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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[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
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission File Number 1-1401
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PECO ENERGY COMPANY
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-0970240
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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P.O. Box 8699
2301 Market Street, Philadelphia, PA (215) 841-4000 19101
(Address of principal executive offices) (Registrant's telephone number, including area code) (Zip Code)
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Securities registered pursuant to Section 12(b) of the Act:
First and Refunding Mortgage Bonds (Listed on the New York Stock Exchange):
5-5/8% Series due 2001 6-3/8% Series due 2005 7-3/8% Series due 2001 6-1/2% Series due 2003
Cumulative Preferred Stock-- without par value (Listed on the New York and Philadelphia Stock Exchanges):
$4.68 Series $4.40 Series $4.30 Series $3.80 Series
Common Stock-- without par value (Listed on the New York and Philadelphia Stock Exchanges)
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Trust Receipts of PECO Energy Capital Trust II, each representing an 8.00%
Cumulative Monthly Income Preferred Security, Series C, $25 stated value, issued
by PECO Energy Capital, L.P. and unconditionally guaranteed by the Company
(Listed on the New York Stock Exchange)
Trust Receipts of PECO Energy Capital Trust III, each representing an 7.38%
Cumulative Preferred Security, Series D, $25 stated value, issued by PECO Energy
Capital, L.P. and unconditionally guaranteed by the Company (Listed on the New
York Stock Exchange)
Securities registered pursuant to Section 12(g) of the Act:
Cumulative Preferred Stock--without par value:
$7.48 Series $6.12 Series
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Indicate by check mark whether the registrant (1) has 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) has 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 the registrant's 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. [ ]
The aggregate market value of the registrant's common stock (only voting
stock) held by non-affiliates of the registrant was $6,895,064,888 at March 24,
2000.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date.
Common Stock-- without par value: 181,449,076 shares outstanding at March
24, 2000.
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DOCUMENTS INCORPORATED BY REFERENCE (In Part)
Proxy Statement of PECO Energy Company in connection with its
2000 Annual Meeting of Shareholders, which is expected to be filed
with the U.S. Securities and Exchange Commission
by April 29, 2000, is incorporated in part in
Part III hereof, as specified herein.
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TABLE OF CONTENTS
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PAGE NUMBERS TO BE UPDATED Page No.
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PART I
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ITEM 1. BUSINESS..........................................................................................4
General...........................................................................................4
Distribution Business Unit .......................................................................5
General......................................................................................5
Retail Electric Services.....................................................................6
Transmission Services........................................................................9
Gas..........................................................................................9
Generation Business Unit.........................................................................10
General.....................................................................................10
Generation Assets...........................................................................10
Limerick Generating Station.................................................................12
Peach Bottom Atomic Power Station...........................................................14
Salem Generating Station....................................................................14
Fuel........................................................................................15
Power Marketing Group.......................................................................17
Unregulated Retail Energy Supplier..........................................................18
AmerGen Energy Company, LLC.................................................................19
Ventures Business Unit ..........................................................................19
Exelon Infrastructure Services, Inc.........................................................19
Telecommunications Ventures.................................................................19
Peco Energy Transition Trust, Peco Energy Capital Corp. and Related Entities.....................20
Segment Information..............................................................................20
Competition......................................................................................20
Year 2000 Readiness Disclosure...................................................................21
Capital Requirements.............................................................................21
Construction.....................................................................................22
Employee Matters.................................................................................22
Environmental Regulations........................................................................23
Water.......................................................................................23
Air.........................................................................................24
Solid and Hazardous Waste...................................................................25
Costs.......................................................................................28
Executive Officers of the Registrant.............................................................28
ITEM 2. PROPERTIES.......................................................................................31
ITEM 3. LEGAL PROCEEDINGS................................................................................32
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............................................33
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.................................................................33
ITEM 6. SELECTED FINANCIAL DATA..........................................................................33
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.........................................................35
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......................................53
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......................................................56
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE......................................................91
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...............................................92
ITEM 11. EXECUTIVE COMPENSATION...........................................................................92
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT..................................................................................92
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................................92
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.................................93
Financial Statements and Financial Statement Schedule............................................93
SCHEDULE II-- VALUATION AND QUALIFYING ACCOUNTS..................................................94
Exhibits.........................................................................................95
Reports on Form 8-K.............................................................................100
SIGNATURES
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PART I
ITEM 1. BUSINESS
General
Incorporated in Pennsylvania in 1929, PECO Energy Company (Company) is
engaged principally in the production, purchase, transmission, distribution and
sale of electricity to residential, commercial, industrial and wholesale
customers and the distribution and sale of natural gas to residential,
commercial and industrial customers. Pursuant to the Pennsylvania Electricity
Generation Customer Choice and Competition Act (Competition Act), the
Commonwealth of Pennsylvania has required the unbundling of retail electric
services in Pennsylvania into separate generation, transmission and distribution
services with open retail competition for generation services. Since the
commencement of deregulation in 1999, the Company serves as the local
distribution company providing electric distribution services in its franchised
services territory in southeastern Pennsylvania and bundled electric service to
customers who do not choose an alternate electric generation supplier. The
Company engages in the wholesale marketing of electricity on a national basis.
Through its Exelon Energy division, the Company is a competitive generation
supplier offering competitive energy supply to customers throughout
Pennsylvania. The Company's infrastructure services subsidiary, Exelon
Infrastructure Services, Inc. (EIS), provides utility infrastructure services to
customers in several regions of the United States. The Company owns a 50%
interest in AmerGen Energy Company, LLC (AmerGen), a joint venture with British
Energy, Inc., a wholly owned subsidiary of British Energy plc (British Energy),
that acquires and operates nuclear generating facilities. The Company also
participates in joint ventures which provide telecommunications services in the
Philadelphia metropolitan region.
The Company is a public utility under the Pennsylvania Public Utility
Code and a transmitting utility and electric utility under the Federal Power
Act. As a result, the Company is subject to regulation by the Pennsylvania
Public Utility Commission (PUC) as to electric distribution, certain retail
electric rates, retail gas rates, issuances of securities and certain other
aspects of the Company's operations and by the Federal Energy Regulatory
Commission (FERC) as to transmission rates. Specific operations of the Company
are also subject to the jurisdiction of various other federal, state, regional
and local agencies, including the United States Nuclear Regulatory Commission
(NRC), the United States Environmental Protection Agency (EPA), the United
States Department of Energy (DOE), the Delaware River Basin Commission (DRBC)
and the Pennsylvania Department of Environmental Protection (PDEP). The
Company's Muddy Run Pumped Storage Project and the Conowingo Hydroelectric
Project are subject to the licensing jurisdiction of the FERC. Due to its
ownership of subsidiary-company stock, the Company is a holding company as
defined by the Public Utility Holding Company Act of 1935 (1935 Act); however,
it is predominantly an operating company and, by filing an exemption statement
annually, is exempt from all provisions of the 1935 Act, except Section 9(a)(2)
relating to the acquisition of securities of a public utility company.
On September 22, 1999, the Company and Unicom Corporation (Unicom)
entered into an Agreement and Plan of Exchange and Merger providing for a merger
of equals. On January 7, 2000, the Agreement and Plan of Exchange and Merger was
amended and restated (Merger Agreement). The Merger Agreement has been approved
by both companies' Boards of Directors. The transaction will be accounted for as
a purchase with the Company as acquiror.
4
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The Merger Agreement provides for (a) the exchange of each share of
outstanding common stock, no par value, of the Company for one share of common
stock of the new company, Exelon Corporation (Exelon) (Share Exchange) and (b)
the merger of Unicom with and into Exelon (Merger and together with the Share
Exchange, Merger Transaction). In the Merger, each share of outstanding common
stock, no par value, of Unicom will be converted into 0.875 shares of common
stock of Exelon plus $3.00 in cash. In the Merger Agreement, the Company and
Unicom agree to repurchase approximately $1.5 billion of common stock prior to
the closing of the Merger, with Unicom to repurchase approximately $1.0 billion
of its common stock, and the Company to repurchase approximately $500 million of
its common stock. As a result of the Share Exchange, the Company will become a
wholly owned subsidiary of Exelon. As a result of the Merger, Unicom will cease
to exist and its subsidiaries, including Commonwealth Edison Company, an
Illinois corporation (ComEd), will become subsidiaries of Exelon. Following the
Merger Transaction, Exelon will be a holding company with two principal utility
subsidiaries, ComEd and the Company.
The Merger Transaction is conditioned, among other things, upon the
approvals of the common shareholders of both companies and the approval of
certain regulatory agencies. See "Distribution Business Unit-Retail Electric
Services." The companies have filed an application with the Securities and
Exchange Commission (SEC) to register Exelon as a holding company under the 1935
Act.
At December 31, 1997, the Company discontinued the use of regulatory
accounting in its financial statements for its electric generation operations.
In connection with the discontinuance of Statement of Financial Accounting
Standards No. 71, "Accounting for the Effects of Certain Types of Regulation,"
the Company performed a market value analysis of its generation assets and
wrote-off $1.8 billion (net of income taxes) of unrecoverable electric plant
costs and regulatory assets.
Prior to 1999, substantially all of the Company's retail electric and
gas revenues were derived pursuant to bundled rates regulated by the PUC, and
prior to 1996 all of the Company's wholesale electric revenue was derived
pursuant to rates regulated by the FERC. As a result of the adoption of the
Competition Act and deregulation initiatives by the FERC, electric services have
been unbundled into separate generation, transmission and distribution services
with open competition for both retail and wholesale generation services. Certain
transmission and distribution services remain subject to regulation.
Annual and quarterly operating results can be significantly affected by
weather. Traditionally, sales of electricity are higher in the second and third
quarters due to warmer weather and sales of gas are higher in the first and
fourth quarters due to colder weather.
In 1999, the Company completed the redesign of its internal reporting
structure to separate its distribution, generation and ventures operations into
business units and provide financial and operational data on the same basis to
senior management. The Company has also requested authorization from the PUC
(whether or not the merger with Unicom is consummated) to create a holding
company structure in which the Company would continue as the distribution
company and the generation and ventures businesses would be conducted through
separate unregulated subsidiaries.
Distribution Business Unit
General
The Company's distribution business unit consists of its regulated
operations including electric transmission and distribution services, regulated
retail sales of generation services and retail gas sales and services.
The Company's traditional retail service territory covers 2,107 square
miles in southeastern Pennsylvania. The Company's distribution business unit
provides electric transmission and distribution service and generation service
to customers who do not purchase generation service from an electric generation
supplier (EGS) in an area of 1,972 square miles, with a population of
approximately 3.6 million, including 1.6 million in the City of Philadelphia.
Natural gas service is supplied in a 1,475 square mile area in southeastern
Pennsylvania adjacent to Philadelphia with a population of 1.9 million. Rates
for retail service provided by the Company's distribution business unit are set
by the PUC.
Retail Electric Services
The Competition Act was enacted in December 1996 and provided for the
restructuring of the electric utility industry in Pennsylvania, including open
retail competition for generation services Generation services may be provided
by EGSs licensed by the PUC. Under the Competition Act, EGSs are subject to
certain limited financial and disclosure requirements but are otherwise
unregulated by the PUC.
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The Competition Act required utilities to submit restructuring plans,
including their stranded costs resulting from retail competition for generation
services. Stranded costs include regulatory assets, nuclear decommissioning
costs and long-term power purchase commitments for which full recovery is
allowed and other costs, including investment in generating plants, spent-fuel
disposal, retirement costs and reorganization costs, for which an opportunity
for recovery is allowed in an amount determined by the PUC as just and
reasonable. Under the Competition Act, a utility is subject to a generation rate
cap through the earlier of December 31, 2005 or until the utility is no longer
recovering stranded costs. The generation cap provides that total charges to
customers cannot exceed rates in place at December 31, 1996, subject to certain
exceptions. The Competition Act also caps transmission and distribution rates
from December 31, 1996 through June 30, 2002, subject to certain exceptions.
As a mechanism for utilities to recover their allowed stranded costs,
the Competition Act provides for the imposition and collection of non-bypassable
charges on customers' bills called competitive transition charges (CTCs). CTCs
are assessed to and collected from all retail customers who have been assigned
stranded cost responsibility and access the utilities' transmission and
distribution systems. As the CTCs are based on access to the utility's
transmission and distribution system, they will be assessed regardless of
whether such customer purchases electricity from the utility or an alternate
EGS. The Competition Act provides, however, that the utility's right to collect
CTCs is contingent on the continued operation at reasonable availability levels
of the assets for which the stranded costs were awarded, except where continued
operation is no longer cost efficient because of the transition to a competitive
market.
The Competition Act also authorizes the PUC to issue qualified rate
orders approving the issuance of transition bonds to facilitate the recovery or
financing of qualified transition expenses of an electric utility or its
assignee. The transition bonds are payable from intangible transition charges
(ITCs) which are collected in lieu of CTCs.
In accordance with the provisions of the Competition Act, in April
1997, the Company filed with the PUC a comprehensive restructuring plan
detailing its proposal to implement full customer choice of EGSs. The Company's
restructuring plan identified $7.5 billion of retail electric generation-related
stranded costs. On April 29, 1998, the Company and all but one of the 25 parties
who had challenged the Company's restructuring plan filed a joint petition and
settlement (Settlement) with the PUC. In May 1998, the PUC entered an Opinion
and Order (Final Restructuring Order) approving the Settlement.
The Settlement authorizes the Company to recover $5.26 billion of
stranded costs, together with a return of 10.75% thereon. The PUC authorized the
recovery of stranded costs over a 12-year transition period beginning January 1,
1999 and ending December 31, 2010. Stranded costs and the allowed return thereon
are recovered through CTCs and, at the Company's election to issue or cause the
issuance of transition bonds, ITCs, designed to recover the $5.26 billion of
stranded costs. Under the Settlement, the CTCs were established assuming annual
growth in sales of 0.8% and are reconciled annually to actual sales.
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The following table shows the estimated average levels of CTCs and/or
ITCs for the years 1999 through 2010, based on estimated 0.8% annual sales
growth assumed in the Settlement.
TABLE 1
Annual Stranded Cost
Amortization And Return
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Revenue Excluding
Annual CTC Gross Receipts Tax
Year Sales and/or ITC(2) Total Return @ 10.75% Amortization
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MWh(1) $/kWh ($000) ($000) ($000)
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1999 33,569,358 $ 0.0172(3) $551,988(3) $566,134(3) $ (14,146)
2000 33,837,913 0.0192 621,102 564,222 56,879
2001 34,108,616 0.0233(4) 761,097(4) 490,417(4) 270,680
2002 34,381,485 0.0251 825,004 516,869 308,135
2003 34,656,537 0.0247 818,352 482,401 335,951
2004 34,933,789 0.0243 811,540 444,798 366,742
2005 35,213,260 0.0240 807,933 403,555 404,378
2006 35,494,966 0.0266 902,623 353,070 549,553
2007 35,778,925 0.0266 909,844 290,627 619,217
2008 36,065,157 0.0266 917,123 220,312 696,811
2009 36,353,678 0.0266 924,459 141,229 783,231
2010 36,644,507 0.0266 931,855 52,381 879,474
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(1) Subject to reconciliation of actual sales and collections.
(2) Both the CTCs and the ITCs are subject to adjustment.
(3) The actual CTC/ITC rate for 1999 was $0.0171/kWh resulting in total
CTC/ITC collections of $565 million.
(4) Reflects reduction required by PUC Order on March 16, 2000 as described
below.
The Settlement required the Company to unbundle its retail electric
rates on January 1, 1999 into the following components: (i) distribution and
transmission charges, (ii) CTCs and, if applicable, ITCs and (iii) a capacity
and energy charge for generation, which is the maximum amount the Company, as
the provider of last resort (PLR), can charge customers who do not or cannot
choose to purchase electricity from alternate EGS.
The Settlement required the Company to reduce rates during 1999 and
2000 by 8% and 6%, respectively, from rates in existence on December 31, 1996.
Further, the Settlement provided for a one-time additional discount in 2000 if
there was an overcollection of ITC and CTC in 1999. Overcollections for two
customer categories (residential and small commercial and industrial) occurred
in 1999 resulting in reductions in these rate categories of 7% and 8.3%,
respectively, in 2000. The Settlement also extended the rate caps on generation
rates at higher levels than required by the Competition Act, until December 1,
2010 and extended the rate caps on transmission and distribution rates until
June 30, 2005. The Company's unbundled rates, rate reductions and rate caps are
reflected in the schedule of system-wide average rates included in the
Settlement and shown in Table 2 below.
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TABLE 2
Schedule of System-Wide Average Rates (dollars per kilowatthour (kWh))(1)
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T&D CTC Shopping Generation
Effective Date Transmission(2) Distribution Rate Cap and/or ITC(3) Credit Rate Cap
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(1) (2) (3)=(1) + (2) (4) (5) (6)=(4) + (5)
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January 1, 1999 $ 0.0045 $ 0.0253 $ 0.0298 $ 0.0172 $ 0.0446 $ 0.0618
January 1, 2000 0.0045 0.0253 0.0298 0.0192 0.0446 0.0638
January 1, 2001 0.0045 0.0253 0.0298 0.0233 (4) 0.0447 0.0680 (4)
January 1, 2002 0.0045 0.0253 0.0298 0.0251 0.0447 0.0698
January 1, 2003 0.0045 0.0253 0.0298 0.0247 0.0451 0.0698
January 1, 2004 0.0045 0.0253 0.0298 0.0243 0.0455 0.0698
January 1, 2005 0.0045 (5) 0.0253 (5) 0.0298 (5) 0.0240 0.0458 0.0698
January 1, 2006 N/A N/A N/A 0.0266 0.0485 0.0751
January 1, 2007 N/A N/A N/A 0.0266 0.0535 0.0801
January 1, 2008 N/A N/A N/A 0.0266 0.0535 0.0801
January 1, 2009 N/A N/A N/A 0.0266 0.0535 0.0801
January 1, 2010 N/A N/A N/A 0.0266 0.0535 0.0801
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(1) All charges reflect average retail billing for all rate classes (including
gross receipts tax).
(2) The transmission charge listed is for unbundled rates only. The PUC does
not regulate the rates for transmission service.
(3) Both the CTCs and the ITCs are subject to adjustment.
(4) Reflects reduction required by PUC Order on March 16, 2000 as described
below.
(5) Effective until June 30, 2005.
Under the Settlement, customer choice of EGSs was phased in between
January 1, 1999 and January 1, 2000 with one-third of each rate class entitled
to choose their EGS by January 1, 1999, an additional one-third by January 2,
1999 and the remaining one-third by January 1, 2000. As of December 31, 1999,
approximately 17% of the Company's residential load, approximately 39% of its
commercial load and approximately 59% of its industrial load were purchasing
generation service from an alternative EGS. If on January 1, 2001 and January 1,
2003 less than 35% and 50%, respectively, of all of the Company's residential
and commercial customers by rate class are obtaining generation service from
alternate EGSs, including 20% of residential customers assigned to an EGS as a
PLR default supplier, non-shopping customers will be randomly assigned to EGSs,
including those affiliated with the Company, to meet those thresholds.
Assignment of non-shopping customers will be through a PUC-approved process.
Customers assigned to a PLR, other than the Company will be counted as customers
receiving service from an alternate EGS.
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On January 1, 1999, the Company unbundled its retail electric rates for
metering, meter reading, and billing and collection services to provide credits
for those customers that have elected to have alternate suppliers perform these
services. Effective January 1, 1999, PUC-licensed entities, including EGSs, may
act as agents to provide a single bill and provide associated billing and
collection services to retail customers located in the Company's retail electric
service territory. In such event, the EGS or other third party replaces the
customer as the obligor with respect to the customer's bill and the Company
generally has no right to collect such receivable from the customer. The
PUC-licensed entities, including EGSs, may also finance, install, own, maintain,
calibrate and remotely read advanced meters for service to retail customers
located in the Company's retail electric service territory. Only the Company can
physically disconnect or reconnect a customer's distribution service. Physical
termination of the service may only be permitted for failure to pay transmission
and distribution service or PLR service.
Under the Settlement, the Company acts as a PLR for all retail electric
customers in its retail electric service territory who do not choose or cannot
choose to purchase power from an alternative EGS through December 31, 2010,
subject to certain terms, conditions and qualifications. On April 30, 1999, the
PUC adopted regulations providing for Competitive Default Service. Under the
regulations, entities that desire to act as a Competitive Default Supplier have
until April 1, 2000 to submit both their qualifications to act as a Competitive
Default Supplier and their bid for providing such service. Competitive Default
Service will begin on January 1, 2001 for 20% of the Company's residential
customers.
The Settlement also provides for flexible generation service pricing
for customers served by Competitive Default Service, authorization of the
Company to transfer its generation assets to a separate subsidiary, inclusion of
a sustainable energy and economic development fund (funded at a rate of .01
cents per kilowatthour on all power sold, to be included in the capped
transmission and distribution rates) and expansion and modification of the
Company's program for low-income customers.
Pursuant to authorization of the PUC granted as part of the Settlement,
PECO Energy Transition Trust (PETT), a special purpose entity and wholly owned
subsidiary of the Company, issued $4 billion of its Transition Bonds on March
25, 1999 to securitize a portion of the Company's stranded cost recovery. As
required by the Competition Act, the proceeds from the securitization were
applied to reduce stranded costs, including related capitalization. For
additional information, see ITEM 7. - Management's Discussion and Analysis of
Financial Condition and Results of Operations.
On March 16, 2000, the PUC issued an order approving a Joint Petition
for Full Settlement of PECO Energy Company's Application for a Qualified Rate
Order (QRO) authorizing the Company to securitize up to an additional $1 billion
of its authorized recoverable stranded costs. In accordance with the terms of
the Joint Petition for Full Settlement, when the QRO becomes final and
non-appealable, the Company, through its distribution business unit, will
provide its retail customers with rate reductions in the total amount of $60
million beginning on January 1, 2001. The rate reduction will be effective for
calendar year 2001 only and will not be contingent upon the issuance of
Transition Bonds pursuant to the QRO.
On March 24, 2000, the Company submitted for approval a joint petition
for settlement reached with various parties to the Company's proceeding before
the PUC involving the proposed merger with Unicom. The Company reached agreement
with advocates for residential, small business and large industrial customers,
and representatives of marketers, environmentalists, municipalities and elected
officials. Under the comprehensive settlement agreement, the Company has agreed
to $200 million in rate reductions for all customers over the period January 1,
2002 through 2005 and extended rate caps on the Company's retail electric
distribution charges through December 31, 2006, electric reliability and
customer service standards, mechanisms to enhance competition and customer
choice, expanded assistance to low-income customers, extensive funding for wind
and solar energy and community education, nuclear safety research funds,
customer protection against nuclear costs outside of Pennsylvania, and
maintenance of charitable and civic contributions and employment for the
Company's headquarters in Philadelphia.
8
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Transmission Services
The Company's distribution business unit also provides wholesale
transmission service under rates established by FERC. FERC Order No. 888
required all public utilities that own, control or operate interstate
transmission facilities to file open-access transmission tariffs for wholesale
transmission services in accordance with non-discriminatory terms and conditions
established by FERC. In response to Order 888, the Company has filed an
individual compliance tariff with FERC.
The Company provides regional transmission service pursuant to a
regional transmission tariff filed by the Company and the other transmission
owners who are members of the PJM Interconnection LLC (PJM). PJM is a power pool
that integrates, through central dispatch, the generation and transmission
operations of its member companies across a 50,000 square mile territory. Under
the PJM tariff, transmission service is provided on a region-wide, open-access
basis using the transmission facilities of the PJM members at rates based on the
costs of transmission service. PJM's Office of Interconnection is the
independent system operator (ISO) for PJM and is responsible for operation of
the PJM control area and administration of the PJM open-access transmission
tariff. The Company and the other transmission owners in PJM have turned control
of their transmission facilities to the ISO.
On December 20, 1999, the FERC issued Order No. 2000, in which it
stated an expectation that all jurisdictional transmission-owning public
utilities participate in regional transmission organizations (RTOs) by specified
deadlines. Transmission owners like the Company who are participants in existing
ISO arrangements must make a compliance filing on or before January 15, 2001 to
address their compliance with the RTO Rule. FERC has also set December 15, 2001
as the deadline for transferring control over transmission facilities to
approved RTOs. The Company's transmission facilities are presently under the
control of the PJM ISO.
Gas
Historically, the Company's gas sales and gas transportation revenues
were derived pursuant to rates regulated by the PUC. The PUC has established
through regulated proceedings the base rates that the Company may charge for gas
service in Pennsylvania. The Company's gas rates are subject to a purchased gas
cost (PGC) adjustment clause and a State Tax Adjustment Surcharge (STAS). The
PGC is designed to recover or refund the difference between the actual cost of
purchased gas and the amount included in base rates. The PGC is adjusted
quarterly. The STAS is designed to recover or refund increases or decreases in
certain state taxes not recovered in base rates.
On June 22, 1999, Pennsylvania Governor Tom Ridge signed into law the
Natural Gas Choice and Competition Act (Act) which expands choice of gas
suppliers to residential and small commercial customers and eliminates the 5%
gross receipts tax on gas distribution companies' sales of gas. Large commercial
and industrial customers have been able to choose their suppliers since 1984.
Currently, approximately one-third of the Company's total yearly throughput is
supplied by third parties.
The Act permits gas distribution companies to continue to make
regulated sales of gas to their customers. The Act does not deregulate the
transportation service provided by gas distribution companies, which remains
subject to rate regulation. Gas distribution companies will continue to provide
billing, metering, installation, maintenance and emergency response services.
In compliance with the schedule ordered by the PUC on December 1, 1999,
the Company filed with the PUC a restructuring plan for the implementation of
gas deregulation and customer choice of gas service suppliers in its service
territory effective July 1, 2000. The Company believes there will be no material
impact on the financial condition or operations of the Company because of the
PUC's existing requirement that gas distribution companies cannot collect more
than the actual cost of gas from customers, and the Act's requirement that
suppliers must accept assignment or release, at contract rates, the portion of
the gas distribution company's firm interstate pipeline contracts required to
serve the suppliers' customers.
9
<PAGE>
The Company's natural gas supply is provided by purchases from a number
of suppliers for terms of up to five years. These purchases are delivered under
several long-term firm transportation contracts with Texas Eastern Transmission
Corporation (Texas Eastern) and Transcontinental Gas Pipe Line Corporation
(Transcontinental). The Company's aggregate annual entitlement under these firm
transportation contracts is 87.5 million dekatherms. Peak gas is provided by the
Company's liquefied natural gas facility and propane-air plant. For additional
information, see ITEM 2. Properties.
The Company has under contract 21.5 million dekatherms of underground
storage through service agreements with Texas Eastern, Transcontinental,
Equitrans, Inc. and CNG Transmission Corporation. Natural gas from underground
storage represents approximately 40% of the Company's 1999-2000 heating season
supplies.
The gas industry is continuing to undergo structural changes in
response to FERC policies designed to increase competition.
Generation Business Unit
General
The Company's generation business unit consists of its generation
assets, its power marketing group, its unregulated retail energy supplier and
its investment in AmerGen. The generation business unit, through the power
marketing group, manages the output of the Company's generation assets to serve
native load in the Company's franchised service territory and markets excess
generation in the wholesale market. The power marketing group maintains a net
positive supply of energy and capacity, through the Company's generation assets
and long, intermediate and short-term contracts to protect it from the potential
operational failure of one of its owned or contracted power generating units.
The unregulated retail energy supplier, Exelon Energy, offers competitive energy
supply to customers throughout Pennsylvania. AmerGen is a 50% owned joint
venture with British Energy formed to pursue opportunities to acquire and
operate nuclear generating stations in the United States.
The Company established specific goals to increase its generation
capacity from 9 gigawatts to 25 gigawatts by 2003. The Company is developing a
generation portfolio capable of taking advantage of periods of increased demand.
In order to meet this strategic objective, the Company may require significant
capital resources.
The following discussion of the Company's generation assets does not
include the generation assets of AmerGen. See "AmerGen Energy Company, LLC."
Generation Assets
The net installed electric generating capacity (summer rating) of the
Company and its subsidiaries at December 31, 1999 was as follows:
Type of Capacity Megawatts(MW) % of Total
---------------- ----- ----------
Nuclear .................................. 4,154 44.7%
Mine-mouth, coal-fired ................... 709 7.6
Service-area, coal-fired ................. 725 7.8
Oil-fired ................................ 1,176 12.7
Gas-fired ................................ 261 2.8
Hydro (includes pumped storage) .......... 1,422 15.3
Internal combustion ...................... 849 9.1
----- -----
Total .................................... 9,296(1) 100.0%
===== =====
- - ------------
(1) See "Fuel" for sources of fuels used in electric generation.
10
<PAGE>
The all-time maximum hourly demand on the Company's system was 7,959 MW
which occurred on July 6, 1999. The all-time maximum PJM demand of 51,700 MW
occurred on July 6, 1999. PJM's installed capacity (summer rating) is 56,188 MW.
The Company expects to be able to contract for its installed capacity to meet
its obligation to supply its PJM reserve margin share during the period
1999-2002.
The Company's nuclear-generated electricity is supplied by Limerick
Generating Station (Limerick) Units No. 1 and No. 2, Peach Bottom Atomic Power
Station (Peach Bottom) Units No. 2 and No. 3, which are operated by the Company,
and Salem Generating Station (Salem) Units No. 1 and No. 2, which are operated
by Public Service Electric and Gas Company (PSE&G). The Company owns 100% of
Limerick, 42.49% of Peach Bottom and 42.59% of Salem. Limerick Units No. 1 and
No. 2 have a capacity of 1,134 MW and 1,150 MW respectively; Peach Bottom Units
No. 2 and No. 3 each has a capacity of 1,093 MW, of which the Company is
entitled to 464 MW of each unit; and Salem Units No. 1 and No. 2 each has a
capacity of 1,106 MW, of which the Company is entitled to 471 MW of each unit.
The Company's nuclear generating facilities represent 44.7% of its
installed generating capacity. In 1999, approximately 41% of the Company's
electric output was generated from the Company's nuclear generating facilities.
Changes in regulations by the NRC that require a substantial increase in capital
expenditures for nuclear generating facilities or that result in increased
operating costs of nuclear generating units could adversely affect the Company.
The Price-Anderson Act currently limits the liability of nuclear
reactor owners to $9.5 billion for claims that could arise from a single
incident. The limit is subject to change to account for the effects of inflation
and changes in the number of licensed reactors. The Company carries the maximum
available commercial insurance of $200 million and the remaining $9.3 billion is
provided through mandatory participation in a financial protection pool. Under
the Price-Anderson Act, all nuclear reactor licensees can be assessed up to $88
million per reactor per incident, payable at no more than $10 million per
reactor per incident per year. This assessment is subject to inflation and state
premium taxes. In addition, the U.S. Congress could impose revenue raising
measures on the nuclear industry to pay claims if the damages from an incident
at a licensed nuclear facility exceed $9.5 billion. The Price-Anderson Act and
the extensive regulation of nuclear safety by the NRC do not preclude claims
under state law for personal, property or punitive damages related to radiation
hazards.
Property insurance in the amount of $2.75 billion is maintained for
each nuclear power plant in which the Company has an ownership interest. The
Company is responsible for its proportionate share of such insurance based on
its ownership interest. The Company's insurance policies provide coverage for
decontamination liability expense, premature decommissioning and loss or damage
to its nuclear facilities. These policies require that insurance proceeds first
be applied to assure that, following an accident, the facility is in a safe and
stable condition and can be maintained in such condition. Within 30 days of
stabilizing the reactor, the licensee must submit a report to the NRC which
provides a clean-up plan, including the identification of all clean-up
operations necessary to decontaminate the reactor to permit either the
resumption of operations or decommissioning of the facility. Under the Company's
insurance policies, proceeds not already expended to place the reactor in a
stable condition must be used to decontaminate the facility. If, as a result of
an accident, the decision is made to decommission the facility, a portion of the
insurance proceeds will be allocated to a fund which the Company is required by
the NRC to maintain to decommission the facility. These proceeds would be paid
to the fund to make up any difference between the amount of money in the fund at
the time of the early decommissioning and the amount that would have been in the
fund if contributions had been made over the normal life of the facility. The
Company is unable to predict what effect these requirements may have on the
timing of the availability of insurance proceeds to the Company for the
Company's bondholders and the amount of such proceeds which would be available.
Under the terms of the various insurance agreements, the Company could be
assessed up to $32 million for losses incurred at any plant insured by the
insurance companies. The Company is self-insured to the extent that any losses
may exceed the amount of insurance maintained. Any such losses could have a
material adverse effect on the Company's financial condition or results of
operations.
11
<PAGE>
The Company is a member of an industry mutual insurance company which
provides replacement power cost insurance in the event of a major accidental
outage at a nuclear station. The policy contains a waiting period before
recovery of costs can commence. The premium for this coverage is subject to
assessment for adverse loss experience. The Company's maximum share of any
assessment is $10 million per year.
NRC regulations require that licensees of nuclear generating facilities
demonstrate reasonable assurance that funds will be available in certain minimum
amounts at the end of the life of the facility to decommission the facility.
Based on estimates of decommissioning costs for each of the nuclear facilities
in which the Company has an ownership interest, the PUC permits the Company to
collect from its customers and deposit in segregated accounts amounts which,
together with earnings thereon, will be used to decommission such nuclear
facilities. At December 31, 1999, the Company's current estimate of its nuclear
facilities' decommissioning cost is $1.4 billion in 1998 dollars.
Decommissioning costs are recoverable through regulated rates. At December 31,
1999, the Company held $408 million in trust accounts, representing amounts
recovered from customers and net realized and unrealized investment earnings
thereon, to fund future decommissioning costs.
In 1996, the NRC requested that all nuclear plant operators inform the
NRC whether their nuclear units are operated and maintained within the design
bases of the facilities and confirm that any deviations have been or will be
reconciled in a timely manner. The Company responded to the NRC's request on
February 4, 1997 with a detailed description of ongoing activities and new
initiatives to ensure that Limerick and Peach Bottom are operated and maintained
within their design bases. PSE&G provided a similar response to the NRC on
February 11, 1997 concerning Salem. Since the information that was submitted
will be used by the NRC to determine follow-up inspection activity or potential
enforcement actions, the Company cannot predict what impact the NRC's request
will have.
In 1998, the NRC suspended its Systematic Assessment of License
Performance (SALP) program for an interim period until the NRC staff completes a
review of its nuclear power plant performance assessment process. During the
interim period while the SALP program is suspended, the NRC will utilize the
results of its plant performance reviews to provide nuclear power plant
performance information to licensees, state and local officials and the public.
These reviews are intended to identify performance trends since the previous
assessment and make any appropriate changes to the NRC's inspection plans. The
NRC has decided to substitute an alternative program which bases the level of
NRC oversight on the results of NRC inspections and evaluations of specific
plant performance and any identified changes in performance levels.
Limerick Generating Station
Limerick Unit No. 1 achieved a capacity factor of 98% in 1999 and 77%
in 1998. Limerick Unit No. 2 achieved a capacity factor of 86% in 1999 and 95%
in 1998. Limerick Units No. 1 and No. 2 are each on a 24-month refueling cycle.
The last refueling outages for Units No. 1 and No. 2 were in the spring of 1998
and 1999, respectively.
On May 9, 1997, the NRC issued its periodic SALP report for Limerick
for the period April 2, 1995 to March 29, 1997. Limerick achieved ratings of
"1," the highest of three rating categories, in the areas of Operations,
Maintenance and Plant Support. In the area of Engineering, Limerick achieved a
rating of "2."
12
<PAGE>
In October 1990, General Electric Company (GE) reported that crack
indications were discovered near the seam welds of the core shroud assembly in a
GE Boiling Water Reactor (BWR) located outside the United States. As a result,
GE issued a letter requesting that the owners of GE BWRs take interim corrective
actions, including a review of fabrication records and visual examinations of
accessible areas of the core shroud seam welds. Each of the reactors at Limerick
and Peach Bottom is a GE BWR. Initial examination of Limerick Unit No. 1 was
completed during the February 1996 refueling outage. Although crack indications
were identified at one location, the Company concluded that there is a
substantial margin for each core shroud weld to allow for continued operation of
Unit No. 1 for a minimum of the next two operating cycles. In accordance with
industry experience and guidance, initial examination of Limerick Unit No. 2 was
completed during the April 1999 refueling outage. Although crack indications
were identified, the results of the inspections and evaluations concluded that
the condition of the Limerick Unit No. 2 core shroud, projected through at least
the next operating cycle, will support the required safety margins, specified in
the ASME Code and reinforced by industry recommendations. Peach Bottom Unit No.
3 was initially examined during its refueling outage in the fall of 1993.
Although crack indications were identified at two locations, the Company
presented its findings to the NRC and recommended continued operation of Unit
No. 3 for a two-year cycle. Unit No. 3 was re-examined during its refueling
outage in the fall of 1995 and the extent of cracking identified was determined
to be within industry-established guidelines. The Company has concluded, and the
NRC has concurred, that there is a substantial margin for each core shroud weld
to allow for continued operation of Unit No. 3. Peach Bottom Unit No. 2 was
initially examined during its October 1994 refueling outage and the examination
revealed a minimal number of flaws. Unit No. 2 was re-examined during its
refueling outage in September 1996. Although the examination revealed additional
minor flaw indications, the Company concluded, and the NRC concurred, that
neither repair nor modification to the core shroud was necessary. The Company is
also participating in a GE BWR Owners Group to develop long-term corrective
actions.
As a result of several BWRs experiencing clogging of some emergency
core cooling system suction strainers, which are part of the water supply system
for emergency cooling of the reactor core, the NRC issued a bulletin in May 1996
to operators of BWRs requesting that measures be taken to minimize the potential
for clogging. The NRC proposed three resolution options, including the
installation of large capacity passive strainers, with a request that actions be
completed by the end of the unit's first refueling outage after January 1997.
Strainers have been installed at Peach Bottom Units No. 2 and No. 3 and Limerick
Units No. 1 and No. 2.
The NRC has raised concerns that the Thermo-Lag 330 fire barrier
systems used to protect cables and equipment at certain nuclear facilities,
including Limerick and Peach Bottom, may not provide the necessary level of fire
protection and has requested licensees to describe short-term and long-term
measures being taken to address this concern. The Company informed the NRC that
it had taken short-term corrective actions to address the inadequacies of the
Thermo-Lag barriers installed at Limerick and Peach Bottom and was participating
in an industry-coordinated program to provide long-term corrective solutions. By
letter dated December 21, 1992, the NRC stated that the Company's interim
actions were acceptable. In 1995, the Company completed its engineering
re-analysis for both Limerick and Peach Bottom. This re-analysis identified
modifications at both plants in order to implement the long-term measures
addressing the concern over Thermo-Lag use. On May 19, 1998, the NRC issued a
confirmatory order modifying the license for Peach Bottom Units No. 2 and No. 3
requiring that the Company complete final implementation of corrective actions
on the Thermo-Lag 330 issue by completion of the October 1999 refueling outage
of Peach Bottom Unit No. 3. On October 12, 1999, the Company confirmed to the
NRC that the corrective actions associated with the Thermo-Lag fire barriers at
Peach Bottom had been completed. In addition, the NRC issued a confirmatory
order modifying the license for Limerick Units No. 1 and No. 2 requiring that
the Company complete final implementation of corrective actions on the
Thermo-Lag 330 issue by completion of the April 1999 refueling outage of
Limerick Unit No. 2. The confirmatory order was subsequently modified by letter
from the NRC dated May 3, 1999 to require completion of the Limerick Thermo-Lag
upgrades by September 30, 1999. On September 17, 1999, the Company provided
notification to the NRC of completion of the Thermo-Lag fire barrier corrective
actions at Limerick.
Water for the operation of Limerick is drawn from the Schuylkill River
adjacent to Limerick and from the Perkiomen Creek, a tributary of the Schuylkill
River. During certain periods of the year, generally the summer months but
possibly for as much as six months or more in some years, the Company would not
be able to operate Limerick without the use of supplemental cooling water due to
existing regulatory water withdrawal constraints applicable to the Schuylkill
River and the Perkiomen Creek. Supplemental cooling water for Limerick is
provided by a supplemental cooling water system which draws water from the
Delaware River at the Point Pleasant Pumping Station, transports it to the
Bradshaw Reservoir, then to the east and main branches of the Perkiomen Creek
and finally to Limerick. The supplemental cooling water system also provides
water for public use to two Montgomery County water authorities. Certain of the
permits relating to the operation of the supplemental cooling water system must
be renewed periodically.
13
<PAGE>
The Company has entered into an agreement with a municipality to secure
a backup source of water for the operation of Limerick should the amount of
water from the supplemental cooling water system not be sufficient. Should the
supplemental cooling water system be completely unavailable, this backup source
is capable of providing cooling water to operate both Limerick units
simultaneously at 70% of rated capacity for short periods of time.
Peach Bottom Atomic Power Station
Peach Bottom Unit No. 2 achieved a capacity factor of 99% in 1999 and
80% in 1998. Peach Bottom Unit No. 3 achieved a capacity factor of 90% in 1999
and 92% in 1998. Peach Bottom Units No. 2 and No. 3 are each on a 24-month
refueling cycle. The last refueling outages for Units No. 2 and No. 3 were in
the fall of 1998 and 1999, respectively.
On July 17, 1997, the NRC issued its periodic SALP report for Peach
Bottom for the period October 15, 1995 to June 7, 1997. Peach Bottom achieved a
rating of "1," in the areas of Plant Operations, Maintenance and Plant Support.
In the area of Engineering, Peach Bottom achieved a rating of "2."
The Company, Delmarva Power & Light Company (Delmarva) and PSE&G have
agreed to an operating performance standard through December 31, 2007 for Peach
Bottom and through December 31, 2011 for Salem. Under the standard, the operator
of each respective station would be required to make payments to the
non-operating owners if the three-year capacity factor, determined annually, of
such station falls below 40 percent, subject to a maximum of $25 million per
year. The initial three-year period began on January 1, 1998 and April 17, 1998
for Peach Bottom and Salem, respectively. The parties have also agreed to forego
litigation in the future, except for limited cases in which the operator would
be responsible for damages of no more than $5 million per year.
On September 30, 1999, the Company announced it has reached an
agreement to purchase an additional 7.51% ownership interest in Peach Bottom
from Atlantic City Electric Company and Delmarva bringing the Company's
ownership to 50%. The sale is expected to be completed by mid-2000 subject to
federal and state approvals.
In addition to the matters discussed above, see "Limerick Generating
Station" for a discussion of certain matters which affect both Peach Bottom and
Limerick.
Salem Generating Station
The Company has been informed by PSE&G that Salem Unit No. 1 achieved
a capacity factor of 83% in 1999 and 66% in 1998. Salem Unit No. 2 achieved a
capacity factor of 82% in 1999 and 80% in 1998. Salem Units No. 1 and No. 2 are
each on an 18-month refeuling cycle. The last refueling outages for Units No. 1
and No. 2 were in the spring of 1999 and fall of 1999, respectively.
The Company has been informed by PSE&G that on September 15, 1998, the
NRC issued its latest SALP for Salem for the period March 1, 1997 to August 1,
1998. In the areas of Operations and Plant Support, Salem achieved a rating of
"1". In the areas of Maintenance and Engineering, Salem achieved a rating of
"2".
In addition to the matters discussed above, see "Peach Bottom Atomic
Power Station,""Environmental Regulations - Water," and ITEM 3. Legal
Proceedings.
14
<PAGE>
Fuel
The following table shows the Company's sources of electric output for
1999 and as estimated for 2000:
1999 2000 (Est.)
------ -----------
Nuclear 41.3% 42.1%
Mine-mouth, coal-fired 6.8 6.8
Service-area, coal-fired 3.5 4.2
Oil-fired 1.8 1.7
Hydro (includes pumped storage) 1.2 1.6
Internal combustion 0.1 0.2
Purchased, interchange and nonutility generated 45.3 43.4
---- -----
100.0% 100.0%
===== =====
Nuclear
The cycle of production and utilization of nuclear fuel includes the
mining and milling of uranium ore into uranium concentrates; the conversion of
uranium concentrates to uranium hexafluoride; the enrichment of the uranium
hexafluoride; the fabrication of fuel assemblies; and the utilization of the
nuclear fuel in the generating station reactor. The Company does not anticipate
difficulty in obtaining the necessary uranium concentrates or conversion,
enrichment or fabrication services for Limerick or Peach Bottom. PSE&G has
informed the Company that it presently has sufficient contracts for uranium and
services related to the nuclear fuel cycle to fully meet its current projected
requirements. The following table summarizes the years through which the Company
has contracts for the segments of the nuclear fuel supply cycle:
<TABLE>
<CAPTION>
Concentrates (1) Conversion (2) Enrichment Fabrication
------------------ ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Limerick Unit No. 1 .............. 2002 2002 2004 2003
Limerick Unit No. 2 .............. 2002 2002 2004 2004
Peach Bottom Unit No. 2 .......... 2002 2002 2004 2002
Peach Bottom Unit No. 3 .......... 2002 2002 2004 2003
- - ------------
</TABLE>
(1) The Company's contracts for uranium concentrates are allocated to Limerick
and Peach Bottom on an as-needed basis. The Company has commitments for at least
80% of concentrates requirements for Limerick and Peach Bottom in 2002, and
about 20% of requirements in 2003 and 2004.
(2) The Company has commitments for at least 90% of the conversion services
requirements for Limerick and Peach Bottom in 2002 and about 20% of requirements
in 2003 and 2004.
There are no commercial facilities for the reprocessing of spent
nuclear fuel currently in operation in the United States, nor has the NRC
licensed any such facilities. The Company currently stores all spent nuclear
fuel from its nuclear generating facilities in on-site, spent-fuel storage
pools. Limerick has on-site facilities with capacity to store spent fuel with
full core discharge capability until 2006. Peach Bottom has on-site pools with
capacity to store spent fuel until 2000 for Unit No. 2 and 2001 for Unit No. 3.
The Company has completed construction of a dry spent-fuel storage facility at
Peach Bottom to maintain full core discharge capacity in the spent-fuel pools.
An NRC monitored dry run of storage operations was completed in March 2000 in
anticipation of a summer 2000 spent-fuel storage campaign for Peach Bottom Unit
No. 2. The cost of the facility, including the first nine storage casks, was
approximately $33.5 million. The independent spent-fuel storage facility is
expected to provide life of plant storage capacity. The Company expects to
purchase storage casks to maintain spent-fuel storage capacity at an estimated
cost of $6 million per year. The Company has been informed by PSE&G that as a
result of reracking the two spent-fuel pools at Salem, spent-fuel storage
capacity of Salem Units No. 1 and No. 2 is estimated to be 2012 and 2016,
respectively. PSE&G is also currently assessing available options which could
satisfy the potential need for additional storage capacity, including the option
of constructing an on-site dry storage facility that would satisfy the
spent-fuel storage needs of Salem.
15
<PAGE>
Under the Nuclear Waste Policy Act of 1982 (NWPA), the DOE is required
to begin taking possession of all spent nuclear fuel generated by the Company's
nuclear units for long-term storage by no later than 1998. Based on recent
public pronouncements, it is not likely that a permanent disposal site will be
available for the industry before 2015, at the earliest. In reaction to
statements from the DOE that it was not legally obligated to begin to accept
spent fuel in 1998, a group of utilities and state government agencies filed a
lawsuit against the DOE which resulted in a decision by the U.S. Court of
Appeals for the District of Columbia (D.C. Court of Appeals) in July 1996 that
the DOE had an unequivocal obligation to begin to accept spent fuel in 1998. In
accordance with the NWPA, the Company pays the DOE one mil ($.001) per
kilowatthour of net nuclear generation for the cost of nuclear fuel disposal.
This fee may be adjusted prospectively in order to ensure full cost recovery.
Because of inaction by the DOE following the D.C. Court of Appeals finding of
the DOE's obligation to begin receiving spent fuel in 1998, a group of forty-two
utility companies, including the Company, and forty-six state agencies, filed
suit against the DOE seeking authorization to suspend further payments to the
U.S. government under the NWPA and to deposit such payments into an escrow
account until such time as the DOE takes effective action to meet is 1998
obligations. In November 1997, the D.C. Court of Appeals issued a decision in
which it held that the DOE had not abided by its prior determination that the
DOE has an unconditional obligation to begin disposal of spent nuclear fuel by
January 31, 1998. The D.C. Court of Appeals also precluded the DOE from
asserting that it was not required to begin receiving spent nuclear fuel because
it had not yet prepared a permanent repository or an interim storage facility.
The DOE and one of the utility companies filed Petitions for Reconsideration of
the decision which were denied, as were petitions seeking U.S. Supreme Court
review of the decision. In addition, the DOE is exploring other options to
address delays in the waste acceptance schedule.
As a by-product of their operations, nuclear generating units,
including those in which the Company owns an interest, produce low level
radioactive waste (LLRW). LLRW is accumulated at each facility and permanently
disposed of at a federally licensed disposal facility. The Company is currently
shipping LLRW generated at Peach Bottom and Limerick to the disposal site
located in Barnwell, South Carolina and Clive, Utah for disposal. On-site
storage facilities have been constructed at Peach Bottom and Limerick, with
twenty-five year and five-year storage capacities, respectively.
The Company is also pursuing alternative disposal strategies for LLRW
generated at Peach Bottom and Limerick, including a LLRW reduction program.
Pennsylvania, which had agreed to be the host site for a LLRW disposal facility
for generators located in Pennsylvania, Delaware, Maryland and West Virginia,
has suspended the search for a permanent disposal site. The Company contributed
$12 million towards the total cost of a permanent Pennsylvania disposal site
prior to its suspension.
Salem has on-site LLRW storage facilities with a five-year storage
capacity. The Company has been informed by PSE&G that PSE&G ships LLRW generated
at Salem to Barnwell, South Carolina and currently uses the Salem facility for
interim storage.
The National Energy Policy Act of 1992 (Energy Act) requires, among
other things, that utilities with nuclear reactors pay for the decommissioning
and decontamination of the DOE nuclear fuel enrichment facilities. The total
costs to domestic utilities are estimated to be $150 million per year for 15
years, of which the Company's share is $5 million per year. The Energy Act
provides that these costs are to be recoverable in the same manner as other fuel
costs. The Company is currently recovering these costs through regulated rates.
16
<PAGE>
The Company is currently recovering in rates the costs for nuclear
decommissioning and decontamination and related spent-fuel storage. The Company
believes that the ultimate costs of decommissioning and decontamination,
spent-fuel disposal and any assessment under the Energy Act will continue to be
recoverable through rates.
Coal
The Company has a 20.99% ownership interest in Keystone Station
(Keystone) and a 20.72% ownership interest in Conemaugh Station (Conemaugh),
coal-fired, mine-mouth generating stations in western Pennsylvania operated by
Sithe Energy, Inc. A majority of Keystone's fuel requirements is supplied by one
coal company under a contract which expires on December 31, 2004. The contract
calls for between 3.0 and 3.5 million tons for 1999 and a total of 6.5 million
tons of coal purchases for the years 2000 through 2004. Approximately 80% of
Conemaugh's 2000 fuel requirements are secured by a long-term contract and the
remainder by several short-term contracts or spot purchases.
The Company has entered into contracts for a significant portion of its
coal requirements and makes spot purchases for the balance of coal required by
its Philadelphia-area, coal-fired units at Eddystone Generating Station
(Eddystone) and Cromby Station (Cromby). At January 1, 2000, the Company had
contracts with two suppliers for 1.5 million tons per year or approximately 80%
of expected annual requirements. Both contracts expire on December 31, 2001.
Purchases pursuant to these contacts represented approximately 2.8% of the
Company's Fuel and Energy Interchange Expense in 1999.
Oil
The Company purchases fuel oil through a combination of short-term
contracts and spot market purchases. The contracts are normally not longer than
one year in length. Fuel oil inventories are managed such that in the winter
months sufficient volumes of fuel are available in the event of extreme weather
conditions and during the remaining months inventory levels are managed to take
advantage of favorable market pricing.
Natural Gas
The Company obtains natural gas for electric generation through a
combination of short-term contracts and spot purchases as well as through the
Company's own gas tariff. The Company obtains the limited quantities of natural
gas used by the auxiliary boilers and pollution control equipment at Eddystone
through the same means. The Company has the capability to use either oil or
natural gas at Cromby Unit No. 2 and Eddystone Units No. 3 and No. 4.
Power Marketing Group
The Company competes in the wholesale electric generation business on a
national basis. The Company enters into bilateral arrangements for the purchase,
sale and delivery of energy and competes in the developing wholesale spot market
for electricity, including the hourly energy market in PJM known as the PJM
Power Exchange (PJM PX). The FERC's stated goal in promulgating Order No. 888
and related orders is to remove impediments to competition in the wholesale bulk
power marketplace and to bring more efficient and lower cost power to
electricity consumers. The Company has received authorization from FERC to sell
energy at market-based rates within and outside the geographical boundaries of
PJM.
The Company's wholesale operations include the physical delivery and
marketing of power obtained through Company-owned generation capacity, and long,
intermediate and short-term contracts. The Company maintains a net positive
supply of energy and capacity, through Company-owned generation assets and power
purchase and lease agreements, to protect it from the potential operational
failure of one of its owned or contracted power generating units. The Company
has also contracted for access to additional generation through bilateral
long-term power purchase agreements. These agreements are firm commitments
related to power generation of specific generation plants and/or are
dispatchable in nature - similar to asset ownership. The Company enters into
power purchase agreements with the objective of obtaining low-cost energy supply
sources to meet its physical delivery obligations to its customers. The Company
has also purchased firm transmission rights to ensure that it has reliable
transmission capacity to physically move its power supplies to meet customer
delivery needs. The intent and business objective for the use of its capital
assets and contracts is to provide the Company with physical power supply to
enable it to deliver energy to meet customer needs. The Company does
not use financial contracts in its wholesale marketing activities and as a
matter of business practice does not "pair off" or net settle its contracts. All
contracts result in the delivery and/or receipt of power.
17
<PAGE>
The Company has entered into bilateral long-term contractual
obligations for sales of energy to other load-serving entities including
electric utilities, municipalities, electric cooperatives, and retail loan
aggregators. The Company also enters into contractual obligations to deliver
energy to wholesale market participants who primarily focus on the resale of
energy products for delivery. The Company provides delivery of its energy to
these customers in and out of PJM through access to Company-owned transmission
assets or rights for firm transmission.
The Company has entered into three long-term power purchase agreements
with Independent Power Producers (IPP) under which the Company makes fixed
capacity payments to the IPP in return for exclusive rights to the energy and
capacity of the generating units for a fixed period. The terms of the long-term
power purchase agreements enable the Company to supply the fuel and dispatch
energy from the plants. The plants are currently being constructed and are
scheduled to begin operations in 2000, 2001 and 2002, respectively.
On March 10, 1999, the FERC issued an order granting a pending
application by other PJM utilities for market-based rate authority for sales of
energy and certain ancillary services into the PJM PX. Although the Company was
not a party to that application, the FERC expressly granted the Company
market-based rate authority for sales of energy and ancillary services into the
PJM PX. Previously, the FERC restricted generators located within PJM, including
the Company, to cost-based bids. The FERC order expanded the Company's existing
ability to engage in wholesale marketing of power and certain associated
ancillary services at market-based rates to include transactions with the PJM
PX. The FERC also granted anyone else with market-based rate authority the same
right.
On March 10, 1999, the FERC also entered an order establishing a Market
Monitoring Plan (MMP) for the PJM control area. The MMP will be administered by
a newly created Market Monitoring Unit (MMU) under the PJM and authorizes the
MMU to monitor and report on market activity and alleged exercises of market
power by market participants. The FERC order directs additional modifications to
the proposed MMP that will increase the level of coordination of the MMU with
various governmental authorities. It is unclear what impact either the MMP or
the MMU ultimately will have on power transactions within the PJM PX in
particular and on wholesale bilateral transactions generally.
Unregulated Retail Energy Supplier
The Company's Exelon Energy division is an unregulated supplier of
generation and natural gas supply services. Exelon Energy offers competitive
generation services to residential, commercial and industrial customers
throughout Pennsylvania and natural gas supply services to large commercial and
industrial customers in Pennsylvania and New Jersey.
At December 31, 1999, Exelon Energy had 134,000 electric generation
services customers and 1,300 natural gas supply services customers. Exelon
Energy acquires generation services supplied to customers through the Company's
power marketing group. Exelon Energy purchases its natural gas supply in the
open market.
Exelon Energy is licensed by the PUC, the New Jersey Board of Public
Utilities, the Maryland Public Service Commission and the Massachusetts
Department of Telecommunications and Energy to provide energy supply in these
states. As a division of a PUC-regulated distribution company, Exelon Energy
must maintain its operations separate and distinct from the Company's
distribution business. Exelon Energy is subject to a Code of Conduct that
prohibits the sharing of information between the distribution business and
Exelon Energy that would put unrelated generation suppliers at a competitive
disadvantage. Exelon Energy has established its own infrastructure, including
its own call center and billing, pricing and procurement systems.
18
<PAGE>
AmerGen Energy Company, LLC
In 1997, the Company and British Energy formed AmerGen to pursue
opportunities to acquire and operate nuclear generating stations in the United
States. The Company and British Energy each own a 50% equity interest in
AmerGen. The Company accounts for its investment in AmerGen under the equity
method of accounting.
In 1999, AmerGen, purchased Clinton Nuclear Power Station (Clinton) and
Three Mile Island Unit No. 1 Nuclear Generating Facility (TMI). Clinton is a BWR
nuclear facility with a capacity of 930 MW. TMI is a pressurized water reactor
nuclear facility with a capacity of 786 MW.
In 1999, AmerGen also entered into agreements to purchase Nine Mile
Point Unit No. 1 Nuclear Generating Facility, a 59% undivided interest in Nine
Mile Point Unit No. 2 Nuclear Generating Facility, Oyster Creek Nuclear
Generating Facility and Vermont Yankee Nuclear Power Station. These purchases
are expected to be completed in 2000 upon receipt of the required federal and
state approvals. In conjunction with each of the completed acquisitions, AmerGen
has received fully funded decommissioning trust funds which have sufficient
assets to fully cover the anticipated costs to decommission each nuclear plant
following its licensed life, including an annual net growth rate of 2% in
accordance with NRC regulations. AmerGen believes that the amount of the trust
funds and investment earnings thereon will be sufficient to meet its
decommissioning obligations.
Ventures Business Unit
The Company's ventures business unit consists of its infrastructure
services business, its telecommunications equity investments and other
investments.
Exelon Infrastructure Services, Inc.
In the second quarter of 1999, the Company formed EIS, an unregulated
subsidiary of the Company, to provide infrastructure services, including
infrastructure construction, operation management and maintenance services to
owners of electric, gas and telecommunications systems, including industrial and
commercial customers, utilities and municipalities.
In October 1999, EIS acquired the stock or assets of six utility
service contracting companies for an aggregate purchase price of approximately
$233 million, including $11 million of EIS stock. The purchase price also
contains estimated contingent payments of $20 million based upon the achievement
of targeted earnings of the acquired companies over a one-year period. The
acquisitions were accounted for using the purchase method of accounting.
Telecommunications Ventures
In 1995, the Company and Hyperion Telecommunications, Inc., a
subsidiary of Adelphia Cable Company, formed PECO Hyperion Telecommunications.
The partnership is a Competitive Local Exchange Carrier (CLEC) and provides
local phone service in the Philadelphia metropolitan region. PECO Hyperion
utilizes a large-scale fiber optic cable-based network that currently extends
over 700 miles and is connected to major long-distance carriers and local
businesses. The Company and Hyperion Telecommunications, Inc. each holds a 50%
interest in the partnership.
In 1996, the Company and AT&T Corp. formed AT&T Wireless PCS of
Philadelphia, LLC to provide a new digital wireless Personal Communications
Services (PCS) network in the Philadelphia metropolitan trading area. The
Company has completed the initial build-out of the new digital wireless PCS
network. Commercial launch of PCS in the Philadelphia area occurred in October
1997. The Company holds a 49% equity interest in the venture.
19
<PAGE>
PECO Energy Transition Trust, PECO Energy Capital Corp. and Related Entities
PETT, a statutory business trust established by the Company under the
laws of the State of Delaware and a wholly owned subsidiary of the Company, was
formed on June 23, 1998 pursuant to a trust agreement between the Company, as
grantor, First Union Trust Company, N.A., as issuer trustee, and two beneficiary
trustees appointed by the Company. PETT was created for the sole purpose of
issuing transition bonds to securitize a portion of the Company's authorized
stranded cost recovery. On March 25, 1999, PETT issued $4 billion of its
Transition Bonds, Series 1999-A. The Transition Bonds are solely obligations of
PETT secured by intangible transition property, representing the right to
collect ITC's sufficient to pay the principal and interest on the Transition
Bonds, sold by the Company to PETT.
PECO Energy Capital Corp., a wholly owned subsidiary, is the sole
general partner of PECO Energy Capital, L.P., a Delaware limited partnership
(Partnership). The Partnership was created solely for the purpose of issuing
preferred securities, representing limited partnership interests and lending the
proceeds thereof to the Company and entering into similar financing
arrangements. The loans to the Company are evidenced by the Company's
subordinated debentures (Subordinated Debentures), which are the only assets of
the Partnership. The only revenues of the Partnership are interest on the
Subordinated Debentures. All of the operating expenses of the Partnership are
paid by PECO Energy Capital Corp. As of December 31, 1999, the Partnership held
$128.1 million aggregate principal amount of the Subordinated Debentures.
PECO Energy Capital Trust II (Trust II) was created in June 1997 as a
statutory business trust under the laws of the State of Delaware solely for the
purpose of issuing trust receipts (Trust II Receipts) each representing an 8.00%
Cumulative Monthly Income Preferred Security, Series C (Series C Preferred
Securities) of the Partnership. The Partnership is the sponsor of the Trust II.
As of December 31, 1999, the Trust II had outstanding 2,000,000 Trust II
Receipts. At December 31, 1999, the assets of the Trust II consisted solely of
2,000,000 Series C Preferred Securities with an aggregate stated liquidation
preference of $50 million. Distributions were made on the Trust II Receipts
during 1999 in the aggregate amount of $4 million. Expenses of the Trust II for
1999 were approximately $50,000, all of which were paid by PECO Energy Capital
Corp. The Trust II Receipts are issued in book-entry only form.
PECO Energy Capital Trust III (Trust III) was created in April 1998 as
a statutory business trust under the laws of the State of Delaware solely for
the purpose of issuing trust receipts (Trust III Receipts) each representing an
7.38% Cumulative Preferred Security, Series D (Series D Preferred Securities) of
the Partnership. The Partnership is the sponsor of the Trust III. As of December
31, 1999, the Trust III had outstanding 78,105 Trust III Receipts. At December
31, 1999, the assets of the Trust III consisted solely of 78,105 Series D
Preferred Securities with an aggregate stated liquidation preference of $78.1
million. Distributions were made on the Trust III Receipts during 1999 in the
aggregate amount of $5.8 million. Expenses of the Trust III for 1999 were
approximately $50,000, all of which were paid by PECO Energy Capital Corp. The
Trust III Receipts are issued in book-entry only form.
Segment Information
Segment information is incorporated herein by reference to Note 3 of
Notes to Consolidated Financial Statements included in ITEM 8. - Financial
Statements and Supplementary Data.
Competition
The Company competes in deregulated retail electric generation markets
and the national wholesale electric generation market.
Retail competition for electric generation supply in Pennsylvania
commenced in January 1999. The Company, through Exelon Energy, the Company's new
competitive supplier, actively competes for a share of the generation supply
market throughout Pennsylvania. The Company also participates in the generation
supply market in its traditional service territory through its distribution
business unit. Generation services provided by the distribution business unit
are at the energy and capacity charge mandated by the Final Restructuring Order.
Generation services offered by Exelon Energy are at competitive market prices.
Customers who choose to take generation service from the distribution business
unit may choose an alternate generation supplier at any time.
For additional information, see ITEM 7. - Management's Discussion and
Analysis of Financial Condition and Results of Operations.
20
<PAGE>
Year 2000 Readiness Disclosure
During 1999 and 1998, the Company successfully addressed, through its
Year 2000 Project (Y2K Project), the issue resulting from computer programs
using two digits rather than four to define the applicable year and other
programming techniques that constrain date calculations or assign special
meanings to certain dates.
The Y2K Project was divided into four main sections - Information
Technology Systems (IT Systems), Embedded Technology (devices to control,
monitor or assist the operation of equipment, machinery or plant), Supply Chain
(third-party suppliers and customers) and Contingency Planning. The IT Systems
section included both the conversion of applications software that was not Y2K
ready and the replacement of software when available from the supplier. The
Supply Chain section included the process of identifying and prioritizing
critical suppliers and communicating with them about their plans and progress in
addressing the Y2K issue.
The current estimated total cost of the Y2K Project is $61 million, the
majority of which is attributable to testing. This represents a $9 million
reduction of the previously estimated cost of the Y2K Project. This estimate
includes the Company's share of Y2K costs for jointly owned facilities. The
total amount expended on the Y2K Project through December 31, 1999 was $56
million. The Company is funding the Y2K Project from operating cash flows.
The Company's systems experienced no Y2K difficulties on December 31,
1999 or since that date. The Company's operations have not, to date, been
adversely affected by any Y2K difficulties that suppliers or customers may have
experienced. The Company's Y2K Project also successfully addressed concerns with
the date February 29, 2000. The Company will continue to monitor its systems for
potential Y2K difficulties through the remainder of 2000.
Capital Requirements
The following table shows the Company's most recent estimate of capital
requirements for 2000:
(Millions of $)
----------------
Construction .......................................... $517
New ventures (1) ...................................... 410
Long-term debt maturities and sinking funds. .......... 127
----
Total capital requirements. ....................... $1,054
====
- - ------------
(1) A portion of these expenditures will be expensed.
Under the Company's mortgage (Mortgage), additional mortgage bonds may
not be issued on the basis of property additions or cash deposits unless
earnings before income taxes and interest during 12 consecutive calendar months
of the preceding 15 calendar months from the month in which the additional
mortgage bonds are issued are at least two times the pro forma annual interest
on all mortgage bonds outstanding and then applied for. For the purpose of this
test, the Company has not included Allowance for Funds Used During Construction
which is included in net income in the Company's consolidated financial
statements. The coverage under the earnings test of the Mortgage for the twelve
months ended December 31, 1999 was 11.60 times. The coverage under the earnings
test of the Mortgage for the twelve months ended December 31, 1998 was 5.47
times. At December 31, 1999, the Company had at least $2.26 billion of available
property additions against which $1.36 billion of mortgage bonds could have been
issued. In addition at December 31, 1999, the Company was entitled to issue
approximately $1.64 billion of mortgage bonds without regard to the earnings and
property additions tests against previously retired mortgage bonds.
21
<PAGE>
Under the Company's Amended and Restated Articles of Incorporation
(Articles), the issuance of additional preferred stock requires an affirmative
vote of the holders of two-thirds of all preferred shares outstanding unless
certain tests are met. Under the most restrictive of these tests, additional
preferred stock may not be issued without such a vote unless earnings after
income taxes but before interest on debt during 12 consecutive calendar months
of the preceding 15 calendar months from the month in which the additional
shares of stock are issued are at least 1.5 times the aggregate of the pro forma
annual interest and preferred stock dividend requirements on all indebtedness
and preferred stock. Coverage under this earnings test of the Articles for the
twelve months ended December 31, 1999 was 2.45 times. Coverage under this
earnings test of the Articles for the twelve months ended December 31, 1998 was
2.81 times.
The following table sets forth the Company's ratios of earnings to
fixed charges and the ratios of earnings to combined fixed charges and preferred
stock dividends for the periods indicated:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges .......... 3.42 3.60 2.71 3.29 3.41
Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends .............. 3.24 3.40 2.50 3.04 3.12
</TABLE>
For purposes of these ratios, (i) earnings consist of income from
continuing operations before income taxes and fixed charges and (ii) fixed
charges consist of all interest deductions and the financing costs associated
with capital leases. For purposes of calculating these ratios, income from
continuing operations for 1999 does not include the extraordinary charge against
income of $62 million ($37 million net of income taxes ), for 1998 does not
include the extraordinary charge against income of $33 million ($20 million net
of income taxes) and for 1997 does not include the extraordinary charge against
income of $3.1 billion ($1.8 billion net of income taxes).
For additional information, see ITEM 7. - Management's Discussion and
Analysis of Financial Condition and Results of Operations.
Construction
The following table shows the Company's most recent estimate of capital
expenditures for plant additions and improvements for 2000:
(Millions of $)
----------------
Electric:
Production ............................... $175
Nuclear fuel ............................. 95
Transmission and distribution. ........... 195
----
Total electric ...................... 465
Gas ........................................ 40
Other ...................................... 12
----
Total. ................................... $517
====
The Company's current construction program does not include any new
generating facilities. At December 31, 1999, construction work in progress,
excluding nuclear fuel, aggregated $232 million.
Employee Matters
The Company and its subsidiaries had 11,737 employees, including
approximately 5,000 EIS employees, at December 31, 1999. The number of employees
does not include employees of joint ventures. None of the employees of the
Company or its subsidiaries, other than certain EIS employees, are represented
by a union. Over the past several years, a number of unions have filed petitions
with the National Labor Relations Board to hold certification elections with
regard to different segments of employees within the Company. In all cases, the
Company employees, other than certain EIS employees, have rejected union
representation. The Company expects that such petitions will continue to be
filed in the future.
22
<PAGE>
As part of the Cost Competitiveness Review (CCR), in April 1998, the
Board of Directors authorized the implementation of a retirement incentive
program and an enhanced severance benefit program to achieve targeted workforce
reductions. See Note 22 of Notes to Consolidated Financial Statements included
in ITEM 8. - Financial Statements and Supplementary Data.
Environmental Regulations
Environmental controls at the federal, state, regional and local levels
have a substantial impact on the Company's operations due to the cost of
installation and operation of equipment required for compliance with such
controls. In addition to the matters discussed below, see "Generation Business
Unit -- Limerick Generating Station."
An environmental issue with respect to construction and operation of
electric transmission and distribution lines and other facilities is whether
exposure to electro-magnetic fields (EMF) causes adverse human health effects. A
large number of scientific studies have examined this question and certain
studies have indicated an association between exposure to EMF and adverse health
effects, including certain types of cancer. However, the scientific community
still has not reached a consensus on the issue. Additional research intended to
provide a better understanding of EMF is continuing. The Company supports
further research in this area and is funding and monitoring such studies.
Public concerns about the possible health risks of exposure to EMF have
adversely affected, and are expected in the future to adversely affect, the
costs of, and time required to, site new distribution and transmission
facilities and upgrade existing facilities. The Company cannot predict at this
time what effect, if any, this issue will have on other future operations.
Water
The Company has been informed by PSE&G that PSE&G is implementing the
1994 New Jersey Pollutant Discharge Elimination System (NJPDES) permit issued
for Salem by the New Jersey Department of Environmental Protection (NJDEP) which
requires, among other things, water intake screen modifications and wetlands
restoration. Under the 1994 permit, which remains in effect until such time as a
renewal permit is issued, PSE&G is continuing to restore wetlands and to conduct
the requisite management and monitoring associated with the implementation of
the special conditions of that permit. The existing permit remains in full force
and effect indefinitely upon submission of a timely renewal filing. The
Company's share of costs is 42.59% and is included in the Company's capital
requirements. On March 4, 1999, PSE&G filed a comprehensive application for the
renewal of Salem's NJDEP permit. The Company cannot currently predict the
outcome of the review of this application. An unfavorable determination could
have a material adverse effect on the Company's financial condition and results
of operations.
The DRBC issued a revised Docket for Salem in 1995 (Revised Docket)
approving a modification to the 1970 Salem Docket that approved the construction
and operation of the station's cooling water system. The Revised Docket
authorized, among other things, the continued operation of Salem's cooling water
system for an additional five years. The Revised Docket provides that the
authorization expires September 27, 2000 absent review of the Docket on or
before August 31, 1999 and renewal by the DRBC. DRBC review of the matter
commenced in the second quarter of 1999. The DRBC modified the Revised Docket to
provide that it shall remain in effect until six months after the NJDEP acts on
PSE&G's permit, or at a later date established by the DRBC.
PSE&G has informed the Company that it believes that the current
operations of Salem are in compliance with the Federal Water Pollution Control
Act (FWPCA) and will vigorously pursue its applications to continue operations
of Salem with present cooling water intake structures. The EPA, as a result of
litigation by environmental groups, is conducting a rulemaking under the FWPCA
that may result in the establishment of regulatory guidance on material issues
with respect to the FWPCA permitting decisions, such as guidance on
determinations of adverse environmental impacts and best technology available.
The rulemaking may impact NJDEP determinations with respect to PSE&G's permit
renewal applications.
23
<PAGE>
Air
Air quality regulations promulgated by the EPA, the PDEP and the City
of Philadelphia in accordance with the Federal Clean Air Act and the Clean Air
Act Amendments of 1990 (Amendments) impose restrictions on emission of
particulates, sulfur dioxide (SO(2)), nitrogen oxides (NO(x)) and other
pollutants and require permits for operation of emission sources. Such permits
have been obtained by the Company and must be renewed periodically.
The Amendments establish a comprehensive and complex national program
to substantially reduce air pollution. The Amendments include a two-phase
program to reduce acid rain effects by significantly reducing emissions of SO(2)
and NO(x) from electric power plants. Flue-gas desulfurization systems
(scrubbers) have been installed at Conemaugh Units No. 1 and No. 2 to reduce
SO(2) emissions to meet the Phase I requirements of the Amendments. Keystone
Units No. 1 and No. 2 are subject to the Phase II SO(2) and NO(x) limits of the
Amendments which must be met by January 1, 2000. The Company and the other
Keystone co-owners have several Phase II compliance options for Keystone,
including the purchase of SO(2) emission allowances.
The Company's service-area, coal-fired generating units at Eddystone
and Cromby are equipped with scrubbers and their SO(2) emissions meet the SO(2)
emission rate limits of both Phase I and Phase II of the Amendments. The Company
has completed the implementation of measures, including the installation of
NO(x) emissions controls and the imposition of certain operational constraints,
to comply with the Reasonably Available Control Technology limitations of the
Amendments. The Company expects that the cost of compliance with anticipated
air-quality regulations may be substantial due to further limitations on
permitted NO(x) emissions.
On September 24, 1998, the EPA announced the issuance of a final
regulation which will require 22 states and the District of Columbia to reduce
emissions of NO(x) by more than 1 million tons annually beginning in 2003. The
main goal of the regulation is to limit the transport of ozone pollution into
the northeastern states, including Pennsylvania, by reducing NO(x) emissions in
southern and midwestern states. Pennsylvania utilities, including the Company,
are already subject to strict NO(x) emission limits. A group of southern and
midwestern states and utilities appealed the issuance of the EPA regulation to
the Federal Court of Appeals.
On March 3, 2000, the District of Columbia Circuit Court of Appeals
substantively upheld an October 1998 EPA final regulation to reduce summertime
regional NO(x) emissions in 19 eastern states beginning May 1, 2003. The Court's
ruling on the regulation (which is aimed at reducing the interstate transport of
ozone pollution) is expected to be appealed by at least some of the involved
litigants. This appeal may involve a request for rehearing and/or review by the
U.S. Supreme Court. On January 18, 2000, in response to petitions filed by four
northeastern states under Section 126 of the Clean Air Act (CAA), EPA issued an
additional regulation which will require NO(x) reductions from electric
generation and large industrial sources in twelve states beginning May 1, 2003.
In addition to affecting Pennsylvania emission sources, the Section 126
regulation also covers sources in Delaware, Indiana, Kentucky, Maryland,
Michigan, North Carolina, New Jersey, New York, Ohio, Virginia and West
Virginia. It is expected that EPA's Section 126 regulation will also be
litigated in the federal court. As a result of time lost due to past and current
litigation, there is a possibility that the federal program implementation date
may be delayed for some, or all, affected states.
