicom's resources and results of operations are largely dependent on, and
reflect, those of ComEd. Consequently, the following discussion generally
focuses, in more detail, on ComEd's utility operations although information is
also provided about Unicom's unregulated operations.
Utility Operations. ComEd is engaged principally in the production,
purchase, transmission, distribution and sale of electricity to a diverse base
of residential, commercial, industrial and wholesale customers. ComEd was
organized in the state of Illinois on October 17, 1913 as a result of the
merger of Cosmopolitan Electric Company into the original corporation named
Commonwealth Edison Company. The latter had been incorporated on September 17,
1907. ComEd's service territory has an area of approximately 11,300 square
miles and an estimated population of approximately eight million as of
December 31, 1999. It includes the city of Chicago, an area of about 225
square miles with an estimated population of approximately three million from
which ComEd derived approximately 30 percent of its ultimate consumer revenues
in 1999. ComEd had approximately 3.5 million customers at December 31, 1999.
ComEd's principal executive offices are located at Ten South Dearborn Street,
Post Office Box 767, Chicago, Illinois 60690-0767, and its telephone number is
312/394-4321.
Unregulated Operations. Unicom Enterprises is engaged, through subsidiaries,
in energy service activities which are not subject to utility regulation by
federal or state agencies. One of these subsidiaries, UT Holdings, provides
district cooling and related services to offices and other buildings in the
central business district of Chicago and in other cities in North America,
generally working with local utilities. District cooling involves, in essence,
the production of chilled water at one or more central locations and its
circulation to customers' buildings through a closed circuit of supply and
return piping. Such water is circulated through customers' premises primarily
for air conditioning. This process is used by customers in lieu of self-
generated cooling.
Unicom Energy Services, another subsidiary of Unicom Enterprises, is engaged
in providing energy services, including gas services, performance contracting,
distributed energy and 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 distribution territory 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., also a subsidiary of Unicom Enterprises, is currently
engaged in providing retail gas services to commercial and industrial
customers in the Midwest region. Unicom Energy Inc. also provides retail
electric services as an unregulated retail energy supplier.
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Unicom Mechanical Services Inc., a subsidiary of Unicom Enterprises, engages
in the design, installation and servicing of heating, ventilation and air
conditioning facilities for commercial and industrial customers in Chicago and
surrounding area through subsidiaries conducting business as Midwest
Mechanical and V.A. Smith Company.
Merger Agreement. In September 1999, the Boards of Directors of Unicom and
PECO approved a merger of equals that will create a new holding company,
Exelon. The merger is conditioned, among other things, upon the approvals of
the shareholders of both companies and by various regulatory bodies. The
merger is currently expected to be completed in the latter half of 2000.
Under the merger agreement, as amended and restated January 7, 2000, PECO
and ComEd will become the principal utility subsidiaries of Exelon. This
result will be achieved by a mandatory exchange of the outstanding common
stock of PECO for common stock of Exelon, and a merger of Unicom with and into
Exelon wherein holders of Unicom common stock will receive 0.875 shares of
Exelon common stock plus $3.00 in cash for each of their shares of Unicom
common stock. The merger transaction will be accounted for as a purchase of
Unicom by PECO.
Prior to the consummation of the merger, Unicom expects to repurchase
approximately $1.0 billion of its outstanding common shares. These share
repurchases are in addition to 26.3 million shares of Unicom common stock that
Unicom repurchased in January 2000 upon settlement of certain forward purchase
contracts. The $1.0 billion additional share repurchases will be funded from
available funds, including funds resulting from the fossil plant sale.
The merger agreement, as amended and restated, was filed on January 13, 2000
by Unicom with the SEC as an exhibit to a Form 8-K, and reference to that
filing is made for more detailed information.
Changes in the Electric Utility Industry
Unicom and its predominant business, electric energy generation,
transmission and distribution, are in a period of fundamental change. These
changes are attributable to changes in technology and regulation. Federal law
and regulations have been amended to provide for open transmission system
access, and various states, including Illinois, are considering, or have
adopted, new regulatory structures to allow access by some or all customers to
energy suppliers in addition to the local utility.
Electric Utility Industry. The electric utility industry historically has
consisted of vertically integrated companies which combine generation,
transmission and distribution assets; serve customers within relatively
defined service territories; and operate under extensive regulation with
respect to rates, operations and other matters. Utilities have operated under
a regulatory compact with the state, with a statutory obligation to serve all
of the electricity needs within their service territory in a nondiscriminatory
manner. Historically, investment and operating decisions have been made based
upon the utilities' respective assessment of the current and projected needs
of their customers. In view of this obligation, regulation has focused on
investment and operating costs, and rates have been based on a recovery of
some or all of such prudently incurred costs plus a return on invested
capital. Such rate regulation, and the ability of utilities to recover
investment and other costs through rates, have provided the basis for
recording certain costs as regulatory assets. These assets represent costs
which are allocated over future periods reflecting related regulatory
treatment, rather than expensed in the current period.
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Federal Regulation. The Federal Energy Policy Act of 1992, among other
things, empowered FERC to introduce a greater level of competition into the
wholesale marketplace for electric energy. Under FERC Order No. 888, utilities
are required to file open access tariffs with regard to their transmission
systems. These tariffs set forth the terms, including prices, under which
other parties and the utility's wholesale marketing function may use the
utility's transmission system. ComEd has an approved open access tariff with
the FERC. A companion FERC rule, Order No. 889, requires the separation of the
transmission operations and wholesale marketing functions so as to ensure that
unaffiliated third parties have access to the same information as to system
availability and other requirements. The FERC Order further requires utilities
to operate an electronic bulletin board to make transmission price and access
data available to all potential users. A key feature of FERC Order No. 888 is
that it contemplates full recovery of a utility's costs "stranded" by
competition. These costs are "stranded" or "strandable" to the extent market-
based rates would be insufficient to allow for their full recovery. To recover
stranded costs, the utility must show that it had a reasonable expectation
that it would continue to serve the customer in question under its regulatory
compact. In addition, some government entities, such as cities, may elect to
"municipalize" a utility's distribution facilities through condemnation
proceedings. Such municipalities would then be able to purchase electric power
on a wholesale basis and resell it to customers over the newly acquired
facilities. The FERC Order provides for the recovery of a utility's investment
stranded by municipalization.
The 1997 Act. In December 1997, the Governor of Illinois signed into law the
1997 Act, which established a phased process to introduce competition into the
electric industry in Illinois under a less regulated structure. 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
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 is 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.
On October 1, 1999, more than 41,000 non-residential customers became
eligible to choose a new electric supplier or elect the purchase power option.
The remainder of the non-residential customers will become eligible to choose
an electric supplier or the purchase power option between June 1 and
December 31, 2000. As of December 31, 1999, over 4,700 non-residential
customers, representing approximately ten 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
such customers, 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
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offered under cost-based, regulated rates. The ICC issued orders in August and
September 1999 approving, with modifications, ComEd's delivery service
tariffs.
The 1997 Act committed ComEd to spend at least $2 billion during the period
1999 through 2004 on transmission and distribution facilities outside of
Chicago and to contribute $250 million to an environmental trust, as a result
of closing of the fossil plant sale. See "Fossil Plant Sale" below for
additional information.
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. The 15% rate reduction further reduced ComEd's operating revenues
by approximately $226 million in 1999, compared to 1998 rate levels.
Notwithstanding these rate reductions, and subject to certain earnings
tests, a rate freeze will generally be in effect until at least January 1,
2005. During this period, utilities may reorganize, sell or assign assets,
retire or remove plants from service, and accelerate depreciation or
amortization of assets with limited ICC regulatory review. A utility may
request a rate increase during the rate freeze period only when necessary to
ensure the utility's financial viability, but not before January 1, 2000.
Under the earnings provision of the 1997 Act, if the earned return on common
equity of a utility during this period exceeds an established threshold, one-
half of the excess earnings must be refunded to customers. The threshold rate
of return on common equity is based on the 30-Year Treasury Bond rate, plus
5.5% in the years 1998 through 1999 and plus 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 ComEd's earnings. In accordance with
the provisions of 1997 Act, 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 such securities 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" on page F-10, and Notes 3 and 7 of
Notes to Financial Statements on page F-39 and F-43, respectively, for
additional information regarding the redemptions and repurchase 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,
reliability requirement applicable to ComEd in the event of a major outage.
See "Response to Regulatory Changes" below for additional information.
See Note 1, under "Regulatory Assets and Liabilities," and Note 3 of Notes
to Financial Statements on page F-33 and F-39, respectively, 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
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develop from the 1997 Act. Among other things, these strategic objectives call
for a focus on operations to: (1) provide a reliable supply of electricity as
the competitive marketplace evolves, (2) become a top quartile operator of
competitive nuclear plants, (3) deliver competitive earnings while
restructuring the balance sheet to reflect the realities of the marketplace,
(4) expand the offering of energy-related products and services, and (5)
transform the corporate culture of Unicom.
Under the 1997 Act, the role of electric utilities in the supply and
delivery of energy is expected to change. Utilities, such as ComEd,
traditionally have been responsible for providing both adequate supply and
reliable delivery of electricity to customers within their service areas. In
the future, ComEd will continue to be obligated to provide a reliable delivery
system. However, ComEd will be obligated to supply electricity only to those
customers that it continues to serve under tariffs for electricity, but not to
those customers who choose to rely on the marketplace. Nonetheless, during the
transition period to a competitive supply marketplace, ComEd must provide both
an adequate supply and reliable delivery of electricity. Given the tight
capacity situation in ComEd's market, ComEd will continue working to 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.
ComEd also evaluated the recoverability of its generating plant investment
as a result of the 1997 Act. See Note 1 of Notes to Financial Statements,
under "Regulatory Assets and Liabilities," on page F-33 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 currently
is used to provide voltage support in the transmission system that serves
ComEd's northern region. See Note 5 of Notes to Financial Statements on page
F-41, for additional information.
ComEd joined with other Midwestern utilities to design the Midwest ISO in
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, a key element in accommodating the FERC-directed
restructuring of the electric industry, is expected to 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
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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 December 1999, ComEd and
other Midwestern utilities filed a request with the FERC for a Declaratory
Order approving a different organizational template for the regional
transmission grid. The request seeks approval for the creation of for-profit
transmission companies, operating under the general oversight of the Midwest
ISO, but separated from their previous vertically integrated utilities. The
request was approved, in part, on February 24, 2000, subject to further
development of its elements.
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 the Midwest. 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 will be an active participant in
the power exchange which opened in Illinois in the fourth quarter of 1999.
Fossil Plant Sale. In December 1999, ComEd completed the sale of its fossil
generating assets to EME for a cash purchase price of $4.8 billion. The fossil
plant assets represent an aggregate generating capacity of approximately 9,772
megawatts.
Just prior to the consummation of the fossil plant sale, ComEd transferred
these assets to an affiliate, Unicom Investment. In consideration for the
transferred assets, Unicom Investment paid ComEd consideration totalling
approximately $4.8 billion in the form of a demand note in the amount of
approximately $2.4 billion and an interest-bearing Note with a maturity of
twelve years. Unicom Investment immediately sold the fossil plant assets to
EME, in consideration of which Unicom Investment received approximately $4.8
billion in cash from EME. Immediately after its receipt of the cash payment
from EME, Unicom Investment paid the $2.4 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
share repurchases. Of the cash received by ComEd, $1.8 billion is expected to
be used to pay the costs and taxes associated with the fossil plant sale
including ComEd's contribution of $250 million of the proceeds to an
environmental trust as required by the 1997 Act. 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 produced an after-tax gain of approximately $1.6 billion, after
recognizing commitments associated with certain coal contracts ($350 million),
recognizing employee-related costs ($112 million) and contributing to the
environmental trust. The coal contract costs include the amortization of the
remaining balance of ComEd's regulatory asset for unrecovered coal reserves of
$178 million and the recognition of $172 million of settlement payments
related to the above-market portion of coal purchase commitments ComEd
assigned to EME at market value upon completion of the fossil plant sale. The
severance costs included pension and post-retirement welfare benefit
curtailment and special termination benefit costs of $51 million and
transition, separation and retention payments of $61 million. A total of 1,730
fossil station employee positions were eliminated upon completion of the
fossil plant sale on December 15, 1999. As of December 31, 1999, 1,590 of the
employees whose positions were eliminated had been terminated and 140 affected
employees were in a transition program which generally extends 60 days from
the date of the fossil plant sale. Consistent with the provisions of the 1997
Act, the (pre-tax) gain on the sale of $2.587 billion resulted in a regulatory
liability, which was used to recover regulatory assets. Therefore, the gain on
the sale, excluding $43 million of amortization
7
<PAGE>
of investment tax credits, was recorded as a regulatory liability in the
amount of $2.544 billion and amortized in the fourth quarter of 1999. The
amortization of the regulatory liability and additional regulatory asset
amortization of $2.456 billion are reflected in depreciation and amortization
expense on Unicom's Statement of Consolidated Operations and resulted in a net
reduction to depreciation and amortization expense of $88 million.
As part of the sale transaction, ComEd entered into transitional, limited
term power purchase agreements with the buyer. Such purchase power agreements
will increase ComEd's purchased power costs.
Construction Program
Utility Operations. ComEd has a construction program for the year 2000,
which consists principally of improvements to its existing nuclear production,
transmission and distribution facilities. The program, as currently approved
by ComEd, includes the following estimated expenditures (excluding nuclear
fuel expenditures of approximately $260 million).
<TABLE>
<CAPTION>
2000
----
(Millions
of Dollars)
<S> <C>
Nuclear................................................... $215
Transmission and Distribution............................. 536
General................................................... 146
----
$897
====
</TABLE>
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 construction program above reflects a preliminary evaluation of
improvements necessary to improve reliability of ComEd's transmission and
distribution systems. ComEd is currently evaluating its construction program
for the years 2000, 2001 and 2002. The final results of this planning process
cannot be determined at this time.
ComEd's net nuclear generating plant, including construction work in
progress and nuclear fuel, and excluding the decommissioning costs included in
the accumulated provison for depreciation, is $7.8 billion at December 31,
1999. Gross additions to and retirements from utility property, excluding
nuclear fuel, of ComEd and the Indiana Company for the five years ended
December 31, 1999 were $4,801 million and $1,622 million, respectively
(excluding the effects of the closure of Zion Station, the sales of State Line
and Kincaid Stations and the fossil plant sale).
ComEd periodically reviews its projection of probable future demand for
electricity in its traditional service territory. It currently projects long-
term average annual growth of 1.75% in annual peak load and 1.5% in total
annual electricity requirements, excluding sales to other utilities. ComEd's
forecasts of peak load indicate a need for additional resources to meet
demand, either through generating capacity, equivalent purchased power and/or
the development of additional demand-side management resources, in 2000 and
each year thereafter for the foreseeable future. ComEd believes that adequate
resources can be obtained in sufficient quantities to meet such forecasted
needs. Currently, ComEd does not know the ultimate impact on these projections
resulting from open access which began on a phased basis on October 1, 1999.
8
<PAGE>
Purchase commitments for ComEd, principally related to construction, nuclear
fuel and coal in support of certain power purchase agreements approximated
$670 million at December 31, 1999. In addition, ComEd's estimated commitments
for expected capacity payments and fixed charges related to power purchase
agreements were as follows:
<TABLE>
<CAPTION>
Commitments(1)
Period ($Millions)
------ --------------
<S> <C>
2000......................... $ 783
2001......................... 698
2002......................... 427
2003-2004.................... 540
2005-2012.................... 1,039
------
$3,487
======
</TABLE>
--------
(1) Capacity payments may be adjusted based on certain conditions. No
estimate of future cost escalation has been made.
See "Changes in the Electric Utility Industry," subcaptions "The 1997 Act"
and "Fossil Plant Sale" above, for additional information.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations," subcaption "Liquidity and Capital Resources--UTILITY
OPERATIONS--Capital Resources," on page F-10 for information regarding the
capital resources of ComEd.
Unregulated Operations. Unicom has approved capital expenditures for 2000 of
approximately $85 million for UT Holdings, primarily related to an expansion
of its Chicago district cooling facilities and the related distribution piping
and plants in other cities. As of December 31, 1999, UT Holdings' purchase
commitments, principally related to construction, were approximately $27
million.
Unicom has approved capital expenditures for 2000 of approximately $15
million for Unicom Energy Services. As of December 31, 1999, Unicom Energy
Services had purchase commitments of approximately $24 million.
Unicom has approved capital expenditures for 2000 of approximately $221
million for Unicom Power Holdings. As of December 31, 1999, Unicom Power
Holdings had purchase commitments of approximately $78 million.
Unicom Power Holdings intends to purchase approximately 440 MW of combustion
turbine generators and auxiliary equipment. Such generators will either be
sold or placed into cogeneration or other peaking applications. Unicom Power
Holdings is evaluating the costs and economics of such alternatives. Unicom
Power Holdings anticipates that the equipment purchases will cost
approximately $165 million, of which approximately $90 million has been
incurred as of December 31, 1999. Unicom Power Holdings may incur significant
additional costs to site and install such power generation equipment.
Unicom expects to obtain funds to invest in its unregulated subsidiaries
principally from the fossil plant sale proceeds 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 fund share repurchases
and to invest in new business opportunities. See "Changes in the Electric
Utility Industry" subcaption "Fossil Plant Sale" above, for additional
information.
9
<PAGE>
Unicom Enterprises has an unused $400 million credit facility which will
expire on December 15, 2000. The credit facility can be used by Unicom
Enterprises to finance investments in unregulated businesses and projects, and
for general corporate purposes. The credit facility is guaranteed by Unicom
and includes certain covenants with respect to Unicom and Unicom Enterprises'
operations. Interest rates for borrowings under the credit facility are set at
the time of a borrowing and are based on either a prime interest rate or a
floating rate bank index plus a spread which varies with the credit rating of
ComEd's outstanding first mortgage bonds.
In 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.
In July 1998, Unicom Thermal issued $120 million of 7.38% unsecured
guaranteed senior Notes due May 2012, the proceeds of which were used to
refinance existing debt. The Notes are guaranteed by Unicom and include
certain covenants with respect to Unicom and Unicom Thermal's operations.
See Notes 12 and 13 of Notes to Financial Statements on pages F-47 and F-49
for additional information regarding certain covenants with respect to Unicom,
Unicom Enterprises and Unicom Thermals' operations.
Fuel Supply
The kilowatthour generation of ComEd for 1999 was provided from the
following fuel sources: nuclear 74%, coal 23% and natural gas 3%. The
increases in net generation of electricity for 1999, compared to the prior
years, are primarily due to significant improvement in the performance of
ComEd's nuclear fleet. In December 1999, ComEd sold its fossil generating
assets. As part of the sale transaction, ComEd entered into transitional,
limited term power purchase agreements with the buyer. See "Changes in the
Electric Utility Industry," subcaption "Fossil Plant Sale" above, and page F-
20 for additional information.
Nuclear Fuel. ComEd has uranium concentrate inventory and supply contracts
sufficient to meet all of its uranium concentrate requirements through 2000
and portions of its uranium concentrate requirements for periods beyond 2000.
ComEd's contracted conversion services are sufficient to meet all of its
uranium conversion requirements through 2000 and portions beyond 2000. All of
ComEd's enrichment requirements have been contracted through 2003 and portions
of its enrichment requirements for periods beyond 2003. Commitments for fuel
fabrication have been obtained for ComEd's nuclear units at least through
2005. ComEd does not anticipate that it will have any difficulty in
negotiating contracts for uranium concentrates, conversion, enrichment and
fuel fabrication services for its remaining requirements.
Under the Energy Policy Act of 1992, investor-owned electric utilities that
have purchased enrichment services from the DOE are being assessed amounts to
fund a portion of the cost for the decontamination and decommissioning of
uranium enrichment facilities owned and previously operated by the DOE.
ComEd's portion of such assessments is estimated to be approximately $17
million per year (to be adjusted annually for inflation) to 2007. The Act
provides that such assessments are to be treated as a cost of fuel.
See "Regulation--Nuclear" below for information concerning the disposal of
radioactive waste.
Regulation
ComEd and the Indiana Company are subject to federal and state regulation in
the conduct of its business. Such regulation includes rates, securities
issuance, nuclear operations, environmental and
10
<PAGE>
other matters. Particularly in the cases of nuclear operations and
environmental matters, such regulation can and does affect operational and
capital expenditures. ComEd is subject to regulation by the ICC as to rates
and charges, issuance of most of its securities, service and facilities,
classification of accounts, transactions with affiliated interests, as defined
in the Illinois Public Utilities Act, and other matters. In addition, the ICC
in certain of its rate orders has exercised jurisdiction over ComEd's
environmental control program. See "Changes in the Electric Utility Industry--
The 1997 Act" above for information regarding the 1997 Act.
ComEd is subject to the jurisdiction of the FERC with respect to the
issuance of certain of its securities. ComEd is also subject to the
jurisdiction of the FERC and the DOE under the Federal Power Act with respect
to certain other matters, including the sale for resale of electric energy and
the transmission of electric energy in interstate commerce, and to the
jurisdiction of the DOE with respect to the disposal of spent nuclear fuel and
other radioactive wastes. See "Changes in the Electric Utility Industry--
Federal Regulation" above for information regarding FERC Order Nos. 888 and
889 and the Energy Policy Act of 1992.
Unicom is a public utility holding company, as defined by the Public Utility
Holding Company Act of 1935, because of its majority ownership of ComEd's
common stock, and ComEd is a public utility holding company as defined in such
Act because of its ownership of the Indiana Company. However, both Unicom and
ComEd are exempt from most provisions of such Act.
Nuclear. Under the Nuclear Waste Policy Act of 1982, the DOE is responsible
for the selection and development of repositories for, and the disposal of,
spent nuclear fuel and high-level radioactive waste. The costs incurred by the
DOE for disposal activities will be paid out of fees charged to owners and
generators of spent nuclear fuel and high-level radioactive waste. ComEd, as
required by that Act, has signed a contract with the DOE to provide for the
disposal of spent nuclear fuel and high-level radioactive waste from ComEd's
nuclear generating stations. That contract provided for acceptance by the DOE
of such materials to begin in January 1998; however, that date was not met by
the DOE and is expected to be delayed significantly. The DOE's current
estimate for opening a facility to accept such waste is 2010. This extended
delay in spent nuclear fuel acceptance by the DOE has led to ComEd's
consideration of additional dry storage alternatives. On July 30, 1998, ComEd
filed a complaint against the United States in the United States Court of
Federal Claims, seeking to recover damages caused by the DOE's failure to
honor its contractual obligation to begin disposing of spent nuclear fuel in
January 1998.
The contract with the DOE requires ComEd to pay the DOE a one-time fee
applicable to nuclear generation through April 6, 1983 of $277 million, with
interest to date of payment, and a fee payable quarterly equal to one mill per
kilowatthour of nuclear-generated and sold electricity after April 6, 1983.
Pursuant to the contract, ComEd has elected to pay the one-time fee, with
interest, just prior to the first delivery of spent nuclear fuel to the DOE.
The liability for the one-time fee and related interest is reflected on the
Consolidated Balance Sheets on page F-28.
ComEd has responsibility for the storage of its spent nuclear fuel until it
is accepted by the DOE. Dresden Station has spent fuel capacity into the year
2001, Zion Station has capacity for all of its spent fuel, Byron and Braidwood
Stations have spent fuel capacity into approximately 2011 and 2014,
respectively, Quad Cities Station has spent fuel capacity into 2006 and
LaSalle Station has spent fuel capacity through 2012. ComEd is developing on
site dry cask spent fuel storage for Dresden Unit 1, which is expected to be
funded by the external decommissioning trusts. The Dresden Unit 1 dry storage
canisters will meet the federal requirements for both storage and
transportation of spent nuclear fuel. The storage canisters could be in use by
the year 2000. Meeting spent fuel storage requirements beyond the years stated
above could require new and separate storage facilities. See "Depreciation,
Amortization of Regulatory Assets and Liabilities and Decommissioning" under
11
<PAGE>
Note 1 of Notes to Financial Statements on page F-34 for information regarding
the external decommissioning trusts.
The federal Low-Level Radioactive Waste Policy Act of 1980 provides that
states may enter into compacts to provide for regional disposal facilities for
low-level radioactive waste and restrict use of such facilities to waste
generated within the region. Illinois has entered into a compact with the
state of Kentucky, which has been approved by Congress as required by the
Waste Policy Act. Neither Illinois nor Kentucky currently has an operational
site, and none is currently expected to be operational until after the year
2011. ComEd has temporary on-site storage capacity at its nuclear generating
stations for a limited amount of low-level radioactive waste and has been
shipping such waste to a low-level radioactive waste site in South Carolina
and Utah. ComEd anticipates the possibility of continuing difficulties in
disposing of low-level radioactive waste. ComEd continues to evaluate its
options relating to the disposal of low-level radioactive waste.
ComEd is subject to the jurisdiction of the NRC with respect to its nuclear
generating stations. The NRC regulations control the granting of permits and
licenses for the construction and operation of nuclear generating stations and
subject such stations to continuing review and regulation. The NRC review and
regulatory process covers, among other things, the operations, maintenance,
and environmental and radiological aspects of such stations. The NRC may
modify, suspend or revoke licenses and impose civil penalties for failure to
comply with the Atomic Energy Act, the regulations under such Act or the terms
of such licenses.
Nuclear operations have been, and remain, an important focus of ComEd. 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.
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 $5.7 billion in current-year (2000) dollars, including a contingency
allowance. This estimate includes $617 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
are expected to occur primarily during the period from 2007 through 2034. All
such costs are expected to be funded by external decommissioning trusts, which
ComEd established in compliance with Illinois law and into which ComEd has
been making annual contributions. Future decommissioning cost estimates may be
significantly affected by the adoption of or changes to NRC regulations, as
well as changes in the assumptions used in making such estimates, including
changes in technology, available alternatives for the disposal of nuclear
waste and inflation.
Under an 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
12
<PAGE>
increase primarily reflects an increase in low-level waste disposal cost
escalation, the inclusion of $219 million in current-year (2000) 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 ICC is
expected to issue an order in this proceeding in the second quarter of 2000.
See Note 1 of Notes to Financial Statements, under "Depreciation,
Amortization of Regulatory Assets and Liabilities, and Decommissioning," on
page F-34 for additional information regarding decommissioning costs.
During the year 1999, one civil penalty was proposed for ComEd for a
violation of NRC regulations in the amount of $110,000. To ComEd's knowledge,
there are no enforcement issues outstanding or under review by the NRC.
The IDNS has jurisdiction over certain activities in Illinois relating to
nuclear power and safety, and radioactive materials. Effective June 1, 1987,
the IDNS replaced the NRC as the regulator and licensor of certain source, by-
product and special nuclear material in quantities not sufficient to form a
critical mass, including such material contained in various measuring devices
used at fossil-fuel power plants. The IDNS does not regulate ComEd's nuclear
generating stations. The IDNS has promulgated regulations which are
substantially similar to the corresponding federal regulations. The IDNS also
has authority to license a low-level radioactive waste disposal facility and
to regulate alternative methods for disposing of materials which contain only
trace amounts of radioactivity.
Environmental. ComEd is subject to regulation regarding environmental
matters by the United States and by the states of Illinois, Iowa and by local
jurisdictions where ComEd operates its facilities. The IPCB has jurisdiction
over environmental control in the state of Illinois, which includes authority
to regulate air, water and noise emissions and solid waste disposal, together
with the Illinois EPA, which enforces regulations of the IPCB and issues
permits in connection with environmental control. The U.S. EPA administers
certain federal statutes relating to such matters. The IPCB has published a
proposed rule under which it would have the power to regulate radioactive air
pollutants under the Illinois Environmental Protection Act and the Federal
Clean Air Act Amendments of 1977.
Under the Federal Clean Water Act, NPDES permits for discharges into
waterways are required to be obtained from the U.S. EPA or from the state
environmental agency to which the permit program has been delegated. Those
permits must be renewed periodically. ComEd either has NPDES permits for all
of its generating stations or has pending applications for such permits under
the current delegation of the program to the Illinois EPA. ComEd is also
subject to the jurisdiction of certain pollution control agencies of the state
of Iowa with respect to the discharge into the Mississippi River from Quad
Cities Station.
CERCLA provides for immediate response and removal actions coordinated by
the U.S. EPA to releases of hazardous substances into the environment and
authorizes the U.S. Government either to clean up sites at which hazardous
substances have created actual or potential environmental hazards or to order
persons responsible for the situation to do so. Under CERCLA, generators and
transporters of hazardous substances, as well as past and present owners and
operators of hazardous waste sites, are made strictly, jointly and severally
liable for the cleanup costs of waste at sites, most of which are listed by
the U.S. EPA on the NPL. These responsible parties can be ordered to perform a
cleanup, can be sued for costs associated with a U.S. EPA directed cleanup,
may voluntarily settle with the U.S. Government concerning their liability for
cleanup costs, or may voluntarily begin a site investigation and site
remediation prior to listing on the NPL under state oversight. Various states,
including Illinois, have enacted statutes which contain provisions
substantially similar to CERCLA. ComEd and its subsidiaries are or are likely
to become parties to proceedings initiated by the U.S. EPA, state agencies
and/or other responsible parties under CERCLA with respect to a number of
13
<PAGE>
sites, including MGP sites, or may voluntarily undertake to investigate and
remediate sites for which they may be liable under CERCLA.
MGPs manufactured gas in Illinois from approximately 1850 to 1950. ComEd
generally did not operate MGPs as a corporate entity but did, however, acquire
MGP sites as part of the absorption of smaller utilities. Approximately half
of these sites were transferred to then Northern Illinois Gas Company (Nicor
Gas) 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. In the fourth quarter of 1999, ComEd re-evaluated its
environmental remediation strategies. As a result of this re-evaluation,
ComEd's current best estimate of its cost of former MGP site investigation and
remediation is $93 million in current-year (2000) dollars (reflecting a
discount rate of 6.5%). Such estimate, reflecting an estimated inflation rate
of 3% and before the effects of discounting, is $182 million. It is expected
that the costs associated with investigation and remediation of former MGP
sites will be substantially incurred through 2012, however monitoring and
certain other costs are expected to be incurred through 2042. ComEd's current
estimate of its costs of former MGP site investigation and remediation of $93
million has been included in other noncurrent liabilities on the Consolidated
Balance Sheets on page F-28, as of December 31, 1999. The increase in ComEd's
estimated costs of former MGP sites of $68 million in 1999 over 1998 was
included in operation and maintenance expenses on Unicom and ComEd's
Statements of Consolidated Operations on page F-26. In addition, as of
December 31, 1999 and 1998, a reserve of $8 million has been included in other
noncurrent liabilities on the Consolidated Balance Sheets on page F-28,
representing ComEd's estimate of the liability associated with cleanup costs
of sites other than former MGP sites. 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.
While ComEd may have rights of reimbursement under insurance policies, amounts
that may be recoverable from other entities are not considered in establishing
the estimated liability for the environment remediation costs.
The outcome of many of the regulatory proceedings referred to above, if not
favorable, could have a material adverse effect on Unicom and ComEd's future
business and operating results.
From time to time, Unicom and its subsidiaries are, or are claimed to be, in
violation of or in default under orders, statutes, rules or regulations
relating to environmental controls and other matters, compliance plans imposed
upon or agreed to by them or permits issued by various state and federal
agencies for the construction or operation of their facilities. Unicom and
ComEd do not believe, so far as they now foresee, that such violations or
defaults will have a material adverse effect on their future business and
operating results, except for events otherwise described in these Annual
Reports on Form 10-K, which could have such an effect.
Employees
Unicom and its subsidiary companies had approximately 14,435 and 15,962
employees as of December 31, 1999 and 1998, respectively. The reduction from
1998 is substantially due to the sale of ComEd's fossil plant assets. See
"Fossil Plant Sale" above for additional information. ComEd had approximately
14,308 employees as of December 31, 1999 of which approximately 7,671 ComEd
employees were represented by IBEW Local 15.
The Collective Bargaining Agreement with Local 15 became effective August
25, 1997, and provides, among other things, for a term expiring on March 31,
2001. A previously negotiated general wage increase of 1.5% was effective
April 1, 1997, for all employees covered by the Collective Bargaining
Agreement. Additionally, a general wage increase of 1.5% was effective October
13, 1997, and was applied on a retroactive basis to March 31, 1997. For each
of the remaining three years, a 3%
14
<PAGE>
general wage increase will be granted to employees covered by the Collective
Bargaining Agreement, effective the beginning of the pay period that includes
April 1st of each such year.
The supplemental agreements covering the life insurance, savings and
investment plan, and health care plans are effective through March 31, 2001.
ComEd is currently in negotiations with IBEW Local 15 concerning the
supplemental agreement covering pension benefits which expired on September
30, 1999.
Interconnections
ComEd has interconnections for the transmission of electricity with Central
Illinois Light Company, Central Illinois Public Service Company (a subsidiary
of Ameren), Illinois Power Company, Indiana Michigan Power Company (a
subsidiary of American Electric Power Company), Alliant West, MidAmerican
Energy Company, Northern Indiana Public Service Company, Wisconsin Electric
Power Company and Alliant East for the purpose of exchanging energy and for
other forms of mutual assistance.
ComEd and 40 other utilities are members of MAIN. The members have entered
into an agreement to work together to ensure the reliability of electric power
production and transmission throughout the area they serve.
ComEd joined with other Midwestern utilities to form a regional Midwest ISO
in January 1998. See "Changes in the Electric Utility Industry--Response to
Regulatory Changes" above for additional information.
Franchises
ComEd's franchises are, in general, deemed adequate to permit it to engage
in the business it now conducts.
ComEd operates in Chicago under a nonexclusive electric franchise ordinance,
effective January 1, 1992, and continuing in force until December 31, 2020.
ComEd derives approximately one-third of its ultimate consumer revenues from
customers located within Chicago. See "Item 3. Legal Proceedings" regarding a
settlement agreement reached with the City of Chicago.
The electric business outside of Chicago is conducted in municipalities
under nonexclusive franchises and, where required, under certificates of
convenience and necessity granted by the ICC. The following tabulation
summarizes, as of December 31, 1999, the expiration dates of the electric
franchises held in the 395 municipalities outside of Chicago capable of
granting franchises and in which ComEd currently provides electric service.
<TABLE>
<CAPTION>
Estimated
Number of Aggregate
Franchise Expiration Periods Municipalities Population
- ---------------------------- -------------- ----------
<S> <C> <C>
2000-2006............................................. 2 82,000
2007-2017............................................. 10 96,000
2018-2028............................................. 3 3,537
2029-2039............................................. 1 *
2040 and subsequent years............................. 376 4,033,000
No stated time limit.................................. 3 61,000
</TABLE>
- --------
*Less than 1,000 people.
15
<PAGE>
Executive Officers of the Registrant
The effective year of election of the officers to their present positions and
the prior positions they have held with Unicom or other companies, since
January 1, 1995, are described below.
<TABLE>
<CAPTION>
Name and Age Position
---------------------------- -----------------------------------------------
<C> <S>
*John W. Rowe, 54 Chairman, President and Chief Executive Officer
of Unicom and ComEd since March 1998; previ-
ously President and Chief Executive Officer of
New England Electric System.
*Paul A. Elbert, 50 Executive Vice President of Unicom and ComEd
and President Unicom Enterprises Inc. since
October 1999; previously President and Chief
Executive Officer--Gas for Consumers Energy
Company from August 1997 to September 1999;
previously Executive Vice President and Chief
Operating Officer--Gas at Consumers Energy
Company from December 1994 to August 1997.
*Oliver D. Kingsley, Jr., 57 Executive Vice President of Unicom and ComEd
and President and Chief Nuclear Officer--Nu-
clear Generation Group of ComEd since October
1997; previously Chief Nuclear Officer at the
Tennessee Valley Authority.
*Pamela B. Strobel, 47 Executive Vice President and General Counsel of
Unicom and ComEd since January 1999; previ-
ously Senior Vice President and General Coun-
sel of Unicom and ComEd, October 1997 to De-
cember 1998; previously Vice President and
General Counsel of ComEd.
*Frank M. Clark, 54 Senior Vice President of Unicom and ComEd since
January 1999; previously Vice President of
ComEd, January 1997 to December 1998; previ-
ously Governmental Affairs Vice President 1996
to January 1997 and Governmental Affairs Man-
ager.
*Carl J. Croskey, 48 Senior Vice President of Unicom and ComEd and
President of Distribution at ComEd since Au-
gust 1999; previously President of MichCon En-
terprises Inc., a subsidiary of Michigan Con-
solidated Gas Company from January 1998 to Au-
gust 1999; previously Senior Vice President of
Operations for Michigan Consolidated Gas Com-
pany from April 1995 to January 1998.
*Ruth Ann M. Gillis, 45 Senior Vice President and Chief Financial Offi-
cer of Unicom and ComEd since January 1999;
previously Vice President and Treasurer of
Unicom and ComEd, September 1997 to December
1998; previously Vice President, Chief Finan-
cial Officer and Treasurer of the University
of Chicago Hospitals and Health System from
1996 to 1997 and Senior Vice President and
Chief Financial Officer of American National
Bank and Trust Company.
*Elizabeth A. Moler, 50 Senior Vice President of ComEd and Unicom since
January 2000; previously Director of Unicom
and ComEd from December 1998 to December 1999,
and partner at Vinson & Elkins, LLP, from De-
cember 1998 to December 1999; previously Dep-
uty Secretary of the U.S. Department of Ener-
gy, 1997 to 1998 and Chair of the Federal En-
ergy Regulatory Commission, 1993 to 1997.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Name and Age Position
------------------------ -------------------------------------------------------------
<C> <S>
*S. Gary Snodgrass, 48 Senior Vice President of Unicom and ComEd since October 1997;
Vice President of Unicom and ComEd, September 1997 to
October 1997; previously Vice President of USG Corporation.
*Robert E. Berdelle, 44 Vice President and Comptroller of Unicom and ComEd since
January 1999; previously Comptroller of Unicom and ComEd,
July 1997 to December 1998; previously held various finan-
cial reporting and analysis positions within ComEd.
John T. Hooker, 51 Vice President of Unicom and ComEd since December 1999; pre-
viously Government Affairs Vice President of ComEd, 1998 to
December 1999 and Director of Governmental Services of
ComEd.
Arlene A. Juracek, 49 Vice President of Unicom and ComEd since December 1999; pre-
viously Assistant Vice President of ComEd, February 1994 to
December 1999.
Robert K. McDonald, 44 Vice President of Unicom and ComEd since December 1999; pre-
viously Strategic Planning Vice President and Director of
Strategic Planning of ComEd, September 1994 to December
1999.
Vito Stagliano, 57 Vice President of Unicom and ComEd since December 1999; pre-
viously Energy Policy and Planning Vice President of ComEd
since November 1998; previously Managing Director of Energy
Security Analysis Inc. during 1997 to 1998; previously vis-
iting scholar at Resources for the Future during 1994 to
1996.
Patricia L. Kampling, 40 Treasurer of Unicom and ComEd since February 1999; previously
Manager of Finance of Unicom and ComEd, May 1998 to February
1999; previously Assistant Treasurer of Unicom and ComEd.
John P. McGarrity, 38 Associate General Counsel and Secretary of Unicom and ComEd
since January 1999; previously Associate General Counsel of
Unicom and ComEd, December 1997 to January 1999; previously
a partner with Sidley & Austin.
</TABLE>
--------
* Executive Officers for Section 16 reporting purposes.
The present term of office of each of the above executive officers extends
to the first meeting of Unicom's Board of Directors after the next annual
election of Directors.
There are no family relationships among the executive officers, directors
and nominees for director of Unicom.
Year 2000 Conversion
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations," subcaption "Liquidity and Capital Resources--Year 2000
Conversion" on page F-12 for information regarding Unicom and ComEd's Year
2000 conversion.
Forward-Looking Information
Except for historical data, the information contained in these Annual
Reports constitutes forward-looking statements. Forward-looking statements are
inherently uncertain and subject to risks. Such statements should be viewed
with caution. Actual results or experience could differ materially from the
forward-looking statements as a result of many factors. Forward-looking
statements in this report include, but are not limited to: (1) statements
regarding expectations of revenue reductions and
17
<PAGE>
collections of future CTC revenues as a result of the 1997 Act in "Item 1.
Business," subcaption "Changes in the Electric Utility Industry--The 1997
Act," (2) statements regarding estimated capital expenditures in "Item 1.
Business," subcaption "Construction Program," (3) statements regarding the
costs of decommissioning nuclear generating stations in "Item 1. Business,"
subcaption "Regulation-- Nuclear," (4) statements regarding site investigation
and remediation costs associated with MGPs and other remediation sites in
"Item 1. Business," subcaption "Regulation--Environmental," and (5) "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Item 8. Financial Statements and Supplementary Data" which
contain forward-looking information as described therein, and in the case of
ComEd, incorporate portions of ComEd's March 30, 2000 Form
8-K Report, which is incorporated herein by reference, which contain forward-
looking information as described therein. Management cannot predict the course
of future events or anticipate the interaction of multiple factors beyond
management's control and their effect on revenues, project timing and costs.
The statements regarding revenue reductions and collections of future CTC
revenues are subject to unforeseen developments in the market for electricity
in Illinois resulting from regulatory changes. The statements regarding
estimated capital expenditures, decommissioning costs and cleanup costs are
subject to changes in the scope of work and manner in which the work is
performed and consequent changes in the timing and level of the projected
expenditure, and are also subject to changes in laws and regulations or their
interpretation or enforcement. 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.
Item 2. Properties.
ComEd's electric properties are located in Illinois and the Indiana
Company's electric facilities are located in Indiana. In management's
opinion, ComEd and the Indiana Company's operating properties are adequately
maintained and are substantially in good operating condition. The electric
generating, transmission, distribution and general facilities of ComEd and the
Indiana Company represent approximately 54%, 9%, 31% and 6%, respectively, of
their net investment in electric plant and equipment in service (after
reflecting the sale of the fossil plant assets).
The electric generating stations, substations and a portion of the
transmission rights of way of ComEd and the Indiana Company are owned in fee.
A significant portion of the electric transmission and distribution facilities
is located over or under highways, streets, other public places or property
owned by others, for which permits, grants, easements or licenses, deemed
satisfactory by ComEd, but without examination of underlying land titles, have
been obtained. The principal plants and properties of ComEd are subject to
the lien of ComEd's Mortgage dated July 1, 1923, as amended and supplemented,
under which ComEd's first mortgage bonds are issued.
Promptly following the completion of the transactions leading to the
establishment of Exelon as the holding company for ComEd and PECO, it is
anticipated that both ComEd and PECO will transfer their generating assets and
wholesale power marketing operations to subsidiaries. Following those
transfers, these subsidiaries will be transferred to Exelon and ultimately
will be combined into a single power generation and marketing company
("Genco"), which will be a direct subsidiary of Exelon. In ComEd's case, the
transfer will include its Braidwood, Byron, Dresden, LaSalle and Quad Cities
generating stations (nuclear generating stations) representing an aggregate
generating capability of 9,566 megawatts, its Zion station, its rights and
obligations under various power purchase agreements, the assets constituting
its nuclear decommissioning trusts and its wholesale power marketing business.
Genco will assume responsibility for the decommissioning of the nuclear
generating stations and Zion Station, subject to an obligation of ComEd to
continue collecting decommissioning-related charges from its customers. Genco
will enter into a power purchase agreement with ComEd in which Genco will
undertake to supply ComEd's full requirements for electric energy through 2004
and all of ComEd's requirements up to the available capacity of the nuclear
generating stations in 2005 and 2006. The proposed transfer is subject to
various regulatory approvals.
18
<PAGE>
The net generating capability of ComEd, as of December 31, 1999, is derived
from the following electric generating facilities:
<TABLE>
<CAPTION>
Net Generating Capability
Station Location (kilowatts)(1)
------- -------------- -------------------------
<S> <C> <C>
Nuclear--
Dresden Near Morris 1,600,000
Quad Cities Near Cordova 1,176,000(2)
LaSalle County Near Seneca 2,210,000
Byron Near Byron 2,290,000
Braidwood Near Braidwood 2,290,000
----------
Company owned net non-summer
generating capability 9,566,000
Deduct--Summer limitations 231,000
----------
Company owned net summer
generating capability 9,335,000
Add--Capability under purchase
power agreements 11,008,000(3)(4)(5)
----------
Net summer generating capability 20,343,000
==========
</TABLE>
- --------
(1) Reflects a re-rating of certain generating stations as of January 1, 2000.
(2) Excludes the 25% undivided interest of MidAmerican Energy Company in the
Quad Cities Station.
(3) ComEd sold its Kincaid and State Line generating stations in February 1998
and December 1997, respectively. Under the terms of the sales, ComEd
entered into exclusive 15-year purchase power agreements for the output of
the plants.
(4) ComEd sold its remaining six coal-fired generating plants, an oil and gas
fired plant, and nine peaking units to EME in December 1999. ComEd entered
into transitional, limited term power purchase agreements with EME.
(5) The above table represents ComEd's net generating capability for the
summer of 2000.
The net generating capability available for operation at any time may be
less due to regulatory restrictions, fuel restrictions, efficiency of cooling
facilities and generating units being temporarily out of service for
inspection, maintenance, refueling, repairs or modifications required by
regulatory authorities. The above table excludes certain limited term power
purchase arrangements with independent power producers and other utilities.
ComEd's highest peak load experienced to date occurred on August 30, 1999 and
was 21,243,000 kilowatts; and the highest peak load experienced to date during
a winter season occurred on December 20, 1999 and was 14,484,000 kilowatts.
ComEd's kilowatthour sales and generation are generally higher, primarily
during the summer periods but also during the winter periods, when temperature
extremes create demand for either summer cooling or winter heating.
See "Changes in the Electric Utility Industry--Fossil Plant Sale" above for
additional information regarding ComEd's sale of fossil plants.
Major electric transmission lines owned and in service are as follows:
<TABLE>
<CAPTION>
Voltage Circuit
(Volts) Miles
------- -------
<S> <C>
765,000........................................................... 90
345,000........................................................... 2,500
138,000........................................................... 2,097
</TABLE>
ComEd's electric distribution system includes 40,493 pole line miles of
overhead lines and 38,037 cable miles of underground lines. A total of
approximately 1,365,310 poles are included in ComEd's distribution system, of
which about 592,672 poles are owned jointly with telephone companies.
On February 18, 2000, ComEd sold its investment in Cotter Corporation to
General Atomics for $1 million. ComEd will record a loss of approximately $22
million (after-tax) in the first quarter of 2000 as a result of the sale.
Item 3. Legal Proceedings.
During 1989 and 1991, actions were brought in federal and state courts in
Colorado against ComEd and Cotter seeking unspecified damages and injunctive
relief based on allegations that Cotter
19
<PAGE>
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 amended judgement issued in March
1999, totaled approximately $6 million, including compensatory and punitive
damages, interest, and medical monitoring. On February 11, 2000, the Tenth
Circuit Court of Appeals agreed with Cotter, found that the trial judge had
erred in critical rulings and reversed the jury verdict, remanding the case
for new trial. A case involving the next group of plaintiffs is set for trial
in federal district court in Denver on October 2, 2000. Although ComEd sold
its investment in Cotter in February 2000, ComEd will continue to be liable
for any court verdicts in favor of the plaintiffs. The other 1991 cases will
necessarily involve the resolution of numerous contested issues of law and
fact. It is Unicom and ComEd's assessment that these actions will not have a
material impact on their financial position or results of operations.
In July and August 1995, three class action lawsuits were filed against
ComEd arising out of a series of service outages. All of the complaints seek
damages incurred for property loss by approximately 40,000 customers who were
without electrical service for up to 48 hours. These suits were subsequently
consolidated. A proposed settlement agreement was preliminarily approved by
the Court on November 23, 1999. Under this plan, eligible class members will
receive a credit if they were without power more than 12 consecutive hours. If
they submitted timely claim forms, some class members will receive additional
compensation for food spoilage, other perishable items and damage caused by
power surges. Total benefits available to the class are approximately $2.5
million. Class counsel fee petitions are currently under consideration by the
Court, but will not increase the maximum allowable payout by ComEd. The claims
administration will continue through the summer of 2000.
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 Chicago'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. ComEd has filed a
motion challenging the legal sufficiency of the consolidated complaints. The
plantiff's response is due April 14, 2000 and any reply by ComEd is due May
12, 2000. The motion to dismiss is currently scheduled to be argued on May 23,
2000. ComEd's management believes adequate reserves have been established in
connection with these cases.
Following the summer 1999 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. Hearings on Phase I of the
investigation were held the week of January 3, 2000, which focused on the
outages of July and August 1999. Reports on Phase II and Phase III, focusing
on the transmission and distribution system generally, are anticipated in the
second quarter of 2000. The final phase of the investigation is expected to
conclude in early 2001.
20
<PAGE>
ComEd also has several matters pending before various local and state
agencies which pertain to the assessment of Company property for local tax
purposes. ComEd has instituted several proceedings in the courts challenging
adverse determinations by certain of these state and local agencies. All taxes
attributable to such determinations have been paid and reflected on the books
of ComEd. ComEd does not believe that a material adverse outcome is likely.
ComEd also has appeals pending in applicable counties concerning property tax
assessments for its Braidwood nuclear generating station. These proceedings
seek refunds and reduced valuations resulting in lower property taxes for the
challenged and subsequent years. ComEd has reached an agreement in principle
with the Will County Board that will resolve these matters. The agreement is
subject to the approval of the taxing districts involved.
The Montana Department of Revenue has made additional tax assessments on
Decker Coal Company for severance taxes, gross proceeds taxes and resource
indemnity trust taxes covering the years 1993-1995. The amount of additional
taxes assessed, including interest through April 30, 1998, is approximately $5
million. Under the terms of a tax and royalty indemnity agreement, ComEd may
be responsible for some or all of these additional taxes and interest, to the
extent they are shown to be payable. ComEd has the right to direct the
challenge of these assessments and may be responsible for the cost of
conducting the defense of Decker from these assessments. Decker is appealing
assessments unrelated to ComEd, but with issues common to the 1993-1995
assessment. Therefore, the appeal impacting ComEd has been held in abeyance
until April 10, 2000.
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.
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. 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 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
$52 million as of December 31, 1999. ComEd has protested the notices, and the
matter is currently pending before the IDR's Office of Administrative
Hearings. Interest will continue to accrue on the alleged tax deficiencies.
In November and December of 1997, Unicom and its directors were served with
seven shareholder derivative lawsuits in federal and state court. All of the
suits asserted identical claims that the directors breached fiduciary duties
to the shareholders by allegedly failing to properly supervise ComEd's nuclear
program. Each plaintiff alleged that this caused ComEd to violate NRC rules,
which has cost ComEd millions of dollars. The plaintiffs sought to have the
directors reimburse ComEd for these costs. The originally filed suits were
dismissed because no demand was made upon ComEd's board to pursue a derivative
action on behalf of ComEd, and demand was not excused. In September 1998, the
plaintiffs made such a demand on ComEd's board. On October 22, 1998, the board
appointed a special committee to review the merits of the demand. On May 19,
1999, the plaintiffs refiled a
21
<PAGE>
derivative action alleging that because the board of directors had not
responded to the plaintiffs, in effect the board had refused the demand. The
special committee, assisted by separate counsel, conducted a review of the
claims asserted in the plaintiffs demand letter. On October 27, 1999, the
special committee reported its findings to the full board and recommended that
the demand be rejected, and the board decided that no legal action should be
brought by Unicom or ComEd with respect to the claims asserted in the
plaintiffs demand letter. The plaintiffs reviewed the Special Committee's
report and determined not to contest the Special Committee's recommendation.
An order dismissing the derivative action was issued on February 9, 2000.
On April 28, 1997, Tower Leasing, Inc. and QST Energy, Inc. filed a
complaint with the ICC alleging that ComEd violated Illinois law and its own
tariffs by preventing Tower Leasing and QST from installing a cogeneration
facility at Sears Tower in Chicago and interconnecting such facility with
ComEd's system in that building. Tower Leasing and QST asked the ICC to enter
an order that would have essentially required ComEd to assist in the
implementation of the proposed facility. The ICC issued an order dismissing
the complaint and denying the relief requested by Tower Leasing. Tower
Leasing's petition for rehearing was denied. In August 1998, Tower Leasing and
QST appealed the ICC's decision to the state appellate court. The appellate
court issued an order upholding the ICC's decision.
On November 14, 1997, the CHA filed an application with the FERC, seeking to
require ComEd to provide transmission service to some of CHA's buildings so
that those buildings may take electric service from an alternate electric
supplier. ComEd maintains that the CHA is a retail customer ineligible for
transmission service. ComEd and the CHA have asked the FERC to hold
proceedings in abeyance pending the outcome of settlement negotiations. Should
the CHA proceedings be resolved adversely to ComEd, ComEd could lose
substantial revenue. This revenue loss may be offset, however, by a stranded
cost obligation the CHA would owe ComEd under FERC Order No. 888.
On September 10, 1998, Prairieland Energy, Inc. filed an application with
the FERC, seeking to require ComEd to transmit power and energy on behalf of
Prairieland to the Chicago campus of its parent, the University of Illinois.
ComEd protested the filing because the application either seeks prohibited
retail wheeling or seeks approval of a sham wholesale transaction between
Prairieland and its parent. On December 28, 1998, the FERC issued an order
denying Prairieland's application. On April 19, 1999, the FERC denied
Prairieland's request for appeal. On July 28, 1999, the FERC denied a second
application, which Prairieland had submitted in May, determining that
documentation submitted by Prairieland did not demonstrate the basis for a
bona fide commercial transaction with the University of Illinois.
Prairieland's request for rehearing is pending.
In June 1997, Torco Energy Marketing, Inc. filed an action against ComEd in
the Circuit Court of Cook County, Illinois, alleging that ComEd tortiously
interfered with Torco's proposed arrangement between Torco and Sargent & Lundy
LLC. Torco claims that, but for actions by ComEd, Sargent & Lundy would have
paid Torco $20 million to purchase a portion of the equity in Torco, and that
the venture would have had revenues of $2.6 billion. ComEd was granted summary
judgement on October 28, 1999 and the complaint was dismissed. Torco has filed
a Notice of Appeal. ComEd is confident the dismissal will be upheld.
On April 18, 1996, a ComEd truck driver, driving a ComEd truck, struck a car
that had slowed or stopped to make a turn. The truck pushed this car into
oncoming traffic causing a head-on collision with a third vehicle. The driver
of this third vehicle suffered extensive injuries resulting in numerous
surgical procedures. The plaintiff, who is wheelchair bound, and the
plaintiff's spouse have made a combined demand of $55 million upon ComEd. On
May 28, 1999, judgement for $13,500,000 was entered for the plaintiff. The
matter is currently on appeal. Insurance coverage above ComEd's $5 million
self-insured retention should be available.
22
<PAGE>
See "Item 1. Business," subcaption "Regulation" above, for information
concerning other legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
ComEd's securities and other securities guaranteed by ComEd are currently
rated by three principal securities rating agencies as follows:
<TABLE>
<CAPTION>
Standard Duff &
Moody's & Poor's Phelps
------- -------- ------
<S> <C> <C> <C>
First mortgage and secured pollution control bonds.. Baa1 BBB+ A-
Publicly-held debentures and unsecured pollution
control 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-1
</TABLE>
ComEd Funding Trust's securities are currently rated by three principal
securities rating agencies as follows:
<TABLE>
<CAPTION>
Standard Duff &
Moody's & Poor's Phelps
------- -------- ------
<S> <C> <C> <C>
Transitional trust notes............................. Aaa AAA AAA
</TABLE>
As of February 2000, Moody's and Duff & Phelps' current rating outlooks on
ComEd's securities are stable. S&P has ComEd on CreditWatch with positive
implications.
All three agencies raised their rating for ComEd in the course of 1999: Duff
& Phelps in December, Moody's in September and S&P in June.
On December 17, 1999, Duff & Phelps raised its rating on Unicom's senior
debt obligations to BBB. On September 15, 1999, Moody's assigned Unicom a
first time issuer rating of Baa3. On June 29, 1999, S&P raised its rating on
Unicom's senior debt obligations to BBB.
The above ratings reflect only the views of such rating agencies and each
rating should be evaluated independently from any other rating. Generally,
rating agencies base their ratings on information furnished to them by the
issuing company and on investigations, studies and assumptions by the rating
agencies. There is no assurance that any particular rating will continue for
any given period of time or that it will not be changed or withdrawn entirely
if, in the judgment of the rating agency, circumstances so warrant. Such
ratings are not a recommendation to buy, sell or hold securities.
The following is a brief summary of the meanings of the above ratings and
the relative rank of the above ratings within each rating agency's
classification system.
Moody's top four long-term debt ratings (Aaa, Aa, A and Baa) are generally
considered "investment grade." Obligations rated Baa are considered as medium
grade obligations, neither highly protected nor poorly secured. Such
obligations lack outstanding investment characteristics and in fact have
speculative characteristics. A numerical modifier in Moody's system shows
relative standing within the principal rating category, with 1 indicating the
high end of that category, 2 the mid-range
23
<PAGE>
and 3 the low end. S&P's top four bond ratings (AAA, AA, A and BBB) are
generally considered to describe obligations in which investment
characteristics predominate. Obligations rated BBB are regarded as having an
adequate capacity to pay interest and repay principal. Such obligations
normally exhibit adequate protection parameters, but adverse economic
conditions or changing circumstances are more likely to lead to weakened
capacity to pay. A plus or minus sign in S&P's system shows relative standing
within its rating categories.
Both S&P and Moody's preferred stock ratings represent relative security of
dividends. Moody's top four preferred stock ratings (aaa, aa, a and baa) are
generally considered "investment grade." Moody's baa rating describes a
medium grade preferred stock, neither highly protected nor poorly secured.
S&P's top four preferred stock ratings (AAA, AA, A and BBB) are generally
considered "investment grade." S&P's BBB rating applies to medium grade
preferred stock which is below A ("sound") and above BB ("lower grade").
Duff & Phelps' credit rating scale has 17 alphabetical categories, of which
ratings AAA (the highest rating) through BBB represent investment grade
securities. Ratings of BBB+, BBB and BBB- represent the lowest category of
"investment grade" rating. This category describes securities with below
average protection factors but which are considered sufficient for
institutional investment. Considerable variability in risk occurs during
economic cycles.
Moody's P-2 rating of commercial paper is the second highest of three
possible ratings. P-2 describes a strong capacity for repayment of short-term
promissory obligations. S&P rates commercial paper in four basic categories
with A-2 being the second highest category. Duff & Phelps rates commercial
paper in three basic categories, with D-2 indicating the middle category.
Further explanations of the significance of ratings may be obtained from the
rating agencies.
Additional information required by Item 5 is incorporated herein by
reference to the "Price Range and Cash Dividends Paid per Share of Common
Stock" on page F-4.
Item 6. Selected Financial Data.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data.
The information required by Items 6, 7, 7A and 8 is incorporated herein by
reference to the "Summary of Selected Consolidated Financial Data" on page F-
4, "Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages F-5 through F-24, Quantitative and Qualitative
Disclosures about Market Risk on page F-13, the audited consolidated financial
statements and notes thereto on pages F-26 through F-61, and Supplementary
Data on page F-4. Reference is also made to "Item 1. Business," subcaptions
"Changes in the Electric Utility Industry," "Construction Program" and
"Regulation," for additional information.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by Item 10 relating to directors and nominees for
election as directors at Unicom's Annual Meeting of shareholders is
incorporated herein by reference to the information
24
<PAGE>
under the heading "Security Ownership of Certain Beneficial Owners and
Management" in Unicom's definitive Proxy Statement ("2000 Proxy Statement") to
be filed with the SEC prior to April 30, 2000, pursuant to Regulation 14A
under the Securities Exchange Act of 1934. The information required by Item 10
relating to executive officers is set forth under "Item 1. Business,"
subcaption "Executive Officers of the Registrant" and under the heading
"Security Ownership of Certain Beneficial Owners and Management" in Unicom's
2000 Proxy Statement, which is incorporated herein by reference.
Item 11. Executive Compensation.
The information required by Item 11 is incorporated herein by reference to
the information labelled "Board Compensation" and the paragraphs under the
heading "Executive Compensation" (other than the paragraphs under the heading
"Corporate Governance and Compensation Committee Report on Executive
Compensation") in Unicom's 2000 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by Item 12 is incorporated herein by reference to
the stock ownership information under the heading "Security Ownership of
Certain Beneficial Owners and Management" in Unicom's 2000 Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
None.
25
<PAGE>
ANNUAL REPORT ON FORM 10-K FOR COMMONWEALTH EDISON COMPANY
PART I
Item 1. Business.
See Unicom's "Item 1. Business" (other than the paragraphs under the
headings "General--Unregulated Operations," "Construction Program--Unregulated
Operations" and "Executive Officers of the Registrant"), which is incorporated
herein by this reference.
Executive Officers of the Registrant
The effective year of election of the officers to their present positions
and the prior positions they have held with ComEd or other companies, since
January 1, 1995, are described below.
<TABLE>
<CAPTION>
Name and Age Position
---------------------------- -----------------------------------------------
<C> <S>
*John W. Rowe, 54 Chairman, President and Chief Executive Officer
of ComEd and Unicom since March 1998; previ-
ously President and Chief Executive Officer of
New England Electric System.
*Paul A. Elbert, 50 Executive Vice President of ComEd and Unicom
and President Unicom Enterprises Inc. since
October 1999; previously President and Chief
Executive Officer--Gas for Consumers Energy
Company from August 1997 to September 1999;
previously Executive Vice President and Chief
Operating Officer--Gas at Consumers Energy
Company from December 1994 to August 1997.
*Oliver D. Kingsley, Jr., 57 Executive Vice President of ComEd and Unicom
and President and Chief Nuclear Officer--Nu-
clear Generation Group of ComEd since October
1997; previously Chief Nuclear Officer at the
Tennessee Valley Authority.
*Pamela B. Strobel, 47 Executive Vice President and General Counsel of
ComEd and Unicom since January 1999; previ-
ously Senior Vice President and General Coun-
sel of ComEd and Unicom, October 1997 to De-
cember 1998; previously Vice President and
General Counsel of ComEd.
*Frank M. Clark, 54 Senior Vice President of ComEd and Unicom since
January 1999; previously Vice President of
ComEd, January 1997 to December 1998; previ-
ously Governmental Affairs Vice President 1996
to January 1997 and Governmental Affairs Man-
ager.
*Christopher M. Crane, 41 Senior Vice President of ComEd since July 1999;
previously Vice President of ComEd, October
1998 to July 1999 and Vice President Tennessee
Valley Authority
*Carl J. Croskey, 48 Senior Vice President of ComEd and Unicom and
President of Distribution at ComEd since Au-
gust 1999; previously President of MichCon En-
terprises Inc., a subsidiary of Michigan Con-
solidated Gas Company from January 1998 to Au-
gust 1999; previously Senior Vice President of
Operations for Michigan Consolidated Gas Com-
pany from April 1995 to January 1998.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Name and Age Position
----------------------- ----------------------------------------------------
<C> <S>
*Ruth Ann M. Gillis, 45 Senior Vice President and Chief Financial Officer of
ComEd and Unicom since January 1999; previously
Vice President and Treasurer of ComEd and Unicom,
September 1997 to December 1998; previously Vice
President, Chief Financial Officer and Treasurer of
the University of Chicago Hospitals and Health Sys-
tem from 1996 to 1997 and Senior Vice President and
Chief Financial Officer of American National Bank
and Trust Company.
*David R. Helwig, 49 Senior Vice President of ComEd since January 1999;
previously Vice President of ComEd, January 1998 to
December 1998; previously General Manager of Gen-
eral Electric Company's Nuclear Services Company,
1997 to January 1998 and Vice President at PECO.
*Elizabeth A. Moler, 50 Senior Vice President of ComEd and Unicom since Jan-
uary 2000; previously Director of Unicom and ComEd
from December 1998 to December 1999, and partner at
Vinson & Elkins, LLP from
December 1998 to December 1999; previously Deputy
Secretary of the U.S. Department of Energy, 1997 to
1998 and chair of the Federal Energy Regulatory
Commission, 1993 to 1997
*S. Gary Snodgrass, 48 Senior Vice President of ComEd and Unicom since Oc-
tober 1997; Vice President of ComEd and Unicom,
September 1997 to October 1997; previously Vice
President of USG Corporation.
*Robert E. Berdelle, 44 Vice President and Comptroller of ComEd and Unicom
since January 1999; previously Comptroller of ComEd
and Unicom, July 1997 to December 1998; previously
held various financial reporting and analysis posi-
tions within ComEd.
T. Oliver Butler, 48 Vice President of ComEd since July 1997; previously
Purchasing Vice President of ComEd, 1994 to 1997.
John T. Costello, 51 Vice President of ComEd and Unicom since 1996; pre-
viously Manager of Corporate Relations of ComEd,
1995 to 1996.
John T. Hooker, 51 Vice President of ComEd and Unicom since December
1999; previously Governmental Affairs Vice Presi-
dent of ComEd, 1998 to December 1999 and Director
of Governmental Services of ComEd
Arlene A. Juracek, 49 Vice President of ComEd and Unicom since December
1999; previously Assistant Vice President of ComEd,
February 1994 to December 1999.
Emerson W. Lacey, 58 Vice President of ComEd.
Robert K. McDonald, 44 Vice President of ComEd and Unicom Since December
1999; previously Strategic Planning Vice President
and Director of Strategic Planning of ComEd, Sep-
tember 1994 to December 1999.
J. Stephen Perry, 61 Vice President of ComEd since 1994.
James A. Small, 56 Vice President of ComEd.
Vito Stagliano, 57 Vice President of ComEd and Unicom since December
1999; previously Energy Policy and Planning Vice
President of ComEd since November 1998; previously
Managing Director of Energy Security Analysis Inc.
during 1997 to 1998; previously visiting scholar at
Resources for the Future during 1994 to 1996.
Harold Gene Stanley, 59 Vice President of ComEd since September 1997; Site
Vice President at Braidwood Station, 1996 to 1997;
previously Vice President at Pennsylvania Power and
Light Company.
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Name and Age Position
------------------------ ---------------------------------------------------
<C> <S>
Patricia L. Kampling, 40 Treasurer of ComEd and Unicom since February 1999;
previously Manager of Finance of ComEd and Unicom,
May 1998 to February 1999; previously Assistant
Treasurer of ComEd and Unicom.
John P. McGarrity, 38 Associate General Counsel and Secretary of ComEd
and Unicom since January 1999; previously Associ-
ate General Counsel of ComEd and Unicom, December
1997 to January 1999; previously a partner with
Sidley & Austin.
</TABLE>
--------
* Executive Officers for Section 16 reporting purposes.
The present term of office of each of the above executive officers extends
to the first meeting of ComEd's Board of Directors after the next annual
election of Directors.
There are no family relationships among the executive officers, directors
and nominees for director of ComEd.
Item 2. Properties.
See Unicom's "Item 2. Properties," which is incorporated herein by this
reference.
Item 3. Legal Proceedings.
See Unicom's "Item 3. Legal Proceedings," which is incorporated herein by
this reference.
Item 4. Submission of Matters to a Vote by Security Holders.
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
See Unicom's "Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters", other than the last paragraph thereof and any references
to Unicom's senior debt obligations rating, which is incorporated herein by
reference.
Additional information required by Item 5 is incorporated herein by
reference to the "Cash Dividends Paid per Share of Common Stock" on page F-4.
Item 6. Selected Financial Data.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data.
The information required by Items 6, 7, 7A and 8 is incorporated herein by
reference to the "Summary of Selected Consolidated Financial Data" on page 5,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 6 through 22, Quantitative and Qualitative Disclosures
about Market Risk on page 14, the audited consolidated financial statements
and notes thereto on pages 24 through 56, and Supplementary Data on page 56 of
ComEd's March 30, 2000 Form 8-K Report. Reference is also made to "Item 1.
Business," subcaptions "Changes in the Electric Utility Industry,"
"Construction Program" and "Regulation," for additional information.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
28
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by Item 10 relating to directors and nominees for
election as directors at ComEd's Annual Meeting of shareholders is
incorporated herein by reference to information under the subheadings
"Nominees" "Security Ownership of Certain Beneficial Owners and Management"
under the heading "Item A: Election of Directors" in ComEd's definitive
Information Statement ("2000 Information Statement") to be filed with the SEC
prior to April 30, 2000, pursuant to Regulation 14C under the Securities
Exchange Act of 1934. The information required by Item 10 relating to
executive officers is set forth under "Item 1. Business," subcaption
"Executive Officers of the Registrant" and under the subheading "Security
Ownership of Certain Beneficial Owners and Management" under the heading "Item
A: Election of Directors" in ComEd's 2000 Information Statement, which is
incorporated herein by reference.
Item 11. Executive Compensation.
The information required by Item 11 is incorporated herein by reference to
the paragraph labelled "Compensation of Directors" under the subheading
"Additional Information Concerning Board of Directors" under the heading "Item
A: Election of Directors" and the paragraphs under the heading "Executive
Compensation" (other than the paragraphs under the subheading "Compensation
Committee Report on Executive Compensation") in ComEd's 2000 Information
Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by Item 12 is incorporated herein by reference to
the stock ownership information under the subheading "Security Ownership of
Certain Beneficial Owners and Management" under the heading "Item A: Election
of Directors" in ComEd's 2000 Information Statement.
Item 13. Certain Relationships and Related Transactions.
None.
29
<PAGE>
ANNUAL REPORTS ON FORM 10-K FOR UNICOM CORPORATION AND COMMONWEALTH EDISON
COMPANY
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)See page F-1 for references to Unicom's Financial Statements and
Unicom's and ComEd's Financial Statement Schedules required by this
item. See page 37 for the Report of Independent Public Accountants on
Supplemental Schedule on ComEd's Financial Statement Schedules
required by this item.
1. Exhibits:
The following exhibits are filed with the indicated Annual Report on Form
10-K or incorporated therein by reference. Documents indicated by an
asterisk (*) are incorporated by reference to the File No. indicated.
Documents indicated by a plus sign (+) identify management contracts or
compensatory plans or arrangements.
<TABLE>
<CAPTION>
Exhibit
Number Description of Document Unicom ComEd
------- ------------------------------------------------- ------ -----
<C> <S> <C> <C>
*(2)-1 Asset Sale Agreement dated March 22, 1999 between x
ComEd and Edison Mission Energy. (File No. 1-
1839, Form 10-K for the year ended December 31,
1998, Exhibit (2)-1).
*(2)-2 Amended and Restated Agreement and Plan of Ex-
change and Merger, dated as of September 22,
1999, amended and restated as of January 7,
2000, among Unicom, PECO and Newholdco. (File
Nos. 1-11375 and 1-1839, Current Report on Form
8-K dated January 7, 2000, Exhibit (2)-1). x x
*(3)-1 Articles of Incorporation of Unicom effective
January 28,
1994. (File No. 1-11375, Form 10-K for the year
ended
December 31, 1994, Exhibit (3)-1). x
*(3)-2 Restated Articles of Incorporation of ComEd ef-
fective February 20, 1985, including Statements
of Resolution Establishing Series, relating to
the establishment of three new series of ComEd
preference stock known as the "$9.00 Cumulative
Preference Stock," the "$6.875 Cumulative Pref-
erence Stock" and the "$2.425 Cumulative Prefer-
ence Stock." (File No.
1-1839, Form 10-K for the year ended December
31, 1994, Exhibit (3)-2). x
*(3)-3 By-Laws of Unicom Corporation, effective January
28, 1994 as amended through May 28, 1998 (File
No. 1-11375, Form 10-Q for the quarter ended
June 30, 1998, Exhibit (3)-3). x
*(3)-4 By-Laws of Commonwealth Edison Company, effective
September 2, 1988 as amended through May 28,
1998 (File No. 1-1839, Form 10-Q for the quarter
ended June 30, 1998, Exhibit (3)-4). x
*(4)-1 Mortgage of ComEd to Illinois Merchants Trust
Company, Trustee (Harris Trust and Savings Bank,
as current successor Trustee), dated July 1,
1923, Supplemental Indenture thereto dated Au-
gust 1, 1944, and amendments and supplements
thereto dated, respectively, August 1, 1946,
April 1, 1953, March 31, 1967, April 1, 1967,
July 1, 1968, October 1, 1968, February 28,
1969, May 29, 1970, June 1, 1971, May 31, 1972,
June 15, 1973, May 31, 1974, June 13, 1975, May
28, 1976 and June 3, 1977 (File No. 2-60201,
Form S-7, Exhibit 2-1). x
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document Unicom ComEd
------- ------------------------------------------------- ------ -----
<C> <S> <C> <C>
*(4)-2 Supplemental Indentures to Mortgage dated July 1,
1923 dated, respectively, May 17, 1978, August
31, 1978, June 18, 1979, June 20, 1980, April
16, 1981, April 30, 1982, April 15, 1983, April
13, 1984 and April 15, 1985 (File No. 2-99665,
Form S-3, Exhibit (4)-3). x
*(4)-3 Supplemental Indenture to Mortgage dated July 1,
1923 dated April 15, 1986 (File No. 33-6879,
Form S-3, Exhibit (4)-9). x
*(4)-4 Supplemental Indentures to Mortgage dated July 1,
1923 dated June 15, 1990 (File No. 33-38232,
Form S-3, Exhibit (4)-12). x
*(4)-5 Supplemental Indentures to Mortgage dated July 1,
1923 dated, respectively, June 1, 1991, October
1, 1991 and October 15, 1991 (File No. 33-44018,
Form S-3, Exhibits (4)-12, (4)-13 and (4)-14). x
*(4)-6 Supplemental Indenture to Mortgage dated July 1,
1923 dated February 1, 1992 (File No. 1-1839,
Form 10-K for the year ended December 31, 1991,
Exhibit (4)-18). x
*(4)-7 Supplemental Indenture to Mortgage dated July 1,
1923 dated May 15, 1992 (File No. 33-48542, Form
S-3, Exhibit (4)-14). x
*(4)-8 Supplemental Indentures to Mortgage dated July 1,
1923 dated, respectively, July 15, 1992 and Sep-
tember 15, 1992 (File No. 33-53766, Form S-3,
Exhibits (4)-13 and (4)-14). x
*(4)-9 Supplemental Indenture to Mortgage dated July 1,
1923 dated February 1, 1993 (File No. 1-1839,
Form 10-K for the year ended December 31, 1992,
Exhibit (4)-14). x
*(4)-10 Supplemental Indentures to Mortgage dated July 1,
1923 dated, respectively, April 1, 1993 and
April 15, 1993 (File No. 33-64028, Form S-3, Ex-
hibits (4)-12 and (4)-13). x
*(4)-11 Supplemental Indentures to Mortgage dated July 1,
1923 dated, respectively, June 15, 1993 and July
1, 1993 (File No. 1-1839, Form 8-K dated May 21,
1993, Exhibits (4)-1 and (4)-2). x
*(4)-12 Supplemental Indenture to Mortgage dated July 1,
1923 dated July 15, 1993 (File No. 1-1839, Form
10-Q for the quarter ended June 30, 1993, Ex-
hibit (4)-1). x
*(4)-13 Supplemental Indenture to Mortgage dated July 1,
1923 dated January 15, 1994 (File No. 1-1839,
Form 10-K for the year ended December 31, 1993,
Exhibit (4)-15). x
*(4)-14 Supplemental Indenture to Mortgage dated July 1,
1923 dated December 1, 1994 (File No. 1-1839,
Form 10-K for the year ended December 31, 1994,
Exhibit (4)-16). x
*(4)-15 Supplemental Indenture to Mortgage dated July 1,
1923 dated June 1, 1996 (File No. 1-1839, Form
10-K for the year ended December 31, 1996, Ex-
hibit (4)-16). x
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document Unicom ComEd
------- ------------------------------------------------- ------ -----
<C> <S> <C> <C>
*(4)-16 Instrument of Resignation, Appointment and Ac-
ceptance dated January 31, 1996, under the pro-
visions of the Mortgage dated July 1, 1923, and
Indentures Supplemental thereto (File No. 1-
1839, Form 10-K for the year ended December 31,
1995, Exhibit (4)-28). x
*(4)-17 Instrument dated as of January 31, 1996, for
trustee under the Mortgage dated July 1, 1923
and Indentures Supplemental thereto (File No. 1-
1839, Form 10-K for the year ended December 31,
1995, Exhibit (4)-29). x
*(4)-18 Indentures of ComEd to The First National Bank of
Chicago, Trustee (Amalgamated Bank of Chicago,
as current successor Trustee), dated April 1,
1949, October 1, 1949, October 1, 1950, October
1, 1954, January 1, 1958, January 1, 1959 and
December 1, 1961 (File No. 1-1839, Form 10-K for
the year ended December 31, 1982, Exhibit (4)-
20). x
*(4)-19 Indenture dated as of September 1, 1987 between
ComEd and Citibank, N.A., Trustee relating to
Notes (File No. 33-20619, Form S-3, Exhibit (4)-
13). x
*(4)-20 Supplemental Indenture to Indenture dated Septem-
ber 1, 1987 dated July 14, 1989 (File No. 33-
32929, Form S-3, Exhibit (4)-16). x
*(4)-21 Supplemental Indenture to Indenture dated Septem-
ber 1, 1987 dated January 1, 1997. x
(4)-22 Credit Agreement dated as of December 17, 1999,
among ComEd, as borrower, the Banks named
therein and the other Lenders from time to time
parties thereto, and Citibank, N.A. x
(4)-23 Credit Agreement dated as of December 17, 1999,
among ComEd, as borrower, the Banks named
therein and the other Lenders from time to time
parties thereto, and Citibank, N.A. x
(4)-24 Credit Agreement dated as of December 17, 1999,
among Unicom Enterprises, the Banks Named
Therein and Bank One, N.A. x
(4)-25 Guaranty dated as of December 17, 1999, by Unicom
in favor of the Lenders and LC Banks parties to
the aforementioned Credit Agreement with Unicom
Enterprises. x
*(4)-26 Indenture dated September 1, 1995 between ComEd
and Wilmington Trust Company. (File No. 1-1839,
Form 10-K for the year ended December 31, 1996,
Exhibit (4)-34). x
*(4)-27 First Supplemental Indenture dated September 19,
1995 to Indenture dated September 1, 1995. (File
No. 1-1839, Form 10-K for the year ended Decem-
ber 31, 1996, Exhibit (4)-35). x
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document Unicom ComEd
------- ------------------------------------------------- ------ -----
<C> <S> <C> <C>
*(4)-28 Second Supplemental Indenture dated January 24,
1997 to Indenture dated September 1, 1995. (File
No. 1-1839, Form 10-K for the year ended Decem-
ber 31, 1996, Exhibit (4)-36). x
*(4)-29 Rights Agreement dated as of February 2, 1998 be-
tween Unicom Corporation and First Chicago Trust
Company of New York, as Rights Agent, which in-
cludes as Exhibit A the form of Rights Certifi-
cate and as Exhibit B, the Summary of Rights to
Purchase Common Stock (File No. 1-11375, Current
Report on Form 8-K dated February 2, 1998, Ex-
hibit 4). x
*(4)-30 Amendment dated as of September 22, 1999 to the
aforemention Rights Agreement between Unicom
Corporation and First Chicago Trust Company of
New York, as Rights Agent (File Nos. 1-11375 and
1-1839, Current Report on Form 8-K dated Septem-
ber 22, 1999, Exhibit (4)-1).
*(10)-1 Nuclear Fuel Lease Agreement dated as of November
23, 1993, between CommEd Fuel Company, Inc., as
Lessor, and ComEd, as Lessee (File No. 1-1839,
Form 10-K for the year ended December 31, 1993,
Exhibit (10)-1). x
+*(10)-2 Unicom Corporation Amended and Restated Long-Term
Incentive Plan (File No. 1-11375, Unicom Proxy
Statement dated April 7, 1999, Exhibit A). x
+*(10)-3 1997 Long-Term Performance Unit Award for Execu-
tive and Group Level Employees Payable in 2000
under the Unicom Corporation Long-Term Incentive
Plan. (File Nos. 1-11375 and 1-1839, Form 10-K
for the year ended December 31, 1996, Exhibit
(10)-12). x x
+*(10)-4 1998 Long-Term Performance Unit Award for
Executive and Group Level Employees Payable in
2001 under the Unicom Corporation Long-Term
Incentive Plan. (File Nos. 1-11375 and 1-1839,
Form 10-K for the year ended December 31, 1997,
Exhibit (10)-6). x x
+(10)-5 1999 Long-Term Performance Unit Award for Execu-
tive and Group Level Employees Payable in 2002
under the Unicom Corporation Long-Term Incentive
Plan. x x
+*(10)-6 Unicom Corporation General Provisions Regarding
1996 Stock Option Awards Granted under the
Unicom Corporation Long-Term Incentive Plan.
(File Nos. 1-11375 and 1-1839, Form 10-K for the
year ended December 31, 1996, Exhibit (10)-9). x x
+*(10)-7 Unicom Corporation General Provisions Regarding
1996B Stock Option Awards Granted under the
Unicom Corporation Long-Term Incentive Plan.
(File Nos. 1-11375 and 1-1839, Form 10-K for the
year ended December 31, 1996, Exhibit (10)-11). x x
+*(10)- Unicom Corporation General Provisions Regarding
8 Stock Option Awards Granted under the Unicom
Corporation Long-Term Incentive Plan (Effective
July 10, 1997). x x
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document Unicom ComEd
------- ------------------------------------------------- ------ -----
<C> <S> <C> <C>
+(10)-9 1999 Annual Incentive Award for Management
Employees under the Unicom Corporation Long-Term
Incentive Plan. x x
+*(10)-10 Unicom Corporation Deferred Compensation Unit
Plan, as amended (File Nos. 1-11375 and 1-1839,
Form 10-K for the year ended December 31, 1995,
Exhibit (10)-12). x x
+*(10)-11 Deferred Compensation Plan (included in Article
Five of Exhibit (3)-2 above). x
+*(10)-12 Management Incentive Compensation Plan, effective
January 1, 1989 (File No. 1-1839, Form 10-K for
the year ended December 31, 1988, Exhibit (10)-
4). x
+*(10)-13 Amendments to Management Incentive Compensation
Plan, dated December 14, 1989 and March 21, 1990
(File No. 1-1839, Form 10-K for the year ended
December 31, 1989, Exhibit (10)-5). x
+*(10)-14 Amendment to Management Incentive Compensation
Plan, dated March 21, 1991 (File No. 1-1839,
Form 10-K for the year ended December 31, 1991,
Exhibit (10)-6). x
+*(10)-15 Retirement Plan for Directors, effective
September 1, 1994, as amended through March 12,
1997. (File No. 1-11375, Form 10-K for the year
ended December 31, 1996, Exhibit (10)-19). x
+*(10)-16 Retirement Plan for Directors, effective January
1, 1987, as amended through March 12, 1997.
(File No. 1-1839 Form 10-K for the year ended
December 31, 1996, Exhibit (10)-20) x
+*(10)-17 Unicom Corporation 1996 Directors' Fee Plan (File
No. 1-11375, Unicom Proxy Statement dated April
8, 1996, Appendix A). x x
+*(10)-18 Employment Agreement among Unicom, ComEd and John
W. Rowe dated as of March 10, 1998. (File Nos.
1-11375 and 1-1839, Form 10-Q for the quarter
ended March 31, 1998, Exhibit (10)-3). x x
+*(10)-19 First Amendment dated December 1, 1998 to
Employment Agreement dated March 10, 1998
between Unicom, ComEd and John Rowe. (File Nos.
1-11375 and 1-1839, Form 10-K for the year ended
December 31, 1998, Exhibit (10)-19). x x
+*(10)-20 Second Amendment dated January 27, 1999 to
Employment Agreement dated March 10, 1998
between Unicom, ComEd and John Rowe. (File Nos.
1-11375 and 1-1839, Form 10-K for the year ended
December 31, 1998, Exhibit (10)-20). x x
+*(10)-21 Third Amendment dated March 8, 1999 to Employment
Agreement dated March 10, 1998 between Unicom,
ComEd and John Rowe. (File Nos. 1-11375 and 1-
1839, Form 10-K for the year ended December 31,
1998, Exhibit (10)-21). x x
+*(10)-22 Employment Agreement dated November 1, 1997
between ComEd and Oliver D. Kingsley, Jr. (File
Nos. 1-11375 and 1-1839, Form 10-K for the year
ended December 31, 1998, Exhibit (10)-22). x x
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document Unicom ComEd
------- -------------------------------------------- ------ -----
<C> <S> <C> <C>
+*(10)-23 Unicom Corporation Stock Award Agreement
dated January 25, 1999 between Unicom
Corporation and Oliver D. Kingsley, Jr.
(File Nos. 1-11375 and 1-1839, Form 10-K
for the year ended December 31, 1998,
Exhibit (10)-23). x x
+*(10)-24 Change in Control Agreement between Unicom
Corporation, ComEd and certain senior
executives. (File Nos. 1-11375 and 1-1839,
Form 10-K for the year ended December 31,
1998, Exhibit (10)-24). x x
+*(10)-25 Executive Group Life Insurance Plan (File
No. 1-1839, Form 10-K for the year ended
December 31, 1980, Exhibit (10)-3). x
+*(10)-26 Amendment to the Executive Group Life Insur-
ance Plan (File No. 1-1839, Form 10-K for
the year ended December 31, 1981, Exhibit
(10)-4). x
+*(10)-27 Amendment to the Executive Group Life Insur-
ance Plan dated December 12, 1986 (File No.
1-1839, Form 10-K for the year ended Decem-
ber 31, 1986, Exhibit (10)-6). x
+*(10)-28 Amendment of Executive Group Life Insurance
Plan to implement program of "split dollar
life insurance" dated December 13, 1990
(File No. 1-1839, Form 10-K for the year
ended December 31, 1990, Exhibit (10)-10). x
+*(10)-29 Commonwealth Edison Company Supplemental
Management Retirement Plan. (File No. 1-
1839, Form 10-K for the year ended December
31, 1998, Exhibit (10)-29). x
+*(10)-30 Amendment of Executive Group Life Insurance
Plan to stabilize the death benefit appli-
cable to participants dated July 22, 1992
(File No. 1-1839, Form 10-K for the year
ended December 31, 1992, Exhibit (10)-13). x
+*(10)-31 Commonwealth Edison Company Excess Benefit
Savings Plan (File No. 1-1839, Form 10-Q
for the quarter ended September 30, 1998,
Exhibit (10)-1). x
+*(10)-32 Amendment No. 1 to Commonwealth Edison Com-
pany Excess Benefit Savings Plan dated May
24, 1995 (File No. 1-1839, Form 10-K for
the year ended December 31, 1995, Exhibit
(10)-30). x
+*(10)-33 Amendment No. 2 to Commonwealth Edison Com-
pany Excess Benefit Savings Plan effective
as of September 1, 1997. (File No. 1-1839,
Form 10-K for the year ended December 31,
1997, Exhibit (10)-34) x
+*(10)-34 Unicom Corporation Stock Bonus Deferral Plan
(File Nos. 1-11375 and 1-1839, Form 10-Q
for the quarter ended September 30, 1998,
Exhibit (10)-3) x x
+*(10)-35 Form of Stock Award Agreement under the
Unicom Corporation Long-Term Incentive Plan
(File Nos. 1-11375 and 1-1839, Form 10-K
for the year ended December 31, 1997, Ex-
hibit (10)-37). x x
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document Unicom ComEd
------- ------------------------------------------------- ------ -----
<C> <S> <C> <C>
(10)-38 Amended and Restated Key Management Severance
Plan for Unicom Corporation and Commonwealth Ed-
ison Company dated March 8, 1999. x x
(12) Statement re computation of ratios of earnings to
fixed charges and ratios of earnings to fixed
charges and preferred and preference stock divi-
dend requirements for ComEd. x
*(18) Letter from independent public accountants re-
garding change in accounting principle (File
Nos. 1-11375 and 1-1839, Form 10-K for the year
ended December 31, 1997, Exhibit (18)). x x
(21)-1 Subsidiaries of Unicom. x
(21)-2 Subsidiaries of ComEd. x
(23)-1 Consent of experts for Unicom. x
(23)-2 Consent of experts for ComEd. x
(24)-1 Powers of attorney of Directors whose names are
signed to the Unicom and ComEd Annual Report on
Form 10-K pursuant to such powers. x x
(27) Unicom Financial Data Schedule x
(99)-1 ComEd's Current Report on Form 8-K dated March
30, 2000. x
</TABLE>
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, Unicom and ComEd
hereby agree to furnish to the SEC, upon request, any instrument
defining the rights of holders of long-term debt of ComEd not filed as
an exhibit herein. No such instrument authorizes securities in excess
of 10% of the total assets of ComEd.
