-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QDPl8kZA01iLz9E75qdwJp4gVEvCg5+VocF03xZ1tA/SwogR9/dfx6uRk0FRhzhy WChtj7MXvnP4QE+MF3ng+Q== 0000950131-00-002235.txt : 20000331 0000950131-00-002235.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950131-00-002235 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNICOM CORP CENTRAL INDEX KEY: 0000918040 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 363961038 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-11375 FILM NUMBER: 586579 BUSINESS ADDRESS: STREET 1: 10 SOUTH DEARBORN ST 37TH FLOOR STREET 2: P O BOX A-3005 CITY: CHICAGO STATE: IL ZIP: 60690-3005 BUSINESS PHONE: 3123947399 MAIL ADDRESS: STREET 1: P O BOX 767 CITY: CHICAGO STATE: IL ZIP: 60690 FORMER COMPANY: FORMER CONFORMED NAME: CECO HOLDING CO DATE OF NAME CHANGE: 19940125 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMONWEALTH EDISON CO CENTRAL INDEX KEY: 0000022606 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 360938600 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-01839 FILM NUMBER: 586580 BUSINESS ADDRESS: STREET 1: ONE FIRST NATIONAL PLZ 37TH FL STREET 2: P O BOX 767 CITY: CHICAGO STATE: IL ZIP: 60690 BUSINESS PHONE: 3123944321 MAIL ADDRESS: STREET 1: 10 SOUTH DEARBORN STREET STREET 2: 37TH FLOOR CITY: CHICAGO STATE: IL ZIP: 606900767 10-K 1 FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark one) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1999 [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission Registrant; State of Incorporation; IRS Employer File Number Address; and Telephone Number Identification No. ----------- ----------------------------------- ------------------ 1-11375 UNICOM CORPORATION 36-3961038 (an Illinois corporation) 37th Floor, 10 South Dearborn Street Post Office Box A-3005 Chicago, Illinois 60690-3005 312/394-7399 1-1839 COMMONWEALTH EDISON COMPANY 36-0938600 (an Illinois corporation) 37th Floor, 10 South Dearborn Street Post Office Box 767 Chicago, Illinois 60690-0767 312/394-4321
Securities Registered Pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange - --------------------------- on Which Registered ------------------------- Unicom Corporation Common Stock, without par value New York, Chicago and Pacific Commonwealth Edison Company (Listed on inside cover) Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) have been subject to such filing requirements for the past 90 days. Yes X . No . Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Commonwealth Edison Company Securities Registered Pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered - --------------------------------------- --------------------------- Sinking Fund Debentures: 2 7/8%, due April 1, 2001 New York Company-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Solely the Company's 8.48% Subordinated Debt Securities New York The estimated aggregate market value of Unicom Corporation's 184,283,802 shares of outstanding Common Stock, without par value, was approximately $6,968 million as of February 29, 2000. Approximately 99.9% of Unicom Corporation's voting stock was owned by non-affiliates as of that date. The estimated aggregate market value of Commonwealth Edison Company's outstanding $1.425 Convertible Preferred Stock, Cumulative Preference Stock and Company-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts Holding Solely the Company's Subordinated Debt Securities was approximately $411 million as of February 29, 2000. Unicom Corporation held in excess of 99.99% of the 180,854,004 shares of outstanding Common Stock, $12.50 par value, of Commonwealth Edison Company as of that date. Documents Incorporated by Reference: Portions of Unicom Corporation's definitive Proxy Statement to be filed prior to April 30, 2000, relating to its Annual Meeting of shareholders, are incorporated by reference into Part III of the Unicom Corporation Annual Report on Form 10-K. Portions of Commonwealth Edison Company's Current Report on Form 8-K dated March 30, 2000 are incorporated by reference into Parts I, II and IV of the Commonwealth Edison Company Annual Report on Form 10-K and portions of Commonwealth Edison Company's definitive Information Statement to be filed prior to April 30, 2000, relating to its Annual Meeting of shareholders, are incorporated by reference into Part III of the Commonwealth Edison Company Annual Report on Form 10-K. UNICOM CORPORATION and COMMONWEALTH EDISON COMPANY FORM 10-K For the Fiscal Year Ended December 31, 1999 This document contains the Annual Reports on Form 10-K for the fiscal year ended December 31, 1999 for each of Unicom Corporation and Commonwealth Edison Company. Information contained herein relating to an individual registrant is filed by such registrant on its own behalf. Accordingly, except for its subsidiaries, Commonwealth Edison Company makes no representation as to information relating to Unicom Corporation or to any other companies affiliated with Unicom Corporation. TABLE OF CONTENTS
Page ---- Definitions............................................................... 1 Annual Report on Form 10-K for Unicom Corporation: Part I Item 1. Business........................................................ 2 General............................................................ 2 Changes in the Electric Utility Industry........................... 3 Construction Program............................................... 8 Fuel Supply........................................................ 10 Regulation......................................................... 10 Employees.......................................................... 14 Interconnections................................................... 15 Franchises......................................................... 15 Executive Officers of the Registrant............................... 16 Year 2000 Conversion............................................... 17 Forward-Looking Information........................................ 17 Item 2. Properties...................................................... 18 Item 3. Legal Proceedings............................................... 19 Item 4. Submission of Matters to a Vote of Security Holders............. 22 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................................................................ 23 Item 6. Selected Financial Data......................................... 24 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................................... 24 Item 7A Quantitative and Qualitative Disclosures About Market Risks..... Item 8. Financial Statements and Supplementary Data..................... 24 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................................ 24 Part III Item 10. Directors and Executive Officers of the Registrant............. 24 Item 11. Executive Compensation......................................... 25 Item 12. Security Ownership of Certain Beneficial Owners and Manage- ment................................................................... 25 Item 13. Certain Relationships and Related Transactions................. 25
i UNICOM CORPORATION and COMMONWEALTH EDISON COMPANY FORM 10-K For the Fiscal Year Ended December 31, 1999 TABLE OF CONTENTS (Concluded)
Page ---- Annual Report on Form 10-K for Commonwealth Edison Company: Part I Item 1.Business......................................................... 26 Executive Officers of the Registrant................................ 26 Item 2.Properties....................................................... 28 Item 3.Legal Proceedings................................................ 28 Item 4.Submission of Matters to a Vote of Security Holders.............. 28 Part II Item 5.Market for Registrant's Common Equity and Related Stockholder Matters................................................................ 28 Item 6.Selected Financial Data.......................................... 28 Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations..................................................... 28 Item 7A. Quantitative and Qualitative Disclosures About Market Risks.... 28 Item 8.Financial Statements and Supplementary Data...................... 28 Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........................................... 28 Part III Item 10. Directors and Executive Officers of the Registrant............ 29 Item 11. Executive Compensation........................................ 29 Item 12. Security Ownership of Certain Beneficial Owners and Management............................................................. 29 Item 13. Certain Relationships and Related Transactions................ 29 Annual Reports on Form 10-K for Unicom Corporation and Commonwealth Edison Company: Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8- K...................................................................... 30 (a) Financial Statements, Financial Statement Schedules and Exhib- its.............................................................. 30 (b) Reports on Form 8-K........................................... 36 Report of Independent Public Accountants on Supplemental Schedule to Commonwealth Edison Company............................................ 37 Signature Page to Unicom Corporation Annual Report on Form 10-K......... 38 Signature Page to Commonwealth Edison Company Annual Report on Form 10- K...................................................................... 39
ii DEFINITIONS The following terms are used in this document with the following meanings:
Term Meaning ---------------------- ------------------------------------------------------- 1997 Act Illinois Electric Service Customer Choice and Rate Relief Law of 1997 APX Automated Power Exchange Inc., a California company CERCLA Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended CHA Chicago Housing Authority ComEd Commonwealth Edison Company ComEd Funding ComEd Funding, LLC, a ComEd subsidiary ComEd Funding Trust ComEd Transitional Funding Trust, a ComEd Funding subsidiary Congress U.S. Congress Cotter Cotter Corporation, a ComEd subsidiary CTC Non-bypassable "competitive transition charge" DOE U.S. Department of Energy EME Edison Mission Energy, an Edison International subsidiary FERC Federal Energy Regulatory Commission IBEW International Brotherhood of Electrical Workers (AFL- CIO) ICC Illinois Commerce Commission IDNS Illinois Department of Nuclear Safety IDR Illinois Department of Revenue Illinois EPA Illinois Environmental Protection Agency Indiana Company Commonwealth Edison Company of Indiana, Inc., a ComEd subsidiary INPO Institute of Nuclear Power Operations IPCB Illinois Pollution Control Board ISO Independent System Operator MAIN Mid-America Interconnected Network MGP Manufactured gas plant NPDES National Pollutant Discharge Elimination System NPL National Priorities List NRC Nuclear Regulatory Commission PECO PECO Energy Company, a Pennsylvania company RES Retail Electric Supplier SEC Securities and Exchange Commission SPEs Special purpose entities S&P Standard & Poor's Trust Securities ComEd-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely ComEd's subordinated debt securities Unicom Unicom Corporation Unicom Energy Services Unicom Energy Services Inc., a Unicom Enterprises subsidiary Unicom Enterprises Unicom Enterprises Inc., a Unicom subsidiary Unicom Investment Unicom Investment, Inc., a Unicom Enterprises subsidiary Unicom Thermal Unicom Thermal Technologies Inc., a UT Holdings subsidiary U.S. EPA U.S. Environmental Protection Agency UT Holdings UT Holdings Inc., a Unicom Enterprises subsidiary
1 ANNUAL REPORT ON FORM 10-K FOR UNICOM CORPORATION PART I Item 1. Business. General Unicom was incorporated in January 1994. ComEd, a regulated electric utility, is the principal subsidiary of Unicom. Unicom Enterprises is an unregulated subsidiary of Unicom and is engaged, through its subsidiaries, in energy service activities. Unicom's principal executive offices are located at Ten South Dearborn Street, Post Office Box A-3005, Chicago, Illinois 60690- 3005, and its telephone number is 312/394-7399. ComEd represents substantially all of the results of operations of Unicom; and Unicom's resources and results of operations are largely dependent on, and reflect, those of ComEd. Consequently, the following discussion generally focuses, in more detail, on ComEd's utility operations although information is also provided about Unicom's unregulated operations. Utility Operations. ComEd is engaged principally in the production, purchase, transmission, distribution and sale of electricity to a diverse base of residential, commercial, industrial and wholesale customers. ComEd was organized in the state of Illinois on October 17, 1913 as a result of the merger of Cosmopolitan Electric Company into the original corporation named Commonwealth Edison Company. The latter had been incorporated on September 17, 1907. ComEd's service territory has an area of approximately 11,300 square miles and an estimated population of approximately eight million as of December 31, 1999. It includes the city of Chicago, an area of about 225 square miles with an estimated population of approximately three million from which ComEd derived approximately 30 percent of its ultimate consumer revenues in 1999. ComEd had approximately 3.5 million customers at December 31, 1999. ComEd's principal executive offices are located at Ten South Dearborn Street, Post Office Box 767, Chicago, Illinois 60690-0767, and its telephone number is 312/394-4321. Unregulated Operations. Unicom Enterprises is engaged, through subsidiaries, in energy service activities which are not subject to utility regulation by federal or state agencies. One of these subsidiaries, UT Holdings, provides district cooling and related services to offices and other buildings in the central business district of Chicago and in other cities in North America, generally working with local utilities. District cooling involves, in essence, the production of chilled water at one or more central locations and its circulation to customers' buildings through a closed circuit of supply and return piping. Such water is circulated through customers' premises primarily for air conditioning. This process is used by customers in lieu of self- generated cooling. Unicom Energy Services, another subsidiary of Unicom Enterprises, is engaged in providing energy services, including gas services, performance contracting, distributed energy and energy management systems. Through an alliance with AlliedSignal Power Systems, Inc., a subsidiary of AlliedSignal Inc., Unicom Energy Services is an exclusive distributor for the Parallon 75(TM) TurboGenerator system, which was developed by AlliedSignal to provide customers with on-site electricity production. Unicom Energy Services' exclusive distribution territory encompasses 12 Midwest states, Ontario, Canada and Puerto Rico. Unicom Power Holdings, another subsidiary of Unicom Enterprises, is developing certain generation and cogeneration projects. Unicom Energy Inc., also a subsidiary of Unicom Enterprises, is currently engaged in providing retail gas services to commercial and industrial customers in the Midwest region. Unicom Energy Inc. also provides retail electric services as an unregulated retail energy supplier. 2 Unicom Mechanical Services Inc., a subsidiary of Unicom Enterprises, engages in the design, installation and servicing of heating, ventilation and air conditioning facilities for commercial and industrial customers in Chicago and surrounding area through subsidiaries conducting business as Midwest Mechanical and V.A. Smith Company. Merger Agreement. In September 1999, the Boards of Directors of Unicom and PECO approved a merger of equals that will create a new holding company, Exelon. The merger is conditioned, among other things, upon the approvals of the shareholders of both companies and by various regulatory bodies. The merger is currently expected to be completed in the latter half of 2000. Under the merger agreement, as amended and restated January 7, 2000, PECO and ComEd will become the principal utility subsidiaries of Exelon. This result will be achieved by a mandatory exchange of the outstanding common stock of PECO for common stock of Exelon, and a merger of Unicom with and into Exelon wherein holders of Unicom common stock will receive 0.875 shares of Exelon common stock plus $3.00 in cash for each of their shares of Unicom common stock. The merger transaction will be accounted for as a purchase of Unicom by PECO. Prior to the consummation of the merger, Unicom expects to repurchase approximately $1.0 billion of its outstanding common shares. These share repurchases are in addition to 26.3 million shares of Unicom common stock that Unicom repurchased in January 2000 upon settlement of certain forward purchase contracts. The $1.0 billion additional share repurchases will be funded from available funds, including funds resulting from the fossil plant sale. The merger agreement, as amended and restated, was filed on January 13, 2000 by Unicom with the SEC as an exhibit to a Form 8-K, and reference to that filing is made for more detailed information. Changes in the Electric Utility Industry Unicom and its predominant business, electric energy generation, transmission and distribution, are in a period of fundamental change. These changes are attributable to changes in technology and regulation. Federal law and regulations have been amended to provide for open transmission system access, and various states, including Illinois, are considering, or have adopted, new regulatory structures to allow access by some or all customers to energy suppliers in addition to the local utility. Electric Utility Industry. The electric utility industry historically has consisted of vertically integrated companies which combine generation, transmission and distribution assets; serve customers within relatively defined service territories; and operate under extensive regulation with respect to rates, operations and other matters. Utilities have operated under a regulatory compact with the state, with a statutory obligation to serve all of the electricity needs within their service territory in a nondiscriminatory manner. Historically, investment and operating decisions have been made based upon the utilities' respective assessment of the current and projected needs of their customers. In view of this obligation, regulation has focused on investment and operating costs, and rates have been based on a recovery of some or all of such prudently incurred costs plus a return on invested capital. Such rate regulation, and the ability of utilities to recover investment and other costs through rates, have provided the basis for recording certain costs as regulatory assets. These assets represent costs which are allocated over future periods reflecting related regulatory treatment, rather than expensed in the current period. 3 Federal Regulation. The Federal Energy Policy Act of 1992, among other things, empowered FERC to introduce a greater level of competition into the wholesale marketplace for electric energy. Under FERC Order No. 888, utilities are required to file open access tariffs with regard to their transmission systems. These tariffs set forth the terms, including prices, under which other parties and the utility's wholesale marketing function may use the utility's transmission system. ComEd has an approved open access tariff with the FERC. A companion FERC rule, Order No. 889, requires the separation of the transmission operations and wholesale marketing functions so as to ensure that unaffiliated third parties have access to the same information as to system availability and other requirements. The FERC Order further requires utilities to operate an electronic bulletin board to make transmission price and access data available to all potential users. A key feature of FERC Order No. 888 is that it contemplates full recovery of a utility's costs "stranded" by competition. These costs are "stranded" or "strandable" to the extent market- based rates would be insufficient to allow for their full recovery. To recover stranded costs, the utility must show that it had a reasonable expectation that it would continue to serve the customer in question under its regulatory compact. In addition, some government entities, such as cities, may elect to "municipalize" a utility's distribution facilities through condemnation proceedings. Such municipalities would then be able to purchase electric power on a wholesale basis and resell it to customers over the newly acquired facilities. The FERC Order provides for the recovery of a utility's investment stranded by municipalization. The 1997 Act. In December 1997, the Governor of Illinois signed into law the 1997 Act, which established a phased process to introduce competition into the electric industry in Illinois under a less regulated structure. The 1997 Act was amended in June 1999. As a result of the 1997 Act and FERC rules, prices for the supply of electric energy are expected to change from cost-based, regulated rates to rates determined by competitive market forces. Accordingly, the 1997 Act provides for, among other things, gradual customer access to other electric suppliers or a power purchase option which allows the purchase of electric energy from ComEd at market based prices, and the collection of a CTC from customers who choose to purchase electric energy from a RES or elect the power purchase option during a transition period that extends through 2006. Effective October 1, 1999, the CTC was established in accordance with a formula defined in the 1997 Act. The CTC, which is applied on a cents per kilowatthour basis, considers the revenue which would have been collected from a customer under tariffed rates, reduced by the revenue the utility will receive for providing delivery services to the customer, the market price for electricity and a defined mitigation factor, which represents the utility's opportunity to develop new revenue sources and achieve cost savings. The CTC allows ComEd to recover some of its costs which might otherwise be unrecoverable under market-based rates. Nonetheless, ComEd will need to take steps to address the portion of such costs which are not recoverable through the CTC. Such steps may include cost control efforts, developing new sources of revenue and asset dispositions. On October 1, 1999, more than 41,000 non-residential customers became eligible to choose a new electric supplier or elect the purchase power option. The remainder of the non-residential customers will become eligible to choose an electric supplier or the purchase power option between June 1 and December 31, 2000. As of December 31, 1999, over 4,700 non-residential customers, representing approximately ten percent of ComEd's 1998 retail kilowatthour sales, elected to receive their electric energy from a RES or chose the purchase power option. As a result of the collection of CTC's from such customers, ComEd does not expect these elections to have a material effect on its results of operations in the near term. Utilities are required to continue to offer delivery services, including the transmission and distribution of electric energy, such that customers who select a RES can receive electric energy from that supplier using existing transmission and distribution facilities. Such services will continue to be 4 offered under cost-based, regulated rates. The ICC issued orders in August and September 1999 approving, with modifications, ComEd's delivery service tariffs. The 1997 Act committed ComEd to spend at least $2 billion during the period 1999 through 2004 on transmission and distribution facilities outside of Chicago and to contribute $250 million to an environmental trust, as a result of closing of the fossil plant sale. See "Fossil Plant Sale" below for additional information. The 1997 Act also provides for a 15% residential base rate reduction which became effective August 1, 1998 and an additional 5% residential base rate reduction in October 2001. ComEd's operating revenues were reduced by approximately $170 million in 1998 due to the 15% residential base rate reduction. The 15% rate reduction further reduced ComEd's operating revenues by approximately $226 million in 1999, compared to 1998 rate levels. Notwithstanding these rate reductions, and subject to certain earnings tests, a rate freeze will generally be in effect until at least January 1, 2005. During this period, utilities may reorganize, sell or assign assets, retire or remove plants from service, and accelerate depreciation or amortization of assets with limited ICC regulatory review. A utility may request a rate increase during the rate freeze period only when necessary to ensure the utility's financial viability, but not before January 1, 2000. Under the earnings provision of the 1997 Act, if the earned return on common equity of a utility during this period exceeds an established threshold, one- half of the excess earnings must be refunded to customers. The threshold rate of return on common equity is based on the 30-Year Treasury Bond rate, plus 5.5% in the years 1998 through 1999 and plus 8.5% in the years 2000 through 2004. The utility's earned return on common equity and the threshold return on common equity are each calculated on a two-year average basis. The earnings sharing provision is applicable only to ComEd's earnings. In accordance with the provisions of 1997 Act, increased amortization of regulatory assets may be recorded, thereby reducing the earned return on common equity, if earnings otherwise would have exceeded the maximum allowable rate of return. The potential for earnings sharing or increased amortization of regulatory assets could limit earnings in future periods. The 1997 Act also allows a portion of ComEd's future revenues to be segregated and used to support the issuance of securities by ComEd or a SPE. The proceeds, net of transaction costs, from such securities issuances must be used to refinance outstanding debt or equity or for certain other limited purposes. The total amount of such securities that may be issued is approximately $6.8 billion. In December 1998, ComEd initiated the issuance of $3.4 billion of transitional trust notes through its SPEs, ComEd Funding and ComEd Funding Trust. See "Liquidity and Capital Resources," subcaption "UTILITY OPERATIONS--Capital Resources" on page F-10, and Notes 3 and 7 of Notes to Financial Statements on page F-39 and F-43, respectively, for additional information regarding the redemptions and repurchase of debt and equity. The 1997 Act also requires utilities to establish or join an ISO that will independently manage and control utility transmission systems. Additionally, the 1997 Act includes the leveling of certain regulatory requirements to permit operational flexibility, the leveling of certain regulatory and tax provisions as applied to various electric suppliers and a new, more stringent, reliability requirement applicable to ComEd in the event of a major outage. See "Response to Regulatory Changes" below for additional information. See Note 1, under "Regulatory Assets and Liabilities," and Note 3 of Notes to Financial Statements on page F-33 and F-39, respectively, for the accounting effects related to the 1997 Act. Response to Regulatory Changes. Unicom has announced several business and operational objectives designed to focus efforts in responding to the energy market changes that are expected to 5 develop from the 1997 Act. Among other things, these strategic objectives call for a focus on operations to: (1) provide a reliable supply of electricity as the competitive marketplace evolves, (2) become a top quartile operator of competitive nuclear plants, (3) deliver competitive earnings while restructuring the balance sheet to reflect the realities of the marketplace, (4) expand the offering of energy-related products and services, and (5) transform the corporate culture of Unicom. Under the 1997 Act, the role of electric utilities in the supply and delivery of energy is expected to change. Utilities, such as ComEd, traditionally have been responsible for providing both adequate supply and reliable delivery of electricity to customers within their service areas. In the future, ComEd will continue to be obligated to provide a reliable delivery system. However, ComEd will be obligated to supply electricity only to those customers that it continues to serve under tariffs for electricity, but not to those customers who choose to rely on the marketplace. Nonetheless, during the transition period to a competitive supply marketplace, ComEd must provide both an adequate supply and reliable delivery of electricity. Given the tight capacity situation in ComEd's market, ComEd will continue working to maintain its available capacity, as well as working to assist in the development of a competitive supply marketplace in Illinois. ComEd has a significant commitment to, and investment in, nuclear generating capacity. ComEd has installed a management team responsible for improving nuclear operations. Such improvements are aimed at increasing levels of energy generation, or capacity factors, at ComEd's nuclear generating units while simultaneously improving ComEd's record of meeting NRC requirements and INPO performance standards. Increased capacity factors generally result in lower unit production costs and an improved opportunity to generate and sell electricity in a competitive marketplace. Efforts are also being made to control capital and operating costs through increased efficiencies, such as the reduction of downtime and expenses associated with generating unit maintenance and refueling outages. ComEd also evaluated the recoverability of its generating plant investment as a result of the 1997 Act. See Note 1 of Notes to Financial Statements, under "Regulatory Assets and Liabilities," on page F-33 for additional information. Notwithstanding these efforts, there continues to be an ongoing analysis of the ability of ComEd's various nuclear plants to generate and deliver electric energy safely at competitive prices in the competitive market for energy. Although short-term system reliability and capacity constraints are likely to support the continued operation of ComEd's nuclear units in the near term, expected longer term developments are likely to make decision- making a function of economic considerations. In the absence of short-term reliability and capacity constraints, if a generating plant cannot produce power safely at a cost below the competitive market price, it will be disposed of or closed. Plant impairment adjustments have reduced the carrying value of nuclear plants, and depreciation rates reflecting shortened estimated useful lives for certain stations will reduce the carrying value further during the next several years. However, closure of a plant could involve additional charges associated with the write-off of its then-current carrying value. In January 1998, Unicom and ComEd announced its decision to permanently cease nuclear generating operations at ComEd's Zion Station. The related retirement resulted in a charge in 1997 of $523 million (after-tax), or $2.42 per common share (diluted), reflecting both a write down of the plant's carrying value and a liability for future closing costs. A portion of Zion Station currently is used to provide voltage support in the transmission system that serves ComEd's northern region. See Note 5 of Notes to Financial Statements on page F-41, for additional information. ComEd joined with other Midwestern utilities to design the Midwest ISO in 1998. These utilities have agreed to place their transmission systems under the control of the Midwest ISO as soon as it achieves operational status in 2001. The Midwest ISO, a key element in accommodating the FERC-directed restructuring of the electric industry, is expected to promote enhanced reliability of the transmission system, equal access to the transmission system, and foster increased competition. The Midwest ISO will control the transmission system and will have authority to require modification in 6 the operation of generators connected to that system during system emergencies. ComEd, like other utilities, will retain ownership of its transmission lines. The formation of the Midwest ISO was approved by the FERC in September 1998, subject to certain conditions. In December 1999, ComEd and other Midwestern utilities filed a request with the FERC for a Declaratory Order approving a different organizational template for the regional transmission grid. The request seeks approval for the creation of for-profit transmission companies, operating under the general oversight of the Midwest ISO, but separated from their previous vertically integrated utilities. The request was approved, in part, on February 24, 2000, subject to further development of its elements. In the absence of an ISO-related power exchange, ComEd has also agreed to cooperate with APX in the creation of the first electronic energy exchange in Illinois. Initial products may include hourly, daily and weekly electricity delivered to and from interconnection points on ComEd's transmission system, and a standard system of credit and trading interfaces. Unicom has made a $3 million venture capital investment in APX in order to help finance its expansion in the Midwest. Neither ComEd nor Unicom will receive any voting rights. The power exchange will be independently owned and managed by APX and will allow wholesale and retail market participants to trade electricity anonymously through an internet-based computerized system. ComEd will be treated like any other market participant and will be an active participant in the power exchange which opened in Illinois in the fourth quarter of 1999. Fossil Plant Sale. In December 1999, ComEd completed the sale of its fossil generating assets to EME for a cash purchase price of $4.8 billion. The fossil plant assets represent an aggregate generating capacity of approximately 9,772 megawatts. Just prior to the consummation of the fossil plant sale, ComEd transferred these assets to an affiliate, Unicom Investment. In consideration for the transferred assets, Unicom Investment paid ComEd consideration totalling approximately $4.8 billion in the form of a demand note in the amount of approximately $2.4 billion and an interest-bearing Note with a maturity of twelve years. Unicom Investment immediately sold the fossil plant assets to EME, in consideration of which Unicom Investment received approximately $4.8 billion in cash from EME. Immediately after its receipt of the cash payment from EME, Unicom Investment paid the $2.4 billion aggregate principal due to ComEd under the demand note. Unicom Investment will use the remainder of the cash received from EME to fund other business opportunities, including the share repurchases. Of the cash received by ComEd, $1.8 billion is expected to be used to pay the costs and taxes associated with the fossil plant sale including ComEd's contribution of $250 million of the proceeds to an environmental trust as required by the 1997 Act. The remainder of the demand note proceeds will be available to ComEd to fund, among other things, transmission and distribution projects, nuclear generation station projects, and environmental and other initiatives. The sale produced an after-tax gain of approximately $1.6 billion, after recognizing commitments associated with certain coal contracts ($350 million), recognizing employee-related costs ($112 million) and contributing to the environmental trust. The coal contract costs include the amortization of the remaining balance of ComEd's regulatory asset for unrecovered coal reserves of $178 million and the recognition of $172 million of settlement payments related to the above-market portion of coal purchase commitments ComEd assigned to EME at market value upon completion of the fossil plant sale. The severance costs included pension and post-retirement welfare benefit curtailment and special termination benefit costs of $51 million and transition, separation and retention payments of $61 million. A total of 1,730 fossil station employee positions were eliminated upon completion of the fossil plant sale on December 15, 1999. As of December 31, 1999, 1,590 of the employees whose positions were eliminated had been terminated and 140 affected employees were in a transition program which generally extends 60 days from the date of the fossil plant sale. Consistent with the provisions of the 1997 Act, the (pre-tax) gain on the sale of $2.587 billion resulted in a regulatory liability, which was used to recover regulatory assets. Therefore, the gain on the sale, excluding $43 million of amortization 7 of investment tax credits, was recorded as a regulatory liability in the amount of $2.544 billion and amortized in the fourth quarter of 1999. The amortization of the regulatory liability and additional regulatory asset amortization of $2.456 billion are reflected in depreciation and amortization expense on Unicom's Statement of Consolidated Operations and resulted in a net reduction to depreciation and amortization expense of $88 million. As part of the sale transaction, ComEd entered into transitional, limited term power purchase agreements with the buyer. Such purchase power agreements will increase ComEd's purchased power costs. Construction Program Utility Operations. ComEd has a construction program for the year 2000, which consists principally of improvements to its existing nuclear production, transmission and distribution facilities. The program, as currently approved by ComEd, includes the following estimated expenditures (excluding nuclear fuel expenditures of approximately $260 million).
2000 ---- (Millions of Dollars) Nuclear................................................... $215 Transmission and Distribution............................. 536 General................................................... 146 ---- $897 ====
In response to several outages in the summer of 1999, ComEd conducted an extensive evaluation of the reliability of its transmission and distribution systems. The construction program above reflects a preliminary evaluation of improvements necessary to improve reliability of ComEd's transmission and distribution systems. ComEd is currently evaluating its construction program for the years 2000, 2001 and 2002. The final results of this planning process cannot be determined at this time. ComEd's net nuclear generating plant, including construction work in progress and nuclear fuel, and excluding the decommissioning costs included in the accumulated provison for depreciation, is $7.8 billion at December 31, 1999. Gross additions to and retirements from utility property, excluding nuclear fuel, of ComEd and the Indiana Company for the five years ended December 31, 1999 were $4,801 million and $1,622 million, respectively (excluding the effects of the closure of Zion Station, the sales of State Line and Kincaid Stations and the fossil plant sale). ComEd periodically reviews its projection of probable future demand for electricity in its traditional service territory. It currently projects long- term average annual growth of 1.75% in annual peak load and 1.5% in total annual electricity requirements, excluding sales to other utilities. ComEd's forecasts of peak load indicate a need for additional resources to meet demand, either through generating capacity, equivalent purchased power and/or the development of additional demand-side management resources, in 2000 and each year thereafter for the foreseeable future. ComEd believes that adequate resources can be obtained in sufficient quantities to meet such forecasted needs. Currently, ComEd does not know the ultimate impact on these projections resulting from open access which began on a phased basis on October 1, 1999. 8 Purchase commitments for ComEd, principally related to construction, nuclear fuel and coal in support of certain power purchase agreements approximated $670 million at December 31, 1999. In addition, ComEd's estimated commitments for expected capacity payments and fixed charges related to power purchase agreements were as follows:
Commitments(1) Period ($Millions) ------ -------------- 2000......................... $ 783 2001......................... 698 2002......................... 427 2003-2004.................... 540 2005-2012.................... 1,039 ------ $3,487 ======
-------- (1) Capacity payments may be adjusted based on certain conditions. No estimate of future cost escalation has been made. See "Changes in the Electric Utility Industry," subcaptions "The 1997 Act" and "Fossil Plant Sale" above, for additional information. See "Management's Discussion and Analysis of Financial Condition and Results of Operations," subcaption "Liquidity and Capital Resources--UTILITY OPERATIONS--Capital Resources," on page F-10 for information regarding the capital resources of ComEd. Unregulated Operations. Unicom has approved capital expenditures for 2000 of approximately $85 million for UT Holdings, primarily related to an expansion of its Chicago district cooling facilities and the related distribution piping and plants in other cities. As of December 31, 1999, UT Holdings' purchase commitments, principally related to construction, were approximately $27 million. Unicom has approved capital expenditures for 2000 of approximately $15 million for Unicom Energy Services. As of December 31, 1999, Unicom Energy Services had purchase commitments of approximately $24 million. Unicom has approved capital expenditures for 2000 of approximately $221 million for Unicom Power Holdings. As of December 31, 1999, Unicom Power Holdings had purchase commitments of approximately $78 million. Unicom Power Holdings intends to purchase approximately 440 MW of combustion turbine generators and auxiliary equipment. Such generators will either be sold or placed into cogeneration or other peaking applications. Unicom Power Holdings is evaluating the costs and economics of such alternatives. Unicom Power Holdings anticipates that the equipment purchases will cost approximately $165 million, of which approximately $90 million has been incurred as of December 31, 1999. Unicom Power Holdings may incur significant additional costs to site and install such power generation equipment. Unicom expects to obtain funds to invest in its unregulated subsidiaries principally from the fossil plant sale proceeds received by Unicom Investment, although it may also obtain funds from dividends received on its ComEd common stock and from borrowings. The availability of ComEd's dividends to Unicom is dependent on ComEd's financial performance and cash position, as well as legal restrictions on the payment of dividends by public utilities. Other forms of financing by ComEd to Unicom or the unregulated subsidiaries of Unicom, such as additional loans or additional equity investments, which are not expected, would be subject to prior approval by the ICC. The fossil plant sale proceeds received by Unicom Investment, after the payment of the demand note to ComEd, will be used to fund share repurchases and to invest in new business opportunities. See "Changes in the Electric Utility Industry" subcaption "Fossil Plant Sale" above, for additional information. 9 Unicom Enterprises has an unused $400 million credit facility which will expire on December 15, 2000. The credit facility can be used by Unicom Enterprises to finance investments in unregulated businesses and projects, and for general corporate purposes. The credit facility is guaranteed by Unicom and includes certain covenants with respect to Unicom and Unicom Enterprises' operations. Interest rates for borrowings under the credit facility are set at the time of a borrowing and are based on either a prime interest rate or a floating rate bank index plus a spread which varies with the credit rating of ComEd's outstanding first mortgage bonds. In June 1999, Northwind Midway issued $12 million of 7.68% guaranteed senior Notes due June 2023, the proceeds of which will be used primarily to finance certain project construction costs. The Notes are guaranteed by Unicom and include certain covenants with respect to Unicom and Northwind Midway's operations. In July 1998, Unicom Thermal issued $120 million of 7.38% unsecured guaranteed senior Notes due May 2012, the proceeds of which were used to refinance existing debt. The Notes are guaranteed by Unicom and include certain covenants with respect to Unicom and Unicom Thermal's operations. See Notes 12 and 13 of Notes to Financial Statements on pages F-47 and F-49 for additional information regarding certain covenants with respect to Unicom, Unicom Enterprises and Unicom Thermals' operations. Fuel Supply The kilowatthour generation of ComEd for 1999 was provided from the following fuel sources: nuclear 74%, coal 23% and natural gas 3%. The increases in net generation of electricity for 1999, compared to the prior years, are primarily due to significant improvement in the performance of ComEd's nuclear fleet. In December 1999, ComEd sold its fossil generating assets. As part of the sale transaction, ComEd entered into transitional, limited term power purchase agreements with the buyer. See "Changes in the Electric Utility Industry," subcaption "Fossil Plant Sale" above, and page F- 20 for additional information. Nuclear Fuel. ComEd has uranium concentrate inventory and supply contracts sufficient to meet all of its uranium concentrate requirements through 2000 and portions of its uranium concentrate requirements for periods beyond 2000. ComEd's contracted conversion services are sufficient to meet all of its uranium conversion requirements through 2000 and portions beyond 2000. All of ComEd's enrichment requirements have been contracted through 2003 and portions of its enrichment requirements for periods beyond 2003. Commitments for fuel fabrication have been obtained for ComEd's nuclear units at least through 2005. ComEd does not anticipate that it will have any difficulty in negotiating contracts for uranium concentrates, conversion, enrichment and fuel fabrication services for its remaining requirements. Under the Energy Policy Act of 1992, investor-owned electric utilities that have purchased enrichment services from the DOE are being assessed amounts to fund a portion of the cost for the decontamination and decommissioning of uranium enrichment facilities owned and previously operated by the DOE. ComEd's portion of such assessments is estimated to be approximately $17 million per year (to be adjusted annually for inflation) to 2007. The Act provides that such assessments are to be treated as a cost of fuel. See "Regulation--Nuclear" below for information concerning the disposal of radioactive waste. Regulation ComEd and the Indiana Company are subject to federal and state regulation in the conduct of its business. Such regulation includes rates, securities issuance, nuclear operations, environmental and 10 other matters. Particularly in the cases of nuclear operations and environmental matters, such regulation can and does affect operational and capital expenditures. ComEd is subject to regulation by the ICC as to rates and charges, issuance of most of its securities, service and facilities, classification of accounts, transactions with affiliated interests, as defined in the Illinois Public Utilities Act, and other matters. In addition, the ICC in certain of its rate orders has exercised jurisdiction over ComEd's environmental control program. See "Changes in the Electric Utility Industry-- The 1997 Act" above for information regarding the 1997 Act. ComEd is subject to the jurisdiction of the FERC with respect to the issuance of certain of its securities. ComEd is also subject to the jurisdiction of the FERC and the DOE under the Federal Power Act with respect to certain other matters, including the sale for resale of electric energy and the transmission of electric energy in interstate commerce, and to the jurisdiction of the DOE with respect to the disposal of spent nuclear fuel and other radioactive wastes. See "Changes in the Electric Utility Industry-- Federal Regulation" above for information regarding FERC Order Nos. 888 and 889 and the Energy Policy Act of 1992. Unicom is a public utility holding company, as defined by the Public Utility Holding Company Act of 1935, because of its majority ownership of ComEd's common stock, and ComEd is a public utility holding company as defined in such Act because of its ownership of the Indiana Company. However, both Unicom and ComEd are exempt from most provisions of such Act. Nuclear. Under the Nuclear Waste Policy Act of 1982, the DOE is responsible for the selection and development of repositories for, and the disposal of, spent nuclear fuel and high-level radioactive waste. The costs incurred by the DOE for disposal activities will be paid out of fees charged to owners and generators of spent nuclear fuel and high-level radioactive waste. ComEd, as required by that Act, has signed a contract with the DOE to provide for the disposal of spent nuclear fuel and high-level radioactive waste from ComEd's nuclear generating stations. That contract provided for acceptance by the DOE of such materials to begin in January 1998; however, that date was not met by the DOE and is expected to be delayed significantly. The DOE's current estimate for opening a facility to accept such waste is 2010. This extended delay in spent nuclear fuel acceptance by the DOE has led to ComEd's consideration of additional dry storage alternatives. On July 30, 1998, ComEd filed a complaint against the United States in the United States Court of Federal Claims, seeking to recover damages caused by the DOE's failure to honor its contractual obligation to begin disposing of spent nuclear fuel in January 1998. The contract with the DOE requires ComEd to pay the DOE a one-time fee applicable to nuclear generation through April 6, 1983 of $277 million, with interest to date of payment, and a fee payable quarterly equal to one mill per kilowatthour of nuclear-generated and sold electricity after April 6, 1983. Pursuant to the contract, ComEd has elected to pay the one-time fee, with interest, just prior to the first delivery of spent nuclear fuel to the DOE. The liability for the one-time fee and related interest is reflected on the Consolidated Balance Sheets on page F-28. ComEd has responsibility for the storage of its spent nuclear fuel until it is accepted by the DOE. Dresden Station has spent fuel capacity into the year 2001, Zion Station has capacity for all of its spent fuel, Byron and Braidwood Stations have spent fuel capacity into approximately 2011 and 2014, respectively, Quad Cities Station has spent fuel capacity into 2006 and LaSalle Station has spent fuel capacity through 2012. ComEd is developing on site dry cask spent fuel storage for Dresden Unit 1, which is expected to be funded by the external decommissioning trusts. The Dresden Unit 1 dry storage canisters will meet the federal requirements for both storage and transportation of spent nuclear fuel. The storage canisters could be in use by the year 2000. Meeting spent fuel storage requirements beyond the years stated above could require new and separate storage facilities. See "Depreciation, Amortization of Regulatory Assets and Liabilities and Decommissioning" under 11 Note 1 of Notes to Financial Statements on page F-34 for information regarding the external decommissioning trusts. The federal Low-Level Radioactive Waste Policy Act of 1980 provides that states may enter into compacts to provide for regional disposal facilities for low-level radioactive waste and restrict use of such facilities to waste generated within the region. Illinois has entered into a compact with the state of Kentucky, which has been approved by Congress as required by the Waste Policy Act. Neither Illinois nor Kentucky currently has an operational site, and none is currently expected to be operational until after the year 2011. ComEd has temporary on-site storage capacity at its nuclear generating stations for a limited amount of low-level radioactive waste and has been shipping such waste to a low-level radioactive waste site in South Carolina and Utah. ComEd anticipates the possibility of continuing difficulties in disposing of low-level radioactive waste. ComEd continues to evaluate its options relating to the disposal of low-level radioactive waste. ComEd is subject to the jurisdiction of the NRC with respect to its nuclear generating stations. The NRC regulations control the granting of permits and licenses for the construction and operation of nuclear generating stations and subject such stations to continuing review and regulation. The NRC review and regulatory process covers, among other things, the operations, maintenance, and environmental and radiological aspects of such stations. The NRC may modify, suspend or revoke licenses and impose civil penalties for failure to comply with the Atomic Energy Act, the regulations under such Act or the terms of such licenses. Nuclear operations have been, and remain, an important focus of ComEd. ComEd operates five nuclear plants--Braidwood, Byron, Dresden, LaSalle and Quad Cities Stations, and is committed to safe, reliable and efficient operation. See "Changes in the Electric Utility Industry," subcaption "Response to Regulatory Changes" above, for information regarding ComEd's permanent cessation of nuclear generation operations at its Zion Station. On May 6, 1999, ComEd's LaSalle Station was officially removed from the NRC's listing of plants that require increased regulatory scrutiny. LaSalle Station had been on this list since January 1997. Concurrent with the LaSalle Station action, the NRC announced the formal removal of the Quad Cities Station from its list of plants with declining performance trends. Quad Cities Station had been on the declining trend list since January 1998. With these actions, all of ComEd's nuclear plants are now placed in the NRC's "routine oversight" category. The NRC and representatives of ComEd's management have met, and will continue to meet periodically as part of the NRC's normal oversight process, to discuss the overall performance of the ComEd nuclear program. Based on ComEd's most recent study, decommissioning costs are estimated to be $5.7 billion in current-year (2000) dollars, including a contingency allowance. This estimate includes $617 million of non-radiological costs, which are included in ComEd's proposed rider for recovery, as discussed below. ComEd's decommissioning cost expenditures at the end of the units' operating lives are estimated to total approximately $13.8 billion. These expenditures are expected to occur primarily during the period from 2007 through 2034. All such costs are expected to be funded by external decommissioning trusts, which ComEd established in compliance with Illinois law and into which ComEd has been making annual contributions. Future decommissioning cost estimates may be significantly affected by the adoption of or changes to NRC regulations, as well as changes in the assumptions used in making such estimates, including changes in technology, available alternatives for the disposal of nuclear waste and inflation. Under an annual rider, filed with the ICC on February 26, 1999, ComEd has proposed to increase its estimated annual decommissioning cost accrual from $84 million to $130 million. The proposed 12 increase primarily reflects an increase in low-level waste disposal cost escalation, the inclusion of $219 million in current-year (2000) dollars for safety-related costs of maintaining Zion Station in a mothballed condition until dismantlement begins, and the inclusion of non-radiological costs in the decommissioning cost estimates for recovery under the rider. The ICC is expected to issue an order in this proceeding in the second quarter of 2000. See Note 1 of Notes to Financial Statements, under "Depreciation, Amortization of Regulatory Assets and Liabilities, and Decommissioning," on page F-34 for additional information regarding decommissioning costs. During the year 1999, one civil penalty was proposed for ComEd for a violation of NRC regulations in the amount of $110,000. To ComEd's knowledge, there are no enforcement issues outstanding or under review by the NRC. The IDNS has jurisdiction over certain activities in Illinois relating to nuclear power and safety, and radioactive materials. Effective June 1, 1987, the IDNS replaced the NRC as the regulator and licensor of certain source, by- product and special nuclear material in quantities not sufficient to form a critical mass, including such material contained in various measuring devices used at fossil-fuel power plants. The IDNS does not regulate ComEd's nuclear generating stations. The IDNS has promulgated regulations which are substantially similar to the corresponding federal regulations. The IDNS also has authority to license a low-level radioactive waste disposal facility and to regulate alternative methods for disposing of materials which contain only trace amounts of radioactivity. Environmental. ComEd is subject to regulation regarding environmental matters by the United States and by the states of Illinois, Iowa and by local jurisdictions where ComEd operates its facilities. The IPCB has jurisdiction over environmental control in the state of Illinois, which includes authority to regulate air, water and noise emissions and solid waste disposal, together with the Illinois EPA, which enforces regulations of the IPCB and issues permits in connection with environmental control. The U.S. EPA administers certain federal statutes relating to such matters. The IPCB has published a proposed rule under which it would have the power to regulate radioactive air pollutants under the Illinois Environmental Protection Act and the Federal Clean Air Act Amendments of 1977. Under the Federal Clean Water Act, NPDES permits for discharges into waterways are required to be obtained from the U.S. EPA or from the state environmental agency to which the permit program has been delegated. Those permits must be renewed periodically. ComEd either has NPDES permits for all of its generating stations or has pending applications for such permits under the current delegation of the program to the Illinois EPA. ComEd is also subject to the jurisdiction of certain pollution control agencies of the state of Iowa with respect to the discharge into the Mississippi River from Quad Cities Station. CERCLA provides for immediate response and removal actions coordinated by the U.S. EPA to releases of hazardous substances into the environment and authorizes the U.S. Government either to clean up sites at which hazardous substances have created actual or potential environmental hazards or to order persons responsible for the situation to do so. Under CERCLA, generators and transporters of hazardous substances, as well as past and present owners and operators of hazardous waste sites, are made strictly, jointly and severally liable for the cleanup costs of waste at sites, most of which are listed by the U.S. EPA on the NPL. These responsible parties can be ordered to perform a cleanup, can be sued for costs associated with a U.S. EPA directed cleanup, may voluntarily settle with the U.S. Government concerning their liability for cleanup costs, or may voluntarily begin a site investigation and site remediation prior to listing on the NPL under state oversight. Various states, including Illinois, have enacted statutes which contain provisions substantially similar to CERCLA. ComEd and its subsidiaries are or are likely to become parties to proceedings initiated by the U.S. EPA, state agencies and/or other responsible parties under CERCLA with respect to a number of 13 sites, including MGP sites, or may voluntarily undertake to investigate and remediate sites for which they may be liable under CERCLA. MGPs manufactured gas in Illinois from approximately 1850 to 1950. ComEd generally did not operate MGPs as a corporate entity but did, however, acquire MGP sites as part of the absorption of smaller utilities. Approximately half of these sites were transferred to then Northern Illinois Gas Company (Nicor Gas) as part of a general conveyance in 1954. ComEd also acquired former MGP sites as vacant real estate on which ComEd facilities have been constructed. To date, ComEd has identified 44 former MGP sites for which it may be liable for remediation. In the fourth quarter of 1999, ComEd re-evaluated its environmental remediation strategies. As a result of this re-evaluation, ComEd's current best estimate of its cost of former MGP site investigation and remediation is $93 million in current-year (2000) dollars (reflecting a discount rate of 6.5%). Such estimate, reflecting an estimated inflation rate of 3% and before the effects of discounting, is $182 million. It is expected that the costs associated with investigation and remediation of former MGP sites will be substantially incurred through 2012, however monitoring and certain other costs are expected to be incurred through 2042. ComEd's current estimate of its costs of former MGP site investigation and remediation of $93 million has been included in other noncurrent liabilities on the Consolidated Balance Sheets on page F-28, as of December 31, 1999. The increase in ComEd's estimated costs of former MGP sites of $68 million in 1999 over 1998 was included in operation and maintenance expenses on Unicom and ComEd's Statements of Consolidated Operations on page F-26. In addition, as of December 31, 1999 and 1998, a reserve of $8 million has been included in other noncurrent liabilities on the Consolidated Balance Sheets on page F-28, representing ComEd's estimate of the liability associated with cleanup costs of sites other than former MGP sites. These cost estimates are based on currently available information regarding the responsible parties likely to share in the costs of responding to site contamination, the extent of contamination at sites for which the investigation has not yet been completed and the cleanup levels to which sites are expected to have to be remediated. While ComEd may have rights of reimbursement under insurance policies, amounts that may be recoverable from other entities are not considered in establishing the estimated liability for the environment remediation costs. The outcome of many of the regulatory proceedings referred to above, if not favorable, could have a material adverse effect on Unicom and ComEd's future business and operating results. From time to time, Unicom and its subsidiaries are, or are claimed to be, in violation of or in default under orders, statutes, rules or regulations relating to environmental controls and other matters, compliance plans imposed upon or agreed to by them or permits issued by various state and federal agencies for the construction or operation of their facilities. Unicom and ComEd do not believe, so far as they now foresee, that such violations or defaults will have a material adverse effect on their future business and operating results, except for events otherwise described in these Annual Reports on Form 10-K, which could have such an effect. Employees Unicom and its subsidiary companies had approximately 14,435 and 15,962 employees as of December 31, 1999 and 1998, respectively. The reduction from 1998 is substantially due to the sale of ComEd's fossil plant assets. See "Fossil Plant Sale" above for additional information. ComEd had approximately 14,308 employees as of December 31, 1999 of which approximately 7,671 ComEd employees were represented by IBEW Local 15. The Collective Bargaining Agreement with Local 15 became effective August 25, 1997, and provides, among other things, for a term expiring on March 31, 2001. A previously negotiated general wage increase of 1.5% was effective April 1, 1997, for all employees covered by the Collective Bargaining Agreement. Additionally, a general wage increase of 1.5% was effective October 13, 1997, and was applied on a retroactive basis to March 31, 1997. For each of the remaining three years, a 3% 14 general wage increase will be granted to employees covered by the Collective Bargaining Agreement, effective the beginning of the pay period that includes April 1st of each such year. The supplemental agreements covering the life insurance, savings and investment plan, and health care plans are effective through March 31, 2001. ComEd is currently in negotiations with IBEW Local 15 concerning the supplemental agreement covering pension benefits which expired on September 30, 1999. Interconnections ComEd has interconnections for the transmission of electricity with Central Illinois Light Company, Central Illinois Public Service Company (a subsidiary of Ameren), Illinois Power Company, Indiana Michigan Power Company (a subsidiary of American Electric Power Company), Alliant West, MidAmerican Energy Company, Northern Indiana Public Service Company, Wisconsin Electric Power Company and Alliant East for the purpose of exchanging energy and for other forms of mutual assistance. ComEd and 40 other utilities are members of MAIN. The members have entered into an agreement to work together to ensure the reliability of electric power production and transmission throughout the area they serve. ComEd joined with other Midwestern utilities to form a regional Midwest ISO in January 1998. See "Changes in the Electric Utility Industry--Response to Regulatory Changes" above for additional information. Franchises ComEd's franchises are, in general, deemed adequate to permit it to engage in the business it now conducts. ComEd operates in Chicago under a nonexclusive electric franchise ordinance, effective January 1, 1992, and continuing in force until December 31, 2020. ComEd derives approximately one-third of its ultimate consumer revenues from customers located within Chicago. See "Item 3. Legal Proceedings" regarding a settlement agreement reached with the City of Chicago. The electric business outside of Chicago is conducted in municipalities under nonexclusive franchises and, where required, under certificates of convenience and necessity granted by the ICC. The following tabulation summarizes, as of December 31, 1999, the expiration dates of the electric franchises held in the 395 municipalities outside of Chicago capable of granting franchises and in which ComEd currently provides electric service.