PDEP is in the process of finalizing state regulations to implement the
federal 2003 emission reduction requirements. Pennsylvania is currently
operating under a more restrictive NO(x) program than states located to the
south and west of the Commonwealth. To calculate state NO(x) emission budgets
for the 2003 program, the new federal regulations applied a uniform reduction
requirement to the covered electric generation units in each state. Current PDEP
NO(x) regulations, as well as those to be adopted to implement the federal
requirements, could restrict the operation of the Company's fossil-fired units,
require the purchase of NO(x) emission allowances from others, or require the
installation of additional control equipment.
24
<PAGE>
Many other provisions of the Amendments affect the Company's business.
The Amendments establish stringent control measures for geographical regions
which have been determined by the EPA to not meet National Ambient Air Quality
Standards; establish limits on the purchase and operation of motor vehicles and
require increased use of alternative fuels; establish stringent controls on
emissions of toxic air pollutants and provide for possible future designation of
some utility emissions as toxic; establish new permit and monitoring
requirements for sources of air emissions; and provide for significantly
increased enforcement power, and civil and criminal penalties.
The EPA has filed complaints in several federal district courts against
11 utility companies claiming that modifications to their coal-fired electric
generating stations were implemented without pre-construction permits required
by New Source Regulations (NSR) and without conducting Prevention of Significant
Deterioration (PSD) reviews, all in violation of the CAA. The EPA complaints
were part of a new initiative targeting coal-fired electric generating stations
with emission limits higher than stations coming on line after the effective
date of CAA regulations imposing very low emission rates. The Company's
Eddystone Generating Station meets the initial age and output screening criteria
for EPA scrutiny and enforcement. To date, none of the Company's generation
stations have been targeted by EPA with information requests or site visits.
However, indications are that the EPA's initiative will extend well beyond the
11 utilities targeted to date. Findings of NSR or PSD violations of the CAA pose
risks of significant penalties. The Company believes that its activities over
the last 20 years in maintaining the equipment at its coal-fired units was
lawful and not in violation of the CAA. The Company will vigorously defend its
actions if challenged by the EPA.
Solid and Hazardous Waste
The Comprehensive Environmental Response, Compensation, and Liability
Act of 1980 and the Superfund Amendments and Reauthorization Act of 1986
(collectively CERCLA) authorize the EPA to cause potentially responsible parties
(PRPs) to conduct (or for the EPA to conduct at the PRPs' expense) remedial
action at waste disposal sites that pose a hazard to human health or the
environment. Parties contributing hazardous substances to a site or owning or
operating a site typically are viewed as jointly and severally liable for
conducting or paying for remediation and for reimbursing the government for
related costs incurred. PRPs may agree to allocate liability among themselves,
or a court may perform that allocation according to equitable factors deemed
appropriate. In addition, the Company is subject to the Resource Conservation
and Recovery Act (RCRA) which governs treatment, storage and disposal of solid
and hazardous wastes.
By notice issued in November 1986, the EPA notified over 800 entities,
including the Company, that they may be PRPs under CERCLA with respect to
releases of radioactive and/or toxic substances from the Maxey Flats disposal
site, a low-level radioactive waste disposal site near Moorehead, Kentucky,
where Company wastes were deposited. Approximately 90 PRPs, including the
Company, formed a steering committee and entered into an administrative consent
order with the EPA to conduct a remedial investigation and feasibility study
(RI/FS), which was substantially revised based on the EPA comments. In September
1991, following public review and comment, the EPA issued a Record of Decision
(ROD) in which it selected a natural stabilization remedy for the Maxey Flats
disposal site. The steering committee has preliminarily estimated that
implementing the EPA proposed remedy at the Maxey Flats site would cost $60-$70
million in 1993 dollars. A settlement has been reached among the federal and
private PRPs, the Commonwealth of Kentucky and the EPA concerning their
respective roles and responsibilities in conducting remedial activities at the
site. Under the settlement, the private PRPs will perform the initial remedial
work at the site and the Commonwealth of Kentucky will assume responsibility for
long-range maintenance and final remediation of the site. The Company estimates
that it will be responsible for $800,000 of the remediation costs to be incurred
by the private PRPs. On April 18, 1996, a consent decree, which included the
terms of the settlement, was entered by the United States District Court for the
Eastern District of Kentucky. The PRPs have entered into a contract for the
design and implementation of the remedial plan and work has commenced.
25
<PAGE>
By notice issued in December 1987, the EPA notified several entities,
including the Company, that they may be PRPs under CERCLA with respect to wastes
resulting from the treatment and disposal of transformers and miscellaneous
electrical equipment at a site located in Philadelphia, Pennsylvania (the Metal
Bank of America site). Several of the PRPs, including the Company, formed a
steering committee to investigate the nature and extent of possible involvement
in this matter. On May 29, 1991, a Consent Order was issued by the EPA pursuant
to which the members of the steering committee agreed to perform the RI/FS as
described in the work plan issued with the Consent Order. The Company's share of
the cost of the RI/FS was approximately 30%. On October 14, 1994, the PRPs
submitted to the EPA the RI/FS which identified a range of possible remedial
alternatives for the site from taking no action to removal of essentially all
contaminated material with an estimated cost range of $2 million to $90 million.
On July 19, 1995, the EPA issued a proposed plan for remediation of the site
which involves removal of contaminated soil, sediment and groundwater and which
the EPA estimates would cost approximately $17 million to implement. On October
18, 1995, the PRPs submitted comments to the EPA on the proposed plan which
identified several inadequacies with the plan, including substantial
underestimates of the costs associated with remediation. In December 1997, the
EPA finalized its ROD for the site. In January 1998, the EPA sent letters to
approximately 20 PRPs, including the Company, giving them 60 days to negotiate
with the EPA to perform the proposed remedy. The Company, along with the nine
other PRPs in the utility PRP group, responded to the EPA's letter by offering
to conduct the Remedial Design (RD) but not the Remedial Action (RA) outlined in
the ROD. The EPA rejected the PRP group's offer and, on June 26, 1998, issued an
Order to the non-de minimis PRP Group members, and others, including the owner,
to implement the RD and RA. The PRP Group is proceeding as required by the
Order. It has selected a contractor which has been approved by the EPA, and, on
November 5, 1998, submitted the draft RD work plan. The EPA has approved the PRP
Group's RD work plan and based upon the RD investigation, EPA has indicated that
it is considering reducing the scope of the required remediation. EPA and the
PRPs are also involved in litigation with the site owner, concerning remediation
liability. The Company is unable to estimate its share of the costs of the
remedial activities.
By notice issued in September 1985, the EPA notified the Company that
it has been identified as a PRP for the costs associated with the cleanup of a
site (Berks Associates/Douglassville site) where waste oils generated from
Company operations were transported, treated, stored and disposed. In August
1991, the EPA filed suit in the Eastern District Court against 36 named PRPs,
not including the Company, seeking a declaration that these PRPs are jointly and
severally liable for cleanup of the Berks Associates/Douglassville site and for
costs already expended by the EPA on the site. Simultaneously, the EPA issued an
Administrative Order against the same named defendants, not including the
Company, which requires the PRPs named in the Administrative Order to commence
cleanup of a portion of the site. On September 29, 1992, the Company and 169
other parties were served with a third-party complaint joining these parties as
additional defendants. Subsequently, an additional 150 parties were joined as
defendants. A group of approximately 100 PRPs with allocated shares of less than
1%, including the Company, have formed a negotiating committee to negotiate a
settlement offer with the EPA. In December 1994, the EPA proposed a de minimis
PRP settlement which would have required the Company to pay approximately
$992,000 in exchange for the EPA agreeing not to sue. Subsequently, the non-de
minimis parties successfully challenged the ROD remedy. A ROD amendment was
finalized and, on October 27, 1998, the EPA settled with the de minimis parties.
Under the provisions of the settlement, the Company would be required to pay
approximately $520,000 for liabilities resulting from the government's past and
potential future costs. The Department of Justice approved the settlement in the
May of 1999. With the expiration of the public comment period in August 1999,
the settlement with the Company was effective.
In October 1995, the Company, along with over 500 other companies,
received a General Notice from the EPA advising that the Company had been
identified as having sent hazardous substances to the Spectron/Galaxy Superfund
Site and requesting the companies to conduct an RI/FS at the site. The Company
had previously been identified as a de minimis PRP and paid $2,100 to settle an
earlier phase. Additionally, the Company had participated in a PRP agreement and
consent order related to further work at the Spectron site. In conjunction with
the EPA's General Notice, the existing PRP group has proposed a preliminary
settlement which, based on the volume of hazardous substances sent to the
Spectron site by the Company, would allow the Company to settle the matter as a
de minimis party for less than $10,000. To date, no formal settlement has been
proposed.
On October 16, 1989, the EPA and the NJDEP commenced a civil action in
the United States District Court for the District of New Jersey (New Jersey
District Court) against 26 defendants, not including the Company, alleging the
right to collect past and future response costs for cleanup of the Helen Kramer
landfill located in New Jersey. In October 1991, the direct defendants joined
the Company and over 100 other parties as third-party defendants. The
third-party complaint alleges that the Company generated materials containing
hazardous substances that were transported to and disposed at the landfill by a
third party. The Company, together with a number of other direct and third-party
defendants, has agreed to participate in a proposed de minimis settlement which
would allow the Company to settle its potential liability at the site for
approximately $40,000.
26
<PAGE>
The Company had been named as a defendant in a Superfund matter
involving the Greer Landfill in South Carolina. The plaintiff's motion to
dismiss the complaint against the Company was granted. The Company was not
required to contribute to the cleanup of this site. No other defendant has
pursued any cross-claims against the Company.
On November 18, 1996, the Company received a notice from the EPA that
the Company is a PRP at the Malvern TCE Superfund Site, located in Malvern,
Pennsylvania. In April 1998, the Company was notified of a de minimus settlement
under which the Company was allocated a total cost of $16,000 for EPA past and
future costs. The settlement was reached in September 1999.
On February 3, 1997, the Company was served with a third-party
complaint involving the Pennsauken Sanitary Landfill. The Company is currently
unable to estimate the amount of liability it may have with respect to this
site.
In June 1989, a group of PRPs (Metro PRP Group) entered into an
Administrative Order of Consent with the EPA pursuant to which they agreed to
perform certain removal activities at the Metro Container Superfund Site located
in Trainer, Pennsylvania. In January 1990, the Metro PRP Group notified the
Company that the group considered the Company to be a PRP at the site. Since
that time, the Company has reviewed, and continues to review its files and
records and has been unable to locate any information which would indicate any
connection to the site. The Company does not believe that it has any liability
with respect to this site.
In November 1987, the Company received correspondence from the EPA
which indicated that the EPA was investigating the release of hazardous
substances from the Blosenski Landfill located in West Caln Township, Chester
County, Pennsylvania. The Company has been unable to locate any information
which would indicate any connection to this site. The Company does not believe
it has any liability with respect to this site.
The Company has identified 28 sites where former manufactured gas plant
(MGP) activities may have resulted in site contamination. Past activities at
several sites have resulted in actual site contamination. The Company is
presently engaged in performing various levels of activities at these sites,
including initial evaluation to determine the existence and nature of the
contamination, detailed evaluation to determine the extent of the contamination
and the necessity and possible methods of remediation, and implementation of
remediation. The PDEP has approved the Company's clean-up of three sites. Ten
other sites are currently under some degree of active study and/or remediation.
At December 31, 1999, the Company had accrued $32 million for investigation and
remediation of these MGP sites that currently can be reasonably estimated. The
Company believes that it could incur additional liabilities with respect to MGP
sites, which cannot be reasonably estimated at this time. The Company has sued a
number of insurance carriers seeking indemnity/coverage for remediation costs
associated with these former MGP sites.
The Company has also responded to various governmental requests,
principally those of the EPA pursuant to CERCLA, for information with respect to
the possible deposit of Company waste materials at various disposal, processing
and other sites.
On June 4, 1993, the Company entered into a Corrective Action Consent
Order (CACO) from the EPA under the RCRA. The CACO order requires the Company to
investigate the extent of alleged releases of hazardous wastes and to evaluate
corrective measures, if necessary, for a site located along the Delaware River
in Chester, Pennsylvania, which had previously been leased to Chem Clear, Inc.
Chem Clear operated an industrial waste water pretreatment facility on the site.
In October 1994, the Company entered into an agreement with Clean Harbors, the
successor to Chem Clear, pursuant to which the Company will be responsible for
approximately 25% of the costs incurred under the CACO and Clean Harbors will be
responsible for 75% of the costs. The required investigation was completed in
the summer of 1998 and a comprehensive RCRA Facility Investigation Report (RFI)
is being prepared for submission to the EPA. The Company performed interim
measures at the site. In January 1998, the Chester Waterfront Redevelopment
Project was developed as an alternative to an expanded RCRA Corrective Action
Project. The Company together with the EPA and the PDEP have agreed that
potential remediation of the Chem Clear property and the investigation and
potential remediation of all contiguous properties be moved from the EPA's RCRA
Program to the PDEP Act 2 program. The PDEP Act 2 program is a land recycling
program allowing remediation of properties more efficiently through
redevelopment. At December 31, 1999, the Company had spent approximately $3.6
million to comply with the CACO and $700,000 on the Chester Waterfront Project.
At the completion of the required RCRA investigation, the Company will combine
the projects and will be able to predict the nature and cost of any potential
corrective action.
27
<PAGE>
Costs
At December 31, 1999, the Company had accrued $57 million for various
investigation and remediation costs that can be reasonably estimated, including
approximately $32 million for investigation and remediation of former MGP sites
as described above. The Company cannot currently predict whether it will incur
other significant liabilities for additional investigation and remediation costs
at sites presently identified or additional sites which may be identified by the
Company, environmental agencies or others or whether all such costs will be
recoverable through rates or from third parties.
The Company's budget for capital requirements for 2000 for compliance
with environmental requirements total approximately $7 million. In addition, the
Company may be required to make significant additional expenditures not
presently determinable.
Executive Officers of the Registrant at December 31, 1999
<TABLE>
<CAPTION>
Age at Effective Date of Election
Name Dec. 31, 1999 Position to Present Position
- - ---- --------------- -------- --------------------------
<S> <C> <C> <C>
C. A. McNeill, Jr ..... 60 Chairman of the Board, President and Chief
Executive Officer ................................ July 1, 1997
G. R. Rainey .......... 50 President and Chief Nuclear Officer, PECO
Nuclear .......................................... June 1, 1998
G. A. Cucchi .......... 50 Senior Vice President, Corporate and President,
PECO Energy Ventures. ............................ June 22, 1998
J. W. Durham .......... 62 Senior Vice President and General Counsel ......... October 24, 1988
M. J. Egan. ........... 46 Senior Vice President, Finance and Chief
Financial Officer ................................ October 13, 1997
K. G. Lawrence ........ 52 Senior Vice President, Corporate and President,
PECO Energy Distribution ......................... June 22, 1998
I. P. McLean .......... 50 President, Power Team ............................. September 22, 1999
G. N. Rhodes ...... 56 Vice President, Corporate and President
Exelon Energy..................................... April 19, 1999
W. H. Smith, III ...... 51 Senior Vice President, Business Services
Group ............................................ November 7, 1997
D. W. Woods ........... 42 Senior Vice President, Corporate and Public
Affairs .......................................... December 1, 1998
J. J. Hagan .......... 49 Senior Vice President, Nuclear Operations, PECO
Nuclear .......................................... January 26, 1999
E. M. Cavanaugh........ 43 Vice President, Electric Supply and Transmission
PECO Energy Distribution ......................... July 27, 1999
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Age at Effective Date of Election
Name Dec. 31, 1999 Position to Present Position
- - ---- --------------- -------- --------------------------
<S> <C> <C> <C>
J. B. Cotton .......... 54 Vice President, Three Mile Island, PECO
Nuclear .......................................... December 20, 1999
M. T. Coyle ........ 56 Vice President, Clinton Power Station,
PECO Nuclear...................................... December 15, 1999
D. G. DeCampli ........ 42 Vice President, Operations, PECO Energy
Distribution ..................................... July 27, 1999
J. Doering, Jr ........ 55 Vice President, Peach Bottom Atomic Power
Station, PECO Nuclear. ........................... March 2, 1998
G. N. Dudkin .......... 41 Vice President, Customer and Marketing
Services, PECO Energy Distribution ............... July 27, 1999
D. B. Fetters ......... 48 Vice President, Nuclear Acquisitions, PECO
Nuclear .......................................... August 7, 1999
J. H. Gibson .......... 43 Vice President and Controller. .................... May 31, 1998
P. E. Haviland ........ 45 Vice President, Corporate Development ............. March 4, 1998
T. P. Hill, Jr ........ 51 Vice President, Regulatory and External
Affairs, PECO Energy Distribution ................ April 9, 1998
C. A. Jacobs .......... 47 Vice President, Support Services .................. November 9, 1998
J. W. Langenbach....... 53 Vice President, Station Support, PECO Nuclear ..... December 20, 1999
C. P. Lewis ......... 36 Vice President, Finance, PECO Nuclear ............. October 13, 1999
C. A. Matthews ........ 48 Vice President, Information Technology and
Chief Information Officer ........................ July 28, 1997
J. B. Mitchell ........ 51 Vice President, Treasury and Evaluation, and
Treasurer ........................................ December 1, 1994
J. A. Muntz .......... 43 Vice President, Fossil Operations.................. January 26, 1999
J. D. von Suskil ...... 53 Vice President, Limerick Generating Station,
PECO Nuclear ..................................... January 26, 1998
R. G. White ........... 41 Vice President, Corporate Planning. ............... September 28, 1998
K. K. Combs ........... 49 Corporate Secretary. .............................. November 1, 1994
</TABLE>
Each of the above executive officers holds such office at the
discretion of the Company's Board of Directors until his or her replacement or
earlier resignation, retirement or death.
Prior to his election to his current position, Mr. McNeill was
President and Chief Executive Officer, President and Chief Operating Officer and
Executive Vice President -- Nuclear.
Prior to his election to his current position, Mr. Rainey was Vice
President -- Peach Bottom Atomic Power Station, Vice President - Nuclear
Services and Plant Manager -- Eddystone Generating Station;
Prior to his election to his current position, Mr. Cucchi was Vice
President -- Power Delivery, Vice President -- Corporate Planning and
Development, Director of System Planning and Performance, and Manager - System
Planning.
Prior to joining the Company, Mr. Egan was Senior Vice President and
Chief Financial Officer of Aristech Chemical Company and Vice President of
Planning and Control of ARCO Chemical Company, Americas.
Prior to his election to his current position, Mr. Lawrence was Senior
Vice President --Local Distribution Company, Senior Vice President - Finance and
Chief Financial Officer, and Vice President -- Gas Operations.
Prior to joining the Company in 1999, Mr. McLean was Group Vice
President of Engelhard Corporation.
Prior to joining the Company in 1999, Mr. Rhodes was Chief Marketing
Officer with Aerial Communications, Inc. and Vice President, Business
Development/Marketing with Sprint Corporation.
Prior to his election to his current position, Mr. W. H. Smith, III was
Vice President and Group Executive -- Telecommunications Group, Vice President
- - -- Station Support, Vice President -- Planning and Performance, and Manager --
Corporate Strategy and Performance.
Prior to joining the Company in 1998, Mr. Woods was the Chief of Staff
for the Pennsylvania Senate Majority Leader.
Prior to his election to his current position in 1999, Mr. Hagen was
Senior Vice President, Nuclear Operations, Vice President Station Support, Vice
President, Operations with Entergy Operations, Inc., General Manager, Operations
with Entergy Operations, Inc. and Vice President, Electric Power Generation with
Public Service Electric and Gas Company.
Prior to her election to her current position, Ms. Cavanaugh was
Assistant General Counsel and Director of Risk Management.
29
<PAGE>
Prior to his election to his current position in 1999, Mr. Coyle was
Assistant Vice President, Clinton Power Station, Senior Manager, Nuclear
Generation, Deputy Commander for Engineering, U.S. Navy and Fleet Maintenance
Officer, U. S. Navy.
Prior to his election to his current position in 1999, Mr. DeCampli was
Director of Engineering Services, Director of Transmission and Substations and
Director of Reengineering.
Prior to her election to her current position, Ms. Gibson was Director
of Audit Services and Director of the Tax Division.
Prior to joining the Company in 1998, Mr. Haviland was Senior Vice
President -- Planning and Administration with Bovis Construction Group.
Prior to his election to his current position, Mr. Hill was Vice
President and Controller.
Prior to joining the Company in 1998, Ms. Jacobs was Vice President of
Industrial Operations, Americas and Vice President Professional Development and
Senior Director of Materials Management with Rhone-Polenc Rorer Corporation.
Prior to joining the Company in 1999, Mr. Langenbach was Vice President
and Director of Three Mile Island Power Station, Director Materials and Services
and Outage Director, Oyster Creek Power Station with GPU Nuclear, Inc.
Prior to his election to his current position in 1999, Mr. Lewis was
SBU Vice President of Finance, Director Nuclear Planning and Development and
Director of Corporate Development.
Prior to her election to her current position, Ms. Matthews was
Director of Consumer Energy Information Systems and Distributed Information
Officer. Prior to joining the Company in 1996, Ms. Matthews was Vice President
of Strategic Business Development for Europe Online S.A. Luxembourg.
Prior to his election to his current position, Mr. Muntz was Vice
President Electric Supply and Transmission, Director of Nuclear Planning and
Development and Director, Site Engineering, Limerick Generating Station.
Prior to his election to his current position, Mr. von Suskil was
Director -- Engineering, Manager -- Planning and Assistant Manager -- Outages.
Prior to joining the Company in 1995, Mr. von Suskil was a Captain in the United
States Navy.
Prior to joining the Company, Mr. White was Corporate Finance Manager
and Corporate Operations Consultant for ARCO Chemical Company.
Prior to their election to the positions shown above, the following
executive officers held other positions with the Company since January 1, 1995:
Mr. Cotton was Vice President, Special Projects, Director -- Nuclear
Engineering, Director - Nuclear Quality Assurance and Superintendent --
Operations; Mr. Doering was Plant Manager -- Limerick, Director -- Nuclear
Strategies Support, and General Manager Operations; Mr. Dudkin was Vice
President, Operations, Acting General Manager -- Power Delivery, Regional
Director Power Delivery and Manager -- Electric Operations; Mr. Fetters was Vice
President -- Nuclear Development, Vice President -- Nuclear Planning and
Development, Director -- Nuclear Engineering, Director -- Limerick Maintenance
and a Project Manager.
There are no family relationships among directors or executive officers
of the Company.
30
<PAGE>
ITEM 2. PROPERTIES
The principal plants and properties of the Company are subject to the lien of
the Mortgage under which the Company's First and Refunding Mortgage Bonds are
issued.
The following table sets forth the Company's net electric generating capacity by
station at December 31, 1999:
<TABLE>
<CAPTION>
Net Generating Estimated
Capacity (1) Retirement
Station Location (Kilowatts) Year
------- -------- ----------- ----
<S> <C> <C> <C>
Nuclear
Limerick ............................ Limerick Twp., PA ................... 2,284,000 2024,2029
Peach Bottom ........................ Peach Bottom Twp., PA ............... 928,000(2) 2013,2014
Salem ............................... Hancock's Bridge, NJ. ............... 942,000(2) 2016,2020
Hydro
Conowingo ........................... Harford Co., MD. .................... 512,000 2014
Pumped Storage
Muddy Run ........................... Lancaster Co., PA ................... 910,000 2014
Fossil (Steam Turbines) ..............
Cromby .............................. Phoenixville, PA .................... 345,000 (3)
Delaware ............................ Philadelphia, PA .................... 250,000 (3)
Eddystone ........................... Eddystone, PA ....................... 1,341,000 2009,2010, 2011
Schuylkill .......................... Philadelphia, PA .................... 166,000 (3)
Conemaugh ........................... New Florence, PA .................... 352,000(2) 2005,2006
Keystone ............................ Shelocta, PA ........................ 357,000(2) 2002,2003
Fossil (Gas Turbines) ................
Chester ............................. Chester, PA ......................... 39,000 (3)
Croydon ............................. Bristol Twp., PA .................... 380,000 (3)
Delaware ............................ Philadelphia, PA .................... 56,000 (3)
Eddystone ........................... Eddystone, PA ....................... 60,000 (3)
Fairless Hills ...................... Falls Twp., PA ...................... 60,000 (3)
Falls ............................... Falls Twp., PA ...................... 51,000 (3)
Moser ............................... Lower Pottsgrove Twp., PA. .......... 51,000 (3)
Pennsbury ........................... Falls Twp., PA ...................... 6,000 (3)
Richmond ............................ Philadelphia, PA .................... 96,000 (3)
Schuylkill .......................... Philadelphia, PA .................... 30,000 (3)
Southwark ........................... Philadelphia, PA .................... 52,000 (3)
Salem ............................... Hancock's Bridge, NJ. ............... 16,000(2) (3)
Fossil (Internal Combustion) .........
Cromby. ............................. Phoenixville, PA .................... 2,700 (3)
Delaware ............................ Philadelphia, PA .................... 2,700 (3)
Schuylkill .......................... Philadelphia, PA .................... 2,800 (3)
Conemaugh ........................... New Florence, PA .................... 2,300(2) 2006
Keystone ............................ Shelocta, PA ........................ 2,300(2) 2003
-----------
Total .................................................................. 9,296,800
</TABLE>
- - ------------
(1) Summer rating.
(2) Company portion.
(3) Retirement dates are under on-going review by the Company. Current plans
call for the continued operation of these units beyond 2000.
The following table sets forth the Company's major transmission and
distribution lines in service at December 31, 1999:
Voltage in Kilovolts (Kv) Conductor Miles
------------------------- ----------------
Transmission:
500 Kv......................... 891
220 Kv......................... 1,634
132 Kv......................... 15
66 Kv ......................... 570
33 Kv and below ............... 29
Distribution:
33 Kv and below ............... 48,222
At December 31, 1999, the Company's principal electric distribution
system included 21,009 pole-line miles of overhead lines and 21,002 cable miles
of underground cables.
The following table sets forth the Company's gas pipeline miles at
December 31, 1999:
Pipeline Miles
---------------
Transmission .................... 28
Distribution .................... 5,884
Service piping .................. 4,726
-----
Total ........................ 10,638
======
31
<PAGE>
The Company has a liquefied natural gas facility located in West
Conshohocken, Pennsylvania which has a storage capacity of 1,200,000 mcf and a
sendout capacity of 157,000 mcf/day and a propane-air plant located in Chester,
Pennsylvania, with a tank storage capacity of 1,980,000 gallons and a peaking
capability of 28,800 mcf/day. In addition, the Company owns 25 natural gas city
gate stations at various locations throughout its gas service territory.
At December 31, 1999, the Company had 644 miles of fiber optic cable.
Also, an additional 211 miles of fiber cable network is owned jointly by the
Company and Adelphia Business Solutions.
The Company owns an office building in downtown Philadelphia, in which
it maintains its headquarters, and also owns or leases elsewhere in its service
area a number of properties which are used for office, service and other
purposes. Information regarding rental and lease commitments is incorporated
herein by reference to Note 6 of Notes to Consolidated Financial Statements
included in ITEM 8. - Financial Statements and Supplementary Data.
The Company maintains property insurance against loss or damage to its
principal plants and properties by fire or other perils, subject to certain
exceptions. Although it is impossible to determine the total amount of the loss
that may result from an occurrence at a nuclear generating station, the Company
maintains its $2.75 billion proportionate share for each station. Under the
terms of the various insurance agreements, the Company could be assessed up to
$30 million for property losses incurred at any plant insured by the insurance
companies. For additional information, see ITEM 1. Business - Generation
Business Unit-Nuclear. The Company is self-insured to the extent that any losses
may exceed the amount of insurance maintained. Any such losses could have a
material adverse effect on the Company's financial condition and results of
operations.
ITEM 3. LEGAL PROCEEDINGS
On May 27, 1998, the United States Department of Justice, on behalf of
the Rural Utilities Service (RUS) and the Chapter 11 Trustee for the Cajun
Electric Power Cooperative Inc. (Cajun), filed an action claiming breach of
contract against the Company in the United States District Court for the Middle
District of Louisiana (Louisiana District Court) arising out of the Company's
termination of the contract to purchase Cajun's interest in the River Bend
nuclear power plant. In the complaint, RUS seeks the full purchase price of the
30% interest in the River Bend nuclear power plant, that is, $50 million, plus
interest and the Trustee seeks alleged consequential damages to Cajun's Chapter
11 estate as a result of the termination. On August 16, 1998, the Company moved
to dismiss the complaint filed by the United States and the Trustee. On July 13,
1999, the Louisiana District Court denied the Company's Motion to Dismiss the
Complaint. The court expressly reserved to the parties the right to file a
motion for summary judgment. The parties to the litigation are presently engaged
in pre-trial discovery. While the Company cannot predict the outcome of this
matter, the Company believes that it validly exercised its right of termination
and did not breach the agreement.
During the shutdown of Salem, examinations of the steam generator tubes
at Salem Unit No. 1 revealed significant cracking. On February 27, 1996, the
Company, PSE&G, Atlantic Electric Company and Delmarva, the co-owners of Salem,
filed an action in the New Jersey District Court against Westinghouse Electric
Corporation, the designer and manufacturer of the Salem steam generators. The
suit alleged that the significant cracking of the steam generator tubes was the
result of defects in the design and fabrication of the steam generators and that
Westinghouse knew that the steam generators supplied to Salem were defective and
that Westinghouse deliberately concealed this from PSE&G. The suit alleged
violations of both the federal and New Jersey Racketeer Influenced and Corrupt
Organizations Acts (RICO), fraud, negligent misrepresentation and breach of
contract. Westinghouse filed a motion for summary judgment on the grounds that
the claim of the plaintiffs is barred by the statute of limitations. On January
27, 2000, the Company, PSE&G, Atlantic Electric Company, Delmarva and
Westinghouse Electric Corporation entered into an agreement resolving all
litigation concerning this matter.
The Company is involved in tax appeals regarding two of its nuclear
facilities, Limerick (Montgomery County) and Peach Bottom (York County). The
Company is also involved in the tax appeal for Three Mile Island Unit No. 1
Nuclear Generating Facility (Dauphin County) through AmerGen. The Company does
not believe the outcome of these matters will have a material adverse effect on
the Company's results of operations or financial condition.
32
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is listed on the New York and Philadelphia
Stock Exchanges. At February 25, 2000, there were 129,573 owners of record of
the Company's common stock.
The following table sets forth the quarterly high, low and closing
prices and dividends for the Company's common stock on the New York Stock
Exchange for the past two years.
<TABLE>
<CAPTION>
1999 1998
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High price $38 13/16 $44 3/16 $50 1/2 $46 7/16 $42 3/16 $36 3/4 $30 5/8 $24 11/16
Low price $31 1/2 $35 7/8 $41 7/8 $35 1/4 $36 1/2 $28 1/2 $21 3/16 $18 7/8
Close $34 3/4 $37 1/2 $41 7/8 $46 1/4 $41 3/4 $36 3/4 $29 3/16 $22 1/8
Dividends $0.25 $0.25 $0.25 $0.25 $0.25 $0.25 $0.25 $0.25
</TABLE>
The book value of the Company's common stock at December 31, 1999 was
$9.78 per share.
Dividends may be declared on common stock out of funds legally
available for dividends whenever full dividends on all series of preferred stock
outstanding at the time have been paid or declared and set apart for payment for
all past quarter-yearly dividend periods. No dividends may be declared on common
stock, however, at any time when the Company has failed to satisfy the sinking
fund obligations with respect to certain series of the Company's preferred
stock. Future dividends on common stock will depend upon earnings, the Company's
financial condition and other factors, including the availability of cash.
The Company's Articles prohibit payment of any dividend on, or other
distribution to the holders of, common stock if, after giving effect thereto,
the capital of the Company represented by its common stock together with its
Other Paid-In Capital and Retained Earnings is, in the aggregate, less than the
involuntary liquidating value of its then outstanding preferred stock. At
December 31, 1999, such capital ($1.8 billion) amounted to about 9 times the
liquidating value of the outstanding preferred stock ($193.1 million).
The Company may not declare dividends on any shares of its capital
stock in the event that: (1) the Company exercises its right to extend the
interest payment periods on the Subordinated Debentures which were issued to the
Partnership; (2) the Company defaults on its guarantee of the payment of
distributions on the Series C or Series D Preferred Securities of the
Partnership; or (3) an event of default occurs under the Indenture under which
the Subordinated Debentures are issued.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below has been
derived from the audited financial statements of the Company. This data is
qualified in its entirety by reference to, and should be read in conjunction
with the Company's Consolidated Financial Statements and Management's Discussion
and Analysis of Financial Condition and Results of Operations included elsewhere
herein.
Summary of Earnings and Financial Condition For the Years Ended December 31,
<TABLE>
<CAPTION>
In Millions, except per share data 1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Income Data
Operating Revenues $5,437 $5,263 $ 4,601 $4,284 $4,186 $4,041
Operating Income 1,409 1,286 1,006 1,249 1,401 1,064
Income before Extraordinary Item 619 532 337 517 610 427
Extraordinary Item (net of income taxes) (37) (20) (1,834) - - -
Net Income (Loss) 582 513 (1,497) 517 610 427
Earnings (Loss) Applicable to Common Stock 570 500 (1,514) 499 587 389
Earnings per Average Common Share Before
Extraordinary Item (dollars) $ 3.10 $ 2.33 $ 1.44 $ 2.24 $ 2.64 $ 1.76
Extraordinary Item (per share) (0.19) (0.09) (8.24) - - -
------ ------ ------- ------ ------ ------
Earnings (Loss) per Average Common Share $ 2.91 $ 2.24 $ (6.80) $ 2.24 $ 2.64 $ 1.76
====== ====== ======= ====== ====== ======
Dividends per Common Share (dollars) $ 1.00 $ 1.00 $ 1.80 $1.755 $ 1.65 $1.545
====== ====== ======= ====== ====== ======
Common Stock Equity (per share) $ 9.78 $13.61 $ 12.25 $20.88 $20.40 $19.41
====== ====== ======= ====== ====== ======
Average Shares of Common Stock Outstanding (millions) 196.3 223.2 222.5 222.5 221.9 221.6
====== ====== ======= ====== ====== ======
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
At December 31,
In Millions 1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data
Current Assets $ 1,213 $ 582 $ 1,003 $ 420 $ 426 $ 427
Property, Plant and Equipment, net 5,045 4,804 4,671 10,942 10,939 11,003
Deferred Debits and Other Assets 6,862 6,662 6,683 3,899 3,944 3,992
------- ------- ------- ------- ------- -------
Total Assets $13,120 $12,048 $12,357 $15,261 $15,309 $15,422
======= ======= ======= ======= ======= =======
Current Liabilities $ 1,304 $ 1,735 $ 1,619 $ 1,103 $ 1,052 $ 850
Long-Term Debt 5,969 2,920 3,853 3,936 4,199 4,786
Deferred Credits and Other Liabilities 3,753 3,756 3,576 4,982 4,933 4,892
COMRPS 128 349 352 302 302 221
Mandatorily Redeemable Preferred Stock 56 93 93 93 93 93
Shareholders' Equity 1,910 3,195 2,864 4,845 4,730 4,580
------- ------- ------- ------- ------- -------
Total Liabilities and Shareholders' Equity $13,120 $12,048 $12,357 $15,261 $15,309 $15,422
======= ======= ======= ======= ======= =======
</TABLE>
34
<PAGE>
+-ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
On September 22, 1999, the Company and Unicom Corporation (Unicom) entered into
an Agreement and Plan of Exchange and Merger providing for a merger of equals.
On January 7, 2000, the Agreement and Plan of Exchange and Merger was amended
and restated (Merger Agreement). The Merger Agreement has been approved by both
companies' Boards of Directors. The transaction will be accounted for as a
purchase with the Company as acquiror.
The Merger Agreement provides for (a) the exchange of each share of outstanding
common stock, no par value, of the Company for one share of common stock of the
new company, Exelon Corporation (Exelon) (Share Exchange) and (b) the merger
of Unicom with and into Exelon (Merger and together with the Share Exchange,
Merger Transaction). In the Merger, each share of the outstanding common
stock, no par value, of Unicom will be converted into 0.875 shares of common
stock of Exelon plus $3.00 in cash. In the Merger Agreement, the Company and
Unicom agree to repurchase approximately $1.5 billion of common stock prior to
the closing of the Merger, with Unicom to repurchase approximately $1.0 billion
of its common stock, and the Company to repurchase approximately $500 million of
its common stock. As a result of the Share Exchange, the Company will become a
wholly owned subsidiary of Exelon. As a result of the Merger, Unicom will cease
to exist and its subsidiaries, including Commonwealth Edison Company, an
Illinois corporation (ComEd), will become subsidiaries of Exelon. Following the
Merger Transaction, Exelon will be a holding company with two principal utility
subsidiaries, ComEd and the Company.
The Merger Transaction is conditioned, among other things, upon the approvals of
the common shareholders of both companies and the approval of certain regulatory
agencies. The companies have filed an application with the Securities and
Exchange Commission (SEC) to register Exelon as a holding company under the
Public Utility Holding Company Act of 1935.
The Company is engaged principally in the production, purchase, transmission,
distribution and sale of electricity to residential, commercial, industrial and
wholesale customers and the distribution and sale of natural gas to residential,
commercial and industrial customers. Pursuant to the Pennsylvania Electricity
Generation Customer Choice and Competition Act (Competition Act), the
Commonwealth of Pennsylvania has required the unbundling of retail electric
services in Pennsylvania into separate generation, transmission and distribution
services with open retail competition for generation services. Since the
commencement of deregulation in 1999, the Company serves as the local
distribution company providing electric distribution services in its franchised
service territory in southeastern Pennsylvania and bundled electric service to
customers who do not choose an alternate electric generation supplier. The
Company engages in the wholesale marketing of electricity on a national basis.
Through its Exelon Energy division, the Company is a competitive generation
supplier offering competitive energy supply to customers throughout
Pennsylvania. The Company's infrastructure services subsidiary, Exelon
Infrastructure Services, Inc. (EIS), provides utility infrastructure services to
customers in several regions of the United States. The Company owns a 50%
interest in AmerGen Energy Company, LLC (AmerGen), a joint venture with British
Energy, Inc., a wholly-owned subsidiary of British Energy plc (British Energy),
to acquire and operate nuclear generating facilities. The
<PAGE>
Company also participates in joint ventures which provide telecommunications
services in the Philadelphia metropolitan region.
At December 31, 1997, the Company determined that its electric generation
business no longer met the criteria of Statement of Financial Accounting
Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of
Regulation." In connection with the discontinuance of SFAS No. 71, the Company
performed a market value analysis of its generation assets and wrote off $1.8
billion (net of income taxes) of unrecoverable electric plant costs and
regulatory assets. See Note 5 of Notes to Consolidated Financial Statements.
In May 1998, the Pennsylvania Public Utility Commission (PUC) entered an Opinion
and Order (Final Restructuring Order) approving a joint petition and settlement
of the Company's restructuring case. Under the Final Restructuring Order, the
Company received approval to recover stranded costs of $5.3 billion over 12
years beginning January 1, 1999 with a return on the unamortized balance of
10.75%. The Final Restructuring Order provides for the phase-in of customer
choice of electric generation supplier (EGS) for all customers: one-third of the
peak load of each customer class on January 1, 1999; one-third on January 2,
1999; and the remaining one-third on January 1, 2000. The Final Restructuring
Order called for an across-the-board retail electric rate reduction of 8% in
1999. This rate reduction decreased to 6% in 2000. At December 31, 1999,
approximately 17% of the Company's residential load, 39% of its commercial load
and 59% of its industrial load were purchasing generation service from an
alternative EGS. As of that date, Exelon Energy, the Company's alternative EGS,
was providing electric generation service to approximately 134,000 business and
residential customers located throughout Pennsylvania. See Note 4 of Notes to
Consolidated Financial Statements.
On March 25, 1999, PECO Energy Transition Trust (PETT), a wholly owned
subsidiary of the Company, issued $4 billion of PETT Transition Bonds
(Transition Bonds) to securitize a portion of the Company's stranded cost
recovery. In accordance with the terms of the Competition Act, the Company has
utilized the proceeds from the issuance of the Transition Bonds principally to
reduce stranded costs including related capitalization.
The Company expects that competition for both retail and wholesale generation
services will substantially affect its future results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Outlook."
Results of Operations
The Company's Consolidated Statements of Income for 1998 and 1997 reflect the
reclassification of the results of operations of the Company's non-regulated
retail energy supplier, Exelon Energy, from Other Income and Deductions.
36
<PAGE>
In 1999, the Company completed the redesign of its internal reporting structure
to separate its distribution, generation, and ventures operations into business
units and provide financial and operational data on the same basis to senior
management. The Company's distribution business unit consists of its regulated
operations including electric transmission and distribution services, retail
sales of generation services and retail gas sales and services. The Company's
generation business unit consists of its generation assets, its power marketing
group, its unregulated retail energy supplier and its investment in AmerGen. The
Company's ventures business unit consists of its infrastructure services
business, its telecommunications equity investments and other investments.
General corporate expenses include the cost of executive management, corporate
accounting and finance, information technology, risk management, human
resources, and legal functions and employee benefits.
In the fourth quarter of 1999, EIS acquired six infrastructure services
companies. EIS, formed in the second quarter of 1999, provides infrastructure
services including infrastructure construction, operation management and
maintenance services to owners of electric, gas and telecommunications systems,
including industrial and commercial customers, utilities and municipalities.
Significant Operating Items
<TABLE>
<CAPTION>
Revenue and Expense
Items as a Percentage Percentage
of Operating Revenue Dollar Changes
1999- 1998-
<S> <C> <C> <C> <C> <C> <C>
1999 1998 1997 1998 1997
89% 92% 90% Electric -% 16%
9% 8% 10% Gas 11% (4%)
2% -% -% Infrastructure Services 100% -%
100% 100% 100% Total Operating Revenues 3% 14%
39% 34% 28% Fuel and Energy Interchange 19% 39%
25% 22% 31% Operating and Maintenance 22% (20%)
-% 2% -% Early Retirement and Separation Programs (100%) 100%
4% 12% 13% Depreciation and Amortization (63%) 11%
5% 5% 7% Taxes Other Than Income (6%) (10%)
73% 75% 79% Total Operating Expenses 1% 10%
27% 25% 21% Operating Income 10% 28%
(8%) (7%) (8%) Interest Charges 15% (6%)
(1%) (1%) -% Equity in Losses of Telecommunications
Investments (30%) 283%
-% (1%) 1% Other Income and Deductions 188% (217%)
18% 16% 14% Income Before Income Taxes and
Extraordinary Item 15% 35%
7% 6% 6% Income Taxes 12% 9%
11% 10% 8% Income Before Extraordinary Item 16% 58%
</TABLE>
Year Ended December 31, 1999 Compared To Year Ended December 31, 1998
Operating Revenues
Electric revenues increased $17 million to $4,847 million in 1999. The increase
was primarily attributable to higher revenues from the generation business unit
of $589 million, partially offset by lower revenues from the distribution
business unit of $572 million.
The increase from the generation business unit was attributable to $473 million
from increased volume in Pennsylvania as a result of the sale of competitive
electric generation services by Exelon Energy, increased wholesale revenues of
$133 million from the marketing of excess generation capacity as a result of
retail competition and revenues of $99 million from the sale of generation from
Clinton Nuclear Power Station (Clinton) to Illinois Power (IP), partially offset
by the inclusion of $116 million of PJM Interconnection, L.L.C. (PJM) network
transmission service revenue in 1998. The decrease from the distribution
business unit was primarily attributable to lower volume associated with the
effects of retail competition of $508 million and $278 million related to the 8%
across-the-board rate reduction mandated by the Final Restructuring Order. These
<PAGE>
decreases were partially offset by $149 million of PJM network transmission
service revenue and $59 million related to higher volume as a result of weather
conditions as compared to 1998. PJM network transmission service revenues and
charges which commenced April 1, 1998 were recorded in the generation business
unit in 1998 but are being recognized by the distribution business unit in 1999
as a result of the Federal Energy Regulatory Commission (FERC) approval of the
PJM Regional Transmission Owners' rate case settlements. Stranded cost recovery
is included in the Company's retail electric rates beginning January 1, 1999.
Under its Amended Management Agreement with IP, effective April 1, 1999, the
Company was responsible for the payment of all direct operating and maintenance
(O&M) costs and direct capital costs incurred by IP and allocable to the
operation of Clinton. These costs are reflected in the Company's O&M expenses.
IP was responsible for fuel and indirect costs such as pension benefits, payroll
taxes and property taxes. Following the restart of Clinton on June 2, 1999, and
through December 15, 1999, the Company agreed to sell 80% of the output of
Clinton to IP. The remaining output was sold by the Company in the wholesale
market. Under a separate agreement with the Company, British Energy agreed to
share 50% of the costs and revenues associated with the Amended Management
Agreement. Effective December 15, 1999, AmerGen acquired Clinton. Accordingly,
the results of operations of Clinton have been accounted for under the equity
method of accounting in the Company's Consolidated Statements of Income since
the acquisition date.
Gas revenues increased $48 million, or 11%, to $481 million in 1999 primarily as
a result of higher revenues from the distribution business unit of $50 million.
The increase in the distribution business unit was primarily attributable to
increased volume as a result of weather conditions of $27 million and increased
volume from new and existing customers of $20 million as compared to 1998. This
increase was partially offset by lower revenues from the generation business
unit of $2 million, primarily attributable to lower volume from existing
customers of Exelon Energy.
Infrastructure services revenues increased $109 million as a result of growth
from the EIS acquisitions in 1999.
Fuel and Energy Interchange Expense
Fuel and energy interchange expense increased $349 million, or 19%, to $2,145
million in 1999. The increase was attributable to higher fuel and energy
interchange expenses associated with the distribution business unit of $187
million and the generation business unit of $162 million.
The increase from the distribution business unit was attributable to $98 million
of PJM network transmission service charges, $51 million of purchases in the
spot market and $38 million of additional volume as a result of weather
conditions. The increase from the generation business unit was primarily
attributable to $565 million related to increased volume from Exelon Energy
sales and a $36 million reserve related to the Massachusetts Health and
Education Authority (HEFA) contract as a result of higher than anticipated cost
of supply in the New England power pool. These increases were partially offset
by $277 million of fuel savings from wholesale operations as a result of lower
volume and efficient operation of the Company's generating assets, the inclusion
of PJM network transmission service charges of $116 million in 1998, and the
reversal of $27 million in reserves associated with the Grays Ferry Cogeneration
Partnership (Grays Ferry) in connection with the final settlement of litigation
and expected prices of electricity over the remaining life of the power purchase
agreements. In addition, the Company experienced $19 million of fuel savings
<PAGE>
associated with the full return to service of Salem Generating Station (Salem)
in April 1998 which decreased the need to purchase power to replace the output
from these units.
As a percentage of revenue, fuel and energy interchange expense was 39% as
compared to 34% in 1998. The increase was primarily attributable to reduced
margins resulting from retail competition for generation services.
Operating and Maintenance Expense
O&M expense, exclusive of the Early Retirement and Separation charge of $124
million incurred in 1998, increased $249 million, or 22%, to $1,384 million in
1999. As a percentage of revenue, O&M expense was 25% as compared to 22% in
1998. The increase in O&M expense was attributable to higher O&M expenses
associated with the generation business unit of $112 million, the ventures
business unit of $109 million and corporate of $28 million.
The increase from the generation business was primarily a result of $70 million
related to Clinton, $24 million related to the growth of Exelon Energy, $13
million of charges related to the abandonment of two information systems
implementations, $10 million associated with the Salem inventory write-off for
excess and obsolete inventory, and $7 million related to the true-up of 1998
reimbursement of joint-owner expenses. These decreases were partially offset by
$10 million of lower O&M expenses as a result of the full return to service of
Salem in April 1998. The increase from the ventures business unit was related to
the infrastructure services business. In addition, the Company incurred
additional corporate costs including $15 million associated with Year 2000 (Y2K)
remediation expenditures, $11 million of compensation expense and $9 million
related to nuclear property insurance, partially offset by $17 million of lower
pension and post-retirement benefit expense primarily as a result of the
performance of the investments in the Company's pension plan. The distribution
business unit's O&M expenses were consistent with the prior year and included
$11 million of additional expenses related to restoration activities as a result
of Hurricane Floyd which were offset by lower electric transmission and
distribution expenses.
Depreciation and Amortization Expense
Depreciation and amortization expense decreased $406 million, or 63%, to $237
million in 1999. As a percentage of revenue, depreciation and amortization
expense was 4% as compared to 12% in 1998. The decrease in depreciation and
amortization expense was associated with the December 1997 restructuring charge
through which the Company wrote down a significant portion of its generating
plant and regulatory assets. In connection with this restructuring charge, the
Company reduced generation-related assets by $8.4 billion, established a
regulatory asset, Deferred Generation Costs Recoverable in Current Rates of $424
million, which was fully amortized in 1998, and established an additional
regulatory asset, Competitive Transition Charge (CTC) of $5.3 billion, which
will begin to be amortized in 2000 in accordance with the terms of the Final
Restructuring Order.
Taxes Other Than Income
Taxes other than income decreased $18 million, or 6%, to $262 million in 1999.
As a percentage of revenue, taxes other than income were 5%, which was
consistent with 1998. The decrease in taxes other than income was primarily
attributable to a $34 million credit related to an adjustment of the Company's
Pennsylvania capital stock tax base as a result of the 1997 restructuring
charge, partially offset by an increase of $17 million in real estate taxes as a
result of changes in tax laws for utility property in Pennsylvania.
<PAGE>
Interest Charges
Interest charges consist of interest expense, distributions on Company Obligated
Mandatorily Redeemable Preferred Securities of a Partnership (COMRPS) and
Allowance for Funds Used During Construction (AFUDC). Interest charges increased
$55 million, or 15%, to $413 million in 1999. As a percentage of revenue,
interest charges were 8% as compared to 7% in 1998. The increase in interest
charges was primarily attributable to interest on the Transition Bonds of $179
million, partially offset by a $98 million reduction in interest charges
resulting from the use of Transition Bond proceeds to repay long-term debt and
COMRPS. In addition, the Company's ongoing program to reduce or refinance higher
cost, long-term debt reduced interest charges by $26 million.
Equity in Losses of Telecommunications Investments
Equity in losses of telecommunications investments decreased $17 million or 30%,
to $38 million in 1999. The lower losses are attributable to customer base
growth for each of the Company's telecommunications joint ventures.
Other Income and Deductions
Other income and deductions, excluding interest charges and equity in losses of
telecommunications investments, increased $40 million, or 188%, to income of $19
million in 1999 as compared to a loss of $21 million in 1998. The increase in
other income and deductions was primarily attributable to $28 million of
interest income earned on the unused portion of the Transition Bond proceeds
prior to application, $14 million of gain on the sale of assets, a $10 million
donation to a City of Philadelphia street lighting project in 1998 and a $7
million write-off of a non-regulated business venture in 1998. These increases
were partially offset by a $15 million write-off of the investment in Grays
Ferry in connection with the settlement of litigation.
Income Taxes
The effective tax rate was 36.6% in 1999 as compared to 37.5% in 1998. The
decrease in the effective tax rate was primarily attributable to an income tax
benefit of approximately $11 million related to the favorable resolution of
certain outstanding issues in connection with the settlement of an Internal
Revenue Service audit and tax benefits associated with the implementation of
state tax planning strategies, partially offset by the non-recognition for state
income tax purposes of certain operating losses.
Extraordinary Items
In 1999, the Company incurred extraordinary charges aggregating $62 million ($37
million, net of tax) related to prepayment premiums and the write-off of
unamortized debt costs associated with the repayment of $811 million of First
Mortgage Bonds with a portion of the Transition Bond proceeds and the
refinancing of $156 million of pollution control notes.
In 1998, the Company incurred extraordinary charges aggregating $33 million ($20
million, net of tax) related to prepayment premiums and the write-off of
unamortized debt costs associated with the repayment of $525 million of First
Mortgage Bonds.
Preferred Stock Dividends
Preferred stock dividends decreased $1 million or 7%, to $12 million in 1999.
The decrease was attributable to the retirement of $37 million of preferred
stock in August 1999 with a portion of the Transaction Bond proceeds.
Earnings
<PAGE>
Earnings applicable to common stock increased $71 million, or 14%, to $570
million in 1999. Earnings per average common share increased $0.67 per share or
30%, to $2.91 per share in 1999, reflecting the increase in net income and a
decrease in the weighted average shares of common stock outstanding as a result
of the repurchase of approximately 44.1 million shares with a portion of the
Transition Bond proceeds.
Year Ended December 31, 1998 Compared To Year Ended December 31, 1997
Operating Revenues
Electric revenues increased $680 million, or 16%, to $4,830 million in 1998. The
increase was attributable to higher revenues from the generation business unit
of $682 million, partially offset by lower revenues from the distribution
business unit of $2 million.
The increase from the generation business unit was primarily attributable to
increased wholesale revenues of $663 million as a result of higher volume
attributable to more favorable weather and market conditions and revenues
associated with the pilot program for retail competition of $19 million which
commenced in 1998. The decrease from the distribution business unit was
primarily attributable to a greater portion of its volume being derived from
customers in lower rate classes of $57 million, partially offset by increased
volume as a result of weather conditions of $55 million.
Gas revenues decreased $18 million, or 4%, to $433 million in 1998. The decrease
was attributable to lower revenues from the distribution business unit of $52
million, partially offset by higher revenues from the generation business unit
of $34 million.
The decrease from the distribution unit was primarily attributable to lower
volume as a result of less favorable weather conditions of $47 million and lower
volume from existing customers of $5 million. The increase from the generation
business unit was attributable to gas revenues from gas deregulation pilot
program outside of Pennsylvania of $34 million.
Fuel and Energy Interchange Expense
Fuel and energy interchange expense increased $506 million, or 39%, to $1,796
million in 1998. The increase was attributable to higher fuel and energy
interchange expenses associated with the generation business unit of $532
million, partially offset by lower fuel and energy interchange expenses from the
distribution business unit of $26 million.
The increase from the generation business unit was attributable to increased
volume from wholesale operations of $608 million and additional fuel expense
related to the pilot program for retail competition of $44 million, partially
offset by fuel savings of $120 million associated with the full return to
service of Salem in April 1998 which decreased the need to purchase power to
replace the output from these units. The decrease from the distribution business
unit was primarily attributable to lower gas volume associated with less
favorable weather conditions.
As a percentage of revenue, fuel and energy interchange expenses were 34% as
compared to 28% in 1997. The increase was primarily attributable to increased
energy interchange purchases to support increased wholesale volume.
Operating and Maintenance Expense
<PAGE>
Exclusive of certain one-time charges totaling $187 million that occurred in
1997, O&M expense decreased $93 million, or 7%, to $1,135 million in 1998. As a
percentage of revenue, operating and maintenance expenses were 22% as compared
to 31% in 1997. The decrease in O&M expense was attributable to lower O&M
expense associated with the distribution business unit of $41 million, corporate
of $34 million, and the generation business unit of $18 million.
The one-time charges incurred in 1997 consisted of $37 million for environmental
remediation, $33 million as a result of a change in fringe benefit policies
relating to sick and vacation time, $27 million for joint-owner expenses related
to the discontinuance of SFAS No. 71, $24 million in workers' compensation claim
reserves, $21 million for excess and obsolete inventory, $16 million for the
write-off of information systems development charges in accordance with EITF
Issue 97-13, "Accounting for Costs Incurred in Connection with a Consulting
Contract or an Internal Project That Combines Business Process Reengineering and
Information Technology Transformation," $13 million for the write-off of a
customer service information system and $16 million of other reserves including
the write-off of appliance sale accounts receivable and losses on the sales of
real estate.
The decrease from the distribution business unit was primarily the result of
lower uncollectible expenses of $28 million as a result of the implementation of
new collection procedures and lower transmission and distribution expenses of
$27 million as a result of system reliability improvements made in 1997. These
decreases were partially offset by a $12 million reserve for Customer Assistance
Program receivables mandated by the Final Restructuring Order. The decrease from
corporate was primarily attributable to lower pension expense of $31 million as
a result of the performance of the investments in the Company's pension plan,
lower property insurance expense of $14 million, lower post-retirement benefit
expense of $14 million as a result of the reclassification of these expenses to
Deferred Generation Costs Recoverable in Current Rates and lower workers
compensation expense of $11 million. These decreases were partially offset by
Y2K remediation expenditures of $15 million. The decrease from the generation
business unit was primarily attributable to the full return to service of Salem
which resulted in lower restart expenses of $38 million, partially offset by
increased power marketing expenses of $20 million.
Early Retirement and Separation Programs
In April 1998, the Board of Directors authorized the implementation of a
retirement incentive program and an enhanced severance benefit program. The
retirement incentive program allowed employees age 50 and older, who have been
designated as excess or who are in job classifications facing reduction, to
retire from the Company. The enhanced severance benefit program provided
non-retiring excess employees with fewer than ten years of service benefits
equal to two weeks pay per year of service. Non-retiring excess employees with
more than ten years of service received benefits equal to three weeks pay per
year of service.
In 1998, the Company incurred a charge of $125 million ($74 million, net of
income taxes) for its Early Retirement and Separation Program relating to 1,157
employees across the Company who were considered excess or were in job
classifications facing reduction. Of the 1,157 employees, 711 were eligible for
and agreed to take the retirement incentive program. The remaining employees
were eligible for the enhanced severance benefit program. As of December 31,
1999, 497 employees were eligible for and have taken the retirement incentive
program and 502 employees were terminated with the enhanced severance benefit
<PAGE>
program. The remaining employees are scheduled for termination through the end
of June 2000.
The charge for Early Retirement and Separation Program consisted of the
following: $121 million for the actuarially determined pension and other
postretirement benefits costs and $4 million for outplacement services costs and
the continuation of benefits for one year. Approximately $0.8 million of the
$125 million charge was related to the Company's non-utility operations and
accordingly was recorded in Other Income and Deductions. The reserve for
separation benefits was approximately $47 million, of which $28 million was paid
through December 31, 1999. The remaining balance of $19 million is expected to
be paid by June 2000. Retirement benefits of approximately $78 million are being
paid to the retirees over their lives. All cash payments related to the early
retirement and severance program are expected to be funded through the assets of
the Company's Service Annuity Plan.
Depreciation and Amortization Expense
Depreciation and amortization expense increased $62 million, or 11%, to $643
million in 1998. As a percentage of revenue, depreciation and amortization
expense was 12% as compared to 13% in 1997. The increase in depreciation and
amortization expense was primarily associated with the amortization of Deferred
Generation Costs Recoverable in Current Rates during 1998. Included in this
amortization were $37 million of charges that were included in operating and
maintenance expense and interest expense in 1997.
Taxes Other Than Income
Taxes other than income decreased $31 million, or 10%, to $280 million in 1998.
As a percentage of revenue, taxes other than income were 5%, as compared to 7%
in 1997. The decrease in taxes other than income was primarily attributable to
lower real estate taxes of $14 million, lower gross receipts tax of $8 million
and lower capital stock tax of $5 million.
Interest Charges
Interest charges decreased $22 million, or 6%, to $358 million in 1998. As a
percentage of revenue, interest charges were 7% as compared to 8% in 1997. The
decrease in interest charges was primarily attributable to interest savings of
$18 million from the Company's program to reduce and/or refinance higher cost,
long-term debt and the discontinuance of amortization of the loss on reacquired
debt of $16 million related to electric generation operations as of December 31,
1997. These decreases were partially offset by $11 million of lower AFUDC and
capitalized interest resulting from fewer projects in the construction base in
1998 and the replacement of $62 million of preferred stock with COMRPS in the
third quarter of 1997.
Equity in Losses of Telecommunications Investments
Equity in losses of telecommunications investments increased $40 million or
283%, to $54 million in 1998. The increased losses were principally attributable
to the first full year of service for the Company's telecommunications joint
ventures in 1998. Both of the Company's telecommunications joint ventures
commenced operations in 1997.
Other Income and Deductions
Other income and deductions, excluding interest charges and equity in losses of
telecommunications investments, decreased $39 million, or 217% to a loss of $21
million in 1998 as compared to a gain of $18 million in 1997. The decrease in
other income and deductions was primarily attributable to a $70 million
settlement of litigation arising from the shutdown of Salem in 1997, a $10
million donation to a City of Philadelphia street lighting project and a $7
<PAGE>
million write-off of a non-regulated business venture. These decreases were
partially offset by a $14 million settlement of a power purchase agreement, $17
million of interest income related to a gross receipts tax refund and a $20
million write-off of a telecommunications investment in 1997.
Income Taxes
The effective tax rate was 37.5% in 1998 as compared to 46.5% in 1997. The
decrease in the effective tax rate was primarily attributable to the full
normalization of deferred taxes associated with deregulated generation plant.
Extraordinary Items
In 1998, the Company incurred extraordinary charges aggregating $33 million ($20
million, net of tax) related to prepayment premiums and the write-off of
unamortized debt costs associated with the repayment of $525 million of First
Mortgage Bonds.
In 1997, the Company recorded an extraordinary charge of $3.1 billion ($1.8
billion, net of taxes) for electric generation-related stranded costs that will
not be recovered from customers.
Preferred Stock Dividends
Preferred stock dividends decreased $4 million or 22%, to $13 million in 1998.
The decrease was attributable to the replacement of $62 million of preferred
stock with COMRPS in the third quarter of 1997.
Earnings
Earnings applicable to common stock increased $2,013 million to $500 million in
1998. Earnings per average common share increased $9.04 per share from a loss of
$6.80 per share in 1997 to income of $2.24 per share in 1998. These increases
reflect the effects of the restructuring charge incurred in 1997 and the
increase in income before extraordinary item.
Liquidity and Capital Resources
The Company's capital resources are primarily provided by internally generated
cash flows from utility operations and, to the extent necessary, external
financing. Capital resources are used primarily to fund the Company's capital
requirements, including investments in new and existing ventures, to repay
maturing debt and to make preferred and common stock dividend payments.
On March 25, 1999, PETT issued $4 billion of its Transition Bonds to securitize
a portion of the Company's authorized stranded cost recovery. PETT used the
$3.95 billion of proceeds from the issuance of Transition Bonds to purchase the
Intangible Transition Property (ITP) from the Company. In accordance with the
Competition Act, the Company utilized the proceeds from the securitization of a
portion of its stranded cost recovery principally to reduce stranded costs
including related capitalization. The Company utilized the net proceeds, and
interest income earned on the net proceeds, to repurchase 44.1 million shares of
common stock for an aggregate purchase price of $1,705 million and $150 million
of accounts receivable; to retire: $811 million of First Mortgage Bonds, a $400
million term loan, $532 million of commercial paper, a $139 million capital
lease obligation and $37 million of preferred stock; to redeem $221 million of
COMRPS; and to pay $25 million of debt issuance costs.
As a result of the issuance of the Transition Bonds and the application of the
proceeds thereof, at December 31, 1999, the Company's capital structure
consisted of 21.6% common equity; 4.0% preferred stock and COMRPS (which
comprised 1.6% of the Company's total capitalization structure); and 74.4%
<PAGE>
long-term debt including Transition Bonds issued by PETT (which comprised 64.8%
of the Company's long-term debt).
The weighted average cost of debt and preferred securities that have been
retired was approximately 7.2%. The additional interest expense associated with
the Transition Bonds, which currently have an effective interest rate of
approximately 5.8%, is partially offset by the interest savings associated with
the debt and preferred securities that have been retired. The Company currently
estimates that the impact of this additional expense, combined with the
reduction in common equity, will result in earnings per share benefits of
approximately $0.50 in 2000 as compared to $0.28 in 1999.
The Transition Bonds are solely obligations of PETT, secured by the ITP sold by
the Company to PETT, but are included in the consolidated long-term debt of the
Company. Upon issuance of the Transition Bonds, a portion of the CTC being
collected by the Company to recover stranded costs was designated as Intangible
Transition Charge (ITC). The ITC is an irrevocable non-bypassable, usage-based
charge that is calculated to allow for the recovery of debt service and costs
related to the issuance of the Transition Bonds. The ITC revenue, as well as all
interest expense and amortization expense associated with the Transition Bonds,
is reflected on the Company's Consolidated Statements of Income. The combined
schedule for amortization of the CTC and ITC assets is in accordance with the
amortization schedule set forth in the Final Restructuring Order.
On March 16, 2000, the PUC issued an order approving a Joint Petition for Full
Settlement of PECO Energy Company's Application for Issuance of a Qualified Rate
Order (QRO) authorizing the Company to securitize up to an additional $1 billion
of its authorized recoverable stranded costs. In accordance with the terms of
the Joint Petition for Full Settlement, when the QRO becomes final and
non-appealable, the Company, through its distribution business unit, will
provide its retail customers with rate reductions in the total amount of $60
million beginning on January 1, 2001. This rate reduction will be effective for
calendar year 2001 only and will not be contingent upon the issuance of
additional transition bonds pursuant to the QRO. The Company will use the
proceeds from any additional securitization principally to reduce stranded costs
including related capitalization.
In January 2000, in connection with the Merger Agreement, the Company entered
into a forward purchase agreement to purchase up to $500 million of its common
stock from time to time through open-market, privately negotiated and/or other
types of transactions in conformity with the rules of the SEC. This forward
purchase agreement can be settled from time to time, at the Company's election,
on a physical, net share or net cash basis. The amount at which these agreements
can be settled is dependent principally upon the market price of the Company's
common stock as compared to the forward purchase price per share and the number
of shares to be settled.
Cash flows from operations were $888 million in 1999 as compared to $1,492
million in 1998 and $1,068 million in 1997. The decrease in 1999 was principally
attributable to a reduction in cash generated by operations of $308 million and
changes in working capital of $296 million, principally related to accounts
receivable from unregulated energy sales and the repurchase of accounts
receivable with a portion of the proceeds from the issuance of Transition Bonds.
Cash flows used in investing activities were $885 million in 1999 as compared to
$521 million in 1998 and $604 million in 1997. Expenditures under the Company's
construction program increased by $76 million to $491 million in 1999. The
<PAGE>
Company acquired six infrastructure services companies for $222 million and made
investments in and advances to joint ventures of $118 million. Net funds
invested in other activities in 1999 were $54 million, including $29 million for
nuclear plant decommissioning trust fund contributions, $22 million for cost of
removal of retired plant and $15 million for other investments, partially offset
by proceeds from the sale of investments of $12 million.
Cash flows provided by financing activities were $177 million in 1999 as
compared to cash flows used in financing activities of $956 million in 1998 and
$461 million in 1997. Cash flows from financing activities in 1999 were
primarily attributable to the securitization of stranded cost recovery and the
use of related proceeds.
The Company estimates that it will spend approximately $927 million for capital
expenditures and other investments in 2000. Certain facilities under
construction and to be constructed may require permits and licenses which the
Company has no assurance will be granted. The Company has commitments to provide
AmerGen with capital contributions equivalent to 50% of the purchase price of
any acquisitions AmerGen makes in 2000. As of December 31, 1999, the Company
expects to make $97 million of capital contributions, excluding nuclear fuel, if
all of the acquisition agreements that AmerGen entered into in 1999 close in
2000. In addition, the Company and British Energy have each agreed to provide up
to $55 million to AmerGen at any time for operating expenses. See Note 26 of
Notes to Consolidated Financial Statements. The Company has entered into three
long-term power purchase agreements with Independent Power Producers (IPP) under
which the Company makes fixed capacity payments to the IPP in return for
exclusive rights to the energy and capacity of the generating units for a fixed
period. The terms of the long-term power purchase agreements enable the Company
to supply the fuel and dispatch energy from the plants. The plants are currently
being constructed and are scheduled to begin operations in 2000, 2001 and 2002,
respectively. The Company expects to make capacity payments of $18 million in
2000. In 1999, the Company entered into a lease for two buildings that will be
the headquarters for its generation business unit. These buildings are being
constructed in Kennett Square, Pennsylvania and are anticipated to be completed
on or about June 1, 2000 and September 1, 2000, respectively. The lease terms
are for 20 years with renewal options. Estimated lease payments for 2000 are $4
million.
The Company meets its short-term liquidity requirements primarily through the
issuance of commercial paper and borrowings under bank credit facilities. The
Company has a $900 million unsecured revolving credit facility with a group of
banks, which consists of a $450 million 364-day credit agreement and a $450
million three-year credit agreement. The Company uses the credit facility
principally to support its $600 million commercial paper program.
At December 31, 1999, the Company had outstanding $163 million of notes payable,
$142 million of which were commercial paper and $21 million of lines of credit.
In addition, at December 31, 1999, the Company had available formal and informal
lines of bank credit aggregating $100 million and available revolving credit
facilities aggregating $900 million which support its commercial paper program.
At December 31, 1999, the Company had no short-term investments.
Outlook
General
The Company has entered a period of financial uncertainty as a result of the
deregulation of its electric generation operations. The Final Restructuring
Order and retail competition have resulted in reduced revenues from regulated
rates. In addition, the Company is selling an increasing portion of its energy
at market-based rates. The Company believes that the deregulation of its
electric generation operations and other regulatory initiatives designed to
encourage competition have increased the Company's risk profile by changing and
increasing the number of factors upon which the Company's financial results are
dependent. This may result in more volatility in the Company's future results of
operations. The Company believes that it has significant advantages that will
strengthen its position in the increasingly competitive electric generation
environment. These advantages include the ability to produce and contract for
electricity at a low variable cost and the demonstrated ability to market and
deliver power in the competitive wholesale markets.
The Company's future financial condition and results of operations are
substantially dependent upon the effects of the Final Restructuring Order and
retail and wholesale competition for generation services. Additional factors
that affect the Company's financial condition and results of operations include
operation of nuclear generating facilities, gas restructuring in Pennsylvania,
new accounting pronouncements, inflation, weather, compliance with environmental
regulations and the profitability of the Company's investments in EIS and other
new ventures.
Merger
As a result of legislative initiatives aimed at restructuring, the electric
utility industry has undergone rapid change in recent years. Among other things,
competition has increased, particularly with respect to energy supply and retail
energy services. Many states, including the states in which the Company and
Unicom currently operate, have either passed or proposed legislation that
provides for retail electric competition and deregulation of the price of energy
<PAGE>
supply. In addition, the wholesale electric energy market has significantly
expanded and geographic boundaries are becoming less important. During 1999, a
substantial amount of electric generation assets were sold in the United States.
The Company expects this trend to continue. Mergers continue at a rapid pace not
only between electric companies, but also between electric and gas companies
that are seeking to capture value through the convergence of the two industries.
At the same time, other companies are focusing on specific portions of the
energy industry by disaggregating their generation, transmission, distribution
and retail operations, spinning off non-core assets and acquiring assets
consistent with their strategic focus. Currently, industry participants are
attempting to prepare themselves for increased competition and position
themselves to take advantage of these trends.
The Company believes that the consolidation and transformation of the electric
and natural gas segments of the energy industry will result in the emergence of
a limited number of substantial competitors. These large entities will have
assets and skills that are necessary to create value in one or more of the
traditional segments of the utility industry. The Company believes that
companies that have the financial strength, strategic foresight and operational
skills to establish scale and an early leadership position in key segments of
the energy industry will be best positioned to compete in the new marketplace.
The Company's Board of Directors has focused significant attention on strategic
planning to adapt to the evolving competitive environment. The strategic
planning activities have concentrated on those factors that would best position
the Company for enhanced shareholder value and continued leadership in the
competitive energy marketplace.
The Company and Unicom are aggressively pursuing all necessary regulatory
approvals and expect to complete the Merger in the second half of 2000. While
the Company believes that the parties will receive the necessary regulatory
approvals, a substantial delay in obtaining satisfactory approvals or the
imposition of unfavorable terms or conditions in the approvals could have a
material adverse effect on the business, financial condition or results of
operations of the Company or Unicom or may cause the abandonment of the Merger.
In addition to other factors, the price of shares of the Company's common stock
may vary significantly as a result of market expectations of the likelihood that
the Merger will be completed and the timing of completion, the prospects of
post-merger operations, including the successful consolidation and integration
of the Company's and Unicom's organizations and the effect of any conditions or
restrictions imposed on or proposed with respect to the combined company by
regulators.
On March 24, 2000, the Company submitted for approval a joint petition for
settlement reached with various parties to the Company's proceeding before the
PUC involving the proposed merger with Unicom. The Company reached agreement
with advocates for residential, small business and large industrial customers,
and representatives of marketers, environmentalists, municipalities and elected
officials. Under the comprehensive settlement agreement the Company has agreed
to $200 million in rate reductions for all customers over the period January 1,
2002 through 2005 and extended rate caps on the Company's retail electric
distribution charges through December 31, 2006, electric reliability and
customer service standards, mechanisms to enhance competition and customer
choice, expanded assistance to low-income customers, extensive funding for wind
and solar energy and community education, nuclear safety research funds,
customer protection against nuclear costs outside of Pennsylvania, and
maintenance of charitable and civic contributions and employment for the
Company's headquarters in Philadelphia.
Competition
The Final Restructuring Order contains a number of provisions that are designed
to encourage competition for generation services. The provisions include
above-market shopping credits for generation service which provide an economic
incentive for customers to choose an alternate EGS, periodic assignments of a
portion of the Company's non-shopping customers to alternate EGSs and the
selection of an alternate supplier as the PLR for a portion of the Company's
customers.
The Final Restructuring Order established market share thresholds to ensure that
a minimum number of residential and commercial customers choose an EGS or a
Company affiliate. If less than 35% and 50% of residential and commercial
customers have chosen an EGS, including 20% of residential customers assigned to
an EGS as a PLR default supplier, by January 1, 2001 and January 1, 2003,
<PAGE>
respectively, the number of customers sufficient to meet the necessary threshold
levels shall be randomly selected and assigned to an EGS through a
PUC-determined process.
The Final Restructuring Order requires that on January 1, 2001, 20% of all of
the Company's residential customers, determined by random selection and without
regard to whether such customers are obtaining generation service from an
alternate EGS, shall be assigned to a PLR default supplier other than the
Company through a PUC-approved bidding process.
The Final Restructuring Order caps the Company's retail transmission and
distribution rates at their current levels through June 30, 2005. The Final
Restructuring Order also established rate caps for generation services,
consisting of the charge for stranded cost recovery and a charge for energy and
capacity, through 2010. The rate caps limit the Company's ability to pass cost
increases through to customers, but also allows the Company to retain cost
savings.
The Company's recovery of stranded costs is based on the level of transition
charges established in the Final Restructuring Order and the projected annual
retail sales in the Company's service territory. Recovery of transition charges
for stranded costs and the Company's allowed return on its recovery of stranded
costs are included in operating revenue. In 1999, CTC revenue was $589 million
and is scheduled to increase to $932 million by 2010, the final year of stranded
cost recovery. Amortization of the Company's stranded cost recovery, which is a
regulatory asset, will be included in depreciation and amortization beginning in
2000. As provided by the Final Restructuring Order, there was no amortization of
this regulatory asset in 1999. The amortization expense for 2000 will be
approximately $43 million and will increase to $879 million by 2010.
The Company competes in deregulated retail electric generation markets and the
national wholesale electric generation market. Competition for electric
generation services has created new uncertainties in the utility industry. These
uncertainties include future prices of generation services in both the wholesale
and retail markets; changes in the Company's customer profiles, both at the
retail level where change is expected to be ongoing as a result of customer
choice, and between the retail and wholesale markets; and supply and demand
volatility.