(b) Reports on Form 8-K:
A Current Report on Form 8-K dated October 12, 1999 was filed by
Unicom and ComEd providing additional information regarding the
transactions contemplated by the Merger Agreement before Unicom
commences repurchases of shares of its common stock.
A Current Report on Form 8-K dated December 15, 1999 was filed by
Unicom and ComEd announcing the completion on the sale of its fossil
generating plants to EME.
36
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTAL SCHEDULE
To Commonwealth Edison Company:
We have audited, in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements of Commonwealth
Edison Company and subsidiary companies incorporated by reference in this
Annual Report on Form 10-K, and have issued our report thereon dated January
31, 2000.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Item 14.(a), is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Chicago, Illinois
January 31, 2000
37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Chicago and state of Illinois on the 30th
day of March, 2000.
UNICOM CORPORATION
/s/ John W. Rowe
By
--------------------------------
John W. Rowe, Chairman,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the registrant and in the capacities indicated on the 30th day of
March, 2000.
Signature
- ----------------------------
Title
---------------------
/s/ John W. Rowe Chairman, President and
- ---------------------------- Chief Executive Officer
John W. Rowe and Director (principal
executive officer)
/s/ Ruth Ann M. Gillis
- ---------------------------- Senior Vice
Ruth Ann M. Gillis President(principal
financial officer)
/s/ Robert E. Berdelle Vice President and Comptroller
- ---------------------------- (principal accounting officer)
Robert E. Berdelle
Edward A. Brennan* Director
Carlos Cantu* Director
James W. Compton* Director
Bruce DeMars* Director
Sue L. Gin* Director
Donald P. Jacobs* Director
Edgar D. Jannotta* Director
John W. Rogers, Director
Jr.*
Richard L. Thomas* Director
/s/ John P. McGarrity
*By
--------------------------------
John P. McGarrity, Attorney-
in-fact
[Signature page to Unicom Corporation Annual Report on Form 10-K]
38
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Chicago and state of Illinois on the 30th
day of March, 2000.
COMMONWEALTH EDISON COMPANY
/s/ John W. Rowe
By
--------------------------------
John W. Rowe, Chairman,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the registrant and in the capacities indicated on the 30th day of
March, 2000.
Signature
- ----------------------------
Title
---------------------
/s/ John W. Rowe Chairman, President and
- ---------------------------- Chief Executive Officer
John W. Rowe and Director (principal
executive officer)
/s/ Ruth Ann M. Gillis
- ---------------------------- Senior Vice
Ruth Ann M. Gillis President(principal
financial officer)
/s/ Robert E. Berdelle Vice President and Comptroller
- ---------------------------- (principal accounting officer)
Robert E. Berdelle
Edward A. Brennan* Director
Carlos Cantu* Director
James W. Compton* Director
Bruce DeMars* Director
Sue L. Gin* Director
Donald P. Jacobs* Director
Edgar D. Jannotta* Director
John W. Rogers, Director
Jr.*
Richard L. Thomas* Director
/s/ John P. McGarrity
*By
--------------------------------
John P. McGarrity, Attorney-
in-fact
[Signature page to Commonwealth Edison Company Annual Report on Form 10-K]
39
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Definitions............................................................... F-2
<CAPTION>
Supplementary Data
- ------------------
<S> <C>
Operating Statistics...................................................... F-3
Summary of Selected Consolidated Financial Data........................... F-4
Price Range and Cash Dividends Paid per Share of Common Stock............. F-4
Quarterly Financial Data.................................................. F-4
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... F-5
Report of Independent Public Accountants.................................. F-25
<CAPTION>
Consolidated Financial Statements
- ---------------------------------
<S> <C>
Statements of Consolidated Operations for the years 1999, 1998 and 1997... F-26
Consolidated Balance Sheets as of December 31, 1999 and 1998.............. F-27
Statements of Consolidated Capitalization as of December 31, 1999 and
1998..................................................................... F-29
Statements of Consolidated Retained Earnings/(Deficit) for the years 1999,
1998 and 1997............................................................ F-30
Statements of Consolidated Comprehensive Income for the years 1999, 1998
and 1997................................................................. F-30
Statements of Consolidated Cash Flows for the years 1999, 1998 and 1997... F-31
Notes to Financial Statements............................................. F-32
<CAPTION>
Financial Statement Schedules
- -----------------------------
<S> <C>
Schedule II--Valuation and Qualifying Accounts for the years 1997-1999.... F-62
</TABLE>
The individual financial statements and schedules of ComEd's nonconsolidated
wholly owned subsidiaries have been omitted from Unicom and ComEd's Annual
Reports on Form 10-K because the investments are not material in relation to
ComEd's financial position or results of operations. As of December 31, 1999,
the assets of the nonconsolidated subsidiaries, in the aggregate, were less
than 1% of ComEd's consolidated assets. The 1999 revenues of the
nonconsolidated subsidiaries, in the aggregate, were less than 1% of ComEd's
consolidated annual revenues.
F-1
<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
EME Edison Mission Energy, an Edison International
subsidiary
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
MGP Manufactured gas plant
NEIL Nuclear Electric Insurance Limited
Northwind Midway Northwind Midway, LLC, a UT Holdings subsidiary
NRC Nuclear Regulatory Commission
O&M Operation and maintenance
PECO PECO Energy Company, a Pennsylvania company
RES Retail Electric Supplier
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 Enterprises subsidiary
Unicom Power Holdings Unicom Power Holdings Inc., a Unicom Enterprises
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>
F-2
<PAGE>
Operating Statistics
<TABLE>
<S> <C> <C> <C>
Year Ended December 31
-------------------------------------
1999 1998 1997
----------- ----------- -----------
Operating Revenues (thousands of dol-
lars):
Residential........................... $ 2,205,066 $ 2,551,741 $ 2,552,742
Small commercial and industrial....... 2,196,069 2,187,532 2,153,113
Large commercial and industrial....... 1,290,926 1,406,720 1,467,574
Public authorities.................... 463,482 510,185 505,907
Electric railroads.................... 20,317 31,022 29,785
Provisions for revenue refunds--ulti-
mate consumers....................... -- (21,848) (45,470)
Sales for resale...................... 490,938 349,818 336,480
Other revenues........................ 181,149 88,240 82,891
----------- ----------- -----------
Total.............................. $ 6,847,947 $ 7,103,410 $ 7,083,022
=========== =========== ===========
Sales (millions of kilowatthours):
Residential........................... 23,716 23,942 22,151
Small commercial and industrial....... 29,125 27,005 25,859
Large commercial and industrial....... 22,474 24,043 24,074
Public authorities.................... 7,778 7,472 7,323
Electric railroads.................... 408 433 418
Sales for resale...................... 19,487 12,262 15,679
----------- ----------- -----------
Total.............................. 102,988 95,157 95,504
=========== =========== ===========
Sources of Electric Energy (millions of
kilowatthours):
Generation--
Nuclear.............................. 73,684 53,958 49,136
Fossil............................... 25,873 29,212 36,604
Fast-start peaking units............. 127 132 121
----------- ----------- -----------
Net generation..................... 99,684 83,302 85,861
Purchased power....................... 11,079 20,704 16,672
Company use and losses................ (7,775) (6,367) (7,029)
----------- ----------- -----------
Total.............................. 102,988 97,639 95,504
=========== =========== ===========
Cost of Fuel Consumed (per kilowatt-
hours):
Nuclear............................... 0.52c 0.53c 0.54c
Coal.................................. 2.26c 2.51c 2.44c
Oil................................... 5.43c 6.26c 5.50c
Natural gas........................... 3.22c 3.04c 3.50c
Average all fuels..................... 1.00c 1.27c 1.40c
Peak Load (kilowatts).................. 21,243,000 19,012,000 18,497,000
Number of Customers (at end of year):
Residential........................... 3,145,712 3,134,490 3,123,364
Small commercial and industrial....... 309,828 304,208 291,143
Large commercial and industrial....... 1,783 1,794 1,566
Public authorities and electric rail-
roads................................ 18,196 14,051 12,182
Sales for resale...................... 58 62 51
----------- ----------- -----------
Total.............................. 3,475,577 3,454,605 3,428,306
=========== =========== ===========
Average Annual Revenue per Residential
Customer.............................. $ 700.98 $ 814.08 $ 817.31
Average Kilowatthour Use per Residen-
tial Customer......................... 7,546 7,642 7,108
Average Revenue per Kilowatthour:
Residential........................... 9.30c 10.66c 11.52c
Small commercial and industrial....... 7.54c 8.10c 8.33c
Large commercial and industrial....... 5.74c 5.85c 6.10c
</TABLE>
F-3
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
Summary of Selected Consolidated Financial Data
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
(Millions Except per Share Data)
<S> <C> <C> <C> <C> <C>
Operating revenues........... $ 6,848 $ 7,103 $ 7,083 $ 6,937 $ 6,910
Net income (loss)............ $ 570(1) $ 510 $ (853)(2) $ 666 $ 640(3)
Basic earnings (loss) per
common share................ $ 2.62(1) $ 2.35 $ (3.94)(2) $ 3.09 $ 2.98(3)
Diluted earnings (loss) per
common share................ $ 2.61(1) $ 2.34 $ (3.94)(2) $ 3.09 $ 2.98(3)
Cash dividends declared per
common share................ $ 1.60 $ 1.60 $ 1.60 $ 1.60 $ 1.60
Total assets (at end of
year)....................... $23,406 $25,690 $22,700 $23,388 $23,250
Long-term obligations at end
of year excluding current
portion:
Long-term debt, preference
stock and preferred
securities subject to
mandatory redemption
requirements.............. $ 7,480 $ 8,212 $ 6,262 $ 6,487 $ 7,011
Accrued spent nuclear fuel
disposal fee and related
interest................... $ 763 $ 728 $ 693 $ 657 $ 624
Capital lease obligations... $ 162 $ 334 $ 438 $ 477 $ 376
Other long-term obligations. $ 3,182 $ 2,951 $ 3,183 $ 1,991 $ 1,826
</TABLE>
- --------
(1) Includes an extraordinary loss related to the early redemption of long-
term debt of $28 million (after-tax) or $0.13 per common share (diluted).
Also, includes $12 million (after-tax), or $0.05 per common share
(diluted), for premiums paid in connection with the redemption of
preference stock.
(2) Includes an extraordinary loss for the write-off of generation-related net
regulatory assets of $810 million (after-tax), or $3.75 per common share
(basic), the loss on the early retirement of Zion nuclear generating
station of $523 million (after-tax), or $2.42 per common share (basic),
and the positive impact of a one-time cumulative effect for a change in
accounting principle for revenue recognition of $197 million (after-tax),
or $0.91 per common share (basic).
(3) Includes an extraordinary loss related to the early redemption of long-
term debt of $20 million (after-tax), or $0.09 per common share (basic).
Price Range* and Cash Dividends Paid per Share of Common Stock
<TABLE>
<CAPTION>
1999 (by quarters) 1998 (by quarters)
--------------------------------- ---------------------------------
Fourth Third Second First Fourth Third Second First
-------- ------- -------- ------- -------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Price range:
High................... 39 9/16 42 3/16 42 13/16 39 1/4 41 3/16 38 36 15/16 35 13/16
Low.................... 30 15/16 35 5/8 35 1/2 33 9/16 36 13/16 33 3/8 32 9/16 30
Cash dividends paid..... 40c 40c 40c 40c 40c 40c 40c 40c
</TABLE>
* As reported as NYSE Composite Transactions.
- --------
Unicom's common stock is traded on the New York, Chicago and Pacific stock
exchanges, with the ticker symbol UCM. At December 31, 1999, there were
approximately 111,167 holders of record of Unicom's common stock.
Quarterly Financial Data
<TABLE>
<CAPTION>
Average
Number of Diluted
Common Earnings
Shares Per
Operating Operating Net Outstanding Common
Three Months Ended Revenues Income Income (Diluted) Share
- ------------------ ---------- --------- -------- ----------- --------
(Thousands Except per Share Data)
<S> <C> <C> <C> <C> <C>
March 31, 1999............... $1,537,804 $255,951 $ 69,643 217,780 $0.32
June 30, 1999................ $1,685,714 $227,270 $119,392 218,330 $0.55
September 30, 1999........... $2,084,454 $429,428 $279,752 218,265 $1.28
December 31, 1999............ $1,539,975 $273,791 $100,879 217,980 $0.46
March 31, 1998............... $1,664,897 $195,902 $ 53,715 217,386 $0.25
June 30, 1998................ $1,779,146 $220,616 $ 80,458 217,643 $0.37
September 30, 1998........... $2,095,699 $400,186 $264,822 217,761 $1.22
December 31, 1998............ $1,563,668 $225,713 $111,189 217,994 $0.51
</TABLE>
F-4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Changes in the Electric Utility Industry
Unicom and its predominant business, electric energy generation,
transmission and distribution, are in a period of fundamental change. These
changes are attributable to changes in technology and regulation. Federal law
and regulations have been amended to provide for open transmission system
access, and various states, including Illinois, are considering, or have
adopted, new regulatory structures to allow access by some or all customers to
energy suppliers, in addition to the local utility.
Electric Utility Industry. The electric utility industry historically has
consisted of vertically integrated companies which combine generation,
transmission and distribution assets; serve customers within relatively
defined service territories; and operate under extensive regulation with
respect to rates, operations and other matters. Utilities have operated under
a regulatory compact with the state, with a statutory obligation to serve all
of the electricity needs within their service territory in a nondiscriminatory
manner. Historically, investment and operating decisions have been made based
upon the utilities' respective assessment of the current and projected needs
of their customers. In view of this obligation, regulation has focused on
investment and operating costs, and rates have been based on 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
suppliers or a power purchase option which allows the purchase of electric
energy from ComEd at
F-5
<PAGE>
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 is 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.
On October 1, 1999, more than 41,000 non-residential customers became
eligible to choose a new electric supplier or elect the purchase power option.
The remainder of the non-residential customers will become eligible to choose
an electric supplier or the purchase power option between June 1 and
December 31, 2000. As of December 31, 1999, over 4,700 non-residential
customers, representing approximately ten 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
such customers, 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 during the period
1999 through 2004 on transmission and distribution facilities outside of the
City and to contribute $250 million to an environmental trust, as a result of
closing 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. The 15% rate reduction further reduced ComEd's operating revenues
by approximately $226 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 for ComEd 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 ComEd's earnings. In accordance with the
provisions of the 1997 Act, 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.
F-6
<PAGE>
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 7 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,
reliability requirement 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: (1)
provide a reliable supply of electricity as the competitive marketplace
evolves, (2) become a top quartile operator of competitive nuclear plants, (3)
deliver competitive earnings while restructuring the balance sheet to reflect
the realities of the marketplace, (4) expand the offering of energy-related
products and services, and (5) transform the corporate culture of 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 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.
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
F-7
<PAGE>
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 the 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 5 of Notes to Financial Statements for additional
information.
ComEd joined with other Midwestern utilities to design the Midwest ISO in
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, a key element in accommodating the FERC-directed
restructuring of the electric industry, is expected to 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 December 1999, ComEd and other Midwestern
utilities filed a request with the FERC for a Declaratory Order approving a
different organizational template for the regional transmission grid. The
request seeks approval for the creation of for-profit transmission companies,
operating under the general oversight of the Midwest ISO, but fully separated
from their previous vertically integrated utilities. The request was approved,
in part, on February 24, 2000, subject to further development of its elements.
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. 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 will be an active participant in
the power exchange which opened in Illinois in the fourth quarter of 1999.
Merger Agreement. In September 1999, the Boards of Directors of Unicom and
PECO approved a merger of equals that will create a new holding company,
Exelon. The merger is conditioned, among other things, upon the approvals of
the shareholders of both companies and by various regulatory bodies. The
merger is currently expected to be completed in the latter half of 2000.
Under the merger agreement, as amended and restated in January 2000, PECO
and ComEd will become the principal utility subsidiaries of Exelon. This
result will be achieved by a mandatory exchange of the outstanding common
stock of PECO for common stock of Exelon, and a merger of Unicom with and into
Exelon wherein holders of Unicom common stock will receive 0.875 shares of
Exelon common stock plus $3.00 in cash for each of their shares of Unicom
common stock. The merger transaction will be accounted for as a purchase of
Unicom by PECO.
F-8
<PAGE>
Prior to the consummation of the merger, Unicom expects to repurchase
approximately $1.0 billion of its outstanding common shares. These share
repurchases are in addition to 26.3 million shares of Unicom common stock that
Unicom repurchased in January 2000 upon settlement of certain forward purchase
contracts. The $1.0 billion additional share repurchases will be funded from
available funds, including funds resulting from the fossil plant sale.
The Amended and Restated Agreement and Plan of Exchange and Merger, dated as
of January 7, 2000, was filed on January 13, 2000 by Unicom with the SEC as an
exhibit to a Form 8-K, and reference to that filing is made for more detailed
information.
Fossil Plant Sale. In December 1999, ComEd completed the sale of its fossil
generating assets to EME for a cash purchase price of $4.8 billion. The fossil
plant assets represent an aggregate generating capacity of approximately 9,772
megawatts.
Just prior to the consummation of the fossil plant sale, ComEd transferred
these assets to an affiliate, Unicom Investment. In consideration for the
transferred assets, Unicom Investment paid ComEd consideration totalling
approximately $4.8 billion in the form of a demand note in the amount of
approximately $2.4 billion and an interest-bearing Note with a maturity of
twelve years. Unicom Investment immediately sold the fossil plant assets to
EME, in consideration of which Unicom Investment received approximately $4.8
billion in cash from EME. Immediately after its receipt of the cash payment
from EME, Unicom Investment paid the $2.4 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
share repurchases. Of the cash received by ComEd, $1.8 billion is expected to
be used to pay the costs and taxes associated with the fossil plant sale
including ComEd's contribution of $250 million of the proceeds to an
environmental trust as required by the 1997 Act. 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 produced an after-tax gain of approximately $1.6 billion, after
recognizing commitments associated with certain coal contracts ($350 million),
recognizing employee-related costs ($112 million) and contributing to the
environmental trust. The coal contract costs include the amortization of the
remaining balance of ComEd's regulatory asset for unrecovered coal reserves of
$178 million and the recognition of $172 million of settlement payments
related to the above-market portion of coal purchase commitments ComEd
assigned to EME at market value upon completion of the fossil plant sale. The
severance costs included pension and post-retirement welfare benefit
curtailment and special termination benefit costs of $51 million and
transition, separation and retention payments of $61 million. A total of 1,730
fossil station employee positions were eliminated upon completion of the
fossil plant sale on December 15, 1999. As of December 31, 1999, 1,590 of the
employees whose positions were eliminated had been terminated and 140 affected
employees were in a transition program which generally extends 60 days from
the date of the fossil plant sale. Consistent with the provisions of the 1997
Act, the (pre-tax) gain on the sale of $2.587 billion resulted in a regulatory
liability, which was used to recover regulatory assets. Therefore, the gain on
the sale, excluding $43 million of amortization of investment tax credits, was
recorded as a regulatory liability in the amount of $2.544 billion and
amortized in the fourth quarter of 1999. The amortization of the regulatory
liability and additional regulatory asset amortization of $2.456 billion are
reflected in depreciation and amortization expense on Unicom's Statement of
Consolidated Operations and resulted in a net reduction to depreciation and
amortization expense of $88 million.
As part of the sale transaction, ComEd entered into transitional, limited
term power purchase agreements with the buyer. Such purchase power agreements
will increase ComEd's purchased power costs.
F-9
<PAGE>
Liquidity and Capital Resources
UTILITY OPERATIONS
Construction Program. ComEd has a construction program for the year 2000,
which consists principally of improvements to its existing nuclear production,
transmission and distribution facilities. The program, as currently approved
by ComEd, includes the following estimated expenditures (excluding nuclear
fuel expenditures of approximately $260 million).
<TABLE>
<CAPTION>
2000
----
(Millions
of Dollars)
<S> <C>
Nuclear................................................... $215
Transmission and Distribution............................. 536
General................................................... 146
----
$897
====
</TABLE>
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 construction program above reflects a preliminary evaluation of
improvements necessary to improve reliability of ComEd's transmission and
distribution systems. ComEd is currently evaluating its construction program
for the years 2000, 2001 and 2002. The final results of this planning process
cannot be determined at this time.
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 2000 and each year thereafter for the
foreseeable future. ComEd believes that adequate resources, including cost-
effective demand-side management resources, nonutility generation resources,
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, nuclear
fuel and coal in support of certain power purchase agreements approximated
$670 million at December 31, 1999. In addition, ComEd's estimated commitments
for expected capacity payments and fixed charges related to power purchase
agreements were as follows:
<TABLE>
<CAPTION>
Commitments(1)
Period ($Millions)
------ --------------
<S> <C>
2000............................... $ 783
2001............................... 698
2002............................... 427
2003-2004.......................... 540
2005-2012.......................... 1,039
------
$3,487
======
</TABLE>
--------
(1) Capacity payments may be adjusted based on certain conditions. No
estimate of future cost escalation has been made.
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 $1,101 million of long-
term debt and $607 million of preference stock in 1999 and reduce ComEd's
outstanding short-term debt by $500 million. In 1999, ComEd recorded an
extraordinary loss related to the early
F-10
<PAGE>
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 $12 million (after-tax), or $0.05 per common share
(diluted), for premiums paid in connection with the redemption of preference
stock. As more fully described below, Unicom has repurchased approximately
26.3 million shares of Unicom common stock using $924 million of proceeds it
received 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 common stock 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.
During 1999, Unicom also entered into forward purchase arrangements with
financial institutions for the repurchase of approximately 26.3 million shares
of Unicom common stock. The repurchase arrangements were settled in January
2000 on a physical basis. Effective January 2000, the share repurchases will
reduce outstanding shares and reduce common stock equity. Prior to settlement,
the repurchase arrangements were recorded as a receivable on the Consolidated
Balance Sheets based on the aggregate market value of the shares deliverable
under the arrangements. In 1999, net unrealized losses of $44 million (after-
tax), or $0.20 per common share were recorded related to the arrangements. The
settlement of the arrangements in January 2000 resulted in a gain of $113
million (after-tax). See Note 25 of Notes to Financial Statements for
additional information.
See Notes 3 and 7 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 2000 construction program and other
capital requirements, including nuclear fuel expenditures, contributions to
nuclear decommissioning funds, sinking fund obligations and scheduled debt
maturities. See Notes 10 and 12 of Notes to Financial Statements for the
summaries of the annual sinking fund requirements and scheduled maturities for
ComEd preference stock and long-term debt, respectively.
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.
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 had total unused bank lines of credit of $800 million at
December 31, 1999, which may be borrowed at various interest rates. Of that
amount, $500 million expires on December 15, 2000 and $300 million expires on
December 17, 2002. 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 13 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 years 1999, 1998 and 1997. Cash flows from
operating activities were adversely affected in 1998 and positively affected
in 1999 as a result of delayed billings related to the transition to a new
customer information and billing system beginning in July 1998. See Note 1 of
Notes to Financial Statements, under "Customer Receivables and Revenues", for
additional information.
As of January 31, 2000, 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.
F-11
<PAGE>
ComEd's securities and other securities guaranteed by ComEd are currently
rated by three principal securities rating agencies as follows:
<TABLE>
<CAPTION>
Standard Duff &
Moody's & Poor's Phelps
------- -------- ------
<S> <C> <C> <C>
First mortgage and secured pollution control bonds..... Baa1 BBB+ A-
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-1
</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>
All three agencies raised their ratings for ComEd in 1999: Duff & Phelps in
December, Moody's in September; and S&P in June.
Capital Structure. ComEd's ratio of long-term debt to total capitalization
has decreased to 55.2% at December 31, 1999 from 58.0% at December 31, 1998.
As of December 31, 1999 and 1998, $716 million and $494 million, respectively,
of retained earnings had been appropriated for Unicom's future dividend
payments.
Year 2000 Conversion. Unicom completed a successful transition to the Year
2000 as systems performed without interruption during the rollover from
December 31, 1999 to January 1, 2000. All Unicom Year 2000 Command Centers
were activated during the critical rollover period.
In addition to 12/31/99, other key Year 2000 dates that Unicom has completed
without Year 2000 problems are 1/1/99, 4/9/99 (99th day of 1999), 8/21/99
(Global Positioning System rollover), 9/9/99 and the rollover from 2/28/00 to
2/29/00.
Unicom depends upon third parties, including customers, suppliers,
government agencies and financial institutions, to reliably deliver its
products and services. Unicom completed an analysis of the Year 2000 readiness
programs of its critical vendors and obtained 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. Even though mission critical products and services of the Unicom supply
chain are Year 2000 ready, contingency plans were developed to prevent or
mitigate interruptions caused by Unicom suppliers.
As of December 31, 1999, approximately $37.4 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 were expensed as incurred. The foregoing amounts do not include the cost
of new software applications installed as a result of strategic replacement
projects. Such replacement projects were not accelerated because of Year 2000
issues. Unicom expects to incur minimal expenditures for final project wrap-up
activities.
Unicom's Year 2000 project focused on those facets of its business that are
required to deliver reliable electric service. The project encompassed the
computer systems that support core business
F-12
<PAGE>
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 focused 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 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.
Market Risks. ComEd is exposed to market risk due to changes in interest
rates and the market price for electricity. Exposure for interest rate changes
relates to its long-term debt and preferred equity obligations. Exposure to
electricity market price risk relates to forward activities taken to manage
effectively the supply of, and demand for, the electric generation capability
of ComEd's generating plants. ComEd has implemented an integrated risk
management framework to manage such risks. A corporate Risk Management
Committee defines the Company's risk tolerance and establishes appropriate
position limits, and corporate policies and procedures have been implemented
to minimize the exposure to market risk. ComEd does not currently utilize
derivative commodity or financial instruments for trading or speculative
purposes.
See "Energy Risk Management Contracts" in Note 1 of Notes to Financial
Statements regarding the accounting for energy risk management contracts.
Interest Rate Exposure. The table below provides the fair value and average
interest or fixed dividend rates of Unicom's outstanding debt and preferred
stock equity instruments as of December 31, 1999.
<TABLE>
<CAPTION>
Expected Maturity Date Fair Value
Unicom and Subsidiary ---------------------------------------- as of
Companies (millions) 2000 2001 2002 2003 2004 Thereafter Total 12/31/99
- --------------------- ---- ---- ---- ---- ---- ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-Term Debt-
Fixed Rate............. $387 $ 11 $311 $111 $241 $3,694 $4,755 $4,695
Average Interest Rate.. 6.74% 6.75% 7.93% 6.62% 7.53% 7.68%
Variable Rate.......... $ 92 $ 92 $ 92
Average Interest Rate.. 5.49%
Transitional Trust
Notes................. $350 $340 $340 $340 $340 $1,360 $3,070 $2,894
Average Interest Rate.. 5.31% 3.32% 5.38% 5.42% 5.44% 5.66%
Preferred and Preference
Stock-
Subject to Mandatory
Redemption............ $ 69 $ 69 $ 70
Average Dividend Rate.. 6.93%
Not Subject to Manda-
tory Redemption....... $ 2 $ 2 $ 1
Average Dividend Rate.. 4.48%
Trust Securities........ $ 350 $ 350 $ 339
Average Dividend Rate.. 8.49%
</TABLE>
Market Price Exposure. ComEd's energy purchases from other suppliers have
increased as a result of reductions in owned generating capability and system
load growth. The market price of energy is subject to price volatility
associated with changes in supply and demand in the electric supply markets.
In the normal course of business, ComEd utilizes contracts for the forward
sale and purchase of energy to assure system reliability and manage
effectively the utilization of its available generating capability. ComEd also
utilizes put and call option contracts and energy swap arrangements to limit
the market price risk associated with the forward commodity contracts. The
estimated December 31, 1999 fair value of the forward contracts, including
options, for the purchase and sale of energy for the years 2000 through 2007,
was approximately $(70) million. The estimated fair value is based on the
estimated net settlement value of the contracts derived from forward price
curves and market quotes, discounted at a 10% rate. A 10% increase in the
forward price of electricity would decrease the December 31, 1999 fair value
of the forward energy contracts for the years 2000- 2007 by approximately $120
million, of which approximately $65 million is for contracts for the period
2000-2002. Likewise, a 10% decrease would increase the fair value of the
energy contracts by $120 million. Notwithstanding these price risk management
activities, an unexpected loss of generating capability or reduction in demand
could increase ComEd's exposure to market price risks and could have a
material adverse effect on operating results.
F-13
<PAGE>
UEI has entered into gas sales contracts which are hedged with gas supply
contracts at lower prices. UEI's margin per therm of gas delivered is not
significantly affected by the market price of gas. UEI has also entered into
electricity contracts for which the mark-to-market at December 31, 1999 is not
material.
UNREGULATED OPERATIONS
Unicom Enterprises is engaged, through subsidiaries, in energy service
activities which are not subject to utility regulation by federal or state
agencies. One of these subsidiaries, UT Holdings, provides district cooling
and related services to offices and other buildings in the central business
district of the City and in other cities in North America, generally working
with local utilities. District cooling involves, in essence, the production of
chilled water at one or more central locations and its circulation to
customers' buildings through a closed circuit of supply and return piping.
Such water is circulated through customers' premises primarily for air
conditioning. This process is used by customers in lieu of self-generated
cooling.
Unicom Energy Services, another subsidiary of Unicom Enterprises, is engaged
in providing energy services, including gas services, performance contracting,
distributed energy and 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.
also provides retail electric services as an unregulated retail energy
supplier.
Unicom Mechanical Services Inc., a subsidiary of Unicom Enterprises, engages
in the design, installation and servicing of heating, ventilation and air
conditioning facilities for commercial and industrial customers in the City
and surrounding area through subsidiaries conducting business as Midwest
Mechanical and V.A. Smith Company.
Construction Program. Unicom has approved capital expenditures for 2000 of
approximately $85 million for UT Holdings, primarily related to an expansion
of its Chicago district cooling facilities and the related distribution piping
and plants in other cities. As of December 31, 1999, UT Holdings' purchase
commitments, principally related to construction, were approximately $27
million.
Unicom has approved capital expenditures for 2000 of approximately $15
million for Unicom Energy Services. As of December 31, 1999, Unicom Energy
Services had purchase commitments of approximately $24 million.
Unicom has approved capital expenditures for 2000 of approximately $221
million for Unicom Power Holdings. As of December 31, 1999, Unicom Power
Holdings had purchase commitments of approximately $78 million.
Unicom Power Holdings intends to purchase approximately 440 MW of combustion
turbine generators and auxiliary equipment. Such generators will either be
sold or placed into cogeneration or
F-14
<PAGE>
other peaking applications. Unicom Power Holdings is evaluating the costs and
economics of such alternatives. Unicom Power Holdings anticipates that the
equipment purchases will cost approximately $165 million, of which
approximately $90 million has been incurred as of December 31, 1999. Unicom
Power Holdings may incur significant additional costs to site and install such
power generation equipment.
Capital Resources. Unicom expects to obtain funds to invest in its
unregulated subsidiaries principally from the fossil plant sale proceeds
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 fund share repurchases
and to invest in new business opportunities. See "Changes in the Electric
Utility Industry" subcaption "Fossil Plant Sale" above, for additional
information.
Unicom Enterprises has an unused $400 million credit facility which will
expire December 15, 2000. 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. See Note 13 of Notes to Financial Statements
for additional information regarding certain covenants with respect to Unicom
and Unicom Enterprises' operations.
In July 1998, Unicom Thermal issued 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. 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.
F-15
<PAGE>
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.
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 $5.7 billion in current-year (2000) dollars, including a contingency
allowance. This estimate includes $617 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
are expected to 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 $219 million in current-year
(2000) 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 Liabilities, 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
F-16
<PAGE>
increases in future construction expenditures and operating expenses and
changes in operating procedures. See Note 22 of Notes to Financial Statements
for additional information.
Results of Operations
Unicom's basic and diluted earnings/(loss) per common share for 1999, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- ------
<S> <C> <C> <C>
Basic Earnings/(Loss) per Common Share...................... $2.62 $2.35 $(3.94)
===== ===== ======
Diluted Earnings/(Loss) per Common Share.................... $2.61 $2.34 $(3.94)
===== ===== ======
</TABLE>
Substantially all of the results of operations for Unicom are the results of
operations for ComEd. As such, the following section generally discusses, in
more detail, 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 Year 1999. The increase in Unicom's net income in 1999
reflects, among other factors, ComEd's increased energy sales, the fossil
plant sale, improved nuclear performance which resulted in lower fuel and
purchased power costs and lower taxes except income taxes.
Kilowatthour sales increased 8% for the year 1999, compared to 1998, driven
largely by a 59% increase in kilowatthour sales for resale. See "Operating
Revenues" below for additional information.
Fuel and purchased power costs decreased 14% in 1999, compared to 1998,
resulting from improved nuclear performance. See "Fuel Costs" and "Purchased
Power" below for additional information.
O&M expenses increased 6% for the year 1999, compared to the year 1998, as
discussed in "Operation and Maintenance Expenses" below.
Earnings for the year were positively impacted by the fossil plant sale.
Consistent with the provisions of the 1997 Act, the after-tax gain on the
fossil plant sale of $1.56 billion ($7.12 per common share) resulted in a
regulatory liability. Increased regulatory asset amortization amounted to
$2.46 billion, before tax, ($6.76 per common share, after-tax) as discussed in
Note 5 of Notes to Financial Statements. The earnings increase was also
partially offset by a net unrealized loss of $44 million (after-tax), or $0.20
per common share, related to forward share repurchase arrangements, a charge
of $41 million (after-tax), or $0.19 per common share, for an increase in the
estimated liability for the remediation of former MGP sites, extraordinary
losses related to the early redemptions of long-term debt, which reduced net
income on common stock by $28 million (after-tax), or $0.13 per common share,
and premiums of $12 million (after-tax), or $0.05 per common share, paid in
connection with the redemption of preference stock. ComEd's net income for the
year 1999 represents the maximum return on average common equity allowable for
the year before triggering the earnings sharings provision of the 1997 Act.
Taxes other than income taxes decreased by $17 million or $0.05 per common
share after excluding the effects of the change in presentation for certain
state and municipal taxes ($174 million) as discussed in "Operating Revenues"
below. The $17 million decrease is principally due to lower municipal
compensation taxes.
Net Income for the Year 1998. The increase in earnings for 1998 was
primarily due to increased kilowatthour sales, which increased both operating
revenues and energy costs, reduced
F-17
<PAGE>
O&M expenses, lower depreciation and amortization expenses, lower than
expected Zion Station closing costs, gains on the sales of certain assets and
a lower effective income tax rate. In December 1997, ComEd discontinued
regulatory accounting practices for the generation portion of its business and
recorded other non-recurring accounting charges as a result of the 1997 Act,
which primarily contributed to the loss for 1997. The 1997 operating results
also include the write-off for the closure of the Zion nuclear generating
station, partially offset by a cumulative one-time positive impact of $197
million (after-tax), or $0.91 per common share, for a change in accounting
method for revenue recognition to record ComEd's revenues associated with
service which has been provided to customers but has not yet been billed at
the end of each accounting period, retroactive to January 1, 1997.
Fuel and purchased power costs increased 10% in 1998, compared to the year
1997, reflecting increased demand for electricity, as well as the effects of
higher purchased power prices. See "Purchased Power" below for additional
information.
O&M expenses decreased 6% for the year 1998, compared to the year 1997, as
discussed in "Operation and Maintenance Expenses" below.
The year 1998 includes a 6% decrease in depreciation and amortization
expenses, as discussed in "Depreciation and Amortization" below, and a $15
million (after-tax), or $0.07 per common share, reduction in the estimated
liability for closing costs related to the Zion nuclear generating station,
both of which increased operating results.
Also, 1998 operating results reflect realized gains on the sales of certain
assets of $31 million (after-tax), or $0.14 per common share. The sold assets
consisted principally of surplus inventory of emission allowances.
Net Loss for the Year 1997. ComEd's kilowatthour sales, including sales to
wholesale customers, increased 5% during 1997, compared to 1996, as discussed
below. In 1997, O&M expenses increased 13%, as discussed below.
Also, 1997 operating results were reduced by $336 million for increased fuel
and purchased power costs, as discussed below. In addition, a 4% increase in
depreciation expense, primarily due to an increase in certain nuclear plant
depreciation, resulted in a charge of $23 million (after-tax), or $0.11 per
common share.
ComEd discontinued regulatory accounting practices for the generation
portion of its business in the fourth quarter of 1997 due to the expected
transition of electric generation services to market-based pricing as a result
of the 1997 Act. Accordingly, ComEd's generation-related net regulatory
assets, which represent assets and liabilities properly recorded under
regulatory accounting practices but which would not be recorded under GAAP for
non-regulated entities, were written off, resulting in an extraordinary charge
in 1997 of $810 million (after-tax), or $3.75 per common share.
In addition, pursuant to an option contained in the 1997 Act, ComEd filed a
tariff in December 1997 to eliminate its FAC. Under ComEd's regulated rates,
the FAC provided for the recovery of changes in fossil and nuclear fuel costs
and the energy portion of purchased power costs, compared to the fuel and
purchased energy costs included in ComEd's base rates. The 1997 Act provided
that upon the elimination of the FAC, ComEd would be required to refund to
customers the net FAC charges billed during the calendar year 1997. Net FAC
charges billed by ComEd during the year 1997 were $25 million (after tax) or
$0.12 per common share (diluted). These costs, as well as deferred,
underrecovered energy costs of $19 million (after-tax), or $0.08 per common
share (diluted), which ComEd would have been entitled to recover if the FAC
had remained in effect, were recorded as a charge to operating results in the
fourth quarter of 1997. Elimination of the FAC could increase volatility in
future earnings due to changes in fuel and purchased power costs.
F-18
<PAGE>
Additionally, the elimination of the FAC and the transition to market-based
pricing for generation-related costs required ComEd to write-off its
investment in uranium-related properties. An impairment study indicated the
expected incremental costs of mining and milling uranium at those properties
would exceed the expected market price for uranium. These costs, which were
previously recoverable through the FAC, are not expected to be recoverable in
a competitive market. A write-off of uranium-related properties to reflect
market value resulted in a charge of $60 million (after-tax), or $0.28 per
common share (diluted), in December 1997.
Partially offsetting the charges to operations for 1997 was a change in the
accounting method for revenue recognition to record ComEd's revenues
associated with service which has been provided to customers but has not yet
been billed at the end of each accounting period, retroactive to January 1,
1997. This change in accounting method had a one-time cumulative positive
impact for years prior to 1997 of $197 million (after-tax), or $0.91 per
common share.
The year 1997 also included a charge of $523 million (after-tax), or $2.42
per common share, reflecting the write-off of the unrecoverable portion of the
cost of ComEd's Zion Station plant and inventories, and a liability for future
closing costs, resulting from the decision in January 1998 to permanently
cease nuclear generation operations at Zion Station.
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 station availability and performance.
Revenues have also been reduced by a change in presentation for certain
utility taxes. The 1997 Act changed the nature of several state and municipal
taxes that are collected through customer billings. Before August 1998, the
utility taxes were assessed against the utility. Effective August 1998, the
utility taxes are assessed on the electric consumer rather than the utility.
Accordingly, ComEd records the collections as liabilities and no longer
records the taxes collected through billing as revenues and tax expense. The
change in presentation for utility taxes did not have an effect on results of
operations. See Note 1 of Notes to Financial Statements, under "Use of
Estimates" and "Customer Receivables and Revenues", for additional
information.
ComEd's operating revenues decreased $322 million in 1999, compared to 1998,
due in part to the approximately $226 million impact of the 15% residential
base rate reduction that took effect August 1, 1998. Operating revenues for
1999 also were reduced by approximately $174 million, compared to 1998, due to
the change in presentation for certain state and municipal taxes. Kilowatthour
sales increased 8%, primarily due to sales for resale. In 1998, operating
revenues increased $15 million, compared to the year 1997, primarily due to
warmer summer weather experienced in 1998 and continued economic growth in
ComEd's service territory, partially offset by a 15% residential rate
reduction ($170 million) and reserves for various federal and state litigation
matters ($35 million). Operating revenues for 1998 were reduced by
approximately $110 million, as compared to 1997, due to the change in
presentation for certain state and municipal taxes. During 1997, electric
operating revenues increased $139 million, primarily due to a 29% increase in
kilowatthour sales to wholesale customers. Kilowatthour sales to ultimate
consumers during 1997 increased 1%, compared to 1996, reflecting continued
economic growth in ComEd's service territory. Operating revenues in 1997 were
reduced by the provision for revenue refunds of $45 million, including revenue
taxes, related to the elimination of the FAC.
Unicom's unregulated businesses' operating revenues increased $87 million in
1999, compared to 1998. The increase is primarily due to increased revenues
related to performance contracting and district cooling services and the
acquisition of new businesses in 1999.
F-19
<PAGE>
Fuel Costs. Changes in fuel expense for the years 1999, 1998 and 1997
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>
1999 1998 1997
----------------------- ------------------------ ------------------------
Fuel Costs Cost per KWh Fuel Costs Cost per KWh Fuel Costs Cost per KWh
---------- ------------ ---------- ------------ ---------- ------------
(000's) (000's) (000's)
<S> <C> <C> <C> <C> <C> <C>
Cost of fuel consumed:
Nuclear........................ $380,489 0.52c $ 286,619 0.53c $ 263,163 0.54c
Coal........................... 525,896 2.26 626,442 2.51 810,144 2.44
Oil............................ 7,854 5.43 20,822 6.26 17,829 5.50
Natural gas.................... 83,023 3.22 123,644 3.04 113,082 3.50
-------- ---- ---------- ---- ---------- ----
Total/Average all fuels........ $997,262 1.00c $1,057,527 1.27c $1,204,218 1.40c
======== ==== ========== ==== ========== ====
Net generation of electric energy
(millions of kilowatthours)..... 99,684 83,302 85,861
Fuel sources of kilowatthour gen-
eration:
Nuclear........................ 74% 65% 57%
Coal........................... 23 30 39
Oil............................ -- -- --
Natural gas.................... 3 5 4
-------- ---------- ----------
100% 100% 100%
======== ========== ==========
</TABLE>
The increases in net generation of electric energy and nuclear generation
for 1999, compared to the prior years, are primarily due to significant
improvement in the performance of ComEd's nuclear fleet. The overall nuclear
capacity factor was 89% for 1999, compared to 66% for 1998 and 49% for 1997.
The decreases in the net generation of electric energy for 1998, compared to
1997, are primarily due to the sales of State Line and Kincaid Station in
December 1997 and February 1998, respectively, and lower nuclear plant
availability in 1997. The decrease in net generation of electric energy from
1997 to 1998 due to the sale of State Line Station was 2,378,413 megawatthours
and the decrease from 1997 to 1998 due to the sale of Kincaid Station was
2,357,488 megawatthours. See "Regulation," subcaption "Nuclear Matters" above,
for information regarding ComEd's nuclear generating stations.
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 decreased $196 million and
increased $348 million in 1999 and 1998, compared to 1998 and 1997,
respectively. The decrease in 1999 was due to the improved nuclear and fossil
operating performance, which reduced the need to purchase power from other
parties. The increase in purchased power costs in 1998 reflects the effects of
an extraordinary combination of heat, storms and equipment problems
experienced throughout the Midwest in late June 1998 which resulted in
unprecedented purchased power price levels. See "Regulation," subcaption
"Nuclear Matters" above, for information regarding ComEd's nuclear generating
stations. For additional information concerning ComEd's purchase power
commitments see "Liquidity and Capital Resources," subcaption "UTILITY
OPERATIONS--Construction Program," above and Note 22 of Notes to Financial
Statements.
The number and average cost of kilowatthours purchased were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Kilowatthours (millions)............................. 11,561 20,704 16,672
Cost per kilowatthour................................ 4.77c 3.84c 2.40c
</TABLE>
F-20
<PAGE>
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, and the
expenses associated with Unicom's unregulated businesses. 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 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 years presented in the financial statements, the aggregate
level of O&M expenses increased 6% in 1999 compared to 1998, decreased 6% in
1998 compared to 1997, and increased 13% in 1997 compared to 1996.
O&M expenses associated with nuclear generating stations decreased $75
million and $172 million and increased $122 million for years 1999, 1998 and
1997, respectively. The decrease in 1999 was due to shorter refueling outages
and fewer forced outages. The decrease in 1998 was principally due to the
permanent cessation of nuclear generation operations at Zion Station. The
increase in 1997 was a result of increased levels of activities associated
with the repair, replacement and improvement of nuclear generating facility
equipment. See "Changes in the Electric Utility Industry," subcaption
"Response to Regulatory Changes" above, regarding the permanent cessation of
nuclear operations at Zion Station.
O&M expenses associated with fossil generating stations decreased $42
million and $5 million and increased $31 million for the years 1999, 1998 and
1997, respectively. The decrease in 1999 was primarily due to reductions in
plant refurbishment and maintenance costs. The decrease related to fossil
generating stations in 1998 was primarily due to the sales of State Line and
Kincaid Stations in December 1997 and February 1998, respectively ($25
million), partially offset by plant refurbishment costs ($19 million).
O&M expenses associated with ComEd's transmission and distribution system
increased $77 million, $32 million and $15 million for the years 1999, 1998
and 1997, respectively. The increase in 1999 was primarily due to 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. The 1998 and 1997 increases were primarily due to increased
emergency restoration of electric service, higher maintenance expenses and
tree trimming costs. O&M expenses associated with customer-related activities
increased $40 million, $19 million and $11 million for the years 1999, 1998
and 1997, respectively. The increase in 1999 was primarily due to the ongoing
implementation of a new customer information and billing system.
O&M expenses for the year 1999 reflect an increase of $68 million in ComEd's
estimated environmental liability for the remediation of former manufactured
gas plant sites.
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
F-21
<PAGE>
addition to certain other employee-related costs, resulting in charges of $10
million, $48 million and $39 million for the years 1999, 1998 and 1997,
respectively.
Other ComEd employee benefits expenses, excluding the effects of employee
separation plans and certain other employee-related costs increased
$16 million and $41 million and decreased $11 million for the years 1999, 1998
and 1997, respectively. The increase for the year 1999 was primarily due to
higher accruals for incentive compensation. The increase in 1998 was primarily
due to accruals for estimated incentive compensation recorded in 1998. The
decrease in 1997 was primarily due to a reduction in medical costs for active
employees.
O&M expenses included a $25 million charge for the year 1999 as a result of
a franchise related settlement agreement between ComEd and the City.
O&M expenses associated with certain administrative and general costs
decreased $7 million and $22 million and increased $35 million for the years
1999, 1998 and 1997, respectively. The 1999 decrease was due to a variety of
reasons, including reductions in nuclear insurance ($38 million), partially
offset by increased charges for uncollectible accounts resulting from billing
and collection delays experienced following the implementation of a new
customer information system ($25 million). The decrease in 1998 reflects a
reduction of $34 million in certain nuclear maintenance costs due to
technological improvements, compared to 1997. The effects of inflation have
also increased O&M expenses during the years and are also reflected in the
increases and decreases discussed herein.
O&M expenses associated with Unicom's unregulated businesses increased $82
million in 1999, compared to 1998. The increase is primarily related to their
increased level of operation and the acquisition of new businesses in 1999.
Depreciation, Amortization and Decommissioning. Depreciation, amortization
and decommissioning expense decreased $100 million and $62 million and
increased $36 million for the years 1999, 1998 and 1997, respectively. The
decrease in the year 1999 was primarily due to the fossil plant sale.
Consistent with the provisions of the 1997 Act, the (pre-tax) gain on the sale
of $2.587 billion resulted in a regulatory liability, which was used to
recover regulatory assets. Therefore, the gain on the sale, excluding $43
million of amortization of investment tax credits, was recorded as a
regulatory liability in the amount of $2.544 billion and amortized in the
fourth quarter of 1999. The amortization of the regulatory liability and
additional regulatory asset amortization of $2.456 billion are reflected in
depreciation and amortization expense on Unicom's Statements of Consolidated
Operations and resulted in a net reduction to depreciation and amortization
expense of $88 million. Depreciation expense decreased $95 million and
increased $36 million for the years 1998 and 1997, respectively. The decrease
in 1998 reflects the retirement of Zion Station ($31 million), the reduction
in depreciable plant due to the plant impairment recorded by ComEd in the
second quarter of 1998 ($65 million), the sales of State Line and Kincaid ($4
million), lower depreciation of steam generators at Byron Unit 1 and Braidwood
Unit 1 in 1998 compared to 1997 ($25 million), partially offset by plant
additions ($16 million) and shortened depreciable lives for certain nuclear
stations ($14 million). The $36 million increase in depreciation expense in
1997 is principally due to the early retirement of the steam generators at
Byron Unit 1 and Braidwood Unit 1. See Note 1 of Notes to Financial
Statements, under "Depreciation, Amortization of Regulatory Assets and
Liabilities, 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
F-22
<PAGE>
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 years 1999, 1998 and 1997 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 7 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>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Long-term debt outstanding:
Average amount (millions)............................. $8,119 $6,099 $6,256
Average interest rate................................. 6.76% 7.06% 7.65%
Notes payable outstanding:
Average amount (millions)............................. $ 320 $ 344 $ 153
Average interest rate................................. 5.82% 5.68% 5.95%
</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 $22 million and $28 million for the years 1999 and 1998,
respectively, of interest costs on its generation-related construction work in
progress and nuclear fuel in process. AFUDC and interest capitalized do not
contribute to the current cash flow of Unicom or ComEd.
ComEd's ratios of earnings to fixed charges for the years 1999, 1998 and
1997 were 2.45, 2.59 and 0.58, respectively. ComEd's ratios of earnings to
fixed charges and preferred and preference stock dividend requirements for the
years 1999, 1998 and 1997 were 2.32, 2.24 and 0.49, 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.
Foward-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
F-23
<PAGE>
"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 Liabilities and Decommissioning," (4) statements regarding cleanup
costs associated with MGPs and other remediation sites in Note 22 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
and the estimated costs for final project wrap-up activities, (7) statements
regarding the use of fossil plant sale proceeds 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
5 of Notes to Financial Statements, (8) statements regarding estimates of
claims resulting from the summer of 1999 outages set forth in Note 22 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 wrap-up 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 are also subject to the risk
that Year 2000 remediation efforts of other parties with whom Unicom 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 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.
F-24
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Unicom Corporation:
We have audited the accompanying consolidated balance sheets and statements
of consolidated capitalization of UNICOM CORPORATION (an Illinois corporation)
and subsidiary companies as of December 31, 1999 and 1998, and the related
statements of consolidated operations, retained earnings/(deficit),
comprehensive income and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements and the schedule referred
to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Unicom
Corporation and subsidiary companies as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed under Item 14.(a)
is presented for the purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Chicago, Illinois
January 31, 2000
F-25
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED OPERATIONS
The following Statements of Consolidated Operations for the years 1999, 1998
and 1997 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>
1999 1998 1997
---------- ---------- -----------
<S> <C> <C> <C>
Operating Revenues........................ $6,847,947 $7,103,410 $ 7,083,022
---------- ---------- -----------
Operating Expenses and Taxes:
Fuel.................................... $ 997,262 $1,057,527 $ 1,204,218
Purchased power......................... 551,575 748,017 400,055
Operation and maintenance............... 2,427,599 2,285,034 2,438,944
Depreciation and amortization........... 843,248 943,288 1,005,089
Taxes (except income)................... 508,453 699,834 800,886
Income taxes............................ 359,198 355,023 317,558
Investment tax credits deferred--net ... (25,828) (27,730) (31,015)
---------- ---------- -----------
$5,661,507 $6,060,993 $ 6,135,735
---------- ---------- -----------
Operating Income.......................... $1,186,440 $1,042,417 $ 947,287
---------- ---------- -----------
Other Income and (Deductions):
Interest on long-term debt, net of
interest capitalized................... $ (544,962) $ (444,322) $ (488,033)
Interest on notes payable............... (18,602) (19,560) (9,134)
Allowance for funds used during
construction........................... 21,812 16,464 42,325
Income taxes applicable to nonoperating
activities............................. 27,083 4,974 11,010
Provisions for dividends and redemption
premiums--
Preferred and preference stocks of
ComEd................................. (23,756) (56,884) (60,486)
ComEd-obligated mandatorily redeemable
preferred securities of subsidiary
trusts holding solely ComEd's
subordinated debt securities.......... (29,710) (29,710) (28,860)
Loss on nuclear plant closure........... -- -- (885,611)
Income tax effects of nuclear plant
closure................................ -- -- 362,952
Miscellaneous--net...................... (21,060) (3,195) (130,665)
---------- ---------- -----------
$ (589,195) $ (532,233) $(1,186,502)
========== ========== ===========
Net Income/(Loss) before Extraordinary
Items and Cumulative Effect of Change in
Accounting Principle..................... $ 597,245 $ 510,184 $ (239,215)
Extraordinary Losses, less Applicable
Income Taxes............................. (27,579) -- (810,335)
Cumulative Effect of Change in Accounting
Principle................................ -- -- 196,700
---------- ---------- -----------
Net Income/(Loss)......................... $ 569,666 $ 510,184 $ (852,850)
---------- ---------- -----------
Earnings/(loss) per common share before
extraordinary items and cumulative effect
of change in accounting principle--
Basic................................... $ 2.75 $ 2.35 $ (1.10)
Diluted................................. $ 2.74 $ 2.34 $ (1.10)
Extraordinary losses, less applicable
income taxes (basic and diluted)......... $ (0.13) $ -- $ (3.75)
Cumulative effect of change in accounting
principle (basic and diluted)............ $ -- $ -- $ 0.91
Earnings/(loss) per common share--
Basic................................... $ 2.62 $ 2.35 $ (3.94)
Diluted................................. $ 2.61 $ 2.34 $ (3.94)
Cash Dividends Declared per Common Share.. $ 1.60 $ 1.60 $ 1.60
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
F-26
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
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 $672 million and
$858 million, respectively)....................... $25,007,637 $27,801,246
Less--Accumulated provision for depreciation....... 13,729,223 15,234,320
----------- -----------
$11,278,414 $12,566,926
Nuclear fuel, at amortized cost.................... 843,724 874,979
----------- -----------
$12,122,138 $13,441,905
----------- -----------
Investments and Other Property:
Nuclear decommissioning funds...................... $ 2,546,540 $ 2,267,317
Subsidiary companies............................... 50,417 41,150
Other, at cost..................................... 470,848 275,794
----------- -----------
$ 3,067,805 $ 2,584,261
----------- -----------
Current Assets:
Cash and temporary cash investments................ $ 1,696,336 $ 55,828
Cash held for redemption of securities............. 285,056 3,062,816
Other cash investments............................. 62 --
Special deposits................................... 1,845,730 271
Receivables--
Customers........................................ 1,224,678 1,369,701
Forward share repurchase contract................ 813,046 --
Other............................................ 181,532 136,701
Provisions for uncollectible accounts............ (50,814) (48,645)
Coal and fuel oil, at average cost................. 15,613 135,415
Materials and supplies, at average cost............ 221,157 232,246
Deferred income taxes related to current assets and
liabilities....................................... 60,056 24,339
Prepayments and other.............................. 36,268 20,301
----------- -----------
$ 6,328,720 $ 4,988,973
----------- -----------
Deferred Charges and Other Noncurrent Assets:
Regulatory assets.................................. $ 1,792,907 $ 4,578,427
Other.............................................. 94,463 96,907
----------- -----------
$ 1,887,370 $ 4,675,334
----------- -----------
$23,406,033 $25,690,473
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
F-27
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
-----------------------
CAPITALIZATION AND LIABILITIES 1999 1998
------------------------------ ----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Capitalization (see accompanying statements):
Common stock equity.................................. $ 5,332,611 $ 5,099,444
Preferred and preference stocks of ComEd--
Without mandatory redemption requirements.......... 1,790 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....................................... 7,129,906 7,792,502
----------- -----------
$12,814,307 $13,385,909
----------- -----------
Current Liabilities:
Notes payable........................................ $ 4,750 $ 292,963
Current portion of long-term debt, redeemable prefer-
ence stock and capitalized lease obligations of sub-
sidiary companies................................... 915,439 2,314,443
Accounts payable..................................... 582,920 604,936
Accrued interest..................................... 146,718 180,674
Accrued taxes........................................ 1,386,930 134,976
Dividends payable.................................... 94,090 105,133
Customer deposits.................................... 68,128 56,954
Accrued plant closing costs.......................... -- 78,430
Other................................................ 316,542 155,262
----------- -----------
$ 3,515,517 $ 3,923,771
----------- -----------
Deferred Credits and Other Noncurrent Liabilities:
Deferred income taxes................................ $ 2,484,883 $ 3,805,460
Nuclear decommissioning liability for retired plants. 1,259,700 1,215,400
Accumulated deferred investment tax credits.......... 484,717 562,285
Accrued spent nuclear fuel disposal fee and related
interest............................................ 763,427 728,413
Obligations under capital leases of subsidiary compa-
nies................................................ 161,611 333,653
Regulatory liabilities............................... 596,157 595,005
Other................................................ 1,325,714 1,140,577
----------- -----------
$ 7,076,209 $ 8,380,793
----------- -----------
Commitments and Contingent Liabilities (Note 22)
$23,406,033 $25,690,473
=========== ===========
</TABLE>
*As described in Note 11 of Notes to Financial Statements, the sole asset of
ComEd Financing I, a subsidiary trust of ComEd, is $206.2 million principal
amount of ComEd's 8.48% subordinated deferrable interest notes due September
30, 2035. The sole asset of ComEd Financing II, also a subsidiary trust of
ComEd, is $154.6 million principal amount of ComEd's 8.50% subordinated
deferrable interest debentures due January 15, 2027.
The accompanying Notes to Financial Statements are an integral part of the
above statements.
F-28
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CAPITALIZATION
<TABLE>
<CAPTION>
December 31
------------------------
1999 1998
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Common Stock Equity:
Common stock, without par value--
Outstanding--217,835,570 shares and 217,094,560
shares, respectively.............................. $ 4,971,618 $ 4,966,630
Preference stock expense of ComEd................... (72) (3,199)
Retained earnings................................... 363,621 142,813
Accumulated other comprehensive income.............. 7,539 --
Treasury stock--264,406 shares and 178,982 shares,
respectively....................................... (10,095) (6,800)
----------- -----------
$ 5,332,611 $ 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--56,291 shares and 58,211 shares,
respectively.................................... 1,790 1,851
Prior preferred stock, cumulative, $100 par value
per share--
No shares outstanding............................ -- --
----------- -----------
$ 1,790 $ 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 2000 through 2004--6 3/8% to 9 3/8%...... $ 698,245 $ 1,080,000
Maturing 2005 through 2014--4.40% to 8 3/8%....... 1,299,400 1,485,400
Maturing 2015 through 2023--5.85% to 9 7/8%....... 1,589,443 1,981,000
----------- -----------
$ 3,587,088 $ 4,546,400
Transitional trust notes, due 2000 through 2008--
5.29% to 5.74%..................................... 3,070,000 3,400,000
Sinking fund debentures, due 2001 through 2011--2
3/4% to 7 5/8%..................................... 30,866 94,159
Pollution control obligations, due 2007 through
2014--5.3% to 5 7/8%............................... 139,200 140,700
Other long-term debt................................ 1,089,347 1,259,204
Current maturities of long-term debt included in
current liabilities................................ (737,615) (1,585,281)
Unamortized net debt discount and premium........... (48,980) (62,680)
----------- -----------
$ 7,129,906 $ 7,792,502
----------- -----------
$12,814,307 $13,385,909
----------- -----------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
F-29
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS/(DEFICIT)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- ----------
(Thousands of Dollars)
<S> <C> <C> <C>
Balance at Beginning of Period................. $142,813 $(21,184) $1,177,997
Add--Net income/(loss)......................... 569,666 510,184 (852,850)
-------- -------- ----------
$712,479 $489,000 $ 325,147
-------- -------- ----------
Deduct--
Cash dividends declared on
common stock.............................. $347,783 $347,161 $ 346,225
Other capital stock transactions--net....... 1,075 (974) 106
-------- -------- ----------
$348,858 $346,187 $ 346,331
-------- -------- ----------
Balance at End of Period (Includes $716
million, $494 million and $331 million of
appropriated retained earnings at December
31, 1999, 1998 and 1997, respectively)....... $363,621 $142,813 $ (21,184)
======== ======== ==========
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
<CAPTION>
1999 1998 1997
-------- -------- ----------
(Thousands of Dollars)
<S> <C> <C> <C>
Net Income/(Loss) on Common Stock.............. $569,666 $510,184 $ (852,850)
Other Comprehensive Income
Unrealized gains on securities............... $ 12,471 $ -- $ --
Income taxes on other comprehensive income... (4,932) -- --
-------- -------- ----------
Other comprehensive income, net of tax....... $ 7,539 $ -- $ --
-------- -------- ----------
Comprehensive Income/(Loss).................... $577,205 $510,184 $ (852,850)
======== ======== ==========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
F-30
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
(Thousands of Dollars)
<S> <C> <C> <C>
Cash Flow from Operating Activities:
Net income/(loss)...................... $ 569,666 $ 510,184 $ (852,850)
Adjustments to reconcile net
income/(loss) to net cash provided by
operating activities:
Depreciation and amortization........ 908,894 994,861 1,051,543
Deferred income taxes and investment
tax credits--net.................... (1,448,363) 69,768 (345,042)
Contribution to environmental trust.. (250,000) -- --
Recovery of coal reserve regulatory
assets.............................. 197,974 108,372 82,441
Increase in MGP liability............ 68,078 -- --
Extraordinary loss related to write-
off of certain net regulatory
assets.............................. -- -- 810,335
Cumulative effective of change in
accounting principle................ -- -- (196,700)
Loss on nuclear plant closure........ -- -- 885,611
Write-down of uranium-related
properties.......................... -- -- 64,387
Provisions/(payments) for revenue
refunds--net........................ (22,603) (23,622) 45,470
Equity component of allowance for
funds used during construction...... (7,789) (6,959) (23,770)
Provisions/(payments) for liability
for separation costs--net........... (62,396) 9,757 15,986
Net effect on cash flows of changes
in:
Receivables........................ 103,515 (486,838) 24,083
Coal and fuel oil.................. 618 (14,751) 19,698
Materials and supplies............. (5,202) 19,805 41,659
Accounts payable excluding nuclear
fuel lease principal payments and
separation costs--net............. (19,251) 97,094 259,810
Accrued interest and taxes......... 1,246,007 (27,201) (17,903)
Other changes in certain current
assets and liabilities............ 124,154 144,290 39,005
Other--net........................... (43,257) 27,525 109,927
----------- ----------- -----------
$ 1,360,045 $ 1,422,285 $ 2,013,690
----------- ----------- -----------
Cash Flow from Investing Activities:
Construction expenditures.............. $(1,204,064) $ (966,494) $(1,043,311)
Nuclear fuel expenditures.............. (253,483) (166,168) (185,373)
Sales of generating plants............. 4,885,720 177,454 60,791
Equity component of allowance for
funds used during construction........ 7,789 6,959 23,770
Contributions to nuclear
decommissioning funds................. (89,945) (136,771) (114,825)
Other investments and special
deposits.............................. (1,886,323) (10,965) (13,246)
Plant removals--net.................... (74,584) (86,988) (85,923)
----------- ----------- -----------
$ 1,385,110 $(1,182,973) $(1,358,117)
----------- ----------- -----------
Cash Flow from Financing Activities:
Issuance of securities--
Transitional trust notes.............. $ -- $ 3,382,629 $ --
Other long-term debt.................. 201,764 382,270 362,663
Company-obligated mandatorily
redeemable preferred securities if
subsidiary trust holding solely the
Company's subordinated debt
securities........................... -- -- 150,000
Capital stock......................... 20,941 16,644 15,778
Retirement and redemption of
securities--
Transitional trust notes.............. (330,000) -- --
Other long-term debt.................. (1,431,545) (615,858) (746,240)
Capital stock......................... (639,342) (34,066) (44,111)
Repurchase of common stock............. (813,046) (6,800) --
Cash dividends paid on common stock.... (347,564) (346,954) (345,936)
Proceeds from sale/leaseback of
nuclear fuel.......................... -- 101,038 149,955
Nuclear fuel lease principal payments.. (255,402) (255,605) (166,411)
Increase/(decrease) in short-term
borrowings............................ (288,213) 134,813 29,400
----------- ----------- -----------
$(3,882,407) $ 2,758,111 $ (594,902)
----------- ----------- -----------
Change in Net Cash Balance.............. $(1,137,252) $ 2,997,423 $ 60,671
Cash, Temporary Cash Investments and
Cash Held for Redemption of Securities:
Balance at Beginning of Period....... 3,118,644 121,221 60,550
----------- ----------- -----------
Balance at End of Period............. $ 1,981,392 $ 3,118,644 $ 121,221
=========== =========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
F-31
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
(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 were based on estimates for the period July 1998 through
November 1999 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 $7.8 billion and $9.2 billion as of
December 31, 1999 and 1998, respectively. See "Regulatory Assets and
Liabilities" below regarding the plant impairment recorded by ComEd in the
second quarter of 1998.
F-32
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Regulatory Assets and Liabilities. Regulatory assets are incurred costs
which have been deferred and are amortized for ratemaking and accounting
purposes. Regulatory liabilities represent amounts to be settled with
customers through future rates. Regulatory assets and liabilities reflected on
the Consolidated Balance Sheets at December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
December 31
---------------------
1999 1998
---------- ----------
(Thousands of
Dollars)
<S> <C> <C>
Regulatory assets:
Impaired production plant............................... $ 366,221 $2,955,154
Deferred income taxes (1)............................... 688,946 680,356
Nuclear decommissioning costs--Dresden Unit 1........... 202,308 255,031
Nuclear decommissioning costs--Zion Units 1 and 2....... 496,638 443,130
Coal reserves........................................... -- 197,975
Unamortized loss on reacquired debt (2)................. 38,794 46,781
---------- ----------
$1,792,907 $4,578,427
========== ==========
Regulatory liabilities:
Deferred income taxes (1)............................... $ 596,157 $ 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 over
a transition period that extends through 2006. Consistent with the provisions
of the 1997 Act, the (pre-tax) gain on the sale of $2.587 billion resulted in
a regulatory liability, which was used to recover regulatory assets.
Therefore, the gain on the sale, excluding $43 million of amortization of
investment tax credits, was recorded as a regulatory liability in the amount
of $2.544 billion and amortized in the fourth quarter of 1999. The
amortization of the regulatory liability and additional regulatory asset
amortization of $2.456 billion are reflected in depreciation and amortization
expense on Unicom's Statements of Consolidated Operations and resulted in a
net reduction to depreciation and amortization expense of $88 million. 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 5 for additional information regarding the fossil plant
sale.
The regulatory assets for Dresden Unit 1 and Zion Units 1 and 2 represent
unrecovered nuclear decommissioning costs, which are expected to be recovered
over the periods 2000-2011 and 2000-2013, respectively, through a separate
rate recovery rider provided for by the 1997 Act. See "Depreciation,
Amortization of Regulatory Assets and Liabilities and Decommissioning" below
for additional information.
F-33
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Depreciation, Amortization of Regulatory Assets and Liabilities, and
Decommissioning. Depreciation, amortization of regulatory assets and
liabilities, and decommissioning for the years 1999, 1998 and 1997 were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- ----------
(Thousands of Dollars)
<S> <C> <C> <C>
Depreciation expense.............................. $713,340 $788,057 $ 881,196
Amortization of regulatory assets and
liabilities--net................................. 46,088 65,211 15,272
-------- -------- ----------
$759,428 $853,268 $ 896,468
Decommissioning expense........................... 83,820 90,020 108,621
-------- -------- ----------
$843,248 $943,288 $1,005,089
======== ======== ==========
</TABLE>
Provisions for depreciation, including nuclear plant, were at average annual
rates of average depreciable utility plant and equipment for the years 1999,
1998 and 1997 as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Average annual depreciation rates............................. 2.66% 3.02% 3.36%
</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 year 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
recovery of the related decommissioning costs.
Based on ComEd's most recent study, decommissioning costs are estimated to
be $5.7 billion in current-year (2000) dollars, including a contingency
allowance. This estimate includes $617 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
are expected to 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
F-34
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
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. 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 $219 million in current-year (2000) 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 $5.7 billion in current-year (2000) 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
December 31, 1999, the total decommissioning costs included in the accumulated
provision for depreciation were $2,100 million.
For ComEd's retired nuclear units, the total estimated liability for nuclear
decommissioning in current-year (2000) 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 December 31, 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.................................... $104,792 $455,962 $ 560,754
Unrecovered portion of the liability.............. 202,308 496,638 698,946
-------- -------- ----------
Nuclear decommissioning liability for retired
plants.......................................... $307,100 $952,600 $1,259,700
======== ======== ==========
</TABLE>
F-35
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Under Illinois law, decommissioning cost collections are required to be
deposited into external trusts. Consequently, such collections do not add to
the cash flows available for general corporate purposes. The ICC has approved
ComEd's funding plan, which provides for annual contributions of current
accruals and ratable contributions of past accruals over the remaining current
NRC license lives of the nuclear plants. The fair value of funds accumulated
in the external trusts at December 31, 1999 was $2,547 million, which includes
pre-tax unrealized appreciation of $721 million. The earnings on the external
trusts for operating plants accumulate in the fund balance and accumulated
provision for depreciation. Nuclear decommissioning funding as of December 31,
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
accumulated provision for depreciation)................ $2,099,796
Amounts recovered through rates and investment fund
earnings for retired plants............................ 560,754
Less past accruals not yet contributed to the trusts.... 114,010
----------
Fair value of external trust funds..................... $2,546,540
==========
</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
December 31, 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 in 1999.
ComEd had approximately 3.5 million electric customers at December 31, 1999.
Revenues are recognized as electric and delivery services are provided to
customers.
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. 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 $35 million and $10 million in 1999 and 1998, respectively,
compared to normally expected levels. See "Use of Estimates" above for
additional information regarding ComEd's revenues and net receivables.
See Notes 3 and 19 for additional information.
Nuclear Fuel. The cost of nuclear fuel is amortized to fuel expense based on
the quantity of heat produced using the unit of production method. As
authorized by the ICC, provisions for spent nuclear fuel disposal costs have
been recorded at a level required to recover the fee payable on the current
nuclear-generated and sold electricity and the current interest accrual on the
one-time fee payable to the DOE for nuclear generation prior to April 7, 1983.
The one-time fee and interest thereon have been recovered and the current fee
and interest on the one-time fee are presently being recovered through base
rates. See Note 14 for additional information concerning the disposal of spent
nuclear fuel, one-time fee and interest accrual on the one-time fee. Nuclear
fuel expenses, including leased fuel costs and provisions for spent nuclear
fuel disposal costs, were $380 million, $325 million and $298 million for the
years 1999, 1998 and 1997, respectively.
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.
F-36
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
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 7.81%, 8.34% and 9.39% for the years
1999, 1998 and 1997, 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 $22 million and $28 million for the years 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 $642 million, $538 million and $598 million for the years
1999, 1998 and 1997, 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 8 for
additional information.
Average Common Shares Outstanding. The number of average outstanding common
shares used to compute basic and diluted EPS for the years, 1999, 1998 and
1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(Thousands of Shares)
<S> <C> <C> <C>
Average Number of Common Shares Outstanding:
Average Number of Common Shares--Basic................. 217,303 216,942 216,330
Potentially Dilutive Common Shares--Treasury Method:
Stock Options........................................ 660 633 136
Other Convertible Securities......................... 88 85 98
------- ------- -------
Average Number of Common Shares--Diluted................ 218,051 217,660 216,564
======= ======= =======
</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.
F-37
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
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 are in the process of reviewing their various contracts to
determine which contracts meet the requirements of SFAS No. 133 and would need
to be reflected as derivatives under the standard and accounted for at fair
value. Among the contracts that are being reviewed are purchase power
agreements, contracts related to electricity purchases and sales, contracts
related to gas purchases and sales, normal purchase orders, securities issued
and insurance contracts. Unicom and ComEd have not yet quantified the effects
on their financial statements of adopting SFAS No. 133. However, adoption of
SFAS No. 133 could increase volatility in earnings and other comprehensive
income.
Reclassifications. Certain prior year amounts have been reclassified to
conform with current period presentation. These reclassifications had no
effect on operating results.
Cash Held for Redemption of Securities. As of December 31, 1999, the cash
held for redemption of securities reported on the Consolidated Balance Sheets
includes $222 million in unused cash proceeds from the issuance of the
transitional trust notes and $63 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.
Special Deposits. As of December 31, 1999, special deposits included $1.8
billion for cash deposited by Unicom Investments in connection with a
contemplated like-kind exchange transaction involving certain of the sold
fossil plants.
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, and cash held for
redemption of securities are considered to be cash equivalents. Supplemental
cash flow information for the years 1999, 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest (net of amount capitalized)............ $597,984 $454,091 $512,050
Income taxes (net of refunds)................... $455,180 $272,476 $264,802
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Capital lease obligations incurred by subsidiary
companies........................................ $ 1,744 $106,370 $158,412
</TABLE>
F-38
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
(2) Merger Agreement. In September 1999, the Boards of Directors of Unicom
and PECO approved a merger of equals that will create a new holding company,
Exelon. The merger is conditioned, among other things, upon the approvals of
the shareholders of both companies and by various regulatory bodies. The
merger is currently expected to be completed in the latter half of 2000.
Under the merger agreement, as amended and restated in January 2000, PECO
and ComEd will become the principal utility subsidiaries of Exelon. This
result will be achieved by a mandatory exchange of the outstanding common
stock of PECO for common stock of Exelon, and a merger of Unicom with and into
Exelon wherein holders of Unicom common stock will receive 0.875 shares of
Exelon common stock plus $3.00 in cash for each of their shares of Unicom
common stock. The merger transaction will be accounted for as a purchase of
Unicom by PECO.
Prior to the consummation of the merger, Unicom expects to repurchase
approximately $1.0 billion of its outstanding common shares. These share
repurchases are in addition to 26.3 million shares of Unicom common stock that
Unicom repurchased in January 2000 upon settlement of certain forward purchase
contracts. The $1.0 billion additional share repurchases will be funded from
available funds, including funds resulting from the fossil plant sale.
(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 1997 Act. The CTC, which is 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 5 for additional information.
On October 1, 1999, more than 41,000 non-residential customers became
eligible to choose a new electric supplier or elect the purchase power option.
The remainder of non-residential customers will become eligible to choose an
electric supplier or the purchase power option between June 1 and December 31,
2000. As of December 31, 1999, over 4,700 non-residential customers,
representing approximately ten 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 such
customers, 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
F-39
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
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 1999 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. ComEd's operating revenues were reduced by
approximately $170 million in 1998 due to the 15% residential base rate
reduction. The 15% rate reduction further reduced ComEd's operating revenues
by approximately $226 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 for ComEd
are each calculated on a two-year average basis. The earnings sharing
provision is applicable only to ComEd's earnings. Consistent with the
provisions of the 1997 Act, 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 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 $1,101 million of long-
term debt and $607 million of preference stock in 1999 and reduce by $500
million ComEd's outstanding short-term debt. During the year 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
$12 million (after-tax), or $0.05 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. As
more fully described in Note 7, Unicom has repurchased approximately 26.3
million shares of Unicom common stock using $924 million of proceeds it
received 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 common stock repurchases. See Note
7 for additional information regarding Unicom's share repurchases.
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
F-40
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
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) Cumulative Effect of a Change in Accounting Principle. In the fourth
quarter of 1997, ComEd changed its accounting method for revenue recognition
to record revenues associated with service which has been provided to
customers but has not yet been billed at the end of each accounting period,
retroactive to January 1, 1997. This change in accounting method increased
operating results for the year 1997 to reflect the one-time cumulative effect
of the change for years prior to 1997 by $197 million (after-tax), or $0.91
per common share.
(5) Sale of Plants and Closure. In December 1999, ComEd completed the sale
of its fossil generating assets to EME for a cash purchase price of $4.8
billion. The fossil generating assets represent an aggregate generating
capacity of approximately 9,772 megawatts.
Just prior to the consummation of the fossil plant sale, ComEd transferred
these assets to an affiliate, Unicom Investment. In consideration for the
transferred assets, Unicom Investment paid ComEd consideration totalling
approximately $4.8 billion in the form of a demand note in the amount of
approximately $2.4 billion and an interest-bearing Note with a maturity of
twelve years. Unicom Investment immediately sold the fossil plant assets to
EME, in consideration of which Unicom Investment received approximately $4.8
billion in cash from EME. Immediately after its receipt of the cash payment
from EME, Unicom Investment paid the $2.4 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
share repurchases. Of the cash received by ComEd, $1.8 billion is expected to
be used to pay the costs and taxes associated with the fossil plant sale,
including ComEd's contribution of $250 million of the proceeds to an
environmental trust as required by the 1997 Act. 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 produced an after-tax gain of approximately $1.6 billion, after
recognizing commitments associated with certain coal contracts ($350 million),
recognizing employee-related costs ($112 million) and contributing to the
environmental trust. The coal contract costs include the amortization of the
F-41
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
remaining balance of ComEd's regulatory asset for unrecovered coal reserves of
$178 million and the recognition of $172 million of settlement payments
related to the above-market portion of coal purchase commitments ComEd
assigned to EME at market value upon completion of the fossil plant sale. The
severance costs included pension and post-retirement welfare benefit
curtailment and special termination benefit costs of $51 million and
transition, separation and retention payments of $61 million. A total of 1,730
fossil station employee positions were eliminated upon completion of the
fossil plant sale on December 15, 1999. As of December 31, 1999, 1,590 of the
employees whose positions were eliminated had been terminated and 140 affected
employees were in a transition program which generally extends 60 days from
the date of the fossil plant sale. Consistent with the provisions of the 1997
Act, the (pre-tax) gain on the sale of $2.587 billion resulted in a regulatory
liability, which was used to recover regulatory assets. Therefore, the gain on
the sale, excluding $43 million of amortization of investment tax credits, was
recorded as a regulatory liability in the amount of $2.544 billion and
amortized in the fourth quarter of 1999. The amortization of the regulatory
liability and additional regulatory asset amortization of $2.456 billion are
reflected in depreciation and amortization expense on Unicom's Statement of
Consolidated Operations and resulted in a net reduction to depreciation and
amortization expense of $88 million. See Note 1, under "Regulatory Assets and
Liabilities," for additional information.
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 charge included a
liability for estimated future closing costs associated with the retirement of
the station, excluding severance costs, resulting in a charge of $117 million
(after-tax). ComEd has recorded reductions to the expected liability for
future closing costs of $16 million (after-tax), or $0.07 per common share
(diluted), and $15 million (after-tax), or $0.07 per common share (diluted),
in 1999 and 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 17 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.
(6) Authorized Shares, Voting Rights and Stock Rights of Capital Stock. At
December 31, 1999, Unicom's authorized shares consisted of 400,000,000 shares
of common stock. The authorized shares of ComEd preferred and preference
stocks at December 31, 1999 were: preference stock--7,510,451 shares; $1.425
convertible preferred stock--56,291 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.
F-42
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
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.
(7) 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.
During 1999, Unicom also entered into forward purchase arrangements with
financial institutions for the repurchase of approximately 26.3 million shares
of Unicom common stock. The repurchase arrangements were settled in January
2000 on a physical basis. Effective January 2000, the share repurchases will
reduce outstanding shares and reduce common stock equity. Prior to the
settlement, the repurchase arrangements were recorded as a receivable on the
Consolidated Balance Sheets based on the aggregate market value of the shares
deliverable under the arrangements. In 1999, net unrealized losses of $44
million (after-tax), or $0.20 per common share, were recorded related to the
arrangements. The settlement of the arrangements in January 2000 resulted in a
gain of $113 million (after-tax).
At December 31, 1999, shares of Unicom common stock were reserved for the
following purposes:
<TABLE>
<S> <C>
Long-Term Incentive Plan........................................ 2,231,763
Employee Stock Purchase Plan.................................... 323,797
Shareholder Rights Plan......................................... 400,000
Exchange for ComEd common stock not held by Unicom.............. 87,650
1996 Directors' Fee Plan........................................ 162,459
---------
3,205,669
=========
</TABLE>
F-43
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Common stock issued for the years 1999, 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- --------
<S> <C> <C> <C>
Shares of Common Stock Issued:
Long-Term Incentive Plan......................... 451,501 494,302 208,104
Employee Stock Purchase Plan..................... 89,500 94,270 196,003
Employee Savings and Investment Plan............. -- -- 274,203
Exchange for ComEd common stock not held by
Unicom.......................................... (2,454) 12,757 12,370
1996 Directors' Fee Plan......................... 5,521 12,733 14,175
Treasury Stock................................... (85,424) (178,982) --
------- -------- --------
458,644 435,080 704,855
======= ======== ========
<CAPTION>
(Thousands of Dollars)
<S> <C> <C> <C>
Changes in Common Stock Accounts:
Total shares issued.............................. $21,290 $ 16,847 $ 15,768
Net cash settlement of forward share repurchase
contract........................................ (16,454)
Shares held by trustee for Unicom Stock Bonus De-
ferral Plan..................................... -- 6,775 (2,476)
Other............................................ 151 (203) 10
------- -------- --------
$ 4,987 $ 23,419 $ 13,302
======= ======== ========
</TABLE>
As of December 31, 1999 and 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 December 31, 1999 and 1998, 75,692 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.
As of December 31, 1999 and 1998, $716 million and $494 million,
respectively, of retained earnings had been appropriated for future dividend
payments.
(8) Stock Option Awards/Employee Stock Purchase Plan. Unicom has a
nonqualified stock option awards program under its Long-Term Incentive Plan.
The stock option awards program was adopted by Unicom in July 1996 to reward
valued employees responsible for, or contributing to, the management, growth
and profitability of Unicom and its subsidiaries. The stock options granted
expire ten years from their grant date. One-third of the shares subject to the
options vest on each of the first three anniversaries of the option grant
date. In addition, the stock options 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.
F-44
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Stock option transactions for the years 1999, 1998 and 1997 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 year............................. 1,848,050 35.750
Exercised during the year........................... (313,231) 24.102
Expired/cancelled during year....................... (179,076) 33.551
---------
Outstanding as of December 31, 1999................. 4,498,636 31.719
=========
</TABLE>
Of the stock options outstanding at December 31, 1999, 1,676,854 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 89,500, 94,270 and 196,003 shares of common stock during the year 1999,
1998 and 1997, respectively, under the ESPP at a weighted average annual
purchase price of $33.58, $33.11 and $19.15, respectively.
Unicom has adopted the disclosure-only provisions of SFAS No. 123. For
financial reporting purposes, Unicom has adopted APB No. 25, and thus no
compensation cost has been recognized for the stock option awards program or
ESPP. If Unicom had recorded compensation expense for the stock options
granted and the shares of common stock issued under the ESPP in accordance
with SFAS No. 123 using the fair value based method of accounting, the
additional charge to operations would have been $4 million (after-tax), or
$0.02 per common share (diluted), $2 million (after-tax), or $0.01 per common
share (diluted), and $2 million (after tax), or $0.01 per common share
(diluted), for the years 1999, 1998 and 1997, respectively.
F-45
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
(9) ComEd Preferred and Preference Stocks Without Mandatory Redemption
Requirements. During the year 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 1998
and 1997. 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.
(10) ComEd Preference Stock Subject to Mandatory Redemption
Requirements. During 1999, 1998 and 1997, no shares of ComEd preference stock
subject to mandatory redemption requirements were issued. During 1999, 1998
and 1997, 1,020,345, 338,215 and 438,215 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 December 31, 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.
(11) ComEd-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts Holding Solely ComEd's Subordinated Debt Securities. In
September 1995, ComEd Financing I, a wholly-owned subsidiary trust of ComEd,
issued 8,000,000 of its 8.48% ComEd-obligated mandatorily redeemable preferred
securities. The sole asset of ComEd Financing I is $206.2 million principal
amount of ComEd's 8.48% subordinated deferrable interest notes due September
30, 2035. In January 1997, ComEd Financing II, a wholly-owned subsidiary trust
of ComEd, issued 150,000 of its 8.50% ComEd-obligated mandatorily redeemable
capital securities. The sole asset of ComEd Financing II is $154.6 million
principal amount of ComEd's 8.50% subordinated deferrable interest debentures
due January 15, 2027. There is a full and unconditional guarantee by ComEd of
the Trusts' obligations under the securities issued by the Trusts. However,
ComEd's obligations are subordinate and junior in right of payment to certain
other indebtedness of ComEd. ComEd has the right to defer payments of interest
on the subordinated deferrable interest notes by extending the interest
payment period, at any time, for up to 20 consecutive quarters. Similarly,
ComEd has the right to defer payments of interest on the subordinated
deferrable interest debentures by extending the interest payment period, at
any time, for up to ten consecutive semi-annual periods. If interest payments
on the subordinated deferrable interest notes or debentures are so deferred,
distributions on the preferred securities will also be 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
F-46
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
principal amount of the subordinated deferrable interest notes or debentures
so redeemed. In the event of the dissolution, winding up or termination of the
Trusts, the holders of the preferred securities will be entitled to receive,
for each preferred security, a liquidation amount of $25 for the securities of
ComEd Financing I and $1,000 for the securities of ComEd Financing II, plus
accrued and unpaid distributions thereon, including interest thereon, to the
date of payment, unless in connection with the dissolution, the subordinated
deferrable interest notes or debentures are distributed to the holders of the
preferred securities.
(12) Long-Term Debt. ComEd initiated the issuance of $3.4 billion of
transitional trust notes through its SPEs, ComEd Funding and ComEd Funding
Trust, in the fourth quarter of 1998. The current amount outstanding is as
follows:
<TABLE>
<CAPTION>
Series Principal Amount
------------------------ ----------------------
(Thousands of Dollars)
<S> <C>
5.38% due March 25, 2000........................... $ 94,967
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
----------
$3,070,000
==========
</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 1999, ComEd
redeemed or reacquired $1,101 million of long-term debt.
Sinking fund requirements and scheduled maturities remaining through 2004
for ComEd's first mortgage bonds, transitional trust notes, sinking fund
debentures and other long-term debt outstanding at December 31, 1999, after
deducting deposits made for the retirement of sinking fund debentures, are
summarized as follows: 2000--$732 million; 2001--$345 million; 2002--$645
million; 2003--$445 million; and 2004--$577 million.