Estimated Number of Aggregate Franchise Expiration Periods Municipalities Population - ---------------------------- -------------- ---------- 2000-2006............................................. 2 82,000 2007-2017............................................. 10 96,000 2018-2028............................................. 3 3,537 2029-2039............................................. 1 * 2040 and subsequent years............................. 376 4,033,000 No stated time limit.................................. 3 61,000
- -------- *Less than 1,000 people. 15 Executive Officers of the Registrant The effective year of election of the officers to their present positions and the prior positions they have held with Unicom or other companies, since January 1, 1995, are described below.
Name and Age Position ---------------------------- ----------------------------------------------- *John W. Rowe, 54 Chairman, President and Chief Executive Officer of Unicom and ComEd since March 1998; previ- ously President and Chief Executive Officer of New England Electric System. *Paul A. Elbert, 50 Executive Vice President of Unicom and ComEd and President Unicom Enterprises Inc. since October 1999; previously President and Chief Executive Officer--Gas for Consumers Energy Company from August 1997 to September 1999; previously Executive Vice President and Chief Operating Officer--Gas at Consumers Energy Company from December 1994 to August 1997. *Oliver D. Kingsley, Jr., 57 Executive Vice President of Unicom and ComEd and President and Chief Nuclear Officer--Nu- clear Generation Group of ComEd since October 1997; previously Chief Nuclear Officer at the Tennessee Valley Authority. *Pamela B. Strobel, 47 Executive Vice President and General Counsel of Unicom and ComEd since January 1999; previ- ously Senior Vice President and General Coun- sel of Unicom and ComEd, October 1997 to De- cember 1998; previously Vice President and General Counsel of ComEd. *Frank M. Clark, 54 Senior Vice President of Unicom and ComEd since January 1999; previously Vice President of ComEd, January 1997 to December 1998; previ- ously Governmental Affairs Vice President 1996 to January 1997 and Governmental Affairs Man- ager. *Carl J. Croskey, 48 Senior Vice President of Unicom and ComEd and President of Distribution at ComEd since Au- gust 1999; previously President of MichCon En- terprises Inc., a subsidiary of Michigan Con- solidated Gas Company from January 1998 to Au- gust 1999; previously Senior Vice President of Operations for Michigan Consolidated Gas Com- pany from April 1995 to January 1998. *Ruth Ann M. Gillis, 45 Senior Vice President and Chief Financial Offi- cer of Unicom and ComEd since January 1999; previously Vice President and Treasurer of Unicom and ComEd, September 1997 to December 1998; previously Vice President, Chief Finan- cial Officer and Treasurer of the University of Chicago Hospitals and Health System from 1996 to 1997 and Senior Vice President and Chief Financial Officer of American National Bank and Trust Company. *Elizabeth A. Moler, 50 Senior Vice President of ComEd and Unicom since January 2000; previously Director of Unicom and ComEd from December 1998 to December 1999, and partner at Vinson & Elkins, LLP, from De- cember 1998 to December 1999; previously Dep- uty Secretary of the U.S. Department of Ener- gy, 1997 to 1998 and Chair of the Federal En- ergy Regulatory Commission, 1993 to 1997.
16
Name and Age Position ------------------------ ------------------------------------------------------------- *S. Gary Snodgrass, 48 Senior Vice President of Unicom and ComEd since October 1997; Vice President of Unicom and ComEd, September 1997 to October 1997; previously Vice President of USG Corporation. *Robert E. Berdelle, 44 Vice President and Comptroller of Unicom and ComEd since January 1999; previously Comptroller of Unicom and ComEd, July 1997 to December 1998; previously held various finan- cial reporting and analysis positions within ComEd. John T. Hooker, 51 Vice President of Unicom and ComEd since December 1999; pre- viously Government Affairs Vice President of ComEd, 1998 to December 1999 and Director of Governmental Services of ComEd. Arlene A. Juracek, 49 Vice President of Unicom and ComEd since December 1999; pre- viously Assistant Vice President of ComEd, February 1994 to December 1999. Robert K. McDonald, 44 Vice President of Unicom and ComEd since December 1999; pre- viously Strategic Planning Vice President and Director of Strategic Planning of ComEd, September 1994 to December 1999. Vito Stagliano, 57 Vice President of Unicom and ComEd since December 1999; pre- viously Energy Policy and Planning Vice President of ComEd since November 1998; previously Managing Director of Energy Security Analysis Inc. during 1997 to 1998; previously vis- iting scholar at Resources for the Future during 1994 to 1996. Patricia L. Kampling, 40 Treasurer of Unicom and ComEd since February 1999; previously Manager of Finance of Unicom and ComEd, May 1998 to February 1999; previously Assistant Treasurer of Unicom and ComEd. John P. McGarrity, 38 Associate General Counsel and Secretary of Unicom and ComEd since January 1999; previously Associate General Counsel of Unicom and ComEd, December 1997 to January 1999; previously a partner with Sidley & Austin.
-------- * Executive Officers for Section 16 reporting purposes. The present term of office of each of the above executive officers extends to the first meeting of Unicom's Board of Directors after the next annual election of Directors. There are no family relationships among the executive officers, directors and nominees for director of Unicom. Year 2000 Conversion See "Management's Discussion and Analysis of Financial Condition and Results of Operations," subcaption "Liquidity and Capital Resources--Year 2000 Conversion" on page F-12 for information regarding Unicom and ComEd's Year 2000 conversion. Forward-Looking Information Except for historical data, the information contained in these Annual Reports constitutes forward-looking statements. Forward-looking statements are inherently uncertain and subject to risks. Such statements should be viewed with caution. Actual results or experience could differ materially from the forward-looking statements as a result of many factors. Forward-looking statements in this report include, but are not limited to: (1) statements regarding expectations of revenue reductions and 17 collections of future CTC revenues as a result of the 1997 Act in "Item 1. Business," subcaption "Changes in the Electric Utility Industry--The 1997 Act," (2) statements regarding estimated capital expenditures in "Item 1. Business," subcaption "Construction Program," (3) statements regarding the costs of decommissioning nuclear generating stations in "Item 1. Business," subcaption "Regulation-- Nuclear," (4) statements regarding site investigation and remediation costs associated with MGPs and other remediation sites in "Item 1. Business," subcaption "Regulation--Environmental," and (5) "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Item 8. Financial Statements and Supplementary Data" which contain forward-looking information as described therein, and in the case of ComEd, incorporate portions of ComEd's March 30, 2000 Form 8-K Report, which is incorporated herein by reference, which contain forward- looking information as described therein. Management cannot predict the course of future events or anticipate the interaction of multiple factors beyond management's control and their effect on revenues, project timing and costs. The statements regarding revenue reductions and collections of future CTC revenues are subject to unforeseen developments in the market for electricity in Illinois resulting from regulatory changes. The statements regarding estimated capital expenditures, decommissioning costs and cleanup costs are subject to changes in the scope of work and manner in which the work is performed and consequent changes in the timing and level of the projected expenditure, and are also subject to changes in laws and regulations or their interpretation or enforcement. Unicom and ComEd make no commitment to disclose any revisions to the forward-looking statements, or any facts, events or circumstances after the date hereof that may bear upon forward-looking statements. Item 2. Properties. ComEd's electric properties are located in Illinois and the Indiana Company's electric facilities are located in Indiana. In management's opinion, ComEd and the Indiana Company's operating properties are adequately maintained and are substantially in good operating condition. The electric generating, transmission, distribution and general facilities of ComEd and the Indiana Company represent approximately 54%, 9%, 31% and 6%, respectively, of their net investment in electric plant and equipment in service (after reflecting the sale of the fossil plant assets). The electric generating stations, substations and a portion of the transmission rights of way of ComEd and the Indiana Company are owned in fee. A significant portion of the electric transmission and distribution facilities is located over or under highways, streets, other public places or property owned by others, for which permits, grants, easements or licenses, deemed satisfactory by ComEd, but without examination of underlying land titles, have been obtained. The principal plants and properties of ComEd are subject to the lien of ComEd's Mortgage dated July 1, 1923, as amended and supplemented, under which ComEd's first mortgage bonds are issued. Promptly following the completion of the transactions leading to the establishment of Exelon as the holding company for ComEd and PECO, it is anticipated that both ComEd and PECO will transfer their generating assets and wholesale power marketing operations to subsidiaries. Following those transfers, these subsidiaries will be transferred to Exelon and ultimately will be combined into a single power generation and marketing company ("Genco"), which will be a direct subsidiary of Exelon. In ComEd's case, the transfer will include its Braidwood, Byron, Dresden, LaSalle and Quad Cities generating stations (nuclear generating stations) representing an aggregate generating capability of 9,566 megawatts, its Zion station, its rights and obligations under various power purchase agreements, the assets constituting its nuclear decommissioning trusts and its wholesale power marketing business. Genco will assume responsibility for the decommissioning of the nuclear generating stations and Zion Station, subject to an obligation of ComEd to continue collecting decommissioning-related charges from its customers. Genco will enter into a power purchase agreement with ComEd in which Genco will undertake to supply ComEd's full requirements for electric energy through 2004 and all of ComEd's requirements up to the available capacity of the nuclear generating stations in 2005 and 2006. The proposed transfer is subject to various regulatory approvals. 18 The net generating capability of ComEd, as of December 31, 1999, is derived from the following electric generating facilities:
Net Generating Capability Station Location (kilowatts)(1) ------- -------------- ------------------------- Nuclear-- Dresden Near Morris 1,600,000 Quad Cities Near Cordova 1,176,000(2) LaSalle County Near Seneca 2,210,000 Byron Near Byron 2,290,000 Braidwood Near Braidwood 2,290,000 ---------- Company owned net non-summer generating capability 9,566,000 Deduct--Summer limitations 231,000 ---------- Company owned net summer generating capability 9,335,000 Add--Capability under purchase power agreements 11,008,000(3)(4)(5) ---------- Net summer generating capability 20,343,000 ==========
- -------- (1) Reflects a re-rating of certain generating stations as of January 1, 2000. (2) Excludes the 25% undivided interest of MidAmerican Energy Company in the Quad Cities Station. (3) ComEd sold its Kincaid and State Line generating stations in February 1998 and December 1997, respectively. Under the terms of the sales, ComEd entered into exclusive 15-year purchase power agreements for the output of the plants. (4) ComEd sold its remaining six coal-fired generating plants, an oil and gas fired plant, and nine peaking units to EME in December 1999. ComEd entered into transitional, limited term power purchase agreements with EME. (5) The above table represents ComEd's net generating capability for the summer of 2000. The net generating capability available for operation at any time may be less due to regulatory restrictions, fuel restrictions, efficiency of cooling facilities and generating units being temporarily out of service for inspection, maintenance, refueling, repairs or modifications required by regulatory authorities. The above table excludes certain limited term power purchase arrangements with independent power producers and other utilities. ComEd's highest peak load experienced to date occurred on August 30, 1999 and was 21,243,000 kilowatts; and the highest peak load experienced to date during a winter season occurred on December 20, 1999 and was 14,484,000 kilowatts. ComEd's kilowatthour sales and generation are generally higher, primarily during the summer periods but also during the winter periods, when temperature extremes create demand for either summer cooling or winter heating. See "Changes in the Electric Utility Industry--Fossil Plant Sale" above for additional information regarding ComEd's sale of fossil plants. Major electric transmission lines owned and in service are as follows:
Voltage Circuit (Volts) Miles ------- ------- 765,000........................................................... 90 345,000........................................................... 2,500 138,000........................................................... 2,097
ComEd's electric distribution system includes 40,493 pole line miles of overhead lines and 38,037 cable miles of underground lines. A total of approximately 1,365,310 poles are included in ComEd's distribution system, of which about 592,672 poles are owned jointly with telephone companies. On February 18, 2000, ComEd sold its investment in Cotter Corporation to General Atomics for $1 million. ComEd will record a loss of approximately $22 million (after-tax) in the first quarter of 2000 as a result of the sale. Item 3. Legal Proceedings. During 1989 and 1991, actions were brought in federal and state courts in Colorado against ComEd and Cotter seeking unspecified damages and injunctive relief based on allegations that Cotter 19 has permitted radioactive and other hazardous material to be released from its mill into areas owned or occupied by the plaintiffs resulting in property damage and potential adverse health effects. With respect to Cotter, in 1994 a federal jury returned nominal dollar verdicts against Cotter on eight plaintiffs' claims in the 1989 cases, which verdicts were upheld on appeal. The remaining claims in the 1989 actions have been settled and dismissed. On July 15, 1998, a jury verdict was rendered in Dodge v. Cotter (United States District Court for the District of Colorado, Civil Action No. 91-Z-1861), a case relating to 14 of the plaintiffs in the 1991 cases. The verdict against Cotter and in favor of the plaintiff, after amended judgement issued in March 1999, totaled approximately $6 million, including compensatory and punitive damages, interest, and medical monitoring. On February 11, 2000, the Tenth Circuit Court of Appeals agreed with Cotter, found that the trial judge had erred in critical rulings and reversed the jury verdict, remanding the case for new trial. A case involving the next group of plaintiffs is set for trial in federal district court in Denver on October 2, 2000. Although ComEd sold its investment in Cotter in February 2000, ComEd will continue to be liable for any court verdicts in favor of the plaintiffs. The other 1991 cases will necessarily involve the resolution of numerous contested issues of law and fact. It is Unicom and ComEd's assessment that these actions will not have a material impact on their financial position or results of operations. In July and August 1995, three class action lawsuits were filed against ComEd arising out of a series of service outages. All of the complaints seek damages incurred for property loss by approximately 40,000 customers who were without electrical service for up to 48 hours. These suits were subsequently consolidated. A proposed settlement agreement was preliminarily approved by the Court on November 23, 1999. Under this plan, eligible class members will receive a credit if they were without power more than 12 consecutive hours. If they submitted timely claim forms, some class members will receive additional compensation for food spoilage, other perishable items and damage caused by power surges. Total benefits available to the class are approximately $2.5 million. Class counsel fee petitions are currently under consideration by the Court, but will not increase the maximum allowable payout by ComEd. The claims administration will continue through the summer of 2000. In August 1999, three class action lawsuits were filed against ComEd related to a series of service interruptions during the summer of 1999. The combined effect of these events resulted in over 100,000 customers losing service. On August 12, 1999, service was interrupted to ComEd customers on the near north and near west side of Chicago's central business district. While major commercial customers were affected, all service was restored on the same date. The class action complaints have been consolidated and seek to recover damages for personal injuries and property damage, as well as economic loss for these events. Further, ComEd initiated expedited claim settlements for those with primarily food spoilage claims. Conditional class certification has been approved by the Court for the sole purpose of exploring settlement talks. The lawsuits are pending in the Circuit Court of Cook County. ComEd has filed a motion challenging the legal sufficiency of the consolidated complaints. The plantiff's response is due April 14, 2000 and any reply by ComEd is due May 12, 2000. The motion to dismiss is currently scheduled to be argued on May 23, 2000. ComEd's management believes adequate reserves have been established in connection with these cases. Following the summer 1999 service interruptions, the ICC opened a three- phase investigation of the design and reliability of ComEd's transmission and distribution system. At the conclusion of each phase of the investigation, the ICC will issue a report that will include specific recommendations for ComEd and a timetable for executing the recommendations. Hearings on Phase I of the investigation were held the week of January 3, 2000, which focused on the outages of July and August 1999. Reports on Phase II and Phase III, focusing on the transmission and distribution system generally, are anticipated in the second quarter of 2000. The final phase of the investigation is expected to conclude in early 2001. 20 ComEd also has several matters pending before various local and state agencies which pertain to the assessment of Company property for local tax purposes. ComEd has instituted several proceedings in the courts challenging adverse determinations by certain of these state and local agencies. All taxes attributable to such determinations have been paid and reflected on the books of ComEd. ComEd does not believe that a material adverse outcome is likely. ComEd also has appeals pending in applicable counties concerning property tax assessments for its Braidwood nuclear generating station. These proceedings seek refunds and reduced valuations resulting in lower property taxes for the challenged and subsequent years. ComEd has reached an agreement in principle with the Will County Board that will resolve these matters. The agreement is subject to the approval of the taxing districts involved. The Montana Department of Revenue has made additional tax assessments on Decker Coal Company for severance taxes, gross proceeds taxes and resource indemnity trust taxes covering the years 1993-1995. The amount of additional taxes assessed, including interest through April 30, 1998, is approximately $5 million. Under the terms of a tax and royalty indemnity agreement, ComEd may be responsible for some or all of these additional taxes and interest, to the extent they are shown to be payable. ComEd has the right to direct the challenge of these assessments and may be responsible for the cost of conducting the defense of Decker from these assessments. Decker is appealing assessments unrelated to ComEd, but with issues common to the 1993-1995 assessment. Therefore, the appeal impacting ComEd has been held in abeyance until April 10, 2000. On March 22, 1999, ComEd reached a settlement agreement with the City to end the arbitration proceeding between ComEd and the City regarding the January 1, 1992 franchise agreement and a supplemental agreement between them. Under the terms of the settlement agreement, the pending arbitration is to be dismissed with prejudice and the City is to release ComEd from all claims the City may have under the supplemental agreement. The settlement agreement was approved by the City Council. As part of the settlement agreement, ComEd and the City have agreed to a revised combination of ongoing work under the franchise agreement and new initiatives that will result in defined transmission and distribution expenditures by ComEd to improve electric service in the City. The settlement agreement provides that ComEd will be subject to liquidated damages if the projects are not completed by various dates, unless it is prevented from doing so by events beyond its reasonable control. ComEd's current construction budget considers these projects. In addition, ComEd and the City established an Energy Reliability and Capacity Account, into which ComEd deposited $25 million following the effectiveness of the settlement agreement and ComEd has conditionally agreed to deposit up to $25 million at the end of each of the years 2000, 2001 and 2002, to help ensure an adequate and reliable electric supply for the City. The IDR has issued Notices of Tax Liability to ComEd alleging deficiencies in Illinois invested capital tax payments for the years 1988 through 1997. The alleged deficiencies including interest and penalties totaled approximately $52 million as of December 31, 1999. ComEd has protested the notices, and the matter is currently pending before the IDR's Office of Administrative Hearings. Interest will continue to accrue on the alleged tax deficiencies. In November and December of 1997, Unicom and its directors were served with seven shareholder derivative lawsuits in federal and state court. All of the suits asserted identical claims that the directors breached fiduciary duties to the shareholders by allegedly failing to properly supervise ComEd's nuclear program. Each plaintiff alleged that this caused ComEd to violate NRC rules, which has cost ComEd millions of dollars. The plaintiffs sought to have the directors reimburse ComEd for these costs. The originally filed suits were dismissed because no demand was made upon ComEd's board to pursue a derivative action on behalf of ComEd, and demand was not excused. In September 1998, the plaintiffs made such a demand on ComEd's board. On October 22, 1998, the board appointed a special committee to review the merits of the demand. On May 19, 1999, the plaintiffs refiled a 21 derivative action alleging that because the board of directors had not responded to the plaintiffs, in effect the board had refused the demand. The special committee, assisted by separate counsel, conducted a review of the claims asserted in the plaintiffs demand letter. On October 27, 1999, the special committee reported its findings to the full board and recommended that the demand be rejected, and the board decided that no legal action should be brought by Unicom or ComEd with respect to the claims asserted in the plaintiffs demand letter. The plaintiffs reviewed the Special Committee's report and determined not to contest the Special Committee's recommendation. An order dismissing the derivative action was issued on February 9, 2000. On April 28, 1997, Tower Leasing, Inc. and QST Energy, Inc. filed a complaint with the ICC alleging that ComEd violated Illinois law and its own tariffs by preventing Tower Leasing and QST from installing a cogeneration facility at Sears Tower in Chicago and interconnecting such facility with ComEd's system in that building. Tower Leasing and QST asked the ICC to enter an order that would have essentially required ComEd to assist in the implementation of the proposed facility. The ICC issued an order dismissing the complaint and denying the relief requested by Tower Leasing. Tower Leasing's petition for rehearing was denied. In August 1998, Tower Leasing and QST appealed the ICC's decision to the state appellate court. The appellate court issued an order upholding the ICC's decision. On November 14, 1997, the CHA filed an application with the FERC, seeking to require ComEd to provide transmission service to some of CHA's buildings so that those buildings may take electric service from an alternate electric supplier. ComEd maintains that the CHA is a retail customer ineligible for transmission service. ComEd and the CHA have asked the FERC to hold proceedings in abeyance pending the outcome of settlement negotiations. Should the CHA proceedings be resolved adversely to ComEd, ComEd could lose substantial revenue. This revenue loss may be offset, however, by a stranded cost obligation the CHA would owe ComEd under FERC Order No. 888. On September 10, 1998, Prairieland Energy, Inc. filed an application with the FERC, seeking to require ComEd to transmit power and energy on behalf of Prairieland to the Chicago campus of its parent, the University of Illinois. ComEd protested the filing because the application either seeks prohibited retail wheeling or seeks approval of a sham wholesale transaction between Prairieland and its parent. On December 28, 1998, the FERC issued an order denying Prairieland's application. On April 19, 1999, the FERC denied Prairieland's request for appeal. On July 28, 1999, the FERC denied a second application, which Prairieland had submitted in May, determining that documentation submitted by Prairieland did not demonstrate the basis for a bona fide commercial transaction with the University of Illinois. Prairieland's request for rehearing is pending. In June 1997, Torco Energy Marketing, Inc. filed an action against ComEd in the Circuit Court of Cook County, Illinois, alleging that ComEd tortiously interfered with Torco's proposed arrangement between Torco and Sargent & Lundy LLC. Torco claims that, but for actions by ComEd, Sargent & Lundy would have paid Torco $20 million to purchase a portion of the equity in Torco, and that the venture would have had revenues of $2.6 billion. ComEd was granted summary judgement on October 28, 1999 and the complaint was dismissed. Torco has filed a Notice of Appeal. ComEd is confident the dismissal will be upheld. On April 18, 1996, a ComEd truck driver, driving a ComEd truck, struck a car that had slowed or stopped to make a turn. The truck pushed this car into oncoming traffic causing a head-on collision with a third vehicle. The driver of this third vehicle suffered extensive injuries resulting in numerous surgical procedures. The plaintiff, who is wheelchair bound, and the plaintiff's spouse have made a combined demand of $55 million upon ComEd. On May 28, 1999, judgement for $13,500,000 was entered for the plaintiff. The matter is currently on appeal. Insurance coverage above ComEd's $5 million self-insured retention should be available. 22 See "Item 1. Business," subcaption "Regulation" above, for information concerning other legal proceedings. Item 4. Submission of Matters to a Vote of Security Holders. None. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. ComEd's securities and other securities guaranteed by ComEd are currently rated by three principal securities rating agencies as follows:
Standard Duff & Moody's & Poor's Phelps ------- -------- ------ First mortgage and secured pollution control bonds.. Baa1 BBB+ A- Publicly-held debentures and unsecured pollution control obligations................................ Baa2 BBB BBB+ Convertible preferred stock......................... baa3 BBB- BBB Preference stock.................................... baa2 BBB- BBB Trust Securities.................................... baa3 BBB- BBB Commercial paper.................................... P-2 A-2 D-1
ComEd Funding Trust's securities are currently rated by three principal securities rating agencies as follows:
Standard Duff & Moody's & Poor's Phelps ------- -------- ------ Transitional trust notes............................. Aaa AAA AAA
As of February 2000, Moody's and Duff & Phelps' current rating outlooks on ComEd's securities are stable. S&P has ComEd on CreditWatch with positive implications. All three agencies raised their rating for ComEd in the course of 1999: Duff & Phelps in December, Moody's in September and S&P in June. On December 17, 1999, Duff & Phelps raised its rating on Unicom's senior debt obligations to BBB. On September 15, 1999, Moody's assigned Unicom a first time issuer rating of Baa3. On June 29, 1999, S&P raised its rating on Unicom's senior debt obligations to BBB. The above ratings reflect only the views of such rating agencies and each rating should be evaluated independently from any other rating. Generally, rating agencies base their ratings on information furnished to them by the issuing company and on investigations, studies and assumptions by the rating agencies. There is no assurance that any particular rating will continue for any given period of time or that it will not be changed or withdrawn entirely if, in the judgment of the rating agency, circumstances so warrant. Such ratings are not a recommendation to buy, sell or hold securities. The following is a brief summary of the meanings of the above ratings and the relative rank of the above ratings within each rating agency's classification system. Moody's top four long-term debt ratings (Aaa, Aa, A and Baa) are generally considered "investment grade." Obligations rated Baa are considered as medium grade obligations, neither highly protected nor poorly secured. Such obligations lack outstanding investment characteristics and in fact have speculative characteristics. A numerical modifier in Moody's system shows relative standing within the principal rating category, with 1 indicating the high end of that category, 2 the mid-range 23 and 3 the low end. S&P's top four bond ratings (AAA, AA, A and BBB) are generally considered to describe obligations in which investment characteristics predominate. Obligations rated BBB are regarded as having an adequate capacity to pay interest and repay principal. Such obligations normally exhibit adequate protection parameters, but adverse economic conditions or changing circumstances are more likely to lead to weakened capacity to pay. A plus or minus sign in S&P's system shows relative standing within its rating categories. Both S&P and Moody's preferred stock ratings represent relative security of dividends. Moody's top four preferred stock ratings (aaa, aa, a and baa) are generally considered "investment grade." Moody's baa rating describes a medium grade preferred stock, neither highly protected nor poorly secured. S&P's top four preferred stock ratings (AAA, AA, A and BBB) are generally considered "investment grade." S&P's BBB rating applies to medium grade preferred stock which is below A ("sound") and above BB ("lower grade"). Duff & Phelps' credit rating scale has 17 alphabetical categories, of which ratings AAA (the highest rating) through BBB represent investment grade securities. Ratings of BBB+, BBB and BBB- represent the lowest category of "investment grade" rating. This category describes securities with below average protection factors but which are considered sufficient for institutional investment. Considerable variability in risk occurs during economic cycles. Moody's P-2 rating of commercial paper is the second highest of three possible ratings. P-2 describes a strong capacity for repayment of short-term promissory obligations. S&P rates commercial paper in four basic categories with A-2 being the second highest category. Duff & Phelps rates commercial paper in three basic categories, with D-2 indicating the middle category. Further explanations of the significance of ratings may be obtained from the rating agencies. Additional information required by Item 5 is incorporated herein by reference to the "Price Range and Cash Dividends Paid per Share of Common Stock" on page F-4. Item 6. Selected Financial Data. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8. Financial Statements and Supplementary Data. The information required by Items 6, 7, 7A and 8 is incorporated herein by reference to the "Summary of Selected Consolidated Financial Data" on page F- 4, "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages F-5 through F-24, Quantitative and Qualitative Disclosures about Market Risk on page F-13, the audited consolidated financial statements and notes thereto on pages F-26 through F-61, and Supplementary Data on page F-4. Reference is also made to "Item 1. Business," subcaptions "Changes in the Electric Utility Industry," "Construction Program" and "Regulation," for additional information. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Registrant. The information required by Item 10 relating to directors and nominees for election as directors at Unicom's Annual Meeting of shareholders is incorporated herein by reference to the information 24 under the heading "Security Ownership of Certain Beneficial Owners and Management" in Unicom's definitive Proxy Statement ("2000 Proxy Statement") to be filed with the SEC prior to April 30, 2000, pursuant to Regulation 14A under the Securities Exchange Act of 1934. The information required by Item 10 relating to executive officers is set forth under "Item 1. Business," subcaption "Executive Officers of the Registrant" and under the heading "Security Ownership of Certain Beneficial Owners and Management" in Unicom's 2000 Proxy Statement, which is incorporated herein by reference. Item 11. Executive Compensation. The information required by Item 11 is incorporated herein by reference to the information labelled "Board Compensation" and the paragraphs under the heading "Executive Compensation" (other than the paragraphs under the heading "Corporate Governance and Compensation Committee Report on Executive Compensation") in Unicom's 2000 Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information required by Item 12 is incorporated herein by reference to the stock ownership information under the heading "Security Ownership of Certain Beneficial Owners and Management" in Unicom's 2000 Proxy Statement. Item 13. Certain Relationships and Related Transactions. None. 25 ANNUAL REPORT ON FORM 10-K FOR COMMONWEALTH EDISON COMPANY PART I Item 1. Business. See Unicom's "Item 1. Business" (other than the paragraphs under the headings "General--Unregulated Operations," "Construction Program--Unregulated Operations" and "Executive Officers of the Registrant"), which is incorporated herein by this reference. Executive Officers of the Registrant The effective year of election of the officers to their present positions and the prior positions they have held with ComEd or other companies, since January 1, 1995, are described below.
Name and Age Position ---------------------------- ----------------------------------------------- *John W. Rowe, 54 Chairman, President and Chief Executive Officer of ComEd and Unicom since March 1998; previ- ously President and Chief Executive Officer of New England Electric System. *Paul A. Elbert, 50 Executive Vice President of ComEd and Unicom and President Unicom Enterprises Inc. since October 1999; previously President and Chief Executive Officer--Gas for Consumers Energy Company from August 1997 to September 1999; previously Executive Vice President and Chief Operating Officer--Gas at Consumers Energy Company from December 1994 to August 1997. *Oliver D. Kingsley, Jr., 57 Executive Vice President of ComEd and Unicom and President and Chief Nuclear Officer--Nu- clear Generation Group of ComEd since October 1997; previously Chief Nuclear Officer at the Tennessee Valley Authority. *Pamela B. Strobel, 47 Executive Vice President and General Counsel of ComEd and Unicom since January 1999; previ- ously Senior Vice President and General Coun- sel of ComEd and Unicom, October 1997 to De- cember 1998; previously Vice President and General Counsel of ComEd. *Frank M. Clark, 54 Senior Vice President of ComEd and Unicom since January 1999; previously Vice President of ComEd, January 1997 to December 1998; previ- ously Governmental Affairs Vice President 1996 to January 1997 and Governmental Affairs Man- ager. *Christopher M. Crane, 41 Senior Vice President of ComEd since July 1999; previously Vice President of ComEd, October 1998 to July 1999 and Vice President Tennessee Valley Authority *Carl J. Croskey, 48 Senior Vice President of ComEd and Unicom and President of Distribution at ComEd since Au- gust 1999; previously President of MichCon En- terprises Inc., a subsidiary of Michigan Con- solidated Gas Company from January 1998 to Au- gust 1999; previously Senior Vice President of Operations for Michigan Consolidated Gas Com- pany from April 1995 to January 1998.
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Name and Age Position ----------------------- ---------------------------------------------------- *Ruth Ann M. Gillis, 45 Senior Vice President and Chief Financial Officer of ComEd and Unicom since January 1999; previously Vice President and Treasurer of ComEd and Unicom, September 1997 to December 1998; previously Vice President, Chief Financial Officer and Treasurer of the University of Chicago Hospitals and Health Sys- tem from 1996 to 1997 and Senior Vice President and Chief Financial Officer of American National Bank and Trust Company. *David R. Helwig, 49 Senior Vice President of ComEd since January 1999; previously Vice President of ComEd, January 1998 to December 1998; previously General Manager of Gen- eral Electric Company's Nuclear Services Company, 1997 to January 1998 and Vice President at PECO. *Elizabeth A. Moler, 50 Senior Vice President of ComEd and Unicom since Jan- uary 2000; previously Director of Unicom and ComEd from December 1998 to December 1999, and partner at Vinson & Elkins, LLP from December 1998 to December 1999; previously Deputy Secretary of the U.S. Department of Energy, 1997 to 1998 and chair of the Federal Energy Regulatory Commission, 1993 to 1997 *S. Gary Snodgrass, 48 Senior Vice President of ComEd and Unicom since Oc- tober 1997; Vice President of ComEd and Unicom, September 1997 to October 1997; previously Vice President of USG Corporation. *Robert E. Berdelle, 44 Vice President and Comptroller of ComEd and Unicom since January 1999; previously Comptroller of ComEd and Unicom, July 1997 to December 1998; previously held various financial reporting and analysis posi- tions within ComEd. T. Oliver Butler, 48 Vice President of ComEd since July 1997; previously Purchasing Vice President of ComEd, 1994 to 1997. John T. Costello, 51 Vice President of ComEd and Unicom since 1996; pre- viously Manager of Corporate Relations of ComEd, 1995 to 1996. John T. Hooker, 51 Vice President of ComEd and Unicom since December 1999; previously Governmental Affairs Vice Presi- dent of ComEd, 1998 to December 1999 and Director of Governmental Services of ComEd Arlene A. Juracek, 49 Vice President of ComEd and Unicom since December 1999; previously Assistant Vice President of ComEd, February 1994 to December 1999. Emerson W. Lacey, 58 Vice President of ComEd. Robert K. McDonald, 44 Vice President of ComEd and Unicom Since December 1999; previously Strategic Planning Vice President and Director of Strategic Planning of ComEd, Sep- tember 1994 to December 1999. J. Stephen Perry, 61 Vice President of ComEd since 1994. James A. Small, 56 Vice President of ComEd. Vito Stagliano, 57 Vice President of ComEd and Unicom since December 1999; previously Energy Policy and Planning Vice President of ComEd since November 1998; previously Managing Director of Energy Security Analysis Inc. during 1997 to 1998; previously visiting scholar at Resources for the Future during 1994 to 1996. Harold Gene Stanley, 59 Vice President of ComEd since September 1997; Site Vice President at Braidwood Station, 1996 to 1997; previously Vice President at Pennsylvania Power and Light Company.
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Name and Age Position ------------------------ --------------------------------------------------- Patricia L. Kampling, 40 Treasurer of ComEd and Unicom since February 1999; previously Manager of Finance of ComEd and Unicom, May 1998 to February 1999; previously Assistant Treasurer of ComEd and Unicom. John P. McGarrity, 38 Associate General Counsel and Secretary of ComEd and Unicom since January 1999; previously Associ- ate General Counsel of ComEd and Unicom, December 1997 to January 1999; previously a partner with Sidley & Austin.
-------- * Executive Officers for Section 16 reporting purposes. The present term of office of each of the above executive officers extends to the first meeting of ComEd's Board of Directors after the next annual election of Directors. There are no family relationships among the executive officers, directors and nominees for director of ComEd. Item 2. Properties. See Unicom's "Item 2. Properties," which is incorporated herein by this reference. Item 3. Legal Proceedings. See Unicom's "Item 3. Legal Proceedings," which is incorporated herein by this reference. Item 4. Submission of Matters to a Vote by Security Holders. None. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. See Unicom's "Item 5. Market for Registrant's Common Equity and Related Stockholder Matters", other than the last paragraph thereof and any references to Unicom's senior debt obligations rating, which is incorporated herein by reference. Additional information required by Item 5 is incorporated herein by reference to the "Cash Dividends Paid per Share of Common Stock" on page F-4. Item 6. Selected Financial Data. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8. Financial Statements and Supplementary Data. The information required by Items 6, 7, 7A and 8 is incorporated herein by reference to the "Summary of Selected Consolidated Financial Data" on page 5, "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 6 through 22, Quantitative and Qualitative Disclosures about Market Risk on page 14, the audited consolidated financial statements and notes thereto on pages 24 through 56, and Supplementary Data on page 56 of ComEd's March 30, 2000 Form 8-K Report. Reference is also made to "Item 1. Business," subcaptions "Changes in the Electric Utility Industry," "Construction Program" and "Regulation," for additional information. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. 28 PART III Item 10. Directors and Executive Officers of the Registrant. The information required by Item 10 relating to directors and nominees for election as directors at ComEd's Annual Meeting of shareholders is incorporated herein by reference to information under the subheadings "Nominees" "Security Ownership of Certain Beneficial Owners and Management" under the heading "Item A: Election of Directors" in ComEd's definitive Information Statement ("2000 Information Statement") to be filed with the SEC prior to April 30, 2000, pursuant to Regulation 14C under the Securities Exchange Act of 1934. The information required by Item 10 relating to executive officers is set forth under "Item 1. Business," subcaption "Executive Officers of the Registrant" and under the subheading "Security Ownership of Certain Beneficial Owners and Management" under the heading "Item A: Election of Directors" in ComEd's 2000 Information Statement, which is incorporated herein by reference. Item 11. Executive Compensation. The information required by Item 11 is incorporated herein by reference to the paragraph labelled "Compensation of Directors" under the subheading "Additional Information Concerning Board of Directors" under the heading "Item A: Election of Directors" and the paragraphs under the heading "Executive Compensation" (other than the paragraphs under the subheading "Compensation Committee Report on Executive Compensation") in ComEd's 2000 Information Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information required by Item 12 is incorporated herein by reference to the stock ownership information under the subheading "Security Ownership of Certain Beneficial Owners and Management" under the heading "Item A: Election of Directors" in ComEd's 2000 Information Statement. Item 13. Certain Relationships and Related Transactions. None. 29 ANNUAL REPORTS ON FORM 10-K FOR UNICOM CORPORATION AND COMMONWEALTH EDISON COMPANY PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a)See page F-1 for references to Unicom's Financial Statements and Unicom's and ComEd's Financial Statement Schedules required by this item. See page 37 for the Report of Independent Public Accountants on Supplemental Schedule on ComEd's Financial Statement Schedules required by this item. 1. Exhibits: The following exhibits are filed with the indicated Annual Report on Form 10-K or incorporated therein by reference. Documents indicated by an asterisk (*) are incorporated by reference to the File No. indicated. Documents indicated by a plus sign (+) identify management contracts or compensatory plans or arrangements.