The Company, through Exelon Energy, the Company's new competitive supplier,
actively competes for a share of the generation supply market throughout
Pennsylvania. The Company also participates in the generation supply market in
its traditional service territory through its distribution business unit. The
charge for energy services provided by the distribution business unit is
mandated by the Final Restructuring Order. The charge for energy services
offered by Exelon Energy are at competitive market prices. Customers who
continue to take generation service from the distribution business unit may
choose an alternate EGS at any time. Because the shopping credit established by
the PUC in the Restructuring Order remains above current retail market prices
for generation services, including those offered by Exelon Energy, the Company's
retail revenues will be reduced to the extent customers choose an alternate EGS,
including Exelon Energy. Since prices in the competitive retail and wholesale
markets are currently lower on average than those charged by the distribution
business unit, this will adversely affect the Company's revenues and profit
margins.
The Company is a low variable-cost electricity producer, which puts it in a
favorable position to take advantage of opportunities in the electric retail and
<PAGE>
wholesale generation markets. The Company's competitive position and its future
financial condition and results of operations are dependent on the Company's
ability to successfully operate its low variable-cost power plants and market
its power effectively in competitive wholesale markets.
The Company competes in the wholesale market by selling energy and capacity from
the Company's installed capacity not utilized in the retail market and buying
and selling energy from third parties. The Company's wholesale power marketing
activities include short-term and long-term commitments to purchase and sell
energy and energy-related products with the intent and ability to deliver or
take delivery. See Notes 1 and 6 of Notes to Consolidated Financial Statements.
On June 22, 1999, Pennsylvania Governor Tom Ridge signed into law the Natural
Gas Choice and Competition Act (Act) which expands choice of gas suppliers to
residential and small commercial customers and eliminates the 5% gross receipts
tax on gas distribution companies' sales of gas. Large commercial and industrial
customers have been able to choose their suppliers since 1984. Currently,
approximately one-third of the Company's total yearly throughput is supplied by
third parties.
The Act permits gas distribution companies to continue to make regulated sales
of gas to their customers. The Act does not deregulate the transportation
service provided by gas distribution companies, which remains subject to rate
regulation. Gas distribution companies will continue to provide billing,
metering, installation, maintenance and emergency response services.
In compliance with the schedule ordered by the PUC on December 1, 1999, the
Company filed with the PUC a restructuring plan for the implementation of gas
deregulation and customer choice of gas service suppliers in its service
territory effective July 1, 2000. The Company believes there will be no material
impact on the financial condition or operations of the Company because of the
PUC's existing requirement that gas distribution companies cannot collect more
than the actual cost of gas from customers, and the Act's requirement that
suppliers must accept assignment or release, at contract rates, the portion of
the gas distribution company's firm interstate pipeline contracts required to
serve the suppliers' customers.
Expansion of Generation Portfolio
In 1998, the Company established specific goals to increase its generation
capacity from 9 gigawatts to 25 gigawatts by 2003. The Company is developing a
generation portfolio capable of taking advantage of periods of increased demand.
In order to meet this strategic objective the Company may require significant
capital resources.
In 1999, AmerGen purchased Clinton and Three Mile Island Unit No. 1 Nuclear
Generating Facility (TMI) and entered into agreements to purchase Nine Mile
Point Unit 1 Nuclear Generating Facility, a 59% undivided interest in Nine Mile
Point Unit 2 Nuclear Generating Facility, Oyster Creek Nuclear Generating
Facility and Vermont Yankee Nuclear Power Station. These purchases are expected
to be completed in 2000 subject to federal and state approvals. The Company
accounts for its investment in AmerGen under the equity method of accounting.
On September 30, 1999, the Company announced it has reached an agreement to
purchase an additional 7.51% ownership interest in Peach Bottom Atomic Power
Station (Peach Bottom) from Atlantic City Electric Company and Delmarva Power &
Light Company bringing the Company's ownership interest to 50%. The sale is
expected to be completed by mid-2000 subject to
<PAGE>
federal and state approvals. The Company consolidates its proportionate interest
in Peach Bottom.
In 1999, the Company also entered into two long-term power purchase agreements
with Independent Power Producers (IPP) under which the Company makes fixed
capacity payments to the IPP in return for exclusive rights to the energy and
capacity of the generating units for a fixed period.
Regulation and Operation of Nuclear Generating Facilities
The Company's financial condition and results of operations are in part
dependent on the continued successful operation of its nuclear generating
facilities. The Company's nuclear generating facilities represent 45% of its
installed generating capacity. Because of the Company's reliance on its nuclear
generating units, any changes in regulations by the NRC requiring additional
investments or resulting in increased operating or decommissioning costs of
nuclear generating units could adversely affect the Company.
During 1999, Company-operated nuclear plants operated at a 93% weighted-average
capacity factor and Company-owned nuclear plants operated at a 92%
weighted-average capacity factor. Company-owned nuclear plants produced 41% of
the electricity generated by the Company. Nuclear generation is currently the
most cost-effective way for the Company to meet customer needs and commitments
for sales to other utilities.
In December 1999, AmerGen acquired Clinton and TMI marking the first
acquisitions by the Company's joint venture. Accordingly, AmerGen's financial
condition and results of operations are also dependent on the continued
successful operation of its nuclear generating facilities. AmerGen's nuclear
generating facilities represent 100% of its installed generating capacity.
Because of AmerGen's reliance on its nuclear generating units, any changes in
regulations by the NRC requiring additional investments or resulting in
increased operating or decommissioning costs of nuclear generating units could
adversely affect AmerGen and, accordingly, the Company's investment in AmerGen.
In conjunction with each of the completed acquisitions, AmerGen has received
fully funded decommissioning trust funds which have sufficient assets to fully
cover the anticipated costs to decommission each nuclear plant following its
licensed life, including an annual net growth rate of 2% in accordance with NRC
regulations. AmerGen believes that the amount of the trust funds and investment
earnings thereon will be sufficient to meet its decommissioning obligations.
Combining the nuclear operations of the Company and Unicom will present
significant challenges. The combined nuclear operations of Exelon will be
significantly larger than either company's nuclear operations and will require
the integration of nuclear operations among the Company and Unicom. Exelon's
nuclear operation will be the largest in the United States in terms of size and
geographic scope. Exelon will have to build on the successful nuclear management
of the Company and Unicom to maintain and improve the safe and efficient
operation of its nuclear generating plants.
Other Factors
Annual and quarterly operating results can be significantly affected by weather.
Since the Company's peak retail demand is in the summer months, temperature
variations in summer months are generally more significant than variations
during winter months.
<PAGE>
Inflation affects the Company through increased operating costs and increased
capital costs for utility plant. As a result of the rate caps imposed under the
Final Restructuring Order and price pressures due to competition, the Company
may not be able to pass the costs of inflation through to customers.
The Company's operations have in the past and may in the future require
substantial capital expenditures in order to comply with environmental laws.
Additionally, under federal and state environmental laws, the Company is
generally liable for the costs of remediating environmental contamination of
property now or formerly owned by the Company and of property contaminated by
hazardous substances generated by the Company. The Company owns or leases a
number of real estate parcels, including parcels on which its operations or the
operations of others may have resulted in contamination by substances which are
considered hazardous under environmental laws. The Company is currently involved
in a number of proceedings relating to sites where hazardous substances have
been deposited and may be subject to additional proceedings in the future.
The Company has identified 28 sites where former manufactured gas plant (MGP)
activities have or may have resulted in actual site contamination. The Company
is presently engaged in performing various levels of activities at these sites,
including initial evaluation to determine the existence and nature of the
contamination, detailed evaluation to determine the extent of the contamination
and the necessity and possible methods of remediation, and implementation of
remediation. The Pennsylvania Department of Environmental Protection has
approved the Company's clean-up of three sites. Ten other sites are currently
under some degree of active study and/or remediation.
As of December 31, 1999 and 1998, the Company had accrued $57 million and $60
million, respectively, for environmental investigation and remediation costs,
including $32 million and $33 million, respectively, for MGP investigation and
remediation that currently can be reasonably estimated. The Company expects to
expend $7 million for environmental remediation activities in 2000. The Company
cannot predict whether it will incur other significant liabilities for any
additional investigation and remediation costs at these or additional sites
identified by the Company, environmental agencies or others, or whether such
costs will be recoverable from third parties.
For a discussion of other contingencies, see Note 6 of Notes to Consolidated
Financial Statements.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," (SFAS No.
133) to establish accounting and reporting standards for derivatives. The new
standard requires recognizing all derivatives as either assets or liabilities on
the balance sheet at their fair value and specifies the accounting for changes
in fair value depending upon the intended use of the derivative. In June 1999,
the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133," which
delayed the effective date for SFAS No. 133 until fiscal years beginning after
June 15, 2000. The Company expects to adopt SFAS No. 133 in the first quarter of
2001. The Company is in the process of evaluating the impact of SFAS No. 133 on
its financial statements.
Year 2000 Readiness Disclosure
During 1999 and 1998, the Company successfully addressed, through its Year 2000
Project (Y2K Project), the issue resulting from computer programs using two
<PAGE>
digits rather than four to define the applicable year and other programming
techniques that constrain date calculations or assign special meanings to
certain dates.
The Y2K Project was divided into four main sections - Information Technology
Systems (IT Systems), Embedded Technology (devices to control, monitor or assist
the operation of equipment, machinery or plant), Supply Chain (third-party
suppliers and customers) and Contingency Planning. The IT Systems section
included both the conversion of applications software that was not Y2K-ready and
the replacement of software when available from the supplier. The Supply Chain
section included the process of identifying and prioritizing critical suppliers
and communicating with them about their plans and progress in addressing the Y2K
issue.
The current estimated total cost of the Y2K Project is $61 million, the majority
of which is attributable to testing. This represents a $9 million reduction of
the previously estimated cost of the Y2K Project. This estimate includes the
Company's share of Y2K costs for jointly owned facilities. The total amount
expended on the Y2K Project through December 31, 1999 was $56 million. The
Company is funding the Y2K Project from operating cash flows.
The Company's systems experienced no Y2K difficulties on December 31, 1999 or
since that date. The Company's operations have not, to date, been adversely
affected by any Y2K difficulties that suppliers or customers may have
experienced. The Company's Y2K Project also successfully addressed concerns with
the date February 29, 2000. The Company will continue to monitor its systems for
potential Y2K difficulties through the remainder of 2000.
Forward-Looking Statements
Except for the historical information contained herein, certain of the matters
discussed in this Report are forward-looking statements which are subject to
risks and uncertainties. The factors that could cause actual results to differ
materially include those discussed herein as well as those listed in Note 6 of
Notes to Consolidated Financial Statements and other factors discussed in the
Company's filings with the SEC. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date of
this Report. The Company undertakes no obligation to publicly release any
revision to these forward-looking statements to reflect events or circumstances
after the date of this Report.
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks associated with commodity price and
supply, interest rates and equity prices.
Commodity Risk
The Company engages in the wholesale and retail marketing of electricity, and,
accordingly, is exposed to risk associated with the price of electricity.
The Company's wholesale operations include the physical delivery and marketing
of power obtained through Company-owned generation capacity and long,
intermediate and short-term contracts. The Company maintains a net positive
supply of energy and capacity, through Company-owned generation assets and power
purchase and lease agreements, to protect it from the potential operational
failure of one of its owned or contracted power generating units. These
operations have resulted in the expansion of the Company's load-servicing
capabilities beyond its primary operating environment, the PJM control area. A
majority of the Company's contractual supplies may be economically moved into
this primary operating environment. The Company has also contracted for access
to additional generation through bilateral long-term power purchase agreements.
These agreements are firm commitments related to power generation of specific
generation plants and/or are dispatchable in nature - similar to asset
ownership. The Company enters into power purchase agreements with the objective
of obtaining low-cost energy supply sources to meet its physical delivery
obligations to its customers, and generally with the ability to import these
supplies to PJM to displace more expensive energy supplied by Company-owned
generation assets. The Company has also purchased firm transmission rights to
ensure that it has reliable transmission capacity to physically move its power
supplies to meet customer delivery needs. The intent and business objective for
the use of its capital assets and contracts is the same - provide the Company
with physical power supply to enable it to deliver energy to meet customer
needs. The Company's principal risk management activities focus on management of
volume risks (supply and transmission) and operational risks (plant or
transmission outages) consistent with its business philosophy, not price risks.
The Company does not use financial contracts in its wholesale marketing
activities and as a matter of business practice does not "pair off" or net
settle its contracts. All contracts result in the delivery and/or receipt of
power.
The Company has entered into bilateral long-term contractual obligations for
sales of energy to other load-serving entities including electric utilities,
municipalities, electric cooperatives, and retail load aggregators. The Company
also enters into contractual obligations to deliver energy to wholesale market
participants who primarily focus on the resale of energy products for delivery.
The Company provides delivery of its energy to these customers in and out of PJM
through access to Company-owned transmission assets or rights for firm
transmission.
The Company completed a thorough review of its activities after the issuance of
EITF 98-10, "Accounting for Contracts Involved in Energy Trading and Risk
Management Activities" in the first quarter of 1999 and concluded, based on the
indicators included in EITF 98-10, that its activities were not "trading"
activities. The Company continues to believe that its business philosophy,
performance measurement and other management activities are not consistent with
that of a "trading organization." The Company's short-term and long-term
commitments to purchase and sell energy and energy-related products are carried
at the lower of cost or market. The Company reports the revenue and expense
associated with all of its energy contracts at the time the underlying physical
transaction closes consistent with its business philosophy of generating and
delivering physical power to customers.
<PAGE>
The Company's retail operations include the regulated sales of electricity
through its distribution business unit and unregulated sales of electricity
through its generation business unit. Both energy suppliers secure supply
through the Company's wholesale operations. The transmission and distribution
component of the Company's rates for regulated sales of electricity are capped
through December 2006. Additionally, generation rate caps, defined as the sum of
the applicable transition charge and energy and capacity charge, will remain in
effect through 2010. Accordingly, the Company does not have the ability to pass
on increases in the price of electricity through rate increases to its
customers. As of December 31, 1999, a hypothetical 10% increase in the cost of
electricity would result in a $82 million decrease in pretax earnings for 2000.
The Company's rates for unregulated sales of electricity are not subject to rate
caps.
Under the Final Restructuring Order, the Company's customers have been permitted
to shop for their generation supplier since January 1, 1999. The Final
Restructuring Order established market share thresholds to ensure that a minimum
number of residential and commercial customers choose an EGS or a Company
affiliate. If less than35% and 50% of residential and commercial customers have
chosen an EGS, including 20% of residential customers assigned to an EGS as a
PLR default supplier, by January 1, 2002 and January 1, 2003, respectively, the
number of customers sufficient to meet the necessary threshold levels shall be
randomly selected and assigned to an EGS through a PUC-determined process. As of
December 31, 1999, the Company estimates that the impact on pretax earnings for
2000 would be insignificant. $6.8 million decrease in pre-tax earnings during
2000.
Interest Rate Risk
The Company uses a combination of fixed rate and variable rate debt to reduce
interest rate exposure. Interest rate swaps may be used to adjust exposure when
deemed appropriate, based upon market conditions. These strategies attempt to
provide and maintain the lowest cost of capital. As of December 31, 1999, a
hypothetical 10% increase in the interest rates associated with variable rate
debt would result in a $1 million decrease in pretax earnings for 2000.
The Company has entered into interest rate swaps to manage interest rate
exposure associated with the floating rate series of Transition Bonds. At
December 31, 1999, these interest rate swaps had a fair market value of $102
million which was based on the present value difference between the contracted
rate and the market rates at December 31, 1999.
The aggregate fair value of the Transition Bond derivative instruments that
would have resulted from a hypothetical 50 basis point decrease in the spot
yield at December 31, 1999 is estimated to be $63 million. If the derivative
instruments had been terminated at December 31, 1999, this estimated fair value
represents the amount to be paid by the counterparties to the Company.
The aggregate fair value of the Transition Bond derivative instruments that
would have resulted from a hypothetical 50 basis point increase in the spot
yield at December 31, 1999 is estimated to be $137 million. If the derivative
instruments had been terminated at December 31, 1999, this estimated fair value
represents the amount to be paid by the counterparties to the Company.
In February 2000, the Company entered into forward starting interest rate swaps
for a notional amount of $1 billion in anticipation of the issuance of $1
billion of transition bonds in the second quarter of 2000.
<PAGE>
Equity Price Risk
The Company maintains trust funds, as required by the Nuclear Regulatory
Commission (NRC), to fund certain costs of decommissioning its nuclear plants.
As of December 31, 1999, these funds were invested primarily in domestic equity
securities and fixed rate, fixed income securities and are reflected at fair
value on the Consolidated Balance Sheet. The mix of securities is designed to
provide returns to be used to fund decommissioning and to compensate for
inflationary increases in decommissioning costs. However, the equity securities
in the trusts are exposed to price fluctuations in equity markets, and the value
of fixed rate, fixed income securities are exposed to changes in interest rates.
The Company actively monitors the investment performance and periodically
reviews asset allocation in accordance with the Company's nuclear
decommissioning trust investment policy. A hypothetical 10% increase in interest
rates and decrease in equity prices would result in a $29 million reduction in
the fair value of the trust assets. The Company's restructuring settlement
agreement provides for the collection of authorized nuclear decommissioning
costs through the CTC. Additionally, the Company is permitted to seek recovery
from customers of any increases in these costs. Therefore, the Company's equity
price risk is expected to remain immaterial.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Accountants
To the Shareholders and Board of Directors
of PECO Energy Company:
In our opinion, the consolidated financial statements listed in the accompanying
index appearing under Item 14(a)1. present farily, in all material respects, the
financial position of PECO Energy Company and Subsidiary Companies at 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. In addition, in
our opinion, the financial statement schedule listed in the index appearing
under Item 14(a)2. presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement
schedule are the responsibility of the Company's management; our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Philadelphia, PA
February 29, 2000, except for
certain information included
in Notes 2 and 4, for which
the dates are March 24, 2000
and March 16, 2000, respectively.
<PAGE>
Consolidated Statements of Income
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------
1999 1998 1997
------ ------ ------
In Thousands, except per share data
<S> <C> <C> <C>
Operating Revenues
Electric $4,847,126 $4,829,639 $ 4,149,845
Gas 481,069 432,893 451,232
Infrastructure Services 108,558 - -
---------- ---------- -----------
Total Operating Revenues 5,436,753 5,262,532 4,601,077
Operating Expenses
Fuel and Energy Interchange 2,145,175 1,795,887 1,290,164
Operating and Maintenance 1,383,885 1,134,579 1,414,596
Early Retirement and Separation Programs - 124,200 -
Depreciation and Amortization 236,790 642,842 580,595
Taxes Other Than Income 261,732 279,515 310,091
---------- ---------- -----------
Total Operating Expenses 4,027,582 3,977,023 3,595,446
Operating Income 1,409,171 1,285,509 1,005,631
Other Income and Deductions
Interest Expense (395,670) (330,842) (372,857)
Company Obligated Mandatorily Redeemable
Preferred Securities of a Partnership,
which holds Solely Subordinated Debentures
of the Company (21,162) (30,694) (28,990)
Allowance for Funds Used During Construction 3,891 3,522 21,771
Settlement of Salem Litigation - - 69,800
Equity in Losses of Telecommunications
Investments (37,857) (54,385) (14,195)
Other, Net 18,611 (21,078) (51,833)
---------- ---------- -----------
Total Other Income and Deductions (432,187) (433,477) (376,304)
---------- ---------- -----------
Income Before Income Taxes and Extraordinary
Item 976,984 852,032 629,327
Income Taxes 357,998 319,654 292,769
---------- ---------- -----------
Income Before Extraordinary Item 618,986 532,378 336,558
Extraordinary Item (net of income taxes of
$25,415, $13,757, and $1,290,961 for 1999,
1998, and 1997, respectively) (36,572) (19,654) (1,833,664)
---------- ---------- -----------
Net Income (Loss) 582,414 512,724 (1,497,106)
Preferred Stock Dividends 12,176 13,109 16,804
---------- ---------- -----------
Earnings (Loss) Applicable to Common Stock $ 570,238 $ 499,615 $(1,513,910)
========== ========== ===========
Average Shares of Common Stock Outstanding 196,285 223,219 222,543
========== ========== ===========
Earnings Per Average Common Share:
Basic:
Income Before Extraordinary Item $ 3.10 $ 2.33 $ 1.44
Extraordinary Item $ (0.19) $ (0.09) $ (8.24)
---------- ---------- -----------
Net Income (Loss) $ 2.91 $ 2.24 $ (6.80)
========== ========== ===========
Diluted:
Income Before Extraordinary Item $ 3.08 $ 2.32 $ 1.44
Extraordinary Item $ (0.19) $ (0.09) $ (8.24)
---------- ---------- -----------
Net Income (Loss) $ 2.89 $ 2.23 $ (6.80)
========== ========== ===========
Dividends per Common Share $ 1.00 $ 1.00 $ 1.80
========== ========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------
1999 1998 1997
------ ------ ------
In Thousands
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net Income (Loss) $ 582,414 $ 512,724 $(1,497,106)
Adjustments to reconcile Net Income (Loss) to Net Cash
provided by Operating Activities:
Depreciation and Amortization 358,027 764,641 703,394
Extraordinary Item (net of income taxes) 36,572 19,654 1,833,664
Provision for Uncollectible Accounts 59,418 71,667 88,263
Deferred Income Taxes 7,511 (115,640) (17,228)
Amortization of Investment Tax Credits (14,301) (18,066) (18,201)
Early Retirement and Separation Charge - 125,000 -
Deferred Energy Costs 22,973 5,818 (5,652)
Salem Litigation Settlement - - 69,800
Equity in Losses of Telecommunications Investments 37,857 54,385 14,195
Losses (Gains) on the Disposal of Assets, net 37,832 - -
Other Items Affecting Operations (24,290) (8,627) 63,847
Changes in Working Capital:
Accounts Receivable (159,475) 2,576 (347,787)
Repurchase of Accounts Receivable (150,000) - -
Inventories (43,390) 14,192 28,628
Accounts Payable 63,861 8,971 93,881
Other Current Assets and Liabilities (73,390) 54,263 58,539
--------- ---------- -----------
Net Cash Flows provided by Operating Activities 888,399 1,491,558 1,068,237
--------- ---------- -----------
Cash Flows from Investing Activities
Investment in Plant (491,097) (415,331) (490,200)
Exelon Infrastructure Services Acquisitions (222,492) - -
Investments in and Advances to Joint Ventures (117,615) (58,653) (30,086)
Proceeds from the Sale of Investments 12,226 - -
Increase in Other Investments (66,467) (46,742) (83,261)
--------- ---------- -----------
Net Cash Flows used in Investing Activities (885,445) (520,726) (603,547)
--------- ---------- -----------
Cash Flows from Financing Activities
Issuance of Long-Term Debt, net of issuance costs 4,169,883 13,486 161,813
Common Stock Repurchase (1,705,319) - -
Retirement of Long-Term Debt (1,343,334) (841,755) (283,303)
Change in Short-Term Debt (388,319) 123,500 114,000
Redemption of COMRPS (221,250) (80,794) -
Issuance of COMRPS - 78,105 50,000
Dividends on Preferred and Common Stock (208,059) (236,307) (417,383)
Capital Lease Payments (138,998) (59,923) (39,100)
Termination of Interest Rate Swap Agreements 79,969 - -
Prepayment Premiums (48,307) (27,250) -
Preferred Stock Redemptions (37,091) - (61,895)
Proceeds from Exercise of Stock Options 13,951 50,700 117
Loss on Reacquired Debt 6,454 6,753 22,752
Other Items Affecting Financing (2,420) 17,332 (7,522)
--------- ---------- -----------
Net Cash Flows provided by (used in) Financing Activities 177,160 (956,153) (460,521)
--------- ---------- -----------
Increase in Cash and Cash Equivalents 180,114 14,679 4,169
--------- ---------- -----------
Cash and Cash Equivalents at beginning of period 48,083 33,404 29,235
--------- ---------- -----------
Cash and Cash Equivalents at end of period $ 228,197 $ 48,083 $ 33,404
========= ========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Consolidated Balance Sheets
At December 31,
--------------------------
1999 1998
------ ------
In Thousands
Assets
Current Assets
Cash and Cash Equivalent $ 228,197 $ 48,083
Accounts Receivable, net
Customer 396,453 181,210
Other 295,011 129,546
Inventories
Fossil Fuel 112,739 92,288
Materials and Supplies 93,077 82,068
Deferred Energy Costs - Gas 6,874 29,847
Other 80,264 19,013
----------- -----------
Total Current Assets 1,212,615 582,055
----------- -----------
Property, Plant and Equipment, net 5,045,008 4,804,469
Deferred Debits and Other Assets
Competitive Transition Charge 5,274,624 5,274,624
Recoverable Deferred Income Taxes 638,060 614,445
Deferred Non-Pension Postretirement
Benefits Costs 84,421 90,915
Investments 538,231 497,648
Loss on Reacquired Debt 70,711 77,165
Goodwill, net 120,500 -
Other 135,339 107,042
----------- -----------
Total Deferred Debits and Other Assets 6,861,886 6,661,839
----------- -----------
Total Assets $13,119,509 $12,048,363
=========== ===========
<PAGE>
At December 31,
--------------------------
1999 1998
------ ------
In Thousands
Liabilities and Shareholders' Equity
Current Liabilities
Notes Payable, Bank $163,193 $525,000
Long-Term Debt Due Within One Year 127,762 361,523
Capital Lease Obligations
Due Within One Year 13 69,011
Accounts Payable 429,492 316,292
Taxes Accrued 203,011 170,495
Interest Accrued 119,200 61,515
Deferred Income Taxes 14,584 14,168
Other 246,816 217,416
----------- -----------
Total Current Liabilities 1,304,071 1,735,420
----------- -----------
Long-Term Debt 5,968,658 2,919,592
Deferred Credits and Other Liabilities
Capital Lease Obligations 455 85,297
Deferred Income Taxes 2,410,769 2,376,792
Unamortized Investment Tax Credits 285,698 299,999
Pension Obligations 212,198 219,274
Non-Pension Postretirement
Benefits Obligation 442,780 421,083
Other 400,686 354,037
----------- -----------
Total Deferred Credits and
Other Liabilities 3,752,586 3,756,482
----------- -----------
Company Obligated Mandatorily Redeemable
Preferred Securities of a Partnership,
which holds Solely Subordinated
Debentures of the Company 128,105 349,355
Mandatorily Redeemable Preferred Stock 55,609 92,700
Commitments and Contingencies (Note 6)
Shareholders' Equity
Common Stock 3,575,514 3,557,035
Preferred Stock 137,472 137,472
Other Paid-In Capital 1,236 1,236
Accumulated Deficit (102,742) (500,929)
Treasury Stock, at cost (1,705,015) --
Accumulated Other Comprehensive Income 4,015 --
----------- -----------
Total Shareholders' Equity 1,910,480 3,194,814
----------- -----------
Total Liabilities and
Shareholders' Equity $13,119,509 $12,048,363
=========== ===========
See Notes to Consolidated Financial Statements
<PAGE>
Consolidated Statements of Changes in Common
Shareholders' Equity and Preferred Stock
<TABLE>
<CAPTION>
Retained
Common Stock Other Earnings Treasury Stock
----------------------- Paid-in (Accumulated ------------------------
All Amounts in Thousands Shares Amount Capital Deficit) Shares Amount
- - ---------------------------- ---------- ---------- ---------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 222,542 $3,506,003 $ 1,326 $ 1,138,652 -- $ --
Net Loss (1,497,106)
Other Comprehensive Income
Comprehensive Income
Cash Dividends Declared:
Preferred Stock
(at specified annual rates) (16,804)
Common Stock ($1.80 per share) (400,579)
Capital Stock Activity:
Expenses of Capital Stock Activity 98
Stock Repurchase Forward Contract (4,889)
Long-Term Incentive Plan Issuances 5 117
Preferred Stock Redemptions (87) -- --
------- ---------- ---------- ----------- ---------- ------------
Balance at December 31, 1997 222,547 3,506,120 1,239 (780,628) -- --
Net Income 512,724
Other Comprehensive Income
Comprehensive Income
Cash Dividends Declared:
Preferred Stock
(at specified annual rates) (13,109)
Common Stock ($1.00 per share) (223,198)
Capital Stock Activity:
Expenses of Capital Stock Activity 2,731
Stock Repurchase Forward Contract (7,677)
Long-Term Incentive Plan Issuances 2,137 50,915 (3) 8,228
------- ---------- ---------- ----------- ---------- ------------
Balance at December 31, 1998 224,684 3,557,035 1,236 (500,929) -- --
Net Income 582,414
Other Comprehensive Income:
Unrealized Gain on Securities,
net of $2,757 tax
Comprehensive Income
Cash Dividends Declared:
Preferred Stock
(at specified annual rates) (12,176)
Common Stock ($1.00 per share) (195,883)
Capital Stock Activity:
Stock Repurchase Forward
Contract Settlement 12,118 24,489 (695,934)
Repurchase of Common Stock 22,610 (1,009,385)
Long-Term Incentive Plan Issuances 670 18,479 -- 11,714 (17) 304
Preferred Stock Redemptions
------- ---------- ---------- ----------- ---------- ------------
Balance at December 31, 1999 225,354 $3,575,514 $ 1,236 $(102,742) 44,082 $ (1,705,015)
======= ========== ========== =========== ========== ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Accumulated
Other
Compre- Compre- Preferred Stock
hensive hensive ----------------------
All Amounts in Thousands Income Income Shares Amount
- - ---------------------------- --------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $ -- 2,921 $292,067
Net Loss $(1,497,106)
Other Comprehensive Income --
Comprehensive Income -----------
(1,497,106)
===========
Cash Dividends Declared:
Preferred Stock
(at specified annual rates)
Common Stock ($1.80 per share)
Capital Stock Activity:
Expenses of Capital Stock Activity
Stock Repurchase Forward Contract
Long-Term Incentive Plan Issuances
Preferred Stock Redemptions (619) (61,895)
--------- -------- ---------
Balance at December 31, 1997 -- 2,302 230,172
Net Income 512,724
Other Comprehensive Income --
-----------
Comprehensive Income 512,742
===========
Cash Dividends Declared:
Preferred Stock
(at specified annual rates)
Common Stock ($1.00 per share)
Capital Stock Activity:
Expenses of Capital Stock Activity
Stock Repurchase Forward Contract
Long-Term Incentive Plan Issuances
--------- -------- ---------
Balance at December 31, 1998 -- 2,302 230,172
Net Income 582,414
Other Comprehensive Income:
Unrealized Gain on Securities,
net of $2,757 tax 4,015 4,015
-----------
Comprehensive Income $ 586,429
===========
Cash Dividends Declared:
Preferred Stock
(at specified annual rates)
Common Stock ($1.00 per share)
Capital Stock Activity:
Stock Repurchase Forward
Contract Settlement
Repurchase of Common Stock
Long-Term Incentive Plan Issuances
Preferred Stock Redemptions (371) (37,091)
--------- -------- ---------
Balance at December 31, 1999 $ 4,015 1,931 $ 193,081
========= ======== =========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Notes to Consolidated Financial Statements
1. Significant Accounting Policies
Description of Business
Incorporated in Pennsylvania in 1929, PECO Energy Company (Company) is engaged
principally in the production, purchase, transmission, distribution and sale of
electricity to residential, commercial, industrial and wholesale customers and
the distribution and sale of natural gas to residential, commercial and
industrial customers. Pursuant to the Pennsylvania Electricity Generation
Customer Choice and Competition Act (Competition Act), the Commonwealth of
Pennsylvania has required the unbundling of retail electric services in
Pennsylvania into separate generation, transmission and distribution services
with open retail competition for generation services. Since the commencement of
deregulation in 1999, the Company serves as the local distribution company
providing electric distribution services in its franchised service territory in
southeastern Pennsylvania and bundled electric service to customers who do not
choose an alternate electric generation supplier. The Company also engages in
the wholesale marketing of electricity on a national basis. Through its Exelon
Energy division, the Company is a competitive generation supplier offering
competitive energy supply to customers throughout Pennsylvania. The Company's
infrastructure services subsidiary, Exelon Infrastructure Services, Inc. (EIS),
provides utility infrastructure services to customers in several regions of the
United States. The Company owns a 50% interest in AmerGen Energy Company, LLC
(AmerGen), a joint venture with British Energy, Inc. a wholly-owned subsidiary
of British Energy plc, to acquire and operate nuclear generating facilities. The
Company also participates in joint ventures which provide telecommunications
services in the Philadelphia metropolitan region.
Basis of Presentation
The consolidated financial statements of the Company include the accounts of its
majority-owned subsidiaries after the elimination of its intercompany
transactions. The Company accounts for investments in its 50% owned joint
ventures under the equity method of accounting. The Company consolidates its
proportionate interest in its jointly owned electric utility plants. The Company
accounts for its less than 20% owned investments under the cost method of
accounting. Accounting policies for regulated operations are in accordance with
those prescribed by the regulatory authorities having jurisdiction, principally
the Pennsylvania Public Utility Commission (PUC) and the Federal Energy
Regulatory Commission (FERC).
<PAGE>
Accounting for the Effects of Regulation
The Company accounts for all of its regulated electric and gas operations in
accordance with Statement of Financial Accounting Standards (SFAS) No. 71,
"Accounting for the Effects of Certain Types of Regulation," requiring the
Company to record the financial statement effects of the rate regulation to
which such operations are currently subject. Use of SFAS No. 71 is applicable to
the utility operations of the Company which meet the following criteria: (1)
third-party regulation of rates; (2) cost-based rates; and (3) a reasonable
assumption that all costs will be recoverable from customers through rates. The
Company believes that it is probable that regulatory assets associated with
these operations will be recovered. If a separable portion of the Company's
business no longer meets the provisions of SFAS No. 71, the Company is required
to eliminate the financial statement effects of regulation for that portion.
Effective December 31, 1997, the Company determined that the electric generation
portion of its business no longer met the criteria of SFAS No. 71 and,
accordingly, implemented SFAS No. 101, "Regulated Enterprises - Accounting for
the Discontinuation of FASB Statement No. 71," for that portion of its business.
See Note 5 - Restructuring Charge.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles 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.
Revenues
Electric and gas revenues are recorded as service is rendered or energy is
delivered to customers. At the end of each month, the Company accrues an
estimate for the unbilled amount of energy delivered or services provided to its
electric and gas customers. The Company recognizes contract revenue and profits
on long-term contracts from its infrastructure services business by the
percentage-of-completion method of accounting based on costs incurred as a
percentage of estimated total costs of individual contracts.
Purchased Gas Adjustment Clause
The Company's gas rates are subject to a fuel adjustment clause designed to
recover or refund the difference between the actual cost of purchased gas and
the amount included in base rates. Differences between the amounts billed to
customers and the actual costs recoverable are deferred and recovered or
refunded in future periods by means of prospective quarterly adjustments to
rates.
Nuclear Fuel
The cost of nuclear fuel is capitalized and charged to fuel expense on the unit
of production method. Estimated costs of nuclear fuel disposal are charged to
fuel expense as the related fuel is consumed.
Nuclear Outage Costs
Incremental nuclear maintenance and refueling outage costs are accrued over the
unit operating cycle. For each unit, an accrual for incremental nuclear
maintenance and refueling outage expense is estimated based upon the latest
planned outage schedule and estimated costs for the outage. Differences between
the accrued and actual expense for the outage are recorded when such differences
are known.
<PAGE>
Depreciation, Amortization and Decommissioning
Depreciation is provided over the estimated service lives of property, plant,
and equipment on a straight line basis. Annual depreciation provisions for
financial reporting purposes, expressed as a percentage of average service life
for each asset category are presented in the table below:
Asset Category 1999 1998 1997
------ ------ ------
Electric - Transmission and Distribution 1.83% 1.96% 1.88%
Electric - Generation 5.12% 5.26% 3.90%
Gas 2.36% 2.40% 2.33%
Common 2.13% 4.54% 3.94%
Other Property and Equipment 8.61% 2.80% 1.97%
Amortization of regulatory assets is provided over the recovery period as
specified in the related regulatory agreement. Goodwill related to the EIS
acquisitions in 1999 is being amortized over 20 years.
The Company's current estimate of the costs for decommissioning its ownership
share of its nuclear generating stations is currently included in regulated
rates and is charged to operations over the expected service life of the related
plant. The amounts recovered from customers are deposited in trust accounts and
invested for funding of future costs. The Company accounts for its investments
in decommissioning trust funds by recording a charge to depreciation expense and
a corresponding liability in accumulated depreciation for the current period's
cost of decommissioning. Unrealized gains and losses are reflected as regulatory
liabilities and assets, respectively. The Company believes that the amounts
being recovered from customers through electric rates will be sufficient to
fully fund the unrecorded portion of its decommissioning obligation.
Capitalized Interest
Effective January 1, 1998, the Company ceased accruing Allowance for Funds Used
During Construction (AFUDC) for electric generation-related construction
projects and began using SFAS No. 34, "Capitalizing Interest Costs," to
calculate the costs during construction of debt funds used to finance its
electric generation-related construction projects. The Company recorded
capitalized interest of $6 million and $7 million in 1999 and 1998,
respectively.
AFUDC is the cost, during the period of construction, of debt and equity funds
used to finance construction projects for regulated operations. AFUDC is
recorded as a charge to Construction Work in Progress and as a credit to AFUDC
included in Other Income and Deductions. The rates used for capitalizing AFUDC,
which averaged 6.25% in 1999, 8.63% in 1998 and 8.88% in 1997, are computed
under a method prescribed by regulatory authorities. AFUDC is not included in
regular taxable income and the depreciation of capitalized AFUDC is not tax
deductible.
Income Taxes
Deferred federal and state income taxes are provided on all significant timing
differences between book bases and tax bases of assets and liabilities,
transactions that reflect taxable income in a year different from book income
and tax carryforwards. Investment tax credits previously used for income tax
purposes have been deferred on the Consolidated Balance Sheets and are
recognized in book income over the life of the related property. The Company and
its subsidiaries file a consolidated federal income tax return. Income taxes are
<PAGE>
allocated to each of the Company's subsidiaries within the consolidated group
based on the separate return method.
Gains and Losses on Reacquired Debt
Effective January 1, 1998, gains and losses on reacquired debt are being
recognized in the Company's Consolidated Statements of Income as incurred. Gains
and losses on reacquired debt related to regulated operations incurred prior to
January 1, 1998, have been deferred and are being amortized to interest expense
over the period approved for ratemaking purposes based on management's
assessment of the likelihood of recovery.
Comprehensive Income
Comprehensive income includes all changes in equity during a period except those
resulting from investments by and distributions to shareholders. Comprehensive
income is reflected in the Consolidated Statements of Changes in Common
Shareholders' Equity and Preferred Stock.
Cash and Cash Equivalents
The Company considers all temporary cash investments purchased with an original
maturity of three months or less to be cash equivalents.
Marketable Securities
Marketable securities are classified as available-for-sale securities and are
reported at fair value, with the unrealized gains and losses, net of tax,
reported in other comprehensive income. The Company has no held-to-maturity or
trading securities.
Inventories
Inventories are carried at the lower of average cost or market.
Derivative Financial Instruments
Hedge accounting is applied only if the derivative reduces the risk of the
underlying hedged item and is designated at inception as a hedge, with respect
to the hedged item. If a derivative instrument ceased to meet the criteria for
deferral, any gains or losses are recognized in income. The Company does not
hold or issue derivative financial instruments for trading purposes.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. The Company evaluates the
carrying value of property, plant and equipment and other long-term assets based
upon current and anticipated undiscounted cash flows, and recognizes an
impairment when it is probable that such estimated cash flows will be less than
the carrying value of the asset. Measurement of the amount of impairment, if
any, is based upon the difference between carrying value and fair value.
Capitalized Software Costs
Costs incurred during the application development stage of software projects for
software which is developed or obtained for internal use are capitalized. At
December 31, 1999 and 1998, capitalized software costs totaled $105 million and
$84 million, respectively, net of $32 million and $37 million accumulated
amortization, respectively. Such capitalized amounts are amortized ratably over
the expected lives of the projects when they become operational, not to exceed
ten years.
Retail and Wholesale Energy Commitments
The Company's retail and wholesale activities include short-term and long-term
commitments, which are carried at the lower of cost or market, to purchase and
sell energy and energy-related products in the retail and wholesale markets with
the intent and ability to deliver or take delivery. As such, revenue and expense
<PAGE>
associated with energy commitments is reported at the time the underlying
physical transaction closes.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," to
establish accounting and reporting standards for derivatives. The new standard
requires recognizing all derivatives as either assets or liabilities on the
balance sheet at their fair value and specifies the accounting for changes in
fair value depending upon the intended use of the derivative. In June 1999, the
FASB issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133," which
delayed the effective date for SFAS No. 133 until fiscal years beginning after
June 15, 2000. The Company expects to adopt SFAS No. 133 in the first quarter of
2001. The Company is in the process of evaluating the impact of SFAS No. 133 on
its financial statements.
Reclassifications
Certain prior year amounts have been reclassified for comparative purposes.
These reclassifications had no effect on net income or shareholders' equity.
2. Merger with Unicom Corporation
On September 22, 1999, the Company and Unicom Corporation (Unicom) entered into
an Agreement and Plan of Exchange and Merger providing for a merger of equals.
On January 7, 2000, the Agreement and Plan of Exchange and Merger was amended
and restated (Merger Agreement). The Merger Agreement has been approved by both
companies' Boards of Directors. The transaction will be accounted for as a
purchase with the Company as acquiror.
The Merger Agreement provides for (a) the exchange of each share of outstanding
common stock, no par value, of the Company for one share of common stock of the
new company, Exelon Corporation (Exelon) (Share Exchange) and (b) the merger of
Unicom with and into Exelon (Merger and together with the Share Exchange, Merger
Transaction). In the Merger, each share of the outstanding common stock, no par
value, of Unicom will be converted into 0.875 shares of common stock of Exelon
plus $3.00 in cash. In the Merger Agreement, the Company and Unicom agree to
repurchase approximately $1.5 billion of common stock prior to the closing of
the Merger with Unicom to repurchase approximately $1.0 billion of its common
stock, and the Company to repurchase approximately $500 million of its common
stock. As a result of the Share Exchange, the Company will become a wholly owned
subsidiary of Exelon. As a result of the Merger, Unicom will cease to exist and
its subsidiaries, including Commonwealth Edison Company, an Illinois corporation
(ComEd), will become subsidiaries of Exelon. Following the Merger Transaction,
Exelon will be a holding company with two principal utility subsidiaries, ComEd
and the Company.
The Merger Transaction is conditioned, among other things, upon the approvals of
the common shareholders of both companies and the approval of certain regulatory
agencies. The companies have filed an application with the Securities and
Exchange Commission (SEC) to register Exelon as a holding company under the
Public Utility Holding Company Act of 1935.
On March 24, 2000, the Company submitted for approval a joint petition for
settlement reached with various parties to the Company's proceeding before the
PUC involving the proposed merger with Unicom. The Company reached agreement
with advocates for residential, small business and large industrial customers,
and representatives of marketers, environmentalists, municipalities and elected
officials. Under the comprehensive settlement agreement the Company has agreed
to $200 million in rate reductions for all customers over the period January 1,
2002 through 2005 and extended rate caps on the Company's retail electric
distribution charges through December 31, 2006, electric reliability and
customer service standards, mechanisms to enhance competition and customer
choice, expanded assistance to low-income customers, extensive funding for wind
and solar energy and community education, nuclear safety research funds,
customer protection against nuclear costs outside of Pennsylvania, and
maintenance of charitable and civic contributions and employment for the
Company's headquarters in Philadelphia.
3. Segment Information
The Company evaluates the performance of its business segments based on Earnings
Before Interest Expense and Income Taxes (EBIT). The Company's general corporate
<PAGE>
expenses and certain non-recurring expenses are excluded from the internal
evaluation of reportable segment performance. General corporate expenses include
the cost of executive management, corporate accounting and finance, information
technology, risk management, human resources and legal functions and employee
benefits.
The Company's distribution business unit consists of its regulated operations
including electric transmission and distribution services, retail sales of
generation services and retail gas sales and services. The Company's generation
business unit consists of its generation assets, its power marketing group, its
unregulated retail energy supplier and its investment in AmerGen. The Company's
ventures business unit consists of its infrastructure services business, its
telecommunications equity investments and other investments.
An analysis and reconciliation of the Company's business segment information to
the respective information in the consolidated financial statements are as
follows (in thousands):
<TABLE>
<CAPTION>
Intersegment
Distribution Generation Ventures Corporate Revenues Consolidated
Revenues:
<S> <C> <C> <C> <C> <C> <C>
1999 $ 3,256,718 $2,868,835 $ 110,056 $- $ (798,856) $ 5,436,753
1998 $ 3,778,264 $2,492,886 $- $- $(1,008,618) $ 5,262,532
1997 $ 3,831,453 $1,721,417 $- $- $ (951,793) $ 4,601,077
EBIT:
1999 $ 1,381,686 $ 238,825 $ (41,098) $ (189,488) $- $ 1,389,925
1998 $ 1,372,875 $ 233,339 $(138,605) $ (257,563) $- $ 1,210,046
1997 $ 1,754,385 $ (380,985) $ (81,948) $ (282,049) $- $ 1,009,403
Depreciation and Amortization:
1999 $ 107,686 $ 125,154 $ 3,950 $- $- $ 236,790
1998 $ 532,602 $ 110,224 $ 16 $- $- $ 642,842
1997 $ 100,988 $ 479,301 $ 306 $- $- $ 580,595
Capital Expenditures:
1999 $ 204,404 $ 244,916 $ 1,408 $ 40,369 $- $ 491,097
1998 $ 174,974 $ 205,081 $ 6,271 $ 29,005 $- $ 415,331
1997 $ 219,776 $ 210,579 $ 6,393 $ 53,452 $- $ 490,200
Total Assets:
1999 $10,293,379 $1,779,103 $ 640,375 $ 406,652 $- $13,119,509
1998 $ 9,759,174 $1,686,771 $ 216,870 $ 385,548 $- $12,048,363
1997 $10,008,820 $1,729,920 $ 222,418 $ 395,410 $- $12,356,568
</TABLE>
Equity in losses of telecommunications investments of $38 million, $54 million,
and $14 million for 1999, 1998, and 1997, respectively, are included in the
ventures business unit's EBIT.
4. Rate Matters
On May 14, 1998, the PUC issued a final order (Final Restructuring Order)
approving a Joint Petition for Settlement filed by the Company and numerous
parties to the Company's restructuring proceeding mandated by the Competition
Act. The Competition Act provides for the restructuring of the electric utility
industry in Pennsylvania, including the deregulation of generation operations
and the institution of retail competition for generation services beginning in
1999. The Final Restructuring Order provided for the recovery of $5.3 billion of
stranded costs through transition charges to distribution customers over a
<PAGE>
12-year period beginning in 1999 with a 10.75% return on the balance. During the
12-year stranded cost recovery period, the Company is amortizing the recoverable
stranded costs in accordance with the rate schedules determined in the Final
Restructuring Order.
The Final Restructuring Order provided for the phase-in of customer choice of
electric generation supplier (EGS) for all customers: one-third of the peak load
of each customer class on January 1, 1999; one-third on January 2, 1999; and the
remaining one-third on January 1, 2000. The Final Restructuring Order also
established market share thresholds to ensure that a minimum number of
residential and commercial customers choose an EGS or a Company affiliate. If
less than 35% and 50% of residential and commercial customers have chosen an
EGS, including 20% of residential customers assigned to an EGS as a PLR default
supplier, by January 1, 2001 and January 1, 2003, respectively, the number of
customers sufficient to meet the necessary threshold levels shall be randomly
selected and assigned to an EGS through a PUC-determined process.
Effective January 1, 1999, electric rates were unbundled into transmission and
distribution components, a Competitive Transition Charge (CTC) for recovery of
stranded costs and an energy and capacity charge. Eligible customers who choose
an alternative EGS are not charged the energy and capacity charge or the
transmission charge and instead purchase their electric energy supply and
transmission at market-based rates from their EGS. The Company is in turn
reimbursed by the EGS, via the PJM Interconnection, L.L.C., for the cost of the
transmission service at a rate approximately equivalent to the unbundled
transmission rate. Also effective January 1, 1999, the Company unbundled its
retail electric rates for metering, meter reading and billing and collection
services to provide credits to those customers who elect to have an alternative
supplier perform these services.
In accordance with the Competition Act and the Final Restructuring Order, the
Company's retail electric rates are capped at the year-end 1996 levels
(system-wide average of 9.96 cents/kilowatt hour [kWh]) through June 2005. The
Final Restructuring Order required the Company to reduce its retail electric
rates by 8% from the 1996 system-wide average rate on January 1, 1999. This rate
reduction decreased to 6% on January 1, 2000 until January 1, 2001, when the
system-wide average rate cap will revert to 9.96 cents/kWh. The transmission and
distribution rate component will remain capped at a system-wide average rate of
2.98 cents/kWh through June 30, 2005. Additionally, generation rate caps,
defined as the sum of the applicable transition charge and energy and capacity
charge, will remain in effect through 2010.
The Final Restructuring Order requires that on January 1, 2001, 20% of all of
the Company's residential customers, determined by random selection and without
regard to whether such customers are obtaining generation service from an
alternate EGS, shall be assigned to a provider of last resort default supplier
other than the Company through a PUC-approved bidding process.
The Final Restructuring Order authorized the issuance of up to $4 billion of
transition bonds (Transition Bonds). In preparation for the issuance of
Transition Bonds, the Company formed the PECO Energy Transition Trust (PETT), an
independent statutory business trust organized under the laws of Delaware and a
wholly owned subsidiary of the Company. On March 25, 1999, PETT issued $4
billion of its Transition Bonds to securitize a portion of the Company's
authorized stranded cost recovery. PETT used the $3.95 billion of proceeds from
the issuance of Transition Bonds to purchase the Intangible Transition Property
(ITP) from the Company. In accordance with the Competition Act, the Company
<PAGE>
utilized the proceeds from the securitization of a portion of its stranded cost
recovery principally to reduce stranded costs including related capitalization.
The Company utilized the net proceeds, and interest income earned on the net
proceeds, to repurchase 44.1 million shares of Common Stock for an aggregate
purchase price of $1,705 million and $150 million of accounts receivable; to
retire: $811 million of First Mortgage Bonds, a $400 million term loan, $532
million of commercial paper, a $139 million capital lease obligation and $37
million of preferred stock; to redeem $221 million of COMRPS; and to pay $25
million of debt issuance costs. The Transition Bonds are obligations of PETT,
secured by ITP. ITP represents the irrevocable right of the Company or its
assignee to collect non-bypassable charges from customers to recover stranded
costs.
On March 16, 2000, the PUC issued an order approving a Joint Petition for Full
Settlement of PECO Energy Company's Application for Issuance of a Qualified Rate
Order (QRO) authorizing the Company to securitize up to an additional $1 billion
of its authorized recoverable stranded costs. In accordance with the terms of
the Joint Petition for Full Settlement, when the QRO becomes final and
non-appealable, the Company, through its distribution business unit, will
provide its retail customers with rate reductions in the total amount of $60
million beginning on January 1, 2001. This rate reduction will be effective for
calendar year 2001 only and will not be contingent upon the issuance of
additional transition bonds pursuant to the QRO. The Company will use the
proceeds from any additional securitization principally to reduce stranded costs
and related capitalization.
5. Restructuring Charge
As required by SFAS No. 101, at December 31, 1997, the Company performed an
impairment test of its electric generation assets pursuant to SFAS No. 121, on a
plant-specific basis and determined that $6.1 billion of its $7.1 billion of
electric generation assets would be impaired as of December 31, 1998. The
Company estimated the fair value for each of its electric generating units by
determining its estimated future operating cash inflows and outflows. Cash flows
were determined based on projections of operating revenue, fuel costs, operating
and maintenance costs including administrative and general costs, other taxes,
nuclear decommissioning costs, capital expenditures, required life extension
costs and income taxes. Each plant whose gross future operating cash flows did
not exceed the net book value of the plant was determined to have failed the
first impairment test and was subjected to a second impairment test. In the
second impairment test, generation-related CTC of $3.3 billion, as provided by
the PUC in the Final Restructuring Order, was allocated on a pro rata basis to
the gross future operating cash flows of the plants determined to have failed
the first test. For each plant that failed either impairment test, the Company
wrote down the difference between the sum of the gross future operating cash
flows and the net book value. Since the Company's retail electric rates
continued to be cost-based through January 1, 1999, $333 million representing
depreciation expense on electric generation-related assets in 1998 and $91
million representing amortization of other regulatory assets in 1998 were
reclassified to a regulatory asset and were amortized in 1998.
At December 31, 1997, the Company had total electric generation-related stranded
costs of $8.4 billion, representing $5.8 billion of net stranded electric
generation plant and $2.6 billion of electric generation-related regulatory
assets. The original PUC restructuring order, issued in December 1997, allowed
the Company to recover $5.3 billion of its generation-related stranded costs
from customers. This resulted in a net unrecoverable amount of $3.1 billion.
<PAGE>
Accordingly, the Company recorded an extraordinary charge at December 31, 1997
of $3.1 billion ($1.8 billion, net of taxes) of electric generation-related
stranded costs that will not be recovered from customers. The Final
Restructuring Order did not change the amount of allowable stranded costs.
A summary, as of December 31, 1997, of the electric generation-related stranded
costs and the amount of such stranded costs written off by the Company is shown
in the following table:
<TABLE>
<CAPTION>
<S> <C>
In Thousands
Electric generation-related asset impairment determined pursuant to SFAS No. 121
Net book value of electric generation-related assets before write-down $7,115,155
December 31, 1998 market value of electric generation-related assets pursuant to SFAS No. 121 (990,376)
Expected 1998 change in net plant recognized for recovery until cost-based rates cease at December 31, 1998 (303,800)
----------
Electric generation-related asset impairment 5,820,979
Electric generation-related regulatory assets
Recoverable Deferred Income Taxes 1,762,946
Deferred Limerick Costs 321,420
Deferred Non-Pension Postretirement Benefits Other Than Pensions 120,899
Deferred Energy Costs - Electric 92,021
Loss on Reacquired Debt 177,183
Above-market component of a purchase power agreement 90,000
Preliminary survey and investigation charges 38,173
Deferred employee compensation absences 20,760
Customer education program 31,547
Other post-retirement employee benefit obligations 6,384
Feasibility studies cost 8,434
Regulatory asset recognized for recovery until cost-based rates cease at December 31, 1998 (91,497)
----------
Total electric generation-related regulatory assets 2,578,270
----------
Total electric generation-related stranded costs 8,399,249
Amounts approved for collection from customers (regulatory asset pursuant to EITF No. 97-4) (5,274,624)
----------
Total Extraordinary Item $3,124,625
==========
</TABLE>
In 1994, the Company accelerated the recognition of $180 million of non-pension
postretirement benefit transition obligation as a result of a voluntary
workforce reduction program which resulted in significant reductions in
eligibility for future benefits under the postretirement benefit plans. A
corresponding regulatory asset was recorded because the Company was permitted to
recover the curtailment costs through increased electric base rates. The $121
million of deferred non-pension postretirement benefits other than pensions
included in the calculation of stranded costs represents the remaining balance
of the generation portion of the regulatory asset.
6. Commitments and Contingencies
Capital Commitments
The Company estimates that it will spend approximately $927 million for capital
expenditures and other investments in 2000. The Company has commitments to
provide AmerGen with capital contributions equivalent to 50% of the purchase
price of any acquisitions AmerGen makes in 2000. As of December 31, 1999, the
Company expects to make $97 million of capital contributions, excluding nuclear
fuel, if all of the acquisition agreements that AmerGen entered into in 1999
<PAGE>
close in 2000. In addition, the Company and British Energy plc have each agreed
to provide up to $55 million to AmerGen at any time for operating expenses. See
Note 26 - AmerGen Energy Company, L.L.C.
Nuclear Insurance
As of December 31, 1999, the Price-Anderson Act limited the liability of nuclear
reactor owners to $9.5 billion for claims that could arise from a single
incident. The limit is subject to change to account for the effects of inflation
and changes in the number of licensed reactors. The Company carries the maximum
available commercial insurance of $200 million and the remaining $9.3 billion is
provided through mandatory participation in a financial protection pool. Under
the Price-Anderson Act, all nuclear reactor licensees can be assessed up to $88
million per reactor per incident, payable at no more than $10 million per
reactor per incident per year. This assessment is subject to inflation and state
premium taxes. In addition, the U.S. Congress could impose revenue- raising
measures on the nuclear industry to pay claims.
The Company carries property damage, decontamination and premature
decommissioning insurance in the amount of its $2.75 billion proportionate share
for each station loss resulting from damage to its nuclear plants. In the event
of an accident, insurance proceeds must first be used for reactor stabilization
and site decontamination. If the decision is made to decommission the facility,
a portion of the insurance proceeds will be allocated to a fund which the
Company is required by the Nuclear Regulatory Commission (NRC) to maintain to
provide for decommissioning the facility. The Company is unable to predict the
timing of the availability of insurance proceeds to the Company for the
Company's bondholders, and the amount of such proceeds which would be available.
Under the terms of the various insurance agreements, the Company could be
assessed up to $32 million for losses incurred at any plant insured by the
insurance companies. The Company is self-insured to the extent that any losses
may exceed the amount of insurance maintained. Such losses could have a material
adverse effect on the Company's financial condition and results of operations.
The Company is a member of an industry mutual insurance company which provides
replacement power cost insurance in the event of a major accidental outage at a
nuclear station. The premium for this coverage is subject to assessment for
adverse loss experience. The Company's maximum share of any assessment is $10
million per year.
Nuclear Decommissioning and Spent Fuel Storage
The Company's current estimate of its nuclear facilities' decommissioning cost
is $1.4 billion in 1998 dollars. Decommissioning costs are recoverable through
regulated rates. Under rates in effect through December 31, 1999, the Company
collected and expensed approximately $29 million in 1999 from customers which
was accounted for as a component of depreciation expense and accumulated
depreciation. At December 31, 1999 and 1998, $383 million and $336 million,
respectively, were included in accumulated depreciation. In order to fund future
decommissioning costs, at December 31, 1999 and 1998, the Company held $408
million and $380 million, respectively, in trust accounts which are included as
Investments in the Company's Consolidated Balance Sheets and include both net
unrealized and realized gains. Net unrealized gains of $45 million and $60
million, respectively, were recognized as a Deferred Credits in the Company's
Consolidated Balance Sheets at December 31, 1999 and 1998, respectively. The
Company recognized net realized gains of $14 million, $12 million, and $11
million as Other Income in the Company's Consolidated Statement of Income for
<PAGE>
the years ended December 31, 1999, 1998 and 1997, respectively. The Company
believes that the amounts being recovered from customers through regulated rates
will be sufficient to fully fund the unrecorded portion of its decommissioning
obligation.
Under the Nuclear Waste Policy Act of 1982 (NWPA), the U.S. Department of Energy
(DOE) is required to begin taking possession of all spent nuclear fuel generated
by the Company's nuclear units for long-term storage by no later than 1998.
Based on recent public pronouncements, it is not likely that a permanent
disposal site will be available for the industry before 2010, at the earliest.
In reaction to statements from the DOE that it was not legally obligated to
begin to accept spent fuel in 1998, a group of utilities and state government
agencies filed a lawsuit against the DOE which resulted in a decision by the
U.S. Court of Appeals for the District of Columbia (D.C. Court of Appeals) in
July 1996 that the DOE had an unequivocal obligation to begin to accept spent
fuel in 1998. In accordance with the NWPA, the Company pays the DOE one mill
($.001) per kilowatthour of net nuclear generation for the cost of nuclear fuel
long-term storage and disposal. This fee may be adjusted prospectively in order
to ensure full cost recovery. Because of inaction by the DOE following the D.C.
Court of Appeals finding of the DOE's obligation to begin receiving spent fuel
in 1998, a group of forty-two utility companies, including the Company, and
forty-six state agencies, filed suit against the DOE seeking authorization to
suspend further payments to the U.S. government under the NWPA and to deposit
such payments into an escrow account until such time as the DOE takes effective
action to meet its 1998 obligations. In November 1997, the D.C. Court of Appeals
issued a decision in which it held that the DOE had not abided by its prior
determination that the DOE has an unconditional obligation to begin disposal of
spent nuclear fuel by January 31, 1998. The D.C. Court of Appeals also precluded
the DOE from asserting that it was not required to begin receiving spent nuclear
fuel because it had not yet prepared a permanent repository or an interim
storage facility. The DOE and one of the utility companies filed Petitions for
Reconsideration of the decision which were denied, as were petitions seeking
U.S. Supreme Court review of the decision. In addition, the DOE is exploring
other options to address delays in the waste acceptance schedule.
Peach Bottom Atomic Power Station (Peach Bottom) has on-site pools with capacity
to store spent nuclear fuel discharged from the units through 2000 for Unit No.
2 and 2001 for Unit No. 3. Life-of-plant storage capacity will be provided by an
on-site dry cask storage facility, the construction of which was essentially
completed in 1999. The first use of this facility is scheduled for mid-2000.
Limerick Generating Station (Limerick) has on-site facilities with capacity to
store spent nuclear fuel to 2007. Salem Generating Station (Salem) has on-site
facilities with spent-fuel storage capacity through 2012 for Unit No. 1 and 2016
for Unit No. 2.
Energy Commitments
The Company's wholesale operations include the physical delivery and marketing
of power obtained through Company-owned generation capacity, and long,
intermediate and short-term contracts. The Company maintains a net positive
supply of energy and capacity, through Company-owned generation assets and power
purchase and lease agreements, to protect it from the potential operational
failure of one of its owned or contracted power generating units. The Company
has also contracted for access to additional generation through bilateral
long-term power purchase agreements. These agreements are firm commitments
related to power generation of specific generation plants and/or are
dispatchable in nature - similar to asset ownership. The Company enters into
power purchase agreements with the objective of obtaining low-cost energy supply
sources to meet its
<PAGE>
physical delivery obligations to its customers. The Company has also purchased
firm transmission rights to ensure that it has reliable transmission capacity to
physically move its power supplies to meet customer delivery needs. The intent
and business objective for the use of its capital assets and contracts is to
provide the Company with physical power supply to enable it to deliver energy to
meet customer needs. The Company does not use financial contracts in its
wholesale marketing activities and as a matter of business practice does not
"pair off" or net settle its contracts. All contracts result in the delivery
and/or receipt of power.
The Company has entered into bilateral long-term contractual obligations for
sales of energy to other load-serving entities including electric utilities,
municipalities, electric cooperatives, and retail load aggregators. The Company
also enters into contractual obligations to deliver energy to wholesale market
participants who primarily focus on the resale of energy products for delivery.
The Company provides delivery of its energy to these customers in and out of PJM
through access to Company-owned transmission assets or rights for firm
transmission.
The Company has entered into three long-term power purchase agreements with
Independent Power Producers (IPP) under which the Company makes fixed capacity
payments to the IPP in return for exclusive rights to the energy and capacity of
the generating units for a fixed period. The terms of the long-term power
purchase agreements enable the Company to supply the fuel and dispatch energy
from the plants. The plants are currently being constructed and are scheduled to
begin operations in 2000, 2001 and 2002, respectively. These agreements provide
for access to capacity of up to 800 megawatts (Mw), 1,700 Mw and 2,500 Mw in
2000, 2001 and 2002, respectively.
At December 31, 1999, the Company had long-term commitments, in megawatt hours
(MwHs) and dollars, relating to the purchase and sale of energy, capacity and
transmission rights from unaffiliated utilities and others as expressed in the
tables below (in thousands):
<TABLE>
<CAPTION>
Power Only
-------------------------------------------------------------------------
Purchases Sales
---------------------------- ------------------------------
MwHs Dollars MwHs Dollars
----- -------- ------ ----------
<S> <C> <C> <C> <C>
2000 8,389 $182,188 16,291 $ 499,966
2001 6,684 121,194 9,324 322,496
2002 6,684 128,119 6,309 232,898
2003 6,684 135,060 4,539 108,391
2004 4,928 113,277 3,246 74,501
Thereafter 2,936 82,500 6,396 152,521
-------- ----------
Total $762,338 $1,390,773
======== ==========
Capacity Capacity Transmission
Purchases Sales Rights
in Dollars in Dollars in Dollars
---------- ---------- ------------
<S> <C> <C> <C>
2000 $ 44,723 $62,971 $ 99,817
2001 131,991 68,493 60,295
2002 142,153 58,190 30,326
2003 169,479 54,332 27,156
2004 153,676 41,459 19,811
Thereafter 1,355,200 66,714 19,811
---------- -------- --------
Total $1,997,222 $352,159 $257,216
========== ======== ========
</TABLE>
<PAGE>
In November 1997, the Company signed an agreement with the Massachusetts Health
and Education Facilities Authority (HEFA) to provide power to HEFA's members and
employees in anticipation of deregulation of the electricity industry in
Massachusetts. In the third quarter of 1999, the Company determined that, based
upon anticipated prices of energy in Massachusetts through the remaining life of
the HEFA contract, it had incurred a loss of approximately $36 million.
On April 23, 1999, the Company and Grays Ferry Cogeneration Partnership (Grays
Ferry) entered into a final settlement of litigation, subject to the resolution
of certain issues. The settlement resulted in a restructuring of the power
purchase agreements between the Company and Grays Ferry. The settlement also
required the Company to contribute its partnership interest in Grays Ferry to
the remaining partners. Accordingly, in the first quarter, the Company recorded
a charge to earnings of $14.6 million for the transfer of its partnership
interest. The charge for the partnership interest transfer is recorded in Other
Income and Deductions on the Company's Consolidated Statements of Income. The
settlement also resolved the litigation with Westinghouse Power Generation and
the Chase Manhattan Bank.
During the third quarter of 1999, the Company revised its estimate for losses
associated with the Grays Ferry power purchase agreements and reversed
approximately $26 million of reserves, which consisted of the remaining balance
of the reserve recognized in 1997.
Environmental Issues
The Company's operations have in the past and may in the future require
substantial capital expenditures in order to comply with environmental laws.
Additionally, under federal and state environmental laws, the Company is
generally liable for the costs of remediating environmental contamination of
property now or formerly owned by the Company and of property contaminated by
hazardous substances generated by the Company. The Company owns or leases a
number of real estate parcels, including parcels on which its operations or the
operations of others may have resulted in contamination by substances which are
considered hazardous under environmental laws. The Company is currently involved
in a number of proceedings relating to sites where hazardous substances have
been deposited and may be subject to additional proceedings in the future.
The Company has identified 28 sites where former manufactured gas plant (MGP)
activities have or may have resulted in actual site contamination. The Company
is presently engaged in performing various levels of activities at these sites,
including initial evaluation to determine the existence and nature of the
contamination, detailed evaluation to determine the extent of the contamination
and the necessity and possible methods of remediation, and implementation of
remediation. The Pennsylvania Department of Environmental Protection has
approved the Company's clean up of three sites. Ten other sites are currently
under some degree of active study and/or remediation.
As of December 31, 1999 and 1998, the Company had accrued $57 million and $60
million, respectively, for environmental investigation and remediation costs,
including $32 million and $33 million, respectively, for MGP investigation and
remediation, that currently can be reasonably estimated. The Company cannot
reasonably estimate whether it will incur other significant liabilities for
additional investigation and remediation costs at these or additional sites
identified by the Company, environmental agencies or others, or whether such
costs will be recoverable from third parties.
<PAGE>
Leases Leased property included in property, plant and equipment was as follows:
At December 31,
-----------------
In Thousands 1999 1998
------- --------
Nuclear fuel $ -- $523,325
Electric plant 2,321 2,321
------ --------
Gross leased property 2,321 525,646
Accumulated amortization (1,853) (371,338)
------ --------
Net leased property $468 $154,308
====== ========
Amortization of leased property totaled $17 million, $60 million, and $39
million for the years ended December 31, 1999, 1998, and 1997, respectively.
Interest expense on capital lease obligations was $3 million, $9 million, and $9
million in 1999, 1998, and 1997, respectively.
Minimum future lease payments as of December 31, 1999 were:
In Thousands
For the Years Capital Operating
Ending December 31, Leases Leases Total
------- --------- -------
2000 $92 $48,421 $48,513
2001 92 40,179 40,271
2002 92 34,531 34,623
2003 92 41,113 41,205
2004 92 29,720 29,812
Remaining years 629 487,663 488,292
------ -------- --------
Total minimum future lease payments $1,089 $681,627 $682,716
------ ======== ========
Imputed interest (17%) (621)
------
Present value of net minimum
future lease payments $468
======
Rental expense under operating leases totaled $54 million, $69 million and $74
million in 1999, 1998 and 1997, respectively.
In 1999, the Company entered into a lease for two buildings that will be the
headquarters for its generation business unit. These buildings are being
constructed in Kennett Square, Pennsylvania and are anticipated to be completed
on or about June 1, 2000 and September 1, 2000, respectively. The lease terms
are for 20 years with renewal options. Estimated lease payments for 2000 are $4
million.
Litigation
Cajun Electric Power Cooperative, Inc. On May 27, 1998, the United States
Department of Justice, on behalf of the Rural Utilities Service and the Chapter
11 Trustee for the Cajun Electric Power Cooperative, Inc. (Cajun), filed an
action claiming breach of contract against the Company in the United States
District Court for the Middle District of Louisiana arising out of the Company's
termination of the contract to purchase Cajun's interest in the River Bend
nuclear power plant. This action seeks the full purchase price of the 30%
interest in the River Bend nuclear plant, $50 million, plus interest and
consequential damages. While the Company cannot predict the outcome of this
matter, the Company believes that it validly exercised its right of termination
and did not breach the agreement.
Pennsylvania Real Estate Tax Appeals
The Company is involved in tax appeals regarding two of its nuclear facilities,
Limerick (Montgomery County) and Peach Bottom (York County). The Company is also
involved in the tax appeal for Three Mile Island Unit No. 1 Nuclear Generating
Facility (Dauphin County) through
<PAGE>
AmerGen. The Company does not believe the outcome of these matters will have a
material adverse effect on the Company's results of operations or financial
condition.
General
The Company is involved in various other litigation matters. The ultimate
outcome of such matters, while uncertain, is not expected to have a material
adverse effect on the Company's financial condition or results of operations.
7. Retirement Benefits
The Company and its subsidiaries have a defined benefit pension plan and
postretirement benefit plans applicable to essentially all employees. The
following provides a reconciliation of benefit obligations, plan assets and
funded status of the plans.
<TABLE>
<CAPTION>
Pension Benefits Other Postretirement Benefits
-------------------------- -----------------------------
In Thousands 1999 1998 1999 1998
<S> <C> <C> <C> <C>
Change in Benefit Obligation
Net benefit obligation at beginning of year $ 2,309,586 $ 2,141,040 $ 847,771 $ 779,231
Service cost 28,780 30,167 18,756 18,375
Interest cost 153,740 153,644 57,518 53,924
Plan participants' contributions -- -- 419 397
Plan amendments 25,000 -- -- --
Actuarial (gain)/loss (299,667) 143,274 (76,651) (8,260)
Curtailments -- (73,330) -- 10,403
Settlements -- (46,541) -- --
Special termination benefits -- 114,182 -- 29,712
Gross benefits paid (163,496) (152,850) (49,329) (36,011)
----------- ----------- ----------- -----------
Net benefit obligation at end of year $ 2,053,943 $ 2,309,586 $ 798,484 $ 847,771
=========== =========== =========== ===========
Change in Plan Assets
Fair value of plan assets at beginning of year $ 2,745,347 $ 2,538,039 $ 223,285 $ 178,045
Actual return on plan assets 399,863 343,754 20,076 23,535
Employer contributions 495 16,404 50,047 57,319
Plan participants' contributions -- -- 419 397
Gross benefits paid (163,496) (152,850) (49,329) (36,011)
----------- ----------- ----------- -----------
Fair value of plan assets at end of year $ 2,982,209 $ 2,745,347 $ 244,498 $ 223,285
=========== =========== =========== ===========
Funded status at end of year $ 928,266 $ 435,761 $ (553,986) $ (624,486)
Unrecognized net actuarial (gain)/loss (1,129,187) (659,480) (42,738) 37,617
Unrecognized prior service cost 84,923 65,419 -- --
Unrecognized net transition obligation (asset) (26,071) (30,512) 153,944 165,786
----------- ----------- ----------- -----------
Net amount recognized at end of year $ (142,069) $ (188,812) $ (442,780) $ (421,083)
=========== =========== =========== ===========
Amounts recognized in the consolidated balance sheets consist of:
Prepaid benefit cost $ 70,129 $ 30,462 N/A N/A
Accrued benefit cost (212,198) (219,274) (442,780) (421,083)
----------- ----------- ----------- -----------
Net amount recognized at end of year $ (142,069) $ (188,812) $ (442,780) $ (421,083)
=========== =========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pension Benefits Other Postretirement Benefit
---------------------- ---------------------------------------------
1999 1998 1997 1999 1998 1997
Weighted-average assumptions as of December 31,
<S> <C> <C> <C> <C> <C> <C>
Discount rate 8.00% 7.00% 7.25% 8.00% 7.00% 7.25%
Expected return on plan assets 9.50% 9.50% 9.50% 8.00% 8.00% 8.00%
Rate of compensation increase 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
Health care cost trend on covered charges N/A N/A N/A 8.0% 6.5% 7.0%
decreasing decreasing decreasing
to ultimate to ultimate to ultimate
trend of 5.0% trend of 5.0% trend of 5.0%
in 2006 in 2002 in 2002
</TABLE>
<TABLE>
<CAPTION>
Pension Benefits Other Postretirement Benefit
----------------------------------- ----------------------------------
1999 1998 1997 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic
benefit cost (benefit)
Service cost $28,780 $30,167 $25,368 $18,756 $ 18,375 $14,401
Interest cost 153,740 153,644 150,057 57,518 53,924 54,149
Expected return on assets (222,166) (209,976) (182,866) (16,372) (13,243) (9,984)
Amortization of:
Transition obligation (asset) (4,441) (4,538) (4,538) 11,842 14,882 14,882
Prior service cost 5,496 6,441 6,441 -- -- --
Actuarial (gain)loss (7,657) (7,028) (3,898) -- -- --
Curtailment charge (credit) -- (62,002) -- -- 52,961 --
Settlement charge (credit) -- (13,439) -- -- -- --
-------- --------- ------- ------- -------- -------
Net periodic benefit cost (benefit) $(46,248) $(106,731) $(9,436) $71,744 $126,899 $73,448
======== ========= ======= ======= ======== =======
Special termination benefit charge $ -- $114,182 $ -- $ -- $ 29,712 $ --
======== ========= ======= ======= ======== =======
Sensitivity of retiree welfare results
Effect of a one percentage point increase in assumed health care cost trend
on total service and interest cost components $11,240
on postretirement benefit obligation $90,130
Effect of a one percentage point decrease in assumed health care cost trend
on total service and interest cost components $(9,150)
on postretirement benefit obligation $(74,980)
</TABLE>
Prior service cost is amortized on a straight-line basis over the average
remaining service period of employees expected to receive benefits under the
plans.
During 1999, all retirees and beneficiaries who began receiving benefit payments
prior to January 1, 1994 were granted a cost-of-living adjustment resulting in a
$25 million increase in the projected benefit obligation. During 1998, costs
were recognized for special termination benefits in connection with the
retirement incentives and enhanced severance benefits provided under the
Company's Workforce Reduction Program.
The Company provides certain health care and life insurance benefits for retired
employees. Company employees become eligible for these benefits if they retire
from the Company with ten years of service. These benefits and similar benefits
for active employees are provided by several insurance companies whose premiums
are based upon the benefits paid during the year.
<PAGE>
The Company sponsors a qualifying savings plan covering all employees.
Contributions made by participating employees are matched based on a specified
percentage of employee contribution up to 5% of the employees' pay base. The
cost of the Company's matching contribution to the savings plan totaled $7
million, $7 million and $3 million in 1999, 1998 and 1997, respectively.
8. Accounts Receivable
Accounts receivable-Customer at December 31, 1999 and 1998 included unbilled
operating revenues of $153 million and $142 million, respectively. The allowance
for uncollectible accounts at December 31, 1999 and 1998 was $112 million and
$122 million, respectively.