At December 31, 1999, ComEd's outstanding first mortgage bonds maturing
through 2004 were as follows:
<TABLE>
<CAPTION>
Series Principal Amount
-------------------------------- ----------------------
(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
5 3/10% due January 15, 2004....................... 26,000
--------
$698,245
========
</TABLE>
F-47
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Other long-term debt outstanding at December 31, 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%
Loan due January 15, 2009 7,567 Interest rate of 8.55%
Loan due January 15, 2010 6,803 Interest rate of 8.88%
Loan due July 15, 2010 9,225 Interest rate of 7.98%
----------
$ 41,510
----------
ComEd--
Notes:
Medium Term Notes, Series 3N due vari-
ous dates through October 15, 2004 $ 156,000 Interest rates ranging from 9.17% 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%
----------
$ 916,000
----------
Purchase Contract Obligation
due April 30, 2005 $ 301 Interest rate of 3.00%
----------
Total ComEd $ 916,301
----------
Unicom Enterprises--
Notes:
Unicom Thermal Guaranteed Senior Note
due May 30, 2012 $ 120,000 Interest rate of 7.38%
Northwind Midway Guaranteed Senior Note
due June 30, 2023 11,523 Interest rate of 7.68%
Unicom Mechanical Services Note
due January 1, 2001 13 Interest rate of 8.50%
----------
Total Unicom Enterprises $ 131,536
----------
Total Unicom $1,089,347
==========
</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. 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.
F-48
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
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.
(13) Lines of Credit. ComEd had total unused bank lines of credit of $800
million at December 31, 1999. Of that amount, $500 million expires on December
15, 2000 and $300 million expires on December 17, 2002. 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 an unused $400 million credit facility which will
expire December 15, 2000. 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 $3.5 million
over that of ComEd and its consolidated subsidiaries, (ii) a requirement that
Unicom's consolidated debt to consolidated capitalization not exceed 0.65 to
1, (iii) restrictions on the indebtedness for borrowed money that Unicom
(excluding ComEd) and Unicom Enterprises may incur, and (iv) a requirement
that Unicom own 100% of the outstanding stock of Unicom Enterprises and at
least 80% of the outstanding stock of ComEd; and provide that Unicom may not
declare or pay dividends during the continuance of an event of default.
Interest rates for borrowings under the credit facility are set at the time of
a borrowing and are based on either a prime interest rate or a floating rate
bank index plus a spread which varies with the credit rating of ComEd's
outstanding first mortgage bonds. Unicom Enterprises is obligated to pay
commitment fees with respect to the unused portion of such lines of credit.
(14) Disposal of Spent Nuclear Fuel. Under the Nuclear Waste Policy Act of
1982, the DOE is responsible for the selection and development of repositories
for, and the disposal of, spent nuclear fuel and high-level radioactive waste.
ComEd, as required by that Act, has 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 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. On November 5, 1999,
ComEd's case was stayed
F-49
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
pending the decision of the United States Court of Appeals for the Federal
Circuit in several similar cases brought by other utilities.
(15) Fair Value of Financial Instruments. The following methods and
assumptions were used to estimate the fair value of financial instruments
either held, or issued and outstanding. The disclosure of such information
does not purport to be a market valuation of Unicom and subsidiary companies
as a whole. The impact of any realized or unrealized gains or losses related
to such financial instruments on the financial position or results of
operations of Unicom and subsidiary companies is primarily dependent on the
treatment authorized under future ComEd ratemaking proceedings.
Investments. Securities included in the nuclear decommissioning funds have
been classified and accounted for as "available for sale" securities. The
estimated fair value of the nuclear decommissioning funds, as determined by
the trustee and based on published market data, as of December 31, 1999 and
1998 was as follows:
<TABLE>
<CAPTION>
December 31, 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.. $ 41,362 $ 95 $ 41,457 $ 40,907 $ 42 $ 40,949
U.S. Government and
Agency issues.......... 245,399 (1,993) 243,406 197,240 20,213 217,453
Municipal bonds......... 383,816 (940) 382,876 416,121 24,124 440,245
Corporate bonds......... 196,942 (5,699) 191,243 241,111 8,790 249,901
Common stock............ 832,802 732,893 1,565,695 740,956 565,630 1,306,586
Other................... 125,072 (3,209) 121,863 11,345 838 12,183
---------- -------- ---------- ---------- -------- ----------
$1,825,393 $721,147 $2,546,540 $1,647,680 $619,637 $2,267,317
========== ======== ========== ========== ======== ==========
</TABLE>
At December 31, 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....................................... $ 47,853 $ 48,421
1 through 5 years................................... 263,588 263,117
5 through 10 years.................................. 227,927 225,860
Over 10 years....................................... 409,823 400,358
</TABLE>
The net earnings of the nuclear decommissioning funds, which are recorded in
the accumulated provision for depreciation, for the years 1999, 1998 and 1997
were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C>
Gross proceeds from sales of securities....... $1,765,000 $1,795,484 $2,163,522
Less cost based on specific identification.... 1,718,151 1,728,092 2,088,300
---------- ---------- ----------
Realized gains on sales of securities......... $ 46,849 $ 67,392 $ 75,222
Other realized fund earnings, net of expenses. 62,927 40,374 39,123
---------- ---------- ----------
Total realized net earnings of the funds...... $ 109,776 $ 107,766 $ 114,345
Unrealized gains.............................. 101,510 190,503 198,741
---------- ---------- ----------
Total net earnings of the funds.............. $ 211,286 $ 298,269 $ 313,086
========== ========== ==========
</TABLE>
F-50
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Securities held by certain trusts, which were established to provide for
supplemental retirement benefits and executive medical claims, have been
classified and accounted for as "available for sale." The estimated fair value
of these securities, as determined by the trustee and based on published
market data, as of December 31, 1999 was as follows:
<TABLE>
<CAPTION>
Cost Unrealized Fair
Basis Gain Value
------- ---------- -------
(Thousands of Dollars)
<S> <C> <C> <C>
Short-term investments.............................. $ 162 $ -- $ 162
Registered investment companies..................... 21,641 12,471 34,112
------- ------- -------
$21,803 $12,471 $34,274
======= ======= =======
</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,
are stated at cost, which approximates their fair value because of the short
maturity of these instruments. The securities included in these categories
have been classified as "available for sale" securities.
Capitalization. The estimated fair values of ComEd preferred and preference
stocks, ComEd-obligated mandatorily redeemable preferred securities of
subsidiary trusts holding solely ComEd's subordinated debt securities,
transitional trust notes and long-term debt were obtained from an independent
consultant. The estimated fair values, which include the current portions of
redeemable preference stock and long-term debt but exclude accrued interest
and dividends, as of December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
December 31, 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...... $ 71,265 $ 58 $ 71,323 $ 678,156 $ 11,500 $ 689,656
ComEd-obligated
mandatorily redeemable
preferred securities of
subsidiary trusts
holding solely ComEd's
subordinated debt
securities............. $ 350,000 $ (10,595) $ 339,405 $ 350,000 $ 20,678 $ 370,678
Transitional trust
notes.................. $3,057,112 $(163,600) $2,893,512 $3,382,821 $ 67,168 $3,449,989
Long-term debt.......... $4,757,062 $ (23,987) $4,733,075 $5,911,757 $451,240 $6,362,997
</TABLE>
Long-term notes payable, which are not included in the above table, amounted
to $53 million and $100 million as of December 31, 1999 and 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 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
December 31, 1999 and 1998; therefore, the carrying value is equal to the fair
value.
F-51
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
(16) Pension and Postretirement Benefits. As of December 31, 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 December 31, 1999 and 1998 pension liabilities
and related data were determined using the January 1, 1999 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 December
31, 1999 and 1998 postretirement benefit liabilities and related data were
determined using the January 1, 1999 actuarial valuations.
Reconciliations of the beginning and ending balances of the projected
pension benefit obligation and the accumulated postretirement benefit
obligation, and the funded status of these plans for the years 1999 and 1998
were as follows:
<TABLE>
<CAPTION>
Twelve Months Ended Twelve Months Ended
December 31, 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.... $4,326,000 $1,236,000 $4,010,000 $1,139,000
Service cost............ 120,000 41,000 115,000 38,000
Interest cost........... 285,000 82,000 273,000 78,000
Plan participants' con-
tributions............. -- 4,000 -- 3,000
Actuarial loss/(gain)... (458,000) (188,000) 165,000 25,000
Benefits paid........... (241,000) (51,000) (237,000) (47,000)
Special termination ben-
efits.................. 62,000 27,000 -- --
---------- ---------- ---------- ----------
Benefit obligation at
end of period......... $4,094,000 $1,151,000 $4,326,000 $1,236,000
---------- ---------- ---------- ----------
<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................. 492,000 105,000 535,000 122,000
Employer contribution... 3,000 24,000 11,000 20,000
Plan participants' con-
tributions............. -- 4,000 -- 3,000
Benefits paid........... (241,000) (51,000) (237,000) (47,000)
---------- ---------- ---------- ----------
Fair value of plan as-
sets at end of period. $4,269,000 $ 947,000 $4,015,000 $ 865,000
---------- ---------- ---------- ----------
Plan assets
greater/(less) than
benefit obligation..... $ 175,000 $ (204,000) $ (311,000) $ (371,000)
Unrecognized net actuar-
ial loss/(gain)........ (523,000) (555,000) 36,000 (371,000)
Unrecognized prior serv-
ice cost/(asset)....... (51,000) 41,000 (60,000) 48,000
Unrecognized transition
obligation/(asset)..... (79,000) 276,000 (101,000) 323,000
---------- ---------- ---------- ----------
Accrued liability for
benefits.............. $ (478,000) $ (442,000) $ (436,000) $ (371,000)
========== ========== ========== ==========
</TABLE>
F-52
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
The assumed discount rate used to determine the benefit obligation as of
December 31, 1999 and 1998 was 7.75% and 6.75%, respectively. The fair value
of plan assets excludes $25 million and $21 million held in grantor trust as
of December 31, 1999 and 1998, respectively, for the payment of benefits under
the supplemental plan and $9 million and $7 million held in a grantor trust as
of December 31, 1999 and 1998, respectively, for the payment of postretirement
medical benefits.
The components of pension and other postretirement benefit costs, portions
of which were recorded as components of construction costs, for the years,
1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- --------- ---------
(Thousands of Dollars)
<S> <C> <C> <C>
Pension Benefit Costs
- ---------------------
Service cost.................................. $120,000 $ 115,000 $ 100,000
Interest cost on projected benefit obligation. 285,000 273,000 261,000
Expected return on plan assets................ (362,000) (342,000) (310,000)
Amortization of transition asset.............. (13,000) (12,000) (13,000)
Amortization of prior service asset........... (4,000) (4,000) (4,000)
Recognized loss............................... 3,000 2,000 2,000
Curtailment (gain)/loss....................... 16,000 -- (5,000)
-------- --------- ---------
Net periodic benefit cost.................... $ 45,000 $ 32,000 $ 31,000
======== ========= =========
Other Postretirement Benefit Costs
- ----------------------------------
Service cost.................................. $ 41,000 $ 38,000 $ 34,000
Interest cost on accumulated benefit
obligation................................... 82,000 78,000 76,000
Expected return on plan assets................ (76,000) (69,000) (61,000)
Amortization of transition obligation......... 22,000 22,000 22,000
Amortization of prior service cost............ 4,000 4,000 4,000
Recognized gain............................... (14,000) (14,000) (13,000)
Severance plan cost........................... 1,000 6,000 8,000
Curtailment loss.............................. 35,000 -- --
-------- --------- ---------
Net periodic benefit cost.................... $ 95,000 $ 65,000 $ 70,000
======== ========= =========
</TABLE>
In accounting for the pension costs and other postretirement benefit costs
under the plans, the following weighted average actuarial assumptions were
used for the 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 pension and other
postretirement benefit curtailment losses in December 1999 represent the
recognition of prior service costs and transition obligations, and an increase
in the benefit obligations resulting from special termination benefits,
related to the reduction in the number of employees due to ComEd's sale of the
fossil stations.
F-53
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
The health care cost trend rates used to measure the expected cost of the
postretirement medical benefits are assumed to be 8.0% for pre-Medicare
recipients and 6.0% for Medicare recipients for 1999. 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 1999 service and interest cost
components...................................... $ 26,000 $ (20,000)
Effect on postretirement benefit obligation as of
December 31, 1999............................... 190,000 (151,000)
</TABLE>
In addition, an employee savings and investment plan is available to
eligible employees of ComEd and certain of its and Unicom's subsidiaries.
Under the plan, each participating employee may contribute up to 20% of such
employee's base pay 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 $32 million, $32
million and $33 million for the years 1999, 1998 and 1997, respectively.
(17) Separation Plan Costs. O&M expenses included $10 million, $48 million
and $39 million for the years 1999, 1998 and 1997, 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 $6 million (after-tax), or $0.03 per common share
(diluted), $29 million (after-tax), or $0.13 per common share (dilutive) and
$24 million (after-tax), or $0.11 per common share (diluted), for the years
1999, 1998 and 1997, respectively. See Note 5 regarding employee separation
costs related to the fossil plant sale.
(18) Income Taxes. The components of the net deferred income tax liability
at December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
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........................... $2,815,972 $4,028,351
Overheads capitalized................................. 159,836 140,922
Repair allowance...................................... 221,502 233,861
Regulatory assets recoverable through future rates.... 688,946 680,356
Deferred income tax assets:
Postretirement benefits............................... (376,538) (331,651)
Unamortized investment tax credits.................... (161,756) (191,135)
Regulatory liabilities to be settled through future
rates................................................ (596,157) (595,005)
Nuclear plant closure................................. (5,456) (38,354)
Other--net............................................ (321,522) (146,224)
---------- ----------
Net deferred income tax liability...................... $2,424,827 $3,781,121
========== ==========
</TABLE>
F-54
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
The $1,356 million decrease in the net deferred income tax liability from
December 31, 1998 to December 31, 1999 is comprised of a $1,377 million credit
to net deferred income tax expense pertaining primarily to the fossil plant
sale, a $7 million increase in regulatory assets net of regulatory liabilities
pertaining to income taxes for the period, and $14 million related to other
items. 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 years 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- -------- ---------
(Thousands of Dollars)
<S> <C> <C> <C>
Operating income:
Current income taxes........................ $1,762,281 $304,889 $ 255,057
Deferred income taxes....................... (1,403,083) 50,134 62,501
Investment tax credits deferred--net........ (25,828) (27,730) (31,015)
Other (income) and deductions:
Current income taxes........................ 457 (51,816) 1,116
Deferred income taxes....................... 25,739 59,458 (385,994)
Investment tax credits...................... (51,740) (12,107) (22,526)
---------- -------- ---------
Net income taxes charged/(credited) to con-
tinuing operations.......................... $ 307,826 $322,828 $(120,861)
========== ======== =========
</TABLE>
Provisions for current and deferred federal and state income taxes and
amortization of investment tax credits resulted in the following effective
income tax rates for the years 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- ---------
(Thousands of Dollars)
<S> <C> <C> <C>
Net income/(loss) before extraordinary items.... $597,245 $510,184 $(239,215)
Net income taxes charged/(credited) to continu-
ing operations................................. 307,826 322,828 (120,861)
Provision for dividends on ComEd preferred and
preference stocks.............................. 23,756 56,884 60,486
-------- -------- ---------
Pre-tax income/(loss) before extraordinary items
and provision for dividends.................... $928,827 $889,896 $(299,590)
-------- -------- ---------
Effective income tax rate....................... 33.1% 36.3% 40.3%
======== ======== =========
</TABLE>
The principal differences between net income taxes charged/(credited) to
continuing operations and the amounts computed at the federal statutory rate
of 35% for the years 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- ---------
(Thousands of Dollars)
<S> <C> <C> <C>
Federal income taxes computed at statutory rate. $325,089 $311,464 $(104,857)
Equity component of AFUDC which was excluded
from taxable income............................ (436) (390) (8,320)
Amortization of investment tax credits, net of
deferred income taxes.......................... (48,216) (25,503) (53,541)
State income taxes, net of federal income taxes. 45,882 40,899 (682)
Unrealized loss/(gain) on forward share
repurchase contract............................ 15,390 -- --
Earnings on nontax-qualified decommissioning
fund........................................... (8,915) -- --
Differences between book and tax accounting,
primarily property-related deductions.......... (20,968) (3,642) 46,539
-------- -------- ---------
Net income taxes charged/(credited) to
continuing operations.......................... $307,826 $322,828 $(120,861)
======== ======== =========
</TABLE>
F-55
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
(19) Taxes, Except Income Taxes. Provisions for taxes, except income taxes,
for the years 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
Illinois public utility revenue...................... $ 981 $114,981 $228,350
Illinois invested capital............................ -- -- 99,503
Illinois electricity distribution tax................ 114,241 110,026 --
Municipal utility gross receipts..................... 99,701 152,501 168,094
Real estate.......................................... 115,208 125,521 151,508
Municipal compensation............................... 73,349 89,210 78,286
Energy assistance and renewable energy charge........ 34,423 32,736 --
Other--net........................................... 70,550 74,859 75,145
-------- -------- --------
$508,453 $699,834 $800,886
======== ======== ========
</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.
The 1997 Act changed the nature of several state and municipal taxes that
are collected through customer billings. Before August 1998, the utility taxes
were assessed against the utility. Effective August 1998, the utility taxes
are assessed on the electric consumer rather than the utility. Accordingly,
ComEd records the collections as liabilities and no longer records the taxes
collected through billings as revenues and tax expense. The reduction in
operating revenues and taxes, except income taxes, due to the change in
presentation for such taxes was approximately $174 million in 1999, compared
to 1998, and $110 million in 1998, compared to 1997. This change in
presentation for such taxes did not have an effect on operations.
See Note 22 for additional information regarding Illinois invested capital
taxes.
(20) Lease Obligations of Subsidiary Companies. Under its nuclear fuel lease
arrangement, ComEd may sell and lease back nuclear fuel from a lessor who may
borrow an aggregate of $267 million, consisting of intermediate term notes, to
finance the transactions. A commercial paper/bank borrowing portion expired on
November 23, 1999. With respect to the intermediate term notes, $75 million
expires on November 23, 2000, $40 million expires on November 23, 2001, $77
million expires on November 23, 2002 and $75 million expires on November 23,
2003. At December 31, 1999, ComEd's obligation to the lessor for leased
nuclear fuel amounted to approximately $270 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 December 31, 1999, future minimum rental payments, net of executory
costs, for capital leases are estimated to aggregate to $298 million,
including $121 million in 2000, $96 million in 2001, $48 million in 2002 and
$33 million in 2003. The estimated interest component of such rental payments
aggregates $27 million. The estimated portions of obligations due within one
year under capital leases of $108 million and $195 million at December 31,
1999 and 1998, respectively, were included in current liabilities on the
Consolidated Balance Sheets.
Future minimum rental payments at December 31, 1999 for operating leases are
estimated to aggregate to $305 million, including $33 million in 2000, $27
million in 2001, $27 million in 2002, $24 million in 2003, $23 million in 2004
and $171 million in 2005-2043.
(21) Joint Plant Ownership. ComEd has a 75% undivided ownership interest in
the Quad Cities nuclear generating station. Further, ComEd is responsible for
75% of all costs which are
F-56
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
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 $22
million at December 31, 1999, after reflecting the accounting impairment
recorded in the second quarter of 1998. See Note 1, under "Regulatory Assets
and Liabilities," for additional information.
(22) Commitments and Contingent Liabilities. Purchase commitments,
principally related to construction, nuclear fuel, and coal in support of
certain power purchase agreements approximated $799 million at December 31,
1999, comprised of $670 million for ComEd, $27 million for UT Holdings, $24
million for Unicom Energy Services and $78 million for Unicom Power Holdings.
In addition, ComEd has substantial commitments for expected capacity payments
and fixed charges related to power purchase agreements. Upon completion of the
fossil plant sale with EME, ComEd entered into arrangements to assign or
settle a substantial portion of its coal purchase commitments and entered into
purchase power agreements with EME. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations," subcaption "Liquidity and
Capital Resources--UTILITY OPERATIONS--Construction Program," for additional
information regarding ComEd's purchase commitments.
ComEd is a member of NEIL which provides insurance coverage against property
damage and associated replacement power costs occurring at members' nuclear
generating facilities. All companies insured with NEIL are subject to
retrospective premium adjustments if losses exceed accumulated reserve funds.
Capital has been accumulated in the reserve funds such that ComEd would not be
liable for any single incident. However, ComEd could be subject to assessments
in any policy year for each of three types of coverage provided. The maximum
assessments are approximately $53 million for primary property damage, $73
million for excess property damage and $22 million for replacement power.
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.
F-57
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
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.
On February 11, 2000, the Tenth Circuit Court of Appeals agreed with Cotter,
found that the trial judge had erred in critical rulings and reversed the jury
verdict, remanding the case for new trial. A case involving the next group of
plaintiffs is set for trial in federal district court in Denver on October 2,
2000. Although ComEd sold its investment in Cotter in February 2000, ComEd
will continue to be liable for any court verdicts in favor of the plaintiffs.
The other 1991 cases will necessarily involve the resolution of numerous
contested issues of law and fact. It is Unicom and ComEd's assessment 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. ComEd has filed a
motion challenging the legal sufficiency of the consolidated complaints. The
plaintiff's response is due April 14, 2000 and any reply by ComEd is due May
12, 2000. The motion to dismiss is currently scheduled to be argued on May 23,
2000. 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.
Hearings on Phase I of the investigation were held the week of January 3,
2000, which focused on the outages of July and August 1999. Reports on Phase
II and Phase III, focusing on the transmission and distribution system
generally, are anticipated in the second quarter of 2000. 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.
F-58
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
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 then Northern Illinois
Gas Company (Nicor Gas) 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. In the fourth quarter of 1999, ComEd re-
evaluated its environmental remediation strategies. As a result of this re-
evaluation, ComEd's current best estimate of its cost of former MGP site
investigation and remediation is $93 million in current-year (2000) dollars
(reflecting a discount rate of 6.5%). Such estimate, reflecting an estimated
inflation rate of 3% and before the effects of discounting, is $182 million.
It is expected that the costs associated with investigation and remediation of
former MGP sites will be substantially incurred through 2012, however
monitoring and certain other costs are expected to be incurred through 2042.
ComEd's current estimate of its costs of former MGP site investigation and
remediation of $93 million has been included in other noncurrent liabilities
on the Consolidated Balance Sheets as of December 31, 1999. The increase in
ComEd's estimated costs of former MGP sites of $68 million in 1999 over 1998
was included in operation and maintenance expenses on Unicom and ComEd's
Statements of Consolidated Operations. In addition, as of December 31, 1999
and 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 sites other than former MGP
sites. 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. While ComEd may have rights of
reimbursement under insurance policies, amounts that may be recoverable from
other entities are not considered in establishing the estimated liability for
the environment remediation costs.
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
$52 million as of December 31, 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.
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. 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.
F-59
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
The 1997 Act also committed ComEd to spend at least $2 billion from 1999
through 2004 on transmission and distribution facilities outside of the City.
(23) Segment Reporting. Unicom's reportable operating segments as determined
under SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" include its regulated electric utility and its unregulated
business operations. Unicom's reportable segments are managed separately
because of their different regulatory and operating environments. Unicom
evaluates their performance based on net income.
ComEd is an electric utility which is engaged in the generation, purchase,
transmission, distribution and sale of electric energy in Northern Illinois.
ComEd's rates and services are subject to federal and state regulations.
Unicom's unregulated business operations, including energy services and
development of new business ventures, are not subject to utility regulation by
federal or state agencies. Prior to 1999, unregulated business operations were
predominately in a developmental stage and did not meet the revenue, asset or
net income criteria for a reportable segment under SFAS 131. However, as a
result of the December 1999 fossil plant sale, as described in Note 5, the
assets of unregulated businesses exceeded 10% of Unicom's total assets and, as
such, constitute a reportable segment. The assets of the unregulated
businesses include $2.2 billion at December 31, 1999 representing special
deposits and unused cash proceeds resulting from the fossil plant sale. The
assets of the unregulated businesses also include receivables of $813 million
recorded in connection with forward share repurchase arrangements as discussed
in Note 7.
F-60
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Concluded
The accounting policies of the segments are the same as those described in
Note 1. Unicom's financial data for business segments are as follows:
<TABLE>
<CAPTION>
Electric Unregulated Reconciliation
Utility Businesses & Elimination Total
----------- ----------- -------------- -----------
1999 (Thousands of Dollars)
<S> <C> <C> <C> <C>
Operating Revenue......... $ 6,766,892 $ 107,729 $ (26,674) $ 6,847,947
Intersegment Revenue...... $ 9,434 $ 17,240 $ (26,674) $ --
Depreciation, Amortization
and Decommissioning...... $ 836,145 $ 7,103 $ -- $ 843,248
Interest and Dividend
Income................... $ 60,231 $ 8,957 $ (10,646) $ 58,542
Interest Expense--Net..... $ 545,352 $ 28,858 $ (10,646) $ 563,564
Income Tax
Expense/(Benefit)........ $ 352,222 $ (20,107) $ -- $ 332,115
Net Income/(Loss)......... $ 622,729 $ (29,307) $ (23,756) $ 569,666
Total Assets.............. $23,160,265 $3,720,376 $(3,474,608) $23,406,033
Capital Expenditures...... $ 1,083,398 $ 120,666 $ -- $ 1,204,064
<CAPTION>
1998
<S> <C> <C> <C> <C>
Operating Revenue......... $ 7,088,542 $ 20,967 $ (6,099) $ 7,103,410
Intersegment Revenue...... $ 6,099 $ -- $ (6,099) $ --
Depreciation, Amortization
and Decommissioning...... $ 937,604 $ 5,684 $ -- $ 943,288
Interest and Dividend
Income................... $ 15,450 $ 4,755 $ (1,573) $ 18,632
Interest Expense--Net..... $ 450,162 $ 15,293 $ (1,573) $ 463,882
Income Tax
Expense/(Benefit)........ $ 378,423 $ (28,374) $ -- $ 350,049
Net Income/(Loss)......... $ 594,206 $ (27,138) $ (56,884) $ 510,184
Total Assets.............. $25,450,577 $ 389,792 $ (149,896) $25,690,473
Capital Expenditures...... $ 945,342 $ 21,152 $ -- $ 966,494
<CAPTION>
1997
<S> <C> <C> <C> <C>
Operating Revenue......... $ 7,073,088 $ 14,331 $ (4,397) $ 7,083,022
Intersegment Revenue...... $ 4,397 $ -- $ (4,397) $ --
Depreciation, Amortization
and Decommissioning...... $ 1,001,149 $ 3,940 $ -- $ 1,005,089
Interest and Dividend
Income................... $ 4,911 $ 3,590 $ (1,002) $ 7,399
Interest Expense--Net..... $ 487,664 $ 10,505 $ (1,002) $ 497,167
Income Tax
Expense/(Benefit)........ $ 327,061 $ (20,513) $ -- $ 306,548
Net Income/(Loss)......... $ (773,773) $ (18,591) $ (60,486) $ (852,850)
Total Assets.............. $22,458,403 $ 352,161 $ (110,814) $22,699,750
Capital Expenditures...... $ 969,626 $ 73,685 $ -- $ 1,043,311
</TABLE>
(24) Subsequent Event. In January 2000, Unicom physically settled the forward
share repurchase arrangements it had with financial institutions for the
repurchase of 26.3 million Unicom common shares. Prior to settlement, the
repurchase arrangements were recorded as a receivable on Unicom's Consolidated
Balance Sheets based on the aggregate market value of the shares under the
arrangements. In 1999, net unrealized losses of $44 million (after-tax), or
$0.20 per common share were recorded related to the arrangements. The
settlement of the arrangements in January 2000 resulted in a gain of $113
million (after-tax), which will be recorded in the first quarter of 2000. The
settlement of the arrangements will also result in a reduction in Unicom's
outstanding common shares and common stock equity, effective January 2000.
F-61
<PAGE>
SCHEDULE II
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(Thousands of Dollars)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ---------------------------- --------- ----------------- ---------- --------
Additions
-----------------
Balance Charged
at to Costs Charged Balance
Beginning and to Other at End
Description of Year Expenses Accounts Deductions of Year
- ---------------------------- --------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
For the Year Ended December
31, 1997
- ----------------------------
Reserve Deducted From Assets
in Consolidated Balance
Sheet:
Provision for uncollectible
accounts.................. $ 12,893 $ 53,756 $ -- $ (49,105) $ 17,544
======== ======== ====== ========= ========
Estimated obsolete materi-
als....................... $ 12,302 $ 62,000 $ -- $ (32,559) $ 41,743
======== ======== ====== ========= ========
Other Reserves:
Estimated closing costs for
Zion Station (c).......... $ -- $194,000 $ -- $ -- $194,000
======== ======== ====== ========= ========
Estimated liabilities asso-
ciated with remediation
costs and former manufac-
tured gas plant sites..... $ 32,522 $ 2,410 $ -- $ (2,910)(a) $ 32,022
======== ======== ====== ========= ========
Accumulated provision for
injuries and damages...... $ 53,972 $ 8,565 $4,939 $ (18,213)(b) $ 49,263
======== ======== ====== ========= ========
For the Year Ended December
31, 1998
- ----------------------------
Reserve Deducted From Assets
in Consolidated Balance
Sheet:
Provision for uncollectible
accounts.................. $ 17,544 $ 62,059 $ -- $ (30,958) $ 48,645
======== ======== ====== ========= ========
Estimated obsolete materi-
als....................... $ 41,743 $ 23,945 $ -- $ (41,928) $ 23,760
======== ======== ====== ========= ========
Other Reserves:
Estimated closing costs for
Zion Station (c).......... $194,000 $ -- $ -- $(114,970) $ 79,030
======== ======== ====== ========= ========
Estimated liabilities asso-
ciated with remediation
costs and former manufac-
tured gas plant sites..... $ 32,022 $ 6,950 $ -- $ (6,950)(a) $ 32,022
======== ======== ====== ========= ========
Accumulated provision for
injuries and damages...... $ 49,263 $ 10,114 $8,875 $ (20,796)(b) $ 47,456
======== ======== ====== ========= ========
For the Year Ended December
31, 1999
- ----------------------------
Reserve Deducted From Assets
in Consolidated Balance
Sheet:
Provision for uncollectible
accounts.................. $ 48,645 $ 90,254 $ -- $ (88,085) $ 50,814
======== ======== ====== ========= ========
Estimated obsolete materi-
als....................... $ 23,760 $ 19,263 $ -- $ (15,968) $ 27,055
======== ======== ====== ========= ========
Other Reserves:
Estimated closing costs for
Zion Station (c).......... $ 79,030 $ -- $ -- $ (79,030) $ --
======== ======== ====== ========= ========
Estimated liabilities asso-
ciated with remediation
costs and former manufac-
tured gas plant sites..... $ 32,022 $ 73,729 $ -- $ (5,651)(a) $100,100
======== ======== ====== ========= ========
Accumulated provision for
injuries and damages...... $ 47,456 $ 27,868 $6,477 $ (27,204)(b) $ 54,597
======== ======== ====== ========= ========
</TABLE>
Notes:
(a) Expenditures for site investigation and remediation costs.
(b) Payments of claims and related costs.
(c) Estimated closing costs related to the permanent cessation of nuclear
generation operations and retirement of facilities at ComEd's Zion Station.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-62
<PAGE>
Exhibit (4)-22
Commonwealth Edison Company
Form 10-K File No. 1-1839
________________________________________________________________________________
$300,000,000
3-YEAR
CREDIT AGREEMENT
Dated as of December 17, 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
<S> <C>
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........................................... 14
Section 2.02. Making the A Advances.................................... 15
Section 2.03. The B Advances........................................... 16
Section 2.04. Fees..................................................... 19
Section 2.05. Reduction of the Commitments............................. 19
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.......... 20
Section 2.09. Interest Rate Determination.............................. 21
Section 2.10. Voluntary Conversion of A Advances....................... 22
Section 2.11. Optional Prepayments of A Advances....................... 23
Section 2.12. Mandatory Prepayments.................................... 23
Section 2.13. Increased Costs.......................................... 24
Section 2.14. Illegality............................................... 24
Section 2.15. Payments and Computations................................ 25
Section 2.16. Taxes.................................................... 26
Section 2.17. Sharing of Payments, Etc................................. 28
Section 2.18. Extension of Termination Date............................ 28
ARTICLE III
CONDITIONS OF LENDING
Section 3.01. Conditions Precedent to Closing.......................... 29
Section 3.02. Conditions Precedent to Each A Borrowing................. 31
Section 3.03. Conditions Precedent to Each B Borrowing................. 31
Section 3.04 Conditions Precedent to Each Extension of the Termination
Date..................................................... 32
Section 3.05. Reliance on Certificates................................. 33
</TABLE>
i
<PAGE>
<TABLE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
<S> <C>
Section 4.01. Representations and Warranties of the Borrower........... 33
ARTICLE V
COVENANTS OF THE BORROWER
Section 5.01. Affirmative Covenants.................................... 35
Section 5.02. Negative Covenants....................................... 39
ARTICLE VI
EVENTS OF DEFAULT
Section 6.01. Events of Default........................................ 42
ARTICLE VII
THE ADMINISTRATIVE AGENT
Section 7.01. Authorization and Action................................. 44
Section 7.02. Administrative Agent's Reliance, Etc..................... 45
Section 7.03. Citibank, N.A. and Affiliates............................ 45
Section 7.04. Lender Credit Decision................................... 45
Section 7.05. Indemnification.......................................... 45
Section 7.06. Successor Administrative Agent........................... 46
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Amendments, Etc.......................................... 46
Section 8.02. Notices, Etc............................................. 47
Section 8.03. No Waiver; Remedies...................................... 47
Section 8.04. Costs, Expenses, Taxes and Indemnification............... 48
Section 8.05. Right of Set-off......................................... 49
Section 8.06. Binding Effect........................................... 49
Section 8.07. Assignments and Participations........................... 50
Section 8.08. Confidentiality.......................................... 53
Section 8.09. Waiver of Jury Trial..................................... 53
Section 8.11. Governing Law............................................ 53
Section 8.12. Relation of the Parties; No Beneficiary.................. 54
Section 8.13. Execution in Counterparts................................ 54
</TABLE>
ii
<PAGE>
SCHEDULES
---------
Schedule I: Commitment Allocations
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)(viii)-1: Form of Opinion of Counsel to the Borrower
Exhibit 3.01(a)(viii)-2: Form of Opinion of Counsel to the Agent
Exhibit 8.07: Form of Lender Assignment
iii
<PAGE>
CREDIT AGREEMENT
Dated as of December 17, 1999
THIS 3-YEAR CREDIT AGREEMENT (this "Agreement") is made by and among:
(i) COMMONWEALTH EDISON COMPANY, an Illinois corporation (the
"Borrower"),
(ii) the banks (the "Banks") listed on the signature pages hereof and
the other Lenders (as hereinafter defined) from time to time party hereto,
and
(iii) CITIBANK, N.A. ("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.
<PAGE>
2
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling (including but not limited to all
directors and any officer who possesses the power described in the next
sentence), controlled by, or under direct or indirect common control with
such Person. A Person shall be deemed to control another entity if such
Person possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such entity, whether through
the ownership of voting securities, by contract, or otherwise.
"Alternate Base Rate" means a fluctuating interest rate per annum as
shall be in effect from time to time which rate per annum shall at all
times be equal to the higher of:
(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) for the period from the date of the Closing through (and
including) January 31, 2000, a rate equal to 2% per annum above the Federal
Funds Rate, and thereafter, 1/2 of one percent per annum above the Federal
Funds Rate.
Each change in the Alternate Base Rate shall take effect concurrently with
any change in such base rate or the Federal Funds Rate.
"Applicable Lending Office" means, with respect to each Lender, such
Lender's Domestic Lending Office in the case of a Base Rate Advance and
such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate
Advance and, in the case of a B Advance, the office of such Lender notified
by such Lender to the Administrative Agent as its Applicable Lending Office
with respect to such B Advance.
"Applicable Margin" means, on any date, for a Eurodollar Rate Advance
or Base Rate Advance, the number of basis points set forth below in the
columns identified as Level 1, Level 2, Level 3, Level 4 and Level 5, as
determined by reference to the lower of the ratings issued by S&P or
Moody's, by reference to the chart below, 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> <C> <C> <C> <C> <C>
S&P A- or better BBB+ BBB BBB- and Lower than
Moody's and and and Baa3 Level 4 or
A3 or better Baa1 Baa2 unrated
---------------------------------------------------------------------------------------
Basis Points Per Annum
---------------------------------------------------------------------------------------
Eurodollar Rate Advance 37.50 60.00 67.50 75.00 150.00
---------------------------------------------------------------------------------------
Base Rate Advance 0 0 0 0 0
---------------------------------------------------------------------------------------
</TABLE>
The Applicable Margin shall increase (a)(i) by 12.50 basis points for any
Reference Rating designated as Level 1, Level 2 or Level 3 and (ii) by
25.00 basis points for any
<PAGE>
3
Reference Rating designated as Level 4 and (iii) by 50.00 basis points for
any Reference Rating designated as Level 5, in each case, at any time that
more than 50% of the Commitments are utilized, and (b) by 50.00 basis
points at any time any Advance is outstanding during the period from the
date of the Closing through (and including) January 31, 2000.
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).
<PAGE>
4
"Borrowing" means an A Borrowing or a B Borrowing. Any A Borrowing
consisting of A Advances of a particular Type may be referred to as being
an A Borrowing of such "Type".
"Business Day" means a day of the year on which banks are not required
or authorized to close in New York City or Chicago, Illinois, and, if the
applicable Business Day relates to any Eurodollar Rate Advance, on which
dealings are carried on in the London interbank market.
"Capitalized Lease Obligations" means obligations to pay rent or other
amounts under any lease of (or other arrangement conveying the right to
use) real and/or personal property which obligation is required to be
classified and accounted for as a capital lease on a balance sheet prepared
in accordance with GAAP, and for purposes hereof the amount of such
obligations shall be the capitalized amount determined in accordance with
GAAP.
"Change of Control" means the occurrence, after the date of this
Agreement, of (i) any Person or two or more Persons acting in concert
acquiring beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended), directly or indirectly, of securities of the Borrower
(or other securities convertible into such securities) representing 50% or
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 that
in the case of this clause (iii) any such occurrence shall represent a
Change of Control only 90 days after the Borrower has entered into such
arrangement; provided, however, that the proposed merger or consolidation
of Unicom Corporation into and with Newholdco Corporation pursuant to the
terms and conditions of the Unicom/PECO Merger Agreement 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 December 17, 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.
<PAGE>
5
"Commitment" means, for each Lender, the obligation of such Lender to
make Advances to the Borrower in an amount no greater than the amount set
forth on Schedule I hereto or, if such Lender has entered into one or more
Lender Assignments, set forth for such Lender in the Register maintained by
the Administrative Agent pursuant to Section 8.07(c), in each such case as
such amount may be reduced from time to time pursuant to Section 2.05.
"Commitments" means the total of the Lenders' Commitments hereunder. The
Commitments shall in no event exceed $300,000,000.
"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,
<PAGE>
6
indebtedness or obligations of others of the kinds referred to in clauses
(i) through (iv) above, and (vi) in respect of unfunded vested benefits
under Plans. In determining Debt for any Person, (A) there shall be
included accrued interest on the principal amount thereof to the extent
such interest has accrued for more than six months and (B) in the cases of
clauses (iv) and (v), such obligation shall be excluded to the extent that
the primary obligation has been included under the preceding clauses.
"Default Rate" means (i) with respect to the unpaid principal of or
interest on any Advance, the greater of (A) 2% per annum above the
Applicable Rate in effect from time to time for such Advance and (B) 2% per
annum above the Applicable Rate in effect from time to time for Base Rate
Advances and (ii) with respect to any other unpaid amount hereunder, 2%
per annum above the Applicable Rate in effect from time to time for Base
Rate Advances.
"Dollars" and the sign "$" each means lawful money of the United
States.
"Domestic Lending Office" means, with respect to any Lender, the
office or affiliate of such Lender specified as its "Domestic Lending
Office" opposite its name on Schedule I hereto or in the Lender Assignment
pursuant to which it became a Lender, or such other office or affiliate of
such Lender as such Lender may from time to time specify in writing to the
Borrower and the Administrative Agent.
"Eligible Assignee" means (a) a commercial bank or trust company
organized under the laws of the United States, or any State thereof; (b) a
commercial bank organized 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, so long
as no Event of Default exists, the Borrower.
<PAGE>
7
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"ERISA Affiliate" means, with respect to any Person, any trade or
business (whether or not incorporated) which is a member of a group of
which such Person is a member and which is under common control within the
meaning of the regulations under Section 414(b) or (c) of the Internal
Revenue Code of 1986, as amended from time to time.
"ERISA Event" means (i) the occurrence of a reportable event, within
the meaning of Section 4043 of ERISA, unless the 30-day notice requirement
with respect thereto has been waived by the PBGC; (ii) the provision by the
administrator of any Plan of notice of intent to terminate such Plan,
pursuant to Section 4041(a)(2) of ERISA (including any such notice with
respect to a plan amendment referred to in Section 4041(e) of ERISA); (iii)
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; (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; or (viii) any withdrawal liability under
Section 4201 of ERISA.
"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
<PAGE>
8
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,
plus, for any Interest Period that begins on or prior to December 31, 1999,
150 basis points. The Eurodollar Rate for the Interest Period for each
Eurodollar Rate Advance made as part of the same A Borrowing shall be
determined by the Administrative Agent on the basis of applicable rates
furnished to and received by the Administrative Agent from the Reference
Banks two Business Days before the first day of such Interest Period,
subject, however, to the provisions of Section 2.09.
"Eurodollar Rate Advance" means an A Advance that bears interest as
provided in Section 2.07(b).
"Eurodollar Reserve Percentage" of any Lender for each Interest Period
for each Eurodollar Rate Advance means the reserve percentage applicable to
such Lender during such Interest Period (or if more than one such
percentage shall be so applicable, the daily average of such percentages
for those days in such Interest Period during which any such percentage
shall be so applicable) under Regulation D or other regulations issued from
time to time by the Board of Governors of the Federal Reserve System (or
any successor) for determining the maximum reserve requirement (including,
without limitation, any emergency, supplemental or other marginal reserve
requirement) then applicable to such Lender with respect to liabilities or
assets consisting of or including Eurocurrency Liabilities having a term
equal to such Interest Period.
"Events of Default" has the meaning assigned to that term in Section
6.01.
"Existing Facility" means the Credit Agreement, dated as of September
22, 1999, 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 reference to the
lower of the ratings issued by S&P or Moody's, by reference to the chart
below, 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> <C> <C> <C> <C> <C>
S&P A- or better BBB+ BBB BBB- and Lower than
Moody's and and and Baa3 Level 4 or
A3 or better Baa1 Baa2 unrated
---------------------------------------------------------------------------------------
</TABLE>
<PAGE>
9
<TABLE>
<S> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------
Basis Points 12.50 15.00 20.00 25.00 50.00
---------------------------------------------------------------------------------------
</TABLE>
The Facility Fee will be based upon the level corresponding to the
Reference Ratings at the time of determination. Any change in the
Reference Ratings shall effect an immediate change in the Facility Fee.
"Federal Funds Rate" means, for any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted
average of the rates on overnight Federal funds transactions with members
of the Federal Reserve System arranged by Federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day which is a Business Day, the
average of the quotations for such day on such transactions received by the
Administrative Agent from three Federal funds brokers of recognized
standing selected by it.
"Fee Letter" means that certain Fee Letter, dated November 16, 1999,
among the Borrower, Salomon Smith Barney Inc. and Citibank.
"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, 2, 3 or 6 months in the
case of a Eurodollar Rate Advance, in each case as the Borrower may, upon
notice received by the Administrative Agent not later than 12:00 noon (New
York City time) on the third Business Day prior to the first day of such
Interest Period in the case of a Eurodollar Rate Advance, select; provided,
however, that:
<PAGE>
10
(i) the Borrower may not select any Interest Period that ends after
the Termination Date;
(ii) Interest Periods commencing on the same date for A Advances
comprising part of the same A Borrowing shall be of the same duration; and
(iii) whenever the last day of any Interest Period would otherwise
occur on a day other than a Business Day, the last day of such Interest
Period shall be extended to occur on the next succeeding Business Day,
provided, in the case of any Interest Period for a Eurodollar Rate Advance,
that if such extension would cause the last day of such Interest Period to
occur in the next following calendar month, the last day of such Interest
Period shall occur on the next preceding Business Day.
"Lenders" means the Banks listed on the signature pages hereof and
each Eligible Assignee that shall become a party hereto pursuant to Section
8.07.
"Lender Assignment" means an assignment and acceptance agreement
entered into by a Lender and an Eligible Assignee, and accepted by the
Administrative Agent, in substantially the form of Exhibit 8.07.
"Lien" has the meaning assigned to that term in Section 5.02(a).
"Loan Documents" means this Agreement, the Notes, the Fee Letter and
all other agreements, instruments and documents now or hereafter executed
and/or delivered pursuant hereto or thereto.
"Majority Lenders" means, on any date of determination, Lenders that,
collectively, on such date (i) hold greater than 50% of the then aggregate
unpaid principal amount of the A Advances owing to Lenders and (ii) if no A
Advances are then outstanding, have Percentages in the aggregate greater
than 50%. Any determination of those Lenders constituting the Majority
Lenders shall be made by the Administrative Agent and shall be conclusive
and binding on all parties absent manifest error.
"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 an obligation
(other than a payment obligation or an obligation to comply
<PAGE>
12
or to procure compliance by another with any financial ratios or
other tests of financial condition) by the Person against which
such recourse is available.
"Note" means an A Note or a B Note.
"Notice of A Borrowing" has the meaning assigned to that term in
Section 2.02(a).
"Notice of B Borrowing" has the meaning assigned to that term in
Section 2.03(a).
"Notice of Conversion" has the meaning assigned to that term in
Section 2.10.
"Other Credit Agreement" means the 364-Day Credit Agreement, dated as
of December 17, 1999, among the Borrower, the lenders from time to time
parties thereto and Citibank, N.A., as agent for such lenders.
"PBGC" means the Pension Benefit Guaranty Corporation (or any
successor entity) established under ERISA.
"Percentage" means, for any Lender on any date of determination, the
percentage obtained by dividing such Lender's Commitment on such day by the
total of the Commitments on such date, and multiplying the quotient so
obtained by 100%.
"Person" means an individual, partnership, corporation (including a
business trust), limited liability company, joint stock company, trust,
unincorporated association, joint venture or other entity, or a government
or any political subdivision or agency thereof.
"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.
<PAGE>
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.
"Termination Date" means the earlier to occur of (i) December 17, 2002
(or such later date as the Lenders may from time to time agree pursuant to
Section 2.18(a)) and (ii) the date of termination or reduction in whole of
the Commitments pursuant to Section 2.05 or 6.01.
"Transitional Funding Instruments" means any instruments, pass-through
certificates, notes, debentures, certificates of participation, bonds,
certificates of beneficial interest or other evidences of indebtedness or
instruments evidencing a beneficial interest which (i) are issued pursuant
to a "transitional funding order" (as such term is defined in Section 18-
102 of the Illinois Public Utilities Act, as amended) issued by the
Illinois Commerce Commission at the request of an electric utility and (ii)
are secured by or otherwise payable from non-bypassable cent per kilowatt
hour charges authorized pursuant to such order to be applied and invoiced
to customers of such utility. The instrument funding charges so applied
and invoiced must be deducted and stated separately from the other charges
invoiced by such utility against its customers.
<PAGE>
14
"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.
"Unicom/PECO Merger Agreement" means the Agreement and Plan of
Exchange and Merger, dated as of September 22, 1999, among PECO Energy
Company, Newholdco Corporation and Unicom Corporation.
"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.
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
<PAGE>
15
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.
(b) Each Notice of A Borrowing shall be irrevocable and binding on the
Borrower. In the case of any A Borrowing which the related Notice of A
Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrower
shall indemnify each Lender against any loss, cost or expense incurred by such
Lender as a result of any failure to fulfill on or before the date specified in
such Notice of A Borrowing for such A Borrowing the applicable conditions set
forth in Article III, including, without limitation, any loss, cost or expense
incurred by reason of the liquidation or reemployment of deposits or other funds
acquired by such Lender to fund the A Advance to be made by such Lender as part
of such A Borrowing when such A Advance, as a result of such failure, is not
made on such date.
<PAGE>
16
(c) Unless the Administrative Agent shall have received notice from a
Lender prior to the date of any A Borrowing that such Lender will not make
available to the Administrative Agent such Lender's A Advance as part of such A
Borrowing, the Administrative Agent may assume that such Lender has made such A
Advance available to the Administrative Agent on the date of such A Borrowing in
accordance with subsection (a) of this Section 2.02 and the Administrative Agent
may, in reliance upon such assumption, make available to the Borrower on such
date a corresponding amount. If and to the extent that such Lender shall not
have so made such A Advance available to the Administrative Agent, such Lender
and the Borrower severally agree to repay to the Administrative Agent forthwith
on demand such corresponding amount, together with interest thereon, for each
day from the date such amount is made available to the Borrower until the date
such amount is repaid to the Administrative Agent, at (i) in the case of the
Borrower, the interest rate applicable at the time to A Advances comprising such
A Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If
such Lender shall repay to the Administrative Agent such corresponding amount,
such amount so repaid shall constitute such Lender's A Advance as part of such A
Borrowing for purposes of this Agreement.
(d) The failure of any Lender to make the A Advance to be made by it as
part of any A Borrowing shall not relieve any other Lender of its obligation, if
any, hereunder to make its A Advance on the date of such A Borrowing, but no
Lender shall be responsible for the failure of any other Lender to make the A
Advance to be made by such other Lender on the date of any A Borrowing.
SECTION 2.03. The B Advances. (A) Each Lender severally agrees that
the Borrower may request B Borrowings under this Section 2.03 from time to time
on any Business Day during the period from the date hereof until the date
occurring 30 days prior to the Termination Date in the manner, and subject to
the terms and conditions, set forth below. The rates of interest offered by the
Lenders and accepted by the Borrower for each B Borrowing shall be fixed rates
per annum or LIBOR based bids.
(i) The Borrower may request a B Borrowing under this Section 2.03 by
delivering to the Administrative Agent, by telecopier, telex or cable, a
notice of a B Borrowing (a "Notice of B Borrowing"), in substantially the
form of Exhibit 2.03(a)(i) hereto, specifying the date and aggregate amount
of the proposed B Borrowing, the maturity date for repayment of each B
Advance to be made as part of such B Borrowing (which maturity date may not
be earlier than the date occurring 30 days after the date of such B
Borrowing nor later than the earlier to occur of the then-scheduled
Termination Date and the date occurring 180 days following the date of such
B Borrowing), the interest payment date or dates relating thereto, the
interest rate basis to be used by the Lenders and any other terms to be
applicable to such B Borrowing, not later than 3:00 p.m. at least one
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.
<PAGE>
17
(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 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
<PAGE>
18
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
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
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19
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.
(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 Fee Letter.
SECTION 2.05. Reduction of the Commitments. (A) The Borrower shall have
the right, upon at least three Business Days' notice to the Administrative
Agent, to terminate in whole or reduce ratably in part the unused portions of
the respective Commitments of the Lenders;
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20
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, or upon the occurrence of a Change of Control,
the Commitments of the Lenders shall be reduced to zero.
SECTION 2.06. Repayment of A Advances. The Borrower shall repay the
principal amount of each A Advance made by each Lender in accordance with the A
Note to the order of such Lender.
SECTION 2.07. Interest on A Advances. The Borrower shall pay interest
on the unpaid principal amount of each A Advance owing to each Lender from the
date of such A Advance until such principal amount shall be paid in full, at the
Applicable Rate for such A Advance (except as otherwise provided in this Section
2.07), payable as follows:
(a) Base Rate Advances. If such A Advance is a Base Rate Advance, interest
thereon shall be payable quarterly in arrears on the last day of each March,
June, September and December on the date of any Conversion of such Base Rate
Advance and on the date such Base Rate Advance shall become due and payable or
shall otherwise be paid in full; provided that at any time an Event of Default
shall have occurred and be continuing, thereafter each Base Rate Advance shall
bear interest payable on demand, at a rate per annum equal at all times to the
Default Rate.
(b) Eurodollar Rate Advances. If such A Advance is a Eurodollar Rate
Advance, interest thereon shall be payable on the last day of such Interest
Period and, if the Interest Period for such A Advance has 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
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21
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:
(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.
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22
(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 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
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23
Conversion of any Eurodollar Rate Advances into Advances of another Type on a
day other than the last day of an Interest Period for such Eurodollar Rate
Advances, the Borrower shall be obligated to reimburse the Lenders in respect
thereof pursuant to Section 8.04(b). Each such Notice of Conversion shall be in
substantially the form of Exhibit 2.10 and shall, within the restrictions
specified above, specify (A) the date of such Conversion, (B) the A Advances to
be Converted, (C) if such Conversion is into Eurodollar Rate Advances, the
duration of the Interest Period for each such A Advance, and (D) the aggregate
amount of A Advances proposed to be Converted.
SECTION 2.11. Optional Prepayments of A Advances. The Borrower may, upon
at least three Business Days notice to the Administrative Agent stating the
proposed date and aggregate principal amount of the prepayment, and if such
notice is given the Borrower shall, prepay the outstanding principal amounts of
the A Advances comprising part of the same Borrowing in whole or ratably in
part, together with accrued interest to the date of such prepayment on the
principal amount prepaid; provided, however, that each partial prepayment shall
be in an aggregate principal amount not less than $10,000,000 (or, if lower, the
principal amount outstanding hereunder on the date of such prepayment) or an
integral multiple of $1,000,000 in excess thereof. In the case of any such
prepayment of a Eurodollar Rate Advance, the Borrower shall be obligated to
reimburse the Lender(s) in respect thereof pursuant to Section 8.04(b). Except
as provided in this Section 2.11, the Borrower shall have no right to prepay any
principal amount of any Advances. The Borrower shall have no right to
optionally prepay any principal amount of any B Advances.
SECTION 2.12. Mandatory Prepayments. (A) On the date of any termination
or reduction of the Commitments pursuant to Section 2.05, the Borrower shall pay
or prepay for the ratable accounts of the Lenders so much of the principal
amount outstanding under this Agreement as shall be necessary in order that the
principal amount outstanding (after giving effect to such prepayment) will not
exceed the amount of Commitments following such termination or reduction,
together with (A) accrued interest to the date of such prepayment on the
principal amount repaid or prepaid and (B) in the case of prepayments of
Eurodollar Rate Advances or B Advances, any amount payable to the Lenders
pursuant to Section 8.04(b).
(b) The Borrower shall pay or prepay for the ratable account of the Lenders
the aggregate principal amount outstanding hereunder such that, for a period of
at least one day during any 364-day period, the principal amount outstanding
hereunder shall be zero.
(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.
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24
SECTION 2.13. Increased Costs. (A) If, due to either (i) the
introduction of or any change (other than any change by way of imposition or
increase of reserve requirements included in the Eurodollar Rate Reserve
Percentage) in or in the interpretation of any law or regulation or (ii) the
compliance with any guideline or request from any central bank or other
governmental authority (whether or not having the force of law), there shall be
any increase in the cost to any Lender of agreeing to make or making, funding or
maintaining Eurodollar Rate Advances, then the Borrower shall from time to time,
upon demand by such Lender (with a copy of such demand to the Administrative
Agent), pay to the Administrative Agent for the account of such Lender
additional amounts sufficient to compensate such Lender for such increased cost.
A certificate as to the amount of such increased cost, submitted to the Borrower
and the Administrative Agent by such Lender, shall be conclusive and binding for
all purposes, absent manifest error, provided that the determination thereof
shall have been made by such Lender in good faith.
(b) If any Lender determines that compliance with any law or regulation or
any guideline or request from any central bank or other governmental authority
(whether or not having the force of law) affects or would affect the amount of
capital required or expected to be maintained by such Lender or any corporation
controlling such Lender and that the amount of such capital is increased by or
based upon the existence of such Lender's commitment to lend hereunder and other
commitments of this type, then, upon demand by such Lender (with a copy of such
demand to the Administrative Agent), the Borrower shall immediately pay to the
Administrative Agent for the account of such Lender, from time to time as
specified by such Lender, additional amounts sufficient to compensate such
Lender or such corporation in the light of such circumstances, to the extent
that such Lender reasonably determines such increase in capital to be allocable
to the existence of such Lender's Commitment. A certificate as to such amounts
submitted to the Borrower and the Administrative Agent by such Lender,
describing in reasonable detail the manner in which such amounts have been
calculated, shall be conclusive and binding for all purposes, absent manifest
error, provided that the determination and allocation thereof shall have been
made by such Lender in good faith.
(c) Notwithstanding the provisions of subsection (a) or (b) to the
contrary, no Lender shall be entitled to demand compensation or be compensated
hereunder to the extent that such compensation relates to any period of time
more than 180 days prior to the date upon which such 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
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25
Convert A Advances into Eurodollar Rate Advances shall thereupon be suspended
until the Administrative Agent shall notify the Borrower and the Lenders that
the circumstances causing such suspension no longer exist, or the Affected
Lender has been replaced pursuant to Section 8.07(g), and (ii) in the event
that, on the last day of each of the then-current Interest Periods for each
Eurodollar Rate Advance (each such Advance being an "Unaffected Lender Advance")
of each of the other Lenders (each such Lender being an "Unaffected Lender"),
the Administrative Agent shall have yet to notify the Borrower and the Lenders
that the circumstances causing such suspension of the Affected Lender's
obligations as aforesaid no longer exist, or the Affected Lender has not yet
been replaced pursuant to Section 8.07(g), such Unaffected Lender Advance shall
be Converted by the Borrower in accordance with Section 2.10 into an Advance of
another Type (or, in the event that the Borrower shall fail to duly deliver a
Notice of Conversion with respect thereto, into a Base Rate Advance), and the
obligation of such Unaffected Lender to make, maintain, or Convert A Advances
into Eurodollar Rate Advances shall be suspended until the Administrative Agent
shall so notify the Borrower and the Lenders, or the Affected Lender shall be so
replaced. For purposes of any prepayment under this Agreement, each Affected
Lender Advance shall be deemed to continue to be part of the same Borrowing as
the Unaffected Lender Advance to which it corresponded at the time of the
Conversion of such Affected Lender Advance pursuant to clause (i) above.
SECTION 2.15. Payments and Computations. (A) The Borrower shall make each
payment hereunder and under the Notes not later than 1:00 p.m. on the day when
due in Dollars to the Administrative Agent at its address referred to in Section
8.02 in same day funds. The Administrative Agent will promptly thereafter cause
to be distributed like funds relating to the payment of principal or interest or
fees ratably (other than amounts payable pursuant to Section 2.03, 2.08,
2.12(b)(iii), 2.16 or 8.04(b)) to the Lenders for the account of their
respective Applicable Lending Offices, and like funds relating to the payment of
any other amount payable to any Lender to such Lender for the account of its
Applicable Lending Office, in each case to be applied in accordance with the
terms of this Agreement. Upon its acceptance of a Lender 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
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26
the case of Section 2.09, by a Lender) of an interest rate hereunder shall be
conclusive and binding for all purposes, absent manifest error.
(d) Whenever any payment hereunder or under the Notes shall be stated to be
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or fees, as the case may be;
provided, however, that if such extension would cause payment of interest on or
principal of Eurodollar Rate Advances to be made in the next following calendar
month, such payment shall be made on the next preceding Business Day.
(e) Unless the Administrative Agent shall have received notice from the
Borrower prior to the date on which any payment is due to the Lenders hereunder
that the Borrower will not make such payment in full, the Administrative Agent
may assume that the Borrower has made such payment in full to the Administrative
Agent on such date and the Administrative Agent may, in reliance upon such
assumption, cause to be distributed to each Lender on such due date an amount
equal to the amount then due such Lender. If and to the extent that the
Borrower shall not have so made such payment in full to the Administrative
Agent, each Lender shall repay to the Administrative Agent forthwith on demand
such amount distributed to such Lender together with interest thereon, for each
day from the date such amount is distributed to such Lender until the date such
Lender repays such amount to the Administrative Agent, at the Federal Funds
Rate.
SECTION 2.16. Taxes. (A) Any and all payments by the Borrower hereunder
and under the other Loan Documents shall be made, in accordance with Section
2.15, free and clear of and without deduction for any and all present or future
taxes, levies, imposts, deductions, charges or withholdings, and all liabilities
with respect thereto, excluding, in the case of each Lender and the
Administrative Agent, taxes imposed on its overall net income and franchise
taxes imposed on it by the jurisdiction under the laws of which such Lender or
the Administrative Agent (as the case may be) is organized or any political
subdivision thereof and, in the case of each Lender, taxes imposed on its
overall net income and franchise taxes imposed on it by the jurisdiction of such
Lender's Applicable Lending Office or any political subdivision thereof (all
such non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes"); provided, however, that,
notwithstanding the foregoing, Taxes shall not include any taxes otherwise
required to be deducted by the Borrower pursuant to this subsection (a) as a
result of activities of any Lender or the Administrative Agent in the State of
Iowa (other than as a result, or in respect, of this Agreement). If the
Borrower shall be required by law to deduct any Taxes from or in respect of any
sum payable hereunder or under any other Loan Document to any Lender or the
Administrative Agent, (i) the sum payable shall be increased as may be necessary
so that after making all required deductions (including deductions applicable to
additional sums 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
<PAGE>
27
from any payment made hereunder or under any other Loan Document or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement or any other Loan Document (hereinafter referred to as "Other Taxes").
(c) The Borrower will indemnify each Lender and the Administrative Agent
for the full amount of Taxes or Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this
Section 2.16) paid by such Lender or the Administrative Agent (as the case may
be) and any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto, whether or not such Taxes or Other Taxes were
correctly or legally asserted. This indemnification shall be made within 30
days from the date such Lender or the Administrative Agent (as the case may be)
makes written demand therefor. Nothing herein shall preclude the right of the
Borrower to contest any such Taxes or Other Taxes so paid, and the Lenders in
question or the Administrative Agent (as the case may be) will, following notice
from, and at the expense of, the Borrower, reasonably cooperate with the
Borrower to preserve the Borrower's rights to contest such Taxes or Other Taxes.
(d) Within 30 days after the date of any payment of Taxes, the Borrower
will furnish to the Administrative Agent, at its address referred to in Section
8.02, the original or a certified copy of a receipt evidencing payment thereof.
(e) Each Lender agrees that, on or prior to the date upon which it shall
become a party hereto, and upon the reasonable request from time to time of the
Borrower or the Administrative Agent, such Lender will deliver to the Borrower
and the Administrative Agent either (i) a statement that it is organized under
the laws of a jurisdiction within the United States or (ii) duly completed
copies of such form or forms as may from time to time be prescribed by the
United States Internal Revenue Service indicating that such Lender is entitled
to receive payments without deduction or withholding of any United States
federal income taxes, as permitted by the Internal Revenue Code of 1986, as
amended from time to time. Each Lender that delivers to the Borrower and the
Administrative Agent the form or forms referred to in the preceding sentence
further undertakes to deliver to the Borrower and the Administrative Agent
further copies of such form or forms, or successor applicable form or forms, as
the case may be, as and when any previous form filed by it hereunder shall
expire or shall become incomplete or inaccurate in any respect. 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.
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SECTION 2.17. Sharing of Payments, Etc. If any Lender shall obtain any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) on account of the A Advances made by it (other than
pursuant to Section 2.08, 2.13, 2.16 or 8.04(b)) in excess of its ratable share
of payments on account of the A Advances obtained by all the Lenders, such
Lender shall forthwith purchase from the other Lenders such participations in
the Advances made by them as shall be necessary to cause such purchasing Lender
to share the excess payment ratably with each of them; provided, however, that
if all or any portion of such excess payment is thereafter recovered from such
purchasing Lender, such purchase from each Lender shall be rescinded and such
Lender shall repay to the purchasing Lender the purchase price to the extent of
such recovery, together with an amount equal to such Lender's ratable share
(according to the proportion of (i) the amount of such Lender's required
repayment to (ii) the total amount so recovered from the purchasing Lender) of
any interest or other amount paid or payable by the purchasing Lender in respect
of the total amount so recovered. The Borrower agrees that any Lender so
purchasing a participation from another Lender pursuant to this Section 2.17
may, to the fullest extent permitted by law, exercise all its rights of payment
(including the right of set-off) with respect to such participation as fully as
if such Lender were the direct creditor of the Borrower in the amount of such
participation.
SECTION 2.18. Extension of Termination Date. (A) At least 45 days but not
more than 60 days prior to the then-current Termination Date, the Borrower may
request that the Lenders, by written notice to the Administrative Agent (in
substantially the form attached hereto as Exhibit 2.18(a)), consent to a 364-day
extension of the Termination Date. Each Lender shall, in its sole discretion,
determine whether to consent to such request and shall notify the Administrative
Agent of its determination at least 20 days but not more than 30 days prior to
the then-current Termination Date. The failure to respond by any Lender within
such time period shall be deemed a denial of such request. The Administrative
Agent shall deliver a notice to the Borrower and the Lenders at least 15 days
prior to the then-current Termination Date of the identity of the Lenders that
have consented to such extension and the Lenders that have declined such consent
(the "Declining Lenders"). If Lenders holding in the aggregate more than 50% of
the Commitments have not consented to the requested extension, the Termination
Date shall not be extended, and the Commitments of all Lenders shall terminate
on the then-current Termination Date.
(b) If Lenders holding in the aggregate more than 50% of the Commitments
have consented to the requested extension, the Termination Date shall be
extended as to such consenting Lenders only (and not as to any Declining Lender)
for a period of 364 days from the then-current Termination Date (for purposes of
this Section 2.18, the "Extension Date"), and the Commitments of any Declining
Lenders shall terminate on the Extension Date (as theretofore in effect) and all
Advances of such Declining Lenders shall be repaid to them on such date. If the
Borrower so requests, each Lender consenting to such request shall be given the
opportunity at least seven days but not more than 15 days prior to the Extension
Date, in each Lender's sole discretion, to commit to increase its Commitment by
submission of a written notice setting forth the desired increase in such
Lender's Commitment to the Administrative Agent in amounts such that the
aggregate Commitments hereunder after giving effect to any such extension and
increase in the Commitments shall not exceed the aggregate Commitment
immediately prior to the Extension Date. If the Administrative Agent receives
Commitments to increase the Commitments from the Lenders, which, when aggregated
with the existing Commitments,
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29
(A) are less than or equal to the Commitments immediately prior to the Extension
Date, the Administrative Agent shall accept all such Commitments, (B) are
greater than the Commitments on the date hereof, the Administrative Agent may
determine, in its reasonable discretion, which Commitments to accept and the
amounts by which each submitting Lender's Commitments shall be increased so that
the aggregate Commitments after such Extension Date shall equal the aggregate
Commitments immediately prior to such Extension Date (any Lender whose
commitment to increase its Commitment hereunder is accepted by the
Administrative Agent, an "Increasing Commitment Lender"). If Lenders do not
consent to increase the aggregate Commitments to an amount equal to the
Commitments immediately prior to such Extension Date, the Borrower may, at least
two days but not more than seven days prior to such Extension Date, request that
the Administrative Agent, in its sole discretion, accept the Commitment or
Commitments of an Eligible Assignee or Eligible Assignees such that the
aggregate Commitments hereunder after such Extension Date shall not be greater
than Commitments hereunder immediately prior to such Extension Date. If the
Administrative Agent shall accept the Commitment of any Increasing Commitment
Lender or Eligible Assignee, the Commitments of the Declining Lenders shall
terminate on such Extension Date, and any Advances made by such Declining
Lenders shall be repaid on such date in accordance with this Agreement.
(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 December 17, 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:
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30
(i) this Agreement, duly executed by the Borrower, each Bank and the
Administrative Agent;
(ii) the A Notes payable to the order of the Lenders, respectively,
duly completed and executed by the Borrower;
(iii) the Fee 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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31
(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
Fee 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 Facility, and the commitments of all the lenders thereunder shall have
been terminated.
(e) The Borrower shall have executed and delivered the Other Credit
Agreement and the "Loan Documents" referred to therein, and all conditions
precedent set forth in Section 3.01 thereof shall have been satisfied.
SECTION 3.02. Conditions Precedent to Each A Borrowing. The obligation of
each Lender to make an A Advance on the occasion of each A Borrowing (including
the initial A Borrowing) shall be subject to the conditions precedent that, on
the date of such A Borrowing,
(a) the following statements shall be true and correct (and each of the
giving of the applicable Notice of A Borrowing and the acceptance by the
Borrower of the proceeds therefrom shall constitute a representation and
warranty by the Borrower that, on the date of such A Borrowing, such statements
are true and correct):
(i) the representations and warranties contained in Section 4.01 are
true and correct in all material respects on and as of the date of such A
Borrowing, before and after giving effect to the application of the
proceeds therefrom, as though made on and as of such date; and
(ii) no event has occurred and is continuing, or would result from
such A Borrowing or from the application of the proceeds therefrom, which
constitutes an Event of Default or an Unmatured Default; and
(b) the Administrative Agent shall have received such other approvals,
opinions, or documents as the Administrative Agent, or the Majority Lenders
through the Administrative Agent, may reasonably request, and such approvals,
opinions, and documents shall be satisfactory in form and substance to the
Administrative Agent.
SECTION 3.03. Conditions Precedent to Each B Borrowing. The obligation of
each Lender to make a B Advance on the occasion of a B Borrowing (including the
initial B Borrowing) shall be subject to the conditions precedent that (A) the
Administrative Agent shall have received the written confirmatory Notice of B
Borrowing with respect thereto; (B) on or before the date of such B Borrowing,
but prior to such B Borrowing, the Administrative Agent shall have received a B
Note payable to the order of such Lender for each of the one or more B Advances
to be made by such Lender as part of such B Borrowing, in a principal amount
equal to the principal amount of the B Advance to be evidenced thereby and
otherwise on such terms as were agreed to for such 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
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32
applicable Notice of B Borrowing and the acceptance by the Borrower of the
proceeds therefrom shall constitute a representation and warranty by the
Borrower that, on the date of such B Borrowing, such statements are true and
correct):
(i) the representations and warranties contained in Section 4.01 are
true and correct in all material respects on and as of the date of such B
Borrowing, before and after giving effect to such B Borrowing and to the
application of the proceeds therefrom, as though made on and as of such
date; and
(ii) no event has occurred and is continuing, or would result from
such B Borrowing or from the application of the proceeds therefrom, which
constitutes an Event of Default or an Unmatured Default; and
(d) the Administrative Agent shall have received such other approvals,
opinions, or documents as the Administrative Agent, or the Majority Lenders
through the Administrative Agent, may reasonably request, and such approvals,
opinions, and documents shall be satisfactory in form and substance to the
Administrative Agent.
SECTION 3.04. Conditions Precedent to Each Extension of the Termination
Date. In the event that the Borrower shall request an extension of the
Termination Date pursuant to Section 2.18, such extension shall take effect only
upon the satisfaction of the following conditions precedent, together with such
other conditions precedent as the extending Lenders may require in connection
with such extension:
(a) The Administrative Agent shall have prepared and delivered to the
Borrower and each Lender (including each new bank and other financial
institution to which a non-extending Lender's Commitment has been assigned
pursuant to Section 8.07 hereof) a revised Schedule I which reflects the
Commitments, as applicable, of each Lender.
(b) The Borrower shall have paid all fees under or referenced in Section
2.04 hereof, to the extent then due and payable.
(c) The Administrative Agent shall have received (i) legal opinions in
respect of any aspect or consequence of the transactions contemplated by Section
2.18 and (ii) such other documents 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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(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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34
(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 and for such extended period, the June 30 for which
financial statements have been delivered to the Lenders in the same calendar
year as an Extension Date, there has been no material adverse change in the
business, condition (financial or otherwise) or results of operations of the
Borrower and its Subsidiaries, taken as a whole, or in the Borrower's ability to
perform its obligations under this Agreement or any other Loan Document to which
it is or will be a party.
(f) Neither this Agreement nor any other document, certificate or statement
furnished to the Administrative Agent by the Borrower in connection herewith
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein and therein,
under the circumstances in which they were made, not misleading.
(g) The consolidated balance sheets of the Borrower and its Consolidated
Subsidiaries as at June 30, 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.
(i) The Borrower has filed all tax returns (Federal, state and local)
required to be filed and paid all taxes shown thereon to be due, including
interest and penalties, or, to the extent the Borrower is contesting in good
faith an assertion of liability based on such returns, has provided adequate
reserves for payment thereof in accordance with generally accepted accounting
principles.
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35
(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, except for proceedings in connection with the transactions
contemplated by the Unicom/PECO Merger Agreement, 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, 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.
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36
(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 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 and
maintain in good working order and condition (ordinary wear and tear excepted),
and operate in substantial conformity with all laws
<PAGE>
37
and material contractual obligations, all of its properties which are used or
useful in the conduct of its business, 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 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
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38
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
(other than registration statements related to employee benefits plans) and
periodic or special reports, if any, which the Borrower files with the
Securities and Exchange Commission or any governmental authority which may
be substituted therefor, or with any national securities exchange;
(ix) such information concerning the Borrower's Year 2000 Programs as
the Administrative Agent may reasonably request; and
(x) promptly after requested, such other information respecting the
business, properties, results of operations, prospects, revenues, condition
or operations, financial or otherwise, of the Borrower or any of its
Subsidiaries (including, but not limited to, copies of each Schedule B
(Actuarial Information) to the annual report (Form 5500 Series) filed with
the Internal Revenue Service) as the Administrative Agent or any Lender
through the Administrative Agent may from time to time reasonably request.
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39
(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:
(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
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40
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 and power purchase commitments of the Borrower or
any such Significant Subsidiary incurred in the ordinary course of
business;
(iv) (A) purchase money Liens upon or in property now owned or
hereafter acquired by the Borrower or any of its Significant Subsidiaries
in the ordinary course of business (consistent with present practices) to
secure (1) the purchase price of such property or (2) Debt incurred solely
for the purpose of financing the acquisition, construction or improvement
of any such property to be subject to such Liens, or (B) Liens existing on
any such property at the time of acquisition, or extensions, renewals or
replacements of any of the foregoing for the same or a lesser amount,
provided that no such Lien shall extend to or cover any property other than
the property being acquired, constructed or improved and replacements,
modifications and proceeds of such property, and no such extension, renewal
or replacement shall extend to or cover any property not theretofore
subject to the Lien being extended, renewed or replaced;
(v) attachment, judgment or other similar Liens arising in connection
with court proceedings, provided that, with respect to any Lien involving
an amount of $25,000,000 or more, the execution or other enforcement of
such Liens is effectively stayed and the claims secured thereby are being
actively contested in good faith by appropriate proceedings or the payment
of which is covered in full (subject to customary deductible amounts) by
insurance maintained with responsible insurance companies and the
applicable insurance company has acknowledged its liability therefor in
writing;
(vi) Liens arising under the Mortgage dated July 1, 1923, as
supplemented and amended by a Supplemental Indenture dated August 1, 1944
and other supplemental indentures, from the Borrower, as mortgagor, to
Harris Trust and Savings Bank and D.G. Donovan, as trustees, pursuant to
which the Borrower has issued, and may hereafter issue, its mortgage bonds;
(vii) Liens, if any, arising in connection with (A) the sale or
sale/leaseback of nuclear fuel to the extent permitted in clause (w) of the
proviso to Section 5.02(d) hereof, but only to the extent that the Liens so
arising are placed upon the nuclear fuel so sold or sold/leased back, or
(B) the sale, pledge or other disposition of accounts receivable to the
extent permitted by clause (x) 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, or (C) the
issuance of Transitional Funding Instruments to the extent permitted by
clause (y) of the proviso of Section 5.02(d) hereof;
(viii) Liens, if any, arising in connection with Capitalized Lease
Obligations, but only on the equipment or property subject to such
Capitalized Lease Obligations;
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41
(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 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 or replaced by an agreement regarding such
transactions approved by the Illinois Commerce Commission or the Securities and
Exchange Commission. Notwithstanding the forgoing, the terms of this Section
5.02(c) shall not apply to (i) the transactions contemplated by the Asset Sale
Agreement, dated as of May 11, 1999, between the Borrower and Unicom Investment
Inc. relating to the sale of the Borrower's fossil generation assets, (ii) the
transfer by the Borrower to Unicom Technology Development Inc. of up to
$275,000,000 of notes receivable from Unicom Investment Inc. under said Asset
Sale Agreement along with an obligation in respect of an equivalent amount of
the Borrower's contingent obligation to pay post-retirement health care
benefits, and (iii) the transactions associated with a transfer of the
Borrower's nuclear generating stations to an Affiliate as permitted by clause
(v) of Section 5.02(d).
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42
(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, (v) the Borrower may transfer its nuclear generating assets to
an Affiliate, (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 (i) Debt
evidenced by the Notes and (ii) Nonrecourse Debt) when the same becomes due and
payable (whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise), and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating to such Debt;
or
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43
(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 (i) Debt evidenced by the Notes and (ii) Nonrecourse Debt); 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
(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
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44
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 the
Administrative Agent accords credit facilities similar to the credit facility
hereunder for which it is the sole lender.
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45
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.
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
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46
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.
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
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47
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: 312-394-5767; and telecopier: 312-394-3110),
with a copy to the same address, attention: Associate General Counsel-Corporate
and Commercial (telephone: 312-394-3179; and telecopier: 312-394-3950); if to
any Bank, at its Domestic Lending Office specified opposite its name on Schedule
I hereto; if to any other Lender, at its Domestic Lending Office specified in
the Lender Assignment pursuant to which it became a Lender; and if to the
Administrative Agent, at its address at Two Pennsway, Ste. 200, New Castle,
Delaware 19720, Attention: Bank Loan Syndications; or, as to each party, at such
other address as shall be designated by such party in a written notice to the
other parties. All such notices and communications shall, when mailed,
telecopied, telegraphed, telexed or cabled, be effective five days after being
deposited in the mails, or when delivered to the telegraph company, telecopied,
confirmed by telex answerback or delivered to the cable company, respectively,
except that notices and communications to the Administrative Agent pursuant to
Article II or VII shall not be effective until received by the Administrative
Agent.
SECTION 8.03. No Waiver; Remedies. No failure on the part of any Lender
or the Administrative Agent to exercise, and no delay in exercising, any right
hereunder or under any Note shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right 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.
<PAGE>
48
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, 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;
<PAGE>
49
(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 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.
<PAGE>
50
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 and, in the case of the Borrower, not to be
required if an Event of Default exists), 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 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
<PAGE>
51
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.
(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
<PAGE>
52
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 (provided the
Borrower shall pay the $3,000 administrative fee specified in 8.07(a)) to one or
more Eligible Assignees designated by the Borrower all (but not less than all)
of such Lender's Commitment and the Advances owing to it within the period
ending on the latest to occur of (x) the last day in the period described in
clause (1) or (2) above, as applicable, (y) the last day of the longest of the
then current Interest Periods for such Advances, and (z) the latest maturity
date of any B Advances owing to such Lender. If any such Eligible Assignee
designated by the Borrower shall fail to consummate such assignment on terms
acceptable to such Lender, or if the Borrower shall fail to designate any such
Eligible Assignees for all or part of such Lender's Commitment or Advances, then
such demand by the Borrower shall become ineffective; it being understood for
purposes of this subsection (g) that such assignment shall be conclusively
deemed to be on terms acceptable to such Lender, and such Lender shall be
compelled to consummate such assignment to an Eligible Assignee designated by
the Borrower, if such Eligible Assignee (x) shall agree to such assignment by
entering into a Lender Assignment with such Lender and (y) shall offer
compensation to such Lender in an amount equal to all amounts then owing by the
Borrower to such Lender hereunder and under the Note made by the Borrower to
such Lender, whether for principal, interest, fees, costs or expenses (other
than the demanded payment referred to above and payable by the Borrower as a
condition to the Borrower's right to demand such assignment), or otherwise.
(h) Anything in this Section 8.07 to the contrary notwithstanding, any
Lender may assign and pledge all or any portion of its Commitment and the
Advances owing to it (i) with notice to the Borrower and the Agent, to any of
its affiliates and (ii) without the consent of the Borrower or the Agent, to any
Federal Reserve Bank (and its transferees) as collateral security pursuant to
Regulation A of the Board of Governors of the Federal Reserve System and any
Operating Circular issued by such Federal Reserve Bank. No such assignment
shall release the assigning Lender from its obligations hereunder.
<PAGE>
53
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 or an Affiliate of such Lender, but
the Recipient's ability to so exchange Confidential Information shall be
conditioned upon any such prospective participant's or assignee's or Affiliate's
entering into an understanding as to confidentiality similar to this provision.
It is further understood that the foregoing will not prohibit the disclosure of
any or all Confidential Information if and to the extent that such disclosure
may be required (i) by a regulatory agency or otherwise in connection with an
examination of the Recipient's records by appropriate authorities, (ii) pursuant
to court order, subpoena or other legal process or in connection with any
pending or threatened litigation, (iii) otherwise as required by law, or (iv) in
order to protect its interests or its rights or remedies hereunder or under the
other Loan Documents; in the event of any required disclosure under clause (ii)
or (iii) above, the Recipient agrees to use reasonable efforts to inform the
Borrower as promptly as practicable.
SECTION 8.09. Waiver of Jury Trial. THE ADMINISTRATIVE AGENT, THE
LENDERS AND THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE
ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED
HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE ADMINISTRATIVE AGENT, SUCH
LENDERS OR THE BORROWER. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
ADMINISTRATIVE AGENT AND THE LENDERS ENTERING INTO THIS AGREEMENT.
SECTION 8.10. 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 return receipt requested to the address and Person
identified for delivery of notice pursuant to Section 8.02. A final judgment in
any such action shall be conclusive and may be enforced in other jurisdictions.
<PAGE>
54
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 8.11. 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 8.12. 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>
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: Patricia L. Kampling
Title: Treasurer
Administrative Agent
--------------------
CITIBANK, N.A.,
as Administrative Agent and as Bank
By: ____________________________________
Name:
Title:
<PAGE>
SCHEDULE I
COMMONWEALTH EDISON COMPANY
3-Year Credit Agreement, dated as of December 17, 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. $ 40,500,000 Two Pennsway, Ste. 200 Same as Domestic Lending
New Castle, Delaware 19720 Office
Attention: Bank Loan Syndications
Bank of New York $ 39,750,000 One Wall Street, 19/th/ Floor Same as Domestic Lending
New York, New York 10286 Office
Attention: Lisa Williams
Morgan Guaranty $ 39,750,000 60 Wall Street Morgan Guaranty Trust
New York, New York 10260 Nassau Bahamas Office
Attention: Andrew Lipsett c/o J.P. Morgan Services, Inc.
500 Stanton-Christiana Rd.
Newark, DE 19713
Attention: Andrew Lipsett
Chase Manhattan $ 33,750,000 1 Chase Manhattan Plaza, 8/th/ Floor Same as Domestic Lending
New York, NY 10018 Office
Attention: Lynette Lang
ABN AMRO $ 28,125,000 208 South LaSalle Street, Suite 1500 Same as Domestic Lending
Chicago, Illinois 60604 Office
Attention: Loan Administration
Bank of America $ 28,125,000 100 North Tryon Street, 16/th/ Floor Same as Domestic Lending
Charlotte, North Carolina 28255 Office
Attention: Gretchen Burud
Bank of Montreal $ 28,125,000 115 S. LaSalle Street, 11/th/ Floor Same as Domestic Lending
Chicago, IL 60603 Office
Attention: Keiko Kuze
Bayerisch Landesbank $ 18,750,000 560 Lexington Avenue, 17/th/ Floor Same as Domestic Lending
New York, New York 10022 Office
Attention: Sean O' Sullivan
Northern Trust $ 15,000,000 50 S. LaSalle Street Same as Domestic Lending
Chicago, Illinois 60675 Office
Attention: Nicole Boehm
Barclays $ 18,750,000 222 Broadway Same as Domestic Lending
New York, New York 10038 Office
Attention: Marsha Hamlette
Industrial Bank of Japan $ 9,375,000 Credit Administration #1 Department Same as Domestic Lending
1251 Avenue of the Americas Office
New York, NY 10020
Attn: Agnes Aberin
</TABLE>
<PAGE>
Exhibit (4)-23
Commonwealth Edison Company
Form 10-K File No. 1-1839
______________________________________________________________________________
$500,000,000
364-DAY
CREDIT AGREEMENT
Dated as of December 17, 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....................................................... 14
Section 2.02. Making the A Advances................................................ 15
Section 2.03. The B Advances....................................................... 16
Section 2.04. Fees................................................................. 19
Section 2.05. Reduction of the Commitments......................................... 19
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...................... 20
Section 2.09. Interest Rate Determination.......................................... 21
Section 2.10. Voluntary Conversion of A Advances................................... 22
Section 2.11. Optional Prepayments of A Advances................................... 23
Section 2.12. Mandatory Prepayments................................................ 23
Section 2.13. Increased Costs...................................................... 23
Section 2.14. Illegality........................................................... 24
Section 2.15. Payments and Computations............................................ 25
Section 2.16. Taxes................................................................ 26
Section 2.17. Sharing of Payments, Etc............................................. 27
Section 2.18. Extension of Termination Date........................................ 28
ARTICLE III
CONDITIONS OF LENDING
Section 3.01. Conditions Precedent to Closing...................................... 29
Section 3.02. Conditions Precedent to Each A Borrowing............................. 31
Section 3.03. Conditions Precedent to Each B Borrowing............................. 31
Section 3.04. Conditions Precedent to Each Extension of the Termination Date....... 32
Section 3.05. Reliance on Certificates............................................. 32
</TABLE>
i
<PAGE>
<TABLE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
<S> <C>
Section 4.01. Representations and Warranties of the Borrower....................... 33
ARTICLE V
COVENANTS OF THE BORROWER
Section 5.01. Affirmative Covenants................................................ 35
Section 5.02. Negative Covenants................................................... 39
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................................. 45
Section 7.03. Citibank, N.A. and Affiliates........................................ 45
Section 7.04. Lender Credit Decision............................................... 46
Section 7.05. Indemnification...................................................... 46
Section 7.06. Successor Administrative Agent....................................... 46
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Amendments, Etc...................................................... 47
Section 8.02. Notices, Etc......................................................... 47
Section 8.03. No Waiver; Remedies.................................................. 48
Section 8.04. Costs, Expenses, Taxes and Indemnification........................... 48
Section 8.05. Right of Set-off..................................................... 49
Section 8.06. Binding Effect....................................................... 50
Section 8.07. Assignments and Participations....................................... 50
Section 8.08. Confidentiality...................................................... 53
Section 8.09. Waiver of Jury Trial................................................. 53
Section 8.11. Governing Law........................................................ 54
Section 8.12. Relation of the Parties; No Beneficiary.............................. 54
Section 8.13. Execution in Counterparts............................................ 54
</TABLE>
ii
<PAGE>
SCHEDULES
---------
Schedule I: Commitment Allocations
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)(viii)-1: Form of Opinion of Counsel to the Borrower
Exhibit 3.01(a)(viii)-2: Form of Opinion of Counsel to the Agent
Exhibit 8.07: Form of Lender Assignment
iii
<PAGE>
CREDIT AGREEMENT
Dated as of December 17, 1999
THIS 364-DAY CREDIT AGREEMENT (this "Agreement") is made by and among:
(i) COMMONWEALTH EDISON COMPANY, an Illinois corporation (the
"Borrower"),
(ii) the banks (the "Banks") listed on the signature pages hereof
and the other Lenders (as hereinafter defined) from time to time party
hereto, and
(iii) CITIBANK, N.A. ("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 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
<PAGE>
2
direction of the management and policies of such entity, whether through
the ownership of voting securities, by contract, or otherwise.
"Alternate Base Rate" means a fluctuating interest rate per annum as
shall be in effect from time to time which rate per annum shall at all
times be equal to the higher of:
(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) for the period from the date of the Closing through (and
including) January 31, 2000, a rate equal to 2% per annum above the Federal
Funds Rate, and thereafter, 1/2 of one percent per annum above the Federal
Funds Rate.
Each change in the Alternate Base Rate shall take effect concurrently with
any change in such base rate or the Federal Funds Rate.