Exhibit Number Description of Document Unicom ComEd ------- ------------------------------------------------- ------ ----- *(2)-1 Asset Sale Agreement dated March 22, 1999 between x ComEd and Edison Mission Energy. (File No. 1- 1839, Form 10-K for the year ended December 31, 1998, Exhibit (2)-1). *(2)-2 Amended and Restated Agreement and Plan of Ex- change and Merger, dated as of September 22, 1999, amended and restated as of January 7, 2000, among Unicom, PECO and Newholdco. (File Nos. 1-11375 and 1-1839, Current Report on Form 8-K dated January 7, 2000, Exhibit (2)-1). x x *(3)-1 Articles of Incorporation of Unicom effective January 28, 1994. (File No. 1-11375, Form 10-K for the year ended December 31, 1994, Exhibit (3)-1). x *(3)-2 Restated Articles of Incorporation of ComEd ef- fective February 20, 1985, including Statements of Resolution Establishing Series, relating to the establishment of three new series of ComEd preference stock known as the "$9.00 Cumulative Preference Stock," the "$6.875 Cumulative Pref- erence Stock" and the "$2.425 Cumulative Prefer- ence Stock." (File No. 1-1839, Form 10-K for the year ended December 31, 1994, Exhibit (3)-2). x *(3)-3 By-Laws of Unicom Corporation, effective January 28, 1994 as amended through May 28, 1998 (File No. 1-11375, Form 10-Q for the quarter ended June 30, 1998, Exhibit (3)-3). x *(3)-4 By-Laws of Commonwealth Edison Company, effective September 2, 1988 as amended through May 28, 1998 (File No. 1-1839, Form 10-Q for the quarter ended June 30, 1998, Exhibit (3)-4). x *(4)-1 Mortgage of ComEd to Illinois Merchants Trust Company, Trustee (Harris Trust and Savings Bank, as current successor Trustee), dated July 1, 1923, Supplemental Indenture thereto dated Au- gust 1, 1944, and amendments and supplements thereto dated, respectively, August 1, 1946, April 1, 1953, March 31, 1967, April 1, 1967, July 1, 1968, October 1, 1968, February 28, 1969, May 29, 1970, June 1, 1971, May 31, 1972, June 15, 1973, May 31, 1974, June 13, 1975, May 28, 1976 and June 3, 1977 (File No. 2-60201, Form S-7, Exhibit 2-1). x
30
Exhibit Number Description of Document Unicom ComEd ------- ------------------------------------------------- ------ ----- *(4)-2 Supplemental Indentures to Mortgage dated July 1, 1923 dated, respectively, May 17, 1978, August 31, 1978, June 18, 1979, June 20, 1980, April 16, 1981, April 30, 1982, April 15, 1983, April 13, 1984 and April 15, 1985 (File No. 2-99665, Form S-3, Exhibit (4)-3). x *(4)-3 Supplemental Indenture to Mortgage dated July 1, 1923 dated April 15, 1986 (File No. 33-6879, Form S-3, Exhibit (4)-9). x *(4)-4 Supplemental Indentures to Mortgage dated July 1, 1923 dated June 15, 1990 (File No. 33-38232, Form S-3, Exhibit (4)-12). x *(4)-5 Supplemental Indentures to Mortgage dated July 1, 1923 dated, respectively, June 1, 1991, October 1, 1991 and October 15, 1991 (File No. 33-44018, Form S-3, Exhibits (4)-12, (4)-13 and (4)-14). x *(4)-6 Supplemental Indenture to Mortgage dated July 1, 1923 dated February 1, 1992 (File No. 1-1839, Form 10-K for the year ended December 31, 1991, Exhibit (4)-18). x *(4)-7 Supplemental Indenture to Mortgage dated July 1, 1923 dated May 15, 1992 (File No. 33-48542, Form S-3, Exhibit (4)-14). x *(4)-8 Supplemental Indentures to Mortgage dated July 1, 1923 dated, respectively, July 15, 1992 and Sep- tember 15, 1992 (File No. 33-53766, Form S-3, Exhibits (4)-13 and (4)-14). x *(4)-9 Supplemental Indenture to Mortgage dated July 1, 1923 dated February 1, 1993 (File No. 1-1839, Form 10-K for the year ended December 31, 1992, Exhibit (4)-14). x *(4)-10 Supplemental Indentures to Mortgage dated July 1, 1923 dated, respectively, April 1, 1993 and April 15, 1993 (File No. 33-64028, Form S-3, Ex- hibits (4)-12 and (4)-13). x *(4)-11 Supplemental Indentures to Mortgage dated July 1, 1923 dated, respectively, June 15, 1993 and July 1, 1993 (File No. 1-1839, Form 8-K dated May 21, 1993, Exhibits (4)-1 and (4)-2). x *(4)-12 Supplemental Indenture to Mortgage dated July 1, 1923 dated July 15, 1993 (File No. 1-1839, Form 10-Q for the quarter ended June 30, 1993, Ex- hibit (4)-1). x *(4)-13 Supplemental Indenture to Mortgage dated July 1, 1923 dated January 15, 1994 (File No. 1-1839, Form 10-K for the year ended December 31, 1993, Exhibit (4)-15). x *(4)-14 Supplemental Indenture to Mortgage dated July 1, 1923 dated December 1, 1994 (File No. 1-1839, Form 10-K for the year ended December 31, 1994, Exhibit (4)-16). x *(4)-15 Supplemental Indenture to Mortgage dated July 1, 1923 dated June 1, 1996 (File No. 1-1839, Form 10-K for the year ended December 31, 1996, Ex- hibit (4)-16). x
31
Exhibit Number Description of Document Unicom ComEd ------- ------------------------------------------------- ------ ----- *(4)-16 Instrument of Resignation, Appointment and Ac- ceptance dated January 31, 1996, under the pro- visions of the Mortgage dated July 1, 1923, and Indentures Supplemental thereto (File No. 1- 1839, Form 10-K for the year ended December 31, 1995, Exhibit (4)-28). x *(4)-17 Instrument dated as of January 31, 1996, for trustee under the Mortgage dated July 1, 1923 and Indentures Supplemental thereto (File No. 1- 1839, Form 10-K for the year ended December 31, 1995, Exhibit (4)-29). x *(4)-18 Indentures of ComEd to The First National Bank of Chicago, Trustee (Amalgamated Bank of Chicago, as current successor Trustee), dated April 1, 1949, October 1, 1949, October 1, 1950, October 1, 1954, January 1, 1958, January 1, 1959 and December 1, 1961 (File No. 1-1839, Form 10-K for the year ended December 31, 1982, Exhibit (4)- 20). x *(4)-19 Indenture dated as of September 1, 1987 between ComEd and Citibank, N.A., Trustee relating to Notes (File No. 33-20619, Form S-3, Exhibit (4)- 13). x *(4)-20 Supplemental Indenture to Indenture dated Septem- ber 1, 1987 dated July 14, 1989 (File No. 33- 32929, Form S-3, Exhibit (4)-16). x *(4)-21 Supplemental Indenture to Indenture dated Septem- ber 1, 1987 dated January 1, 1997. x (4)-22 Credit Agreement dated as of December 17, 1999, among ComEd, as borrower, the Banks named therein and the other Lenders from time to time parties thereto, and Citibank, N.A. x (4)-23 Credit Agreement dated as of December 17, 1999, among ComEd, as borrower, the Banks named therein and the other Lenders from time to time parties thereto, and Citibank, N.A. x (4)-24 Credit Agreement dated as of December 17, 1999, among Unicom Enterprises, the Banks Named Therein and Bank One, N.A. x (4)-25 Guaranty dated as of December 17, 1999, by Unicom in favor of the Lenders and LC Banks parties to the aforementioned Credit Agreement with Unicom Enterprises. x *(4)-26 Indenture dated September 1, 1995 between ComEd and Wilmington Trust Company. (File No. 1-1839, Form 10-K for the year ended December 31, 1996, Exhibit (4)-34). x *(4)-27 First Supplemental Indenture dated September 19, 1995 to Indenture dated September 1, 1995. (File No. 1-1839, Form 10-K for the year ended Decem- ber 31, 1996, Exhibit (4)-35). x
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Exhibit Number Description of Document Unicom ComEd ------- ------------------------------------------------- ------ ----- *(4)-28 Second Supplemental Indenture dated January 24, 1997 to Indenture dated September 1, 1995. (File No. 1-1839, Form 10-K for the year ended Decem- ber 31, 1996, Exhibit (4)-36). x *(4)-29 Rights Agreement dated as of February 2, 1998 be- tween Unicom Corporation and First Chicago Trust Company of New York, as Rights Agent, which in- cludes as Exhibit A the form of Rights Certifi- cate and as Exhibit B, the Summary of Rights to Purchase Common Stock (File No. 1-11375, Current Report on Form 8-K dated February 2, 1998, Ex- hibit 4). x *(4)-30 Amendment dated as of September 22, 1999 to the aforemention Rights Agreement between Unicom Corporation and First Chicago Trust Company of New York, as Rights Agent (File Nos. 1-11375 and 1-1839, Current Report on Form 8-K dated Septem- ber 22, 1999, Exhibit (4)-1). *(10)-1 Nuclear Fuel Lease Agreement dated as of November 23, 1993, between CommEd Fuel Company, Inc., as Lessor, and ComEd, as Lessee (File No. 1-1839, Form 10-K for the year ended December 31, 1993, Exhibit (10)-1). x +*(10)-2 Unicom Corporation Amended and Restated Long-Term Incentive Plan (File No. 1-11375, Unicom Proxy Statement dated April 7, 1999, Exhibit A). x +*(10)-3 1997 Long-Term Performance Unit Award for Execu- tive and Group Level Employees Payable in 2000 under the Unicom Corporation Long-Term Incentive Plan. (File Nos. 1-11375 and 1-1839, Form 10-K for the year ended December 31, 1996, Exhibit (10)-12). x x +*(10)-4 1998 Long-Term Performance Unit Award for Executive and Group Level Employees Payable in 2001 under the Unicom Corporation Long-Term Incentive Plan. (File Nos. 1-11375 and 1-1839, Form 10-K for the year ended December 31, 1997, Exhibit (10)-6). x x +(10)-5 1999 Long-Term Performance Unit Award for Execu- tive and Group Level Employees Payable in 2002 under the Unicom Corporation Long-Term Incentive Plan. x x +*(10)-6 Unicom Corporation General Provisions Regarding 1996 Stock Option Awards Granted under the Unicom Corporation Long-Term Incentive Plan. (File Nos. 1-11375 and 1-1839, Form 10-K for the year ended December 31, 1996, Exhibit (10)-9). x x +*(10)-7 Unicom Corporation General Provisions Regarding 1996B Stock Option Awards Granted under the Unicom Corporation Long-Term Incentive Plan. (File Nos. 1-11375 and 1-1839, Form 10-K for the year ended December 31, 1996, Exhibit (10)-11). x x +*(10)- Unicom Corporation General Provisions Regarding 8 Stock Option Awards Granted under the Unicom Corporation Long-Term Incentive Plan (Effective July 10, 1997). x x
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Exhibit Number Description of Document Unicom ComEd ------- ------------------------------------------------- ------ ----- +(10)-9 1999 Annual Incentive Award for Management Employees under the Unicom Corporation Long-Term Incentive Plan. x x +*(10)-10 Unicom Corporation Deferred Compensation Unit Plan, as amended (File Nos. 1-11375 and 1-1839, Form 10-K for the year ended December 31, 1995, Exhibit (10)-12). x x +*(10)-11 Deferred Compensation Plan (included in Article Five of Exhibit (3)-2 above). x +*(10)-12 Management Incentive Compensation Plan, effective January 1, 1989 (File No. 1-1839, Form 10-K for the year ended December 31, 1988, Exhibit (10)- 4). x +*(10)-13 Amendments to Management Incentive Compensation Plan, dated December 14, 1989 and March 21, 1990 (File No. 1-1839, Form 10-K for the year ended December 31, 1989, Exhibit (10)-5). x +*(10)-14 Amendment to Management Incentive Compensation Plan, dated March 21, 1991 (File No. 1-1839, Form 10-K for the year ended December 31, 1991, Exhibit (10)-6). x +*(10)-15 Retirement Plan for Directors, effective September 1, 1994, as amended through March 12, 1997. (File No. 1-11375, Form 10-K for the year ended December 31, 1996, Exhibit (10)-19). x +*(10)-16 Retirement Plan for Directors, effective January 1, 1987, as amended through March 12, 1997. (File No. 1-1839 Form 10-K for the year ended December 31, 1996, Exhibit (10)-20) x +*(10)-17 Unicom Corporation 1996 Directors' Fee Plan (File No. 1-11375, Unicom Proxy Statement dated April 8, 1996, Appendix A). x x +*(10)-18 Employment Agreement among Unicom, ComEd and John W. Rowe dated as of March 10, 1998. (File Nos. 1-11375 and 1-1839, Form 10-Q for the quarter ended March 31, 1998, Exhibit (10)-3). x x +*(10)-19 First Amendment dated December 1, 1998 to Employment Agreement dated March 10, 1998 between Unicom, ComEd and John Rowe. (File Nos. 1-11375 and 1-1839, Form 10-K for the year ended December 31, 1998, Exhibit (10)-19). x x +*(10)-20 Second Amendment dated January 27, 1999 to Employment Agreement dated March 10, 1998 between Unicom, ComEd and John Rowe. (File Nos. 1-11375 and 1-1839, Form 10-K for the year ended December 31, 1998, Exhibit (10)-20). x x +*(10)-21 Third Amendment dated March 8, 1999 to Employment Agreement dated March 10, 1998 between Unicom, ComEd and John Rowe. (File Nos. 1-11375 and 1- 1839, Form 10-K for the year ended December 31, 1998, Exhibit (10)-21). x x +*(10)-22 Employment Agreement dated November 1, 1997 between ComEd and Oliver D. Kingsley, Jr. (File Nos. 1-11375 and 1-1839, Form 10-K for the year ended December 31, 1998, Exhibit (10)-22). x x
34
Exhibit Number Description of Document Unicom ComEd ------- -------------------------------------------- ------ ----- +*(10)-23 Unicom Corporation Stock Award Agreement dated January 25, 1999 between Unicom Corporation and Oliver D. Kingsley, Jr. (File Nos. 1-11375 and 1-1839, Form 10-K for the year ended December 31, 1998, Exhibit (10)-23). x x +*(10)-24 Change in Control Agreement between Unicom Corporation, ComEd and certain senior executives. (File Nos. 1-11375 and 1-1839, Form 10-K for the year ended December 31, 1998, Exhibit (10)-24). x x +*(10)-25 Executive Group Life Insurance Plan (File No. 1-1839, Form 10-K for the year ended December 31, 1980, Exhibit (10)-3). x +*(10)-26 Amendment to the Executive Group Life Insur- ance Plan (File No. 1-1839, Form 10-K for the year ended December 31, 1981, Exhibit (10)-4). x +*(10)-27 Amendment to the Executive Group Life Insur- ance Plan dated December 12, 1986 (File No. 1-1839, Form 10-K for the year ended Decem- ber 31, 1986, Exhibit (10)-6). x +*(10)-28 Amendment of Executive Group Life Insurance Plan to implement program of "split dollar life insurance" dated December 13, 1990 (File No. 1-1839, Form 10-K for the year ended December 31, 1990, Exhibit (10)-10). x +*(10)-29 Commonwealth Edison Company Supplemental Management Retirement Plan. (File No. 1- 1839, Form 10-K for the year ended December 31, 1998, Exhibit (10)-29). x +*(10)-30 Amendment of Executive Group Life Insurance Plan to stabilize the death benefit appli- cable to participants dated July 22, 1992 (File No. 1-1839, Form 10-K for the year ended December 31, 1992, Exhibit (10)-13). x +*(10)-31 Commonwealth Edison Company Excess Benefit Savings Plan (File No. 1-1839, Form 10-Q for the quarter ended September 30, 1998, Exhibit (10)-1). x +*(10)-32 Amendment No. 1 to Commonwealth Edison Com- pany Excess Benefit Savings Plan dated May 24, 1995 (File No. 1-1839, Form 10-K for the year ended December 31, 1995, Exhibit (10)-30). x +*(10)-33 Amendment No. 2 to Commonwealth Edison Com- pany Excess Benefit Savings Plan effective as of September 1, 1997. (File No. 1-1839, Form 10-K for the year ended December 31, 1997, Exhibit (10)-34) x +*(10)-34 Unicom Corporation Stock Bonus Deferral Plan (File Nos. 1-11375 and 1-1839, Form 10-Q for the quarter ended September 30, 1998, Exhibit (10)-3) x x +*(10)-35 Form of Stock Award Agreement under the Unicom Corporation Long-Term Incentive Plan (File Nos. 1-11375 and 1-1839, Form 10-K for the year ended December 31, 1997, Ex- hibit (10)-37). x x
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Exhibit Number Description of Document Unicom ComEd ------- ------------------------------------------------- ------ ----- (10)-38 Amended and Restated Key Management Severance Plan for Unicom Corporation and Commonwealth Ed- ison Company dated March 8, 1999. x x (12) Statement re computation of ratios of earnings to fixed charges and ratios of earnings to fixed charges and preferred and preference stock divi- dend requirements for ComEd. x *(18) Letter from independent public accountants re- garding change in accounting principle (File Nos. 1-11375 and 1-1839, Form 10-K for the year ended December 31, 1997, Exhibit (18)). x x (21)-1 Subsidiaries of Unicom. x (21)-2 Subsidiaries of ComEd. x (23)-1 Consent of experts for Unicom. x (23)-2 Consent of experts for ComEd. x (24)-1 Powers of attorney of Directors whose names are signed to the Unicom and ComEd Annual Report on Form 10-K pursuant to such powers. x x (27) Unicom Financial Data Schedule x (99)-1 ComEd's Current Report on Form 8-K dated March 30, 2000. x
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, Unicom and ComEd hereby agree to furnish to the SEC, upon request, any instrument defining the rights of holders of long-term debt of ComEd not filed as an exhibit herein. No such instrument authorizes securities in excess of 10% of the total assets of ComEd. (b) Reports on Form 8-K: A Current Report on Form 8-K dated October 12, 1999 was filed by Unicom and ComEd providing additional information regarding the transactions contemplated by the Merger Agreement before Unicom commences repurchases of shares of its common stock. A Current Report on Form 8-K dated December 15, 1999 was filed by Unicom and ComEd announcing the completion on the sale of its fossil generating plants to EME. 36 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTAL SCHEDULE To Commonwealth Edison Company: We have audited, in accordance with auditing standards generally accepted in the United States, the consolidated financial statements of Commonwealth Edison Company and subsidiary companies incorporated by reference in this Annual Report on Form 10-K, and have issued our report thereon dated January 31, 2000. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in Item 14.(a), is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Arthur Andersen LLP Chicago, Illinois January 31, 2000 37 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Chicago and state of Illinois on the 30th day of March, 2000. UNICOM CORPORATION /s/ John W. Rowe By -------------------------------- John W. Rowe, Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 30th day of March, 2000. Signature - ---------------------------- Title --------------------- /s/ John W. Rowe Chairman, President and - ---------------------------- Chief Executive Officer John W. Rowe and Director (principal executive officer) /s/ Ruth Ann M. Gillis - ---------------------------- Senior Vice Ruth Ann M. Gillis President(principal financial officer) /s/ Robert E. Berdelle Vice President and Comptroller - ---------------------------- (principal accounting officer) Robert E. Berdelle Edward A. Brennan* Director Carlos Cantu* Director James W. Compton* Director Bruce DeMars* Director Sue L. Gin* Director Donald P. Jacobs* Director Edgar D. Jannotta* Director John W. Rogers, Director Jr.* Richard L. Thomas* Director /s/ John P. McGarrity *By -------------------------------- John P. McGarrity, Attorney- in-fact [Signature page to Unicom Corporation Annual Report on Form 10-K] 38 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Chicago and state of Illinois on the 30th day of March, 2000. COMMONWEALTH EDISON COMPANY /s/ John W. Rowe By -------------------------------- John W. Rowe, Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 30th day of March, 2000. Signature - ---------------------------- Title --------------------- /s/ John W. Rowe Chairman, President and - ---------------------------- Chief Executive Officer John W. Rowe and Director (principal executive officer) /s/ Ruth Ann M. Gillis - ---------------------------- Senior Vice Ruth Ann M. Gillis President(principal financial officer) /s/ Robert E. Berdelle Vice President and Comptroller - ---------------------------- (principal accounting officer) Robert E. Berdelle Edward A. Brennan* Director Carlos Cantu* Director James W. Compton* Director Bruce DeMars* Director Sue L. Gin* Director Donald P. Jacobs* Director Edgar D. Jannotta* Director John W. Rogers, Director Jr.* Richard L. Thomas* Director /s/ John P. McGarrity *By -------------------------------- John P. McGarrity, Attorney- in-fact [Signature page to Commonwealth Edison Company Annual Report on Form 10-K] 39 UNICOM CORPORATION AND SUBSIDIARY COMPANIES INDEX
Page ---- Definitions............................................................... F-2 Supplementary Data - ------------------ Operating Statistics...................................................... F-3 Summary of Selected Consolidated Financial Data........................... F-4 Price Range and Cash Dividends Paid per Share of Common Stock............. F-4 Quarterly Financial Data.................................................. F-4 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... F-5 Report of Independent Public Accountants.................................. F-25 Consolidated Financial Statements - --------------------------------- Statements of Consolidated Operations for the years 1999, 1998 and 1997... F-26 Consolidated Balance Sheets as of December 31, 1999 and 1998.............. F-27 Statements of Consolidated Capitalization as of December 31, 1999 and 1998..................................................................... F-29 Statements of Consolidated Retained Earnings/(Deficit) for the years 1999, 1998 and 1997............................................................ F-30 Statements of Consolidated Comprehensive Income for the years 1999, 1998 and 1997................................................................. F-30 Statements of Consolidated Cash Flows for the years 1999, 1998 and 1997... F-31 Notes to Financial Statements............................................. F-32 Financial Statement Schedules - ----------------------------- Schedule II--Valuation and Qualifying Accounts for the years 1997-1999.... F-62
The individual financial statements and schedules of ComEd's nonconsolidated wholly owned subsidiaries have been omitted from Unicom and ComEd's Annual Reports on Form 10-K because the investments are not material in relation to ComEd's financial position or results of operations. As of December 31, 1999, the assets of the nonconsolidated subsidiaries, in the aggregate, were less than 1% of ComEd's consolidated assets. The 1999 revenues of the nonconsolidated subsidiaries, in the aggregate, were less than 1% of ComEd's consolidated annual revenues. F-1 DEFINITIONS The following terms are used in this document with the following meanings:
Term Meaning ---------------------- ------------------------------------------------------- 1997 Act Illinois Electric Service Customer Choice and Rate Relief Law of 1997, as amended AFUDC Allowance for funds used during construction APB Accounting Principles Board APX Automated Power Exchange Inc., a California company ARES Alternative Retail Electric Suppliers CERCLA Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended City City of Chicago ComEd Commonwealth Edison Company, a Unicom subsidiary ComEd Funding ComEd Funding, LLC, a ComEd subsidiary ComEd Funding Trust ComEd Transitional Funding Trust, a ComEd Funding subsidiary Congress U.S. Congress Cotter Cotter Corporation, a ComEd subsidiary CTC Non-bypassable "competitive transition charge" DOE U.S. Department of Energy Edison Development Edison Development Canada Inc., a ComEd subsidiary EME Edison Mission Energy, an Edison International subsidiary EPS Earnings/(Loss) per Common Share ESPP Employee Stock Purchase Plan FAC Fuel adjustment clause FASB Financial Accounting Standards Board FERC Federal Energy Regulatory Commission Fossil Plant ComEd's six coal-fired generating plants, an oil and gas-fired plant, and nine peaking unit sites GAAP Generally Accepted Accounting Principles ICC Illinois Commerce Commission IDR Illinois Department of Revenue Indiana Company Commonwealth Edison Company of Indiana, Inc., a ComEd subsidiary INPO Institute of Nuclear Power Operations ISO Independent System Operator MGP Manufactured gas plant NEIL Nuclear Electric Insurance Limited Northwind Midway Northwind Midway, LLC, a UT Holdings subsidiary NRC Nuclear Regulatory Commission O&M Operation and maintenance PECO PECO Energy Company, a Pennsylvania company RES Retail Electric Supplier SEC Securities and Exchange Commission SFAS Statement of Financial Accounting Standards SPEs Special purpose entities S&P Standard & Poor's Trusts ComEd Financing I and ComEd Financing II, ComEd subsidiaries Trust Securities ComEd-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely ComEd's subordinated debt securities Unicom Unicom Corporation Unicom Energy Services Unicom Energy Services Inc., a Unicom Enterprises subsidiary Unicom Enterprises Unicom Enterprises Inc., a Unicom subsidiary Unicom Investment Unicom Investment Inc., a Unicom Enterprises subsidiary Unicom Power Holdings Unicom Power Holdings Inc., a Unicom Enterprises subsidiary Unicom Thermal Unicom Thermal Technologies Inc., a UT Holdings subsidiary U.S. EPA U.S. Environmental Protection Agency UT Holdings UT Holdings Inc., a Unicom Enterprises subsidiary
F-2 Operating Statistics Year Ended December 31 ------------------------------------- 1999 1998 1997 ----------- ----------- ----------- Operating Revenues (thousands of dol- lars): Residential........................... $ 2,205,066 $ 2,551,741 $ 2,552,742 Small commercial and industrial....... 2,196,069 2,187,532 2,153,113 Large commercial and industrial....... 1,290,926 1,406,720 1,467,574 Public authorities.................... 463,482 510,185 505,907 Electric railroads.................... 20,317 31,022 29,785 Provisions for revenue refunds--ulti- mate consumers....................... -- (21,848) (45,470) Sales for resale...................... 490,938 349,818 336,480 Other revenues........................ 181,149 88,240 82,891 ----------- ----------- ----------- Total.............................. $ 6,847,947 $ 7,103,410 $ 7,083,022 =========== =========== =========== Sales (millions of kilowatthours): Residential........................... 23,716 23,942 22,151 Small commercial and industrial....... 29,125 27,005 25,859 Large commercial and industrial....... 22,474 24,043 24,074 Public authorities.................... 7,778 7,472 7,323 Electric railroads.................... 408 433 418 Sales for resale...................... 19,487 12,262 15,679 ----------- ----------- ----------- Total.............................. 102,988 95,157 95,504 =========== =========== =========== Sources of Electric Energy (millions of kilowatthours): Generation-- Nuclear.............................. 73,684 53,958 49,136 Fossil............................... 25,873 29,212 36,604 Fast-start peaking units............. 127 132 121 ----------- ----------- ----------- Net generation..................... 99,684 83,302 85,861 Purchased power....................... 11,079 20,704 16,672 Company use and losses................ (7,775) (6,367) (7,029) ----------- ----------- ----------- Total.............................. 102,988 97,639 95,504 =========== =========== =========== Cost of Fuel Consumed (per kilowatt- hours): Nuclear............................... 0.52c 0.53c 0.54c Coal.................................. 2.26c 2.51c 2.44c Oil................................... 5.43c 6.26c 5.50c Natural gas........................... 3.22c 3.04c 3.50c Average all fuels..................... 1.00c 1.27c 1.40c Peak Load (kilowatts).................. 21,243,000 19,012,000 18,497,000 Number of Customers (at end of year): Residential........................... 3,145,712 3,134,490 3,123,364 Small commercial and industrial....... 309,828 304,208 291,143 Large commercial and industrial....... 1,783 1,794 1,566 Public authorities and electric rail- roads................................ 18,196 14,051 12,182 Sales for resale...................... 58 62 51 ----------- ----------- ----------- Total.............................. 3,475,577 3,454,605 3,428,306 =========== =========== =========== Average Annual Revenue per Residential Customer.............................. $ 700.98 $ 814.08 $ 817.31 Average Kilowatthour Use per Residen- tial Customer......................... 7,546 7,642 7,108 Average Revenue per Kilowatthour: Residential........................... 9.30c 10.66c 11.52c Small commercial and industrial....... 7.54c 8.10c 8.33c Large commercial and industrial....... 5.74c 5.85c 6.10c
F-3 UNICOM CORPORATION AND SUBSIDIARY COMPANIES Summary of Selected Consolidated Financial Data
1999 1998 1997 1996 1995 ------- ------- ------- ------- ------- (Millions Except per Share Data) Operating revenues........... $ 6,848 $ 7,103 $ 7,083 $ 6,937 $ 6,910 Net income (loss)............ $ 570(1) $ 510 $ (853)(2) $ 666 $ 640(3) Basic earnings (loss) per common share................ $ 2.62(1) $ 2.35 $ (3.94)(2) $ 3.09 $ 2.98(3) Diluted earnings (loss) per common share................ $ 2.61(1) $ 2.34 $ (3.94)(2) $ 3.09 $ 2.98(3) Cash dividends declared per common share................ $ 1.60 $ 1.60 $ 1.60 $ 1.60 $ 1.60 Total assets (at end of year)....................... $23,406 $25,690 $22,700 $23,388 $23,250 Long-term obligations at end of year excluding current portion: Long-term debt, preference stock and preferred securities subject to mandatory redemption requirements.............. $ 7,480 $ 8,212 $ 6,262 $ 6,487 $ 7,011 Accrued spent nuclear fuel disposal fee and related interest................... $ 763 $ 728 $ 693 $ 657 $ 624 Capital lease obligations... $ 162 $ 334 $ 438 $ 477 $ 376 Other long-term obligations. $ 3,182 $ 2,951 $ 3,183 $ 1,991 $ 1,826
- -------- (1) Includes an extraordinary loss related to the early redemption of long- term debt of $28 million (after-tax) or $0.13 per common share (diluted). Also, includes $12 million (after-tax), or $0.05 per common share (diluted), for premiums paid in connection with the redemption of preference stock. (2) Includes an extraordinary loss for the write-off of generation-related net regulatory assets of $810 million (after-tax), or $3.75 per common share (basic), the loss on the early retirement of Zion nuclear generating station of $523 million (after-tax), or $2.42 per common share (basic), and the positive impact of a one-time cumulative effect for a change in accounting principle for revenue recognition of $197 million (after-tax), or $0.91 per common share (basic). (3) Includes an extraordinary loss related to the early redemption of long- term debt of $20 million (after-tax), or $0.09 per common share (basic). Price Range* and Cash Dividends Paid per Share of Common Stock
1999 (by quarters) 1998 (by quarters) --------------------------------- --------------------------------- Fourth Third Second First Fourth Third Second First -------- ------- -------- ------- -------- ------ -------- -------- Price range: High................... 39 9/16 42 3/16 42 13/16 39 1/4 41 3/16 38 36 15/16 35 13/16 Low.................... 30 15/16 35 5/8 35 1/2 33 9/16 36 13/16 33 3/8 32 9/16 30 Cash dividends paid..... 40c 40c 40c 40c 40c 40c 40c 40c
* As reported as NYSE Composite Transactions. - -------- Unicom's common stock is traded on the New York, Chicago and Pacific stock exchanges, with the ticker symbol UCM. At December 31, 1999, there were approximately 111,167 holders of record of Unicom's common stock. Quarterly Financial Data
Average Number of Diluted Common Earnings Shares Per Operating Operating Net Outstanding Common Three Months Ended Revenues Income Income (Diluted) Share - ------------------ ---------- --------- -------- ----------- -------- (Thousands Except per Share Data) March 31, 1999............... $1,537,804 $255,951 $ 69,643 217,780 $0.32 June 30, 1999................ $1,685,714 $227,270 $119,392 218,330 $0.55 September 30, 1999........... $2,084,454 $429,428 $279,752 218,265 $1.28 December 31, 1999............ $1,539,975 $273,791 $100,879 217,980 $0.46 March 31, 1998............... $1,664,897 $195,902 $ 53,715 217,386 $0.25 June 30, 1998................ $1,779,146 $220,616 $ 80,458 217,643 $0.37 September 30, 1998........... $2,095,699 $400,186 $264,822 217,761 $1.22 December 31, 1998............ $1,563,668 $225,713 $111,189 217,994 $0.51
F-4 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Changes in the Electric Utility Industry Unicom and its predominant business, electric energy generation, transmission and distribution, are in a period of fundamental change. These changes are attributable to changes in technology and regulation. Federal law and regulations have been amended to provide for open transmission system access, and various states, including Illinois, are considering, or have adopted, new regulatory structures to allow access by some or all customers to energy suppliers, in addition to the local utility. Electric Utility Industry. The electric utility industry historically has consisted of vertically integrated companies which combine generation, transmission and distribution assets; serve customers within relatively defined service territories; and operate under extensive regulation with respect to rates, operations and other matters. Utilities have operated under a regulatory compact with the state, with a statutory obligation to serve all of the electricity needs within their service territory in a nondiscriminatory manner. Historically, investment and operating decisions have been made based upon the utilities' respective assessment of the current and projected needs of their customers. In view of this obligation, regulation has focused on investment and operating costs, and rates have been based on recovery of some or all of such prudently incurred costs plus a return on invested capital. Such rate regulation, and the ability of utilities to recover investment and other costs through rates, have provided the basis for recording certain costs as regulatory assets. These assets represent costs which are allocated over future periods reflecting related regulatory treatment, rather than expensed in the current period. Federal Regulation. The Federal Energy Policy Act of 1992, among other things, empowered the FERC to introduce a greater level of competition into the wholesale marketplace for electric energy. Under FERC Order No. 888, utilities are required to file open access tariffs with regard to their transmission systems. These tariffs set forth the terms, including prices, under which other parties and the utility's wholesale marketing function may use the utility's transmission system. ComEd has an approved open access tariff with the FERC. A companion FERC rule, Order No. 889, requires the separation of the transmission operations and wholesale marketing functions so as to ensure that unaffiliated third parties have access to the same information as to system availability and other requirements. The FERC Order further requires utilities to operate an electronic bulletin board to make transmission price and access data available to all potential users. A key feature of FERC Order No. 888 is that it contemplates full recovery of a utility's costs "stranded" by competition. These costs are "stranded" or "strandable" to the extent market-based rates would be insufficient to allow for their full recovery. To recover stranded costs, the utility must show that it had a reasonable expectation that it would continue to serve the customer in question under its regulatory compact. In addition, some governmental entities, such as cities, may elect to "municipalize" a utility's distribution facilities through condemnation proceedings. Such municipalities would then be able to purchase electric power on a wholesale basis and resell it to customers over the newly acquired facilities. The FERC Order provides for the recovery of a utility's investment stranded by municipalization. The 1997 Act. In December 1997, the Governor of Illinois signed into law the 1997 Act, which established a phased process to introduce competition into the electric industry in Illinois under a less regulated structure. The 1997 Act was amended in June 1999. As a result of the 1997 Act and FERC rules, prices for the supply of electric energy are expected to change from cost-based, regulated rates to rates determined by competitive market forces. Accordingly, the 1997 Act provides for, among other things, gradual customer access to other electric suppliers or a power purchase option which allows the purchase of electric energy from ComEd at F-5 market based prices, and the collection of a CTC from customers who choose to purchase electric energy from a RES or elect the power purchase option during a transition period that extends through 2006. Effective October 1, 1999, the CTC was established in accordance with a formula defined in the 1997 Act. The CTC, which is applied on a cents per kilowatthour basis, considers the revenue which would have been collected from a customer under tariffed rates, reduced by the revenue the utility will receive for providing delivery services to the customer, the market price for electricity and a defined mitigation factor, which represents the utility's opportunity to develop new revenue sources and achieve cost savings. The CTC allows ComEd to recover some of its costs which might otherwise be unrecoverable under market-based rates. Nonetheless, ComEd will need to take steps to address the portion of such costs which are not recoverable through the CTC. Such steps may include cost control efforts, developing new sources of revenue and asset dispositions. See "Response to Regulatory Changes" and "Fossil Plant Sale" below for additional information. On October 1, 1999, more than 41,000 non-residential customers became eligible to choose a new electric supplier or elect the purchase power option. The remainder of the non-residential customers will become eligible to choose an electric supplier or the purchase power option between June 1 and December 31, 2000. As of December 31, 1999, over 4,700 non-residential customers, representing approximately ten percent of ComEd's 1998 retail kilowatthour sales, elected to receive their electric energy from a RES or chose the purchase power option. As a result of the collection of CTC's from such customers, ComEd does not expect these elections to have a material effect on its results of operations in the near term. Utilities are required to continue to offer delivery services, including the transmission and distribution of electric energy, such that customers who select a RES can receive electric energy from that supplier using existing transmission and distribution facilities. Such services will continue to be offered under cost-based, regulated rates. The ICC issued orders in August and September approving, with modifications, ComEd's delivery service tariffs. The 1997 Act committed ComEd to spend at least $2 billion during the period 1999 through 2004 on transmission and distribution facilities outside of the City and to contribute $250 million to an environmental trust, as a result of closing of the fossil plant sale. The 1997 Act also provides for a 15% residential base rate reduction which became effective August 1, 1998 and an additional 5% residential base rate reduction in October 2001. ComEd's operating revenues were reduced by approximately $170 million in 1998 due to the 15% residential base rate reduction. The 15% rate reduction further reduced ComEd's operating revenues by approximately $226 million in 1999, compared to 1998 rate levels. Notwithstanding the rate reductions and subject to certain earnings tests, a rate freeze will generally be in effect until at least January 1, 2005. During this period, utilities may reorganize, sell or assign assets, retire or remove plants from service, and accelerate depreciation or amortization of assets with limited ICC regulatory review. A utility may request a rate increase during the rate freeze period only when necessary to ensure the utility's financial viability, but not before January 1, 2000. Under the earnings provision of the 1997 Act, if the earned return on common equity of a utility during this period exceeds an established threshold, one-half of the excess earnings must be refunded to customers. The threshold rate of return on common equity for ComEd is based on the 30-Year Treasury Bond rate, plus 5.5% in the years 1998 and 1999, and plus 8.5% in the years 2000 through 2004. The utility's earned return on common equity and the threshold return on common equity are each calculated on a two-year average basis. The earnings sharing provision is applicable only to ComEd's earnings. In accordance with the provisions of the 1997 Act, increased amortization of regulatory assets may be recorded, thereby reducing the earned return on common equity, if earnings otherwise would have exceeded the maximum allowable rate of return. The potential for earnings sharing or increased amortization of regulatory assets could limit earnings in future periods. F-6 The 1997 Act also allows a portion of ComEd's future revenues to be segregated and used to support the issuance of securities by ComEd or a SPE. The proceeds, net of transaction costs, from such security issuances must be used to refinance outstanding debt or equity or for certain other limited purposes. The total amount of such securities that may be issued is approximately $6.8 billion. In December 1998, ComEd initiated the issuance of $3.4 billion of transitional trust notes through its SPEs, ComEd Funding and ComEd Funding Trust. See "Liquidity and Capital Resources," subcaption "UTILITY OPERATIONS--Capital Resources" below, and Notes 3 and 7 of Notes to Financial Statements, for additional information regarding the redemptions and repurchases of debt and equity. The 1997 Act also requires utilities to establish or join an ISO that will independently manage and control utility transmission systems. Additionally, the 1997 Act includes the leveling of certain regulatory requirements to permit operational flexibility, the leveling of certain regulatory and tax provisions as applied to various electric suppliers and a new, more stringent, reliability requirement applicable to ComEd in the event of a major outage. See "Response to Regulatory Changes" below for additional information. See Notes 1, under "Regulatory Assets and Liabilities," and 3 of Notes to Financial Statements for the accounting effects related to the 1997 Act. Response to Regulatory Changes. Unicom has announced several business and operational objectives designed to focus efforts in responding to the energy market changes that are expected to develop from the 1997 Act. Among other things, these strategic objectives call for a focus on operations to: (1) provide a reliable supply of electricity as the competitive marketplace evolves, (2) become a top quartile operator of competitive nuclear plants, (3) deliver competitive earnings while restructuring the balance sheet to reflect the realities of the marketplace, (4) expand the offering of energy-related products and services, and (5) transform the corporate culture of Unicom. Under the 1997 Act, the role of electric utilities in the supply and delivery of energy is expected to change. Utilities, such as ComEd, traditionally have been responsible for providing both adequate supply and reliable delivery of electricity to customers within their service areas. In the future, ComEd will continue to be obligated to provide a reliable delivery system. However, ComEd will be obligated to supply electricity only to those customers that it continues to serve under tariffs for electricity, but not for those customers who choose to rely on the marketplace. Nonetheless, during the transition period to a competitive supply marketplace, ComEd must provide both an adequate supply and reliable delivery of electricity. Given the tight capacity situation in ComEd's market, ComEd will be working to maintain its available capacity, as well as working to assist in the development of a competitive supply marketplace in Illinois. ComEd has a significant commitment to, and investment in, nuclear generating capacity. ComEd has installed a management team responsible for improving nuclear operations. Such improvements are aimed at increasing levels of energy generation, or capacity factors, at ComEd's nuclear generating units while simultaneously improving ComEd's record of meeting NRC requirements and INPO performance standards. Increased capacity factors generally result in lower unit production costs and an improved opportunity to generate and sell electricity in a competitive marketplace. Efforts are also being made to control capital and operating costs through increased efficiencies, such as the reduction of downtime and expenses associated with generating unit maintenance and refueling outages. ComEd also evaluated the recoverability of its generating plant investment in 1998 as a result of the 1997 Act. See Note 1 of Notes to Financial Statements, under "Regulatory Assets and Liabilities," for additional information. Notwithstanding these efforts, there continues to be an ongoing analysis of the ability of ComEd's various nuclear plants to generate and deliver electric energy safely at F-7 competitive prices in the competitive market for energy. Although short-term system reliability and capacity constraints are likely to support the continued operation of ComEd's nuclear units in the near term, expected longer term developments are likely to make decision-making a function of economic considerations. In the absence of short-term reliability and capacity constraints, if a generating plant cannot produce power safely at a cost below the competitive market price, it will be disposed of or closed. Plant impairment adjustments have reduced the carrying value of nuclear plants, and depreciation rates reflecting shortened estimated useful lives for certain stations will reduce the carrying value further during the next several years. However, closure of a plant could involve additional charges associated with the write-off of its then-current carrying value. In January 1998, Unicom and ComEd announced the decision to permanently cease nuclear generating operations at ComEd's Zion Station. The related retirement resulted in a charge in 1997 of $523 million (after-tax), or $2.42 per common share (diluted), reflecting both a write down of the plant's carrying value and a liability for future closing costs. A portion of Zion Station is used to provide voltage support in the transmission system that serves ComEd's northern region. See Note 5 of Notes to Financial Statements for additional information. ComEd joined with other Midwestern utilities to design the Midwest ISO in 1998. These utilities have agreed to place their transmission systems under the control of the Midwest ISO as soon as it achieves operational status in 2001. The Midwest ISO, a key element in accommodating the FERC-directed restructuring of the electric industry, is expected to promote enhanced reliability of the transmission system, equal access to the transmission system, and foster increased competition. The Midwest ISO will control the transmission system and will have authority to require modification in the operation of generators connected to that system during system emergencies. ComEd, like other utilities, will retain ownership of its transmission lines. The formation of the Midwest ISO was approved by the FERC in September 1998, subject to certain conditions. In December 1999, ComEd and other Midwestern utilities filed a request with the FERC for a Declaratory Order approving a different organizational template for the regional transmission grid. The request seeks approval for the creation of for-profit transmission companies, operating under the general oversight of the Midwest ISO, but fully separated from their previous vertically integrated utilities. The request was approved, in part, on February 24, 2000, subject to further development of its elements. In the absence of an ISO-related power exchange, ComEd has also agreed to cooperate with APX in the creation of the first electronic energy exchange in Illinois. Initial products may include hourly, daily and weekly electricity delivered to and from interconnection points on ComEd's transmission system, and a standard system of credit and trading interfaces. Unicom has made a $3 million venture capital investment in APX in order to help finance its expansion in Midwest. Neither ComEd nor Unicom will receive any voting rights. The power exchange will be independently owned and managed by APX and will allow wholesale and retail market participants to trade electricity anonymously through an internet-based computerized system. ComEd will be treated like any other market participant and will be an active participant in the power exchange which opened in Illinois in the fourth quarter of 1999. Merger Agreement. In September 1999, the Boards of Directors of Unicom and PECO approved a merger of equals that will create a new holding company, Exelon. The merger is conditioned, among other things, upon the approvals of the shareholders of both companies and by various regulatory bodies. The merger is currently expected to be completed in the latter half of 2000. Under the merger agreement, as amended and restated in January 2000, PECO and ComEd will become the principal utility subsidiaries of Exelon. This result will be achieved by a mandatory exchange of the outstanding common stock of PECO for common stock of Exelon, and a merger of Unicom with and into Exelon wherein holders of Unicom common stock will receive 0.875 shares of Exelon common stock plus $3.00 in cash for each of their shares of Unicom common stock. The merger transaction will be accounted for as a purchase of Unicom by PECO. F-8 Prior to the consummation of the merger, Unicom expects to repurchase approximately $1.0 billion of its outstanding common shares. These share repurchases are in addition to 26.3 million shares of Unicom common stock that Unicom repurchased in January 2000 upon settlement of certain forward purchase contracts. The $1.0 billion additional share repurchases will be funded from available funds, including funds resulting from the fossil plant sale. The Amended and Restated Agreement and Plan of Exchange and Merger, dated as of January 7, 2000, was filed on January 13, 2000 by Unicom with the SEC as an exhibit to a Form 8-K, and reference to that filing is made for more detailed information. Fossil Plant Sale. In December 1999, ComEd completed the sale of its fossil generating assets to EME for a cash purchase price of $4.8 billion. The fossil plant assets represent an aggregate generating capacity of approximately 9,772 megawatts. Just prior to the consummation of the fossil plant sale, ComEd transferred these assets to an affiliate, Unicom Investment. In consideration for the transferred assets, Unicom Investment paid ComEd consideration totalling approximately $4.8 billion in the form of a demand note in the amount of approximately $2.4 billion and an interest-bearing Note with a maturity of twelve years. Unicom Investment immediately sold the fossil plant assets to EME, in consideration of which Unicom Investment received approximately $4.8 billion in cash from EME. Immediately after its receipt of the cash payment from EME, Unicom Investment paid the $2.4 billion aggregate principal due to ComEd under the demand note. Unicom Investment will use the remainder of the cash received from EME to fund other business opportunities, including the share repurchases. Of the cash received by ComEd, $1.8 billion is expected to be used to pay the costs and taxes associated with the fossil plant sale including ComEd's contribution of $250 million of the proceeds to an environmental trust as required by the 1997 Act. The remainder of the demand note proceeds will be available to ComEd to fund, among other things, transmission and distribution projects, nuclear generation station projects, and environmental and other initiatives. The sale produced an after-tax gain of approximately $1.6 billion, after recognizing commitments associated with certain coal contracts ($350 million), recognizing employee-related costs ($112 million) and contributing to the environmental trust. The coal contract costs include the amortization of the remaining balance of ComEd's regulatory asset for unrecovered coal reserves of $178 million and the recognition of $172 million of settlement payments related to the above-market portion of coal purchase commitments ComEd assigned to EME at market value upon completion of the fossil plant sale. The severance costs included pension and post-retirement welfare benefit curtailment and special termination benefit costs of $51 million and transition, separation and retention payments of $61 million. A total of 1,730 fossil station employee positions were eliminated upon completion of the fossil plant sale on December 15, 1999. As of December 31, 1999, 1,590 of the employees whose positions were eliminated had been terminated and 140 affected employees were in a transition program which generally extends 60 days from the date of the fossil plant sale. Consistent with the provisions of the 1997 Act, the (pre-tax) gain on the sale of $2.587 billion resulted in a regulatory liability, which was used to recover regulatory assets. Therefore, the gain on the sale, excluding $43 million of amortization of investment tax credits, was recorded as a regulatory liability in the amount of $2.544 billion and amortized in the fourth quarter of 1999. The amortization of the regulatory liability and additional regulatory asset amortization of $2.456 billion are reflected in depreciation and amortization expense on Unicom's Statement of Consolidated Operations and resulted in a net reduction to depreciation and amortization expense of $88 million. As part of the sale transaction, ComEd entered into transitional, limited term power purchase agreements with the buyer. Such purchase power agreements will increase ComEd's purchased power costs. F-9 Liquidity and Capital Resources UTILITY OPERATIONS Construction Program. ComEd has a construction program for the year 2000, which consists principally of improvements to its existing nuclear production, transmission and distribution facilities. The program, as currently approved by ComEd, includes the following estimated expenditures (excluding nuclear fuel expenditures of approximately $260 million).