Accounts receivable-Other at December 31, 1999 and 1998 included notes
receivable from a telecommunications investment of $153 million and $89 million,
respectively. The interest rate on the notes receivable was 5.66% and 4.28% at
December 31, 1999 and 1998, respectively. Interest income related to the notes
receivable was $6 million and $3 million in 1999 and 1998, respectively.
The Company is party to an agreement with a financial institution under which it
can sell or finance with limited recourse an undivided interest, adjusted daily,
in up to $275 million of designated accounts receivable until November 2000. At
December 31, 1999, the Company had sold a $275 million interest in accounts
receivable, consisting of a $226 million interest in accounts receivable which
the Company accounted for as a sale under SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities,"
and a $49 million interest in special-agreement accounts receivable which were
accounted for as a long-term note payable. See Note 14 - Long-Term Debt. The
Company retains the servicing responsibility for these receivables. The
agreement requires the Company to maintain the $275 million interest, which, if
not met, requires the Company to deposit cash in order to satisfy such
requirements. At December 31, 1999, the Company met this requirement and was not
required to make a deposit. As of December 31, 1999, the Company was not in
compliance with one of the requirements of the agreement; however, a waiver has
been obtained.
9. Property, Plant and Equipment
A summary of property, plant and equipment by classification as of December 31,
1999 and 1998 is as follows:
In Thousands 1999 1998
---------- ----------
Electric - Transmission & Distribution $3,953,321 $3,833,780
Electric - Generation 1,941,881 1,713,430
Gas 1,175,598 1,131,999
Common 403,760 407,320
Nuclear Fuel 1,551,501 932,156
Construction Work in Progress 231,721 272,590
Leased Property 2,321 525,646
Other Property, Plant and Equipment 152,029 44,520
---------- ----------
Total Property, Plant and Equipment 9,412,132 8,861,441
Less Accumulated Depreciation (including
accumulated amortization of nuclear
fuel of $1,280,850 and $790,249 in
1999 and 1998, respectively) 4,367,124 4,056,972
---------- ----------
Property, Plant and Equipment, net $5,045,008 $4,804,469
========== ==========
<PAGE>
Depreciation expense was $188 million, $182 million, and $489 million in 1999,
1998 and 1997, respectively.
10. Common Stock
At December 31, 1999 and 1998, common stock without par value consisted of
500,000,000 shares authorized and 181,271,692 and 224,684,306 shares
outstanding, respectively. At December 31, 1999, there were 5,800,841 shares
reserved for issuance under the Company's Dividend Reinvestment and Stock
Purchase Plan.
Stock Repurchase
During 1997, the Company's Board of Directors authorized the repurchase of up to
25 million shares of its common stock from time to time through open-market,
privately negotiated and/or other types of transactions in conformity with the
rules of the SEC. Pursuant to these authorizations, the Company entered into
forward purchase agreements to be settled from time to time, at the Company's
election, on a physical, net share or net cash basis. The Company utilized the
proceeds from the securitization of a portion of its stranded cost recovery to
physically settle these agreements in the first quarter of 1999, resulting in
the purchase of 21.5 million shares of common stock for $696 million. In
connection with the settlement of these agreements, the Company received $18
million in accumulated dividends on the repurchased shares and paid $6 million
of interest.
In January 2000, in connection with the Merger Agreement, the Company entered
into a forward purchase agreement to purchase $500 million of its common stock
from time to time through open-market, privately negotiated and/or other types
of transactions in conformity with the rules of the SEC. This forward purchase
agreement can be settled from time to time, at the Company's election, on a
physical, net share or net cash basis. The amount at which these agreements can
be settled is dependent principally upon the market price of the Company's
common stock as compared to the forward purchase price per share and the number
of shares to be settled.
Stock Option Plans
The Company maintains a Long-Term Incentive Plan (LTIP) for certain full-time
salaried employees of the Company and a broad-based incentive program for all
other employees. The types of long-term incentive awards which have been granted
under the LTIP are non-qualified options to purchase shares of the Company's
common stock and shares of restricted common stock. The types of long-term
incentive awards which have been granted under the broad-based incentive program
are non-qualified options to purchase shares of the Company's common stock. At
December 31, 1999, there were 9,000,000 options authorized for issuance under
the LTIP and 2,000,000 options authorized under the broad-based incentive
program. The Company uses the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." If the Company elected to account for
its stock option plans based on SFAS No. 123, it would have recognized
compensation expense of $10 million, $6 million and $2 million, respectively for
1999, 1998 and 1997, respectively. In addition, earnings applicable to common
stock would have been $560 million, $494 million and $(1,516) million for 1999,
1998 and 1997, respectively, and earnings per average common share would have
been $2.84, $2.20 and $(6.81) for 1999, 1998 and 1997, respectively.
The exercise price of the stock options is equal to the fair market value of the
underlying stock on the date of issue. Options granted under the LTIP and the
broad-based incentive program become exercisable upon attainment of a target
<PAGE>
share value and/or time. All options expire 10 years from the date of grant.
Information with respect to the LTIP and the broad-based incentive program at
December 31, 1999 and changes for the three years then ended, is as follows:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Price Price Price
Shares (per share) Shares (per share) Shares (per share)
1999 1999 1998 1998 1997 1997
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1 4,663,008 $27.71 3,816,794 $26.14 2,961,194 $26.68
Options granted 2,049,789 39.32 3,087,558 28.37 1,139,000 22.49
Options exercised (568,000) 25.17 (2,130,744) 23.86 -- --
Options canceled (78,900) 38.14 (110,600) 26.40 (283,400) 24.96
--------- ---------- ---------
Balance at December 31 6,065,897 31.91 4,663,008 28.65 3,816,794 26.14
========= ========== =========
Exercisable at December 31 3,331,903 25.60 3,462,550 23.91 2,800,794 26.65
========= ========== =========
Weighted average fair value of
options granted during year $8.24 $3.43 $2.97
===== ===== =====
</TABLE>
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1999, 1998 and 1997, respectively:
1999 1998 1997
Dividend yield 5.7% 6.8% 6.2%
Expected volatility 30.5% 21.4% 19.5%
Risk-free interest rate 5.9% 5.5% 6.4%
Expected life (years) 9.5 9.5 5
At December 31, 1999, the option groups outstanding, based on ranges of exercise
prices, were as follows:
Options Outstanding Options Exercisable
------------------------------------ -----------------------
Weighted
Remaining
Average Weighted Weighted
Contractual Average Average
Range of Number Life Exercise Number Exercise
Exercise Prices Outstanding (years) Price Exercisable Price
- - --------------- ----------- --------- -------- ----------- --------
$15.75-$20.00 827,150 7.71 $19.61 827,150 $19.61
$20.01-$25.00 890,500 7.75 22.17 890,500 22.17
$25.01-$30.00 1,204,300 4.73 27.43 1,201,800 27.43
$30.01-$35.00 203,400 9.49 33.51 44,000 32.92
$35.01-$50.00 2,940,547 9.23 40.03 368,453 40.53
--------- ---------
Total 6,065,897 3,331,903
========= =========
The Company issued 120,300 and 7,000 shares of restricted common stock during
1999 and 1998, respectively. Vesting for the restricted common stock awards is
over a period not to exceed 10 years from the grant date. Compensation cost of
$5 million and $0.2 million, respectively, associated with these awards is
amortized to expense over the vesting period. The related accumulated
amortization was approximately $2 million at December 31, 1999.
11. Earnings Per Share
Diluted earnings per average common share is calculated by dividing earnings
applicable to common stock by the weighted average shares of common stock
outstanding including stock options outstanding under the Company's stock option
<PAGE>
plans considered to be common stock equivalents. The following table shows the
effect of these stock options on the weighted average number of shares
outstanding used in calculating diluted earnings per average common share (in
thousands):
1999 1998 1997
------- ------- -------
Average Common Shares Outstanding 196,285 223,219 222,543
Assumed Conversion of Stock Options 1,331 685 --
------- ------- -------
Potential Average Dilutive Common Shares Outstanding 197,616 223,904 222,543
======= ======= =======
12. Preferred and Preference Stock
At December 31, 1999 and 1998, Series Preference Stock, no par value, consisted
of 100,000,000 shares authorized, of which no shares were outstanding. At
December 31, 1999 and 1998, cumulative Preferred Stock, no par value, consisted
of 15,000,000 shares authorized and the amounts set forth below:
Shares Outstanding Amount in Thousands
Current ------------------ -------------------
Redemption At December 31,
Price (a) 1999 1998 1999 1998
---------- --------- --------- -------- --------
Series (without mandatory redemption)
$4.68 $104.00 150,000 150,000 $15,000 $15,000
$4.40 112.50 274,720 274,720 27,472 27,472
$4.30 102.00 150,000 150,000 15,000 15,000
$3.80 106.00 300,000 300,000 30,000 30,000
$7.48 (b) 500,000 500,000 50,000 50,000
--------- --------- -------- --------
1,374,720 1,374,720 137,472 137,472
Series (with mandatory redemption)
$6.12 (c) 556,200 927,000 55,609 92,700
--------- --------- -------- --------
Total preferred stock 1,930,920 2,301,720 $193,081 $230,172
========= ========= ======== ========
(a) Redeemable, at the option of the Company, at the indicated dollar amounts
per share, plus accrued dividends.
(b) None of the shares of this series are subject to redemption prior to April
1, 2003.
(c) The Company exercised its right to double (to 370,800 shares, from the
original 185,400 share requirement) the first annual sinking fund
requirement for the $6.12 Series on August 2, 1999. Future annual sinking
fund requirements in 2000 to 2002 are $18.5 million.
13. Company Obligated Mandatorily Redeemable Preferred Securities of a
Partnership (COMRPS)
At December 31, 1999 and 1998, PECO Energy Capital, L.P. (Partnership), a
Delaware limited partnership of which a wholly owned subsidiary of the Company
is the sole general partner, had outstanding COMRPS as set forth in the
following table:
Trust Receipts Outstanding Amount in Thousands
Mandatory Distri- -------------------------- -------------------
Redemption bution At December 31,
Series Date Rate 1999 1998 1999 1998
- - ----- ---------- ------- --------- ---------- -------- --------
A (a) 2043 9.00% -- 8,850,000 $ -- $221,250
C (b) 2037 8.00% 2,000,000 2,000,000 50,000 50,000
D (c) 2028 7.38% 78,105 78,105 78,105 78,105
--------- ---------- -------- --------
Total 2,078,105 10,928,105 $128,105 $349,355
========= ========== ======== ========
<PAGE>
(a) On July 30, 1999, PECO Energy Capital Trust I redeemed all outstanding
Trust Receipts, each representing a 9.00% Cumulative Monthly Income
Preferred Security, Series A of PECO Energy Capital, L.P.
(b) Ownership of this series is evidenced by Trust Receipts, each representing
an 8.00% COMRPS, Series C with a liquidation value of $25, representing
limited partnership interests. The Trust Receipts were issued by PECO
Energy Capital Trust II, the sole assets of which are 8.00% COMRPS, Series
C. Each holder of Trust Receipts is entitled to withdraw the corresponding
number of 8.00% COMRPS, Series C from the Trust in exchange for the Trust
Receipts so held.
(c) Ownership of this series is evidenced by Trust Receipts, each representing
a 7.38% COMRPS, Series D with a liquidation value of $1,000, representing
limited partnership interests. The Trust Receipts were issued by PECO
Energy Capital Trust III, the sole assets of which are 7.38% COMRPS, Series
D. Each holder of Trust Receipts is entitled to withdraw the corresponding
number of 7.38% COMRPS, Series D from the Trust in exchange for the Trust
Receipts so held.
Each series is supported by the Company's deferrable interest subordinated
debentures, held by the Partnership, which bear interest at rates equal to the
distribution rates on the related series of COMRPS. The interest expense on the
debentures is included in Other Income and Deductions in the Consolidated
Statements of Income and is deductible for tax purposes.
14. Long-Term Debt
PECO Energy Transition Trust - Series 1999-A Transition Bonds
Expected At December 31,
Final Termi- 1999 1998
Payment nation ------- -------
Class Rate Date(a) Date(a) In Thousands
- - ----- ---- -------- ------ --------------------
A-1 5.48% 2001 2003 $201,970 $ --
A-2 5.63% 2003 2005 275,371 --
A-3 6.06%(b) 2004 2006 667,000 --
A-4 5.80% 2005 2007 458,519 --
A-5 6.14%(b) 2007 2009 464,600 --
A-6 6.05% 2007 2009 993,386 --
A-7 6.13% 2008 2009 896,654 --
Unamoritized debt discount (4,886) --
---------- ------
PECO Energy Transition Trust subtotal $3,952,614 $ --
Due
PECO Energy Company
First and refunding mortgage bonds (c)
7 1/2%-9 1/4% 1999 -- 325,000
5 5/8%-7 3/8% 2001 330,000 330,000
7 1/8%-8% 2002 500,000 500,000
6 1/2%-6 5/8% 2003 450,000 450,000
6 3/8%-10 1/4% 2005-2009 107,500 111,562
(d) 2010-2014 154,200 154,200
6 5/8%-8 3/4% 2020-2024 150,710 1,082,130
---------- ----------
Total first and refunding mortgage bonds 1,692,410 2,952,892
Notes payable 17,236 15,930
Pollution control notes (e) 369,125 212,705
Medium-term notes (f) 20,000 50,000
Note Payable - accounts receivable agreement (g) 49,381 66,837
Unamortized debt discount and premium, net (4,897) (17,249)
---------- ----------
PECO Energy Company subtotal 2,143,255 3,281,115
Other 551 --
---------- ----------
Total long-term debt 6,096,420 3,281,115
Due within one year (h) 127,762 361,523
---------- ----------
Long-Term debt $5,968,658 $2,919,592
========== ==========
<PAGE>
(a) The Expected Final Payment Date is the date when all principal and interest
of the related class of Transition Bonds is expected to be paid in full in
accordance with the expected amortization schedule for the applicable
class. The Termination Date is the date when all principal and interest of
the related class of Transition Bond must be paid in full. The current
portion of Transition Bonds is based upon the expected maturity date.
(b) Floating rate, as of December 31, 1999, based upon the London Interbank
Offering Rate (LIBOR) plus 0.125% for the A-3 class and LIBOR plus 0.20%
for the A-5 class.
(c) Utility plant is subject to the lien of the Company's mortgage.
(d) Pollution control notes issued under the First and Refunding Mortgage. The
average annual floating rate was 3.23% at December 31, 1999.
(e) Floating rates, which were an average annual interest rate of 4.03% at
December 31, 1999.
(f) Medium-term notes collateralized by mortgage bonds. The average annual
interest rate was 9.095% at December 31, 1999.
(g) Floating rate which was 6.06% at December 31, 1999.
(h) Long-term debt maturities, including mandatory sinking fund requirements,
in the period 2000-2004 are as follows (in millions): 2000 - $127,762; 2001
- $525,656; 2002 - $785,951; 2003 - $927,461; 2004 - $523,156 and
$3,206,434 thereafter.
In 1998, the Company entered into treasury forwards and forward starting
interest rate swaps to manage interest rate exposure associated with the
anticipated issuance of Transition Bonds. On March 18, 1999, these instruments
were settled with net proceeds to the Company of approximately $80 million which
were deferred and are being amortized over the life of the Transition Bonds as a
reduction of interest expense consistent with the Company's hedge accounting
policy. Through December 31, 1999, the Company has amortized approximately $9
million of the deferred gain.
In 1999, the Company incurred extraordinary charges aggregating $62 million ($37
million, net of tax) related to prepayment premiums and the write-off of
unamortized debt costs associated with the repayment of $811 million of First
Mortgage Bonds with a portion of the proceeds from the securitization of
stranded cost recovery and the refinancing of $156 million of pollution control
notes.
In 1998, the Company incurred extraordinary charges aggregating $33 million ($20
million, net of tax) related to prepayment premiums and the write-off of
unamortized debt costs associated with the repayment of $525 million of First
Mortgage Bonds.
15. Notes Payable, Banks
In Thousands 1999 1998 1997
-------- -------- --------
Average borrowings $241,636 $209,261 $248,111
Average interest rates, computed on daily basis 5.62% 5.83% 5.83%
Maximum borrowings outstanding $728,000 $525,000 $464,500
Average interest rates, at December 31 6.80% 6.17% 6.74%
The Company paid off its $400 million one-year term loan on March 26, 1999 with
the proceeds from the securitization of stranded costs.
The Company has a $900 million unsecured revolving credit facility with a group
of banks. The credit facility consists of a $450 million 364-day credit
agreement and a $450 million three-year credit agreement. The Company uses the
credit facility principally to support its $600 million commercial paper
program. There was no debt outstanding under this credit facility at December
31, 1999 or 1998. At December 31, 1999 and 1998, the amount of commercial paper
outstanding was $142 million and $125 million, respectively. At December 31,
1999, the Company had $21 million outstanding on lines of credit. In addition,
at December 31, 1999 and 1998, the Company had available formal and informal
lines of credit with banks aggregating $100 million.
<PAGE>
16. Income Taxes
Income tax expense (benefit) is comprised of the following components:
For the Years Ended December 31,
In Thousands 1999 1998 1997
Included in operations:
Federal
Current $293,093 $358,051 $ 251,509
Deferred 6,686 (109,211) (11,378)
Investment tax credit, net (14,301) (18,066) (18,201)
State
Current 71,695 95,309 76,689
Deferred 825 (6,429) (5,850)
-------- -------- -----------
$357,998 $319,654 $ 292,769
======== ======== ===========
Included in extraordinary item:
Federal
Current (19,693) (10,583) (123)
Deferred - - (987,234)
State
Current (5,722) (3,174) (29)
Deferred - - (303,575)
-------- -------- -----------
(25,415) (13,757) (1,290,961)
-------- -------- -----------
Total $332,583 $305,897 $ (998,192)
======== ======== ===========
The total income tax provisions, excluding the extraordinary item, differed from
amounts computed by applying the federal statutory tax rate to pre-tax income as
follows:
<TABLE>
<CAPTION>
In Thousands 1999 1998 1997
<S> <C> <C> <C>
Income Before Extraordinary Item $618,986 $532,378 $336,558
Total income tax provisions 357,998 319,654 292,769
-------- -------- --------
Income Before Income Taxes and Extraordinary Item $976,984 $852,032 $629,327
======== ======== ========
Income taxes on above at federal statutory rate of 35% $341,944 $298,211 $220,264
Increase (decrease) due to:
Property basis differences (7,926) (10,262 40,828
State income taxes, net of federal income tax benefit 46,704 57,582 46,046
Amortization of investment tax credit (14,301) (18,066) (18,201)
Prior period income taxes (7,153) (12,951) (2,985)
Other, net (1,270) 5,140 6,817
-------- -------- --------
Total income tax provisions $357,998 $319,654 $292,769
======== ======== ========
Effective income tax rate 36.6% 37.5% 46.5%
======== ======== ========
</TABLE>
<PAGE>
Provisions for deferred income taxes consist of the tax effects of the following
temporary differences:
<TABLE>
<CAPTION>
In Thousands 1999 1998 1997
<S> <C> <C> <C>
Depreciation and amortization $ 23,067 $ 140,448 $ 57,530
Deferred generation charges recoverable - (174,787) -
Transition bond hedge (29,010) - -
Deferred energy costs (9,341) (2,491) 2,256
Retirement and separation programs 7,076 (51,146) (12,734)
Incremental nuclear outage costs 3,610 (7,434) (981)
Uncollectible accounts 10,676 4,764 (1,710)
Reacquired debt (1,697) (5,026) (8,607)
Unbilled revenue (2,802) 3,579 (5,110)
Environmental clean-up costs 3,507 (3,574) (15,121)
Obsolete inventory 976 4,206 (7,074)
Limerick plant disallowances and phase-in plan - - (747)
AMT credits - (42,067) -
Other nuclear operating costs (6) 9,926 (9,892)
Other 1,455 7,962 (15,038)
-------- --------- -----------
Subtotal 7,511 (115,640) (17,228)
-------- --------- -----------
Extraordinary item (25,415) (13,757) (1,290,961)
-------- --------- -----------
Total $(17,904) $(129,397) $(1,308,189)
======== ========= ===========
</TABLE>
The tax effect of temporary differences giving rise to the Company's net
deferred tax liability as of December 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
Liability or (Asset)
In Thousands 1999 1998
<S> <C> <C>
Nature of temporary difference:
Plant basis difference $2,703,627 $2,653,760
Deferred investment tax credit 285,698 299,999
Deferred debt refinancing costs 36,923 37,575
Deferred pension and post-retirement obligations (147,977) (157,166)
Other, net (167,220) (143,209)
---------- ----------
Deferred income taxes (net) on the balance sheet $2,711,051 $2,690,959
========== ==========
</TABLE>
The net deferred tax liability shown above as of December 31, 1999 and 1998 was
comprised of $3,140 million and $3,123 million of deferred tax liabilities, and
$429 million and $432 million of deferred tax assets, respectively.
In accordance with SFAS No. 71, the Company recorded a recoverable deferred
income tax asset of $638 million and $614 million at December 31, 1999 and 1998,
respectively. These balances are applicable only to regulated assets, due to the
discontinuance of SFAS No. 71 for the Company's electric generation operations.
These recoverable deferred income taxes include the deferred tax effects
associated principally with liberalized depreciation accounted for in accordance
with the ratemaking policies of the PUC, as well as the revenue impacts thereon,
and assume continued recovery of these costs in future rates.
The Internal Revenue Service (IRS) has completed and settled its examinations of
the Company's federal income tax returns through 1993. The 1994 through 1996
<PAGE>
federal income tax returns have been examined and the Company and the IRS are in
the process of settling the audit which is not expected to have a material
adverse impact on financial condition or results of operations of the Company.
17. Taxes Other Than Income - Operating
For the Years Ended December 31,
In Thousands 1999 1998 1997
-------- -------- --------
Gross receipts $155,115 $155,663 $163,552
Capital stock 4,473 43,754 48,085
Real estate 72,083 51,313 69,597
Payroll 27,867 30,068 25,976
Other 2,194 (1,283) 2,881
-------- -------- --------
Total $261,732 $279,515 $310,091
======== ======== ========
18. Jointly Owned Electric Utility Plant
The Company's ownership interests in jointly owned electric utility plant at
December 31, 1999, were as follows:
<TABLE>
<CAPTION>
Production Plants Transmission
------------------------------------------------------ and
Peach Bottom Salem Keystone Conemaugh Other
Plant
Public Service
Electric
PECO Energy and Gas Sithe Sithe Various
Operator Company Company Energy Inc. Energy Inc. Companies
- - -------- ------------- ---------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Participating 21% to
interest 42.49% 42.59% 20.99% 20.72% 43%
Company's share (In Thousands):
Utility plant $387,869 $17,739 $119,920 $192,555 $83,806
Accumulated depreciation 197,827 11,986 83,933 92,047 33,848
Construction work in progress 23,936 2,163 1,967 5,646 2,794
</TABLE>
The Company's participating interests are financed with Company funds and, when
placed in service, all operations are accounted for as if such participating
interests were wholly owned facilities.
On September 30, 1999, the Company reached an agreement to purchase an
additional 7.51% ownership interest in Peach Bottom from certain operating
subsidiaries of Atlantic City Electric and Delmarva Power & Light Company for
$17.5 million. The sale is expected to be completed by mid-2000, subject to
federal and state approvals.
19. Supplemental Cash Flow Information
The following disclosures supplement the accompanying Consolidated Statements of
Cash Flows:
In Thousands 1999 1998 1997
-------- -------- --------
Cash paid during the year:
Interest (net of amount capitalized) $349,522 $384,932 $405,838
Income taxes (net of refunds) 304,473 346,539 345,232
Noncash investing and financing:
Capital lease obligations incurred - 38,307 32,909
Issuance of Exelon Infrastructure Services stock 11,000 - -
<PAGE>
20. Investments
At December 31,
In Thousands 1999 1998
-------- --------
Trust accounts for decommissioning nuclear plants $408,450 $379,938
Telecommunications ventures 23,349 48,391
Investment in AmerGen 39,624 -
Energy services and other ventures 58,108 69,319
Marketable securities 8,700 -
-------- --------
Total $538,231 $497,648
======== ========
21. Financial Instruments
Fair values of financial instruments, including liabilities, are estimated based
on quoted market prices for the same or similar issues. The carrying amounts and
fair values of the
Company's financial instruments as of December 31, 1999 and 1998 were as
follows:
<TABLE>
<CAPTION>
1999 1998
Carrying Carrying
In Thousands Amount Fair Value Amount Fair Value
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Non-derivatives:
Assets
Cash and cash equivalents $ 228,197 $ 228,197 $ 48,083 $ 48,083
Trust accounts for decommis sioning nuclear plants 408,450 408,450 379,938 379,938
Marketable securities 8,700 8,700 - -
Liabilities
Long-term debt (including amounts due within one year) 6,096,420 5,821,697 3,281,115 3,404,250
Derivatives:
Treasury forwards - - - (300)
Interest rate swaps - 35,800 - -
Forward interest rate swaps - 66,100 - (4,400)
</TABLE>
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash equivalents and customer accounts
receivable. The Company places its cash equivalents with high-credit quality
financial institutions. Generally, such investments are in excess of the Federal
Deposit Insurance Corporation limit. Concentrations of credit risk with respect
to customer accounts receivable are limited due to the Company's large number of
customers and their dispersion across many industries.
The fair value of derivatives generally reflects the estimated amounts that the
Company would receive or pay to terminate the contracts at the reporting date,
thereby taking into account the current unrealized gains or losses of open
contracts. Dealer quotes are available for all of the Company's derivatives.
The Company has entered into interest rate swaps relating to its two variable
rate series of Transition Bonds in the aggregate notional amount of $1.1 billion
with an average interest rate of 6.65%. The Company has also entered into
forward starting interest rate swaps relating to its two variable rate series of
Transition Bonds in the aggregate notional amount of $1.1 billion with an
average interest rate of 6.01%. The notional amount of derivatives do not
represent amounts that are exchanged by the parties and, thus, are not a
<PAGE>
measure of the Company's exposure. The amounts exchanged are calculated on the
basis of the notional or contract amounts, as well as on the other terms of the
derivatives, which relate to interest rates and the volatility of these rates.
The Company would be exposed to credit-related losses in the event of
non-performance by the counterparties that issued the derivative instruments.
The Company does not expect that counterparties to the interest rate swaps will
fail to meet these obligations, given their high credit ratings. The credit
exposure of derivatives contracts is represented by the fair value of contracts
at the reporting date. The Company's interest rate swaps are documented under
master agreements. Among other things, these agreements provide for a maximum
credit exposure for both parties. Payments are required by the appropriate party
when the maximum limit is reached.
22. Early Retirement and Separation Program
In April 1998, the Board of Directors authorized the implementation of a
retirement incentive program and an enhanced severance benefit program. The
retirement incentive program allowed employees age 50 and older, who have been
designated as excess or who are in job classifications facing reduction, to
retire from the Company. The enhanced severance benefit program provided
non-retiring excess employees with fewer than ten years of service benefits
equal to two weeks pay per year of service. Non-retiring excess employees with
more than ten years of service received benefits equal to three weeks pay per
year of service.
Through its Cost Competitiveness Review, the Company identified 1,157 employees
across the Company who were considered excess or were in job classifications
facing reduction. Of the 1,157 employees, 711 were eligible for and agreed to
take the retirement incentive program. The remaining employees are eligible for
the enhanced severance benefit program. As of December 31, 1999, 497 employees
were eligible for and have taken the retirement incentive program and 502
employees were terminated with the enhanced severance benefit program. The
remaining employees are scheduled for termination through the end of June 2000.
At December 31, 1998, the Company incurred a charge of $125 million ($74
million, net of income taxes) for its Early Retirement and Separation Program
relating to 1,157 employees. This charge consisted of the following: $121
million for the actuarially determined pension and other postretirement benefits
costs and $4 million for outplacement services costs and the continuation of
benefits for one year. Approximately $0.8 million of the $125 million charge was
related to the Company's non-utility operations and accordingly was recorded in
Other Income and Deductions. The estimated cost of separation benefits was
approximately $47 million, of which $28 million was paid through December 31,
1999. The remaining balance of $19 million is expected to be paid by June 2000.
Retirement benefits of approximately $78 million are being paid to the retirees
over their lives. All cash payments related to the early retirement and
severance program are expected to be funded through the assets of the Company's
Service Annuity Plan.
23. Other Income and Deductions
Settlement of Salem Litigation
In 1997, the Company received $70 million pursuant to the May 1997 settlement
agreement with Public Service Electric and Gas Company resolving a suit filed by
the Company concerning the shutdown of Salem.
<PAGE>
Other, Net consists of the following:
At December 31,
In Thousands 1999 1998 1997
-------- -------- --------
Interest income $ 51,619 $ 26,349 $ -
Gain on sale of assets 13,954 1,511 -
Settlement of power purchase agreement - 14,250 -
Write-off of investments (14,618) (7,128) (20,045)
Nonutility activities (34,806) (49,234) (33,246)
Other 2,462 (6,826) 1,458
-------- -------- --------
Total $ 18,611 $(21,078) $(51,833)
======== ======== ========
24. Regulatory Assets
At December 31, 1999 and 1998, the Company had deferred the following regulatory
assets on the Consolidated Balance Sheets:
In Thousands 1999 1998
---------- ----------
Competitive transition charge (see Note 5) $5,274,624 $5,274,624
Recoverable deferred income taxes (see Note 16) 638,060 614,445
Loss on reacquired debt 70,711 77,165
Compensated absences 4,298 4,289
Deferred energy costs 6,874 29,847
Non-pension postretirement benefits 84,421 90,915
---------- ----------
Total $6,078,988 $6,091,285
========== ==========
At December 31, 1999, the CTC includes the unamortized balance of $3.9 billion
of ITP sold to PETT in connection with the securitization of stranded cost
recovery. ITP represents the irrevocable right of the Company or its assignee to
collect non-bypassable charges from customers to recover stranded costs. See
Note 4 - Rate Matters.
25. Exelon Infrastructure Services Acquisitions
In October 1999, EIS, an unregulated subsidiary of the Company, acquired the
stock or assets of six utility service contracting companies for an aggregate
purchase price of approximately $233 million, including $11 million of EIS
stock. The purchase price also contains estimated contingent payments of $20
million based upon the achievement of targeted earnings of the acquired
companies over a one year period. The acquisitions were accounted for using the
purchase method of accounting. The allocation of purchase price to the fair
value of assets acquired and liabilities assumed is as follows (in thousands):
Current Assets $143,249
Long-Term Assets 85,893
Goodwill 121,110
Current Liabilities (115,408)
Long-Term Liabilities (1,352)
--------
Total $233,492
========
Goodwill associated with these acquisitions is being amortized over 20 years.
At December 31, 1999, Other Current Assets includes $48 million of Costs and
Earnings in Excess of Billings on uncompleted contracts and Other Current
Liabilities includes $9 million of Billings in Excess of Costs and Earnings on
uncompleted contracts.
26. AmerGen Energy Company, L.L.C.
In 1999, AmerGen, the Company's joint venture with British Energy plc, purchased
Clinton Nuclear Power Station (Clinton) and Three Mile Island Unit No. 1 Nuclear
Generating Facility. In 1999, the Company also entered into agreements to
purchase Nine Mile Point Unit 1 Nuclear Generating Facility, a 59% undivided
<PAGE>
interest in Nine Mile Point Unit 2 Nuclear Generating Facility, Oyster Creek
Nuclear Generating Facility and Vermont Yankee Nuclear Power Station. These
purchases are expected to be completed in 2000 upon receipt of the required
federal and state approvals. The Company accounts for its investment in AmerGen
under the equity method of accounting. In conjunction with each of these
acquisitions, AmerGen has received a fully funded decommissioning trust fund
which has been computed assuming the anticipated costs to appropriately
decommission each nuclear plant discounted to net present value using the NRC's
mandated rate of 2%. AmerGen believes that the amount of the trust funds and
investment earnings thereon will be sufficient to meet its decommissioning
obligations.
27. Quarterly Data (Unaudited)
The data shown below include all adjustments which the Company considers
necessary for a fair presentation of such amounts:
<TABLE>
<CAPTION>
Income (Loss)
Operating Operating Before Net
Revenues Income Extraordinary Item Income (Loss)
In Millions 1999 1998 1999 1998 1999 1998 1999 1998
Quarter ended
<S> <C> <C> <C> <C> <C> <C> <C> <C>
March 31 $1,256 $1,190 $ 376(a) $287 $157 $114 $157 $114
June 30 1,194 1,215 252 366 96(b) 151 69 151
September 30 1,732 1,786 484 549 231 274 231 274
December 31 1,255 1,072 297 84 135 (7)(c) 126 (26)
Earnings (Loss)
Earnings (Loss) Per Average Earnings
Applicable to Average Shares Share Before (Loss) Per
Common Stock Outstanding Extraordinary Item Average Share
In Millions 1999 1998 1999 1998 1999 1998 1999 1998
Quarter ended
March 31 $153 $110 223.4 222.5 $ 0.69 $0.50 $0.68 $0.50
June 30 61 148 192.0 222.7 0.48 0.66 0.34 0.66
September 30 228 270 186.6 223.1 1.22 1.21 1.22 1.21
December 31 123 (28) 183.8 224.5 0.71 (0.04) 0.66 (0.13)
</TABLE>
(a) Includes the reclassification of a $7 million charge for the abandonment of
an information system implementation from Other Income and Deduction to
Operating and Maintenance Expense (O&M).
(b) Reflects increased fuel and energy interchange expenses related to Exelon
Energy and O&M expenses related to Clinton.
(c) Reflects a $125 million charge related to the Early Retirement and
Separation Program.
= = = =
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
(a) Identification of Directors.
The information required for Directors is included in the Proxy
Statement of the Company in connection with its 2000 Annual Meeting of
Shareholders, which is expected to be filed with the U.S. Securities and
Exchange Commission by April 29, 2000, under the heading CHAPTER II -
INFORMATION ABOUT THE PECO ENERGY ANNUAL MEETING AND OTHER PROPOSALS - Proposals
for PECO Energy Annual Meeting - Item 3. Election of PECO Energy Directors and
is incorporated herein by reference.
(b) Identification of Executive Officers.
The information required for Executive Officers is set forth in "PART
I. ITEM 1. BUSINESS - Executive Officers of the Registrant" of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information with respect to this caption is included in the Proxy
Statement of the Company in connection with its 2000 Annual Meeting of
Shareholders, which is expected to be filed with the U.S. Securities and
Exchange Commission by April 29, 2000, under the heading CHAPTER II -
INFORMATION ABOUT THE PECO ENERGY ANNUAL MEETING AND OTHER PROPOSALS - Proposals
for PECO Energy Annual Meeting - Item 3. Election of PECO Energy Directors and
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information with respect to this caption is included in the Proxy
Statement of the Company in connection with its 2000 Annual Meeting of
Shareholders, which is expected to be filed with the U.S. Securities and
Exchange Commission by April 29, 2000, under the heading CHAPTER II -
INFORMATION ABOUT THE PECO ENERGY ANNUAL MEETING AND OTHER PROPOSALS - Proposals
for PECO Energy Annual Meeting - Item 3. Election of PECO Energy Directors and
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information with respect to this caption is included in the Proxy
Statement of the Company in connection with its 2000 Annual Meeting of
Shareholders, which is expected to be filed with the U.S. Securities and
Exchange Commission by April 29, 2000, under the heading CHAPTER II -
INFORMATION ABOUT THE PECO ENERGY ANNUAL MEETING AND OTHER PROPOSALS - Proposals
for PECO Energy Annual Meeting -- Item 3. Election of PECO Energy Directors and
is incorporated herein by reference.
35
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Reference (Page)
Index
<S> <C>
(a) 1. Financial Statements
Report of Independent Accountants .................. 56
Consolidated Statements of Income for the years
ended December 31, 1999, 1998 and 1997 ......... 57
Consolidated Statements of Cash Flows for the years
ended December 31, 1999, 1998 and 1997 ......... 58
Consolidated Balance Sheets as of December 31, 1999
and 1998 ....................................... 59
Consolidated Statements of Changes in Common
Shareholders' Equity and Preferred Stock for the
years ended December 31, 1999, 1998 and 1997 ... 61
Notes to Consolidated Financial Statements ......... 63
2. Financial Statement Schedules.
Schedule II--Valuation and Qualifying Accounts for
the years ended December 31, 1999,
1998 and 1997 ...................... 95
3. Exhibits.
</TABLE>
All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements and notes thereto.
<PAGE>
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
(Thousands of Dollars)
<TABLE>
<CAPTION>
Column A Column B Column C Additions Column D Column E
-------- -------- ------------------------- ------------- ----------
Charged to
Balance at Charged to Other Balance at
Beginning of Costs and Accounts Deductions End of
Description Period Expenses Describe Describe(1) Period
----------- ------------ ---------- ----------- ----------- ----------
FOR THE YEAR ENDED DECEMBER 31, 1999
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS..... $122,139 $59,418 $ -- $69,543 $112,014
-------- ------- ------ ------- --------
TOTAL .................................. $122,139 $59,418 $ -- $69,543 $112,014
======== ======= ====== ======= ========
FOR THE YEAR ENDED DECEMBER 31, 1998
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS . $133,810 $71,667 $ -- $83,338 $122,139
-------- ------- ------ ------- --------
TOTAL .................................. $133,810 $71,667 $ -- $83,338 $122,139
======== ======= ====== ======= ========
FOR THE YEAR ENDED DECEMBER 31, 1997(2)
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS..... $128,459 $88,263 $ -- $82,912 $133,810
-------- ------- ------ ------- --------
TOTAL .................................. $128,459 $88,263 $ -- $82,912 $133,810
======== ======= ====== ======= ========
</TABLE>
- - ------------
(1) Write-off of individual accounts receivable.
(2) Restated to reflect valuation allowance activity for Customer Assistance
Program and Special Agreement accounts.
36
<PAGE>
Exhibits
Certain of the following exhibits have been filed with the Securities and
Exchange Commission (Commission) pursuant to the requirements of the Acts
administered by the Commission. Such exhibits are identified by the references
following the listing of each such exhibit and are incorporated herein by
reference under Rule 12b-32 of the Securities and Exchange Act of 1934, as
amended. Certain other instruments which would otherwise be required to be
listed below have not been so listed because such instruments do not authorize
securities in an amount which exceeds 10% of the total assets of the Company and
its subsidiaries on a consolidated basis and the Company agrees to furnish a
copy of any such instrument to the Commission upon request.
Exhibit No. Description
2-1 Amended and Restated Agreement and Plan of Merger dated as of January
7, 2000, among PECO Energy Company, Exelon Corporation and Unicom
Corporation (Current Report on Form 8-K dated January 13, 2000,
Exhibit 2-1).
3-1 Amended and Restated Articles of Incorporation of PECO Energy Company
(1993 Form 10-K, Exhibit 3-1).
3-2 Bylaws of the Company, adopted February 26, 1990 and amended January
26, 1998. (1997 Form 10-K, Exhibit 3-2)
4-1 First and Refunding Mortgage dated May 1, 1923 between The Counties
Gas and Electric Company (predecessor to the Company) and Fidelity
Trust Company, Trustee (First Union National Bank, successor),
(Registration No. 2-2881, Exhibit B-1).
4-2 Supplemental Indentures to the Company's First and Refunding Mortgage:
Dated as of File Reference Exhibit No.
-------------------------------------------------------------------
May 1, 1927 2-2881 B-1(c)
March 1, 1937 2-2881 B-1(g)
December 1, 1941 2-4863 B-1(h)
November 1, 1944 2-5472 B-1(i)
December 1, 1946 2-6821 7-1(j)
September 1, 1957 2-13562 2(b)-17
May 1, 1958 2-14020 2(b)-18
March 1, 1968 2-34051 2(b)-24
37
<PAGE>
March 1, 1981 2-72802 4-46
March 1, 1981 2-72802 4-47
December 1, 1984 1984 Form 10-K 4-2(b)
July 15, 1987 Form 8-K dated July 21, 1987 4(c)-63
July 15, 1987 Form 8-K dated July 21, 1987 4(c)-64
October 15, 1987 Form 8-K dated October 7, 1987 4(c)-66
October 15, 1987 Form 8-K dated October 7, 1987 4(c)-67
April 15, 1988 Form 8-K dated April 11, 1988 4(e)-68
April 15, 1988 Form 8-K dated April 11, 1988 4(e)-69
October 1, 1989 Form 8-K dated October 6, 1989 4(e)-72
October 1, 1989 Form 8-K dated October 18, 1989 4(e)-73
April 1, 1991 1991 Form 10-K 4(e)-76
December 1, 1991 1991 Form 10-K 4(e)-77
April 1, 1992 March 31, 1992 Form 10-Q 4(e)-79
June 1, 1992 June 30, 1992 Form 10-Q 4(e)-81
July 15, 1992 June 30, 1992 Form 10-Q 4(e)-83
September 1, 1992 1992 Form 10-K 4(e)-85
March 1, 1993 1992 Form 10-K 4(e)-86
March 1, 1993 1992 Form 10-K 4(e)-87
May 1, 1993 March 31, 1993 Form 10-Q 4(e)-88
May 1, 1993 March 31, 1993 Form 10-Q 4(e)-89
May 1, 1993 March 31, 1993 Form 10-Q 4(e)-90
August 15, 1993 Form 8-A dated August 19, 1993 4(e)-91
August 15, 1993 Form 8-A dated August 19, 1993 4(e)-92
November 1, 1993 Form 8-A dated October 27, 1993 4(e)-94
November 1, 1993 Form 8-A dated October 27, 1993 4(e)-95
May 1, 1995 Form 8-K dated May 24, 1995 4(e)-96
4-3 Indenture, dated as of July 1, 1994, between the Company and First
Union National Bank, as successor trustee (1994 Form 10-K, Exhibit
4-5).
4-4 Second Supplemental Indenture, dated as of June 1, 1997, between the
Company and First Union National Bank, as successor trustee, to
Indenture dated as of July 1, 1994. (1997 Form 10-K, Exhibit 4-5).
4-5 Third Supplemental Indenture, dated as of April 1, 1998, between the
Company and First Union National Bank, as successor trustee, to
Indenture dated as of July 1, 1994. (1998 Form 10-K, Exhibit 4-6)
4-6 Payment and Guarantee Agreement, dated as of June 6, 1997, executed by
the Company in favor of the holders of Cumulative Monthly Income
Preferred Securities, Series C of PECO Energy Capital, L.P. (1997 Form
10-K, Exhibit 4-8).
4-7 Payment and Guarantee Agreement, dated as of April 6, 1998, executed
by the Company in favor of the holders of Cumulative Monthly Income
Preferred Securities, Series D of PECO Energy Capital, L.P. (1998 Form
10-K, Exhibit 4-10)
38
<PAGE>
4-8 Revolving Credit Agreement, dated as of September 15, 1999, among the
Company, as borrower, and certain banks named therein.
4-9 364-day Credit Agreement, dated as of September 15, 1999, among the
Company, as borrower, and certain banks named therein.
4-10 PECO Energy Company Dividend Reinvestment and Stock Purchase Plan, as
amended January 28, 1994 (Post-Effective Amendment No. 1 to
Registration No. 33-42523, Exhibit 28).
10-1 Amended and Restated Operating Agreement of PJM Interconnection,
L.L.C., dated June 2, 1997, (Revised December 31, 1997). (1997 Form
10-K, Exhibit 10-1).
10-2 Agreement, dated November 24, 1971, between Atlantic City Electric
Company, Delmarva Power & Light Company, Public Service Electric and
Gas Company and the Company for ownership of Salem Nuclear Generating
Station (1988 Form 10-K, Exhibit 10-3); supplemental agreement dated
September 1, 1975; supplemental agreement dated January 26, 1977 (1991
Form 10-K, Exhibit 10-3); and supplemental agreement dated May 27,
1997. (1997 Form 10-K, Exhibit 10-2).
10-3 Agreement, dated November 24, 1971, between Atlantic City Electric
Company, Delmarva Power & Light Company, Public Service Electric and
Gas Company and the Company for ownership of Peach Bottom Atomic Power
Station; supplemental agreement dated September 1, 1975; supplemental
agreement dated January 26, 1977 (1988 Form 10-K, Exhibit 10-4) and
supplemental agreement dated May 27, 1997. (1997 Form 10-K, Exhibit
10-3).
10-4 Deferred Compensation and Supplemental Pension Benefit Plan.* (Form
10-K, Exhibit 10-4).
10-5 Management Group Deferred Compensation and Supplemental Pension
Benefit Plan.* (Form 10-K, Exhibit 10-5).
10-6 Unfunded Deferred Compensation Plan for Directors.* (Form 10-K,
Exhibit 10-6).
10-7 Forms of Agreement between the Company and certain officers (1995 Form
10-K, Exhibit 10-5).
10-8 PECO Energy Company 1989 Long-Term Incentive Plan, amended April 9,
1997 (1997 Proxy Statement, Appendix B).*
10-9 PECO Energy Company Management Incentive Compensation Plan (1997 Proxy
Statement, Appendix A).*
10-10 PECO Energy Company 1998 Stock Option Plan (Registration No.
333-67367, Exhibit 4.2).
10-11 Amended and Restated Limited Partnership Agreement of PECO Energy
Capital, L.P., dated July 25, 1994 (1994 Form 10-K, Exhibit 10-7).
39
<PAGE>
10-12 Amendment No. 2 to the Amended and Restated Limited Partnership
Agreement of PECO Energy Capital, L.P. (1995 Form 10-K, Exhibit 10-9).
10-13 Amendment No. 3 to the Amended and Restated Limited Partnership
Agreement of PECO Energy Capital, L.P. (1998 Form 10-K, Exhibit 10-14)
10-14 Amended and Restated Trust Agreement of PECO Energy Capital Trust II,
dated as of December 19, 1995.
10-15 Amended and Restated Trust Agreement of PECO Energy Capital Trust III,
dated as of April 6, 1998. (1998 Form 10-K, Exhibit 10-16)
10-16 Amended and Restated Trust Agreement for PECO Energy. Transition Trust
dated as of February 19, 1999 among George Shicora and Diana Moy
Kelly, as Beneficiary Trustees, First Union Trust Company, National
Association, as Issuer Trustee, Delaware Trustee and Independent
Trustee, and PECO Energy Company, as Grantor and Owner (PECO Energy
Transition Trust Current Report on Form 8-K dated March 31, 1999,
Exhibit 4.1.2)
10-17 Intangible Transition Property Sale Agreement dated as of March 25,
1999 between PECO Energy Transition Trust and PECO Energy Company
(PECO Energy Transition Trust Current Report on Form 8-K dated March
31, 1999, Exhibit 10.1).
10-18 Master Servicing Agreement between PECO Energy Transition Trust and
PECO Energy Company (PECO Energy Transition Trust Current Report on
Form 8-K dated March 31, 1999, Exhibit 10.2).
10-19 Form of Intangible Transition Property Sale Agreement between PECO
Energy Transition Trust and PECO Energy Company (Registration
Statement No. 333-31646, Exhibit 10.1)
10-20 Form of Intangible Transition Property Sale Agreement between PECO
Energy Transition Trust and PECO Energy Company (Registration
Statement No. 333-31646, Exhibit 10.2)
10-21 Joint Petition for Full Settlement of PECO Energy Company's
Restructuring Plan and Related Appeals and Application for a Qualified
Rate Order and Application for Transfer of Generation Assets dated
April 29, 1998. (Registration Statement No. 333-31646, Exhibit 10.3)
40
<PAGE>
10-22 Form of Second Amended and Restated Trust Agreement for PECO Energy
Transition Trust (Registration Statement No. 333-31646).
12-1 Ratio of Earnings to Fixed Charges.
12-2 Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends.
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
24 Powers of Attorney.
27 Financial Data Schedule.
- - ------------
* Compensatory plans or arrangements in which directors or officers of the
Company participate and which are not available to all employees.
41
<PAGE>
Reports on Form 8-K
During the quarter ended December 31, 1999, the Company filed the following
Current Reports on Form 8-K:
Date of earliest event reported:
September 22, 1999 reporting information under "ITEM 5. OTHER EVENTS"
and "ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS" regarding pro forma financial information about the merger of
the Company and Unicom.
Date of earliest event reported:
October 19, 1999 reporting information under "ITEM 5. OTHER EVENTS"
regarding Exelon Infrastructure Services, Inc., a subsidiary of the
Company, announcing the acquisition of five utility service companies.
Date of earliest event reported:
October 19, 1999 reporting information under "ITEM 5. OTHER EVENTS"
regarding AmerGen's accepted bid to acquire Vermont Yankee Nuclear
Power Station from Vermont Yankee Nuclear Power Corporation.
Date of earliest event reported:
December 16, 1999 reporting information under "ITEM 5. OTHER EVENTS"
regarding AmerGen's signing of the closing documents that officially
transfer ownership of Clinton to the Company.
Date of earliest event reported:
December 21, 1999 reporting information under "ITEM 5. OTHER EVENTS"
regarding AmerGen's completion of the sale of the Three Mile Island
Unit 1 Nuclear Generating Facility to the Company.
Subsequent to December 31, 1999, the Company filed the following Current Reports
on Form 8-K:
Date of earliest event reported:
January 7, 2000 reporting information under "ITEM 5. OTHER EVENTS"
regarding the approval by the Board of Directors of the Company and
Unicom Corporation to accelerate the repurchase of $1.5 billion in stock
and adjust shareholder consideration.
Date of earliest event reported:
January 13, 1999 reporting information under "ITEM 5. OTHER EVENTS"
regarding the provision of the Amended Merger Agreement and additional
information, including pro forma financial information, about the
transactions contemplated by the Amended Merger Agreement before the
Company commences repurchases of shares of its common stock.
Date of earliest event reported:
March 21, 2000 reporting information under "ITEM 5. OTHER EVENTS"
regarding the issuance of an order by the Pennsylvania Public Utility
Commission approving a Joint Petition for Full Settlement of PECO Energy
Company's Application for Issuance of a Qualified Rate Order authorizing
the Company to securitize up to an additional $1.0 billion of its
authorized recoverable stranded costs.
Date of earliest event reported:
March 24, 2000 reporting information under "ITEM 5. OTHER EVENTS"
regarding the filing with the PUC of a joint petition for settlement
reached with various parties to the Company's proceeding before the
PUC involving the proposed merger with Unicom.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant, PECO ENERGY COMPANY, has duly caused this
annual report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Philadelphia, and Commonwealth of Pennsylvania, on
the 30th day of March 2000.
PECO ENERGY COMPANY
By /s/ C.A. McNeill, Jr.
-----------------------------------------
C.A. McNeill, Jr., Chairman of the Board,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this annual report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ C. A. McNeill, Jr. Chairman of the Board, President, Chief March 30, 2000
- - --------------------------- Executive Officer and Director (Principal
C. A. McNeill, Jr. Executive Officer)
/s/ M. J. Egan Senior Vice President -- Finance and Chief March 30, 2000
- - --------------------------- Financial Officer (Principal Financial and
M. J. Egan Accounting Officer
</TABLE>
This annual report has also been signed below by C. A. McNeill, Jr.,
Attorney-in-Fact, on behalf of the following Directors on the date indicated:
SUSAN W. CATHERWOOD ROSEMARIE B. GRECO
DANIEL L. COOPER JOHN M. PALMS
M. WALTER D'ALESSIO JOSEPH F. PAQUETTE, JR.
G. FRED DIBONA, JR. RONALD RUBIN
R. KEITH ELLIOTT ROBERT SUBIN
RICHARD H. GLANTON
By /s/ C. A. McNeill, Jr. March 30, 2000
- - ------------------------------------
C.A. McNeill, Jr. Attorney-in-Fact
<PAGE>
$450,000,000
REVOLVING CREDIT AGREEMENT
dated as of September 15, 1999
among
PECO ENERGY COMPANY
as Borrower
THE BANKS NAMED HEREIN
as Banks
THE FIRST NATIONAL BANK OF CHICAGO
as Administrative Agent
CITIBANK, N.A.
as Documentation Agent
and
BANC ONE CAPITAL MARKETS, INC.
as Lead Arranger
<PAGE>
TABLE OF CONTENTS
-----------------
Section Page
- - ------- ----
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.01 Certain Defined Terms......................................... 1
1.02 Computation of Time Periods................................... 9
1.03 Accounting Principles......................................... 9
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
2.01 The Advances.................................................. 10
2.02 Making the Advances........................................... 10
2.03 Fees.......................................................... 11
2.04 Reduction of the Commitments.................................. 11
2.05 Repayment of Advances......................................... 11
2.06 Interest on Advances.......................................... 12
2.07 Additional Interest on Advances............................... 12
2.08 Interest Rate Determination................................... 12
2.09 Conversion of Advances........................................ 13
2.10 Prepayments................................................... 13
2.11 Increased Costs............................................... 14
2.12 Illegality.................................................... 15
2.13 Payments and Computations..................................... 15
2.14 Taxes......................................................... 16
2.15 Sharing of Payments, Etc...................................... 18
2.16 Extension of Termination Date................................. 18
2.17 Additional Lenders............................................ 19
ARTICLE III
CONDITIONS OF LENDING
3.01 Conditions Precedent to Initial Advances...................... 20
3.02 Conditions Precedent to Certain Borrowings.................... 21
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.01 Representations and Warranties of the Borrower................ 21
ARTICLE V
COVENANTS OF THE BORROWER
5.01 Affirmative Covenants......................................... 23
5.02 Negative Covenants............................................ 25
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<PAGE>
Section Page
- - ------- ----
ARTICLE VI
EVENTS OF DEFAULT
6.01 Events of Default............................................. 27
ARTICLE VII
THE AGENTS
7.01 Authorization and Action...................................... 28
7.02 Agents' Reliance, Etc......................................... 29
7.03 Agents and Affiliates......................................... 29
7.04 Lender Credit Decision........................................ 29
7.05 Indemnification............................................... 29
7.06 Successor Administrative Agent................................ 30
7.07 Documentation Agent and Lead Arranger......................... 30
ARTICLE VIII
MISCELLANEOUS
8.01 Amendments, Etc............................................... 30
8.02 Notices, Etc.................................................. 30
8.03 No Waiver; Remedies........................................... 31
8.04 Costs and Expenses; Indemnification........................... 31
8.05 Right of Set-off.............................................. 32
8.06 Binding Effect................................................ 32
8.07 Assignments and Participations................................ 32
8.08 Governing Law................................................. 35
8.09 Consent to Jurisdiction....................................... 35
8.10 Execution in Counterparts; Integration........................ 35
Schedule I List of Applicable Lending Offices
Exhibit A Form of Note
Exhibit B Notice of a Borrowing
Exhibit C Assignment and Acceptance
Exhibit D Form of Opinion of Special Counsel for the Borrower
Exhibit E Form of Opinion of Counsel to the Administrative Agent
Exhibit F Form of Annual and Quarterly Compliance Certificate
Exhibit G Form of Additional Lender Supplement
-ii-
<PAGE>
REVOLVING CREDIT AGREEMENT
dated as of September 15, 1999
PECO Energy Company, a Pennsylvania corporation (the
"Borrower"), the banks listed on the signature pages hereof (the "Banks"), The
First National Bank of Chicago ("First Chicago"), as administrative agent for
the Lenders hereunder (in such capacity, the "Administrative Agent"), Citibank,
N.A., as documentation agent for the Lenders hereunder (in such capacity, the
"Documentation Agent"), and Banc One Capital Markets, Inc. ("Banc One Capital
Markets"), as lead arranger hereunder (in such capacity, the "Lead Arranger"),
hereby agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this
Agreement, each of the following terms shall have the meaning set forth next to
such term below (each such meaning to be equally applicable to both the singular
and plural forms of the term defined):
"Additional Lender" has the meaning specified in Section 2.17.
"Administrative Agent" means First Chicago in its capacity as
administrative agent for the Lenders pursuant to Article VII, and not
in its individual capacity as a Lender, and any successor
Administrative Agent appointed pursuant to Article VII.
"Advance" means an advance by a Lender to the Borrower as part
of a Borrowing and refers to a Base Rate Advance or a Eurodollar Rate
Advance, each of which shall be a "Type" of Advance.
"Affiliate" means, as to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common
control with such Person or is a director or officer of such Person.
"Agents" means the Administrative Agent, the Documentation
Agent and the Lead Arranger, collectively.
"Applicable Commitment Fee Rate" means (i) during any Level 1
Rating Period, 0.10% per annum, (ii) during any Level 2 Rating Period,
0.125% per annum, (iii) during any Level 3 Rating Period, 0.150% per
annum, (iv) during any Level 4 Rating Period, 0.1875% per annum and (v)
during any Level 5 Rating Period, 0.30% per annum. The Applicable
Commitment Fee Rate shall change when and as the Rating Period changes.
"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.
"Applicable Margin" means, on any date, for a Base Rate
Advance or a Eurodollar Rate Advance, the interest rate per annum set
forth below in the column entitled "Base Rate" or "Eurodollar Rate", as
appropriate, opposite the applicable Rating Period in effect on such
date:
<PAGE>
Rating Period Base Rate Eurodollar Rate
------------- --------- ---------------
Level 1 0 .375%
Level 2 0 .450%
Level 3 0 .600%
Level 4 0 .750%
Level 5 0 1.00%
provided, that the Applicable Margin for Eurodollar Advances shall be
increased by .10% for any day when the unused portion of the
Commitments is less than or equal to 50% of the aggregate Commitments.
The Applicable Margin applicable to an outstanding Advance shall change
when and as the Rating Period changes, and when and as the unused
portion of the Commitments changes.
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Lender and an Eligible Assignee, and accepted by the
Administrative Agent, in substantially the form of Exhibit C hereto.
"Base Rate" means, for any period, a fluctuating interest rate
per annum as shall be in effect from time to time which rate per annum
shall at all times be equal to the higher of:
(a) the rate of interest announced by First Chicago,
from time to time, as its corporate base rate; and
(b) the sum of 1/2 of 1% per annum plus the Federal
Funds Rate in effect from time to time.
"Base Rate Advance" means an Advance that bears interest as
provided in Section 2.06(a).
"Benchmark Debt" means the Borrower's senior secured long-term
debt or, in the event that the Borrower has no senior secured long-term
debt rated by S&P (or by a generally recognized successor to S&P) or by
Moody's (or by a generally recognized successor to Moody's), the
Borrower's senior unsecured long-term debt.
"Borrowing" means a borrowing consisting of simultaneous
Advances of the same Type and, if such Borrowing comprises Eurodollar
Rate Advances, having Interest Periods of the same duration, made by
each of the Lenders pursuant to Section 2.01 or Converted pursuant to
Section 2.10.
"Business Day" means a day of the year on which banks are not
required or authorized to close in Philadelphia, Pennsylvania, Chicago,
Illinois or New York, New York, and, if the applicable Business Day
relates to any Eurodollar Rate Advances, on which dealings are carried
on in the London interbank market.
"Closing Date" shall mean the date of the initial Advances
hereunder.
"Code" means the Internal Revenue Code of 1986, and the
regulations promulgated thereunder, in each case as amended, reformed
or otherwise modified from time to time.
-2-
<PAGE>
"Commitment" has the meaning specified in Section 2.01.
"Consolidated Adjusted Total Capitalization" on any date shall
mean the sum, without duplication, of the following with respect to the
Borrower and its consolidated Subsidiaries (exclusive, in each case, of
Nonrecourse Transition Bond Debt, to the extent Nonrecourse Transition
Bond Debt would otherwise be included in such item): (a) total
capitalization as of such date, as determined in accordance with GAAP,
(b) the current portion of liabilities which as of such date would be
classified in whole or part as long-term debt in accordance with GAAP
(it being understood that the noncurrent portion of such liabilities is
included in the total capitalization referred to in clause (a)), (c)
all obligations as lessee which, in accordance with GAAP, are
capitalized as liabilities (including the current portion thereof), and
(d) all other liabilities which would be classified as short-term debt
in accordance with GAAP (including, without limitation, all liabilities
of the types classified as "Notes Payable, Bank" on the Borrower's
audited balance sheet for December 31, 1998).
"Consolidated Adjusted Total Debt" on any date shall mean the
sum, without duplication, of the following with respect to the Borrower
and its consolidated Subsidiaries (exclusive, in each case, of
Nonrecourse Transition Bond Debt, to the extent Nonrecourse Transition
Bond Debt would otherwise be included in such item): (a) all
liabilities which as of such date would be classified in whole or in
part as long-term debt in accordance with GAAP (including the current
portion thereof), (b) all obligations as lessee which, in accordance
with GAAP, are capitalized as liabilities (including the current
portion thereof), and (c) all other liabilities which would be
classified as short-term debt in accordance with GAAP (including,
without limitation, all liabilities of the types classified as "Notes
Payable, Bank" on the Borrower's audited balance sheet for December 31,
1998).
"Controlled Group" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated)
under common control that, together with the Borrower or any
Subsidiary, are treated as a single employer under Section 414(b) or
414(c) of the Code.
"Convert", "Conversion" and "Converted" each refers to a
conversion of Advances of one Type into Advances of another Type or the
selection of a new, or the renewal of the same, Interest Period for
Eurodollar Rate Advances pursuant to Section 2.09.
"Debt" means (i) indebtedness for borrowed money, (ii)
obligations evidenced by bonds, debentures, notes or other similar
instrument, (iii) obligations to pay the deferred purchase price of
property or services (other than trade payables incurred in the
ordinary course of business), (iv) obligations as lessee under leases
that shall have been or are required to be, in accordance with GAAP,
recorded as capital leases, (v) obligations (contingent or otherwise)
under reimbursement or similar agreements with respect to the issuance
of letters of credit (other than obligations in respect of documentary
letters of credit opened to provide for the payment of goods or
services purchased in the ordinary course of business) and (vi)
obligations under direct or indirect guaranties in respect of, and
obligations (contingent or otherwise) to purchase or otherwise acquire,
or otherwise to assure a creditor against loss in respect of,
indebtedness or obligations of others of the kinds referred to in
clauses (i) through (v) above.
"Documentation Agent" means Citibank, N.A., in its capacity as
Documentation Agent.
"Domestic Lending Office" means, with respect to any Lender,
the office of such Lender specified as its "Domestic Lending Office"
opposite its name on Schedule I hereto or in the Assignment and
Acceptance pursuant to which it became a Lender, or such other office
of such Lender as such Lender may from time to time specify to the
Borrower and the Administrative Agent.
-3-
<PAGE>
"Eligible Assignee" means (i) a commercial bank organized
under the laws of the United States, or any State thereof; (ii) a
commercial bank organized under the laws of any other country that is a
member of the OECD or has concluded special lending arrangements with
the International Monetary Fund associated with its General
Arrangements to Borrow, or a political subdivision of any such country,
provided that such bank is acting through a branch or agency located in
the United States; (iii) a finance company, insurance company or other
financial institution or fund (whether a corporation, partnership or
other entity) engaged generally in making, purchasing or otherwise
investing in commercial loans in the ordinary course of its business;
or (iv) the central bank of any country that is a member of the OECD;
provided, however, that (A) any such Person described in clause (i),
(ii) or (iii) above shall also (x) have outstanding unsecured long-term
debt that is rated BBB- or better by S&P and Baa3 or better by Moody's
(or an equivalent rating by another nationally recognized credit rating
agency of similar standing if either such corporation is no longer in
the business of rating unsecured indebtedness of entities engaged in
such businesses) and (y) have combined capital and surplus (as
established in its most recent report of condition to its primary
regulator) of not less than $100,000,000 (or its equivalent in foreign
currency), and (B) any Person described in clause (ii), (iii) or (iv)
above shall, on the date on which it is to become a Lender hereunder,
be entitled to receive payments hereunder without deduction or
withholding of any United States Federal income taxes (as contemplated
by Section 2.14(e)).
"Eligible Successor" means a Person which (i) is a corporation
duly incorporated, validly existing and in good standing under the laws
of one of the states of the United States or the District of Columbia,
(ii) is qualified to do business in Pennsylvania, (iii) as a result of
the contemplated acquisition, consolidation or merger, will succeed to
all or substantially all of the consolidated business and assets of the
Borrower and its Subsidiaries, (iv) upon giving effect to the
contemplated acquisition, consolidation or merger, will have all or
substantially all of its consolidated business and assets conducted and
located in the United States and (v) is acceptable to the Majority
Lenders as a credit matter.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and
rulings issued thereunder, each as amended and modified from time to
time.
"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 of such Lender specified as its "Eurodollar Lending Office"
opposite its name on Schedule I hereto or in the Assignment and
Acceptance pursuant to which it became a Lender (or, if no such office
is specified, its Domestic Lending Office), or such other office of
such Lender as such Lender may from time to time specify to the
Borrower and the Administrative Agent.
"Eurodollar Rate" means, for the Interest Period for each
Eurodollar Rate Advance made as part of the same 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 U.S. 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 Borrowing and for a
period equal to such Interest Period. The Eurodollar Rate for the
Interest Period for each Eurodollar Rate Advance made as part of the
same 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 2.08.
-4-
<PAGE>
"Eurodollar Rate Advance" means an Advance that bears interest
as provided in Section 2.06(b).
"Eurodollar Rate Reserve Percentage" of any Lender for the
Interest Period for any Eurodollar Rate Advance means the reserve
percentage applicable 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 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) for 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 specified in Section 6.01.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended and modified from time to time.
"Existing Credit Agreements" shall mean (i) the $450,000,000
364-Day Credit Agreement dated as of October 7, 1997, among the
Borrower, the banks named therein, certain banks specified therein as
lead managers, certain banks specified therein as co-agents, First
Chicago Capital Markets, Inc., Mellon Bank, N.A., and Citicorp
Securities, Inc, as syndication agents, First Chicago Capital Markets,
Inc. and Mellon Bank, N.A., as arrangers, The First National Bank of
Chicago, as Administrative Agent, and Mellon Bank, N.A., as
Documentation Agent, and (ii) the $450,000,000 Credit Agreement dated
as of October 7, 1997, among the Borrower, the banks named therein,
certain specified banks, as lead arrangers, certain specified banks, as
co-agents, First Chicago Capital Markets, Inc., Mellon Bank, N.A., and
Citicorp Securities, Inc., as syndication agents, First Chicago Capital
Markets, Inc. and Mellon Bank, N.A., as arrangers, The First National
Bank of Chicago, as Administrative Agent, and Mellon Bank, N.A., as
Documentation Agent, in each case as amended, modified or supplemented
from time to time.
"Federal Funds Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to the
weighted average of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by Federal funds
brokers, as published for such day (or, if such day is not a Business
Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day which is
a Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three Federal
funds brokers of recognized standing selected by it.
"GAAP" shall have the meaning given that term in Section 1.03.
"Granting Bank" shall have the meaning given that term in
Section 8.07(h).
"Interest Period" means, for each Advance, the period
commencing on the date of such Advance or the date of the Conversion of
any Advance into such an 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, as the Borrower may select in
accordance with Section 2.02 or 2.09; provided, however, that:
-5-
<PAGE>
(i) the Borrower may not select any Interest Period
that ends after the Termination Date then in effect;
(ii) Interest Periods commencing on the same date for
Advances made as part of the same 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.
"Lead Arranger" means Banc One Capital Markets in its capacity
as Lead Arranger.
"Lenders" means the Banks listed on the signature pages hereof
and each Eligible Assignee that shall become a party hereto pursuant to
Section 2.17 or 8.07.
"Level 1 Rating Period" means any period during which the
Benchmark Debt is rated A- or higher by S&P (or a comparable rating
from any generally recognized successor to S&P) or A3 or higher by
Moody's (or a comparable rating from any generally recognized successor
to Moody's) (it being understood that, for this purpose, such ratings
shall be subject to the Split Rating Adjustment).
"Level 2 Rating Period" means any period which does not
qualify as a Level 1 Rating Period during which the Benchmark Debt is
rated BBB+ or higher by S&P (or a comparable rating from any generally
recognized successor to S&P) or Baa1 or higher by Moody's (or a
comparable rating from any generally recognized successor to Moody's)
(it being understood that, for this purpose, such ratings shall be
subject to the Split Rating Adjustment).
"Level 3 Rating Period" means any period which does not
qualify as a Level 1 or Level 2 Rating Period during which the
Benchmark Debt is rated BBB or higher by S&P (or a comparable rating
from any generally recognized successor to S&P) or Baa2 or higher by
Moody's (or a comparable rating from any generally recognized successor
to Moody's) (it being understood that, for this purpose, such ratings
shall be subject to the Split Rating Adjustment).
"Level 4 Rating Period" means any period which does not
qualify as a Level 1, Level 2 or Level 3 Rating Period during which the
Benchmark Debt is rated BBB- or higher by S&P (or a comparable rating
from any generally recognized successor to S&P) or Baa3 or higher by
Moody's (or a comparable rating from any generally recognized successor
to Moody's) (it being understood that, for this purpose, such ratings
shall be subject to the Split Rating Adjustment).
"Level 5 Rating Period" means any period which does not
qualify as a Level 1, Level 2, Level 3 or Level 4 Rating Period (it
being understood that, for this purpose, such ratings shall be subject
to the Split Rating Adjustment).
"Lien" means any lien (statutory or other), mortgage, pledge,
security interest or other charge or encumbrance, or any other type of
preferential arrangement (including, without limitation, the interest
of a vendor or lessor under any conditional sale, capitalized lease or
other title retention agreement).
"Majority Lenders" means, at any time prior to the
Termination Date, Lenders having at least 51% of the Commitments, and,
at any time on or after the Termination Date, Lenders having at least
-6-
<PAGE>
51% of the Advances outstanding (provided that, for purposes hereof,
neither the Borrower, nor any of its Affiliates, if a Lender, shall be
included in (i) the Lenders having such amount of the Commitments or
the Advances or (ii) determining the total amount of the Commitments or
the Advances).
"Material Adverse Change" and "Material Adverse Effect" each
means, relative to any occurrence, fact or circumstances of whatsoever
nature (including, without limitation, any determination in any
litigation, arbitration or governmental investigation or proceeding),
(i) any materially adverse change in, or materially adverse effect on,
the financial condition, operations, assets or business of the Borrower
and its consolidated Subsidiaries, taken as a whole or (ii) any
materially adverse effect on the validity or enforceability of this
Agreement or any of the Notes.
"Moody's" means Moody's Investors Service, Inc.
"Mortgage" means the First and Refunding Mortgage, dated as of
May 1, 1923, between The Counties Gas & Electric Company (to which the
Borrower is successor) and Fidelity Trust Company, Trustee (to which
First Union National Bank is successor), as amended, supplemented or
refinanced from time to time, provided, that no effect shall be given
to any amendment, supplement or refinancing after the date of this
Agreement that would broaden the definition of "excepted encumbrances"
as defined in the Mortgage as constituted on the date of this
Agreement.
"Multiemployer Plan" means a Plan maintained pursuant to a
collective bargaining agreement or any other arrangement to which the
Borrower or any member of the Controlled Group is a party to which more
than one employer is obligated to make contributions.
"Non-Consenting Lender" has the meaning specified in Section
2.16(a).
"Nonrecourse Transition Bond Debt" means obligations evidenced
by "transition bonds" (as defined in 66 Pa. Cons. Stat. Ann. ss.
2812(g) (West Supp. 1997), or any successor provision of similar
import), rated AA or higher by S&P (or a comparable rating from a
generally recognized successor to S&P) or Aa2 or higher by Moody's (or
a comparable rating from a generally recognized successor to Moody's),
representing a securitization of "intangible transition property" (as
defined in the foregoing statute), as to which obligations neither the
Borrower nor any Subsidiary of the Borrower (other than a Special
Purpose Subsidiary) has any direct or indirect liability (whether as
primary obligor, guarantor, or surety, provider of collateral security,
put option, asset repurchase agreement or capital maintenance
agreement, debt subordination agreement, or through other right or
arrangement of any nature providing direct or indirect assurance of
payment or performance of any such obligations in whole or in part),
except for liability to repurchase "intangible transition property"
conveyed to the securitization vehicle, on terms and conditions
customary in receivables securitizations, in the event such "intangible
transition property" violates representations and warranties of scope
customary in receivables securitizations. "Special Purpose Subsidiary"
means a direct or indirect wholly-owned corporate Subsidiary of the
Borrower, substantially all of the assets of which are "intangible
transition property" and proceeds thereof, formed solely for the
purpose of holding such assets and issuing such "transition bonds," and
which complies with the requirements customarily imposed on
bankruptcy-remote corporations in receivables securitizations.
"Note" means a promissory note of the Borrower payable to the
order of any Lender, in substantially the form of Exhibit A hereto,
evidencing the aggregate indebtedness of the Borrower to such Lender
resulting from the Advances made by such Lender.
"Notice of a Borrowing" has the meaning specified in Section
2.02(a).
"OECD" means the Organization for Economic Cooperation and
Development.
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"Order of Registration" has the meaning assigned to that term
in Section 3.01(a)(iii).
"PBGC" means the Pension Benefit Guaranty Corporation and any
entity succeeding to any or all of its functions under ERISA.
"Person" means an individual, partnership, corporation
(including a business trust), joint stock company, trust,
unincorporated association, joint venture, limited liability company or
other entity, or a government or any political subdivision or agency
thereof.
"Plan" means an employee pension benefit plan that is covered
by Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code as to which the Borrower or any member of the
Controlled Group may have any liability.
"PPUC" means the Pennsylvania Public Utility Commission.
"Principal Subsidiary" means (i) each Utility Subsidiary and
(ii) from and after the date on which the aggregate book value of the
assets of the Subsidiaries of the Borrower that are not Utility
Subsidiaries exceeds $250,000,000, each such Subsidiary the assets of
which exceeded $75,000,000 in book value at any time during the
preceding 24-month period.
"Rating Period" means a Level 1 Rating Period, a Level 2
Rating Period, a Level 3 Rating Period, a Level 4 Rating Period or a
Level 5 Rating Period, as the case may be.
"Reference Banks" means First Chicago and Citibank, N.A.
"Register" has the meaning specified in Section 8.07(c).
"Reportable Event" means a reportable event as defined in
Section 4043 of ERISA and regulations issued under such section with
respect to a Plan, excluding, however, such events as to which the PBGC
by regulation waived the requirement of Section 4043(a) of ERISA that
it be notified within 30 days of the occurrence of such event, provided
that a failure to meet the minimum funding standard of Section 412 of
the Code and Section 302 of ERISA shall be a Reportable Event
regardless of the issuance of any such waivers in accordance with
either Section 4043(a) of ERISA or Section 412(d) of the Code.
"S&P" means Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc.
"Securities Certificate" has the meaning assigned to that term
in Section 3.01(a)(iii).
"Single Employer Plan" means a Plan maintained by the Borrower
or any member of the Controlled Group for employees of the Borrower or
any member of the Controlled Group.
"SPC" shall have the meaning assigned to that term in Section
8.07(h).
"Special Purpose Subsidiary" has the meaning assigned to that
term in the definition of "Nonrecourse Transition Bond Debt."
"Split Rating Adjustment": For the purpose of determining the
appropriate Rating Period, the rating of the Benchmark Debt shall be
subject to adjustment as follows. In the event that the Benchmark Debt
is rated at equivalent rating levels or not more than one rating level
apart by S&P (or any generally accepted successor to S&P) and Moody's
(or any generally accepted successor to Moody's), then no adjustment
shall apply. Otherwise, the higher of the two ratings shall be deemed
to be reduced to the next lower rating level. For this purpose, (i)
determination of the rating level shall take into account "+" and "-"
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modifiers to S&P ratings and numerical modifiers to Moody's ratings (so
that, for example, an S&P rating of A- shall be deemed equivalent to a
Moody's rating of A3, an S&P rating of BBB+ shall be deemed equivalent
to a Moody's rating of Baa1, an S&P rating of BBB shall be deemed
equivalent to a Moody's rating of Baa2, an S&P rating of BBB- shall be
deemed equivalent to a Moody's rating of Baa3, and so on), and (ii) by
way of clarification, in the event the Benchmark Debt is rated by only
one of the two referenced rating agencies, such rating shall be deemed
to be reduced to the next lower rating level.