"Applicable Lending Office" means, with respect to each Lender, such
Lender's Domestic Lending Office in the case of a Base Rate Advance and
such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate
Advance and, in the case of a B Advance, the office of such Lender notified
by such Lender to the Administrative Agent as its Applicable Lending Office
with respect to such B Advance.
"Applicable Margin" means, on any date, for a Eurodollar Rate Advance
or Base Rate Advance, the number of basis points set forth below in the
columns identified as Level 1, Level 2, Level 3, Level 4 and Level 5, as
determined by reference to the lower of the ratings issued by S&P or
Moody's, by reference to the chart below, 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 Advance 40.00 62.50 72.50 80.00 162.50
--------------------------------------------------------------------------------------------
Base Rate Advance 0 0 0 0 0
--------------------------------------------------------------------------------------------
</TABLE>
The Applicable Margin shall increase (a)(i) by 12.50 basis points for any
Reference Rating designated as Level 1, Level 2 or Level 3, (ii) by 25.00
basis points for any Reference Rating designated as Level 4 and (iii) by
50.00 basis points for any Reference Rating designated as Level 5, in each
case, at any time that more than 50% of the Commitments are utilized, and
(b) by 50.00 basis points at any time any Advance is outstanding during the
period from the date of the Closing through (and including) January 31,
2000.
<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% or
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 that
in the case of this clause (iii) any such occurrence shall represent a
Change of Control only 90 days after entering into such arrangement;
provided, however, that the proposed merger or consolidation of Unicom
Corporation into and with Newholdco Corporation. pursuant to the terms and
conditions of the Unicom/PECO Merger Agreement 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 December 17, 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 8.07(c), in each such case as
such amount may be reduced from time to time pursuant to
<PAGE>
5
Section 2.05. "Commitments" means the total of the Lenders' Commitments
hereunder. The Commitments shall in no event exceed $500,000,000.
"Consolidated Capital" means, with respect to any Person, at any date
of determination, the sum of (a) Consolidated Debt of such Person, (b)
consolidated equity of the common stockholders of such Person and its
Consolidated Subsidiaries, (c) consolidated equity of the preference
stockholders of such Person and its Consolidated Subsidiaries, (d)
consolidated equity of the preferred stockholders of such Person and its
Consolidated Subsidiaries, in each case determined at such date in
accordance with GAAP and (e) the aggregate principal amount of Subordinated
Deferrable Interest Securities of such Person and its Consolidated
Subsidiaries.
"Consolidated Debt" means, with respect to any Person, at any date of
determination, the aggregate Debt of such Person and its Consolidated
Subsidiaries determined on a consolidated basis in accordance with GAAP,
but shall not include (i) Nonrecourse Debt of any Subsidiary of the
Borrower, (ii) the aggregate principal amount of Subordinated Deferrable
Interest Securities of such Person and its Consolidated Subsidiaries and
(iii) the aggregate principal amount of Transitional Funding Instruments of
such Person and its Consolidated Subsidiaries.
"Consolidated Subsidiary" means, with respect to any Person, any
Subsidiary of such Person whose accounts are or are required to be
consolidated with the accounts of such Person in accordance with generally
accepted accounting principles.
"Convert", "Conversion" and "Converted" each refers to a conversion of
Advances of one Type into Advances of another Type, or to the selection of
a new, or the renewal of the same, Interest Period for Advances, as the
case may be, pursuant to Section 2.09 or 2.10.
"Debt" means, for any Person, any and all indebtedness, liabilities
and other monetary obligations of such Person (i) for borrowed money or
evidenced by bonds, debentures, notes or other similar instruments, (ii) to
pay the deferred purchase price of property or services (except trade
accounts payable arising and repaid in the ordinary course of business),
(iii) Capitalized Lease Obligations, (iv) under reimbursement or similar
agreements with respect to letters of credit (other than trade letters of
credit) issued to support indebtedness or obligations of such Person or of
others of the kinds referred to in clauses (i) through (iii) above and
clause (v) below, (v) reasonably quantifiable obligations under direct
guaranties or indemnities, or under support agreements, in respect of, and
reasonably quantifiable obligations (contingent or otherwise) to purchase
or otherwise acquire, or otherwise to assure a creditor against loss in
respect of, or to assure an obligee against failure to make payment in
respect of, indebtedness or obligations of others of the kinds referred to
in clauses (i) through (iv) above, and (vi) in respect of unfunded vested
benefits under Plans. In determining Debt for any Person, (A) there shall
be included accrued interest on the principal amount thereof to the extent
such interest has accrued for more than six months and (B) in the
<PAGE>
6
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, so long
as no Event of Default exists, the Borrower.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"ERISA Affiliate" means, with respect to any Person, any trade or
business (whether or not incorporated) which is a member of a group of
which such Person is a
<PAGE>
7
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)
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; (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; or (viii) any withdrawal liability under
Section 4201 of ERISA.
"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, plus, for any
Interest Period that begins on or prior to December 31, 1999, 150 basis
points. The Eurodollar Rate for the Interest Period for each Eurodollar
Rate Advance made as part of the same A Borrowing shall be determined by
the Administrative Agent on the basis of applicable rates furnished to and
<PAGE>
8
received by the Administrative Agent from the Reference Banks two Business
Days before the first day of such Interest Period, subject, however, to the
provisions of Section 2.09.
"Eurodollar Rate Advance" means an A Advance that bears interest as
provided in Section 2.07(b).
"Eurodollar Reserve Percentage" of any Lender for each Interest Period
for each Eurodollar Rate Advance means the reserve percentage applicable to
such Lender during such Interest Period (or if more than one such
percentage shall be so applicable, the daily average of such percentages
for those days in such Interest Period during which any such percentage
shall be so applicable) under Regulation D or other regulations issued from
time to time by the Board of Governors of the Federal Reserve System (or
any successor) for determining the maximum reserve requirement (including,
without limitation, any emergency, supplemental or other marginal reserve
requirement) then applicable to such Lender with respect to liabilities or
assets consisting of or including Eurocurrency Liabilities having a term
equal to such Interest Period.
"Events of Default" has the meaning assigned to that term in Section
6.01.
"Existing Facility" means the Credit Agreement, dated as of September
22, 1999, 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 reference to the
lower of the ratings issued by S&P or Moody's, by reference to the chart
below, 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 20.00 37.50
---------------------------------------------------------------------------------
</TABLE>
The Facility Fee will be based upon the level corresponding to the
Reference Ratings at the time of determination. Any change in the Reference
Ratings shall effect an immediate change in the Facility Fee.
<PAGE>
9
"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.
"Fee Letter" means that certain Fee Letter, dated November 16, 1999,
among the Borrower, Salomon Smith Barney Inc. and Citibank.
"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, 2, 3 or 6 months in the
case of a Eurodollar Rate Advance, in each case as the Borrower may, upon
notice received by the Administrative Agent not later than 12:00 noon (New
York City time) on the third Business Day prior to the first day of such
Interest Period in the case of a Eurodollar Rate Advance, select; provided,
however, that:
(i) the Borrower may not select any Interest Period that ends after
the Termination Date;
(ii) Interest Periods commencing on the same date for A Advances
comprising part of the same A Borrowing shall be of the same duration; and
<PAGE>
10
(iii) whenever the last day of any Interest Period would otherwise
occur on a day other than a Business Day, the last day of such Interest
Period shall be extended to occur on the next succeeding Business Day,
provided, in the case of any Interest Period for a Eurodollar Rate Advance,
that if such extension would cause the last day of such Interest Period to
occur in the next following calendar month, the last day of such Interest
Period shall occur on the next preceding Business Day.
"Lenders" means the Banks listed on the signature pages hereof and
each Eligible Assignee that shall become a party hereto pursuant to Section
8.07.
"Lender Assignment" means an assignment and acceptance agreement
entered into by a Lender and an Eligible Assignee, and accepted by the
Administrative Agent, in substantially the form of Exhibit 8.07.
"Lien" has the meaning assigned to that term in Section 5.02(a).
"Loan Documents" means this Agreement, the Notes, the Fee Letter and
all other agreements, instruments and documents now or hereafter executed
and/or delivered pursuant hereto or thereto.
"Majority Lenders" means, on any date of determination, Lenders that,
collectively, on such date (i) hold greater than 50% of the then aggregate
unpaid principal amount of the A Advances owing to Lenders and (ii) if no A
Advances are then outstanding, have Percentages in the aggregate greater
than 50%. Any determination of those Lenders constituting the Majority
Lenders shall be made by the Administrative Agent and shall be conclusive
and binding on all parties absent manifest error.
"Material Adverse Effect" means, relative to any occurrence of
whatever nature (including, without limitation, any adverse determination
in any litigation, arbitration or governmental investigation or
proceedings), a material adverse effect on:
(a) the consolidated business, assets, revenues, financial
condition, results of operations, operations or prospects of the
Borrower and its Subsidiaries; or
(b) the ability of the Borrower to make any payment when due
under this Agreement or to perform any of its other obligations under
the Loan Documents.
"Moody's" means Moody's Investors Service, Inc. or any successor
thereto.
"Multiemployer Plan" means a multiemployer plan, as defined in Section
4001(a)(3) of ERISA, which is subject to Title IV of ERISA and to which the
Borrower or any ERISA Affiliate of the Borrower is making or accruing an
obligation to make contributions, or has within any of the preceding five
plan years made or accrued an
<PAGE>
11
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
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.
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12
"Notice of A Borrowing" has the meaning assigned to that term in
Section 2.02(a).
"Notice of B Borrowing" has the meaning assigned to that term in
Section 2.03(a).
"Notice of Conversion" has the meaning assigned to that term in
Section 2.10.
"Other Credit Agreement" means the 3-Year Credit Agreement, dated as
of December 17, 1999, among the Borrower, the lenders from time to time
parties thereto and Citibank, N.A., as agent for such lenders.
"PBGC" means the Pension Benefit Guaranty Corporation (or any
successor entity) established under ERISA.
"Percentage" means, for any Lender on any date of determination, the
percentage obtained by dividing such Lender's Commitment on such day by the
total of the Commitments on such date, and multiplying the quotient so
obtained by 100%.
"Person" means an individual, partnership, corporation (including a
business trust), limited liability company, joint stock company, trust,
unincorporated association, joint venture or other entity, or a government
or any political subdivision or agency thereof.
"Plan" means a Single Employer Plan or a Multiple Employer Plan.
"PUHCA" means the Public Utility Holding Company Act of 1935, as
amended from time to time.
"Reference Banks" means Citibank, N.A., and any additional or
substitute Lenders as may be selected from time to time to act as Reference
Banks hereunder by the Administrative Agent, the Majority Lenders and the
Borrower.
"Register" has the meaning assigned to that term in Section 8.07(c).
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., or any successor thereto.
"Senior Financial Officer" means the President, the Chief Executive
Officer, the Chief Financial Officer or the Treasurer of the Borrower.
"Significant Subsidiary" means any direct or indirect Subsidiary of
the Borrower that, on a consolidated basis with any of its Subsidiaries as
of any date of determination, accounts for more than 20% of the
consolidated assets (valued at book value) of the Borrower and its
Subsidiaries; but shall not include any Subsidiary set up for the sole
purpose of facilitating the issuance of Transitional Funding Instruments.
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13
"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.
"Termination Date" means the earlier to occur of (i) the date 364 days
from the date hereof (or such later date as the Lenders may from time to
time agree pursuant to Section 2.18(a)) and (ii) the date of termination or
reduction in whole of the Commitments pursuant to Section 2.05 or 6.01.
"Transitional Funding Instruments" means any instruments, pass-through
certificates, notes, debentures, certificates of participation, bonds,
certificates of beneficial interest or other evidences of indebtedness or
instruments evidencing a beneficial interest which (i) are issued pursuant
to a "transitional funding order" (as such term is defined in Section 18-
102 of the Illinois Public Utilities Act, as amended) issued by the
Illinois Commerce Commission at the request of an electric utility and (ii)
are secured by or otherwise payable from non-bypassable cent per kilowatt
hour charges authorized pursuant to such order to be applied and invoiced
to customers of such utility. The instrument funding charges so applied
and invoiced must be deducted and stated separately from the other charges
invoiced by such utility against its customers.
"Type" has the meaning assigned to that term (i) in the definition of
"A Advance" when used in such context and (ii) in the definition of
"Borrowing" when used in such context.
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14
"Unicom/PECO Merger Agreement" means the Agreement and Plan of
Exchange and Merger dated as of September 22, 1999 among PECO Energy
Company, Newholdco Corporation and Unicom Corporation.
"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.
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
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15
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.
(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
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16
Administrative Agent may, in reliance upon such assumption, make available to
the Borrower on such date a corresponding amount. If and to the extent that such
Lender shall not have so made such A Advance available to the Administrative
Agent, such Lender and the Borrower severally agree to repay to the
Administrative Agent forthwith on demand such corresponding amount, together
with interest thereon, for each day from the date such amount is made available
to the Borrower until the date such amount is repaid to the Administrative
Agent, at (i) in the case of the Borrower, the interest rate applicable at the
time to A Advances comprising such A Borrowing and (ii) in the case of such
Lender, the Federal Funds Rate. If such Lender shall repay to the Administrative
Agent such corresponding amount, such amount so repaid shall constitute such
Lender's A Advance as part of such A Borrowing for purposes of this Agreement.
(d) The failure of any Lender to make the A Advance to be made by it as
part of any A Borrowing shall not relieve any other Lender of its obligation, if
any, hereunder to make its A Advance on the date of such A Borrowing, but no
Lender shall be responsible for the failure of any other Lender to make the A
Advance to be made by such other Lender on the date of any A Borrowing.
SECTION 2.03. The B Advances. (A) Each Lender severally agrees that
the Borrower may request B Borrowings under this Section 2.03 from time to time
on any Business Day during the period from the date hereof until the date
occurring 30 days prior to the Termination Date in the manner, and subject to
the terms and conditions, set forth below. The rates of interest offered by the
Lenders and accepted by the Borrower for each B Borrowing shall be fixed rates
per annum or LIBOR based bids.
(i) The Borrower may request a B Borrowing under this Section 2.03 by
delivering to the Administrative Agent, by telecopier, telex or cable, a
notice of a B Borrowing (a "Notice of B Borrowing"), in substantially the
form of Exhibit 2.03(a)(i) hereto, specifying the date and aggregate amount
of the proposed B Borrowing, the maturity date for repayment of each B
Advance to be made as part of such B Borrowing (which maturity date may not
be earlier than the date occurring 30 days after the date of such B
Borrowing nor later than the earlier to occur of the then-scheduled
Termination Date and the date occurring 180 days following the date of such
B Borrowing), the interest payment date or dates relating thereto, the
interest rate basis to be used by the Lenders and any other terms to be
applicable to such B Borrowing, not later than 3:00 p.m. at least one
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
<PAGE>
17
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 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.
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18
(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
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
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19
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.
(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 Fee Letter.
SECTION 2.05. Reduction of the Commitments. (A) The Borrower shall have
the right, upon at least three Business Days' notice to the Administrative
Agent, to terminate in whole or reduce ratably in part the unused portions of
the respective Commitments of the Lenders; provided that the aggregate amount of
the Commitments of the Lenders shall not be reduced to an amount which is less
than the aggregate principal amount of the A and B Advances then outstanding;
and provided, further, that each partial reduction shall be in a minimum amount
of $10,000,000 or any whole multiple of $1,000,000 in excess thereof. Any
termination or reduction of the Commitments shall be irrevocable, and the
Commitments shall not thereafter be reinstated.
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20
(b) On the Termination Date, or upon the occurrence of a Change of Control,
the Commitments of the Lenders shall be reduced to zero.
SECTION 2.06. Repayment of A Advances. The Borrower shall repay the
principal amount of each A Advance made by each Lender in accordance with the A
Note to the order of such Lender.
SECTION 2.07. Interest on A Advances. The Borrower shall pay interest
on the unpaid principal amount of each A Advance owing to each Lender from the
date of such A Advance until such principal amount shall be paid in full, at the
Applicable Rate for such A Advance (except as otherwise provided in this Section
2.07), payable as follows:
(a) Base Rate Advances. If such A Advance is a Base Rate Advance, interest
thereon shall be payable quarterly in arrears on the last day of each March,
June, September and December on the date of any Conversion of such Base Rate
Advance and on the date such Base Rate Advance shall become due and payable or
shall otherwise be paid in full; provided that at any time an Event of Default
shall have occurred and be continuing, thereafter each Base Rate Advance shall
bear interest payable on demand, at a rate per annum equal at all times to the
Default Rate.
(b) Eurodollar Rate Advances. If such A Advance is a Eurodollar Rate
Advance, interest thereon shall be payable on the last day of such Interest
Period and, if the Interest Period for such A Advance has 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.
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21
SECTION 2.09. Interest Rate Determination. (A) Each Reference Bank
agrees to furnish to the Administrative Agent timely information for the purpose
of determining each Eurodollar Rate. If any one or more of the Reference Banks
shall not furnish such timely information to the Administrative Agent for the
purpose of determining any such interest rate, the Administrative Agent shall
determine such interest rate on the basis of timely information furnished by the
remaining Reference Banks.
(b) The Administrative Agent shall give prompt notice to the Borrower and
the Lenders of the applicable interest rate determined by the Administrative
Agent for purposes of Section 2.07(a) or (b), and the applicable rate, if any,
furnished by each Reference Bank for the purpose of determining the applicable
interest rate under Section 2.07(b).
(c) If 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:
(i) the Administrative Agent shall forthwith notify the Borrower and
the Lenders that the interest rate cannot be determined for such Eurodollar
Rate Advances;
(ii) each such Advance will automatically, on the last day of the then
existing Interest Period therefor, Convert into a Base Rate Advance (or if
such Advance is then a Base Rate Advance, will continue as a Base Rate
Advance); and
(iii) the obligation of the Lenders to make, or to Convert A Advances
into, Eurodollar Rate Advances shall be suspended until the Administrative
Agent shall notify the Borrower and the Lenders that the circumstances
causing such suspension no longer exist.
(d) If, with respect to any Eurodollar Rate Advances, the Majority Lenders
notify the Administrative Agent that the Eurodollar Rate for any Interest Period
for such Advances will not adequately reflect the cost to such Majority Lenders
of making, funding or maintaining their respective Eurodollar Rate Advances for
such Interest Period, the Administrative Agent shall forthwith so notify the
Borrower and the Lenders, whereupon:
(i) each Eurodollar Rate Advance will automatically, on the last day
of the then existing Interest Period therefor, Convert into a Base Rate
Advance; and
(ii) the obligation of the Lenders to make, or to Convert A Advances
into, Eurodollar Rate Advances shall be suspended until the Administrative
Agent shall notify the Borrower and the Lenders that the circumstances
causing such suspension no longer exist.
(e) If the Borrower shall fail to (i) select the duration of any Interest
Period for any Eurodollar Rate Advances in accordance with the provisions
contained in the definition of "Interest Period" in Section 1.01, (ii) provide a
Notice of Conversion with respect to any Eurodollar Rate Advances on or prior to
12:00 noon on the third Business Day prior to the last day of the Interest
Period applicable thereto, in the case of a Conversion to or in respect of
Eurodollar Rate Advances, or (iii) satisfy the applicable conditions precedent
set forth in Section
<PAGE>
22
3.02 with respect to the Conversion to or in respect of any Eurodollar Rate
Advances, the Administrative Agent will forthwith so notify the Borrower and the
Lenders and such Advances will automatically, on the last day of the then
existing Interest Period therefor, Convert into Base Rate Advances; provided,
however, that if, in the case of any failure by the Borrower pursuant to clause
(iii) above, the Majority Lenders do not notify the Borrower within 30 days
after such Conversion into Base Rate Advances that they have agreed to waive, or
have decided not to waive, the applicable conditions precedent set forth in
Section 3.02 that the Borrower failed to satisfy, the Majority Lenders shall be
deemed to have waived such conditions precedent solely with respect to the
Advances so Converted, and the Borrower shall, at any time after such 30-day
period, be permitted to Convert such Advances into Eurodollar Rate Advances; and
provided further, however, that such deemed waiver shall be of no further force
or effect if, at any time after such 30-day period, the Majority Lenders notify
the Borrower that they no longer agree to waive such conditions precedent, in
which case any such Advances so Converted into Eurodollar Rate Advances shall
automatically Convert into Base Rate Advances on the last day of the then
existing Interest Period therefor.
(f) On the date on which the aggregate unpaid principal amount of A
Advances comprising any A Borrowing shall be reduced, by payment or prepayment
or otherwise, to less than the product of (i) $1,000,000 and (ii) the number of
Lenders on such date, such A Advances shall, if they are Advances of a Type
other than Base Rate Advances, automatically Convert into Base Rate Advances,
and on and after such date the right of the Borrower to Convert such A Advances
into Advances of a Type other than Base Rate Advances shall terminate; provided,
however, that if and so long as each such A Advance shall be of the same Type
and have the same Interest Period as A Advances comprising another A Borrowing
or other A Borrowings, and the aggregate unpaid principal amount of all such A
Advances shall equal or exceed the product of (i) $1,000,000 and (ii) the
number of Lenders on such date, the Borrower shall have the right to continue
all such A Advances as, or to Convert all such A Advances into, Advances of such
Type having such Interest Period.
(g) Upon the occurrence and during the continuance of any Event of Default,
each outstanding Eurodollar Rate Advance shall automatically Convert to a Base
Rate Advance at the end of the Interest Period then in effect for such
Eurodollar Rate Advance.
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
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23
Period for each such A Advance, and (D) the aggregate amount of A Advances
proposed to be Converted.
SECTION 2.11. Optional Prepayments of A Advances. The Borrower may,
upon at least three Business Days notice to the Administrative Agent stating the
proposed date and aggregate principal amount of the prepayment, and if such
notice is given the Borrower shall, prepay the outstanding principal amounts of
the A Advances comprising part of the same Borrowing in whole or ratably in
part, together with accrued interest to the date of such prepayment on the
principal amount prepaid; provided, however, that each partial prepayment shall
be in an aggregate principal amount not less than $10,000,000 (or, if lower, the
principal amount outstanding hereunder on the date of such prepayment) or an
integral multiple of $1,000,000 in excess thereof. In the case of any such
prepayment of a Eurodollar Rate Advance, the Borrower shall be obligated to
reimburse the Lender(s) in respect thereof pursuant to Section 8.04(b). Except
as provided in this Section 2.11, the Borrower shall have no right to prepay any
principal amount of any Advances. The Borrower shall have no right to
optionally prepay any principal amount of any B Advances.
SECTION 2.12. Mandatory Prepayments. (A) On the date of any termination
or reduction of the Commitments pursuant to Section 2.05, the Borrower shall pay
or prepay for the ratable accounts of the Lenders so much of the principal
amount outstanding under this Agreement as shall be necessary in order that the
principal amount outstanding (after giving effect to such prepayment) will not
exceed the amount of Commitments following such termination or reduction,
together with (A) accrued interest to the date of such prepayment on the
principal amount repaid or prepaid and (B) in the case of prepayments of
Eurodollar Rate Advances or B Advances, any amount payable to the Lenders
pursuant to Section 8.04(b).
(b) The Borrower shall pay or prepay for the ratable account of the Lenders
the aggregate principal amount outstanding hereunder such that, for a period of
at least one day during any 364-day period, the principal amount outstanding
hereunder shall be zero.
(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
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24
the Borrower shall from time to time, upon demand by such Lender (with a copy of
such demand to the Administrative Agent), pay to the Administrative Agent for
the account of such Lender additional amounts sufficient to compensate such
Lender for such increased cost. A certificate as to the amount of such increased
cost, submitted to the Borrower and the Administrative Agent by such Lender,
shall be conclusive and binding for all purposes, absent manifest error,
provided that the determination thereof shall have been made by such Lender in
good faith.
(b) If any Lender determines that compliance with any law or regulation or
any guideline or request from any central bank or other governmental authority
(whether or not having the force of law) affects or would affect the amount of
capital required or expected to be maintained by such Lender or any corporation
controlling such Lender and that the amount of such capital is increased by or
based upon the existence of such Lender's commitment to lend hereunder and other
commitments of this type, then, upon demand by such Lender (with a copy of such
demand to the Administrative Agent), the Borrower shall immediately pay to the
Administrative Agent for the account of such Lender, from time to time as
specified by such Lender, additional amounts sufficient to compensate such
Lender or such corporation in the light of such circumstances, to the extent
that such Lender reasonably determines such increase in capital to be allocable
to the existence of such Lender's Commitment. A certificate as to such amounts
submitted to the Borrower and the Administrative Agent by such Lender,
describing in reasonable detail the manner in which such amounts have been
calculated, shall be conclusive and binding for all purposes, absent manifest
error, provided that the determination and allocation thereof shall have been
made by such Lender in good faith.
(c) Notwithstanding the provisions of subsection (a) or (b) to the
contrary, no Lender shall be entitled to demand compensation or be compensated
hereunder to the extent that such compensation relates to any period of time
more than 180 days prior to the date upon which such 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
<PAGE>
25
Agent shall have yet to notify the Borrower and the Lenders that the
circumstances causing such suspension of the Affected Lender's obligations as
aforesaid no longer exist, or the Affected Lender has not yet been replaced
pursuant to Section 8.07(g), such Unaffected Lender Advance shall be Converted
by the Borrower in accordance with Section 2.10 into an Advance of another Type
(or, in the event that the Borrower shall fail to duly deliver a Notice of
Conversion with respect thereto, into a Base Rate Advance), and the obligation
of such Unaffected Lender to make, maintain, or Convert A Advances into
Eurodollar Rate Advances shall be suspended until the Administrative Agent shall
so notify the Borrower and the Lenders, or the Affected Lender shall be so
replaced. For purposes of any prepayment under this Agreement, each Affected
Lender Advance shall be deemed to continue to be part of the same Borrowing as
the Unaffected Lender Advance to which it corresponded at the time of the
Conversion of such Affected Lender Advance pursuant to clause (i) above.
SECTION 2.15. Payments and Computations. (A) The Borrower shall make
each payment hereunder and under the Notes not later than 1:00 p.m. on the day
when due in Dollars to the Administrative Agent at its address referred to in
Section 8.02 in same day funds. The Administrative Agent will promptly
thereafter cause to be distributed like funds relating to the payment of
principal or interest or fees ratably (other than amounts payable pursuant to
Section 2.03, 2.08, 2.12(b)(iii), 2.16 or 8.04(b)) to the Lenders for the
account of their respective Applicable Lending Offices, and like funds relating
to the payment of any other amount payable to any Lender to such Lender for the
account of its Applicable Lending Office, in each case to be applied in
accordance with the terms of this Agreement. Upon its acceptance of a Lender
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
<PAGE>
26
interest or fees, as the case may be; provided, however, that if such extension
would cause payment of interest on or principal of Eurodollar Rate Advances to
be made in the next following calendar month, such payment shall be made on the
next preceding Business Day.
(e) Unless the Administrative Agent shall have received notice from the
Borrower prior to the date on which any payment is due to the Lenders hereunder
that the Borrower will not make such payment in full, the Administrative Agent
may assume that the Borrower has made such payment in full to the Administrative
Agent on such date and the Administrative Agent may, in reliance upon such
assumption, cause to be distributed to each Lender on such due date an amount
equal to the amount then due such Lender. If and to the extent that the
Borrower shall not have so made such payment in full to the Administrative
Agent, each Lender shall repay to the Administrative Agent forthwith on demand
such amount distributed to such Lender together with interest thereon, for each
day from the date such amount is distributed to such Lender until the date such
Lender repays such amount to the Administrative Agent, at the Federal Funds
Rate.
SECTION 2.16. Taxes. (A) Any and all payments by the Borrower hereunder
and under the other Loan Documents shall be made, in accordance with Section
2.15, free and clear of and without deduction for any and all present or future
taxes, levies, imposts, deductions, charges or withholdings, and all liabilities
with respect thereto, excluding, in the case of each Lender and the
Administrative Agent, taxes imposed on its overall net income and franchise
taxes imposed on it by the jurisdiction under the laws of which such Lender or
the Administrative Agent (as the case may be) is organized or any political
subdivision thereof and, in the case of each Lender, taxes imposed on its
overall net income and franchise taxes imposed on it by the jurisdiction of such
Lender's Applicable Lending Office or any political subdivision thereof (all
such non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes"); provided, however, that,
notwithstanding the foregoing, Taxes shall not include any taxes otherwise
required to be deducted by the Borrower pursuant to this subsection (a) as a
result of activities of any Lender or the Administrative Agent in the State of
Iowa (other than as a result, or in respect, of this Agreement). If the
Borrower shall be required by law to deduct any Taxes from or in respect of any
sum payable hereunder or under any other Loan Document to any Lender or the
Administrative Agent, (i) the sum payable shall be increased as may be necessary
so that after making all required deductions (including deductions applicable to
additional sums 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
<PAGE>
27
imposed by any jurisdiction on amounts payable under this Section 2.16) paid by
such Lender or the Administrative Agent (as the case may be) and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or legally
asserted. This indemnification shall be made within 30 days from the date such
Lender or the Administrative Agent (as the case may be) makes written demand
therefor. Nothing herein shall preclude the right of the Borrower to contest any
such Taxes or Other Taxes so paid, and the Lenders in question or the
Administrative Agent (as the case may be) will, following notice from, and at
the expense of, the Borrower, reasonably cooperate with the Borrower to preserve
the Borrower's rights to contest such Taxes or Other Taxes.
(d) Within 30 days after the date of any payment of Taxes, the Borrower
will furnish to the Administrative Agent, at its address referred to in Section
8.02, the original or a certified copy of a receipt evidencing payment thereof.
(e) Each Lender agrees that, on or prior to the date upon which it shall
become a party hereto, and upon the reasonable request from time to time of the
Borrower or the Administrative Agent, such Lender will deliver to the Borrower
and the Administrative Agent either (i) a statement that it is organized under
the laws of a jurisdiction within the United States or (ii) duly completed
copies of such form or forms as may from time to time be prescribed by the
United States Internal Revenue Service indicating that such Lender is entitled
to receive payments without deduction or withholding of any United States
federal income taxes, as permitted by the Internal Revenue Code of 1986, as
amended from time to time. Each Lender that delivers to the Borrower and the
Administrative Agent the form or forms referred to in the preceding sentence
further undertakes to deliver to the Borrower and the Administrative Agent
further copies of such form or forms, or successor applicable form or forms, as
the case may be, as and when any previous form filed by it hereunder shall
expire or shall become incomplete or inaccurate in any respect. 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
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28
Advances made by them as shall be necessary to cause such purchasing Lender
to share the excess payment ratably with each of them; provided, however, that
if all or any portion of such excess payment is thereafter recovered from such
purchasing Lender, such purchase from each Lender shall be rescinded and such
Lender shall repay to the purchasing Lender the purchase price to the extent of
such recovery, together with an amount equal to such Lender's ratable share
(according to the proportion of (i) the amount of such Lender's required
repayment to (ii) the total amount so recovered from the purchasing Lender) of
any interest or other amount paid or payable by the purchasing Lender in respect
of the total amount so recovered. The Borrower agrees that any Lender so
purchasing a participation from another Lender pursuant to this Section 2.17
may, to the fullest extent permitted by law, exercise all its rights of payment
(including the right of set-off) with respect to such participation as fully as
if such Lender were the direct creditor of the Borrower in the amount of such
participation.
SECTION 2.18. Extension of Termination Date. (A) At least 45 days but
not more than 60 days prior to the then-current Termination Date, the Borrower
may request that the Lenders, by written notice to the Administrative Agent (in
substantially the form attached hereto as Exhibit 2.18(a)), consent to a 364-day
extension of the Termination Date. Each Lender shall, in its sole discretion,
determine whether to consent to such request and shall notify the Administrative
Agent of its determination at least 20 days but not more than 30 days prior to
the then-current Termination Date. The failure to respond by any Lender within
such time period shall be deemed a denial of such request. The Administrative
Agent shall deliver a notice to the Borrower and the Lenders at least 15 days
prior to the then-current Termination Date of the identity of the Lenders that
have consented to such extension and the Lenders that have declined such consent
(the "Declining Lenders"). If Lenders holding in the aggregate more than 50% of
the Commitments have not consented to the requested extension, the Termination
Date shall not be extended, and the Commitments of all Lenders shall terminate
on the then-current Termination Date.
(b) If Lenders holding in the aggregate more than 50% of the Commitments
have consented to the requested extension, the Termination Date shall be
extended as to such consenting Lenders only (and not as to any Declining Lender)
for a period of 364 days from the then-current Termination Date (for purposes of
this Section 2.18, the "Extension Date"), and the Commitments of any Declining
Lenders shall terminate on the Extension Date (as theretofore in effect) and all
Advances of such Declining Lenders shall be repaid to them on such date. If the
Borrower so requests, each Lender consenting to such request shall be given the
opportunity at least seven days but not more than 15 days prior to the Extension
Date, in each Lender's sole discretion, to commit to increase its Commitment by
submission of a written notice setting forth the desired increase in such
Lender's Commitment to the Administrative Agent in amounts such that the
aggregate Commitments hereunder after giving effect to any such extension and
increase in the Commitments shall not exceed the aggregate Commitment
immediately prior to the Extension Date. If the Administrative Agent receives
Commitments to increase the Commitments from the Lenders, which, when aggregated
with the existing Commitments, (A) are less than or equal to the Commitments
immediately prior to the Extension Date, the Administrative Agent shall accept
all such Commitments, (B) are greater than the Commitments on the date hereof,
the Administrative Agent may determine, in its reasonable discretion, which
Commitments to accept and the amounts by which each submitting Lender's
Commitments shall be increased so that the aggregate Commitments after such
Extension Date shall equal the
<PAGE>
29
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 December 17, 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;
(ii) the A Notes payable to the order of the Lenders, respectively,
duly completed and executed by the Borrower;
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30
(iii) the Fee 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
(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
Fee Letter and Section 2.04 hereof, to the extent then due and payable, and (ii)
all costs and expenses of the
<PAGE>
Administrative Agent (including counsel fees and disbursements) incurred through
(and for which statements have been provided prior to) the Closing.
(d) The Borrower shall have paid in full all debt outstanding under the
Existing Facility and the commitments of all the lenders thereunder shall have
been terminated.
(e) The Borrower shall have executed and delivered the Other Credit
Agreement and the "Loan Documents" referred to therein, and all conditions
precedent set forth in Section 3.01 thereof shall have been satisfied.
SECTION 3.02. Conditions Precedent to Each A Borrowing. The obligation
of each Lender to make an A Advance on the occasion of each A Borrowing
(including the initial A Borrowing) shall be subject to the conditions precedent
that, on the date of such A Borrowing,
(a) the following statements shall be true and correct (and each of the
giving of the applicable Notice of A Borrowing and the acceptance by the
Borrower of the proceeds therefrom shall constitute a representation and
warranty by the Borrower that, on the date of such A Borrowing, such statements
are true and correct):
(i) the representations and warranties contained in Section 4.01 are
true and correct in all material respects on and as of the date of such A
Borrowing, before and after giving effect to the application of the
proceeds therefrom, as though made on and as of such date; and
(ii) no event has occurred and is continuing, or would result from such
A Borrowing or from the application of the proceeds therefrom, which
constitutes an Event of Default or an Unmatured Default; and
(b) the Administrative Agent shall have received such other approvals,
opinions, or documents as the Administrative Agent, or the Majority Lenders
through the Administrative Agent, may reasonably request, and such approvals,
opinions, and documents shall be satisfactory in form and substance to the
Administrative Agent.
SECTION 3.03. Conditions Precedent to Each B Borrowing. The obligation of
each Lender to make a B Advance on the occasion of a B Borrowing (including the
initial B Borrowing) shall be subject to the conditions precedent that (A) the
Administrative Agent shall have received the written confirmatory Notice of B
Borrowing with respect thereto; (B) on or before the date of such B Borrowing,
but prior to such B Borrowing, the Administrative Agent shall have received a B
Note payable to the order of such Lender for each of the one or more B Advances
to be made by such Lender as part of such B Borrowing, in a principal amount
equal to the principal amount of the B Advance to be evidenced thereby and
otherwise on such terms as were agreed to for such B Advance in accordance with
Section 2.03; (C) on the date of such B Borrowing the following statements shall
be true and correct (and each of the giving of the applicable Notice of B
Borrowing and the acceptance by the Borrower of the proceeds therefrom shall
constitute a representation and warranty by the Borrower that, on the date of
such B Borrowing, such statements are true and correct):
<PAGE>
(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 (i) legal opinions in
respect of any aspect or consequence of the transactions contemplated by Section
2.18 and (ii) such other documents as the Administrative Agent shall reasonably
request, including, without limitation, copies of the resolutions, in form and
substance satisfactory to the Administrative Agent, of the Board of Directors of
the Borrower authorizing the extension of the then-current Termination Date.
(d) The following statements shall be true on and as of the Extension Date:
(i) The representations and warranties contained in Section 4.01 are
correct, provided that the representation and warranty contained in Section
4.01(g) shall be true and correct in all material respects with respect to
the financial statements most recently delivered to the Banks; and
(ii) No event has occurred and is continuing, or would result from such
extension of the then-current Termination Date, that constitutes an Event
of Default or an Unmatured Default.
SECTION 3.05. Reliance on Certificates. The Lenders and the
Administrative Agent shall be entitled to rely conclusively upon the
certificates delivered from time to time by officers
<PAGE>
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.
(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.
<PAGE>
(e) Since June 30, 1999 or, in connection with any extension of the then-
current Termination Date and for such extended period, the June 30 for which
financial statements have been delivered to the Lenders in 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.
(i) The Borrower has filed all tax returns (Federal, state and local)
required to be filed and paid all taxes shown thereon to be due, including
interest and penalties, or, to the extent the Borrower is contesting in good
faith an assertion of liability based on such returns, has provided adequate
reserves for payment thereof in accordance with generally accepted accounting
principles.
(j) This Agreement is, and each other Loan Document to which the Borrower
will be a party when executed and delivered hereunder will be, legal, valid and
binding obligations of the Borrower enforceable against the Borrower in
accordance with their respective terms, subject to the qualifications, however,
that the enforcement of the rights and remedies herein and therein is subject to
bankruptcy and other similar laws of general application affecting rights and
remedies of creditors and that the remedy of specific performance or of
injunctive relief is subject to the discretion of the court before which any
proceedings therefor may be brought.
<PAGE>
(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, except for proceedings in connection with the transactions
contemplated by the Unicom/PECO Merger Agreement, 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, 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
<PAGE>
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 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 and
maintain in good working order and condition (ordinary wear and tear excepted),
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 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.
<PAGE>
(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 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
<PAGE>
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
(other than registration statements related to employee benefits plans) and
periodic or special reports, if any, which the Borrower files with the
Securities and Exchange Commission or any governmental authority which may
be substituted therefor, or with any national securities exchange;
(ix) such information concerning the Borrower's Year 2000 Programs as
the Administrative Agent may reasonably request; and
(x) promptly after requested, such other information respecting the
business, properties, results of operations, prospects, revenues, condition
or operations, financial or otherwise, of the Borrower or any of its
Subsidiaries (including, but not limited to, copies of each Schedule B
(Actuarial Information) to the annual report (Form 5500 Series) filed with
the Internal Revenue Service) as the Administrative Agent or any Lender
through the Administrative Agent may from time to time reasonably request.
(j) Use of Proceeds. Use the proceeds of the initial Advances and any
other Advances hereunder 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%.
<PAGE>
39
(l) Further Assurances. At the expense of the Borrower, promptly execute
and deliver, or cause to be promptly executed and delivered, all further
instruments and documents, and take and cause to be taken all further actions,
that may be necessary or that the Majority Lenders through the Administrative
Agent may reasonably request to enable the Lenders and the Administrative Agent
to enforce the terms and provisions of this Agreement and to exercise their
rights and remedies hereunder or under any other Loan Document. In addition,
the Borrower will use all reasonable efforts to duly obtain Governmental
Approvals required in connection with the Loan Documents from time to time on or
prior to such date as the same may become legally required, and thereafter to
maintain all such Governmental Approvals in full force and effect.
(m) Year 2000. Take all such actions as are reasonably necessary to
successfully implement its Year 2000 Program and to assure that Year 2000 Issues
will not have a Material Adverse Effect. At the request of the Administrative
Agent, the Borrower will provide a description of its Year 2000 Program,
together with any updates or progress reports with respect thereto.
SECTION 5.02. Negative Covenants. So long as any amount in respect of
any Note shall remain unpaid or any Lender shall have any Commitment, the
Borrower will not, without the written consent of the Majority Lenders:
(a) Liens, Etc. Create, incur, assume, or suffer to exist, or permit any
of its Significant Subsidiaries to create, incur, assume, or suffer to exist,
any lien, security interest, or other charge or encumbrance (including the lien
or retained security title of a conditional vendor) of any kind, or any other
type of arrangement intended or having the effect of conferring upon a creditor
a preferential interest upon or with respect to any of its properties of any
character, in each case to secure or provide for the payment of any Debt of any
Person (any of the foregoing being referred to herein as a "Lien"), excluding,
however, from the operation of the foregoing restrictions the Liens created
under the Loan Documents and the following:
(i) Liens for taxes, assessments or governmental charges or levies to
the extent not past due or contested in good faith by appropriate
proceedings, with adequate reserves set aside for the payment thereof in
accordance with generally accepted accounting principles;
(ii) Liens imposed by law, such as materialmen's, mechanics',
carriers', workmen's, repairmen's, warehousemen's and landlord's liens and
other similar Liens arising in the ordinary course of business securing
obligations which are not overdue or which are being contested in good
faith by appropriate proceedings, with adequate reserves 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
<PAGE>
utility obligations and power purchase commitments of the Borrower or
any such Significant Subsidiary incurred in the ordinary course of
business;
(iv) (A) purchase money Liens upon or in property now owned or
hereafter acquired by the Borrower or any of its Significant Subsidiaries
in the ordinary course of business (consistent with present practices) to
secure (1) the purchase price of such property or (2) Debt incurred solely
for the purpose of financing the acquisition, construction or improvement
of any such property to be subject to such Liens, or (B) Liens existing on
any such property at the time of acquisition, or extensions, renewals or
replacements of any of the foregoing for the same or a lesser amount,
provided that no such Lien shall extend to or cover any property other than
the property being acquired, constructed or improved and replacements,
modifications and proceeds of such property, and no such extension, renewal
or replacement shall extend to or cover any property not theretofore
subject to the Lien being extended, renewed or replaced;
(v) attachment, judgment or other similar Liens arising in connection
with court proceedings, provided that, with respect to any Lien involving
an amount of $25,000,000 or more, the execution or other enforcement of
such Liens is effectively stayed and the claims secured thereby are being
actively contested in good faith by appropriate proceedings or the payment
of which is covered in full (subject to customary deductible amounts) by
insurance maintained with responsible insurance companies and the
applicable insurance company has acknowledged its liability therefor in
writing;
(vi) Liens arising under the Mortgage dated July 1, 1923, as
supplemented and amended by a Supplemental Indenture dated August 1, 1944
and other supplemental indentures, from the Borrower, as mortgagor, to
Harris Trust and Savings Bank and D.G. Donovan, as trustees, pursuant to
which the Borrower has issued, and may hereafter issue, its mortgage bonds;
(vii) Liens, if any, arising in connection with (A) the sale or
sale/leaseback of nuclear fuel to the extent permitted in clause (w) of the
proviso to Section 5.02(d) hereof, but only to the extent that the Liens so
arising are placed upon the nuclear fuel so sold or sold/leased back, or
(B) the sale, pledge or other disposition of accounts receivable to the
extent permitted by clause (x) 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, or (C) the
issuance of Transitional Funding Instruments to the extent permitted by
clause (y) of the proviso of Section 5.02(d) hereof;
(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);
<PAGE>
(x) Liens on the assets and/or rights to receive income of any Person
that exist at the time that such Person becomes a Significant Subsidiary
and the continuation of such Liens in connection with any refinancing or
restructuring of the obligations secured by such Liens; and
(xi) other Liens which, taken together with the Liens arising pursuant
to the foregoing clauses or individually, do not have a Material Adverse
Effect.
(b) Compliance with ERISA. (i) Permit to exist any "accumulated funding
deficiency" (as defined in Section 412(a) of the Internal Revenue Code of 1986,
as amended from time to time) (unless such deficiency exists with respect to a
Multiple Employer Plan or Multiemployer Plan and the Borrower has no control
over the reduction or elimination of such deficiency), (ii) terminate, or permit
any ERISA Affiliate of the Borrower to terminate, any Plan of the Borrower or
such ERISA Affiliate so as to result in a liability of $25,000,000 or more of
the Borrower to the PBGC, or (iii) permit to exist any occurrence of any
Reportable Event (as defined in Title IV of ERISA), other than a Reportable
Event for which the 30-day notice requirement with respect thereto has been
waived by the PBGC or any other event or condition, which presents a material
(in the reasonable opinion of the Majority Lenders) risk of such a termination
by the PBGC of any Plan of the Borrower or such ERISA Affiliate and such a
liability to the Borrower.
(c) Transactions with Affiliates. Enter into, or permit any of its
Subsidiaries to enter into, any transaction with an Affiliate of the Borrower,
unless (i) such transaction is on terms no less favorable to the Borrower or
such Subsidiary, as the case may be, than if the transaction had been negotiated
in good faith on an arm's length basis with a Person which was not an Affiliate
of the Borrower or (ii) such transaction is conducted pursuant to the Affiliated
Interests Agreement dated as of December 4, 1995 among the Borrower, Unicom
Corporation and the other entities named therein, as it may be amended or
modified from time to time or replaced by an agreement regarding such
transactions approved by the Illinois Commerce Commission or the Securities and
Exchange Commission. Notwithstanding the foregoing, the terms of this Section
5.02(c) shall not apply to (i) the transactions contemplated by the Asset Sale
Agreement dated as of May 11, 1999 between the Borrower and Unicom Investment
Inc. relating to the sale of the Borrower's fossil generation assets, (ii) the
transfer by the Borrower to Unicom Technology Development Inc. of up to
$275,000,000 of notes receivable from Unicom Investment Inc. under said Asset
Sale Agreement along with an obligation in respect of an equivalent amount of
the Borrower's contingent obligation to pay post-retirement health care
benefits, and (iii) the transactions associated with a transfer of the
Borrower's nuclear generating stations to an Affiliate as permitted by clause
(v) of Section 5.02(d).
(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
<PAGE>
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, (v) the Borrower may transfer its nuclear
generating assets to an Affiliate, (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.
<PAGE>
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 (i) Debt
evidenced by the Notes and (ii) Nonrecourse Debt) when the same becomes due and
payable (whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise), and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating to such Debt;
or
(d) The Borrower or any of its Subsidiaries shall fail to observe any term
or covenant on its part to be performed or observed and the effect of such
failure is to accelerate or permit acceleration of any Debt of the Borrower that
is outstanding in a principal amount of $25,000,000 or more in the aggregate
(but excluding (i) Debt evidenced by the Notes and (ii) Nonrecourse Debt); 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
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44
(i) The Borrower shall generally not pay its debts as such debts become
due, or shall admit in writing its inability to pay its debts generally, or
shall make an assignment for the benefit of creditors; or any proceeding shall
be instituted by or against the Borrower seeking to adjudicate it a bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of its debts under any law
relating to bankruptcy, insolvency, or reorganization or relief of debtors, or
seeking the entry of an order for relief or the appointment of a receiver,
trustee, or other similar official for it or for any substantial part of its
property and, in the case of a proceeding instituted against the Borrower,
either such proceeding shall remain undismissed or unstayed for a period of 60
days or any of the actions sought in such proceeding (including without
limitation the entry of an order for relief against the Borrower or the
appointment of a receiver, trustee, custodian or other similar official for the
Borrower or any of its property) shall occur; or the Borrower shall take any
corporate or other action to authorize any of the actions set forth above in
this subsection (i); or
(j) Any Governmental Approval required in connection with the execution,
delivery and performance of the Loan Documents shall be rescinded, revoked,
otherwise terminated, or amended or modified in any manner which is materially
adverse to the interests of the Lenders and the Administrative Agent; or
(k) Any ERISA Event shall have occurred with respect to a Plan which could
reasonably be expected to result in a liability of $25,000,000 or more to the
Borrower, and, 30 days after notice thereof shall have been given to the
Borrower by the Administrative Agent or any Lender, such ERISA Event shall still
exist; or
(l) An "event of default" (as defined therein) shall occur and be
continuing under the Other Credit Agreement;
then, and in any such event, the Administrative Agent (i) shall at the request,
or may with the consent, of the Majority Lenders or, if no A Advances are then
outstanding, Banks having greater than 50% of the Commitments (without giving
effect to any B Reduction), by notice to the Borrower, declare the obligation of
each Lender to make Advances to be terminated, whereupon the same shall
forthwith terminate, and (ii) shall at the request, or may with the consent, of
the 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
<PAGE>
SECTION 7.01. Authorization and Action. Each Lender hereby appoints and
authorizes the Administrative Agent to take such action as agent on its behalf
and to exercise such powers under this Agreement as are delegated to the
Administrative Agent by the terms hereof, together with such powers as are
reasonably incidental thereto. As to any matters not expressly provided for by
this Agreement or any other Loan Document (including, without limitation,
enforcement or collection of the Notes), the Administrative Agent shall not be
required to exercise any discretion or take any action, but shall be required to
act or to refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the instructions of the Majority Lenders, and such
instructions shall be binding upon all Lenders and all holders of Notes;
provided, however, that the Administrative Agent shall not be required to take
any action which exposes the Administrative Agent to personal liability or which
is contrary to this Agreement or applicable law. The Administrative Agent
agrees to give to each Lender prompt notice of each notice given to it by the
Borrower pursuant to the terms of this Agreement. The Administrative Agent
shall be deemed to have exercised reasonable care in the administration and
enforcement of this Agreement and the other Loan Documents if it undertakes such
administration and enforcement in a manner substantially equal to that which the
Administrative Agent accords credit facilities similar to the credit facility
hereunder for which it is the sole lender.
SECTION 7.02. Administrative Agent's Reliance, Etc. Neither the
Administrative Agent nor any of its directors, officers, agents or employees
shall be liable for any action taken or omitted to be taken by it or them under
or in connection with this Agreement or any other Loan Document, except for its
or their own gross negligence or willful misconduct. Without limitation of the
generality of the foregoing, the Administrative Agent: (i) may treat the payee
of any Note as the holder thereof until the Administrative Agent receives and
accepts a Lender Assignment entered into by the Lender which is the payee of
such Note, as assignor, and an Eligible Assignee, as assignee, as provided in
Section 8.07; (ii) may consult with legal counsel (including counsel for the
Borrower), independent public accountants and other experts selected by it and
shall not be liable for any action taken or omitted to be taken in good faith by
it in accordance with the advice of such counsel, accountants or experts; (iii)
makes no warranty or representation to any Lender and shall not be responsible
to any Lender for any statements, warranties or representations (whether written
or oral) made in or in connection with this Agreement or any other Loan
Document; (iv) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of this
Agreement or any other Loan Document on the part of the Borrower or to inspect
the property (including the books and records) of the Borrower; (v) shall not be
responsible to any Lender for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement, any other
Loan 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,
<PAGE>
46
unless otherwise expressly indicated, include Citibank, N.A. in its individual
capacity. Citibank, N.A. and its Affiliates may accept deposits from, lend money
to, act as trustee under indentures of, and generally engage in any kind of
business with, the Borrower, any of its Subsidiaries or Affiliates and any
Person who may do business with or own securities of the Borrower or any such
Subsidiary or Affiliate, all as if Citibank, N.A. were not the Administrative
Agent and without any duty to account therefor to the Lenders.
SECTION 7.04. Lender Credit Decision. Each Lender acknowledges that it
has, independently and without reliance upon the Administrative Agent or any
other Lender and based on such documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Lender also acknowledges that it will, independently and without
reliance upon the Administrative Agent or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement.
SECTION 7.05. Indemnification. The Lenders agree to indemnify the
Administrative Agent (to the extent not reimbursed by the Borrower), ratably
according to (a) on or before the Termination Date, the respective principal
amounts of the A Notes then held by each of them (or if no A Notes are at the
time outstanding or if any A Notes are held by Persons which are not Lenders,
ratably according to the respective Percentages of the Lenders), or (b) after
the Termination Date, the respective principal amounts of the Notes then held by
each of them (or if no Notes are at the time outstanding or if any Notes are
held by Persons which are not Lenders, ratably according to the respective
unpaid principal amounts of the Advances made by each Lender), from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by, or asserted against the
Administrative Agent in any way relating to or arising out of this Agreement or
any action taken or omitted by the Administrative Agent under this Agreement,
provided that no Lender shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or 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,
<PAGE>
47
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.
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: 312-394-5767; and telecopier: 312-394-3110), with a copy to
<PAGE>
48
the same address, attention: Associate General Counsel-Corporate and Commercial
(telephone: 312-394-3179; and telecopier: 312-394-3950); if to any Bank, at its
Domestic Lending Office specified opposite its name on Schedule I hereto; if to
any other Lender, at its Domestic Lending Office specified in the Lender
Assignment pursuant to which it became a Lender; and if to the Administrative
Agent, at its address at Two Pennsway, Ste. 200, New Castle, Delaware 19720,
Attention: Bank Loan Syndications; or, as to each party, at such other address
as shall be designated by such party in a written notice to the other parties.
All such notices and communications shall, when mailed, telecopied, telegraphed,
telexed or cabled, be effective five days after being deposited in the mails, or
when delivered to the telegraph company, telecopied, confirmed by telex
answerback or delivered to the cable company, respectively, except that notices
and communications to the Administrative Agent pursuant to Article II or VII
shall not be effective until received by the Administrative Agent.
SECTION 8.03. No Waiver; Remedies. No failure on the part of any Lender or
the Administrative Agent to exercise, and no delay in exercising, any right
hereunder or under any Note shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right 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,
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49
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, 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
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50
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 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 and, in the case of the Borrower, not to be
required if an Event of Default exists), 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
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51
such assignment, other than to an Eligible Assignee, shall release the assigning
Lender from its obligations hereunder.
(b) By executing and delivering a Lender Assignment, the Lender assignor
thereunder and the assignee thereunder confirm to and agree with each other and
the other parties hereto as follows: (i) other than as provided in such Lender
Assignment, such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with any Loan Document or the
execution, legality, validity, enforceability, genuineness, sufficiency or value
of any Loan Document or any other instrument or document furnished pursuant
thereto; (ii) such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the
Borrower or the performance or observance by the Borrower of any of its
obligations under any Loan Document or any other instrument or document
furnished pursuant thereto; (iii) such assignee confirms that it has received a
copy of each Loan Document, together with such documents and information as it
has deemed appropriate to make its own credit analysis and decision to enter
into such Lender Assignment; (iv) such assignee will, independently and without
reliance upon the Administrative Agent, such assigning Lender or any other
Lender and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under the Loan Documents; (v) such assignee confirms that it is an
Eligible Assignee; (vi) such assignee appoints and authorizes the Administrative
Agent to take such action as agent on its behalf and to exercise such powers
under the Loan Documents as are delegated to the Administrative Agent by the
terms thereof, together with such powers as are reasonably incidental thereto;
and (vii) such assignee agrees that it will perform in accordance with their
terms all of the obligations which by the terms of the Loan Documents are
required to be performed by it as a Lender.
(c) The Administrative Agent shall maintain at its address referred to in
Section 8.02 a copy of each Lender Assignment delivered to and accepted by it
and a register for the recordation of the names and addresses of the Lenders and
the Commitment of, and principal amount of the Advances owing to, each Lender
from time to time (the "Register"). The entries in the Register shall be
conclusive and binding for all purposes, absent manifest error, and the
Borrower, the Administrative Agent and the Lenders may treat each Person whose
name is 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
<PAGE>
52
equal to the Commitment retained by it hereunder. Such new Note or Notes shall
be in an aggregate principal amount equal to the aggregate principal amount of
such surrendered Note or Notes, shall be dated the effective date of such Lender
Assignment and shall otherwise be in substantially the form of Exhibit 1.01A-1
hereto.
(e) Each Lender may sell participations to one or more banks, financial
institutions or other entities in all or a portion of its rights and obligations
under the Loan Documents (including, without limitation, all or a portion of its
Commitment, the Advances owing to it and the Note or Notes held by it);
provided, however, that (i) such Lender's obligations under this Agreement
(including, without limitation, its Commitment to the Borrower hereunder) shall
remain unchanged, (ii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, (iii) such Lender shall
remain the holder of any such Note for all purposes of this Agreement, and (iv)
the Borrower, the Administrative Agent and the other Lenders shall continue to
deal solely and directly with such Lender in connection with such Lender's
rights and obligations under this Agreement.
(f) Any Lender may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this Section 8.07, disclose to
the assignee or participant or proposed assignee or participant, any information
relating to the Borrower furnished to such Lender by or on behalf of the
Borrower; provided that, prior to any such disclosure, the assignee or
participant or proposed assignee or participant shall agree, in accordance with
the terms of Section 8.08, to preserve the confidentiality of any Confidential
Information relating to the Borrower received by it from such Lender.
(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 (provided the
Borrower shall pay the $3,000 administrative fee specified in 8.07(a)) 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
<PAGE>
53
Advances, then such demand by the Borrower shall become ineffective; it being
understood for purposes of this subsection (g) that such assignment shall be
conclusively deemed to be on terms acceptable to such Lender, and such Lender
shall be compelled to consummate such assignment to an Eligible Assignee
designated by the Borrower, if such Eligible Assignee (x) shall agree to such
assignment by entering into a Lender Assignment with such Lender and (y) shall
offer compensation to such Lender in an amount equal to all amounts then owing
by the Borrower to such Lender hereunder and under the Note made by the Borrower
to such Lender, whether for principal, interest, fees, costs or expenses (other
than the demanded payment referred to above and payable by the Borrower as a
condition to the Borrower's right to demand such assignment), or otherwise.
(h) Anything in this Section 8.07 to the contrary notwithstanding, any
Lender may assign and pledge all or any portion of its Commitment and the
Advances owing to it (i) with notice to the Borrower and the Agent, to any of
its affiliates and (ii) without the consent of the Borrower or the Agent, to any
Federal Reserve Bank (and its transferees) as collateral security pursuant to
Regulation A of the Board of Governors of the Federal Reserve System and any
Operating Circular issued by such Federal Reserve Bank. No such assignment shall
release the assigning Lender from its obligations hereunder.
SECTION 8.08. Confidentiality. In connection with the negotiation and
administration of this Agreement and the other Loan Documents, the Borrower has
furnished and will from time to time furnish to the Administrative Agent and the
Lenders (each, a "Recipient") written information which is identified to the
Recipient in writing when delivered as confidential (such information, other
than any such information which (i) is publicly available, or otherwise known to
the Recipient, at the time of disclosure, (ii) subsequently becomes publicly
available other than through any act or omission by the Recipient or (iii)
otherwise subsequently becomes known to the Recipient other than through a
Person whom the Recipient knows to be acting in violation of his or its
obligations to the Borrower, being hereinafter referred to as "Confidential
Information"). The Recipient will maintain the confidentiality of any
Confidential Information in accordance with such procedures as the Recipient
applies generally to information of that nature. It is understood, however, that
the foregoing will not restrict the Recipient's ability to freely exchange such
Confidential Information with current or prospective participants in or
assignees of the Recipient's position herein or an Affiliate of such Lender, but
the Recipient's ability to so exchange Confidential Information shall be
conditioned upon any such prospective participant's or assignee's or Affiliate'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
<PAGE>
54
INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH,
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE
ADMINISTRATIVE AGENT, SUCH LENDERS OR THE BORROWER. THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE ADMINISTRATIVE AGENT AND THE LENDERS ENTERING INTO THIS
AGREEMENT.
SECTION 8.10. 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
return receipt requested to the address and Person identified for delivery of
notice pursuant to Section 8.02. 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 8.11. 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 8.12. 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: ______________________________
Patricia L. Kampling
Treasurer
Signature Page to 364-Day Credit Agreement
<PAGE>
S-2
Administrative Agent
--------------------
CITIBANK, N.A.,
as Administrative Agent and as Bank
By: _________________________________
Name:
Title:
Signature Page to 364-Day Credit Agreement
<PAGE>
SCHEDULE I
COMMONWEALTH EDISON COMPANY
364-Day Credit Agreement, dated as of December 17, 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. $ 67,500,000 Two Pennsway, Ste. 200 Same as Domestic Lending Office
New Castle, Delaware 19720
Attention: Bank Loan Syndications
Bank of New York $ 66,250,000 One Wall Street, 19/th/Floor Same as Domestic Lending Office
New York, New York 10286
Attention: Lisa Williams
Morgan Guaranty $ 66,250,000 60 Wall Street Morgan Guaranty Trust
New York, New York 10260 Nassau Bahamas Office
Attn: Andrew Lipsett c/o J.P. Morgan Services, Inc.
500 Stanton-Christiana Rd.
Newark, DE 19713
Attn: Andrew Lipsett
Chase Manhattan $ 56,250,000 1 Chase Manhattan Plaza, 8/th/ Floor Same as Domestic Lending Office
New York, NY 10018
Attention: Lynette Lang
ABN AMRO $ 46,875,000 208 South LaSalle, Suite 1500 Same as Domestic Lending Office
Chicago, IL 60604
Attention: Loan Administration
Bank of America $ 46,875,000 100 North Tryon Street, 16/th/ Floor Same as Domestic Lending Office
Charlotte, North Carolina 28255
Attention: Gretchen Burud
Bank of Montreal $ 46,875,000 115 S. LaSalle St. 11/th/ Floor Same as Domestic Lending Office
Chicago, IL 60603
Attention: Keiko Kuze
Bayerisch Landesbank $ 31,250,000 560 Lexington Avenue, 17/th/ Floor Same as Domestic Lending Office
New York, New York 10022
Attention: Sean O'Sullivan
Northern Trust $ 25,000,000 50 S. LaSalle Street Same as Domestic Lending Office
Chicago, Illinois 60675
Attention: Nicole Boehm
Barclays $ 31,250,000 222 Broadway Same as Domestic Lending Office
New York, New York 10038
Attention: Marsha Hamlette
Industrial Bank of Japan $ 15,625,000 Credit Administration #1 Department Same as Domestic Lending Office
1251 Avenue of the Americas
New York, NY 10020
Attn: Agnes Aberin
</TABLE>
57
<PAGE>
Exhibit (4)-24
Unicom Corporation
Form 10-K File No. 1-11375
-------------------------------------------------------------------------------
CREDIT AGREEMENT
DATED AS OF DECEMBER 17, 1999
AMONG
UNICOM ENTERPRISES INC.,
AS BORROWER,
THE LENDERS
PARTY HERETO,
BANK ONE, NA,
AS ARRANGER AND ADMINISTRATIVE AGENT,
THE CHASE MANHATTAN BANK,
AS SYNDICATION AGENT,
CITIBANK, N.A.,
AS DOCUMENTATION AGENT
AND
BANC ONE CAPITAL MARKETS, INC.,
AS LEAD ARRANGER AND SOLE BOOK RUNNER
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS
ARTICLE II THE CREDIT EXTENSIONS
<TABLE>
<S> <C> <C>
SECTION 2.01. Commitment..................................................... 13
SECTION 2.02. Required Payments; Termination................................. 13
SECTION 2.03. Ratable Loans.................................................. 13
SECTION 2.04. Types of Advances.............................................. 13
SECTION 2.05. Commitment Fee; Reductions in Aggregate Commitment............. 13
SECTION 2.06. Minimum Amount of Each Advance................................. 13
SECTION 2.07. Optional Principal Payments.................................... 14
SECTION 2.08. Method of Selecting Types and Interest Periods for New Advances 14
SECTION 2.09. Conversion and Continuation of Outstanding Advances............ 14
SECTION 2.10. Changes in Interest Rate, etc.................................. 15
SECTION 2.11. Rates Applicable After Default................................. 15
SECTION 2.12. Method of Payment.............................................. 15
SECTION 2.13. Noteless Agreement; Evidence of Indebtedness................... 16
SECTION 2.14. Telephonic Notices............................................. 16
SECTION 2.15. Interest Payment Dates; Interest and Fee Basis................. 17
SECTION 2.16. Notification of Advances, Interest Rates, Prepayments,
Modifications and Commitment Reductions........................ 17
SECTION 2.17. Lending Installations.......................................... 17
SECTION 2.18. Non-Receipt of Funds by the Agent.............................. 17
SECTION 2.19. Facility LCs................................................... 18
SECTION 2.20. Extension of Facility Termination Date......................... 22
SECTION 2.21. Replacement of Lender.......................................... 22
ARTICLE III YIELD PROTECTION; TAXES
SECTION 3.01. Yield Protection............................................... 23
SECTION 3.02. Changes in Capital Adequacy Regulations........................ 24
SECTION 3.03. Availability of Types of Advances.............................. 25
SECTION 3.04. Funding Indemnification........................................ 25
SECTION 3.05. Taxes.......................................................... 25
SECTION 3.06. Lender Statements; Survival of Indemnity....................... 27
ARTICLE IV CONDITIONS PRECEDENT
SECTION 4.01. Initial Credit Extension....................................... 27
SECTION 4.02. Each Credit Extension.......................................... 29
ARTICLE V REPRESENTATIONS AND WARRANTIES
SECTION 5.01. Existence and Standing......................................... 29
SECTION 5.02. Authorization.................................................. 29
SECTION 5.03. Governmental Approval.......................................... 30
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 5.04. Validity....................................................... 30
SECTION 5.05. Financial Statements........................................... 30
SECTION 5.06. Litigation..................................................... 30
SECTION 5.07. Exchange Act................................................... 30
SECTION 5.08. Regulation U................................................... 30
SECTION 5.09. Government Regulations......................................... 30
SECTION 5.10. Taxes.......................................................... 31
SECTION 5.11. ERISA.......................................................... 31
SECTION 5.12. Accuracy of Information........................................ 31
SECTION 5.13. Public Utility Holding Company Act; Investment Company Act..... 31
SECTION 5.14. Year 2000...................................................... 31
ARTICLE VI COVENANTS
SECTION 6.01. Reporting Requirements......................................... 32
SECTION 6.02. Preservation of Corporate Existence, Etc....................... 34
SECTION 6.03. Compliance with Laws, Etc...................................... 34
SECTION 6.04. Maintenance of Insurance, Etc.................................. 34
SECTION 6.05. Inspection Rights.............................................. 34
SECTION 6.06. Maintaining of Books........................................... 34
SECTION 6.07. Maintenance of Properties...................................... 35
SECTION 6.08. Taxes and Liabilities.......................................... 35
SECTION 6.09. Use of Proceeds................................................ 35
SECTION 6.10. ERISA.......................................................... 35
SECTION 6.11. Year 2000...................................................... 35
SECTION 6.12. Borrower Stock................................................. 35
SECTION 6.13. Indebtedness................................................... 36
SECTION 6.14. Investments in Other Persons................................... 36
SECTION 6.15. Distributions.................................................. 36
SECTION 6.16. Liens, Etc..................................................... 36
SECTION 6.17. Mergers; Sale of Assets; Etc................................... 37
SECTION 6.18. Other Agreements............................................... 38
SECTION 6.19. Regulation U................................................... 38
SECTION 6.20. Transactions with Affiliates................................... 38
ARTICLE VII DEFAULTS
ARTICLE VIII ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
SECTION 8.01. Acceleration; Facility LC Collateral Account................... 41
SECTION 8.02. Amendments..................................................... 43
SECTION 8.03. Preservation of Rights......................................... 43
ARTICLE IX GENERAL PROVISIONS
SECTION 9.01. Survival of Representations.................................... 44
SECTION 9.02. Governmental Regulation........................................ 44
SECTION 9.03. Headings....................................................... 44
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 9.04. Entire Agreement............................................... 44
SECTION 9.05. Several Obligations; Benefits of this Agreement................ 44
SECTION 9.06. Expenses; Indemnification...................................... 44
SECTION 9.07. Numbers of Documents........................................... 45
SECTION 9.08. Accounting..................................................... 45
SECTION 9.09. Severability of Provisions..................................... 45
SECTION 9.10. Nonliability of Lenders........................................ 45
SECTION 9.11. Confidentiality................................................ 46
SECTION 9.11. Confidentiality TC............................................. 46
SECTION 9.12. Nonreliance.................................................... 46
SECTION 9.13. Disclosure..................................................... 46
ARTICLE X THE AGENT
SECTION 10.01. Appointment; Nature of Relationship............................ 46
SECTION 10.02. Powers......................................................... 47
SECTION 10.03. General Immunity............................................... 47
SECTION 10.04. No Responsibility for Loans, Recitals, Etc..................... 47
SECTION 10.05. Action on Instructions of Lenders.............................. 47
SECTION 10.06. Employment of Agents and Counsel............................... 47
SECTION 10.07. Reliance on Documents; Counsel................................. 48
SECTION 10.08. Agent's Reimbursement and Indemnification...................... 48
SECTION 10.09. Notice of Default.............................................. 48
SECTION 10.10. Rights as a Lender............................................. 48
SECTION 10.11. Lender Credit Decision......................................... 49
SECTION 10.12. Successor Agent................................................ 49
SECTION 10.13. Agent's Fee.................................................... 49
SECTION 10.14. Delegation to Affiliates....................................... 50
SECTION 10.15. Documentation Agent, Syndication Agent, Etc.................... 50
ARTICLE XI SETOFF; RATABLE PAYMENTS
SECTION 11.01. Setoff........................................................ 50
SECTION 11.02. Ratable Payments.............................................. 50
ARTICLE XII BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
SECTION 12.01. Successors and Assigns........................................ 50
SECTION 12.02. Participations................................................ 51
SECTION 12.03. Assignments................................................... 52
SECTION 12.04. Dissemination of Information.................................. 53
SECTION 12.05. Tax Treatment................................................. 53
ARTICLE XIII NOTICES
SECTION 13.01. Notices....................................................... 53
SECTION 13.02. Change of Address............................................. 53
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE XIV COUNTERPARTS
ARTICLE XV CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL
SECTION 15.01. CHOICE OF LAW................................................. 54
SECTION 15.02. CONSENT TO JURISDICTION....................................... 54
SECTION 15.03. WAIVER OF JURY TRIAL.......................................... 54
</TABLE>
PRICING SCHEDULE
SCHEDULE I - LIST OF COMMITMENTS
EXHIBIT A - FORM OF OPINION
EXHIBIT B - COMPLIANCE CERTIFICATE
EXHIBIT C - ASSIGNMENT AGREEMENT
EXHIBIT D - LOAN/CREDIT RELATED MONEY TRANSFER INSTRUCTION
EXHIBIT E - NOTE
EXHIBIT F - GUARANTY
EXHIBIT G - TERMS OF SUBORDINATION
iv
<PAGE>
CREDIT AGREEMENT
This Agreement, dated as of December 17, 1999 is among Unicom Enterprises
Inc., the Lenders and Bank One, NA, a national banking association having its
principal office in Chicago, Illinois, as Agent. The parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
As used in this Agreement:
"Advance" means a borrowing hereunder, (i) made by the Lenders on the
same Borrowing Date, or (ii) converted or continued by the Lenders on the
same date of conversion or continuation, consisting, in either case, of the
aggregate amount of the several Loans of the same Type and, in the case of
Eurodollar Loans, for the same Interest Period.
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling (including but not limited to all
directors and officers of such Person), controlled by, or under direct or
indirect common control with such Person. A Person shall be deemed to
control another entity if such Person possesses, directly or indirectly,
the power to direct or cause the direction of the management and policies
of such entity, whether through the ownership of voting securities, by
contract, or otherwise.
"Agent" means Bank One in its capacity as contractual representative
of the Lenders pursuant to Article X, and not in its individual capacity as
a Lender, and any successor Agent appointed pursuant to Article X.
"Aggregate Commitment" means the aggregate of the Commitments of all
the Lenders, as reduced from time to time pursuant to the terms hereof.
"Aggregate Outstanding Amount" means, at any time, the aggregate of
the Outstanding Credit Exposure of all the Lenders.
"Agreement" means this credit agreement, as it may be amended or
modified and in effect from time to time.
"Alternate Base Rate" means, for any day, a rate of interest per annum
equal to the higher of (i) the Corporate Base Rate for such day and (ii)
the sum of the Federal Funds Effective Rate for such day plus 1/2% per
annum.
"Applicable Fee Rate" means, at any time, the percentage rate per
annum at which the Commitment Fee or the LC Fee is accruing on the unused
portion of the Aggregate Commitment or the undrawn stated amount of the
Facility LCs (as the case may be) at such time as set forth in the Pricing
Schedule.
<PAGE>
"Applicable Law" means, with respect to any matter or Person, any law,
rule, regulation, order, decree, or other requirement having the force of
law relating to such matter or Person and, where applicable, any
interpretation thereof by any authority having jurisdiction with respect
thereto or charged with the administration thereof.
"Applicable Margin" means, for any Eurodollar Advance or any Floating
Rate Advance, (i) on any date the Utilization Percentage equals or is less
than 33-1/3%, the Eurodollar Rate or Floating Rate percentage per annum set
forth on the Pricing Schedule in the columns identified as Level 1, Level
2, Level 3 and Level 4, and (ii) on any date the Utilization Percentage
exceeds 33-1/3%, the Utilized Eurodollar Rate or Utilized Floating Rate
percentage per annum set forth on the Pricing Schedule in the columns
identified as Level 1, Level 2, Level 3 and Level 4.
"Arranger" means Banc One Capital Markets, Inc., a Delaware
corporation, and its successors, in its capacity as Lead Arranger and Book
Runner.
"Article" means an article of this Agreement unless another document
is specifically referenced.
"Authorized Officer" means any of the Chairman, the President, the
Chief Financial Officer, the Treasurer or any Assistant Treasurer of the
Borrower or Guarantor, acting singly.
"Available Aggregate Commitment" means, at any time, the Aggregate
Commitment then in effect minus the Aggregate Outstanding Amount at such
time.
"Bank One" means Bank One, NA, a national banking association having
its principal office in Chicago, Illinois, in its individual capacity, and
its successors.
"Borrower" means Unicom Enterprises Inc., an Illinois corporation, and
its successors and assigns.
"Borrowing Date" means a date on which an Advance is made hereunder.
"Borrowing Notice" is defined in Section 2.08.
"Business Day" means (i) with respect to any borrowing, payment or
rate selection of Eurodollar Advances, a day (other than a Saturday or
Sunday) on which banks generally are open in Chicago and New York for the
conduct of substantially all of their commercial lending activities,
interbank wire transfers can be made on the Fedwire system and dealings in
United States dollars are carried on in the London interbank market and
(ii) for all other purposes, a day (other than a Saturday or Sunday) on
which banks generally are open in Chicago and New York for the conduct of
substantially all of their commercial lending activities and interbank wire
transfers can be made on the Fedwire system.
2
<PAGE>
"Capitalized Lease" means, with respect to any Person, any lease
which, in accordance with GAAP, has been, or should be, recorded as a
capitalized lease in such Person's financial statements.
"Change of Control" is defined in Section 7.13.
"Code" means the Internal Revenue Code of 1986, as amended, reformed
or otherwise modified from time to time.
"Collateral Shortfall Amount" is defined in Section 8.01.
"Commitment" means, for each Lender, the obligation of such Lender to
make Loans to, and participate in Facility LCs issued upon the application
of, the Borrower in an aggregate amount not exceeding the amount set forth
on Schedule I hereto or as set forth in any assignment that has become
effective pursuant to Section 12.03(b), as such amount may be modified from
time to time pursuant to the terms hereof.
"Commitment Fee" is defined in Section 2.05.
"Commonwealth" means Commonwealth Edison Company, an Illinois
corporation.
"Contingent Obligation" means, as to any Person, the undrawn face
amount of any letters of credit issued for the account of such Person and
shall also mean any monetary obligation of such Person guaranteeing or in
effect guaranteeing any Indebtedness, leases, dividends, letters of credit,
or other obligations ("primary obligations") of any other Person (the
"primary obligor") in any manner, whether directly or indirectly,
including, without limitation, any obligation of such Person, whether or
not contingent, (a) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (b) to advance or supply
funds (i) for the purchase or payment of any such primary obligation or
(ii) to maintain working capital or equity capital of the primary obligor
or otherwise to maintain the net worth or solvency of the primary obligor,
(c) to purchase property, securities, or services primarily for the purpose
of assuring the obligee under any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation, or (d)
otherwise to assure or hold harmless the obligee under such primary
obligation against loss in respect thereof; provided, however, that the
term Contingent Obligation shall not include endorsements of instruments
for deposit or collection in the ordinary course of business. The amount
of any Contingent Obligation shall be deemed to be an amount equal to the
stated or determinable amount of the primary obligation or, where such
Contingent Obligation is specifically limited to a portion of any such
primary obligation, that portion to which it is limited or, if not stated
or determinable, the maximum reasonably anticipated liability in respect
thereof (assuming such Person is required to perform thereunder) as
determined by such Person in good faith. For purposes of computing the
consolidated Indebtedness of any Person, the amount of any primary
obligation of any Subsidiary of such Person and the amount of any
Contingent Obligation of such Person
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corresponding to such primary obligation shall only be counted once (i.e.,
without duplication).
"Conversion/Continuation Notice" is defined in Section 2.09.
"Controlled Group" means all members of a controlled group of
corporations or other business entities and all trades or businesses
(whether or not incorporated) under common control which, together with the
Borrower or any of its Subsidiaries, are treated as a single employer under
Section 414 of the Code.
"Corporate Base Rate" means a rate per annum equal to the corporate
base rate or prime rate of interest announced by Bank One or by its parent,
Bank One Corporation, from time to time, changing when and as said
corporate base rate or prime rate changes.
"Credit Extension" means the making of an Advance or the issuance of a
Facility LC hereunder.
"Credit Extension Date" means the Borrowing Date for an Advance or the
issuance date for a Facility LC or the effective date of any Modification
to any Facility LC that extends the stated termination date or increases
the face amount of such Facility LC.
"Default" means an event described in Article VII.
"Environmental Laws" means any federal, state or local laws,
ordinances or codes, rules, orders, or regulations relating to pollution or
protection of the environment, including, without limitation, laws relating
to Hazardous Substances, laws relating to reclamation of land and waterways
and laws relating to emissions, discharges, releases or threatened releases
of pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes into the environment (including, without limitation,
ambient air, surface water, ground water, land surface or subsurface
strata) or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of pollution,
contaminants, chemicals, industrial or toxic wastes or other Hazardous
Substances.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any rule or regulation issued thereunder.
"ERISA Affiliate" means, with respect to any Person, any trade or
business (whether or not incorporated) which is a member of a group of
which such Person is a member and which is under common control within the
meaning of the regulations under Section 414(b) or (c) of the Internal
Revenue Code of 1986, as amended from time to time.
"ERISA Event" means (i) the occurrence of a reportable event, within
the meaning of Section 4043 of ERISA, unless the 30-day notice requirement
with respect thereto has been waived by the PBGC; (ii) the provision by the
administrator of any Plan of notice of intent to terminate such Plan,
pursuant to Section 4041(a)(2) of ERISA
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(including any such notice with respect to a plan amendment referred to in
Section 4041(e) of ERISA); (iii) 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; (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; or
(viii) any withdrawal liability under Section 4201 of ERISA.
"Eurodollar Advance" means an Advance which, except as otherwise
provided in Section 2.11, bears interest at the applicable Eurodollar Rate.
"Eurodollar Base Rate" means, with respect to a Eurodollar Advance for
the relevant Interest Period, the rate at which Bank One offers to place
deposits in U.S. dollars with first-class banks in the London interbank
market at approximately 11:00 a.m. (London time) two Business Days prior to
the first day of such Interest Period, in the approximate amount of the
Bank One's Eurodollar Loan and having a maturity equal to such Interest
Period.
"Eurodollar Loan" means a Loan which, except as otherwise provided in
Section 2.11, bears interest at the applicable Eurodollar Rate.
"Eurodollar Rate" means, with respect to a Eurodollar Advance for the
relevant Interest Period, the sum of (i) the quotient of (a) the Eurodollar
Base Rate applicable to such Interest Period, divided by (b) one minus the
Reserve Requirement (expressed as a decimal) applicable to such Interest
Period, plus (ii) the Applicable Margin.
"Exchange Act" means the Securities Exchange Act of 1934, and the
regulations promulgated thereunder, in each case as amended from time to
time.
"Excluded Taxes" means, in the case of each Lender or applicable
Lending Installation and the Agent, taxes imposed on its overall net
income, and franchise taxes imposed on it, by (i) the jurisdiction under
the laws of which such Lender or the Agent is incorporated or organized or
(ii) the jurisdiction in which such Lender's principal executive office or
such Lender's applicable Lending Installation is located.
"Exhibit" refers to an exhibit to this Agreement, unless another
document is specifically referenced.
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"Existing Facility" means the Amended and Restated Credit Agreement,
dated as of November 15, 1996, as amended, among the Borrower, the banks
named therein and Citibank, N.A., as agent.
"Extension Request" is defined in Section 2.20.
"Facility LC" is defined in Section 2.19(b).
"Facility LC Application" is defined in Section 2.19(d).
"Facility LC Collateral Account" is defined in Section 2.19(l).
"Facility Termination Date" means the 364th calendar day following the
date hereof or any later date as may be specified as the Facility
Termination Date in accordance with Section 2.20 or any earlier date on
which the Aggregate Commitment is reduced to zero or otherwise terminated
pursuant to the terms hereof.
"Federal Funds Effective Rate" means, for any day, an interest rate
per annum equal to the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged by
Federal funds brokers on such day, as published for such day (or, if such
day is not a Business Day, for the immediately 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 at
approximately 9:30 a.m. (Chicago time) on such day on such transactions
received by the Agent from three Federal funds brokers of recognized
standing selected by the Agent in its sole discretion.
"Floating Rate" means, for any day, a rate per annum equal to (i) the
Alternate Base Rate for such day plus (ii) the Applicable Margin, in each
case changing when and as the Alternate Base Rate or the Applicable Margin
changes.
"Floating Rate Advance" means an Advance which, except as otherwise
provided in Section 2.11, bears interest at the Floating Rate.
"GAAP" means generally accepted accounting principles in the United
States in effect from time to time.
"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 required in connection with any Loan Party's
execution, delivery or performance of any Loan Document.
"Guarantor" means Unicom Corporation, an Illinois corporation.
"Guaranty" means that certain Guaranty executed by the Guarantor, in
substantially the form of Exhibit F, as it may be amended or modified and
in effect from time to time.
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"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.
"Indebtedness" of a Person means (without duplication) (i)
indebtedness of such Person for borrowed money, (ii) obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments,
(iii) obligations of such Person to pay the deferred purchase price of
property or services (except trade accounts payable arising and repaid in
the ordinary course of business), (iv) obligations of such Person as lessee
under Capitalized Leases, (v) indebtedness of such Person consisting of
unpaid reimbursement obligations in respect of all drafts drawn or demands
for payment made under letters of credit issued for the account of such
Person issued to support indebtedness or obligations of such Person or of
others of the kinds referred to in clauses (i) through (iv) above and
clause (vi) below, but excluding trade letters of credit, (vi) all
Contingent Obligations of such Person, (vii) liabilities of such Person in
respect of unfunded vested benefits under Pension Plans covered by Title IV
of ERISA (other than Multiemployer Plans), and (viii) withdrawal liability
of such Person incurred under ERISA to any Multiemployer Plan (including,
without limitation, with respect to each of the foregoing clauses (i)
through (vi), any such indebtedness, obligations, or liabilities that is
non-recourse to the credit of such Person but is secured by assets of such
Person, and otherwise excluding any such indebtedness, obligations or
liabilities that is non-recourse to the credit of such Person); provided,
however, that Indebtedness of the Borrower shall not include any Contingent
Obligations of the Borrower that constitute Nonrecourse Indebtedness and
are secured only by Liens permitted by Section 6.16; provided further, that
Indebtedness of the Borrower or any Affiliate of the Borrower shall not
include any Indebtedness of the Borrower or such Affiliate, including
Contingent Liabilities of the Borrower, that are incurred, directly or
indirectly, in connection with the acquisition of the Replacement Property
or incurred, directly or indirectly, under the terms of the Replacement
Property Contracts, as those terms are defined under those certain
Qualified Intermediary Exchange Agreements, dated as of December 15, 1999,
among Unicom Investments, Inc. and State Street Bank and Trust Company of
Connecticut, National Association.
"Interest Period" means, with respect to a Eurodollar Advance, a
period of one, two, three or six months commencing on a Business Day
selected by the Borrower pursuant to this Agreement. Such Interest Period
shall end on the day which corresponds numerically to such date one, two,
three or six months thereafter, provided, however, that if there is no such
numerically corresponding day in such next, second, third or sixth
succeeding month, such Interest Period shall end on the last Business Day
of such next, second, third or sixth succeeding month. If an Interest
Period would otherwise end on a day which is not a Business Day, such
Interest Period shall end on the next succeeding Business Day, provided,
however, that if said next succeeding Business Day falls in a new calendar
month, such Interest Period shall end on the immediately preceding Business
Day.
"LC Fee" is defined in Section 2.19(e).
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"LC Issuer" means a Lender designated by the Borrower, and acceptable
to the Agent, in accordance with Section 2.19(a) as the issuer of a
Facility LC.
"LC Obligations" means, at any time, the sum, without duplication, of
(i) the aggregate undrawn stated amount under all Facility LCs outstanding
at such time plus (ii) the aggregate unpaid amount at such time of all
Reimbursement Obligations.
"LC Payment Date" is defined in Section 2.19(f).
"Lenders" means the lending institutions listed on the signature pages
of this Agreement and their respective successors and assigns.
"Lending Installation" means, with respect to a Lender or the Agent,
the office, branch, subsidiary or affiliate of such Lender or the Agent
listed on the signature pages hereof or on a Schedule or otherwise selected
by such Lender or the Agent pursuant to Section 2.17.
"Lien" is defined in Section 6.16.
"Loan" means, with respect to a Lender, such Lender's loan made
pursuant to Article II (or any conversion or continuation thereof).
"Loan Documents" means this Agreement, the Facility LC Applications,
any Notes issued pursuant to Section 2.13 and the Guaranty.
"Loan Party" means the Borrower and the Guarantor.
"Material Adverse Effect" means a material adverse effect on (i) the
financial condition, results of operations, business or Property of the
Borrower and its Subsidiaries taken as a whole or the Guarantor and its
Subsidiaries taken as a whole, (ii) the ability of any Loan Party to
perform its obligations under the Loan Documents to which it is a party, or
(iii) the validity or enforceability against any Loan Party of any of the
Loan Documents to which such Loan Party is a party or the rights or
remedies of the Agent, the LC Issuer or the Lenders thereunder.
"Merger Approvals" is defined in Section 5.03.
"Modify" or "Modification" are defined in Section 2.19(b).
"Moody's" means Moody's Investors Service, Inc.
"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.
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"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 Indebtedness" means any Indebtedness that finances the
acquisition, development, ownership or operation of an asset in respect of
which the Person to which such Indebtedness 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 Indebtedness
(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 Indebtedness 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 Indebtedness, 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 Indebtedness is owed is not
entitled, by virtue of any right or claim arising out of or
in connection with such Indebtedness, to commence
proceedings for the winding up or dissolution of the Debtor
or to appoint or procure the appointment of any receiver,
trustee, or similar Person or officer in respect of the
Debtor or any of its assets (other than the assets subject
to the security interest or lien referred to above); and
(iii) recourse to the Debtor generally or indirectly to any Affiliate
of the Debtor, under any form of assurance, undertaking or
support, which recourse is limited to a claim for damages (other
than liquidated damages and damages required to be calculated in
a specified way) for a breach of an obligation (other than a
payment obligation or an obligation to comply or to procure
compliance by another with any financial ratios or other tests
of financial condition) by the Person against which such
recourse is available.