2000 ---- (Millions of Dollars) Nuclear................................................... $215 Transmission and Distribution............................. 536 General................................................... 146 ---- $897 ====
In response to several outages in the summer of 1999, ComEd conducted an extensive evaluation of the reliability of its transmission and distribution systems. The construction program above reflects a preliminary evaluation of improvements necessary to improve reliability of ComEd's transmission and distribution systems. ComEd is currently evaluating its construction program for the years 2000, 2001 and 2002. The final results of this planning process cannot be determined at this time. ComEd's forecasts of peak load for its traditional service territory indicate a need for additional resources to meet demand, through generating capacity, equivalent purchased power and/or the development of additional demand-side management resources, in 2000 and each year thereafter for the foreseeable future. ComEd believes that adequate resources, including cost- effective demand-side management resources, nonutility generation resources, power purchases and generation resources from ARES, can be obtained in sufficient quantities to meet such forecasted needs. See "Unregulated Operations," subcaption "Construction Program" below, for additional information. Purchase commitments for ComEd, principally related to construction, nuclear fuel and coal in support of certain power purchase agreements approximated $670 million at December 31, 1999. In addition, ComEd's estimated commitments for expected capacity payments and fixed charges related to power purchase agreements were as follows:
Commitments(1) Period ($Millions) ------ -------------- 2000............................... $ 783 2001............................... 698 2002............................... 427 2003-2004.......................... 540 2005-2012.......................... 1,039 ------ $3,487 ======
-------- (1) Capacity payments may be adjusted based on certain conditions. No estimate of future cost escalation has been made. See "Changes in the Electric Utility Industry," subcaptions "The 1997 Act" and "Fossil Plant Sale" above, for additional information. Capital Resources. In December 1998, ComEd initiated the issuance of $3.4 billion of transitional trust notes through its SPEs, ComEd Funding and ComEd Funding Trust. The proceeds from the transitional trust notes, net of transaction costs, were, as required, used to redeem $1,101 million of long- term debt and $607 million of preference stock in 1999 and reduce ComEd's outstanding short-term debt by $500 million. In 1999, ComEd recorded an extraordinary loss related to the early F-10 redemptions of such long-term debt, which reduced net income on common stock by approximately $28 million (after-tax), or $0.13 per common share (diluted). ComEd also recorded $12 million (after-tax), or $0.05 per common share (diluted), for premiums paid in connection with the redemption of preference stock. As more fully described below, Unicom has repurchased approximately 26.3 million shares of Unicom common stock using $924 million of proceeds it received from ComEd's repurchase of its common stock held by Unicom. The remaining proceeds from the issuance of the transitional trust notes will be used for the payment of fees and additional common stock repurchases. In the fourth quarter of 1998, Unicom entered into a forward purchase arrangement for the repurchase of $200 million of its common stock. This contract, which was accounted for as an equity instrument as of December 31, 1998, was settled on a net cash basis in February 1999. During 1999, Unicom also entered into forward purchase arrangements with financial institutions for the repurchase of approximately 26.3 million shares of Unicom common stock. The repurchase arrangements were settled in January 2000 on a physical basis. Effective January 2000, the share repurchases will reduce outstanding shares and reduce common stock equity. Prior to settlement, the repurchase arrangements were recorded as a receivable on the Consolidated Balance Sheets based on the aggregate market value of the shares deliverable under the arrangements. In 1999, net unrealized losses of $44 million (after- tax), or $0.20 per common share were recorded related to the arrangements. The settlement of the arrangements in January 2000 resulted in a gain of $113 million (after-tax). See Note 25 of Notes to Financial Statements for additional information. See Notes 3 and 7 of Notes to Financial Statements for additional information regarding the redemptions and repurchases of debt and equity. ComEd forecasts that internal sources will provide approximately three- fourths of the funds required for ComEd's 2000 construction program and other capital requirements, including nuclear fuel expenditures, contributions to nuclear decommissioning funds, sinking fund obligations and scheduled debt maturities. See Notes 10 and 12 of Notes to Financial Statements for the summaries of the annual sinking fund requirements and scheduled maturities for ComEd preference stock and long-term debt, respectively. See "Changes in the Electric Utility Industry," subcaption "Fossil Plant Sale" above, for a description of ComEd's planned uses of the fossil plant sale proceeds. The type and amount of external financing will depend on financial market conditions and the needs and capital structure of ComEd at the time of such financing. ComEd had total unused bank lines of credit of $800 million at December 31, 1999, which may be borrowed at various interest rates. Of that amount, $500 million expires on December 15, 2000 and $300 million expires on December 17, 2002. The interest rate is set at the time of a borrowing and is based on several floating rate bank indices plus a spread, which is dependent upon the credit ratings of ComEd's outstanding first mortgage bonds or on a prime interest rate. See Note 13 of Notes to Financial Statements for additional information concerning lines of credit. See the Statements of Consolidated Cash Flows for the construction expenditures and cash flow from operating activities for the years 1999, 1998 and 1997. Cash flows from operating activities were adversely affected in 1998 and positively affected in 1999 as a result of delayed billings related to the transition to a new customer information and billing system beginning in July 1998. See Note 1 of Notes to Financial Statements, under "Customer Receivables and Revenues", for additional information. As of January 31, 2000, ComEd has an effective "shelf" registration statement with the SEC for the future sale of up to an additional $280 million of debt securities and cumulative preference stock for general corporate purposes of ComEd, including the discharge or refund of other outstanding securities. F-11 ComEd's securities and other securities guaranteed by ComEd are currently rated by three principal securities rating agencies as follows:
Standard Duff & Moody's & Poor's Phelps ------- -------- ------ First mortgage and secured pollution control bonds..... Baa1 BBB+ A- Publicly-held debentures and unsecured pollution con- trol obligations...................................... Baa2 BBB BBB+ Convertible preferred stock............................ baa3 BBB- BBB Preference stock....................................... Baa2 BBB- BBB Trust Securities....................................... baa3 BBB- BBB Commercial paper....................................... P-2 A-2 D-1
ComEd Funding Trust's securities are currently rated by three principal securities rating agencies as follows:
Standard Duff & Moody's & Poor's Phelps ------- -------- ------ Transitional trust notes.......................... Aaa AAA AAA
All three agencies raised their ratings for ComEd in 1999: Duff & Phelps in December, Moody's in September; and S&P in June. Capital Structure. ComEd's ratio of long-term debt to total capitalization has decreased to 55.2% at December 31, 1999 from 58.0% at December 31, 1998. As of December 31, 1999 and 1998, $716 million and $494 million, respectively, of retained earnings had been appropriated for Unicom's future dividend payments. Year 2000 Conversion. Unicom completed a successful transition to the Year 2000 as systems performed without interruption during the rollover from December 31, 1999 to January 1, 2000. All Unicom Year 2000 Command Centers were activated during the critical rollover period. In addition to 12/31/99, other key Year 2000 dates that Unicom has completed without Year 2000 problems are 1/1/99, 4/9/99 (99th day of 1999), 8/21/99 (Global Positioning System rollover), 9/9/99 and the rollover from 2/28/00 to 2/29/00. Unicom depends upon third parties, including customers, suppliers, government agencies and financial institutions, to reliably deliver its products and services. Unicom completed an analysis of the Year 2000 readiness programs of its critical vendors and obtained Year 2000 warranties in certain new contracts and licenses. Unicom also has introduced protocols for assuring that software and embedded systems remain Year 2000 ready on a continuing basis. Even though mission critical products and services of the Unicom supply chain are Year 2000 ready, contingency plans were developed to prevent or mitigate interruptions caused by Unicom suppliers. As of December 31, 1999, approximately $37.4 million has been expended for external labor, hardware and software costs, and for the costs of Unicom employees who are dedicated full-time to the Year 2000 project. All of such costs were expensed as incurred. The foregoing amounts do not include the cost of new software applications installed as a result of strategic replacement projects. Such replacement projects were not accelerated because of Year 2000 issues. Unicom expects to incur minimal expenditures for final project wrap-up activities. Unicom's Year 2000 project focused on those facets of its business that are required to deliver reliable electric service. The project encompassed the computer systems that support core business F-12 functions, such as customer information and billing, finance, procurement, supply and personnel, as well as the components of metering, transmission, distribution and generation support. The project also focused on embedded systems, instrumentation and control systems in facilities and plants. In accordance with business plans, Unicom has replaced certain of its financial, human resources and payroll and customer service and billing software with new software that is Year 2000 ready and that addresses Unicom's strategic needs as it enters a less regulated environment. Market Risks. ComEd is exposed to market risk due to changes in interest rates and the market price for electricity. Exposure for interest rate changes relates to its long-term debt and preferred equity obligations. Exposure to electricity market price risk relates to forward activities taken to manage effectively the supply of, and demand for, the electric generation capability of ComEd's generating plants. ComEd has implemented an integrated risk management framework to manage such risks. A corporate Risk Management Committee defines the Company's risk tolerance and establishes appropriate position limits, and corporate policies and procedures have been implemented to minimize the exposure to market risk. ComEd does not currently utilize derivative commodity or financial instruments for trading or speculative purposes. See "Energy Risk Management Contracts" in Note 1 of Notes to Financial Statements regarding the accounting for energy risk management contracts. Interest Rate Exposure. The table below provides the fair value and average interest or fixed dividend rates of Unicom's outstanding debt and preferred stock equity instruments as of December 31, 1999.
Expected Maturity Date Fair Value Unicom and Subsidiary ---------------------------------------- as of Companies (millions) 2000 2001 2002 2003 2004 Thereafter Total 12/31/99 - --------------------- ---- ---- ---- ---- ---- ---------- ------ ---------- Long-Term Debt- Fixed Rate............. $387 $ 11 $311 $111 $241 $3,694 $4,755 $4,695 Average Interest Rate.. 6.74% 6.75% 7.93% 6.62% 7.53% 7.68% Variable Rate.......... $ 92 $ 92 $ 92 Average Interest Rate.. 5.49% Transitional Trust Notes................. $350 $340 $340 $340 $340 $1,360 $3,070 $2,894 Average Interest Rate.. 5.31% 3.32% 5.38% 5.42% 5.44% 5.66% Preferred and Preference Stock- Subject to Mandatory Redemption............ $ 69 $ 69 $ 70 Average Dividend Rate.. 6.93% Not Subject to Manda- tory Redemption....... $ 2 $ 2 $ 1 Average Dividend Rate.. 4.48% Trust Securities........ $ 350 $ 350 $ 339 Average Dividend Rate.. 8.49%
Market Price Exposure. ComEd's energy purchases from other suppliers have increased as a result of reductions in owned generating capability and system load growth. The market price of energy is subject to price volatility associated with changes in supply and demand in the electric supply markets. In the normal course of business, ComEd utilizes contracts for the forward sale and purchase of energy to assure system reliability and manage effectively the utilization of its available generating capability. ComEd also utilizes put and call option contracts and energy swap arrangements to limit the market price risk associated with the forward commodity contracts. The estimated December 31, 1999 fair value of the forward contracts, including options, for the purchase and sale of energy for the years 2000 through 2007, was approximately $(70) million. The estimated fair value is based on the estimated net settlement value of the contracts derived from forward price curves and market quotes, discounted at a 10% rate. A 10% increase in the forward price of electricity would decrease the December 31, 1999 fair value of the forward energy contracts for the years 2000- 2007 by approximately $120 million, of which approximately $65 million is for contracts for the period 2000-2002. Likewise, a 10% decrease would increase the fair value of the energy contracts by $120 million. Notwithstanding these price risk management activities, an unexpected loss of generating capability or reduction in demand could increase ComEd's exposure to market price risks and could have a material adverse effect on operating results. F-13 UEI has entered into gas sales contracts which are hedged with gas supply contracts at lower prices. UEI's margin per therm of gas delivered is not significantly affected by the market price of gas. UEI has also entered into electricity contracts for which the mark-to-market at December 31, 1999 is not material. UNREGULATED OPERATIONS Unicom Enterprises is engaged, through subsidiaries, in energy service activities which are not subject to utility regulation by federal or state agencies. One of these subsidiaries, UT Holdings, provides district cooling and related services to offices and other buildings in the central business district of the City and in other cities in North America, generally working with local utilities. District cooling involves, in essence, the production of chilled water at one or more central locations and its circulation to customers' buildings through a closed circuit of supply and return piping. Such water is circulated through customers' premises primarily for air conditioning. This process is used by customers in lieu of self-generated cooling. Unicom Energy Services, another subsidiary of Unicom Enterprises, is engaged in providing energy services, including gas services, performance contracting, distributed energy and energy management systems. Through an alliance with AlliedSignal Power Systems, Inc., a subsidiary of AlliedSignal Inc., Unicom Energy Services is an exclusive distributor for the Parallon 75(TM) TurboGenerator system, which was developed by AlliedSignal to provide customers with on-site electricity production. Unicom Energy Services' exclusive territory for distributing the Parallon 75(TM) system encompasses 12 Midwest states, Ontario, Canada and Puerto Rico. Unicom Power Holdings, another subsidiary of Unicom Enterprises, is developing certain generation and cogeneration projects. Unicom Energy Inc. and Unicom Gas Services, LLC, also subsidiaries of Unicom Enterprises, are currently engaged in providing retail gas services to commercial and industrial customers in the Midwest region. Unicom Energy Inc. also provides retail electric services as an unregulated retail energy supplier. Unicom Mechanical Services Inc., a subsidiary of Unicom Enterprises, engages in the design, installation and servicing of heating, ventilation and air conditioning facilities for commercial and industrial customers in the City and surrounding area through subsidiaries conducting business as Midwest Mechanical and V.A. Smith Company. Construction Program. Unicom has approved capital expenditures for 2000 of approximately $85 million for UT Holdings, primarily related to an expansion of its Chicago district cooling facilities and the related distribution piping and plants in other cities. As of December 31, 1999, UT Holdings' purchase commitments, principally related to construction, were approximately $27 million. Unicom has approved capital expenditures for 2000 of approximately $15 million for Unicom Energy Services. As of December 31, 1999, Unicom Energy Services had purchase commitments of approximately $24 million. Unicom has approved capital expenditures for 2000 of approximately $221 million for Unicom Power Holdings. As of December 31, 1999, Unicom Power Holdings had purchase commitments of approximately $78 million. Unicom Power Holdings intends to purchase approximately 440 MW of combustion turbine generators and auxiliary equipment. Such generators will either be sold or placed into cogeneration or F-14 other peaking applications. Unicom Power Holdings is evaluating the costs and economics of such alternatives. Unicom Power Holdings anticipates that the equipment purchases will cost approximately $165 million, of which approximately $90 million has been incurred as of December 31, 1999. Unicom Power Holdings may incur significant additional costs to site and install such power generation equipment. Capital Resources. Unicom expects to obtain funds to invest in its unregulated subsidiaries principally from the fossil plant sale proceeds received by Unicom Investment, although it may also obtain funds from dividends received on its ComEd common stock and from borrowings. The availability of ComEd's dividends to Unicom is dependent on ComEd's financial performance and cash position, as well as legal restrictions on the payment of dividends by public utilities. Other forms of financing by ComEd to Unicom or the unregulated subsidiaries of Unicom, such as additional loans or additional equity investments, which are not expected, would be subject to prior approval by the ICC. The fossil plant sale proceeds received by Unicom Investment, after the payment of the demand note to ComEd, will be used to fund share repurchases and to invest in new business opportunities. See "Changes in the Electric Utility Industry" subcaption "Fossil Plant Sale" above, for additional information. Unicom Enterprises has an unused $400 million credit facility which will expire December 15, 2000. The credit facility can be used by Unicom Enterprises to finance investments in unregulated businesses and projects, including UT Holdings and Unicom Energy Services, and for general corporate purposes. The credit facility is guaranteed by Unicom and includes certain covenants with respect to Unicom and Unicom Enterprises' operations. Interest rates for borrowings under the credit facility are set at the time of a borrowing and are based on either a prime interest rate or a floating rate bank index plus a spread which varies with the credit rating of ComEd's outstanding first mortgage bonds. See Note 13 of Notes to Financial Statements for additional information regarding certain covenants with respect to Unicom and Unicom Enterprises' operations. In July 1998, Unicom Thermal issued a $120 million 7.38% unsecured guaranteed senior Note due May 2012, the proceeds of which were used to refinance existing debt. The Note is guaranteed by Unicom and includes certain covenants with respect to Unicom and Unicom Thermal's operations. In June 1999, Northwind Midway issued $12 million of 7.68% guaranteed senior Notes due June 2023, the proceeds of which will be used primarily to finance certain project construction costs. The Notes are guaranteed by Unicom and include certain covenants with respect to Unicom and Northwind Midway's operations. On November 5, 1999, Duff & Phelps assigned an initial implied senior unsecured debt rating of BBB- to Unicom, and placed the rating on "Rating Watch-Up." S&P's current corporate credit rating for Unicom is BBB. On September 23, 1999, in response to the announced Unicom and PECO merger agreement, S&P placed Unicom on credit watch with positive implications, and Moody's confirmed the first-time issuer rating of Baa3 it had assigned to Unicom on September 15, 1999. Regulation ComEd and Indiana Company are subject to federal and state regulation in the conduct of their respective businesses. Such regulation includes rates, securities issuance, nuclear operations, environmental and other matters. Particularly in the cases of nuclear operations and environmental matters, such regulation can and does affect operational and capital expenditures. F-15 Rate Matters. See "Changes in the Electric Utility Industry," subcaption "The 1997 Act" above, for information regarding the effect of the 1997 Act on rate matters. Nuclear Matters. Nuclear operations have been, and remain, an important focus of ComEd. ComEd operates five nuclear plants--Braidwood, Byron, Dresden, LaSalle and Quad Cities Stations, and is committed to safe, reliable and efficient operation. See "Changes in the Electric Utility Industry," subcaption "Response to Regulatory Changes" above, for information regarding ComEd's permanent cessation of nuclear generation operations at its Zion Station. On May 6, 1999, ComEd's LaSalle Station was officially removed from the NRC's listing of plants that require increased regulatory scrutiny. LaSalle Station had been on this list since January 1997. Concurrent with the LaSalle Station action, the NRC announced the formal removal of the Quad Cities Station from its list of plants with declining performance trends. Quad Cities Station had been on the declining trend list since January 1998. With these actions, all of ComEd's nuclear plants are now placed in the NRC's "routine oversight" category. This represents the first time since 1990 that none of ComEd's nuclear generating units are under special NRC oversight. The NRC and representatives of ComEd's management have met, and will continue to meet periodically as part of the NRC's normal oversight process, to discuss the overall performance of the ComEd nuclear program. Based on ComEd's most recent study, decommissioning costs are estimated to be $5.7 billion in current-year (2000) dollars, including a contingency allowance. This estimate includes $617 million of non-radiological costs, which are included in ComEd's proposed rider for recovery, as discussed below. ComEd's decommissioning cost expenditures at the end of the units' operating lives are estimated to total approximately $13.8 billion. These expenditures are expected to occur primarily during the period from 2007 through 2034. All such costs are expected to be funded by the external decommissioning trusts, which ComEd established in compliance with Illinois law and into which ComEd has been making annual contributions. Future decommissioning cost estimates may be significantly affected by the adoption of or changes to NRC regulations, as well as changes in the assumptions used in making such estimates, including changes in technology, available alternatives for the disposal of nuclear waste and inflation. Since 1995, ComEd has collected decommissioning costs from its ratepayers in conjunction with a rider to its tariffs. The rider allows annual adjustments to decommissioning cost collections outside the context of a traditional rate proceeding and will continue under the 1997 Act. The current estimated decommissioning costs include a contingency allowance, but, except at Dresden Unit 1, exclude amounts for alternative spent fuel storage installations, which may be necessary to store spent fuel during the period beginning at the end of the NRC license lives of the plants to the date when the DOE accepts the spent fuel for permanent storage. Contingency allowances used in decommissioning cost estimates provide for currently unspecifiable costs that are likely to occur after decommissioning begins and generally range from 20% to 25% of the currently specifiable costs. Under its most recent annual rider, filed with the ICC on February 26, 1999, ComEd has proposed to increase its estimated annual decommissioning cost accrual from $84 million to $130 million. The proposed increase primarily reflects an increase in low-level waste disposal cost escalation, the inclusion of $219 million in current-year (2000) dollars for safety-related costs of maintaining Zion Station in a mothballed condition until dismantlement begins, and the inclusion of non- radiological costs in the decommissioning cost estimates for recovery under the rider. See Note 1 of Notes to Financial Statements, under "Depreciation, Amortization of Regulatory Assets and Liabilities, and Decommissioning," for additional information regarding decommissioning costs. Environmental Matters. ComEd is involved in administrative and legal proceedings concerning air quality, water quality and other matters. The outcome of these proceedings may require F-16 increases in future construction expenditures and operating expenses and changes in operating procedures. See Note 22 of Notes to Financial Statements for additional information. Results of Operations Unicom's basic and diluted earnings/(loss) per common share for 1999, 1998 and 1997 were as follows:
1999 1998 1997 ----- ----- ------ Basic Earnings/(Loss) per Common Share...................... $2.62 $2.35 $(3.94) ===== ===== ====== Diluted Earnings/(Loss) per Common Share.................... $2.61 $2.34 $(3.94) ===== ===== ======
Substantially all of the results of operations for Unicom are the results of operations for ComEd. As such, the following section generally discusses, in more detail, the effect of ComEd's operations on Unicom's financial results. All EPS computations shown below reflect the impact on Unicom's diluted EPS. Net Income for the Year 1999. The increase in Unicom's net income in 1999 reflects, among other factors, ComEd's increased energy sales, the fossil plant sale, improved nuclear performance which resulted in lower fuel and purchased power costs and lower taxes except income taxes. Kilowatthour sales increased 8% for the year 1999, compared to 1998, driven largely by a 59% increase in kilowatthour sales for resale. See "Operating Revenues" below for additional information. Fuel and purchased power costs decreased 14% in 1999, compared to 1998, resulting from improved nuclear performance. See "Fuel Costs" and "Purchased Power" below for additional information. O&M expenses increased 6% for the year 1999, compared to the year 1998, as discussed in "Operation and Maintenance Expenses" below. Earnings for the year were positively impacted by the fossil plant sale. Consistent with the provisions of the 1997 Act, the after-tax gain on the fossil plant sale of $1.56 billion ($7.12 per common share) resulted in a regulatory liability. Increased regulatory asset amortization amounted to $2.46 billion, before tax, ($6.76 per common share, after-tax) as discussed in Note 5 of Notes to Financial Statements. The earnings increase was also partially offset by a net unrealized loss of $44 million (after-tax), or $0.20 per common share, related to forward share repurchase arrangements, a charge of $41 million (after-tax), or $0.19 per common share, for an increase in the estimated liability for the remediation of former MGP sites, extraordinary losses related to the early redemptions of long-term debt, which reduced net income on common stock by $28 million (after-tax), or $0.13 per common share, and premiums of $12 million (after-tax), or $0.05 per common share, paid in connection with the redemption of preference stock. ComEd's net income for the year 1999 represents the maximum return on average common equity allowable for the year before triggering the earnings sharings provision of the 1997 Act. Taxes other than income taxes decreased by $17 million or $0.05 per common share after excluding the effects of the change in presentation for certain state and municipal taxes ($174 million) as discussed in "Operating Revenues" below. The $17 million decrease is principally due to lower municipal compensation taxes. Net Income for the Year 1998. The increase in earnings for 1998 was primarily due to increased kilowatthour sales, which increased both operating revenues and energy costs, reduced F-17 O&M expenses, lower depreciation and amortization expenses, lower than expected Zion Station closing costs, gains on the sales of certain assets and a lower effective income tax rate. In December 1997, ComEd discontinued regulatory accounting practices for the generation portion of its business and recorded other non-recurring accounting charges as a result of the 1997 Act, which primarily contributed to the loss for 1997. The 1997 operating results also include the write-off for the closure of the Zion nuclear generating station, partially offset by a cumulative one-time positive impact of $197 million (after-tax), or $0.91 per common share, for a change in accounting method for revenue recognition to record ComEd's revenues associated with service which has been provided to customers but has not yet been billed at the end of each accounting period, retroactive to January 1, 1997. Fuel and purchased power costs increased 10% in 1998, compared to the year 1997, reflecting increased demand for electricity, as well as the effects of higher purchased power prices. See "Purchased Power" below for additional information. O&M expenses decreased 6% for the year 1998, compared to the year 1997, as discussed in "Operation and Maintenance Expenses" below. The year 1998 includes a 6% decrease in depreciation and amortization expenses, as discussed in "Depreciation and Amortization" below, and a $15 million (after-tax), or $0.07 per common share, reduction in the estimated liability for closing costs related to the Zion nuclear generating station, both of which increased operating results. Also, 1998 operating results reflect realized gains on the sales of certain assets of $31 million (after-tax), or $0.14 per common share. The sold assets consisted principally of surplus inventory of emission allowances. Net Loss for the Year 1997. ComEd's kilowatthour sales, including sales to wholesale customers, increased 5% during 1997, compared to 1996, as discussed below. In 1997, O&M expenses increased 13%, as discussed below. Also, 1997 operating results were reduced by $336 million for increased fuel and purchased power costs, as discussed below. In addition, a 4% increase in depreciation expense, primarily due to an increase in certain nuclear plant depreciation, resulted in a charge of $23 million (after-tax), or $0.11 per common share. ComEd discontinued regulatory accounting practices for the generation portion of its business in the fourth quarter of 1997 due to the expected transition of electric generation services to market-based pricing as a result of the 1997 Act. Accordingly, ComEd's generation-related net regulatory assets, which represent assets and liabilities properly recorded under regulatory accounting practices but which would not be recorded under GAAP for non-regulated entities, were written off, resulting in an extraordinary charge in 1997 of $810 million (after-tax), or $3.75 per common share. In addition, pursuant to an option contained in the 1997 Act, ComEd filed a tariff in December 1997 to eliminate its FAC. Under ComEd's regulated rates, the FAC provided for the recovery of changes in fossil and nuclear fuel costs and the energy portion of purchased power costs, compared to the fuel and purchased energy costs included in ComEd's base rates. The 1997 Act provided that upon the elimination of the FAC, ComEd would be required to refund to customers the net FAC charges billed during the calendar year 1997. Net FAC charges billed by ComEd during the year 1997 were $25 million (after tax) or $0.12 per common share (diluted). These costs, as well as deferred, underrecovered energy costs of $19 million (after-tax), or $0.08 per common share (diluted), which ComEd would have been entitled to recover if the FAC had remained in effect, were recorded as a charge to operating results in the fourth quarter of 1997. Elimination of the FAC could increase volatility in future earnings due to changes in fuel and purchased power costs. F-18 Additionally, the elimination of the FAC and the transition to market-based pricing for generation-related costs required ComEd to write-off its investment in uranium-related properties. An impairment study indicated the expected incremental costs of mining and milling uranium at those properties would exceed the expected market price for uranium. These costs, which were previously recoverable through the FAC, are not expected to be recoverable in a competitive market. A write-off of uranium-related properties to reflect market value resulted in a charge of $60 million (after-tax), or $0.28 per common share (diluted), in December 1997. Partially offsetting the charges to operations for 1997 was a change in the accounting method for revenue recognition to record ComEd's revenues associated with service which has been provided to customers but has not yet been billed at the end of each accounting period, retroactive to January 1, 1997. This change in accounting method had a one-time cumulative positive impact for years prior to 1997 of $197 million (after-tax), or $0.91 per common share. The year 1997 also included a charge of $523 million (after-tax), or $2.42 per common share, reflecting the write-off of the unrecoverable portion of the cost of ComEd's Zion Station plant and inventories, and a liability for future closing costs, resulting from the decision in January 1998 to permanently cease nuclear generation operations at Zion Station. Operating Revenues. ComEd's electric operating revenues reflect revenues from sales to ultimate consumers (including residential, commercial and industrial customers within its service territory) and revenues from sales for resale (i.e., sales to wholesale customers, principally other electric utilities). Operating revenues are affected by kilowatthour sales and rate levels. Kilowatthour sales, in turn, are affected by weather, the level of economic activity within ComEd's service area, and off-system or wholesale sales to other utilities. Off-system sales are affected by a number of factors, including nuclear generating station availability and performance. Revenues have also been reduced by a change in presentation for certain utility taxes. The 1997 Act changed the nature of several state and municipal taxes that are collected through customer billings. Before August 1998, the utility taxes were assessed against the utility. Effective August 1998, the utility taxes are assessed on the electric consumer rather than the utility. Accordingly, ComEd records the collections as liabilities and no longer records the taxes collected through billing as revenues and tax expense. The change in presentation for utility taxes did not have an effect on results of operations. See Note 1 of Notes to Financial Statements, under "Use of Estimates" and "Customer Receivables and Revenues", for additional information. ComEd's operating revenues decreased $322 million in 1999, compared to 1998, due in part to the approximately $226 million impact of the 15% residential base rate reduction that took effect August 1, 1998. Operating revenues for 1999 also were reduced by approximately $174 million, compared to 1998, due to the change in presentation for certain state and municipal taxes. Kilowatthour sales increased 8%, primarily due to sales for resale. In 1998, operating revenues increased $15 million, compared to the year 1997, primarily due to warmer summer weather experienced in 1998 and continued economic growth in ComEd's service territory, partially offset by a 15% residential rate reduction ($170 million) and reserves for various federal and state litigation matters ($35 million). Operating revenues for 1998 were reduced by approximately $110 million, as compared to 1997, due to the change in presentation for certain state and municipal taxes. During 1997, electric operating revenues increased $139 million, primarily due to a 29% increase in kilowatthour sales to wholesale customers. Kilowatthour sales to ultimate consumers during 1997 increased 1%, compared to 1996, reflecting continued economic growth in ComEd's service territory. Operating revenues in 1997 were reduced by the provision for revenue refunds of $45 million, including revenue taxes, related to the elimination of the FAC. Unicom's unregulated businesses' operating revenues increased $87 million in 1999, compared to 1998. The increase is primarily due to increased revenues related to performance contracting and district cooling services and the acquisition of new businesses in 1999. F-19 Fuel Costs. Changes in fuel expense for the years 1999, 1998 and 1997 primarily resulted from changes in the average cost of fuel consumed, changes in the mix of fuel sources of electric energy generated and changes in net generation of electric energy. Fuel mix is determined primarily by system load, the costs of fuel consumed and the availability of nuclear generating units. The cost of fuel consumed, net generation of electric energy and fuel sources of kilowatthour generation were as follows:
1999 1998 1997 ----------------------- ------------------------ ------------------------ Fuel Costs Cost per KWh Fuel Costs Cost per KWh Fuel Costs Cost per KWh ---------- ------------ ---------- ------------ ---------- ------------ (000's) (000's) (000's) Cost of fuel consumed: Nuclear........................ $380,489 0.52c $ 286,619 0.53c $ 263,163 0.54c Coal........................... 525,896 2.26 626,442 2.51 810,144 2.44 Oil............................ 7,854 5.43 20,822 6.26 17,829 5.50 Natural gas.................... 83,023 3.22 123,644 3.04 113,082 3.50 -------- ---- ---------- ---- ---------- ---- Total/Average all fuels........ $997,262 1.00c $1,057,527 1.27c $1,204,218 1.40c ======== ==== ========== ==== ========== ==== Net generation of electric energy (millions of kilowatthours)..... 99,684 83,302 85,861 Fuel sources of kilowatthour gen- eration: Nuclear........................ 74% 65% 57% Coal........................... 23 30 39 Oil............................ -- -- -- Natural gas.................... 3 5 4 -------- ---------- ---------- 100% 100% 100% ======== ========== ==========
The increases in net generation of electric energy and nuclear generation for 1999, compared to the prior years, are primarily due to significant improvement in the performance of ComEd's nuclear fleet. The overall nuclear capacity factor was 89% for 1999, compared to 66% for 1998 and 49% for 1997. The decreases in the net generation of electric energy for 1998, compared to 1997, are primarily due to the sales of State Line and Kincaid Station in December 1997 and February 1998, respectively, and lower nuclear plant availability in 1997. The decrease in net generation of electric energy from 1997 to 1998 due to the sale of State Line Station was 2,378,413 megawatthours and the decrease from 1997 to 1998 due to the sale of Kincaid Station was 2,357,488 megawatthours. See "Regulation," subcaption "Nuclear Matters" above, for information regarding ComEd's nuclear generating stations. Purchased Power. Amounts of purchased power are primarily affected by system load, the availability of ComEd's generating units and the availability and cost of power from other utilities. Purchased power decreased $196 million and increased $348 million in 1999 and 1998, compared to 1998 and 1997, respectively. The decrease in 1999 was due to the improved nuclear and fossil operating performance, which reduced the need to purchase power from other parties. The increase in purchased power costs in 1998 reflects the effects of an extraordinary combination of heat, storms and equipment problems experienced throughout the Midwest in late June 1998 which resulted in unprecedented purchased power price levels. See "Regulation," subcaption "Nuclear Matters" above, for information regarding ComEd's nuclear generating stations. For additional information concerning ComEd's purchase power commitments see "Liquidity and Capital Resources," subcaption "UTILITY OPERATIONS--Construction Program," above and Note 22 of Notes to Financial Statements. The number and average cost of kilowatthours purchased were as follows:
1999 1998 1997 ------ ------ ------ Kilowatthours (millions)............................. 11,561 20,704 16,672 Cost per kilowatthour................................ 4.77c 3.84c 2.40c
F-20 The market price for electricity is subject to price volatility associated with changes in supply and demand in the electric supply markets. ComEd utilizes energy put and call option contracts and energy swap arrangements to limit market price risk associated with forward commodity contracts. See "Liquidity and Capital Resources," subcaption "UTILITY OPERATIONS--Market Risks" above, for additional information. Operation and Maintenance Expenses. O&M expenses include the expenses associated with operating and maintaining ComEd's generation, transmission and distribution assets, as well as administrative overhead and support, and the expenses associated with Unicom's unregulated businesses. Given the variety of expense categories covered, there are a number of factors which affect the level of such expenses within any given period. Two major components of such expenses, however, are the costs associated with operating and maintaining ComEd's generating facilities. Generating station expenses are affected by the cost of materials, regulatory requirements and expectations, the age of facilities and cost control efforts. During the three years presented in the financial statements, the aggregate level of O&M expenses increased 6% in 1999 compared to 1998, decreased 6% in 1998 compared to 1997, and increased 13% in 1997 compared to 1996. O&M expenses associated with nuclear generating stations decreased $75 million and $172 million and increased $122 million for years 1999, 1998 and 1997, respectively. The decrease in 1999 was due to shorter refueling outages and fewer forced outages. The decrease in 1998 was principally due to the permanent cessation of nuclear generation operations at Zion Station. The increase in 1997 was a result of increased levels of activities associated with the repair, replacement and improvement of nuclear generating facility equipment. See "Changes in the Electric Utility Industry," subcaption "Response to Regulatory Changes" above, regarding the permanent cessation of nuclear operations at Zion Station. O&M expenses associated with fossil generating stations decreased $42 million and $5 million and increased $31 million for the years 1999, 1998 and 1997, respectively. The decrease in 1999 was primarily due to reductions in plant refurbishment and maintenance costs. The decrease related to fossil generating stations in 1998 was primarily due to the sales of State Line and Kincaid Stations in December 1997 and February 1998, respectively ($25 million), partially offset by plant refurbishment costs ($19 million). O&M expenses associated with ComEd's transmission and distribution system increased $77 million, $32 million and $15 million for the years 1999, 1998 and 1997, respectively. The increase in 1999 was primarily due to an increase in tree trimming expenses and the costs associated with ComEd's extensive evaluation of the reliability of its transmission and distribution system following outages which occurred during the summer of 1999. The increase also reflects restoration and other outage-related costs associated with the summer heat wave. The 1998 and 1997 increases were primarily due to increased emergency restoration of electric service, higher maintenance expenses and tree trimming costs. O&M expenses associated with customer-related activities increased $40 million, $19 million and $11 million for the years 1999, 1998 and 1997, respectively. The increase in 1999 was primarily due to the ongoing implementation of a new customer information and billing system. O&M expenses for the year 1999 reflect an increase of $68 million in ComEd's estimated environmental liability for the remediation of former manufactured gas plant sites. O&M expenses also include employee benefits expenses. Since 1995, ComEd has reduced the size of its workforce by offering incentives for employees to leave the company voluntarily. Such incentives included both current payments and earlier eligibility for postretirement health care benefits, in F-21 addition to certain other employee-related costs, resulting in charges of $10 million, $48 million and $39 million for the years 1999, 1998 and 1997, respectively. Other ComEd employee benefits expenses, excluding the effects of employee separation plans and certain other employee-related costs increased $16 million and $41 million and decreased $11 million for the years 1999, 1998 and 1997, respectively. The increase for the year 1999 was primarily due to higher accruals for incentive compensation. The increase in 1998 was primarily due to accruals for estimated incentive compensation recorded in 1998. The decrease in 1997 was primarily due to a reduction in medical costs for active employees. O&M expenses included a $25 million charge for the year 1999 as a result of a franchise related settlement agreement between ComEd and the City. O&M expenses associated with certain administrative and general costs decreased $7 million and $22 million and increased $35 million for the years 1999, 1998 and 1997, respectively. The 1999 decrease was due to a variety of reasons, including reductions in nuclear insurance ($38 million), partially offset by increased charges for uncollectible accounts resulting from billing and collection delays experienced following the implementation of a new customer information system ($25 million). The decrease in 1998 reflects a reduction of $34 million in certain nuclear maintenance costs due to technological improvements, compared to 1997. The effects of inflation have also increased O&M expenses during the years and are also reflected in the increases and decreases discussed herein. O&M expenses associated with Unicom's unregulated businesses increased $82 million in 1999, compared to 1998. The increase is primarily related to their increased level of operation and the acquisition of new businesses in 1999. Depreciation, Amortization and Decommissioning. Depreciation, amortization and decommissioning expense decreased $100 million and $62 million and increased $36 million for the years 1999, 1998 and 1997, respectively. The decrease in the year 1999 was primarily due to the fossil plant sale. Consistent with the provisions of the 1997 Act, the (pre-tax) gain on the sale of $2.587 billion resulted in a regulatory liability, which was used to recover regulatory assets. Therefore, the gain on the sale, excluding $43 million of amortization of investment tax credits, was recorded as a regulatory liability in the amount of $2.544 billion and amortized in the fourth quarter of 1999. The amortization of the regulatory liability and additional regulatory asset amortization of $2.456 billion are reflected in depreciation and amortization expense on Unicom's Statements of Consolidated Operations and resulted in a net reduction to depreciation and amortization expense of $88 million. Depreciation expense decreased $95 million and increased $36 million for the years 1998 and 1997, respectively. The decrease in 1998 reflects the retirement of Zion Station ($31 million), the reduction in depreciable plant due to the plant impairment recorded by ComEd in the second quarter of 1998 ($65 million), the sales of State Line and Kincaid ($4 million), lower depreciation of steam generators at Byron Unit 1 and Braidwood Unit 1 in 1998 compared to 1997 ($25 million), partially offset by plant additions ($16 million) and shortened depreciable lives for certain nuclear stations ($14 million). The $36 million increase in depreciation expense in 1997 is principally due to the early retirement of the steam generators at Byron Unit 1 and Braidwood Unit 1. See Note 1 of Notes to Financial Statements, under "Depreciation, Amortization of Regulatory Assets and Liabilities, and Decommissioning," for additional information. The staff of the SEC has questioned certain of the current accounting practices of the electric utility industry, including ComEd, regarding the recognition, measurement and classification of decommissioning costs for nuclear generating stations in the financial statements of electric utilities. In response to these questions, the FASB is reviewing the accounting for asset removal costs including those related to nuclear decommissioning. If current electric utility industry accounting practices for F-22 such decommissioning costs are changed, annual provisions for decommissioning could increase and the estimated costs of decommissioning could be recorded as a liability rather than as accumulated depreciation. Decommissioning costs of currently retired nuclear plants are recorded as a liability. Unicom and ComEd do not believe that such changes, if required, would have an adverse effect on their results of operations due to ComEd's ability to recover decommissioning costs through rates. Interest on Debt. Changes in interest on long-term debt and notes payable for the years 1999, 1998 and 1997 were due to changes in average interest rates and in the amounts of long-term debt and notes payable outstanding. Changes in interest on ComEd's long-term debt also reflected new issues of debt, the retirement and early redemption of debt, and the retirement and redemption of issues which were refinanced at generally lower rates of interest. See Notes 3 and 7 of Notes to Financial Statements for information regarding the redemptions and repurchases of debt and equity. The average amounts of ComEd's long-term debt and notes payable outstanding and average interest rates thereon were as follows:
1999 1998 1997 ------ ------ ------ Long-term debt outstanding: Average amount (millions)............................. $8,119 $6,099 $6,256 Average interest rate................................. 6.76% 7.06% 7.65% Notes payable outstanding: Average amount (millions)............................. $ 320 $ 344 $ 153 Average interest rate................................. 5.82% 5.68% 5.95%
Other Items. The amounts of AFUDC reflect changes in the average levels of investment subject to AFUDC and changes in the average annual capitalization rates as discussed in Note 1 of Notes to Financial Statements, under "AFUDC and Interest Capitalized." ComEd discontinued SFAS No. 71 regulatory accounting practices in December 1997 for the generation portion of its business, and as a result, began capitalizing interest in 1998. ComEd capitalized $22 million and $28 million for the years 1999 and 1998, respectively, of interest costs on its generation-related construction work in progress and nuclear fuel in process. AFUDC and interest capitalized do not contribute to the current cash flow of Unicom or ComEd. ComEd's ratios of earnings to fixed charges for the years 1999, 1998 and 1997 were 2.45, 2.59 and 0.58, respectively. ComEd's ratios of earnings to fixed charges and preferred and preference stock dividend requirements for the years 1999, 1998 and 1997 were 2.32, 2.24 and 0.49, respectively. Business corporations, in general, have been adversely affected by inflation because amounts retained after the payment of all costs have been inadequate to replace, at increased costs, the productive assets consumed. Electric utilities, in particular, have been especially affected as a result of their capital intensive nature and regulation which limits capital recovery and prescribes installation or modification of facilities to comply with increasingly stringent safety and environmental requirements. Because the regulatory process limits the amount of depreciation expense included in ComEd's revenue allowance to the original cost of utility plant investment, the resulting cash flows are inadequate to provide for replacement of that investment in future years or preserve the purchasing power of common equity capital previously invested. Foward-Looking Information. Except for historical data, the information contained herein constitutes forward-looking statements. Forward-looking statements are inherently uncertain and subject to risks. Such statements should be viewed with caution. Actual results or experience could differ materially from the forward-looking statements as a result of many factors. Forward-looking statements in this report include, but are not limited to: (1) statements regarding expectations of revenue reductions and collections of future CTC revenues as a result of the 1997 Act in "Management's Discussion and Analysis of Financial Condition and Results of Operations," subcaption F-23 "Changes in the Electric Utility Industry--The 1997 Act," and in Notes 1 and 3 of Notes to Financial Statements, (2) statements regarding estimated capital expenditures in "Management's Discussion and Analysis of Financial Condition and Results of Operations," subcaptions "Liquidity and Capital Resources-- UTILITY OPERATIONS--Construction Program" and "Liquidity and Capital Resources--UNREGULATED OPERATIONS--Construction Program," and "Changes in the Electric Utility Industry--Response to Regulatory Changes," (3) statements regarding the costs of decommissioning nuclear generating stations in "Management's Discussion and Analysis of Financial Condition and Results of Operations," subcaption "Regulation--Nuclear Matters," and in Note 1 of Notes to Financial Statements, under "Depreciation, Amortization of Regulatory Assets and Liabilities and Decommissioning," (4) statements regarding cleanup costs associated with MGPs and other remediation sites in Note 22 of Notes to Financial Statements, (5) statements regarding the estimated fair value of forward energy contracts in "Management's Discussion and Analysis of Financial Condition and Results of Operations," subcaption "Liquidity and Capital Resources--UTILITY OPERATIONS--Market Risks," (6) statements regarding the risks and uncertainties relating to Year 2000 issues set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations," subcaption "Liquidity and Capital Resources--UTILITY OPERATIONS-- Year 2000 Conversion," including Unicom's dependence upon the Year 2000 readiness of third parties with whom it has significant business relationships and the estimated costs for final project wrap-up activities, (7) statements regarding the use of fossil plant sale proceeds in "Management's Discussion and Analysis of Financial Condition and Results of Operations," subcaptions "Changes in the Electric Utility Industry--Fossil Plant Sale," "Liquidity and Capital Resources--UTILITY OPERATIONS--Construction Program," and "Liquidity and Capital Resources--UNREGULATED OPERATIONS--Capital Resources," and in Note 5 of Notes to Financial Statements, (8) statements regarding estimates of claims resulting from the summer of 1999 outages set forth in Note 22 of Notes to Financial Statements and (9) statements regarding the Merger Agreement in Note 2 of Notes to Financial Statements and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" subcaption "Changes in the Electric Utility Industry--Merger Agreement." Management cannot predict the course of future events or anticipate the interaction of multiple factors beyond management's control and their effect on revenues, project timing and costs. The statements regarding revenue reductions and collections of future CTC revenues are subject to unforeseen developments in the market for electricity in Illinois resulting from regulatory changes. The statements regarding estimated capital expenditures, decommissioning costs, cleanup costs and Year 2000 wrap-up costs are subject to changes in the scope of work and manner in which the work is performed and consequent changes in the timing and level of the projected expenditure, and are also subject to changes in laws and regulations or their interpretation or enforcement. The statements regarding expectations for Year 2000 readiness are also subject to the risk that Year 2000 remediation efforts of other parties with whom Unicom has significant business relationships are not successful. The statements regarding the fair value of forward energy contracts are subject to changes in generating capability and reduction in the demand for electricity. The statement regarding the use of proceeds from the fossil plant sale is subject to the possibility that regulatory action might affect the amount and use of such proceeds and the possibility that, due to changing market conditions, Unicom and ComEd may determine that other uses of the proceeds may be in their best interest. The statements regarding estimates of claims resulting from the summer of 1999 outages are subject to the risk that the actual amount of losses suffered by customers and restoration costs may exceed the estimated amounts. The statements regarding the Merger Agreement and the associated repurchase of shares are subject to the risk of a significant delay in the expected completion of, and unexpected consequences resulting from, the transactions contemplated by the Merger Agreement, including the inability to close the transaction, and to changes in the number of shares of outstanding common stock of Unicom and PECO for unforeseen reasons. Unicom and ComEd make no commitment to disclose any revisions to the forward-looking statements, or any facts, events or circumstances after the date hereof that may bear upon forward-looking statements. F-24 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Unicom Corporation: We have audited the accompanying consolidated balance sheets and statements of consolidated capitalization of UNICOM CORPORATION (an Illinois corporation) and subsidiary companies as of December 31, 1999 and 1998, and the related statements of consolidated operations, retained earnings/(deficit), comprehensive income and cash flows for each of the three years in the period ended December 31, 1999. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Unicom Corporation and subsidiary companies as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed under Item 14.(a) is presented for the purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Arthur Andersen LLP Chicago, Illinois January 31, 2000 F-25 UNICOM CORPORATION AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED OPERATIONS The following Statements of Consolidated Operations for the years 1999, 1998 and 1997 reflect the results of past operations and are not intended as any representation as to results of operations for any future period. Future operations will necessarily be affected by various and diverse factors and developments, including changes in electric prices, regulation, population, business activity, asset dispositions, competition, taxes, environmental control, energy use, fuel, cost of labor, purchased power and other matters, the nature and effect of which cannot now be determined.