"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 or not at the time capital stock,
or comparable interests, 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 such Person (whether directly or through one or more other
Subsidiaries).
"Termination Date" means the earlier of (i) September 15, 2002
(or, if such date is not a Business Day, the next preceding Business
Day) or such later date that may be established pursuant to Section
2.16(a) or (ii) the date of termination in whole of the Commitments
pursuant to Section 2.04 or Section 6.01.
"Unfunded Liabilities" means, (i) in the case of any Single
Employer Plan, the amount (if any) by which the present value of all
vested nonforfeitable benefits under such Plan exceeds the fair market
value of all Plan assets allocable to such benefits, all determined as
of the then most recent evaluation date for such Plan, and (ii) in the
case of any Multiemployer Plan, the withdrawal liability that would be
incurred by the Controlled Group if all members of the Controlled Group
completely withdrew from such Multiemployer Plan.
"Utility Subsidiary" means each Subsidiary of the Borrower
that is engaged principally in the generation, transmission, or
distribution of electricity or gas and is subject to regulation as a
public utility by federal or state regulatory authorities.
"Year 2000 Problem" shall mean that the computer hardware,
software or equipment containing embedded microchips of the Borrower or
any of its Subsidiaries which is essential to its business or operation
will, as a result of processing dates or time periods occurring after
December 31, 1999, malfunction, causing a system failure or
miscalculations resulting in disruptions of operations, including,
among other things, a temporary inability to process transactions, send
bills, operate generation stations, or engage in similar normal
business activities.
"364-Day Credit Agreement" means that certain 364-Day Credit
Agreement, dated as of the date hereof, among the Borrower, the banks
named therein, First Chicago, as administrative agent for the lenders
thereunder, Citibank, N.A., as documentation agent, and Banc One
Capital Markets, as lead arranger, as the same may be amended, modified
or supplemented from time to time.
SECTION 1.02. Computation of Time Periods. In this Agreement
in the computation of periods of time from a specified date to 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. Accounting Principles. As used in this
Agreement, "GAAP" shall mean generally accepted accounting principles in the
United States, applied on a basis consistent with the principles used in
preparing the Borrower's audited consolidated financial statements as of
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December 31, 1998 and for the fiscal year then ended. In this Agreement, except
to the extent, if any, otherwise provided herein, all accounting and financial
terms shall have the meanings ascribed to such terms by GAAP, and all
computations and determinations as to accounting and financial matters shall be
made in accordance with GAAP. In the event that the financial statements
generally prepared by the Borrower apply accounting principles other than GAAP,
the compliance certificate delivered pursuant to Section 5.01(b)(iv)
accompanying such financial statements shall include information in reasonable
detail reconciling such financial statements to GAAP to the extent relevant to
the calculations set forth in such compliance certificate.
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Advances. Each Lender severally agrees, on
the terms and conditions hereinafter set forth, to make Advances to the Borrower
from time to time on any Business Day during the period from the date hereof
until (but excluding) the Termination Date in an aggregate amount not to exceed
at any time outstanding the amount set forth opposite such Lender's name on the
signature pages hereof or, if such Lender has entered into any Assignment and
Acceptance or Additional Lender Supplement, set forth for such Lender in the
Register maintained by the Administrative Agent pursuant to Section 8.07(c), as
such amount may be reduced pursuant to Section 2.04 or 2.16 (such Lender's
"Commitment"). Each Borrowing shall consist of Advances of the same Type made or
Converted on the same day by the Lenders ratably according to their respective
Commitments. Each Borrowing comprising Base Rate Advances shall be in an
aggregate amount not less than $5,000,000, and each Borrowing comprising
Eurodollar Rate Advances shall be in an aggregate amount not less than
$10,000,000. Within the limits of each Lender's Commitment, the Borrower may
from time to time borrow, prepay pursuant to Section 2.10 and reborrow under
this Section 2.01.
SECTION 2.02. Making the Advances. (a) Each Borrowing (other
than pursuant to a Conversion) shall be made on notice, given not later than
10:00 A.M. (Chicago time) on the third Business Day prior to the date of any
proposed Borrowing comprising Eurodollar Rate Advances, and on the date of any
proposed Borrowing comprising Base Rate Advances, by the Borrower to the
Administrative Agent, which shall give to each Lender prompt notice thereof.
Each such notice of a Borrowing (a "Notice of a Borrowing") shall be sent by
telecopier, telex or cable, confirmed immediately in writing, in substantially
the form of Exhibit B hereto, specifying therein the requested (i) date of such
Borrowing, (ii) Type of Advances to be made in connection with such Borrowing,
(iii) aggregate amount of such Borrowing, and (iv) in the case of a Borrowing
comprising Eurodollar Rate Advances, initial Interest Period for the Advances to
be made in connection with such Borrowing. Each Lender shall, before 12:00 Noon
(Chicago time) on the date of such Borrowing, 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 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 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 Borrowing that the related Notice of
a Borrowing specifies is to comprise 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 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 Advance to be made by such Lender as part of
such Borrowing when such Advance, as a result of such failure, is not made on
such date.
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(c) Unless the Administrative Agent shall have received notice
from a Lender prior to the date of any Borrowing that such Lender will not make
available to the Administrative Agent such Lender's ratable portion of such
Borrowing, the Administrative Agent may assume that such Lender has made such
portion available to the Administrative Agent on the date of such 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 ratable portion 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 Advances made in
connection with such 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
Advance as part of such Borrowing for purposes of this Agreement.
(d) The failure of any Lender to make the Advance to be made
by it as part of any Borrowing shall not relieve any other Lender of its
obligation, if any, hereunder to make its Advance on the date of such Borrowing,
but no Lender shall be responsible for the failure of any other Lender to make
the Advance to be made by such other Lender on the date of any Borrowing.
(e) Notwithstanding anything to the contrary contained herein,
no more than sixteen (16) Borrowings comprising Eurodollar Rate Advances may be
outstanding at any time.
SECTION 2.03. Fees. (a) The Borrower agrees to pay to the
Administrative Agent for the account of each Lender a commitment fee on the
average daily unused portion of such Lender's Commitment from the date on which
the Administrative Agent determines the conditions set forth in Section 3.01 are
satisfied in the case of each Bank, and from the effective date specified in the
Assignment and Acceptance or the Additional Lender Supplement pursuant to which
it became a Lender in the case of each other Lender, until the Termination Date,
and, in the case of the termination in whole of a Lender's Commitment pursuant
to Section 2.04 or 2.16, the date of such termination, payable on the last day
of each March, June, September and December during such period, and on the
Termination Date, and, in the case of the termination in whole of a Lender's
Commitment pursuant to Section 2.04 or 2.16, the date of such termination, at a
percentage rate per annum equal to the Applicable Commitment Fee Rate in effect
from time to time, changing when and as the Applicable Commitment Fee Rate
changes.
(b) The Borrower agrees to pay to the Administrative Agent for
the account of each Bank a facility fee in an amount equal to .075% of such
Bank's Commitment as in effect on the Closing Date, payable on the Closing Date.
(c) The Borrower agrees to pay to the Administrative Agent and
the Lead Arranger for their respective accounts, such additional fees, in such
amounts and payable on such dates as may be agreed to in writing from time to
time between the Borrower and the Administrative Agent or the Lead Arranger, as
the case may be.
SECTION 2.04. Reduction of the Commitments. The Borrower shall
have the right, upon at least two 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 that is less
than the aggregate principal amount of the Advances then outstanding; and
provided, further, that each partial reduction shall be in the aggregate amount
of $10,000,000 or an integral multiple thereof.
SECTION 2.05. Repayment of Advances. The Borrower shall repay
the principal amount of each Advance made by each Lender in accordance with the
Note to the order of such Lender.
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SECTION 2.06. Interest on Advances. The Borrower shall pay
interest on the unpaid principal amount of each Advance made by each Lender from
the date of such Advance until such principal amount shall be paid in full, at
the following rates per annum:
(a) Base Rate Advances. If such Advance is a Base Rate
Advance, a rate per annum equal at all times to the Base Rate in effect from
time to time, payable quarterly on the last day of each March, June, September
and December during such periods and on the date such Base Rate Advance shall be
Converted or paid in full.
(b) Eurodollar Rate Advances. Subject to Section 2.07, if such
Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during
the Interest Period for such Advance to the sum of the Eurodollar Rate for such
Interest Period plus the Applicable Margin for such Eurodollar Rate Advance in
effect from time to time, payable on the last day of the Interest Period for
such Eurodollar Rate Advance (or, if the Interest Period for such Advance is six
months, accrued interest shall be payable on the day that is three months and on
the day that is six months from the date such Advance was made) or, if earlier,
on the date such Eurodollar Rate Advance shall be Converted or paid in full.
SECTION 2.07. Additional Interest on Advances. The Borrower
shall pay to each Lender, so long as such Lender shall be required under
regulations of the Board of Governors of the Federal Reserve System to maintain
reserves with respect to liabilities or assets consisting of or including
Eurocurrency Liabilities, additional interest on the unpaid principal amount of
each Eurodollar Rate Advance of such Lender, from the date of such Advance until
such principal amount is paid in full or Converted, 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 Advance from (ii) the rate
obtained by dividing such Eurodollar Rate by a percentage equal to 100% minus
the Eurodollar Rate Reserve Percentage of such Lender for such Interest Period,
payable on each date on which interest is payable on such Advance; provided,
that no Lender shall be entitled to demand such additional interest more than 90
days following the last day of the Interest Period in respect of which such
demand is made; provided further, however, that the foregoing proviso shall in
no way limit the right of any Lender to demand or receive such additional
interest to the extent that such additional interest relates to the retroactive
application of the reserve requirements described above if such demand is made
within 90 days after the implementation of such retroactive reserve
requirements. Such additional interest shall be determined by such Lender and
notified to the Borrower through the Administrative Agent, and such
determination shall be conclusive and binding for all purposes, absent manifest
error.
SECTION 2.08. 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 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 2.06(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 2.06(b).
(c) If either or both Reference Banks fail to furnish timely
information to the Administrative Agent for determining the Eurodollar Rate for
any Eurodollar Rate Advances,
(i) the Administrative Agent shall forthwith notify the
Borrower and the Lenders that the interest rate cannot be
determined for such Eurodollar Rate Advances,
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(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
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
(unless prepaid or Converted to any Type of Advance other than
a Eurodollar Rate Advance prior to such date), Convert into a
Base Rate Advance, and
(ii) the obligation of the Lenders to make, or to Convert
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.
SECTION 2.09. Conversion of Advances. (a) Voluntary. The
Borrower may on any Business Day, upon notice given to the Administrative Agent
not later than 10:00 A.M. (Chicago time) on the third Business Day prior to the
date of any proposed Conversion into Eurodollar Rate Advances, and on the date
of any proposed Conversion into Base Rate Advances, and subject to the
provisions of Sections 2.08 and 2.12, Convert all Advances of one Type made in
connection with the same Borrowing into Advances of another Type or Types or
Advances of the same Type having the same or a new Interest Period; provided,
however, that any Conversion of Eurodollar Rate Advances into Base Rate Advances
or Eurodollar Advances having the same or new Interest Periods shall be made on,
and only on, the last day of an Interest Period for such Eurodollar Rate
Advances, unless the Borrower shall also reimburse the Lenders in respect
thereof pursuant to Section 8.04(b) on the date of such Conversion. Each such
notice of a Conversion shall, within the restrictions specified above, specify
(i) the date of such Conversion, (ii) the Advances to be Converted, and (iii) if
such Conversion is into, or with respect to, Eurodollar Rate Advances, the
duration of the Interest Period for each such Advance.
(b) Automatic. If the Borrower shall fail to select the Type
of any Advance or the duration of any Interest Period for any Borrowing
comprising Eurodollar Rate Advances in accordance with the provisions contained
in the definition of "Interest Period" in Section 1.01 and Section 2.09(a), 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.
SECTION 2.10. Prepayments. The Borrower may, upon at least
three Business Days' notice in the case of any prepayment of Eurodollar Advances
or one Business Day's notice in the case of any prepayment of Base Rate
Advances, 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 Advances made as 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 (i) each partial prepayment shall be in an aggregate principal
amount not less than $10,000,000 in the case of any prepayment of Eurodollar
Advances or $5,000,000 in the case of any prepayment of Base Rate Advances, or
any integral multiple of $1,000,000 in excess thereof, and (ii) in the case of
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any such prepayment of a Eurodollar Rate Advance, the Borrower shall be
obligated to reimburse the Lenders in respect thereof pursuant to Section
8.04(b) on the date of such prepayment.
SECTION 2.11. Increased Costs. (a) If on or after the date of
this Agreement, any Lender determines that (i) the introduction of or any change
(other than any change by way of imposition or increase of reserve requirements,
in the case of Eurodollar Rate Advances, 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) shall increase
the cost to such 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
(without duplication of any amount payable pursuant to Section 2.14) sufficient
to compensate such Lender for such increased cost; provided, that no Lender
shall be entitled to demand such compensation more than 90 days following the
last day of the Interest Period in respect of which such demand is made;
provided further, however, that the foregoing proviso shall in no way limit the
right of any Lender to demand or receive such compensation to the extent that
such compensation relates to the retroactive application of any law, regulation,
guideline or request described in clause (i) or (ii) above if such demand is
made within 90 days after the implementation of such retroactive law,
interpretation, guideline or request. 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.
(b) If any Lender determines that, after the date of this
Agreement, 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) regarding capital adequacy requirements affects or would affect
the amount of capital required or expected to be maintained by such Lender or
any corporation controlling such Lender (including, in any event, any
determination after the date of this Agreement by any such governmental
authority or central bank that, for purposes of capital adequacy requirements,
any Lender's Commitment hereunder does not constitute a commitment with an
original maturity of one year or less) 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 or the Advances made by such
Lender, 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
determines such increase in capital to be allocable to the existence of such
Lender's commitment to lend hereunder or the Advances made by such Lender;
provided, that no Lender shall be entitled to demand such compensation more than
one year following the payment to or for the account of such Lender of all other
amounts payable hereunder and under any Note held by such Lender and the
termination of such Lender's Commitment; provided further, however, that the
foregoing proviso shall in no way limit the right of any Lender to demand or
receive such compensation to the extent that such compensation relates to the
retroactive application of any law, regulation, guideline or request described
above if such demand is made within one year after the implementation of such
retroactive law, interpretation, guideline or request. A certificate as to such
amounts submitted to the Borrower and the Administrative Agent by such Lender
shall be conclusive and binding, for all purposes, absent manifest error.
(c) Any Lender claiming compensation pursuant to this Section
2.11 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 compensation that may thereafter accrue and would
not, in the reasonable judgment of such Lender, be otherwise disadvantageous to
such Lender.
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SECTION 2.12. Illegality. Notwithstanding any other provision
of this Agreement, if any Lender shall notify the Administrative Agent 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 such 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) the obligation of
such Lender to make, or to Convert Advances into, Eurodollar Rate Advances shall
be suspended (subject to the following paragraph of this Section 2.12) until the
Administrative Agent shall notify the Borrower and the Lenders that the
circumstances causing such suspension no longer exist and (ii) all Eurodollar
Rate Advances of such Lender then outstanding shall, on the last day of then
applicable Interest Period (or such earlier date as such Lender shall designate
upon not less than five Business Days prior written notice to the Administrative
Agent), be automatically Converted into Base Rate Advances.
If the obligation of any Lender to make, fund or maintain
Eurodollar Rate Advances has been suspended pursuant to the preceding paragraph,
then, unless and until the Administrative Agent shall notify the Borrower and
the Lenders that the circumstances causing such suspension no longer exist (i)
all Advances that would otherwise be made by such Lender as Eurodollar Rate
Advances shall instead be made as Base Rate Advances and (ii) to the extent that
Eurodollar Rate Advances of such Lender have been Converted into Base Rate
Advances pursuant to the preceding paragraph or made instead as Base Rate
Advances pursuant to the preceding clause (i), all payments and prepayments of
principal that would have otherwise been applied to such Eurodollar Rate
Advances of such Lender shall be applied instead to such Base Rate Advances of
such Lender.
SECTION 2.13. Payments and Computations. (a) The Borrower
shall make each payment hereunder and under the Notes not later than 10:00 A.M.
(Chicago time) on the day when due in U.S. dollars to the Administrative Agent
at its address referred to in Section 8.02 in same day funds without setoff,
counterclaim or other deduction. The Administrative Agent will promptly
thereafter cause to be distributed like funds relating to the payment of
principal or interest or commitment and facility fees ratably (other than
amounts payable pursuant to Section 2.02(c), 2.07, 2.11, 2.14, 2.16(a) 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 an Assignment and Acceptance 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 Assignment and Acceptance, 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 Assignment and Acceptance 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 Base Rate 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 or the Federal Funds Rate and of commitment fees shall be made by the
Administrative Agent, and all computations of interest pursuant to Section 2.07
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 commitment fees are payable.
Each determination by the Administrative Agent (or, in the case of Section 2.07,
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
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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 commitment fee, as
the case may be; provided, however, 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.
(f) Notwithstanding anything to the contrary contained herein,
any amount payable by the Borrower hereunder or under any Note that is not paid
when due (whether at stated maturity, by acceleration or otherwise) shall (to
the fullest extent permitted by law) bear interest from the date when due until
paid in full at a rate per annum equal at all times to the Base Rate plus 2%,
payable upon demand.
SECTION 2.14. Taxes. (a) Any and all payments by the Borrower
hereunder or under the Notes shall be made, in accordance with Section 2.13,
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 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 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"). If the Borrower shall be required by law to deduct any Taxes from
or in respect of any sum payable hereunder or under any Note 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 2.14) 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 to the extent arising from the execution, delivery or
registration of this Agreement or the Notes (hereinafter referred to as "Other
Taxes").
(c) No Lender may claim or demand payment or reimbursement in
respect of any Taxes or Other Taxes pursuant to this Section 2.14 if such Taxes
or Other Taxes, as the case may be, were imposed solely as the result of a
voluntary change in the location of the jurisdiction of such Lender's Applicable
Lending Office.
(d) 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 2.14) paid by such Lender or the
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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.
(e) Prior to the date of the initial Borrowing in the case of
each Bank, and on the date of the Assignment and Acceptance or Additional Lender
Supplement pursuant to which it became a Lender in the case of each other
Lender, and from time to time thereafter within 30 days from the date of request
if requested by the Borrower or the Administrative Agent, each Lender organized
under the laws of a jurisdiction outside the United States shall provide the
Administrative Agent and the Borrower with the forms prescribed by the Internal
Revenue Service of the United States certifying that such Lender is exempt from
United States withholding taxes with respect to all payments to be made to such
Lender hereunder and under the Notes. If for any reason during the term of this
Agreement, any Lender becomes unable to submit the forms referred to above or
the information or representations contained therein are no longer accurate in
any material respect, such Lender shall notify the Administrative Agent and the
Borrower in writing to that effect. Unless the Borrower and the Administrative
Agent have received forms or other documents satisfactory to them indicating
that payments hereunder or under any Note are not subject to United States
withholding tax, the Borrower or the Administrative Agent shall withhold taxes
from such payments at the applicable statutory rate in the case of payments to
or for any Lender organized under the laws of a jurisdiction outside the United
States and no Lender may claim or demand payment or reimbursement for such
withheld taxes pursuant to this Section 2.14.
(f) Any Lender claiming any additional amounts payable
pursuant to this Section 2.14 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) If the Borrower makes any additional payment to any Lender
pursuant to this Section 2.14 in respect of any Taxes or Other Taxes, and such
Lender determines that it has received (i) a refund of such Taxes or Other Taxes
or (ii) a credit against or relief or remission for, or a reduction in the
amount of, any tax or other governmental charge attributable solely to any
deduction or credit for any Taxes or Other Taxes with respect to which it has
received payments under this Section 2.14, such Lender shall, to the extent that
it can do so without prejudice to the retention of such refund, credit, relief,
remission or reduction, pay to the Borrower such amount as such Lender shall
have determined to be attributable to the deduction or withholding of such Taxes
or Other Taxes. If, within one year after the payment of any such amount to the
Borrower, such Lender determines that it was not entitled to such refund,
credit, relief, remission or reduction to the full extent of any payment made
pursuant to the first sentence of this Section 2.14(g), the Borrower shall upon
notice and demand of such Lender promptly repay the amount of such overpayment.
Any determination made by such Lender pursuant to this Section 2.14(g) shall in
the absence of bad faith or manifest error be conclusive, and nothing in this
Section 2.14(g) shall be construed as requiring any Lender to conduct its
business or to arrange or alter in any respect its tax or financial affairs
(except as required by Section 2.14(f)) so that it is entitled to receive such a
refund, credit or reduction or as allowing any person to inspect any records,
including tax returns, of any Lender.
(h) Without prejudice to the survival of any other agreement
of the Borrower or any Lender hereunder, the agreements and obligations of the
Borrower and the Lenders contained in this Section 2.14 shall survive the
payment in full of principal and interest hereunder and under the Notes;
provided, that no Lender shall be entitled to demand any payment under this
Section 2.14 more than one year following the payment to or for the account of
such Lender of all other amounts payable hereunder and under any Note held by
such Lender and the termination of such Lender's Commitment; provided further,
however, that the foregoing proviso shall in no way limit the right of any
Lender to demand or receive any payment under this Section 2.14 to the extent
that such payment relates to the retroactive application of any Taxes or Other
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Taxes if such demand is made within one year after the implementation of such
Taxes or Other Taxes.
SECTION 2.15. 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 Advances made by it (other
than pursuant to Section 2.02(c), 2.07, 2.11, 2.14, 2.16(a) or 8.04(b)) in
excess of its ratable share of payments on account of the 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 2.15 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 2.16. Extension of Termination Date. (a) Unless the
Termination Date shall have occurred, the Borrower may request the Lenders, by
written notice to the Administrative Agent not more than 90 days and not less
than 60 days prior to the then effective Termination Date, to consent to
extension of the Termination Date to the date which is one year after the then
effective Termination Date (or, if such date is not a Business Day, the next
preceding Business Day). Each Lender shall, in its sole discretion, determine
whether to consent to such request and shall notify the Administrative Agent of
its determination not more than 45 days and not less than 30 days prior to the
then-effective Termination Date. Any Lender which fails to give such notice to
the Administrative Agent shall be deemed to have not consented to such request.
If any Lender shall not have consented to such request 30 days prior to the then
effective Termination Date (such Lender being referred to herein as a
"Non-Consenting Lender"), the Administrative Agent shall promptly so notify the
Borrower and the other Lenders, whereupon each other Lender may, not more than
30 days and not less than 25 days prior to the then effective Termination Date,
revoke any consent to such extension previously given by such Lender (in which
case such Lender shall be deemed a Non-Consenting Lender). If such request shall
have been consented to by the Majority Lenders (as determined after giving
effect to the replacement of any Non-Consenting Lender pursuant to Section
8.07(g)), the Administrative Agent shall notify the Borrower and the Lenders in
writing of such consent, and such extension shall become effective (other than
with respect to any Non-Consenting Lender) upon the delivery by the Borrower to
the Administrative Agent and each Lender, on or prior to the then-effective
Termination Date, of (i) a certificate of a duly authorized officer of the
Borrower, dated such date, as to the accuracy, both before and after giving
effect to such proposed extension, of the representations and warranties set
forth in Section 4.01 and as to the absence, both before and after giving effect
to such proposed extension, of any Event of Default or event that with the
giving of notice or the passage of time or both would constitute an Event of
Default, (ii) certified copies of all corporate and governmental approvals, if
any, required to be obtained by the Borrower in connection with such proposed
extension and (iii) an opinion of counsel to the Borrower (who shall be
satisfactory to the Administrative Agent) as to the matters set forth in Exhibit
D, upon giving effect to the extension of the Termination Date, and such other
matters as any Lender, through the Administrative Agent, may reasonably request,
all of the foregoing to be satisfactory in form and substance to the
Administrative Agent. In the event of any such extension of the Termination
Date, the Commitment of each Non-Consenting Lender that has not been replaced
pursuant to Section 8.07(g) shall be terminated in whole as of such former
Termination Date, the aggregate principal amount of all Advances made by each
Non-Consenting Lender, together with accrued and unpaid interest, commitment
fees and facility fees, and all other amounts payable hereunder to or for the
account of each Non-Consenting Lender shall be due and payable on such former
Termination Date, and upon such reduction and payment of such amounts each
Non-Consenting Lender shall cease to be a party to this Agreement (although each
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Non-Consenting Lender shall continue to be entitled to indemnification pursuant
to Section 8.04(c)).
(b) Upon the effectiveness of any extension of the Termination
Date pursuant to subsection (a) above, each reference in Section 4.01(e) and
Exhibit D to (i) the year-end financial statements of the Borrower, (ii)
December 31 of any year, (iii) the quarter-end financial statements of the
Borrower and (iv) the last day of any fiscal quarter (other than December 31) of
any year, shall be deemed to be amended to be references to (A) the year-end
financial statements of the Borrower included in the Borrower's Annual Report on
Form 10-K most recently delivered to the Lenders pursuant to Section
5.01(b)(iii), (B) December 31 of the year of the financial statements described
in clause (A) above, (C) the fiscal quarter-end financial statements of the
Borrower included in the Borrower's Quarterly Report on Form 10-Q most recently
delivered to the Lenders pursuant to Section 5.01(b)(ii) and (D) the last day of
the fiscal quarter of the financial statements described in clause (C) above,
respectively.
SECTION 2.17. Additional Lenders. (a) For a period of 60 days
after extension of a Termination Date pursuant to Section 2.16(a) that has
resulted in a reduction of the aggregate Commitments of the Lenders, the
Borrower may request that one or more additional banks or other Persons (each,
an "Additional Lender") become party to this Agreement as Lenders and that the
aggregate amount of the Commitments of the Lenders be increased to reflect the
Commitments allocated to each such Additional Lender; provided, that the
aggregate Commitments of the Lenders after giving effect to such increase shall
not exceed the aggregate Commitments of the Lenders immediately prior to such
former Termination Date. Addition of an Additional Lender shall be made only
with the written consent of the Administrative Agent (which consent shall not be
unreasonably withheld or delayed) and with the written consent of the Borrower
(which consent may be granted or withheld in its absolute discretion). Each
Additional Lender must be an Eligible Assignee and, without the consent of the
Administrative Agent, the initial Commitment of each Additional Lender shall not
be less than $10,000,000.
(b) Addition of an Additional Lender shall be effected by the
Additional Lender executing and delivering to the Administrative Agent, for its
acceptance and recording in the Register, a duly completed Additional Lender
Supplement in substantially the form of Exhibit G attached hereto. The Borrower
shall execute and deliver to the Administrative Agent for transmittal to such
Additional Lender a Note in substantially the form of Exhibit A attached hereto
in the amount of the Commitment of such Additional Lender. Acceptance by the
Administrative Agent of an Additional Lender is subject to the conditions that
the Administrative Agent shall have received, with a counterpart for each
Lender, (i) a certificate of a duly authorized officer of the Borrower, dated
the effective date of such Additional Lender Supplement, as to the accuracy,
both before and after giving effect to such proposed addition, of the
representations and warranties set forth in Section 4.01 and as to the absence,
both before and after giving effect to such proposed extension, of any Event of
Default or event that with the giving of notice or the passage of time or both
would constitute an Event of Default, (ii) certified copies of all corporate and
governmental approvals, if any, required to be obtained by the Borrower in
connection with such proposed addition, (iii) an opinion of counsel to the
Borrower (who shall be satisfactory to the Administrative Agent) as to the
matters set forth in Exhibit D (appropriately modified to include, in addition
to the other matters set forth therein, such Additional Lender Supplement and
the new Note), and such other matters as any Lender, through the Administrative
Agent, may reasonably request, and (iv) such other certificates and documents as
the Administrative Agent may reasonably request, all of the foregoing to be
satisfactory in form and substance to the Administrative Agent. Upon execution
and delivery of the Additional Lender Supplement, acceptance by the
Administrative Agent and recording in the Register, from and after the effective
date specified in such Additional Lender Supplement, such Additional Lender
shall be a party hereto and shall, to the extent of the Commitment specified in
such Additional Lender Supplement, have the rights and obligations of a Lender
hereunder.
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(c) If, at the time an Additional Lender is to become party to
this Agreement, the continuing Lenders have any outstanding Advances, such
Additional Lender shall offer to purchase from each continuing Lender, effective
as of the date such Additional Lender becomes party to this Agreement, a portion
of each continuing Lender's outstanding Advances, in such amounts as will have
the result that, immediately after giving effect to such Additional Lender
becoming party to this Agreement and to such purchases, each Lender (including
the Additional Lender) shall share in the outstanding Advances in the same
proportion as their respective Commitments. The Additional Lender shall offer in
writing to purchase the requisite portion of each continuing Lender's
outstanding Advances, at a price equal to the outstanding principal amount
thereof together with accrued and unpaid interest thereon to the date of
purchase, and a continuing Lender shall not unreasonably decline to accept such
offer. Each such purchase shall be made in accordance with Section 8.07 (with
the related Assignment and Acceptance modified, mutatis mutandis, to reflect
that such purchase is not a purchase of any portion of the Commitment of the
continuing Lender). Such purchases shall not be subject to the provisions of
clause (ii) of Section 8.07(a), and the Borrower shall be responsible for all
amounts payable to the Administrative Agent pursuant to clause (iv) of Section
8.07(a). The Borrower shall pay to each continuing Lender on demand any amount
that would be payable to such continuing Lender pursuant to Section 8.04(b)
(which for this purpose shall be applied as if such assignment were a prepayment
of the Advances assigned by such continuing Lender), and shall reimburse each
continuing Lender on demand for all reasonable fees and expenses (including
reasonable fees and expenses of counsel) incurred by it in connection with such
assignment.
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Conditions Precedent to Initial Advances. The
obligation of each Lender to make its initial Advance is subject to the
satisfaction, prior to or concurrently with, the making of such initial Advance,
of each of the following conditions precedent:
(a) Documents and Other Agreements. The Administrative Agent
shall have received on or before the day of the initial Borrowing the following,
each dated the same date, in form and substance satisfactory to the
Administrative Agent and (except for the Notes) with one copy for each Lender:
(i) The Notes payable to the order of each of the Lenders,
respectively;
(ii) Certified copies of the resolutions of the Board of
Directors of the Borrower approving the transactions
contemplated by this Agreement and the Notes, and of all
documents evidencing other necessary corporate action with
respect to this Agreement and the Notes;
(iii) A certificate of the Secretary or an Assistant
Secretary of the Borrower certifying (A) the names and true
signatures of the officers of the Borrower authorized to sign
this Agreement and the Notes and the other documents to be
delivered hereunder; (B) that attached thereto are true and
correct copies of the Restated Articles of Incorporation and
the By-laws of the Borrower, in each case in effect on such
date; and (C) that attached thereto are true and correct
copies of all governmental and regulatory authorizations and
approvals required for the due execution, delivery and
performance of this Agreement and the Notes, including,
without limitation, the Securities Certificate filed with the
PPUC by the Borrower (the "Securities Certificate") and the
Order of Registration issued by the PPUC registering the
Securities Certificate (the "Order of Registration");
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(iv) Copies of the financial statements referred to in
Section 4.01(e);
(v) A certificate signed by either the chief financial
officer, principal accounting officer or treasurer of the
Borrower stating that (A) the representations and warranties
contained in Section 4.01 are correct on and as of the date of
such certificate as though made on and as of such date, (B) no
event has occurred and is continuing on the date of such
certificate that constitutes an Event of Default or would
constitute an Event of Default but for the requirement that
notice be given or time elapse or both and (C) stating the
specific provision of the Securities Certificate or the Order
of Registration pursuant to which this Agreement is authorized
and stating that the Borrower is in compliance with such
provision;
(vi) A favorable opinion of Ballard Spahr Andrews &
Ingersoll, special counsel for the Borrower, substantially in
the form of Exhibit D hereto; and
(vii) A favorable opinion of Reed Smith Shaw & McClay LLP,
counsel for the Administrative Agent, substantially in the
form of Exhibit E hereto.
(b) Termination of Prior Credit Facility. The Administrative
Agent shall have received evidence of (i) the payment in full of all obligations
of the Borrower under the Existing Credit Agreements, and (ii) the termination
of the "Commitments" under the Existing Credit Agreements.
SECTION 3.02. Conditions Precedent to Certain Borrowings. The
obligation of each Lender to make an Advance on the occasion of each Borrowing
(including the initial Borrowing) that would increase the aggregate amount of
Advances outstanding shall be subject to the further conditions precedent that
on the date of such Borrowing the following statements shall be true, and each
of the giving of the applicable Notice of a Borrowing and the acceptance by the
Borrower of the proceeds of such Borrowing shall constitute a representation and
warranty by the Borrower that on the date of such Borrowing such statements are
true:
(A) The representations and warranties contained in
Section 4.01 are correct on and as of the date of such
Borrowing, before and after giving effect to such Borrowing
and to the application of the proceeds therefrom, as though
made on and as of such date; and
(B) No event has occurred and is continuing, or would
result from such Borrowing or from the application of the
proceeds therefrom, that constitutes an Event of Default or
would constitute an Event of Default but for the requirement
that notice be given or time elapse or both (it being
understood for clarification that (i) without limiting the
foregoing, it is a condition of this clause (B) that the
Borrower shall be in compliance with Section 5.01(a)(iv),
Section 5.02(a) and Section 5.02(c) upon giving effect to such
Borrowing and (ii) the conditions of this clause (B) shall
apply whether or not the respective Commitments of the Lenders
have been terminated pursuant to Section 6.01).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower.
The Borrower represents and warrants as follows:
(a) The Borrower is a corporation duly organized. validly
existing and in good standing under the laws of the Commonwealth of
Pennsylvania.
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(b) The execution, delivery and performance by the Borrower of
this Agreement and the Notes 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) applicable law or (iii) any contractual or legal restriction binding on or
affecting the Borrower or its properties.
(c) 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 Borrower of this
Agreement or the Notes except for the filing of the Securities Certificate with,
and the final approval of, and the Order of Registration issued by, the PPUC,
which filing has been duly made and which final approval and Order of
Registration have been duly obtained; such Order of Registration is in full
force and effect and is final; and on and after the date of the initial
Borrowing hereunder, the action of the PPUC registering the Securities
Certificate shall no longer be subject to appeal.
(d) This Agreement is, and the Notes when delivered hereunder
will be, legal, valid and binding obligations of the Borrower enforceable
against the Borrower in accordance with their respective terms, except as the
enforceability thereof may be limited by equitable principles or bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally.
(e) The consolidated balance sheet of the Borrower and its
Subsidiaries as at December 31, 1998, and the related statements of income and
retained earnings and of cash flows of the Borrower and its Subsidiaries for the
fiscal year then ended, certified by Pricewaterhouse Coopers LLP, and the
unaudited consolidated balance sheet of the Borrower and its Subsidiaries as at
June 30, 1999, and the related unaudited statements of income for the six-month
period then ended, copies of which have been furnished to each Lender, fairly
present in all material respects (subject, in the case of such balance sheets
and statements of income for the period ended June 30, 1999, to year-end
adjustments) the consolidated financial condition of the Borrower and its
Subsidiaries as at such dates and the consolidated results of the operations of
the Borrower and its Subsidiaries for the periods ended on such dates, all in
accordance with GAAP, and since June 30, 1999, there has been no Material
Adverse Change.
(f) Except as disclosed in the Borrower's Annual, Quarterly or
Current Reports, each as filed with the Securities and Exchange Commission and
delivered to the Lenders (including reports filed prior to the date of execution
and delivery of this Agreement and reports delivered to the Lenders pursuant to
Section 5.01(b)), there is no pending or threatened action, investigation or
proceeding affecting the Borrower or any of its Subsidiaries before any court,
governmental agency or arbitrator that may reasonably be anticipated to have a
Material Adverse Effect. There is no pending or threatened action or proceeding
against the Borrower or its Subsidiaries that purports to affect the legality,
validity, binding effect or enforceability of this Agreement or any Note.
(g) No proceeds of any Advance have been or will be used
directly or indirectly in connection with the acquisition of in excess of 5% of
any class of equity securities that is registered pursuant to Section 12 of the
Exchange Act or any transaction subject to the requirements of Section 13 or 14
of the Exchange Act.
(h) The Borrower is not engaged in the business of extending
credit for the purpose of purchasing 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 will be used to purchase or carry any
margin stock or to extend credit to others for the purpose of purchasing or
carrying any margin stock. Not more than 25% of the value of the assets of the
Borrower and its Principal Subsidiaries is represented by margin stock.
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(i) The Borrower (i) is exempt from the provisions of the
Public Utility Holding Company Act of 1935, as amended, other than Section
9(a)(2) thereof, pursuant to Section 3(a)(2) thereof, and (ii) 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.
(j) During the twelve consecutive month period prior to the
date of the execution and delivery of this Agreement and prior to the date of
any Borrowing under this Agreement, no steps have been taken to terminate any
Plan, and no contribution failure by the Borrower or any member of the
Controlled Group has occurred with respect to any Plan. No condition exists or
event or transaction has occurred with respect to any Plan (including any
Multiemployer Plan) which might result in the incurrence by the Borrower or any
member of the Controlled Group of any material liability, fine or penalty.
(k) The Borrower is reviewing its operations and those of its
Subsidiaries with a view to assessing whether its business, or the business of
any of its Subsidiaries (i) will be vulnerable to a Year 2000 Problem or (ii)
will be vulnerable to the effects of a Year 2000 Problem suffered by the
Borrower's or any of its Subsidiaries' major counterparties, in the case of (ii)
as described in the Borrower's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999. The Borrower represents and warrants that it does not
believe that any Year 2000 Problem will impair the Borrower's ability to pay
principal or interest on the Notes in accordance with their terms.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants. So long as any Note or
any amount payable by the Borrower hereunder shall remain unpaid or any Lender
shall have any Commitment hereunder (except with respect to subsection (a)(iv),
which shall be applicable only as of the date hereof and at any time that any
Advance is outstanding hereunder), the Borrower will, and, in the case of
Section 5.01(a), will cause its Principal Subsidiaries to, unless the Majority
Lenders shall otherwise consent in writing:
(a) Keep Books; Corporate Existence; Maintenance of
Properties; Compliance with Laws; Insurance; Taxes.
(i) keep proper books of record and account, all in
accordance with generally accepted accounting principles;
(ii) subject to Section 5.02(b), preserve and keep in full
force and effect its existence;
(iii) maintain and preserve all of its properties (except
such properties the failure of which to maintain or preserve
would not have, individually or in the aggregate, a Material
Adverse Effect) which are used or useful in the conduct of its
business in good working order and condition, ordinary wear
and tear excepted;
(iv) comply in all material respects with the requirements
of all applicable laws, rules, regulations and orders
(including those of any governmental authority and including
with respect to environmental matters) to the extent the
failure to so comply, individually or in the aggregate, would
have either a Material Adverse Effect or a material adverse
effect on the ability of the Borrower to perform its
obligations under this Agreement and the Notes;
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(v) maintain insurance with responsible and reputable
insurance companies or associations, or self-insure, as the
case may be, in each case in such amounts and covering such
contingencies, casualties and risks as is customarily carried
by or self-insured against by companies engaged in similar
businesses and owning similar properties in the same general
areas in which the Borrower and its Principal Subsidiaries
operate;
(vi) at any reasonable time and from time to time,
pursuant to prior notice delivered to the Borrower, permit any
Lender, or any agents or representatives of any thereof, to
examine and, at such Lender's expense, make copies of, and
abstracts from the records and books of account of, and visit
the properties of, the Borrower and any of its Principal
Subsidiaries and to discuss the affairs, finances and accounts
of the Borrower and any of its Subsidiaries with any of their
respective officers; provided, that any non-public information
(which has been identified as such by the Borrower) obtained
by any Lender, or any of their respective agents or
representatives pursuant to this subsection (vi) shall be
treated confidentially by such Person; provided, further, that
such Person may disclose such information to any other party
to this Agreement, its examiners, affiliates, outside
auditors, counsel or other professional advisors in connection
with the Agreement or if otherwise required to do so by law or
regulatory process;
(vii) use the proceeds of the Advances for general
corporate purposes (including, without limitation, the
refinancing of its commercial paper, the repayment of
outstanding Advances, and the making of acquisitions) but in
no event for any purpose which would be contrary to clause (g)
or clause (h) of Section 4.01;
(viii) take the actions and commit the resources deemed
necessary by the National Electric Reliance Council ("NERC"),
the Mid-Atlantic Area Counsel, the Nuclear Regulatory
Commission and the PUC to mitigate against the Year 2000
Problem; and
(ix) at the request of the Administrative Agent, provide
the Administrative Agent with any reports submitted by the
Borrower to NERC relating to the Year 2000 Problem, within a
reasonable time after such request.
(b) Reporting Requirements. Furnish to the Lenders:
(i) as soon as possible, and in any event within 5
Business Days after the occurrence of each Event of Default or
each event which, with the giving of notice or lapse of time,
or both, would constitute an Event of Default, continuing on
the date of such statement, a statement of an authorized
officer of the Borrower setting forth details of such Event of
Default or event and the action which 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 copy of the Borrower's
Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission with respect to such quarter, together
with a certificate of an authorized officer of the Borrower
stating that no Event of Default, or event which, with notice
or lapse of time or both, would constitute an Event of
Default, has occurred and is continuing or, if any Event of
Default or such event has occurred and is continuing, a
statement as to the nature thereof and the action which the
Borrower proposes to take with respect thereto;
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(iii) as soon as available and in any event within 105
days after the end of each fiscal year of the Borrower, a copy
of the Borrower's Annual Report on Form 10-K filed with the
Securities and Exchange Commission with respect to such fiscal
year, together with a certificate of an authorized officer of
the Borrower stating that no Event of Default, or event which,
with notice of lapse of time or both, would constitute an
Event of Default, has occurred and is continuing or, if any
Event of Default or such event has occurred and is continuing,
a statement as to the nature thereof and the action which the
Borrower proposes to take with respect thereto;
(iv) concurrently with the delivery of the annual and
quarterly reports referred to in Sections 5.01(b)(ii) and
5.01(b)(iii), a compliance certificate in substantially the
form set forth in Exhibit F, duly completed and signed by the
Chief Financial Officer, Treasurer or an Assistant Treasurer
of the Borrower;
(v) except as otherwise provided in subsections (ii) and
(iii) above, promptly after the sending or filing thereof,
copies of all reports that the Borrower sends to any of its
security holders, and copies of all Reports on Form 10-K, 10-Q
or 8-K, and registration statements and prospectuses that the
Borrower or any of its Subsidiaries files with the Securities
and Exchange Commission or any national securities exchange
(except to the extent that any such registration statement or
prospectus relates solely to the issuance of securities
pursuant to employee or dividend reinvestment plans of the
Borrower or such Subsidiary);
(vi) promptly upon becoming aware of the institution of
any steps by the Borrower or any other Person to terminate any
Plan, or the failure to make a required contribution to any
Plan if such failure is sufficient to give rise to a lien
under section 302(f) of ERISA, or the taking of any action
with respect to a Plan which could result in the requirement
that the Borrower furnish a bond or other security to the PBGC
or such Plan, or the occurrence of any event with respect to
any Plan, which could result in the incurrence by the Borrower
or any member of the Controlled Group of any material
liability, fine or penalty; and
(vii) such other information respecting the condition,
operations, business or prospects, financial or otherwise, of
the Borrower or any of its Subsidiaries as any Lender, through
the Administrative Agent, may from time to time reasonably
request.
SECTION 5.02. Negative Covenants. So long as any Note or any
amount payable by the Borrower hereunder shall remain unpaid or any Lender shall
have any Commitment hereunder (except with respect to subsection (a), which
shall be applicable only as of the date hereof and at any time any Advance is
outstanding hereunder), the Borrower will not, without the written consent of
the Majority Lenders:
(a) Limitation on Liens. Create, incur, assume or suffer to
exist, or permit any of its Principal Subsidiaries to create, incur, assume or
suffer to exist, any Lien on its respective property, revenues or assets,
whether now owned or hereafter acquired except (i) Liens upon or in any property
acquired by the Borrower or any of its Principal Subsidiaries in the ordinary
course of business to secure the purchase price of such property or to secure
any obligation incurred solely for the purpose of financing the acquisition of
such property, (ii) Liens existing on such property at the time of its
acquisition (other than any such Lien created in contemplation of such
acquisition unless permitted by the preceding clause (i)), (iii) Liens granted
under the Mortgage and "excepted encumbrances" as defined in the Mortgage, (iv)
Liens granted in connection with any financing arrangement for the purchase of
nuclear fuel or the financing of pollution control facilities, limited to the
fuel or facilities so purchased or acquired, (v) Liens arising in connection
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with sales or transfers of, or financing secured by, accounts receivable or
related contracts, (vi) Liens securing the Borrower's notes collateralized
solely by mortgage bonds of the Borrower issued under the terms of the Mortgage,
(vii) Liens arising in connection with sale and leaseback transactions, but only
to the extent (x) the proceeds received by the Borrower or such Principal
Subsidiary from such sale shall immediately be applied to retire mortgage bonds
of the Borrower issued under the terms of the Mortgage, or (y) the aggregate
purchase price of assets sold pursuant to such sale and leaseback transactions
where such proceeds are not so applied shall not exceed $1,000,000,000, (viii)
Liens granted by a Special Purpose Subsidiary to secure Nonrecourse Transition
Bond Debt of such Special Purpose Subsidiary, and (ix) Liens, other than those
described in clauses (i) through (viii) of this subsection granted by the
Borrower or any of its Principal Subsidiaries in the ordinary course of business
securing Debt of the Borrower and its Principal Subsidiaries in an amount not to
exceed $50,000,000 in the aggregate at any one time outstanding.
(b) Mergers and Consolidations; Disposition of Assets. Merge
with or into or consolidate with or into, or sell, assign, lease or otherwise
dispose of (whether in one transaction or in a series of transactions) all or
substantially all of its assets (whether now owned or hereafter acquired) to any
Person or permit any Principal Subsidiary to do so, except that (i) the Borrower
or any Principal Subsidiary may merge with or into or consolidate with or
transfer assets to any other Principal Subsidiary, (ii) any Principal Subsidiary
may merge with or into or consolidate with or transfer assets to the Borrower
and (iii) the Borrower may merge with or into or consolidate with or transfer
assets to any other Person; provided in each case, immediately thereafter in
giving effect thereto, no Event of Default or event that would, with the giving
of notice or the passage of time or both constitute an Event of Default shall
have occurred and be continuing and (A) in the case of any such merger,
consolidation or transfer of assets to which the Borrower is a party, either (x)
the Borrower shall be the surviving corporation or (y) the surviving corporation
shall be an Eligible Successor and shall have assumed all of the obligations of
the Borrower under this Agreement and the Notes pursuant to a written instrument
in form and substance satisfactory to the Administrative Agent and (B) subject
to clause (A) above, in the case of any such merger to which a Principal
Subsidiary is a party, a Principal Subsidiary shall be the surviving
corporation.
(c) Financial Covenant. Permit Consolidated Adjusted Total
Debt to exceed 65% of Consolidated Adjusted Total Capitalization at any time.
(d) Continuation of Businesses.
(i) Generation Business. (A) Cease to own (through the
Borrower or wholly-owned Subsidiaries) the business of
generating electricity, or (B) reduce the net installed
electric generating capacity (summer rating) of the
electricity generation business owned by the Borrower and its
wholly-owned Subsidiaries taken as a whole to less than 7821
Megawatts.
(ii) Distribution, Transmission and Gas Businesses. Cease
to own (directly by the Borrower, and not through
Subsidiaries) the business of distributing electricity to
end-users, the business of transmitting electricity, or the
businesses of transmitting and distributing natural gas, each
substantially as conducted by the Borrower as of the date of
this Agreement (and the Borrower warrants that as of the date
of this Agreement substantially all of such businesses
conducted by the Borrower on a consolidated basis, and the
assets relating thereto, are operated and owned by the
Borrower directly and not through Subsidiaries).
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ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following
events ("Events of Default") shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any
Advance when the same becomes due and payable, or interest thereon or any other
amount payable under this Agreement or any of the Notes within three Business
Days after the same becomes due and payable; or
(b) Any representation or warranty made by the Borrower herein
or by the Borrower (or any of its officers) pursuant to the terms of this
Agreement shall prove to have been incorrect or misleading in any material
respect when made; or
(c) The Borrower shall fail to perform or observe (i) any
term, covenant or agreement contained in Section 5.02, Section 5.01(a)(vii) or
Section 5.01(b)(i), or (ii) any other term, covenant or agreement contained in
this Agreement on its part to be performed or observed if the failure to perform
or observe such other term, covenant or agreement shall remain unremedied for 30
days after written notice thereof shall have been given to the Borrower by the
Administrative Agent (which notice shall be given by the Administrative Agent at
the written request of any Lender); or
(d) The Borrower or any Principal Subsidiary shall fail to pay
any principal of or premium or interest on any Debt that is outstanding in a
principal amount in excess of $50,000,000 in the aggregate (but excluding Debt
evidenced by the Notes and Nonrecourse Transition Bond Debt) of the Borrower or
such Principal Subsidiary (as the case may be) 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 any other event shall occur or condition shall exist under any agreement or
instrument relating to any such Debt 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 Debt; or any such Debt 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, other than any acceleration
of any Debt secured by equipment leases or fuel leases of the Borrower or a
Principal Subsidiary as a result of the occurrence of any event requiring a
prepayment (whether or not characterized as such) thereunder, which prepayment
will not result in a Material Adverse Change; or
(e) The Borrower or any Principal Subsidiary (other than a
Special Purpose Subsidiary) 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 a general assignment for the benefit of creditors; or any
proceeding shall be instituted by or against the Borrower or any Principal
Subsidiary (other than a Special Purpose Subsidiary) seeking to adjudicate it a
bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of it or 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, custodian or other similar official for it or for any
substantial part of its property and, in the case of any such proceeding
instituted against it (but not instituted by it), 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, or the appointment of a receiver, trustee, custodian or
other similar official for, it or for any substantial part of its property,)
shall occur; or the Borrower or any Principal Subsidiary (other than a Special
Purpose Subsidiary) shall take any corporate action to authorize or to consent
to any of the actions set forth above in this subsection (e); or
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(f) One or more judgments or orders for the payment of money
in an aggregate amount exceeding $50,000,000 (excluding any such judgments or
orders which are fully covered by insurance, subject to any customary
deductible, and under which the applicable insurance carrier has acknowledged
such full coverage in writing) shall be rendered against the Borrower or any
Principal Subsidiary 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 30 consecutive 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
(g) (i) any Reportable Event that the Majority Lenders
determine in good faith might constitute grounds for the termination of any Plan
or for the appointment by the appropriate United States District Court of a
trustee to administer a Plan shall have occurred and be continuing 30 days after
written notice to such effect shall have been given to the Borrower by the
Administrative Agent or (ii) any Plan shall be terminated, or (iii) a Trustee
shall be appointed by an appropriate United States District Court to administer
any Plan or (iv) the PBGC shall institute proceedings to terminate any Plan or
to appoint a trustee to administer any Plan; provided, however that on the date
of any event described in clauses (i) through (iv) above the Unfunded
Liabilities of such Plan exceed $20,000,000; or
(h) any "Event of Default" shall occur under the 364-Day
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, by notice to the Borrower,
declare the respective Commitments of the Lenders to be terminated, whereupon
the same shall forthwith terminate, and (ii) shall at the request, or may with
the consent, of the Majority Lenders, by notice to the Borrower, declare the
principal amount outstanding under the Notes, all interest thereon and all other
amounts payable under this Agreement to be forthwith due and payable, whereupon
the principal amount outstanding under 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 or any
Principal Subsidiary under the Federal Bankruptcy Code, (A) the obligation of
each Lender to make Advances shall automatically be terminated and (B) the
principal amount outstanding under the Notes, all such interest and all such
amounts shall automatically and immediately become 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 AGENTS
SECTION 7.01. Authorization and Action. Each Lender hereby
appoints and authorizes the Administrative Agent to take such action as
administrative 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 (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.
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SECTION 7.02. Agents' 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, except for its or their respective own
gross negligence or willful misconduct. Without limitation of the generality of
the foregoing: (i) the Administrative Agent may treat the payee of any Note as
the holder thereof until the Administrative Agent receives and accepts an
Assignment and Acceptance 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) the Administrative Agent 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) the Administrative Agent 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; (iv) the Administrative Agent 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 on the part of the
Borrower or to inspect the property (including the books and records) of the
Borrower; (v) the Administrative Agent shall not be responsible to any Lender
for the due execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any other instrument or document
furnished pursuant hereto; and (vi) the Administrative Agent shall not incur any
liability under or in respect of this Agreement 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. Agents and Affiliates. With respect to its
Commitment, Advances and Notes, each of First Chicago and 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 an Agent; and the term "Lender" or
"Lenders" shall, unless otherwise expressly indicated, include each of First
Chicago and Citibank, N.A. in its individual capacity. Each of First Chicago and
Citibank, N.A. and their 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 and any Person who may do business
with or own securities of the Borrower or any such subsidiary, all as if it were
not an 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 the financial statements referred to in Section
4.01(e) and such other 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
each Agent (to the extent not reimbursed by the Borrower), ratably according to
the respective principal amounts of the Notes then held by each of the Lenders
(or if no Notes are at the time outstanding, ratably according to the respective
amounts of their Commitments), 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 any such Agent in any way relating to or
arising out of this Agreement or any action taken or omitted by any such 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 such Agent's gross
negligence or willful misconduct. Without limitation of the foregoing, each
Lender agrees to reimburse each such Agent promptly upon demand for its ratable
share of any out-of-pocket expenses (including reasonable counsel fees) incurred
by such 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 such
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expenses are reimbursable by the Borrower but for which such Agent is not
reimbursed 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. Upon any such resignation or removal, the
Majority Lenders shall have the right to appoint a successor Administrative
Agent. 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 commercial bank described in clause (i)
or (ii) of the definition of "Eligible Assignee" and having a combined capital
and surplus of at least $150,000,000. 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.
Notwithstanding the foregoing, if no Event of Default, and no event that with
the giving of notice or the passage of time, or both, would constitute an Event
of Default, shall have occurred and be continuing, then no successor
Administrative Agent shall be appointed under this Section 7.06 without the
prior written consent of the Borrower, which consent shall not be unreasonably
withheld or delayed.
SECTION 7.07. Documentation Agent and Lead Arranger. The
titles "Documentation Agent" and "Lead Arranger" are purely honorific, and the
"Documentation Agent" and the "Lead Arranger" shall have no duties or
responsibilities in such capacity.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. No amendment or waiver of any
provision of this Agreement or the Notes, 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 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 (other than any Lender that is
the Borrower or an Affiliate of the Borrower), do any of the following: (a)
waive any of the conditions specified in Section 3.01 or 3.02, (b) increase the
Commitments of the Lenders or subject the Lenders to any additional obligations,
(c) reduce the principal of, or interest on, the Notes or any fees or other
amounts payable hereunder, (d) postpone any date fixed for any payment of
principal of, or interest on, the 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 Notes, or the number of Lenders, that shall be
required for the Lenders or any of them to take any action hereunder, or (f)
amend this Section 8.01; 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 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 2301 Market
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Street, Philadelphia, Pennsylvania 19101, Attention: Vice President-Finance and
Treasurer, S21-1, Telecopy: (215) 557-9885; 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 Assignment and
Acceptance or Additional Lender Supplement pursuant to which it became a Lender;
and if to the Administrative Agent, at its address at One First National Plaza,
Mail Suite 0634, 1FPN-10, Chicago, Illinois 60670, Attention: Mr. Ron Cromey,
Telecopy: (312) 732-4840 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 when deposited in the mails, telecopied, delivered to
the telegraph company, 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 and Expenses; Indemnification. (a) The
Borrower agrees to pay on demand all costs and expenses incurred by the
Administrative Agent and the Lead Arranger in connection with the preparation,
execution, delivery, administration, syndication, modification and amendment of
this Agreement, the Notes and the other documents to be delivered hereunder,
including, without limitation, the reasonable fees, internal charges and
out-of-pocket expenses of counsel (including, without limitation, in-house
counsel) for such Agents with respect thereto and with respect to advising such
Agents as to their respective rights and responsibilities under this Agreement.
The Borrower further agrees to pay on demand all costs and expenses, if any
(including, without limitation, counsel fees and expenses of outside counsel and
of internal counsel), incurred by the any Agent or any Lender in connection with
the collection and enforcement (whether through negotiations, legal proceedings
or otherwise) of this Agreement, the Notes and the other documents to be
delivered hereunder, including, without limitation, reasonable counsel fees and
expenses in connection with the enforcement of rights under this Section
8.04(a).
(b) If any payment of principal of, or Conversion of any
Eurodollar Rate Advance is made other than on the last day of the Interest
Period for such Advance, as a result of a payment or Conversion pursuant to
Section 2.09 or 2.12 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, each Agent and each of their respective Affiliates, officers, directors
and employees (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) that any of them may pay or
incur arising out of or relating to this Agreement, the Notes or the
transactions contemplated thereby, or the use by the Borrower or any of its
subsidiaries of the proceeds of any Advance, provided that the Borrower shall
not be liable for any portion of such claims, damages, losses, liabilities,
costs or expenses resulting from such Indemnified Person's gross negligence or
willful misconduct. The Borrower's obligations under this Section 8.04(c) shall
survive the repayment of all amounts owing to the Lenders and the Administrative
Agent under this Agreement and the Notes and the termination of the Commitments.
If and to the extent that the obligations of the Borrower under this Section
8.04(c) are unenforceable for any reason, the Borrower agrees to make the
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<PAGE>
maximum contribution to the payment and satisfaction thereof which is
permissible under applicable law.
SECTION 8.05. Right of Set-off. 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 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 this Agreement and
any Note held by such Lender, whether or not such Lender shall have made any
demand under this Agreement 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 8.05 are in addition to other rights
and remedies (including, without limitation, other rights of set-off) that such
Lender may have.
SECTION 8.06. Binding Effect. This Agreement shall become
effective when it shall have been executed by the Borrower and the Agents and
when the Administrative Agent shall have been notified by each Bank that such
Bank has executed it and thereafter shall be binding upon and inure to the
benefit of the Borrower, the Agents 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, with the prior written consent of the Borrower and the Administrative Agent
(neither of which consents shall be unreasonably withheld or delayed), and if
demanded by the Borrower pursuant to subsection (g) hereof shall to the extent
required by such subsection (g), assign to one or more banks or other entities
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 Assignment and Acceptance with
respect to such assignment) shall in no event be less than $10,000,000 or, if
less, the entire amount of such Lender's Commitment, and shall be an integral
multiple of $1,000,000 or such Lender's entire Commitment, (iii) each such
assignment shall be to an Eligible Assignee, (iv) the parties to each such
assignment shall execute and deliver to the Administrative Agent, for its
acceptance and recording in the Register, an Assignment and Acceptance, together
with any Note or Notes subject to such assignment and a processing and
recordation fee of $3,500 (which shall be payable by one or more of the parties
to the Assignment and Acceptance, and not by the Borrower, and shall not be
payable if the assignee is a Bank, any Affiliate of any Bank or the Federal
Reserve Bank), and (v) the consent of the Borrower shall not be required after
the occurrence and during the continuance of any Event of Default. Upon such
execution, delivery, acceptance and recording, from and after the effective date
specified in each Assignment and Acceptance, (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 Assignment and Acceptance, 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 Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement and, in the case of an
Assignment and Acceptance 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 (although an assigning Lender shall continue to be entitled to
indemnification pursuant to Section 8.04(c)). Notwithstanding anything contained
in this Section 8.07(a) to the contrary, (A) the consent of the Borrower and the
Administrative Agent shall not be required with respect to any assignment by any
Lender to an Affiliate of such Lender or to another Lender and (B) any Lender
may at any time, without the consent of the Borrower or the Administrative
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<PAGE>
Agent, and without any requirement to have an Assignment and Acceptance
executed, assign all or any part of its rights under this Agreement and its
Notes to a Federal Reserve Bank, provided that such assignment does not release
the transferor Lender from any of its obligations hereunder.
(b) By executing and delivering an Assignment and Acceptance,
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 Assignment and Acceptance, 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 this
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any other instrument or document
furnished pursuant hereto; (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 this Agreement or any other instrument or document furnished
pursuant hereto; (iii) such assignee confirms that it has received a copy of
this Agreement, together with copies of the financial statements referred to in
Section 4.01(e) and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (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 this Agreement; (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 this
Agreement as are delegated to the Administrative Agent by the terms hereof,
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 this Agreement 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 Assignment and Acceptance and each
Additional Lender Supplement 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 an Assignment and Acceptance 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, if such Assignment and Acceptance has been completed
and is in substantially the form of Exhibit C hereto, (i) accept such Assignment
and Acceptance, (ii) record the information contained therein in the Register
and (iii) give prompt notice thereof to the Borrower. Within five 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 Assignment and Acceptance
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 Assignment and Acceptance and
shall otherwise be in substantially the form of Exhibit A hereto.
(e) Each Lender may sell participations to one or more banks
or other entities (each, a "Participant") in or to all or a portion of its
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<PAGE>
rights and/or 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) 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, (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 and
(v) such Lender shall retain the sole right to approve, without the consent of
any Participant, any amendment, modification or waiver of any provision of this
Agreement or the Note or Notes held by such Lender, other than any such
amendment, modification or waiver with respect to any Advance or Commitment in
which such Participant has an interest that forgives principal, interest or fees
or reduces the interest rate or fees payable with respect to any such Advance or
Commitment, postpones any date fixed for any regularly scheduled payment of
principal of, or interest or fees on, any such Advance or Commitment, releases
any guarantor of any such Advance or releases any substantial portion of
collateral, if any, securing any such Advance.
(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 to
preserve the confidentiality of any confidential information relating to the
Borrower received by it from such Lender (subject to customary exceptions
regarding regulatory requirements, compliance with legal process and other
requirements of law).
(g) If (i) any Lender shall make demand for payment under
Section 2.11(a), 2.11(b) or 2.14, or (ii) shall deliver any notice to the
Administrative Agent pursuant to Section 2.12 resulting in the suspension of
certain obligations of the Lenders with respect to Eurodollar Rate Advances or
(iii) shall fail to consent to, or shall revoke its consent to, the extension of
any Termination Date pursuant to Section 2.16 or (iv) shall fail to consent to,
or shall revoke its consent to, any extension of the "Termination Date" (as
defined in the 364-Day Credit Agreement) requested by the Borrower pursuant to
Section 2.16 of the 364-Day Credit Agreement as originally constituted (or any
successor provision of similar import), then (in the case of clause (i)) within
60 days after such demand (if, but only if, such payment demanded under Section
2.11(a), 2.11(b) or 2.14 has been made by the Borrower), or (in the case of
clause (ii)) within 60 days after such notice (if such suspension is still in
effect), or (in the case of clauses (iii) and (iv)) no later than 10 days prior
to the then effective Termination Date, as the case may be, the Borrower may
demand that such Lender assign in accordance with this Section 8.07 to one or
more Eligible Assignees designated by the Borrower and reasonably acceptable to
the Administrative Agent all (but not less than all) of such Lender's Commitment
and the Advances owing to it within the next succeeding 30 days (in the case of
clause (i) or clause (ii)), or within the next succeeding 5 days (in the case of
clauses (iii) and (iv)) . 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 Assignee
for all of such Lender's Commitment or Advances, then such Lender may (but shall
not be required to) assign such Commitment and Advances to any other Eligible
Assignee in accordance with this Section 8.07 during such period.
(h) Notwithstanding anything to the contrary contained herein,
any Lender (a "Granting Bank") may grant to a special purpose funding vehicle
(an "SPC"), identified as such in writing from time to time by the Granting Bank
to the Administrative Agent and the Borrower, the option to provide to the
Borrower all or any part of any Advance that such Granting Bank would otherwise
be obligated to make to the Borrower pursuant to this Agreement; provided that
(i) nothing herein shall constitute a commitment by any SPC to make any Advance,
(ii) if an SPC elects not to exercise such option or otherwise fails to provide
all or any part of such Advance, the Granting Bank shall be obligated to make
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<PAGE>
such Advance pursuant to the terms hereof. The making of an Advance by an SPC
hereunder shall utilize the Commitment of the Granting Bank to the same extent,
and as if, such Advance were made by such Granting Bank. Each party hereto
hereby agrees that no SPC shall be liable for any indemnity or similar payment
obligation under this Agreement (all liability for which shall remain with the
Granting Bank). In furtherance of the foregoing, each party hereto hereby agrees
(which agreement shall survive the termination of this Agreement) that, prior to
the date that is one year and one day after the payment in full of all
outstanding commercial paper or other senior indebtedness of any SPC, it will
not institute against, or join any other person in instituting against, such SPC
any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings under the laws of the United States or any State thereof. In
addition, notwithstanding anything to the contrary contained in this Section
8.07(h), any SPC may (i) with notice to, but without the prior written consent
of, the Borrower and the Administrative Agent and without paying any processing
fee therefor, assign all or a portion of its interests in any Advances to the
Granting Bank or to any financial institutions (consented to by the Borrower and
Administrative Agent) providing liquidity and/or credit support to or for the
account of such SPC to support the funding or maintenance of Advances and (ii)
disclose on a confidential basis any non-public information relating to its
Advances to any rating agency, commercial paper dealer or provider of any
surety, guarantee or credit or liquidity enhancement to such SPC. This Section
may not be amended without the written consent of the Granting Bank.
SECTION 8.08. Governing Law. THIS AGREEMENT AND THE NOTES
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
COMMONWEALTH OF PENNSYLVANIA.
SECTION 8.09. Consent to Jurisdiction. THE BORROWER HEREBY
IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE
COMMONWEALTH OF PENNSYLVANIA AND ANY UNITED STATES DISTRICT COURT SITTING IN THE
COMMONWEALTH OF PENNSYLVANIA IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE NOTES 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 ADMINISTRATIVE AGENT OR ANY LENDER TO BRING PROCEEDINGS
AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION.
SECTION 8.10. Execution in Counterparts; Integration. 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. This Agreement constitutes the entire agreement and
understanding among the parties hereto and supersedes all prior and
contemporaneous agreements and understandings, oral or written, relating to the
subject matter hereof.
[Remainder of the page intentionally left blank]
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<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.
[SEAL] PECO ENERGY COMPANY
PECO ENERGY COMPANY
By /s/ J.B. Mitchell
---------------------------------------------
Name: J. B. Mitchell
Title: Vice President - Finance and Treasurer
/s/ Todd D. Cutler
- - ------------------
Todd D. Cutler
Assistant Secretary
THE FIRST NATIONAL BANK OF CHICAGO,
as Administrative Agent
By /s/ Kenneth J. Bauer
---------------------------------------------
Name: Kenneth J. Bauer
Title: Authorized Agent
CITIBANK, N.A.,
as Documentation Agent
By: /s/ Robert J. Harrity, Jr.
--------------------------------------------
Title: Managing Director
BANC ONE CAPITAL MARKETS, INC.,
as Lead Arranger
By /s/ Kenneth J. Bauer
---------------------------------------
Name: Kenneth J. Bauer
Title: Vice President/Senior Banker
This is a signature page to the Revolving Credit Agreement, dated as of
September 15, 1999, among PECO Energy Company, as Borrower, the banks named
therein, as Banks, The First National Bank of Chicago, as Administrative Agent,
Citibank, N.A., as Documentation Agent, and Banc One Capital Markets, Inc., as
Lead Arranger.
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<PAGE>
THE BANKS
Commitment
$60,000,000
THE FIRST NATIONAL BANK OF CHICAGO, as
Administrative Agent and as Bank
By /s/ Keneth J. Bauer
-----------------------------------
Name: Kenneth J. Bauer
Title: Authorized Agent
This is a signature page to the Revolving Credit Agreement, dated as of
September 15, 1999, among PECO Energy Company, as Borrower, the banks named
therein, as Banks, The First National Bank of Chicago, as Administrative Agent,
Citibank, N.A., as Documentation Agent, and Banc One Capital Markets, Inc., as
Lead Arranger.
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<PAGE>
Commitment
$60,000,000
CITIBANK, N.A., as Documentation
Agent and as Bank
By /s/ Robert J. Harrity, Jr.
----------------------------
Name: Robert J. Harrity, Jr.
Title: Managing Director
This is a signature page to the Revolving Credit Agreement, dated as of
September 15, 1999, among PECO Energy Company, as Borrower, the banks named
therein, as Banks, The First National Bank of Chicago, as Administrative Agent,
Citibank, N.A., as Documentation Agent, and Banc One Capital Markets, Inc., as
Lead Arranger.
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<PAGE>
Commitment
$50,000,000
BANK OF AMERICA, N.A.
as Bank
By /s/ Lawrence Sauners, Jr.
---------------------------------
Name: Lawrence Saunders, Jr.
Title: Managing Director
This is a signature page to the Revolving Credit Agreement, dated as of
September 15, 1999, among PECO Energy Company, as Borrower, the banks named
therein, as Banks, The First National Bank of Chicago, as Administrative Agent,
Citibank, N.A., as Documentation Agent, and Banc One Capital Markets, Inc., as
Lead Arranger.
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<PAGE>
Commitment
$50,000,000
THE BANK OF NEW YORK, as Bank
By /s/ John N. Watt
---------------------------
Name: John N. Watt
Title: Vice President
This is a signature page to the Revolving Credit Agreement, dated as of
September 15, 1999, among PECO Energy Company, as Borrower, the banks named
therein, as Banks, The First National Bank of Chicago, as Administrative Agent,
Citibank, N.A., as Documentation Agent, and Banc One Capital Markets, Inc., as
Lead Arranger.
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<PAGE>
Commitment
$50,000,000
CREDIT SUISSE FIRST BOSTON, as Bank
By /s/ Douglas E. Maher
--------------------------------
Name: Douglas E. Maher
Title: Vice President
This is a signature page to the Revolving Credit Agreement, dated as of
September 15, 1999, among PECO Energy Company, as Borrower, the banks named
therein, as Banks, The First National Bank of Chicago, as Administrative Agent,
Citibank, N.A., as Documentation Agent, and Banc One Capital Markets, Inc., as
Lead Arranger.
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<PAGE>
Commitment
$50,000,000
FIRST UNION NATIONAL BANK, as Bank
By /s/ Joe K. Dancey
------------------------------
Name: Joe K. Dancey
Title: Vice President
This is a signature page to the Revolving Credit Agreement, dated as of
September 15, 1999, among PECO Energy Company, as Borrower, the banks named
therein, as Banks, The First National Bank of Chicago, as Administrative Agent,
Citibank, N.A., as Documentation Agent, and Banc One Capital Markets, Inc., as
Lead Arranger.
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<PAGE>
Commitment
$50,000,000
MELLON BANK, N.A., as Bank
By /s/ Mark W. Rogers
------------------------
Name: Mark W. Rogers
Title: Vice President
This is a signature page to the Revolving Credit Agreement, dated as of
September 15, 1999, among PECO Energy Company, as Borrower, the banks named
therein, as Banks, The First National Bank of Chicago, as Administrative Agent,
Citibank, N.A., as Documentation Agent, and Banc One Capital Markets, Inc., as
Lead Arranger.
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<PAGE>
Commitment
$25,000,000
UNION BANK OF CALIFORNIA,
N.A., as Bank
By /s/ Robert J. Cole
-------------------------------
Name: Robert J. Cole
Title: Vice President
This is a signature page to the Revolving Credit Agreement, dated as of
September 15, 1999, among PECO Energy Company, as Borrower, the banks named
therein, as Banks, The First National Bank of Chicago, as Administrative Agent,
Citibank, N.A., as Documentation Agent, and Banc One Capital Markets, Inc., as
Lead Arranger.
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<PAGE>
Commitment
$25,000,000
TORONTO DOMINION (TEXAS),
INC., as Bank
By /s/ Jimmy Simien
------------------------
Name: Jimmy Simien
Title: Vice Prsident
This is a signature page to the Revolving Credit Agreement, dated as of
September 15, 1999, among PECO Energy Company, as Borrower, the banks named
therein, as Banks, The First National Bank of Chicago, as Administrative Agent,
Citibank, N.A., as Documentation Agent, and Banc One Capital Markets, Inc., as
Lead Arranger.
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<PAGE>
Commitment
$17,500,000
COMMERCE BANK, N.A., as Bank
By /s/ Kurt J. Fuoti
-----------------------------
Name: Kurt J. Fuoti
Title: Vice President
This is a signature page to the Revolving Credit Agreement, dated as of
September 15, 1999, among PECO Energy Company, as Borrower, the banks named
therein, as Banks, The First National Bank of Chicago, as Administrative Agent,
Citibank, N.A., as Documentation Agent, and Banc One Capital Markets, Inc., as
Lead Arranger.
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<PAGE>
Commitment
$12,500,000
BARCLAYS BANK PLC, as Bank
By /s/ Sidney G. Dennis
----------------------------
Name: Sidney G. Dennis
Title: Director
This is a signature page to the Revolving Credit Agreement, dated as of
September 15, 1999, among PECO Energy Company, as Borrower, the banks named
therein, as Banks, The First National Bank of Chicago, as Administrative Agent,
Citibank, N.A., as Documentation Agent, and Banc One Capital Markets, Inc., as
Lead Arranger.
-47-
<PAGE>
SCHEDULE I
Revolving Credit Agreement, dated as of September 15, 1999, among PECO Energy
Company, as Borrower, the banks named therein, as Banks, The First National Bank
of Chicago, as Administrative Agent, Citibank, N.A., as Documentation Agent, and
Banc One Capital Markets, Inc., as Lead Arranger.
<TABLE>
<CAPTION>
Domestic Eurodollar
Name of Bank Lending Office Lending Office
- - ------------ -------------- --------------
<S> <C> <C>
The First National Bank One First National Plaza Same
of Chicago Mail Suite 0634, 1FNP-10
Chicago, IL 60670
Attn: Gwendolyn Watson
Phone: (312) 732-4509
Fax: (312) 732-4840
The Bank of New York One Wall Street, 19th Floor Same
Energy Industries Division
New York, NY 10286
Attn: Theresa A. Foran
Phone: (212) 635-7921
Fax: (212) 635-7923
Citibank, N.A. 399 Park Avenue Same
4th Floor, Zone 20
New York, NY 10043
Attn: Tracy Smith
Phone: (302) 894-6098
Fax: (302) 894-6120
Credit Suisse First Boston 11 Madison Avenue Same
20th Floor
New York, NY 10010-3629
Attn: Jenaro Sarasola
Phone: (212) 322-1384
Fax: (212) 325-0593/0576
First Union National Bank 201 South College Street Same
24th Floor
Charlotte, NC 28288-1183
Attn: Holly Benson
Phone: (704) 383-0296
Fax: (704) 383-7999
Mellon Bank, N.A. Three Mellon Bank Center Room 2303 Same
(Loan Administration)
Pittsburgh, PA 15259-0003
Attn: Cathy Capp
Phone: (412) 234-1870
Fax: (412) 236-2027, 2028
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Domestic Eurodollar
Name of Bank Lending Office Lending Office
- - ------------ -------------- --------------
<S> <C> <C>
Union Bank of Energy Capital Services Same
California, N.A. 445 S. Figueroa Street
20th Floor
Los Angeles, CA 90071
Attn: Yolande C. Hollis
Phone: (213) 236-6199
Fax: (213) 236-4096
Commerce Bank, N.A. 2005 Market Street Same
One Commerce Square
2nd Floor
Philadelphia, PA 19103
Attn: Kim Dunda
AIM #200-01-35
Phone: (888) 751-9000 Ext. 8570
Fax: (856) 642-7704
Toronto Dominion (Texas) 909 Fannin, Suite 1700 Same
Inc. Houston, TX 77010
Attn: Herbert Simien
Phone: (713) 653-8242
Fax: (713) 951-9921
Barclays Bank PLC 222 Broadway Same
New York, NY 10038
Attn: Marsha L. Hamlette
Phone: (212) 412-4081
Fax: (212) 412-5306
Bank of America, N.A. 6610 Rockledge Drive Same
6th Floor
Bethesda, MD 20817
Attn: Paula Kramp
Phone: (301) 571-0713
Fax: (301) 571-0719
</TABLE>
-2-
<PAGE>
EXHIBIT A
FORM OF NOTE
$____________________ Dated: [ ], 1999
FOR VALUE RECEIVED, the undersigned, PECO Energy Company, a
Pennsylvania corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order
of (the "Lender") for the account of its Applicable Lending Office (such term
and other capitalized terms herein being used as defined in the Credit Agreement
referred to below) on the Termination Date the principal sum of U.S.$[amount of
the Lender's Commitment in figures] or, if less, the aggregate principal amount
of the Advances made by the Lender to the Borrower pursuant to the Credit
Agreement outstanding on the Termination Date.