"Note" means any promissory note issued at the request of a Lender
pursuant to Section 2.13 in the form of Exhibit E.
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"Obligations" means all unpaid principal of and accrued and unpaid
interest on the Loans, all Reimbursement Obligations, all accrued and
unpaid fees and all expenses, reimbursements, indemnities and other
obligations of the Borrower to the Lenders or to any Lender, the Agent, the
LC Issuer or any indemnified party arising under the Loan Documents.
"Other Taxes" is defined in Section 3.05(ii).
"Outstanding Credit Exposure" means, as to any Lender at any time, the
sum of (i) the aggregate principal amount of its Loans outstanding at such
time, plus (ii) an amount equal to its Pro Rata Share of the LC Obligations
at such time.
"Participants" is defined in Section 12.02(a).
"Payment Date" means the last day of each March, June, September and
December.
"PBGC" means the Pension Benefit Guaranty Corporation (or any
successor entity) established under ERISA.
"Person" means any natural person, corporation, firm, joint venture,
partnership, limited liability company, association, enterprise, trust or
other entity or organization, or any government or political subdivision or
any agency, department or instrumentality thereof.
"Plan" means a Single Employer Plan or a Multiple Employer Plan.
"Pricing Schedule" means the Schedule attached hereto identified as
such.
"Property" of a Person means any and all property, whether real,
personal, tangible, intangible, or mixed, of such Person, or other assets
owned, leased or operated by such Person.
"Pro Rata Share" means, with respect to a Lender, a portion equal to a
fraction the numerator of which is such Lender's Commitment and the
denominator of which is the Aggregate Commitment.
"Purchasers" is defined in Section 12.03(a).
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor
thereto or other regulation or official interpretation of said Board of
Governors relating to reserve requirements applicable to member banks of
the Federal Reserve System.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor or
other regulation or official interpretation of said Board of Governors
relating to the extension of credit by
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banks for the purpose of purchasing or carrying margin stocks applicable to
member banks of the Federal Reserve System.
"Reimbursement Obligations" means, at any time, the aggregate of all
obligations of the Borrower then outstanding under Section 2.19 to
reimburse the LC Issuer for amounts paid by the LC Issuer in respect of any
one or more drawings under Facility LCs.
"Replacement Property" is defined in the Qualified Intermediary
Exchange Agreements, dated as of December 15, 1999.
"Replacement Property Contracts" is defined in the Qualified
Intermediary Exchange Agreements, dated as of December 15, 1999.
"Required Lenders" means Lenders in the aggregate having at least 66-
2/3% of the Aggregate Commitment or, if the Aggregate Commitment has been
terminated, Lenders in the aggregate holding at least 66-2/3% of the
Aggregate Outstanding Amount.
"Reserve Requirement" means, with respect to an Interest Period, the
maximum aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves) which is imposed under Regulation D on
Eurocurrency liabilities.
"Response Date" is defined in Section 2.20.
"S&P" means Standard and Poor's Ratings Services, a division of The
McGraw Hill Companies, Inc.
"Schedule" refers to a specific schedule to this Agreement, unless
another document is specifically referenced.
"Section" means a numbered section of this Agreement, unless another
document is specifically referenced.
"Significant Subsidiary" means UT Holdings Inc., a Delaware
corporation and any other 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.
"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.
"Subsidiary" of a Person means (i) any corporation more than 50% of
the outstanding securities having ordinary voting power of which shall at
the time be owned or controlled, directly or indirectly, by such Person or
by one or more of its Subsidiaries
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or by such Person and one or more of its Subsidiaries, or (ii) any
partnership, limited liability company, association, joint venture or
similar business organization more than 50% of the ownership interests
having ordinary voting power of which shall at the time be so owned or
controlled. Unless otherwise expressly provided, all references herein to a
"Subsidiary" shall mean a Subsidiary of the Borrower.
"Taxes" means any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings, and any and all liabilities
with respect to the foregoing, but excluding Excluded Taxes and Other
Taxes.
"Transferee" is defined in Section 12.04.
"Type" means, with respect to any Advance, its nature as a Floating
Rate Advance or a Eurodollar Advance.
"Unmatured Default" means an event which but for the lapse of time or
the giving of notice, or both, would constitute a Default.
"Unicom/PECO Merger" means the merger of the Guarantor to be effected
into and with Newholdco Corporation pursuant to the Agreement and Plan of
Exchange and Merger, dated as of September 22, 1999 among PECO Energy
Company, Newholdco Corporation and the Guarantor.
"Unicom Investment Inc. Debt" means the Indebtedness not exceeding
$4,813,121,000 in the aggregate principal amount owed by Unicom Investment
Inc., an Illinois corporation, to Commonwealth in connection with the
consummation of the sale of Commonwealth's fossil generation assets and any
guaranty of such Indebtedness by the Guarantor.
"Utilization Percentage" means, as of any time for the determination
thereof, the percentage obtained by dividing the aggregate Outstanding
Credit Exposure by the Aggregate Commitment then in effect.
"Year 2000 Issues" means, in respect of any Person, 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.
"Year 2000 Program" is defined in Section 5.14.
The foregoing definitions shall be equally applicable to both the singular
and plural forms of the defined terms.
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ARTICLE II
THE CREDIT EXTENSIONS
SECTION 2.01. Commitment. From and including the date of this Agreement
and prior to the Facility Termination Date, each Lender severally agrees, on the
terms and conditions set forth in this Agreement, to (i) make Loans to the
Borrower and (ii) participate in Facility LCs issued upon the request of the
Borrower, provided that, after giving effect to the making of each such Loan and
the issuance of each such Facility LC, such Lender's Outstanding Credit Exposure
shall not exceed its Commitment. Subject to the terms of this Agreement, the
Borrower may borrow, repay and reborrow at any time prior to the Facility
Termination Date. The Commitments to extend credit hereunder shall expire on the
Facility Termination Date. The LC Issuer will issue Facility LCs hereunder on
the terms and conditions set forth in Section 2.19.
SECTION 2.02. Required Payments; Termination. The Aggregate Outstanding
Amount and all other unpaid Obligations shall be paid in full by the Borrower on
the Facility Termination Date, except with respect to Facility LCs referred to
in the last sentence of Section 2.19(b).
SECTION 2.03. Ratable Loans. Each Advance hereunder shall consist of
Loans made from the several Lenders ratably according to their Pro Rata Shares.
SECTION 2.04. Types of Advances. The Advances may be Floating Rate
Advances or Eurodollar Advances, or a combination thereof, selected by the
Borrower in accordance with Sections 2.08 and 2.09.
SECTION 2.05. Commitment Fee; Reductions in Aggregate Commitment. The
Borrower agrees to pay to the Agent for the account of each Lender according to
its Pro Rata Share a commitment fee (the "Commitment Fee") at a per annum rate
equal to the Applicable Fee Rate on the average daily Available Aggregate
Commitment from the date hereof to and including the Facility Termination Date,
payable on each Payment Date hereafter and on the Facility Termination Date.
The Borrower may permanently reduce the Aggregate Commitment in whole, or in
part ratably among the Lenders in minimum amounts of $5,000,000 and integral
multiples of $1,000,000 in excess thereof, upon at least five Business Days'
written notice to the Agent, which notice shall specify the amount of any such
reduction, provided, however, that the amount of the Aggregate Commitment may
not be reduced below the Aggregate Outstanding Amount. The accrued Commitment
Fee shall be payable on the effective date of any termination of the obligations
of the Lenders to make Credit Extensions hereunder.
SECTION 2.06. Minimum Amount of Each Advance. Each Eurodollar Advance
shall be in the minimum amount of $5,000,000 (and in multiples of $1,000,000 if
in excess thereof), and each Floating Rate Advance shall be in the minimum
amount of $5,000,000 (and in multiples of $1,000,000 if in excess thereof),
provided, however, that any Floating Rate Advance may be in the amount of the
Available Aggregate Commitment, provided further, that any Floating Rate Advance
made to satisfy any Reimbursement Obligation pursuant to the last sentence of
2.19(g) may be in the amount of such Reimbursement Obligation.
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SECTION 2.07. Optional Principal Payments. The Borrower may from time to
time pay, without penalty or premium, all outstanding Floating Rate Advances,
or, in a minimum aggregate amount of $5,000,000 or any integral multiple of
$1,000,000 in excess thereof, any portion of the outstanding Floating Rate
Advances upon two Business Days' prior notice to the Agent. The Borrower may
from time to time pay, subject to the payment of any funding indemnification
amounts required by Section 3.04 but without penalty or premium, all outstanding
Eurodollar Advances, or, in a minimum aggregate amount of $5,000,000 or any
integral multiple of $1,000,000 in excess thereof, any portion of the
outstanding Eurodollar Advances upon three Business Days' prior notice to the
Agent.
SECTION 2.08. Method of Selecting Types and Interest Periods for New
Advances. The Borrower shall select the Type of Advance and, in the case of each
Eurodollar Advance, the Interest Period applicable thereto from time to time.
The Borrower shall give the Agent irrevocable notice (a "Borrowing Notice") not
later than 9:30 a.m. (Chicago time) on the Borrowing Date of each Floating Rate
Advance and three Business Days before the Borrowing Date for each Eurodollar
Advance, specifying:
(i) the Borrowing Date, which shall be a Business Day, of such Advance,
(ii) the aggregate amount of such Advance,
(iii) the Type of Advance selected, and
(iv) in the case of each Eurodollar Advance, the Interest Period
applicable thereto.
Not later than noon (Chicago time) on each Borrowing Date, each Lender shall
make available its Loan or Loans in funds immediately available in Chicago to
the Agent at its address specified pursuant to Article XIII. The Agent will
make the funds so received from the Lenders available to the Borrower at the
Agent's aforesaid address.
SECTION 2.09. Conversion and Continuation of Outstanding Advances.
Floating Rate Advances shall continue as Floating Rate Advances unless and until
such Floating Rate Advances are converted into Eurodollar Advances pursuant to
this Section 2.09 or are repaid in accordance with Section 2.07. Each Eurodollar
Advance shall continue as a Eurodollar Advance until the end of the then
applicable Interest Period therefor, at which time such Eurodollar Advance shall
be automatically converted into a Floating Rate Advance unless (x) such
Eurodollar Advance is or was repaid in accordance with Section 2.07 or (y) the
Borrower shall have given the Agent a Conversion/Continuation Notice (as defined
below) requesting that, at the end of such Interest Period, such Eurodollar
Advance continue as a Eurodollar Advance for the same or another Interest
Period. Subject to the terms of Section 2.06, the Borrower may elect from time
to time to convert all or any part of a Floating Rate Advance into a Eurodollar
Advance. The Borrower shall give the Agent irrevocable notice (a
"Conversion/Continuation Notice") of each conversion of a Floating Rate Advance
into a Eurodollar Advance or continuation of a Eurodollar Advance not later than
10:00 a.m. (Chicago time) at least three Business Days prior to the date of the
requested conversion or continuation, specifying:
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(i) the requested date, which shall be a Business Day, of such conversion
or continuation,
(ii) the aggregate amount and Type of the Advance which is to be converted
or continued, and
(iii) the amount of such Advance which is to be converted into or continued
as a Eurodollar Advance and the duration of the Interest Period
applicable thereto.
SECTION 2.10. Changes in Interest Rate, etc. Each Floating Rate Advance
shall bear interest on the outstanding principal amount thereof, for each day
from and including the date such Advance is made or is automatically converted
from a Eurodollar Advance into a Floating Rate Advance pursuant to Section 2.09,
to but excluding the date it is paid or is converted into a Eurodollar Advance
pursuant to Section 2.09 hereof, at a rate per annum equal to the Floating Rate
for such day. Changes in the rate of interest on that portion of any Advance
maintained as a Floating Rate Advance will take effect simultaneously with each
change in the Alternate Base Rate. Each Eurodollar Advance shall bear interest
on the outstanding principal amount thereof from and including the first day of
the Interest Period applicable thereto to, but excluding the last day of such
Interest Period at the interest rate determined by the Agent as applicable to
such Eurodollar Advance based upon the Borrower's selections under Sections 2.08
and 2.09 and otherwise in accordance with the terms hereof. No Interest Period
may end after the Facility Termination Date.
SECTION 2.11. Rates Applicable After Default. Notwithstanding anything to
the contrary contained in Section 2.08 or 2.09, during the continuance of a
Default or Unmatured Default the Required Lenders may, at their option, by
notice to the Borrower (which notice may be revoked at the option of the
Required Lenders notwithstanding any provision of Section 8.02 requiring
unanimous consent of the Lenders to changes in interest rates), declare that no
Advance may be made as, converted into or continued as a Eurodollar Advance.
During the continuance of a Default, the Required Lenders may, at their option,
by notice to the Borrower (which notice may be revoked at the option of the
Required Lenders notwithstanding any provision of Section 8.02 requiring
unanimous consent of the Lenders to changes in interest rates), declare that (i)
each Eurodollar Advance shall bear interest for the remainder of the applicable
Interest Period at the rate otherwise applicable to such Interest Period plus 2%
per annum, (ii) each Floating Rate Advance shall bear interest at a rate per
annum equal to the Floating Rate in effect from time to time plus 2% per annum
and (iii) the LC Fee and the Commitment Fee shall be increased by 2% per annum,
provided, that during the continuance of a Default under Section 7.08 or 7.09,
the interest rates set forth in clauses (i) and (ii) above and the increase in
the LC Fee set forth in clause (iii) above shall be applicable to all Credit
Extensions without any election or action on the part of the Agent or any
Lender.
SECTION 2.12. Method of Payment. All payments of the Obligations
hereunder shall be made, without setoff, deduction, or counterclaim, in
immediately available funds to the Agent at the Agent's address specified
pursuant to Article XIII, or at any other Lending Installation of the Agent
specified in writing by the Agent to the Borrower, by noon (Chicago time) on the
date when due and shall (except in the case of Reimbursement Obligations for
which the LC Issuer has not been fully indemnified by the Lenders, or as
otherwise specifically required hereunder)
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be applied ratably by the Agent among the Lenders. Each payment delivered to the
Agent for the account of any Lender shall be delivered promptly by the Agent to
such Lender in the same type of funds that the Agent received at its address
specified pursuant to Article XIII or at any Lending Installation specified in a
notice received by the Agent from such Lender. The Agent is hereby authorized to
charge the account of the Borrower maintained with Bank One for each payment of
principal, interest, Reimbursement Obligations and fees as it becomes due
hereunder. Each reference to the Agent in this Section shall also be deemed to
refer, and shall apply equally, to the LC Issuer, in the case of payments
required to be made by the Borrower to the LC Issuer pursuant to Section
2.19(g).
SECTION 2.13. Noteless Agreement; Evidence of Indebtedness. (i) Each
Lender shall maintain in accordance with its usual practice an account or
accounts evidencing the indebtedness of the Borrower to such Lender resulting
from each Loan made by such Lender from time to time, including the amounts of
principal and interest payable and paid to such Lender from time to time
hereunder.
(ii) The Agent shall also maintain accounts in which it will record (a) the
amount of each Loan made hereunder, the Type thereof and the Interest Period
with respect thereto, (b) the amount of any principal or interest due and
payable or to become due and payable from the Borrower to each Lender hereunder,
(c) the original stated amount of each Facility LC and the amount of LC
Obligations outstanding at any time, and (d) the amount of any sum received by
the Agent hereunder from the Borrower and each Lender's share thereof.
(iii) The entries maintained in the accounts maintained pursuant to
paragraphs (i) and (ii) above shall be prima facie evidence of the existence and
amounts of the Obligations therein recorded; provided, however, that the failure
of the Agent or any Lender to maintain such accounts or any error therein shall
not in any manner affect the obligation of the Borrower to repay the Obligations
in accordance with their terms.
(iv) Any Lender may request that its Loans be evidenced by a promissory
note (a "Note"). In such event, the Borrower shall prepare, execute and deliver
to such Lender a Note payable to the order of such Lender. Thereafter, the Loans
evidenced by such Note and interest thereon shall at all times (including after
any assignment pursuant to Section 12.03) be represented by one or more Notes
payable to the order of the payee named therein or any assignee pursuant to
Section 12.03, except to the extent that any such Lender or assignee
subsequently returns any such Note for cancellation and requests that such Loans
once again be evidenced as described in paragraphs (i) and (ii) above.
SECTION 2.14. Telephonic Notices. The Borrower hereby authorizes the
Lenders and the Agent to extend, convert or continue Advances, effect selections
of Types of Advances and to transfer funds based on telephonic notices made by
any person or persons the Agent or any Lender in good faith believes to be
acting on behalf of the Borrower, it being understood that the foregoing
authorization is specifically intended to allow Borrowing Notices and
Conversion/Continuation Notices to be given telephonically. The Borrower agrees
to deliver promptly to the Agent a written confirmation, if such confirmation is
requested by the Agent or any Lender, of each telephonic notice signed by an
Authorized Officer. If the written
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confirmation differs in any material respect from the action taken by the Agent
and the Lenders, the records of the Agent and the Lenders shall govern absent
manifest error.
SECTION 2.15. Interest Payment Dates; Interest and Fee Basis. Interest
accrued on each Floating Rate Advance shall be payable on each Payment Date,
commencing with the first such date to occur after the date hereof, on any date
on which the Floating Rate Advance is prepaid, whether due to acceleration or
otherwise, and at maturity. Interest accrued on that portion of the outstanding
principal amount of any Floating Rate Advance converted into a Eurodollar
Advance on a day other than a Payment Date shall be payable on the date of
conversion. Interest accrued on each Eurodollar Advance shall be payable on the
last day of its applicable Interest Period, on any date on which the Eurodollar
Advance is prepaid, whether by acceleration or otherwise, and at maturity.
Interest accrued on each Eurodollar Advance having an Interest Period longer
than three months shall also be payable on the last day of each three-month
interval during such Interest Period. Interest, the Commitment Fee and LC Fees
shall be calculated for actual days elapsed on the basis of a 360-day year.
Interest shall be payable for the day an Advance is made but not for the day of
any payment on the amount paid if payment is received prior to noon (Chicago
time) at the place of payment. If any payment of principal of or interest on an
Advance shall become due on a day which is not a Business Day, such payment
shall be made on the next succeeding Business Day and, in the case of a
principal payment, such extension of time shall be included in computing
interest in connection with such payment.
SECTION 2.16. Notification of Advances, Interest Rates, Prepayments,
Modifications and Commitment Reductions. Promptly after receipt thereof, the
Agent will notify each Lender of the contents of each Aggregate Commitment
reduction notice, Borrowing Notice, Conversion/Continuation Notice, and
repayment notice received by it hereunder. Promptly after notice from the LC
Issuer, the Agent will notify each Lender of the contents of each request for
issuance of a Facility LC hereunder and each Modification notice. The Agent will
notify each Lender of the interest rate applicable to each Eurodollar Advance
promptly upon determination of such interest rate and will give each Lender
prompt notice of each change in the Alternate Base Rate.
SECTION 2.17. Lending Installations. Each Lender may book its Loans and
its participation in any LC Obligations and the LC Issuer may book the Facility
LCs at any Lending Installation selected by such Lender or the LC Issuer, as the
case may be, and may change its Lending Installation from time to time. All
terms of this Agreement shall apply to any such Lending Installation and the
Loans, Facility LCs, participations in LC Obligations and any Notes issued
hereunder shall be deemed held by each Lender or the LC Issuer, as the case may
be, for the benefit of any such Lending Installation. Each Lender and the LC
Issuer may, by written notice to the Agent and the Borrower in accordance with
Article XIII, designate replacement or additional Lending Installations through
which Loans will be made by it or Facility LCs will be issued by it and for
whose account Loan payments or payments with respect to Facility LCs are to be
made.
SECTION 2.18. Non-Receipt of Funds by the Agent. Unless the Borrower or a
Lender, as the case may be, notifies the Agent prior to the date on which it is
scheduled to make payment to the Agent of (i) in the case of a Lender, the
proceeds of a Loan or (ii) in the case of the Borrower, a payment of principal,
interest or fees to the Agent for the account of the Lenders,
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that it does not intend to make such payment, the Agent may assume that such
payment has been made. The Agent may, but shall not be obligated to, make the
amount of such payment available to the intended recipient in reliance upon such
assumption. If such Lender or the Borrower, as the case may be, has not in fact
made such payment to the Agent, the recipient of such payment shall, on demand
by the Agent, repay to the Agent the amount so made available together with
interest thereon in respect of each day during the period commencing on the date
such amount was so made available by the Agent until the date the Agent recovers
such amount at a rate per annum equal to (x) in the case of payment by a Lender,
the Federal Funds Effective Rate for such day for the first three days and,
thereafter, the interest rate applicable to the relevant Loan or (y) in the case
of payment by the Borrower, the interest rate applicable to the relevant Loan.
SECTION 2.19. Facility LCs.
(a) LC Issuer. Subject to the terms and conditions hereof, the Borrower
may from time to time arrange for one or more Lenders to act as an LC Issuer
hereunder. Any such designation by the Borrower shall be notified to the Agent
at least five Business Days prior to the first date upon which the Borrower
proposes that such LC Issuer issue its first Facility LC, so as to provide
adequate time for such proposed Facility LC to be approved by the Agent
hereunder; provided, that nothing contained herein shall be deemed to require
any Lender to agree to act as an LC Issuer, if it does not so desire. Within two
Business Days following the receipt of any such designation of a proposed LC
Issuer together with the proposed form of such Facility LC, the Agent shall
notify the Borrower as to whether such Facility LC complies with the
requirements specified therefor in this Agreement.
(b) Issuance. The LC Issuer hereby agrees, on the terms and conditions set
forth in this Agreement, to issue standby letters of credit (each, a "Facility
LC") and to renew, extend, increase, decrease or otherwise modify each Facility
LC ("Modify", and each such action a "Modification"), from time to time from and
including the date of this Agreement and prior to the Facility Termination Date
upon the request of the Borrower; provided that immediately after each such
Facility LC is issued or Modified, (i) the aggregate amount of the outstanding
LC Obligations shall not exceed $100,000,000 and (ii) the Aggregate Outstanding
Amount shall not exceed the Aggregate Commitment. No Facility LC shall have an
expiry date later than the earlier of (x) the date which is one year after the
Facility Termination Date and (y) one year after the date of issuance (or
Modification).
(c) Participations. Upon the issuance or Modification by the LC Issuer of
a Facility LC in accordance with this Section, the LC Issuer shall be deemed,
without further action by any party hereto, to have unconditionally and
irrevocably sold to each Lender, and each Lender shall be deemed, without
further action by any party hereto, to have unconditionally and irrevocably
purchased from the LC Issuer, a participation in such Facility LC (and each
Modification thereof) and the related LC Obligations in proportion to its Pro
Rata Share.
(d) Notice. Subject to Section 2.19(b), the Borrower shall give the LC
Issuer notice prior to 10:00 a.m. (Chicago time) at least five Business Days
prior to the proposed date of issuance or Modification of each Facility LC,
specifying the beneficiary, the proposed date of issuance (or Modification) and
the expiry date of such Facility LC, and describing the proposed terms of such
Facility LC and the nature of the transactions proposed to be supported thereby.
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Upon receipt of such notice, the LC Issuer shall promptly notify the Agent, and
the Agent shall promptly notify each Lender, of the contents thereof and of the
amount of such Lender's participation in such proposed Facility LC. The issuance
or Modification by the LC Issuer of any Facility LC shall, in addition to the
conditions precedent set forth in Article IV (the satisfaction of which the LC
Issuer shall have no duty to ascertain), be subject to the conditions precedent
that such Facility LC shall be satisfactory to the LC Issuer and that the
Borrower shall have executed and delivered such application agreement and/or
such other instruments and agreements relating to such Facility LC as the LC
Issuer shall have reasonably requested (each, a "Facility LC Application"). In
the event of any conflict between the terms of this Agreement and the terms of
any Facility LC Application, the terms of this Agreement shall control.
(e) LC Fees. The Borrower shall pay to the Agent, for the account of
the Lenders ratably in accordance with their respective Pro Rata Shares, with
respect to each Facility LC, a letter of credit fee at a per annum rate equal to
the Applicable Fee Rate on the average daily undrawn stated amount under such
Facility LC, such fee to be payable in arrears on each Payment Date (the "LC
Fee"). The Borrower shall also pay to the LC Issuer for its own account (x) at
the time of issuance of each Facility LC, a fronting fee in an amount to be
agreed upon between the LC Issuer and the Borrower, and (y) documentary and
processing charges in connection with the issuance or Modification of and draws
under Facility LCs in accordance with the LC Issuer's standard schedule for such
charges as in effect from time to time.
(f) Administration; Reimbursement by Lenders. Upon receipt from the
beneficiary of any Facility LC of any demand for payment under such Facility LC,
the LC Issuer shall notify the Agent and the Agent shall promptly notify the
Borrower and each other Lender as to the amount to be paid by the LC Issuer as a
result of such demand and the proposed payment date (the "LC Payment Date").
The responsibility of the LC Issuer to the Borrower and each Lender shall be
only to determine that the documents (including each demand for payment)
delivered under each Facility LC in connection with such presentment shall be in
conformity in all material respects with such Facility LC. The LC Issuer shall
endeavor to exercise the same care in the issuance and administration of the
Facility LCs as it does with respect to letters of credit in which no
participations are granted, it being understood that in the absence of any gross
negligence or willful misconduct by the LC Issuer, each Lender shall be
unconditionally and irrevocably liable without regard to the occurrence of any
Default or any condition precedent whatsoever, to reimburse the LC Issuer on
demand for (i) such Lender's Pro Rata Share of the amount of each payment made
by the LC Issuer under each Facility LC to the extent such amount is not
reimbursed by the Borrower pursuant to Section 2.19(g) below, plus (ii) interest
on the foregoing amount to be reimbursed by such Lender, for each day from the
date of the LC Issuer's demand for such reimbursement (or, if such demand is
made after 11:00 a.m. (Chicago time) on such date, from the next succeeding
Business Day) to the date on which such Lender pays the amount to be reimbursed
by it, at a rate of interest per annum equal to the Federal Funds Effective Rate
for the first three days and, thereafter, at a rate of interest equal to the
rate applicable to Floating Rate Advances.
(g) Reimbursement by Borrower. The Borrower shall be irrevocably and
unconditionally obligated to reimburse the LC Issuer on or before the applicable
LC Payment Date for any amounts to be paid by the LC Issuer upon any drawing
under any Facility LC,
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without presentment, demand, protest or other formalities of any kind; provided
that neither the Borrower nor any Lender shall hereby be precluded from
asserting any claim for direct (but not consequential) damages suffered by the
Borrower or such Lender to the extent, but only to the extent, caused by (i) the
willful misconduct or gross negligence of the LC Issuer in determining whether a
request presented under any Facility LC issued by it complied with the terms of
such Facility LC or (ii) the LC Issuer's failure to pay under any Facility LC
issued by it after the presentation to it of a request strictly complying with
the terms and conditions of such Facility LC. All such amounts paid by the LC
Issuer and remaining unpaid by the Borrower shall bear interest, payable on
demand, for each day until paid at a rate per annum equal to (x) the rate
applicable to Floating Rate Advances for such day if such day falls on or before
the applicable LC Payment Date and (y) the sum of 2% plus the rate applicable to
Floating Rate Advances for such day if such day falls after such LC Payment
Date. The LC Issuer will pay to each Lender ratably in accordance with its Pro
Rata Share all amounts received by it from the Borrower for application in
payment, in whole or in part, of the Reimbursement Obligation in respect of any
Facility LC issued by the LC Issuer, but only to the extent such Lender has made
payment to the LC Issuer in respect of such Facility LC pursuant to Section
2.19(f). Subject to the terms and conditions of this Agreement (including
without limitation the submission of a Borrowing Notice in compliance with
Section 2.08 and the satisfaction of the applicable conditions precedent set
forth in Article IV), the Borrower may request an Advance hereunder for the
purpose of satisfying any Reimbursement Obligation.
(h) Obligations Absolute. The Borrower's obligations under this Section
shall be absolute and unconditional under any and all circumstances and
irrespective of any setoff, counterclaim or defense to payment which the
Borrower may have or have had against the LC Issuer, any Lender or any
beneficiary of a Facility LC. The Borrower further agrees with the LC Issuer and
the Lenders that the LC Issuer and the Lenders shall not be responsible for, and
the Borrower's Reimbursement Obligation in respect of any Facility LC shall not
be affected by, among other things, the validity or genuineness of documents or
of any endorsements thereon, even if such documents should in fact prove to be
in any or all respects invalid, fraudulent or forged, or any dispute between or
among the Borrower, any of its Affiliates, the beneficiary of any Facility LC or
any financing institution or other party to whom any Facility LC may be
transferred or any claims or defenses whatsoever of the Borrower or of any of
its Affiliates against the beneficiary of any Facility LC or any such
transferee. The LC Issuer shall not be liable for any error, omission,
interruption or delay in transmission, dispatch or delivery of any message or
advice, however transmitted, in connection with any Facility LC. The Borrower
agrees that any action taken or omitted by the LC Issuer or any Lender under or
in connection with each Facility LC and the related drafts and documents, if
done without gross negligence or willful misconduct, shall be binding upon the
Borrower and shall not put the LC Issuer or any Lender under any liability to
the Borrower. Nothing in this Section is intended to limit the right of the
Borrower to make a claim against the LC Issuer for damages as contemplated by
the proviso to the first sentence of Section 2.19.(g).
(i) Actions of LC Issuer. The LC Issuer shall be entitled to rely, and
shall be fully protected in relying, upon any Facility LC, draft, writing,
resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telecopy, telex or teletype message, statement, order or other
document believed by it to be genuine and correct and to have been signed, sent
or made
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by the proper Person or Persons, and upon advice and statements of legal
counsel, independent accountants and other experts selected by the LC Issuer.
The LC Issuer shall be fully justified in failing or refusing to take any action
under this Agreement unless it shall first have received such advice or
concurrence of the Required Lenders as it reasonably deems appropriate or it
shall first be indemnified to its reasonable satisfaction by the Lenders against
any and all liability and expense which may be incurred by it by reason of
taking or continuing to take any such action. Notwithstanding any other
provision of this Section, the LC Issuer shall in all cases be fully protected
in acting, or in refraining from acting, under this Agreement in accordance with
a request of the Required Lenders, and such request and any action taken or
failure to act pursuant thereto shall be binding upon the Lenders and any future
holders of a participation in any Facility LC.
(j) Indemnification. The Borrower hereby agrees to indemnify and hold
harmless each Lender, the LC Issuer and the Agent, and their respective
directors, officers, agents and employees from and against any and all claims
and damages, losses, liabilities, costs or expenses which such Lender, the LC
Issuer or the Agent may incur (or which may be claimed against such Lender, the
LC Issuer or the Agent by any Person whatsoever) by reason of or in connection
with the issuance, execution and delivery or transfer of or payment or failure
to pay under any Facility LC or any actual or proposed use of any Facility LC,
including, without limitation, any claims, damages, losses, liabilities, costs
or expenses which the LC Issuer may incur by reason of or in connection with (i)
the failure of any other Lender to fulfill or comply with its obligations to the
LC Issuer hereunder (but nothing herein contained shall affect any rights the
Borrower may have against any defaulting Lender) or (ii) by reason of or on
account of the LC Issuer issuing any Facility LC which specifies that the term
"Beneficiary" included therein includes any successor by operation of law of the
named Beneficiary, but which Facility LC does not require that any drawing by
any such successor Beneficiary be accompanied by a copy of a legal document,
satisfactory to the LC Issuer, evidencing the appointment of such successor
Beneficiary; provided that the Borrower shall not be required to indemnify any
Lender, the LC Issuer or the Agent for any claims, damages, losses, liabilities,
costs or expenses to the extent, but only to the extent, caused by (x) the
willful misconduct or gross negligence of the LC Issuer in determining whether a
request presented under any Facility LC complied with the terms of such Facility
LC or (y) the LC Issuer's failure to pay under any Facility LC after the
presentation to it of a request strictly complying with the terms and conditions
of such Facility LC. Nothing in this Section is intended to limit the
obligations of the Borrower under any other provision of this Agreement.
(k) Lenders' Indemnification. Each Lender shall, ratably in accordance
with its Pro Rata Share, indemnify the LC Issuer, its affiliates and their
respective directors, officers, agents and employees (to the extent not
reimbursed by the Borrower) against any cost, expense (including reasonable
counsel fees and disbursements), claim, demand, action, loss or liability
(except such as result from such indemnitees' gross negligence or willful
misconduct or the LC Issuer's failure to pay under any Facility LC after the
presentation to it of a request strictly complying with the terms and conditions
of the Facility LC) that such indemnitees may suffer or incur in connection with
this Section or any action taken or omitted by such indemnitees hereunder.
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(l) Facility LC Collateral Account. The Borrower agrees that it will,
during the continuance of any Unmatured Default, Default, or after the Facility
Termination Date, upon the request of the Agent or the Required Lenders and
until the final expiration date of any Facility LC and thereafter as long as any
amount is payable to the LC Issuer or the Lenders in respect of any Facility LC,
maintain a special collateral account pursuant to arrangements satisfactory to
the Agent (the "Facility LC Collateral Account") at the Agent's office at the
address specified pursuant to Article XIII, in the name of such Borrower but
under the sole dominion and control of the Agent, for the benefit of the Lenders
and in which such Borrower shall have no interest other than as set forth in
Section 8.01. The Borrower hereby pledges, assigns and grants to the Agent, on
behalf of and for the ratable benefit of the Lenders and the LC Issuer, a
security interest in all of the Borrower's right, title and interest in and to
all funds which may from time to time be on deposit in the Facility LC
Collateral Account to secure the prompt and complete payment and performance of
the Obligations. The Agent will invest any funds on deposit from time to time
in the Facility LC Collateral Account in certificates of deposit of Bank One
having a maturity not exceeding 30 days. Nothing in this Section shall either
obligate the Agent to require the Borrower to deposit any funds in the Facility
LC Collateral Account or limit the right of the Agent to release any funds held
in the Facility LC Collateral Account in each case other than as required by
Section 8.01.
(m) Rights as a Lender. In its capacity as a Lender, the LC Issuer
shall have the same rights and obligations as any other Lender.
SECTION 2.20. Extension of Facility Termination Date. The Borrower may
request an extension of the Facility Termination Date by submitting a request
for an extension to the Agent (an "Extension Request") no more than 60 days
prior to the Facility Termination Date. The Extension Request must specify the
new Facility Termination Date requested by the Borrower and the date (which must
be at least 30 days after the Extension Request is delivered to the Agent) as of
which the Lenders must respond to the Extension Request (the "Response Date").
The new Facility Termination Date shall be no more than 364 days after the
Facility Termination Date in effect at the time the Extension Request is
received, including the Facility Termination Date as one of the days in the
calculation of the days elapsed. Promptly upon receipt of an Extension Request,
the Agent shall notify each Lender of the contents thereof and shall request
each Lender to approve the Extension Request. Each Lender approving the
Extension Request shall deliver its written consent no later than the Response
Date. Any Lender not so consenting by the Response Date shall be deemed to not
have consented to such Extension Request. If the consent of each of the Lenders
is received by the Agent (or if less than all the Lenders consent thereto, one
or more other banks and financial institutions acceptable to the Borrower and
the Agent, agree to assume and assume all of the Commitments and Outstanding
Credit Exposure of the non-consenting Lenders), the Facility Termination Date
specified in the Extension Request shall become effective on the existing
Facility Termination Date and the Agent shall promptly notify the Borrower and
each Lender of the new Facility Termination Date.
SECTION 2.21. Replacement of Lender. If the Borrower is required pursuant
to Section 3.01, 3.02 or 3.05 to make any additional payment to any Lender or if
any Lender's obligation to make or continue, or to convert Floating Rate
Advances into, Eurodollar Advances shall be suspended pursuant to Section 3.03
(any Lender so affected an "Affected Lender"), the Borrower may elect, if such
amounts continue to be charged or such suspension is still effective,
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to replace such Affected Lender as a Lender party to this Agreement, provided
that no Default or Unmatured Default shall have occurred and be continuing at
the time of such replacement, and provided further that, concurrently with such
replacement, (i) another bank or other entity which is reasonably satisfactory
to the Borrower and the Agent shall agree, as of such date, to purchase for cash
the Advances and other Obligations due to the Affected Lender pursuant to an
assignment substantially in the form of Exhibit C and to become a Lender for all
purposes under this Agreement and to assume all obligations of the Affected
Lender to be terminated as of such date and to comply with the requirements of
Section 12.03 applicable to assignments, and (ii) the Borrower shall pay to such
Affected Lender in same day funds on the day of such replacement (A) all
interest, fees and other amounts then accrued but unpaid to such Affected Lender
by the Borrower hereunder to and including the date of termination, including
without limitation payments due to such Affected Lender under Sections 3.01,
3.02 and 3.05 (it being understood that such payment shall be given credit in
calculating any subsequent payments under Sections 2.05, 2.15, 2.19(e), 3.01,
3.02 or 3.05), and (B) an amount, if any, equal to the payment which would have
been due to such Lender on the day of such replacement under Section 3.04 had
the Loans of such Affected Lender been prepaid on such date rather than sold to
the replacement Lender.
ARTICLE III
YIELD PROTECTION; TAXES
SECTION 3.01. Yield Protection. If, on or after the date of this
Agreement, the adoption of any law or any governmental or quasi-governmental
rule, regulation, policy, guideline or directive (whether or not having the
force of law), or any change in the interpretation or administration thereof by
any governmental or quasi-governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Lender or applicable Lending Installation or the LC Issuer with any
request or directive (whether or not having the force of law) of any such
authority, central bank or comparable agency:
(i) subjects any Lender or any applicable Lending Installation or the LC
Issuer to any Taxes, or changes the basis of taxation of payments
(other than with respect to Excluded Taxes) to any Lender or the LC
Issuer in respect of its Eurodollar Loans, Facility LCs or
participations therein, or
(ii) imposes or increases or deems applicable any reserve, assessment,
insurance charge, special deposit or similar requirement against
assets of, deposits with or for the account of, or credit extended
by, any Lender or any applicable Lending Installation or the LC
Issuer (other than reserves and assessments taken into account in
determining the interest rate applicable to Eurodollar Advances), or
(iii) imposes any other condition the result of which is to increase the
cost to any Lender or any applicable Lending Installation or the LC
Issuer of making, funding or maintaining its Eurodollar Loans, or of
issuing or participating in Facility LCs, or reduces any amount
receivable by any Lender or any applicable Lending Installation or
the LC Issuer in connection with its Eurodollar Loans, Facility LCs
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or participations therein, or requires any Lender or any applicable
Lending Installation or the LC Issuer to make any payment calculated
by reference to the amount of Eurodollar Loans, Facility LCs or
participations therein held or interest or LC Fees received by it, by
an amount deemed material by such Lender or the LC Issuer as the case
may be,
and the result of any of the foregoing is to increase the cost to such Lender or
applicable Lending Installation or the LC Issuer, as the case may be, of making
or maintaining its Eurodollar Loans or Commitment or of issuing or participating
in Facility LCs or to reduce the return received by such Lender or applicable
Lending Installation or the LC Issuer, as the case may be, in connection with
such Eurodollar Loans, Commitment, Facility LCs or participations therein,
then, within 15 days of demand by such Lender or the LC Issuer, as the case may
be, the Borrower shall pay such Lender or the LC Issuer, as the case may be,
such additional amount or amounts as will compensate such Lender or the LC
Issuer, as the case may be, for such increased cost or reduction in amount
received, provided, however, that no Lender or LC Issuer shall be entitled to
receive any such increased costs to the extent incurred more than 180 days prior
to the date that such Lender or LC Issuer makes such a demand, provided,
further, that if a change in law giving rise to such increased cost is
retroactive, then the 180 day period referred to above shall be extended to
include the period of retroactive effect thereof.
SECTION 3.02. Changes in Capital Adequacy Regulations. If a Lender or the
LC Issuer determines the amount of capital required or expected to be maintained
by such Lender or the LC Issuer, any Lending Installation of such Lender or the
LC Issuer, or any corporation controlling such Lender or the LC Issuer is
increased as a result of a Change, then, within 15 days of demand by such Lender
or the LC Issuer, the Borrower shall pay such Lender or the LC Issuer the amount
necessary to compensate for any shortfall in the rate of return on the portion
of such increased capital which such Lender or the LC Issuer determines is
attributable to this Agreement, its Outstanding Credit Exposure or its
Commitment to make Loans and issue or participate in Facility LCs, as the case
may be, hereunder (after taking into account such Lender's or the LC Issuer's
policies as to capital adequacy) provided, however, that no Lender or LC Issuer
shall be entitled to receive any such increased costs to the extent incurred
more than 180 days prior to the date that such Lender or LC Issuer makes such a
demand, provided further, that if a Change giving rise to such increased cost is
retroactive then the 180 day period referred to above shall be extended to
include the period of retroactive effect thereof. "Change" means (i) any change
after the date of this Agreement in the Risk-Based Capital Guidelines or (ii)
any adoption of or change in any other law, governmental or quasi-governmental
rule, regulation, policy, guideline, interpretation, or directive (whether or
not having the force of law) after the date of this Agreement which affects the
amount of capital required or expected to be maintained by any Lender or the LC
Issuer or any Lending Installation or any corporation controlling any Lender or
the LC Issuer. "Risk-Based Capital Guidelines" means (i) the risk-based capital
guidelines in effect in the United States on the date of this Agreement,
including transition rules, and (ii) the corresponding capital regulations
promulgated by regulatory authorities outside the United States implementing the
July 1988 report of the Basle Committee on Banking Regulation and Supervisory
Practices Entitled "International Convergence of Capital Measurements and
Capital Standards," including transition rules, and any amendments to such
regulations adopted prior to the date of this Agreement.
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SECTION 3.03. Availability of Types of Advances. If any Lender determines
that maintenance of its Eurodollar Loans at a suitable Lending Installation
would violate any applicable law, rule, regulation, or directive, whether or not
having the force of law, or if the Required Lenders determine that (i) deposits
of a type and maturity appropriate to match fund Eurodollar Advances are not
available or (ii) the interest rate applicable to Eurodollar Advances does not
accurately reflect the cost of making or maintaining Eurodollar Advances, then
the Agent shall suspend the availability of Eurodollar Advances and require any
affected Eurodollar Advances to be repaid or converted to Floating Rate
Advances, subject to the payment of any funding indemnification amounts required
by Section 3.04 until such time as any Affected Lender is replaced in accordance
with Section 2.21, or until such time as the Required Lenders shall determine
such conditions no longer exist.
SECTION 3.04. Funding Indemnification. If any payment of a Eurodollar
Advance occurs on a date which is not the last day of the applicable Interest
Period, whether because of acceleration, prepayment or otherwise, or a
Eurodollar Advance is not made on the date specified by the Borrower for any
reason other than default by the Lenders, the Borrower will indemnify each
Lender for any loss or cost incurred by it resulting therefrom, including,
without limitation, any loss or cost in liquidating or employing deposits
acquired to fund or maintain such Eurodollar Advance.
SECTION 3.05. Taxes. (i) All payments by the Borrower to or for the
account of any Lender, the LC Issuer or the Agent hereunder or under any Note or
Facility LC Application shall be made free and clear of and without deduction
for any and all Taxes. If the Borrower shall be required by law to deduct any
Taxes from or in respect of any sum payable hereunder to any Lender, the LC
Issuer or the Agent, (a) the sum payable shall be increased as necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section) such Lender, the LC Issuer or the
Agent (as the case may be) receives an amount equal to the sum it would have
received had no such deductions been made, (b) the Borrower shall make such
deductions, (c) the Borrower shall pay the full amount deducted to the relevant
authority in accordance with applicable law and (d) the Borrower shall furnish
to the Agent the original or a certified copy of a receipt evidencing payment
thereof within 30 days after such payment is made.
(ii) In addition, the Borrower hereby agrees to pay any present or future
stamp or documentary taxes and any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder or under any Note or
Facility LC Application or from the execution or delivery of, or otherwise with
respect to, this Agreement or any Note or Facility LC Application ("Other
Taxes").
(iii) The Borrower hereby agrees to indemnify the Agent, the LC Issuer and
each Lender for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed on amounts payable under this
Section) paid by the Agent, the LC Issuer or such Lender and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto. Payments due under this indemnification shall be made within 30 days of
the date the Agent, the LC Issuer or such Lender makes demand therefor pursuant
to Section 3.05.
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(iv) Each Lender that is not incorporated under the laws of the United
States of America or a state thereof (each a "Non-U.S. Lender") agrees that it
will, not less than ten Business Days after the date of this Agreement, (i)
deliver to each of the Borrower and the Agent two duly completed copies of
United States Internal Revenue Service Form 1001 or 4224 (or, alternatively, the
applicable form from the W-8 family of forms), certifying in any case that such
Lender is entitled to receive payments under this Agreement without deduction or
withholding of any United States federal income taxes, and (ii) deliver to each
of the Borrower and the Agent a United States Internal Revenue Form W-8 or W-9,
as the case may be, and certify that it is entitled to an exemption from United
States backup withholding tax. Each Non-U.S. Lender further undertakes to
deliver to each of the Borrower and the Agent (x) renewals or additional copies
of such form (or any successor form) on or before the date that such form
expires or becomes obsolete, and (y) after the occurrence of any event requiring
a change in the most recent forms so delivered by it, such additional forms or
amendments thereto as may be reasonably requested by the Borrower or the Agent.
All forms or amendments described in the preceding sentence shall certify that
such Lender is entitled to receive payments under this Agreement without
deduction or withholding of any United States federal income taxes, unless an
event (including without limitation any change in treaty, law or regulation) has
occurred prior to the date on which any such delivery would otherwise be
required which renders all such forms inapplicable or which would prevent such
Lender from duly completing and delivering any such form or amendment with
respect to it and such Lender advises the Borrower and the Agent that it is not
capable of receiving payments without any deduction or withholding of United
States federal income tax.
(v) For any period during which a Non-U.S. Lender has failed to provide
the Borrower with an appropriate form pursuant to clause (iv), above (unless
such failure is due to a change in treaty, law or regulation, or any change in
the interpretation or administration thereof by any governmental authority,
occurring subsequent to the date on which a form originally was required to be
provided), such Non-U.S. Lender shall not be entitled to indemnification under
this Section with respect to Taxes imposed by the United States; provided that,
should a Non-U.S. Lender which is otherwise exempt from or subject to a reduced
rate of withholding tax become subject to Taxes because of its failure to
deliver a form required under clause (iv), above, the Borrower shall take such
steps as such Non-U.S. Lender shall reasonably request to assist such Non-U.S.
Lender to recover such Taxes.
(vi) Any Lender that is entitled to an exemption from or reduction of
withholding tax with respect to payments under this Agreement or any Note
pursuant to the law of any relevant jurisdiction or any treaty shall deliver to
the Borrower (with a copy to the Agent), at the time or times prescribed by
applicable law, such properly completed and executed documentation prescribed by
applicable law as will permit such payments to be made without withholding or at
a reduced rate.
(vii) If the U.S. Internal Revenue Service or any other governmental
authority of the United States or any other country or any political subdivision
thereof asserts a claim that the Agent did not properly withhold tax from
amounts paid to or for the account of any Lender (because the appropriate form
was not delivered or properly completed, because such Lender failed to notify
the Agent of a change in circumstances which rendered its exemption from
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withholding ineffective, or for any other reason), such Lender shall indemnify
the Agent fully for all amounts paid, directly or indirectly, by the Agent as
tax, withholding therefor, or otherwise, including penalties and interest, and
including taxes imposed by any jurisdiction on amounts payable to the Agent
under this subsection, together with all costs and expenses related thereto
(including attorneys fees and time charges of attorneys for the Agent, which
attorneys may be employees of the Agent). The obligations of the Lenders under
this Section shall survive the payment of the Obligations and termination of
this Agreement.
SECTION 3.06. Lender Statements; Survival of Indemnity. To the extent
reasonably possible, each Lender shall designate an alternate Lending
Installation with respect to its Eurodollar Loans to reduce any liability of the
Borrower to such Lender under Sections 3.01, 3.02 and 3.05 or to avoid the
unavailability of Eurodollar Advances under Section 3.03, so long as such
designation is not, in the judgment of such Lender, disadvantageous to such
Lender. Each Lender shall deliver a written statement of such Lender to the
Borrower (with a copy to the Agent) as to the amount due, if any, under Section
3.01, 3.02, 3.04 or 3.05. Such written statement shall set forth in reasonable
detail the calculations upon which such Lender determined such amount and shall
be final, conclusive and binding on the Borrower in the absence of manifest
error. Determination of amounts payable under such Sections in connection with a
Eurodollar Loan shall be calculated as though each Lender funded its Eurodollar
Loan through the purchase of a deposit of the type and maturity corresponding to
the deposit used as a reference in determining the Eurodollar Rate applicable to
such Loan, whether in fact that is the case or not. Unless otherwise provided
herein, the amount specified in the written statement of any Lender shall be
payable on demand after receipt by the Borrower of such written statement. The
obligations of the Borrower under Sections 3.01, 3.02, 3.04 and 3.05 shall
survive payment of the Obligations and termination of this Agreement.
ARTICLE IV
CONDITIONS PRECEDENT
SECTION 4.01. Initial Credit Extension. The Lenders shall not be required
to make the initial Credit Extension hereunder unless and until the following
conditions precedent shall have been satisfied:
(a) the Borrower has paid all fees hereunder to the extent then due
and payable and all costs and expenses of the Agent (including reasonable
counsel fees and disbursements) incurred through the date hereof.
(b) The Borrower has furnished to the Agent with sufficient
copies for the Lenders:
(i) Copies of the articles or certificate of incorporation of each Loan
Party, together with all amendments, and a certificate of good
standing, each certified by the appropriate governmental officer in
its jurisdiction of incorporation.
(ii) Copies, certified by the Secretary or Assistant Secretary of each
Loan Party, of its by-laws and of its Board of Directors'
resolutions and of Governmental
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Approvals or resolutions or actions of any other body, if any,
authorizing the execution of the Loan Documents to which such Loan
Party is a party.
(iii) An incumbency certificate, executed by the Secretary or Assistant
Secretary of each Loan Party, which shall identify by name and title
and bear the signatures of the Authorized Officers and any other
officers of such Loan Party authorized to sign the Loan Documents to
which such Loan Party is a party, upon which certificate the Agent
and the Lenders shall be entitled to rely until informed of any
change in writing by such Loan Party.
(iv) A certificate, signed by the chief financial officer or the
Treasurer of the Borrower, stating that on the date of the initial
Credit Extension (A) the representations and warranties contained in
Article V of this Agreement are true and correct and (B) no Default
or Unmatured Default has occurred and is continuing.
(v) A certificate, signed by the chief financial officer or the
Treasurer of the Guarantor, stating that on the date of the initial
Credit Extension (A) the representations and warranties contained in
Section 6 of the Guaranty are true and correct and (B) no Default or
Unmatured Default has occurred and is continuing.
(vi) A written opinion of the counsel to the Loan Parties, addressed to
the Lenders in substantially the form of Exhibit A.
(vii) Any Notes requested by a Lender pursuant to Section 2.13 payable to
the order of each such requesting Lender.
(viii) Written money transfer instructions, in substantially the form of
Exhibit D, addressed to the Agent and signed by an Authorized
Officer, together with such other related money transfer
authorizations as the Agent may have reasonably requested.
(ix) Information satisfactory to the Agent and the Required Lenders
regarding the Loan Parties' Year 2000 Program.
(x) The Guaranty, duly executed by the Guarantor.
(xi) Evidence satisfactory to the Agent that the Existing Facility, and
all amounts accrued and outstanding thereunder (whether for
principal, interest, fees or other amounts) shall have been paid in
full.
(xii) Such other documents as any Lender or its counsel may have
reasonably requested.
(xiii) If the initial Credit Extension will be the issuance of a Facility
LC, a properly completed Facility LC Application.
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SECTION 4.02. Each Credit Extension. The Lenders shall not be required
to make any Credit Extension unless on the applicable Credit Extension Date:
(i) There exists no Default or Unmatured Default.
(ii) The representations and warranties contained in Article V and Section
6 of the Guaranty are true and correct in all material respects as of
such Credit Extension Date (other than, in the case of any Credit
Extension that does not increase the aggregate Outstanding Credit
Exposure of the Lenders, the representations contained in the second
sentence of Section 5.05 hereof and the second sentence of Section
6(g) of the Guaranty) except to the extent any such representation or
warranty is stated to relate solely to an earlier date, in which case
such representation or warranty shall have been true and correct on
and as of such earlier date.
(iii) All legal matters incident to the making of such Credit Extension
shall be satisfactory to the Lenders and their counsel.
Each Borrowing Notice or request for issuance of a Facility LC with respect to
each such Credit Extension shall constitute a representation and warranty by
each Loan Party that the conditions contained in Sections 4.02(i) and (ii) have
been satisfied. Any Lender, through the Agent, may require a duly completed
compliance certificate in substantially the form of Exhibit B as a condition to
making a Credit Extension.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lenders that:
SECTION 5.01. Existence and Standing. Each Loan Party is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Illinois, and is duly qualified to do business and is in good standing
as a foreign corporation in each jurisdiction in which the nature of the
business conducted or the property owned, operated or leased by it requires such
qualification and where the failure to so qualify might have a Material Adverse
Effect, and has full power and authority to own and hold under lease its
property and to conduct its business substantially as presently conducted by it.
SECTION 5.02. Authorization. The execution, delivery and performance by
each Loan Party of the Loan Documents to which it is a party are within such
Loan Party's corporate powers, have been duly authorized by all necessary
corporate action and do not, and will not, (i) contravene such Loan Party's
Articles of Incorporation (or other comparable charter document) or By-laws, law
or any contractual or legal restriction binding on or affecting such Loan Party
or its properties, (ii) result in a breach of, or constitute a default under,
any indenture or loan or credit agreement or any other agreement, lease or
instrument to which such Loan Party is a party or by which it or its properties
may be bound or affected, or (iii) result in or require the creation
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of any Lien upon or with respect to any of its properties (except as
contemplated in Section 2.19(l) with respect to any Facility LC Collateral
Account).
SECTION 5.03. Governmental Approval. No Governmental Approval is required
for the due execution, delivery and performance by any Loan Party of any Loan
Document to which it is a party, other than such approvals as may be required in
order for the Unicom/PECO Merger to be consummated (the "Merger Approvals"). The
Merger Approvals are and shall be in full force and effect on and after the
effective date of the Unicom/PECO Merger.
SECTION 5.04. Validity. This Agreement has been duly executed and
delivered by the Borrower and is, and the Notes and the other Loan Documents to
which the Borrower is a party when delivered hereunder will be, legal, valid and
binding obligations of the Borrower enforceable against the Borrower in
accordance with their respective terms. The Guaranty has been duly executed and
delivered by the Guarantor and is the legal, valid and binding obligation of the
Guarantor enforceable against the Guarantor in accordance with its terms.
SECTION 5.05. Financial Statements. The balance sheets of the Borrower
and its Subsidiaries as at September 30, 1999, and the related statement of
income, cash flows and retained earnings of the Borrower and its Subsidiaries
for the periods then ended, copies of each of which have been furnished to each
Lender, fairly present the financial condition of the Borrower and its
Subsidiaries as at such date and the results of the operations of the Borrower
and its Subsidiaries for the period ended on such date, all in accordance with
GAAP. Since September 30, 1998, there has been no material adverse change in the
financial condition, results of operations, operations, business or Property of
the Borrower and its Subsidiaries, taken as a whole, or in the Borrower's
ability to perform any of its obligations under this Agreement, the Notes and
the other Loan Documents to which it is a party.
SECTION 5.06. Litigation. There is no pending or threatened action or
proceeding affecting the Borrower, the Guarantor or any of their respective
Subsidiaries before any court, governmental agency or arbitrator that might
reasonably be expected to result in a Material Adverse Effect, or that relates
to this Agreement or the other Loan Documents or any transaction contemplated
hereby or thereby.
SECTION 5.07. Exchange Act. No proceeds of any Credit Extension will be
used to acquire any equity security of a class which is registered pursuant to
Section 12 of the Exchange Act or in any transaction subject to the requirements
of Section 13 or 14 of the Exchange Act.
SECTION 5.08. Regulation U. The Borrower is not engaged in the business of
extending credit for the purpose of buying or carrying margin stock (within the
meaning of Regulation U issued by the Board of Governors of the Federal Reserve
System), and no proceeds of any Advance and no Facility LC will be used to buy
or carry any margin stock or to extend credit to others for the purpose of
buying or carrying any margin stock.
SECTION 5.09. Government Regulations. No Loan Party nor any Subsidiary
of any Loan Party is in violation of any law or governmental regulation or court
decree or order which might reasonably be expected to result in a Material
Adverse Effect.
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SECTION 5.10. Taxes. Each Loan Party and its Subsidiaries has filed all
tax returns and reports required by law to have been filed by it and has paid
all taxes and governmental charges thereby shown to be owing, except any such
taxes or charges which are being contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP shall have
been set aside on its books. No tax Liens (other than Liens for taxes not yet
due and payable or being contested in good faith by appropriate proceedings and
for which adequate reserves in accordance with GAAP shall have been set aside on
its books) have been filed with respect to any Loan Party or any of its
Subsidiaries and, to the knowledge of the Borrower, no claims with respect to
any such taxes or charges are being asserted which, individually or in the
aggregate, could result in a Material Adverse Effect.
SECTION 5.11. ERISA. 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 September 30 for which financial statements have
been delivered to the Lenders in accordance with Section 6.01 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.
SECTION 5.12. Accuracy of Information. All factual information heretofore
or contemporaneously furnished by or on behalf of the Loan Parties in writing to
any Lender or the Agent for purposes of or in connection with this Agreement,
any other Loan Document or any transaction contemplated hereby is, and all other
such factual information hereafter furnished by or on behalf of the Loan Parties
to the Agent or any Lender will be, true and accurate in every material respect
on the date as of which such information is dated or certified, and not
incomplete by omitting to state any material fact necessary to make such
information not misleading.
SECTION 5.13. Public Utility Holding Company Act; Investment Company Act.
The Borrower is not a "public utility holding company" within the meaning of the
Public Utility Holding Company Act of 1935, as amended; and neither Loan Party
is an "investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended, or an
"investment advisor" within the meaning of the Investment Advisors Act of 1940,
as amended. The Guarantor is a "public utility holding company" within the
meaning of the Public Utility Holding Company Act of 1935, as amended, but is
exempt from the provisions thereof (other than Section 9(a) thereof) by virtue
of an order issued by the Securities and Exchange Commission on July 22, 1994.
Such exemption is in full force and effect and, except for proceedings in
connection with the transactions contemplated by the Unicom/PECO Merger
Agreement, the Guarantor is not aware of any existing or proposed proceedings
contemplating the revocation or modification of such exemption.
SECTION 5.14. Year 2000. Each Loan Party has made a full and complete
assessment of the Year 2000 Issues and has a realistic and achievable program
for remediating the Year 2000 Issues on a timely basis (the "Year 2000
Program"). Based on such assessment and on the Year 2000 Program, the Borrower
does not reasonably anticipate that Year 2000 Issues will have a Material
Adverse Effect.
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ARTICLE VI
COVENANTS
During the term of this Agreement, unless the Required Lenders shall
otherwise consent in writing:
SECTION 6.01. Reporting Requirements. The Borrower will furnish to each
Lender:
(i) 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 Subsidiaries as of the
end of such quarter and consolidated statements of income, retained
earnings and cash flows of the Borrower and its 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 the chief financial officer or the Treasurer
of the Borrower as having been prepared in accordance (in all material
respects) with GAAP consistently applied, except for (A) the absence of
notes thereto and (B) changes in accounting principles required by GAAP;
(ii) as soon as available and in any event within 120 days after the
end of each fiscal year of the Borrower and its Subsidiaries, a
consolidated balance sheet of the Borrower and its Subsidiaries as at the
end of such fiscal year and consolidated statements of income, retained
earnings and cash flows of the Borrower and its Subsidiaries for such
fiscal year, certified in a manner acceptable to the Agent by Arthur
Andersen LLP or another nationally-recognized independent public accounting
firm selected by the Borrower and acceptable to the Agent;
(iii) concurrently with the financial statements for each quarterly
accounting period and for each fiscal year of the Borrower furnished
pursuant to paragraphs (i) and (ii) above, (A) a certificate of the chief
financial officer, any vice president responsible for financial or
accounting matters, or the Treasurer of the Borrower stating that (1) the
Borrower has performed and observed all of, and the Borrower is not in
default in the performance or observance of any of, the terms, covenants,
agreements and conditions of this Agreement or any other Loan Document or,
if the Borrower shall be in default, specifying all such defaults and the
nature thereof, of which the signer of such certificate may have knowledge,
and (2) the signer has obtained no knowledge of any Unmatured Default or
Default except as specified in such certificate, and (B) an analysis
prepared and certified by the chief financial officer, any vice president
responsible for financial or accounting matters, or the Treasurer of the
Borrower of the covenant contained in Section 6.13 containing all
information necessary for determining compliance by the Borrower with such
covenant;
(iv) as soon as available and in any event within 120 days after the
end of each fiscal year of the Borrower and concurrently with the financial
statements furnished pursuant to paragraph (ii), above, a written statement
of the independent public accountants that certified such financial
statements stating that, in making the
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examination necessary for their certification of such financial statements,
they have obtained no knowledge of any Unmatured Default or Default by the
Borrower in the observance of any of the covenants contained in Sections
6.12, 6.13, 6.14, 6.15, 6.16, 6.17, 6.18, 6.19 and 6.20 or, if such
accountants shall have obtained knowledge of any such Unmatured Default or
Default, specifying all such Unmatured Defaults and Defaults and the nature
thereof, it being understood that they shall not be liable directly or
indirectly for any failure to obtain knowledge of any Unmatured Default or
Default;
(v) as soon as possible and in any event within five days after the
Guarantor becomes aware of the commencement of litigation against the
Guarantor or any of its Subsidiaries that may result in a Material Adverse
Effect or that questions the validity or enforceability of any Loan
Document against the Borrower or the Guarantor, notice of such litigation
describing in reasonable detail the facts and circumstances concerning such
litigation and the Guarantor's, or such Subsidiary's, as the case may be,
proposed actions in connection therewith; provided, that delivery of a copy
of the Guarantor's current report on Form 8-K describing any such
litigation shall be deemed to satisfy such requirement unless the Agent, or
any Lender acting through the Agent, shall request any additional
information relating to such litigation;
(vi) if the Borrower has any class of securities registered under the
Exchange Act, then promptly after the sending or filing thereof, copies of
all reports which the Borrower sends to any of its security holders, and
copies of all reports and registration statements (other than registration
statements related to employee benefits plans) which the Borrower or any of
its Subsidiaries files with the Securities and Exchange Commission or any
national securities exchange;
(vii) 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;
(viii) 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;
(ix) 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;
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(x) as soon as possible and in any event within ten days after the
Borrower knows or should have reason to know of the occurrence of each
Unmatured Default or Default continuing on the date of such statement, a
statement of the chief financial officer, any vice president responsible
for financial or accounting matters, or the Treasurer of the Borrower
setting forth details of such Unmatured Default or Default and the action
that the Borrower has taken and proposes to take with respect thereto; and
(xi) such other information respecting the business, assets, revenues,
financial condition, results of operations, operations, business, Property
or prospects of the Borrower or any of its Subsidiaries as the Agent or any
Lender, through the Agent, may from time to time reasonably request.
SECTION 6.02. Preservation of Corporate Existence, Etc. The Borrower
will preserve and maintain, and cause each of its Subsidiaries to preserve and
maintain, its legal existence in the jurisdiction of its organization and
qualify and remain qualified as a foreign organization in each jurisdiction in
which such qualification is reasonably necessary in view of its business and
operations or the ownership of its properties, and preserve, renew and keep in
full force and effect the rights, privileges and franchises necessary or
desirable in the normal conduct of its business; provided, however, that neither
the Borrower nor any such Subsidiary shall be required to preserve and maintain
any such right, privilege or franchise, and no Subsidiary shall be required to
preserve and maintain its corporate existence, unless the failure to do so would
have a Material Adverse Effect.
SECTION 6.03. Compliance with Laws, Etc. The Borrower will comply, and
cause each of its Subsidiaries to comply, in all material respects with all
Applicable Laws, such compliance to include compliance with ERISA and
Environmental Laws.
SECTION 6.04. Maintenance of Insurance, Etc. The Borrower will maintain,
and cause each of its Subsidiaries to maintain, such insurance as may be
required by law and such other insurance, to the extent and against such hazards
and liabilities, as is customarily maintained by companies similarly situated.
SECTION 6.05. Inspection Rights. The Borrower will at any reasonable
time and from time to time as the Agent or any Lender may reasonably request,
permit the Agent, each Lender or any agents or representatives thereof to
examine and make copies of and abstracts from the records and books of account
of, and visit the properties of, the Borrower and any of its Subsidiaries, and
to discuss the affairs, finances and accounts of the Borrower and any of its
Subsidiaries with any of their respective officers or directors; provided,
however, that prior to the disclosure of any information or materials of the
Borrower or its Subsidiaries relating to customers, pricing methods or formulae,
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
containing other customary terms.
SECTION 6.06. Maintaining of Books. The Borrower will maintain, and
cause each of its Subsidiaries to maintain, complete and accurate books of
record and account in which
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entries shall be made of all financial transactions and the assets and business
of the Borrower and each of its Subsidiaries in accordance with GAAP.
SECTION 6.07. Maintenance of Properties. The Borrower will cause all
properties used or useful in the conduct of the business of the Borrower or any
of its Subsidiaries to be maintained and kept in reasonable condition, repair
and working order, and cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Borrower may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; except
where the failure to do so would not have a Material Adverse Effect.
SECTION 6.08. Taxes and Liabilities. The Borrower will pay, and cause
each of its Subsidiaries to pay, when due all taxes, assessments, governmental
charges and other liabilities imposed upon it or its property, except to the
extent contested in good faith and by appropriate proceedings and in respect of
which adequate reserves for the payment thereof have been set aside by the
Borrower or such Subsidiary, as the case may be, in accordance with GAAP.
SECTION 6.09. Use of Proceeds. The Borrower will use the proceeds of each
Credit Extension hereunder for general corporate purposes, including, without
limitation, financing investments in non-public utility-regulated generation,
energy supply and energy-service-related businesses and projects, commercial
paper back-up and intercompany advances to the Guarantor in an aggregate amount
not to exceed $25,000,000 at any one time outstanding.
SECTION 6.10. 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 Required 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.
SECTION 6.11. Year 2000. The Borrower will take and will cause each of
its Subsidiaries to take all such actions as are reasonably necessary to
successfully implement the Year 2000 Program and to assure that Year 2000 Issues
will not have a Material Adverse Effect. At the request of the Agent, the
Borrower will provide a description of the Year 2000 Program, together with any
updates or progress reports with respect thereto.
SECTION 6.12. Borrower Stock. The Borrower will not permit any of its
Subsidiaries to purchase, redeem, retire, or otherwise acquire for value any
shares of capital stock of the Borrower, or any warrants, rights, or options to
acquire any such shares, now or hereafter outstanding.
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SECTION 6.13. Indebtedness. The Borrower will not create, incur, assume
or suffer to exist any Indebtedness, other than (without duplication) (i)
Indebtedness hereunder and under the Notes and the other Loan Documents, (ii)
unsecured Contingent Obligations (other than in respect of Letters of Credit
issued pursuant to Section 2.19 hereof) in an aggregate amount at any one time
outstanding not to exceed the excess of (A) $700,000,000 over (B) the amount of
Contingent Obligations incurred by the Guarantor pursuant to Section 8(d)(iii)
of the Guaranty, and (iii) unsecured intercompany advances from the Guarantor
subordinated in all respects to any and all Indebtedness hereunder and under the
Notes upon the terms set forth in Exhibit G hereto; provided, however, that,
notwithstanding the foregoing, the aggregate amount of Indebtedness of the
Borrower and its Subsidiaries and of the Guarantor at any one time outstanding
shall not exceed $900,000,000; provided further, that for purposes of this
Section, the term "Indebtedness" shall not include the Unicom Investment Inc.
Debt.
SECTION 6.14. Investments in Other Persons. The Borrower will not make,
or permit any of its Subsidiaries to make, any loan or advance to any Person or
purchase or otherwise acquire any capital stock, obligations or other securities
of, make any capital contribution to, or otherwise invest in, any Person, except
that (i) so long as no Unmatured Default or Default has occurred and is
continuing, (A) the Borrower may make capital contributions and intercompany
advances to any of its Subsidiaries, and (B) the Borrower or any of its
Subsidiaries may make loans or advances to or other investments in any other
Person to the extent that foreclosure upon any such equity investment or the
stock or assets of the Person to which any such loan or advance was made would
not have a Material Adverse Effect and (ii) the Borrower may make intercompany
advances to the Guarantor in an aggregate amount not to exceed $25,000,000 at
any one time outstanding.
SECTION 6.15. Distributions. The Borrower will not upon the occurrence
and during the continuance of a Default, declare or pay, directly or indirectly,
any dividend, payment or other distribution of assets, properties, cash, rights,
obligations or securities on account of any share of any class of capital stock
of the Borrower, or purchase, redeem, retire, or otherwise acquire for value any
shares of any class of capital stock of the Borrower or any warrants, rights, or
options to acquire any such shares, now or hereafter outstanding, or make any
distribution of assets to any of its shareholders.
SECTION 6.16. Liens, Etc. The Borrower will not create or suffer to
exist, or permit any of its Subsidiaries to create or suffer to exist, any lien,
security interest, or other charge or encumbrance, or any other type of
preferential arrangement, upon or with respect to any of its properties
(including, without limitation, the capital stock of or any other equity
interest in any of its Subsidiaries except to the extent such lien is created to
secure obligations in respect of Nonrecourse Indebtedness), whether now owned or
hereafter acquired, or assign, or permit any of its Subsidiaries to assign, any
right to receive income, in each case to secure or provide for the payment of
any Indebtedness of any Person (any of the foregoing being referred to herein as
a "Lien"), other than (i) Liens imposed by law, such as carriers',
warehousemen's and mechanics' Liens and other similar Liens arising in the
ordinary course of business, (ii) Liens on the capital stock of or any other
equity interest in any of the Borrower's Subsidiaries or any such Subsidiary's
assets to secure the payment and performance of Indebtedness 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
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pursuant to any such Liens on the Borrower's equity interests in its
Subsidiaries), (iii) Liens created in connection with the acquisition by
Subsidiaries of assets and the continuation of such Liens in connection with any
refinancing of the Indebtedness secured by such Liens, provided such Liens are
limited to the assets so acquired, (iv) Liens on the assets and/or rights to
receive income of any Person that exist at the time such Person becomes a
Subsidiary and the continuation of such Liens in connection with any refinancing
or restructuring of the obligations secured by such Liens, (v) Liens created in
connection with the incurrence by Subsidiaries from time to time of an amount
not to exceed $375,000,000 of Indebtedness at any one time outstanding and the
continuation of such Liens in connection with any refinancing of such
Indebtedness, (vi) Liens on the capital stock or other equity interest
evidencing an investment permitted under Section 6.14(i)(B), provided such Liens
are created in connection with the financing of the business of such Person,
(vii) 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 GAAP,
(viii) pledges or deposits to secure obligations of Subsidiaries to energy
suppliers incurred in the ordinary course of business, (ix) Liens granted
hereunder to the Lenders and the LC Issuer in respect of the Facility LC
Collateral Account, (x) Liens, if any, arising in connection with Capitalized
Leases only on the equipment or property subject to such Capitalized Lease, (xi)
attachment, judgment or similar Liens arising in connection with court
proceedings, provided, that with respect to any Lien against the Guarantor
involving an amount of $10,000,000 or more, and against the Borrower and its
Subsidiaries involving an amount of $5,000,000 or more, the execution or other
enforcement of such Lien 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, and (xii)
Liens of the Borrower or an Affiliate created, directly or indirectly, in
connection with the acquisition of the Replacement Property or created, directly
or indirectly, in connection with the Replacement Property Contracts.
SECTION 6.17. Mergers; Sale of Assets; Etc. The Borrower will not (i)
merge or consolidate with or into any Person, or (ii) convey, transfer, lease or
otherwise dispose of, or permit any of its Subsidiaries to 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, any
assets of the Borrower and its Subsidiaries (measured on a consolidated basis)
(whether now owned or hereafter acquired), unless (A) in the case of a merger
involving the Borrower, immediately after giving effect thereto, (1) no event
shall occur and be continuing that constitutes an Unmatured Default or a
Default, (2) the Borrower is the surviving corporation, and (3) the Borrower and
its Subsidiaries shall not be liable with respect to any Indebtedness or allow
their respective properties to be subject to any Lien which the Borrower or any
such Subsidiary could not become liable with respect to or allow its property to
become subject to under this Agreement on the date of such transaction, or (B)
in the case of any disposition of assets or any sale/leaseback transaction,
immediately after giving effect thereto, no event shall have occurred and be
continuing that constitutes an Unmatured Default or a Default (including,
without limitation, any Unmatured Default or Default that would result from a
breach by the Guarantor of Section 7(i) of the Guaranty).
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SECTION 6.18. Other Agreements. The Borrower will not enter into, or
permit any of its Subsidiaries to enter into, any agreement containing any
provision that would be violated or breached by the performance of its
obligations hereunder or under any instrument or document delivered or to be
delivered by the Borrower hereunder or in connection herewith.
SECTION 6.19. Regulation U. The Borrower will not use or permit any
Facility LC or any proceeds of any Advance to be used, whether directly or
indirectly, for the purpose, whether immediate, incidental, or ultimate, of
"buying or carrying any margin stock" within the meaning of Regulation U of the
Board of Governors of the Federal Reserve System.
SECTION 6.20. Transactions with Affiliates. The Borrower will not 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 that was not an Affiliate of the Borrower or (ii) such transaction is
conducted pursuant to the Affiliated Interests Agreement, dated as of December
4, 1995, among Commonwealth, the Guarantor and the other entities named therein,
as it may be amended or modified from time to time; provided, the foregoing
shall not apply to (x) the transactions contemplated by the Asset Sale
Agreement, dated as of May 11, 1999, between Commonwealth and Unicom Investment
Inc. relating to the sale of Commonwealth's fossil generation assets and the
incurrence of the Unicom Investment Inc. Debt, (y) the transfer by Commonwealth
to Unicom Technology Development Inc., an Illinois corporation, of up to
$275,000,000 of the notes representing the Unicom Investment Inc. Debt under
said Asset Sale Agreement along with an obligation in respect of an equivalent
amount of Commonwealth's contingent obligation to pay post-retirement health
care benefits, and (z) transactions associated with a transfer of Commonwealth's
nuclear generating stations to a Subsidiary of the Guarantor.
ARTICLE VII
DEFAULTS
The occurrence of any one or more of the following events shall constitute
a Default:
SECTION 7.01. The Borrower shall fail to pay any principal of any Note, or
any reimbursement obligation in respect of any drawing under any Facility LC,
when the same becomes due and payable; or
SECTION 7.02. The Borrower shall fail to pay any interest on any Note, any
fees or any other amount due under this Agreement for two Business Days after
the same becomes due and payable; or
SECTION 7.03. Any representation or warranty made or deemed made by the
Borrower herein or in any of the other Loan Documents or by the Borrower (or any
of its officers) in connection with this Agreement or any of the Loan Documents,
or any representation or warranty made or deemed made by the Guarantor in the
Guaranty or by the Guarantor (or any of its officers) in connection with the
Guaranty, shall prove to have been incorrect in any material respect when made
or deemed made; or
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SECTION 7.04. (i) the Borrower shall fail to perform or observe any term,
covenant, or agreement contained in Section 6.01(v), 6.09, 6.12, 6.13, 6.14,
6.15, 6.16, 6.17, 6.18, 6.19 or 6.20; (ii) the Guarantor shall fail to perform
or observe any term, covenant or agreement contained in Section 2, 7(i), 7(j),
7(k) or 8 of the Guaranty; (iii) the Borrower shall fail to perform or observe
any other term, covenant, or agreement contained in this Agreement or in any
other Loan Document on its part to be performed or observed (and not
constituting a Default under any of the other provisions of this Section) if
such failure shall remain unremedied for 30 days after written notice thereof
shall have been given to the Borrower by the Agent; or (iv) the Guarantor shall
fail to perform or observe any other term, covenant, or agreement contained in
the Guaranty on its part to be performed or observed (and not constituting a
Default under any of the other provisions of this Section) if such failure shall
remain unremedied for 30 days after written notice thereof shall have been given
to the Guarantor by the Agent; or
SECTION 7.05. Commonwealth shall fail to pay any principal of or premium
or interest on any of its Indebtedness (other than any Nonrecourse Indebtedness)
which is outstanding in a principal amount of at least $25,000,000 in the
aggregate, when the same becomes due and payable (whether by scheduled maturity,
required prepayment, acceleration, demand, or otherwise), and such failure shall
continue after the applicable grace period, if any, specified in the agreement
or instrument relating to such Indebtedness; or any other event shall occur or
condition shall exist under any agreement or instrument relating to any such
Indebtedness and shall continue after the applicable grace period, if any,
specified in such agreement or instrument, if the effect of such event or
condition is to accelerate, or to permit the acceleration of, the maturity of
such Indebtedness; or any such Indebtedness shall be declared to be due and
payable, or required to be prepaid (other than by a regularly scheduled required
prepayment), prior to the stated maturity thereof; or
SECTION 7.06. The Guarantor shall fail to pay any principal of or premium
or interest on any of its Indebtedness (other than any Nonrecourse Indebtedness)
which is outstanding in a principal amount of at least $10,000,000 in the
aggregate, when the same becomes due and payable (whether by scheduled maturity,
required prepayment, acceleration, demand, or otherwise), and such failure shall
continue after the applicable grace period, if any, specified in the agreement
or instrument relating to such Indebtedness; or any other event shall occur or
condition shall exist under any agreement or instrument relating to any such
Indebtedness and shall continue after the applicable grace period, if any,
specified in such agreement or instrument, if the effect of such event or
condition is to accelerate, or to permit the acceleration of, the maturity of
such Indebtedness; or any such Indebtedness shall be declared to be due and
payable, or required to be prepaid (other than by a regularly scheduled required
prepayment), prior to the stated maturity thereof; or
SECTION 7.07. The Borrower or any of its Subsidiaries shall fail to pay
any principal of or premium or interest on any of its Indebtedness (other than
Nonrecourse Indebtedness) which is outstanding in a principal amount of at least
$5,000,000 in the aggregate, when the same becomes due and payable (whether by
scheduled maturity, required prepayment, acceleration, demand, or otherwise),
and such failure shall continue after the applicable grace period, if any,
specified in the agreement or instrument relating to such Indebtedness; or any
other event shall occur or condition shall exist under any agreement or
instrument relating to any such Indebtedness and shall continue after the
applicable grace period, if any, specified in such
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agreement or instrument, if the effect of such event or condition is to
accelerate, or to permit the acceleration of, the maturity of such Indebtedness;
or any such Indebtedness shall be declared to be due and payable, or required to
be prepaid (other than by a regularly scheduled required prepayment), prior to
the stated maturity thereof; or
SECTION 7.08. Either (i) the Guarantor, Commonwealth, the Borrower or any
Significant Subsidiary shall generally fail to pay, or admit in writing its
inability to pay, its debts as they become due, or shall voluntarily commence
any proceeding or file any petition under any bankruptcy, insolvency, or similar
law seeking dissolution, liquidation, or reorganization or the appointment of a
receiver, trustee, custodian, or liquidator for itself or its property, assets,
or business, or to effect a plan or other arrangement with its creditors, or
shall file any answer admitting the jurisdiction of the court and the material
allegations of any involuntary petition filed against it in any bankruptcy,
insolvency, or similar proceeding, or shall be adjudicated bankrupt, or shall
make a general assignment for the benefit of creditors, or shall consent to, or
acquiesce in the appointment of, a receiver, trustee, custodian, or liquidator
for itself or its property, assets, or business, or (ii) corporate action shall
be taken by the Guarantor, Commonwealth, the Borrower or any Significant
Subsidiary for the purpose of effectuating any of the foregoing; or
SECTION 7.09. Involuntary proceedings or an involuntary petition shall be
commenced or filed against the Guarantor, Commonwealth, the Borrower or any
Significant Subsidiary under any bankruptcy, insolvency, or similar law or
seeking the dissolution, liquidation, or reorganization of the Guarantor,
Commonwealth, the Borrower or such Significant Subsidiary (as the case may be)
or the appointment of a receiver, trustee, custodian, or liquidator for the
Guarantor, Commonwealth, the Borrower or such Significant Subsidiary (as the
case may be) or of a substantial part of the property, assets, or business of
the Guarantor, Commonwealth, the Borrower or such Significant Subsidiary (as the
case may be), or any writ, judgment, warrant of attachment, execution, or
similar process shall be issued or levied against a substantial part of the
property, assets, or business of the Guarantor, Commonwealth, the Borrower or
any Significant Subsidiary, and such proceedings or petition shall not be
dismissed, or such writ, judgment, warrant of attachment, execution, or similar
process shall not be released, vacated, or fully bonded, within 60 days after
commencement, filing, or levy, as the case may be; or
SECTION 7.10. Any judgment or order for the payment of money in excess of
(i) $10,000,000 shall be rendered against the Guarantor or any of its
properties, or (ii) $5,000,000 shall be rendered against the Borrower or any
Subsidiary of the Borrower or any of their respective properties, or (iii)
$25,000,000 shall be rendered against Commonwealth or any of its properties,
and, in any case either (A) enforcement proceedings shall have been commenced by
any creditor upon such judgment or order, or (B) there shall be any period
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
SECTION 7.11. 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
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SECTION 7.12. The Borrower or any of its Subsidiaries shall default in the
payment when due, or in the performance or observance of, any Indebtedness
described in clause (iii), (vii), or (viii) of the definition of "Indebtedness"
or any obligation of, or condition agreed to by, the Borrower or such Subsidiary
with respect to any purchase or lease of goods or services (subject to any
applicable grace period and except as waived or to the extent that the existence
of any such default is being contested in good faith by appropriate proceedings
and reserves therefor are being maintained in accordance with GAAP) and such
default might reasonably be expected to result in a Material Adverse Effect; or
SECTION 7.13. The Guarantor shall fail to own directly 100% of the issued
and outstanding shares of capital stock of the Borrower or the Guarantor shall
fail to own directly at least 80% of the issued and outstanding shares of voting
capital stock of Commonwealth (in either case, a "Change of Control"); provided,
however, that the Unicom/PECO Merger shall not constitute a Change of Control.
SECTION 7.14. Any provision of the Guaranty or any of the subordination
provisions of any Indebtedness incurred by the Borrower pursuant to Section
6.13(iii) shall for any reason (except pursuant to the terms thereof) cease to
be valid and binding on the Guarantor or the Guarantor shall so assert in
writing; or
SECTION 7.15. Any provision of any Loan Document to which the Borrower is
a party shall for any reason (except pursuant to the terms thereof) cease to be
valid and binding on the Borrower or the Borrower shall so assert in writing; or
SECTION 7.16. At any time the LC Issuer shall have been served with or
otherwise subjected to a court order, injunction, or other process or decree
issued or granted at the instance of the Borrower restraining or seeking to
restrain the LC Issuer from paying any amount under any Facility LC issued by it
and either (i) there has been a drawing under such Facility LC which the LC
Issuer would otherwise be obligated to pay or (ii) the stated expiration date or
any reduction of the stated amount of such Facility LC has occurred but the
right of the beneficiary to draw thereunder has been extended in connection with
the pendency of the related court action or proceeding; or
SECTION 7.17. The Guarantor shall receive cash dividends from its
Subsidiaries in any two consecutive fiscal quarters of the Guarantor in an
aggregate amount less than $120,000,000.
ARTICLE VIII
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
SECTION 8.01. Acceleration; Facility LC Collateral Account. (i) If any
Default described in Section 7.08 or 7.09 occurs with respect to the Borrower,
the obligations of the Lenders to make Loans hereunder and the obligation and
power of the LC Issuer to issue Facility LCs shall automatically terminate and
the Obligations shall immediately become due and payable without any election or
action on the part of the Agent, the LC Issuer or any Lender and the Borrower
will be and become thereby unconditionally obligated, without any further
notice,
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act or demand, to pay to the Agent an amount in immediately available funds,
which funds shall be held in the Facility LC Collateral Account, equal to the
difference of (x) the amount of LC Obligations at such time, less (y) the amount
on deposit in the Facility LC Collateral Account at such time which is free and
clear of all rights and claims of third parties and has not been applied against
the Obligations (such difference, the "Collateral Shortfall Amount"). If any
other Default occurs, the Required Lenders (or the Agent with the consent of the
Required Lenders) may during the continuance of such Default (a) terminate or
suspend the obligations of the Lenders to make Loans hereunder and the
obligation and power of the LC Issuer to issue Facility LCs, or declare the
Obligations to be due and payable, or both, whereupon the Obligations shall
become immediately due and payable, without presentment, demand, protest or
notice of any kind, all of which the Borrower hereby expressly waives, and (b)
upon notice to the Borrower and in addition to the continuing right to demand
payment of all amounts payable under this Agreement, make demand on the Borrower
to pay, and the Borrower will, forthwith upon such demand and without any
further notice or act, pay to the Agent the Collateral Shortfall Amount, which
funds shall be deposited in the Facility LC Collateral Account.
(ii) If at any time while any Default is continuing, the Agent determines
that the Collateral Shortfall Amount at such time is greater than
zero, the Agent may make demand on the Borrower to pay, and the
Borrower will, forthwith upon such demand and without any further
notice or act, pay to the Agent the Collateral Shortfall Amount,
which funds shall be deposited in the Facility LC Collateral Account.
(iii) The Agent may at any time or from time to time after funds are
deposited in the Facility LC Collateral Account, apply such funds to
the payment of the Obligations and any other amounts as shall from
time to time have become due and payable by the Borrower to the
Lenders or the LC Issuer under the Loan Documents.
(iv) At any time while any Default is continuing, neither the Borrower nor
any Person claiming on behalf of or through the Borrower shall have
any right to withdraw any of the funds held in the Facility LC
Collateral Account. After all of the Obligations have been
indefeasibly paid in full and the Aggregate Commitment has been
terminated, any funds remaining in the Facility LC Collateral Account
shall be returned by the Agent to the Borrower or paid to whomever
may be legally entitled thereto at such time.
(v) If, within 30 days after acceleration of the maturity of the
Obligations or termination of the obligations of the Lenders to make
Loans and the obligation and power of the LC Issuer to issue Facility
LCs hereunder as a result of any Default (other than any Default as
described in Section 7.08 or 7.09 with respect to the Borrower) and
before any judgment or decree for the payment of the Obligations due
shall have been obtained or entered, the Required Lenders (in their
sole discretion) shall so direct, the Agent shall, by notice to the
Borrower, rescind and annul such acceleration and/or termination.
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SECTION 8.02. Amendments. Subject to the provisions of this Article VIII,
the Required Lenders (or the Agent with the consent in writing of the Required
Lenders) and the Borrower may enter into agreements supplemental hereto for the
purpose of adding or modifying any provisions to the Loan Documents or changing
in any manner the rights of the Lenders or the Borrower hereunder or waiving any
Default hereunder; provided, however, that no such supplemental agreement shall,
without the consent of all of the Lenders:
(i) (A) Extend the final maturity of any Loan, or (B) extend the expiry
date of any Facility LC to a date after the earlier of (x) the date
which is one year after the Facility Termination Date and (y) one
year after the date of its issuance (or Modification), or (C) forgive
all or any portion of the principal amount of any Loan or any
Reimbursement Obligation related thereto, or (D) reduce the rate or
extend the time of payment of interest or fees or Reimbursement
Obligations.