1999 1998 1997 ---------- ---------- ----------- Operating Revenues........................ $6,847,947 $7,103,410 $ 7,083,022 ---------- ---------- ----------- Operating Expenses and Taxes: Fuel.................................... $ 997,262 $1,057,527 $ 1,204,218 Purchased power......................... 551,575 748,017 400,055 Operation and maintenance............... 2,427,599 2,285,034 2,438,944 Depreciation and amortization........... 843,248 943,288 1,005,089 Taxes (except income)................... 508,453 699,834 800,886 Income taxes............................ 359,198 355,023 317,558 Investment tax credits deferred--net ... (25,828) (27,730) (31,015) ---------- ---------- ----------- $5,661,507 $6,060,993 $ 6,135,735 ---------- ---------- ----------- Operating Income.......................... $1,186,440 $1,042,417 $ 947,287 ---------- ---------- ----------- Other Income and (Deductions): Interest on long-term debt, net of interest capitalized................... $ (544,962) $ (444,322) $ (488,033) Interest on notes payable............... (18,602) (19,560) (9,134) Allowance for funds used during construction........................... 21,812 16,464 42,325 Income taxes applicable to nonoperating activities............................. 27,083 4,974 11,010 Provisions for dividends and redemption premiums-- Preferred and preference stocks of ComEd................................. (23,756) (56,884) (60,486) ComEd-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely ComEd's subordinated debt securities.......... (29,710) (29,710) (28,860) Loss on nuclear plant closure........... -- -- (885,611) Income tax effects of nuclear plant closure................................ -- -- 362,952 Miscellaneous--net...................... (21,060) (3,195) (130,665) ---------- ---------- ----------- $ (589,195) $ (532,233) $(1,186,502) ========== ========== =========== Net Income/(Loss) before Extraordinary Items and Cumulative Effect of Change in Accounting Principle..................... $ 597,245 $ 510,184 $ (239,215) Extraordinary Losses, less Applicable Income Taxes............................. (27,579) -- (810,335) Cumulative Effect of Change in Accounting Principle................................ -- -- 196,700 ---------- ---------- ----------- Net Income/(Loss)......................... $ 569,666 $ 510,184 $ (852,850) ---------- ---------- ----------- Earnings/(loss) per common share before extraordinary items and cumulative effect of change in accounting principle-- Basic................................... $ 2.75 $ 2.35 $ (1.10) Diluted................................. $ 2.74 $ 2.34 $ (1.10) Extraordinary losses, less applicable income taxes (basic and diluted)......... $ (0.13) $ -- $ (3.75) Cumulative effect of change in accounting principle (basic and diluted)............ $ -- $ -- $ 0.91 Earnings/(loss) per common share-- Basic................................... $ 2.62 $ 2.35 $ (3.94) Diluted................................. $ 2.61 $ 2.34 $ (3.94) Cash Dividends Declared per Common Share.. $ 1.60 $ 1.60 $ 1.60
The accompanying Notes to Financial Statements are an integral part of the above statements. F-26 UNICOM CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS
December 31 ------------------------ ASSETS 1999 1998 ------ ----------- ----------- (Thousands of Dollars) Utility Plant: Plant and equipment, at original cost (includes construction work in progress of $672 million and $858 million, respectively)....................... $25,007,637 $27,801,246 Less--Accumulated provision for depreciation....... 13,729,223 15,234,320 ----------- ----------- $11,278,414 $12,566,926 Nuclear fuel, at amortized cost.................... 843,724 874,979 ----------- ----------- $12,122,138 $13,441,905 ----------- ----------- Investments and Other Property: Nuclear decommissioning funds...................... $ 2,546,540 $ 2,267,317 Subsidiary companies............................... 50,417 41,150 Other, at cost..................................... 470,848 275,794 ----------- ----------- $ 3,067,805 $ 2,584,261 ----------- ----------- Current Assets: Cash and temporary cash investments................ $ 1,696,336 $ 55,828 Cash held for redemption of securities............. 285,056 3,062,816 Other cash investments............................. 62 -- Special deposits................................... 1,845,730 271 Receivables-- Customers........................................ 1,224,678 1,369,701 Forward share repurchase contract................ 813,046 -- Other............................................ 181,532 136,701 Provisions for uncollectible accounts............ (50,814) (48,645) Coal and fuel oil, at average cost................. 15,613 135,415 Materials and supplies, at average cost............ 221,157 232,246 Deferred income taxes related to current assets and liabilities....................................... 60,056 24,339 Prepayments and other.............................. 36,268 20,301 ----------- ----------- $ 6,328,720 $ 4,988,973 ----------- ----------- Deferred Charges and Other Noncurrent Assets: Regulatory assets.................................. $ 1,792,907 $ 4,578,427 Other.............................................. 94,463 96,907 ----------- ----------- $ 1,887,370 $ 4,675,334 ----------- ----------- $23,406,033 $25,690,473 =========== ===========
The accompanying Notes to Financial Statements are an integral part of the above statements. F-27 UNICOM CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS
December 31 ----------------------- CAPITALIZATION AND LIABILITIES 1999 1998 ------------------------------ ----------- ----------- (Thousands of Dollars) Capitalization (see accompanying statements): Common stock equity.................................. $ 5,332,611 $ 5,099,444 Preferred and preference stocks of ComEd-- Without mandatory redemption requirements.......... 1,790 74,488 Subject to mandatory redemption requirements....... -- 69,475 ComEd-obligated mandatorily redeemable preferred se- curities of subsidiary trusts holding solely ComEd's subordinated debt securities*....................... 350,000 350,000 Long-term debt....................................... 7,129,906 7,792,502 ----------- ----------- $12,814,307 $13,385,909 ----------- ----------- Current Liabilities: Notes payable........................................ $ 4,750 $ 292,963 Current portion of long-term debt, redeemable prefer- ence stock and capitalized lease obligations of sub- sidiary companies................................... 915,439 2,314,443 Accounts payable..................................... 582,920 604,936 Accrued interest..................................... 146,718 180,674 Accrued taxes........................................ 1,386,930 134,976 Dividends payable.................................... 94,090 105,133 Customer deposits.................................... 68,128 56,954 Accrued plant closing costs.......................... -- 78,430 Other................................................ 316,542 155,262 ----------- ----------- $ 3,515,517 $ 3,923,771 ----------- ----------- Deferred Credits and Other Noncurrent Liabilities: Deferred income taxes................................ $ 2,484,883 $ 3,805,460 Nuclear decommissioning liability for retired plants. 1,259,700 1,215,400 Accumulated deferred investment tax credits.......... 484,717 562,285 Accrued spent nuclear fuel disposal fee and related interest............................................ 763,427 728,413 Obligations under capital leases of subsidiary compa- nies................................................ 161,611 333,653 Regulatory liabilities............................... 596,157 595,005 Other................................................ 1,325,714 1,140,577 ----------- ----------- $ 7,076,209 $ 8,380,793 ----------- ----------- Commitments and Contingent Liabilities (Note 22) $23,406,033 $25,690,473 =========== ===========
*As described in Note 11 of Notes to Financial Statements, the sole asset of ComEd Financing I, a subsidiary trust of ComEd, is $206.2 million principal amount of ComEd's 8.48% subordinated deferrable interest notes due September 30, 2035. The sole asset of ComEd Financing II, also a subsidiary trust of ComEd, is $154.6 million principal amount of ComEd's 8.50% subordinated deferrable interest debentures due January 15, 2027. The accompanying Notes to Financial Statements are an integral part of the above statements. F-28 UNICOM CORPORATION AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED CAPITALIZATION
December 31 ------------------------ 1999 1998 ----------- ----------- (Thousands of Dollars) Common Stock Equity: Common stock, without par value-- Outstanding--217,835,570 shares and 217,094,560 shares, respectively.............................. $ 4,971,618 $ 4,966,630 Preference stock expense of ComEd................... (72) (3,199) Retained earnings................................... 363,621 142,813 Accumulated other comprehensive income.............. 7,539 -- Treasury stock--264,406 shares and 178,982 shares, respectively....................................... (10,095) (6,800) ----------- ----------- $ 5,332,611 $ 5,099,444 ----------- ----------- Preferred and Preference Stocks of ComEd-- Without Mandatory Redemption Requirements: Preference stock, cumulative, without par value-- Outstanding--No shares and 13,499,549 shares, respectively.................................... $ -- $ 504,957 Current redemption requirements for preference stock included in current liabilities............ -- (432,320) $1.425 convertible preferred stock, cumulative, without par value-- Outstanding--56,291 shares and 58,211 shares, respectively.................................... 1,790 1,851 Prior preferred stock, cumulative, $100 par value per share-- No shares outstanding............................ -- -- ----------- ----------- $ 1,790 $ 74,488 ----------- ----------- Subject to Mandatory Redemption Requirements: Preference stock, cumulative, without par value-- Outstanding--700,000 shares and 1,720,345 shares, respectively.................................... $ 69,475 $ 171,348 Current redemption requirements for preference stock included in current liabilities........................... (69,475) (101,873) ----------- ----------- $ -- $ 69,475 ----------- ----------- ComEd-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts Holding Solely ComEd's Subordinated Debt Securities................. $ 350,000 $ 350,000 ----------- ----------- Long-Term Debt: First mortgage bonds: Maturing 2000 through 2004--6 3/8% to 9 3/8%...... $ 698,245 $ 1,080,000 Maturing 2005 through 2014--4.40% to 8 3/8%....... 1,299,400 1,485,400 Maturing 2015 through 2023--5.85% to 9 7/8%....... 1,589,443 1,981,000 ----------- ----------- $ 3,587,088 $ 4,546,400 Transitional trust notes, due 2000 through 2008-- 5.29% to 5.74%..................................... 3,070,000 3,400,000 Sinking fund debentures, due 2001 through 2011--2 3/4% to 7 5/8%..................................... 30,866 94,159 Pollution control obligations, due 2007 through 2014--5.3% to 5 7/8%............................... 139,200 140,700 Other long-term debt................................ 1,089,347 1,259,204 Current maturities of long-term debt included in current liabilities................................ (737,615) (1,585,281) Unamortized net debt discount and premium........... (48,980) (62,680) ----------- ----------- $ 7,129,906 $ 7,792,502 ----------- ----------- $12,814,307 $13,385,909 ----------- -----------
The accompanying Notes to Financial Statements are an integral part of the above statements. F-29 UNICOM CORPORATION AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED RETAINED EARNINGS/(DEFICIT)
1999 1998 1997 -------- -------- ---------- (Thousands of Dollars) Balance at Beginning of Period................. $142,813 $(21,184) $1,177,997 Add--Net income/(loss)......................... 569,666 510,184 (852,850) -------- -------- ---------- $712,479 $489,000 $ 325,147 -------- -------- ---------- Deduct-- Cash dividends declared on common stock.............................. $347,783 $347,161 $ 346,225 Other capital stock transactions--net....... 1,075 (974) 106 -------- -------- ---------- $348,858 $346,187 $ 346,331 -------- -------- ---------- Balance at End of Period (Includes $716 million, $494 million and $331 million of appropriated retained earnings at December 31, 1999, 1998 and 1997, respectively)....... $363,621 $142,813 $ (21,184) ======== ======== ========== UNICOM CORPORATION AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME 1999 1998 1997 -------- -------- ---------- (Thousands of Dollars) Net Income/(Loss) on Common Stock.............. $569,666 $510,184 $ (852,850) Other Comprehensive Income Unrealized gains on securities............... $ 12,471 $ -- $ -- Income taxes on other comprehensive income... (4,932) -- -- -------- -------- ---------- Other comprehensive income, net of tax....... $ 7,539 $ -- $ -- -------- -------- ---------- Comprehensive Income/(Loss).................... $577,205 $510,184 $ (852,850) ======== ======== ==========
The accompanying Notes to Financial Statements are an integral part of the above statements. F-30 UNICOM CORPORATION AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED CASH FLOWS
1999 1998 1997 ----------- ----------- ----------- (Thousands of Dollars) Cash Flow from Operating Activities: Net income/(loss)...................... $ 569,666 $ 510,184 $ (852,850) Adjustments to reconcile net income/(loss) to net cash provided by operating activities: Depreciation and amortization........ 908,894 994,861 1,051,543 Deferred income taxes and investment tax credits--net.................... (1,448,363) 69,768 (345,042) Contribution to environmental trust.. (250,000) -- -- Recovery of coal reserve regulatory assets.............................. 197,974 108,372 82,441 Increase in MGP liability............ 68,078 -- -- Extraordinary loss related to write- off of certain net regulatory assets.............................. -- -- 810,335 Cumulative effective of change in accounting principle................ -- -- (196,700) Loss on nuclear plant closure........ -- -- 885,611 Write-down of uranium-related properties.......................... -- -- 64,387 Provisions/(payments) for revenue refunds--net........................ (22,603) (23,622) 45,470 Equity component of allowance for funds used during construction...... (7,789) (6,959) (23,770) Provisions/(payments) for liability for separation costs--net........... (62,396) 9,757 15,986 Net effect on cash flows of changes in: Receivables........................ 103,515 (486,838) 24,083 Coal and fuel oil.................. 618 (14,751) 19,698 Materials and supplies............. (5,202) 19,805 41,659 Accounts payable excluding nuclear fuel lease principal payments and separation costs--net............. (19,251) 97,094 259,810 Accrued interest and taxes......... 1,246,007 (27,201) (17,903) Other changes in certain current assets and liabilities............ 124,154 144,290 39,005 Other--net........................... (43,257) 27,525 109,927 ----------- ----------- ----------- $ 1,360,045 $ 1,422,285 $ 2,013,690 ----------- ----------- ----------- Cash Flow from Investing Activities: Construction expenditures.............. $(1,204,064) $ (966,494) $(1,043,311) Nuclear fuel expenditures.............. (253,483) (166,168) (185,373) Sales of generating plants............. 4,885,720 177,454 60,791 Equity component of allowance for funds used during construction........ 7,789 6,959 23,770 Contributions to nuclear decommissioning funds................. (89,945) (136,771) (114,825) Other investments and special deposits.............................. (1,886,323) (10,965) (13,246) Plant removals--net.................... (74,584) (86,988) (85,923) ----------- ----------- ----------- $ 1,385,110 $(1,182,973) $(1,358,117) ----------- ----------- ----------- Cash Flow from Financing Activities: Issuance of securities-- Transitional trust notes.............. $ -- $ 3,382,629 $ -- Other long-term debt.................. 201,764 382,270 362,663 Company-obligated mandatorily redeemable preferred securities if subsidiary trust holding solely the Company's subordinated debt securities........................... -- -- 150,000 Capital stock......................... 20,941 16,644 15,778 Retirement and redemption of securities-- Transitional trust notes.............. (330,000) -- -- Other long-term debt.................. (1,431,545) (615,858) (746,240) Capital stock......................... (639,342) (34,066) (44,111) Repurchase of common stock............. (813,046) (6,800) -- Cash dividends paid on common stock.... (347,564) (346,954) (345,936) Proceeds from sale/leaseback of nuclear fuel.......................... -- 101,038 149,955 Nuclear fuel lease principal payments.. (255,402) (255,605) (166,411) Increase/(decrease) in short-term borrowings............................ (288,213) 134,813 29,400 ----------- ----------- ----------- $(3,882,407) $ 2,758,111 $ (594,902) ----------- ----------- ----------- Change in Net Cash Balance.............. $(1,137,252) $ 2,997,423 $ 60,671 Cash, Temporary Cash Investments and Cash Held for Redemption of Securities: Balance at Beginning of Period....... 3,118,644 121,221 60,550 ----------- ----------- ----------- Balance at End of Period............. $ 1,981,392 $ 3,118,644 $ 121,221 =========== =========== ===========
The accompanying Notes to Financial Statements are an integral part of the above statements. F-31 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued (1) Summary of Significant Accounting Policies. Corporate Structure and Basis of Presentation. Unicom is the parent holding company of ComEd and Unicom Enterprises. ComEd, a regulated electric utility, is the principal subsidiary of Unicom. Unicom Enterprises is an unregulated subsidiary of Unicom and is engaged, through its subsidiaries, in energy service activities. The consolidated financial statements include the accounts of Unicom, ComEd, Indiana Company, Edison Development, the Trusts, ComEd Funding, ComEd Funding Trust and Unicom's unregulated subsidiaries. All significant intercompany transactions have been eliminated. Although the accounts of ComEd Funding and ComEd Funding Trust, which are SPEs, are included in the consolidated financial statements, as required by GAAP, ComEd Funding and ComEd Funding Trust are legally separated from Unicom and ComEd. The assets of the SPEs are not available to creditors of Unicom or ComEd and the transitional property held by the SPEs are not assets of Unicom or ComEd. Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Due to the transition to a new customer information and billing system, a larger portion of customer revenues and net receivables were based on estimates for the period July 1998 through November 1999 than in previous periods. Regulation. ComEd is subject to regulation as to accounting and ratemaking policies and practices by the ICC and FERC. ComEd's accounting policies and the accompanying consolidated financial statements conform to GAAP applicable to rate-regulated enterprises for the non-generation portion of its business, including the effects of the ratemaking process in accordance with SFAS No. 71, Accounting for the Effects of Certain Types of Regulation. Such effects on the non-generation portion of its business concern mainly the time at which various items enter into the determination of operating results in order to follow the principle of matching costs with the applicable revenues collected from or returned to customers through future rates. See Note 3 for information regarding the write-off of generation-related regulatory assets and liabilities in December 1997. ComEd's investment in generation-related net utility plant, not subject to cost-based rate regulation, including construction work in progress and nuclear fuel, and excluding the decommissioning costs included in the accumulated provision for depreciation was $7.8 billion and $9.2 billion as of December 31, 1999 and 1998, respectively. See "Regulatory Assets and Liabilities" below regarding the plant impairment recorded by ComEd in the second quarter of 1998. F-32 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued Regulatory Assets and Liabilities. Regulatory assets are incurred costs which have been deferred and are amortized for ratemaking and accounting purposes. Regulatory liabilities represent amounts to be settled with customers through future rates. Regulatory assets and liabilities reflected on the Consolidated Balance Sheets at December 31, 1999 and 1998 were as follows:
December 31 --------------------- 1999 1998 ---------- ---------- (Thousands of Dollars) Regulatory assets: Impaired production plant............................... $ 366,221 $2,955,154 Deferred income taxes (1)............................... 688,946 680,356 Nuclear decommissioning costs--Dresden Unit 1........... 202,308 255,031 Nuclear decommissioning costs--Zion Units 1 and 2....... 496,638 443,130 Coal reserves........................................... -- 197,975 Unamortized loss on reacquired debt (2)................. 38,794 46,781 ---------- ---------- $1,792,907 $4,578,427 ========== ========== Regulatory liabilities: Deferred income taxes (1)............................... $ 596,157 $ 595,005 ========== ==========
- -------- (1) Recorded in compliance with SFAS No. 109, Accounting for Income Taxes, for non-generation related temporary differences. (2) Amortized over the remaining lives of the non-generation related long-term debt issued to finance the reacquisition. See "Loss on Reacquired Debt" below for additional information. ComEd performed a SFAS No. 121 impairment analysis in 1998 which concluded that future revenues, excluding the collection of the CTC expected to be recovered from electric supply services, would be insufficient to cover the costs of certain of its generating assets. Because future regulated cash flows, which include the CTC, tariff revenues and gains from the disposition of assets, are expected to provide recovery of the impaired plant assets, a regulatory asset was recorded for the same amount. This regulatory asset is currently being amortized as it is recovered through regulated cash flows over a transition period that extends through 2006. Consistent with the provisions of the 1997 Act, the (pre-tax) gain on the sale of $2.587 billion resulted in a regulatory liability, which was used to recover regulatory assets. Therefore, the gain on the sale, excluding $43 million of amortization of investment tax credits, was recorded as a regulatory liability in the amount of $2.544 billion and amortized in the fourth quarter of 1999. The amortization of the regulatory liability and additional regulatory asset amortization of $2.456 billion are reflected in depreciation and amortization expense on Unicom's Statements of Consolidated Operations and resulted in a net reduction to depreciation and amortization expense of $88 million. See Note 3 for additional information regarding amortization of regulatory assets with respect to limits on ComEd's earnings due to statutory sharing provisions. See Note 5 for additional information regarding the fossil plant sale. The regulatory assets for Dresden Unit 1 and Zion Units 1 and 2 represent unrecovered nuclear decommissioning costs, which are expected to be recovered over the periods 2000-2011 and 2000-2013, respectively, through a separate rate recovery rider provided for by the 1997 Act. See "Depreciation, Amortization of Regulatory Assets and Liabilities and Decommissioning" below for additional information. F-33 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued Depreciation, Amortization of Regulatory Assets and Liabilities, and Decommissioning. Depreciation, amortization of regulatory assets and liabilities, and decommissioning for the years 1999, 1998 and 1997 were as follows:
1999 1998 1997 -------- -------- ---------- (Thousands of Dollars) Depreciation expense.............................. $713,340 $788,057 $ 881,196 Amortization of regulatory assets and liabilities--net................................. 46,088 65,211 15,272 -------- -------- ---------- $759,428 $853,268 $ 896,468 Decommissioning expense........................... 83,820 90,020 108,621 -------- -------- ---------- $843,248 $943,288 $1,005,089 ======== ======== ==========
Provisions for depreciation, including nuclear plant, were at average annual rates of average depreciable utility plant and equipment for the years 1999, 1998 and 1997 as follows:
1999 1998 1997 ---- ---- ---- Average annual depreciation rates............................. 2.66% 3.02% 3.36%
Depreciation is provided on a straight-line basis by amortizing the cost of depreciable plant and equipment over estimated service lives for each class of plant. The decrease in the average depreciation rates for the year 1999, compared to 1998, relates primarily to a reduction in nuclear depreciation rates due to the partial impairment of production plant, which was recorded as a component of accumulated depreciation, partially offset by shortened depreciable lives for certain nuclear stations. See "Regulatory Assets and Liabilities" above for additional information on the partial impairment of production plant. Nuclear plant decommissioning costs generally are accrued over the current NRC license lives of the related nuclear generating units. The accrual is based on an annual levelized cost of the unrecovered portion of estimated decommissioning costs, which are escalated for expected inflation to the expected time of decommissioning and are net of expected earnings on the trust funds. See "Management's Discussion and Analysis of Financial Condition and Results of Operations," subcaption "Results of Operations--Depreciation, Amortization and Decommissioning," for a discussion of questions raised by the staff of the SEC and a FASB review regarding the electric utility industry's method of accounting for decommissioning costs. Dismantling is expected to occur relatively soon after the end of the current NRC license life of each generating station currently operating. The accrual for decommissioning is based on the prompt removal method authorized by NRC guidelines. ComEd's ten operating units have remaining current NRC license lives ranging from 7 to 28 years. ComEd's Zion Station and its first nuclear unit, Dresden Unit 1, are retired and are expected to be dismantled beginning in the years 2014 and 2011, respectively, which is consistent with the regulatory treatment for recovery of the related decommissioning costs. Based on ComEd's most recent study, decommissioning costs are estimated to be $5.7 billion in current-year (2000) dollars, including a contingency allowance. This estimate includes $617 million of non-radiological costs, which are included in ComEd's proposed rider for recovery, as discussed below. ComEd's decommissioning cost expenditures at the end of the units' operating lives are estimated to total approximately $13.8 billion. These expenditures are expected to occur primarily during the period from 2007 through 2034. All such costs are expected to be funded by the external decommissioning trusts, which ComEd established in compliance with Illinois law and into which ComEd has been making annual contributions. Future decommissioning cost estimates may be significantly affected by F-34 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued the adoption of or changes to NRC regulations, as well as changes in the assumptions used in making such estimates, including changes in technology, available alternatives for the disposal of nuclear waste and inflation. Since 1995, ComEd has collected decommissioning costs from its ratepayers in conjunction with a rider to its tariffs. The rider allows annual adjustments to decommissioning cost collections outside the context of a traditional rate proceeding and will continue under the 1997 Act. The current estimated decommissioning costs include a contingency allowance, but, except at Dresden Unit 1, exclude amounts for alternative spent fuel storage installations, which may be necessary to store spent fuel during the period beginning at the end of the NRC license lives of the plants to the date when the DOE accepts the spent fuel for permanent storage. Contingency allowances used in decommissioning cost estimates provide for currently unspecifiable costs that are likely to occur after decommissioning begins and generally range from 20% to 25% of the currently specifiable costs. In February 1998, the ICC authorized a reduction in the annual decommissioning cost accrual from $109 million to $84 million. The reduction primarily reflected stronger than expected after-tax returns on the external trust funds and lower than expected escalation in low-level waste disposal costs, partially offset by the higher current-year cost estimates, including a contingency allowance. Under its most recent annual rider, filed with the ICC on February 26, 1999, ComEd has proposed to increase its estimated annual decommissioning cost accrual from $84 million to $130 million. The proposed increase primarily reflects an increase in low-level waste disposal cost escalation, the inclusion of $219 million in current-year (2000) dollars for safety-related costs of maintaining Zion Station in a mothballed condition until dismantlement begins, and the inclusion of non-radiological costs in the decommissioning cost estimates for recovery under the rider. The proposed annual decommissioning cost accrual of $130 million was determined using the following assumptions: the decommissioning cost estimate of $5.7 billion in current-year (2000) dollars, after-tax earnings on the tax- qualified and nontax-qualified decommissioning funds of 7.49% and 6.83%, respectively, and an escalation rate for future decommissioning costs of 4.84%. The proposed annual accrual provided over the current NRC license lives of the nuclear plants, coupled with the expected fund earnings and amounts previously recovered in rates, is expected to aggregate to approximately $13.8 billion. For the ten operating nuclear units, decommissioning cost accruals are recorded as portions of depreciation expense and accumulated provision for depreciation on the Statements of Consolidated Operations and the Consolidated Balance Sheets, respectively, as such costs are recovered through rates. As of December 31, 1999, the total decommissioning costs included in the accumulated provision for depreciation were $2,100 million. For ComEd's retired nuclear units, the total estimated liability for nuclear decommissioning in current-year (2000) dollars is recorded as a noncurrent liability. The unrecovered portion of the liability is recorded as a regulatory asset. The nuclear decommissioning liability for retired plants as of December 31, 1999 was as follows:
Zion Dresden Units Unit 1 1 and 2 Total -------- -------- ---------- (Thousands of Dollars) Amounts recovered through rates and investment fund earnings.................................... $104,792 $455,962 $ 560,754 Unrecovered portion of the liability.............. 202,308 496,638 698,946 -------- -------- ---------- Nuclear decommissioning liability for retired plants.......................................... $307,100 $952,600 $1,259,700 ======== ======== ==========
F-35 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued Under Illinois law, decommissioning cost collections are required to be deposited into external trusts. Consequently, such collections do not add to the cash flows available for general corporate purposes. The ICC has approved ComEd's funding plan, which provides for annual contributions of current accruals and ratable contributions of past accruals over the remaining current NRC license lives of the nuclear plants. The fair value of funds accumulated in the external trusts at December 31, 1999 was $2,547 million, which includes pre-tax unrealized appreciation of $721 million. The earnings on the external trusts for operating plants accumulate in the fund balance and accumulated provision for depreciation. Nuclear decommissioning funding as of December 31, 1999 was as follows:
(Thousands of Dollars) Amounts recovered through rates and investment fund earnings for operating plants (included in the accumulated provision for depreciation)................ $2,099,796 Amounts recovered through rates and investment fund earnings for retired plants............................ 560,754 Less past accruals not yet contributed to the trusts.... 114,010 ---------- Fair value of external trust funds..................... $2,546,540 ==========
Customer Receivables and Revenues. ComEd is engaged principally in the production, purchase, transmission, distribution and sale of electricity to a diverse base of residential, commercial, industrial and wholesale customers. ComEd's electric service territory has an area of approximately 11,300 square miles and an estimated population of approximately eight million as of December 31, 1999. It includes the City, an area of about 225 square miles with an estimated population of approximately three million from which ComEd derived approximately 30 percent of its ultimate consumer revenues in 1999. ComEd had approximately 3.5 million electric customers at December 31, 1999. Revenues are recognized as electric and delivery services are provided to customers. As a result of the implementation of a new customer billing and information system in July 1998, billing and collection delays have temporarily increased accounts receivable from customers. ComEd has recorded increased provisions for uncollectible accounts to recognize the estimated portion of the receivables that are not expected to be recoverable. Such provisions increased O&M expenses by $35 million and $10 million in 1999 and 1998, respectively, compared to normally expected levels. See "Use of Estimates" above for additional information regarding ComEd's revenues and net receivables. See Notes 3 and 19 for additional information. Nuclear Fuel. The cost of nuclear fuel is amortized to fuel expense based on the quantity of heat produced using the unit of production method. As authorized by the ICC, provisions for spent nuclear fuel disposal costs have been recorded at a level required to recover the fee payable on the current nuclear-generated and sold electricity and the current interest accrual on the one-time fee payable to the DOE for nuclear generation prior to April 7, 1983. The one-time fee and interest thereon have been recovered and the current fee and interest on the one-time fee are presently being recovered through base rates. See Note 14 for additional information concerning the disposal of spent nuclear fuel, one-time fee and interest accrual on the one-time fee. Nuclear fuel expenses, including leased fuel costs and provisions for spent nuclear fuel disposal costs, were $380 million, $325 million and $298 million for the years 1999, 1998 and 1997, respectively. Income Taxes. Deferred income taxes are provided for income and expense items recognized for financial accounting purposes in periods that differ from those for income tax purposes. Income taxes deferred in prior years are charged or credited to income as the book/tax temporary differences reverse. Prior years' deferred investment tax credits are amortized through credits to income generally over the lives of the related property. Income tax credits resulting from interest charges applicable to nonoperating activities, principally construction, are classified as other income. F-36 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued AFUDC and Interest Capitalized. In accordance with the uniform systems of accounts prescribed by regulatory authorities, ComEd capitalizes AFUDC, compounded semiannually, which represents the estimated cost of funds used to finance its construction program for the non-generation portion of its business. The equity component of AFUDC is recorded on an after-tax basis and the borrowed funds component of AFUDC is recorded on a pre-tax basis. The average annual capitalization rates were 7.81%, 8.34% and 9.39% for the years 1999, 1998 and 1997, respectively. ComEd discontinued SFAS No. 71 regulatory accounting practices in December 1997 for the generation portion of its business, and as a result began capitalizing interest in 1998. ComEd capitalized $22 million and $28 million for the years 1999 and 1998, respectively, in interest costs on its generation-related construction work in progress and nuclear fuel in process. AFUDC and interest capitalized do not contribute to the current cash flow of Unicom or ComEd. Interest. Total interest costs incurred on debt, leases and other obligations were $642 million, $538 million and $598 million for the years 1999, 1998 and 1997, respectively. Debt Discount, Premium and Expense. Discount, premium and expense on long- term debt of ComEd are being amortized over the lives of the respective issues. Loss on Reacquired Debt. Consistent with regulatory treatment, the net loss from ComEd's reacquisition, in connection with the refinancing of first mortgage bonds, sinking fund debentures and pollution control obligations prior to their scheduled maturity dates, is deferred and amortized over the lives of the long-term debt issued to finance the reacquisition for non- generation related financings. See "Regulatory Assets and Liabilities" above and Note 3 for additional information. Stock Option Awards/Employee Stock Purchase Plan. Unicom has elected to adopt SFAS No. 123, Accounting for Stock-Based Compensation, for disclosure purposes only. Unicom accounts for its stock option awards and ESPP under APB Opinion No. 25, Accounting for Stock Issued to Employees. See Note 8 for additional information. Average Common Shares Outstanding. The number of average outstanding common shares used to compute basic and diluted EPS for the years, 1999, 1998 and 1997 were as follows:
1999 1998 1997 ------- ------- ------- (Thousands of Shares) Average Number of Common Shares Outstanding: Average Number of Common Shares--Basic................. 217,303 216,942 216,330 Potentially Dilutive Common Shares--Treasury Method: Stock Options........................................ 660 633 136 Other Convertible Securities......................... 88 85 98 ------- ------- ------- Average Number of Common Shares--Diluted................ 218,051 217,660 216,564 ======= ======= =======
Energy Risk Management Contracts. In the normal course of business, ComEd utilizes contracts for the forward sale and purchase of energy to manage effectively the utilization of its available generating capability. ComEd also utilizes put and call option contracts and energy swap arrangements to limit the market price risk associated with the forward commodity contracts. As ComEd does not currently utilize financial or commodity instruments for trading or speculative purposes, any gains or losses on forward commodity contracts are recognized when the underlying transactions affect earnings. Revenues and expenses associated with market price risk management contracts are amortized over the terms of such contracts. F-37 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which establishes accounting and reporting standards requiring that every derivative instrument, including certain derivative instruments embedded in other contracts, be recorded on the Consolidated Balance Sheets as either an asset or liability measured at its fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings, unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item on the Statements of Consolidated Operations, and requires Unicom and ComEd to formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. The effective date of SFAS No. 133 has been delayed for one year, to fiscal years beginning after June 15, 2000. SFAS No. 133 may be implemented prior to June 15, 2000, but such implementation cannot be applied retroactively. SFAS No. 133 must be applied to (i) derivative instruments and (ii) certain derivative instruments embedded in hybrid contracts that were issued, acquired, or substantively modified after January 1, 1998 or January 1, 1999 at the Company's election. Unicom and ComEd are in the process of reviewing their various contracts to determine which contracts meet the requirements of SFAS No. 133 and would need to be reflected as derivatives under the standard and accounted for at fair value. Among the contracts that are being reviewed are purchase power agreements, contracts related to electricity purchases and sales, contracts related to gas purchases and sales, normal purchase orders, securities issued and insurance contracts. Unicom and ComEd have not yet quantified the effects on their financial statements of adopting SFAS No. 133. However, adoption of SFAS No. 133 could increase volatility in earnings and other comprehensive income. Reclassifications. Certain prior year amounts have been reclassified to conform with current period presentation. These reclassifications had no effect on operating results. Cash Held for Redemption of Securities. As of December 31, 1999, the cash held for redemption of securities reported on the Consolidated Balance Sheets includes $222 million in unused cash proceeds from the issuance of the transitional trust notes and $63 million of escrowed cash and pending instrument funding charges collected from ComEd customers to be applied to the principal and interest payment on the transitional trust notes. See Note 3 for additional information. Special Deposits. As of December 31, 1999, special deposits included $1.8 billion for cash deposited by Unicom Investments in connection with a contemplated like-kind exchange transaction involving certain of the sold fossil plants. Statements of Consolidated Cash Flows. For purposes of the Statements of Consolidated Cash Flows, temporary cash investments, generally investments maturing within three months at the time of purchase, and cash held for redemption of securities are considered to be cash equivalents. Supplemental cash flow information for the years 1999, 1998 and 1997 was as follows:
1999 1998 1997 -------- -------- -------- (Thousands of Dollars) Supplemental Cash Flow Information: Cash paid during the period for: Interest (net of amount capitalized)............ $597,984 $454,091 $512,050 Income taxes (net of refunds)................... $455,180 $272,476 $264,802 Supplemental Schedule of Non-Cash Investing and Financing Activities: Capital lease obligations incurred by subsidiary companies........................................ $ 1,744 $106,370 $158,412
F-38 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued (2) Merger Agreement. In September 1999, the Boards of Directors of Unicom and PECO approved a merger of equals that will create a new holding company, Exelon. The merger is conditioned, among other things, upon the approvals of the shareholders of both companies and by various regulatory bodies. The merger is currently expected to be completed in the latter half of 2000. Under the merger agreement, as amended and restated in January 2000, PECO and ComEd will become the principal utility subsidiaries of Exelon. This result will be achieved by a mandatory exchange of the outstanding common stock of PECO for common stock of Exelon, and a merger of Unicom with and into Exelon wherein holders of Unicom common stock will receive 0.875 shares of Exelon common stock plus $3.00 in cash for each of their shares of Unicom common stock. The merger transaction will be accounted for as a purchase of Unicom by PECO. Prior to the consummation of the merger, Unicom expects to repurchase approximately $1.0 billion of its outstanding common shares. These share repurchases are in addition to 26.3 million shares of Unicom common stock that Unicom repurchased in January 2000 upon settlement of certain forward purchase contracts. The $1.0 billion additional share repurchases will be funded from available funds, including funds resulting from the fossil plant sale. (3) Accounting Effects Related to the 1997 Act. In December 1997, the Governor of Illinois signed into law the 1997 Act, which established a phased process to introduce competition into the electric industry in Illinois under a less regulated structure. The 1997 Act was amended in June 1999. As a result of the 1997 Act and FERC rules, prices for the supply of electric energy are expected to transition from cost-based, regulated rates to rates determined by competitive market forces. Accordingly, the 1997 Act provides for, among other things, gradual customer access to other electric suppliers or a power purchase option which allows the purchase of electric energy from ComEd at market based prices, and the collection of a CTC from customers who choose to purchase electric energy from a RES or elect the power purchase option during a transition period that extends through 2006. Effective October 1, 1999, the CTC was established in accordance with a formula defined in the 1997 Act. The CTC, which is applied on a cents per kilowatthour basis, considers the revenue which would have been collected from a customer under tariffed rates, reduced by the revenue the utility will receive for providing delivery services to the customer, the market price for electricity and a defined mitigation factor, which represents the utility's opportunity to develop new revenue sources and achieve cost savings. The CTC allows ComEd to recover some of its costs which might otherwise be unrecoverable under market-based rates. Nonetheless, ComEd will need to take steps to address the portion of such costs which are not recoverable through the CTC. Such steps may include cost control efforts, developing new sources of revenue and asset dispositions. See Note 5 for additional information. On October 1, 1999, more than 41,000 non-residential customers became eligible to choose a new electric supplier or elect the purchase power option. The remainder of non-residential customers will become eligible to choose an electric supplier or the purchase power option between June 1 and December 31, 2000. As of December 31, 1999, over 4,700 non-residential customers, representing approximately ten percent of ComEd's 1998 retail kilowatthour sales, elected to receive their electric energy from a RES or chose the purchase power option. As a result of the collection of CTC's from such customers, ComEd does not expect these elections to have a material effect on its results of operations in the near term. Utilities are required to continue to offer delivery services, including the transmission and distribution of electric energy, such that customers who select a RES can receive electric energy from F-39 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued that supplier using existing transmission and distribution facilities. Such services will continue to be offered under cost-based, regulated rates. The ICC issued orders in August and September 1999 approving, with modifications, ComEd's delivery service tariffs. The 1997 Act also provides for a 15% residential base rate reduction which became effective August 1, 1998 and an additional 5% residential base rate reduction in October 2001. ComEd's operating revenues were reduced by approximately $170 million in 1998 due to the 15% residential base rate reduction. The 15% rate reduction further reduced ComEd's operating revenues by approximately $226 million in 1999, compared to 1998 rate levels. Notwithstanding the rate reductions and subject to certain earnings tests, a rate freeze will generally be in effect until at least January 1, 2005. During this period, utilities may reorganize, sell or assign assets, retire or remove plants from service, and accelerate depreciation or amortization of assets with limited ICC regulatory review. A utility may request a rate increase during the rate freeze period only when necessary to ensure the utility's financial viability, but not before January 1, 2000. Under the earnings provision of the 1997 Act, if the earned return on common equity of a utility during this period exceeds an established threshold, one-half of the excess earnings must be refunded to customers. The threshold rate of return on common equity is based on the 30-Year Treasury Bond rate, plus 5.5% in the years 1998 and 1999, and plus 8.5% in the years 2000 through 2004. The utility's earned return on common equity and the threshold return on common equity for ComEd are each calculated on a two-year average basis. The earnings sharing provision is applicable only to ComEd's earnings. Consistent with the provisions of the 1997 Act, increased amortization of regulatory assets may be recorded, thereby reducing the earned return on common equity, if earnings otherwise would have exceeded the maximum allowable rate of return. The potential for earnings sharing or increased amortization of regulatory assets could limit earnings in future periods. The 1997 Act also allows a portion of ComEd's future revenues to be segregated and used to support the issuance of securities by ComEd or a SPE. The proceeds, net of transaction costs, from such security issuances must be used to refinance outstanding debt or equity or for certain other limited purposes. The total amount of such securities that may be issued is approximately $6.8 billion. In December 1998, ComEd initiated the issuance of $3.4 billion of transitional trust notes through its SPEs, ComEd Funding and ComEd Funding Trust. The proceeds from the transitional trust notes, net of transaction costs, were, as required, used to redeem $1,101 million of long- term debt and $607 million of preference stock in 1999 and reduce by $500 million ComEd's outstanding short-term debt. During the year 1999, ComEd recorded an extraordinary loss related to the early redemptions of such long- term debt, which reduced net income on common stock by approximately $28 million (after-tax), or $0.13 per common share (diluted). ComEd also recorded $12 million (after-tax), or $0.05 per common share (diluted), for premiums paid in connection with the redemption of such preference stock. The preference stock premiums were included in the provision for dividends for preference stocks of ComEd on the Statements of Consolidated Operations. As more fully described in Note 7, Unicom has repurchased approximately 26.3 million shares of Unicom common stock using $924 million of proceeds it received from ComEd's repurchase of its common stock held by Unicom. The remaining proceeds from the issuance of the transitional trust notes will be used for the payment of fees and additional common stock repurchases. See Note 7 for additional information regarding Unicom's share repurchases. Because the 1997 Act is expected ultimately to lead to market-based pricing of electric generation services, ComEd discontinued SFAS No. 71 regulatory accounting practices for the generation portion F-40 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued of its business in December 1997. ComEd evaluated the regulatory assets and liabilities related to the generation portion of its business and determined that it was not probable that such costs would be recovered through the cash flows from the regulated portion of its business. Accordingly, the generation- related regulatory assets and liabilities were written off in the fourth quarter of 1997, resulting in an extraordinary charge of $810 million (after- tax), or $3.75 per common share (diluted). The fourth quarter of 1997 also reflected charges totaling $44 million (after-tax), or $0.20 per common share (diluted), as a result of ComEd's elimination of its FAC pursuant to an option in the 1997 Act, and a charge of $60 million (after-tax), or $0.28 per common share (diluted), for a write down of ComEd's investment in uranium-related properties to realizable value. Projections of the market price for uranium indicated that the expected incremental costs of mining and milling uranium at the properties would exceed the expected market price for uranium and such costs are not expected to be recoverable in a competitive market. The 1997 Act also requires utilities to establish or join an ISO that will independently manage and control utility transmission systems. Additionally, the 1997 Act includes the leveling of certain regulatory requirements to permit operational flexibility, the leveling of certain regulatory and tax provisions as applied to various electric suppliers and a new, more stringent, liability standard applicable to ComEd in the event of a major outage. (4) Cumulative Effect of a Change in Accounting Principle. In the fourth quarter of 1997, ComEd changed its accounting method for revenue recognition to record revenues associated with service which has been provided to customers but has not yet been billed at the end of each accounting period, retroactive to January 1, 1997. This change in accounting method increased operating results for the year 1997 to reflect the one-time cumulative effect of the change for years prior to 1997 by $197 million (after-tax), or $0.91 per common share. (5) Sale of Plants and Closure. In December 1999, ComEd completed the sale of its fossil generating assets to EME for a cash purchase price of $4.8 billion. The fossil generating assets represent an aggregate generating capacity of approximately 9,772 megawatts. Just prior to the consummation of the fossil plant sale, ComEd transferred these assets to an affiliate, Unicom Investment. In consideration for the transferred assets, Unicom Investment paid ComEd consideration totalling approximately $4.8 billion in the form of a demand note in the amount of approximately $2.4 billion and an interest-bearing Note with a maturity of twelve years. Unicom Investment immediately sold the fossil plant assets to EME, in consideration of which Unicom Investment received approximately $4.8 billion in cash from EME. Immediately after its receipt of the cash payment from EME, Unicom Investment paid the $2.4 billion aggregate principal due to ComEd under the demand note. Unicom Investment will use the remainder of the cash received from EME to fund other business opportunities, including the share repurchases. Of the cash received by ComEd, $1.8 billion is expected to be used to pay the costs and taxes associated with the fossil plant sale, including ComEd's contribution of $250 million of the proceeds to an environmental trust as required by the 1997 Act. The remainder of the demand note proceeds will be available to ComEd to fund, among other things, transmission and distribution projects, nuclear generation station projects, and environmental and other initiatives. The sale produced an after-tax gain of approximately $1.6 billion, after recognizing commitments associated with certain coal contracts ($350 million), recognizing employee-related costs ($112 million) and contributing to the environmental trust. The coal contract costs include the amortization of the F-41 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued remaining balance of ComEd's regulatory asset for unrecovered coal reserves of $178 million and the recognition of $172 million of settlement payments related to the above-market portion of coal purchase commitments ComEd assigned to EME at market value upon completion of the fossil plant sale. The severance costs included pension and post-retirement welfare benefit curtailment and special termination benefit costs of $51 million and transition, separation and retention payments of $61 million. A total of 1,730 fossil station employee positions were eliminated upon completion of the fossil plant sale on December 15, 1999. As of December 31, 1999, 1,590 of the employees whose positions were eliminated had been terminated and 140 affected employees were in a transition program which generally extends 60 days from the date of the fossil plant sale. Consistent with the provisions of the 1997 Act, the (pre-tax) gain on the sale of $2.587 billion resulted in a regulatory liability, which was used to recover regulatory assets. Therefore, the gain on the sale, excluding $43 million of amortization of investment tax credits, was recorded as a regulatory liability in the amount of $2.544 billion and amortized in the fourth quarter of 1999. The amortization of the regulatory liability and additional regulatory asset amortization of $2.456 billion are reflected in depreciation and amortization expense on Unicom's Statement of Consolidated Operations and resulted in a net reduction to depreciation and amortization expense of $88 million. See Note 1, under "Regulatory Assets and Liabilities," for additional information. In January 1998, the Boards of Directors of Unicom and ComEd authorized the permanent cessation of nuclear generation operations and retirement of facilities at ComEd's 2,080 megawatt Zion nuclear generating station. Such retirement resulted in a charge in the fourth quarter of 1997 of $523 million (after-tax), or $2.42 per common share (diluted). The charge included a liability for estimated future closing costs associated with the retirement of the station, excluding severance costs, resulting in a charge of $117 million (after-tax). ComEd has recorded reductions to the expected liability for future closing costs of $16 million (after-tax), or $0.07 per common share (diluted), and $15 million (after-tax), or $0.07 per common share (diluted), in 1999 and 1998, respectively, to reflect employees being reassigned or removed from the payroll sooner than anticipated, and lower support costs and use of contractors. See Note 17 for information regarding costs of voluntary employee separation plans. ComEd completed the sale of its State Line and Kincaid coal-fired generating stations (representing 1,598 megawatts of generating capacity) in December 1997 and February 1998, respectively. The net proceeds of the sales, after income tax effects and closing costs, were approximately $190 million. The proceeds were used to retire or redeem existing debt in the first quarter of 1998. ComEd has entered into 15-year purchased power agreements for the output of the stations. (6) Authorized Shares, Voting Rights and Stock Rights of Capital Stock. At December 31, 1999, Unicom's authorized shares consisted of 400,000,000 shares of common stock. The authorized shares of ComEd preferred and preference stocks at December 31, 1999 were: preference stock--7,510,451 shares; $1.425 convertible preferred stock--56,291 shares; and prior preferred stock--850,000 shares. The preference and prior preferred stocks are issuable in series and may be issued with or without mandatory redemption requirements. Holders of outstanding Unicom shares are entitled to one vote for each share held on each matter submitted to a vote of such shareholders; and holders of outstanding ComEd shares are entitled to one vote for each share held on each matter submitted to a vote of such shareholders. All such shares have the right to cumulate votes in elections for the directors of the corporation which issued the shares. F-42 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued Pursuant to a plan adopted by the Unicom Board of Directors on February 2, 1998, each share of Unicom's common stock carries the right (referred to herein as a "Right") to purchase one-thousandth of one share of Unicom's common stock at a purchase price of $100 per whole share of common stock, subject to adjustment. The plan was amended on September 22, 1999 to render the Rights inapplicable to the transactions contemplated by the Merger Agreement. The Rights are tradable only with Unicom's common stock until they become exercisable. The Rights become exercisable upon the earlier of ten days following a public announcement that a person (an "Acquiring Person") has acquired 15% or more of Unicom's outstanding common stock or ten business days (or such later date as may be determined by action of the Board of Directors) following the commencement of a tender or exchange offer which, if consummated, would result in a person or group becoming an Acquiring Person. The Rights are subject to redemption by Unicom at a price of $0.01 per Right, subject to certain limitations, and will expire on February 2, 2008. If a person or group becomes an Acquiring Person, each holder of a Right will thereafter have the right to receive, upon exercise, Unicom common stock at a 50% discount from the then current market price. If Unicom is acquired in a merger or other business combination transaction in which Unicom is not the survivor, or 50% or more of Unicom's assets or earning power is sold or transferred, each holder of a Right shall then have the right to receive, upon exercise, common stock of the acquiring company at a 50% discount from the then current market price of such common stock. Rights held by an Acquiring Person become void upon the occurrence of such events. (7) Common Equity. In the fourth quarter of 1998, Unicom entered into a forward purchase arrangement for the repurchase of $200 million of its common stock. This contract, which was accounted for as an equity instrument as of December 31, 1998, was settled on a net cash basis in February 1999, resulting in a $16 million reduction to common stock equity on the Consolidated Balance Sheets. During 1999, Unicom also entered into forward purchase arrangements with financial institutions for the repurchase of approximately 26.3 million shares of Unicom common stock. The repurchase arrangements were settled in January 2000 on a physical basis. Effective January 2000, the share repurchases will reduce outstanding shares and reduce common stock equity. Prior to the settlement, the repurchase arrangements were recorded as a receivable on the Consolidated Balance Sheets based on the aggregate market value of the shares deliverable under the arrangements. In 1999, net unrealized losses of $44 million (after-tax), or $0.20 per common share, were recorded related to the arrangements. The settlement of the arrangements in January 2000 resulted in a gain of $113 million (after-tax). At December 31, 1999, shares of Unicom common stock were reserved for the following purposes: Long-Term Incentive Plan........................................ 2,231,763 Employee Stock Purchase Plan.................................... 323,797 Shareholder Rights Plan......................................... 400,000 Exchange for ComEd common stock not held by Unicom.............. 87,650 1996 Directors' Fee Plan........................................ 162,459 --------- 3,205,669 =========
F-43 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued Common stock issued for the years 1999, 1998 and 1997 was as follows:
1999 1998 1997 ------- -------- -------- Shares of Common Stock Issued: Long-Term Incentive Plan......................... 451,501 494,302 208,104 Employee Stock Purchase Plan..................... 89,500 94,270 196,003 Employee Savings and Investment Plan............. -- -- 274,203 Exchange for ComEd common stock not held by Unicom.......................................... (2,454) 12,757 12,370 1996 Directors' Fee Plan......................... 5,521 12,733 14,175 Treasury Stock................................... (85,424) (178,982) -- ------- -------- -------- 458,644 435,080 704,855 ======= ======== ======== (Thousands of Dollars) Changes in Common Stock Accounts: Total shares issued.............................. $21,290 $ 16,847 $ 15,768 Net cash settlement of forward share repurchase contract........................................ (16,454) Shares held by trustee for Unicom Stock Bonus De- ferral Plan..................................... -- 6,775 (2,476) Other............................................ 151 (203) 10 ------- -------- -------- $ 4,987 $ 23,419 $ 13,302 ======= ======== ========
As of December 31, 1999 and 1998, 264,406 and 178,982 shares, respectively, of Unicom common stock were reacquired and held as treasury stock at a cost of $10 million and $7 million, respectively. At December 31, 1999 and 1998, 75,692 and 76,079, respectively, of ComEd common stock purchase warrants were outstanding. The warrants entitle the holders to convert such warrants into common stock of ComEd at a conversion rate of one share of common stock for three warrants. As of December 31, 1999 and 1998, $716 million and $494 million, respectively, of retained earnings had been appropriated for future dividend payments. (8) Stock Option Awards/Employee Stock Purchase Plan. Unicom has a nonqualified stock option awards program under its Long-Term Incentive Plan. The stock option awards program was adopted by Unicom in July 1996 to reward valued employees responsible for, or contributing to, the management, growth and profitability of Unicom and its subsidiaries. The stock options granted expire ten years from their grant date. One-third of the shares subject to the options vest on each of the first three anniversaries of the option grant date. In addition, the stock options will become fully vested immediately if the holder dies, retires, is terminated by the Company, other than for cause, or qualifies for long-term disability. Options granted before July 22, 1998 also vest in full upon a change in control, while options granted on or after July 22, 1998 vest in full if the option holder is terminated within 24 months after a change of control. F-44 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued Stock option transactions for the years 1999, 1998 and 1997 are summarized as follows:
Number of Weighted Average Options Exercise Price --------- ---------------- Outstanding as of January 1, 1997................... 1,188,000 $25.500 Granted during the year............................. 1,339,350 22.313 Exercised during the year........................... (23,423) 25.500 Expired/cancelled during the year................... (212,549) 23.632 --------- Outstanding as of December 31, 1997................. 2,291,378 23.810 Granted during the year............................. 1,379,525 35.234 Exercised during the year........................... (404,082) 24.244 Expired/cancelled during the year................... (123,928) 25.715 --------- Outstanding as of December 31, 1998................. 3,142,893 28.694 Granted during the year............................. 1,848,050 35.750 Exercised during the year........................... (313,231) 24.102 Expired/cancelled during year....................... (179,076) 33.551 --------- Outstanding as of December 31, 1999................. 4,498,636 31.719 =========
Of the stock options outstanding at December 31, 1999, 1,676,854 had vested with a weighted average exercise price of $27. The fair value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
Stock Option Grant Date ----------------------- 1999 1998 1997 ------- ------- ------- Expected option life.................................... 7 years 7 years 7 years Dividend yield.......................................... 4.50% 4.54% 7.20% Expected volatility..................................... 23.02% 21.95% 22.29% Risk-free interest rate................................. 4.83% 5.58% 6.25%
The estimated weighted average fair value for each stock option granted in 1999, 1998 and 1997 was $6.48, $6.62 and $2.79, respectively. The ESPP allows employees to purchase Unicom common stock at a ten percent discount from market value. Substantially all of the employees of Unicom, ComEd and their subsidiaries are eligible to participate in the ESPP. Unicom issued 89,500, 94,270 and 196,003 shares of common stock during the year 1999, 1998 and 1997, respectively, under the ESPP at a weighted average annual purchase price of $33.58, $33.11 and $19.15, respectively. Unicom has adopted the disclosure-only provisions of SFAS No. 123. For financial reporting purposes, Unicom has adopted APB No. 25, and thus no compensation cost has been recognized for the stock option awards program or ESPP. If Unicom had recorded compensation expense for the stock options granted and the shares of common stock issued under the ESPP in accordance with SFAS No. 123 using the fair value based method of accounting, the additional charge to operations would have been $4 million (after-tax), or $0.02 per common share (diluted), $2 million (after-tax), or $0.01 per common share (diluted), and $2 million (after tax), or $0.01 per common share (diluted), for the years 1999, 1998 and 1997, respectively. F-45 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued (9) ComEd Preferred and Preference Stocks Without Mandatory Redemption Requirements. During the year 1999, 13,499,549 shares of preferred or preference stock without mandatory redemption requirements were redeemed and no shares were issued. No shares of ComEd preferred or preference stocks without mandatory redemption requirements were issued or redeemed during 1998 and 1997. All series other than Series $1.425 have been redeemed. The outstanding shares of ComEd's $1.425 convertible preferred stock are convertible at the option of the holders thereof, at any time, into common stock of ComEd at the rate of 1.02 shares of common stock for each share of convertible preferred stock, subject to future adjustment. The convertible preferred stock may be redeemed by ComEd at $42 per share, plus accrued and unpaid dividends, if any. The involuntary liquidation price of the $1.425 convertible preferred stock is $31.80 per share, plus accrued and unpaid dividends, if any. (10) ComEd Preference Stock Subject to Mandatory Redemption Requirements. During 1999, 1998 and 1997, no shares of ComEd preference stock subject to mandatory redemption requirements were issued. During 1999, 1998 and 1997, 1,020,345, 338,215 and 438,215 shares, respectively, of ComEd preference stock subject to mandatory redemption requirements were reacquired to meet sinking fund requirements or were part of the early redemption in 1999. There were 700,000 shares of Series $6.875 preference stock outstanding at December 31, 1999, at an aggregate stated value of $69 million. This series is non-callable and is required to be redeemed on May 1, 2000. The sinking fund price is $100 and the involuntary liquidation price is $99.25 per share, plus accrued and unpaid dividends, if any. The $69 million is included in current liabilities. (11) ComEd-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts Holding Solely ComEd's Subordinated Debt Securities. In September 1995, ComEd Financing I, a wholly-owned subsidiary trust of ComEd, issued 8,000,000 of its 8.48% ComEd-obligated mandatorily redeemable preferred securities. The sole asset of ComEd Financing I is $206.2 million principal amount of ComEd's 8.48% subordinated deferrable interest notes due September 30, 2035. In January 1997, ComEd Financing II, a wholly-owned subsidiary trust of ComEd, issued 150,000 of its 8.50% ComEd-obligated mandatorily redeemable capital securities. The sole asset of ComEd Financing II is $154.6 million principal amount of ComEd's 8.50% subordinated deferrable interest debentures due January 15, 2027. There is a full and unconditional guarantee by ComEd of the Trusts' obligations under the securities issued by the Trusts. However, ComEd's obligations are subordinate and junior in right of payment to certain other indebtedness of ComEd. ComEd has the right to defer payments of interest on the subordinated deferrable interest notes by extending the interest payment period, at any time, for up to 20 consecutive quarters. Similarly, ComEd has the right to defer payments of interest on the subordinated deferrable interest debentures by extending the interest payment period, at any time, for up to ten consecutive semi-annual periods. If interest payments on the subordinated deferrable interest notes or debentures are so deferred, distributions on the preferred securities will also be deferred. During any deferral, distributions will continue to accrue with interest thereon. In addition, during any such deferral, ComEd may not declare or pay any dividend or other distribution on, or redeem or purchase, any of its capital stock. The subordinated deferrable interest notes are redeemable by ComEd, in whole or in part, from time to time, on or after September 30, 2000, and with respect to the subordinated deferrable interest debentures, on or after January 15, 2007, or at any time in the event of certain income tax circumstances. If the subordinated deferrable interest notes or debentures are redeemed, the Trusts must redeem preferred securities having an aggregate liquidation amount equal to the aggregate F-46 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued principal amount of the subordinated deferrable interest notes or debentures so redeemed. In the event of the dissolution, winding up or termination of the Trusts, the holders of the preferred securities will be entitled to receive, for each preferred security, a liquidation amount of $25 for the securities of ComEd Financing I and $1,000 for the securities of ComEd Financing II, plus accrued and unpaid distributions thereon, including interest thereon, to the date of payment, unless in connection with the dissolution, the subordinated deferrable interest notes or debentures are distributed to the holders of the preferred securities. (12) Long-Term Debt. ComEd initiated the issuance of $3.4 billion of transitional trust notes through its SPEs, ComEd Funding and ComEd Funding Trust, in the fourth quarter of 1998. The current amount outstanding is as follows:
Series Principal Amount ------------------------ ---------------------- (Thousands of Dollars) 5.38% due March 25, 2000........................... $ 94,967 5.29% due June 25, 2001............................ 425,033 5.34% due March 25, 2002........................... 258,861 5.39% due June 25, 2003............................ 421,139 5.44% due March 25, 2005........................... 598,511 5.63% due June 25, 2007............................ 761,489 5.74% due December 25, 2008........................ 510,000 ---------- $3,070,000 ==========
For accounting purposes, the liabilities of ComEd Funding Trust for the transitional trust notes are reflected as long-term debt on the Consolidated Balance Sheets of Unicom and ComEd. The proceeds, net of transaction costs, from the transitional trust notes have been used, as required, to redeem debt and equity. During 1999, ComEd redeemed or reacquired $1,101 million of long-term debt. Sinking fund requirements and scheduled maturities remaining through 2004 for ComEd's first mortgage bonds, transitional trust notes, sinking fund debentures and other long-term debt outstanding at December 31, 1999, after deducting deposits made for the retirement of sinking fund debentures, are summarized as follows: 2000--$732 million; 2001--$345 million; 2002--$645 million; 2003--$445 million; and 2004--$577 million. At December 31, 1999, ComEd's outstanding first mortgage bonds maturing through 2004 were as follows:
Series Principal Amount -------------------------------- ---------------------- (Thousands of Dollars) 9 3/8% due February 15, 2000....................... $ 42,245 6 1/2% due April 15, 2000.......................... 230,000 6 3/8% due July 15, 2000........................... 100,000 7 3/8% due September 15, 2002...................... 200,000 6 5/8% due July 15, 2003........................... 100,000 5 3/10% due January 15, 2004....................... 26,000 -------- $698,245 ========
F-47 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued Other long-term debt outstanding at December 31, 1999 is summarized as follows:
Principal Debt Security Amount Interest Rate - ---------------------------------------- ---------- ------------------------------------------ (Thousands of Dollars) Unicom-- Loans Payable: Loan due January 1, 2003 $ 5,519 Interest rate of 8.31% Loan due January 1, 2004 6,371 Interest rate of 8.44% Loan due January 15, 2009 6,025 Interest rate of 8.30% Loan due January 15, 2009 7,567 Interest rate of 8.55% Loan due January 15, 2010 6,803 Interest rate of 8.88% Loan due July 15, 2010 9,225 Interest rate of 7.98% ---------- $ 41,510 ---------- ComEd-- Notes: Medium Term Notes, Series 3N due vari- ous dates through October 15, 2004 $ 156,000 Interest rates ranging from 9.17% to 9.20% Notes due January 15, 2004 150,000 Interest rate of 7.375% Notes due October 15, 2005 235,000 Interest rate of 6.40% Notes due January 15, 2007 150,000 Interest rate of 7.625% Notes due July 15, 2018 225,000 Interest rate of 6.95% ---------- $ 916,000 ---------- Purchase Contract Obligation due April 30, 2005 $ 301 Interest rate of 3.00% ---------- Total ComEd $ 916,301 ---------- Unicom Enterprises-- Notes: Unicom Thermal Guaranteed Senior Note due May 30, 2012 $ 120,000 Interest rate of 7.38% Northwind Midway Guaranteed Senior Note due June 30, 2023 11,523 Interest rate of 7.68% Unicom Mechanical Services Note due January 1, 2001 13 Interest rate of 8.50% ---------- Total Unicom Enterprises $ 131,536 ---------- Total Unicom $1,089,347 ==========
Long-term debt maturing within one year has been included in current liabilities. ComEd's outstanding first mortgage bonds are secured by a lien on substantially all property and franchises, other than expressly excepted property, owned by ComEd. In July 1998, Unicom Thermal issued a $120 million 7.38% unsecured guaranteed senior Note due May 2012, the proceeds of which were used to refinance existing debt. The Note is guaranteed by Unicom and includes certain covenants with respect to Unicom and Unicom Thermal's operations. Such covenants include, among other things, (i) a requirement that Unicom and its consolidated subsidiaries maintain a tangible net worth at least $10 million greater than that of ComEd and its consolidated subsidiaries, (ii) a requirement that Unicom's consolidated debt to consolidated capitalization not exceed 0.65 to 1, (iii) restrictions on the indebtedness for borrowed money that Unicom Thermal may incur, and (iv) a requirement that Unicom own, directly or indirectly, 51% of the outstanding stock of Unicom Thermal and at least 80% of the outstanding stock of ComEd. F-48 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued In June 1999, Northwind Midway issued $12 million of 7.68% guaranteed senior Notes due June 2023, the proceeds of which will be used primarily to finance certain project construction costs. The Notes are guaranteed by Unicom and include certain covenants with respect to Unicom and Northwind Midway's operations. Such covenants include, among other things, a requirement that Unicom and its consolidated subsidiaries own no less than 65% of the voting membership interest of Northwind Midway. (13) Lines of Credit. ComEd had total unused bank lines of credit of $800 million at December 31, 1999. Of that amount, $500 million expires on December 15, 2000 and $300 million expires on December 17, 2002. The interest rate is set at the time of a borrowing and is based on several floating rate bank indices plus a spread which is dependent upon the credit rating of ComEd's outstanding first mortgage bonds or on a prime interest rate. ComEd is obligated to pay commitment and facility fees with respect to the line of credit. Unicom Enterprises has an unused $400 million credit facility which will expire December 15, 2000. The credit facility can be used by Unicom Enterprises to finance investments in unregulated businesses and projects, including UT Holdings and Unicom Energy Services, and for general corporate purposes. The credit facility is guaranteed by Unicom and includes certain covenants with respect to Unicom and Unicom Enterprises' operations. Such covenants include, among other things, (i) a requirement that Unicom and its consolidated subsidiaries maintain a tangible net worth at least $3.5 million over that of ComEd and its consolidated subsidiaries, (ii) a requirement that Unicom's consolidated debt to consolidated capitalization not exceed 0.65 to 1, (iii) restrictions on the indebtedness for borrowed money that Unicom (excluding ComEd) and Unicom Enterprises may incur, and (iv) a requirement that Unicom own 100% of the outstanding stock of Unicom Enterprises and at least 80% of the outstanding stock of ComEd; and provide that Unicom may not declare or pay dividends during the continuance of an event of default. Interest rates for borrowings under the credit facility are set at the time of a borrowing and are based on either a prime interest rate or a floating rate bank index plus a spread which varies with the credit rating of ComEd's outstanding first mortgage bonds. Unicom Enterprises is obligated to pay commitment fees with respect to the unused portion of such lines of credit. (14) Disposal of Spent Nuclear Fuel. Under the Nuclear Waste Policy Act of 1982, the DOE is responsible for the selection and development of repositories for, and the disposal of, spent nuclear fuel and high-level radioactive waste. ComEd, as required by that Act, has entered into a contract with the DOE to provide for the disposal of spent nuclear fuel and high-level radioactive waste from ComEd's nuclear generating stations. The contract with the DOE requires ComEd to pay the DOE a one-time fee applicable to nuclear generation through April 6, 1983 of $277 million, with interest to date of payment, and a fee payable quarterly equal to one mill per kilowatthour of nuclear-generated and sold electricity after April 6, 1983. Pursuant to the contract, ComEd has elected to pay the one-time fee, with interest, just prior to the first delivery of spent nuclear fuel to the DOE. The liability for the one-time fee and the related interest is reflected on the Consolidated Balance Sheets. The contract also provided for acceptance by the DOE of such materials to begin in January 1998; however, that date was not met by the DOE and is expected to be delayed significantly. The DOE's current estimate for opening a facility to accept such waste is 2010. This extended delay in spent nuclear fuel acceptance by the DOE has led to ComEd's consideration of additional dry storage alternatives. On July 30, 1998, ComEd filed a complaint against the United States in the United States Court of Federal Claims seeking to recover damages caused by the DOE's failure to honor its contractual obligation to begin disposing of spent nuclear fuel in January 1998. On November 5, 1999, ComEd's case was stayed F-49 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued pending the decision of the United States Court of Appeals for the Federal Circuit in several similar cases brought by other utilities. (15) Fair Value of Financial Instruments. The following methods and assumptions were used to estimate the fair value of financial instruments either held, or issued and outstanding. The disclosure of such information does not purport to be a market valuation of Unicom and subsidiary companies as a whole. The impact of any realized or unrealized gains or losses related to such financial instruments on the financial position or results of operations of Unicom and subsidiary companies is primarily dependent on the treatment authorized under future ComEd ratemaking proceedings. Investments. Securities included in the nuclear decommissioning funds have been classified and accounted for as "available for sale" securities. The estimated fair value of the nuclear decommissioning funds, as determined by the trustee and based on published market data, as of December 31, 1999 and 1998 was as follows:
December 31, 1999 December 31, 1998 -------------------------------- -------------------------------- Unrealized Gains/ Unrealized Cost Basis (Losses) Fair Value Cost Basis Gains Fair Value ---------- ---------- ---------- ---------- ---------- ---------- (Thousands of Dollars) Short-term investments.. $ 41,362 $ 95 $ 41,457 $ 40,907 $ 42 $ 40,949 U.S. Government and Agency issues.......... 245,399 (1,993) 243,406 197,240 20,213 217,453 Municipal bonds......... 383,816 (940) 382,876 416,121 24,124 440,245 Corporate bonds......... 196,942 (5,699) 191,243 241,111 8,790 249,901 Common stock............ 832,802 732,893 1,565,695 740,956 565,630 1,306,586 Other................... 125,072 (3,209) 121,863 11,345 838 12,183 ---------- -------- ---------- ---------- -------- ---------- $1,825,393 $721,147 $2,546,540 $1,647,680 $619,637 $2,267,317 ========== ======== ========== ========== ======== ==========
At December 31, 1999, the debt securities held by the nuclear decommissioning funds had the following maturities:
Cost Basis Fair Value ---------- ---------- (Thousands of Dollars) Within 1 year....................................... $ 47,853 $ 48,421 1 through 5 years................................... 263,588 263,117 5 through 10 years.................................. 227,927 225,860 Over 10 years....................................... 409,823 400,358
The net earnings of the nuclear decommissioning funds, which are recorded in the accumulated provision for depreciation, for the years 1999, 1998 and 1997 were as follows:
1999 1998 1997 ---------- ---------- ---------- (Thousands of Dollars) Gross proceeds from sales of securities....... $1,765,000 $1,795,484 $2,163,522 Less cost based on specific identification.... 1,718,151 1,728,092 2,088,300 ---------- ---------- ---------- Realized gains on sales of securities......... $ 46,849 $ 67,392 $ 75,222 Other realized fund earnings, net of expenses. 62,927 40,374 39,123 ---------- ---------- ---------- Total realized net earnings of the funds...... $ 109,776 $ 107,766 $ 114,345 Unrealized gains.............................. 101,510 190,503 198,741 ---------- ---------- ---------- Total net earnings of the funds.............. $ 211,286 $ 298,269 $ 313,086 ========== ========== ==========
F-50 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued Securities held by certain trusts, which were established to provide for supplemental retirement benefits and executive medical claims, have been classified and accounted for as "available for sale." The estimated fair value of these securities, as determined by the trustee and based on published market data, as of December 31, 1999 was as follows:
Cost Unrealized Fair Basis Gain Value ------- ---------- ------- (Thousands of Dollars) Short-term investments.............................. $ 162 $ -- $ 162 Registered investment companies..................... 21,641 12,471 34,112 ------- ------- ------- $21,803 $12,471 $34,274 ======= ======= =======
Current Assets. Cash, temporary cash investments, cash held for redemption of securities and other cash investments, which include U.S. Government obligations and other short-term marketable securities, and special deposits, are stated at cost, which approximates their fair value because of the short maturity of these instruments. The securities included in these categories have been classified as "available for sale" securities. Capitalization. The estimated fair values of ComEd preferred and preference stocks, ComEd-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely ComEd's subordinated debt securities, transitional trust notes and long-term debt were obtained from an independent consultant. The estimated fair values, which include the current portions of redeemable preference stock and long-term debt but exclude accrued interest and dividends, as of December 31, 1999 and 1998 were as follows:
December 31, 1999 December 31, 1998 --------------------------------- -------------------------------- Unrealized Carrying Losses/ Carrying Unrealized Fair Value (Gains) Fair Value Value Losses Value ---------- ---------- ---------- ---------- ---------- ---------- (Thousands of Dollars) ComEd preferred and preference stocks...... $ 71,265 $ 58 $ 71,323 $ 678,156 $ 11,500 $ 689,656 ComEd-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely ComEd's subordinated debt securities............. $ 350,000 $ (10,595) $ 339,405 $ 350,000 $ 20,678 $ 370,678 Transitional trust notes.................. $3,057,112 $(163,600) $2,893,512 $3,382,821 $ 67,168 $3,449,989 Long-term debt.......... $4,757,062 $ (23,987) $4,733,075 $5,911,757 $451,240 $6,362,997
Long-term notes payable, which are not included in the above table, amounted to $53 million and $100 million as of December 31, 1999 and 1998, respectively. Such notes, for which interest is paid at fixed and prevailing rates, are included in the consolidated financial statements at cost, which approximates their fair value. Current Liabilities. The carrying value of notes payable, which consists of commercial paper and bank loans maturing within one year, approximates the fair value because of the short maturity of these instruments. See "Capitalization" above for a discussion of the fair value of the current portion of long-term debt and redeemable preference stock. Other Noncurrent Liabilities. The carrying value of accrued spent nuclear fuel disposal fee and related interest represents the settlement value as of December 31, 1999 and 1998; therefore, the carrying value is equal to the fair value. F-51 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued (16) Pension and Postretirement Benefits. As of December 31, 1999, ComEd had a qualified non-contributory defined benefit pension plan which covers all regular employees of ComEd and certain of Unicom's subsidiaries. Benefits under this plan reflect each employee's compensation, years of service and age at retirement. Funding is based upon actuarially determined contributions that take into account the amount deductible for income tax purposes and the minimum contribution required under the Employee Retirement Income Security Act of 1974, as amended. The December 31, 1999 and 1998 pension liabilities and related data were determined using the January 1, 1999 actuarial valuation. Additionally, ComEd maintains a nonqualified supplemental retirement plan which covers any excess pension benefits that would be payable to management employees under the qualified plan but which are limited by the Internal Revenue Code. In 1998, Indiana Company's qualified defined benefit pension plan was merged into ComEd's pension plan as a result of the sale of Indiana Company's State Line Station and the transfer of its remaining employees to ComEd. ComEd and certain of Unicom's subsidiaries provide certain postretirement medical, dental and vision care, and life insurance for retirees and their dependents and for the surviving dependents of eligible employees and retirees. Generally, the employees become eligible for postretirement benefits if they retire no earlier than age 55 with ten years of service. The liability for postretirement benefits is funded through trust funds based upon actuarially determined contributions that take into account the amount deductible for income tax purposes. The health care plans are contributory, funded jointly by the companies and the participating retirees. The December 31, 1999 and 1998 postretirement benefit liabilities and related data were determined using the January 1, 1999 actuarial valuations. Reconciliations of the beginning and ending balances of the projected pension benefit obligation and the accumulated postretirement benefit obligation, and the funded status of these plans for the years 1999 and 1998 were as follows:
Twelve Months Ended Twelve Months Ended December 31, 1999 December 31, 1998 -------------------------- -------------------------- Other Other Pension Postretirement Pension Postretirement Benefits Benefits Benefits Benefits ---------- -------------- ---------- -------------- (Thousands of Dollars) Change in benefit obligation - ----------------- Benefit obligation at beginning of period.... $4,326,000 $1,236,000 $4,010,000 $1,139,000 Service cost............ 120,000 41,000 115,000 38,000 Interest cost........... 285,000 82,000 273,000 78,000 Plan participants' con- tributions............. -- 4,000 -- 3,000 Actuarial loss/(gain)... (458,000) (188,000) 165,000 25,000 Benefits paid........... (241,000) (51,000) (237,000) (47,000) Special termination ben- efits.................. 62,000 27,000 -- -- ---------- ---------- ---------- ---------- Benefit obligation at end of period......... $4,094,000 $1,151,000 $4,326,000 $1,236,000 ---------- ---------- ---------- ---------- Change in plan assets - --------------------- Fair value of plan as- sets at beginning of period................. $4,015,000 $ 865,000 $3,706,000 $ 767,000 Actual return on plan assets................. 492,000 105,000 535,000 122,000 Employer contribution... 3,000 24,000 11,000 20,000 Plan participants' con- tributions............. -- 4,000 -- 3,000 Benefits paid........... (241,000) (51,000) (237,000) (47,000) ---------- ---------- ---------- ---------- Fair value of plan as- sets at end of period. $4,269,000 $ 947,000 $4,015,000 $ 865,000 ---------- ---------- ---------- ---------- Plan assets greater/(less) than benefit obligation..... $ 175,000 $ (204,000) $ (311,000) $ (371,000) Unrecognized net actuar- ial loss/(gain)........ (523,000) (555,000) 36,000 (371,000) Unrecognized prior serv- ice cost/(asset)....... (51,000) 41,000 (60,000) 48,000 Unrecognized transition obligation/(asset)..... (79,000) 276,000 (101,000) 323,000 ---------- ---------- ---------- ---------- Accrued liability for benefits.............. $ (478,000) $ (442,000) $ (436,000) $ (371,000) ========== ========== ========== ==========
F-52 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued The assumed discount rate used to determine the benefit obligation as of December 31, 1999 and 1998 was 7.75% and 6.75%, respectively. The fair value of plan assets excludes $25 million and $21 million held in grantor trust as of December 31, 1999 and 1998, respectively, for the payment of benefits under the supplemental plan and $9 million and $7 million held in a grantor trust as of December 31, 1999 and 1998, respectively, for the payment of postretirement medical benefits. The components of pension and other postretirement benefit costs, portions of which were recorded as components of construction costs, for the years, 1999, 1998 and 1997 were as follows:
1999 1998 1997 -------- --------- --------- (Thousands of Dollars) Pension Benefit Costs - --------------------- Service cost.................................. $120,000 $ 115,000 $ 100,000 Interest cost on projected benefit obligation. 285,000 273,000 261,000 Expected return on plan assets................ (362,000) (342,000) (310,000) Amortization of transition asset.............. (13,000) (12,000) (13,000) Amortization of prior service asset........... (4,000) (4,000) (4,000) Recognized loss............................... 3,000 2,000 2,000 Curtailment (gain)/loss....................... 16,000 -- (5,000) -------- --------- --------- Net periodic benefit cost.................... $ 45,000 $ 32,000 $ 31,000 ======== ========= ========= Other Postretirement Benefit Costs - ---------------------------------- Service cost.................................. $ 41,000 $ 38,000 $ 34,000 Interest cost on accumulated benefit obligation................................... 82,000 78,000 76,000 Expected return on plan assets................ (76,000) (69,000) (61,000) Amortization of transition obligation......... 22,000 22,000 22,000 Amortization of prior service cost............ 4,000 4,000 4,000 Recognized gain............................... (14,000) (14,000) (13,000) Severance plan cost........................... 1,000 6,000 8,000 Curtailment loss.............................. 35,000 -- -- -------- --------- --------- Net periodic benefit cost.................... $ 95,000 $ 65,000 $ 70,000 ======== ========= =========
In accounting for the pension costs and other postretirement benefit costs under the plans, the following weighted average actuarial assumptions were used for the periods during 1999, 1998 and 1997:
Other Pension Benefits Postretirement Benefits ----------------- ----------------------- 1999 1998 1997 1999 1998 1997 ----- ----- ----- ------- ------- ------- Annual discount rate................. 6.75% 7.00% 7.50% 6.75% 7.00% 7.50% Annual long-term rate of return on plan assets......................... 9.25% 9.50% 9.75% 8.97% 9.20% 9.40% Annual rate of increase in future compensation levels................. 4.00% 4.00% 4.00% -- -- --
The pension curtailment gain in December 1997 represents the recognition of prior service costs, the transition asset and the decrease in the projected benefit obligation related to the reduction in the number of employees due to Indiana Company's sale of State Line Station. The pension and other postretirement benefit curtailment losses in December 1999 represent the recognition of prior service costs and transition obligations, and an increase in the benefit obligations resulting from special termination benefits, related to the reduction in the number of employees due to ComEd's sale of the fossil stations. F-53 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued The health care cost trend rates used to measure the expected cost of the postretirement medical benefits are assumed to be 8.0% for pre-Medicare recipients and 6.0% for Medicare recipients for 1999. Those rates are assumed to decrease in 0.5% annual increments to 5% for the years 2005 and 2001, respectively, and to remain level thereafter. The health care cost trend rates, used to measure the expected cost of postretirement dental and vision benefits, are a level 3.5% and 2.0% per year, respectively. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one percentage point change in the assumed health care cost trend rates would have the following effects:
1 Percentage 1 Percentage Point Increase Point Decrease -------------- -------------- (Thousands of Dollars) Effect on total 1999 service and interest cost components...................................... $ 26,000 $ (20,000) Effect on postretirement benefit obligation as of December 31, 1999............................... 190,000 (151,000)
In addition, an employee savings and investment plan is available to eligible employees of ComEd and certain of its and Unicom's subsidiaries. Under the plan, each participating employee may contribute up to 20% of such employee's base pay and the participating companies match the first 6% of such contribution equal to 100% of the first 2% of contributed base salary, 70% of the next 3% of contributed base salary and 25% of the next 1% of contributed base salary. The participating companies' contributions were $32 million, $32 million and $33 million for the years 1999, 1998 and 1997, respectively. (17) Separation Plan Costs. O&M expenses included $10 million, $48 million and $39 million for the years 1999, 1998 and 1997, respectively, for costs related to voluntary separation offers to certain employees of ComEd and Indiana Company, as well as certain other employee-related costs. Such costs resulted in charges of $6 million (after-tax), or $0.03 per common share (diluted), $29 million (after-tax), or $0.13 per common share (dilutive) and $24 million (after-tax), or $0.11 per common share (diluted), for the years 1999, 1998 and 1997, respectively. See Note 5 regarding employee separation costs related to the fossil plant sale. (18) Income Taxes. The components of the net deferred income tax liability at December 31, 1999 and 1998 were as follows:
December 31 ---------------------- 1999 1998 ---------- ---------- (Thousands of Dollars) Deferred income tax liabilities: Accelerated cost recovery and liberalized deprecia- tion, net of removal costs........................... $2,815,972 $4,028,351 Overheads capitalized................................. 159,836 140,922 Repair allowance...................................... 221,502 233,861 Regulatory assets recoverable through future rates.... 688,946 680,356 Deferred income tax assets: Postretirement benefits............................... (376,538) (331,651) Unamortized investment tax credits.................... (161,756) (191,135) Regulatory liabilities to be settled through future rates................................................ (596,157) (595,005) Nuclear plant closure................................. (5,456) (38,354) Other--net............................................ (321,522) (146,224) ---------- ---------- Net deferred income tax liability...................... $2,424,827 $3,781,121 ========== ==========
F-54 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued The $1,356 million decrease in the net deferred income tax liability from December 31, 1998 to December 31, 1999 is comprised of a $1,377 million credit to net deferred income tax expense pertaining primarily to the fossil plant sale, a $7 million increase in regulatory assets net of regulatory liabilities pertaining to income taxes for the period, and $14 million related to other items. The amount of accelerated cost recovery and liberalized depreciation included in deferred income tax liabilities for both periods includes amounts related to the regulatory asset for impaired production plant. The amount of regulatory assets included in deferred income tax liabilities primarily relates to the equity component of AFUDC which is recorded on an after-tax basis, the borrowed funds component of AFUDC which was previously recorded net of tax and other temporary differences for which the related tax effects were not previously recorded. The amount of other regulatory liabilities included in deferred income tax assets primarily relates to deferred income taxes provided at rates in excess of the current statutory rate. The components of net income tax expense charged/(credited) to continuing operations for the years 1999, 1998 and 1997 were as follows:
1999 1998 1997 ---------- -------- --------- (Thousands of Dollars) Operating income: Current income taxes........................ $1,762,281 $304,889 $ 255,057 Deferred income taxes....................... (1,403,083) 50,134 62,501 Investment tax credits deferred--net........ (25,828) (27,730) (31,015) Other (income) and deductions: Current income taxes........................ 457 (51,816) 1,116 Deferred income taxes....................... 25,739 59,458 (385,994) Investment tax credits...................... (51,740) (12,107) (22,526) ---------- -------- --------- Net income taxes charged/(credited) to con- tinuing operations.......................... $ 307,826 $322,828 $(120,861) ========== ======== =========
Provisions for current and deferred federal and state income taxes and amortization of investment tax credits resulted in the following effective income tax rates for the years 1999, 1998 and 1997:
1999 1998 1997 -------- -------- --------- (Thousands of Dollars) Net income/(loss) before extraordinary items.... $597,245 $510,184 $(239,215) Net income taxes charged/(credited) to continu- ing operations................................. 307,826 322,828 (120,861) Provision for dividends on ComEd preferred and preference stocks.............................. 23,756 56,884 60,486 -------- -------- --------- Pre-tax income/(loss) before extraordinary items and provision for dividends.................... $928,827 $889,896 $(299,590) -------- -------- --------- Effective income tax rate....................... 33.1% 36.3% 40.3% ======== ======== =========
The principal differences between net income taxes charged/(credited) to continuing operations and the amounts computed at the federal statutory rate of 35% for the years 1999, 1998 and 1997 were as follows:
1999 1998 1997 -------- -------- --------- (Thousands of Dollars) Federal income taxes computed at statutory rate. $325,089 $311,464 $(104,857) Equity component of AFUDC which was excluded from taxable income............................ (436) (390) (8,320) Amortization of investment tax credits, net of deferred income taxes.......................... (48,216) (25,503) (53,541) State income taxes, net of federal income taxes. 45,882 40,899 (682) Unrealized loss/(gain) on forward share repurchase contract............................ 15,390 -- -- Earnings on nontax-qualified decommissioning fund........................................... (8,915) -- -- Differences between book and tax accounting, primarily property-related deductions.......... (20,968) (3,642) 46,539 -------- -------- --------- Net income taxes charged/(credited) to continuing operations.......................... $307,826 $322,828 $(120,861) ======== ======== =========
F-55 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued (19) Taxes, Except Income Taxes. Provisions for taxes, except income taxes, for the years 1999, 1998 and 1997 were as follows:
1999 1998 1997 -------- -------- -------- (Thousands of Dollars) Illinois public utility revenue...................... $ 981 $114,981 $228,350 Illinois invested capital............................ -- -- 99,503 Illinois electricity distribution tax................ 114,241 110,026 -- Municipal utility gross receipts..................... 99,701 152,501 168,094 Real estate.......................................... 115,208 125,521 151,508 Municipal compensation............................... 73,349 89,210 78,286 Energy assistance and renewable energy charge........ 34,423 32,736 -- Other--net........................................... 70,550 74,859 75,145 -------- -------- -------- $508,453 $699,834 $800,886 ======== ======== ========
Effective January 1, 1998, the Illinois invested capital tax was repealed and the Illinois electricity distribution tax was enacted as a replacement. The new tax is based on the kilowatthours delivered to ultimate consumers. The 1997 Act changed the nature of several state and municipal taxes that are collected through customer billings. Before August 1998, the utility taxes were assessed against the utility. Effective August 1998, the utility taxes are assessed on the electric consumer rather than the utility. Accordingly, ComEd records the collections as liabilities and no longer records the taxes collected through billings as revenues and tax expense. The reduction in operating revenues and taxes, except income taxes, due to the change in presentation for such taxes was approximately $174 million in 1999, compared to 1998, and $110 million in 1998, compared to 1997. This change in presentation for such taxes did not have an effect on operations. See Note 22 for additional information regarding Illinois invested capital taxes. (20) Lease Obligations of Subsidiary Companies. Under its nuclear fuel lease arrangement, ComEd may sell and lease back nuclear fuel from a lessor who may borrow an aggregate of $267 million, consisting of intermediate term notes, to finance the transactions. A commercial paper/bank borrowing portion expired on November 23, 1999. With respect to the intermediate term notes, $75 million expires on November 23, 2000, $40 million expires on November 23, 2001, $77 million expires on November 23, 2002 and $75 million expires on November 23, 2003. At December 31, 1999, ComEd's obligation to the lessor for leased nuclear fuel amounted to approximately $270 million. ComEd has agreed to make lease payments which cover the amortization of the nuclear fuel used in ComEd's reactors plus the lessor's related financing costs. ComEd has an obligation for spent nuclear fuel disposal costs of leased nuclear fuel. As of December 31, 1999, future minimum rental payments, net of executory costs, for capital leases are estimated to aggregate to $298 million, including $121 million in 2000, $96 million in 2001, $48 million in 2002 and $33 million in 2003. The estimated interest component of such rental payments aggregates $27 million. The estimated portions of obligations due within one year under capital leases of $108 million and $195 million at December 31, 1999 and 1998, respectively, were included in current liabilities on the Consolidated Balance Sheets. Future minimum rental payments at December 31, 1999 for operating leases are estimated to aggregate to $305 million, including $33 million in 2000, $27 million in 2001, $27 million in 2002, $24 million in 2003, $23 million in 2004 and $171 million in 2005-2043. (21) Joint Plant Ownership. ComEd has a 75% undivided ownership interest in the Quad Cities nuclear generating station. Further, ComEd is responsible for 75% of all costs which are F-56 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued charged to appropriate investment and O&M accounts, and provides its own financing. ComEd's net plant investment, including construction work in progress, in Quad Cities Station on the Consolidated Balance Sheets was $22 million at December 31, 1999, after reflecting the accounting impairment recorded in the second quarter of 1998. See Note 1, under "Regulatory Assets and Liabilities," for additional information. (22) Commitments and Contingent Liabilities. Purchase commitments, principally related to construction, nuclear fuel, and coal in support of certain power purchase agreements approximated $799 million at December 31, 1999, comprised of $670 million for ComEd, $27 million for UT Holdings, $24 million for Unicom Energy Services and $78 million for Unicom Power Holdings. In addition, ComEd has substantial commitments for expected capacity payments and fixed charges related to power purchase agreements. Upon completion of the fossil plant sale with EME, ComEd entered into arrangements to assign or settle a substantial portion of its coal purchase commitments and entered into purchase power agreements with EME. See "Management's Discussion and Analysis of Financial Condition and Results of Operations," subcaption "Liquidity and Capital Resources--UTILITY OPERATIONS--Construction Program," for additional information regarding ComEd's purchase commitments. ComEd is a member of NEIL which provides insurance coverage against property damage and associated replacement power costs occurring at members' nuclear generating facilities. All companies insured with NEIL are subject to retrospective premium adjustments if losses exceed accumulated reserve funds. Capital has been accumulated in the reserve funds such that ComEd would not be liable for any single incident. However, ComEd could be subject to assessments in any policy year for each of three types of coverage provided. The maximum assessments are approximately $53 million for primary property damage, $73 million for excess property damage and $22 million for replacement power. The NRC's indemnity for public liability coverage under the Price-Anderson Act is supported by a mandatory industry-wide program under which owners of nuclear generating facilities could be assessed in the event of nuclear incidents. Based on the number of nuclear reactors with operating licenses, ComEd would currently be subject to a maximum assessment of $1,145 million in the event of an incident, limited to a maximum of $130 million in any calendar year. In addition, ComEd participates in the American Nuclear Insurers Master Worker Program, which provides coverage for worker tort claims filed for bodily injury caused by the nuclear energy hazard. This program was modified, effective January 1, 1998, to provide coverage to all workers whose "nuclear- related employment" began on or after the commencement date of reactor operations. ComEd will not be liable for a retrospective assessment under this new policy. However, ComEd is still subject to a maximum retroactive assessment of up to $36 million in the event losses incurred under the small number of policies in the old program exceed accumulated reserves. Three of ComEd's wholesale municipal customers filed a complaint and request for refund with the FERC alleging that ComEd failed to properly adjust their rates, as provided for under the terms of their electric service contracts, to track certain refunds made to ComEd's retail customers in the years 1992 through 1994. In the third quarter of 1998, the FERC granted the complaint and directed that refunds be made, with interest. ComEd filed and was granted a request for rehearing for purposes of reconsideration with the FERC. If the order is upheld, ComEd must make refunds within 15 days of the resolution for rehearing. ComEd's management believes an adequate reserve has been established in connection with this case. F-57 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued During 1989 and 1991, actions were brought in federal and state courts in Colorado against ComEd and Cotter seeking unspecified damages and injunctive relief based on allegations that Cotter has permitted radioactive and other hazardous material to be released from its mill into areas owned or occupied by the plaintiffs resulting in property damage and potential adverse health effects. With respect to Cotter, in 1994 a federal jury returned nominal dollar verdicts against Cotter on eight plaintiffs' claims in the 1989 cases, which verdicts were upheld on appeal. The remaining claims in the 1989 actions have been settled and dismissed. On July 15, 1998, a jury verdict was rendered in Dodge v. Cotter (United States District Court for the District of Colorado, Civil Action No. 91-Z-1861), a case relating to 14 of the plaintiffs in the 1991 cases. The verdict against Cotter and in favor of the plaintiff, after an amended judgement was issued March 11, 1999, totaled approximately $6 million, including compensatory and punitive damages, interest, and medical monitoring. On February 11, 2000, the Tenth Circuit Court of Appeals agreed with Cotter, found that the trial judge had erred in critical rulings and reversed the jury verdict, remanding the case for new trial. A case involving the next group of plaintiffs is set for trial in federal district court in Denver on October 2, 2000. Although ComEd sold its investment in Cotter in February 2000, ComEd will continue to be liable for any court verdicts in favor of the plaintiffs. The other 1991 cases will necessarily involve the resolution of numerous contested issues of law and fact. It is Unicom and ComEd's assessment that these actions will not have a material impact on their financial position or results of operations. In August 1999, three class action lawsuits were filed against ComEd related to a series of service interruptions during the summer of 1999. The combined effect of these events resulted in over 100,000 customers losing service. On August 12, 1999, service was interrupted to ComEd customers on the near north and near west side of the City's central business district. While major commercial customers were affected, all service was restored on the same date. The class action complaints have been consolidated and seek to recover damages for personal injuries and property damage, as well as economic loss for these events. Further, ComEd initiated expedited claim settlements for those with primarily food spoilage claims. Conditional class certification has been approved by the Court for the sole purpose of exploring settlement talks. The lawsuits are pending in the Circuit Court of Cook County. ComEd has filed a motion challenging the legal sufficiency of the consolidated complaints. The plaintiff's response is due April 14, 2000 and any reply by ComEd is due May 12, 2000. The motion to dismiss is currently scheduled to be argued on May 23, 2000. ComEd's management believes adequate reserves have been established in connection with these cases. Following the above-referenced series of service interruptions, the ICC opened a three-phase investigation of the design and reliability of ComEd's transmission and distribution system. At the conclusion of each phase of the investigation, the ICC will issue a report that will include specific recommendations for ComEd and a timetable for executing the recommendations. Hearings on Phase I of the investigation were held the week of January 3, 2000, which focused on the outages of July and August 1999. Reports on Phase II and Phase III, focusing on the transmission and distribution system generally, are anticipated in the second quarter of 2000. The final phase of the investigation is expected to conclude in early 2001. ComEd is involved in administrative and legal proceedings concerning air quality, water quality and other matters. The outcome of these proceedings may require increases in future construction expenditures and operating expenses and changes in operating procedures. ComEd and its subsidiaries are or are likely to become parties to proceedings initiated by the U.S. EPA, state agencies and/or other responsible parties under CERCLA with respect to a number of sites, including MGP sites, or may voluntarily undertake to investigate and remediate sites for which they may be liable under CERCLA. F-58 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued ComEd generally did not operate MGPs as a corporate entity but did, however, acquire MGP sites as part of the absorption of smaller utilities. Approximately half of these sites were transferred to then Northern Illinois Gas Company (Nicor Gas) as part of a general conveyance in 1954. ComEd also acquired former MGP sites as vacant real estate on which ComEd facilities have been constructed. To date, ComEd has identified 44 former MGP sites for which it may be liable for remediation. In the fourth quarter of 1999, ComEd re- evaluated its environmental remediation strategies. As a result of this re- evaluation, ComEd's current best estimate of its cost of former MGP site investigation and remediation is $93 million in current-year (2000) dollars (reflecting a discount rate of 6.5%). Such estimate, reflecting an estimated inflation rate of 3% and before the effects of discounting, is $182 million. It is expected that the costs associated with investigation and remediation of former MGP sites will be substantially incurred through 2012, however monitoring and certain other costs are expected to be incurred through 2042. ComEd's current estimate of its costs of former MGP site investigation and remediation of $93 million has been included in other noncurrent liabilities on the Consolidated Balance Sheets as of December 31, 1999. The increase in ComEd's estimated costs of former MGP sites of $68 million in 1999 over 1998 was included in operation and maintenance expenses on Unicom and ComEd's Statements of Consolidated Operations. In addition, as of December 31, 1999 and 1998, a reserve of $8 million has been included in other noncurrent liabilities on the Consolidated Balance Sheets, representing ComEd's estimate of the liability associated with cleanup costs of sites other than former MGP sites. These cost estimates are based on currently available information regarding the responsible parties likely to share in the costs of responding to site contamination, the extent of contamination at sites for which the investigation has not yet been completed and the cleanup levels to which sites are expected to have to be remediated. While ComEd may have rights of reimbursement under insurance policies, amounts that may be recoverable from other entities are not considered in establishing the estimated liability for the environment remediation costs. The IDR has issued Notices of Tax Liability to ComEd alleging deficiencies in Illinois invested capital tax payments for the years 1988 through 1997. The alleged deficiencies, including interest and penalties, totaled approximately $52 million as of December 31, 1999. ComEd has protested the notices, and the matter is currently pending before the IDR's Office of Administrative Hearings. Interest will continue to accumulate on the alleged tax deficiencies. On March 22, 1999, ComEd reached a settlement agreement with the City to end the arbitration proceeding between ComEd and the City regarding the January 1, 1992 franchise agreement and a supplemental agreement between them. Under the terms of the settlement agreement, the pending arbitration is to be dismissed with prejudice and the City is to release ComEd from all claims the City may have under the supplemental agreement. The settlement agreement was approved by the City Council on May 12, 1999. As part of the settlement agreement, ComEd and the City have agreed to a revised combination of ongoing work under the franchise agreement and new initiatives that will result in defined transmission and distribution expenditures by ComEd to improve electric service in the City. The settlement agreement provides that ComEd will be subject to liquidated damages if the projects are not completed by various dates, unless it is prevented from doing so by events beyond its reasonable control. ComEd's current construction budget considers these projects. In addition, ComEd and the City established an Energy Reliability and Capacity Account, into which ComEd deposited $25 million following the effectiveness of the settlement agreement and ComEd has conditionally agreed to deposit up to $25 million at the end of each of the years 2000, 2001 and 2002, to help ensure an adequate and reliable electric supply for the City. F-59 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued The 1997 Act also committed ComEd to spend at least $2 billion from 1999 through 2004 on transmission and distribution facilities outside of the City. (23) Segment Reporting. Unicom's reportable operating segments as determined under SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" include its regulated electric utility and its unregulated business operations. Unicom's reportable segments are managed separately because of their different regulatory and operating environments. Unicom evaluates their performance based on net income. ComEd is an electric utility which is engaged in the generation, purchase, transmission, distribution and sale of electric energy in Northern Illinois. ComEd's rates and services are subject to federal and state regulations. Unicom's unregulated business operations, including energy services and development of new business ventures, are not subject to utility regulation by federal or state agencies. Prior to 1999, unregulated business operations were predominately in a developmental stage and did not meet the revenue, asset or net income criteria for a reportable segment under SFAS 131. However, as a result of the December 1999 fossil plant sale, as described in Note 5, the assets of unregulated businesses exceeded 10% of Unicom's total assets and, as such, constitute a reportable segment. The assets of the unregulated businesses include $2.2 billion at December 31, 1999 representing special deposits and unused cash proceeds resulting from the fossil plant sale. The assets of the unregulated businesses also include receivables of $813 million recorded in connection with forward share repurchase arrangements as discussed in Note 7. F-60 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Concluded The accounting policies of the segments are the same as those described in Note 1. Unicom's financial data for business segments are as follows:
Electric Unregulated Reconciliation Utility Businesses & Elimination Total ----------- ----------- -------------- ----------- 1999 (Thousands of Dollars) Operating Revenue......... $ 6,766,892 $ 107,729 $ (26,674) $ 6,847,947 Intersegment Revenue...... $ 9,434 $ 17,240 $ (26,674) $ -- Depreciation, Amortization and Decommissioning...... $ 836,145 $ 7,103 $ -- $ 843,248 Interest and Dividend Income................... $ 60,231 $ 8,957 $ (10,646) $ 58,542 Interest Expense--Net..... $ 545,352 $ 28,858 $ (10,646) $ 563,564 Income Tax Expense/(Benefit)........ $ 352,222 $ (20,107) $ -- $ 332,115 Net Income/(Loss)......... $ 622,729 $ (29,307) $ (23,756) $ 569,666 Total Assets.............. $23,160,265 $3,720,376 $(3,474,608) $23,406,033 Capital Expenditures...... $ 1,083,398 $ 120,666 $ -- $ 1,204,064 1998 Operating Revenue......... $ 7,088,542 $ 20,967 $ (6,099) $ 7,103,410 Intersegment Revenue...... $ 6,099 $ -- $ (6,099) $ -- Depreciation, Amortization and Decommissioning...... $ 937,604 $ 5,684 $ -- $ 943,288 Interest and Dividend Income................... $ 15,450 $ 4,755 $ (1,573) $ 18,632 Interest Expense--Net..... $ 450,162 $ 15,293 $ (1,573) $ 463,882 Income Tax Expense/(Benefit)........ $ 378,423 $ (28,374) $ -- $ 350,049 Net Income/(Loss)......... $ 594,206 $ (27,138) $ (56,884) $ 510,184 Total Assets.............. $25,450,577 $ 389,792 $ (149,896) $25,690,473 Capital Expenditures...... $ 945,342 $ 21,152 $ -- $ 966,494 1997 Operating Revenue......... $ 7,073,088 $ 14,331 $ (4,397) $ 7,083,022 Intersegment Revenue...... $ 4,397 $ -- $ (4,397) $ -- Depreciation, Amortization and Decommissioning...... $ 1,001,149 $ 3,940 $ -- $ 1,005,089 Interest and Dividend Income................... $ 4,911 $ 3,590 $ (1,002) $ 7,399 Interest Expense--Net..... $ 487,664 $ 10,505 $ (1,002) $ 497,167 Income Tax Expense/(Benefit)........ $ 327,061 $ (20,513) $ -- $ 306,548 Net Income/(Loss)......... $ (773,773) $ (18,591) $ (60,486) $ (852,850) Total Assets.............. $22,458,403 $ 352,161 $ (110,814) $22,699,750 Capital Expenditures...... $ 969,626 $ 73,685 $ -- $ 1,043,311
(24) Subsequent Event. In January 2000, Unicom physically settled the forward share repurchase arrangements it had with financial institutions for the repurchase of 26.3 million Unicom common shares. Prior to settlement, the repurchase arrangements were recorded as a receivable on Unicom's Consolidated Balance Sheets based on the aggregate market value of the shares under the arrangements. In 1999, net unrealized losses of $44 million (after-tax), or $0.20 per common share were recorded related to the arrangements. The settlement of the arrangements in January 2000 resulted in a gain of $113 million (after-tax), which will be recorded in the first quarter of 2000. The settlement of the arrangements will also result in a reduction in Unicom's outstanding common shares and common stock equity, effective January 2000. F-61 SCHEDULE II UNICOM CORPORATION AND SUBSIDIARY COMPANIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS (Thousands of Dollars) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Column A Column B Column C Column D Column E - ---------------------------- --------- ----------------- ---------- -------- Additions ----------------- Balance Charged at to Costs Charged Balance Beginning and to Other at End Description of Year Expenses Accounts Deductions of Year - ---------------------------- --------- -------- -------- ---------- -------- For the Year Ended December 31, 1997 - ---------------------------- Reserve Deducted From Assets in Consolidated Balance Sheet: Provision for uncollectible accounts.................. $ 12,893 $ 53,756 $ -- $ (49,105) $ 17,544 ======== ======== ====== ========= ======== Estimated obsolete materi- als....................... $ 12,302 $ 62,000 $ -- $ (32,559) $ 41,743 ======== ======== ====== ========= ======== Other Reserves: Estimated closing costs for Zion Station (c).......... $ -- $194,000 $ -- $ -- $194,000 ======== ======== ====== ========= ======== Estimated liabilities asso- ciated with remediation costs and former manufac- tured gas plant sites..... $ 32,522 $ 2,410 $ -- $ (2,910)(a) $ 32,022 ======== ======== ====== ========= ======== Accumulated provision for injuries and damages...... $ 53,972 $ 8,565 $4,939 $ (18,213)(b) $ 49,263 ======== ======== ====== ========= ======== For the Year Ended December 31, 1998 - ---------------------------- Reserve Deducted From Assets in Consolidated Balance Sheet: Provision for uncollectible accounts.................. $ 17,544 $ 62,059 $ -- $ (30,958) $ 48,645 ======== ======== ====== ========= ======== Estimated obsolete materi- als....................... $ 41,743 $ 23,945 $ -- $ (41,928) $ 23,760 ======== ======== ====== ========= ======== Other Reserves: Estimated closing costs for Zion Station (c).......... $194,000 $ -- $ -- $(114,970) $ 79,030 ======== ======== ====== ========= ======== Estimated liabilities asso- ciated with remediation costs and former manufac- tured gas plant sites..... $ 32,022 $ 6,950 $ -- $ (6,950)(a) $ 32,022 ======== ======== ====== ========= ======== Accumulated provision for injuries and damages...... $ 49,263 $ 10,114 $8,875 $ (20,796)(b) $ 47,456 ======== ======== ====== ========= ======== For the Year Ended December 31, 1999 - ---------------------------- Reserve Deducted From Assets in Consolidated Balance Sheet: Provision for uncollectible accounts.................. $ 48,645 $ 90,254 $ -- $ (88,085) $ 50,814 ======== ======== ====== ========= ======== Estimated obsolete materi- als....................... $ 23,760 $ 19,263 $ -- $ (15,968) $ 27,055 ======== ======== ====== ========= ======== Other Reserves: Estimated closing costs for Zion Station (c).......... $ 79,030 $ -- $ -- $ (79,030) $ -- ======== ======== ====== ========= ======== Estimated liabilities asso- ciated with remediation costs and former manufac- tured gas plant sites..... $ 32,022 $ 73,729 $ -- $ (5,651)(a) $100,100 ======== ======== ====== ========= ======== Accumulated provision for injuries and damages...... $ 47,456 $ 27,868 $6,477 $ (27,204)(b) $ 54,597 ======== ======== ====== ========= ========
Notes: (a) Expenditures for site investigation and remediation costs. (b) Payments of claims and related costs. (c) Estimated closing costs related to the permanent cessation of nuclear generation operations and retirement of facilities at ComEd's Zion Station. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- F-62 EX-4.22 2 CREDIT AGREEMENT DATED 12/17/99 $300,000,000 Exhibit (4)-22 Commonwealth Edison Company Form 10-K File No. 1-1839 ________________________________________________________________________________ $300,000,000 3-YEAR CREDIT AGREEMENT Dated as of December 17, 1999 Among COMMONWEALTH EDISON COMPANY as Borrower and THE BANKS NAMED HEREIN as Banks and CITIBANK, N.A. as Administrative Agent ________________________________________________________________________________ TABLE OF CONTENTS
Section Page ARTICLE I DEFINITIONS AND ACCOUNTING TERMS Section 1.01. Certain Defined Terms.................................... 1 Section 1.02. Computation of Time Periods.............................. 14 Section 1.03. Computations of Outstandings............................. 14 Section 1.04. Accounting Terms......................................... 14 ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES Section 2.01. The A Advances........................................... 14 Section 2.02. Making the A Advances.................................... 15 Section 2.03. The B Advances........................................... 16 Section 2.04. Fees..................................................... 19 Section 2.05. Reduction of the Commitments............................. 19 Section 2.06. Repayment of A Advances.................................. 20 Section 2.07. Interest on A Advances................................... 20 Section 2.08. Additional Interest on Eurodollar Rate Advances.......... 20 Section 2.09. Interest Rate Determination.............................. 21 Section 2.10. Voluntary Conversion of A Advances....................... 22 Section 2.11. Optional Prepayments of A Advances....................... 23 Section 2.12. Mandatory Prepayments.................................... 23 Section 2.13. Increased Costs.......................................... 24 Section 2.14. Illegality............................................... 24 Section 2.15. Payments and Computations................................ 25 Section 2.16. Taxes.................................................... 26 Section 2.17. Sharing of Payments, Etc................................. 28 Section 2.18. Extension of Termination Date............................ 28 ARTICLE III CONDITIONS OF LENDING Section 3.01. Conditions Precedent to Closing.......................... 29 Section 3.02. Conditions Precedent to Each A Borrowing................. 31 Section 3.03. Conditions Precedent to Each B Borrowing................. 31 Section 3.04 Conditions Precedent to Each Extension of the Termination Date..................................................... 32 Section 3.05. Reliance on Certificates................................. 33
i ARTICLE IV REPRESENTATIONS AND WARRANTIES Section 4.01. Representations and Warranties of the Borrower........... 33 ARTICLE V COVENANTS OF THE BORROWER Section 5.01. Affirmative Covenants.................................... 35 Section 5.02. Negative Covenants....................................... 39 ARTICLE VI EVENTS OF DEFAULT Section 6.01. Events of Default........................................ 42 ARTICLE VII THE ADMINISTRATIVE AGENT Section 7.01. Authorization and Action................................. 44 Section 7.02. Administrative Agent's Reliance, Etc..................... 45 Section 7.03. Citibank, N.A. and Affiliates............................ 45 Section 7.04. Lender Credit Decision................................... 45 Section 7.05. Indemnification.......................................... 45 Section 7.06. Successor Administrative Agent........................... 46 ARTICLE VIII MISCELLANEOUS Section 8.01. Amendments, Etc.......................................... 46 Section 8.02. Notices, Etc............................................. 47 Section 8.03. No Waiver; Remedies...................................... 47 Section 8.04. Costs, Expenses, Taxes and Indemnification............... 48 Section 8.05. Right of Set-off......................................... 49 Section 8.06. Binding Effect........................................... 49 Section 8.07. Assignments and Participations........................... 50 Section 8.08. Confidentiality.......................................... 53 Section 8.09. Waiver of Jury Trial..................................... 53 Section 8.11. Governing Law............................................ 53 Section 8.12. Relation of the Parties; No Beneficiary.................. 54 Section 8.13. Execution in Counterparts................................ 54
ii SCHEDULES --------- Schedule I: Commitment Allocations EXHIBITS -------- Exhibit 1.01A-1: Form of A Note Exhibit 1.01A-2: Form of B Note Exhibit 2.02(a): Form of Notice of A Borrowing Exhibit 2.03(a)(i): Form of Notice of B Borrowing Exhibit 2.10: Form of Notice of Conversion Exhibit 2.18(a): Form of Request for Extension of the Termination Date Exhibit 3.01(a)(viii)-1: Form of Opinion of Counsel to the Borrower Exhibit 3.01(a)(viii)-2: Form of Opinion of Counsel to the Agent Exhibit 8.07: Form of Lender Assignment iii CREDIT AGREEMENT Dated as of December 17, 1999 THIS 3-YEAR CREDIT AGREEMENT (this "Agreement") is made by and among: (i) COMMONWEALTH EDISON COMPANY, an Illinois corporation (the "Borrower"), (ii) the banks (the "Banks") listed on the signature pages hereof and the other Lenders (as hereinafter defined) from time to time party hereto, and (iii) CITIBANK, N.A. ("Citibank"), as agent (the "Administrative Agent") for the Lenders hereunder. ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "A Advance" means an advance by a Lender to the Borrower as part of an A Borrowing and refers to a Base Rate Advance or a Eurodollar Rate Advance, each of which shall be a "Type" of A Advance. "A Borrowing" means a borrowing consisting of simultaneous A Advances of the same Type, having the same Interest Period and ratably made or Converted on the same day by each of the Lenders pursuant to Section 2.02 or 2.10, as the case may be. All Advances of the same Type, having the same Interest Period and made or Converted on the same day shall be deemed a single Borrowing hereunder until repaid or next Converted. "A Note" means a promissory note of the Borrower payable to the order of any Lender, in substantially the form of Exhibit 1.01A-1 hereto, evidencing the aggregate indebtedness of the Borrower to such Lender resulting from the A Advances made by such Lender. "Advance" means an A Advance or a B Advance. 2 "Affiliate" means, with respect to any Person, any other Person directly or indirectly controlling (including but not limited to all directors and any officer who possesses the power described in the next sentence), controlled by, or under direct or indirect common control with such Person. A Person shall be deemed to control another entity if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such entity, whether through the ownership of voting securities, by contract, or otherwise. "Alternate Base Rate" means a fluctuating interest rate per annum as shall be in effect from time to time which rate per annum shall at all times be equal to the higher of: (i) the rate of interest announced publicly by Citibank, N.A. in New York, New York, from time to time, as Citibank, N.A.'s base rate; and (ii) for the period from the date of the Closing through (and including) January 31, 2000, a rate equal to 2% per annum above the Federal Funds Rate, and thereafter, 1/2 of one percent per annum above the Federal Funds Rate. Each change in the Alternate Base Rate shall take effect concurrently with any change in such base rate or the Federal Funds Rate. "Applicable Lending Office" means, with respect to each Lender, such Lender's Domestic Lending Office in the case of a Base Rate Advance and such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate Advance and, in the case of a B Advance, the office of such Lender notified by such Lender to the Administrative Agent as its Applicable Lending Office with respect to such B Advance. "Applicable Margin" means, on any date, for a Eurodollar Rate Advance or Base Rate Advance, the number of basis points set forth below in the columns identified as Level 1, Level 2, Level 3, Level 4 and Level 5, as determined by reference to the lower of the ratings issued by S&P or Moody's, by reference to the chart below, for non-credit-enhanced long-term senior secured debt of the Borrower (the "Reference Ratings") and in effect on such date.
--------------------------------------------------------------------------------------- Level 1 Level 2 Level 3 Level 4 Level 5 ------------- --------- --------- --------- ------------ S&P A- or better BBB+ BBB BBB- and Lower than Moody's and and and Baa3 Level 4 or A3 or better Baa1 Baa2 unrated --------------------------------------------------------------------------------------- Basis Points Per Annum --------------------------------------------------------------------------------------- Eurodollar Rate Advance 37.50 60.00 67.50 75.00 150.00 --------------------------------------------------------------------------------------- Base Rate Advance 0 0 0 0 0 ---------------------------------------------------------------------------------------
The Applicable Margin shall increase (a)(i) by 12.50 basis points for any Reference Rating designated as Level 1, Level 2 or Level 3 and (ii) by 25.00 basis points for any 3 Reference Rating designated as Level 4 and (iii) by 50.00 basis points for any Reference Rating designated as Level 5, in each case, at any time that more than 50% of the Commitments are utilized, and (b) by 50.00 basis points at any time any Advance is outstanding during the period from the date of the Closing through (and including) January 31, 2000. Any change in the Reference Ratings shall effect an immediate change in the Applicable Margin. "Applicable Rate" means: (i) in the case of each Base Rate Advance, a rate per annum equal at all times to the sum of the Alternate Base Rate in effect from time to time plus the Applicable Margin in effect from time to time; and (ii) in the case of each Eurodollar Rate Advance comprising part of the same A Borrowing, a rate per annum during each Interest Period equal at all times to the sum of the Eurodollar Rate for such Interest Period plus the Applicable Margin in effect from time to time during such Interest Period. "Available Commitment" means, for each Lender at any time on any day, the unused portion of such Lender's Commitment, computed after giving effect to all Extensions of Credit made or to be made on such day, the application of proceeds therefrom and all prepayments and repayments of Advances made on such day. "Available Commitments" means the aggregate of the Lenders' Available Commitments hereunder. "B Advance" means an advance by a Lender to the Borrower as part of a B Borrowing resulting from the auction bidding procedure described in Section 2.03. "B Borrowing" means a borrowing consisting of simultaneous B Advances from each of the Lenders whose offer to make one or more B Advances as part of such borrowing has been accepted by the Borrower under the auction bidding procedure described in Section 2.03. "B Note" means a promissory note of the Borrower payable to the order of any Lender, in substantially the form of Exhibit 1.01A-2 hereto, evidencing the aggregate indebtedness of the Borrower to such Lender resulting from a B Advance made by such Lender. "B Reduction" has the meaning assigned to that term in Section 2.01. "Base Rate Advance" means an A Advance that bears interest as provided in Section 2.07(a). 4 "Borrowing" means an A Borrowing or a B Borrowing. Any A Borrowing consisting of A Advances of a particular Type may be referred to as being an A Borrowing of such "Type". "Business Day" means a day of the year on which banks are not required or authorized to close in New York City or Chicago, Illinois, and, if the applicable Business Day relates to any Eurodollar Rate Advance, on which dealings are carried on in the London interbank market. "Capitalized Lease Obligations" means obligations to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real and/or personal property which obligation is required to be classified and accounted for as a capital lease on a balance sheet prepared in accordance with GAAP, and for purposes hereof the amount of such obligations shall be the capitalized amount determined in accordance with GAAP. "Change of Control" means the occurrence, after the date of this Agreement, of (i) any Person or two or more Persons acting in concert acquiring beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended), directly or indirectly, of securities of the Borrower (or other securities convertible into such securities) representing 50% or more of the combined voting power of all securities of the Borrower entitled to vote in the election of directors; or (ii) commencing after the date of this Agreement, individuals who as of the date of this Agreement were directors ceasing for any reason to constitute a majority of the Board of Directors of the Borrower unless the Persons replacing such individuals were nominated by the stockholders or the Board of Directors of the Borrower in accordance with the Borrower's Bylaws; or (iii) any Person or two or more Persons acting in concert acquiring by contract or otherwise, or entering into a contract or arrangement which upon consummation will result in its or their acquisition of, or control over, securities of the Borrower (or other securities convertible into such securities) representing 50% or more of the combined voting power of all securities of the Borrower entitled to vote in the election of directors, provided that in the case of this clause (iii) any such occurrence shall represent a Change of Control only 90 days after the Borrower has entered into such arrangement; provided, however, that the proposed merger or consolidation of Unicom Corporation into and with Newholdco Corporation pursuant to the terms and conditions of the Unicom/PECO Merger Agreement shall not constitute a Change of Control. "Closing" means the day upon which each of the applicable conditions precedent enumerated in Section 3.01 shall be fulfilled to the satisfaction of, or waived with the consent of, the Lenders, the Administrative Agent and the Borrower. All transactions contemplated by the Closing shall take place on a Business Day on or prior to December 17, 1999, at the offices of King & Spalding, 1185 Avenue of the Americas, New York, New York 10036, at 10:00 a.m., or such later Business Day as the parties hereto may mutually agree. 5 "Commitment" means, for each Lender, the obligation of such Lender to make Advances to the Borrower in an amount no greater than the amount set forth on Schedule I hereto or, if such Lender has entered into one or more Lender Assignments, set forth for such Lender in the Register maintained by the Administrative Agent pursuant to Section 8.07(c), in each such case as such amount may be reduced from time to time pursuant to Section 2.05. "Commitments" means the total of the Lenders' Commitments hereunder. The Commitments shall in no event exceed $300,000,000. "Consolidated Capital" means, with respect to any Person, at any date of determination, the sum of (a) Consolidated Debt of such Person, (b) consolidated equity of the common stockholders of such Person and its Consolidated Subsidiaries, (c) consolidated equity of the preference stockholders of such Person and its Consolidated Subsidiaries, (d) consolidated equity of the preferred stockholders of such Person and its Consolidated Subsidiaries, in each case determined at such date in accordance with GAAP and (e) the aggregate principal amount of Subordinated Deferrable Interest Securities of such Person and its Consolidated Subsidiaries. "Consolidated Debt" means, with respect to any Person, at any date of determination, the aggregate Debt of such Person and its Consolidated Subsidiaries determined on a consolidated basis in accordance with GAAP, but shall not include (i) Nonrecourse Debt of any Subsidiary of the Borrower, (ii) the aggregate principal amount of Subordinated Deferrable Interest Securities of such Person and its Consolidated Subsidiaries and (iii) the aggregate principal amount of Transitional Funding Instruments of such Person and its Consolidated Subsidiaries. "Consolidated Subsidiary" means, with respect to any Person, any Subsidiary of such Person whose accounts are or are required to be consolidated with the accounts of such Person in accordance with generally accepted accounting principles. "Convert", "Conversion" and "Converted" each refers to a conversion of Advances of one Type into Advances of another Type, or to the selection of a new, or the renewal of the same, Interest Period for Advances, as the case may be, pursuant to Section 2.09 or 2.10. "Debt" means, for any Person, any and all indebtedness, liabilities and other monetary obligations of such Person (i) for borrowed money or evidenced by bonds, debentures, notes or other similar instruments, (ii) to pay the deferred purchase price of property or services (except trade accounts payable arising and repaid in the ordinary course of business), (iii) Capitalized Lease Obligations, (iv) under reimbursement or similar agreements with respect to letters of credit (other than trade letters of credit) issued to support indebtedness or obligations of such Person or of others of the kinds referred to in clauses (i) through (iii) above and clause (v) below, (v) reasonably quantifiable obligations under direct guaranties or indemnities, or under support agreements, in respect of, and reasonably quantifiable obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, or to assure an obligee against failure to make payment in respect of, 6 indebtedness or obligations of others of the kinds referred to in clauses (i) through (iv) above, and (vi) in respect of unfunded vested benefits under Plans. In determining Debt for any Person, (A) there shall be included accrued interest on the principal amount thereof to the extent such interest has accrued for more than six months and (B) in the cases of clauses (iv) and (v), such obligation shall be excluded to the extent that the primary obligation has been included under the preceding clauses. "Default Rate" means (i) with respect to the unpaid principal of or interest on any Advance, the greater of (A) 2% per annum above the Applicable Rate in effect from time to time for such Advance and (B) 2% per annum above the Applicable Rate in effect from time to time for Base Rate Advances and (ii) with respect to any other unpaid amount hereunder, 2% per annum above the Applicable Rate in effect from time to time for Base Rate Advances. "Dollars" and the sign "$" each means lawful money of the United States. "Domestic Lending Office" means, with respect to any Lender, the office or affiliate of such Lender specified as its "Domestic Lending Office" opposite its name on Schedule I hereto or in the Lender Assignment pursuant to which it became a Lender, or such other office or affiliate of such Lender as such Lender may from time to time specify in writing to the Borrower and the Administrative Agent. "Eligible Assignee" means (a) a commercial bank or trust company organized under the laws of the United States, or any State thereof; (b) a commercial bank organized under the laws of any other country that is a member of the OECD, or a political subdivision of any such country, provided that such bank is acting through a branch or agency located in the United States; (c) the central bank of any country that is a member of the OECD; and (d) any other commercial bank or other financial institution engaged generally in the business of extending credit or purchasing debt instruments; provided, however, that (A) any such Person shall also (i) have outstanding unsecured long-term indebtedness that is rated A- or better by S&P or A3 or better by Moody's (or an equivalent rating by another nationally-recognized credit rating agency of similar standing if neither of such corporations is then in the business of rating unsecured indebtedness of entities engaged in such businesses) or (ii) have combined capital and surplus (as established in its most recent report of condition to its primary regulator) of not less than $250,000,000 (or its equivalent in foreign currency), (B) any Person described in clause (a), (b), (c) or (d) above, shall, on the date on which it is to become a Lender hereunder, (i) be entitled to receive payments hereunder without deduction or withholding of any United States Federal income taxes (as contemplated by Section 2.16) and (ii) not be incurring any losses, costs or expenses of the type for which such Person could demand payment under Section 2.13, and (C) any Person described in clause (a), (b), (c) or (d) above shall, in addition, be reasonably acceptable to the Administrative Agent and, so long as no Event of Default exists, the Borrower. 7 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" means, with respect to any Person, any trade or business (whether or not incorporated) which is a member of a group of which such Person is a member and which is under common control within the meaning of the regulations under Section 414(b) or (c) of the Internal Revenue Code of 1986, as amended from time to time. "ERISA Event" means (i) the occurrence of a reportable event, within the meaning of Section 4043 of ERISA, unless the 30-day notice requirement with respect thereto has been waived by the PBGC; (ii) the provision by the administrator of any Plan of notice of intent to terminate such Plan, pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); (iii) the cessation of operations at a facility in the circumstances described in Section 4062(e) of ERISA; (iv) the withdrawal by the Borrower or an ERISA Affiliate of the Borrower from a Multiple Employer Plan during a plan year for which it was a "substantial employer", as defined in Section 4001(a)(2) of ERISA; (v) the failure by the Borrower or an ERISA Affiliate of the Borrower to make a payment to a Plan required under Section 302(f)(1) of ERISA, which failure results in the imposition of a lien for failure to make required payments; (vi) the adoption of an amendment to a Plan requiring the provision of security to such Plan, pursuant to Section 307 of ERISA; (vii) the institution by the PBGC of proceedings to terminate a Plan, pursuant to Section 4042 of ERISA, or the occurrence of any event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, a Plan; or (viii) any withdrawal liability under Section 4201 of ERISA. "Eurocurrency Liabilities" has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Eurodollar Lending Office" means, with respect to any Lender, the office or affiliate of such Lender specified as its "Eurodollar Lending Office" opposite its name on Schedule I hereto or in the Lender Assignment pursuant to which it became a Lender (or, if no such office is specified, its Domestic Lending Office), or such other office or affiliate of such Lender as such Lender may from time to time specify in writing to the Borrower and the Administrative Agent. "Eurodollar Rate" means, for each Interest Period for each Eurodollar Rate Advance made as part of the same A Borrowing, an interest rate per annum equal to the average (rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such average is not such a multiple) of the rate per annum at which deposits in Dollars are offered by the principal office of each of the Reference Banks in London, England to prime banks in the London interbank market at 11:00 a.m. (London time) two Business 8 Days before the first day of such Interest Period in an amount substantially equal to such Reference Bank's Eurodollar Rate Advance made as part of such A Borrowing and for a period equal to such Interest Period, plus, for any Interest Period that begins on or prior to December 31, 1999, 150 basis points. The Eurodollar Rate for the Interest Period for each Eurodollar Rate Advance made as part of the same A Borrowing shall be determined by the Administrative Agent on the basis of applicable rates furnished to and received by the Administrative Agent from the Reference Banks two Business Days before the first day of such Interest Period, subject, however, to the provisions of Section 2.09. "Eurodollar Rate Advance" means an A Advance that bears interest as provided in Section 2.07(b). "Eurodollar Reserve Percentage" of any Lender for each Interest Period for each Eurodollar Rate Advance means the reserve percentage applicable to such Lender during such Interest Period (or if more than one such percentage shall be so applicable, the daily average of such percentages for those days in such Interest Period during which any such percentage shall be so applicable) under Regulation D or other regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) then applicable to such Lender with respect to liabilities or assets consisting of or including Eurocurrency Liabilities having a term equal to such Interest Period. "Events of Default" has the meaning assigned to that term in Section 6.01. "Existing Facility" means the Credit Agreement, dated as of September 22, 1999, among the Borrower, the Administrative Agent and certain lenders party thereto, as amended or modified as of the date hereof. "Extension Date" has the meaning assigned to that term in Section 2.18(b). "Extension of Credit" means the making of a Borrowing. For purposes of this Agreement, a Conversion shall not constitute an Extension of Credit. "Facility Fee" means a fee which shall be payable on the aggregate amount of the Commitments, irrespective of usage, to the Lenders pro rata on the amounts of their respective Commitments at the rate (expressed in basis points per annum) set forth below in the columns identified as Level 1, Level 2, Level 3, Level 4 and Level 5, as determined by reference to the lower of the ratings issued by S&P or Moody's, by reference to the chart below, for non-credit-enhanced long-term senior secured debt of the Borrower.