The Borrower promises to pay interest on the unpaid principal
amount of each Advance from the date of such Advance until such principal amount
is paid in full, at such interest rates, and payable at such times, as are
specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the
United States of America to The First National Bank of Chicago, as
Administrative Agent, at One First National Plaza, Chicago, Illinois 60670, in
same day funds. Each Advance made by the Lender to the Borrower pursuant to the
Credit Agreement, and all payments made on account of principal thereof, shall
be recorded by the Lender and, prior to any transfer hereof, endorsed on the
grid attached hereto which is part of this Promissory Note.
This Promissory Note is one of the Notes referred to in, and
is entitled to the benefits of, the Revolving Credit Agreement, dated as of
September 15, 1999 among PECO Energy Company, as Borrower, the banks named
therein, as Banks, The First National Bank of Chicago, as Administrative Agent,
Citibank, N.A., as Documentation Agent, and Banc One Capital Markets, Inc., as
Lead Arranger (as amended, modified or supplemented from time to time, the
"Credit Agreement"). The Credit Agreement, among other things, (i) provides for
the making of Advances by the Lender to the Borrower from time to time in an
aggregate amount not to exceed at any time outstanding the U.S. dollar amount
first above mentioned, the indebtedness of the Borrower resulting from each such
Advance being evidenced by this Promissory Note, and (ii) contains provisions
for acceleration of the maturity hereof upon the happening of certain stated
events and also for prepayments on account of principal hereof prior to the
maturity hereof upon the terms and conditions therein specified.
The Borrower hereby waives presentment, demand, protest and
notice of any kind. No failure to exercise, and no delay in exercising, any
rights hereunder on the part of the holder hereof shall operate as a waiver of
such rights.
<PAGE>
THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.
PECO ENERGY COMPANY
By___________________________________
Name:
Title:
-2-
<PAGE>
ADVANCES, MATURITIES, AND PAYMENTS OF PRINCIPAL
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Amount of
Maturity Principal Unpaid
Amount of of Paid or Principal Notation
Date Advance Advance Prepaid Balance Made By
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<PAGE>
EXHIBIT B
NOTICE OF A BORROWING
The First National Bank of Chicago, as Administrative Agent for the Lenders
parties to the Credit Agreement referred to below
One First National Plaza
Chicago, Illinois 60670
[Date]
Attention: Utilities Department
North American Finance Group
Ladies and Gentlemen:
The undersigned, PECO Energy Company, refers to the Revolving
Credit Agreement, dated as of September 15, 1999, among PECO Energy Company, as
Borrower, the banks named therein, as Banks, The First National Bank of Chicago,
as Administrative Agent, Citibank, N.A., as Documentation Agent, and Banc One
Capital Markets, Inc., as Lead Arranger (as amended, modified or supplemented
from time to time, the "Credit Agreement"), and hereby gives you notice,
irrevocably, pursuant to Section 2.02 of the Credit Agreement that the
undersigned hereby requests a Borrowing under the Credit Agreement, and in that
connection sets forth below the information relating to such Borrowing (the
"Proposed Borrowing") as required by Section 2.02(a) of the Credit Agreement:
(i) The Business Day of the Proposed Borrowing is___,
19/20__.
(ii) The Type of Advances to be made in connection
with the Proposed Borrowing is [Base Rate Advances]
[Eurodollar Rate Advances].
(iii) The aggregate amount of the Proposed Borrowing
is $____.
(iv) The Interest Period for each Advance made as
part of the Proposed Borrowing is [__days] [__month[s]].
The undersigned hereby certifies that the following statements
are true on the date hereof, and will be true on the date of the Proposed
Borrowing:
(A) the representations and warranties contained in
Section 4.01 are correct, before and after giving effect to
the Proposed Borrowing and to the application of the proceeds
therefrom, as though made on and as of such date; and
(B) no event has occurred and is continuing, or would
result from such Proposed Borrowing or from the application of
the proceeds therefrom, that
<PAGE>
constitutes an Event of Default or would constitute an Event
of Default but for the requirement that notice be given or
time elapse or both.
Very truly yours,
PECO ENERGY COMPANY
By_______________________________
Name:
Title:
-2-
<PAGE>
EXHIBIT C
ASSIGNMENT AND ACCEPTANCE
Dated , 19/20
---------- --
Reference is made to the Revolving Credit Agreement, dated as
of September 15, 1999 among PECO Energy Company, as Borrower, the banks named
therein, as Banks, The First National Bank of Chicago, as Administrative Agent,
Citibank, N.A., as Documentation Agent, and Banc One Capital Markets, Inc., as
Lead Arranger (as amended, modified or supplemented from time to time, the
"Credit Agreement"). Terms defined in the Credit Agreement are used herein with
the same meaning.
____________ (the "Assignor") and ____________ (the
"Assignee") agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, and
the Assignee hereby purchases and assumes from the Assignor, that interest in
and to all of the Assignor's rights and obligations under the Credit Agreement
as of the date hereof which represents the percentage interest specified on
Schedule 1 of all outstanding rights and obligations under the Credit Agreement,
including, without limitation, such interest in the Assignor's Commitment, the
Advances owing to the Assignor, and the Note[s] held by the Assignor. After
giving effect to such sale and assignment, the Assignee's Commitment and the
amount of the Advances owing to the Assignee will be as set forth in Section 2
of Schedule 1.
2. The Assignor (i) represents and warrants that it is the
legal and beneficial owner of the interest being assigned by it hereunder and
that such interest is free and clear of any adverse claim; (ii) makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the
Credit Agreement or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Credit Agreement or any other
instrument or document furnished pursuant thereto; (iii) 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 the Credit Agreement or any other instrument or
document furnished pursuant thereto; and (iv) attaches the Note[s] referred to
in paragraph 1 above and requests that the Administrative Agent exchange such
Note[s] for a new Note payable to the order of the Assignee in an amount equal
to the Commitment assumed by the Assignee pursuant hereto or new Notes payable
to the order of the Assignee in an amount equal to the Commitment assumed by the
Assignee pursuant hereto and the Assignor in an amount equal to the Commitment
retained by the Assignor under the Credit Agreement, respectively as specified
on Schedule 1 hereto.
3. The Assignee (i) confirms that it has received a copy of
the Credit Agreement, together with copies of the financial statements referred
to in Section 4.01 thereof and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
this Assignment and Acceptance; (ii) agrees that it will, independently and
without reliance upon the Administrative Agent, the Assignor 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 Credit Agreement; (iii) confirms that it is an Eligible Assignee; (iv)
appoints and authorizes the Administrative Agent to take such action as agent on
its behalf and to exercise such powers under the Credit Agreement as are
delegated to the Administrative Agent by the terms thereof, together with such
powers as are reasonably incidental thereto; (v) agrees that it will perform in
accordance with their terms all of the obligations which by the terms of the
Credit Agreement are required to be performed by it as a Lender; (vi) none of
the consideration used to make the purchase being made by the Assignee hereunder
are "plan assets" as defined under ERISA and the rights and interests of the
Assignee in and under the Credit Agreement will not be "plan assets" under ERISA
<PAGE>
[and] (vii) specifies as its, Domestic Lending Office (and address for notices)
and Eurodollar Lending Office the offices set forth beneath its name on the
signature pages hereof [and (viii) attaches the forms prescribed by the Internal
Revenue Service of the United States certifying that it is exempt from United
States withholding taxes with respect to all payments to be made to the Assignee
under the Credit Agreement and the Notes].1
4. Following the execution of this Assignment and Acceptance
by the Assignor and the Assignee, it will be delivered to the Administrative
Agent for acceptance and recording by the Administrative Agent. The effective
date of this Assignment and Acceptance shall be the date of acceptance thereof
by the Administrative Agent, unless otherwise specified on Schedule 1 hereto
(the "Effective Date").
5. Upon such acceptance and recording by the Administrative
Agent, as of the Effective Date, (i) the Assignee shall be a party to the Credit
Agreement and, to the extent provided in this Assignment and Acceptance, have
the rights and obligations of a Lender thereunder and (ii) the Assignor shall,
to the extent provided in this Assignment and Acceptance, relinquish its rights
and be released from its obligations under the Credit Agreement.
6. Upon such acceptance and recording by the Administrative
Agent, from and after the Effective Date, the Administrative Agent shall make
all payments under the Credit Agreement and the Notes in respect of the interest
assigned hereby (including, without limitation, all payments of principal,
interest and commitment fees with respect thereto) to the Assignee. The Assignor
and Assignee shall make all appropriate adjustments in payments under the Credit
Agreement and the Notes for periods prior to the Effective Date directly between
themselves.
7. THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.
- - ----------
(1) If the Assignee is organized under the laws of a jurisdiction outside the
United States.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Assignment and Acceptance to be executed by their respective officers thereunto
duly authorized, as of the date first above written, such execution being made
on Schedule 1 hereto.
[NAME OF ASSIGNOR]
By__________________________________
Name:
Title:
[NAME OF ASSIGNEE]
By_________________________________
Name:
Title:
Domestic Lending
Office (and address
for notices):
[Address]
Eurodollar Lending Office:
[Address]
Consented to this _____ day
of _____________, 19/20__
PECO ENERGY COMPANY
By_______________________
Name:
Title:
Consented to and Accepted this _____ day
of _________________, 19/20__
[NAME OF ADMINISTRATIVE AGENT]
By_______________________
Name:
Title:
-3-
<PAGE>
Schedule 1
to
Assignment and Acceptance
Dated _______, 19/20__
Section 1.
Percentage Interest: ___%
Section 2.
Assignee's Commitment: $___
Aggregate Outstanding Principal
Amount of Advances
owing to the Assignee: $___
A Note payable to the
order of the Assignee
Dated:_________, 19/20__
Principal amount: $__
A Note payable to the
order of the Assignor
Dated:_________, 19/20__
Principal amount: $__
Section 3.
Effective Date(2): _________, 19/20__
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(2) This date should be no earlier than the date of acceptance by the
Administrative Agent.
<PAGE>
EXHIBIT D
FORM OF OPINION OF BALLARD SPAHR
ANDREWS & INGERSOLL
__________, 19/20__
To each of the Banks, the Administrative Agent,
and the Lead Arranger party to the Revolving Credit
Agreement, dated as of September 15, 1999, among
PECO Energy Company, as Borrower, the banks named
therein, as Banks, The First National Bank of Chicago,
as Administrative Agent, Citibank, N.A., as
Documentation Agent, and Banc One Capital Markets,
Inc., as Lead Arranger
Re: PECO Energy Company
-------------------
Ladies and Gentlemen:
This opinion is furnished to you pursuant to Section
3.01(a)(vi) of the Revolving Credit Agreement, dated as of September 15, 1999,
among PECO Energy Company, as Borrower, the banks named therein, as Banks, The
First National Bank of Chicago, as Administrative Agent, Citibank, N.A., as
Documentation Agent, and Banc One Capital Markets Inc, as Lead Arranger (as
amended, modified or supplemented from time to time, the "Credit Agreement").
Unless otherwise specified, terms defined in the Credit Agreement are used
herein as therein defined.
We have acted as special counsel for the Borrower in
connection with the preparation, execution and delivery of the Credit Agreement.
In that capacity we have examined the following:
(i) The Credit Agreement and the Notes;
(ii) The documents furnished by the Borrower pursuant
to Section 3.01 of the Credit Agreement;
(iii) The Amended and Restated Articles of
Incorporation of the Borrower and all amendments thereto (the
"Charter");
(iv) The by-laws of the Borrower and all amendments
thereto (the "By-laws"); and
(v) A certificate of the Secretary of State of the
Commonwealth of Pennsylvania, dated _________, 1999, attesting
to the continued subsistence of the Borrower in Pennsylvania.
We have also examined the originals, or copies certified to
our satisfaction, of such other corporate records of the Borrower, certificates
of public officials and of officers of the Borrower, and agreements, instruments
and documents, as we have deemed necessary as a basis for the opinions
hereinafter expressed. We have assumed the legal capacity and competence of
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity to original documents
of documents submitted to us as certified, conformed or photostatic copies. We
have assumed that the Agents and the Banks have duly executed and delivered,
<PAGE>
with all necessary power and authority (corporate and otherwise), the Credit
Agreement.
When an opinion or confirmation is given to our knowledge or
with reference to matters of which we are aware or which are known to us, or
with another similar qualification, the relevant knowledge or awareness is
limited to the actual knowledge or awareness of the lawyer who is the current
primary contact for the Borrower and the individual lawyers in this firm who
have participated in the specific transaction to which this opinion relates and
without any special or additional investigation undertaken for the purposes of
this opinion, except as otherwise noted herein. Based upon the foregoing and
subject to the exceptions, limitations and qualifications set forth herein, we
are of the following opinion:
1. The Borrower is a corporation duly incorporated
and validly subsisting under the laws of the Commonwealth of
Pennsylvania.
2. The execution, delivery and performance by the
Borrower of the Credit Agreement and the Notes are within the
Borrower's corporate powers, have been duly authorized by all
necessary corporate action, do not contravene (i) the Charter
or the By-laws or (ii) any law of the United States or the
Commonwealth of Pennsylvania (including, without limitation,
any order, rule or regulation of the PPUC or (iii) to the best
of our knowledge, any agreement or instrument to which the
Borrower is a party or by which it is bound, and do not result
in or require the creation of any lien, security interest or
other charge or encumbrance upon or with respect to any of its
properties.
3. No authorization, approval or other action by, and
no notice to or filing with, any governmental authority or
regulatory body of the United States or the Commonwealth of
Pennsylvania is required for the due execution, delivery and
performance by the Borrower of the Credit Agreement or the
Notes except for the filing of the Securities Certificate
with, and the final approval of, and the Order of Registration
issued by, the PPUC, which filing has been duly made and which
final approval and Order of Registration have been duly
obtained; such Order of Registration is in full force and
effect and is final; and the action of the PPUC registering
the Securities Certificate is no longer subject to appeal.
4. The Credit Agreement and the Notes have been duly
executed and delivered by the Borrower, and the Credit
Agreement and the Notes are the legal, valid and binding
obligations of the Borrower enforceable against the Borrower
in accordance with their respective terms.
5. The Borrower (i) is exempt from the provisions of
the Public Utility Holding Company Act of 1935, as amended,
other than Section 9(a)(2) thereof, pursuant to Section
3(a)(2) thereof, and (ii) 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.
6. We confirm to you that to our knowledge, after
inquiry of each lawyer who is the current primary contact for
the Borrower or who has devoted substantive attention to
matters on behalf of the Borrower during the preceding twelve
months and who is still currently employed by or a member of
this firm, except as disclosed in the Borrower's Annual Report
on Form 10-K for the year ended December 31, 1998 and the
Borrower's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999, no litigation or governmental proceeding is
pending or threatened in writing against the Borrower (i) with
respect to the Credit Agreement or the Notes, or (ii) which is
likely to have a material adverse effect upon the financial
-2-
<PAGE>
condition, business, properties or prospects of the Borrower
and its subsidiaries taken as a whole.
We draw to your attention the existence of the following two
Pennsylvania statutes in connection with the fact that the Advances bear
floating rates of interest:
(i) Section 911 of the Pennsylvania "Crime Code," 18
Pa. C.S.A. ss.911, enacted by the Act of December 6, 1972,
P.L. 1482. Section 911 of the Crime Code bears a close
resemblance to certain of the provisions of the Federal
Racketeer Influenced and Corrupt Organizations Act of 1970, 18
U.S.C. ss.ss.1961-1968, commonly known as RICO, and is
referred to hereinafter as the "Pennsylvania RICO Act." The
Pennsylvania RICO Act provides, among other things, that it is
a criminal offense, punishable as a felony, to "use or invest,
directly or indirectly ... in the acquisition of any interest
in, or the establishment or operation of, any enterprise" any
income collected in full or partial satisfaction of a loan
made "at a rate of interest exceeding 25% per annum... ."
(ii) The Act of December 29, 1982, P.L. 1671, 18 Pa.
C.S.A.ss.4806.1 et seq. (superseded volume) (the "Criminal
Usury Statute"). The Criminal Usury Statute provides, among
other things, that it is a criminal offense, punishable as a
felony, to engage in, "charging, taking or receiving any money
... on the loan ... of any money ... at a rate exceeding
thirty-six percent per annum... ."
The Criminal Usury Statute may have been repealed, but the
manner in which the repeal was enacted leaves the matter subject to uncertainty.
Both the Pennsylvania RICO Act and the Criminal Usury Statute
appear to be intended by the legislature to apply only to racketeering and loan
sharking type activities, and not to the type of commercial loan transaction
evidenced by the Loan Document. Nevertheless, in view of the plain language of
the Pennsylvania courts, we cannot say that the ultimate resolution of this
issue is free from doubt.
The foregoing opinions are subject to the following
exceptions, limitations and qualifications:
(a) Our opinion is subject to the effect of
applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, fraudulent transfer or similar laws
affecting creditors' rights and remedies generally, general
principles of equity, including without limitation, concepts
of materiality, reasonableness, good faith and fair dealing
(regardless of whether such enforceability is considered in a
proceeding in equity or at law); and limitations on
enforceability of rights to indemnification by federal or
state securities laws or regulations or by public policy.
(b) We express no opinion as to the application or
requirements of the Pennsylvania Securities Act or federal or
state securities, patent, trademark, copyright, antitrust and
unfair competition, pension or employee benefit, labor,
environmental health and safety or tax laws in respect of the
transactions contemplated by or referred to in the Credit
Agreement.
(c) We express no opinion as to the validity or
enforceability of any provision of the Credit Agreement or the
Notes which (i) permits the Lenders to increase the rate of
interest in the event of delinquency or default if such
increase would be deemed a penalty under applicable law; (ii)
-3-
<PAGE>
purports to be a waiver by Borrower of any right or benefit
except to the extent permitted by applicable law; (iii)
purports to require that waivers must be in writing to the
extent that an oral agreement or implied agreement by trade
practice or course of conduct modifying provisions of the
Credit Agreement or the Notes has been made; or (iv) purports
to exculpate any party from its own negligent acts.
We express no opinion as to the law of any jurisdiction other
than the law of the Commonwealth of Pennsylvania and the federal law of the
United States.
The foregoing opinion is solely for your benefit in connection
with the consummation of the transaction described herein and may not be used or
relied upon by you or any other Person without our express written consent for
any other purpose other than (i) any Eligible Assignee that may become a Lender
under the Credit Agreement after the date hereof and (ii) Reed Smith Shaw &
McClay LLP, which may rely upon this opinion in rendering their opinion
furnished pursuant to Article III of the Credit Agreement. The opinions given
herein are as of the date hereof, and we assume no obligation to update or
supplement this opinion to reflect facts or circumstances which may hereafter
come to our attention or any changes in laws which may hereafter occur.
Very truly yours,
BALLARD SPAHR
ANDREWS & INGERSOLL
-4-
<PAGE>
EXHIBIT E
FORM OF OPINION OF REED SMITH SHAW & McCLAY LLP
__________, 1999
To each of the Banks, the Administrative Agent, and the
Lead Arranger party to the Revolving Credit Agreement,
dated as of September 15, 1999 among PECO Energy
Company, as Borrower, the banks named therein, as
Banks, The First National Bank of Chicago, as
Administrative Agent, Citibank, N.A., as Documentation
Agent, and Banc One Capital Markets, Inc., as Lead
Arranger
Re: PECO Energy Company
-------------------
Ladies and Gentlemen:
We have acted as counsel to The First National Bank of
Chicago, individually and as Administrative Agent, in connection with the
preparation, execution and delivery of the Revolving Credit Agreement, dated as
of September 15, 1999, among PECO Energy Company, as Borrower, the banks named
therein, as Banks, The First National Bank of Chicago, as Administrative Agent,
Citibank, N.A., as Documentation Agent, and Banc One Capital Markets, Inc., as
Lead Arranger (as amended, modified or supplemented from time to time, the
"Credit Agreement"). We are delivering this opinion pursuant to Section
3.01(a)(vii) of the Credit Agreement. Unless otherwise defined herein, terms
defined in the Credit Agreement are used herein as therein defined.
In that connection, we have examined (i) counterparts of the
Credit Agreement, executed by the Borrower, the Banks, the Administrative Agent
and the Lead Arranger, (ii) the Notes, executed by the Borrower and (iii) the
other documents listed on Exhibit A hereto, including the opinion of Ballard
Spahr Andrews & Ingersoll, counsel to the Borrower (the "Opinion"), furnished to
the Administrative Agent pursuant to Section 3.01(a) of the Credit Agreement.
In our examination of the documents referred to above, we have
assumed the authenticity of all such documents submitted to us as originals, the
genuineness of all signatures, the due authority of the parties executing such
documents and the conformity to the originals of all such documents submitted to
us as copies. We have also assumed that the Banks, the Administrative Agent and
the Lead Arranger have duly executed and delivered, with all necessary power and
authority (corporate and otherwise), the Credit Agreement. As to matters of
fact, we have relied solely upon the documents we have examined.
Based upon the foregoing, we are of the opinion that, while we
have not independently considered the matters covered by the Opinion to the
extent necessary to enable us to express the conclusions stated therein, each of
the Opinion and the other documents listed in Exhibit A hereto are substantially
responsive to the corresponding requirements set forth in Section 3.01 of the
Credit Agreement pursuant to which the same have been delivered.
Please note that Richard H. Glanton, Esquire, a partner in
this firm, is a director of PECO Energy Company. We have rendered and continue
to render legal services to PECO Energy Company.
The foregoing opinion is solely for your benefit and may not
be relied upon by any other Person other than any Person that may become a
lender under the Credit Agreement after the date hereof.
Very truly yours,
NJS:RKM
<PAGE>
EXHIBIT F
FORM OF ANNUAL AND QUARTERLY COMPLIANCE CERTIFICATE
______________________, 19/20__
Pursuant to the Revolving Credit Agreement, dated as of
September 15, 1999, among PECO Energy Company, as Borrower, the banks named
therein, as Banks, The First National Bank of Chicago, as Administrative Agent,
Citibank, N.A., as Documentation Agent, and Banc One Capital Markets, Inc., as
Lead Arranger (as amended, modified or supplemented from time to time, the
"Credit Agreement"), the undersigned, being ______________________ of the
Borrower, hereby certifies on behalf of the Borrower as follows:
1. Delivered herewith are the financial statements prepared
pursuant to Section 5.01(b)(ii) and Section 5.01(b)(iii) of the Credit
Agreement, for the fiscal ________ ended ___________, 19/20__. All such
financial statements comply with the applicable requirements of the Credit
Agreement.
2. Schedule I hereto sets forth in reasonable detail the
information and calculations necessary to establish compliance with the
provisions of Section 5.02(c) of the Credit Agreement as of the end of the
fiscal period referred to in paragraph 1 above.
3. (Check one and only one:)
__ No Event of Default, or event which with notice or lapse of
time or both would constitute an Event of Default, has occurred and is
continuing or exists.
__ An Event of Default, or event which with notice or lapse of
time or both would constitute an Event of Default, has occurred and is
continuing or exists, and the document(s) attached hereto as Schedule II specify
in detail the nature and period of existence of such Event of Default or such
other event as well as any and all actions with respect thereto taken or
contemplated to be taken by the Borrower.
4. The undersigned has personally reviewed the Credit
Agreement, and this certificate was based on an examination made by or under the
supervision of the undersigned sufficient to assure that this certificate is
accurate.
5. Capitalized terms used in this certificate and not
otherwise defined shall have the meanings given in the Credit Agreement.
PECO ENERGY COMPANY
By _______________________________________
Name:_____________________________________
Title:____________________________________
Date:__________________
<PAGE>
EXHIBIT G
FORM OF ADDITIONAL LENDER SUPPLEMENT
THIS SUPPLEMENT, dated as of ____________, 19/20_____, by the
undersigned.
Recitals:
A. This Supplement is being executed and delivered in
accordance with Section 2.17 of the Revolving Credit Agreement, dated as of
September 15, 1999, among PECO Energy Company, as Borrower, the banks named
therein, as Banks, The First National Bank of Chicago, as Administrative Agent,
Citibank, N.A., as Documentation Agent, and Banc One Capital Markets, Inc., as
Lead Arranger (as amended, modified or supplemented from time to time, the
"Credit Agreement"). Capitalized terms used herein without definition have the
meanings specified in the Credit Agreement.
B. The undersigned wishes to become a Lender party to the
Credit Agreement, as an Additional Lender.
NOW, THEREFORE, the undersigned, intending to be legally
bound, hereby agrees as follows:
1. The undersigned hereby becomes party to the Credit
Agreement as Lender thereunder, and shall be subject to and bound by all of the
provisions thereof.
2. The Commitment of the undersigned shall be $_____________.
3. The undersigned (i) confirms that it has received a copy of
the Credit Agreement, together with copies of the financial statements referred
to in Section 4.01 thereof and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
this Additional Lender Supplement; (ii) agrees 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
the Credit Agreement; (iii) confirms that it is an Eligible Assignee; (iv)
appoints and authorizes the Administrative Agent to take such action as agent on
its behalf and to exercise such powers under the Credit Agreement as are
delegated to the Administrative Agent by the terms thereof, together with such
powers as are reasonably incidental thereto; (v) agrees that it will perform in
accordance with their terms all of the obligations which by the terms of the
Credit Agreement are required to be performed by it as a Lender; (vi) none of
the consideration used to make the purchase being made by the undersigned
hereunder are "plan assets" as defined under ERISA and the rights and interests
of the undersigned in and under the Credit Agreement will not be "plan assets"
under ERISA [and] (vii) specifies as its Domestic Lending Office (and address
for notices) and Eurodollar Lending Office the offices set forth beneath its
name on the signature pages hereof [and (viii) attaches the forms prescribed by
the Internal Revenue Service of the United States certifying that it is exempt
from United States withholding taxes with respect to all payments to be made to
the undersigned under the Credit Agreement and the Notes].(3)
- - ----------
(3) If the undersigned is organized under the laws of a jurisdiction outside the
United States.
<PAGE>
4. This Supplement shall be effective upon the date of
acceptance thereof by the Administrative Agent, unless otherwise specified under
the undersigned's name signature below.
5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.
IN WITNESS WHEREOF, the undersigned has caused this Supplement
to be executed and delivered by a duly authorized officer on the date first
above written.
[NAME OF ADDITIONAL LENDER]
By:__________________________
Name:________________________
Title:_______________________
Domestic Lending Office (and
address for notices): [Address]
Eurodollar Lending Office: [Address]
Effective Date(4): __________, 19/20__
CONSENTED TO:
[NAME OF ADMINISTRATIVE AGENT]
By:___________________________
Name:_________________________
Title:________________________
CONSENTED TO:
PECO ENERGY COMPANY
By:_________________________
Name:______________________
Title:_______________________
- - ----------
(4) This date should be no earlier than the date of acceptance by the
Administrative Agent.
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<PAGE>
$450,000,000
364-DAY CREDIT AGREEMENT
dated as of September 15, 1999
among
PECO ENERGY COMPANY
as Borrower
THE BANKS NAMED HEREIN
as Banks
THE FIRST NATIONAL BANK OF CHICAGO
as Administrative Agent
CITIBANK, N.A.
as Documentation Agent
and
BANC ONE CAPITAL MARKETS, INC.
as Lead Arranger
<PAGE>
TABLE OF CONTENTS
Section Page
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ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.01 Certain Defined Terms................................................ 1
1.02 Computation of Time Periods.......................................... 9
1.03 Accounting Principles................................................ 9
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
2.01 The Advances.........................................................10
2.02 Making the Advances..................................................10
2.03 Fees.................................................................11
2.04 Reduction of the Commitments.........................................11
2.05 Repayment of Advances................................................11
2.06 Interest on Advances.................................................12
2.07 Additional Interest on Advances......................................12
2.08 Interest Rate Determination..........................................12
2.09 Conversion of Advances...............................................13
2.10 Prepayments..........................................................13
2.11 Increased Costs......................................................14
2.12 Illegality...........................................................15
2.13 Payments and Computations............................................15
2.14 Taxes................................................................16
2.15 Sharing of Payments, Etc.............................................18
2.16 Extension of Termination Date........................................18
2.17 Additional Lenders...................................................19
ARTICLE III
CONDITIONS OF LENDING
3.01 Conditions Precedent to Initial Advances.............................20
3.02 Conditions Precedent to Certain Borrowings...........................21
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.01 Representations and Warranties of the Borrower.......................21
ARTICLE V
COVENANTS OF THE BORROWER
5.01 Affirmative Covenants................................................23
5.02 Negative Covenants...................................................25
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<PAGE>
ARTICLE VI
EVENTS OF DEFAULT
6.01 Events of Default....................................................27
ARTICLE VII
THE AGENTS
7.01 Authorization and Action.............................................28
7.02 Agents' Reliance, Etc................................................29
7.03 Agents and Affiliates................................................29
7.04 Lender Credit Decision...............................................29
7.05 Indemnification......................................................29
7.06 Successor Administrative Agent.......................................30
7.07 Documentation Agent and Lead Arranger................................30
ARTICLE VIII
MISCELLANEOUS
8.01 Amendments, Etc......................................................30
8.02 Notices, Etc.........................................................30
8.03 No Waiver; Remedies..................................................31
8.04 Costs and Expenses; Indemnification..................................31
8.05 Right of Set-off.....................................................32
8.06 Binding Effect.......................................................32
8.07 Assignments and Participations.......................................32
8.08 Governing Law........................................................35
8.09 Consent to Jurisdiction..............................................35
8.10 Execution in Counterparts; Integration...............................35
Schedule I List of Applicable Lending Offices
Exhibit A Form of Note
Exhibit B Notice of a Borrowing
Exhibit C Assignment and Acceptance
Exhibit D Form of Opinion of Special Counsel for the Borrower
Exhibit E Form of Opinion of Counsel to the Administrative Agent
Exhibit F Form of Annual and Quarterly Compliance Certificate
Exhibit G Form of Additional Lender Supplement
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<PAGE>
364-DAY CREDIT AGREEMENT
dated as of September 15, 1999
PECO Energy Company, a Pennsylvania corporation (the "Borrower"), the
banks listed on the signature pages hereof (the "Banks"), The First National
Bank of Chicago ("First Chicago"), as administrative agent for the Lenders
hereunder (in such capacity, the "Administrative Agent"), Citibank, N.A., as
documentation agent for the Lenders hereunder (in such capacity, the
"Documentation Agent"), and Banc One Capital Markets, Inc. ("Banc One Capital
Markets"), as lead arranger hereunder (in such capacity, the "Lead Arranger"),
hereby agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, each of
the following terms shall have the meaning set forth next to such term below
(each such meaning to be equally applicable to both the singular and plural
forms of the term defined):
"Additional Lender" has the meaning specified in Section 2.17.
"Administrative Agent" means First Chicago in its capacity as
administrative agent for the Lenders pursuant to Article VII, and not in its
individual capacity as a Lender, and any successor Administrative Agent
appointed pursuant to Article VII.
"Advance" means an advance by a Lender to the Borrower as part of a
Borrowing and refers to a Base Rate Advance or a Eurodollar Rate Advance, each
of which shall be a "Type" of Advance.
"Affiliate" means, as to any Person, any other Person that, directly or
indirectly, controls, is controlled by or is under common control with such
Person or is a director or officer of such Person.
"Agents" means the Administrative Agent, the Documentation Agent and
the Lead Arranger, collectively.
"Applicable Commitment Fee Rate" means (i) during any Level 1 Rating
Period, 0.08% per annum, (ii) during any Level 2 Rating Period, 0.100% per
annum, (iii) during any Level 3 Rating Period, 0.125% per annum, (iv) during any
Level 4 Rating Period, 0.1625% per annum and (v) during any Level 5 Rating
Period, 0.275% per annum. The Applicable Commitment Fee Rate shall change when
and as the Rating Period changes.
"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.
"Applicable Margin" means, on any date, for a Base Rate Advance or a
Eurodollar Rate Advance, the interest rate per annum set forth below in the
column entitled "Base Rate" or "Eurodollar Rate", as appropriate, opposite the
applicable Rating Period in effect on such date:
<PAGE>
Rating Period Base Rate Eurodollar Rate
------------- --------- ---------------
Level 1 0 .375%
Level 2 0 .450%
Level 3 0 .600%
Level 4 0 .750%
Level 5 0 1.00%
provided, that the Applicable Margin for Eurodollar Advances shall be increased
by .10% for any day when the unused portion of the Commitments is less than or
equal to 50% of the aggregate Commitments. The Applicable Margin applicable to
an outstanding Advance shall change when and as the Rating Period changes, and
when and as the unused portion of the Commitments changes.
"Assignment and Acceptance" means an assignment and acceptance entered
into by a Lender and an Eligible Assignee, and accepted by the Administrative
Agent, in substantially the form of Exhibit C hereto.
"Base Rate" means, for any period, a fluctuating interest rate per
annum as shall be in effect from time to time which rate per annum shall at all
times be equal to the higher of:
(a) the rate of interest announced by First Chicago, from time to
time, as its corporate base rate; and
(b) the sum of 1/2 of 1% per annum plus the Federal Funds Rate in
effect from time to time.
"Base Rate Advance" means an Advance that bears interest as provided in
Section 2.06(a).
"Benchmark Debt" means the Borrower's senior secured long-term debt or,
in the event that the Borrower has no senior secured long-term debt rated by S&P
(or by a generally recognized successor to S&P) or by Moody's (or by a generally
recognized successor to Moody's), the Borrower's senior unsecured long-term
debt.
"Borrowing" means a borrowing consisting of simultaneous Advances of
the same Type and, if such Borrowing comprises Eurodollar Rate Advances, having
Interest Periods of the same duration, made by each of the Lenders pursuant to
Section 2.01 or Converted pursuant to Section 2.10.
"Business Day" means a day of the year on which banks are not required
or authorized to close in Philadelphia, Pennsylvania, Chicago, Illinois or New
York, New York, and, if the applicable Business Day relates to any Eurodollar
Rate Advances, on which dealings are carried on in the London interbank market.
"Closing Date" shall mean the date of the initial Advances hereunder.
"Code" means the Internal Revenue Code of 1986, and the regulations
promulgated thereunder, in each case as amended, reformed or otherwise modified
from time to time.
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<PAGE>
"Commitment" has the meaning specified in Section 2.01.
"Consolidated Adjusted Total Capitalization" on any date shall mean the
sum, without duplication, of the following with respect to the Borrower and its
consolidated Subsidiaries (exclusive, in each case, of Nonrecourse Transition
Bond Debt, to the extent Nonrecourse Transition Bond Debt would otherwise be
included in such item): (a) total capitalization as of such date, as determined
in accordance with GAAP, (b) the current portion of liabilities which as of such
date would be classified in whole or part as long-term debt in accordance with
GAAP (it being understood that the noncurrent portion of such liabilities is
included in the total capitalization referred to in clause (a)), (c) all
obligations as lessee which, in accordance with GAAP, are capitalized as
liabilities (including the current portion thereof), and (d) all other
liabilities which would be classified as short-term debt in accordance with GAAP
(including, without limitation, all liabilities of the types classified as
"Notes Payable, Bank" on the Borrower's audited balance sheet for December 31,
1998).
"Consolidated Adjusted Total Debt" on any date shall mean the sum,
without duplication, of the following with respect to the Borrower and its
consolidated Subsidiaries (exclusive, in each case, of Nonrecourse Transition
Bond Debt, to the extent Nonrecourse Transition Bond Debt would otherwise be
included in such item): (a) all liabilities which as of such date would be
classified in whole or in part as long-term debt in accordance with GAAP
(including the current portion thereof), (b) all obligations as lessee which, in
accordance with GAAP, are capitalized as liabilities (including the current
portion thereof), and (c) all other liabilities which would be classified as
short-term debt in accordance with GAAP (including, without limitation, all
liabilities of the types classified as "Notes Payable, Bank" on the Borrower's
audited balance sheet for December 31, 1998).
"Controlled Group" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control that, together with the Borrower or any Subsidiary, are treated
as a single employer under Section 414(b) or 414(c) of the Code.
"Convert", "Conversion" and "Converted" each refers to a conversion of
Advances of one Type into Advances of another Type or the selection of a new, or
the renewal of the same, Interest Period for Eurodollar Rate Advances pursuant
to Section 2.09.
"Debt" means (i) indebtedness for borrowed money, (ii) obligations
evidenced by bonds, debentures, notes or other similar instrument, (iii)
obligations to pay the deferred purchase price of property or services (other
than trade payables incurred in the ordinary course of business), (iv)
obligations as lessee under leases that shall have been or are required to be,
in accordance with GAAP, recorded as capital leases, (v) obligations (contingent
or otherwise) under reimbursement or similar agreements with respect to the
issuance of letters of credit (other than obligations in respect of documentary
letters of credit opened to provide for the payment of goods or services
purchased in the ordinary course of business) and (vi) obligations under direct
or indirect guaranties in respect of, and obligations (contingent or otherwise)
to purchase or otherwise acquire, or otherwise to assure a creditor against loss
in respect of, indebtedness or obligations of others of the kinds referred to in
clauses (i) through (v) above.
"Documentation Agent" means Citibank, N.A., in its capacity as
Documentation Agent.
"Domestic Lending Office" means, with respect to any Lender, the office
of such Lender specified as its "Domestic Lending Office" opposite its name on
Schedule I hereto or in the Assignment and Acceptance pursuant to which it
became a Lender, or such other office of such Lender as such Lender may from
time to time specify to the Borrower and the Administrative Agent.
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<PAGE>
"Eligible Assignee" means (i) a commercial bank organized under the
laws of the United States, or any State thereof; (ii) a commercial bank
organized under the laws of any other country that is a member of the OECD or
has concluded special lending arrangements with the International Monetary Fund
associated with its General Arrangements to Borrow, or a political subdivision
of any such country, provided that such bank is acting through a branch or
agency located in the United States; (iii) a finance company, insurance company
or other financial institution or fund (whether a corporation, partnership or
other entity) engaged generally in making, purchasing or otherwise investing in
commercial loans in the ordinary course of its business; or (iv) the central
bank of any country that is a member of the OECD; provided, however, that (A)
any such Person described in clause (i), (ii) or (iii) above shall also (x) have
outstanding unsecured long-term debt that is rated BBB- or better by S&P and
Baa3 or better by Moody's (or an equivalent rating by another nationally
recognized credit rating agency of similar standing if either such corporation
is no longer in the business of rating unsecured indebtedness of entities
engaged in such businesses) and (y) have combined capital and surplus (as
established in its most recent report of condition to its primary regulator) of
not less than $100,000,000 (or its equivalent in foreign currency), and (B) any
Person described in clause (ii), (iii) or (iv) above shall, on the date on which
it is to become a Lender hereunder, be entitled to receive payments hereunder
without deduction or withholding of any United States Federal income taxes (as
contemplated by Section 2.14(e)).
"Eligible Successor" means a Person which (i) is a corporation duly
incorporated, validly existing and in good standing under the laws of one of the
states of the United States or the District of Columbia, (ii) is qualified to do
business in Pennsylvania, (iii) as a result of the contemplated acquisition,
consolidation or merger, will succeed to all or substantially all of the
consolidated business and assets of the Borrower and its Subsidiaries, (iv) upon
giving effect to the contemplated acquisition, consolidation or merger, will
have all or substantially all of its consolidated business and assets conducted
and located in the United States and (v) is acceptable to the Majority Lenders
as a credit matter.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder, each as amended and modified from time to time.
"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 of such Lender specified as its "Eurodollar Lending Office" opposite its
name on Schedule I hereto or in the Assignment and Acceptance pursuant to which
it became a Lender (or, if no such office is specified, its Domestic Lending
Office), or such other office of such Lender as such Lender may from time to
time specify to the Borrower and the Administrative Agent.
"Eurodollar Rate" means, for the Interest Period for each Eurodollar
Rate Advance made as part of the same 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 U.S. 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 Borrowing and for a period equal to
such Interest Period. The Eurodollar Rate for the Interest Period for each
Eurodollar Rate Advance made as part of the same 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 2.08.
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<PAGE>
"Eurodollar Rate Advance" means an Advance that bears interest as
provided in Section 2.06(b).
"Eurodollar Rate Reserve Percentage" of any Lender for the Interest
Period for any Eurodollar Rate Advance means the reserve percentage applicable
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
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) for 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 specified in Section 6.01.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
and modified from time to time.
"Existing Credit Agreements" shall mean (i) the $450,000,000 364-Day
Credit Agreement dated as of October 7, 1997, among the Borrower, the banks
named therein, certain banks specified therein as lead managers, certain banks
specified therein as co-agents, First Chicago Capital Markets, Inc., Mellon
Bank, N.A., and Citicorp Securities, Inc, as syndication agents, First Chicago
Capital Markets, Inc. and Mellon Bank, N.A., as arrangers, The First National
Bank of Chicago, as Administrative Agent, and Mellon Bank, N.A., as
Documentation Agent, and (ii) the $450,000,000 Credit Agreement dated as of
October 7, 1997, among the Borrower, the banks named therein, certain specified
banks, as lead arrangers, certain specified banks, as co-agents, First Chicago
Capital Markets, Inc., Mellon Bank, N.A., and Citicorp Securities, Inc., as
syndication agents, First Chicago Capital Markets, Inc. and Mellon Bank, N.A.,
as arrangers, The First National Bank of Chicago, as Administrative Agent, and
Mellon Bank, N.A., as Documentation Agent, in each case as amended, modified or
supplemented from time to time.
"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.
"FERC" means the Federal Energy Regulatory Commission.
"FERC Application" has the meaning assigned to that term in Section
3.01(a)(iii).
"FERC Authorization" has the meaning assigned to that term in Section
3.01(a)(iii).
"GAAP" shall have the meaning given that term in Section 1.03.
"Granting Bank" shall have the meaning given that term in Section
8.07(h).
"Interest Period" means, for each Advance, the period commencing on the
date of such Advance or the date of the Conversion of any Advance into such an
Advance and ending on the last day of the period selected by the Borrower
pursuant to the provisions below and, thereafter, each subsequent period
-5-
<PAGE>
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, as the Borrower may select in
accordance with Section 2.02 or 2.09; provided, however, that:
(i) the Borrower may not select any Interest Period that ends after
the Termination Date then in effect;
(ii) Interest Periods commencing on the same date for Advances made
as part of the same 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.
"Lead Arranger" means Banc One Capital Markets in its capacity as Lead
Arranger.
"Lenders" means the Banks listed on the signature pages hereof and each
Eligible Assignee that shall become a party hereto pursuant to Section 2.17 or
8.07.
"Level 1 Rating Period" means any period during which the Benchmark
Debt is rated A- or higher by S&P (or a comparable rating from any generally
recognized successor to S&P) or A3 or higher by Moody's (or a comparable rating
from any generally recognized successor to Moody's) (it being understood that,
for this purpose, such ratings shall be subject to the Split Rating Adjustment).
"Level 2 Rating Period" means any period which does not qualify as a
Level 1 Rating Period during which the Benchmark Debt is rated BBB+ or higher by
S&P (or a comparable rating from any generally recognized successor to S&P) or
Baa1 or higher by Moody's (or a comparable rating from any generally recognized
successor to Moody's) (it being understood that, for this purpose, such ratings
shall be subject to the Split Rating Adjustment).
"Level 3 Rating Period" means any period which does not qualify as a
Level 1 or Level 2 Rating Period during which the Benchmark Debt is rated BBB or
higher by S&P (or a comparable rating from any generally recognized successor to
S&P) or Baa2 or higher by Moody's (or a comparable rating from any generally
recognized successor to Moody's) (it being understood that, for this purpose,
such ratings shall be subject to the Split Rating Adjustment).
"Level 4 Rating Period" means any period which does not qualify as a
Level 1, Level 2 or Level 3 Rating Period during which the Benchmark Debt is
rated BBB- or higher by S&P (or a comparable rating from any generally
recognized successor to S&P) or Baa3 or higher by Moody's (or a comparable
rating from any generally recognized successor to Moody's) (it being understood
that, for this purpose, such ratings shall be subject to the Split Rating
Adjustment).
"Level 5 Rating Period" means any period which does not qualify as a
Level 1, Level 2, Level 3 or Level 4 Rating Period (it being understood that,
for this purpose, such ratings shall be subject to the Split Rating Adjustment).
"Lien" means any lien (statutory or other), mortgage, pledge, security
interest or other charge or encumbrance, or any other type of preferential
arrangement (including, without limitation, the interest of a vendor or lessor
-6-
<PAGE>
under any conditional sale, capitalized lease or other title retention
agreement).
"Majority Lenders" means, at any time prior to the Termination Date,
Lenders having at least 51% of the Commitments, and, at any time on or after the
Termination Date, Lenders having at least 51% of the Advances outstanding
(provided that, for purposes hereof, neither the Borrower, nor any of its
Affiliates, if a Lender, shall be included in (i) the Lenders having such amount
of the Commitments or the Advances or (ii) determining the total amount of the
Commitments or the Advances).
"Material Adverse Change" and "Material Adverse Effect" each means,
relative to any occurrence, fact or circumstances of whatsoever nature
(including, without limitation, any determination in any litigation, arbitration
or governmental investigation or proceeding), (i) any materially adverse change
in, or materially adverse effect on, the financial condition, operations, assets
or business of the Borrower and its consolidated Subsidiaries, taken as a whole
or (ii) any materially adverse effect on the validity or enforceability of this
Agreement or any of the Notes.
"Moody's" means Moody's Investors Service, Inc.
"Mortgage" means the First and Refunding Mortgage, dated as of May 1,
1923, between The Counties Gas & Electric Company (to which the Borrower is
successor) and Fidelity Trust Company, Trustee (to which First Union National
Bank is successor), as amended, supplemented or refinanced from time to time,
provided, that no effect shall be given to any amendment, supplement or
refinancing after the date of this Agreement that would broaden the definition
of "excepted encumbrances" as defined in the Mortgage as constituted on the date
of this Agreement.
"Multiemployer Plan" means a Plan maintained pursuant to a collective
bargaining agreement or any other arrangement to which the Borrower or any
member of the Controlled Group is a party to which more than one employer is
obligated to make contributions.
"Non-Consenting Lender" has the meaning specified in Section 2.16(a).
"Nonrecourse Transition Bond Debt" means obligations evidenced by
"transition bonds" (as defined in 66 Pa. Cons. Stat. Ann. ss. 2812(g) (West
Supp. 1997), or any successor provision of similar import), rated AA or higher
by S&P (or a comparable rating from a generally recognized successor to S&P) or
Aa2 or higher by Moody's (or a comparable rating from a generally recognized
successor to Moody's), representing a securitization of "intangible transition
property" (as defined in the foregoing statute), as to which obligations neither
the Borrower nor any Subsidiary of the Borrower (other than a Special Purpose
Subsidiary) has any direct or indirect liability (whether as primary obligor,
guarantor, or surety, provider of collateral security, put option, asset
repurchase agreement or capital maintenance agreement, debt subordination
agreement, or through other right or arrangement of any nature providing direct
or indirect assurance of payment or performance of any such obligations in whole
or in part), except for liability to repurchase "intangible transition property"
conveyed to the securitization vehicle, on terms and conditions customary in
receivables securitizations, in the event such "intangible transition property"
violates representations and warranties of scope customary in receivables
securitizations. "Special Purpose Subsidiary" means a direct or indirect
wholly-owned corporate Subsidiary of the Borrower, substantially all of the
assets of which are "intangible transition property" and proceeds thereof,
formed solely for the purpose of holding such assets and issuing such
"transition bonds," and which complies with the requirements customarily imposed
on bankruptcy-remote corporations in receivables securitizations.
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<PAGE>
"Note" means a promissory note of the Borrower payable to the order of
any Lender, in substantially the form of Exhibit A hereto, evidencing the
aggregate indebtedness of the Borrower to such Lender resulting from the
Advances made by such Lender, including any Notes delivered pursuant to Section
2.16.
"Notice of a Borrowing" has the meaning specified in Section 2.02(a).
"OECD" means the Organization for Economic Cooperation and Development.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture, limited liability company or other entity, or a government or any
political subdivision or agency thereof.
"Plan" means an employee pension benefit plan that is covered by Title
IV of ERISA or subject to the minimum funding standards under Section 412 of the
Code as to which the Borrower or any member of the Controlled Group may have any
liability.
"Principal Subsidiary" means (i) each Utility Subsidiary and (ii) from
and after the date on which the aggregate book value of the assets of the
Subsidiaries of the Borrower that are not Utility Subsidiaries exceeds
$250,000,000, each such Subsidiary the assets of which exceeded $75,000,000 in
book value at any time during the preceding 24-month period.
"Rating Period" means a Level 1 Rating Period, a Level 2 Rating Period,
a Level 3 Rating Period, a Level 4 Rating Period or a Level 5 Rating Period, as
the case may be.
"Reference Banks" means First Chicago and Citibank, N.A.
"Register" has the meaning specified in Section 8.07(c).
"Reportable Event" means a reportable event as defined in Section 4043
of ERISA and regulations issued under such section with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days of
the occurrence of such event, provided that a failure to meet the minimum
funding standard of Section 412 of the Code and Section 302 of ERISA shall be a
Reportable Event regardless of the issuance of any such waivers in accordance
with either Section 4043(a) of ERISA or Section 412(d) of the Code.
"Revolving Credit Agreement" means that certain Revolving Credit
Agreement, dated as of the date hereof, among the Borrower, the banks named
therein, First Chicago, as administrative agent for the lenders thereunder,
Citibank, N.A., as documentation agent, and Banc One Capital Markets, as lead
arranger, as the same may be amended, modified or supplemented from time to
time.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc.
"Single Employer Plan" means a Plan maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower or any member of
the Controlled Group.
"SPC" shall have the meaning assigned to that term in Section 8.07(h).
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"Special Purpose Subsidiary" has the meaning assigned to that term in
the definition of "Nonrecourse Transition Bond Debt."
"Split Rating Adjustment": For the purpose of determining the
appropriate Rating Period, the rating of the Benchmark Debt shall be subject to
adjustment as follows. In the event that the Benchmark Debt is rated at
equivalent rating levels or not more than one rating level apart by S&P (or any
generally accepted successor to S&P) and Moody's (or any generally accepted
successor to Moody's), then no adjustment shall apply. Otherwise, the higher of
the two ratings shall be deemed to be reduced to the next lower rating level.
For this purpose, (i) determination of the rating level shall take into account
"+" and "-" modifiers to S&P ratings and numerical modifiers to Moody's ratings
(so that, for example, an S&P rating of A- shall be deemed equivalent to a
Moody's rating of A3, an S&P rating of BBB+ shall be deemed equivalent to a
Moody's rating of Baa1, an S&P rating of BBB shall be deemed equivalent to a
Moody's rating of Baa2, an S&P rating of BBB- shall be deemed equivalent to a
Moody's rating of Baa3, and so on), and (ii) by way of clarification, in the
event the Benchmark Debt is rated by only one of the two referenced rating
agencies, such rating shall be deemed to be reduced to the next lower rating
level.
"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
or not at the time capital stock, or comparable interests, 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
such Person (whether directly or through one or more other Subsidiaries).
"Termination Date" means the earlier of (i) September 13, 2000 (or, if
such date is not a Business Day, the next preceding Business Day) or such later
date that may be established pursuant to Section 2.16(a) or (ii) the date of
termination in whole of the Commitments pursuant to Section 2.04 or Section
6.01.
"Unfunded Liabilities" means, (i) in the case of any Single Employer
Plan, the amount (if any) by which the present value of all vested
nonforfeitable benefits under such Plan exceeds the fair market value of all
Plan assets allocable to such benefits, all determined as of the then most
recent evaluation date for such Plan, and (ii) in the case of any Multiemployer
Plan, the withdrawal liability that would be incurred by the Controlled Group if
all members of the Controlled Group completely withdrew from such Multiemployer
Plan.
"Utility Subsidiary" means each Subsidiary of the Borrower that is
engaged principally in the generation, transmission, or distribution of
electricity or gas and is subject to regulation as a public utility by federal
or state regulatory authorities.
"Year 2000 Problem" shall mean that the computer hardware, software or
equipment containing embedded microchips of the Borrower or any of its
Subsidiaries which is essential to its business or operation will, as a result
of processing dates or time periods occurring after December 31, 1999,
malfunction, causing a system failure or miscalculations resulting in
disruptions of operations, including, among other things, a temporary inability
to process transactions, send bills, operate generation stations, or engage in
similar normal business activities.
SECTION 1.02. Computation of Time Periods. In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
means "to but excluding".
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SECTION 1.03. Accounting Principles. As used in this Agreement, "GAAP"
shall mean generally accepted accounting principles in the United States,
applied on a basis consistent with the principles used in preparing the
Borrower's audited consolidated financial statements as of December 31, 1998 and
for the fiscal year then ended. In this Agreement, except to the extent, if any,
otherwise provided herein, all accounting and financial terms shall have the
meanings ascribed to such terms by GAAP, and all computations and determinations
as to accounting and financial matters shall be made in accordance with GAAP. In
the event that the financial statements generally prepared by the Borrower apply
accounting principles other than GAAP, the compliance certificate delivered
pursuant to Section 5.01(b)(iv) accompanying such financial statements shall
include information in reasonable detail reconciling such financial statements
to GAAP to the extent relevant to the calculations set forth in such compliance
certificate.
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Advances. Each Lender severally agrees, on the terms
and conditions hereinafter set forth, to make Advances to the Borrower from time
to time on any Business Day during the period from the date hereof until (but
excluding) the Termination Date in an aggregate amount not to exceed at any time
outstanding the amount set forth opposite such Lender's name on the signature
pages hereof or, if such Lender has entered into any Assignment and Acceptance
or Additional Lender Supplement, set forth for such Lender in the Register
maintained by the Administrative Agent pursuant to Section 8.07(c), as such
amount may be reduced pursuant to Section 2.04 or 2.16 (such Lender's
"Commitment"). Each Borrowing shall consist of Advances of the same Type made or
Converted on the same day by the Lenders ratably according to their respective
Commitments. Each Borrowing comprising Base Rate Advances shall be in an
aggregate amount not less than $5,000,000, and each Borrowing comprising
Eurodollar Rate Advances shall be in an aggregate amount not less than
$10,000,000. Within the limits of each Lender's Commitment, the Borrower may
from time to time borrow, prepay pursuant to Section 2.10 and reborrow under
this Section 2.01.
SECTION 2.02. Making the Advances. (a) Each Borrowing (other than
pursuant to a Conversion) shall be made on notice, given not later than 10:00
A.M. (Chicago time) on the third Business Day prior to the date of any proposed
Borrowing comprising Eurodollar Rate Advances, and on the date of any proposed
Borrowing comprising Base Rate Advances, by the Borrower to the Administrative
Agent, which shall give to each Lender prompt notice thereof. Each such notice
of a Borrowing (a "Notice of a Borrowing") shall be sent by telecopier, telex or
cable, confirmed immediately in writing, in substantially the form of Exhibit B
hereto, specifying therein the requested (i) date of such Borrowing, (ii) Type
of Advances to be made in connection with such Borrowing, (iii) aggregate amount
of such Borrowing, and (iv) in the case of a Borrowing comprising Eurodollar
Rate Advances, initial Interest Period for the Advances to be made in connection
with such Borrowing. Each Lender shall, before 12:00 Noon (Chicago time) on the
date of such Borrowing, 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 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
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 Borrowing that the related Notice of a Borrowing
specifies is to comprise 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 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
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Lender to fund the Advance to be made by such Lender as part of such Borrowing
when such 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 Borrowing that such Lender will not make
available to the Administrative Agent such Lender's ratable portion of such
Borrowing, the Administrative Agent may assume that such Lender has made such
portion available to the Administrative Agent on the date of such 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 ratable portion 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 Advances made in
connection with such 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
Advance as part of such Borrowing for purposes of this Agreement.
(d) The failure of any Lender to make the Advance to be made by it as
part of any Borrowing shall not relieve any other Lender of its obligation, if
any, hereunder to make its Advance on the date of such Borrowing, but no Lender
shall be responsible for the failure of any other Lender to make the Advance to
be made by such other Lender on the date of any Borrowing.
(e) Notwithstanding anything to the contrary contained herein, no more
than sixteen (16) Borrowings comprising Eurodollar Rate Advances may be
outstanding at any time.
SECTION 2.03. Fees. (a) The Borrower agrees to pay to the
Administrative Agent for the account of each Lender a commitment fee on the
average daily unused portion of such Lender's Commitment from the date on which
the Administrative Agent determines the conditions set forth in Section 3.01 are
satisfied in the case of each Bank, and from the effective date specified in the
Assignment and Acceptance or the Additional Lender Supplement pursuant to which
it became a Lender in the case of each other Lender, until the Termination Date,
and, in the case of the termination in whole of a Lender's Commitment pursuant
to Section 2.04 or 2.16, the date of such termination, payable on the last day
of each March, June, September and December during such period, and on the
Termination Date, and, in the case of the termination in whole of a Lender's
Commitment pursuant to Section 2.04 or 2.16, the date of such termination, at a
percentage rate per annum equal to the Applicable Commitment Fee Rate in effect
from time to time, changing when and as the Applicable Commitment Fee Rate
changes.
(b) The Borrower agrees to pay to the Administrative Agent for the
account of each Bank a facility fee in an amount equal to .075% of such Bank's
Commitment as in effect on the Closing Date, payable on the Closing Date.
(c) The Borrower agrees to pay to the Administrative Agent and the Lead
Arranger for their respective accounts, such additional fees, in such amounts
and payable on such dates as may be agreed to in writing from time to time
between the Borrower and the Administrative Agent or the Lead Arranger, as the
case may be.
SECTION 2.04. Reduction of the Commitments. The Borrower shall have the
right, upon at least two 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 that is less
than the aggregate principal amount of the Advances then outstanding; and
provided, further, that each partial reduction shall be in the aggregate amount
of $10,000,000 or an integral multiple thereof.
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SECTION 2.05. Repayment of Advances. The Borrower shall repay the
principal amount of each Advance made by each Lender in accordance with the Note
to the order of such Lender.
SECTION 2.06. Interest on Advances. The Borrower shall pay interest on
the unpaid principal amount of each Advance made by each Lender from the date of
such Advance until such principal amount shall be paid in full, at the following
rates per annum:
(a) Base Rate Advances. If such Advance is a Base Rate Advance, a rate
per annum equal at all times to the Base Rate in effect from time to time,
payable quarterly on the last day of each March, June, September and December
during such periods and on the date such Base Rate Advance shall be Converted or
paid in full.
(b) Eurodollar Rate Advances. Subject to Section 2.07, if such Advance
is a Eurodollar Rate Advance, a rate per annum equal at all times during the
Interest Period for such Advance to the sum of the Eurodollar Rate for such
Interest Period plus the Applicable Margin for such Eurodollar Rate Advance in
effect from time to time, payable on the last day of the Interest Period for
such Eurodollar Rate Advance (or, if the Interest Period for such Advance is six
months, accrued interest shall be payable on the day that is three months and on
the day that is six months from the date such Advance was made) or, if earlier,
on the date such Eurodollar Rate Advance shall be Converted or paid in full.
SECTION 2.07. Additional Interest on Advances. The Borrower shall pay
to each Lender, so long as such Lender shall be required under regulations of
the Board of Governors of the Federal Reserve System to maintain reserves with
respect to liabilities or assets consisting of or including Eurocurrency
Liabilities, additional interest on the unpaid principal amount of each
Eurodollar Rate Advance of such Lender, from the date of such Advance until such
principal amount is paid in full or Converted, 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 Advance from (ii) the rate obtained by
dividing such Eurodollar Rate by a percentage equal to 100% minus the Eurodollar
Rate Reserve Percentage of such Lender for such Interest Period, payable on each
date on which interest is payable on such Advance; provided, that no Lender
shall be entitled to demand such additional interest more than 90 days following
the last day of the Interest Period in respect of which such demand is made;
provided further, however, that the foregoing proviso shall in no way limit the
right of any Lender to demand or receive such additional interest to the extent
that such additional interest relates to the retroactive application of the
reserve requirements described above if such demand is made within 90 days after
the implementation of such retroactive reserve requirements. Such additional
interest shall be determined by such Lender and notified to the Borrower through
the Administrative Agent, and such determination shall be conclusive and binding
for all purposes, absent manifest error.
SECTION 2.08. 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 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 2.06(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 2.06(b).
(c) If either or both Reference Banks fail to furnish timely
information to the Administrative Agent for determining the Eurodollar Rate for
any Eurodollar Rate Advances,
(i) the Administrative Agent shall forthwith notify the Borrower
and the Lenders that the interest rate cannot be determined for such
Eurodollar Rate Advances,
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(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
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 (unless prepaid or
Converted to any Type of Advance other than a Eurodollar Rate Advance
prior to such date), Convert into a Base Rate Advance, and
(ii) the obligation of the Lenders to make, or to Convert 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.
SECTION 2.09. Conversion of Advances. (a) Voluntary. The Borrower may
on any Business Day, upon notice given to the Administrative Agent not later
than 10:00 A.M. (Chicago time) on the third Business Day prior to the date of
any proposed Conversion into Eurodollar Rate Advances, and on the date of any
proposed Conversion into Base Rate Advances, and subject to the provisions of
Sections 2.08 and 2.12, Convert all Advances of one Type made in connection with
the same Borrowing into Advances of another Type or Types or Advances of the
same Type having the same or a new Interest Period; provided, however, that any
Conversion of Eurodollar Rate Advances into Base Rate Advances or Eurodollar
Advances having the same or new Interest Periods shall be made on, and only on,
the last day of an Interest Period for such Eurodollar Rate Advances, unless the
Borrower shall also reimburse the Lenders in respect thereof pursuant to Section
8.04(b) on the date of such Conversion. Each such notice of a Conversion shall,
within the restrictions specified above, specify (i) the date of such
Conversion, (ii) the Advances to be Converted, and (iii) if such Conversion is
into, or with respect to, Eurodollar Rate Advances, the duration of the Interest
Period for each such Advance.
(b) Automatic. If the Borrower shall fail to select the Type of any
Advance or the duration of any Interest Period for any Borrowing comprising
Eurodollar Rate Advances in accordance with the provisions contained in the
definition of "Interest Period" in Section 1.01 and Section 2.09(a), 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.
SECTION 2.10. Prepayments. The Borrower may, upon at least three
Business Days' notice in the case of any prepayment of Eurodollar Advances or
one Business Day's notice in the case of any prepayment of Base Rate Advances,
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 Advances made as 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
(i) each partial prepayment shall be in an aggregate principal amount not less
than $10,000,000 in the case of any prepayment of Eurodollar Advances or
$5,000,000 in the case of any prepayment of Base Rate Advances, or any integral
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multiple of $1,000,000 in excess thereof, and (ii) in the case of any such
prepayment of a Eurodollar Rate Advance, the Borrower shall be obligated to
reimburse the Lenders in respect thereof pursuant to Section 8.04(b) on the date
of such prepayment.
SECTION 2.11. Increased Costs. (a) If on or after the date of this
Agreement, any Lender determines that (i) the introduction of or any change
(other than any change by way of imposition or increase of reserve requirements,
in the case of Eurodollar Rate Advances, 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) shall increase
the cost to such 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
(without duplication of any amount payable pursuant to Section 2.14) sufficient
to compensate such Lender for such increased cost; provided, that no Lender
shall be entitled to demand such compensation more than 90 days following the
last day of the Interest Period in respect of which such demand is made;
provided further, however, that the foregoing proviso shall in no way limit the
right of any Lender to demand or receive such compensation to the extent that
such compensation relates to the retroactive application of any law, regulation,
guideline or request described in clause (i) or (ii) above if such demand is
made within 90 days after the implementation of such retroactive law,
interpretation, guideline or request. 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.
(b) If any Lender determines that, after the date of this Agreement,
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) regarding capital adequacy requirements affects or would affect the amount
of capital required or expected to be maintained by such Lender or any
corporation controlling such Lender (including, in any event, any determination
after the date of this Agreement by any such governmental authority or central
bank that, for purposes of capital adequacy requirements, any Lender's
Commitment hereunder does not constitute a commitment with an original maturity
of one year or less) 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 or the Advances made by such Lender, 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 determines such increase in
capital to be allocable to the existence of such Lender's commitment to lend
hereunder or the Advances made by such Lender; provided, that no Lender shall be
entitled to demand such compensation more than one year following the payment to
or for the account of such Lender of all other amounts payable hereunder and
under any Note held by such Lender and the termination of such Lender's
Commitment; provided further, however, that the foregoing proviso shall in no
way limit the right of any Lender to demand or receive such compensation to the
extent that such compensation relates to the retroactive application of any law,
regulation, guideline or request described above if such demand is made within
one year after the implementation of such retroactive law, interpretation,
guideline or request. A certificate as to such amounts submitted to the Borrower
and the Administrative Agent by such Lender shall be conclusive and binding, for
all purposes, absent manifest error.
(c) Any Lender claiming compensation pursuant to this Section 2.11
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 compensation that may thereafter accrue and would not, in
the reasonable judgment of such Lender, be otherwise disadvantageous to such
Lender.
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SECTION 2.12. Illegality. Notwithstanding any other provision of this
Agreement, if any Lender shall notify the Administrative Agent 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 such 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) the obligation of
such Lender to make, or to Convert Advances into, Eurodollar Rate Advances shall
be suspended (subject to the following paragraph of this Section 2.12) until the
Administrative Agent shall notify the Borrower and the Lenders that the
circumstances causing such suspension no longer exist and (ii) all Eurodollar
Rate Advances of such Lender then outstanding shall, on the last day of then
applicable Interest Period (or such earlier date as such Lender shall designate
upon not less than five Business Days prior written notice to the Administrative
Agent), be automatically Converted into Base Rate Advances.
If the obligation of any Lender to make, fund or maintain Eurodollar
Rate Advances has been suspended pursuant to the preceding paragraph, then,
unless and until the Administrative Agent shall notify the Borrower and the
Lenders that the circumstances causing such suspension no longer exist (i) all
Advances that would otherwise be made by such Lender as Eurodollar Rate Advances
shall instead be made as Base Rate Advances and (ii) to the extent that
Eurodollar Rate Advances of such Lender have been Converted into Base Rate
Advances pursuant to the preceding paragraph or made instead as Base Rate
Advances pursuant to the preceding clause (i), all payments and prepayments of
principal that would have otherwise been applied to such Eurodollar Rate
Advances of such Lender shall be applied instead to such Base Rate Advances of
such Lender.
SECTION 2.13. Payments and Computations. (a) The Borrower shall make
each payment hereunder and under the Notes not later than 10:00 A.M. (Chicago
time) on the day when due in U.S. dollars to the Administrative Agent at its
address referred to in Section 8.02 in same day funds without setoff,
counterclaim or other deduction. The Administrative Agent will promptly
thereafter cause to be distributed like funds relating to the payment of
principal or interest or commitment and facility fees ratably (other than
amounts payable pursuant to Section 2.02(c), 2.07, 2.11, 2.14, 2.16(a) 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 an Assignment and Acceptance 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 Assignment and Acceptance, 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 Assignment and Acceptance 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 Base Rate 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 or
the Federal Funds Rate and of commitment fees shall be made by the
Administrative Agent, and all computations of interest pursuant to Section 2.07
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 commitment fees are payable.
Each determination by the Administrative Agent (or, in the case of Section 2.07,
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
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included in the computation of payment of interest or commitment fee, as the
case may be; provided, however, 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.
(f) Notwithstanding anything to the contrary contained herein, any
amount payable by the Borrower hereunder or under any Note that is not paid when
due (whether at stated maturity, by acceleration or otherwise) shall (to the
fullest extent permitted by law) bear interest from the date when due until paid
in full at a rate per annum equal at all times to the Base Rate plus 2%, payable
upon demand.
SECTION 2.14. Taxes. (a) Any and all payments by the Borrower hereunder
or under the Notes shall be made, in accordance with Section 2.13, 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 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 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"). If the Borrower shall be required by law to deduct any Taxes from
or in respect of any sum payable hereunder or under any Note 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 2.14) 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 to the extent arising from the execution, delivery or registration of
this Agreement or the Notes (hereinafter referred to as "Other Taxes").
(c) No Lender may claim or demand payment or reimbursement in respect
of any Taxes or Other Taxes pursuant to this Section 2.14 if such Taxes or Other
Taxes, as the case may be, were imposed solely as the result of a voluntary
change in the location of the jurisdiction of such Lender's Applicable Lending
Office.
(d) 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 2.14) paid by such Lender or the Administrative Agent
(as the case may be) and any liability (including penalties, interest and
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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.
(e) Prior to the date of the initial Borrowing in the case of each
Bank, and on the date of the Assignment and Acceptance or Additional Lender
Supplement pursuant to which it became a Lender in the case of each other
Lender, and from time to time thereafter within 30 days from the date of request
if requested by the Borrower or the Administrative Agent, each Lender organized
under the laws of a jurisdiction outside the United States shall provide the
Administrative Agent and the Borrower with the forms prescribed by the Internal
Revenue Service of the United States certifying that such Lender is exempt from
United States withholding taxes with respect to all payments to be made to such
Lender hereunder and under the Notes. If for any reason during the term of this
Agreement, any Lender becomes unable to submit the forms referred to above or
the information or representations contained therein are no longer accurate in
any material respect, such Lender shall notify the Administrative Agent and the
Borrower in writing to that effect. Unless the Borrower and the Administrative
Agent have received forms or other documents satisfactory to them indicating
that payments hereunder or under any Note are not subject to United States
withholding tax, the Borrower or the Administrative Agent shall withhold taxes
from such payments at the applicable statutory rate in the case of payments to
or for any Lender organized under the laws of a jurisdiction outside the United
States and no Lender may claim or demand payment or reimbursement for such
withheld taxes pursuant to this Section 2.14.
(f) Any Lender claiming any additional amounts payable pursuant to this
Section 2.14 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) If the Borrower makes any additional payment to any Lender pursuant
to this Section 2.14 in respect of any Taxes or Other Taxes, and such Lender
determines that it has received (i) a refund of such Taxes or Other Taxes or
(ii) a credit against or relief or remission for, or a reduction in the amount
of, any tax or other governmental charge attributable solely to any deduction or
credit for any Taxes or Other Taxes with respect to which it has received
payments under this Section 2.14, such Lender shall, to the extent that it can
do so without prejudice to the retention of such refund, credit, relief,
remission or reduction, pay to the Borrower such amount as such Lender shall
have determined to be attributable to the deduction or withholding of such Taxes
or Other Taxes. If, within one year after the payment of any such amount to the
Borrower, such Lender determines that it was not entitled to such refund,
credit, relief, remission or reduction to the full extent of any payment made
pursuant to the first sentence of this Section 2.14(g), the Borrower shall upon
notice and demand of such Lender promptly repay the amount of such overpayment.
Any determination made by such Lender pursuant to this Section 2.14(g) shall in
the absence of bad faith or manifest error be conclusive, and nothing in this
Section 2.14(g) shall be construed as requiring any Lender to conduct its
business or to arrange or alter in any respect its tax or financial affairs
(except as required by Section 2.14(f)) so that it is entitled to receive such a
refund, credit or reduction or as allowing any person to inspect any records,
including tax returns, of any Lender.
(h) Without prejudice to the survival of any other agreement of the
Borrower or any Lender hereunder, the agreements and obligations of the Borrower
and the Lenders contained in this Section 2.14 shall survive the payment in full
of principal and interest hereunder and under the Notes; provided, that no
Lender shall be entitled to demand any payment under this Section 2.14 more than
one year following the payment to or for the account of such Lender of all other
amounts payable hereunder and under any Note held by such Lender and the
termination of such Lender's Commitment; provided further, however, that the
foregoing proviso shall in no way limit the right of any Lender to demand or
receive any payment under this Section 2.14 to the extent that such payment
relates to the retroactive application of any Taxes or Other Taxes if such
demand is made within one year after the implementation of such Taxes or Other
Taxes.
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SECTION 2.15. 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 Advances made by it (other than
pursuant to Section 2.02(c), 2.07, 2.11, 2.14, 2.16(a) or 8.04(b)) in excess of
its ratable share of payments on account of the 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 2.15 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 2.16. Extension of Termination Date. (a) Unless the Termination
Date shall have occurred, the Borrower may request the Lenders, by written
notice to the Administrative Agent not more than 90 days and not less than 60
days prior to the then effective Termination Date, to consent to extension of
the Termination Date to the date which is 364 days after the then effective
Termination Date (or, if such date is not a Business Day, the next preceding
Business Day). Each Lender shall, in its sole discretion, determine whether to
consent to such request and shall notify the Administrative Agent of its
determination not more than 45 days and not less than 30 days prior to the
then-effective Termination Date. Any Lender which fails to give such notice to
the Administrative Agent shall be deemed to have not consented to such request.
If any Lender shall not have consented to such request 30 days prior to the then
effective Termination Date (such Lender being referred to herein as a
"Non-Consenting Lender"), the Administrative Agent shall promptly so notify the
Borrower and the other Lenders, whereupon each other Lender may, not more than
30 days and not less than 25 days prior to the then effective Termination Date,
revoke any consent to such extension previously given by such Lender (in which
case such Lender shall be deemed a Non-Consenting Lender). If such request shall
have been consented to by the Majority Lenders (as determined after giving
effect to the replacement of any Non-Consenting Lender pursuant to Section
8.07(g)), the Administrative Agent shall notify the Borrower and the Lenders in
writing of such consent, and such extension shall become effective (other than
with respect to any Non-Consenting Lender) upon the delivery by the Borrower to
the Administrative Agent and each Lender, on or prior to the then-effective
Termination Date, of (i) a certificate of a duly authorized officer of the
Borrower, dated such date, as to the accuracy, both before and after giving
effect to such proposed extension, of the representations and warranties set
forth in Section 4.01 and as to the absence, both before and after giving effect
to such proposed extension, of any Event of Default or event that with the
giving of notice or the passage of time or both would constitute an Event of
Default, (ii) certified copies of all corporate and governmental approvals, if
any, required to be obtained by the Borrower in connection with such proposed
extension , (iii) new Notes dated such date, substantially in the form of
Exhibit A hereto with the blanks appropriately completed, payable to the order
of each Lender (other than a Non-Consenting Lender) in the principal amount of
such Lender's Commitment and (iv ) an opinion of counsel to the Borrower (who
shall be satisfactory to the Administrative Agent) as to the matters set forth
in Exhibit D, upon giving effect to the extension of the Termination Date and
the new Notes, and such other matters as any Lender, through the Administrative
Agent, may reasonably request, all of the foregoing to be satisfactory in form
and substance to the Administrative Agent. In the event of any such extension of
the Termination Date, the Commitment of each Non-Consenting Lender that has not
been replaced pursuant to Section 8.07(g) shall be terminated in whole as of
such former Termination Date, the aggregate principal amount of all Advances
made by each Non-Consenting Lender, together with accrued and unpaid interest,
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commitment fees and facility fees, and all other amounts payable hereunder to or
for the account of each Non-Consenting Lender shall be due and payable on such
former Termination Date, and upon such reduction and payment of such amounts
each Non-Consenting Lender shall cease to be a party to this Agreement (although
each Non-Consenting Lender shall continue to be entitled to indemnification
pursuant to Section 8.04(c)).