(ii) Reduce the percentage specified in the definition of Required
Lenders.
(iii) Extend the Facility Termination Date, or reduce the amount or extend
the payment date for, the mandatory payments required under Section
2.02, or increase the amount of the Aggregate Commitment, the
Commitment of any Lender hereunder or the commitment to issue
Facility LCs, or permit the Borrower to assign its rights under this
Agreement.
(iv) Amend this Section.
(v) Release the Guarantor of its obligations under the Guaranty.
(vi) Amend Section 2.03 or 11.02.
(vii) Release any of the collateral under the Facility LC Collateral
Account.
No amendment of any provision of this Agreement relating to the Agent shall be
effective without the written consent of the Agent, and no amendment of any
provision relating to the LC Issuer shall be effective without the written
consent of the LC Issuer. The Agent may waive payment of the fee required under
Section 12.03(b) without obtaining the consent of any other party to this
Agreement.
SECTION 8.03. Preservation of Rights. No delay or omission of the
Lenders, the LC Issuer or the Agent to exercise any right under the Loan
Documents shall impair such right or be construed to be a waiver of any Default
or an acquiescence therein, and the making of a Credit Extension notwithstanding
the existence of a Default or the inability of the Borrower to satisfy the
conditions precedent to such Credit Extension shall not constitute any waiver or
acquiescence. Any single or partial exercise of any such right shall not
preclude other or further exercise thereof or the exercise of any other right,
and no waiver, amendment or other variation of the terms, conditions or
provisions of the Loan Documents whatsoever shall be valid unless in writing
signed by the Lenders required pursuant to Section 8.02, and then only to the
extent in such writing specifically set forth. All remedies contained in the
Loan Documents or by law afforded shall be cumulative and all shall be available
to the Agent, the LC Issuer and the Lenders until the Obligations have been paid
in full.
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ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Survival of Representations. All representations and
warranties of the Borrower contained in this Agreement shall survive the making
of the Loans herein contemplated.
SECTION 9.02. Governmental Regulation. Anything contained in this
Agreement to the contrary notwithstanding, no Lender shall be obligated to
extend credit to the Borrower in violation of any limitation or prohibition
provided by any applicable statute or regulation.
SECTION 9.03. Headings. Section headings in the Loan Documents are for
convenience of reference only, and shall not govern the interpretation of any of
the provisions of the Loan Documents.
SECTION 9.04. Entire Agreement. The Loan Documents embody the entire
agreement and understanding among the Borrower, the Agent and the Lenders and
supersede all prior agreements and understandings among the Borrower, the Agent
and the Lenders relating to the subject matter thereof other than the fee letter
described in Section 10.13.
SECTION 9.05. Several Obligations; Benefits of this Agreement. The
respective obligations of the Lenders hereunder are several and not joint and no
Lender shall be the partner or agent of any other (except to the extent to which
the Agent is authorized to act as such). The failure of any Lender to perform
any of its obligations hereunder shall not relieve any other Lender from any of
its obligations hereunder. This Agreement shall not be construed so as to confer
any right or benefit upon any Person other than the parties to this Agreement
and their respective successors and assigns, provided, however, that the parties
hereto expressly agree that the Arranger shall enjoy the benefits of the
provisions of Sections 9.06, 9.10 and 10.11 to the extent specifically set forth
therein and shall have the right to enforce such provisions on its own behalf
and in its own name to the same extent as if it were a party to this Agreement.
SECTION 9.06. Expenses; Indemnification. (i) The Borrower shall reimburse
the Agent and the Arranger for any costs, internal charges and out-of-pocket
expenses (including attorneys' fees and time charges of attorneys for the Agent,
which attorneys may be employees of the Agent) paid or incurred by the Agent or
the Arranger in connection with the preparation, negotiation, execution,
delivery, syndication, review, amendment, modification, and administration of
the Loan Documents. The Borrower also agrees to reimburse the Agent, the
Arranger and the Lenders for any costs, internal charges and out-of-pocket
expenses (including attorneys' fees and time charges of attorneys for the Agent,
the Arranger and the Lenders, which attorneys may be employees of the Agent, the
Arranger or the Lenders) paid or incurred by the Agent, the Arranger or any
Lender in connection with the collection, enforcement or any workout or
restructuring of the Loan Documents. Expenses being reimbursed by the Borrower
under this Section include, without limitation, costs and expenses incurred in
connection with the Reports described in the following sentence. The Borrower
acknowledges that from time to time Bank One may prepare and may distribute to
the Lenders (but shall have no obligation or duty to prepare or to distribute to
the Lenders) certain audit reports (the "Reports") pertaining to the
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Borrower's assets for internal use by Bank One from information furnished to it
by or on behalf of the Borrower, after Bank One has exercised its rights of
inspection pursuant to this Agreement.
(ii) The Borrower hereby further agrees to indemnify the Agent, the
Arranger, each Lender, their respective affiliates, and each of their directors,
officers and employees against all losses, claims, damages, penalties,
judgments, liabilities and expenses (including, without limitation, attorneys'
fees and time charges of attorneys for the Agent, the Arranger and the Lenders,
which attorneys may be employees of the Agent, the Arranger or the Lenders, and
all expenses of litigation or preparation therefor whether or not the Agent, the
Arranger, any Lender or any affiliate is a party thereto) which any of them may
pay or incur arising out of or relating to this Agreement, the other Loan
Documents, the transactions contemplated hereby or the direct or indirect
application or proposed application of the proceeds of any Loan hereunder except
to the extent that they are determined in a final non-appealable judgment by a
court of competent jurisdiction to have resulted from the gross negligence or
willful misconduct of the party seeking indemnification. The obligations of the
Borrower under this Section shall survive the termination of this Agreement.
SECTION 9.07. Numbers of Documents. All statements, notices, closing
documents, and requests hereunder shall be furnished to the Agent with
sufficient copies so that the Agent may furnish one to each of the Lenders.
SECTION 9.08. Accounting. Except as provided to the contrary herein, all
accounting terms used herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with GAAP.
SECTION 9.09. Severability of Provisions. Any provision in any Loan
Document that is held to be inoperative, unenforceable, or invalid in any
jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or
invalid without affecting the remaining provisions in that jurisdiction or the
operation, enforceability, or validity of that provision in any other
jurisdiction, and to this end the provisions of all Loan Documents are declared
to be severable.
SECTION 9.10. Nonliability of Lenders. The relationship between the
Borrower on the one hand and the Lenders and the Agent on the other hand shall
be solely that of borrower and lender. Neither the Agent, the Arranger nor any
Lender shall have any fiduciary responsibilities to the Borrower. Neither the
Agent, the Arranger nor any Lender undertakes any responsibility to the Borrower
to review or inform the Borrower of any matter in connection with any phase of
the Borrower's business or operations. The Borrower agrees that neither the
Agent, the Arranger nor any Lender shall have liability to the Borrower (whether
sounding in tort, contract or otherwise) for losses suffered by the Borrower in
connection with, arising out of, or in any way related to, the transactions
contemplated and the relationship established by the Loan Documents, or any act,
omission or event occurring in connection therewith, unless it is determined in
a final non-appealable judgment by a court of competent jurisdiction that such
losses resulted from the gross negligence or willful misconduct of the party
from which recovery is sought. Neither the Agent, the Arranger nor any Lender
shall have any liability with respect to, and the Borrower hereby waives,
releases and agrees not to sue for, any special, indirect or
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consequential damages suffered by the Borrower in connection with, arising out
of, or in any way related to the Loan Documents or the transactions contemplated
thereby.
SECTION 9.11. Confidentiality. Each Lender agrees to hold any
confidential information which it may receive from the Borrower pursuant to this
Agreement in confidence, except for disclosure (i) to its Affiliates and to
other Lenders and their respective Affiliates, (ii) to legal counsel,
accountants, and other professional advisors to such Lender or to a Transferee,
(iii) to regulatory officials, (iv) to any Person as required by law,
regulation, or legal process, (v) to any Person in connection with any legal
proceeding to which such Lender is a party, (vi) to such Lender's direct or
indirect contractual counterparties in swap agreements or to legal counsel,
accountants and other professional advisors to such counterparties, and (vii)
permitted by Section 12.04.
SECTION 9.12. Nonreliance. Each Lender hereby represents that it is not
relying on or looking to any margin stock (as defined in Regulation U of the
Board of Governors of the Federal Reserve System) for the repayment of the Loans
provided for herein.
SECTION 9.13. Disclosure. The Borrower and each Lender hereby (i)
acknowledge and agree that Bank One and/or its Affiliates from time to time may
hold investments in, make other loans to or have other relationships with the
Borrower and its Affiliates, and (ii) waive any liability of Bank One or such
Affiliate of Bank One to the Borrower or any Lender, respectively, arising out
of or resulting from such investments, loans or relationships other than
liabilities arising out of the gross negligence or willful misconduct of Bank
One or its Affiliates.
ARTICLE X
THE AGENT
SECTION 10.01. Appointment; Nature of Relationship. Bank One is hereby
appointed by each of the Lenders as its contractual representative (herein
referred to as the "Agent") hereunder and under each other Loan Document, and
each of the Lenders irrevocably authorizes the Agent to act as the contractual
representative of such Lender with the rights and duties expressly set forth
herein and in the other Loan Documents. The Agent agrees to act as such
contractual representative upon the express conditions contained in this Article
X. Notwithstanding the use of the defined term "Agent," it is expressly
understood and agreed that the Agent shall not have any fiduciary
responsibilities to any Lender by reason of this Agreement or any other Loan
Document and that the Agent is merely acting as the contractual representative
of the Lenders with only those duties as are expressly set forth in this
Agreement and the other Loan Documents. In its capacity as the Lenders'
contractual representative, the Agent (i) does not hereby assume any fiduciary
duties to any of the Lenders, (ii) is a "representative" of the Lenders within
the meaning of Section 9-105 of the Uniform Commercial Code and (iii) is acting
as an independent contractor, the rights and duties of which are limited to
those expressly set forth in this Agreement and the other Loan Documents. Each
of the Lenders hereby agrees to assert no claim against the Agent on any agency
theory or any other theory of liability for breach of fiduciary duty, all of
which claims each Lender hereby waives.
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SECTION 10.02. Powers. The Agent shall have and may exercise such powers
under the Loan Documents as are specifically delegated to the Agent by the terms
of each thereof, together with such powers as are reasonably incidental thereto.
The Agent shall have no implied duties to the Lenders, or any obligation to the
Lenders to take any action thereunder except any action specifically provided by
the Loan Documents to be taken by the Agent.
SECTION 10.03. General Immunity. Neither the Agent nor any of its
directors, officers, agents or employees shall be liable to the Borrower, the
Lenders or any Lender for any action taken or omitted to be taken by it or them
hereunder or under any other Loan Document or in connection herewith or
therewith except to the extent such action or inaction is determined in a final
non-appealable judgment by a court of competent jurisdiction to have arisen from
the gross negligence or willful misconduct of such Person.
SECTION 10.04. No Responsibility for Loans, Recitals, Etc. Neither the
Agent nor any of its directors, officers, agents or employees shall be
responsible for or have any duty to ascertain, inquire into, or verify (a) any
statement, warranty or representation made in connection with any Loan Document
or any borrowing hereunder; (b) the performance or observance of any of the
covenants or agreements of any obligor under any Loan Document, including,
without limitation, any agreement by an obligor to furnish information directly
to each Lender; (c) the satisfaction of any condition specified in Article IV,
except receipt of items required to be delivered solely to the Agent; (d) the
existence or possible existence of any Default or Unmatured Default; (e) the
validity, enforceability, effectiveness, sufficiency or genuineness of any Loan
Document or any other instrument or writing furnished in connection therewith;
(f) the value, sufficiency, creation, perfection or priority of any Lien in any
collateral security; or (g) the financial condition of the Borrower or any
guarantor of any of the Obligations or of any of the Borrower's or any such
guarantor's respective Subsidiaries. The Agent shall have no duty to disclose to
the Lenders information that is not required to be furnished by the Borrower to
the Agent at such time, but is voluntarily furnished by the Borrower to the
Agent (either in its capacity as Agent or in its individual capacity).
SECTION 10.05. Action on Instructions of Lenders. The Agent shall in all
cases be fully protected in acting, or in refraining from acting, hereunder and
under any other Loan Document in accordance with written instructions signed by
the Required Lenders, and such instructions and any action taken or failure to
act pursuant thereto shall be binding on all of the Lenders. The Lenders hereby
acknowledge that the Agent shall be under no duty to take any discretionary
action permitted to be taken by it pursuant to the provisions of this Agreement
or any other Loan Document unless it shall be requested in writing to do so by
the Required Lenders. The Agent shall be fully justified in failing or refusing
to take any action hereunder and under any other Loan Document unless it shall
first be indemnified to its satisfaction by the Lenders pro rata against any and
all liability, cost and expense that it may incur by reason of taking or
continuing to take any such action.
SECTION 10.06. Employment of Agents and Counsel. The Agent may execute
any of its duties as Agent hereunder and under any other Loan Document by or
through employees, agents, and attorneys-in-fact and shall not be answerable to
the Lenders, except as to money or securities received by it or its authorized
agents, for the default or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care. The Agent shall be entitled to advice of
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counsel concerning the contractual arrangement between the Agent and the Lenders
and all matters pertaining to the Agent's duties hereunder and under any other
Loan Document.
SECTION 10.07. Reliance on Documents; Counsel. The Agent shall be
entitled to rely upon any Note, notice, consent, certificate, affidavit, letter,
telegram, statement, paper or document believed by it to be genuine and correct
and to have been signed or sent by the proper person or persons, and, in respect
to legal matters, upon the opinion of counsel selected by the Agent, which
counsel may be employees of the Agent.
SECTION 10.08. Agent's Reimbursement and Indemnification. The Lenders
agree to reimburse and indemnify the Agent ratably in proportion to their
respective Commitments (or, if the Commitments have been terminated, in
proportion to their Commitments immediately prior to such termination) (i) for
any amounts not reimbursed by the Borrower for which the Agent is entitled to
reimbursement by the Borrower under the Loan Documents, (ii) for any other
expenses incurred by the Agent on behalf of the Lenders, in connection with the
preparation, execution, delivery, administration and enforcement of the Loan
Documents (including, without limitation, for any expenses incurred by the Agent
in connection with any dispute between the Agent and any Lender or between two
or more of the Lenders) and (iii) for any liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind and nature whatsoever which may be imposed on, incurred by or
asserted against the Agent in any way relating to or arising out of the Loan
Documents or any other document delivered in connection therewith or the
transactions contemplated thereby (including, without limitation, for any such
amounts incurred by or asserted against the Agent in connection with any dispute
between the Agent and any Lender or between two or more of the Lenders), or the
enforcement of any of the terms of the Loan Documents or of any such other
documents, provided that (i) no Lender shall be liable for any of the foregoing
to the extent any of the foregoing is found in a final non-appealable judgment
by a court of competent jurisdiction to have resulted from the gross negligence
or willful misconduct of the Agent and (ii) any indemnification required
pursuant to Section 3.05(vii) shall, notwithstanding the provisions of this
Section, be paid by the relevant Lender in accordance with the provisions
thereof. The obligations of the Lenders under this Section shall survive payment
of the Obligations and termination of this Agreement.
SECTION 10.09. Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Unmatured Default
hereunder unless the Agent has received written notice from a Lender or the
Borrower referring to this Agreement describing such Default or Unmatured
Default and stating that such notice is a "notice of default". In the event
that the Agent receives such a notice, the Agent shall give prompt notice
thereof to the Lenders.
SECTION 10.10. Rights as a Lender. In the event the Agent is a Lender,
the Agent shall have the same rights and powers hereunder and under any other
Loan Document with respect to its Commitment and its Loans as any Lender and may
exercise the same as though it were not the Agent, and the term "Lender" or
"Lenders" shall, at any time when the Agent is a Lender, unless the context
otherwise indicates, include the Agent in its individual capacity. The Agent and
its Affiliates may accept deposits from, lend money to, and generally engage in
any kind of trust, debt, equity or other transaction, in addition to those
contemplated by this
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Agreement or any other Loan Document, with the Borrower or any of its
Subsidiaries in which the Borrower or such Subsidiary is not restricted hereby
from engaging with any other Person. The Agent, in its individual capacity, is
not obligated to remain a Lender.
SECTION 10.11. Lender Credit Decision. Each Lender acknowledges that it
has, independently and without reliance upon the Agent, the Arranger or any
other Lender and based on the financial statements prepared by the Borrower and
such other documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement and the other Loan
Documents. Each Lender also acknowledges that it will, independently and without
reliance upon the Agent, the Arranger 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 and the other Loan Documents.
SECTION 10.12. Successor Agent. The Agent may resign at any time by
giving written notice thereof to the Lenders and the Borrower, such resignation
to be effective upon the appointment of a successor Agent or, if no successor
Agent has been appointed, forty-five days after the retiring Agent gives notice
of its intention to resign. The Agent may be removed at any time with or without
cause by written notice received by the Agent from the Required Lenders, such
removal to be effective on the date specified by the Required Lenders. Upon any
such resignation or removal, the Required Lenders shall have the right to
appoint, on behalf of the Borrower and the Lenders, a successor Agent. If no
successor Agent shall have been so appointed by the Required Lenders within
thirty days after the resigning Agent's giving notice of its intention to
resign, then the resigning Agent may appoint, on behalf of the Borrower and the
Lenders, a successor Agent. Notwithstanding the previous sentence, the Agent may
at any time without the consent of the Borrower or any Lender, appoint any of
its Affiliates which is a commercial bank as a successor Agent hereunder. If the
Agent has resigned or been removed and no successor Agent has been appointed,
the Lenders may perform all the duties of the Agent hereunder and the Borrower
shall make all payments in respect of the Obligations to the applicable Lender
and for all other purposes shall deal directly with the Lenders. No successor
Agent shall be deemed to be appointed hereunder until such successor Agent has
accepted the appointment. Any such successor Agent shall be a commercial bank
having capital and retained earnings of at least $100,000,000. Upon the
acceptance of any appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the resigning or removed Agent. Upon
the effectiveness of the resignation or removal of the Agent, the resigning or
removed Agent shall be discharged from its duties and obligations hereunder and
under the Loan Documents. After the effectiveness of the resignation or removal
of an Agent, the provisions of this Article X shall continue in effect for the
benefit of such Agent in respect of any actions taken or omitted to be taken by
it while it was acting as the Agent hereunder and under the other Loan
Documents. In the event that there is a successor to the Agent by merger, or the
Agent assigns its duties and obligations to an Affiliate pursuant to this
Section, then the term "Corporate Base Rate" as used in this Agreement shall
mean the prime rate, base rate or other analogous rate of the new Agent.
SECTION 10.13. Agent's Fee. The Borrower agrees to pay to the Agent, for
its own account, the fees agreed to by the Borrower and the Agent pursuant to
that certain letter agreement dated November 12, 1999, or as otherwise agreed
from time to time.
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SECTION 10.14. Delegation to Affiliates. The Borrower and the Lenders
agree that the Agent may delegate any of its duties under this Agreement to any
of its Affiliates. Any such Affiliate (and such Affiliate's directors, officers,
agents and employees) which performs duties in connection with this Agreement
shall be entitled to the same benefits of the indemnification, waiver and other
protective provisions to which the Agent is entitled under Articles IX and X.
SECTION 10.15. Documentation Agent, Syndication Agent, Etc. Neither of
the Lenders identified in this Agreement as Documentation Agent or the
Syndication Agent shall have any right, power, obligation, liability,
responsibility or duty under this Agreement other than those applicable to all
Lenders as such. Without limiting the foregoing, none of such Lenders shall have
or be deemed to have a fiduciary relationship with any Lender. Each Lender
hereby makes the same acknowledgments with respect to such Lenders as it makes
with respect to the Agent in Section 10.11.
ARTICLE XI
SETOFF; RATABLE PAYMENTS
SECTION 11.01. Setoff. In addition to, and without limitation of, any
rights of the Lenders under applicable law, if the Borrower becomes insolvent,
however evidenced, or any Default occurs, any and all deposits (including all
account balances, whether provisional or final and whether or not collected or
available) and any other Indebtedness at any time held or owing by any Lender or
any Affiliate of any Lender to or for the credit or account of the Borrower may
be offset and applied toward the payment of the Obligations owing to such
Lender, whether or not the Obligations, or any part thereof, shall then be due.
SECTION 11.02. Ratable Payments. If any Lender, whether by setoff or
otherwise, has payment made to it of the Obligations (other than payments
received pursuant to Section 3.01, 3.02, 3.04 or 3.05) in a greater proportion
than that received by any other Lender, such Lender agrees, promptly upon
demand, to purchase a portion of the Obligations held by the other Lenders so
that after such purchase each Lender will hold its ratable proportion of the
Obligations. If any Lender, whether in connection with setoff or amounts which
might be subject to setoff or otherwise, receives collateral or other protection
for the Obligations or such amounts which may be subject to setoff, such Lender
agrees, promptly upon demand, to take such action necessary such that all
Lenders share in the benefits of such collateral ratably in proportion to the
Obligations. In case any such payment is disturbed by legal process, or
otherwise, appropriate further adjustments shall be made. If an amount to be
setoff is to be applied to Indebtedness of the Borrower to a Lender other than
Indebtedness comprised of Loans made by such Lender, such amount shall be
applied ratably to such other Indebtedness and to the Indebtedness comprised of
the Obligations.
ARTICLE XII
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
SECTION 12.01. Successors and Assigns. The terms and provisions of the
Loan Documents shall be binding upon and inure to the benefit of the Borrower
and the Lenders and
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their respective successors and assigns, except that (i) the Borrower shall not
have the right to assign its rights or obligations under the Loan Documents and
(ii) any assignment by any Lender must be made in compliance with Section 12.03.
The parties to this Agreement acknowledge that clause (ii) of this Section
relates only to absolute assignments and does not prohibit assignments creating
security interests, including, without limitation, any pledge or assignment by
any Lender of all or any portion of its rights under this Agreement and any Note
to a Federal Reserve Bank; provided, however, that no such pledge or assignment
creating a security interest shall release the transferor Lender from its
obligations hereunder unless and until the parties thereto have complied with
the provisions of Section 12.03. The Agent may treat the Person which made any
Loan or which holds any Note as the owner thereof for all purposes hereof unless
and until such Person complies with Section 12.03; provided, however, that the
Agent may in its discretion (but shall not be required to) follow instructions
from the Person which made any Loan or which holds any Note to direct payments
relating to such Loan or Note to another Person. Any assignee of the rights to
any Loan or any Note agrees by acceptance of such assignment to be bound by all
the terms and provisions of the Loan Documents. Any request, authority or
consent of any Person, who at the time of making such request or giving such
authority or consent is the owner of the rights to any Loan (whether or not a
Note has been issued in evidence thereof), shall be conclusive and binding on
any subsequent holder or assignee of the rights to such Loan.
SECTION 12.02. Participations.
(a) Permitted Participants; Effect. Any Lender may, in the ordinary course
of its business and in accordance with applicable law, at any time sell to one
or more banks or other entities ("Participants") participating interests in any
Loan owing to such Lender, any Note held by such Lender, any Commitment of such
Lender or any other interest of such Lender under the Loan Documents. In the
event of any such sale by a Lender of participating interests to a Participant,
such Lender's obligations under the Loan Documents shall remain unchanged, such
Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, such Lender shall remain the owner of its Loans
and the holder of any Note issued to it in evidence thereof for all purposes
under the Loan Documents, all amounts payable by the Borrower under this
Agreement shall be determined as if such Lender had not sold such participating
interests, and the Borrower and the Agent shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under the Loan Documents.
(b) Voting Rights Each Lender shall retain the sole right to approve,
without the consent of any Participant, any amendment, modification or waiver of
any provision of the Loan Documents other than any amendment, modification or
waiver with respect to any Loan or Commitment in which such Participant has an
interest which forgives principal, interest or fees or reduces the interest rate
or fees payable with respect to any such Loan, Reimbursement Obligation or
Commitment, extends the Facility Termination Date, postpones any date fixed for
any regularly-scheduled payment of principal of, or interest or fees on, any
such Loan, Reimbursement Obligation or Commitment, releases any guarantor of any
such Credit Extension or releases any collateral held in the Facility LC
Collateral Account (except in accordance with the terms hereof) or all or
substantially all of the collateral, if any, securing any such Credit Extension.
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(c) Benefit of Setoff and Certain Other Rights. The Borrower agrees that
each Participant shall be deemed to have the right of setoff provided in Section
11.01 and the other rights of the Lenders under Sections 3.01, 3.02, 3.04 and
3.05 in respect of its participating interest in amounts owing under the Loan
Documents to the same extent as if the amount of its participating interest were
owing directly to it as a Lender under the Loan Documents, provided that each
Lender shall retain the right of setoff provided in Section 11.01 with respect
to the amount of participating interests sold to each Participant. The Lenders
agree to share with each Participant, and each Participant, by exercising the
right of setoff provided in Section 11.01, agrees to share with each Lender, any
amount received pursuant to the exercise of its right of setoff, such amounts to
be shared in accordance with Section 11.02 as if each Participant were a Lender.
SECTION 12.03. Assignments.
(a) Permitted Assignments. Any Lender may, in the ordinary course of its
business and in accordance with applicable law, at any time assign to one or
more banks or other entities ("Purchasers") all or any part of its rights and
obligations under the Loan Documents. Such assignment shall be substantially in
the form of Exhibit C or in such other form as may be agreed to by the parties
thereto. The consent of the Borrower and the Agent shall be required prior to an
assignment becoming effective with respect to a Purchaser which is not a Lender
or an Affiliate thereof; provided, however, that if a Default has occurred and
is continuing, the consent of the Borrower shall not be required. Such consent
shall not be unreasonably withheld or delayed. Each such assignment with respect
to a Purchaser which is not a Lender or an Affiliate thereof shall (unless each
of the Borrower and the Agent otherwise consents) be in an amount not less than
the lesser of (i) $10,000,000 or (ii) the remaining amount of the assigning
Lender's Commitment (calculated as at the date of such assignment) or
outstanding Loans (if the applicable Commitment has been terminated). After
giving effect to any partial assignment, the Commitment of each of the assignor
and assignee shall be at least $10,000,000 (unless each of the Borrower and the
Agent otherwise consents).
(b) Effect; Effective Date. Upon (i) delivery to the Agent of an
assignment, together with any consents required by Section 12.03(a), and (ii)
payment of a $4,000 fee to the Agent for processing such assignment (unless such
fee is waived by the Agent), such assignment shall become effective on the
effective date specified in such assignment. The assignment shall contain a
representation by the Purchaser to the effect that none of the consideration
used to make the purchase of the Commitment and Loans under the applicable
assignment agreement constitutes "plan assets" as defined under ERISA and that
the rights and interests of the Purchaser in and under the Loan Documents will
not be "plan assets" under ERISA. On and after the effective date of such
assignment, such Purchaser shall for all purposes be a Lender party to this
Agreement and any other Loan Document executed by or on behalf of the Lenders
and shall have all the rights and obligations of a Lender under the Loan
Documents, to the same extent as if it were an original party hereto, provided,
however, such Purchaser shall not be entitled to make an immediate demand under
Article III, and no further consent or action by the Borrower, the Lenders or
the Agent shall be required to release the transferor Lender with respect to the
percentage of the Aggregate Commitment and Loans assigned to such Purchaser.
Upon the consummation of any assignment to a Purchaser pursuant to this Section,
the transferor
52
<PAGE>
Lender, the Agent and the Borrower shall, if the transferor Lender or the
Purchaser desires that its Loans be evidenced by Notes, make appropriate
arrangements so that new Notes or, as appropriate, replacement Notes are issued
to such transferor Lender and new Notes or, as appropriate, replacement Notes,
are issued to such Purchaser, in each case in principal amounts reflecting their
respective Commitments, as adjusted pursuant to such assignment.
SECTION 12.04. Dissemination of Information. The Borrower authorizes each
Lender to disclose to any Participant or Purchaser or any other Person acquiring
an interest in the Loan Documents by operation of law (each a "Transferee") and
any prospective Transferee any and all information in such Lender's possession
concerning the creditworthiness of the Borrower and its Subsidiaries, including
without limitation any information contained in any Reports; provided that each
Transferee and prospective Transferee agrees to be bound by Section 9.11 of this
Agreement.
SECTION 12.05. Tax Treatment. If any interest in any Loan Document is
transferred to any Transferee which is organized under the laws of any
jurisdiction other than the United States or any State thereof, the transferor
Lender shall cause such Transferee, concurrently with the effectiveness of such
transfer, to comply with the provisions of Section 3.05(iv).
ARTICLE XIII
NOTICES
SECTION 13.01. Notices. Except as otherwise permitted by Section 2.14
with respect to borrowing notices, all notices, requests and other
communications to any party hereunder shall be in writing (including electronic
transmission, facsimile transmission or similar writing) and shall be given to
such party: (x) in the case of the Borrower or the Agent, at its address or
facsimile number set forth on the signature pages hereto, (y) in the case of any
Lender, at its address or facsimile number set forth below its signature hereto
or (z) in the case of any party, at such other address or facsimile number as
such party may hereafter specify for the purpose by notice to the Agent and the
Borrower in accordance with the provisions of this Section. Each such notice,
request or other communication shall be effective (i) if given by facsimile
transmission, when transmitted to the facsimile number specified in this Section
and confirmation of receipt is received, (ii) if given by mail, 72 hours after
such communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid, or (iii) if given by any other means, when delivered
(or, in the case of electronic transmission, received) at the address specified
in this Section; provided that notices to the Agent under Article II shall not
be effective until received.
SECTION 13.02. Change of Address. The Borrower, the Agent and any Lender
may each change the address for service of notice upon it by a notice in writing
to the other parties hereto.
53
<PAGE>
ARTICLE XIV
COUNTERPARTS
This Agreement may be executed in any number of counterparts, all of which
taken together shall constitute one agreement, and any of the parties hereto may
execute this Agreement by signing any such counterpart. This Agreement shall be
effective when it has been executed by the Borrower, the Agent and the Lenders
and each party has notified the Agent by facsimile transmission or telephone
that it has taken such action.
ARTICLE XV
CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL
SECTION 15.01. CHOICE OF LAW. THE LOAN DOCUMENTS SHALL BE GOVERNED AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 15.02. CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY
SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW
YORK STATE COURT SITTING IN NEW YORK CITY IN ANY ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND THE BORROWER HEREBY IRREVOCABLY
AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND
DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR
HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN
SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL
LIMIT THE RIGHT OF THE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE
BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY
THE BORROWER AGAINST THE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE AGENT OR
ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT
OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A
COURT IN NEW YORK CITY.
SECTION 15.03. WAIVER OF JURY TRIAL. THE BORROWER, THE AGENT AND EACH
LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY
OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN
ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE
RELATIONSHIP ESTABLISHED THEREUNDER.
54
<PAGE>
UNICOM ENTERPRISES INC.
By /s/ Patricia L. Kampling
-------------------------
Patricia L. Kampling
Treasurer
<PAGE>
BANK ONE, NA
(Main Branch - Chicago)
By /s/ Robert Bussa
-------------------------
Robert Bussa
1/st/ Vice President
2
<PAGE>
ABN AMRO BANK N.V.
By /s/ Philip J. Leigh
-------------------------
Philip J. Leigh
Vice President
By /s/ Robert E. Lee IV
-------------------------
Robert E. Lee IV
Assistant Vice President
3
<PAGE>
BANK OF AMERICA, N.A.
By /s/ Gretchen P. Burud
-------------------------
Gretchen P. Burud
Principal
4
<PAGE>
BANK OF MONTREAL
By /s/ Kresten M. Bjornsson
-------------------------
Kresten M. Bjornsson
Director
5
<PAGE>
THE BANK OF NEW YORK
By /s/ Nathan S. Howard
-------------------------
Nathan S. Howard
Vice President
6
<PAGE>
BARCLAYS BANK PLC
By /s/ Sydney G. Dennis
-------------------------
Sydney G. Dennis
Director
7
<PAGE>
BAYERISCHE LANDESBANK GIROZENTRALE, CAYMAN ISLANDS
BRANCH
By /s/ Hereward Drummond By /s/ Sean O'Sullivan
------------------------- -------------------------
Hereward Drummond Sean O'Sullivan
Senior Vice President Vice President
8
<PAGE>
THE CHASE MANHATTAN BANK
By /s/ Paul V. Farrell
-------------------------
Paul V. Farrell
Vice President
9
<PAGE>
CIBC INC.
By /s/ Denis P. O'Meara
-------------------------
Denis P. O'Meara
Executive Director
10
<PAGE>
CITIBANK, N.A.
By /s/ J. Nicholas McKee
-------------------------
J. Nicholas McKee
Vice President
11
<PAGE>
CREDIT LYONNAIS, CHICAGO BRANCH
By /s/ Lee E. Greve
-------------------------
Lee E. Greve
First Vice President
12
<PAGE>
THE DAI-ICHI KANGYO BANK, LTD.
By /s/ Nobuyasu Fukatsu
-------------------------
Nobuyasu Fukatsu
General Manager
13
<PAGE>
THE FUJI BANK, LIMITED
By /s/ Peter L. Chinnici
-------------------------
Peter L. Chinnici
Senior Vice President & Group Head
14
<PAGE>
THE INDUSTRIAL BANK OF JAPAN, LTD.
By /s/ Walter R. Wolff
-------------------------
Walter R. Wolff
Joint General Manager
15
<PAGE>
MELLON BANK, N.A.
By /s/ Richard A. Matthews
-------------------------
Richard A. Matthews
Vice President
16
<PAGE>
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By /s/ Robert Bottamedi
-------------------------
Robert Bottamedi
Vice President
17
<PAGE>
NATIONAL CITY BANK OF MICHIGAN/ILLINOIS
By /s/ Mark R. Long
-------------------------
Mark R. Long
Vice President
18
<PAGE>
THE NORTHERN TRUST COMPANY
By /s/ Joseph A. Wemhoff
-------------------------
Joseph A. Wemhoff
Vice President
19
<PAGE>
THE SAKURA BANK, LIMITED
By /s/ Yoshikazu Nagura
-------------------------
Yoshikazu Nagura
Senior Vice President
20
<PAGE>
UNION BANK OF CALIFORNIA, N.A.
By /s/ Jason P. DiNapoli
-------------------------
Jason P. DiNapoli
Vice President
21
<PAGE>
PRICING SCHEDULE
<TABLE>
<CAPTION>
APPLICABLE LEVEL I LEVEL II LEVEL III LEVEL IV
MARGIN STATUS STATUS STATUS STATUS
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Eurodollar Rate 0.875% 1.000% 1.125% 2.000%
- -----------------------------------------------------------------------------------------------------------
Floating Rate 0.000% 0.000% 0.000% 0.500%
- -----------------------------------------------------------------------------------------------------------
Utilized Eurodollar Rate 1.000% 1.125% 1.375% 2.500%
- -----------------------------------------------------------------------------------------------------------
Utilized Floating Rate 0.125% 0.125% 0.250% 1.000%
===========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
APPLICABLE LEVEL I LEVEL II LEVEL III LEVEL IV
FEE RATE STATUS STATUS STATUS STATUS
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LC Fee 0.875% 1.000% 1.125% 2.000%
- -----------------------------------------------------------------------------------------------------------
Commitment Fee 0.150% 0.175% 0.225% 0.375%
===========================================================================================================
</TABLE>
For the purposes of this Schedule, the following terms have the following
meanings, subject to the final paragraph of this Schedule:
"Level I Status" exists at any date if, on such date, the Guarantor's
Moody's Rating is Baa1 or better and the Guarantor's S&P Rating is BBB+ or
better.
"Level II Status" exists at any date if, on such date, (i) the Guarantor
has not qualified for Level I Status and (ii) the Guarantor's Moody's Rating is
Baa2 or better and the Guarantor's S&P Rating is BBB or better.
"Level III Status" exists at any date if, on such date, (i) the Guarantor
has not qualified for Level I Status or Level II Status and (ii) the Guarantor's
Moody's Rating is Baa3 or better and the Guarantor's S&P Rating is BBB- or
better.
"Level IV Status" exists at any date if, on such date, the Guarantor has
not qualified for Level I Status, Level II Status or Level III Status.
"Moody's Rating" means, at any time, the rating issued by Moody's and then
in effect with respect to the Guarantor's senior unsecured long-term debt
securities without third-party credit enhancement.
"S&P Rating" means, at any time, the rating issued by S&P and then in
effect with respect to the Guarantor's senior unsecured long-term debt
securities without third-party credit enhancement.
"Status" means either Level I Status, Level II Status, Level III Status or
Level IV Status.
<PAGE>
The Applicable Margin and Applicable Fee Rate shall be determined in
accordance with the foregoing table based on the Guarantor's Status as
determined from its then-current Moody's and S&P Ratings. The credit rating in
effect on any date for the purposes of this Schedule is that in effect at the
close of business on such date. If at any time the Guarantor has no Moody's
Rating or no S&P Rating, Level IV Status shall exist.
If the Guarantor is split-rated and the ratings differential is one level,
the rating with the greater margin will apply. If the Guarantor is split-rated
and the ratings differential is two levels or more, the intermediate rating at
the midpoint will apply. If there is no midpoint, the intermediate rating with
the greater margin will apply.
2
<PAGE>
EXHIBIT B
COMPLIANCE CERTIFICATE
To: The Lenders parties to the
Credit Agreement Described Below
This Compliance Certificate is furnished pursuant to that certain Credit
Agreement, dated as of December 17, 1999 (as amended, modified, renewed or
extended from time to time, the "Agreement") among Unicom Enterprises Inc. (the
"Borrower"), the lenders party thereto and Bank One, NA, as Agent for the
Lenders. Unless otherwise defined herein, capitalized terms used in this
Compliance Certificate have the meanings ascribed thereto in the Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am the duly elected __________________ of the Borrower;
2. I have reviewed the terms of the Agreement and I have made, or have
caused to be made under my supervision, a detailed review of the transactions
and conditions of the Guarantor, the Borrower and its Subsidiaries during the
accounting period covered by the attached financial statements;
3. The examinations described in paragraph 2 did not disclose, and I have
no knowledge of, the existence of any condition or event which constitutes a
Default or Unmatured Default during or at the end of the accounting period
covered by the attached financial statements or as of the date of this
Certificate, except as set forth below,
4. Schedule I attached hereto sets forth financial data and computations
evidencing the Borrower's compliance with certain covenants of the Agreement,
all of which data and computations are true, complete and correct; and
5. Schedule II attached hereto sets forth financial data and computations
evidencing the Guarantor's compliance with certain covenants of the Guaranty,
all of which data and computation are true and correct.
Described below are the exceptions, if any, to paragraph 3 by listing, in
detail, the nature of the condition or event, the period during which it has
existed and the action which the Borrower has taken, is taking, or proposes to
take with respect to each such condition or event:
i
<PAGE>
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
The foregoing certifications, together with the computations set forth in
Schedule I and Schedule II hereto and the financial statements delivered with
this Certificate in support hereof, are made and delivered this ___ day of
_________, ____.
______________________________
ii
<PAGE>
SCHEDULE I TO COMPLIANCE CERTIFICATE
Compliance as of _________, ____ with
Provisions of and of
the Agreement
1
<PAGE>
SCHEDULE II TO COMPLIANCE CERTIFICATE
Compliance as of _________, ____ with
Provisions of and of
the Guaranty
1
<PAGE>
EXHIBIT C
ASSIGNMENT AGREEMENT
This Assignment Agreement (this "Assignment Agreement") between
_____________________ (the "Assignor") and ________________________ (the
"Assignee") is dated as of ________________, 19__/20__. The parties hereto
agree as follows:
1. Preliminary Statement. The Assignor is a party to a Credit Agreement
(which, as it may be amended, modified, renewed or extended from time to time is
herein called the "Credit Agreement") described in Item 1 of Schedule 1 attached
hereto ("Schedule 1"). Capitalized terms used herein and not otherwise defined
herein shall have the meanings attributed to them in the Credit Agreement.
2. Assignment And Assumption. The Assignor hereby sells and assigns to
the Assignee, and the Assignee hereby purchases and assumes from the Assignor,
an interest in and to the Assignor's rights and obligations under the Credit
Agreement and the other Loan Documents, such that after giving effect to such
assignment the Assignee shall have purchased pursuant to this Assignment
Agreement the percentage interest specified in Item 3 of Schedule 1 of all
outstanding rights and obligations under the Credit Agreement. The aggregate
Commitment (or Loans, if the applicable Commitment has been terminated)
purchased by the Assignee hereunder is set forth in Item 4 of Schedule 1.
3. Effective Date. The effective date of this Assignment Agreement (the
"Effective Date") shall be the later of the date specified in Item 5 of Schedule
1 or two Business Days (or such shorter period agreed to by the Agent) after
this Assignment Agreement, together with any consents required under the Credit
Agreement, are delivered to the Agent. In no event will the Effective Date occur
if the payments required to be made by the Assignee to the Assignor on the
Effective Date are not made on the proposed Effective Date.
4. Payment Obligations. In consideration for the sale and assignment of
Advances hereunder, the Assignee shall pay the Assignor, on the Effective Date,
the amount agreed to by the Assignor and the Assignee. On and after the
Effective Date, the Assignee shall be entitled to receive from the Agent all
payments of principal, interest and fees with respect to the interest assigned
hereby. The Assignee will promptly remit to the Assignor any interest on
Advances and fees received from the Agent which relate to the portion of the
Commitment or Advances assigned to the Assignee hereunder for periods prior to
the Effective Date and not previously paid by the Assignee to the Assignor. In
the event that either party hereto receives any payment to which the other party
hereto is entitled under this Assignment Agreement, then the party receiving
such amount shall promptly remit it to the other party hereto.
5. Recordation Fee. The Assignor and Assignee each agree to pay one-half
of the recordation fee required to be paid to the Agent in connection with this
Assignment Agreement unless otherwise specified in Item 6 of Schedule 1.
6. Representations Of The Assignor; Limitations On The Assignor's
Liability. The Assignor represents and warrants that (i) it is the legal and
beneficial owner of the interest being assigned by it hereunder, (ii) such
interest is free and clear of any adverse claim created by the
<PAGE>
Assignor and (iii) the execution and delivery of this Assignment Agreement by
the Assignor is duly authorized. It is understood and agreed that the assignment
and assumption hereunder are made without recourse to the Assignor and that the
Assignor makes no other representation or warranty of any kind to the Assignee.
Neither the Assignor nor any of its officers, directors, employees, agents or
attorneys shall be responsible for (i) the due execution, legality, validity,
enforceability, genuineness, sufficiency or collectability of any Loan Document,
including without limitation, documents granting the Assignor and the other
Lenders a security interest in assets of the Borrower or the Guarantor, (ii) any
representation, warranty or statement made in or in connection with any of the
Loan Documents, (iii) the financial condition or creditworthiness of the
Borrower or the Guarantor, (iv) the performance of or compliance with any of the
terms or provisions of any of the Loan Documents, (v) inspecting any of the
property, books or records of the Borrower, (vi) the validity, enforceability,
perfection, priority, condition, value or sufficiency of any collateral securing
or purporting to secure the Loans or (vii) any mistake, error of judgment, or
action taken or omitted to be taken in connection with the Loans or the Loan
Documents.
7. Representations And Undertakings Of The Assignee. The Assignee (i)
confirms that it has received a copy of the Credit Agreement, together with
copies of the financial statements requested by the Assignee and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment Agreement, (ii) agrees that
it will, independently and without reliance upon the Agent, the Assignor or any
other Lender and based on such documents and information at it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Loan Documents, (iii) appoints and authorizes the
Agent to take such action as agent on its behalf and to exercise such powers
under the Loan Documents as are delegated to the Agent by the terms thereof,
together with such powers as are reasonably incidental thereto, (iv) confirms
that the execution and delivery of this Assignment Agreement by the Assignee is
duly authorized, (v) 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, (vi) agrees that its payment instructions and
notice instructions are as set forth in the attachment to Schedule 1, (vii)
confirms that none of the funds, monies, assets or other consideration being
used to make the purchase and assumption hereunder are "plan assets" as defined
under ERISA and that its rights, benefits and interests in and under the Loan
Documents will not be "plan assets" under ERISA, (viii) agrees to indemnify and
hold the Assignor harmless against all losses, costs and expenses (including,
without limitation, reasonable attorneys' fees) and liabilities incurred by the
Assignor in connection with or arising in any manner from the Assignee's non-
performance of the obligations assumed under this Assignment Agreement, and (ix)
if applicable, attaches the forms prescribed by the Internal Revenue Service of
the United States certifying that the Assignee is entitled to receive payments
under the Loan Documents without deduction or withholding of any United States
federal income taxes.
8. Governing Law. This Assignment Agreement shall be governed by the
internal law, and not the law of conflicts, of the State of New York.
9. Notices. Notices shall be given under this Assignment Agreement in the
manner set forth in the Credit Agreement. For the purpose hereof, the addresses
of the parties hereto (until notice of a change is delivered) shall be the
address set forth in the attachment to Schedule 1.
<PAGE>
10. Counterparts; Delivery By Facsimile. This Assignment Agreement may be
executed in counterparts. Transmission by facsimile of an executed counterpart
of this Assignment Agreement shall be deemed to constitute due and sufficient
delivery of such counterpart and such facsimile shall be deemed to be an
original counterpart of this Assignment Agreement.
IN WITNESS WHEREOF, the duly authorized officers of the parties hereto have
executed this Assignment Agreement by executing Schedule 1 hereto as of the date
first above written.
<PAGE>
SCHEDULE 1
to Assignment Agreement
1. Credit Agreement, dated as of December 17, 1999, among Unicom Enterprises
Inc., the Lenders party thereto, Bank One, NA, as Agent and Banc One Capital
Markets, Inc., as Lead Arranger and Sole Book Runner (the "Credit Agreement"):
2. Date of Assignment Agreement: , 19__/20__
3. Assignee's percentage of the Facility
purchased under the Assignment Agreement* ____%
4. Assignee's Commitment (or Loans with
respect to terminated Commitments)
purchased hereunder: $___________________
5. Proposed Effective Date: ____________________
6. Non-standard Recordation Fee Arrangement N/A**
[Assignor/Assignee to pay 100%
of fee] [Fee waived by Agent]
Accepted and Agreed:
[NAME OF ASSIGNOR] [NAME OF ASSIGNEE]
By:__________________________________ By:__________________________________
Title: ______________________________ Title: ______________________________
<PAGE>
ACCEPTED AND CONSENTED TO BY ACCEPTED AND CONSENTED TO BY
UNICOM ENTERPRISES INC. BANK ONE, N.A.
By:__________________________________ By:__________________________________
Title: ______________________________ Title: ______________________________
* Percentage taken to 10 decimal places
** If fee is split 50-50, pick N/A as option
<PAGE>
Attachment to SCHEDULE 1 to ASSIGNMENT AGREEMENT
ADMINISTRATIVE INFORMATION SHEET
--------------------------------
Attach Assignor's Administrative Information Sheet, which must
include notice addresses for the Assignor and the Assignee
(Sample form shown below)
ASSIGNOR INFORMATION
--------------------
Contact:
- -------
Name: _____________________________ Telephone No.: _________________________
Fax No: ___________________________ Telex No.: _____________________________
Answerback: ____________________________
Payment Information:
- -------------------
Name & ABA # of Destination Bank:______________________________________________
______________________________________________
Account Name & Number for Wire Transfer:_______________________________________
_______________________________________
Other Instructions:____________________________________________________________
_______________________________________________________________________________
Address for Notices for Assignor:______________________________________________
- -------------------------------- ______________________________________________
______________________________________________
ASSIGNEE INFORMATION
--------------------
Credit Contact:
- --------------
Name: ______________________________ Telephone No.: _________________________
Fax No: ____________________________ Telex No.: _____________________________
Answerback: ____________________________
Key Operations Contacts:
- -----------------------
Booking Installation: _______________ Booking Installation: __________________
Name: _______________________________ Name: __________________________________
Telephone No.: ______________________ Telephone No.: _________________________
Fax No: _____________________________ Fax No: ________________________________
Telex No.:____________________________ Telex No.:_______________________________
Answerback: _________________________ Answerback: ____________________________
<PAGE>
Payment Information:
- -------------------
Name & ABA # of Destination Bank:_______________________________________________
_______________________________________________
Account Name & Number for Wire Transfer:________________________________________
________________________________________
Other Instructions:_____________________________________________________________
________________________________________________________________________________
Address for Notices for Assignee:_______________________________________________
_______________________________________________
_______________________________________________
ii
<PAGE>
BANK ONE INFORMATION
--------------------
Assignee will be called promptly upon receipt of the signed agreement.
Initial Funding Contact: Subsequent Operations Contact:
- ----------------------- -----------------------------
Name:__________________________ Name:___________________________
Telephone No.: (312)__________ Telephone No.: (312)___________
Fax No.: (312)________________ Fax No.: (312)_________________
Bank One Telex No.: 190201 (Answerback: FNBC UT)
Initial Funding Standards:
- -------------------------
LIBOR - Fund 2 days after rates are set.
Bank One Wire Instructions: Bank One, NA, ABA # 071000013
- -------------------------- LS2 Incoming Account # 481152860000
Ref:________________
Address for Notices for Bank One: 1 Bank One Plaza, Chicago, IL 60670
- -------------------------------- Attn: Agency Compliance Division,
Suite IL1-0353
Fax No. (312) 732-2038 or (312) 732-4339
iii
<PAGE>
EXHIBIT D
LOAN/CREDIT RELATED MONEY TRANSFER INSTRUCTION
To Bank One, NA,
as Agent (the "Agent") under the Credit Agreement
Described Below.
Re: Credit Agreement, dated as of December 17, 1999 (as the same may be amended
or modified, the "Credit Agreement"), among Unicom Enterprises Inc. (the
"Borrower"), the Lenders named therein and the Agent. Capitalized terms
used herein and not otherwise defined herein shall have the meanings
assigned thereto in the Credit Agreement.
The Agent is specifically authorized and directed to act upon the following
standing money transfer instructions with respect to the proceeds of Advances or
other extensions of credit from time to time until receipt by the Agent of a
specific written revocation of such instructions by the Borrower, provided,
however, that the Agent may otherwise transfer funds as hereafter directed in
writing by the Borrower in accordance with Section 13.01 of the Credit Agreement
or based on any telephonic notice made in accordance with Section 2.14 of the
Credit Agreement.
Facility Identification Number(s)_______________________________________________
Customer/Account Name___________________________________________________________
Transfer Funds To_______________________________________________________________
_______________________________________________________________
For Account No._________________________________________________________________
Authorized Officer (Customer Representative) Date____________________________
- --------------------------------------------------------------------------------
____________________________________ _____________________________________
(Please Print) Signature
- --------------------------------------------------------------------------------
Bank Officer Name___________________ Date_________________________________
- --------------------------------------------------------------------------------
____________________________________ _____________________________________
(Please Print) Signature
- --------------------------------------------------------------------------------
(Deliver Completed Form to Credit Support Staff For Immediate Processing)
<PAGE>
EXHIBIT E
NOTE
December 17, 1999
UNICOM ENTERPRISES INC., an Illinois corporation (the "Borrower"), promises
to pay to the order of ____________________________________ (the "Lender") its
portion of the Aggregate Outstanding Amount pursuant to Article II of the
Agreement (as hereinafter defined), in immediately available funds at the main
office of Bank One, NA in Chicago, Illinois, as Agent, together with interest on
the unpaid principal amount hereof at the rates and on the dates set forth in
the Agreement. The Borrower shall pay the principal of and accrued and unpaid
interest on the Lender's portion of the Aggregate Outstanding Amount, except
with respect to Facility LCs referred to in the last sentence of Section
2.19(b), on the Facility Termination Date.
The Lender shall, and is hereby authorized to, record on the schedule
attached hereto, or to otherwise record in accordance with its usual practice,
the date and amount of each Loan and the date and amount of each principal
payment hereunder.
This Note is one of the Notes issued pursuant to, and is entitled to the
benefits of, the Credit Agreement dated as of December 17, 1999 (which, as it
may be amended or modified and in effect from time to time, is herein called the
"Agreement"), among the Borrower, the Lenders named therein, and Bank One, NA,
as Agent, to which Agreement reference is hereby made for a statement of the
terms and conditions governing this Note, including the terms and conditions
under which this Note may be prepaid or its maturity date accelerated. This
Note is guaranteed pursuant to the Guaranty, all as more specifically described
in the Agreement, and reference is made thereto for a statement of the terms and
provisions thereof. Capitalized terms used herein and not otherwise defined
herein are used with the meanings attributed to them in the Agreement.
THIS NOTE SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK.
UNICOM ENTERPRISES INC.
By
---------------------------------
Name:
Title:
<PAGE>
SCHEDULE OF LOANS AND PAYMENTS OF PRINCIPAL
TO
NOTE OF _________________________,
DATED DECEMBER 17, 1999,
<TABLE>
<CAPTION>
Principal Maturity Principal
Amount of of Interest Amount Unpaid
Date Loan Period Paid Balance
- ---- --------- ----------- --------- -------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
Exhibit (4)-25
Unicom Corporation
Form 10-K File No. 1-11375
GUARANTY
GUARANTY, dated as of December 17, 1999, made by UNICOM CORPORATION, a
corporation organized and existing under the laws of the State of Illinois (the
"Guarantor"), in favor of the Lenders (the "Lenders"), the LC Issuer identified
hereunder and Bank One, NA, as agent (in such capacity, the "Agent") for the
Lenders.
PRELIMINARY STATEMENTS
(1) The Lenders and the Agent have entered into a Credit Agreement, dated
as of the date hereof (said Agreement, as it may hereafter be amended or
otherwise modified from time to time, being the "Credit Agreement", the terms
defined therein and not otherwise defined herein being used herein as therein
defined), with Unicom Enterprises Inc., a corporation organized and existing
under the laws of the State of Illinois (the "Borrower"). The Guarantor will
derive substantial direct and indirect benefit from the transactions
contemplated by the Credit Agreement and the other Loan Documents.
(2) The Borrower is a wholly-owned Subsidiary of the Guarantor.
(3) It is a condition precedent to the making of Advances by the Lenders
under the Credit Agreement and the issuance of Facility LCs by the LC Issuer
pursuant to the Credit Agreement that the Guarantor shall have executed and
delivered this Guaranty.
NOW, THEREFORE, in consideration of the premises and in order to induce the
Lenders to make Advances and the LC Issuer to issue Facility LCs under the
Credit Agreement, the Guarantor hereby agrees as follows:
SECTION 1. Certain Defined Terms. As used in this Guaranty, 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):
"Consolidated Capitalization" means, with respect to any Person, at
any date of determination, the sum of (a) Consolidated Indebtedness 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 and (e) the aggregate principal amount of
Subordinated Deferrable Interest Securities of such Person and its
Consolidated Subsidiaries, in each case determined at such date in
accordance with GAAP.
<PAGE>
"Consolidated Indebtedness" means, with respect to any Person, at any
date of determination, the aggregate Indebtedness of such Person and its
Consolidated Subsidiaries determined on a consolidated basis in accordance
with GAAP, but shall not include (i) Nonrecourse Indebtedness of any
Subsidiary of the Guarantor, (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, as 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 GAAP.
"Consolidated Tangible Net Worth" means, at any time of determination,
with respect to any Person and its Consolidated Subsidiaries, the excess of
such Person's and such Person's Consolidated Subsidiaries' total assets
over its total liabilities, with total assets and total liabilities each to
be determined in accordance with GAAP consistently applied, excluding,
however, from the determination of total assets (i) goodwill,
organizational expenses, research and development expenses, trademarks,
trade names, copyrights, patents, patent applications, licenses and rights
in any thereof, and other similar intangibles, (ii) all prepaid expenses,
deferred charges or unamortized indebtedness discount and expense, (iii)
all reserves carried and not deducted from assets, (iv) securities that are
not readily marketable, (v) cash held in a sinking or other analogous fund
established for the purpose of redemption, retirement or prepayment of
capital stock or Indebtedness, (vi) any write-up in the book value of any
asset resulting from a revaluation thereof subsequent to September 30,
1994, and (vii) any items not included in clauses (i) through (vi), above,
that are treated as intangibles in conformity with GAAP.
"Contingent Obligation" means, as to any Person, the undrawn face
amount of any letters of credit issued for the account of such Person and
shall also mean any monetary obligation of such Person guaranteeing or in
effect guaranteeing any Indebtedness, leases, dividends, letters of credit,
or other obligations ("primary obligations") of any other Person (the
"primary obligor") in any manner, whether directly or indirectly,
including, without limitation, any obligation of such Person, whether or
not contingent, (a) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (b) to advance or supply
funds (i) for the purchase or payment of any such primary obligation or
(ii) to maintain working capital or equity capital of the primary obligor
or otherwise to maintain the net worth or solvency of the primary obligor,
(c) to purchase property, securities, or services primarily for the purpose
of assuring the obligee under any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation, or (d)
otherwise to assure or hold harmless the obligee under such primary
obligation against loss in respect thereof; provided, however, that the
term Contingent Obligation shall not include endorsements of instruments
for deposit or collection in the ordinary course of business. The amount of
any Contingent Obligation shall be deemed to be an amount equal to the
stated or determinable amount of the primary obligation or, where such
Contingent Obligation is specifically limited to a portion of any such
primary obligation, that portion to which it is
<PAGE>
limited or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof (assuming such Person is required
to perform thereunder) as determined by such Person in good faith. For
purposes of computing the Consolidated Indebtedness of any Person, the
amount of any primary obligation of any Subsidiary of such Person and the
amount of any Contingent Obligation of such Person or any Subsidiary of
such Person corresponding to such primary obligation shall only be counted
once (i.e., without duplication).
"Subordinated Deferrable Interest Securities" means all obligations of
the Guarantor 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 Guarantor
and its Consolidated Subsidiaries delivered pursuant to Section 7(a)
hereof.
"Transitional Funding Instruments" means any instruments, pass-through
certificates, notes, debentures, certificates of participation, bonds,
certificates of beneficial interest or other evidences of indebtedness or
instruments evidencing a beneficial interest which (i) are issued pursuant
to a "transitional funding order" (as such term is defined in Section 18-
102 of the Illinois Public Utilities Act, as amended) issued by the
Illinois Commerce Commission at the request of an electric utility and (ii)
are secured by or otherwise payable from non-bypassable cent per kilowatt
hour charges authorized pursuant to such order to be applied and invoiced
to customers of such utility. The instrument funding charges so applied and
invoiced must be deducted and stated separately from the other charges
invoiced by such utility against its customers.
SECTION 2. Guaranty. The Guarantor hereby absolutely, unconditionally and
irrevocably guaranties the punctual payment when due, without setoff,
counterclaim or other deduction, whether at stated maturity, by acceleration or
otherwise, of all obligations of the Borrower now or hereafter existing under
the Credit Agreement, the Notes and any other Loan Documents, whether for
principal, reimbursement obligations, interest, fees, expenses or otherwise (all
such obligations being the "Obligations"), and agrees to pay any and all
expenses (including counsel fees and expenses) incurred by the Agent, the LC
Issuer or the Lenders in enforcing any rights under this Guaranty. Without
limiting the generality of the foregoing, the Guarantor's liability shall extend
to all amounts that constitute part of the Obligations and would be owed by the
Borrower to the Agent, the LC Issuer or the Lenders under the Credit Agreement,
the Notes and the other Loan Documents but for the fact that they are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving the Borrower.
SECTION 3. Guaranty Absolute. The Guarantor guarantees that the Obligations
will be paid strictly in accordance with the terms of the Credit Agreement, the
Notes and the other Loan Documents, regardless of any law, regulation or order
now or hereafter in effect in any jurisdiction affecting any of such terms or
the rights of the Agent, the LC Issuer or the Lenders with respect thereto. The
obligations of the Guarantor under this Guaranty are independent of the
Obligations, and a separate action or actions may be brought and prosecuted
against the Guarantor to enforce this Guaranty, irrespective of whether any
action is brought against the
<PAGE>
Borrower or whether the Borrower is joined in any such action or actions. The
liability of the Guarantor under this Guaranty shall be absolute, unconditional
and irrevocable irrespective of:
(i) any lack of validity or enforceability of the Credit Agreement,
the Notes, any other Loan Document, any Advance, or any other agreement or
instrument relating thereto;
(ii) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations, or any other amendment or
waiver of, or any consent to departure from, the Credit Agreement, the
Notes or any other Loan Document, including, without limitation, any
increase in the Obligations resulting from the extension of additional
credit to the Borrower or otherwise and any extension of the Facility
Termination Date;
(iii) any manner of application of collateral, or proceeds thereof,
to all or any of the Obligations, or any manner of sale or other
disposition of, any release or impairment of, or any failure to perfect,
any lien on or security interest in any collateral for all or any of the
Obligations or any other assets of the Borrower or any of its Subsidiaries,
or any release or discharge of any Person liable for any or all of the
Obligations;
(iv) any change, restructuring or termination of the corporate
structure or existence of the Borrower or any of its Subsidiaries or any
bankruptcy, insolvency, liquidation or similar proceeding instituted by or
against the Borrower or any of its Subsidiaries; or
(v) any other circumstance that might otherwise constitute a defense
available to, or a discharge of, the Borrower or a guarantor.
As against the Guarantor, this Guaranty shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of any of the
Obligations is rescinded or must otherwise be returned by the Agent, any LC
Issuer or any Lender upon the insolvency, bankruptcy or reorganization of the
Borrower or otherwise, all as though such payment had not been made.
SECTION 4. Waiver. The Guarantor hereby waives promptness, diligence,
presentment, protest, notice of protest, notice of dishonor, notice of
acceptance and any other notice with respect to any of the Obligations and this
Guaranty and any requirement that the Agent, any LC Issuer or any Lender
protect, secure, perfect or insure any security interest or lien on any property
subject thereto or exhaust any right or take any action against the Borrower or
any other person or entity or any collateral.
SECTION 5. Waiver of Rights of Subrogation. The Guarantor hereby expressly
and irrevocably waives with respect to the Borrower and its successors and
assigns and any other Person, any and all rights at law or in equity, by
agreement or otherwise, to subrogation, reimbursement, exoneration,
contribution, setoff, share in any collateral or any other rights that could
accrue to a surety against a principal, to a guarantor against a maker or
obligor, to an accommodation party against the party accommodated, or to a
holder or transferee against a
<PAGE>
maker, and that the Guarantor may have or hereafter acquire against the
Borrower, any of its Affiliates, or any other Person in connection with or as a
result of the Guarantor's execution, delivery or performance hereunder. In
furtherance of the foregoing, the Guarantor agrees that any payment by the
Guarantor to the Agent, the LC Issuer or the Lenders pursuant to this Guaranty
shall be deemed a contribution to the capital of the Borrower, and no such
payment shall constitute the Guarantor a creditor of the Borrower. The Guarantor
hereby acknowledges and agrees that the foregoing waivers are intended to
benefit the Borrower, the Agent, the LC Issuer and the Lenders and shall not
limit or otherwise affect the Guarantor's liability hereunder or the
enforceability hereof. If, notwithstanding the foregoing, any amount shall be
paid to the Guarantor on account of such subrogation rights at any time when all
of the Obligations shall not have been paid in full, such amount shall be held
by the Guarantor in trust for the Agent, the LC Issuer and the Lenders,
segregated from other funds of the Guarantor, and shall, forthwith upon receipt
by the Guarantor, be turned over to the Agent in the exact form received by the
Guarantor (duly endorsed by the Guarantor to the Agent), to be applied against
the Obligations, whether matured or unmatured, in such order as the Agent may
determine.
SECTION 6. Representations and Warranties. The Guarantor hereby represents
and warrants as follows:
(a) Corporate Existence and Power. It is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Illinois,
or, following the consummation of the Unicom/PECO Merger, the laws of the
Commonwealth of Pennsylvania, is duly qualified to do business as a foreign
corporation in, and is in good standing under the laws of, each state in which
the ownership of its properties or the conduct of its business makes such
qualification necessary, except where the failure to be so qualified would not
have a Material Adverse Effect, and has all corporate powers and all
governmental licenses, authorizations, consents and approvals required to own or
lease its property and to carry on its business as now conducted.
(b) Corporate Authorization. The execution, delivery and performance by it
of this Guaranty have been duly authorized by all necessary corporate action on
its part and do not, and will not, require the consent or approval of its
shareholders, or any trustee or holder of any Indebtedness or other obligation
of the Guarantor.
(c) No Violation, Etc. The execution and delivery by the Guarantor of this
Guaranty, and the performance by the Guarantor of its obligations hereunder, (i)
are within the Guarantor's corporate powers, (ii) have been duly authorized by
all necessary corporate action and (iii) do not and will not (A) violate any
provision of the charter or by-laws of the Guarantor or of law, (B) violate any
legal restriction binding on or affecting the Guarantor, (C) result in a breach
of, or constitute a default under, any indenture or loan or credit agreement or
any other agreement, lease or instrument to which the Guarantor is a party or by
which it or its properties may be bound or affected, or (D) result in or require
the creation of any lien or security interest upon or with respect to any of its
properties.
(d) Governmental Actions. No authorization or approval or other action by,
and no notice to or filing with, any governmental authority or regulatory body
is required for the due execution, delivery and performance by the Guarantor of
this Guaranty, other than the Merger
<PAGE>
Approvals, which are required for the performance by the Guarantor of this
Guaranty at all times on and after the date of the Unicom/PECO Merger. The
Merger Approvals are and shall be in full force and effect on and after the
effective date of the Unicom/PECO Merger.
(e) Execution and Delivery. This Guaranty has been duly executed and
delivered by the Guarantor, and is the legal, valid and binding obligation of
the Guarantor enforceable against it in accordance with its terms, subject,
however, to the application by a court of general principles of equity and to
the effect of any applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors' rights generally.
(f) Litigation. There is no pending or threatened action or proceeding
(including, without limitation, any proceeding relating to, or arising out of,
any Environmental Laws) affecting it or any of its Subsidiaries before any
court, governmental agency or arbitrator, that might reasonably be expected to
result in a Material Adverse Effect, or that questions the validity or
enforceability of this Guaranty or any other Loan Document against the Guarantor
or the Borrower.
(g) Financial Statements; Material Adverse Change. The consolidated
balance sheet of the Guarantor and its Consolidated Subsidiaries as at September
30, 1999 and the related consolidated statement of income, retained earnings and
cash flows for the period then ended, together with the report thereon of Arthur
Andersen LLP included in the Guarantor's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1999, copies of which have been furnished
to each Lender, fairly present the financial condition of the Guarantor and its
Consolidated Subsidiaries as at such date and the results of operations of the
Guarantor and its Consolidated Subsidiaries for the period ended on such date,
all in accordance with GAAP. Since September 30, 1999, there has been no
material adverse change in the financial condition, results of operations,
operations, business or Property of the Guarantor and its Subsidiaries, taken as
a whole, or the Borrower and its Subsidiaries, taken as a whole (other than
operating losses resulting from start-up operations of Subsidiaries of the
Borrower), or in the Guarantor's ability to perform any of its obligations
hereunder.
(h) ERISA. No ERISA Event has occurred or is reasonably expected to occur
with respect to any Plan of the Guarantor or any of its ERISA Affiliates which
would result in a liability of $25,000,000 or more to the Guarantor. Since the
most recent September 30 for which financial statements have been delivered to
the Lenders in accordance with Section 7(a) 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
Guarantor.
(i) Taxes. The Guarantor and each of its Subsidiaries have 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 provided adequate
reserves for payment thereof other than such taxes that the Guarantor or such
Subsidiary is contesting in good faith by appropriate legal proceedings and in
respect of which the Guarantor or such Subsidiary, as the case may be, has
established adequate reserves in conformity with GAAP.
<PAGE>
(j) Violation of Law. Neither the Guarantor nor any of its Subsidiaries is
in violation of any law or governmental regulation or court decree or order
which might reasonably be expected to result in a Material Adverse Effect.
(k) Investment Company. The Guarantor 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, or an "investment advisor" within
the meaning of the Investment Advisers Act of 1940, as amended.
(l) Holding Company. The Guarantor is a "holding company" within the
meaning of the Public Utility Holding Company Act of 1935, as amended, but the
Guarantor 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 July 22, 1994. Such exemption is in full force and
effect and, except for proceedings in connection with the transactions
contemplated by the Unicom/PECO Merger Agreement, the Guarantor is not aware of
any existing or proposed proceedings contemplating the revocation or
modification of such exemption.
(m) Information. All factual information heretofore or contemporaneously
furnished by or on behalf of the Guarantor in writing to the Agent or any Lender
for purposes of or in connection with this Guaranty or any transaction
contemplated hereby, and all other such factual information hereafter furnished
by or on behalf of the Guarantor to the Agent, any LC Bank or any Lender will
be, true and accurate in every material respect on the date as of which such
information is dated or certified, and not incomplete by omitting to state any
material fact necessary to make such information not misleading.
(n) No Conditions Precedent. There are no conditions precedent to the
effectiveness of this Guaranty that have not been satisfied or waived.
(o) Reliance. The Guarantor has, independently and without reliance upon
the Borrower and based on such documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Guaranty.
(p) Year 2000. The Guarantor has made a full and complete assessment of
the Year 2000 Issues and has a realistic and achievable Year 2000 Program. Based
on such assessment and on the Year 2000 Program, the Guarantor does not
reasonably anticipate that Year 2000 Issues will have a Material Adverse Effect.
SECTION 7. Affirmative Covenants. The Guarantor covenants and agrees that,
so long as any part of the Obligations shall remain unpaid or any Lender shall
have any Commitment, the Guarantor will:
(a) Reporting Requirements. Furnish to each Lender:
(i) 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
Guarantor, a consolidated balance sheet of the Guarantor and its
Consolidated Subsidiaries as of the end of such quarter and consolidated
statements of income, retained earnings and cash flows of the Guarantor and
<PAGE>
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 the chief financial officer or the Treasurer of the
Guarantor as having been prepared in accordance (in all material respects)
with GAAP consistently applied, except for (A) the absence of notes thereto
and (B) changes in accounting principles required by GAAP; provided, that
delivery of a copy of the Guarantor's Quarterly Report on Form 10-Q for
such quarter shall be deemed to satisfy the foregoing requirement;
(ii) as soon as available and in any event within 120 days after the
end of each fiscal year of the Guarantor and its Consolidated Subsidiaries,
a copy of the Annual Report for such year for the Guarantor and its
Consolidated Subsidiaries, containing a consolidated balance sheet of the
Guarantor and its Consolidated Subsidiaries as at the end of such fiscal
year and consolidated statements of income, retained earnings and cash
flows of the Guarantor and its Consolidated Subsidiaries for such fiscal
year, certified in a manner acceptable to the Agent by Arthur Andersen LLP
or another nationally-recognized independent public accounting firm
selected by the Guarantor and acceptable to the Agent; provided, that
delivery of a copy of the Guarantor'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 the foregoing
requirement;
(iii) concurrently with the financial statements for each quarterly
accounting period and for each fiscal year of the Guarantor furnished
pursuant to paragraphs (i) and (ii), above, (A) a certificate of the chief
financial officer, any vice president responsible for financial or
accounting matters, or the Treasurer of the Guarantor stating that (1) the
Guarantor has performed and observed all of, and the Guarantor is not in
default in the performance or observance of any of, the terms, covenants,
agreements and conditions of this Guaranty or, if the Guarantor shall be in
default, specifying all such defaults and the nature thereof, of which the
signer of such certificate may have knowledge, and (2) the signer has
obtained no knowledge of any Unmatured Default or Event of Default except
as specified in such certificate, and (B) an analysis prepared and
certified by the chief financial officer, any vice president responsible
for financial or accounting matters, or the Treasurer of the Guarantor of
the covenants contained in Sections 7(i) and (j), containing all
information necessary for determining compliance by the Guarantor with such
covenants;
(iv) as soon as available and in any event within 120 days after the
end of each fiscal year of the Guarantor and concurrently with the
financial statements furnished pursuant to paragraph (ii), above, a written
statement of the independent public accountants that certified such
financial statements stating that, in making the examination necessary for
their certification of such financial statements, they have obtained no
knowledge of any default by the Guarantor in the observance of any of the
covenants contained in Section 7(i) or (j) or, if such accountants shall
have obtained knowledge of any such default, specifying all such defaults
and the nature thereof, it being understood that they shall not be liable
directly or indirectly for any failure to obtain knowledge of any default;
<PAGE>
(v) as soon as possible and in any event within five days after the
Guarantor becomes aware of the commencement of litigation against the
Guarantor, the Borrower, or any of their respective Subsidiaries that could
reasonably be expected to have a Material Adverse Effect, or that questions
the validity or enforceability of any of the Loan Documents against the
Guarantor or the Borrower, notice of such litigation describing in
reasonable detail the facts and circumstances concerning such litigation
and the Guarantor's, the Borrower's or such Subsidiary's, as the case may
be, proposed actions in connection therewith; provided, that delivery of a
copy of the Guarantor's Current Report on Form 8-K describing any such
litigation shall be deemed to satisfy such requirement unless the Agent, or
any Lender acting through the Agent, shall request any additional
information relating to such litigation;
(vi) promptly after the sending or filing thereof, copies of all
reports which the Guarantor sends to any of its security holders, and
copies of all reports and registration statements (other than registration
statements relating to (A) the offering of indebtedness or
preferred/preference stock equity securities and (B) employee benefit
plans) which the Guarantor or any of its Subsidiaries files with the
Securities and Exchange Commission or any national securities exchange;
(vii) 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 Guarantor or any ERISA Affiliate of the
Guarantor has occurred and (B) within 10 days after any other ERISA Event
with respect to any Plan of the Guarantor or any ERISA Affiliate of the
Guarantor has occurred, a statement of the chief financial officer, any
vice president responsible for financial or accounting matters, or the
Treasurer of the Guarantor describing such ERISA Event and the action, if
any, which the Guarantor or such ERISA Affiliate proposes to take with
respect thereto;
(viii) promptly after receipt thereof by the Guarantor or any of its
ERISA Affiliates from the PBGC copies of each notice received by the
Guarantor or such ERISA Affiliate of the PBGC's intention to terminate any
Plan of the Guarantor or such ERISA Affiliate or to have a trustee
appointed to administer any such Plan;
(ix) promptly after receipt thereof by the Guarantor or any ERISA
Affiliate of the Guarantor from a Multiemployer Plan sponsor, a copy of
each notice received by the Guarantor 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 Guarantor or such ERISA Affiliate is reasonably expected to be
liable;
(x) as soon as possible and in any event within ten days after the
Guarantor knows or should have reason to know of the occurrence of each
Unmatured Default or Event of Default continuing on the date of such
statement, a statement of the chief financial officer, any vice president
responsible for financial or accounting matters, or the Treasurer of the
Guarantor setting forth details of such Unmatured Default or Event of
Default and the action that the Guarantor or the Borrower has taken and
proposes to take with respect thereto; and
<PAGE>
(xi) such other information (other than proprietary customer
information) respecting the business, assets, revenues, financial
condition, results of operations, operations or prospects of the Guarantor,
the Borrower, or any of their respective Subsidiaries as the Agent or any
Lender may from time to time reasonably request.
(b) Preservation of Corporate Existence, Etc. Preserve and maintain, and
cause each of its Subsidiaries to preserve and maintain, its legal existence in
the jurisdiction of its organization and qualify and remain qualified as a
foreign organization in each jurisdiction in which such qualification is
reasonably necessary in view of its business and operations or the ownership of
its properties, and preserve, renew and keep in full force and effect the
rights, privileges and franchises necessary or desirable in the normal conduct
of its business; provided however, that neither the Guarantor nor any such
Subsidiary shall be required to preserve and maintain any such right, privilege
or franchise, and no Subsidiary shall be required to preserve and maintain its
corporate existence, unless the failure to do so would have a Material Adverse
Effect.
(c) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries
to in all material respects with all Applicable Laws, such compliance to include
compliance with ERISA and Environmental Laws.
(d) Maintenance of Insurance, Etc. Maintain, and cause each of its
Subsidiaries to maintain, such insurance as may be required by law and such
other insurance, to the extent and against such hazards and liabilities, as is
customarily maintained by companies similarly situated.
(e) Inspection Rights. At any reasonable time and from time to time as the
Agent or any Lender may reasonably request, permit the Agent, each Lender or any
agents or representatives thereof to examine and make copies of and abstracts
from the records and books of account of, and visit the properties of, the
Guarantor and any of its Subsidiaries (except in the case of Commonwealth, as
may be restricted by law), and to discuss the affairs, finances and accounts of
the Guarantor and any of its Subsidiaries with any of their respective officers
or directors; provided, however, that, prior to the disclosure of any
information or materials of the Guarantor or its Subsidiaries relating to
customers, pricing methods or formulae or proprietary methods or processes, the
Guarantor 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 Guarantor and such Lender and containing customary terms.
(f) Maintaining of Books. Maintain, and cause each of its Subsidiaries to
maintain, complete and accurate books of record and account in which entries
shall be made of all financial transactions and the assets and business of the
Guarantor and each of its Subsidiaries in accordance with GAAP.
(g) Maintenance of Properties. Cause all properties used or useful in the
conduct of the business of the Guarantor or any of its Subsidiaries to be
maintained and kept in reasonable condition, repair and working order, and cause
to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Guarantor may be necessary
so that the business carried on in connection therewith may be properly and
<PAGE>
advantageously conducted at all times; except where the failure to do so would
not have a Material Adverse Effect.
(h) Taxes and Liabilities. Pay, and cause each of its Subsidiaries to pay,
when due all taxes, assessments, governmental charges and other liabilities
imposed upon it or its property, except to the extent contested in good faith
and by appropriate proceedings and in respect of which adequate reserves for the
payment thereof have been set aside by the Guarantor or such Subsidiary, as the
case may be, in accordance with GAAP.
(i) Maintenance of Minimum Consolidated Tangible Net Worth. Maintain at
all times a Consolidated Tangible Net Worth of at least $3,500,000,000.
(j) Consolidated Leverage Ratio. Maintain, on the last day of each fiscal
quarter, a ratio of (i) Consolidated Indebtedness to (ii) Consolidated
Capitalization of not greater than 0.65 to 1.
(k) Ownership of Subsidiaries. Maintain direct ownership of 100% of the
capital stock of the Borrower and maintain direct ownership of at least 80% of
the voting capital stock of Commonwealth (in either case, a "Change in
Control"); provided, however, that the proposed Unicom/PECO Merger shall not
constitute a Change of Control.
(l) Year 2000. Take all such actions as is reasonably necessary to
successfully implement the Year 2000 Program and to assure that Year 2000 Issues
will not have a Material Adverse Effect. At the request of the Agent, the
Guarantor will provide a description of the Year 2000 Program, together with any
updates or progress reports with respect thereto.
SECTION 8. Negative Covenants. The Guarantor covenants and agrees that, so
long as any part of the Obligations shall remain unpaid or any Lender shall have
any Commitment, the Guarantor will not:
(a) Liens, Etc. Create or suffer to exist, or permit any of its
Subsidiaries to create or suffer to exist, any lien, security interest, or other
charge or encumbrance, or any other type of preferential arrangement, upon or
with respect to any of its properties (including, without limitation, the
capital stock of or any other equity interest in any of its Subsidiaries, except
as provided below), whether now owned or hereafter acquired, or assign, or
permit any of its Subsidiaries to assign, any right to receive income, in each
case to secure or provide for the payment of any Indebtedness of any Person (any
of the foregoing being referred to herein as a "Lien"), other than (i) Liens
imposed by law, such as carriers', warehousemen's and mechanics' Liens and other
similar Liens arising in the ordinary course of business; (ii) with respect to
any Subsidiary of the Guarantor, other Liens of the types described in Section
6.16 of the Credit Agreement; (iii) Liens on the capital stock of or any other
equity interest in any of the Guarantor's Subsidiaries or any such Subsidiary's
assets to secure Nonrecourse Indebtedness, (iv) Liens created in connection with
the acquisition by Subsidiaries of assets and the continuation of such Liens in
connection with any refinancing of the Indebtedness secured by such Liens,
provided such Liens are limited to the assets so acquired; (v) Liens on the
assets and/or rights to receive income of any Person that exist at the time such
Person becomes a Subsidiary and the continuation of such Liens in connection
with any refinancing or restructuring of the obligations secured by such Liens;
and (vi) Liens arising under the Mortgage, dated July 1,
<PAGE>
1923, as amended and supplemented by supplemental indentures, including the
Supplemental Indenture, dated August 1, 1944, from Commonwealth to Harris Trust
and Savings Bank and D.G. Donovan, as trustees, and "permitted liens" as defined
in said Mortgage; provided however, that, notwithstanding the foregoing, if both
before and after giving effect thereto no Unmatured Default or Event of Default
shall have occurred and be continuing, Commonwealth may sell, pledge or
otherwise dispose of its accounts receivable.
(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 Guarantor has no control
over the reduction or elimination of such deficiency), (ii) terminate, or permit
any ERISA Affiliate of the Guarantor to terminate, any Plan of the Guarantor or
such ERISA Affiliate so as to result in a liability of $25,000,000 or more of
the Guarantor 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 Required Lenders) risk of such a termination
by the PBGC of any Plan of the Guarantor or such ERISA Affiliate and such a
liability to the Guarantor.
(c) 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 related or unrelated 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 Guarantor is
the surviving corporation, (iii) the Guarantor's Consolidated Tangible Net Worth
shall be equal to or greater than its Consolidated Tangible Net Worth
immediately prior to such merger and (iv) the Guarantor shall not be liable with
respect to any Indebtedness 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 Guaranty on the date of such transaction, provided,
however, nothing in this Section shall prohibit the proposed Unicom/PECO Merger.
(d) Indebtedness. Create, incur, assume or suffer to exist any
Indebtedness, other than (without duplication) (i) Indebtedness to the Borrower
in an amount not to exceed $25,000,000 in the aggregate at any one time
outstanding, (ii) Indebtedness hereunder, (iii) unsecured Contingent Obligations
(other than in respect of this Guaranty) in an aggregate amount at any one time
outstanding not to exceed the excess of (A) $700,000,000 over (B) the amount of
Contingent Obligations incurred by the Borrower pursuant to Section 6.13(ii) of
the Credit Agreement, (iv) other unsecured Indebtedness and (v) secured
Indebtedness in connection with investments in partnership or limited liability
company entities that invest, directly or indirectly, in residential apartment
complexes qualifying for low income housing tax credits under Section 42 of the
Code in an aggregate amount not to exceed $75,000,000; provided, however, that,
notwithstanding the foregoing, the aggregate amount of Indebtedness of the
Guarantor, the Borrower and Subsidiaries of the Borrower at any one time
outstanding shall not exceed $900,000,000, provided, further, that for purposes
of this Section the term "Indebtedness" shall not include the Unicom Investment
Inc. Debt.
<PAGE>
(e) Guarantor and Subsidiaries' Stock. Permit any of its Subsidiaries to
purchase or otherwise acquire any shares of capital stock of the Guarantor; or
take any action, or permit any such Subsidiary to take any action, that would
result in a material decrease in the percentage of the outstanding shares of
capital stock of any "Significant Subsidiary" of the Guarantor (within the
meaning of Rule 1-02 of the Regulation S-X of the Securities and Exchange
Commission) owned by the Guarantor and its other Subsidiaries; provided,
however, that the Guarantor or Commonwealth may take any such action with
respect to the capital stock of Commonwealth, provided that, after giving effect
to any such action, the Guarantor is in compliance with Section 7(k) hereof.
(f) Other Agreements. Enter into any agreement containing any provision
that would be violated or breached by the performance of its obligations
hereunder or under any instrument or document delivered or to be delivered by
the Guarantor hereunder or in connection herewith.
(g) Transactions with Affiliates. Enter into, or permit any of its
Subsidiaries to enter into, any transaction with an Affiliate of the Guarantor,
unless (i) such transaction is on terms no less favorable to the Guarantor 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 that was not an Affiliate
of the Guarantor or (ii) such transaction is conducted pursuant to the
Affiliated Interests Agreement, dated as of December 4, 1995, among
Commonwealth, the Guarantor and the other entities named therein, as it may be
amended or modified from time to time or replaced by an agreement regarding such
transactions approved by the Illinois Commerce Commission or the Securities and
Exchange Commission; provided, the foregoing shall not apply to (x) the
transactions contemplated by the Asset Sale Agreement, dated as of May 11, 1999,
between Commonwealth and Unicom Investment Inc. relating to the sale of
Commonwealth's fossil generation assets and the incurrence of the Unicom
Investment Inc. Debt; (y) the transfer by Commonwealth to Unicom Technology
Development Inc., an Illinois corporation, of up to $275,000,000 of the notes
representing the Unicom Investment Inc. Debt under said Asset Sale Agreement
along with an obligation in respect of an equivalent amount of Commonwealth's
contingent obligation to pay post-retirement health care benefits; and (z)
transactions associated with a transfer of Commonwealth's nuclear generating
stations to a Subsidiary of the Guarantor.
(h) Distributions. Upon the occurrence and during the continuance of an
Event of Default, declare or pay, directly or indirectly, any dividend, payment
or other distribution of assets, properties, cash, rights, obligations or
securities on account of any share of any class of capital stock of the
Guarantor, or purchase, redeem, retire, or otherwise acquire for value, or
permit any of its Subsidiaries to purchase, redeem, retire, or otherwise acquire
for value, any shares of any class of capital stock of the Guarantor or any
warrants, rights, or options to acquire any such shares, now or hereafter
outstanding, or make any distribution of assets to any of its shareholders;
provided, however, that, notwithstanding the foregoing, the Guarantor may, to
the extent that it is legally required to do so, pay any such dividend, payment
or other distribution after the Guarantor has declared such dividend, payment or
other distribution.
SECTION 9. Amendments, Etc. No amendment or waiver of any provision of
this Guaranty, and no consent to any departure by the Guarantor herefrom, shall
in any event be effective unless the same shall be in writing and signed by the
Agent and the Required Lenders, and then such waiver or consent shall be
effective only in the specific instance and for the
<PAGE>
specific purpose for which given, provided, however, that no amendment, waiver
or consent shall, unless in writing and signed by all of the Lenders, (i) limit
the liability of, or release, the Guarantor hereunder, (ii) postpone any date
fixed for payment hereunder, or (iii) change the number of Lenders required to
take any action hereunder.
SECTION 10. Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing (including telecopier, telegraphic or
cable communication) and mailed, telecopied, telegraphed, cabled or delivered to
it, (i) if to the Guarantor, at its address at P.O. Box A-3005, 10 South
Dearborn Street, 37th Floor, Chicago, Illinois 60690-3005, Attention: Treasurer,
Telecopy: (312) 394-4082, with a copy of the same address, attention: Associate
General Counsel-Corporate and Commercial, telecopy: (312) 394-3950, and (ii) if
to the Agent, the LC Issuer or any Lender, at its address specified in the
Credit Agreement or, as to any party, at such other address as shall be
designated by such party in a written notice to each other party. All such
notices and other communications shall, when mailed, telecopied, telegraphed or
cabled, be effective when deposited in the mails, telecopied, delivered to the
telegraph company or delivered to the cable company, respectively.
SECTION 11. No Waiver; Remedies. No failure on the part of the Agent, the
LC Issuer or any Lender to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right hereunder 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 12. Right of Set-off. Upon the occurrence and during the
continuance of any Default, the LC Issuer and 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 of the Guarantor (general or special,
time or demand, provisional or final). The LC Issuer and each Lender agrees
promptly to notify the Agent and the Guarantor 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 the
LC Issuer and each Lender under this Section are in addition to other rights and
remedies (including, without limitation, other rights of set-off) that the LC
Issuer or such Lender may have.