(b) Upon the effectiveness of any extension of the Termination Date
pursuant to subsection (a) above, each reference in Section 4.01(e) and Exhibit
D to (i) the year-end financial statements of the Borrower, (ii) December 31 of
any year, (iii) the quarter-end financial statements of the Borrower and (iv)
the last day of any fiscal quarter (other than December 31) of any year, shall
be deemed to be amended to be references to (A) the year-end financial
statements of the Borrower included in the Borrower's Annual Report on Form 10-K
most recently delivered to the Lenders pursuant to Section 5.01(b)(iii), (B)
December 31 of the year of the financial statements described in clause (A)
above, (C) the fiscal quarter-end financial statements of the Borrower included
in the Borrower's Quarterly Report on Form 10-Q most recently delivered to the
Lenders pursuant to Section 5.01(b)(ii) and (D) the last day of the fiscal
quarter of the financial statements described in clause (C) above, respectively.
SECTION 2.17. Additional Lenders. (a) For a period of 60 days after
extension of a Termination Date pursuant to Section 2.16(a) that has resulted in
a reduction of the aggregate Commitments of the Lenders, the Borrower may
request that one or more additional banks or other Persons (each, an "Additional
Lender") become party to this Agreement as Lenders and that the aggregate amount
of the Commitments of the Lenders be increased to reflect the Commitments
allocated to each such Additional Lender; provided, that the aggregate
Commitments of the Lenders after giving effect to such increase shall not exceed
the aggregate Commitments of the Lenders immediately prior to such former
Termination Date. Addition of an Additional Lender shall be made only with the
written consent of the Administrative Agent (which consent shall not be
unreasonably withheld or delayed) and with the written consent of the Borrower
(which consent may be granted or withheld in its absolute discretion). Each
Additional Lender must be an Eligible Assignee and, without the consent of the
Administrative Agent, the initial Commitment of each Additional Lender shall not
be less than $10,000,000.
(b) Addition of an Additional Lender shall be effected by the
Additional Lender executing and delivering to the Administrative Agent, for its
acceptance and recording in the Register, a duly completed Additional Lender
Supplement in substantially the form of Exhibit G attached hereto. The Borrower
shall execute and deliver to the Administrative Agent for transmittal to such
Additional Lender a Note in substantially the form of Exhibit A attached hereto
in the amount of the Commitment of such Additional Lender. Acceptance by the
Administrative Agent of an Additional Lender is subject to the conditions that
the Administrative Agent shall have received, with a counterpart for each
Lender, (i) a certificate of a duly authorized officer of the Borrower, dated
the effective date of such Additional Lender Supplement, as to the accuracy,
both before and after giving effect to such proposed addition, of the
representations and warranties set forth in Section 4.01 and as to the absence,
both before and after giving effect to such proposed extension, of any Event of
Default or event that with the giving of notice or the passage of time or both
would constitute an Event of Default, (ii) certified copies of all corporate and
governmental approvals, if any, required to be obtained by the Borrower in
connection with such proposed addition, (iii) an opinion of counsel to the
Borrower (who shall be satisfactory to the Administrative Agent) as to the
matters set forth in Exhibit D (appropriately modified to include, in addition
to the other matters set forth therein, such Additional Lender Supplement and
the new Note), and such other matters as any Lender, through the Administrative
Agent, may reasonably request, and (iv) such other certificates and documents as
the Administrative Agent may reasonably request, all of the foregoing to be
satisfactory in form and substance to the Administrative Agent. Upon execution
and delivery of the Additional Lender Supplement, acceptance by the
Administrative Agent and recording in the Register, from and after the effective
date specified in such Additional Lender Supplement, such Additional Lender
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shall be a party hereto and shall, to the extent of the Commitment specified in
such Additional Lender Supplement, have the rights and obligations of a Lender
hereunder.
(c) If, at the time an Additional Lender is to become party to this
Agreement, the continuing Lenders have any outstanding Advances, such Additional
Lender shall offer to purchase from each continuing Lender, effective as of the
date such Additional Lender becomes party to this Agreement, a portion of each
continuing Lender's outstanding Advances, in such amounts as will have the
result that, immediately after giving effect to such Additional Lender becoming
party to this Agreement and to such purchases, each Lender (including the
Additional Lender) shall share in the outstanding Advances in the same
proportion as their respective Commitments. The Additional Lender shall offer in
writing to purchase the requisite portion of each continuing Lender's
outstanding Advances, at a price equal to the outstanding principal amount
thereof together with accrued and unpaid interest thereon to the date of
purchase, and a continuing Lender shall not unreasonably decline to accept such
offer. Each such purchase shall be made in accordance with Section 8.07 (with
the related Assignment and Acceptance modified, mutatis mutandis, to reflect
that such purchase is not a purchase of any portion of the Commitment of the
continuing Lender). Such purchases shall not be subject to the provisions of
clause (ii) of Section 8.07(a), and the Borrower shall be responsible for all
amounts payable to the Administrative Agent pursuant to clause (iv) of Section
8.07(a). The Borrower shall pay to each continuing Lender on demand any amount
that would be payable to such continuing Lender pursuant to Section 8.04(b)
(which for this purpose shall be applied as if such assignment were a prepayment
of the Advances assigned by such continuing Lender), and shall reimburse each
continuing Lender on demand for all reasonable fees and expenses (including
reasonable fees and expenses of counsel) incurred by it in connection with such
assignment.
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Conditions Precedent to Initial Advances. The obligation
of each Lender to make its initial Advance is subject to the satisfaction, prior
to or concurrently with, the making of such initial Advance, of each of the
following conditions precedent:
(a) Documents and Other Agreements. The Administrative Agent shall have
received on or before the day of the initial Borrowing the following, each dated
the same date, in form and substance satisfactory to the Administrative Agent
and (except for the Notes) with one copy for each Lender:
(i) The Notes payable to the order of each of the Lenders,
respectively;
(ii) Certified copies of the resolutions of the Board of Directors
of the Borrower approving the transactions contemplated by this
Agreement and the Notes, and of all documents evidencing other
necessary corporate action with respect to this Agreement and the
Notes;
(iii) A certificate of the Secretary or an Assistant Secretary of
the Borrower certifying (A) the names and true signatures of the
officers of the Borrower authorized to sign this Agreement and the
Notes and the other documents to be delivered hereunder; (B) that
attached thereto are true and correct copies of the Restated Articles
of Incorporation and the By-laws of the Borrower, in each case in
effect on such date; and (C) that attached thereto are true and correct
copies of all governmental and regulatory authorizations and approvals
required for the due execution, delivery and performance of this
Agreement and the Notes, including, without limitation, the Application
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for Authorization filed with FERC by the Borrower (the "FERC
Application") and the Authorization issued by FERC approving the FERC
Application (the "FERC Authorization");
(iv) Copies of the financial statements referred to in Section
4.01(e);
(v) A certificate signed by either the chief financial officer,
principal accounting officer or treasurer of the Borrower stating that
(A) the representations and warranties contained in Section 4.01 are
correct on and as of the date of such certificate as though made on and
as of such date, (B) no event has occurred and is continuing on the
date of such certificate that constitutes an Event of Default or would
constitute an Event of Default but for the requirement that notice be
given or time elapse or both and (C) stating the specific provision of
the FERC Application or the FERC Authorization pursuant to which this
Agreement is authorized and stating that the Borrower is in compliance
with such provision;
(vi) A favorable opinion of Ballard Spahr Andrews & Ingersoll,
special counsel for the Borrower, substantially in the form of Exhibit
D hereto; and
(vii) A favorable opinion of Reed Smith Shaw & McClay LLP, counsel
for the Administrative Agent, substantially in the form of Exhibit E
hereto.
(b) Termination of Prior Credit Facility. The Administrative Agent
shall have received evidence of (i) the payment in full of all obligations of
the Borrower under the Existing Credit Agreements, and (ii) the termination of
the "Commitments" under the Existing Credit Agreements.
SECTION 3.02. Conditions Precedent to Certain Borrowings. The
obligation of each Lender to make an Advance on the occasion of each Borrowing
(including the initial Borrowing) that would increase the aggregate amount of
Advances outstanding shall be subject to the further conditions precedent that
on the date of such Borrowing the following statements shall be true, and each
of the giving of the applicable Notice of a Borrowing and the acceptance by the
Borrower of the proceeds of such Borrowing shall constitute a representation and
warranty by the Borrower that on the date of such Borrowing such statements are
true:
(A) The representations and warranties contained in Section 4.01
are correct on and as of the date of such Borrowing, before and after
giving effect to such Borrowing and to the application of the proceeds
therefrom, as though made on and as of such date; and
(B) No event has occurred and is continuing, or would result from
such Borrowing or from the application of the proceeds therefrom, that
constitutes an Event of Default or would constitute an Event of Default
but for the requirement that notice be given or time elapse or both (it
being understood for clarification that (i) without limiting the
foregoing, it is a condition of this clause (B) that the Borrower shall
be in compliance with Section 5.01(a)(iv), Section 5.02(a) and Section
5.02(c) upon giving effect to such Borrowing and (ii) the conditions of
this clause (B) shall apply whether or not the respective Commitments
of the Lenders have been terminated pursuant to Section 6.01).
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower. The
Borrower represents and warrants as follows:
(a) The Borrower is a corporation duly organized. validly existing and
in good standing under the laws of the Commonwealth of Pennsylvania.
(b) The execution, delivery and performance by the Borrower of this
Agreement and the Notes 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) applicable law or (iii) any contractual or legal restriction binding on or
affecting the Borrower or its properties.
(c) 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 Borrower of this Agreement or
the Notes except for the filing of the FERC Application with, and the final
approval of, and the FERC Authorization issued by, FERC, which filing has been
duly made and which final approval and FERC Authorization have been duly
obtained; such FERC Authorization is in full force and effect and is final; and
on and after the date of the initial Borrowing hereunder, the action of FERC
approving the FERC Application shall no longer be subject to appeal.
(d) This Agreement is, and the Notes when delivered hereunder will be,
legal, valid and binding obligations of the Borrower enforceable against the
Borrower in accordance with their respective terms, except as the enforceability
thereof may be limited by equitable principles or bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally.
(e) The consolidated balance sheet of the Borrower and its Subsidiaries
as at December 31, 1998, and the related statements of income and retained
earnings and of cash flows of the Borrower and its Subsidiaries for the fiscal
year then ended, certified by Pricewaterhouse Coopers LLP, and the unaudited
consolidated balance sheet of the Borrower and its Subsidiaries as at June 30,
1999, and the related unaudited statements of income for the six-month period
then ended, copies of which have been furnished to each Lender, fairly present
in all material respects (subject, in the case of such balance sheets and
statements of income for the period ended June 30, 1999, to year-end
adjustments) the consolidated financial condition of the Borrower and its
Subsidiaries as at such dates and the consolidated results of the operations of
the Borrower and its Subsidiaries for the periods ended on such dates, all in
accordance with GAAP, and since June 30, 1999, there has been no Material
Adverse Change.
(f) Except as disclosed in the Borrower's Annual, Quarterly or Current
Reports, each as filed with the Securities and Exchange Commission and delivered
to the Lenders (including reports filed prior to the date of execution and
delivery of this Agreement and reports delivered to the Lenders pursuant to
Section 5.01(b)), there is no pending or threatened action, investigation or
proceeding affecting the Borrower or any of its Subsidiaries before any court,
governmental agency or arbitrator that may reasonably be anticipated to have a
Material Adverse Effect. There is no pending or threatened action or proceeding
against the Borrower or its Subsidiaries that purports to affect the legality,
validity, binding effect or enforceability of this Agreement or any Note.
(g) No proceeds of any Advance have been or will be used directly or
indirectly in connection with the acquisition of in excess of 5% of any class of
equity securities that is registered pursuant to Section 12 of the Exchange Act
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or any transaction subject to the requirements of Section 13 or 14 of the
Exchange Act.
(h) The Borrower is not engaged in the business of extending credit for
the purpose of purchasing 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 will be used to purchase or carry any margin
stock or to extend credit to others for the purpose of purchasing or carrying
any margin stock. Not more than 25% of the value of the assets of the Borrower
and its Principal Subsidiaries is represented by margin stock.
(i) The Borrower (i) is exempt from the provisions of the Public
Utility Holding Company Act of 1935, as amended, other than Section 9(a)(2)
thereof, pursuant to Section 3(a)(2) thereof, and (ii) 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.
(j) During the twelve consecutive month period prior to the date of the
execution and delivery of this Agreement and prior to the date of any Borrowing
under this Agreement, no steps have been taken to terminate any Plan, and no
contribution failure by the Borrower or any member of the Controlled Group has
occurred with respect to any Plan. No condition exists or event or transaction
has occurred with respect to any Plan (including any Multiemployer Plan) which
might result in the incurrence by the Borrower or any member of the Controlled
Group of any material liability, fine or penalty.
(k) The Borrower is reviewing its operations and those of its
Subsidiaries with a view to assessing whether its business, or the business of
any of its Subsidiaries (i) will be vulnerable to a Year 2000 Problem or (ii)
will be vulnerable to the effects of a Year 2000 Problem suffered by the
Borrower's or any of its Subsidiaries' major counterparties, in the case of (ii)
as described in the Borrower's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999. The Borrower represents and warrants that it does not
believe that any Year 2000 Problem will impair the Borrower's ability to pay
principal or interest on the Notes in accordance with their terms.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants. So long as any Note or any amount
payable by the Borrower hereunder shall remain unpaid or any Lender shall have
any Commitment hereunder (except with respect to subsection (a)(iv), which shall
be applicable only as of the date hereof and at any time that any Advance is
outstanding hereunder), the Borrower will, and, in the case of Section 5.01(a),
will cause its Principal Subsidiaries to, unless the Majority Lenders shall
otherwise consent in writing:
(a) Keep Books; Corporate Existence; Maintenance of Properties;
Compliance with Laws; Insurance; Taxes.
(i) keep proper books of record and account, all in accordance with
generally accepted accounting principles;
(ii) subject to Section 5.02(b), preserve and keep in full force
and effect its existence;
(iii) maintain and preserve all of its properties (except such
properties the failure of which to maintain or preserve would not have,
individually or in the aggregate, a Material Adverse Effect) which are
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used or useful in the conduct of its business in good working order and
condition, ordinary wear and tear excepted;
(iv) comply in all material respects with the requirements of all
applicable laws, rules, regulations and orders (including those of any
governmental authority and including with respect to environmental
matters) to the extent the failure to so comply, individually or in the
aggregate, would have either a Material Adverse Effect or a material
adverse effect on the ability of the Borrower to perform its
obligations under this Agreement and the Notes;
(v) maintain insurance with responsible and reputable insurance
companies or associations, or self-insure, as the case may be, in each
case in such amounts and covering such contingencies, casualties and
risks as is customarily carried by or self-insured against by companies
engaged in similar businesses and owning similar properties in the same
general areas in which the Borrower and its Principal Subsidiaries
operate;
(vi) at any reasonable time and from time to time, pursuant to
prior notice delivered to the Borrower, permit any Lender, or any
agents or representatives of any thereof, to examine and, at such
Lender's expense, make copies of, and abstracts from the records and
books of account of, and visit the properties of, the Borrower and any
of its Principal Subsidiaries and to discuss the affairs, finances and
accounts of the Borrower and any of its Subsidiaries with any of their
respective officers; provided, that any non-public information (which
has been identified as such by the Borrower) obtained by any Lender, or
any of their respective agents or representatives pursuant to this
subsection (vi) shall be treated confidentially by such Person;
provided, further, that such Person may disclose such information to
any other party to this Agreement, its examiners, affiliates, outside
auditors, counsel or other professional advisors in connection with the
Agreement or if otherwise required to do so by law or regulatory
process;
(vii) use the proceeds of the Advances for general corporate
purposes (including, without limitation, the refinancing of its
commercial paper, the repayment of outstanding Advances, and the making
of acquisitions) but in no event for any purpose which would be
contrary to clause (g) or clause (h) of Section 4.01;
(viii) take the actions and commit the resources deemed necessary
by the National Electric Reliance Council ("NERC"), the Mid-Atlantic
Area Counsel, the Nuclear Regulatory Commission and the PUC to mitigate
against the Year 2000 Problem; and
(ix) at the request of the Administrative Agent, provide the
Administrative Agent with any reports submitted by the Borrower to NERC
relating to the Year 2000 Problem, within a reasonable time after such
request.
(b) Reporting Requirements. Furnish to the Lenders:
(i) as soon as possible, and in any event within 5 Business Days
after the occurrence of each Event of Default or each event which, with
the giving of notice or lapse of time, or both, would constitute an
Event of Default, continuing on the date of such statement, a statement
of an authorized officer of the Borrower setting forth details of such
Event of Default or event and the action which the Borrower proposes to
take with respect thereto;
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(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 copy of the Borrower's Quarterly Report on Form 10-Q filed
with the Securities and Exchange Commission with respect to such
quarter, together with a certificate of an authorized officer of the
Borrower stating that no Event of Default, or event which, with notice
or lapse of time or both, would constitute an Event of Default, has
occurred and is continuing or, if any Event of Default or such event
has occurred and is continuing, a statement as to the nature thereof
and the action which the Borrower proposes to take with respect
thereto;
(iii) as soon as available and in any event within 105 days after
the end of each fiscal year of the Borrower, a copy of the Borrower's
Annual Report on Form 10-K filed with the Securities and Exchange
Commission with respect to such fiscal year, together with a
certificate of an authorized officer of the Borrower stating that no
Event of Default, or event which, with notice of lapse of time or both,
would constitute an Event of Default, has occurred and is continuing
or, if any Event of Default or such event has occurred and is
continuing, a statement as to the nature thereof and the action which
the Borrower proposes to take with respect thereto;
(iv) concurrently with the delivery of the annual and quarterly
reports referred to in Sections 5.01(b)(ii) and 5.01(b)(iii), a
compliance certificate in substantially the form set forth in Exhibit
F, duly completed and signed by the Chief Financial Officer, Treasurer
or an Assistant Treasurer of the Borrower;
(v) except as otherwise provided in subsections (ii) and (iii)
above, promptly after the sending or filing thereof, copies of all
reports that the Borrower sends to any of its security holders, and
copies of all Reports on Form 10-K, 10-Q or 8-K, and registration
statements and prospectuses that the Borrower or any of its
Subsidiaries files with the Securities and Exchange Commission or any
national securities exchange (except to the extent that any such
registration statement or prospectus relates solely to the issuance of
securities pursuant to employee or dividend reinvestment plans of the
Borrower or such Subsidiary);
(vi) promptly upon becoming aware of the institution of any steps
by the Borrower or any other Person to terminate any Plan, or the
failure to make a required contribution to any Plan if such failure is
sufficient to give rise to a lien under section 302(f) of ERISA, or the
taking of any action with respect to a Plan which could result in the
requirement that the Borrower furnish a bond or other security to the
PBGC or such Plan, or the occurrence of any event with respect to any
Plan, which could result in the incurrence by the Borrower or any
member of the Controlled Group of any material liability, fine or
penalty; and
(vii) such other information respecting the condition, operations,
business or prospects, financial or otherwise, of the Borrower or any
of its Subsidiaries as any Lender, through the Administrative Agent,
may from time to time reasonably request.
SECTION 5.02. Negative Covenants. So long as any Note or any amount
payable by the Borrower hereunder shall remain unpaid or any Lender shall have
any Commitment hereunder (except with respect to subsection (a), which shall be
applicable only as of the date hereof and at any time any Advance is outstanding
hereunder), the Borrower will not, without the written consent of the Majority
Lenders:
(a) Limitation on Liens. Create, incur, assume or suffer to exist, or
permit any of its Principal Subsidiaries to create, incur, assume or suffer to
exist, any Lien on its respective property, revenues or assets, whether now
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owned or hereafter acquired except (i) Liens upon or in any property acquired by
the Borrower or any of its Principal Subsidiaries in the ordinary course of
business to secure the purchase price of such property or to secure any
obligation incurred solely for the purpose of financing the acquisition of such
property, (ii) Liens existing on such property at the time of its acquisition
(other than any such Lien created in contemplation of such acquisition unless
permitted by the preceding clause (i)), (iii) Liens granted under the Mortgage
and "excepted encumbrances" as defined in the Mortgage, (iv) Liens granted in
connection with any financing arrangement for the purchase of nuclear fuel or
the financing of pollution control facilities, limited to the fuel or facilities
so purchased or acquired, (v) Liens arising in connection with sales or
transfers of, or financing secured by, accounts receivable or related contracts,
(vi) Liens securing the Borrower's notes collateralized solely by mortgage bonds
of the Borrower issued under the terms of the Mortgage, (vii) Liens arising in
connection with sale and leaseback transactions, but only to the extent (x) the
proceeds received by the Borrower or such Principal Subsidiary from such sale
shall immediately be applied to retire mortgage bonds of the Borrower issued
under the terms of the Mortgage, or (y) the aggregate purchase price of assets
sold pursuant to such sale and leaseback transactions where such proceeds are
not so applied shall not exceed $1,000,000,000, (viii) Liens granted by a
Special Purpose Subsidiary to secure Nonrecourse Transition Bond Debt of such
Special Purpose Subsidiary, and (ix) Liens, other than those described in
clauses (i) through (viii) of this subsection granted by the Borrower or any of
its Principal Subsidiaries in the ordinary course of business securing Debt of
the Borrower and its Principal Subsidiaries in an amount not to exceed
$50,000,000 in the aggregate at any one time outstanding.
(b) Mergers and Consolidations; Disposition of Assets. Merge with or
into or consolidate with or into, or sell, assign, lease or otherwise dispose of
(whether in one transaction or in a series of transactions) all or substantially
all of its assets (whether now owned or hereafter acquired) to any Person or
permit any Principal Subsidiary to do so, except that (i) the Borrower or any
Principal Subsidiary may merge with or into or consolidate with or transfer
assets to any other Principal Subsidiary, (ii) any Principal Subsidiary may
merge with or into or consolidate with or transfer assets to the Borrower and
(iii) the Borrower may merge with or into or consolidate with or transfer assets
to any other Person; provided in each case, immediately thereafter in giving
effect thereto, no Event of Default or event that would, with the giving of
notice or the passage of time or both constitute an Event of Default shall have
occurred and be continuing and (A) in the case of any such merger, consolidation
or transfer of assets to which the Borrower is a party, either (x) the Borrower
shall be the surviving corporation or (y) the surviving corporation shall be an
Eligible Successor and shall have assumed all of the obligations of the Borrower
under this Agreement and the Notes pursuant to a written instrument in form and
substance satisfactory to the Administrative Agent and (B) subject to clause (A)
above, in the case of any such merger to which a Principal Subsidiary is a
party, a Principal Subsidiary shall be the surviving corporation.
(c) Financial Covenant. Permit Consolidated Adjusted Total Debt to
exceed 65% of Consolidated Adjusted Total Capitalization at any time.
(d) Continuation of Businesses.
(i) Generation Business. (A) Cease to own (through the Borrower or
wholly-owned Subsidiaries) the business of generating electricity, or
(B) reduce the net installed electric generating capacity (summer
rating) of the electricity generation business owned by the Borrower
and its wholly-owned Subsidiaries taken as a whole to less than 7821
Megawatts.
(ii) Distribution, Transmission and Gas Businesses. Cease to own
(directly by the Borrower, and not through Subsidiaries) the business
of distributing electricity to end-users, the business of transmitting
electricity, or the businesses of transmitting and distributing natural
gas, each substantially as conducted by the Borrower as of the date of
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this Agreement (and the Borrower warrants that as of the date of this
Agreement substantially all of such businesses conducted by the
Borrower on a consolidated basis, and the assets relating thereto, are
operated and owned by the Borrower directly and not through
Subsidiaries).
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following events
("Events of Default") shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Advance when
the same becomes due and payable, or interest thereon or any other amount
payable under this Agreement or any of the Notes within three Business Days
after the same becomes due and payable; or
(b) Any representation or warranty made by the Borrower herein or by
the Borrower (or any of its officers) pursuant to the terms of this Agreement
shall prove to have been incorrect or misleading in any material respect when
made; or
(c) The Borrower shall fail to perform or observe (i) any term,
covenant or agreement contained in Section 5.02, Section 5.01(a)(vii) or Section
5.01(b)(i), or (ii) any other term, covenant or agreement contained in this
Agreement on its part to be performed or observed if the failure to perform or
observe such other term, covenant or agreement shall remain unremedied for 30
days after written notice thereof shall have been given to the Borrower by the
Administrative Agent (which notice shall be given by the Administrative Agent at
the written request of any Lender); or
(d) The Borrower or any Principal Subsidiary shall fail to pay any
principal of or premium or interest on any Debt that is outstanding in a
principal amount in excess of $50,000,000 in the aggregate (but excluding Debt
evidenced by the Notes and Nonrecourse Transition Bond Debt) of the Borrower or
such Principal Subsidiary (as the case may be) 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 any other event shall occur or condition shall exist under any agreement or
instrument relating to any such Debt 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 Debt; or any such Debt 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, other than any acceleration
of any Debt secured by equipment leases or fuel leases of the Borrower or a
Principal Subsidiary as a result of the occurrence of any event requiring a
prepayment (whether or not characterized as such) thereunder, which prepayment
will not result in a Material Adverse Change; or
(e) The Borrower or any Principal Subsidiary (other than a Special
Purpose Subsidiary) 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 a general assignment for the benefit of creditors; or any proceeding shall
be instituted by or against the Borrower or any Principal Subsidiary (other than
a Special Purpose Subsidiary) seeking to adjudicate it a bankrupt or insolvent,
or seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or 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,
custodian or other similar official for it or for any substantial part of its
property and, in the case of any such proceeding instituted against it (but not
instituted by it), 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, or the
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appointment of a receiver, trustee, custodian or other similar official for, it
or for any substantial part of its property,) shall occur; or the Borrower or
any Principal Subsidiary (other than a Special Purpose Subsidiary) shall take
any corporate action to authorize or to consent to any of the actions set forth
above in this subsection (e); or
(f) One or more judgments or orders for the payment of money in an
aggregate amount exceeding $50,000,000 (excluding any such judgments or orders
which are fully covered by insurance, subject to any customary deductible, and
under which the applicable insurance carrier has acknowledged such full coverage
in writing) shall be rendered against the Borrower or any Principal Subsidiary
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 30 consecutive
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
(g) (i) any Reportable Event that the Majority Lenders determine in
good faith might constitute grounds for the termination of any Plan or for the
appointment by the appropriate United States District Court of a trustee to
administer a Plan shall have occurred and be continuing 30 days after written
notice to such effect shall have been given to the Borrower by the
Administrative Agent or (ii) any Plan shall be terminated, or (iii) a Trustee
shall be appointed by an appropriate United States District Court to administer
any Plan or (iv) the PBGC shall institute proceedings to terminate any Plan or
to appoint a trustee to administer any Plan; provided, however that on the date
of any event described in clauses (i) through (iv) above the Unfunded
Liabilities of such Plan exceed $20,000,000; or
(h) any "Event of Default" shall occur under the Revolving 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, by notice to the Borrower,
declare the respective Commitments of the Lenders to be terminated, whereupon
the same shall forthwith terminate, and (ii) shall at the request, or may with
the consent, of the Majority Lenders, by notice to the Borrower, declare the
principal amount outstanding under the Notes, all interest thereon and all other
amounts payable under this Agreement to be forthwith due and payable, whereupon
the principal amount outstanding under 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 or any
Principal Subsidiary under the Federal Bankruptcy Code, (A) the obligation of
each Lender to make Advances shall automatically be terminated and (B) the
principal amount outstanding under the Notes, all such interest and all such
amounts shall automatically and immediately become 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 AGENTS
SECTION 7.01. Authorization and Action. Each Lender hereby appoints and
authorizes the Administrative Agent to take such action as administrative 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 (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
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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.
SECTION 7.02. Agents' 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, except for its or their respective own gross negligence or
willful misconduct. Without limitation of the generality of the foregoing: (i)
the Administrative Agent may treat the payee of any Note as the holder thereof
until the Administrative Agent receives and accepts an Assignment and Acceptance
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) the
Administrative Agent 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)
the Administrative Agent 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; (iv) the Administrative Agent 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 on the part of the Borrower or to inspect the
property (including the books and records) of the Borrower; (v) the
Administrative Agent shall not be responsible to any Lender for the due
execution, legality, validity, enforceability, genuineness, sufficiency or value
of this Agreement or any other instrument or document furnished pursuant hereto;
and (vi) the Administrative Agent shall not incur any liability under or in
respect of this Agreement 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. Agents and Affiliates. With respect to its Commitment,
Advances and Notes, each of First Chicago and 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 an Agent; and the term "Lender" or "Lenders" shall,
unless otherwise expressly indicated, include each of First Chicago and
Citibank, N.A. in its individual capacity. Each of First Chicago and Citibank,
N.A. and their 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 and any Person who may do business with or
own securities of the Borrower or any such subsidiary, all as if it were not an
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 the financial statements referred to in Section
4.01(e) and such other 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 each
Agent (to the extent not reimbursed by the Borrower), ratably according to the
respective principal amounts of the Notes then held by each of the Lenders (or
if no Notes are at the time outstanding, ratably according to the respective
amounts of their Commitments), 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 any such Agent in any way relating to or
arising out of this Agreement or any action taken or omitted by any such 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 such Agent's gross
negligence or willful misconduct. Without limitation of the foregoing, each
Lender agrees to reimburse each such Agent promptly upon demand for its ratable
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share of any out-of-pocket expenses (including reasonable counsel fees) incurred
by such 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 such
expenses are reimbursable by the Borrower but for which such Agent is not
reimbursed 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. Upon any such resignation or removal, the Majority Lenders shall have
the right to appoint a successor Administrative Agent. 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 commercial bank described in clause (i) or (ii) of the
definition of "Eligible Assignee" and having a combined capital and surplus of
at least $150,000,000. 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.
Notwithstanding the foregoing, if no Event of Default, and no event that with
the giving of notice or the passage of time, or both, would constitute an Event
of Default, shall have occurred and be continuing, then no successor
Administrative Agent shall be appointed under this Section 7.06 without the
prior written consent of the Borrower, which consent shall not be unreasonably
withheld or delayed.
SECTION 7.07. Documentation Agent and Lead Arranger. The titles
"Documentation Agent" and "Lead Arranger" are purely honorific, and the
"Documentation Agent" and the "Lead Arranger" shall have no duties or
responsibilities in such capacity.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. No amendment or waiver of any provision
of this Agreement or the Notes, 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 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 (other than any Lender that is the
Borrower or an Affiliate of the Borrower), do any of the following: (a) waive
any of the conditions specified in Section 3.01 or 3.02, (b) increase the
Commitments of the Lenders or subject the Lenders to any additional obligations,
(c) reduce the principal of, or interest on, the Notes or any fees or other
amounts payable hereunder, (d) postpone any date fixed for any payment of
principal of, or interest on, the 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 Notes, or the number of Lenders, that shall be
required for the Lenders or any of them to take any action hereunder, or (f)
amend this Section 8.01; 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.
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SECTION 8.02. Notices, Etc. All notices and other communications
provided for hereunder 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 2301 Market Street,
Philadelphia, Pennsylvania 19101, Attention: Vice President-Finance and
Treasurer, S21-1, Telecopy: (215) 557-9885; 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 Assignment and
Acceptance or Additional Lender Supplement pursuant to which it became a Lender;
and if to the Administrative Agent, at its address at One First National Plaza,
Mail Suite 0634, 1FPN-10, Chicago, Illinois 60670, Attention: Mr. Ron Cromey,
Telecopy: (312) 732-4840 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 when deposited in the mails, telecopied, delivered to
the telegraph company, 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 and Expenses; Indemnification. (a) The Borrower
agrees to pay on demand all costs and expenses incurred by the Administrative
Agent and the Lead Arranger in connection with the preparation, execution,
delivery, administration, syndication, modification and amendment of this
Agreement, the Notes and the other documents to be delivered hereunder,
including, without limitation, the reasonable fees, internal charges and
out-of-pocket expenses of counsel (including, without limitation, in-house
counsel) for such Agents with respect thereto and with respect to advising such
Agents as to their respective rights and responsibilities under this Agreement.
The Borrower further agrees to pay on demand all costs and expenses, if any
(including, without limitation, counsel fees and expenses of outside counsel and
of internal counsel), incurred by the any Agent or any Lender in connection with
the collection and enforcement (whether through negotiations, legal proceedings
or otherwise) of this Agreement, the Notes and the other documents to be
delivered hereunder, including, without limitation, reasonable counsel fees and
expenses in connection with the enforcement of rights under this Section
8.04(a).
(b) If any payment of principal of, or Conversion of any Eurodollar
Rate Advance is made other than on the last day of the Interest Period for such
Advance, as a result of a payment or Conversion pursuant to Section 2.09 or 2.12
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, each
Agent and each of their respective Affiliates, officers, directors and employees
(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) that any of them may pay or incur arising out of or
relating to this Agreement, the Notes or the transactions contemplated thereby,
or the use by the Borrower or any of its subsidiaries of the proceeds of any
Advance, provided that the Borrower shall not be liable for any portion of such
claims, damages, losses, liabilities, costs or expenses resulting from such
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Indemnified Person's gross negligence or willful misconduct. The Borrower's
obligations under this Section 8.04(c) shall survive the repayment of all
amounts owing to the Lenders and the Administrative Agent under this Agreement
and the Notes and the termination of the Commitments. If and to the extent that
the obligations of the Borrower under this Section 8.04(c) 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. 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 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 this Agreement and
any Note held by such Lender, whether or not such Lender shall have made any
demand under this Agreement 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 8.05 are in addition to other rights
and remedies (including, without limitation, other rights of set-off) that such
Lender may have.
SECTION 8.06. Binding Effect. This Agreement shall become effective
when it shall have been executed by the Borrower and the Agents and when the
Administrative Agent shall have been notified by each Bank that such Bank has
executed it and thereafter shall be binding upon and inure to the benefit of the
Borrower, the Agents 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, with
the prior written consent of the Borrower and the Administrative Agent (neither
of which consents shall be unreasonably withheld or delayed), and if demanded by
the Borrower pursuant to subsection (g) hereof shall to the extent required by
such subsection (g), assign to one or more banks or other entities 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 Assignment and Acceptance with
respect to such assignment) shall in no event be less than $10,000,000 or, if
less, the entire amount of such Lender's Commitment, and shall be an integral
multiple of $1,000,000 or such Lender's entire Commitment, (iii) each such
assignment shall be to an Eligible Assignee, (iv) the parties to each such
assignment shall execute and deliver to the Administrative Agent, for its
acceptance and recording in the Register, an Assignment and Acceptance, together
with any Note or Notes subject to such assignment and a processing and
recordation fee of $3,500 (which shall be payable by one or more of the parties
to the Assignment and Acceptance, and not by the Borrower, and shall not be
payable if the assignee is a Bank, any Affiliate of any Bank or the Federal
Reserve Bank), and (v) the consent of the Borrower shall not be required after
the occurrence and during the continuance of any Event of Default. Upon such
execution, delivery, acceptance and recording, from and after the effective date
specified in each Assignment and Acceptance, (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 Assignment and Acceptance, 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 Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
-32-
<PAGE>
be a party hereto (although an assigning Lender shall continue to be entitled to
indemnification pursuant to Section 8.04(c)). Notwithstanding anything contained
in this Section 8.07(a) to the contrary, (A) the consent of the Borrower and the
Administrative Agent shall not be required with respect to any assignment by any
Lender to an Affiliate of such Lender or to another Lender and (B) any Lender
may at any time, without the consent of the Borrower or the Administrative
Agent, and without any requirement to have an Assignment and Acceptance
executed, assign all or any part of its rights under this Agreement and its
Notes to a Federal Reserve Bank, provided that such assignment does not release
the transferor Lender from any of its obligations hereunder.
(b) By executing and delivering an Assignment and Acceptance, 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 Assignment and Acceptance, 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 this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto; (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 this Agreement or any other instrument or document furnished
pursuant hereto; (iii) such assignee confirms that it has received a copy of
this Agreement, together with copies of the financial statements referred to in
Section 4.01(e) and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (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 this Agreement; (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 this
Agreement as are delegated to the Administrative Agent by the terms hereof,
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 this Agreement 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 Assignment and Acceptance and each Additional
Lender Supplement 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 an Assignment and Acceptance 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, if such Assignment and Acceptance has been completed and is in
substantially the form of Exhibit C hereto, (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the Register and
(iii) give prompt notice thereof to the Borrower. Within five 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 Assignment and Acceptance
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 Assignment and Acceptance and
shall otherwise be in substantially the form of Exhibit A hereto.
-33-
<PAGE>
(e) Each Lender may sell participations to one or more banks or other
entities (each, a "Participant") in or to all or a portion of its rights and/or
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) 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, (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 and
(v) such Lender shall retain the sole right to approve, without the consent of
any Participant, any amendment, modification or waiver of any provision of this
Agreement or the Note or Notes held by such Lender, other than any such
amendment, modification or waiver with respect to any Advance or Commitment in
which such Participant has an interest that forgives principal, interest or fees
or reduces the interest rate or fees payable with respect to any such Advance or
Commitment, postpones any date fixed for any regularly scheduled payment of
principal of, or interest or fees on, any such Advance or Commitment, releases
any guarantor of any such Advance or releases any substantial portion of
collateral, if any, securing any such Advance.
(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 to preserve the
confidentiality of any confidential information relating to the Borrower
received by it from such Lender (subject to customary exceptions regarding
regulatory requirements, compliance with legal process and other requirements of
law).
(g) If (i) any Lender shall make demand for payment under Section
2.11(a), 2.11(b) or 2.14, or (ii) shall deliver any notice to the Administrative
Agent pursuant to Section 2.12 resulting in the suspension of certain
obligations of the Lenders with respect to Eurodollar Rate Advances or (iii)
shall fail to consent to, or shall revoke its consent to, the extension of any
Termination Date pursuant to Section 2.16 or (iv) shall fail to consent to, or
shall revoke its consent to, any extension of the "Termination Date" (as defined
in the Revolving Credit Agreement) requested by the Borrower pursuant to Section
2.16 of the Revolving Credit Agreement as originally constituted (or any
successor provision of similar import), then (in the case of clause (i)) within
60 days after such demand (if, but only if, such payment demanded under Section
2.11(a), 2.11(b) or 2.14 has been made by the Borrower), or (in the case of
clause (ii)) within 60 days after such notice (if such suspension is still in
effect), or (in the case of clauses (iii) and (iv)) no later than 10 days prior
to the then effective Termination Date, as the case may be, the Borrower may
demand that such Lender assign in accordance with this Section 8.07 to one or
more Eligible Assignees designated by the Borrower and reasonably acceptable to
the Administrative Agent all (but not less than all) of such Lender's Commitment
and the Advances owing to it within the next succeeding 30 days (in the case of
clause (i) or clause (ii)), or within the next succeeding 5 days (in the case of
clauses (iii) and (iv)) . 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 Assignee
for all of such Lender's Commitment or Advances, then such Lender may (but shall
not be required to) assign such Commitment and Advances to any other Eligible
Assignee in accordance with this Section 8.07 during such period.
(h) Notwithstanding anything to the contrary contained herein, any
Lender (a "Granting Bank") may grant to a special purpose funding vehicle (an
"SPC"), identified as such in writing from time to time by the Granting Bank to
the Administrative Agent and the Borrower, the option to provide to the Borrower
all or any part of any Advance that such Granting Bank would otherwise be
-34-
<PAGE>
obligated to make to the Borrower pursuant to this Agreement; provided that (i)
nothing herein shall constitute a commitment by any SPC to make any Advance,
(ii) if an SPC elects not to exercise such option or otherwise fails to provide
all or any part of such Advance, the Granting Bank shall be obligated to make
such Advance pursuant to the terms hereof. The making of an Advance by an SPC
hereunder shall utilize the Commitment of the Granting Bank to the same extent,
and as if, such Advance were made by such Granting Bank. Each party hereto
hereby agrees that no SPC shall be liable for any indemnity or similar payment
obligation under this Agreement (all liability for which shall remain with the
Granting Bank). In furtherance of the foregoing, each party hereto hereby agrees
(which agreement shall survive the termination of this Agreement) that, prior to
the date that is one year and one day after the payment in full of all
outstanding commercial paper or other senior indebtedness of any SPC, it will
not institute against, or join any other person in instituting against, such SPC
any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings under the laws of the United States or any State thereof. In
addition, notwithstanding anything to the contrary contained in this Section
8.07(h), any SPC may (i) with notice to, but without the prior written consent
of, the Borrower and the Administrative Agent and without paying any processing
fee therefor, assign all or a portion of its interests in any Advances to the
Granting Bank or to any financial institutions (consented to by the Borrower and
Administrative Agent) providing liquidity and/or credit support to or for the
account of such SPC to support the funding or maintenance of Advances and (ii)
disclose on a confidential basis any non-public information relating to its
Advances to any rating agency, commercial paper dealer or provider of any
surety, guarantee or credit or liquidity enhancement to such SPC. This Section
may not be amended without the written consent of the Granting Bank.
SECTION 8.08. Governing Law. THIS AGREEMENT AND THE NOTES SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF
PENNSYLVANIA.
SECTION 8.09. Consent to Jurisdiction. THE BORROWER HEREBY IRREVOCABLY
SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE COMMONWEALTH OF
PENNSYLVANIA AND ANY UNITED STATES DISTRICT COURT SITTING IN THE COMMONWEALTH OF
PENNSYLVANIA IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE NOTES 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 ADMINISTRATIVE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE
BORROWER IN THE COURTS OF ANY OTHER JURISDICTION.
SECTION 8.10. Execution in Counterparts; Integration. 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. This Agreement constitutes the entire agreement and understanding
among the parties hereto and supersedes all prior and contemporaneous agreements
and understandings, oral or written, relating to the subject matter hereof.
[Remainder of the page intentionally left blank]
-35-
<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.
[SEAL] PECO ENERGY COMPANY
PECO ENERGY COMPANY
By /s/ J. B. Mitchell
--------------------------------------------
Name: J. B. Mitchell
Title: Vice President - Finance and Treasurer
/s/ Todd D. Cutler
- - -------------------
Todd D. Cutler
Assistant Secretary
THE FIRST NATIONAL BANK OF CHICAGO,
as Administrative Agent
By /s/ Kenneth J. Bauer
------------------------------------
Name: Kenneth J. Bauer
Title: Authorized Agent
CITIBANK, N.A.,
as Documentation Agent
By: /s/ Robert J. Harrity, Jr.
----------------------------------------
Title: Managing Director
BANC ONE CAPITAL MARKETS, INC.,
as Lead Arranger
By /s/ Kenneth J. Bauer
------------------------------------
Name: Kenneth J. Bauer
Title: Vice President/Senior Banker
This is a signature page to the 364-Day Credit Agreement, dated as of September
15, 1999, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, The First National Bank of Chicago, as Administrative Agent, Citibank,
N.A., as Documentation Agent, and Banc One Capital Markets, Inc., as Lead
Arranger.
-36-
<PAGE>
THE BANKS
Commitment
$60,000,000
THE FIRST NATIONAL BANK OF CHICAGO, as
Administrative Agent and as Bank
By /s/ Kenneth J. Bauer
-----------------------------------
Name: Kenneth J. Bauer
Title: Authorized Agent
This is a signature page to the 364-Day Credit Agreement, dated as of September
15, 1999, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, The First National Bank of Chicago, as Administrative Agent, Citibank,
N.A., as Documentation Agent, and Banc One Capital Markets, Inc., as Lead
Arranger.
-37-
<PAGE>
Commitment
$60,000,000
CITIBANK, N.A., as Documentation Agent
and as Bank
By: /s/ Robert J. Harrity, Jr.
--------------------------------
Name: Robert J. Harrity, Jr.
Title: Managing Director
This is a signature page to the 364-Day Credit Agreement, dated as of September
15, 1999, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, The First National Bank of Chicago, as Administrative Agent, Citibank,
N.A., as Documentation Agent, and Banc One Capital Markets, Inc., as Lead
Arranger.
-38-
<PAGE>
Commitment
$50,000,000
BANK OF AMERICA, N.A.
as Bank
By /s/ Lawrence Saunders, Jr.
-------------------------------
Name: Lawrence Saunders, Jr.
Title: Managing Director
This is a signature page to the 364-Day Credit Agreement, dated as of September
15, 1999, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, The First National Bank of Chicago, as Administrative Agent, Citibank,
N.A., as Documentation Agent, and Banc One Capital Markets, Inc., as Lead
Arranger.
-39-
<PAGE>
Commitment
$50,000,000
THE BANK OF NEW YORK, as Bank
By____________________________________
Name: John N. Watt
Title: Vice President
This is a signature page to the 364-Day Credit Agreement, dated as of September
15, 1999, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, The First National Bank of Chicago, as Administrative Agent, Citibank,
N.A., as Documentation Agent, and Banc One Capital Markets, Inc., as Lead
Arranger.
-40-
<PAGE>
Commitment
$50,000,000
CREDIT SUISSE FIRST BOSTON, as Bank
By____________________________________
Name:
Title:
This is a signature page to the 364-Day Credit Agreement, dated as of September
15, 1999, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, The First National Bank of Chicago, as Administrative Agent, Citibank,
N.A., as Documentation Agent, and Banc One Capital Markets, Inc., as Lead
Arranger.
-41-
<PAGE>
Commitment
$50,000,000
FIRST UNION NATIONAL BANK, as Bank
By____________________________________
Name:
Title:
This is a signature page to the 364-Day Credit Agreement, dated as of September
15, 1999, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, The First National Bank of Chicago, as Administrative Agent, Citibank,
N.A., as Documentation Agent, and Banc One Capital Markets, Inc., as Lead
Arranger.
-42-
<PAGE>
Commitment
$50,000,000
MELLON BANK, N.A., as Bank
By____________________________________
Name:
Title:
This is a signature page to the 364-Day Credit Agreement, dated as of September
15, 1999, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, The First National Bank of Chicago, as Administrative Agent, Citibank,
N.A., as Documentation Agent, and Banc One Capital Markets, Inc., as Lead
Arranger.
-43-
<PAGE>
Commitment
$25,000,000
UNION BANK OF CALIFORNIA, N.A.,
as Bank
By____________________________________
Name:
Title:
This is a signature page to the 364-Day Credit Agreement, dated as of September
15, 1999, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, The First National Bank of Chicago, as Administrative Agent, Citibank,
N.A., as Documentation Agent, and Banc One Capital Markets, Inc., as Lead
Arranger.
-44-
<PAGE>
Commitment
$25,000,000
TORONTO DOMINION (TEXAS), INC.,
as Bank
By____________________________________
Name:
Title:
This is a signature page to the 364-Day Credit Agreement, dated as of September
15, 1999, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, The First National Bank of Chicago, as Administrative Agent, Citibank,
N.A., as Documentation Agent, and Banc One Capital Markets, Inc., as Lead
Arranger.
-45-
<PAGE>
Commitment
$17,500,000
COMMERCE BANK, N.A., as Bank
By____________________________________
Name:
Title:
This is a signature page to the 364-Day Credit Agreement, dated as of September
15, 1999, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, The First National Bank of Chicago, as Administrative Agent, Citibank,
N.A., as Documentation Agent, and Banc One Capital Markets, Inc., as Lead
Arranger.
-46-
<PAGE>
Commitment
$12,500,000
BARCLAYS BANK PLC, as Bank
By____________________________________
Name:
Title:
This is a signature page to the 364-Day Credit Agreement, dated as of September
15, 1999, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, The First National Bank of Chicago, as Administrative Agent, Citibank,
N.A., as Documentation Agent, and Banc One Capital Markets, Inc., as Lead
Arranger.
-47-
<PAGE>
SCHEDULE I
364-Day Credit Agreement, dated as of September 15, 1999, among PECO Energy
Company, as Borrower, the banks named therein, as Banks, The First National Bank
of Chicago, as Administrative Agent, Citibank, N.A., as Documentation Agent, and
Banc One Capital Markets, Inc., as Lead Arranger.
<TABLE>
<CAPTION>
Domestic Eurodollar
Name of Bank Lending Office Lending Office
------------ -------------- --------------
<S> <C> <C>
The First National Bank of One First National Plaza Same
Chicago Mail Suite 0634, 1FNP-10
Chicago, IL 60670
Attn: Gwendolyn Watson
Phone: (312) 732-4509
Fax: (312) 732-4840
The Bank of New York One Wall Street, 19th Floor Same
Energy Industries Division
New York, NY 10286
Attn: Theresa A. Foran
Phone: (212) 635-7921
Fax: (212) 635-7923
Citibank, N.A. 399 Park Avenue Same
4th Floor, Zone 20
New York, NY 10043
Attn: Tracy Smith
Phone: (302) 894-6098
Fax: (302) 894-6120
Credit Suisse First Boston 11 Madison Avenue Same
20th Floor
New York, NY 10010-3629
Attn: Jenaro Sarasola
Phone: (212) 322-1384
Fax: (212) 325-0593/0576
First Union National Bank 201 South College Street Same
24th Floor
Charlotte, NC 28288-1183
Attn: Holly Benson
Phone: (704) 383-0296
Fax: (704) 383-7999
Mellon Bank, N.A. Three Mellon Bank Center Room Same
2303 (Loan Administration)
Pittsburgh, PA 15259-0003
Attn: Cathy Capp
Phone: (412) 234-1870
Fax: (412) 236-2027, 2028
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Union Bank of Energy Capital Services Same
California, N.A. 445 S. Figueroa Street
20th Floor
Los Angeles, CA 90071
Attn: Yolande C. Hollis
Phone: (213) 236-6199
Fax: (213) 236-4096
Commerce Bank, N.A. 2005 Market Street Same
One Commerce Square
2nd Floor
Philadelphia, PA 19103
Attn: Kim Dunda
AIM #200-01-35
Phone: (888) 751-9000 Ext. 8570
Fax: (856) 642-7704
Toronto Dominion (Texas) Inc. 909 Fannin, Suite 1700 Same
Houston, TX 77010
Attn: Herbert Simien
Phone: (713) 653-8242
Fax: (713) 951-9921
Barclays Bank PLC 222 Broadway Same
New York, NY 10038
Attn: Marsha L. Hamlette
Phone: (212) 412-4081
Fax: (212) 412-5306
Bank of America, N.A. 6610 Rockledge Drive Same
6th Floor
Bethesda, MD 20817
Attn: Paula Kramp
Phone: (301) 571-0713
Fax: (301) 571-0719
</TABLE>
-2-
<PAGE>
EXHIBIT A
FORM OF NOTE
$____________________ Dated: [ ], 1999
FOR VALUE RECEIVED, the undersigned, PECO Energy Company, a
Pennsylvania corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order
of (the "Lender") for the account of its Applicable Lending Office (such term
and other capitalized terms herein being used as defined in the Credit Agreement
referred to below) on [insert then effective Termination Date] the principal sum
of U.S.$[amount of the Lender's Commitment in figures] or, if less, the
aggregate principal amount of the Advances made by the Lender to the Borrower
pursuant to the Credit Agreement outstanding on [insert then effective
Termination Date].
The Borrower promises to pay interest on the unpaid principal amount of
each Advance from the date of such Advance until such principal amount is paid
in full, at such interest rates, and payable at such times, as are specified in
the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to The First National Bank of Chicago, as Administrative
Agent, at One First National Plaza, Chicago, Illinois 60670, in same day funds.
Each Advance made by the Lender to the Borrower pursuant to the Credit
Agreement, and all payments made on account of principal thereof, shall be
recorded by the Lender and, prior to any transfer hereof, endorsed on the grid
attached hereto which is part of this Promissory Note.
This Promissory Note is one of the Notes referred to in, and is
entitled to the benefits of, the 364-Day Credit Agreement, dated as of September
15, 1999 among PECO Energy Company, as Borrower, the banks named therein, as
Banks, The First National Bank of Chicago, as Administrative Agent, Citibank,
N.A., as Documentation Agent, and Banc One Capital Markets, Inc., as Lead
Arranger (as amended, modified or supplemented from time to time, the "Credit
Agreement"). The Credit Agreement, among other things, (i) provides for the
making of Advances by the Lender to the Borrower from time to time in an
aggregate amount not to exceed at any time outstanding the U.S. dollar amount
first above mentioned, the indebtedness of the Borrower resulting from each such
Advance being evidenced by this Promissory Note, and (ii) contains provisions
for acceleration of the maturity hereof upon the happening of certain stated
events and also for prepayments on account of principal hereof prior to the
maturity hereof upon the terms and conditions therein specified.
The Borrower hereby waives presentment, demand, protest and notice of
any kind. No failure to exercise, and no delay in exercising, any rights
hereunder on the part of the holder hereof shall operate as a waiver of such
rights.
<PAGE>
THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.
PECO ENERGY COMPANY
By_______________________________
Name:
Title:
-2-
<PAGE>
ADVANCES, MATURITIES, AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
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Amount of
Maturity Principal Unpaid
Amount of of Paid or Principal Notation
Date Advance Advance Prepaid Balance Made By
<S> <C> <C> <C> <C> <C>
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- - ---------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT B
NOTICE OF A BORROWING
The First National Bank of Chicago, as Administrative Agent for the Lenders
parties to the Credit Agreement referred to below
One First National Plaza
Chicago, Illinois 60670
[Date]
Attention: Utilities Department
North American Finance Group
Ladies and Gentlemen:
The undersigned, PECO Energy Company, refers to the 364-Day Credit
Agreement, dated as of September 15, 1999, among PECO Energy Company, as
Borrower, the banks named therein, as Banks, The First National Bank of Chicago,
as Administrative Agent, Citibank, N.A., as Documentation Agent, and Banc One
Capital Markets, Inc., as Lead Arranger (as amended, modified or supplemented
from time to time, the "Credit Agreement"), and hereby gives you notice,
irrevocably, pursuant to Section 2.02 of the Credit Agreement that the
undersigned hereby requests a Borrowing under the Credit Agreement, and in that
connection sets forth below the information relating to such Borrowing (the
"Proposed Borrowing") as required by Section 2.02(a) of the Credit Agreement:
(i) The Business Day of the Proposed Borrowing is _____, 19/20__.
(ii) The Type of Advances to be made in connection with the
Proposed Borrowing is [Base Rate Advances] [Eurodollar Rate Advances].
(iii) The aggregate amount of the Proposed Borrowing is $_______.
(iv) The Interest Period for each Advance made as part of the
Proposed Borrowing is [____days] [___ month[s]].
The undersigned hereby certifies that the following statements are true
on the date hereof, and will be true on the date of the Proposed Borrowing:
(A) the representations and warranties contained in Section 4.01
are correct, before and after giving effect to the Proposed Borrowing
and to the application of the proceeds therefrom, as though made on and
as of such date; and
(B) no event has occurred and is continuing, or would result from
such Proposed Borrowing or from the application of the proceeds
therefrom, that
<PAGE>
constitutes an Event of Default or would constitute an Event of Default
but for the requirement that notice be given or time elapse or both.
Very truly yours,
PECO ENERGY COMPANY
By__________________________________________
Name:
Title:
-2-
<PAGE>
EXHIBIT C
ASSIGNMENT AND ACCEPTANCE
Dated _________, 19/20__
Reference is made to the 364-Day Credit Agreement, dated as of
September 15, 1999 among PECO Energy Company, as Borrower, the banks named
therein, as Banks, The First National Bank of Chicago, as Administrative Agent,
Citibank, N.A., as Documentation Agent, and Banc One Capital Markets, Inc., as
Lead Arranger (as amended, modified or supplemented from time to time, the
"Credit Agreement"). Terms defined in the Credit Agreement are used herein with
the same meaning.
_____________ (the "Assignor") and _____________ (the "Assignee") agree
as follows:
1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, that interest in and to
all of the Assignor's rights and obligations under the Credit Agreement as of
the date hereof which represents the percentage interest specified on Schedule 1
of all outstanding rights and obligations under the Credit Agreement, including,
without limitation, such interest in the Assignor's Commitment, the Advances
owing to the Assignor, and the Note[s] held by the Assignor. After giving effect
to such sale and assignment, the Assignee's Commitment and the amount of the
Advances owing to the Assignee will be as set forth in Section 2 of Schedule 1.
2. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Credit Agreement
or the execution, legality, validity, enforceability, genuineness, sufficiency
or value of the Credit Agreement or any other instrument or document furnished
pursuant thereto; (iii) 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 the
Credit Agreement or any other instrument or document furnished pursuant thereto;
and (iv) attaches the Note[s] referred to in paragraph 1 above and requests that
the Administrative Agent exchange such Note[s] for a new Note payable to the
order of the Assignee in an amount equal to the Commitment assumed by the
Assignee pursuant hereto or new Notes payable to the order of the Assignee in an
amount equal to the Commitment assumed by the Assignee pursuant hereto and the
Assignor in an amount equal to the Commitment retained by the Assignor under the
Credit Agreement, respectively as specified on Schedule 1 hereto.
3. The Assignee (i) confirms that it has received a copy of the Credit
Agreement, together with copies of the financial statements referred to in
Section 4.01 thereof and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Assignment and Acceptance; (ii) agrees that it will, independently and without
reliance upon the Administrative Agent, the Assignor 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 Credit Agreement; (iii) confirms that it is an Eligible Assignee; (iv)
appoints and authorizes the Administrative Agent to take such action as agent on
its behalf and to exercise such powers under the Credit Agreement as are
delegated to the Administrative Agent by the terms thereof, together with such
powers as are reasonably incidental thereto; (v) agrees that it will perform in
accordance with their terms all of the obligations which by the terms of the
Credit Agreement are required to be performed by it as a Lender; (vi) none of
the consideration used to make the purchase being made by the Assignee hereunder
are "plan assets" as defined under ERISA and the rights and interests of the
<PAGE>
Assignee in and under the Credit Agreement will not be "plan assets" under ERISA
[and] (vii) specifies as its, Domestic Lending Office (and address for notices)
and Eurodollar Lending Office the offices set forth beneath its name on the
signature pages hereof [and (viii) attaches the forms prescribed by the Internal
Revenue Service of the United States certifying that it is exempt from United
States withholding taxes with respect to all payments to be made to the Assignee
under the Credit Agreement and the Notes].(1)
4. Following the execution of this Assignment and Acceptance by the
Assignor and the Assignee, it will be delivered to the Administrative Agent for
acceptance and recording by the Administrative Agent. The effective date of this
Assignment and Acceptance shall be the date of acceptance thereof by the
Administrative Agent, unless otherwise specified on Schedule 1 hereto (the
"Effective Date").
5. Upon such acceptance and recording by the Administrative Agent, as
of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement
and, to the extent provided in this Assignment and Acceptance, have the rights
and obligations of a Lender thereunder and (ii) the Assignor shall, to the
extent provided in this Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Credit Agreement.
6. Upon such acceptance and recording by the Administrative Agent, from
and after the Effective Date, the Administrative Agent shall make all payments
under the Credit Agreement and the Notes in respect of the interest assigned
hereby (including, without limitation, all payments of principal, interest and
commitment fees with respect thereto) to the Assignee. The Assignor and Assignee
shall make all appropriate adjustments in payments under the Credit Agreement
and the Notes for periods prior to the Effective Date directly between
themselves.
7. THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.
- - --------------
(1) If the Assignee is organized under the laws of a jurisdiction outside the
United States.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed by their respective officers thereunto duly
authorized, as of the date first above written, such execution being made on
Schedule 1 hereto.
[NAME OF ASSIGNOR]
By________________________________
Name:
Title:
[NAME OF ASSIGNEE]
By________________________________
Name:
Title:
Domestic Lending Office (and
address for notices):
[Address]
Eurodollar Lending Office:
[Address]
Consented to this ___ day
of _________________, 19/20
PECO ENERGY COMPANY
By_________________________
Name:
Title:
Consented to and Accepted this __ day
of ____________, 19/20
[NAME OF ADMINISTRATIVE AGENT]
By_________________________
Name:
Title:
-3-
<PAGE>
Schedule 1
to
Assignment and Acceptance
Dated _______, 19/20__
<TABLE>
<CAPTION>
<S> <C>
Section 1.
Percentage Interest: __%
Section 2.
Assignee's Commitment: $___________
Aggregate Outstanding Principal
Amount of Advances
owing to the Assignee: $___________
A Note payable to the
order of the Assignee
Dated _______, 19/20__
Principal amount: $___________
A Note payable to the
order of the Assignor
Dated _______, 19/20__
Principal amount: $___________
Section 3.
Effective Date(2): _______, 19/20__
</TABLE>
- - ---------------
(2) This date should be no earlier than the date of acceptance by the
Administrative Agent.
<PAGE>
EXHIBIT D
FORM OF OPINION OF BALLARD SPAHR
ANDREWS & INGERSOLL
_______, 19/20__
To each of the Banks, the Administrative Agent, and the Lead
Arranger party to the 364-Day Credit Agreement, dated as of
September 15, 1999, among PECO Energy Company, as Borrower, the
banks named therein, as Banks, The First National Bank of
Chicago, as Administrative Agent, Citibank, N.A., as
Documentation Agent, and Banc One Capital Markets, Inc., as
Lead Arranger
Re: PECO Energy Company
Ladies and Gentlemen:
This opinion is furnished to you pursuant to Section 3.01(a)(vi) of the
364-Day Credit Agreement, dated as of September 15, 1999, among PECO Energy
Company, as Borrower, the banks named therein, as Banks, The First National Bank
of Chicago, as Administrative Agent, Citibank, N.A., as Documentation Agent, and
Banc One Capital Markets Inc, as Lead Arranger (as amended, modified or
supplemented from time to time, the "Credit Agreement"). Unless otherwise
specified, terms defined in the Credit Agreement are used herein as therein
defined.
We have acted as special counsel for the Borrower in connection with
the preparation, execution and delivery of the Credit Agreement. In that
capacity we have examined the following:
(i) The Credit Agreement and the Notes;
(ii) The documents furnished by the Borrower pursuant to Section
3.01 of the Credit Agreement;
(iii) The Amended and Restated Articles of Incorporation of the
Borrower and all amendments thereto (the "Charter");
(iv) The by-laws of the Borrower and all amendments thereto (the
"By-laws"); and
(v) A certificate of the Secretary of State of the Commonwealth
of Pennsylvania, dated , 1999, attesting to the continued subsistence
of the Borrower in Pennsylvania.
We have also examined the originals, or copies certified to our
satisfaction, of such other corporate records of the Borrower, certificates of
public officials and of officers of the Borrower, and agreements, instruments
and documents, as we have deemed necessary as a basis for the opinions
hereinafter expressed. We have assumed the legal capacity and competence of
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity to original documents
of documents submitted to us as certified, conformed or photostatic copies. We
<PAGE>
have assumed that the Agents and the Banks have duly executed and delivered,
with all necessary power and authority (corporate and otherwise), the Credit
Agreement.
When an opinion or confirmation is given to our knowledge or with
reference to matters of which we are aware or which are known to us, or with
another similar qualification, the relevant knowledge or awareness is limited to
the actual knowledge or awareness of the lawyer who is the current primary
contact for the Borrower and the individual lawyers in this firm who have
participated in the specific transaction to which this opinion relates and
without any special or additional investigation undertaken for the purposes of
this opinion, except as otherwise noted herein. Based upon the foregoing and
subject to the exceptions, limitations and qualifications set forth herein, we
are of the following opinion:
1. The Borrower is a corporation duly incorporated and validly
subsisting under the laws of the Commonwealth of Pennsylvania.
2. The execution, delivery and performance by the Borrower of the
Credit Agreement and the Notes are within the Borrower's corporate
powers, have been duly authorized by all necessary corporate action, do
not contravene (i) the Charter or the By-laws or (ii) any law of the
United States or the Commonwealth of Pennsylvania (including, without
limitation, any order, rule or regulation of the PPUC or (iii) to the
best of our knowledge, any agreement or instrument to which the
Borrower is a party or by which it is bound, and do not result in or
require the creation of any lien, security interest or other charge or
encumbrance upon or with respect to any of its properties.
3. No authorization, approval or other action by, and no notice
to or filing with, any governmental authority or regulatory body of the
United States or the Commonwealth of Pennsylvania is required for the
due execution, delivery and performance by the Borrower of the Credit
Agreement or the Notes except for the filing of the FERC Application
with, and the final approval of, and the FERC Authorization issued by,
FERC, which filing has been duly made and which final approval and FERC
Authorization have been duly obtained; such FERC Authorization is in
full force and effect and is final; and the action of FERC approving
the FERC Application is no longer subject to appeal.
4. The Credit Agreement and the Notes have been duly executed and
delivered by the Borrower, and the Credit Agreement and the Notes are
the legal, valid and binding obligations of the Borrower enforceable
against the Borrower in accordance with their respective terms.
5. The Borrower (i) is exempt from the provisions of the Public
Utility Holding Company Act of 1935, as amended, other than Section
9(a)(2) thereof, pursuant to Section 3(a)(2) thereof, and (ii) 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.
6. We confirm to you that to our knowledge, after inquiry of each
lawyer who is the current primary contact for the Borrower or who has
devoted substantive attention to matters on behalf of the Borrower
during the preceding twelve months and who is still currently employed
by or a member of this firm, except as disclosed in the Borrower's
Annual Report on Form 10-K for the year ended December 31, 1998 and the
Borrower's Quarterly Report on Form 10-Q for the quarter ended June 30,
1999, no litigation or governmental proceeding is pending or threatened
in writing against the Borrower (i) with respect to the Credit
Agreement or the Notes, or (ii) which is likely to have a material
-2-
<PAGE>
adverse effect upon the financial condition, business, properties or
prospects of the Borrower and its subsidiaries taken as a whole.
We draw to your attention the existence of the following two
Pennsylvania statutes in connection with the fact that the Advances bear
floating rates of interest:
(i) Section 911 of the Pennsylvania "Crime Code," 18 Pa. C.S.A.
ss.911, enacted by the Act of December 6, 1972, P.L. 1482. Section 911
of the Crime Code bears a close resemblance to certain of the
provisions of the Federal Racketeer Influenced and Corrupt
Organizations Act of 1970, 18 U.S.C. ss.ss.1961-1968, commonly known as
RICO, and is referred to hereinafter as the "Pennsylvania RICO Act."
The Pennsylvania RICO Act provides, among other things, that it is a
criminal offense, punishable as a felony, to "use or invest, directly
or indirectly ... in the acquisition of any interest in, or the
establishment or operation of, any enterprise" any income collected in
full or partial satisfaction of a loan made "at a rate of interest
exceeding 25% per annum... ."
(ii) The Act of December 29, 1982, P.L. 1671, 18 Pa.
C.S.A.ss.4806.1 et seq. (superseded volume) (the "Criminal Usury
Statute"). The Criminal Usury Statute provides, among other things,
that it is a criminal offense, punishable as a felony, to engage in,
"charging, taking or receiving any money ... on the loan ... of any
money ... at a rate exceeding thirty-six percent per annum... ."
The Criminal Usury Statute may have been repealed, but the manner in
which the repeal was enacted leaves the matter subject to uncertainty.
Both the Pennsylvania RICO Act and the Criminal Usury Statute appear to
be intended by the legislature to apply only to racketeering and loan sharking
type activities, and not to the type of commercial loan transaction evidenced by
the Loan Document. Nevertheless, in view of the plain language of the
Pennsylvania courts, we cannot say that the ultimate resolution of this issue is
free from doubt.
The foregoing opinions are subject to the following exceptions,
limitations and qualifications:
(a) Our opinion is subject to the effect of applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, fraudulent transfer or similar laws affecting creditors'
rights and remedies generally, general principles of equity, including
without limitation, concepts of materiality, reasonableness, good faith
and fair dealing (regardless of whether such enforceability is
considered in a proceeding in equity or at law); and limitations on
enforceability of rights to indemnification by federal or state
securities laws or regulations or by public policy.
(b) We express no opinion as to the application or requirements
of the Pennsylvania Securities Act or federal or state securities,
patent, trademark, copyright, antitrust and unfair competition, pension
or employee benefit, labor, environmental health and safety or tax laws
in respect of the transactions contemplated by or referred to in the
Credit Agreement.
(c) We express no opinion as to the validity or enforceability of
any provision of the Credit Agreement or the Notes which (i) permits
the Lenders to increase the rate of interest in the event of
delinquency or default if such increase would be deemed a penalty under
applicable law; (ii) purports to be a waiver by Borrower of any right
or benefit except to the extent permitted by applicable law; (iii)
-3-
<PAGE>
purports to require that waivers must be in writing to the extent that
an oral agreement or implied agreement by trade practice or course of
conduct modifying provisions of the Credit Agreement or the Notes has
been made; or (iv) purports to exculpate any party from its own
negligent acts.
We express no opinion as to the law of any jurisdiction other than the
law of the Commonwealth of Pennsylvania and the federal law of the United
States.
The foregoing opinion is solely for your benefit in connection with the
consummation of the transaction described herein and may not be used or relied
upon by you or any other Person without our express written consent for any
other purpose other than (i) any Eligible Assignee that may become a Lender
under the Credit Agreement after the date hereof and (ii) Reed Smith Shaw &
McClay LLP, which may rely upon this opinion in rendering their opinion
furnished pursuant to Article III of the Credit Agreement. The opinions given
herein are as of the date hereof, and we assume no obligation to update or
supplement this opinion to reflect facts or circumstances which may hereafter
come to our attention or any changes in laws which may hereafter occur.
Very truly yours,
BALLARD SPAHR
ANDREWS & INGERSOLL
-4-
<PAGE>
EXHIBIT E
FORM OF OPINION OF REED SMITH SHAW & McCLAY LLP
__________, 1999
To each of the Banks, the Administrative Agent, and the Lead
Arranger party to the 364-Day Credit Agreement, dated as of
September 15, 1999 among PECO Energy Company, as Borrower, the
banks named therein, as Banks, The First National Bank of
Chicago, as Administrative Agent, Citibank, N.A., as
Documentation Agent, and Banc One Capital Markets, Inc., as
Lead Arranger
Re: PECO Energy Company
Ladies and Gentlemen:
We have acted as counsel to The First National Bank of Chicago,
individually and as Administrative Agent, in connection with the preparation,
execution and delivery of the 364-Day Credit Agreement, dated as of September
15, 1999, among PECO Energy Company, as Borrower, the banks named therein, as
Banks, The First National Bank of Chicago, as Administrative Agent, Citibank,
N.A., as Documentation Agent, and Banc One Capital Markets, Inc., as Lead
Arranger (as amended, modified or supplemented from time to time, the "Credit
Agreement"). We are delivering this opinion pursuant to Section 3.01(a)(vii) of
the Credit Agreement. Unless otherwise defined herein, terms defined in the
Credit Agreement are used herein as therein defined.
In that connection, we have examined (i) counterparts of the Credit
Agreement, executed by the Borrower, the Banks, the Administrative Agent and the
Lead Arranger, (ii) the Notes, executed by the Borrower and (iii) the other
documents listed on Exhibit A hereto, including the opinion of Ballard Spahr
Andrews & Ingersoll, counsel to the Borrower (the "Opinion"), furnished to the
Administrative Agent pursuant to Section 3.01(a) of the Credit Agreement.
In our examination of the documents referred to above, we have assumed
the authenticity of all such documents submitted to us as originals, the
genuineness of all signatures, the due authority of the parties executing such
documents and the conformity to the originals of all such documents submitted to
us as copies. We have also assumed that the Banks, the Administrative Agent and
the Lead Arranger have duly executed and delivered, with all necessary power and
authority (corporate and otherwise), the Credit Agreement. As to matters of
fact, we have relied solely upon the documents we have examined.
Based upon the foregoing, we are of the opinion that, while we have not
independently considered the matters covered by the Opinion to the extent
necessary to enable us to express the conclusions stated therein, each of the
Opinion and the other documents listed in Exhibit A hereto are substantially
responsive to the corresponding requirements set forth in Section 3.01 of the
Credit Agreement pursuant to which the same have been delivered.
Please note that Richard H. Glanton, Esquire, a partner in this firm,
is a director of PECO Energy Company. We have rendered and continue to render
legal services to PECO Energy Company.
The foregoing opinion is solely for your benefit and may not be relied
upon by any other Person other than any Person that may become a lender under
the Credit Agreement after the date hereof.
Very truly yours,
NJS:RKM
<PAGE>
EXHIBIT F
FORM OF ANNUAL AND QUARTERLY COMPLIANCE CERTIFICATE
______________________, 19/20__
Pursuant to the 364-Day Credit Agreement, dated as of September 15,
1999, among PECO Energy Company, as Borrower, the banks named therein, as Banks,
The First National Bank of Chicago, as Administrative Agent, Citibank, N.A., as
Documentation Agent, and Banc One Capital Markets, Inc., as Lead Arranger (as
amended, modified or supplemented from time to time, the "Credit Agreement"),
the undersigned, being ______________________ of the Borrower, hereby certifies
on behalf of the Borrower as follows:
1. Delivered herewith are the financial statements prepared pursuant to
Section 5.01(b)(ii) and Section 5.01(b)(iii) of the Credit Agreement, for the
fiscal ________ ended ___________, 19/20__. All such financial statements comply
with the applicable requirements of the Credit Agreement.
2. Schedule I hereto sets forth in reasonable detail the information
and calculations necessary to establish compliance with the provisions of
Section 5.02(c) of the Credit Agreement as of the end of the fiscal period
referred to in paragraph 1 above.
3. (Check one and only one:)
__ No Event of Default, or event which with notice or lapse of time or
both would constitute an Event of Default, has occurred and is continuing or
exists.
__ An Event of Default, or event which with notice or lapse of time or
both would constitute an Event of Default, has occurred and is continuing or
exists, and the document(s) attached hereto as Schedule II specify in detail the
nature and period of existence of such Event of Default or such other event as
well as any and all actions with respect thereto taken or contemplated to be
taken by the Borrower.
4. The undersigned has personally reviewed the Credit Agreement, and
this certificate was based on an examination made by or under the supervision of
the undersigned sufficient to assure that this certificate is accurate.
5. Capitalized terms used in this certificate and not otherwise defined
shall have the meanings given in the Credit Agreement.
PECO ENERGY COMPANY
By_______________________________________
Name:____________________________________
Title:___________________________________
Date:__________________
<PAGE>
EXHIBIT G
FORM OF ADDITIONAL LENDER SUPPLEMENT
THIS SUPPLEMENT, dated as of ____________, 19/20_____, by the
undersigned.
Recitals:
A. This Supplement is being executed and delivered in accordance with
Section 2.17 of the 364-Day Credit Agreement, dated as of September 15, 1999,
among PECO Energy Company, as Borrower, the banks named therein, as Banks, The
First National Bank of Chicago, as Administrative Agent, Citibank, N.A., as
Documentation Agent, and Banc One Capital Markets, Inc., as Lead Arranger (as
amended, modified or supplemented from time to time, the "Credit Agreement").
Capitalized terms used herein without definition have the meanings specified in
the Credit Agreement.
B. The undersigned wishes to become a Lender party to the Credit
Agreement, as an Additional Lender.
NOW, THEREFORE, the undersigned, intending to be legally bound, hereby
agrees as follows:
1. The undersigned hereby becomes party to the Credit Agreement as
Lender thereunder, and shall be subject to and bound by all of the provisions
thereof.