SECTION 13. Continuing Guaranty; Assignments under Credit Agreement. This
Guaranty is a continuing guaranty and shall (i) subject to the last sentence of
Section 3, remain in full force and effect until the later to occur of (A) the
payment in full of the Obligations and all other amounts payable under this
Guaranty and (B) the expiration or termination of the Commitments, (ii) be
binding upon the Guarantor, its successors and assigns (provided, that the
Guarantor may not assign any of its rights or obligations hereunder without the
prior written consent of the Lenders), and (iii) inure to the benefit of, and be
enforceable by, the Agent, the LC Issuer, the Lenders and their respective
successors, transferees and assigns. Without limiting the generality of the
foregoing clause (iii), any Lender may assign or otherwise transfer all or any
portion of its rights and obligations under the Credit Agreement (including,
without limitation, all or any portion of its Commitment, the Advances owing to
it and any Note held by it) to any other person or entity pursuant to Section
12.03 thereof, and such other person or entity shall thereupon become vested
with all the benefits in respect thereof granted to such Lender herein or
<PAGE>
otherwise, subject, however, to the provisions of Article X (concerning the
Agent) of the Credit Agreement.
SECTION 14. Governing Law. THIS GUARANTY SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 15. Consent to Jurisdiction; Waiver of Jury Trial. (a) The
Guarantor hereby irrevocably (i) submits to the non-exclusive jurisdiction of
any New York State or Federal court sitting in New York City and any appellate
court from any thereof in any action or proceeding arising out of or relating to
this Guaranty or any other Loan Document and (ii) agrees that all claims in
respect of such action or proceeding may be heard and determined in such New
York State court or in such Federal court. The Guarantor hereby irrevocably
waives the defense of an inconvenient forum to the maintenance of such action or
proceeding and any objection to venue in connection therewith. The Guarantor
also irrevocably consents to the service of any and all process in any such
action or proceeding by the mailing by certified mail of copies of such process
to the Guarantor at its address specified in Section 10. The Guarantor agrees
that a final judgment in any such action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law.
(b) THE GUARANTOR HEREBY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS GUARANTY, ANY
OTHER LOAN DOCUMENT, OR ANY OTHER INSTRUMENT OR DOCUMENT DELIVERED HEREUNDER OR
THEREUNDER.
SECTION 16. Execution in Counterparts. This Guaranty may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which counterparts when so executed shall be deemed to be
an original and all of which taken together shall constitute one and the same
agreement.
SECTION 17. Severability. Any provision of this Guaranty or any other
Loan Document that is prohibited, unenforceable or invalid in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such
prohibition, unenforceability or invalidity without invalidating the remaining
provisions hereof or thereof or affecting the validity, enforceability or
legality of such provision in any other jurisdiction.
SECTION 18. Headings. Article and Section headings used herein are for
convenience of reference only, are not part of this Guaranty and are not to
affect the construction of, or to be taken into consideration in interpreting,
this Guaranty.
SECTION 19. Entire Agreement. This Guaranty constitutes the entire
agreement and understanding among the Guarantor, the Lenders, the LC Issuer and
the Agent relative to the subject matter hereof. Any previous agreement by or
among such parties with respect to the subject matter hereof is superseded by
this Guaranty. Nothing in this Guaranty, expressed or implied, is intended to
confer upon any party other than the Lenders, the LC Issuer and the Agent any
rights, remedies, obligations, or liabilities under or by reason of this
Guaranty.
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
UNICOM CORPORATION
By /s/ Patricia L. Kampling
-----------------------------------
Patricia L. Kampling
Treasurer
<PAGE>
EXHIBIT (10)-5
Unicom Corporation and Commonwealth Edison Company
Form 10-K File No. 1-11375 and 1-1839
Unicom Corporation
1999 Long-Term Performance Unit Award
Payable in 2002 under the
Unicom Corporation Long-Term Incentive Plan, as amended
Unicom Corporation, an Illinois corporation (the "Company"), hereby grants to
each individual described in Section 1 hereof as of January 1, 1999 (the "Grant
Date"), in accordance with the provisions of the Unicom Corporation Long-Term
Incentive Plan, as amended (the "Plan"), a performance unit award (each, an
"Award") expressed as a number of performance units, 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. Participation:
--------------
(a) The following individuals shall be participants eligible to receive an
Award hereunder ("Participants"): any regular non-temporary employee of the
Company or its affiliates (including, but not limited to Commonwealth Edison
Company ("ComEd") and collectively referred to herein as the "Employers")
who, on the Grant Date and for at least 180 days of the Performance Period,
is a member of one of the following groups of eligible employees: (i) an
officer; (ii) classified as an Executive Level or its equivalent, or (iii)
classified as a Key Management Level or its equivalent and who has been
designated by the Company as eligible to participate hereunder.
(b) An individual who becomes an officer, Executive Level, designated Key
Management Level or is hired after the Grant Date but prior to June 30, 2001
into one of the groups of eligible employees described above (each, a "New
Employee") shall also be a Participant; provided, however, that such
individual must be an eligible employee through either actual or deemed
employment for at least 180 days of the Performance Period in order to be
eligible to receive an Award.
For purposes of the above, eligible employees' pay classifications shall be
those used by the Company or ComEd or, if a Participant's Employer maintains
a system of pay classification different from those described above, a
classification mutually determined by such employer and the Company to be
comparable to the Company's eligible classifications.
Notwithstanding the preceding, an eligible employee described above who
participates in another long term performance award program ("Other
Program") sponsored by an Employer will not be eligible to participate in
this Award. If such individual is no longer eligible to participate in an
Other Program, then he or she may be deemed eligible to be a Participant and
any Award payable to such individual shall be prorated using the proration
formula provided in Section 6.2. Similarly, if a Participant becomes
eligible to participate in an Other Program, then such individual will cease
to be a Participant hereunder and any Award payable to such individual will
be prorated using the proration formula provided in Section 6.1.
2. Base Unit. The number of performance units (rounded to the nearest one
---------
hundredth) granted for each Participant's Award (the "Base Unit") shall
equal (a) the product of (i) the Participant's Salary (as defined below),
multiplied by (ii) the applicable Target Award Opportunity percentage (set
forth below), (b) divided by 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 calendar quarter
<PAGE>
ending on December 31, 1998 (appropriately adjusted for any stock-split,
stock dividend, or other similar event):
Target Award Opportunities
--------------
Target
-------------------------------------------------------------
Chairman & CEO 50%
-------------------------------------------------------------
Executive Vice President (Line) 45%
-------------------------------------------------------------
Executive Vice President (Staff) 40%
-------------------------------------------------------------
Senior Vice President 35%
-------------------------------------------------------------
Vice President (Officers) 25%
-------------------------------------------------------------
Other Executives 20%
-------------------------------------------------------------
Designated Key Managementl 15%
-------------------------------------------------------------
For purposes hereof, "Salary" shall mean, with respect to any Participant,
such Participant's annual scheduled rate of pay as of March 29, 1999,
together with the annual income from any deferred compensation units
previously granted to the Participant, if applicable; provided, however,
that with respect to a Participant who is a New Employee, Salary shall mean
such New Employee's annual scheduled rate of pay as of the date such
individual becomes a New Employee (the "Start Date").
3. Performance Period. The Performance Period shall commence on January 1,
------------------
1999 and end on December 31, 2001.
4. Payment Amount. The amount payable in connection with any Award (a "Payment
--------------
Amount") shall be a dollar amount equal to the product of (i) the Employee's
Base Value (as defined below), multiplied by (ii) the applicable Component
Weights (as indicated below) for each of the three year goals (the "Goals")
established specifically for this Program, multiplied by, (iii) the
composite of the achieved percentage of each applicable Goal, as determined
by the Committee, expressed as a percentage of target ranging from 50% to
200% ; provided the initial threshold is met.
(a) "Base Value" means the product of (i) each Participant's Base Unit
multiplied by, (ii) 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 calendar quarter ending on the last day of
the Performance Period (appropriately adjusted for any stock-split, stock
dividend or other similar event).
(b) "Component Weights" are those set forth below:
----------------------------------
Component Weight
----------------------------------
Participant Corporate Business Unit
- --------------------------------------------------------------------------------
Line Business Units Business Unit Head 50% 50%
-------------------------------------------------------
All Others 25% 75%
- --------------------------------------------------------------------------------
Corporate Staff
Business Units Officers 100% 0%
-------------------------------------------------------
Non-Officers 100% 0%
- --------------------------------------------------------------------------------
Page 2 of 5
<PAGE>
(c) The "Goals" shall mean:
(1) Corporate Measures: Cumulative three-year Corporate Shareholder
Value Added (SVA) and Overall Customer Satisfaction Index (2001
Index).
(ii) Business Unit Measures: Three-year strategic/financial goals set
for each Business Unit, as approved by the Committee.
5. Settlement of Awards. The Payment Amount shall become payable upon the last
--------------------
day of the Performance Period and shall be paid by the Company within 90
days thereafter. The Payment Amount shall be paid 50% in cash and 50% in
shares of Common Stock; provided, however, that, if a Participant elects
under the Unicom Corporation Stock Bonus Deferral Plan to defer up to 100%
of the Payment Amount, the amount so deferred shall be paid in shares of
Common Stock; and provided further, that shares that may become payable to a
Participant hereunder shall not be issued if the aggregate number of shares
payable to such Participant 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 a Participant hereunder shall be issued if the shares
issuable to such Participant 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 determining the number of shares of Common
Stock payable pursuant to this Section, a share of Common Stock shall be
valued at 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 calendar quarter ending on the last day of the
Performance Period (appropriately adjusted for any stock-split, stock
dividend or other similar event).
6. Employment for Less than Full Performance Period.
------------------------------------------------
6.1. Termination of Employment. Except as provided in the immediately
-------------------------
following sentence, if a Participant's employment with an Employer is
terminated prior to the last day of the Performance Period for any reason,
the Participant shall forfeit his or her Award and no amount shall be
payable hereunder. If a Participant's employment with an Employer is
terminated prior to the last day of the Performance Period due to such
Participant's (i) termination as a result of the sale, permanent closure or
other disposition of any generation facility, the sale or other disposition
of any business unit or functional group (or portion thereof) that includes
such Participant or the Company's decision to have a third party provide the
services performed by the functional group that includes such Participant
(in any such case, a "Permitted Termination"), (ii) retirement under the
pension plan of any of the Employers, (iii) death, or (iv) acceptance of
severance pay under a voluntary separation plan or entitlement to payment
under any other severance plan or arrangement that provides for an Award,
and such individual was a Participant for at least 180 days of the
Performance Period, then the Payment Amount for such Participant shall be
amount equal to the Payment Amount calculated in accordance with Section 4
hereof multiplied by a fraction, the numerator of which is the number of
days in the Performance Period that have elapsed between the commencement of
the Performance Period (in the case of a Participant described in Section
1(a)), or the Start Date (in the case of a New Employee), and the date of
such Permitted Termination, retirement or death (as the case may be) and the
denominator of which is the total number of days in the Performance Period.
Any Payment Amount calculated in accordance with the immediately preceding
sentence shall be paid as provided in Section 5 hereof within 90 days after
the last day of the Performance Period.
Page 3 of 5
<PAGE>
6.2. New Employees. The Payment Amount for any Participant who is a New
-------------
Employee and whose Start Date was on or before June 30, 2001, who remains
employed through the last day of the Performance Period and who was a
Participant for at least 180 days of the Performance Period shall be an
amount equal to the Payment Amount calculated in accordance with Section 4
hereof multiplied by a fraction, the numerator of which is the number of
days in the Performance Period that have elapsed between the New Employee's
Start Date and the end of the Performance Period and the denominator of
which is the total number of days in the Performance Period. Any Payment
Amount calculated in accordance with the immediately preceding sentence
shall be paid as provided in Section 5 hereof within 90 days after the last
day of the Performance Period.
6.3. Promotions and Demotions.
------------------------
(a) If a Participant's pay classification changes during the
Performance Period to a pay classification that remains included
within the groups of eligible employees set forth in Section 1(a),
then such individual shall be entitled to an Award in an amount equal
to the Payment Amount calculated in accordance with Section 4 hereof,
but based upon the sum of the products of (i) the Base Unit applicable
to each pay classification held by such Participant during the
Performance Period, multiplied by (ii) a fraction the numerator of
which is the number of days during the Performance Period that each
such pay classification was held and the denominator of which is the
total number of days in the Performance Period.
(b) If a Participant is demoted during the Performance Period to a pay
classification below those included within the groups of eligible
employees set forth in Section 1(a) and such individual was a
Participant for at least 180 days of the Performance Period, then such
individual shall be entitled to an Award in an amount equal to the
Payment Amount calculated in accordance with Section 4 hereof
multiplied by a fraction the numerator of which is the number of days
in the Performance Period that such individual was an eligible
employee and the denominator of which is the total number of days in
the Performance Period.
(c) If an individual who was not, as of the Grant Date, eligible to
participate hereunder is promoted on or before June 2001 to a pay
classification that is included within the groups of eligible
employees set forth in Section 1(a) and such individual is a
Participant for at least 180 days of the Performance Period, then such
individual shall be entitled to an Award in an amount equal to the
Payment Amount calculated in accordance with Section 4 hereof
multiplied by a fraction the numerator of which is the number of days
in the Performance Period that such individual was an eligible
employee and the denominator of which is the total number of days in
the Performance Period.
6.4. Reduction of Payment Amount in Certain Circumstances. In the event
----------------------------------------------------
that a Participant takes a voluntary leave of absence or a leave of absence
for long-term disability during all or any portion of the Performance Period
and such individual was a Participant for at least 180 days of the
Performance Period, the Payment Amount for such Participant's Award shall be
prorated by multiplying it by a fraction, the numerator of which is the
number of days during the Performance Period that the Participant was
actively at work for an Employer (or Employers) and the denominator of which
is the total number of days in the Performance Period.
6.5. Transfer from One Business Unit to Another Business Unit. If a
--------------------------------------------------------
Participant is transferred from one business unit to another business unit
and such individual was a Participant for at least 180 days of the
Performance Period, the Participant's Payment Amount will be the sum of
prorations with respect to
Page 4 of 5
<PAGE>
each business unit. Each proration will equal (i) the Payment Amount,
multiplied by (ii) a fraction, the numerator of which is the number of days
the Participant was in the applicable business unit and the denominator of
which is the total number of days in the Performance Period.
7. Rights as a Stockholder. No Participant shall have any rights as a
-----------------------
stockholder of the Company with respect to any shares of Common Stock that
may be payable hereunder unless and until such shares have been issued to
such Participant or otherwise credited to an account for the benefit of such
Participant.
8. Additional Terms and Conditions of Award.
----------------------------------------
8.1. Nontransferability of Award. In accordance with Section 13.5 of the
---------------------------
Plan, no Award or other related benefit may, except as otherwise
specifically provided by the Plan or by law, be transferable in any manner
other than by will or the laws of descent and distribution, and any attempt
to transfer any such Award or other benefit shall be void; provided,
however, that the foregoing shall not restrict the ability of any
Participant to transfer any cash or Common Stock received as part of the
Payment Amount. In accordance with Section 13.5 of the Plan, Awards or other
benefits payable under 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 or benefits, nor shall they be subject to
attachment or legal process for or against such person.
8.2. Withholding Taxes. As a condition precedent to the delivery to the
-----------------
Participant 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 Amount) payable then or thereafter payable by the Company or any of
its subsidiaries to the Participant, or may request the Participant to pay
to the Company in cash, such amount as the Company or any of its
subsidiaries may be required, under all applicable federal, state, local or
other laws or regulations, to withhold and pay over with respect to the
Award.
8.3. 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.
8.4 Award Subject to the Plan. This Award is subject to the provisions of
-------------------------
the Plan, and shall be interpreted in accordance therewith.
8.5. Administration. Senior management administers the Program and has the
--------------
authority to interpret, administer, and implement it, and to approve goal
determinations and performance achievement. Senior management and the
Compensation Committee of the Board of Directors may, in its sole
discretion, make adjustments to Program performance measures in order to
take into account changes in accounting rules, principles or methods, or the
occurrence of extraordinary events. The Company reserves the right to revise
or terminate the Program at any time with no advance notice.
Page 5 of 5
<PAGE>
Exhibit (10)-9
Unicom Corporation and
Commonwealth Edison Company
Form 10-K File Nos. 1-11375and 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 in
salary grade level entry to 11, or equivalent, 100% in cash after the
Page 3 of 7
<PAGE>
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 1/st/ and prior to November 1/st/, (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
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
Page 4 of 7
<PAGE>
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
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.
Page 5 of 7
<PAGE>
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 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.
Page 6 of 7
<PAGE>
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 (10)-38
Unicom Corporation and
Commonwealth Edison Company
Form 10-K File No. 1-11375 and 1-1839
UNICOM CORPORATION
KEY MANAGEMENT
SEVERANCE PLAN
As Amended and Restated, effective
March 8, 1999
<PAGE>
UNICOM CORPORATION
KEY MANAGEMENT SEVERANCE PLAN
1. AMENDMENT AND RESTATEMENT; PURPOSE OF THE PLAN
----------------------------------------------
The Unicom Corporation Key Management Severance Plan (the "Plan") was
established, effective June 15, 1998, by Unicom Corporation ("Unicom") to
provide certain key employees of Commonwealth Edison Company ("ComEd") and other
subsidiaries of Unicom (jointly and severally referred to herein as the
"Company") certain severance benefits in the event the employment of such
employees terminates under the circumstances described herein. The Plan was
amended and restated, effective March 8, 1999, to reflect a policy approved by
the Board of Directors of the Company which provides benefits in the event a key
employee's employment is terminated by the Company other than for Cause or the
employee resigns for Good Reason within 24 months following a Change in Control
of the Company. This document serves as both the Plan document and the summary
plan description which is required to be provided to participants under the
Employee Retirement Income Security Act of 1974 (ERISA).
2. ELIGIBILITY
-----------
Each individual who is on the executive payroll of ComEd or on the
equivalent payroll of any other subsidiary of Unicom (an "Executive") shall be
eligible for benefits hereunder in the event such Executive has a Termination of
Employment.
3. PARTICIPATION
-------------
Each eligible Executive shall become a participant in the Plan
("Participant") upon his or her execution of an agreement with the Company in
such form as the Company, in its sole discretion, shall require or permit (the
"Severance Agreement"). Except with respect to a Termination of Employment
within 24 months following a Change in Control, as described in Section 5, each
Severance Agreement shall include covenants not to compete which are
substantially in the form attached hereto and made a part hereof as Exhibit I,
and each Executive shall also be required to execute, no later than the date of
the Participant's Termination of Employment or, if later, such date indicated by
the Plan Administrator which shall be no less than 21 days after the date the
Executive is provided with a copy of a Severance Agreement, a waiver and release
of claims against the Company ("Waiver and Release").
4. BENEFITS
--------
Except as provided in Section 5 with respect to a Termination of Employment
on account of a Change in Control, benefits under the Plan shall be those
described in this Section 4; provided, however, that if, under the terms of an
offer of employment or employment agreement with the Company, a Participant
would be entitled to benefits which exceed the level of benefits under the Plan,
the terms of such offer of employment or other agreement shall control.
4.1 Severance Pay. Each Participant shall receive severance pay at a monthly
rate equal to 1/12 of the sum of the Participant's annual base salary in effect
as of the date of Termination of Employment (plus Deferred Compensation Units,
if any) plus the Severance Incentive (as defined in Paragraph 7.5). Payment
shall be made biweekly for the duration of the applicable Salary Continuation
Period, as indicated below, commencing no later than the second paydate which
occurs after the date of the Participant's Termination of Employment, but in no
event earlier than the date which is eight days after the date the Participant
returns an executed Waiver and Release to the Plan Administrator. Payment will
be made in accordance with the Company's normal payroll practices, net of
applicable taxes and other deductions.
<PAGE>
Participant Title Salary Continuation Period
----------------- --------------------------
Senior Vice President and above 24 months
Other Officers 18 months
Executives (non-officers) 12 months
4.2 Incentive Programs. A Participant's Annual Incentive Award and Long Term
Performance Unit Awards made or payable under the Unicom Corporation Long Term
Incentive Plan (the "LTIP"), or any other annual incentive award and/or long
term performance awards to which a Participant is entitled under the terms of a
similar plan or arrangement(s) with respect to the calendar year in which occurs
the Participant's Termination of Employment shall be prorated by multiplying the
amount of such Awards, determined as described below, by a fraction the
numerator of which is the number of days of the Participant's active employment
during such calendar year and the denominator of which is 365. The amount of any
such Awards shall be determined based upon achievement of applicable performance
goals, in accordance with the terms of the applicable incentive program for such
calendar year; provided, however, that a Long Term Performance Unit Award shall
be payable hereunder with respect to any Participant (other than a Participant
who is or who, as of the last day of his or her Salary Continuation Period would
be, eligible to begin receiving retirement benefits under the Commonwealth
Edison Company Service Annuity System (the "Pension Plan") or, if applicable,
under the Commonwealth Edison Supplemental Management Retirement Plan (the
"SERP")) only if such Participant was an active employee for at least 24 months
of the performance period with respect to such Award. Payment of Awards under
this Section 4.2 shall be made in a lump sum net of applicable taxes and other
deductions at such time as the Awards for such calendar year are payable to
active employees.
4.3 Stock Options. No Participant shall be entitled to participate in any
grants of stock options under the LTIP made after such Participant's Termination
of Employment. Except as provided below, any stock options granted to a
Participant prior to such Participant's Termination of Employment shall be
exercisable only to the extent such options are exercisable as of the date of
such Termination of Employment and shall thereafter be exercised in accordance
with the provisions of the LTIP. Stock options which remain unexercisable as of
the date of a Participant's Termination of Employment shall be forfeited.
Notwithstanding the preceding, with respect to any Participant who, as of the
date of such Participant's Termination of Employment (or, if later, the last day
of such Participant's Salary Continuation Period) is eligible to begin receiving
retirement benefits under the Pension Plan or the SERP, as applicable, any stock
options granted to such Participant which have not become exercisable prior to
the date of the Termination of Employment shall become fully exercisable on such
date, and shall remain exercisable until the expiration of the option term(s).
4.4 Health Care Coverage. Each Participant shall continue to participate in the
health care plans sponsored by ComEd during the Salary Continuation Period. The
premium for such coverage shall be the premium level in effect for active
employees during such period. Coverage under this Paragraph 4.4 shall be
provided for the duration of the Salary Continuation Period in lieu of
continuation coverage under the Consolidated Omnibus Budget Reconciliation Act
of 1985 (COBRA) for the same period. At the end of the Salary Continuation
Period, COBRA continuation coverage may be elected for the remaining balance of
the statutory coverage period, if any; provided, however that a Participant who,
as of the last day of the Salary Continuation Period has attained at least age
50 (but not age 55) and completed at least 10 years of service under the terms
of the Pension Plan (or who, pursuant to the terms of an offer of employment or
employment agreement, is credited with a number of additional years of age
and/or service that would enable such Participant to satisfy the above
eligibility requirements) shall be entitled to elect retiree health coverage
under the ComEd health care plans on the same terms and subject to the same
conditions as active employees who have attained age 55 and are eligible to
begin receiving early retirement benefits under the Pension Plan.
4.5 Retirement Plans. During the Salary Continuation Period, each Participant
shall accrue credited service under the SERP. The amount of any payment made
under Section 4.1 to the Participant during such period shall be taken into
account for purposes of the SERP, and each
2
<PAGE>
Participant may also elect to participate in the Commonwealth Edison Excess
Benefit Savings Plan during the Salary Continuation Period with respect to the
portion of any such payment which is attributable to base salary. A Participant
in the Plan shall not accrue service or otherwise actively participate in any
tax-qualified retirement or savings plan sponsored by ComEd or the Company
during the Salary Continuation Period, and shall not be entitled to commence to
receive benefits under any such plan until after the expiration of the Salary
Continuation Period.
4.6 Life Insurance and Disability Coverage. Continued coverage under the life
insurance and long term disability plans sponsored by the Company shall be
extended to each Participant through the last day of the Salary Continuation
Period applicable to such Participant on the same terms and subject to the same
conditions as are applicable to active employees.
4.7 Deferred Compensation Plans. The elections, if any, made by an Executive
under any deferred compensation plan sponsored by the Company shall remain in
effect through the last day of such participant's Salary Continuation Period,
but such individual shall not be entitled to make any additional elections
during such period.
4.8 Executive Perquisites. Executive perquisites shall terminate effective as
of the date of a Participant's Termination of Employment, and any Company-owned
property shall be required to be returned to the Company no later than such
date; provided, however, that each Participant who is an officer of the Company
shall be entitled to financial counseling services for a period of 24 months
following the date of such Participant's Termination of Employment.
4.9 Outplacement Services. Each Participant shall be entitled to outplacement
services at the expense of the Company for such period and subject to such terms
and conditions as the Plan Administrator, in its sole discretion, determines are
appropriate.
5. CHANGE IN CONTROL BENEFITS
--------------------------
Notwithstanding the provisions of Section 4, if, within 24 months following
a Change in Control, an Executive below the level of senior vice president has a
Termination of Employment, the Company's obligations to such Executive shall be
as follows:
5.1 Severance Pay. Each Executive shall receive, in a single cash lump sum
within five business days following his Termination of Employment and net of
applicable taxes, a severance payment equal to the product of (i) the
Executive's then-current annual base salary, (ii) the Severance Incentive (as
defined in Section 7.5), or, if greater, the target award under the annual
incentive award program in which the Executive participates for the year in
which the Termination of Employment occurs, and (iii) the multiplier indicated
below:
Participant Title Multiplier
----------------- ----------
Officers 2
Other Executives 1.5
5.2 Incentive Compensation.
- --- ----------------------
(a) Each Executive shall receive in a cash lump sum, as soon as
practicable following his Termination of Employment and net of
applicable taxes, an amount equal to the target award under the annual
incentive award program in which the Executive participates for the
calendar year (or other performance period, if applicable) in which
such Termination of Employment occurs, multiplied by a fraction the
numerator of which is the number of days of the Participant's active
employment during such calendar year and the denominator of which is
365.
(b) Each of the Executive's stock options granted under the LTIP, any
successor plan or otherwise that is exercisable on the date of the
Executive's Termination of Employment, shall remain exercisable until
the applicable option expiration
3
<PAGE>
date.
(c) On the date of the Executive's Termination of Employment (1) the
Executive shall become fully vested in, and may thereupon and until
the applicable expiration date of such stock incentive awards exercise
in whole or in part, any and all stock incentive awards granted to the
Executive under the LTIP, any successor plan or otherwise which have
not become exercisable as of such date, and (2) the Executive shall
become fully vested at the target level in any cash incentive awards
granted under the LTIP, a successor plan or otherwise which have not,
as of such date, become fully vested.
(d) All forfeiture conditions that as of the date of the Executive's
Termination of Employment are applicable to any deferred stock unit,
restricted stock or restricted share units awarded to the Executive by
the Company pursuant to the LTIP, a successor plan or otherwise shall
lapse immediately.
5.3 Deferred Compensation. The Executive shall receive immediate payment of all
amounts previously deferred by or accrued to the benefit of the Executive under
any nonqualified deferred compensation plan sponsored by the Company, excluding
the SERP, together with any accrued earnings thereon, which are unpaid as of the
date of the Executive's Termination of Employment. The Company agrees to secure
the lump sum actuarial present value of any benefits payable with respect to the
Executive under the SERP by obtaining an irrevocable bank letter of credit
issued by a bank that is a member of the Federal Reserve system until such
benefits become payable to the Executive under the terms of the SERP.
5.4 Health Care Coverage. During the Severance Period (or until such later date
as any welfare benefit plan program or policy of the Company may specify), the
Company shall continue to provide to the Executive and the Executive's family
welfare benefits (including, without limitation, medical, prescription, dental,
vision and hearing care, long term care, disability, individual life and group
life insurance benefits) which are at least as favorable as those provided under
the most favorable welfare plans of the Company applicable (i) with respect to
the Executive and his family during the 90-day period immediately preceding the
date of the Executive's Termination of Employment, or (ii) with respect to other
peer executives and their families during the Severance Period. In determining
benefits under such welfare plans, the Executive's annual compensation
attributable to base salary and incentives for any plan year or calendar year,
as applicable, shall be deemed to be not less than the Executive's annual base
salary and target annual incentive award for the calendar year or plan year, as
applicable. The cost of the welfare benefits provided under this Section 5.4
shall not exceed the cost of such benefits to the Executive immediately before
the date of the Executive's Termination of Employment. Notwithstanding the
foregoing, if the Executive obtains comparable coverage under any welfare plans
sponsored by another employer, then the amount of coverage required to be
provided by the Company hereunder shall be reduced by the amount of coverage
provided by such other employer's welfare plans. The Executive's rights under
this Section shall be in addition to, and not in lieu of, any post-termination
continuation coverage or conversion rights the Executive may have pursuant to
applicable law, including without limitation, COBRA continuation coverage. For
purposes of determining eligibility for (but not the time of commencement of)
retiree benefits under any welfare plans of the Company, the Executive shall be
considered (i) to have remained employed until the last day of the Severance
Period and to have retired on the last day of such period, and (ii) to have
attained the age the Executive would have attained on the last day of the
Severance Period.
5.5 Retirement Plans. The amount payable under Section 5.1 shall be taken into
account for purposes of determining the amount of benefits to which the
Executive is entitled under the SERP; provided that such amount shall be taken
into account as though it was earned equally over the Severance Period, and
further provided that the Executive shall be deemed to have attained the age he
or she would have attained as of the last day of the Severance Period, and
completed the number of years of service he or she would have completed as of
the last day of the Severance Period. To the extent that the Executive, under
the terms of an employment contract or offer of employment with ComEd or the
Company has received a grant of years of
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service for purposes of the SERP and the Executive either (i) has, as of the
date of his Termination of Employment, completed the number of years of service
required in order to be entitled to benefits under the SERP, or (ii) would,
taking into account the Severance Period, satisfy the service requirement for
such benefits, the Severance Period shall be taken into account for purposes of
determining the amount of and eligibility to begin to receive benefits under the
SERP.
5.6 Outplacement Services. The Company shall, at its sole expense as incurred,
pay on behalf of the Executive all fees and costs charged by a nationally
recognized outplacement firm selected by the Executive to provide outplacement
service.
5.7 Adjustments to Change in Control Benefits.
(a) Excise Tax Gross-Up. If it is determined by the Company's independent
auditors that any benefit received or deemed received by an Executive
who is an officer below the level of senior vice president, pursuant
to the Plan or otherwise, whether or not in connection with a Change
in Control (the "Potential Parachute Payments") is or will become
subject to any excise tax under Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code") or any similar tax payable under
any United States federal, state, local or other law (collectively,
"Excise Taxes"), then the Company shall, subject to subsection (b)(i),
pay the Executive an amount (the "Gross-up Payment") to compensate the
Executive for all Excise Taxes payable by the Executive with respect
to the Potential Parachute Payment and any federal, state, local or
other income or other taxes or Excise Taxes payable by the Executive
with respect to the Gross-up Payment.
(b) Limitations on Payments.
(i) Notwithstanding any other provision of this Section 5, if the
aggregate After-Tax Amount (as defined below) of the Potential
Parachute Payments and Gross-up Payments (both terms as defined
in subsection (a)) that, but for this subsection (b)(i) would be
payable to an Executive who is an officer below the level of
senior vice president, does not exceed 110% of the After-Tax
Floor Amount (as defined below), then no Gross-up Payment shall
be made to such Executive, and the aggregate amount of Potential
Parachute Payments payable to the Executive shall be reduced (but
not below the Floor Amount) to the largest amount which would
both (A) not cause any Excise Taxes to be payable by the
Executive and (B) not cause any Potential Parachute Payments to
become nondeductible by the Company by reason of Section 280G of
the Code (or any successor provision).
(ii) Further notwithstanding any other provision of this Section 5, if
it is determined by the Company's independent auditors that any
Potential Parachute Payments received or deemed received by an
Executive who is not an officer is or will become subject to any
Excise Taxes, then the aggregate amount of Potential Parachute
Payments payable to such Executive shall be reduced (but not
below the Floor Amount) to the largest amount which would both
(A) not cause any Excise Taxes to be payable by the Executive and
(B) not cause any Potential Parachute Payments to become
nondeductible by the Company by reason of Section 280G of the
Code (or any successor provision).
For purposes of this subsection (b), the Executive shall be deemed to be
subject to the highest effective after-tax marginal rate of federal and
Illinois taxes.
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(c) Definitions. For purposes of this Section 5.7:
(i) "After-Tax Amount" means the portion of a specified amount that
would remain after payment of all federal, state and local
income or other taxes and Excise Taxes paid or payable by an
Executive in respect of such specified amount;
(ii) "Floor Amount" means the greatest pre-tax amount of Potential
Parachute Payments that could be paid to an Executive without
causing him to become liable for any Excise Taxes in connection
therewith; and
(iii) "After-Tax Floor Amount" means the After-Tax Amount of the Floor
Amount.
5.8 Pooling of Interests Contingency. Any benefits provided to an Executive
under this Section 5 may be reduced or eliminated to the extent necessary, in
the reasonable judgment of the Board of Directors of Unicom which is supported
by a written certificate of the Company's independent auditors, to enable the
Company to account for a merger, consolidation or similar transaction as a
pooling of interests, provided that the Unicom Board shall have exercised such
judgment and given the Executive written notice thereof prior to the effective
date of any Change in Control.
6. TERMINATION OF PARTICIPATION; CESSATION OF BENEFITS
---------------------------------------------------
A Participant's benefits under Section 4 of the Plan shall terminate on the
last day of the Participant's Salary Continuation Period or, if earlier, on such
date as the Company discovers that the Participant has breached any of the
restrictive covenants contained in the Severance Agreement between the Executive
and the Company which is a condition precedent to the payment of benefits under
Section 4 hereof. In the event of any such breach, the Company may require the
repayment of amounts paid prior to such breach in accordance with Paragraph 4.1,
and shall discontinue the payment of any additional amounts under Section 4 of
the Plan.
A Participant's benefits under Section 5 of the Plan shall terminate on the
last day of the Participant's Severance Period or, if later, on the date all
benefits to which the Participant is entitled have been paid from the Plan.
7. DEFINITIONS
-----------
In addition to terms previously defined, when used in the Plan, the
following capitalized terms shall have the following meanings unless the context
clearly indicates otherwise:
7.1 "Cause" means, with respect to any Executive:
(a) the Executive's willful commission of acts(s) or omissions(s) which
have, have had, or are likely to have a material adverse effect on the
business, operations, financial condition or reputation of the Company
or any of its affiliates;
(b) the Executive's conviction (including a plea of guilty or nolo
contendere) of a felony or any crime of fraud, theft, dishonesty or
moral turpitude; or,
(c) the Executive's material violation of any statutory or common law duty
of loyalty to the Company or any of its affiliates.
7.2 "Change in Control" means:
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(a) The acquisition by any individual, entity or group (within the meaning
of Section 13 (d) (3) or 14 (d) (2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (i) the then-outstanding shares
of common stock of Unicom (the "Outstanding Company Common Stock"), or
(ii) the combined voting power of the then-outstanding voting
securities of Unicom entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided,
however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change in Control: (A) any
acquisition directly from Unicom (excluding any acquisition resulting
from the exercise of an exercise, conversion or exchange privilege
unless the security being so exercised, converted or exchanged was
acquired directly from Unicom), (B) any acquisition by Unicom, (C) any
acquisition by an employee benefit plan (or related trust) sponsored
or maintained by Unicom or any corporation controlled by Unicom (a
"Company Plan"), or (D) any acquisition by any corporation pursuant to
a transaction which complies with clauses (i), (ii) and (iii) of
subsection (c) of this definition; provided further, that for purposes
of clause (B), if any Person (other than Unicom or any Company Plan)
shall become the beneficial owner of 20% or more of the Outstanding
Unicom Common Stock or 20% or more of the Outstanding Unicom Voting
Securities by reason of an acquisition by Unicom, and such Person
shall, after such acquisition by Unicom, become the beneficial owner
of any additional shares of the Outstanding Unicom Common Stock or any
additional Outstanding Unicom Voting Securities (other than pursuant
to any dividend reinvestment plan or arrangement maintained by Unicom)
and such beneficial ownership is publicly announced, such additional
beneficial ownership shall constitute a Change in Control; or
(b) Individuals who, as of the date hereof, constitute the Board of
Directors of Unicom (for purposes of this Section 7.2, the "Incumbent
Board") cease for any reason to constitute at least a majority of the
Incumbent Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination
for election by Unicom shareholders, was approved by a vote of at
least a majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result of an actual or
threatened election contest (as such terms are used in Rule 14a-11
promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other
than the Board of Directors of Unicom; or
(c) Approval by the shareholders of the Company of a reorganization,
merger or consolidation, or the sale or other disposition of more than
50% of the operating assets of Unicom (determined on a consolidated
basis), other than in connection with a sale-leaseback or other
arrangement resulting in the continued utilization of such assets (or
the operating products of such assets) by the Company (such sale or
other disposition, a "Corporate Transaction"); excluding, however, a
Corporate Transaction pursuant to which:
(i) all or substantially all of the individuals and entities who are
the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities
immediately prior to such Corporate Transaction beneficially
own, directly or indirectly, more than 60% of, respectively, the
then-outstanding shares of common stock and the combined voting
power of the then-outstanding voting securities entitled to vote
generally in the election of directors, as the case may be,
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<PAGE>
of the corporation resulting from such Corporate Transaction
(including, without limitation, a corporation which, as a result
of such transaction, owns the Company or all or substantially
all of the assets of the Company either directly or through one
or more subsidiaries) in substantially the same proportions as
their ownership, immediately prior to such Corporate Transaction
of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be;
(ii) no Person (other than Unicom, any Company Plan or related trust
of the Company, the corporation resulting from such Corporate
Transaction, and any Person which beneficially owned,
immediately prior to such Corporate Transaction, directly or
indirectly, 20% or more of the Outstanding Company Common Stock
or the Outstanding Company Voting Securities, as the case may
be) will beneficially own, directly or indirectly, 20% or more
of, respectively, the then-outstanding common stock of the
corporation resulting from such Corporate Transaction or the
combined voting power of the outstanding voting securities of
such corporation; and
(iii) individuals who were members of the Incumbent Board will
constitute at least a majority of the members of the board of
directors of the corporation resulting from such Corporate
Transaction; or
(d) Approval by the shareholders of the Unicom of a plan of complete
liquidation or dissolution of Unicom or ComEd, other than a plan of
liquidation or dissolution which results in the acquisition of all or
substantially all of the assets of ComEd by Unicom or an affiliated
company.
7.3 "Good Reason" means a material reduction of an Executive's salary,
incentive compensation or benefits, unless such reduction is part of a policy,
program or arrangement applicable to peer executives of the Company and of any
successor entity; or a material reduction or material adverse alteration in the
nature of the Executive's position, duties, function, responsibilities or
authority; provided, however, that for purposes of Section 5, "Good Reason"
shall also mean:
(a) the failure to maintain the Executive in the office or position, or in
a substantially equivalent office or position, held by the Executive
immediately prior to the Change in Control;
(b) a determination by the Executive, made in good faith, that, as a result
of the Change in Control, the Executive is substantially unable to perform,
or that there has been a material reduction in, any of the Executive's
duties, functions responsibilities or authority;
(c) the failure of any successor to the Company to assume the Plan, or a
material breach of the obligations hereunder by the Company or its
successor;
(d) a relocation of more than 50 miles of (i) the Executive's workplace, or
(ii) the principal offices of the Company (if such offices are the
Executive's workplace), in each case without the consent of the Executive;
or
(e) a requirement of at least 20% more business travel than was required of
the Executive prior to the Change in Control.
7.4 "Salary Continuation Period" means the period indicated in Section 4.1
during which benefits are payable under the Plan.
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7.5 "Severance Incentive" means the average of the annual incentive awards paid
to a Participant under the LTIP (or such other annual incentive plan or
arrangement under which the Participant is entitled to such awards), a successor
plan or otherwise with respect to each of the two calendar years preceding the
year in which occurs the Participant's Termination of Employment.
7.6 "Severance Period" means, with respect to an officer below the level of
senior vice president, two years and, with respect to any other Executive who is
not an officer, 18 months.
7.7 "Termination of Employment" means:
(a) a termination of the Executive's employment by the Company or any
subsidiary for reasons other than for Cause; or
(b) a resignation by the Executive for Good Reason.
A termination of employment for Cause or an Executive's resignation other than
for Good Reason shall not be a Termination of Employment for purposes of the
Plan. Any dispute regarding whether an Executive's Termination of Employment for
purposes of Section 5 is based on Good Reason shall be submitted to binding
arbitration.
8. FUNDING
-------
Nothing in the Plan shall be interpreted as requiring Unicom to set aside
any of its assets for the purpose of funding its obligations under the Plan. No
person entitled to benefits under the Plan shall have any right, title or claim
in or to any specific assets of Unicom, but shall have the right only as a
general creditor of Unicom to receive benefits from Unicom on the terms and
conditions provided in the Plan.
9. ADMINISTRATION OF THE PLAN
--------------------------
Unicom is the "administrator" and a "named fiduciary" of the Plan for
purposes of the Employee Retirement Income Security Act of 1974, as amended
(ERISA). The Plan shall be administered on a day-to-day basis by the Director of
Compensation Planning of ComEd (the "Plan Administrator"). The Plan
Administrator has the sole and absolute power and authority to interpret and
apply the provisions of this Plan to a particular circumstance, make all factual
and legal determinations, construe uncertain or disputed terms and make
eligibility and benefit determinations in such manner and to such extent as the
Plan Administrator in his or her sole discretion may determine.
The Plan Administrator shall promulgate any rules and regulations necessary
to carry out the purposes of the Plan or to interpret the terms and conditions
of the Plan; provided, however, that no rule, regulation or interpretation shall
be contrary to the provisions of the Plan. The rules, regulations and
interpretations made by the Plan Administrator shall be applied on a uniform
basis and shall be final and binding on any Executive or former Executive of the
Company or any successor in interest of either.
The Plan Administrator may delegate any administrative duties, including,
without limitation, duties with respect to the processing, review,
investigation, approval and payment of severance pay and provision of severance
benefits, to designated individuals or committees.
10. CLAIMS PROCEDURE
----------------
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The Plan Administrator shall determine the rights of any Executive or
former Executive of the Company to any severance pay or benefits hereunder. Any
Executive or former Executive of the Company who believes that he or she is
entitled to receive severance pay or benefits under the Plan, including
severance pay or benefits other than those initially determined by the Plan
Administrator, may file a claim in writing with the Plan Administrator. No later
than 90 days after the receipt of the claim the Plan Administrator shall either
allow or deny the claim in writing.
A denial of a claim, in whole or in part, shall be written in a manner
calculated to be understood by the claimant and shall include the specific
reason or reasons for the denial; specific reference to pertinent Plan
provisions on which the denial is based; a description of any additional
material or information necessary for the claimant to perfect the claim and an
explanation of why such material or information is necessary; and an explanation
of the claims review procedure.
A claimant whose claim is denied (or his or her duly authorized
representative), may, within 60 days after receipt of the denial of his or her
claim, request a review upon written application to an officer designated by
Unicom and specified in the claim denial; review pertinent documents; and submit
issues and comments in writing.
The designated officer shall notify the claimant of his or her decision on
review within 60 days after receipt of a request for review unless special
circumstances require an extension of time for processing, in which case a
decision shall be rendered as soon as possible, but not later than 120 days
after receipt of a request for review. Notice of the decision on review shall be
in writing. The officer's decision on review shall be final and binding on any
claimant or any successor in interest.
11. AMENDMENT OR TERMINATION OF PLAN
--------------------------------
Notwithstanding anything in the Plan to the contrary, Unicom's Senior Vice
President Corporate Resources or another designated officer of the Company may
amend, modify or terminate the Plan at any time by written instrument; provided,
however, that no amendment, modification or termination shall deprive any
Participant of any payment or benefit that the Plan Administrator previously has
determined is payable under the Plan.
12. MISCELLANEOUS
-------------
12.1 Limitation on Rights. Participation in the Plan is limited to the
individuals described in Sections 2 and 3, and the Plan shall not apply to any
voluntary or involuntary termination of employment that is not a Termination of
Employment occurring on or after the effective date of the Plan.
12.2 No Mitigation. The Executive shall not have any duty to mitigate the
amounts payable by the Company under this Agreement by seeking new employment
following termination. Except as specifically otherwise provided in this
Agreement, all amounts payable pursuant to this Agreement shall be paid without
reduction regardless of any amounts of salary, compensation or other amounts
which may be paid or payable to the Executive as the result of the Executive's
employment by another employer.
12.3 Headings. Headings of sections in this document are for convenience only,
and do not constitute any part of the Plan.
12.4 Severability. If any provision of this Plan or the rules and regulations
made pursuant to the Plan are held to be invalid or illegal for any reason, such
illegality or invalidity shall not affect the
10
<PAGE>
remaining portions of this Plan.
12.5 Governing Law. The Plan shall be construed and enforced in accordance with
ERISA and the laws of the State of Illinois to the extent such laws are not
preempted by ERISA.
12.6 Successors and Assigns. This Plan shall be binding upon and inure to the
benefit of Unicom and its successors and assigns and shall be binding upon and
inure to the benefit of a Participant and his or her legal representatives,
heirs and assigns. Before or upon the consummation of any Change in Control, the
Company shall obtain from each individual, entity or group that becomes a
successor of the Company by reason of the Change in Control, the unconditional
written agreement of such individual, entity or group to assume this Plan and to
perform all of the obligations of the Company under Section 5 hereof.
No rights, obligations or liabilities of a Participant hereunder shall be
assignable without the prior written consent of Unicom. In the event of the
death of a Participant, prior to receipt of severance pay or benefits to which
he or she is entitled hereunder (and, with respect to benefits under Section 4,
after he or she has signed the Waiver and Release), the severance pay described
in Section 4.1 or 5.1, as applicable, shall be paid to his or her estate, and
the Participant's dependents who are covered under the ComEd health care plans
shall be entitled to continued rights under Section 4.4 or Section 5.4, as
applicable; provided that in the case of benefits provided under Section 4, the
estate or other successor of the Participant has not revoked such Waiver and
Release.
13. ADMINISTRATIVE INFORMATION
--------------------------
Plan Sponsor: Unicom Corporation
Addres: 227 West Monroe Street, 12th Floor
Chicago, Illinois 60606
Employer Identification
Number: 36-3961038
Plan Administrator: Compensation Planning Vice President
Address and Telephone: Commonwealth Edison Company
PO Box 767
Chicago, Illinois 60690-0767
(312) 394-4015
Agent for Service of
Legal Process: Compensation Planning Vice President
Commonwealth Edison Company
PO Box 767
Chicago, Illinois 60690-0767
Plan Number: 501
Type of Plan: severance benefit plan (welfare)
Plan Year: calendar year
14. ERISA RIGHTS
------------
As a Participant in the Plan, you are entitled to certain rights and
protections under ERISA. ERISA provides that all plan participants shall be
entitled to:
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Examine, without charge, at the Plan Administrator's office at 10 S.
Dearborn Street, Chicago, Illinois 60603 all Plan documents and copies of
all documents filed by the Plan with the U.S. Department of Labor; and
Obtain copies of all Plan documents and other Plan information upon written
request to the Plan Administrator. The Plan Administrator may make a
reasonable charge for the copies.
In addition to creating rights for Participants, ERISA imposes duties upon
the people who are responsible for the operation of the Plan. The people who
operate the Plan, called "fiduciaries" of the Plan, have a duty to act prudently
and in the interest of you and other Participants and beneficiaries. No one,
including your employer, your union, or any other person, may fire you or
otherwise discriminate against you in any way to prevent you from obtaining your
interest in the Plan or from exercising your rights under ERISA. If your claim
for a benefit from the Plan is denied in whole or in part, you must receive a
written explanation of the reason for the denial. You have the right to have
your claim reviewed and reconsidered. Under ERISA, there are steps you can take
to enforce the above rights. For instance, if you request materials from the
Plan and do not receive them within 30 days, you may file suit in a federal
court. In such a case, the court may require the Plan Administrator to provide
the materials and pay you up to $110 a day until you receive the materials,
unless the materials were not sent because of reasons beyond the control of the
Plan Administrator. If you have a claim for benefits which is denied or ignored,
in whole or in part, you may file suit in a state or federal court. If it should
happen that Plan fiduciaries misuse the Plan's money, or if you are
discriminated against for asserting your rights, you may seek assistance from
the U.S. Department of Labor, or you may file suit in a federal court. The court
will decide who should pay court costs and legal fees. If you are successful,
the court may order the person you have sued to pay these costs and fees. If you
lose and the court finds your claim to be frivolous, the court may order you to
pay these costs and fees. If you have any questions about the Plan, you should
contact the Plan Administrator. If you have any questions about this statement
or about your rights under ERISA, you should contact the nearest Area Office of
the U.S. Labor-Management Services Administration, Department of Labor.
March 8, 1999
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EXHIBIT I
---------
NON-COMPETITION COVENANTS
-------------------------
1. Confidential Information Defined. For the purposes hereof, the term
"Confidential Information" shall mean any information not generally known in
the relevant trade or industry, which was obtained from Unicom Corporation,
Commonwealth Edison Company or any affiliate thereof (the "Company"), or
which was learned, discovered, developed, conceived, originated or prepared
during or as result of your performance of any services on behalf of the
Company and which falls within the following general categories:
(a) information relating to trade secrets of the Company or any customer
or supplier of the Company;
(b) information relating to existing or contemplated products, services,
technology, designs, processes, formulae, algorithms, research or
product developments of the Company or any customer or supplier of the
Company;
(c) information relating to business plans or strategies, sales or
marketing methods, methods of doing business, customer lists, customer
usages and/or requirements, supplier information of the Company or any
customer or supplier of the Company;
(d) information subject to protection under the Uniform Trade Secrets Act,
as adopted by the State of Illinois, or to any comparable protection
afforded by applicable laws; and
(e) any other confidential information which either the Company or any
customer or supplier of the Company may reasonably have the right to
protect by patent, copyright or by keeping it secret and confidential.
2. Nondisclosure of Confidential Information. You agree that you will not use
for your own benefit, in any manner, or disclose any Confidential
Information obtained during your employment with the Company at any time, to
any other person, firm or corporation without the Company's prior written
consent, except as may be required by the lawful order of a court or agency
of competent jurisdiction. You agree to take all reasonable steps to
safeguard such Confidential Information and to protect such information
against disclosure, misuse, loss and theft. Your obligations under this
paragraph with respect to any specific Confidential Information shall cease
when that specific portion of Confidential Information becomes publicly
known.
<PAGE>
3. Non-Competition.
(a) You agree that for a period of two years beginning on the date of
termination of employment, without the prior written approval of the
Company you will not, directly or indirectly, in any capacity, engage
or participate in, become employed by, serve as a director of, or
render advisory or consulting or other services in connection with,
any Competitive Business (as defined below).
(b) You agree that for a period of two years beginning on the date of
termination of employment, without the prior written consent of the
Company, you will not at any time make any financial investment,
whether in the form of equity or debt, or own any interest, directly
or indirectly, in any Competitive Business. Nothing in this subsection
shall, however, restrict you from making an investment in any
Competitive Business if such investment does not represent more than
1% of market value of the outstanding capital stock or debt (as
applicable) of such Competitive Business.
"Competitive Business" means, as of any date, any individual or entity (and
any branch, office or operation thereof) which engages in, or proposes to
engage in (i) the production, transmission, distribution, marketing or sale
of electricity or (ii) any other business engaged in by the Company prior
to the separation date which represents for any calendar year or is
projected by the Company (as reflected in a business plan adopted by the
Company before the separation date) to yield during any year during the
first three-fiscal year period commencing on or after the separation date,
more than 5% of the gross revenue of the Company, and which is located (i)
anywhere in the United States, or (ii) anywhere outside of the United
States where the Company is then engaged in, or proposes to engage in, any
of such activities.
4. Non-Solicitation. You agree that for a period of two years beginning on the
date of termination of employment, you will not, directly or indirectly:
(a) encourage any employee to terminate his or her employment;
(b) employ, engage as a consultant or adviser, or solicit the employment
or engagement as a consultant or adviser of, any employee or cause any
individual or entity to do any of the foregoing;
(c) establish a business with, or encourage others to establish a business
with, any employee; or
(d) interfere with the relationship of the Company with, or endeavor to
entice away from the Company any individual or entity who or which at
any time during the period commencing one year prior to the date of
termination of employment was a material customer or material supplier
of, or maintained a material business relationship with, the Company.
5. Reasonableness of Restrictive Covenants.
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<PAGE>
You acknowledge that the covenants contained in Sections 2, 3 and 4 are
reasonable in the scope of the activities restricted, the geographic area
covered by the restrictions, and the duration of the restrictions, and that
such covenants are reasonably necessary to protect the Company's legitimate
interests in its Confidential Information and in its relationships with
employees, customers and suppliers. You further acknowledge such covenants
are essential elements of this [A]greement and that, but for such
covenants, the Company would not have entered into this [A]greement. You
further acknowledge that you have consulted with legal counsel and have
been advised concerning the reasonableness and propriety of such covenants.
You acknowledge that your observance of the covenants contained in Sections
2, 3 and 4 will not deprive you of the ability to earn a livelihood or to
support your dependents.
6. Right to Injunction; Survival of Undertakings.
(a) In recognition of the confidential nature of the Confidential
Information, and in recognition of the necessity of the limited
restrictions imposed by Sections 2, 3 and 4, the parties agree that it
would be impossible to measure solely in money the damages which the
Company would suffer you were to breach any of your obligations under
such paragraphs. You acknowledge that any breach of any provision of
such paragraphs would irreparably injure the Company. Accordingly, you
agree that if you breach any of the provisions of such paragraphs, the
Company shall be entitled, in addition to any other remedies to which
the Company may be entitled under this letter agreement or otherwise,
to an injunction to be issued by a court of competent jurisdiction, to
restrain any breach, or threatened breach, of such provisions, and you
hereby waive any right to assert any claim or defense that the Company
has an adequate remedy at law for any such breach.
(b) If a court determines that any of the covenants included in Sections
2, 3 and 4 is unenforceable in whole or in part because of such
covenant's duration or geographical or other scope, such court shall
have the power to reduce the duration or scope of such provision, as
the case may be, so as to cause such covenant to be thereafter
enforceable.
3
<PAGE>
Exhibit (12)
Commonwealth Edison Company
Form 8-K File No. 1-1839
Commonwealth Edison Company and Subsidiary Companies Consolidated
------------------------------------------------------------------
Computation of Ratios of Earnings to Fixed Charges
and Ratios of Earnings to Fixed Charges and
Preferred and Preference Stock Dividend Requirements
----------------------------------------------------
(Thousands of Dollars)
<TABLE>
<CAPTION>
Twelve Months Ended
---------------------------
Line December 31, December 31,
No. 1999 1998
- ---- ------------ ------------
<C> <S> <C> <C>
1 Net income before extraordinary items $ 650,308 $ 594,206
---------- ----------
2 Net provisions for income taxes and
3 investment tax credits deferred
4 charged to-
5 Operations $ 353,477 $ 355,667
6 Other income (25,544) (4,741)
---------- ----------
7 $ 327,933 $ 350,926
---------- ----------
8 Fixed charges-
9 Interest on debt $ 567,567 $ 478,404
10 Estimated interest component of nuclear
11 fuel and other lease payments, rentals
12 and other interest 65,705 74,568
13 Amortization of debt discount, premium and
14 expense 10,083 10,369
15 Company-obligated mandatorily redeemable
16 preferred securities dividend requirements
17 of subsidiary trusts holding solely the
18 Company's subordinated debt securities 29,710 29,710
---------- ----------
19 $ 673,065 $ 593,051
---------- ----------
20 Preferred and preference stock dividend
21 requirements-
22 Provisions for preferred and preference
23 stock dividends $ 23,756 $ 56,884
24 Taxes on income required to meet provisions
for preferred and preference stock dividends 15,543 37,232
---------- ----------
25 $ 39,299 $ 94,116
---------- ----------
26 Fixed charges and preferred and preference
27 stock dividend requirements $ 712,364 $ 687,167
---------- ----------
28 Earnings for fixed charges and preferred
29 and preference stock dividend requirements $1,651,306 $1,538,183
---------- ----------
30 Ratios of earnings to fixed charges
(line 29 divided by line 19) 2.45 2.59
========== ==========
31 Ratios of earnings to fixed charges and
32 preferred and preference
33 stock dividend requirements
34 (line 29 divided by line 27) 2.32 2.24
========== ==========
</TABLE>
<PAGE>
Exhibit (21)-1
Unicom Corporation
Form 10-K File No. 1-11375
Unicom Corporation
Subsidiaries of the Company
---------------------------
<TABLE>
<CAPTION>
State or
Jurisdiction
in Which
Incorporated
Name or Organized
- ------------------------------------------- ------------
<S> <C>
Commonwealth Edison Company Illinois
Commonwealth Edison Company of Indiana, Inc. Indiana
ComEd Financing I (Subsidiary Trust) Delaware
ComEd Financing II (Subsidiary Trust) Delaware
ComEd Funding, LLC Delaware
ComEd Transitional Funding Trust Delaware
Commonwealth Research Corporation Illinois
Concomber Ltd. Bermuda
Edison Development Company Delaware
Edison Development Canada Inc. Canada
Edison Finance Partnership Canada
Unicom Assurance Company Ltd. Bermuda
Unicom Enterprises Inc. Illinois
Unicom Energy Services Inc. Illinois
Unicom Energy Inc. Delaware
Unicom Energy Ohio, Inc. Delaware
Unicom Investment Inc. Illinois
Unicom Mechanical Services Inc. Delaware
V. A. Smith Company Illinois
Hoekstra Building Automation, Inc. Illinois
Access Systems, Inc. Illinois
UMS Acquisition Corp. Delaware
KHB Inc. Illinois
MMCD, Inc. Illinois
MMSD, Inc. Illinois
Unicom Power Holdings Inc. Delaware
Unicom Power Marketing Inc. Delaware
Unicom Healthcare Management Inc. Illinois
UT Holdings Inc. Delaware
Northwind Chicago LLC Delaware
Unicom Thermal Development Inc. Delaware
Unicom Thermal Technologies Inc. Illinois
Unicom Thermal Technologies Boston Inc. Delaware
Unicom Thermal Technologies Houston Inc. Delaware
Unicom Thermal Technologies North America Inc. Delaware
Northwind Thermal Technologies Canada Inc. New Brunswick
Unicom Thermal Technologies Inc. New Brunswick
UTT National Power Inc. Illinois
UTT Nevada Inc. Nevada
UTT Phoenix, Inc. Delaware
Unicom Resources Inc. Illinois
</TABLE>
<PAGE>
Exhibit (21)-2
Commonwealth Edison Company
Form 10-K File No. 1-1839
Commonwealth Edison
Subsidiaries of the Company
---------------------------
<TABLE>
<CAPTION>
State or
Jurisdiction
in Which
Incorporated
Name or Organized
- ------------------------------------------------ ------------
<S> <C>
Commonwealth Edison Company Illinois
Commonwealth Edison Company of Indiana, Inc. Indiana
ComEd Financing I (Subsidiary Trust) Delaware
ComEd Financing II (Subsidiary Trust) Delaware
ComEd Funding, LLC Delaware
ComEd Transitional Funding Trust Delaware
Commonwealth Research Corporation Illinois
Concomber Ltd. Bermuda
Edison Development Company Delaware
Edison Development Canada Inc. Canada
Edison Finance Partnership Canada
</TABLE>
<PAGE>
Exhibit (23)-1
Unicom Corporation
Form 10-K File No. 1-11375
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation
by reference into Unicom Corporation's previously filed prospectuses dated March
18, 1994, constituting part of Form S-4 Registration Statement File No.
33-52109, as amended (relating to Common Stock of Unicom Corporation), as
further amended by Post-Effective Amendment No. 1 on Form S-8 (relating to
Commonwealth Edison Company's Employee Savings and Investment Plan) and Post-
Effective Amendment No. 2 on Form S-8 (relating to Unicom Corporation's Employee
Stock Purchase Plan), Form S-8 Registration Statement File No. 33-56991
(relating to Unicom Corporation's Long-Term Incentive Plan), Form S-4
Registration Statement File No. 333-01003 (relating to the common stock of
Unicom Corporation), Form S-8 Registration Statement File No. 333-04749
(relating to Unicom Corporation's 1996 Directors' Fee Plan), Form S-8
Registration Statement File Nos. 333-10613 and 333-26779 (relating to
Commonwealth Edison Company's Employee Savings and Investment Plan) and Form S-8
Registration Statement File No. 333-39677 (relating to the Unicom Corporation
Management Deferred Compensation Plan
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 30, 2000
<PAGE>
Exhibit (23)-2
Commonwealth Edison Company
Form 10-K File No. 1-1839
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation
by reference in this Form 10-K of our report dated January 31, 2000, on
Commonwealth Edison Company and Subsidiary Companies' consolidated financial
statements as of and for the year ended December 31, 1999, included in
Commonwealth Edison Company's Current Report on Form 8-K dated January 31, 2000,
to the inclusion in this Form 10-K of our report dated January 31, 2000, on the
supplemental schedule of Commonwealth Edison Company as of and for the year
ended December 31, 1999, and to the incorporation of such reports into
Commonwealth Edison Company's previously filed prospectuses as follows: (1)
prospectus dated August 21, 1986, constituting part of Form S-3 Registration
Statement File No. 33-6879, as amended (relating to the Company's Debt
Securities and Common Stock); (2) prospectus dated January 7, 1994, constituting
part of Form S-3 Registration Statement File No. 33-51379 (relating to the
Company's Debt Securities and Cumulative Preference Stock); (3) prospectus dated
September 19, 1995, constituting part of Amendment No. 1 to Form S-3
Registration Statement File No. 33-61343, as amended (relating to Company-
Obligated Mandatorily Redeemable Preferred Securities of ComEd Financing I); (4)
prospectus dated June 13, 1997, constituting part of Form S-4 Registration
Statement File No. 333-28369 (relating to Company-Obligated Mandatorily
Redeemable Preferred Securities of ComEd Financing II); and (5) Form S-8
Registration Statement File No. 333-33847 (relating to the Commonwealth Edison
Company Excess Benefit Savings Plan).
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 29, 2000
<PAGE>
Exhibit (24)-1
Unicom Corporation and
Commonwealth Edison Company
Form 10-K File Nos. 1-11375 and 1-1839
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Unicom Corporation and Commonwealth
Edison Company, each an Illinois corporation, does hereby constitute and appoint
JOHN W. ROWE, RUTH ANN M. GILLIS and JOHN P. MCGARRITY, and each of them, his
true and lawful attorneys and agents, each with full power and authority (acting
alone and without the others) to execute in the name and on behalf of the
undersigned as such Director, the Annual Report on Form 10-K for the fiscal year
ended December 31, 1999 for Unicom Corporation and Commonwealth Edison Company,
to be filed with the Securities and Exchange Commission pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that such
attorneys and agents, or any of them, may do or cause to be done by virtue of
these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 17th day of
March, 2000.
/s/ Edward A. Brennan
--------------------------
Edward A. Brennan
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, Mary L. Kwilos, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that EDWARD A. BRENNAN, personally known to me to
be the same person whose name is subscribed to the foregoing instrument,
appeared before me this day in person, and acknowledged that he signed and
delivered said instrument as his free and voluntary act, for the uses and
purposes therein set forth.
GIVEN under my hand and the notarial seal this 17th day of March, 2000.
/s/ Mary L. Kwilos
--------------------------
Mary L. Kwilos
Notary Public
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Unicom Corporation and Commonwealth
Edison Company, each an Illinois corporation, does hereby constitute and appoint
JOHN W. ROWE, RUTH ANN M. GILLIS and JOHN P. MCGARRITY, and each of them, his
true and lawful attorneys and agents, each with full power and authority (acting
alone and without the others) to execute in the name and on behalf of the
undersigned as such Director, the Annual Report on Form 10-K for the fiscal year
ended December 31, 1999 for Unicom Corporation and Commonwealth Edison Company,
to be filed with the Securities and Exchange Commission pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that such
attorneys and agents, or any of them, may do or cause to be done by virtue of
these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 17th day of March,
2000.
/s/ Carlos H. Cantu
--------------------------
Carlos H. Cantu
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, Mary L. Kwilos, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that CARLOS H. CANTU, personally known to me to be
the same person whose name is subscribed to the foregoing instrument, appeared
before me this day in person, and acknowledged that he signed and delivered said
instrument as his free and voluntary act, for the uses and purposes therein set
forth.
GIVEN under my hand and the notarial seal this 17th day of March, 2000.
/s/ Mary L. Kwilos
--------------------------
Mary L. Kwilos
Notary Public
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Unicom Corporation and Commonwealth
Edison Company, each an Illinois corporation, does hereby constitute and appoint
JOHN W. ROWE, RUTH ANN M. GILLIS and JOHN P. MCGARRITY, and each of them, his
true and lawful attorneys and agents, each with full power and authority (acting
alone and without the others) to execute in the name and on behalf of the
undersigned as such Director, the Annual Report on Form 10-K for the fiscal year
ended December 31, 1999 for Unicom Corporation and Commonwealth Edison Company,
to be filed with the Securities and Exchange Commission pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that such
attorneys and agents, or any of them, may do or cause to be done by virtue of
these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 17th day of March,
2000.
/s/ James W. Compton
--------------------------
James W. Compton
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, Mary L. Kwilos, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that JAMES W. COMPTON, personally known to me to be
the same person whose name is subscribed to the foregoing instrument, appeared
before me this day in person, and acknowledged that he signed and delivered said
instrument as his free and voluntary act, for the uses and purposes therein set
forth.
GIVEN under my hand and the notarial seal this 17th day of March, 2000.
/s/ Mary L. Kwilos
--------------------------
Mary L. Kwilos
Notary Public
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Unicom Corporation and Commonwealth
Edison Company, each an Illinois corporation, does hereby constitute and appoint
JOHN W. ROWE, RUTH ANN M. GILLIS and JOHN P. MCGARRITY, and each of them, his
true and lawful attorneys and agents, each with full power and authority (acting
alone and without the others) to execute in the name and on behalf of the
undersigned as such Director, the Annual Report on Form 10-K for the fiscal year
ended December 31, 1999 for Unicom Corporation and Commonwealth Edison Company,
to be filed with the Securities and Exchange Commission pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that such
attorneys and agents, or any of them, may do or cause to be done by virtue of
these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 17th day of March,
2000.
/s/ Bruce DeMars
--------------------------
Bruce DeMars
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, Mary L. Kwilos, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that BRUCE DEMARS, personally known to me to be the
same person whose name is subscribed to the foregoing instrument, appeared
before me this day in person, and acknowledged that he signed and delivered said
instrument as his free and voluntary act, for the uses and purposes therein set
forth.
GIVEN under my hand and the notarial seal this 17th day of March, 2000.
/s/ Mary L. Kwilos
--------------------------
Mary L. Kwilos
Notary Public
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Unicom Corporation and Commonwealth
Edison Company, each an Illinois corporation, does hereby constitute and appoint
JOHN W. ROWE, RUTH ANN M. GILLIS and JOHN P. MCGARRITY, and each of them, his
true and lawful attorneys and agents, each with full power and authority (acting
alone and without the others) to execute in the name and on behalf of the
undersigned as such Director, the Annual Report on Form 10-K for the fiscal year
ended December 31, 1999 for Unicom Corporation and Commonwealth Edison Company,
to be filed with the Securities and Exchange Commission pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that such
attorneys and agents, or any of them, may do or cause to be done by virtue of
these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 17th day of March,
2000.
/s/ Donald P. Jacobs
--------------------------
Donald P. Jacobs
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, Mary L. Kwilos, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that DONALD P. JACOBS, personally known to me to be
the same person whose name is subscribed to the foregoing instrument, appeared
before me this day in person, and acknowledged that he signed and delivered said
instrument as his free and voluntary act, for the uses and purposes therein set
forth.
GIVEN under my hand and the notarial seal this 17th day of March, 2000.
/s/ Mary L. Kwilos
--------------------------
Mary L. Kwilos
Notary Public
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Unicom Corporation and Commonwealth
Edison Company, each an Illinois corporation, does hereby constitute and appoint
JOHN W. ROWE, RUTH ANN M. GILLIS and JOHN P. MCGARRITY, and each of them, his
true and lawful attorneys and agents, each with full power and authority (acting
alone and without the others) to execute in the name and on behalf of the
undersigned as such Director, the Annual Report on Form 10-K for the fiscal year
ended December 31, 1999 for Unicom Corporation and Commonwealth Edison Company,
to be filed with the Securities and Exchange Commission pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that such
attorneys and agents, or any of them, may do or cause to be done by virtue of
these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 17th day of March,
2000.
/s/ Edgar D. Jannotta
--------------------------
Edgar D. Jannotta
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, Mary L. Kwilos, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that EDGAR D. JANNOTTA, personally known to me to
be the same person whose name is subscribed to the foregoing instrument,
appeared before me this day in person, and acknowledged that he signed and
delivered said instrument as his free and voluntary act, for the uses and
purposes therein set forth.
GIVEN under my hand and the notarial seal this 17th day of March, 2000.
/s/ Mary L. Kwilos
--------------------------
Mary L. Kwilos
Notary Public
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Unicom Corporation and Commonwealth
Edison Company, each an Illinois corporation, does hereby constitute and appoint
JOHN W. ROWE, RUTH ANN M. GILLIS and JOHN P. MCGARRITY, and each of them, his
true and lawful attorneys and agents, each with full power and authority (acting
alone and without the others) to execute in the name and on behalf of the
undersigned as such Director, the Annual Report on Form 10-K for the fiscal year
ended December 31, 1999 for Unicom Corporation and Commonwealth Edison Company,
to be filed with the Securities and Exchange Commission pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that such
attorneys and agents, or any of them, may do or cause to be done by virtue of
these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 17th day of March,
2000.
/s/ John W. Rogers, Jr.
--------------------------
John W. Rogers, Jr.
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, Mary L. Kwilos, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that JOHN W. ROGERS, JR., personally known to me to
be the same person whose name is subscribed to the foregoing instrument,
appeared before me this day in person, and acknowledged that he signed and
delivered said instrument as his free and voluntary act, for the uses and
purposes therein set forth.
GIVEN under my hand and the notarial seal this 17th day of March, 2000.
/s/ Mary L. Kwilos
--------------------------
Mary L. Kwilos
Notary Public
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Unicom Corporation and Commonwealth
Edison Company, each an Illinois corporation, does hereby constitute and appoint
JOHN W. ROWE, RUTH ANN M. GILLIS and JOHN P. MCGARRITY, and each of them, his
true and lawful attorneys and agents, each with full power and authority (acting
alone and without the others) to execute in the name and on behalf of the
undersigned as such Director, the Annual Report on Form 10-K for the fiscal year
ended December 31, 1999 for Unicom Corporation and Commonwealth Edison Company,
to be filed with the Securities and Exchange Commission pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that such
attorneys and agents, or any of them, may do or cause to be done by virtue of
these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 16th day of March,
2000.
/s/ Richard L. Thomas
--------------------------
Richard L. Thomas
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, Mary L. Kwilos, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that RICHARD L. THOMAS, personally known to me to
be the same person whose name is subscribed to the foregoing instrument,
appeared before me this day in person, and acknowledged that he signed and
delivered said instrument as his free and voluntary act, for the uses and
purposes therein set forth.
GIVEN under my hand and the notarial seal this 16th day of March, 2000.
/s/ Mary L. Kwilos
--------------------------
Mary L. Kwilos
Notary Public
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Unicom Corporation and Commonwealth
Edison Company, each an Illinois corporation, does hereby constitute and appoint
JOHN W. ROWE, JOHN C. BUKOVSKI and JOHN P. MCGARRITY, and each of them, her true
and lawful attorneys and agents, each with full power and authority (acting
alone and without the others) to execute in the name and on behalf of the
undersigned as such Director, the Annual Report on Form 10-K for the fiscal year
ended December 31, 1999 for Unicom Corporation and Commonwealth Edison Company,
to be filed with the Securities and Exchange Commission pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that such
attorneys and agents, or any of them, may do or cause to be done by virtue of
these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 17th day of March,
2000.
/s/ Sue L. Gin
--------------------------
Sue L. Gin
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, Mary L. Kwilos, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that SUE L. GIN, personally known to me to be the
same person whose name is subscribed to the foregoing instrument, appeared
before me this day in person, and acknowledged that she signed and delivered
said instrument as her free and voluntary act, for the uses and purposes therein
set forth.
GIVEN under my hand and the notarial seal this 17th day of March, 2000.
/s/ Mary L. Kwilos
--------------------------
Mary L. Kwilos
Notary Public
<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 December 31, 1999 and related Statement of Consolidated Operations,
Comprehensive Income, Retained Earnings and Cash Flows for the twelve months
ended December 31, 1999 and is qualified in its entirety by reference to such
financial statements.
<CIK> 0000918040
<NAME> Unicom Corporation
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 12,122,138
<OTHER-PROPERTY-AND-INVEST> 3,067,805
<TOTAL-CURRENT-ASSETS> 6,328,720
<TOTAL-DEFERRED-CHARGES> 0<F1>
<OTHER-ASSETS> 1,887,370
<TOTAL-ASSETS> 23,406,033
<COMMON> 4,971,618
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 363,621
<TOTAL-COMMON-STOCKHOLDERS-EQ> 5,332,611<F2>
0
1,790<F3>
<LONG-TERM-DEBT-NET> 7,129,906<F4>
<SHORT-TERM-NOTES> 0<F1>
<LONG-TERM-NOTES-PAYABLE> 0<F1>
<COMMERCIAL-PAPER-OBLIGATIONS> 0<F1>
<LONG-TERM-DEBT-CURRENT-PORT> 737,615
69,475
<CAPITAL-LEASE-OBLIGATIONS> 161,611
<LEASES-CURRENT> 108,349
<OTHER-ITEMS-CAPITAL-AND-LIAB> 9,864,676<F5>
<TOT-CAPITALIZATION-AND-LIAB> 23,406,033
<GROSS-OPERATING-REVENUE> 6,847,947
<INCOME-TAX-EXPENSE> 333,370
<OTHER-OPERATING-EXPENSES> 5,328,137
<TOTAL-OPERATING-EXPENSES> 5,661,507
<OPERATING-INCOME-LOSS> 1,186,440
<OTHER-INCOME-NET> (53,210)<F6><F7>
<INCOME-BEFORE-INTEREST-EXPEN> 1,133,230
<TOTAL-INTEREST-EXPENSE> 563,564
<NET-INCOME> 569,666
0<F6>
<EARNINGS-AVAILABLE-FOR-COMM> 569,666
<COMMON-STOCK-DIVIDENDS> 347,783
<TOTAL-INTEREST-ON-BONDS> 0<F8>
<CASH-FLOW-OPERATIONS> 1,360,045
<EPS-BASIC> 2.62
<EPS-DILUTED> 2.61
<FN>
<F1> This item is not disclosed as a separate line item on the Consolidated
Balance Sheet.
<F2> Includes $7,539 thousand for other comprehensive income and deductions of
$72 thousand for preference stock expense of ComEd and $10,095 thousand
for treasury stock.
<F3> Preferred and preference stock of ComEd.
<F4> $3,785,055 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> A $23,756 thousand provision for preferred and preference stock dividends
of ComEd and $29,710 thousand provision for preferred securities dividends
of subsidiary trusts holding solely ComEd's subordinated debt securities
are included in OTHER-INCOME-NET.
<F7> Includes an extraordinary loss of $27,579 thousand related to the early
redemption of long-term debt for the year 1999.
<F8> This item is not disclosed as a separate line item on the Statement of
Consolidated Operations.
</FN>
</TABLE>
<PAGE>
Exhibit (99)
Commonwealth Edison Company
Form 8-K File No. 1-1839
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
<PAGE>
Commonwealth Edison Company and Subsidiary Companies
Forward-Looking Information. Except for historical data, the information
contained herein constitutes forward-looking statements. Forward-looking
statements are inherently uncertain and subject to risks. Such statements
should be viewed with caution. Actual results or experience could differ
materially from the forward-looking statements as a result of many factors.
Forward-looking statements in this report include, but are not limited to: (1)
statements regarding expectations of revenue reductions and collections of
future CTC revenues as a result of the 1997 Act in "Management's Discussion
and Analysis of Financial Condition and Results of Operations," subcaption
"Changes in the Electric Utility Industry--The 1997 Act," and in 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 Liabilities, and Decommissioning," (4) statements regarding cleanup
costs associated with MGPs and other remediation sites in Note 22 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 ComEd's dependence upon the Year 2000
readiness of third parties with whom it has significant business relationships
and the estimated costs for final project wrap-up activities, (7) statements
regarding the use of fossil plant sale proceeds 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
5 of Notes to Financial Statements, (8) statements regarding estimates of
claims resulting from the summer of 1999 outages set forth in Note 22 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 wrap-up 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 are also subject to the risk
that Year 2000 remediation efforts of other parties with whom ComEd 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
1
<PAGE>
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.
2
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Definitions.............................................................. 4
Summary of Selected Consolidated Financial Data.......................... 5
Cash Dividends Paid per Share of Common Stock............................ 5
1999 Consolidated Revenues and Sales..................................... 5
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 6-22
Report of Independent Public Accountants................................. 23
Consolidated Financial Statements--
Statements of Consolidated Operations for the years 1999, 1998 and
1997.................................................................. 24
Consolidated Balance Sheets as of December 31, 1999 and 1998........... 25-26
Statements of Consolidated Capitalization as of December 31, 1999 and
1998.................................................................. 27
Statements of Consolidated Retained Earnings (Deficit) for the years
1999, 1998 and 1997................................................... 28
Statements of Consolidated Comprehensive Income for the years 1999,
1998 and 1997......................................................... 28
Statements of Consolidated Cash Flows for the years 1999, 1998 and
1997.................................................................. 29
Notes to Financial Statements.......................................... 30-56
</TABLE>
3
<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
EME Edison Mission Energy, an Edison International subsidiary
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
MGP Manufactured gas plant
NEIL Nuclear Electric Insurance Limited
NRC Nuclear Regulatory Commission
O&M Operation and maintenance
PECO PECO Energy Company, a Pennsylvania company
RES Retail Electric Supplier
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 Investment Unicom Investment Inc., a Unicom Enterprises subsidiary
U.S. EPA U.S. Environmental Protection Agency
</TABLE>
4
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
Summary of Selected Consolidated Financial Data
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
(Millions Except per Share Data)
<S> <C> <C> <C> <C> <C>
Electric operating revenues.. $ 6,767 $ 7,089 $ 7,073 $ 6,935 $ 6,910
Net income (loss)............ $ 623(1) $ 594 $ (774)(2) $ 743 $ 717(3)
Net income (loss) on common
stock....................... $ 599(1) $ 537 $ (834)(2) $ 679 $ 647(3)
Cash dividends declared per
common share................ $ 1.60 $ 1.60 $ 1.60 $ 1.60 $ 1.60
Total assets (at end of
year)....................... $23,160 $25,451 $22,458 $23,217 $23,119
Long-term obligations at end
of year excluding current
portion:
Long-term debt, preference
stock and preferred
securities subject to
mandatory redemption
requirements............... $ 7,312 $ 8,097 $ 6,087 $ 6,376 $ 6,950
Accrued spent nuclear fuel
disposal fee and related
interest................... $ 763 $ 728 $ 693 $ 657 $ 624
Capital lease obligations... $ 162 $ 334 $ 438 $ 475 $ 374
Other long-term obligations. $ 3,185 $ 2,953 $ 3,177 $ 1,983 $ 1,819
</TABLE>
- --------
(1) Includes an extraordinary loss related to the early redemption of long-
term debt of $28 million (after-tax). Also, includes $12 million (after-
tax), for premiums paid in connection with the redemption of preference
stock.
(2) Includes an extraordinary loss for the write-off of generation-related net
regulatory assets of $810 million (after-tax), the loss on the early
retirement of Zion nuclear generating station of $523 million (after-tax)
and the positive impact of a one-time cumulative effect for a change in
accounting principle for revenue recognition of $197 million (after-tax).
(3) Includes an extraordinary loss related to the early redemption of long-
term debt of $20 million (after-tax).
Cash Dividends Paid per Share of Common Stock
<TABLE>
<CAPTION>
1999 (by quarters) 1998 (by quarters)
------------------------- -------------------------
Fourth Third Second First Fourth Third Second First
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash dividends paid......... 40c 40c 40c 40c 40c 40c 40c 40c
</TABLE>
1999 Consolidated Revenues and Sales
<TABLE>
<CAPTION>
Electric % Increase/ % %
Operating (Decrease) Kilowatthour Increase/ Increase/
Revenues Over Sales (Decrease) (Decrease)
(Thousands) 1998 (Millions) Over 1998 Customers Over 1998
----------- ----------- ------------ ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Residential............. $2,205,066 (12.8)% 23,716 (0.9)% 3,145,712 0.4%
Small commercial and
industrial............. 2,196,069 0.4 29,125 7.9 309,828 1.9
Large commercial and
industrial............. 1,290,926 (8.2) 22,474 (6.5) 1,783 (0.6)
Public authorities...... 463,482 (9.2) 7,778 4.1 18,194 29.5
Electric railroads...... 20,317 (34.5) 408 (5.9) 2 --
---------- ------- ---------
Ultimate consumers..... $6,175,860 (7.3) 83,501 0.7 3,475,519 0.6
Sales for resale........ 490,938 40.3 19,487 58.9 58 (6.5)
Other revenues.......... 100,094 36.4 -- -- -- --
---------- ------- ---------
Total.................. $6,766,892 (4.5) 102,988 8.2 3,475,577 0.6
========== ======= =========
</TABLE>
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Changes in the Electric Utility Industry
Unicom and its predominant business, electric energy generation,
transmission and distribution, are in a period of fundamental change. These
changes are attributable to changes in technology and regulation. Federal law
and regulations have been amended to provide for open transmission system
access, and various states, including Illinois, are considering, or have
adopted, new regulatory structures to allow access by some or all customers to
energy suppliers, in addition to the local utility.
Electric Utility Industry. The electric utility industry historically has
consisted of vertically integrated companies which combine generation,
transmission and distribution assets; serve customers within relatively
defined service territories; and operate under extensive regulation with
respect to rates, operations and other matters. Utilities have operated under
a regulatory compact with the state, with a statutory obligation to serve all
of the electricity needs within their service territory in a nondiscriminatory
manner. Historically, investment and operating decisions have been made based
upon the utilities' respective assessment of the current and projected needs
of their customers. In view of this obligation, regulation has focused on
investment and operating costs, and rates have been based on 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
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
6
<PAGE>
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 is 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.
On October 1, 1999, more than 41,000 non-residential customers became
eligible to choose a new electric supplier or elect the purchase power option.
The remainder of the non-residential customers will become eligible to choose
an electric supplier or the purchase power option between June 1 and December
31, 2000. As of December 31, 1999, over 4,700 non-residential customers,
representing approximately ten 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 such
customers, 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 during the period
1999 through 2004 on transmission and distribution facilities outside of the
City and to contribute $250 million to an environmental trust, as a result of
the closing 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. The 15% rate reduction further reduced ComEd's operating revenues
by approximately $226 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 for ComEd 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 ComEd's earnings. In accordance with the
provisions of the 1997 Act, 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.
7
<PAGE>
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 7 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,
reliability requirement 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: (1)
provide a reliable supply of electricity as the competitive marketplace
evolves, (2) become a top quartile operator of competitive nuclear plants, (3)
deliver competitive earnings while restructuring the balance sheet to reflect
the realities of the marketplace, (4) expand the offering of energy-related
products and services, and (5) transform the corporate culture of 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 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.
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
8
<PAGE>
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 the 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), reflecting both a write down of
the plant's carrying value and a liability for future closing costs. A portion
of Zion Station is used to provide voltage support in the transmission system
that serves ComEd's northern region. See Note 5 of Notes to Financial
Statements for additional information.
ComEd joined with other Midwestern utilities to design the Midwest ISO in
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, a key element in accommodating the FERC-directed
restructuring of the electric industry, is expected to 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 December 1999, ComEd and other Midwestern
utilities filed a request with the FERC for a Declaratory Order approving a
different organizational template for the regional transmission grid. The
request seeks approval for the creation of for-profit transmission companies,
operating under the general oversight of the Midwest ISO, but fully separated
from their previous vertically integrated utilities. The request was approved,
in part, on February 24, 2000, subject to further development of its elements.
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. 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 will be an active participant in
the power exchange which opened in Illinois in the fourth quarter of 1999.
Merger Agreement. In September 1999, the Boards of Directors of Unicom and
PECO Energy Company (PECO) approved a merger of equals that will create a new
holding company, Exelon. The merger is conditioned, among other things, upon
the approvals of the shareholders of both companies and by various regulatory
bodies. The merger is currently expected to be completed in the latter half of
2000.
Under the merger agreement, as amended and restated in January 2000, PECO
and ComEd will become the principal utility subsidiaries of Exelon. This
result will be achieved by a mandatory exchange of the outstanding common
stock of PECO for common stock of Exelon, and a merger of Unicom with and into
Exelon wherein holders of Unicom common stock will receive 0.875 shares of
Exelon common stock plus $3.00 in cash for each of their shares of Unicom
common stock. The merger transaction will be accounted for as a purchase of
Unicom by PECO.
9
<PAGE>
Prior to the consummation of the merger, Unicom expects to repurchase
approximately $1.0 billion of its outstanding common shares. These share
repurchases are in addition to the 26.3 million shares of Unicom common stock
that Unicom repurchased in January 2000 upon settlement of certain forward
purchase contracts. The $1.0 billion additional share repurchases will be
funded from available funds, including funds resulting from the fossil plant
sale.
The Amended and Restated Agreement and Plan of Exchange and Merger, dated as
of January 7, 2000, was filed on January 13, 2000 by Unicom with the SEC as an
exhibit to a Form 8-K, and reference to that filing is made for more detailed
information.
Fossil Plant Sale. In December, 1999, ComEd completed the sale of its fossil
generating assets to EME for a cash purchase price of $4.8 billion. The fossil
plant assets represent an aggregate generating capacity of approximately 9,772
megawatts.
Just prior to the consummation of the fossil plant sale, ComEd transferred
these assets to an affiliate, Unicom Investment. In consideration for the
transferred assets, Unicom Investment paid ComEd consideration totalling $4.8
billion in the form of a demand note in the amount of approximately $2.4
billion and an interest-bearing Note with a maturity of twelve years. Unicom
Investment immediately sold the fossil plant assets to EME, in consideration
of which Unicom Investment received $4.8 billion in cash from EME. Immediately
after its receipt of the cash payment from EME, Unicom Investment paid the
$2.4 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 share repurchases. Of the cash received
by ComEd, $1.8 billion is expected to be used to pay the costs and taxes
associated with the fossil plant sale including ComEd's contribution of $250
million of the proceeds to an environmental trust as required by the 1997 Act.
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 produced an after-tax gain of approximately $1.6 billion, after
recognizing commitments associated with certain coal contracts ($350 million),
recognizing employee-related costs ($112 million) and contributing to the
environmental trust. The coal contract costs include the amortization of the
remaining balance of ComEd's regulatory asset for unrecovered coal reserves of
$178 million and the recognition of $172 million of settlement payments
related to the above-market portion of coal purchase commitments ComEd
assigned to EME at market value upon completion of the fossil plant sale. The
severance costs included pension and post-retirement welfare benefit
curtailment and special termination benefit costs of $51 million and
transition, separation and retention payments of $61 million. A total of 1,730
fossil station employee positions were eliminated upon completion of the
fossil plant sale on December 15, 1999. As of December 31, 1999, 1,590 of the
employees whose positions were eliminated had been terminated and 140 affected
employees were in a transition program which generally extends 60 days from
the date of the fossil plant sale. Consistent with the provisions of the 1997
Act, the (pre-tax) gain on the sale of $2.587 billion resulted in a regulatory
liability, which was used to recover regulatory assets. Therefore, the gain on
the sale, excluding $43 million of amortization of investment tax credits, was
recorded as a regulatory liability in the amount of $2.544 billion and
amortized in the fourth quarter of 1999. The amortization of the regulatory
liability and additional regulatory asset amortization of $2.456 billion are
reflected in depreciation and amortization expense on ComEd's Statement of
Consolidated Operations and resulted in a net reduction to depreciation and
amortization expense of $88 million.
As part of the sale transaction, ComEd entered into transitional, limited
term power purchase agreements with the buyer. Such purchase power agreements
will increase ComEd's purchased power costs.
10
<PAGE>
Liquidity and Capital Resources
UTILITY OPERATIONS
Construction Program. ComEd has a construction program for the year 2000
which consists principally of improvements to its existing nuclear production,
transmission and distribution facilities. The program, as currently approved
by ComEd, includes the following estimated expenditures (excluding nuclear
fuel expenditures of approximately $260 million).
<TABLE>
<CAPTION>
2000
----
<S> <C>
Nuclear................................................................ $215
Transmission and Distribution.......................................... 536
General................................................................ 146
----
$897
====
</TABLE>
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 construction program above reflects a preliminary evaluation of
improvements necessary to improve reliability of ComEd's transmission and
distribution systems. ComEd is currently evaluating its construction program
for the years 2000, 2001 and 2002. The final results of this planning process
cannot be determined at this time.
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 2000 and each year thereafter for the
foreseeable future. ComEd believes that adequate resources, including cost-
effective demand-side management resources, non-utility generation resources,
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, nuclear
fuel and coal in support of certain power purchase agreements approximated
$670 million at December 31, 1999. In addition, ComEd's estimated commitments
for expected capacity payments and fixed charges related to certain power
purchase agreements were as follows:
<TABLE>
<CAPTION>
Commitments(1)
Period ($Millions)
------ --------------
<S> <C>
2000............................................... $ 783
2001............................................... 698
2002............................................... 427
2003-2004.......................................... 540
2005-2012.......................................... 1,039
------------
$3,487
============
</TABLE>
- --------
(1) Capacity payments may be adjusted based on certain conditions. No
estimate of future cost escalation has been made.
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 $1,101 million of long-
term debt and $607 million of preference stock in 1999 and reduce ComEd's
outstanding short-term debt by $500 million. In 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
11
<PAGE>
$28 million (after-tax). ComEd also recorded $12 million (after-tax) for
premiums paid in connection with the redemption of such preference stock. As
more fully described below, ComEd has repurchased approximately 26.3 million
shares of ComEd common stock using $924 million of the proceeds. The remaining
proceeds from the issuance of the transitional trust notes will be used for
the payment of fees and additional common stock repurchases.
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.
During 1999, ComEd also entered into forward purchase arrangements with
Unicom for the repurchase of approximately 26.3 million shares of ComEd common
stock. The repurchase arrangements were settled in January 2000 on a physical
basis. The terms of the repurchase arrangements between ComEd and Unicom are
identical to the terms of Unicom's repurchase arrangements with financial
institutions. The repurchase arrangements between ComEd and Unicom are
expected to be settled on the same basis Unicom settles its repurchase
arrangements with the financial institutions. Effective January 2000, the
share repurchases will reduce ComEd's outstanding shares and common stock
equity. Prior to settlement, the repurchase arrangements were recorded as a
receivable on the Consolidated Balance Sheets based on the aggregate market
value of the shares deliverable under the arrangements. In 1999, net
unrealized losses of $44 million (after-tax) were recorded related to the
arrangements. The settlement of the arrangements in January 2000 resulted in a
gain of $113 million (after-tax). See Note 24 of Notes to Financial Statements
for additional information.
See Notes 3 and 7 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 2000 construction program and other
capital requirements, including nuclear fuel expenditures, contributions to
nuclear decommissioning funds, sinking fund obligations and scheduled debt
maturities. See Notes 10 and 12 of Notes to Financial Statements for the
summaries of the annual sinking fund requirements and scheduled maturities for
ComEd preference stock and long-term debt, respectively.
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.
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 had total unused bank lines of credit of $800 million at
December 31, 1999, which may be borrowed at various interest rates. Of that
amount, $500 million expires on December 15, 2000 and $300 million expires on
December 17, 2002. 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 13 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 years 1999, 1998 and 1997. Cash flows from
operating activities were adversely affected in 1998 and positively affected
in 1999 as a result of delayed billings related to the transition to a new
customer information and billing system beginning in July 1998. See Note 1 of
Notes to Financial Statements, under "Customer Receivables and Revenues", for
additional information.
As of January 31, 2000, 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.
12
<PAGE>
ComEd's securities and other securities guaranteed by ComEd are currently
rated by three principal securities rating agencies as follows:
<TABLE>
<CAPTION>
Standard Duff &
Moody's & Poor's Phelps
------- -------- ------
<S> <C> <C> <C>
First mortgage and secured pollution control bonds..... Baa1 BBB+ A-
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-1
</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>
All three agencies raised their ratings for ComEd in 1999: Duff & Phelps in
December; Moody's in September; and S&P in June.
Capital Structure. ComEd's ratio of long-term debt to total capitalization
has decreased to 55.2% at December 31, 1999 from 58.0% at December 31, 1998.
As of December 31, 1999 and 1998, $852 million and $580 million, respectively,
of retained earnings had been appropriated for ComEd's future dividend
payments.
Year 2000 Conversion. ComEd completed a successful transition to the Year
2000 as systems performed without interruption during the rollover from
December 31, 1999 to January 1, 2000. All ComEd Year 2000 Command Centers were
activated during the critical rollover period.
In addition to 12/31/99, other key Year 2000 dates that ComEd has completed
without Year 2000 problems are 1/1/99, 4/9/99 (99th day of 1999), 8/21/99
(Global Positioning System rollover) and 9/9/99. The ComEd Year 2000 Team will
continue with minor preparations for one remaining Year 2000 critical date.
The Year 2000 is a leap year; so the rollover from 2/28/00 to 2/29/00 is
another transition ComEd prepared for in its Corporate-wide Year 2000 Program.
ComEd depends upon third parties, including customers, suppliers, government
agencies and financial institutions, to reliably deliver its products and
services. ComEd completed an analysis of the Year 2000 readiness programs of
its critical vendors and obtained Year 2000 warranties in certain new
contracts and licenses. ComEd also has introduced protocols for assuring that
software and embedded systems remain Year 2000 ready on a continuing basis.
Even though mission critical products and services of the ComEd supply chain
are Year 2000 ready, contingency plans were developed to prevent or mitigate
interruptions caused by ComEd suppliers.
As of December 31, 1999, approximately $37.4 million has been expended for
external labor, hardware and software costs, and for the costs of ComEd
employees who are dedicated full-time to the Year 2000 project. All of such
costs were expensed as incurred. The foregoing amounts do not include the cost
of new software applications installed as a result of strategic replacement
projects. Such replacement projects were not accelerated because of Year 2000
issues. ComEd expects to incur minimal expenditures for final project wrap-up
activities.
ComEd's Year 2000 project focused on those facets of its business that are
required to deliver reliable electric service. The project encompassed the
computer systems that support core business functions, such as customer
information and billing, finance, procurement, supply and personnel, as
13
<PAGE>
well as the components of metering, transmission, distribution and generation
support. The project also focused on embedded systems, instrumentation and
control systems in facilities and plants. In accordance with business plans,
ComEd has replaced certain of its financial, human resources and payroll and
customer service and billing software with new software that is Year 2000
ready and that addresses ComEd's strategic needs as it enters a less regulated
environment.
Market Risks. ComEd is exposed to market risk due to changes in interest
rates and the market price for electricity. Exposure for interest rate changes
relates to its long-term debt and preferred equity obligations. Exposure to
electricity market price risk relates to forward activities taken to manage
effectively the supply of, and demand for, the electric generation capability
of ComEd's generating plants. ComEd has implemented an integrated risk
management framework to manage such risks. A corporate Risk Management
Committee defines the Company's risk tolerance and establishes appropriate
position limits, and corporate policies and procedures have been implemented
to minimize the exposure to market risk. ComEd does not currently utilize
derivative commodity or financial instruments for trading or speculative
purposes. See "Energy Risk Management Contracts" in Note 1 of Notes to
Financial Statements regarding the accounting for energy risk management
contracts.
Interest Rate Exposure. The table below provides the fair value and average
interest or fixed dividend rates of ComEd's outstanding debt and preferred
stock equity instruments as of December 31, 1999.
<TABLE>
<CAPTION>
Expected Maturity Date Fair Value
ComEd and Subsidiary --------------------------------------------- as of
Companies (millions) 2000 2001 2002 2003 2004 Thereafter Total 12/31/99
- -------------------- ---- ---- ---- ---- ---- ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-Term Debt--
Fixed Rate............. $ 382 $ 5 $ 305 $ 105 $ 237 $3,547 $4,581 $4,523
Average Interest Rate.. 6.72% 4.55% 7.92% 6.53% 7.52% 7.69%
Variable Rate.......... $ 92 $ 92 $ 92
Average Interest Rate.. 5.49%
Transitional Trust
Notes................. $ 350 $ 340 $ 340 $ 340 $ 340 $1,360 $3,070 $2,894
Average Interest Rate.. 5.31% 5.32% 5.38% 5.42% 5.44% 5.66%
Preferred and Preference
Stock--
Subject to Mandatory
Redemption............ $ 69 $ 69 $ 70
Average Dividend Rate.. 6.93%
Not Subject to Manda-
tory Redemption....... $ 2 $ 2 $ 1
Average Dividend Rate.. 4.48%
Trust Securities........ $ 350 $ 350 $ 339
Average Dividend Rate.. 8.49%
</TABLE>
Market Price Exposure. ComEd's energy purchases from other suppliers have
increased as a result of reductions in owned generating capability and system
load growth. The market price of energy is subject to price volatility
associated with changes in supply and demand in the electric supply markets.
In the normal course of business, ComEd utilizes contracts for the forward
sale and purchase of energy to assure system reliability and manage
effectively the utilization of its available generating capability. ComEd also
utilizes put and call option contracts and energy swap arrangements to limit
the market price risk associated with the forward commodity contracts. The
estimated December 31, 1999 fair value of the forward contracts, including
options, for the purchase and sale of energy for the years 2000 through 2007,
was approximately $(70) million. The estimated fair value is based on the
estimated net settlement value of the contracts derived from forward price
curves and market quotes, discounted at a 10% rate. A 10% increase in the
forward price of electricity would decrease the December 31, 1999 fair value
of the forward energy contracts for the years 2000-2007 by approximately $120
million, of which approximately $65 million is for contracts for the period
2000-2002. Likewise, a 10% decrease would increase the fair value of the
energy contracts by $120 million. Notwithstanding these price risk management
activities, an unexpected loss of generating capability or reduction in demand
could increase ComEd's exposure to market price risks and could have a
material adverse effect on operating results.
14
<PAGE>
Regulation
ComEd and 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.
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 $5.7 billion in current-year (2000) dollars, including a contingency
allowance. This estimate includes $617 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
are expected to 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 $219 million in current-
15
<PAGE>
year (2000) 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 Liabilities, and Decommissioning," for
additional information regarding decommissioning costs.
Environmental Matters. ComEd is involved in administrative and legal
proceedings concerning air quality, water quality and other matters. The
outcome of these proceedings may require increases in future construction
expenditures and operating expenses and changes in operating procedures. See
Note 22 of Notes to Financial Statements for additional information.
Results of Operations
ComEd's operating results for the years 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- ---------
(Thousands of Dollars)
<S> <C> <C> <C>
Net Income (Loss) before Extraordinary Item and
Cumulative Effect of Change in Accounting
Principle........................................ $650,308 $594,206 $(160,138)
======== ======== =========
Net Income (Loss) on Common Stock................. $598,973 $537,322 $(834,259)
======== ======== =========
</TABLE>
On Common Stock for the Year 1999. The increase in ComEd's net income in
1999 reflects, among other factors, increased energy sales, the fossil plant
sale, lower-than-expected closing costs for Zion nuclear station and improved
nuclear performance which resulted in lower fuel and purchased power costs.
Kilowatthour sales increased 8% for the year 1999, compared to 1998, driven
largely by a 59% increase in sales for resale. See "Operating Revenues" below
for additional information.
Fuel and purchased power costs decreased 14% in 1999, compared to 1998,
resulting from improved nuclear performance. See "Fuel Costs" and "Purchased
Power" below for additional information.
O&M expenses increased 3% for the year 1999, compared to the year 1998, as
discussed in "Operation and Maintenance Expenses" below.
Earnings for the year 1999 were positively impacted by the fossil plant
sale. Consistent with the provisions of the 1997 Act, the after-tax gain on
the fossil plant sale of $1.56 billion resulted in a regulatory liability.
Increased regulatory asset amortization amounted to $2.46 billion, before-tax,
as discussed in Note 5 of Notes to Financial Statements. A reduction in the
estimated liability for closing costs related to the Zion Station also
increased earnings by $16 million (after-tax). The earnings increase was also
partially offset by a net unrealized loss of $44 million (after-tax), related
to a forward share repurchase arrangements, a charge of $41 million (after-
tax) for an increase in the estimated liability for the remediation of former
MGP sites, extraordinary losses related to the early redemptions of long-term
debt, which reduced net income on common stock by $28 million (after-tax), and
premiums of $12 million (after-tax) paid in connection with the redemption of
preference stock. ComEd's net income for the year 1999 represents the maximum
return on average common equity allowable for the year before triggering the
earnings sharings provision of the 1997 Act.
16
<PAGE>
Net Income on Common Stock for the Year 1998. The increase in earnings for
1998 was primarily due to increased kilowatthour sales, which increased both
operating revenues and energy costs, reduced O&M expenses, lower depreciation
and amortization expenses, lower than expected Zion Station closing costs,
gains on the sales of certain assets and a lower effective income tax rate. In
December 1997, ComEd discontinued regulatory accounting practices for the
generation portion of its business and recorded other non-recurring accounting
charges as a result of the 1997 Act, which primarily contributed to the loss
for 1997. The 1997 operating results also include the write-off for the
closure of Zion nuclear generating station, partially offset by a cumulative
one-time positive impact of $197 million (after-tax) for a change in
accounting method for revenue recognition to record ComEd's revenues
associated with service which has been provided to customers but has not yet
been billed at the end of each accounting period, retroactive to January 1,
1997.
Fuel and purchased power costs increased 10% in 1998, compared to the year
1997, reflecting increased demand for electricity, as well as the effects of
higher purchased power prices. See "Purchased Power" below for additional
information.
O&M expenses decreased 7% for the year 1998, compared to the year 1997, as
discussed in "Operation and Maintenance Expenses" below.
The year 1998 includes a 6% decrease in depreciation and amortization
expenses, as discussed in "Depreciation and Amortization" below, and a $15
million (after-tax) reduction in the estimated liability for closing costs
related to the Zion nuclear generating station, both of which increased
operating results.
Also, 1998 operating results reflect realized gains on the sales of certain
assets of $31 million (after-tax). The sold assets consisted principally of
surplus inventory of emission allowances.
Net Loss on Common Stock for the Year 1997. ComEd's kilowatthour sales,
including sales to wholesale customers, increased 5% during 1997, compared to
1996, as discussed below. In 1997, O&M expenses increased 12%, as discussed
below.
Also, 1997 operating results were reduced by $336 million for increased fuel
and purchased power costs, as discussed below. In addition, a 4% increase in
depreciation expense, primarily due to an increase in certain nuclear plant
depreciation, resulted in a charge of $23 million (after-tax).
ComEd discontinued regulatory accounting practices for the generation
portion of its business in the fourth quarter of 1997 due to the expected
transition of electric generation services to market-based pricing as a result
of the 1997 Act. Accordingly, ComEd's generation-related net regulatory
assets, which represent assets and liabilities properly recorded under
regulatory accounting practices but which would not be recorded under GAAP for
non-regulated entities, were written off, resulting in an extraordinary charge
in 1997 of $810 million (after-tax).
In addition, pursuant to an option contained in the 1997 Act, ComEd filed a
tariff in December 1997 to eliminate its FAC. Under ComEd's regulated rates,
the FAC provided for the recovery of changes in fossil and nuclear fuel costs
and the energy portion of purchased power costs, compared to the fuel and
purchased energy costs included in ComEd's base rates. The 1997 Act provided
that upon the elimination of the FAC, ComEd would be required to refund to
customers the net FAC charges billed during the calendar year 1997. Net FAC
charges billed by ComEd during the year 1997 were $25 million (after tax).
These costs, as well as deferred, underrecovered energy costs of $19 million
(after-tax) which ComEd would have been entitled to recover if the FAC had
remained in effect, were recorded as a charge to operating results in the
fourth quarter of 1997. Elimination of the FAC could increase volatility in
future earnings due to changes in fuel and purchased power costs.
17
<PAGE>
Additionally, the elimination of the FAC and the transition to market-based
pricing for generation-related costs required ComEd to write-off its
investment in uranium-related properties. An impairment study indicated the
expected incremental costs of mining and milling uranium at those properties
would exceed the expected market price for uranium. These costs, which were
previously recoverable through the FAC, are not expected to be recoverable in
a competitive market. A write-off of uranium-related properties to reflect
market value resulted in a charge of $60 million (after-tax) in December 1997.
Partially offsetting the charges to operations for 1997 was a change in the
accounting method for revenue recognition to record ComEd's revenues
associated with service which has been provided to customers but has not yet
been billed at the end of each accounting period, retroactive to January 1,
1997. This change in accounting method had a one-time cumulative positive
impact for years prior to 1997 of $197 million (after-tax).
The year 1997 also included a charge of $523 million (after-tax) reflecting
the write-off of the unrecoverable portion of the cost of ComEd's Zion Station
plant and inventories, and a liability for future closing costs, resulting
from the decision in January 1998 to permanently cease nuclear generation
operations at Zion Station.
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 station availability and performance.
Revenues have also been reduced by a change in presentation for certain
utility taxes. The 1997 Act changed the nature of several state and municipal
taxes that are collected through customer billings. Before August 1998, the
utility taxes were assessed against the utility. Effective August 1998, the
utility taxes are assessed on the electric consumer rather than the utility.
Accordingly, ComEd records the collections as liabilities and no longer
records the taxes collected through billings as revenues and tax expense. The
change in presentation for utility taxes did not have an effect on results of
operations. See Note 1 of Notes to Financial Statements, under "Use of
Estimates" and "Customer Receivables and Revenues", for additional
information.
Operating revenues decreased $322 million in 1999, compared to 1998, due in
part to the approximately $226 million impact of the 15% residential base rate
reduction that took effect August 1, 1998. Operating revenues for 1999 also
were reduced by approximately $174 million, compared to 1998, due to the
change in presentation for certain state and municipal taxes. Kilowatthour
sales increased 8%, primarily due to sales for resale. In 1998, operating
revenues increased $15 million, compared to the year 1997, primarily due to
warmer summer weather experienced in 1998 and continued economic growth in
ComEd's service territory, partially offset by a 15% residential rate
reduction ($170 million) and reserves for various federal and state litigation
matters ($35 million). Operating revenues for 1998 were reduced by
approximately $110 million, compared to 1997, due to the change in
presentation for certain state and municipal taxes. During 1997, electric
operating revenues increased $139 million, primarily due to a 29% increase in
kilowatthour sales to wholesale customers. Kilowatthour sales to ultimate
consumers during 1997 increased 1%, compared to 1996, reflecting continued
economic growth in ComEd's service territory. Operating revenues in 1997 were
reduced by the provision for revenue refunds of $45 million, including revenue
taxes, related to the elimination of the FAC.
Fuel Costs. Changes in fuel expense for the years 1999, 1998 and 1997
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
18
<PAGE>
consumed, net generation of electric energy and fuel sources of kilowatthour
generation were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------- ----------------- -----------------
Cost Cost Cost
Fuel per per per
Costs KWh Fuel Costs KWh Fuel Costs KWh
-------- ----- ---------- ----- ---------- -----
(000's) (000's) (000's)
<S> <C> <C> <C> <C> <C> <C> <C>
Cost of fuel consumed:
Nuclear..................................... $380,489 0.52c $ 286,619 0.53c $ 263,163 0.54c
Coal........................................ 525,896 2.26 626,442 2.51 810,144 2.44
Oil......................................... 7,854 5.43 20,822 6.26 17,829 5.50
Natural gas................................. 83,023 3.22 123,644 3.04 113,082 3.50
-------- ---------- ----------
Total/Average costs all fuels............... $997,262 1.00c $1,057,527 1.27c $1,204,218 1.40c
======== ========== ==========
Net generation of electric energy (millions of
kilowatthours)............................... 99,684 83,302 85,861
Fuel sources of kilowatthour generation:
Nuclear..................................... 74% 65% 57%
Coal........................................ 23 30 39
Oil......................................... -- -- --
Natural gas................................. 3 5 4
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
The increases in net generation of electric energy and nuclear generation
for 1999, compared to the prior years, are primarily due to significant
improvement in the performance of ComEd's nuclear fleet. The overall nuclear
capacity factor was 89% for 1999, compared to 66% for 1998 and 49% for 1997.
The decreases in the net generation of electric energy for 1998, compared to
1997, are primarily due to the sales of State Line and Kincaid Station in
December 1997 and February 1998, respectively, and lower nuclear plant
availability in 1997. The decrease in net generation of electric energy from
1997 to 1998 due to the sale of State Line Station was 2,378,413 megawatthours
and the decrease from 1997 to 1998 due to the sale of Kincaid Station was
2,357,488 megawatthours. See "Regulation," subcaption "Nuclear Matters" above,
for information regarding ComEd's nuclear generating stations.
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 decreased $196 million and
increased $348 million in 1999 and 1998, compared to 1998 and 1997,
respectively. The decrease in 1999 was due to the improved nuclear and fossil
operating performance which reduced the need to purchase power from other
parties. The increase in purchased power costs in 1998 reflects the effects of
an extraordinary combination of heat, storms and equipment problems
experienced throughout the Midwest in late June 1998 which resulted in
unprecedented purchased power price levels. See "Regulation," subcaption
"Nuclear Matters" above, for information regarding ComEd's nuclear generating
stations. For additional information concerning ComEd's purchased power
commitments, see "Liquidity and Capital Resources," subcaption "UTILITY
OPERATIONS--Construction Program," above and Note 22 of Notes to Financial
Statements.
The number and average cost of kilowatthours purchased were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Kilowatthours (millions)............................. 11,561 20,704 16,672
Cost per kilowatthour................................ 4.77c 3.84c 2.40c
</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.
19
<PAGE>
Operation and Maintenance Expenses. O&M expenses include the expenses
associated with operating and maintaining ComEd's generation, transmission and
distribution assets, as well as administrative overhead and support. Given the
variety of expense categories covered, there are a number of factors which
affect the level of such expenses within any given period. Two major
components of such expenses, however, are the costs associated with operating
and maintaining ComEd's 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 years presented in the financial statements, the aggregate
level of O&M expenses increased 3% in 1999 compared to 1998, decreased 7% in
1998 compared to 1997, and increased 12% in 1997 compared to 1996.
O&M expenses associated with nuclear generating stations decreased $75
million and $172 million and increased $122 million for the years 1999, 1998
and 1997, respectively. The decrease in 1999 was due to shorter refueling
outages and fewer forced outages. The decrease in 1998 was principally due to
the permanent cessation of nuclear generation operations at Zion Station. The
increase in 1997 was a result of increased levels of activities associated
with the repair, replacement and improvement of nuclear generating facility
equipment. See "Changes in the Electric Utility Industry," subcaption
"Response to Regulatory Changes" above, regarding the permanent cessation of
nuclear operations at Zion Station.
O&M expenses associated with fossil generating stations decreased $42
million, $5 million and increased $31 million for the years 1999, 1998 and
1997, respectively. The decrease in 1999 was primarily due to reductions in
plant refurbishment and maintenance costs. The decrease related to fossil
generating stations in 1998 was primarily due to the sales of State Line and
Kincaid Stations in December 1997 and February 1998, respectively, ($25
million) partially offset by plant refurbishment costs ($19 million).
O&M expenses associated with ComEd's transmission and distribution system
increased $77 million, $32 million and $15 million, for the years 1999, 1998
and 1997, respectively. The increase in 1999 was primarily due to 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. The 1998 and 1997 increases are primarily due to increased
emergency restoration of electric service, higher maintenance expenses and
tree trimming costs. O&M expenses associated with customer-related activities
increased $40 million, $19 million and $11 million for the years 1999, 1998
and 1997, respectively. The increase in 1999 was primarily due to the ongoing
implementation of a new customer information and billing system.
O&M expenses for the year 1999 reflect an increase of $68 million in the
estimated environmental liability for the remediation of former manufactured
gas plant sites.
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 $10 million,
$48 million and $39 million for the years 1999, 1998 and 1997, respectively.
Other employee benefits expenses, excluding the effects of employee
separation plans and certain other employee-related costs increased
$16 million and $41 million and decreased $11 million for the years 1999, 1998
and 1997, respectively. The increase for the year 1999 was primarily due to
higher accruals for incentive compensation. The increase in 1998 was primarily
due to accruals for estimated incentive compensation recorded in 1998. The
decrease in 1997 was primarily due to a reduction in medical costs for active
employees.
O&M expenses included a $25 million charge for the year 1999 as a result of
a franchise related settlement agreement with the City.
20
<PAGE>
O&M expenses associated with certain administrative and general costs
decreased $7 million and $22 million and increased $35 million for the years
1999, 1998 and 1997, respectively. The 1999 decrease due to a variety of
reasons, including reductions in nuclear insurance ($38 million), partially
offset by increased charges for uncollectible accounts resulting from billing
and collection delays experienced following the implementation of a new
customer information system ($25 million). The decrease in 1998 reflects a
reduction of $34 million in certain nuclear maintenance costs due to
technological improvements, compared to 1997. 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 $101 million and $63 million and
increased $34 million for the year 1999, 1998 and 1997, respectively. The
decrease in the year 1999 was primarily due to the fossil plant sale.
Consistent with the provisions of the 1997 Act, the (pre-tax) gain on the sale
of $2.587 billion resulted in a regulatory liability, which was used to
recover regulatory assets. Therefore, the gain on the sale, excluding $43
million of amortization of investment tax credits, was recorded as a
regulatory liability in the amount of $2.544 billion and amortized in the
fourth quarter of 1999. The amortization of the regulatory liability and
additional regulatory asset amortization of $2.456 billion are reflected in
depreciation and amortization expense on ComEd's Statement of Consolidated
Operations and resulted in a net reduction to depreciation and amortization
expense of $88 million. Depreciation expense decreased $95 million and
increased $36 million for the years 1998 and 1997, respectively. The decrease
in 1998 reflects the retirement of Zion Station ($31 million), the reduction
in depreciable plant due to the plant impairment recorded by ComEd in the
second quarter of 1998 ($65 million), the sales of State Line and Kincaid ($4
million), lower depreciation of steam generators at Byron Unit 1 and Braidwood
Unit 1 in 1998 compared to 1997 ($25 million), partially offset by plant
additions ($16 million) and shortened depreciable lives for certain nuclear
stations ($14 million). The $36 million increase in depreciation expense in
1997 is principally due to the early retirement of the steam generators at
Byron Unit 1 and Braidwood Unit 1. See Note 1 of Notes to Financial
Statements, under "Depreciation, Amortization of Regulatory Assets and
Liabilities, 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 years 1999, 1998 and 1997 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 7 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>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Long-term debt outstanding:
Average amount (millions).......................... $8,119 $6,099 $6,256
Average interest rate.............................. 6.76% 7.06% 7.65%
Notes payable outstanding:
Average amount (millions).......................... $ 320 $ 344 $ 153
Average interest rate.............................. 5.82% 5.68% 5.95%
</TABLE>
21
<PAGE>
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 $22 million and $28 million for the years 1999 and 1998,
respectively, of interest costs on its generation-related construction work in
progress and nuclear fuel in process. AFUDC and interest capitalized do not
contribute to the current cash flow of ComEd.
ComEd's ratios of earnings to fixed charges for the years 1999, 1998 and
1997 were 2.45, 2.59 and 0.58, respectively. ComEd's ratios of earnings to
fixed charges and preferred and preference stock dividend requirements for the
years 1999, 1998 and 1997 were 2.32, 2.24 and 0.49, 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.
22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Commonwealth Edison Company:
We have audited the accompanying consolidated balance sheets and statements
of consolidated capitalization of Commonwealth Edison Company (an Illinois
corporation) and subsidiary companies as of December 31, 1999 and 1998, and
the related statements of consolidated operations, retained
earnings/(deficit), comprehensive income and cash flows for each of the three
years in the period ended December 31, 1999. 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 December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999, in conformity with generally accepted
accounting principles.
As discussed in Note 4, effective January 1, 1997, the Company changed its
method of accounting for revenue recognition.
Arthur Andersen LLP
Chicago, Illinois
January 31, 2000
23
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED OPERATIONS
The following Statements of Consolidated Operations for the year 1999, 1998
and 1997 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>
1999 1998 1997
---------- ---------- -----------
(Thousands of Dollars)
<S> <C> <C> <C>
Electric Operating Revenues............... $6,766,892 $7,088,542 $ 7,073,088
---------- ---------- -----------
Electric Operating Expenses and Taxes:
Fuel.................................... $ 997,262 $1,057,527 $ 1,204,218
Purchased power......................... 551,575 748,017 400,055
Operation............................... 1,541,435 1,457,346 1,715,016
Maintenance............................. 774,310 789,262 689,729
Depreciation and amortization........... 836,145 937,604 1,001,149
Taxes (except income)................... 506,326 697,151 799,167
Income taxes--
Current--Federal...................... 1,466,994 287,865 214,168
--State................................ 315,713 52,233 65,248
Deferred--Federal--net................ (1,155,409) 30,761 56,111
--State--net........................... (247,993) 12,538 2,544
Investment tax credits deferred--net.... (25,828) (27,730) (31,015)
---------- ---------- -----------
$5,560,530 $6,042,574 $ 6,116,390
---------- ---------- -----------
Electric Operating Income................. $1,206,362 $1,045,968 $ 956,698
---------- ---------- -----------
Other Income and (Deductions):
Interest on long-term debt, net of
interest capitalized................... $ (526,750) $ (430,602) $ (478,530)
Interest on notes payable............... (18,602) (19,560) (9,134)
Allowance for funds used during
construction........................... 21,812 16,464 42,325
Income taxes applicable to nonoperating
activities............................. 27,083 4,974 11,010
Provision for dividends on company-
obligated mandatorily redeemable
preferred securities of subsidiary
trusts holding solely the Company's
subordinated debt securities........... (29,710) (29,710) (28,860)
Loss of nuclear plant closure........... -- -- (885,611)
Income tax effect of nuclear plant
closure................................ -- -- 362,952
Miscellaneous--net...................... (29,887) 6,672 (130,988)
---------- ---------- -----------
$ (556,054) $ (451,762) $(1,116,836)
---------- ---------- -----------
Net Income (Loss) before Extraordinary
Item and Cumulative Effect of Change in
Accounting Principle..................... $ 650,308 $ 594,206 $ (160,138)
Extraordinary Loss, less Applicable Income
Taxes.................................... (27,579) -- (810,335)
Cumulative Effect of Change in Accounting
Principle................................ -- -- 196,700
---------- ---------- -----------
Net Income (Loss)......................... $ 622,729 $ 594,206 $ (773,773)
Provision for Dividends on Preferred and
Preference Stocks........................ 23,756 56,884 60,486
---------- ---------- -----------
Net Income (Loss) on Common Stock......... $ 598,973 $ 537,322 $ (834,259)
========== ========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
24
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
------------------------
ASSETS 1999 1998
------ ----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Utility Plant:
Plant and equipment, at original cost (includes
construction work in progress of $653 million and
$857 million, respectively)....................... $25,007,637 $27,801,246
Less--Accumulated provision for depreciation....... 13,729,223 15,234,320
----------- -----------
$11,278,414 $12,566,926
Nuclear fuel, at amortized cost.................... 843,724 874,979
----------- -----------
$12,122,138 $13,441,905
----------- -----------
Investments:
Nuclear decommissioning funds...................... $ 2,546,540 $ 2,267,317
Subsidiary companies............................... 77,061 48,636
Other investments, at cost......................... 63,702 57,031
----------- -----------
$ 2,687,303 $ 2,372,984
----------- -----------
Current Assets:
Cash and temporary cash investments................ $ 1,254,868 $ 27,154
Cash held for redemption of securities............. 285,056 3,062,816
Special deposits................................... 45,730 271
Receivables--
Customers........................................ 1,183,505 1,364,760
Forward share repurchase contract................ 813,046 --
Other............................................ 2,631,793 155,492
Provisions for uncollectible accounts............ (49,344) (48,008)
Coal and fuel oil, at average cost................. 14,222 134,965
Materials and supplies, at average cost............ 220,398 229,532
Deferred income taxes related to current assets and
liabilities....................................... 54,796 26,486
Prepayments and other.............................. 30,539 18,387
----------- -----------
$ 6,484,609 $ 4,971,855
----------- -----------
Deferred Charges and Other Noncurrent Assets:
Regulatory assets.................................. $ 1,792,907 $ 4,578,427
Other.............................................. 73,308 85,406
----------- -----------
$ 1,866,215 $ 4,663,833
----------- -----------
$23,160,265 $25,450,577
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
25
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
-----------------------
CAPITALIZATION AND LIABILITIES 1999 1998
------------------------------ ----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Capitalization (see accompanying statements):
Common stock equity.................................. $ 5,302,915 $ 5,055,854
Preferred and preference stocks without mandatory
redemption requirements............................. 8,768 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....................................... 6,962,448 7,677,219
----------- -----------
$12,624,131 $13,244,027
----------- -----------
Current Liabilities:
Notes payable........................................ $ 4,750 $ 276,356
Current portion of long-term debt, redeemable
preference stock and capitalized lease obligations.. 909,900 2,226,868
Accounts payable..................................... 545,329 605,712
Accrued interest..................................... 147,044 178,238
Accrued taxes........................................ 1,409,626 165,466
Dividends payable.................................... 92,656 104,022
Customer deposits.................................... 68,128 56,954
Accrued plant closing costs.......................... -- 78,430
Other................................................ 307,040 149,304
----------- -----------
$ 3,484,473 $ 3,841,350
----------- -----------
Deferred Credits and Other Noncurrent Liabilities:
Deferred income taxes................................ $ 2,456,447 $ 3,787,978
Nuclear decommissioning liability for retired plants. 1,259,700 1,215,400
Accumulated deferred investment tax credits.......... 484,717 562,285
Accrued spent nuclear fuel disposal fee and related
interest............................................ 763,427 728,413
Obligations under capital leases..................... 161,602 333,653
Regulatory liabilities............................... 596,157 595,005
Other................................................ 1,329,611 1,142,466
----------- -----------
$ 7,051,661 $ 8,365,200
----------- -----------
Commitments and Contingent Liabilities (Note 22)
$23,160,265 $25,450,577
=========== ===========
</TABLE>
*As described in Note 11 of Notes to Financial Statements, the sole asset of
ComEd Financing I, a subsidiary trust of ComEd, is $206.2 million principal
amount of ComEd's 8.48% subordinated deferrable interest notes due September
30, 2035. The sole asset of ComEd Financing II, also a subsidiary trust of
ComEd, is $154.6 million principal amount of ComEd's 8.50% subordinated
deferrable interest debentures due January 15, 2027.
The accompanying Notes to Financial Statements are an integral part of the
above statements.
26
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CAPITALIZATION
<TABLE>
<CAPTION>
December 31
------------------------
1999 1998
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Common Stock Equity:
Common stock, $12.50 par value per share--
Outstanding--213,973,810 shares and 214,057,171
shares, respectively............................ $ 2,677,995 $ 2,677,969
Premium on common stock and other paid-in capital. 2,207,287 2,223,706
Capital stock and warrant expense................. (12,537) (15,664)
Retained earnings................................. 433,001 176,643
Other comprehensive income........................ 7,539 --
Treasury stock--264,406 shares and 178,982 shares,
respectively..................................... (10,370) (6,800)
----------- -----------
$ 5,302,915 $ 5,055,854
----------- -----------
Preferred and Preference Stocks Without Mandatory
Redemption Requirements:
Preference stock, non-cumulative, without par val-
ue--
Outstanding--1,120 shares and 2,600 shares, re-
spectively....................................... $ 6,978 $ 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--56,291 shares and 58,211 shares, re-
spectively...................................... 1,790 1,851
----------- -----------
$ 8,768 $ 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 2000 through 2004--6 3/8% to 9 3/8%.... $ 698,245 $ 1,080,000
Maturing 2005 through 2014--4.40% to 8 3/8%..... 1,299,400 1,485,400
Maturing 2015 through 2023--5.85% to 9 7/8%..... 1,589,443 1,981,000
----------- -----------
$ 3,587,088 $ 4,546,400
Transitional trust notes, due 2000 through 2008--
5.29% to 5.74%................................... 3,070,000 3,400,000
Sinking fund debentures, due 2001 through 2011--2
3/4% to 4 3/4%................................... 30,866 94,159
Pollution control obligations, due 2007 through
2014--5.3% to 5 7/8%............................. 139,200 140,700
Other long-term debt.............................. 916,351 1,056,346
Current maturities of long-term debt included in
current liabilities.............................. (732,077) (1,497,706)
Unamortized net debt discount and premium......... (48,980) (62,680)
----------- -----------
$ 6,962,448 $ 7,677,219
----------- -----------
$12,624,131 $13,244,027
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
27
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS/(DEFICIT)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- ----------
(Thousands of Dollars)
<S> <C> <C> <C>
Balance at Beginning of Period................. $176,643 $(19,172) $1,157,956
Add--Net income/(loss)......................... 622,729 594,206 (773,773)
-------- -------- ----------
$799,372 $575,034 $ 384,183
-------- -------- ----------
Deduct--
Dividends declared on--
Common stock............................... $342,285 $342,776 $ 342,763
Preferred and preference stocks............ 8,532 55,320 60,159
Other capital stock transactions--net....... 15,554 295 433
-------- -------- ----------
$366,371 $398,391 $ 403,355
-------- -------- ----------
Balance at End of Period (Includes $852
million, $580 million and $384 million of
appropriated retained earnings at December 31,
1999, 1998 and 1997, respectively)............ $433,001 $176,643 $ (19,172)
======== ======== ==========
</TABLE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- ---------
(Thousands of Dollars)
<S> <C> <C> <C>
Net Income/(Loss) on Common Stock................. $598,973 $537,322 $(834,259)
Other Comprehensive Income
Unrealized gains on securities.................. 12,471 -- --
Income taxes on other comprehensive income...... (4,932) -- --
-------- -------- ---------
Other comprehensive income, net of tax.......... 7,539 -- --
-------- -------- ---------
Comprehensive Income/(Loss)....................... $606,512 $537,322 $(834,259)
======== ======== =========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
28
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
(Thousands of Dollars)
<S> <C> <C> <C>
Cash Flow from Operating Activities:
Net income (loss)...................... $ 622,729 $ 594,206 $ (773,773)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization........ 902,035 989,147 1,047,603
Deferred income taxes and investment
tax credits--net.................... (1,451,910) 62,775 (348,889)
Contribution to environmental trust.. (250,000) -- --
Recovery of coal reserve regulatory
assets.............................. 197,974 108,372 82,441
Increase in MGP liability............ 68,078 -- --
Extraordinary loss related to write-
off of certain net regulatory as-
sets................................ -- -- 810,335
Cumulative effect of change in ac-
counting principle.................. -- -- (196,700)
Loss on nuclear plant closure........ -- -- 885,611
Write-down of uranium-related proper-
ties................................ -- -- 64,387
Provisions/(payments) for revenue re-
funds--net.......................... (22,603) (23,622) 45,470
Equity component of allowance for
funds used during construction...... (7,789) (6,959) (23,770)
Provisions/(payments) for liability
for separation costs--net........... (62,396) 9,757 15,986
Net effect on cash flows of changes
in:
Receivables........................ (83,600) (485,833) 21,194
Note receivable from Unicom Invest-
ment.............................. (2,208,956) -- --
Coal and fuel oil.................. 1,559 (14,301) 19,698
Materials and supplies............. (7,157) 22,519 41,659
Accounts payable excluding nuclear
fuel lease principal payments and
separation costs--net............. (57,618) 111,981 233,360
Accrued interest and taxes......... 1,240,975 (22,659) (6,465)
Other changes in certain current
assets and liabilities............ 124,425 141,942 38,873
Other--net........................... 1,837 64,916 117,013
----------- ----------- -----------
$ (992,417) $ 1,552,241 $ 2,074,033
----------- ----------- -----------
Cash Flow from Investing Activities:
Construction expenditures.............. $(1,083,398) $ (928,365) $ (969,626)
Nuclear fuel expenditures.............. (253,483) (166,168) (185,373)
Sales of generating plants............. 4,885,720 177,454 60,791
Equity component of allowance for
funds used during construction........ 7,789 6,959 23,770
Contributions to nuclear
decommissioning funds................. (89,945) (136,771) (114,825)
Other investments and special depos-
its................................... (38,518) (681) (4,703)
Plant removal costs--net............... (74,584) (86,988) (85,923)
----------- ----------- -----------
$ 3,353,581 $(1,134,560) $(1,275,889)
----------- ----------- -----------
Cash Flow from Financing Activities:
Issuance of securities--
Transitional trust notes............. $ -- $ 3,382,629 $ --
Other long-term debt................. -- 222,068 297,663
Company-obligated mandatorily redeem-
able preferred securities of
subsidiary trusts holding solely the
Company's subordinated debt
securities.......................... -- -- 150,000
Capital stock........................ 60 244 288
Retirement and redemption of securi-
ties--
Transitional trust notes............. (330,000) -- --
Other long-term debt................. (1,199,969) (498,192) (734,768)
Capital stock........................ (649,355) (34,066) (44,111)
Repurchase of common stock............. (813,046) (6,800) (9,500)
Cash dividends paid on capital stock... (391,892) (429,867) (426,916)
Proceeds from sale/leaseback of nu-
clear fuel............................ -- 101,038 149,955
Nuclear fuel lease principal payments.. (255,402) (255,605) (166,411)
Increase/(decrease) in short-term
borrowings............................ (271,606) 118,206 29,400
----------- ----------- -----------
$(3,911,210) $ 2,599,655 $ (754,400)
----------- ----------- -----------
Change in Net Cash Balance.............. $(1,550,046) $ 3,017,336 $ 43,744
Cash, Temporary Cash Investments and
Cash Held for Redemption of
Securities:
Balance at Beginning of Period......... 3,089,970 72,634 28,890
----------- ----------- -----------
Balance at End of Period............... $ 1,539,924 $ 3,089,970 $ 72,634
=========== =========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
29
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies.
Corporate Structure and Basis of Presentation. Unicom is the parent holding
company of ComEd and other unregulated subsidiaries. ComEd, a regulated
electric utility, is the principal subsidiary of Unicom.
The consolidated financial statements include the accounts of ComEd, Indiana
Company, Edison Development, the Trusts, ComEd Funding and ComEd Funding
Trust. All significant intercompany transactions have been eliminated.
Although the accounts of ComEd Funding and ComEd Funding Trust, which are
SPEs, are included in the consolidated financial statements, as required by
GAAP, ComEd Funding and ComEd Funding Trust are legally separated from Unicom
and ComEd. The assets of the SPEs are not available to creditors of Unicom or
ComEd and the transitional property held by the SPEs are not assets of Unicom
or ComEd.
Use of Estimates. The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Due to the transition to a new
customer information and billing system, a larger portion of customer revenues
and net receivables were based on estimates for the periods July 1998 through
November 1999 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 $7.8 billion and $9.2 billion as of
December 31, 1999 and 1998. See "Regulatory Assets and Liabilities" below
regarding the plant impairment recorded by ComEd in the second quarter of
1998.
30
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Regulatory Assets and Liabilities. Regulatory assets are incurred costs
which have been deferred and are amortized for ratemaking and accounting
purposes. Regulatory liabilities represent amounts to be settled with
customers through future rates. Regulatory assets and liabilities reflected on
the Consolidated Balance Sheets at December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
December 31
---------------------
1999 1998
---------- ----------
(Thousands of
Dollars)
<S> <C> <C>
Regulatory assets:
Impaired production plant............................... $ 366,221 $2,955,154
Deferred income taxes (1)............................... 688,946 680,356
Nuclear decommissioning costs--Dresden Unit 1........... 202,308 255,031
Nuclear decommissioning costs--Zion Units 1 and 2....... 496,638 443,130
Coal reserves........................................... -- 197,975
Unamortized loss on reacquired debt (2)................. 38,794 46,781
---------- ----------
$1,792,907 $4,578,427
========== ==========
Regulatory liabilities:
Deferred income taxes (1)............................... $ 596,157 $ 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 over
a transition period that extends through 2006. Consistent with the provisions
of the 1997 Act, the (pre-tax) gain on the sale of $2.587 billion resulted in
a regulatory liability, which was used to recover regulatory assets.
Therefore, the gain on the sale, excluding $43 million of amortization of
investment tax credits, was recorded as a regulatory liability in the amount
of $2.544 billion and amortized in the fourth quarter of 1999. The
amortization of the regulatory liability and additional regulatory asset
amortization of $2.456 billion are reflected in depreciation and amortization
expense on ComEd's Statement of Consolidated Operations and resulted in a net
reduction to depreciation and amortization expense of $88 million. 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 5 for additional information regarding the fossil plant sale.
The regulatory assets for Dresden Unit 1 and Zion Units 1 and 2 represent
unrecovered nuclear decommissioning costs, which are expected to be recovered
over the periods 2000-2011 and 2000-2013, respectively, through a separate
rate recovery rider provided for by the 1997 Act. See "Depreciation,
Amortization of Regulatory Assets and Liabilities, and Decommissioning" below
for additional information.
31
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Depreciation, Amortization of Regulatory Assets and Liabilities, and
Decommissioning. Depreciation, amortization of regulatory assets and
liabilities, and decommissioning for the years 1999, 1998 and 1997 were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- ----------
(Thousands of Dollars)
<S> <C> <C> <C>
Depreciation expense.................. $706,237 $782,373 $ 877,256
Amortization of regulatory assets and
liabilities--net..................... 46,088 65,211 15,272
-------- -------- ----------
$752,325 $847,584 $ 892,528
Decommissioning expense............... 83,820 90,020 108,621
-------- -------- ----------
$836,145 $937,604 $1,001,149
======== ======== ==========
</TABLE>
Provisions for depreciation, including nuclear plant, were at average annual
rates of average depreciable utility plant and equipment for the years 1999,
1998 and 1997 as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Average annual depreciation rates............................. 2.66% 3.02% 3.36%
</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 year 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
recovery of the related decommissioning costs.
Based on ComEd's most recent study, decommissioning costs are estimated to
be $5.7 billion in current-year (2000) dollars, including a contingency
allowance. This estimate includes $617 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
are expected to 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
32
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
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. 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 $219 million in current-year (2000) 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 $5.7 billion in current-year (2000) 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
December 31, 1999, the total decommissioning costs included in the accumulated
provision for depreciation were $2.1 billion.
For ComEd's retired nuclear units, the total estimated liability for nuclear
decommissioning in current-year (2000) 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 December 31, 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.................................... $104,792 $455,962 $ 560,754
Unrecovered portion of the liability.............. 202,308 496,638 698,946
-------- -------- ----------
Nuclear decommissioning liability for retired
plants.......................................... $307,100 $952,600 $1,259,700
======== ======== ==========
</TABLE>
33
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Under Illinois law, decommissioning cost collections are required to be
deposited into external trusts. Consequently, such collections do not add to
the cash flows available for general corporate purposes. The ICC has approved
ComEd's funding plan, which provides for annual contributions of current
accruals and ratable contributions of past accruals over the remaining current
NRC license lives of the nuclear plants. The fair value of funds accumulated
in the external trusts at December 31, 1999 was $2,547 million, which includes
pre-tax unrealized appreciation of $721 million. The earnings on the external
trusts for operating plants accumulate in the fund balance and accumulated
provision for depreciation. Nuclear decommissioning funding as of December 31,
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)...................... $2,099,796
Amounts recovered through rates and investment fund
earnings for retired plants............................ 560,754
Less past accruals not yet contributed to the trusts.... 114,010
----------
Fair value of external trust funds..................... $2,546,540
==========
</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
December 31, 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 in 1999.
ComEd had approximately 3.5 million electric customers at December 31, 1999.
Revenues are recognized as electric and delivery services are provided to
customers.
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. 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 $35 million and $10 million in 1999 and 1998, respectively,
compared to normally expected levels. See "Use of Estimates" above for
additional information regarding ComEd's revenues and net receivables.
See Notes 3 and 19 for additional information.
Nuclear Fuel. The cost of nuclear fuel is amortized to fuel expense based on
the quantity of heat produced using the unit of production method. As
authorized by the ICC, provisions for spent nuclear fuel disposal costs have
been recorded at a level required to recover the fee payable on the current
nuclear-generated and sold electricity and the current interest accrual on the
one-time fee payable to the DOE for nuclear generation prior to April 7, 1983.
The one-time fee and interest thereon have been recovered and the current fee
and interest on the one-time fee are presently being recovered through base
rates. See Note 14 for additional information concerning the disposal of spent
nuclear fuel, one-time fee and interest accrual on the one-time fee. Nuclear
fuel expenses, including leased fuel costs and provisions for spent nuclear
fuel disposal costs, were $380 million, $325 million and $298 million for the
years 1999, 1998 and 1997, respectively.
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
34
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
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 7.81%, 8.34% and 9.39% for the years
1999, 1998 and 1997, 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 $22 million and $28 million for the years 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 $622 million, $535 million and $588 million for the years
1999, 1998 and 1997, 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. ComEd has elected to adopt
SFAS No. 123, Accounting for Stock-Based Compensation, for disclosure purposes
only. ComEd accounts for its stock option awards and ESPP under APB Opinion
No. 25, Accounting for Stock Issued to Employees. See Note 8 for additional
information.
Energy Risk Management Contracts. In the normal course of business, ComEd
utilizes contracts for the forward sale and purchase of energy to manage
effectively the utilization of its available generating capability. ComEd also
utilizes put and call option contracts and energy swap arrangements to limit
the market price risk associated with the forward commodity contracts. As
ComEd does not currently utilize financial or commodity instruments for
trading or speculative purposes, any gains or losses on forward commodity
contracts are recognized when the underlying transactions affect earnings.
Revenues and expenses associated with market price risk management contracts
are amortized over the terms of such contracts.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, 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
35
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
and losses to offset related results on the hedged item on the Statements of
Consolidated Operations, and requires ComEd to formally document, designate,
and assess the effectiveness of transactions that receive hedge accounting.
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.
ComEd is in the process of reviewing its various contracts to determine
which contracts meet the requirements of SFAS No. 133 and would need to be
reflected as derivatives under the standard and accounted for at fair value.
Among the contracts that are being reviewed are purchase power agreements,
contracts related to electricity purchases and sales, normal purchase orders,
securities issued and insurance contracts. ComEd has not yet quantified the
effects on its financial statements of adopting SFAS No. 133. However,
adoption of SFAS No. 133 could increase volatility in earnings and other
comprehensive income.
Reclassifications. Certain prior year amounts have been reclassified to
conform with current period presentation. These reclassifications had no
effect on operating results.
Cash Held for Redemption of Securities. As of December 31, 1999, the cash
held for redemption of securities reported on the Consolidated Balance Sheets
includes $222 million in unused cash proceeds from the issuance of the
transitional trust notes and $63 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, and cash held for
redemption of securities are considered to be cash equivalents. Supplemental
cash flow information for the years 1999, 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest (net of amount capital-
ized).............................. $588,402 $439,706 $502,260
Income taxes (net of refunds)....... $485,198 $302,289 $280,368
Supplemental Schedule of Non-Cash
Investing and Financing Activities:
Capital lease obligations incurred.... $ 1,744 $106,370 $158,412
</TABLE>
(2) Merger Agreement. In September 1999, the Boards of Directors of Unicom
and PECO approved a merger of equals that will create a new holding company,
Exelon. The merger is conditioned, among other things, upon the approvals of
the shareholders of both companies and by various regulatory bodies. The
merger is currently expected to be completed in the latter half of 2000.
Under the merger agreement, as amended and restated in January 2000, PECO
and ComEd will become the principal utility subsidiaries of Exelon. This
result will be achieved by a mandatory exchange of the outstanding common
stock of PECO for common stock of Exelon, and a merger of
36
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Unicom with and into Exelon wherein holders of Unicom common stock will
receive 0.875 shares of Exelon common stock plus $3.00 in cash for each of
their shares of Unicom common stock. The merger transaction will be accounted
for as a purchase of Unicom by PECO.
Prior to the consummation of the merger, Unicom expects to repurchase
approximately $1.0 billion of its outstanding common shares. These share
repurchases are in addition to the 26.3 million shares of Unicom common stock
that Unicom repurchased in January 2000 upon settlement of certain forward
purchase contracts. The $1.0 billion additional share repurchases will be
funded from available funds, including funds resulting from the fossil plant
sale.
(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 1997 Act. The CTC, which is 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 5 for additional information.
On October 1, 1999, more than 41,000 non-residential customers became
eligible to choose a new electric supplier or elect the purchase power option.
The remainder of non-residential customers will become eligible to choose an
electric supplier or the purchase power option between June 1 and December 31,
2000. As of December 31, 1999, over 4,700 non-residential customers,
representing approximately ten 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 CTCs from such
customers, 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 1999 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. ComEd's
37
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
operating revenues were reduced by approximately $170 million in 1998 due to
the 15% residential base rate reduction. The 15% rate reduction further
reduced ComEd's operating revenues by approximately $226 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 for ComEd
are each calculated on a two-year average basis. The earnings sharing
provision is applicable only to ComEd's earnings. Consistent with provisions
of the 1997 Act, 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 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 $1,101 million of long-
term debt and $607 million of preference stock in 1999 and reduce ComEd's
outstanding short-term debt by $500 million. During the year 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). ComEd also recorded $12 million (after-tax) 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. As
more fully described in Note 7 of Notes to Financial Statements, ComEd has
repurchased approximately 26.3 million shares of ComEd common stock using $924
million of proceeds. The remaining proceeds from the issuance of the
transitional trust notes will be used for the payment of fees and additional
common stock repurchases. See Note 7 for additional information regarding
ComEd's share repurchases.
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). The fourth quarter of
1997 also reflected charges totaling $44 million (after-tax) 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) for a write down of ComEd's investment
38
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
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) Cumulative Effect of a Change in Accounting Principle. In the fourth
quarter of 1997, ComEd changed its accounting method for revenue recognition
to record revenues associated with service which has been provided to
customers but has not yet been billed at the end of each accounting period,
retroactive to January 1, 1997. This change in accounting method increased
operating results for the year 1997 to reflect the one-time cumulative effect
of the change for years prior to 1997 by $197 million (after-tax).
(5) Sale of Plants and Closure. In December 1999, ComEd completed the sale
of its fossil generating assets to EME for a cash purchase price of $4.8
billion. The fossil generating assets represent an aggregate generating
capacity of approximately 9,772 megawatts.
Just prior to the consummation of the fossil plant sale, ComEd transferred
these assets to an affiliate, Unicom Investment. In consideration for the
transferred assets, Unicom Investment paid ComEd consideration totalling
approximately $4.8 billion in the form of a demand note in the amount of
approximately $2.4 billion and an interest-bearing Note with a maturity of
twelve years. Unicom Investment immediately sold the fossil plant assets to
EME, in consideration of which Unicom Investment received approximately $4.8
billion in cash from EME. Immediately after its receipt of the cash payment
from EME, Unicom Investment paid the $2.4 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
share repurchases. Of the cash received by ComEd, $1.8 billion is expected to
be used to pay the costs and taxes associated with the fossil plant sale
including ComEd's contribution of $250 million of the proceeds to an
environmental trust as required by the 1997 Act. 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 produced an after-tax gain of approximately $1.6 billion, after
recognizing commitments associated with certain coal contracts ($350 million),
recognizing employee-related costs ($112 million) and contributing to the
environmental trust. The coal contract costs include the amortization of the
remaining balance of ComEd's regulatory asset for unrecovered coal reserves of
$178 million and the recognition of $172 million of settlement payments
related to the above-market portion of coal purchase commitments ComEd
assigned to EME at market value upon completion of the fossil plant sale. The
severance costs included pension and post-retirement welfare benefit
curtailment and special termination benefit costs of $51 million and
transition, separation and retention payments of $61 million. A total of 1,730
fossil station employee positions were eliminated upon completion of the
fossil plant sale on December 15, 1999. As of December 31, 1999, 1,590 of the
employees whose positions were eliminated had been terminated and 140 affected
employees were in a transition
39
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
program which generally extends 60 days from the date of the fossil plant
sale. Consistent with the provisions of the 1997 Act, the (pre-tax) gain on
the sale of $2.587 billion resulted in a regulatory liability, which was used
to recover regulatory assets. Therefore, the gain on the sale, excluding $43
million of amortization of investment tax credits, was recorded as a
regulatory liability in the amount of $2.544 billion and amortized in the
fourth quarter of 1999. The amortization of the regulatory liability and
additional regulatory asset amortization of $2.456 billion are reflected in
depreciation and amortization expense on ComEd's Statement of Consolidated
Operations and resulted in a net reduction to depreciation and amortization
expense of $88 million. See Note 1, under "Regulatory Assets and Liabilities,"
for additional information.
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). The charge included a liability for estimated future closing
costs associated with the retirement of the station, excluding severance
costs, resulting in a charge of $117 million (after-tax). ComEd has recorded
reductions to the expected liability for future closing costs of $16 million
(after-tax) and $15 million (after-tax) in 1999 and in 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 17 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.
(6) Authorized Shares, Voting Rights and Stock Rights of Capital Stock. At
December 31, 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--56,291 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 of such shareholders, with the right
to cumulate votes in all elections for directors.
(7) 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.
During 1999, ComEd also entered into forward purchase arrangements with
Unicom for the repurchase of approximately 26.3 million shares of ComEd common
stock. The repurchase arrangements were settled in January 2000 on a physical
basis. The terms of the repurchase arrangements between ComEd and Unicom are
identical to the terms of Unicom's repurchase arrangements with financial
institutions. The repurchase arrangements between ComEd and Unicom are
expected to be settled on the same basis Unicom settles its repurchase
arrangements with the financial institutions. Effective January 2000, the
share repurchases will reduce ComEd's outstanding shares and common stock
equity. Prior to settlement, the repurchase arrangements were recorded as
40
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
a receivable on the Consolidated Balance Sheets based on the aggregate market
value of the shares deliverable under the arrangements. In 1999, net
unrealized losses of $44 million (after-tax) were recorded related to the
arrangements. The settlement of the arrangements in January 2000 resulted in a
gain of $113 million (after-tax). See Note 24 of Notes to Financial Statements
for additional information.
At December 31, 1999, shares of common stock were reserved for the following
purposes:
<TABLE>
<S> <C>
Conversion of $1.425 convertible preferred stock................... 57,416
Conversion of warrants............................................. 25,230
------
82,646
======
</TABLE>
Shares of common stock issued for the years 1999, 1998 and 1997 were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Conversion of $1.425 convertible preferred stock.............. 1,954 7,848 9,261
Conversion of warrants........................................ 109 228 362
----- ----- -----
2,063 8,076 9,623
===== ===== =====
</TABLE>
As of December 31, 1999 and 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 December 31, 1999 and 1998, 75,692 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.
As of December 31, 1999 and 1998, $852 million and $580 million,
respectively, of retained earnings had been appropriated for future dividend
payments.
(8) Stock Option Awards/Employee Stock Purchase Plan. Unicom has a
nonqualified stock option awards program under its Long-Term Incentive Plan.
The stock option awards program was adopted by Unicom in July 1996 to reward
valued employees responsible for, or contributing to, the management, growth
and profitability of Unicom and its subsidiaries. The stock options granted
expire ten years from their grant date. One-third of the shares subject to the
options vest on each of the first three anniversaries of the option grant
date. In addition, the stock options 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.
41
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Stock option transactions for the years 1999, 1998 and 1997 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 year............................. 1,848,050 35.750
Exercised during the year........................... (313,231) 24.102
Expired/cancelled during the year................... (179,076) 33.551
---------
Outstanding as of December 31, 1999................. 4,498,636 31.719
=========
</TABLE>
Of the stock options outstanding at December 31, 1999, 1,676,854 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 89,500, 94,270 and 196,003 shares of common stock for the years 1999,
1998 and 1997, respectively, under the ESPP at a weighted average annual
purchase price of $33.58, $33.11 and $19.15, respectively.
ComEd has adopted the disclosure-only provisions of SFAS No. 123. For
financial reporting purposes, ComEd has adopted APB No. 25, and thus no
compensation cost has been recognized for the stock option awards program or
ESPP. If ComEd had recorded compensation expense for the stock options granted
and the shares of common stock issued under the ESPP in accordance with SFAS
No. 123 using the fair value based method of accounting, the additional charge
to operations would have been $4 million (after-tax), $2 million (after-tax)
and $2 million (after-tax) for the years 1999, 1998 and 1997, respectively.
(9) Preferred and Preference Stocks Without Mandatory Redemption
Requirements. During the year 1999, 13,449,549 shares of preferred or
preference stock without mandatory redemption requirements were redeemed and
no shares were issued. No shares of preferred or preference stocks
42
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
without mandatory redemption requirements were issued or redeemed during 1998
and 1997. All series other than Series $1.425 have been redeemed.
The outstanding shares of $1.425 convertible preferred stock are convertible
at the option of the holders thereof, at any time, into common stock at the
rate of 1.02 shares of common stock for each share of convertible preferred
stock, subject to future adjustment. The convertible preferred stock may be
redeemed by ComEd at $42 per share, plus accrued and unpaid dividends, if any.
The involuntary liquidation price of the $1.425 convertible preferred stock is
$31.80 per share, plus accrued and unpaid dividends, if any.
(10) Preference Stock Subject to Mandatory Redemption Requirements. During
1999, 1998 and 1997, no shares of preference stock subject to mandatory
redemption requirements were issued. During 1999, 1998 and 1997, 1,020,345,
338,215 and 438,215 shares, respectively, of 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 December 31, 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.
(11) Company-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts Holding Solely Company's Subordinated Debt Securities. In
September 1995, ComEd Financing I, a wholly-owned subsidiary trust of ComEd,
issued 8,000,000 of its 8.48% ComEd-obligated mandatorily redeemable preferred
securities. The sole asset of ComEd Financing I is $206.2 million principal
amount of ComEd's 8.48% subordinated deferrable interest notes due September
30, 2035. In January 1997, ComEd Financing II, a wholly-owned subsidiary trust
of ComEd, issued 150,000 of its 8.50% ComEd-obligated mandatorily redeemable
capital securities. The sole asset of ComEd Financing II is $154.6 million
principal amount of ComEd's 8.50% subordinated deferrable interest debentures
due January 15, 2027. There is a full and unconditional guarantee by ComEd of
the Trusts' obligations under the securities issued by the Trusts. However,
ComEd's obligations are subordinate and junior in right of payment to certain
other indebtedness of ComEd. ComEd has the right to defer payments of interest
on the subordinated deferrable interest notes by extending the interest
payment period, at any time, for up to 20 consecutive quarters. Similarly,
ComEd has the right to defer payments of interest on the subordinated
deferrable interest debentures by extending the interest payment period, at
any time, for up to ten consecutive semi-annual periods. If interest payments
on the subordinated deferrable interest notes or debentures are so deferred,
distributions on the preferred securities will also be 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
43
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
distributions thereon, including interest thereon, to the date of payment,
unless in connection with the dissolution, the subordinated deferrable
interest notes or debentures are distributed to the holders of the preferred
securities.
(12) Long-Term Debt. ComEd initiated the issuance of $3.4 billion of
transitional trust notes through its SPEs, ComEd Funding and ComEd Funding
Trust, in the fourth quarter of 1998. The current amount outstanding is as
follows:
<TABLE>
<CAPTION>
Series Principal Amount
------------------------ ----------------------
(Thousands of Dollars)
<S> <C>
5.38% due March 25, 2000........................... $ 94,967
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
----------
$3,070,000
==========
</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 1999, ComEd
redeemed or reacquired $1,121 million of long-term debt.
Sinking fund requirements and scheduled maturities remaining through 2004
for ComEd's first mortgage bonds, transitional trust notes, sinking fund
debentures and other long-term debt outstanding at December 31, 1999, after
deducting deposits made for the retirement of sinking fund debentures, are
summarized as follows: 2000--$732 million; 2001--$345 million; 2002--$645
million; 2003--$445 million; and 2004--$577 million.
At December 31, 1999, ComEd's outstanding first mortgage bonds maturing
through 2004 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
5 3/10% due January 15, 2004....................... 26,000
--------
$698,245
========
</TABLE>
44
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Other long-term debt outstanding at December 31, 1999 is summarized as
follows:
<TABLE>
<CAPTION>
Principal
Debt Security Amount Interest Rate
- -------------------------- ---------- ------------------------------------------
(Thousands
of
Dollars)
<S> <C> <C>
Notes:
Medium Term Notes, Series
3N due various dates
through October 15, 2004 $156,000 Interest rates ranging from 9.17% to 9.20%
Notes 50 Variable interest rate
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%
--------
$916,050
--------
Purchase Contract Obliga-
tion
due April 30, 2005 $ 301 Interest rate of 3.00%
--------
$916,351
========
</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.
(13) Lines of Credit. ComEd had total unused bank lines of credit of $800
million at December 31, 1999. Of that amount, $500 million expires on December
15, 2000 and $300 million expires on December 17, 2002. 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.
(14) Disposal of Spent Nuclear Fuel. Under the Nuclear Waste Policy Act of
1982, the DOE is responsible for the selection and development of repositories
for, and the disposal of, spent nuclear fuel and high-level radioactive waste.
ComEd, as required by that Act, has 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 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. On November 5, 1999,
ComEd's case was stayed pending the decision of the United States Court of
Appeals for the Federal Circuit in several similar cases brought by other
utilities.
45
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
(15) Fair Value of Financial Instruments. The following methods and
assumptions were used to estimate the fair value of financial instruments
either held, or issued and outstanding. The disclosure of such information
does not purport to be a market valuation of ComEd and subsidiary companies as
a whole. The impact of any realized or unrealized gains or losses related to
such financial instruments on the financial position or results of operations
of ComEd and subsidiary companies is primarily dependent on the treatment
authorized under future ratemaking proceedings.
Investments. Securities included in the nuclear decommissioning funds have
been classified and accounted for as "available for sale" securities. The
estimated fair value of the nuclear decommissioning funds, as determined by
the trustee and based on published market data, as of December 31, 1999 and
1998 was as follows:
<TABLE>
<CAPTION>
December 31, 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.. $ 41,362 $ 95 $ 41,457 $ 40,907 $ 42 $ 40,949
U.S. Government and
Agency issues.......... 245,399 (1,993) 243,406 197,240 20,213 217,453
Municipal bonds......... 383,816 (940) 382,876 416,121 24,124 440,245
Corporate bonds......... 196,942 (5,699) 191,243 241,111 8,790 249,901
Common stock............ 832,802 732,893 1,565,695 740,956 565,630 1,306,586
Other................... 125,072 (3,209) 121,863 11,345 838 12,183
---------- -------- ---------- ---------- -------- ----------
$1,825,393 $721,147 $2,546,540 $1,647,680 $619,637 $2,267,317
========== ======== ========== ========== ======== ==========
</TABLE>
At December 31, 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....................................... $47,853 $48,421
1 through 5 years................................... 263,588 263,117
5 through 10 years.................................. 227,927 225,860
Over 10 years....................................... 409,823 400,358
</TABLE>
The net earnings of the nuclear decommissioning funds, which are recorded in
the accumulated provision for depreciation, for the years 1999, 1998 and 1997
were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C>
Gross proceeds from sales of securities....... $1,765,000 $1,795,484 $2,163,522
Less cost based on specific identification.... 1,718,151 1,728,092 2,088,300
---------- ---------- ----------
Realized gains on sales of securities......... $ 46,849 $ 67,392 $ 75,222
Other realized fund earnings, net of expenses. 62,927 40,374 39,123
---------- ---------- ----------
Total realized net earnings of the funds...... $ 109,776 $ 107,766 $ 114,345
Unrealized gains.............................. 101,510 190,503 198,741
---------- ---------- ----------
Total net earnings of the funds.............. $211,286 $ 298,269 $ 313,086
========== ========== ==========
</TABLE>
46
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
Securities held by certain trusts, which were established to provide for
supplemental retirement benefits and executive medical claims, have been
classified and accounted for as "available for sale." The estimated fair value
of these securities, as determined by the trustee and based on published
market data, as of December 31, 1999 was as follows:
<TABLE>
<CAPTION>
Cost Unrealized Fair
Basis Gain Value
------- ---------- -------
(Thousands of Dollars)
<S> <C> <C> <C>
Short-term investments.............................. $ 162 $ -- $ 162
Registered investment companies..................... 21,641 12,471 34,112
------- ------- -------
$21,803 $12,471 $34,274
======= ======= =======
</TABLE>
Current Assets. Cash, temporary cash investments, cash held for redemption
of securities and special deposits are stated at cost, which approximates
their fair value because of the short maturity of these instruments. The
securities included in these categories have been classified as "available for
sale" securities.
Capitalization. The estimated fair values of preferred and preference
stocks, Company-obligated mandatorily redeemable preferred securities of
subsidiary trusts holding solely Company's subordinated debt securities,
transitional trust notes and long-term debt were obtained from an independent
consultant. The estimated fair values, which include the current portions of
redeemable preference stock and long-term debt but exclude accrued interest
and dividends, as of December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
December 31, 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................. $ 71,265 $ 58 $ 71,323 $ 678,156 $ 11,500 $ 689,656
Company-obligated
mandatorily redeemable
preferred securities of
subsidiary trusts
holding solely
Company's subordinated
debt securities........ $ 350,000 $ (10,595) $ 339,405 $ 350,000 $ 20,678 $ 370,678
Transitional trust
notes.................. $3,057,112 $(163,600) $2,893,512 $3,382,821 $ 67,168 $3,449,989
Long-term debt.......... $4,637,062 $ (22,237) $4,614,825 $5,791,757 $442,077 $6,233,834
</TABLE>
Current Liabilities. The carrying value of notes payable, which consists of
commercial paper and bank loans maturing within one year, approximates the
fair value because of the short maturity of these instruments. See
"Capitalization" above for a discussion of the fair value of the current
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
December 31, 1999 and 1998; therefore, the carrying value is equal to the fair
value.
47
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
(16) Pension and Postretirement Benefits. As of December 31, 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 December 31, 1999 and 1998 pension liabilities
and related data were determined using the January 1, 1999 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 provides 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 December 31, 1999 and 1998 postretirement benefit liabilities
and related data were determined using the January 1, 1999 actuarial
valuations.
Reconciliations of the beginning and ending balances of the projected
pension benefit obligation and the accumulated postretirement benefit
obligation, and the funded status of these plans for the years 1999 and 1998
were as follows:
<TABLE>
<CAPTION>
Twelve Months Ended Twelve Months Ended
December 31, 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.... $4,326,000 $1,236,000 $4,010,000 $1,139,000
Service cost............ 120,000 41,000 115,000 38,000
Interest cost........... 285,000 82,000 273,000 78,000
Plan participants' con-
tributions............. -- 4,000 -- 3,000
Actuarial loss/ (gain).. (458,000) (188,000) 165,000 25,000
Benefits paid........... (241,000) (51,000) (237,000) (47,000)
Special termination ben-
efits.................. 62,000 27,000 -- --
---------- ---------- ---------- ----------
Benefit obligation at
end of period......... $4,094,000 $1,151,000 $4,326,000 $1,236,000
---------- ---------- ---------- ----------
</TABLE>
48
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
<TABLE>
<CAPTION>
Twelve Months Ended Twelve Months Ended
December 31, 1999 December 31, 1998
-------------------------- --------------------------
Other Other
Pension Postretirement Pension Postretirement
Benefits Benefits Benefits Benefits
---------- -------------- ---------- --------------
(Thousands of Dollars)
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................. 492,000 105,000 535,000 122,000
Employer contribution... 3,000 24,000 11,000 20,000
Plan participants' con-
tributions............. -- 4,000 -- 3,000
Benefits paid........... (241,000) (51,000) (237,000) (47,000)
---------- --------- ---------- ---------
Fair value of plan as-
sets at end of period. $4,269,000 $ 947,000 $4,015,000 $ 865,000
---------- --------- ---------- ---------
Plan assets
greater/(less) than
benefit obligation..... $ 175,000 $(204,000) $ (311,000) $(371,000)
Unrecognized net actuar-
ial loss/(gain)........ (523,000) (555,000) 36,000 (371,000)
Unrecognized prior serv-
ice cost/(asset)....... (51,000) 41,000 (60,000) 48,000
Unrecognized transition
obligation/(asset)..... (79,000) 276,000 (101,000) 323,000
---------- --------- ---------- ---------
Accrued liability for
benefits.............. $ (478,000) $(442,000) $ (436,000) $(371,000)
========== ========= ========== =========
</TABLE>
The assumed discount rate used to determine the benefit obligation as of
December 31, 1999 and 1998 was 7.75% and 6.75%, respectively. The fair value
of plan assets excludes $25 million and $21 million held in grantor trust as
of December 31, 1999 and 1998, respectively, for the payment of benefits under
the supplemental plan and $9 million and $7 million held in a grantor trust as
of December 31, 1999 and 1998, respectively, for the payment of postretirement
medical benefits.
The components of pension and other postretirement benefit costs, portions
of which were recorded as components of construction costs, for the years
1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
Pension Benefit Costs
- --------------------- (Thousands of Dollars)
<S> <C> <C> <C>
Service cost..................................... $120,000 $115,000 $100,000
Interest cost on projected benefit obligation.... 285,000 273,000 261,000
Expected return on plan assets................... (362,000) (342,000) (310,000)
Amortization of transition asset................. (13,000) (12,000) (13,000)
Amortization of prior service asset.............. (4,000) (4,000) (4,000)
Recognized loss.................................. 3,000 2,000 2,000
Curtailment (gain)/loss.......................... 16,000 -- (5,000)
-------- -------- --------
Net periodic benefit cost....................... $ 45,000 $ 32,000 $ 31,000
======== ======== ========
Other Postretirement Benefit Costs
- ----------------------------------
Service cost..................................... $ 41,000 $ 38,000 $ 34,000
Interest cost on accumulated benefit obligation.. 82,000 78,000 76,000
Expected return on plan assets................... (76,000) (69,000) (61,000)
Amortization of transition obligation............ 22,000 22,000 22,000
Amortization of prior service cost............... 4,000 4,000 4,000
Recognized gain.................................. (14,000) (14,000) (13,000)
Severance plan cost.............................. 1,000 6,000 8,000
Curtailment loss................................. 35,000 -- --
-------- -------- --------
Net periodic benefit cost....................... $ 95,000 $ 65,000 $ 70,000
======== ======== ========
</TABLE>
49
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
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 pension and other
postretirement benefit curtailment losses in December 1999 represent the
recognition of prior service costs and transition obligations and an increase
in the benefit obligations resulting from special termination benefits related
to the reduction in the number of employees due to the sale of the fossil
stations.
The health care cost trend rates used to measure the expected cost of the
postretirement medical benefits are assumed to be 8.0% for pre-Medicare
recipients and 6.0% for Medicare recipients for 1999. 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 1999 service and interest cost
components...................................... $ 26,000 $ (20,000)
Effect on postretirement benefit obligation...... 190,000 (151,000)
</TABLE>
In addition, an employee savings and investment plan is available to
eligible employees of ComEd and certain of its subsidiaries. Under the plan,
each participating employee may contribute up to 20% of such employee's base
pay 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 $32 million, $32 million and
$33 million for each of the years 1999, 1998 and 1997, respectively.
(17) Separation Plan Costs. O&M expenses included $10 million, $48 million
and $39 million for the years 1999, 1998 and 1997, 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 $6 million (after-tax), $29 million (after-tax), and
$24 million (after-tax) for the years 1999, 1998 and 1997, respectively. See
Note 5 of Notes to Financial Statements regarding employee separation costs
related to the fossil plant sale.
50
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
(18) Income Taxes. The components of the net deferred income tax liability
at December 31, 1999 and December 31, 1998 were as follows:
<TABLE>
<CAPTION>
December 31, 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......................... $2,781,601 $4,007,681
Overheads capitalized............................... 159,836 140,922
Repair allowance.................................... 221,502 233,861
Regulatory assets recoverable through future rates.. 688,946 680,356
Deferred income tax assets:
Postretirement benefits............................. (376,207) (331,566)
Unamortized investment tax credits.................. (161,756) (191,135)
Regulatory liabilities to be settled through future
rates.............................................. (596,157) (595,005)
Nuclear plant closure............................... (5,456) (38,354)
Other--net.......................................... (310,658) (145,268)
---------- ----------
Net deferred income tax liability.................... $2,401,651 $3,761,492
========== ==========
</TABLE>
The $1,360 million decrease in the net deferred income tax liability from
December 31, 1998 to December 31, 1999 is comprised of a $1,378 million credit
to net deferred income tax expense pertaining primarily to the fossil plant
sale, a $7 million increase in regulatory assets net of regulatory liabilities
pertaining to income taxes for the period and $11 million related to other
items. 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 years 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- -------- ---------
(Thousands of Dollars)
<S> <C> <C> <C>
Operating income:
Current income taxes....................... $ 1,782,707 $340,098 $ 279,416
Deferred income taxes...................... (1,403,402) 43,299 58,655
Investment tax credits deferred--net....... (25,828) (27,730) (31,015)
Other (income) and deductions:
Current income taxes....................... 457 (51,816) 1,116
Deferred income taxes...................... 25,739 59,458 (385,994)
Investment tax credits..................... (51,740) (12,107) (22,526)
----------- -------- ---------
Net income taxes charged/(credited) to con-
tinuing operations......................... $ 327,933 $351,202 $(100,348)
=========== ======== =========
</TABLE>
Provisions for current and deferred federal and state income taxes and
amortization of investment tax credits resulted in the following effective
income tax rates for the years 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- ---------
<S> <C> <C> <C>
Pre-tax book income (loss) (thousands)........... $978,241 $945,408 $(260,486)
Effective income tax rate........................ 33.5% 37.1% 38.5%
</TABLE>
51
<PAGE>
COMMONWEALTH EDISON COMPANY 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 years 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- ---------
(Thousands of Dollars)
<S> <C> <C> <C>
Federal income taxes computed at statutory rate. $342,384 $330,893 $ (91,170)
Equity component of AFUDC which was excluded
from taxable income............................ (436) (390) (8,320)
Amortization of investment tax credits, net of
deferred income taxes.......................... (48,216) (25,503) (53,541)
State income taxes, net of federal income taxes. 48,062 43,699 3,470
Unrealized loss/(gain) on forward share
repurchase contract............................ 15,390 -- --
Earnings on nontax-qualified decommissioning
fund........................................... (8,915) -- --
Differences between book and tax accounting,
primarily property-related deductions.......... (20,336) 2,503 49,213
-------- -------- ---------
Net income taxes charged/(credited) to
continuing operations.......................... $327,933 $351,202 $(100,348)
======== ======== =========
</TABLE>
(19) Taxes, Except Income Taxes. Provisions for taxes, except income taxes,
for the years 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
Illinois public utility revenue............... $ 981 $114,981 $228,350
Illinois invested capital..................... -- -- 99,503
Illinois electricity distribution tax......... 114,241 110,025 --
Municipal utility gross receipts.............. 99,701 152,501 168,094
Real estate................................... 114,394 124,131 150,179
Municipal compensation........................ 73,349 89,210 78,286
Energy assistance and renewable energy charge. 34,423 32,736 --
Other--net.................................... 69,237 73,567 74,755
-------- -------- --------
$506,326 $697,151 $799,167
======== ======== ========
</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.
The 1997 Act changed the nature of several state and municipal taxes that
are collected through customer billings. Before August 1998, the utility taxes
were assessed against the utility. Effective August 1998, the utility taxes
are assessed on the electric consumer rather than the utility. Accordingly,
ComEd records the collections as liabilities and no longer records the taxes
collected through billings as revenues and tax expense. The reduction in
operating revenues and taxes, except income taxes, due to the change in
presentation for such taxes was approximately $174 million in 1999, compared
to 1998, and $110 million in 1998, compared to 1997. This change in
presentation for such taxes did not have an effect on operations.
See Note 22 for additional information regarding Illinois invested capital
taxes.
(20) Lease Obligations of Subsidiary Companies. Under its nuclear fuel lease
arrangement, ComEd may sell and lease back nuclear fuel from a lessor who may
borrow an aggregate of $267 million, consisting of intermediate term notes, to
finance the transactions. A commercial paper/bank borrowing portion expired on
November 23, 1999. With respect to the intermediate term notes, $75 million
expires on November 23, 2000, $115 million expires on November 23, 2001 and
$77 million
52
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
expires on November 23, 2003. At December 31, 1999, ComEd's obligation to the
lessor for leased nuclear fuel amounted to approximately $270 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 December 31, 1999, future minimum rental payments, net of executory
costs, for capital leases are estimated to aggregate to $298 million,
including $121 million in 2000, $96 million in 2001, $48 million in 2002 and
$33 million in 2003. The estimated interest component of such rental payments
aggregates $27 million. The estimated portions of obligations due within one
year under capital leases of $108 million and $195 million at December 31,
1999 and 1998, respectively, were included in current liabilities on the
Consolidated Balance Sheets.
Future minimum rental payments at December 31, 1999 for operating leases are
estimated to aggregate to $271 million, including $31 million in 2000, $24
million in 2001, $25 million in 2002, $22 million in 2003, $21 million in 2004
and $148 million in 2005-2043.
(21) Joint Plant Ownership. ComEd has a 75% undivided ownership interest in
the Quad Cities nuclear generating station. Further, ComEd is responsible for
75% of all costs which are charged to appropriate investment and O&M accounts,
and provides its own financing. ComEd's net plant investment, including
construction work in progress, in Quad Cities Station on the Consolidated
Balance Sheets was $22 million at December 31, 1999, after reflecting the
accounting impairment recorded in the second quarter of 1998. See Note 1,
under "Regulatory Assets and Liabilities," for additional information.
(22) Commitments and Contingent Liabilities. Purchase commitments,
principally related to construction, nuclear fuel and coal in support of
certain power purchase agreements, approximated $670 million at December 31,
1999. In addition, ComEd has substantial commitments for expected capacity
payments and fixed charges related to certain power purchase agreements. Upon
completion of the fossil plant sale with EME, ComEd entered into arrangements
to assign or settle a substantial portion of its coal purchase commitments and
entered into purchase power agreements with EME. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations," subcaption
"Liquidity and Capital Resources--UTILITY OPERATIONS--Construction Program,"
for additional information regarding ComEd's purchase commitments.
ComEd is a member of NEIL which provides insurance coverage against property
damage and associated replacement power costs occurring at members' nuclear
generating facilities. All companies insured with NEIL are subject to
retrospective premium adjustments if losses exceed accumulated reserve funds.
Capital has been accumulated in the reserve funds such that ComEd would not be
liable for any single incident. However, ComEd could be subject to assessments
in any policy year for each of three types of coverage provided. The maximum
assessments are approximately $53 million for primary property damage, $73
million for excess property damage and $22 million for replacement power.
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.
53
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
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.
On February 11, 2000, the Tenth Circuit Court of Appeals agreed with Cotter,
found that the trial judge had erred in critical rulings and reversed the jury
verdict, remanding the case for new trial. A case involving the next group of
plaintiffs is set for trial in federal district court in Denver on October 2,
2000. Although ComEd sold its investment in Cotter in February 2000, ComEd
will continue to be liable for any court verdicts in favor of the plaintiffs.
The other 1991 cases will necessarily involve the resolution of numerous
contested issues of law and fact. It is Unicom and ComEd's assessment 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. ComEd has filed a
motion challenging the legal sufficiency of the consolidated complaints. The
plaintiff's response is due April 14, 2000 and any reply by ComEd is due May
12, 2000. The motion to dismiss is currently scheduled to be argued on May 23,
2000. ComEd's management believes adequate reserves have been established in
connection with these cases.
54
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--Continued
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.
Hearings on Phase I of the investigation were held the week of January 3,
2000, which focused on the outages of July and August 1999. Reports on Phase
II and Phase III, focusing on the transmission and distribution system
generally, are anticipated in the second quarter of 2000. 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 then Northern Illinois
Gas Company (Nicor Gas) 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. In the fourth quarter of 1999, ComEd re-
evaluated its environmental remediation strategies. As a result of this re-
evaluation, ComEd's current best estimate of its costs of former MGP site
investigation and remediation is $93 million in current-year (2000) dollars
(reflecting a discount rate of 6.5%). Such estimate, reflecting an estimated
inflation rate of 3% and before the effects of discounting, is $182 million.
It is expected that the costs associated with investigation and remediation of
former MGP sites will be substantially incurred through 2012, however
monitoring and certain other costs are expected to be incurred through 2042.
ComEd's current best estimate of its costs of former MGP site investigation
and remediation of $93 million has been included in other noncurrent
liabilities on the Consolidated Balance Sheets as of December 31, 1999. The
increase in ComEd's estimated costs of former MGP sites of $68 million in 1999
over 1998 was included in operation and maintenance expenses on ComEd's
Statements of Consolidated Operations. In addition, as of December 31, 1999
and 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 sites other than former MGP
sites. These costs 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. While ComEd may have rights of
reimbursement under insurance policies, amounts that may be recoverable from
other entities are not considered in establishing the estimated liability for
the environmental remediation costs.
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
$52 million as of December 31, 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.
55
<PAGE>
COMMONWEALTH EDISON COMPANY 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. 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 from 1999
through 2004 on transmission and distribution facilities outside of the City.
(23) Quarterly Financial Information
<TABLE>
<CAPTION>
Net
Income
Electric Electric on
Operating Operating Net Common
Three Months Ended Revenues Income Income Stock
- ------------------ ---------- --------- -------- -------- ---
(Thousands of Dollars) ---
<S> <C> <C> <C> <C> <C>
March 31, 1999....................... $1,528,800 $254,782 $ 94,401 $ 79,104
June 30, 1999........................ $1,678,983 $239,814 $129,985 $126,942
September 30, 1999................... $2,064,011 $435,777 $287,049 $285,219
December 31, 1999.................... $1,495,098 $275,989 $111,294 $107,708
March 31, 1998....................... $1,662,275 $196,169 $ 71,833 $ 57,286
June 30, 1998........................ $1,776,972 $220,452 $104,453 $ 89,991
September 30, 1998................... $2,089,547 $400,913 $286,071 $272,018
December 31, 1998.................... $1,559,748 $228,434 $131,849 $118,027
</TABLE>
(24) Subsequent Event. In January 2000, ComEd physically settled the forward
share repurchase arrangements it had with Unicom for the repurchase of 26.3
million ComEd common shares. Prior to settlement, the repurchase arrangements
were recorded as a receivable on Consolidated Balance Sheets based on the
aggregate market value of the shares under the arrangements. In 1999, net
unrealized losses of $44 million (after-tax) were recorded related to the
arrangements. The settlement of the arrangements in January 2000 resulted in a
gain of $113 million (after-tax), which will be recorded in the first quarter
of 2000. The settlement of the arrangements will also result in a reduction in
ComEd's outstanding common shares and common stock equity, effective January
2000.
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