2. The Commitment of the undersigned shall be $_____________.
3. The undersigned (i) confirms that it has received a copy of the
Credit Agreement, together with copies of the financial statements referred to
in Section 4.01 thereof and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
this Additional Lender Supplement; (ii) agrees 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
the Credit Agreement; (iii) confirms that it is an Eligible Assignee; (iv)
appoints and authorizes the Administrative Agent to take such action as agent on
its behalf and to exercise such powers under the Credit Agreement as are
delegated to the Administrative Agent by the terms thereof, together with such
powers as are reasonably incidental thereto; (v) agrees that it will perform in
accordance with their terms all of the obligations which by the terms of the
Credit Agreement are required to be performed by it as a Lender; (vi) none of
the consideration used to make the purchase being made by the undersigned
hereunder are "plan assets" as defined under ERISA and the rights and interests
of the undersigned in and under the Credit Agreement will not be "plan assets"
under ERISA [and] (vii) specifies as its Domestic Lending Office (and address
for notices) and Eurodollar Lending Office the offices set forth beneath its
name on the signature pages hereof [and (viii) attaches the forms prescribed by
the Internal Revenue Service of the United States certifying that it is exempt
from United States withholding taxes with respect to all payments to be made to
the undersigned under the Credit Agreement and the Notes].(3)
- - ---------------------
(3) If the undersigned is organized under the laws of a jurisdiction outside the
United States.
<PAGE>
4. This Supplement shall be effective upon the date of acceptance
thereof by the Administrative Agent, unless otherwise specified under the
undersigned's name signature below.
5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.
IN WITNESS WHEREOF, the undersigned has caused this Supplement to be
executed and delivered by a duly authorized officer on the date first above
written.
[NAME OF ADDITIONAL LENDER]
By:_________________________________
Name:_______________________________
Title:______________________________
Domestic Lending Office (and
address for notices): [Address]
Eurodollar Lending Office: [Address]
Effective Date(4):________, 19/20__
CONSENTED TO:
[NAME OF ADMINISTRATIVE AGENT]
By:_________________________________
Name:_______________________________
Title:______________________________
CONSENTED TO:
PECO ENERGY COMPANY
By:_________________________________
Name:_______________________________
Title:______________________________
- - -----------------
(4) This date should be no earlier than the date of acceptance by the
Administrative Agent.
<PAGE>
================================================================================
AMENDED AND RESTATED
TRUST AGREEMENT
OF
PECO ENERGY CAPITAL TRUST II
PECO ENERGY CAPITAL, L.P.,
as Grantor
and
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION,
as Trustee
Dated as of June 6, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
DEFINITIONS
ARTICLE II
CONTINUATION OF TRUST
<S> <C> <C>
SECTION 2.01. Continuation of Trust............................................................................ 4
SECTION 2.02. Trust Account.................................................................................... 5
SECTION 2.03. Title to Trust Property.......................................................................... 5
SECTION 2.04. Situs of Trust................................................................................... 5
SECTION 2.05. Powers of Trustee Limited........................................................................ 5
SECTION 2.06. Liability of Holders of Receipts................................................................. 5
ARTICLE III
FORM OF RECEIPTS, EXECUTION AND
DELIVERY, TRANSFER AND SURRENDER OF RECEIPTS
SECTION 3.01. Form and Transferability of Receipts............................................................. 5
SECTION 3.02. Issuance of Receipts............................................................................. 6
SECTION 3.03. Registration, Transfer and Exchange of Receipts.................................................. 6
SECTION 3.04. Lost or Stolen Receipts, Etc..................................................................... 8
SECTION 3.05. Cancellation and Destruction of
Surrendered Receipts............................................................................. 8
ARTICLE IV
DISTRIBUTIONS AND OTHER RIGHTS OF HOLDERS OF RECEIPTS
SECTION 4.01. Distributions of Monthly Distributions
on Preferred Securities.......................................................................... 10
SECTION 4.02. Redemptions of Preferred Securities.............................................................. 10
SECTION 4.03. Distributions in Liquidation of Grantor.......................................................... 11
SECTION 4.04. Fixing of Record Date for Holders of Receipts.................................................... 12
SECTION 4.05. Payment of Distributions......................................................................... 12
SECTION 4.06. Special Representative and Voting Rights......................................................... 12
SECTION 4.07. Changes Affecting Preferred Securities
nd Reclassifications, Recapitalizations, Etc..................................................... 13
</TABLE>
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<TABLE>
<CAPTION>
Page
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ARTICLE V
THE GUARANTEE
<S> <C> <C>
SECTION 5.01. The Guarantee.................................................................................... 13
ARTICLE VI
THE TRUSTEE
SECTION 6.01. Eligibility...................................................................................... 14
SECTION 6.02. Obligations of the Trustee....................................................................... 14
SECTION 6.03. Resignation and Removal of the
Trustee; Appointment of Successor Trustee........................................................ 16
SECTION 6.04. Corporate Notices and Reports.................................................................... 17
SECTION 6.05. Status of Trust.................................................................................. 17
SECTION 6.06. Appointment of Grantor to File on Behalf
of Trust..........................................................................................18
SECTION 6.07. Indemnification by the General Partner........................................................... 18
SECTION 6.08. Fees, Charges and Expenses....................................................................... 18
SECTION 6.09. Appointment of Co-Trustee or Separate Trustee.................................................... 19
ARTICLE VII
AMENDMENT AND TERMINATION
SECTION 7.01. Supplemental Trust Agreement..................................................................... 20
SECTION 7.02. Termination...................................................................................... 21
ARTICLE VIII
MERGER, CONSOLIDATION, ETC. OF GRANTOR
SECTION 8.01. Limitation on Permitted Merger
Consolidation, Etc. of Grantor................................................................... 21
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Counterparts..................................................................................... 21
SECTION 9.02. Exclusive Benefits of Parties.................................................................... 22
SECTION 9.03. Invalidity of Provisions......................................................................... 22
SECTION 9.04. Notices.......................................................................................... 22
SECTION 9.05. Trustee's Agents................................................................................. 23
SECTION 9.06. Holders of Receipts Are Parties.................................................................. 23
SECTION 9.07. Governing Law.................................................................................... 23
SECTION 9.08. Headings......................................................................................... 23
SECTION 9.09. Receipts Non-Assessable and Fully Paid........................................................... 23
SECTION 9.10. No Preemptive Rights............................................................................. 23
</TABLE>
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<PAGE>
AMENDED AND RESTATED
TRUST AGREEMENT
AMENDED AND RESTATED TRUST AGREEMENT, dated as of June 6, 1997
(as amended from time to time, this "Trust Agreement") is among PECO ENERGY
CAPITAL, L.P., a Delaware limited partnership, as grantor (the "Grantor"), FIRST
UNION TRUST COMPANY, NATIONAL ASSOCIATION, as trustee (the "Trustee"), and
joined in by PECO ENERGY CAPITAL CORP., a Delaware corporation and the general
partner of the Grantor, not as a grantor, trustee or beneficiary but solely for
the purposes stated herein (the "General Partner").
W I T N E S S E T H:
WHEREAS, the Trustee and the Grantor established the Trust (as
defined below) under the Delaware Business Trust Act (12 Del. C. ss. 3801, et
seq.) (as amended from time to time, the "Business Trust Act"), pursuant to a
Trust Agreement, dated as of May 20, 1997 (the "Original Trust Agreement"), and
a Certificate of Trust filed with the Secretary of State of the State of
Delaware on May 20, 1997; and
WHEREAS, the Trustee and the Grantor hereby desire to continue
the Trust and to amend and restate in its entirety the Original Trust Agreement;
and
WHEREAS, the Trust proposes to issue Receipts each
representing a 8% Cumulative Monthly Income Preferred Security, Series C,
representing a limited partner interest of the Grantor (the "Preferred
Securities"); and
WHEREAS, interests in the Trust are to be evidenced by Receipt
certificates issued by the Trustee in accordance with this Trust Agreement,
which are to be delivered to the Holders;
NOW, THEREFORE, in consideration of the premises contained
herein and intending to be legally bound hereby, it is agreed by and among the
parties hereto to amend and restate in its entirety the Original Trust Agreement
as follows:
ARTICLE I
DEFINITIONS
The following definitions shall apply to the respective terms
(in the singular and plural forms of such terms) used in this Trust Agreement
and the Receipts:
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"Affiliate" of any specified Person means any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person, directly or indirectly whether through the ownership of voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Business Day" means any day other than a day on which banking
institutions in the City of New York or the State of Delaware are closed for
business.
"Business Trust Act" shall have the meaning set forth in the
recitals to this Trust Agreement.
"Commission" shall have the meaning set forth in Section 6.06
of this Trust Agreement.
"Corporate Office" means the office of the Trustee at which at
any particular time its business in respect of matters governed by this Trust
Agreement shall be administered, which at the date of this Trust Agreement is
located at 1 Rodney Square, 920 King Street, First Floor, Wilmington, Delaware
19801.
"DTC" means the Depositary Trust Company or any successor
thereto.
"Exchange" shall have the meaning set forth in Section 6.06 to
this Trust Agreement.
"Exchange Act" shall have the meaning set forth in Section
6.06 to this Trust Agreement.
"Exchange Act Reports" shall have the meaning set forth in
Section 6.06 to this Trust Agreement.
"General Partner" means PECO Energy Capital Corp., a
Delaware corporation, as general partner of the Grantor, and any
successor thereto pursuant to the terms of the Partnership Agreement.
"Grantor" means PECO Energy Capital, L.P., a Delaware
limited partnership, and its successors.
"Guarantee" means the Payment and Guarantee Agreement dated as
of June 6, 1997, as amended from time to time with respect to the Preferred
Securities delivered by PECO Energy to the Grantor.
2
<PAGE>
"Holder" means the Person in whose name a certificate
representing one or more Receipts is registered on the Register maintained by
the Registrar for such purposes.
"Partnership Agreement" means the Amended and Restated Limited
Partnership Agreement of the Grantor dated as of July 25, 1994, as amended from
time to time, together with any Action (as defined in the Partnership Agreement)
established by the General Partner.
"Paying Agent" means the Person from time to time acting as
Paying Agent as provided in Section 4.05 of this Trust Agreement.
"PECO Energy" means PECO Energy Company, a Pennsylvania
corporation.
"Person" means any individual, general partnership, limited
partnership, corporation, limited liability company, joint venture, trust,
business trust, cooperative or association and the heirs, executors,
administrators, legal representatives, successors and assigns of such Person
where the context so admits.
"Preferred Securities" means the 8% Cumulative Monthly Income
Preferred Securities, Series C, representing limited partner interests of the
Grantor, or any Successor Securities issued to the Trust and held by the Trustee
(unless withdrawn under Section 3.06) from time to time under this Trust
Agreement for the benefit of the Holders.
"Receipt" shall mean a trust receipt issued hereunder
representing an interest in the Trust equal to and representing a Preferred
Security and evidenced by a certificate issued by the Trustee pursuant to
Article III.
"Redemption Date" shall have the meaning set forth in Section
4.02 of this Trust Agreement.
"Register" shall have the meaning set forth in Section 3.03 of
this Trust Agreement.
"Registrar" shall mean any bank or trust company appointed to
register Receipt certificates and to register transfers thereof as herein
provided.
"Special Representative" shall have the meaning set forth in
Section 13.02(d) of the Partnership Agreement.
"Successor Securities" shall have the meaning set forth in
Section 13.02(e) of the Partnership Agreement.
3
<PAGE>
"Trust" means the trust governed by this Trust Agreement.
"Trust Agreement" shall mean this Amended and Restated Trust
Agreement, as the same may be amended, modified or supplemented from time to
time.
"Trust Estate" means all right, title and interest of the
Trust in and to the Preferred Securities (including any Successor Securities),
and all distributions and payments with respect thereto, including payments by
PECO Energy under the Guarantee. "Trust Estate" shall not include any amounts
paid or payable to the Trustee pursuant to this Trust Agreement, including,
without limitation, fees, expenses and indemnities.
"Trustee" shall mean First Union Trust Company, National
Association, a Delaware banking corporation, in its capacity as Trustee and not
in its individual capacity and any successor as trustee hereunder.
"1933 Act Registration Statement" shall have the meaning set
forth in Section 6.06 to this Trust Agreement.
"1934 Act Registration Statement" shall have the meaning set
forth in Section 6.06 to this Trust Agreement.
ARTICLE II
CONTINUATION OF TRUST
SECTION 2.01. Continuation of Trust.
(a) The Trust continued hereby shall be known as
"PECO Energy Capital Trust II." The Trust exists for the sole purpose of issuing
Receipts representing the Preferred Securities held by the Trust and performing
functions directly related thereto. The Grantor hereby delivers to the Trustee
for deposit in the Trust a certificate representing 2,000,000 Preferred
Securities for the benefit of the Holders. Each Holder is intended by the
Grantor to be the beneficial owner of the number of Preferred Securities
represented by the Receipts held by such Holder, not to hold an undivided
interest in all of the Preferred Securities. To the fullest extent permitted by
law, without the need for any other action of any Person, including the Trustee
and any other Holder, each Holder shall be entitled to enforce in the name of
the Trust the Trust's rights under the Preferred Securities represented by the
Receipts held by such Holder and any recovery on such an enforcement action
shall belong solely to such Holder who brought the action, not to the Trust,
Trustee or any other Holder individually or to Holders as a group. Subject to
Section 7.02, this Trust shall be irrevocable.
4
<PAGE>
(b) The Trustee hereby acknowledges receipt of the
Preferred Securities, registered in the name of the Trust, and its acceptance on
behalf of the Trust of the Preferred Securities, and declares that it shall hold
the Preferred Securities (including any Successor Securities) in the Trust for
the benefit of the Holders.
SECTION 2.02. Trust Account. The Trustee shall open an account
entitled "PECO Energy Capital Trust II - Trust Account." All funds received by
the Trustee on behalf of the Trust from the Preferred Securities or pursuant to
Article V will be deposited in such account by the Trustee until distributed as
provided in Article IV.
SECTION 2.03. Title to Trust Property. Legal title to all of
the Trust Estate shall be vested at all times in the Trustee.
SECTION 2.04. Situs of Trust. The situs of the Trust shall be
in Wilmington, Delaware. The Trust's bank account shall be maintained with a
bank in the State of Delaware. The Trustee shall cause to be maintained the
books and records of the Trust at the Corporate Office. The Trust Estate shall
be held in the State of Delaware. Notwithstanding the foregoing, the Trustee may
transfer such of the books and records of the Trust to a Co-Trustee appointed
pursuant to Section 6.09 or to such agents as it may appoint in accordance with
the Section 9.05 hereof, as shall be reasonably necessary (and for so long as
may be reasonably necessary) to enable such Co-Trustee or agents to perform the
duties and obligations for which such Co-Trustee or agents may be so employed.
SECTION 2.05. Powers of Trustee Limited. The Trustee shall
have no power to create, assume or incur indebtedness or other liabilities in
the name of the Trust. The Trustee shall have full power to conduct the business
of the Trust of holding the Preferred Securities for the Holders and taking the
other actions provided by this Trust Agreement.
SECTION 2.06. Liability of Holders of Receipts. With respect
to the Trust, Holders of Receipts shall be entitled to the same limitation of
personal liability to which stockholders of private corporations for profit
organized under the General Corporation Law of the State of Delaware are
extended.
5
<PAGE>
ARTICLE III
FORM OF RECEIPTS, EXECUTION AND
DELIVERY, TRANSFER AND SURRENDER OF RECEIPTS
SECTION 3.01. Form and Transferability of Receipts.
(a) Except as otherwise required by DTC, Receipts shall be
evidenced by certificates engraved or printed or lithographed with
steel-engraved borders and underlying tint in substantially the form set forth
in Exhibit A annexed to this Trust Agreement, with the appropriate insertions,
modifications and omissions, as hereinafter provided.
(b) Certificates evidencing Receipts shall be executed by the
Trustee by the manual signature of a duly authorized signatory of the Trustee,
provided, however, that such signature may be a facsimile if a Registrar (other
than the Trustee) shall have countersigned the Receipts by manual signature of a
duly authorized signatory of the Registrar. No certificate evidencing one or
more Receipts shall be entitled to any benefit under this Trust Agreement or be
valid or obligatory for any purpose unless it shall have been executed as
provided in the preceding sentence. The Registrar shall record on the Register
each Receipt certificate executed as provided above and delivered as hereinafter
provided.
(c) Certificates evidencing Receipts shall be in denominations
of any whole number of Preferred Securities. All Receipt certificates shall be
dated the date of their execution or countersignature.
(d) Certificates evidencing Receipts may be endorsed with or
have incorporated in the text thereof such legends or recitals or changes not
inconsistent with the provisions of this Trust Agreement as may be required by
the Trustee or required to comply with any applicable law or regulation or with
the rules and regulations of any securities exchange upon which the Receipts may
be listed or to conform with any usage with respect thereto.
(e) Title to any Receipt certificate that is properly endorsed
or accompanied by a properly executed instrument of transfer or endorsement
shall be transferable by delivery with the same effect as in the case of a
negotiable instrument; provided, however, that until the transfer shall be
registered on the Register as provided in Section 3.03, the Trust, the Trustee,
the Registrar and the Grantor may, notwithstanding any notice to the contrary,
treat the Holder thereof at such time as the absolute owner thereof for the
purpose of determining the Person entitled to distributions or to any notice
provided for in this Trust Agreement and for all other purposes.
6
<PAGE>
SECTION 3.02. Issuance of Receipts. Upon receipt by the
Trustee on behalf of the Trust of a certificate or certificates for the
Preferred Securities, subject to the terms and conditions of this Trust
Agreement, the Trustee, on behalf of the Trust, shall execute and deliver to DTC
certificates evidencing the Receipts in the name of DTC's nominee, who shall
thereupon be the initial Holder of Receipts.
SECTION 3.03. Registration, Transfer and Exchange of Receipts.
The Trustee shall cause the Register to be kept at the office of the Registrar
in which, subject to such reasonable regulations as the Trustee and the
Registrar may prescribe, the Trustee shall provide for the registration of
Receipt certificates and of transfers and exchanges of Receipt certificates as
herein provided. The Grantor hereby appoints First Union Trust Company, National
Association as the Registrar. The Registrar shall also act as transfer agent.
The Grantor may remove the Registrar and, upon removal or resignation of the
Registrar, appoint a successor Registrar. Subject to the terms and conditions of
this Trust Agreement, the Registrar shall register the transfers on the Register
from time to time of Receipt certificates upon any surrender thereof by the
Holder in person or by a duly authorized attorney, properly endorsed or
accompanied by a properly executed instrument of transfer or endorsement,
together with evidence of the payment of any transfer taxes as may be required
by law. Upon such surrender, the Trustee shall execute a new Receipt certificate
representing the same number of Preferred Securities in accordance with Section
3.01(b) and deliver the same to or upon the order of the Person entitled
thereto.
At the option of a Holder, Receipt certificates may be
exchanged for other Receipt certificates representing the same number of
Preferred Securities. Upon surrender of a Receipt certificate at the office of
the Registrar or such other office as the Trustee may designate for the purpose
of effecting an exchange of Receipt certificates, subject to the terms and
conditions of this Trust Agreement, the Trustee shall execute and deliver a new
Receipt certificate representing the same number of Preferred Securities as the
Receipt certificate surrendered.
As a condition precedent to the registration of the transfer
or exchange of any Receipt certificate, the Registrar may require (i) production
of proof satisfactory to it as to the identity and genuineness of any signature;
and (ii) compliance with such regulations, if any, as the Trustee or the
Registrar may establish not inconsistent with the provisions of this Trust
Agreement.
No service charge shall be made to a Holder of Receipts for
any registration of transfer or exchange of Receipt certificates, but the
Trustee or the Registrar shall require payment of a sum sufficient to cover any
tax or governmental charge that may be imposed in connection with any transfer
or exchange of Receipt certificates.
7
<PAGE>
Neither the Trustee nor the Registrar shall be required (a) to
register the transfer of or exchange any Receipt certificate for a period
beginning at the opening of business ten days preceding any selection of
Receipts to be redeemed and ending at the close of business on the day of the
mailing a notice of redemption of Receipts or (b) to register the transfer of or
exchange of Receipts called or being called for redemption in whole or in part,
except as provided in Section 4.02.
SECTION 3.04. Lost or Stolen Receipts, Etc. In case any
Receipt certificate shall be mutilated or destroyed or lost or stolen and in the
absence of notice to the Trustee that such Receipt has been acquired by a bona
fide purchaser, the Trustee shall execute and deliver a Receipt certificate of
like form and tenor in exchange and substitution for such mutilated Receipt
certificate or in lieu of and in substitution for such destroyed, lost or stolen
Receipt certificate, provided, however, that the Holder thereof provides the
Trustee with (i) evidence satisfactory to the Trustee of such destruction, loss
or theft of such Receipt certificate, of the authenticity thereof and of his
ownership thereof, (ii) reasonable indemnification satisfactory to the Trustee
and (iii) payment of any expense (including fees, charges and expenses of the
Trustee) in connection with such execution and delivery. Any duplicate Receipt
certificate issued pursuant to this Section 3.04 shall constitute complete and
indefeasible evidence of ownership in the Trust, as if originally issued,
whether or not the lost, stolen or destroyed Receipt certificate shall be found
at any time.
SECTION 3.05. Cancellation and Destruction of Surrendered
Receipts. All Receipt certificates surrendered to the Trustee shall be cancelled
by the Trustee. Except as prohibited by applicable law or regulation, at any
time after six years from the date of surrender of any Receipt certificate, the
Trustee may destroy such cancelled Receipt certificates.
SECTION 3.06. Surrender of Receipts and Withdrawal of
Preferred Securities. Any beneficial owner of Receipts may withdraw all, but not
less than all, of the Preferred Securities represented by such Receipts by
providing a written notice and an agreement to be bound by the terms of the
Partnership Agreement to the Trustee at the Corporate Office or at such other
office as the Trustee may designate for such withdrawals, all in form
satisfactory to the Trustee, in its sole discretion. Within a reasonable period
after such request has been properly made, the Trustee shall instruct DTC to
reduce the number of Receipts represented by the global certificate held by DTC
by an amount equal to the number of Receipts to be so withdrawn by the
8
<PAGE>
withdrawing owner, the Trustee shall issue to the withdrawing owner a
certificate, in form substantially similar to that certificate attached hereto
as Exhibit A, representing the number of Preferred Securities so withdrawn and
the Trustee shall reduce the number of Preferred Securities represented by the
global certificate held by the Trustee by a like amount; provided, that the
Trustee shall not issue any fractional number of Preferred Securities. If a
withdrawing owner of Receipts withdraws Preferred Securities in accordance with
this Section 3.06, such withdrawing owner of Receipts shall cease to be a
beneficial owner in the Trust. The Series C Preferred Securities will only be
issued in certificated form.
A withdrawing owner who wishes to withdraw Series C Preferred
Securities in accordance with this Section 3.06 will be required to provide the
Grantor with a completed Form W-8 or such other documents or information as are
requested by the Grantor for tax reporting purposes and thereafter shall be
admitted to the Grantor as a preferred partner of the Grantor upon such
withdrawing owner's receipt of a certificate evidencing such Preferred
Securities registered in such withdrawing owner's name.
The Trustee shall deliver the Preferred Securities represented
by the Receipts surrendered to the withdrawing owner in accordance with this
Section 3.06 at the Corporate Office, except that, at the request, risk and
expense of the withdrawing owner and for the account of the withdrawing owner
thereof, such delivery may be made at such other place as may be designated by
such withdrawing owner.
Notwithstanding anything in this Section 3.06 to the contrary,
if the Preferred Securities represented by Receipts have been called for
redemption in accordance with the Partnership Agreement, no withdrawing owner of
such Receipts may withdraw any or all of the Preferred Securities represented by
such Receipts.
SECTION 3.07. Redeposit of Preferred Securities. Subject to
the terms and conditions of this Trust Agreement, any holder of Preferred
Securities may redeposit withdrawn Preferred Securities under this Trust
Agreement by delivery to the Trustee of a certificate or certificates for the
Preferred Securities to be deposited, properly endorsed or accompanied, if
required by the Trustee, by a properly executed instrument of transfer or
endorsement in form satisfactory to the Trustee and in compliance with the terms
of the Partnership Agreement, together with all such certifications as may be
required by the Trustee in its sole discretion and in accordance with the
provisions of this Trust Agreement. Within a reasonable period after such
deposit is properly made, the Trustee shall instruct DTC to increase the number
of Receipts represented by the global certificate held by DTC by an amount equal
to the Preferred Securities to be
9
<PAGE>
deposited. The Preferred Trust Receipts will not be issued in certificated form.
The Trustee will only accept the deposit of such Preferred Securities upon
payment by such holder of Preferred Securities to the Trustee of all taxes and
other governmental charges and any fees payable in connection with such deposit
and the transfer of the deposited Preferred Securities.
If required by the Trustee, Preferred Securities presented for
deposit at any time shall also be accompanied by an agreement or assignment, or
other instrument satisfactory to the Trustee, that will provide for the prompt
transfer to the Trustee or its nominee of any distribution or other right that
any Person in whose name the Preferred Securities are registered may thereafter
receive upon or in respect of such deposited Preferred Securities, or in lieu
thereof such agreement of indemnity or other agreement as shall be satisfactory
to the Trustee.
SECTION 3.08. Filing Proofs, Certificates, and Other
Information. Any Person presenting Preferred Securities for redeposit in
accordance with Section 3.07 may be required from time to time to file such
proof of residence or other information, to execute such Preferred Security
certificates and to make such representations and warranties as the Trustee may
reasonably deem necessary or proper. The Trustee may withhold or delay the
delivery of any Receipt or Receipts, the transfer, redemption or exchange of any
Receipt or Receipts or the making of any distribution until such proof or other
information is filed, such certificates are executed or such representations and
warranties are made.
ARTICLE IV
DISTRIBUTIONS AND OTHER RIGHTS OF HOLDERS OF RECEIPTS
SECTION 4.01. Distributions of Monthly Distributions on
Preferred Securities. Whenever the Trustee shall receive any cash distribution
representing a monthly distribution on the Preferred Securities (whether or not
distributed by the Grantor on the regular monthly distribution date therefor) or
payment under the Guarantee in respect thereof pursuant to Article V of this
Agreement, the Trustee acting directly or through any Paying Agent shall
distribute to Holders of Receipts on the record date fixed pursuant to Section
4.04, such amounts in proportion to the respective numbers of Preferred
Securities represented by the Receipts held by such Holders.
SECTION 4.02. Redemptions of Preferred Securities. Whenever
the Grantor shall elect or is required to redeem Preferred Securities in
accordance with the Partnership Agreement, it shall (unless otherwise agreed in
writing with the Trustee) give the Trustee not less than 40 days' prior notice
10
<PAGE>
thereof. The Trustee shall, as directed by the Grantor, mail, or cause to be
mailed, first-class postage prepaid, notice of the redemption of Preferred
Securities and the proposed simultaneous redemption of the Receipts to be
redeemed in connection herewith, not less than 30 and not more than 60 days
prior to the date fixed for redemption (the "Redemption Date") of the Receipts.
Such notice shall be mailed to the Holders of the Receipts to be redeemed, at
the addresses of such Holders as the same appear on the records of the
Registrar. No defect in the notice of redemption or in the mailing or delivery
thereof or publication of its contents shall affect the validity of the
redemption proceedings. The Grantor shall provide the Trustee with such notice,
and each such notice shall state: the Redemption Date; the redemption price at
which the Receipts and the Preferred Securities are to be redeemed; that all
outstanding Receipts are to be redeemed or, in the case of a redemption of fewer
than all outstanding Receipts in connection with a partial redemption of
Preferred Securities, the number of such Receipts to be so redeemed; the place
or places where Receipts to be redeemed are to be surrendered for redemption;
and specifying the CUSIP number assigned to the Receipts. In case fewer than all
the outstanding Receipts are to be redeemed, the Receipts to be redeemed shall
be selected by lot or pro rata (as nearly as may be practicable without creating
fractional shares) or by any other equitable method determined by the Trustee.
The Grantor agrees that if a partial redemption of the
Preferred Securities would result in a delisting of the Receipts from any
national exchange on which the Receipts are then listed, the Grantor will only
redeem the Preferred Securities in whole.
On the date of any such redemption of Preferred Securities,
provided that the Grantor (or PECO Energy pursuant to the Guarantee) shall then
have deposited with the Trustee the aggregate amount payable upon redemption of
the Preferred Securities to be redeemed, the Trustee shall redeem (using the
funds so deposited with it) Receipts representing the same number of Preferred
Securities redeemed by the Grantor.
Notice having been mailed by the Trustee as aforesaid, from
and after the Redemption Date (unless the Grantor shall have failed to redeem
the Preferred Securities to be redeemed by it as set forth in the Grantor's
notice provided for in this Section 4.02 and PECO Energy shall have failed to
pay the redemption price of the Preferred Securities under the Guarantee), the
Receipts called for redemption shall be deemed no longer to be outstanding and
all rights of the Holders of Receipts (except the right to receive cash upon
surrender of Receipts) shall cease and terminate. Upon surrender in accordance
with said notice of the Receipts endorsed or assigned for transfer, if the
Trustee shall so require, the Holders of such Receipts shall receive for each
such Receipt an amount equal to the redemption price for each Preferred
Security, in addition to accrued and unpaid distributions thereon to the date
fixed for redemption.
11
<PAGE>
If fewer than all of the Receipts of any Holder are called for
redemption, the Registrar will deliver to the Holder of such Receipts upon
surrender of the certificate evidencing such Receipts a new certificate
evidencing the number of Receipts not called for redemption.
SECTION 4.03. Distributions in Liquidation of Grantor. Upon
receipt by the Trust of any distribution from the Grantor upon the liquidation
of the Grantor or any payment under the Guarantee in respect thereof pursuant to
Article V of this Trust Agreement, after satisfaction of creditors of the Trust
as required by applicable law, the Trustee shall distribute to the Holders of
Receipts on the record date fixed pursuant to Section 4.04, such amounts in
proportion to the respective number of Preferred Securities which were
represented by the Receipts held by such Holders.
SECTION 4.04. Fixing of Record Date for Holders of Receipts.
Whenever any distribution (other than upon any redemption) shall become payable,
or whenever the Trustee shall receive notice of any meeting at which holders of
Preferred Securities are entitled to vote or of which holders of Preferred
Securities are entitled to notice, the Trustee shall in each such instance fix a
record date (which shall be the same date as the record date fixed by the
General Partner with respect to the Preferred Securities) for the determination
of the Holders of Receipts who shall be entitled (i) to receive such
distribution, and (ii) to receive notice of, and to give instructions for the
exercise of voting rights at, any such meeting.
SECTION 4.05. Payment of Distributions. The Grantor shall
appoint one or more Paying Agents for the purpose of paying monthly
distributions on, the redemption price of, and distributions in liquidation on
the Receipts. The Grantor hereby appoints First Union Trust Company, National
Association to act as Paying Agent and designates the Wilmington office of the
Paying Agent as the place of payment of the redemption price of and of
distributions in liquidation on the Receipts. The aforesaid appointment and
designation shall remain in effect until changed by the Grantor. Payments of
monthly distributions on the Receipts shall be payable by wire transfer into the
accounts of or check mailed to the addresses of the Holders thereof on the
record date therefor. Payments of the redemption price of Receipts and
distributions in liquidation shall be made upon surrender of such Receipts at
the office of the Paying Agent. The Trustee is hereby authorized to direct the
Grantor to pay monthly distributions on, the redemption price of, and
distributions in liquidation on, the Preferred Securities directly to the Paying
Agent for distribution in accordance with the terms of this Trust Agreement.
12
<PAGE>
SECTION 4.06. Special Representative and Voting Rights.
(a) If the holders of the Preferred Partner Interests (as
defined in the Partnership Agreement), acting as a single class, are entitled to
appoint and authorize a Special Representative pursuant to Section 13.02(d) of
the Partnership Agreement, the Trustee shall notify the Holders of the Receipts
of such right, request direction of each Holder of a Receipt as to the
appointment of a Special Representative and vote the Preferred Securities
represented by such Receipt in accordance with such direction. If the General
Partner fails to convene a general meeting of the Partnership as required in
Section 13.02(d) of the Partnership Agreement, the Trustee shall notify the
Holders of the Receipts and, if so directed by the Holders of Receipts
representing Preferred Securities constituting at least 10% of the aggregate
stated liquidation preference of the outstanding Preferred Partner Interests (as
defined in the Partnership Agreement) shall convene such meeting.
(b) Upon receipt of notice of any meeting at which the Holders
of Preferred Securities are entitled to vote, the Trustee shall, as soon as
practicable thereafter, mail to the Holders of Receipts a notice, which shall be
provided by the General Partner and which shall contain (i) such information as
is contained in such notice of meeting, (ii) a statement that the Holders of
Receipts at the close of business on a specified record date fixed pursuant to
Section 4.04 will be entitled, subject to any applicable provision of law or of
the Partnership Agreement, to instruct the Trustee as to the exercise of the
voting rights pertaining to the amount of Preferred Securities represented by
their respective Receipts, and (iii) a brief statement as to the manner in which
such instructions may be given. Upon the written request of a Holder of a
Receipt on such record date, the Trustee shall vote or cause to be voted the
number of Preferred Securities represented by the Receipts evidenced by such
Receipt in accordance with the instructions set forth in such request. The
Grantor hereby agrees to take all reasonable action that may be deemed necessary
by the Trustee in order to enable the Trustee to vote such Preferred Securities
or cause such Preferred Securities to be voted. In the absence of specific
instructions from the Holder of a Receipt, the Trustee will abstain from voting
to the extent of the Preferred Securities represented by such Receipt.
SECTION 4.07. Changes Affecting Preferred Securities and
Reclassifications, Recapitalizations, Etc. Upon any consolidation, amalgamation,
merger, replacement or conveyance, transfer or lease by the Partnership of its
properties and assets
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as an entirety in accordance with Section 13.02(e) of the Partnership Agreement,
the Trustee shall, upon the instructions of the Grantor, treat any Successor
Securities or other property (including cash) that shall be received by the
Trustee in exchange for or upon conversion of or in respect of the Preferred
Securities as part of the Trust Estate and Receipts then outstanding shall
thenceforth represent the proportionate interests of Holders thereof in the new
deposited property so received in exchange for or upon conversion or in respect
of such Preferred Securities.
ARTICLE V
THE GUARANTEE
SECTION 5.01. The Guarantee. In connection with the issuance
of the Preferred Securities, PECO Energy has delivered to the General Partner
the Guarantee for the benefit of the holders of the Preferred Securities. If the
General Partner or the Grantor receives any payment under the Guarantee, the
General Partner or the Grantor, as the case may be, will immediately transfer
such payment to the Trustee. All rights to enforce the Guarantee shall remain in
the General Partner, except to the extent set forth in Section 2.04 of the
Guarantee.
ARTICLE VI
THE TRUSTEE
SECTION 6.01. Eligibility. This Trust Agreement shall at all
times have a Trustee which is a bank that has its principal place of business in
the State of Delaware and shall have a combined capital and surplus of at least
$50,000,000. If such corporation publishes reports of conditions at least
annually, pursuant to law or to the requirements of Federal, State, Territorial
or District of Columbia supervising or examining authority, then for the
purposes of this Section 6.01, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of conditions so published.
In case at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section 6.01, the Trustee shall resign
immediately in the manner and with the effect specified in Section 6.03.
The Trustee shall make available for inspection by Holders of
Receipts at the Corporate Office and at such other places as it may from time to
time deem advisable during normal business hours any reports and communications
received from the Grantor, the General Partner or PECO Energy by the Trustee as
the holder of Preferred Securities.
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Promptly upon request from time to time by the Grantor, the
Trustee shall cause the Registrar to furnish to it a list, at the sole expense
of the General Partner, as of a recent date, of the names, addresses and
holdings of all Persons in whose names Receipts are registered on the Register.
SECTION 6.02. Obligations of the Trustee. The Trustee does not
assume any obligation nor shall it be subject to any liability under this Trust
Agreement or any Receipt to Holders of Receipts other than that it agrees to use
good faith in the performance of such duties as are specifically assigned to the
Trustee in this Trust Agreement.
The Trustee shall not be under any obligation to appear in,
prosecute or defend any action, suit or other proceeding with respect to
Preferred Securities or Receipts that in its opinion may involve it in expense
or liability, unless indemnity satisfactory to it against all expense and
liability be furnished as often as may be required.
In the event that the Trustee is uncertain as to application
or interpretation of any provision of this Trust Agreement or must choose
between alternative courses of action, the Trustee may seek the instructions of
the Grantor (or the Special Representative if one has been appointed) by written
notice requesting instructions. The Trustee shall take and be protected in
taking such action as has been directed by the Grantor (or the Special
Representative if one has been approved) provided that if the Trustee does not
receive instructions within 10 days or such shorter time as is set forth in the
Trustee notice, the Trustee shall be under no duty to take or refrain from
taking such action not inconsistent with this Trust Agreement as it shall deem
advisable and in the interest of the Holders.
The Trustee shall not be liable to any Holder or any other
party having an interest hereunder for any action or any failure to act by it in
reliance upon the advice of or information from legal counsel, accountants, any
Holder of a Receipt or any other Person believed by it in good faith to be
competent to give such advice or information. The Trustee may rely and shall be
protected from any and all liability in acting upon any written notice, request,
direction or other document believed by it to be genuine and to have been signed
or presented by the proper party or parties.
The Trustee, its parent, Affiliates or subsidiaries may own,
buy, sell or deal in any class of securities of the Grantor, the General Partner
or PECO Energy and its Affiliates and in
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Receipts or become pecuniarily interested in any transaction in which the
Grantor, the General Partner or PECO Energy or its Affiliates may be interested
or contract with or lend money to or otherwise act as fully or as freely as if
it were not the Trustee hereunder. The Trustee may also act as transfer agent or
registrar of any of the securities of the Grantor, the General Partner or PECO
Energy and its Affiliates or act in any other capacity for PECO Energy or its
Affiliates.
The Trustee (and its officers, directors, employees and
agents) makes no representation nor shall it have any liability for or
responsibility with respect to the issuance of Receipts or as to the validity of
the registration statement pursuant to which the Receipts are registered under
the Securities Act, the Preferred Securities, the Guarantee or the Receipts
(except for its counter-signatures thereon) or any instruments referred to
therein or herein, or as to the correctness of any statement made therein or
herein; provided, however, that the Trustee is responsible for its
representations in this Trust Agreement.
The Trustee assumes no responsibility for the correctness of
the description that appears in the Receipts, which can be taken as a statement
of the Grantor summarizing certain provisions of this Trust Agreement.
Notwithstanding any other provision herein or in the Receipts, the Trustee makes
no warranties or representations as to the validity, genuineness or sufficiency
of any Preferred Securities or the Guarantee or of the Receipts, as to the
validity or sufficiency of this Trust Agreement, as to the value of the Receipts
or as to any right, title or interest of the Holders of Receipts, except that
the Trustee hereby represents and warrants as follows: (i) the Trustee has been
duly organized and is validly existing and in good standing under federal law,
with full power, authority and legal right under such laws to execute, deliver
and carry out the terms of this Trust Agreement; (ii) this Trust Agreement has
been duly authorized, executed and delivered by the Trustee; and (iii) this
Section 6.02 of the Trust Agreement constitutes a valid and binding obligation
of the Trustee enforceable against the Trustee in accordance with its terms
subject to equitable principles and laws affecting the enforcement of creditors'
rights generally.
SECTION 6.03. Resignation and Removal of the Trustee;
Appointment of Successor Trustee. The Trustee may at any time resign as Trustee
hereunder by notice of its election to do so delivered to the Grantor and the
General Partner, such resignation to take effect upon the appointment of a
successor trustee and its acceptance of such appointment as hereinafter
provided.
The Trustee may at any time be removed by the Grantor,
provided that an Event of Default has not occurred and is then continuing under
the Indenture dated as of July 1, 1994 between
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PECO Energy and First Union National Bank, as successor trustee, as
supplemented, or the Guarantee, by notice of such removal delivered to the
Trustee, such removal to take effect upon the appointment of a successor trustee
and its acceptance of such appointment as hereinafter provided.
In case at any time the Trustee acting hereunder shall resign
or be removed, the Grantor shall, within 45 days after the delivery of the
notice of resignation or removal, as the case may be, appoint a successor
trustee, which shall be a bank or trust company, or an Affiliate of a bank or
trust company, having its principal office in the State of Delaware and having a
combined capital and surplus of at least $50,000,000. If a successor Trustee
shall not have been appointed in 45 days, the resigning Trustee may petition a
court of competent jurisdiction to appoint a successor trustee, and the expenses
of such proceeding shall be borne by the General Partner. Every successor
trustee shall execute and deliver to its predecessor and to the Grantor and the
General Partner an instrument in writing accepting its appointment hereunder,
and thereupon such successor trustee, without any further act or deed, shall
become fully vested with all the rights, powers, duties and obligations of its
predecessor and for all purposes shall be the Trustee under this Trust
Agreement, and such predecessor, upon payment of all sums due it and on the
written request of the Grantor, shall promptly execute and deliver an instrument
transferring to such successor all rights and powers of such predecessor
hereunder, shall duly assign, transfer and deliver all rights, title and
interest in the Preferred Securities and any moneys or property held hereunder
to such successor and shall deliver to such successor a list of the Holders of
all outstanding Receipts. Any successor Trustee shall promptly mail notice of
its appointment to the Holders of Receipts.
Any Person into or with which the Trustee may be merged,
consolidated or converted, or any Person succeeding to the corporate trust
business of the Trustee, shall be the successor of such Trustee without the
execution or filing of any document or any further act, provided such Person
shall be eligible under the provisions of the immediately preceding paragraph.
SECTION 6.04. Corporate Notices and Reports. The General
Partner agrees that it will give timely notice to the Trustee and any Paying
Agent of any record date, which record date shall become the record date with
respect to the Receipts pursuant to Section 4.04 hereof, for the Preferred
Securities and that it will deliver to the Trustee, and the Trustee will,
promptly after receipt thereof, transmit to the Holders of Receipts, in each
case at the address recorded on the Register, copies of all notices and reports
(including financial statements) required by law, by the rules of any national
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securities exchange upon which the Receipts are listed or by the Partnership
Agreement to be furnished to holders of Preferred Securities. Such transmission
will be at the expense of the General Partner and the General Partner will
provide the Trustee with such number of copies of such documents as the Trustee
may reasonably request. In addition, the Trustee will transmit to the Holders of
Receipts at the Grantor's expense such other documents as may be requested by
the Grantor.
SECTION 6.05. Status of Trust. It is intended that the Trust
shall not be an "investment company" under the Investment Company Act of 1940,
as amended. While it is expressly understood and agreed that the Trustee is
acting only in a ministerial capacity hereunder, the Securities and Exchange
Commission (the "Commission") has determined that as of the date hereof, the
Trust is an issuer under the Federal securities laws and is thus required to
sign any registration statement filed or to be filed in connection with the
Receipts.
SECTION 6.06. Appointment of Grantor to File on Behalf of
Trust. The Grantor and the Trustee hereby authorize and direct the Grantor, as
the sponsor of the Trust (i) to file with the Commission and execute, in each
case on behalf of the Trust, (a) the Registration Statement on Form S-3 (the
"1933 Act Registration Statement"), including any pre-effective or post-
effective amendments to such 1933 Act Registration Statement (including the
prospectus and the exhibits contained therein), relating to the registration
under the Securities Act of 1933, as amended, of the Receipts of the Trust and
certain other securities; (b) a Registration Statement on Form 8-A (the "1934
Act Registration Statement"), including all pre-effective and post-effective
amendments thereto relating to the registration of the Receipts under Section
12(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act");
and (c) any reports or other papers or documents required to be filed by, or
desirable to be filed with, the Commission, under the Exchange Act ("Exchange
Act Reports"); (ii) to file with the New York Stock Exchange or Philadelphia
Stock Exchange (each an "Exchange") and execute on behalf of the Trust one or
more listing applications and all other applications, statements, certificates,
agreements and other instruments as shall be necessary or desirable to cause the
Receipts to be listed on any of the Exchanges; and (iii) to file and execute on
behalf of the Trust such applications, reports, surety bonds, irrevocable
consents, appointments of attorney for service of process and other papers and
documents as shall be necessary or desirable to register the Receipts under the
securities or "Blue Sky" laws of such jurisdictions as the Grantor, on behalf of
the Trust, may deem necessary or desirable.
SECTION 6.07. Indemnification by the General Partner. To the
fullest extent permitted by law, the General Partner agrees to indemnify and
defend the Trustee, the Registrar and any
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Paying Agent and their directors, officers, employees and agents against, and
hold each of them harmless from, any liability, costs and expenses (including
reasonable attorneys' fees) that may arise out of or in connection with its
acting as the Trustee or the Registrar or Paying Agent, respectively, under this
Trust Agreement and the Receipts, except for any liability arising out of
negligence, bad faith or willful misconduct on the part of any such Person or
Persons.
SECTION 6.08. Fees, Charges and Expenses. No fees, charges or
expenses of the Trustee or any Trustee's agent hereunder or of any Registrar
shall be payable by any Person other than the General Partner, provided that if
the Trustee incurs fees, charges or expenses for which it is not otherwise
liable under this Trust Agreement due to any action taken at the election of a
Holder of Receipts or other Person, such Holder or other Person will be liable
for such fees, charges and expenses.
SECTION 6.09. Appointment of Co-Trustee or Separate Trustee.
(a) Notwithstanding any other provisions of this Trust
Agreement, at any time, for the purpose of meeting any legal requirements of any
jurisdiction in which any property of the Trust must at the time be located, the
Trustee shall have the power and may execute and deliver all instruments to
appoint one or more Persons to act as co-trustee or co-trustees, or separate
trustee or separate trustees, of all or any part of the Trust, and to vest in
such Person or Persons, in such capacity and for the benefit of the Holders,
such title to the Trust, or any part thereof, and, subject to the other
provisions of this Section 6.09, such powers, duties, obligations, rights and
trusts as the Trustee may consider necessary or desirable. No co-trustee or
separate trustee hereunder shall be required to meet the terms of eligibility as
successor trustee under Section 6.03 and no notice to the Holders of the
appointment of any co-trustee or separate trustee shall be required.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations
conferred or imposed upon and exercised or performed by the Trustee and
such separate trustee or co-trustee jointly (it being understood that
such separate trustee or co-trustee is not authorized to act separately
without the Trustee joining in such act), except to the extent that
under any laws of any jurisdiction in which any particular act or acts
are to be performed, the Trustee shall be incompetent or unqualified to
perform such act or acts, in which event such rights, powers, duties
and obligations (including the
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holding of title to the Trust or any portion thereof in any such
jurisdiction) shall be exercised and performed singly by such separate
trustee or co-trustee, but solely at the direction of the Trustee;
(ii) no Trustee hereunder shall be personally
liable by reason of any act or omission of any other trustee
hereunder; and
(iii) the Trustee may at any time accept the
resignation of or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Trust
Agreement. Each separate trustee and co-trustee, upon its acceptance of the
trusts conferred, shall be vested with the estates or property specified in its
instrument of appointment, either jointly with the Trustee or separately, as may
be provided therein, subject to all the provisions of this Trust Agreement,
specifically including every provision of this Trust Agreement relating to the
conduct of, affecting the liability of, or affording protection to, the Trustee.
Every such instrument shall be filed with the Trustee and a copy thereof given
to the Grantor.
(d) Any separate trustee or co-trustee may at any time
constitute the Trustee as its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect to this Trust Agreement on its behalf and in its name. If any separate
trustee or co-trustee shall die, become incapable of acting, resign or be
removed, all of its estates, properties, rights, remedies and trusts shall vest
in and be exercised by the Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
ARTICLE VII
AMENDMENT AND TERMINATION
SECTION 7.01. Supplemental Trust Agreement. The Grantor or the
General Partner may, and the Trustee shall, at any time and from time to time,
without the consent of the Holders, enter into one or more agreements
supplemental hereto, in form satisfactory to the Trustee, for any of the
following purposes:
(a) to evidence the succession of another
partnership, corporation or other entity to the Grantor or the General Partner
and the assumption by any such successor of the covenants of the Grantor or the
General Partner herein contained; or
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(b) to add to the covenants of the Grantor or the
General Partner for the benefit of the Holders, or to surrender any right or
power herein conferred upon the Grantor or the General Partner; or
(c) (i) to correct or supplement any provision herein
which may be defective or inconsistent with any other provision herein or (ii)
to make any other provisions with respect to matters or questions arising under
this Trust Agreement, provided that any such action taken under subsection
(c)(ii) hereof shall not materially adversely affect the interests of the
Holders; or
(d) to cure any ambiguity or correct any mistake.
Any other amendment or agreement supplemental hereto must be
in writing and approved by Holders of 66-2/3% of the then outstanding Receipts.
SECTION 7.02. Termination. The Trust Agreement shall terminate
on the date that all outstanding Receipts have been redeemed or there has been a
final distribution in respect of the Preferred Securities in connection with any
liquidation, dissolution or winding up of the Grantor and such distribution has
been made to the Holders of the Receipts. Except as provided in Section 6.07 and
Section 6.08, upon termination of this Trust Agreement and the Trust in
accordance with the foregoing, the respective obligations and responsibilities
of the Trustee, the Grantor and the General Partner created hereby shall
terminate.
ARTICLE VIII
MERGER, CONSOLIDATION, ETC. OF GRANTOR
SECTION 8.01. Limitation on Permitted Merger Consolidation,
Etc. of Grantor. The Grantor agrees that it will not consolidate, amalgamate,
merge with or into, or be replaced by, or convey, transfer or lease its
properties and assets substantially in their entirety to any corporation or
other entity without the consent of the Holders of 66-2/3% of the Receipts
unless permitted by Section 13.02(e) of the Partnership Agreement and (i) such
merger, consolidation, amalgamation, replacement, conveyance, transfer or lease
does not cause the Receipts to be delisted by any national securities exchange
or other organization on which the Receipts are then listed, (ii) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does not
cause the Receipts to be downgraded by any "nationally recognized statistical
rating
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organization," as that term is defined by the Commission for purposes of Rule
436(g)(2) under the Securities Act of 1933, as amended, and (iii) prior to such
merger, consolidation, amalgamation, replacement, conveyance, transfer or lease,
PECO Energy has received an opinion of counsel (which may be regular counsel to
PECO Energy or an Affiliate, but not an employee thereof) experienced in such
matters to the effect that Holders of outstanding Receipts will not recognize
any gain or loss for Federal income tax purposes as a result of the merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Counterparts. This Trust Agreement may be
executed by the Grantor, the Trustee and the General Partner in separate
counterparts, each of which counterparts, when so executed and delivered shall
be deemed an original, but all such counterparts taken together shall constitute
one and the same instrument. Delivery of an executed counterpart of a signature
page to this Trust Agreement by telecopier shall be effective as delivery of a
manually executed counterpart of this Trust Agreement. Copies of this Trust
Agreement shall be filed with the Trustee and the Trustee's agents and shall be
open to inspection during business hours at the Corporate Office and the
respective offices of the Trustee's agents, if any, by any Holder of a Receipt.
SECTION 9.02. Exclusive Benefits of Parties. This Trust
Agreement is for the exclusive benefit of the parties hereto and the Holders of
the Receipts and the Preferred Securities, and their respective successors
hereunder, and shall not be deemed to give any legal or equitable right, remedy
or claim to any other Person whatsoever.
SECTION 9.03. Invalidity of Provisions. In case any one or
more of the provisions contained in this Trust Agreement or in the Receipts
should be or become invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein or therein shall in no way be affected, prejudiced or disturbed thereby.
SECTION 9.04. Notices. Any notices to be given to the Grantor
or the General Partner hereunder shall be in writing and shall be deemed to have
been duly given if personally delivered or sent by mail, or by telegram or telex
or telecopier confirmed by letter, addressed to the General Partner at 1013
Centre Road, Suite 350F, Wilmington, Delaware 19805, Attention: President, or at
any other place to which the General Partner may have transferred its principal
executive office.
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Any notices to be given to the Trustee hereunder or under the
Receipts shall be in writing and shall be deemed to have been duly given if
personally delivered or sent by mail, or by telegram or telex or telecopier
confirmed by letter, addressed to the Trustee at the Corporate Office.
Any notices given to any Holder of a Receipt hereunder or
under the Receipts shall be in writing and shall be deemed to have been duly
given if personally delivered or sent by mail, or by telegram or telex or
telecopier confirmed by letter, addressed to such Holder at the address of such
Holder as it appears on the books of the Trustee or, if such Holder shall have
timely filed with the Trustee a written request that notices intended for such
Holder be mailed to some other address, at the address designated in such
request.
Delivery of a notice sent by mail, or by telegram or telex or
telecopier shall be deemed to be effected at the time when a duly addressed
letter containing the same (or a duly addressed letter confirming an earlier
notice in the case of a telegram or telex or telecopier message) is deposited,
postage prepaid, in a post office letter box. The Trustee may, however, act upon
any telegram or telex or telecopier message received by it from the other or
from any Holder of a Receipt, notwithstanding that such telegram or telex or
telecopier message shall not subsequently be confirmed by letter as aforesaid.
SECTION 9.05. Trustee's Agents. The Trustee may from time to
time appoint agents to act in any respect for the Trustee for the purposes of
this Trust Agreement. The Trustee shall have no liability for the acts or
omissions of agents selected by it with due care. The Trustee will notify the
General Partner prior to any such action.
SECTION 9.06. Holders of Receipts Are Parties. Notwithstanding
that Holders of Receipts have not executed and delivered this Trust Agreement or
any counterpart thereof, the Holders of Receipts from time to time shall be
bound by all of the terms and conditions hereof and of the Receipts by
acceptance of delivery of Receipts.
SECTION 9.07. Governing Law. This Trust Agreement and the
Receipts and all rights hereunder and thereunder and provisions hereof and
thereof shall be governed by, and construed in accordance with, the law of the
State of Delaware without giving effect to principles of conflict of laws.
SECTION 9.08. Headings. The headings of articles and
sections of this Trust Agreement and in the form of the Receipt
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set forth in Exhibit A hereto have been inserted for convenience only and are
not to be regarded as part of this Trust Agreement or to have any bearing upon
the meaning or interpretation of any provision contained herein or in the
Receipts.
SECTION 9.09. Receipts Non-Assessable and Fully Paid. The
Holders of the Receipts shall not be personally liable for obligations of the
Trust, the interests in the Trust represented by the Receipts shall be
non-assessable for any losses or expenses of the Trust or for any reason
whatsoever, and the Receipts upon delivery thereof by the Trustee pursuant to
this Trust Agreement are and shall be deemed fully paid.
SECTION 9.10. No Preemptive Rights. No Holder shall be
entitled as a matter of right to subscribe for or purchase, or have any
preemptive right with respect to, any part of any new or additional interest in
the Trust, whether now or hereafter authorized and whether issued for cash or
other consideration or by way of distribution.
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IN WITNESS WHEREOF, the Grantor and the Trustee and the
General Partner have duly executed this Trust Agreement as of the day and year
first above set forth.
PECO ENERGY CAPITAL, L.P.
By: PECO ENERGY CAPITAL CORP.,
its general partner
By:________________________________
Name: J. Barry Mitchell
Title: President
FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION, as
trustee
By:________________________________
Name:
Title:
The General Partner joins in this Trust Agreement solely for the
purposes of obligating itself under Sections 6.04, 6.07 and 6.08 of this Trust
Agreement and not as grantor, trustee or beneficiary.
PECO ENERGY CAPITAL CORP.
By: /s/
--------------------------------
Name: J. Barry Mitchell
Title: President
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EXHIBIT A
TRUST RECEIPTS
OF PECO ENERGY CAPITAL TRUST II,
a Delaware Business Trust,
each Representing an ____% Cumulative
Monthly Income Preferred Security, Series C of
PECO Energy Capital, L.P. (a Delaware limited partnership)
No. _________ ___________ Receipts
First Union Trust Company, National Association, not in its
individual capacity, but solely as Trustee (the "Trustee"), hereby certifies
that ______________ is the registered owner of __________ Receipts (the
"Receipts"), each representing a ____% Cumulative Monthly Income Preferred
Security, Series C (the "Preferred Securities") of PECO Energy Capital, L.P., a
Delaware limited partnership (the "Grantor"), deposited in trust by the Grantor
with the Trustee pursuant to an Amended and Restated Trust Agreement of PECO
Energy Capital Trust II dated as of June ___, 1997 (as amended or supplemented
from time to time, the "Trust Agreement") among the Grantor, the Trustee and
PECO Energy Capital Corp., the general partner of the Grantor (the "General
Partner"). Subject to the terms of the Trust Agreement, the registered Holder
hereof is entitled to a full interest in the same number of Preferred Securities
held by the Trustee under the Trust Agreement, as are represented by the
Receipts including the distribution, voting, liquidation and other rights of the
Preferred Securities specified in the Amended and Restated Limited Partnership
Agreement of the Grantor, as amended, a copy of which is on file at the
Corporate Office.
1. The Trust Agreement. The Receipts are issued upon the terms
and conditions set forth in the Trust Agreement. The Trust Agreement (a copy of
which is on file at the Corporate Office of the Trustee) sets forth the rights
of Holders of Receipts and the rights and duties of the Trustee, the Grantor and
the General Partner. The statements made herein are summaries of certain
provisions of the Trust Agreement and are subject to the detailed provisions
thereof, to which reference is hereby made. In the event of any conflict or
discrepancy between the provisions hereof and the provisions of the Trust
Agreement, the provisions of the Trust Agreement will govern. Unless otherwise
expressly herein provided, all defined terms used herein shall have the meanings
ascribed thereto in the Trust Agreement.
2. Enforcement of Rights; Withdrawal of Preferred Securities.
To the fullest extent permitted by law, without the need for any other action of
any Person, including the Trustee and any other Holder, each Holder shall be
entitled to enforce in
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the name of the Trust the Trust's rights under the Preferred Securities
represented by the Receipts held by such Holder and any recovery on such an
enforcement action shall belong solely to such Holder who brought the action,
not to the Trust, Trustee or any other Holder individually or to Holders as a
group. Any beneficial owner of Receipts may withdraw all, but not less than all,
of the Preferred Securities represented by such Receipts by providing a written
notice and an agreement to be bound by the terms of the Partnership Agreement to
the Trustee at the Corporate Office, with evidence of beneficial ownership in
form satisfactory to the Trustee; provided, however, that the Trustee shall not
issue any fractional number of Preferred Securities.
3. Distributions of Monthly Distributions on Preferred
Securities. Whenever the Trustee shall receive any cash distribution
representing a monthly distribution on the Preferred Securities (whether or not
distributed by the Grantor on the regular monthly distribution date therefor) or
payment by PECO Energy Company ("PECO Energy") under the Payment and Guarantee
Agreement dated as of June ___, 1997 (the "Guarantee") in respect thereof, the
Trustee acting directly or through any Paying Agent shall distribute to Holders
of Receipts on the record date therefor, such amounts in proportion to the
respective numbers of Preferred Securities represented by the Receipts held by
such Holders.
4. Redemptions of Preferred Securities. Whenever the Grantor
shall elect or is required to redeem Preferred Securities in accordance with the
Partnership Agreement, it shall (unless otherwise agreed in writing with the
Trustee) give the Trustee not less than 40 days' prior notice thereof. The
Trustee shall, as directed by the Grantor, mail, first-class postage prepaid,
notice of the redemption of Preferred Securities and the proposed simultaneous
redemption of the Receipts to be redeemed, not less than 30 and not more than 60
days prior to the date fixed for redemption of such Preferred Securities and
Receipts. Such notice shall be mailed to the Holders of the Receipts, at the
addresses of such Holders as the same appear on the records of the Trustee. No
defect in the notice of redemption or in the mailing or delivery thereof or
publication of its contents shall affect the validity of the redemption
proceedings. In case fewer than all the outstanding Receipts are to be redeemed,
the Receipts to be redeemed shall be selected by lot or pro rata (as nearly as
may be practicable without creating fractional shares) or by any other equitable
method determined by the Grantor. On the date of any such redemption of
Preferred Securities, provided that the Grantor (or PECO Energy pursuant to the
Guarantee) shall then have deposited with the Trustee the aggregate amount
payable upon redemption of the Preferred Securities to be redeemed, the Trustee
shall redeem (using the funds so deposited with it) Receipts representing the
same number of Preferred Securities to be redeemed by the Grantor.
A-2
<PAGE>
5. Distributions in Liquidation. Upon receipt by the Trustee
of any distribution from the Grantor upon the liquidation of the Grantor or any
payment under the Guarantee in respect thereof, after satisfaction of creditors
of the Trust required by applicable law, the Trustee shall distribute to Holders
of Receipts on the record date therefor, such amounts in proportion to the
respective number of Preferred Securities which were represented by the Receipts
held by such Holders.
6. Fixing of Record Date for Holders of Receipts. Whenever any
distribution (other than upon any redemption) shall become payable, or whenever
the Trustee shall receive notice of any meeting at which holders of Preferred
Securities are entitled to vote or of which holders of Preferred Securities are
entitled to notice, the Trustee shall in each such instance fix a record date
(which shall be the same date as the record date fixed by the General Partner
with respect to the Preferred Securities) for the determination of the Holders
of Receipts who shall be entitled (i) to receive such distribution or (ii) to
receive notice of, and to give instructions for the exercise of voting rights
at, any such meeting.
7. Payment of Distributions. Payments of monthly distributions
on the Receipts shall be payable by wire transfer into the accounts of or check
mailed to the addresses of the Holders thereof on the record date therefor.
Payments of the redemption price of Receipts and distributions in liquidation
shall be made against surrender of such Receipts at the office of First Union
Trust Company, National Association, as the Paying Agent.
8. Special Representative; Voting Rights. (a) If the holders
of the Preferred Partner Interests (as defined in the Partnership Agreement),
acting as a single class, are entitled to appoint and authorize a Special
Representative pursuant to Section 13.02(d) of the Partnership Agreement, the
Trustee shall notify the Holders of the Receipts of such right, request
direction of each Holder of a Receipt and vote the Preferred Securities
represented by such Receipt in accordance with such direction. If the General
Partner fails to convene a general meeting of the Partnership as required in
Section 13.02(d) of the Partnership Agreement, the Trustee shall notify the
Holders of the Receipts and, if so directed by the Holders of Receipts
representing Preferred Securities constituting at least 10% of the aggregated
stated liquidation preference of the outstanding Preferred Partner Interests (as
defined in the Partnership Agreement) shall convene such meeting.
(b) Upon receipt of notice of any meeting at which
the holders of Preferred Securities are entitled to vote, the Trustee shall, as
soon as practicable thereafter, mail to the Holders of Receipts a notice, which
shall be provided by the
A-3
<PAGE>
Grantor and which shall contain (i) such information as is contained in such
notice of meeting, (ii) a statement that the Holders of Receipts at the close of
business on a specified record date therefor will be entitled, subject to any
applicable provision of law or of the Partnership Agreement, to instruct the
Trustee as to the exercise of the voting rights pertaining to the amount of
Preferred Securities represented by their respective Receipts, and (iii) a brief
statement as to the manner in which such instructions may be given. Upon the
written request of a Holder of a Receipt on such record date, the Trustee shall
vote or cause to be voted the number of Preferred Securities represented by the
Receipts in accordance with the instructions set forth in such request. In the
absence of specific instructions from the Holder of a Receipt, the Trustee will
abstain from voting to the extent of the Preferred Securities represented by
such Receipt.
9. Changes Affecting Preferred Securities and
Reclassifications, Recapitalizations, Etc. Upon any consolidation, amalgamation,
merger, replacement or conveyance, transfer or lease by the Grantor of its
properties and assets substantially in their entirety in accordance with Section
13.02(e) of the Partnership Agreement, the Trustee shall, upon the instructions
of the Grantor, treat any Successor Securities or other property that shall be
received by the Trustee in exchange for or upon conversion of or in respect of
the Preferred Securities as part of the Trust Estate, and Receipts then
outstanding shall thenceforth represent the proportionate interests of Holders
thereof in the new deposited property so received in exchange for or upon
conversion or in respect of such Preferred Securities.
10. Transfer and Exchange of Receipts. Subject to the terms
and conditions of the Trust Agreement, the Trustee shall register the transfer
on its books from time to time of Receipt certificates upon any surrender
thereof by the Holder in person or by a duly authorized attorney, properly
endorsed or accompanied by a properly executed instrument of transfer or
endorsement, together with evidence of the payment of any transfer taxes as may
be required by law. Upon such surrender, the Trustee shall execute a new Receipt
representing the same aggregate number of the Receipts surrendered in accordance
with the Trust Agreement and deliver the same to or upon the order of the Person
entitled thereto.
Upon surrender of a Receipt at the Corporate Office or such
other office as the Trustee may designate for the purpose of effecting an
exchange of Receipt certificates, subject to the terms and conditions of the
Trust Agreement, the Trustee shall execute and deliver a new Receipt certificate
representing the same number of Preferred Securities as the Receipt certificate
surrendered.
A-4
<PAGE>
As a condition precedent to the registration of transfer or
exchange of any Receipt certificate, the Registrar, may require (i) the
production of proof satisfactory to it as to the identity and genuineness of any
signature; and (ii) compliance with such regulations, if any, as the Trustee or
the Registrar may establish not inconsistent with the provisions of the Trust
Agreement.
Neither the Trustee nor the Registrar shall be required (a) to
register the transfer or exchange of any Receipt certificate for a period
beginning at the opening of business ten days next preceding any selection of
Receipts to be redeemed and ending at the close of business on the day of the
mailing a notice of redemption of Receipts or (b) to transfer or exchange
Receipts called or being called for redemption in whole or in part.
11. Title to Receipts. It is a condition of the Receipt, and
every successive Holder hereof by accepting or holding the same consents and
agrees, that title to this Receipt certificate, when properly endorsed or
accompanied by a properly executed instrument of transfer or endorsement, is
transferable by delivery with the same effect as in the case of a negotiable
instrument; provided, however, that until the transfer of this Receipt
certificate shall be registered on the books of the Trustee, the Trustee may,
notwithstanding any notice to the contrary, treat the Holder hereof at such time
as the absolute owner hereof for the purpose of determining the Person entitled
to distributions or to any notice provided for in the Trust Agreement and for
all other purposes.
12. Reports, Inspection of Transfer Books. The Trustee shall
make available for inspection by Holders of Receipts at the Corporate Office and
at such other places as it may from time to time deem advisable during normal
business hours any reports and communications received by the Trustee as the
record holder of Preferred Securities. The Registrar shall keep books at the
corporate office for the registration of transfer of Receipts, which books at
all reasonable times will be open for inspection by the Holders of Receipts as
and to the extent provided by applicable law.
13. Supplemental Trust Agreement. The Grantor or the General
Partner may, and the Trustee shall, at any time and from time to time, without
the consent of the Holders, enter into one or more agreements supplemental
hereto, in form satisfactory to the Trustee, for any of the following purposes:
(a) to evidence the succession of another partnership, corporation or other
entity to the Grantor or the General Partner and the assumption by any such
successor of the covenants of the Grantor or the General Partner herein
contained; or (b) to add to the covenants of the Grantor or the General Partner
for the benefit of the
A-5
<PAGE>
Holders, or to surrender any right or power herein conferred upon the Grantor or
the General Partner; or (c)(i) to correct or supplement any provision herein
which may be defective or inconsistent with any other provision herein or (ii)
to make any other provisions with respect to matters or questions arising under
this Trust Agreement, provided that any such action taken under subsection (ii)
hereof shall not materially adversely affect the interests of the Holders; or
(d) to cure any ambiguity or correct any mistake. Any other amendment or
agreement supplemental hereto must be in writing and approved by Holders of
66-2/3% of the then outstanding Receipts.
14. Governing Law. The Trust Agreement and this Receipt and
all rights thereunder and hereunder and provisions thereof and hereof shall be
governed by, and construed in accordance with, the law of the State of Delaware
without giving effect to principles of conflict of laws.
15. Receipt Non-Assessable and Fully Paid. Holders of Receipts
shall not be personally liable for obligations of the Trust, the interest in the
Trust represented by the Receipts shall be non-assessable for any losses or
expenses of the Trust or for any reason whatsoever and the Receipts upon
delivery thereof by the Trustee pursuant to the Trust Agreement are and shall be
deemed fully paid.
16. Liability of Holders of Receipts. Holders of Receipts
shall be entitled to the same limitation of personal liability extended to
stockholders of private corporations for profit organized under the General
Corporation Law of the State of Delaware.
17. No Preemptive Rights. No Holder shall be entitled as a
matter of right to subscribe for or purchase, or have any preemptive right with
respect to, any part of any new or additional interest in the Trust, whether now
or hereafter authorized and whether issued for cash or other consideration or by
way of distribution.
This Receipt certificate shall not be entitled to any benefits
under the Trust Agreement or be valid or obligatory for any purpose unless this
Receipt certificate shall have been executed manually or, if a Registrar for the
Receipts (other than the Trustee) shall have been appointed, by facsimile
signature of a duly authorized signatory of the Trustee and, if executed by
facsimile signature of the Trustee, shall have been countersigned manually by
such Registrar by the signature of a duly authorized signatory.
THE TRUSTEE IS NOT RESPONSIBLE FOR THE VALIDITY OF ANY
PREFERRED SECURITIES. THE TRUSTEE ASSUMES NO RESPONSIBILITY FOR THE CORRECTNESS
OF THE FOREGOING DESCRIPTION WHICH CAN BE TAKEN
A-6
<PAGE>
AS A STATEMENT OF THE GRANTOR SUMMARIZING CERTAIN PROVISIONS OF THE TRUST
AGREEMENT. THE TRUSTEE MAKES NO WARRANTIES OR REPRESENTATIONS AS TO THE
VALIDITY, GENUINENESS OR SUFFICIENCY OF PREFERRED SECURITIES OR OF RECEIPTS; AS
TO THE VALIDITY OR SUFFICIENCY OF THE TRUST AGREEMENT; AS TO THE VALUE OF
RECEIPTS OR AS TO ANY RIGHT, TITLE OR INTEREST OF THE HOLDERS OF RECEIPTS IN AND
TO RECEIPTS.
Dated: June ___, 1997
First Union Trust Company, National
Association, as Trustee,
By:________________________________
Name:
Title:
A-7
<PAGE>
[FORM OF ASSIGNMENT]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers unto ____________________ the within Receipt and all rights and
interests represented by the Receipts evidenced thereby, and hereby irrevocably
constitutes and appoints ____________________ attorney, to transfer the same on
the books of the within-named Trustee, with full power of substitution in the
premises.
Dated:_________________ Signature:________________________
NOTE: The signature to this
assignment must correspond
with the name as written upon
the face of the Receipt in
every particular, without
alteration or enlargement, or
any change whatever.
Signature Guarantee:
_______________________
<PAGE>
EXHIBIT 12-1
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
($000s, except ratio data)
12 MONTHS
ENDED
12/31/99
-----------
NET INCOME $ 576,814
ADD BACK:
INCOME TAXES:
OPERATING INCOME 359,160
NON-OPERATING INCOME (5,058)
----------
NET TAXES 354,102
FIXED CHARGES:
INTEREST APPLICABLE TO DEBT 374,518
ANNUAL RENTALS ESTIMATE 3,272
CAPITALIZED INTEREST 6,983
----------
TOTAL FIXED CHARGES 384,773
----------
ADJUSTED EARNINGS INCLUDING AFUDC $1,315,689
==========
RATIO OF EARNINGS TO FIXED CHARGES 3.42
==========
AFUDC 3,891
----------
ADJUSTED EARNINGS EXCLUDING AFUDC $1,311,798
==========
RATIO OF EARNINGS EXCLUDING AFUDC TO FIXED CHARGES 3.41
==========
<PAGE>
EXHIBIT 12-2
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDEND REQUIREMENTS
($000s, except ratio data)
12 MONTHS
ENDED
12/31/99
-----------
NET INCOME $576,814
ADD BACK:
INCOME TAXES:
OPERATING INCOME 359,160
NON-OPERATING INCOME (5,058)
-----------
NET TAXES 354,102
FIXED CHARGES:
INTEREST APPLICABLE TO DEBT 374,518
ANNUAL RENTALS ESTIMATE 3,272
CAPITALIZED INTEREST 6,983
-----------
TOTAL FIXED CHARGES 384,773
EARNINGS REQUIRED FOR PREFERRED DIVIDENDS:
DIVIDENDS ON PREFERRED STOCK 12,176
ADJUSTMENT TO PREFERRED DIVIDENDS* 7,475
-----------
19,651
-----------
FIXED CHARGES AND PREFERRED DIVIDENDS $404,424
==========
EARNINGS BEFORE INCOME TAXES AND
FIXED CHARGES $1,315,689
==========
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDEND REQUIREMENTS 3.24
==========
* ADDITIONAL CHARGE EQUIVALENT TO EARNINGS REQUIRED
TO ADJUST DIVIDENDS ON PREFERRED STOCK TO A PRE-TAX BASIS
<PAGE>
Exhibit 21
PECO Energy Company
Subsidiaries
PECO Energy Power Company (PA)
Susquehanna Power Company (MD)
The Proprietors of the Susquehanna Canal (inactive) (MD)
Susquehanna Electric Company (MD)
Eastern Pennsylvania Development Company (PA)
Adwin Equipment Company (PA)
Adwin (Schuylkill) Cogeneration, Inc. (PA)
Adwin Realty Company (PA)
Energy Performance Services, Inc. (PA)
PECO Energy Capital Corp (DE)
Horizon Energy Company (PA)
PECO Wireless, LLC (DE)
Exelon Corporation (PA)
Energy Trading Company (DE)
ATNP Finance Company (DE)
PEC Financial Services, LLC (PA)
NEWHOLDCO Corporation (PA)
Buttonwoods Associates, Inc. (DE)
Route 213 Enterprises, Inc. (DE)
<PAGE>
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (File Nos. 333-27721, 33-31436, 33-43523, 333-47985,
33-49887, 33-53785, 33-53785-01, 33-54935, 33-59152) and From S-8 (File Nos.
333-00451, 333-27799, 333-27805, 333-27807, 33-30317, 333-36739, 333-67367) of
PECO Energy Company and Subsidiary Companies of our report dated February 29,
2000 except for certain information included in Notes 2 and 4, for which the
dates are March 24, 2000 and March 16, 2000, respectively relating to the
financial statements and financial statement schedule, which appears in this
Form 10-K.
PricewaterhouseCoopers LLP
Philadelphia, PA
March 30, 2000
<TABLE> <S> <C>
<ARTICLE> OPUR1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,045
<OTHER-PROPERTY-AND-INVEST> 538
<TOTAL-CURRENT-ASSETS> 1,213
<TOTAL-DEFERRED-CHARGES> 6,189
<OTHER-ASSETS> 135
<TOTAL-ASSETS> 13,120
<COMMON> 3,516
<CAPITAL-SURPLUS-PAID-IN> 1
<RETAINED-EARNINGS> (103)
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,910
56
138
<LONG-TERM-DEBT-NET> 5,769
<SHORT-TERM-NOTES> 163
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 125
<LONG-TERM-DEBT-CURRENT-PORT> 128
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 4,893
<TOT-CAPITALIZATION-AND-LIAB> 13,120
<GROSS-OPERATING-REVENUE> 5,437
<INCOME-TAX-EXPENSE> 358
<OTHER-OPERATING-EXPENSES> 3,670
<TOTAL-OPERATING-EXPENSES> 4,028
<OPERATING-INCOME-LOSS> 1,409
<OTHER-INCOME-NET> (15)
<INCOME-BEFORE-INTEREST-EXPEN> 1,394
<TOTAL-INTEREST-EXPENSE> 396
<NET-INCOME> 582<F1>
12
<EARNINGS-AVAILABLE-FOR-COMM> 570
<COMMON-STOCK-DIVIDENDS> 196
<TOTAL-INTEREST-ON-BONDS> 396
<CASH-FLOW-OPERATIONS> 899
<EPS-BASIC> 2.91
<EPS-DILUTED> 2.89
<FN>
<F1>
(1) Net Income includes an extraordinry item of 437 million (net of income
taxes related to prepayment premiums and the write-off of unamortized debt
costs associated with repayment related to the First Mortgage Bonds and
refinancing of pollution control notes.
</FN>
</TABLE>