--------------------------------------------------------------------------------------- Level 1 Level 2 Level 3 Level 4 Level 5 ------------- --------- --------- --------- ------------ S&P A- or better BBB+ BBB BBB- and Lower than Moody's and and and Baa3 Level 4 or A3 or better Baa1 Baa2 unrated ---------------------------------------------------------------------------------------
9 --------------------------------------------------------------------------------------- Basis Points 12.50 15.00 20.00 25.00 50.00 ---------------------------------------------------------------------------------------
The Facility Fee will be based upon the level corresponding to the Reference Ratings at the time of determination. Any change in the Reference Ratings shall effect an immediate change in the Facility Fee. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Fee Letter" means that certain Fee Letter, dated November 16, 1999, among the Borrower, Salomon Smith Barney Inc. and Citibank. "GAAP" means generally accepted accounting principles in effect from time to time, consistent with the principles used in preparing the most recent June 30 financial statements that have been delivered to the Lenders in accordance with Section 5.01(i) (provided that, prior to the first delivery under said Section, such financial statements shall be the financial statements referred to in Section 4.01(g) hereof). "Governmental Approval" means any authorization, consent, approval, license, franchise, lease, ruling, tariff, rate, permit, certificate, exemption of, or filing or registration with, any governmental authority or other legal or regulatory body. "Hazardous Substance" means any waste, substance, or material identified as hazardous, dangerous or toxic by any office, agency, department, commission, board, bureau, or instrumentality of the United States or of the State or locality in which the same is located having or exercising jurisdiction over such waste, substance or material. "Interest Period" means, for each A Advance made as part of the same A Borrowing, the period commencing on the date of such A Advance or the date of the Conversion of any A Advance into such an A Advance and ending on the last day of the period selected by the Borrower pursuant to the provisions below and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Borrower pursuant to the provisions below. The duration of each such Interest Period shall be 1, 2, 3 or 6 months in the case of a Eurodollar Rate Advance, in each case as the Borrower may, upon notice received by the Administrative Agent not later than 12:00 noon (New York City time) on the third Business Day prior to the first day of such Interest Period in the case of a Eurodollar Rate Advance, select; provided, however, that: 10 (i) the Borrower may not select any Interest Period that ends after the Termination Date; (ii) Interest Periods commencing on the same date for A Advances comprising part of the same A Borrowing shall be of the same duration; and (iii) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided, in the case of any Interest Period for a Eurodollar Rate Advance, that if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day. "Lenders" means the Banks listed on the signature pages hereof and each Eligible Assignee that shall become a party hereto pursuant to Section 8.07. "Lender Assignment" means an assignment and acceptance agreement entered into by a Lender and an Eligible Assignee, and accepted by the Administrative Agent, in substantially the form of Exhibit 8.07. "Lien" has the meaning assigned to that term in Section 5.02(a). "Loan Documents" means this Agreement, the Notes, the Fee Letter and all other agreements, instruments and documents now or hereafter executed and/or delivered pursuant hereto or thereto. "Majority Lenders" means, on any date of determination, Lenders that, collectively, on such date (i) hold greater than 50% of the then aggregate unpaid principal amount of the A Advances owing to Lenders and (ii) if no A Advances are then outstanding, have Percentages in the aggregate greater than 50%. Any determination of those Lenders constituting the Majority Lenders shall be made by the Administrative Agent and shall be conclusive and binding on all parties absent manifest error. "Material Adverse Effect" means, relative to any occurrence of whatever nature (including, without limitation, any adverse determination in any litigation, arbitration or governmental investigation or proceedings), a material adverse effect on: (a) the consolidated business, assets, revenues, financial condition, results of operations, operations or prospects of the Borrower and its Subsidiaries; or (b) the ability of the Borrower to make any payment when due under this Agreement or to perform any of its other obligations under the Loan Documents. "Moody's" means Moody's Investors Service, Inc. or any successor thereto. 11 "Multiemployer Plan" means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, which is subject to Title IV of ERISA and to which the Borrower or any ERISA Affiliate of the Borrower is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions, such plan being maintained pursuant to one or more collective bargaining agreements. "Multiple Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, which is subject to Title IV of ERISA and which (i) is maintained for employees of the Borrower or an ERISA Affiliate of the Borrower and at least one Person other than the Borrower and its ERISA Affiliates or (ii) was so maintained and in respect of which the Borrower or an ERISA Affiliate of the Borrower could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "Nonrecourse Debt" means any Debt that finances the acquisition, development, ownership or operation of an asset in respect of which the Person to which such Debt is owed has no recourse whatsoever to the Borrower or any of its Affiliates other than: (i) recourse to the named obligor with respect to such Debt (the "Debtor") for amounts limited to the cash flow or net cash flow (other than historic cash flow) from the asset; and (ii) recourse to the Debtor for the purpose only of enabling amounts to be claimed in respect of such Debt in an enforcement of any security interest or lien given by the Debtor over the asset or the income, cash flow or other proceeds deriving from the asset (or given by any shareholder or the like in the Debtor over its shares or like interest in the capital of the Debtor) to secure the Debt, but only if: (A) the extent of the recourse to the Debtor is limited solely to the amount of any recoveries made on any such enforcement; and (B) the Person to which such Debt is owed is not entitled, by virtue of any right or claim arising out of or in connection with such Debt, to commence proceedings for the winding up or dissolution of the Debtor or to appoint or procure the appointment of any receiver, trustee, or similar Person or officer in respect of the Debtor or any of its assets (other than the assets subject to the security interest or lien referred to above); and (iii) recourse to the Debtor generally or indirectly to any Affiliate of the Debtor, under any form of assurance, undertaking or support, which recourse is limited to a claim for damages (other than liquidated damages and damages required to be calculated in a specified way) for a breach of an obligation (other than a payment obligation or an obligation to comply 12 or to procure compliance by another with any financial ratios or other tests of financial condition) by the Person against which such recourse is available. "Note" means an A Note or a B Note. "Notice of A Borrowing" has the meaning assigned to that term in Section 2.02(a). "Notice of B Borrowing" has the meaning assigned to that term in Section 2.03(a). "Notice of Conversion" has the meaning assigned to that term in Section 2.10. "Other Credit Agreement" means the 364-Day Credit Agreement, dated as of December 17, 1999, among the Borrower, the lenders from time to time parties thereto and Citibank, N.A., as agent for such lenders. "PBGC" means the Pension Benefit Guaranty Corporation (or any successor entity) established under ERISA. "Percentage" means, for any Lender on any date of determination, the percentage obtained by dividing such Lender's Commitment on such day by the total of the Commitments on such date, and multiplying the quotient so obtained by 100%. "Person" means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. "Plan" means a Single Employer Plan or a Multiple Employer Plan. "PUHCA" means the Public Utility Holding Company Act of 1935, as amended from time to time. "Reference Banks" means Citibank, N.A., and any additional or substitute Lenders as may be selected from time to time to act as Reference Banks hereunder by the Administrative Agent, the Majority Lenders and the Borrower. "Register" has the meaning assigned to that term in Section 8.07(c). "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., or any successor thereto. "Senior Financial Officer" means the President, the Chief Executive Officer, the Chief Financial Officer or the Treasurer of the Borrower. 13 "Significant Subsidiary" means any direct or indirect Subsidiary of the Borrower that, on a consolidated basis with any of its Subsidiaries as of any date of determination, accounts for more than 20% of the consolidated assets (valued at book value) of the Borrower and its Subsidiaries; but shall not include any Subsidiary set up for the sole purpose of facilitating the issuance of Transitional Funding Instruments. "Single Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, which is subject to Title IV of ERISA and which (i) is maintained for employees of the Borrower or an ERISA Affiliate of the Borrower and no Person other than the Borrower and its ERISA Affiliates, or (ii) was so maintained and in respect of which the Borrower or an ERISA Affiliate of the Borrower could have liability under Section 4069 of ERISA in the event such plan has been or were to be terminated. "Subordinated Deferrable Interest Securities" means all obligations of the Borrower and its Subsidiaries in respect of "ComEd-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts", as set forth from time to time in the consolidated balance sheets of the Borrower and its Consolidated Subsidiaries delivered pursuant to Section 5.01(i). "Subsidiary" means, with respect to any Person, any corporation or unincorporated entity of which more than 50% of the outstanding capital stock (or comparable interest) having ordinary voting power (irrespective of whether at the time capital stock (or comparable interest) of any other class or classes of such corporation or entity shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned by said Person (whether directly or through one of more other Subsidiaries). In the case of an unincorporated entity, a Person shall be deemed to have more than 50% of interests having ordinary voting power only if such Person's vote in respect of such interests comprises more than 50% of the total voting power of all such interests in the unincorporated entity. "Termination Date" means the earlier to occur of (i) December 17, 2002 (or such later date as the Lenders may from time to time agree pursuant to Section 2.18(a)) and (ii) the date of termination or reduction in whole of the Commitments pursuant to Section 2.05 or 6.01. "Transitional Funding Instruments" means any instruments, pass-through certificates, notes, debentures, certificates of participation, bonds, certificates of beneficial interest or other evidences of indebtedness or instruments evidencing a beneficial interest which (i) are issued pursuant to a "transitional funding order" (as such term is defined in Section 18- 102 of the Illinois Public Utilities Act, as amended) issued by the Illinois Commerce Commission at the request of an electric utility and (ii) are secured by or otherwise payable from non-bypassable cent per kilowatt hour charges authorized pursuant to such order to be applied and invoiced to customers of such utility. The instrument funding charges so applied and invoiced must be deducted and stated separately from the other charges invoiced by such utility against its customers. 14 "Type" has the meaning assigned to that term (i) in the definition of "A Advance" when used in such context and (ii) in the definition of "Borrowing" when used in such context. "Unicom/PECO Merger Agreement" means the Agreement and Plan of Exchange and Merger, dated as of September 22, 1999, among PECO Energy Company, Newholdco Corporation and Unicom Corporation. "Unmatured Default" means an event that, with the giving of notice or lapse of time, or both, would constitute an Event of Default. "Year 2000 Issues" means, in respect of a person or entity, anticipated costs, problems and uncertainties associated with the inability of certain computer applications to effectively handle data including dates on and after January 1, 2000, as such inability affects the business, operations and financial condition of such person or entity. "Year 2000 Program" means, in respect of a person or entity, a program for remediating on a timely basis any Year 2000 Issues of or relating to such person or entity that if not remediated on a timely basis, could reasonably be expected to result in a Material Adverse Effect on such person or entity. SECTION 1.02. Computation of Time Periods. Unless otherwise indicated, each reference in this Agreement to a specific time of day is a reference to New York City time. In the computation of periods of time under this Agreement, any period of a specified number of days or months shall be computed by including the first day or month occurring during such period and excluding the last such day or month. In the case of a period of time "from" a specified date "to" or "until" a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding". SECTION 1.03. Computations of Outstandings. Whenever reference is made in this Agreement to the "principal amount outstanding" on any date under this Agreement, such reference shall refer to the aggregate principal amount of all Advances outstanding on such date after giving effect to all Extensions of Credit to be made on such date and the application of the proceeds thereof. SECTION 1.04. Accounting Terms. Except as otherwise provided herein, all accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles. ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01. The A Advances. (a) Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make A Advances to the Borrower from time to time on any Business Day during the period from the Closing until the Termination Date in an aggregate 15 outstanding amount not to exceed at any time such Lender's Available Commitment, provided that the aggregate amount of the Commitments of the Lenders shall be deemed used from time to time to the extent of the aggregate amount of the B Advances then outstanding and such deemed use of the aggregate amount of the Commitments shall be applied to the Lenders ratably according to their respective Percentages (such deemed use of the aggregate amount of the Commitments being a "B Reduction"). Each A Borrowing shall be in an aggregate amount not less than $10,000,000 (or, if lower, the amount of the Available Commitments) or an integral multiple of $1,000,000 in excess thereof and shall consist of A Advances of the same Type made on the same day by the Lenders ratably according to their respective Percentages. Within the limits of each Lender's Commitment and as hereinabove and hereinafter provided, the Borrower may request Extensions of Credit hereunder, and repay or prepay Advances pursuant to Section 2.11 and utilize the resulting increase in the Available Commitments for further Extensions of Credit in accordance with the terms hereof. (b) In no event shall the Borrower be entitled to request or receive any Extensions of Credit that would cause the principal amount outstanding hereunder to exceed the Commitments. SECTION 2.02. Making the A Advances. (A) Each A Borrowing shall be made on notice, given not later than 12:00 noon (i) on the third Business Day prior to the date of the proposed A Borrowing, in the case of an A Borrowing comprised of Eurodollar Rate Advances, and (ii) on the date of the proposed A Borrowing, in the case of an A Borrowing comprised of Base Rate Advances, in each case by the Borrower to the Administrative Agent, which shall give to each Lender prompt notice thereof by telecopier, telex or cable. Each such notice of an A Borrowing (a "Notice of A Borrowing") shall be by telecopier, telex or cable, in substantially the form of Exhibit 2.02(a) hereto, specifying therein the requested (A) date of such A Borrowing, (B) Type of A Advances comprising such A Borrowing, (C) aggregate amount of such A Borrowing and (D) in the case of an A Borrowing comprised of Eurodollar Rate Advances, initial Interest Period for each such A Advance. Each Lender shall, before (x) 12:00 noon on the date of such A Borrowing, in the case of an A Borrowing comprised of Eurodollar Rate Advances, and (y) 1:00 p.m. on the date of such A Borrowing, in the case of an A Borrowing comprised of Base Rate Advances, make available for the account of its Applicable Lending Office to the Administrative Agent at its address referred to in Section 8.02, in same day funds, such Lender's ratable portion of such A Borrowing. After the Administrative Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Administrative Agent will promptly make such funds available to the Borrower at the Administrative Agent's aforesaid address. (b) Each Notice of A Borrowing shall be irrevocable and binding on the Borrower. In the case of any A Borrowing which the related Notice of A Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrower shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in such Notice of A Borrowing for such A Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the A Advance to be made by such Lender as part of such A Borrowing when such A Advance, as a result of such failure, is not made on such date. 16 (c) Unless the Administrative Agent shall have received notice from a Lender prior to the date of any A Borrowing that such Lender will not make available to the Administrative Agent such Lender's A Advance as part of such A Borrowing, the Administrative Agent may assume that such Lender has made such A Advance available to the Administrative Agent on the date of such A Borrowing in accordance with subsection (a) of this Section 2.02 and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such A Advance available to the Administrative Agent, such Lender and the Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount, together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent, at (i) in the case of the Borrower, the interest rate applicable at the time to A Advances comprising such A Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Lender's A Advance as part of such A Borrowing for purposes of this Agreement. (d) The failure of any Lender to make the A Advance to be made by it as part of any A Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its A Advance on the date of such A Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the A Advance to be made by such other Lender on the date of any A Borrowing. SECTION 2.03. The B Advances. (A) Each Lender severally agrees that the Borrower may request B Borrowings under this Section 2.03 from time to time on any Business Day during the period from the date hereof until the date occurring 30 days prior to the Termination Date in the manner, and subject to the terms and conditions, set forth below. The rates of interest offered by the Lenders and accepted by the Borrower for each B Borrowing shall be fixed rates per annum or LIBOR based bids. (i) The Borrower may request a B Borrowing under this Section 2.03 by delivering to the Administrative Agent, by telecopier, telex or cable, a notice of a B Borrowing (a "Notice of B Borrowing"), in substantially the form of Exhibit 2.03(a)(i) hereto, specifying the date and aggregate amount of the proposed B Borrowing, the maturity date for repayment of each B Advance to be made as part of such B Borrowing (which maturity date may not be earlier than the date occurring 30 days after the date of such B Borrowing nor later than the earlier to occur of the then-scheduled Termination Date and the date occurring 180 days following the date of such B Borrowing), the interest payment date or dates relating thereto, the interest rate basis to be used by the Lenders and any other terms to be applicable to such B Borrowing, not later than 3:00 p.m. at least one Business Day prior to the date of the proposed B Borrowing for fixed rate bids and not later than 3:00 p.m. at least four Business Days prior to the date of the proposed B Borrowing for LIBOR based bids. The Administrative Agent shall in turn promptly notify each Lender of each request for a B Borrowing received by it from the Borrower by sending such Lender a copy of the related Notice of B Borrowing. 17 (ii) Each Lender may, if, in its sole discretion, it elects to do so, irrevocably offer to make one or more B Advances to the Borrower as part of such proposed B Borrowing at a rate or rates of interest specified by such Lender in its sole discretion, by notifying the Administrative Agent (which shall give prompt notice thereof to the Borrower), before 11:00 a.m., on the date of such proposed B Borrowing, of the minimum amount and maximum amount of each B Advance which such Lender would be willing to make as part of such proposed B Borrowing (which amounts may, subject to the limitation contained in subsection (d) below, exceed such Lender's Commitment), the rate or rates of interest therefor and such Lender's Applicable Lending Office with respect to such B Advance; provided that if the Administrative Agent in its capacity as a Lender shall, in its sole discretion, elect to make any such offer, it shall notify the Borrower of such offer before 10:30 a.m. on the date on which notice of such election is to be given to the Administrative Agent by the other Lenders. If any Lender shall elect not to make such an offer, such Lender shall so notify the Administrative Agent before 11:00 a.m. on the date on which notice of such election is to be given to the Administrative Agent by the other Lenders, and such Lender shall not be obligated to, and shall not, make any B Advance as part of such B Borrowing; provided that the failure by any Lender to give such notice shall not cause such Lender to be obligated to make any B Advance as part of such proposed B Borrowing. (iii) The Borrower shall, in turn, before 12:00 noon on the date of such proposed B Borrowing either (x) cancel such B Borrowing by either giving the Administrative Agent notice to that effect or failing to accept one or more offers as provided in clause (y) below, or (y) accept one or more of the offers, in its sole discretion, made by any Lender or Lenders pursuant to paragraph (ii) above, in order of the lowest to the highest rates of interest, with pro rata allocation of any matching rates of interest, by giving written notice to the Administrative Agent of the amount of each B Advance (which amount shall be equal to or greater than the minimum amount, and equal to or less than the maximum amount, notified to the Borrower by the Administrative Agent on behalf of such Lender for such B Advance pursuant to paragraph (ii) above) to be made by each Lender as part of such B Borrowing, and reject any remaining offers made by Lenders pursuant to paragraph (ii) above, by giving the Administrative Agent written notice to that effect. (iv) If the Borrower cancels such B Borrowing pursuant to paragraph (iii)(x) above, the Administrative Agent shall give prompt notice thereof to the Lenders and such B Borrowing shall not be made. (v) If the Borrower accepts one or more of the offers made by any Lender or Lenders pursuant to paragraph (iii)(y) above, such acceptance shall be irrevocable and binding on the Borrower and, subject to the satisfaction of the applicable conditions set forth in Article III, on such Lender or Lenders. The Borrower shall indemnify each such Lender against any loss, cost or expense incurred by such Lender as a result of any failure 18 to fulfill, on or before the date specified in the notice provided pursuant to paragraph (vii)(A) below, the applicable conditions set forth in Article III, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the B Advance to be made by such Lender as part of such B Borrowing when such B Advance, as a result of such failure, is not made on such date. (vi) Unless the Administrative Agent shall have received notice from a Lender prior to the date of any B Borrowing in which such Lender is required to participate that such Lender will not make available to the Administrative Agent such Lender's B Advance as part of such B Borrowing, the Administrative Agent may assume that such Lender has made such B Advance available to the Administrative Agent on the date of such B Borrowing in accordance with paragraph (vii) below, and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such B Advance available to the Administrative Agent, such Lender and the Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent, at (i) in the case of the Borrower, the interest rate applicable to such B Advance and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Lender's B Advance as part of such B Borrowing for purposes of this Agreement. (vii) If the Borrower accepts one or more of the offers made by any Lender or Lenders pursuant to paragraph (iii)(y) above, the Administrative Agent shall in turn promptly notify (A) each Lender that has made an offer as described in paragraph (ii) above, of the date and aggregate amount of such B Borrowing and whether or not any offer or offers made by such Lender pursuant to paragraph (ii) above, have been accepted by the Borrower, (B) each Lender that is to make a B Advance as part of such B Borrowing of the amount of the B Advance to be made by such Lender as part of such B Borrowing and (C) each Lender that is to make a B Advance as part of such B Borrowing, upon receipt, that the Administrative Agent has received forms of documents appearing to fulfill the applicable conditions set forth in Article III. Each Lender that is to make a B Advance as part of such B Borrowing shall, before 1:00 p.m. on the date of such B Borrowing specified in the notice received from the Administrative Agent pursuant to clause (A) of the preceding sentence or any later time when such Lender shall have received notice from the Administrative Agent pursuant to clause (C) of the preceding sentence, make available for the account of its Applicable Lending Office to the Administrative Agent at its address referred to in Section 8.02 such Lender's B Advance, in same day funds. Upon fulfillment of the applicable conditions set forth in Article III and after receipt by the Administrative Agent of such funds, the Administrative Agent will promptly make such funds available to the Borrower at the Administrative Agent's aforesaid address. Promptly after each B Borrowing the Administrative Agent will notify each Lender of the amount of the B Borrowing, the 19 consequent B Reduction and the dates upon which such B Reduction commenced and will terminate. (b) Each B Borrowing shall be in an aggregate amount not less than $10,000,000 or an integral multiple of $1,000,000 in excess thereof. (c) Within the limits and on the conditions set forth in this Section 2.03, the Borrower may from time to time borrow under this Section 2.03, repay pursuant to subsection (e) below and reborrow under this Section 2.03, provided that a B Borrowing shall not be made within three Business Days of the date of any other B Borrowing. (d) In no event shall the Borrower be entitled to request or receive any B Advances that would cause the principal amount outstanding hereunder to exceed the Commitments. (e) The Borrower shall repay to the Administrative Agent for the account of each Lender which has made a B Advance, or each other holder of a B Note, on the maturity date of each B Advance (such maturity date being that specified by the Borrower for repayment of such B Advance in the related Notice of B Borrowing delivered pursuant to subsection (a)(i) above, and provided in the B Note evidencing such B Advance), the then unpaid principal amount of such B Advance. (f) The Borrower shall pay interest on the unpaid principal amount of each B Advance from the date of such B Advance to the date the principal amount of such B Advance is repaid in full, at the rate of interest for such B Advance specified by the Lender making such B Advance in its notice with respect thereto delivered pursuant to subsection (a)(ii) above, payable on the interest payment date or dates specified by the Borrower for such B Advance in the related Notice of B Borrowing delivered pursuant to subsection (a)(i) above, as provided in the B Note evidencing such B Advance, provided, however, that upon the occurrence and during the continuance of any Event of Default, each B Advance shall bear interest at the Default Rate. (g) The indebtedness of the Borrower resulting from each B Advance made to the Borrower as part of a B Borrowing shall be evidenced by a separate B Note of the Borrower payable to the order of the Lender making such B Advance. SECTION 2.04. Fees. (A) The Borrower agrees to pay to the Administrative Agent for the account of each Lender the Facility Fee from the date hereof, in the case of each Bank, and from the effective date specified in the Lender Assignment pursuant to which it became a Lender, in the case of each other Lender, until the Termination Date, payable quarterly in arrears on the last day of each December, March, June and September during the term of such Lender's Commitment, commencing December 31, 1999, and on the Termination Date. (b) In addition to the fee provided for in subsection (a) above, the Borrower shall pay to the Administrative Agent, for the account of the Administrative Agent, such fees as are provided for in the Fee Letter. SECTION 2.05. Reduction of the Commitments. (A) The Borrower shall have the right, upon at least three Business Days' notice to the Administrative Agent, to terminate in whole or reduce ratably in part the unused portions of the respective Commitments of the Lenders; 20 provided that the aggregate amount of the Commitments of the Lenders shall not be reduced to an amount which is less than the aggregate principal amount of the A and B Advances then outstanding; and provided, further, that each partial reduction shall be in a minimum amount of $10,000,000 or any whole multiple of $1,000,000 in excess thereof. Any termination or reduction of the Commitments shall be irrevocable, and the Commitments shall not thereafter be reinstated. (b) On the Termination Date, or upon the occurrence of a Change of Control, the Commitments of the Lenders shall be reduced to zero. SECTION 2.06. Repayment of A Advances. The Borrower shall repay the principal amount of each A Advance made by each Lender in accordance with the A Note to the order of such Lender. SECTION 2.07. Interest on A Advances. The Borrower shall pay interest on the unpaid principal amount of each A Advance owing to each Lender from the date of such A Advance until such principal amount shall be paid in full, at the Applicable Rate for such A Advance (except as otherwise provided in this Section 2.07), payable as follows: (a) Base Rate Advances. If such A Advance is a Base Rate Advance, interest thereon shall be payable quarterly in arrears on the last day of each March, June, September and December on the date of any Conversion of such Base Rate Advance and on the date such Base Rate Advance shall become due and payable or shall otherwise be paid in full; provided that at any time an Event of Default shall have occurred and be continuing, thereafter each Base Rate Advance shall bear interest payable on demand, at a rate per annum equal at all times to the Default Rate. (b) Eurodollar Rate Advances. If such A Advance is a Eurodollar Rate Advance, interest thereon shall be payable on the last day of such Interest Period and, if the Interest Period for such A Advance has duration of more than three months, on that day of each third month during such Interest Period that corresponds to the first day of such Interest Period (or, if any such month does not have a corresponding day, then on the last day of such month); provided that at any time an Event of Default shall have occurred and be continuing, thereafter each Eurodollar Rate Advance shall bear interest payable on demand, at a rate per annum equal at all times to the Default Rate. SECTION 2.08. Additional Interest on Eurodollar Rate Advances. The Borrower shall pay to Administrative Agent for the account of each Lender any costs actually incurred by such Lender with respect to Eurodollar Rate Advances which are attributable to such Lender's compliance with regulations of the Board of Governors of the Federal Reserve System requiring the maintenance of reserves with respect to liabilities or assets consisting of or including Eurocurrency Liabilities. Such costs shall be paid to the Administrative Agent for the account of such Lender in the form of additional interest on the unpaid principal amount of each Eurodollar Rate Advance of such Lender, from the date of such A Advance until such principal amount is paid in full, at an interest rate per annum equal at all times to the remainder obtained by subtracting (i) the Eurodollar Rate for the Interest Period for such A Advance from (ii) the rate obtained by dividing such Eurodollar Rate by a percentage equal to 100% minus the Eurodollar 21 Reserve Percentage of such Lender for such Interest Period, payable on each date on which interest is payable on such A Advance. Such additional interest shall be determined by such Lender and notified to the Borrower through the Administrative Agent. A certificate as to the amount of such additional interest, submitted to the Borrower and the Administrative Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error, provided that the determination thereof shall have been made by such Lender in good faith. SECTION 2.09. Interest Rate Determination. (a) Each Reference Bank agrees to furnish to the Administrative Agent timely information for the purpose of determining each Eurodollar Rate. If any one or more of the Reference Banks shall not furnish such timely information to the Administrative Agent for the purpose of determining any such interest rate, the Administrative Agent shall determine such interest rate on the basis of timely information furnished by the remaining Reference Banks. (a) The Administrative Agent shall give prompt notice to the Borrower and the Lenders of the applicable interest rate determined by the Administrative Agent for purposes of Section 2.07(a) or (b), and the applicable rate, if any, furnished by each Reference Bank for the purpose of determining the applicable interest rate under Section 2.07(b). (b) If no Reference Bank furnishes timely information to the Administrative Agent for determining the Eurodollar Rate for any Eurodollar Rate Advances, due to the unavailability of funds to such Reference Banks in the relevant financial markets: (i) the Administrative Agent shall forthwith notify the Borrower and the Lenders that the interest rate cannot be determined for such Eurodollar Rate Advances; (ii) each such Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance (or if such Advance is then a Base Rate Advance, will continue as a Base Rate Advance); and (iii) the obligation of the Lenders to make, or to Convert A Advances into, Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist. (c) If, with respect to any Eurodollar Rate Advances, the Majority Lenders notify the Administrative Agent that the Eurodollar Rate for any Interest Period for such Advances will not adequately reflect the cost to such Majority Lenders of making, funding or maintaining their respective Eurodollar Rate Advances for such Interest Period, the Administrative Agent shall forthwith so notify the Borrower and the Lenders, whereupon: (i) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance; and (ii) the obligation of the Lenders to make, or to Convert A Advances into, Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist. 22 (d) If the Borrower shall fail to (i) select the duration of any Interest Period for any Eurodollar Rate Advances in accordance with the provisions contained in the definition of "Interest Period" in Section 1.01, (ii) provide a Notice of Conversion with respect to any Eurodollar Rate Advances on or prior to 12:00 noon on the third Business Day prior to the last day of the Interest Period applicable thereto, in the case of a Conversion to or in respect of Eurodollar Rate Advances, or (iii) satisfy the applicable conditions precedent set forth in Section 3.02 with respect to the Conversion to or in respect of any Eurodollar Rate Advances, the Administrative Agent will forthwith so notify the Borrower and the Lenders and such Advances will automatically, on the last day of the then existing Interest Period therefor, Convert into Base Rate Advances; provided, however, that if, in the case of any failure by the Borrower pursuant to clause (iii) above, the Majority Lenders do not notify the Borrower within 30 days after such Conversion into Base Rate Advances that they have agreed to waive, or have decided not to waive, the applicable conditions precedent set forth in Section 3.02 that the Borrower failed to satisfy, the Majority Lenders shall be deemed to have waived such conditions precedent solely with respect to the Advances so Converted, and the Borrower shall, at any time after such 30-day period, be permitted to Convert such Advances into Eurodollar Rate Advances; and provided further, however, that such deemed waiver shall be of no further force or effect if, at any time after such 30-day period, the Majority Lenders notify the Borrower that they no longer agree to waive such conditions precedent, in which case any such Advances so Converted into Eurodollar Rate Advances shall automatically Convert into Base Rate Advances on the last day of the then existing Interest Period therefor. (e) On the date on which the aggregate unpaid principal amount of A Advances comprising any A Borrowing shall be reduced, by payment or prepayment or otherwise, to less than the product of (i) $1,000,000 and (ii) the number of Lenders on such date, such A Advances shall, if they are Advances of a Type other than Base Rate Advances, automatically Convert into Base Rate Advances, and on and after such date the right of the Borrower to Convert such A Advances into Advances of a Type other than Base Rate Advances shall terminate; provided, however, that if and so long as each such A Advance shall be of the same Type and have the same Interest Period as A Advances comprising another A Borrowing or other A Borrowings, and the aggregate unpaid principal amount of all such A Advances shall equal or exceed the product of (i) $1,000,000 and (ii) the number of Lenders on such date, the Borrower shall have the right to continue all such A Advances as, or to Convert all such A Advances into, Advances of such Type having such Interest Period. (f) Upon the occurrence and during the continuance of any Event of Default, each outstanding Eurodollar Rate Advance shall automatically Convert to a Base Rate Advance at the end of the Interest Period then in effect for such Eurodollar Rate Advance. SECTION 2.10. Voluntary Conversion of A Advances. Subject to the applicable conditions set forth in Section 3.02, the Borrower may on any Business Day, by delivering a notice of Conversion (a "Notice of Conversion") to the Administrative Agent not later than 12:00 noon (i) on the third Business Day prior to the date of the proposed Conversion, in the case of a Conversion to or in respect of Eurodollar Rate Advances and (ii) on the date of the proposed Conversion, in the case of a Conversion to or in respect of Base Rate Advances, and subject to the provisions of Sections 2.09 and 2.13, Convert all A Advances of one Type comprising the same A Borrowing into Advances of another Type; provided, however, that, in the case of any 23 Conversion of any Eurodollar Rate Advances into Advances of another Type on a day other than the last day of an Interest Period for such Eurodollar Rate Advances, the Borrower shall be obligated to reimburse the Lenders in respect thereof pursuant to Section 8.04(b). Each such Notice of Conversion shall be in substantially the form of Exhibit 2.10 and shall, within the restrictions specified above, specify (A) the date of such Conversion, (B) the A Advances to be Converted, (C) if such Conversion is into Eurodollar Rate Advances, the duration of the Interest Period for each such A Advance, and (D) the aggregate amount of A Advances proposed to be Converted. SECTION 2.11. Optional Prepayments of A Advances. The Borrower may, upon at least three Business Days notice to the Administrative Agent stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given the Borrower shall, prepay the outstanding principal amounts of the A Advances comprising part of the same Borrowing in whole or ratably in part, together with accrued interest to the date of such prepayment on the principal amount prepaid; provided, however, that each partial prepayment shall be in an aggregate principal amount not less than $10,000,000 (or, if lower, the principal amount outstanding hereunder on the date of such prepayment) or an integral multiple of $1,000,000 in excess thereof. In the case of any such prepayment of a Eurodollar Rate Advance, the Borrower shall be obligated to reimburse the Lender(s) in respect thereof pursuant to Section 8.04(b). Except as provided in this Section 2.11, the Borrower shall have no right to prepay any principal amount of any Advances. The Borrower shall have no right to optionally prepay any principal amount of any B Advances. SECTION 2.12. Mandatory Prepayments. (A) On the date of any termination or reduction of the Commitments pursuant to Section 2.05, the Borrower shall pay or prepay for the ratable accounts of the Lenders so much of the principal amount outstanding under this Agreement as shall be necessary in order that the principal amount outstanding (after giving effect to such prepayment) will not exceed the amount of Commitments following such termination or reduction, together with (A) accrued interest to the date of such prepayment on the principal amount repaid or prepaid and (B) in the case of prepayments of Eurodollar Rate Advances or B Advances, any amount payable to the Lenders pursuant to Section 8.04(b). (b) The Borrower shall pay or prepay for the ratable account of the Lenders the aggregate principal amount outstanding hereunder such that, for a period of at least one day during any 364-day period, the principal amount outstanding hereunder shall be zero. (c) All prepayments required to be made pursuant to this Section 2.12 shall be applied by the Administrative Agent as follows: (i) first, to the prepayment of the A Advances (without reference to minimum dollar requirements), applied to outstanding Base Rate Advances up to the full amount thereof before they are applied to the ratable prepayment of Eurodollar Rate Advances; and (ii) second, to the prepayment of the B Advances (without reference to minimum dollar requirements), applied ratably among all the Lenders holding B Advances. 24 SECTION 2.13. Increased Costs. (A) If, due to either (i) the introduction of or any change (other than any change by way of imposition or increase of reserve requirements included in the Eurodollar Rate Reserve Percentage) in or in the interpretation of any law or regulation or (ii) the compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to any Lender of agreeing to make or making, funding or maintaining Eurodollar Rate Advances, then the Borrower shall from time to time, upon demand by such Lender (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost. A certificate as to the amount of such increased cost, submitted to the Borrower and the Administrative Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error, provided that the determination thereof shall have been made by such Lender in good faith. (b) If any Lender determines that compliance with any law or regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender and that the amount of such capital is increased by or based upon the existence of such Lender's commitment to lend hereunder and other commitments of this type, then, upon demand by such Lender (with a copy of such demand to the Administrative Agent), the Borrower shall immediately pay to the Administrative Agent for the account of such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender or such corporation in the light of such circumstances, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender's Commitment. A certificate as to such amounts submitted to the Borrower and the Administrative Agent by such Lender, describing in reasonable detail the manner in which such amounts have been calculated, shall be conclusive and binding for all purposes, absent manifest error, provided that the determination and allocation thereof shall have been made by such Lender in good faith. (c) Notwithstanding the provisions of subsection (a) or (b) to the contrary, no Lender shall be entitled to demand compensation or be compensated hereunder to the extent that such compensation relates to any period of time more than 180 days prior to the date upon which such Lender first notified the Borrower of the occurrence of the event entitling such Lender to such compensation (unless, and to the extent that, any such compensation so demanded shall relate to the retroactive application of any event so notified to the Borrower). SECTION 2.14. Illegality. Notwithstanding any other provision of this Agreement to the contrary, if any Lender (the "Affected Lender") shall notify the Administrative Agent and the Borrower that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for the Affected Lender or its Eurodollar Lending Office to perform its obligations hereunder to make Eurodollar Rate Advances or to fund or maintain Eurodollar Rate Advances hereunder, (i) all Eurodollar Rate Advances of the Affected Lender shall, on the fifth Business Day following such notice from the Affected Lender, automatically be Converted into a like number of Base Rate Advances, each in the amount of the corresponding Eurodollar Rate Advance of the Affected Lender being so Converted (each such Advance, as so Converted, being an "Affected Lender Advance"), and the obligation of the Affected Lender to make, maintain, or 25 Convert A Advances into Eurodollar Rate Advances shall thereupon be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist, or the Affected Lender has been replaced pursuant to Section 8.07(g), and (ii) in the event that, on the last day of each of the then-current Interest Periods for each Eurodollar Rate Advance (each such Advance being an "Unaffected Lender Advance") of each of the other Lenders (each such Lender being an "Unaffected Lender"), the Administrative Agent shall have yet to notify the Borrower and the Lenders that the circumstances causing such suspension of the Affected Lender's obligations as aforesaid no longer exist, or the Affected Lender has not yet been replaced pursuant to Section 8.07(g), such Unaffected Lender Advance shall be Converted by the Borrower in accordance with Section 2.10 into an Advance of another Type (or, in the event that the Borrower shall fail to duly deliver a Notice of Conversion with respect thereto, into a Base Rate Advance), and the obligation of such Unaffected Lender to make, maintain, or Convert A Advances into Eurodollar Rate Advances shall be suspended until the Administrative Agent shall so notify the Borrower and the Lenders, or the Affected Lender shall be so replaced. For purposes of any prepayment under this Agreement, each Affected Lender Advance shall be deemed to continue to be part of the same Borrowing as the Unaffected Lender Advance to which it corresponded at the time of the Conversion of such Affected Lender Advance pursuant to clause (i) above. SECTION 2.15. Payments and Computations. (A) The Borrower shall make each payment hereunder and under the Notes not later than 1:00 p.m. on the day when due in Dollars to the Administrative Agent at its address referred to in Section 8.02 in same day funds. The Administrative Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest or fees ratably (other than amounts payable pursuant to Section 2.03, 2.08, 2.12(b)(iii), 2.16 or 8.04(b)) to the Lenders for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. Upon its acceptance of a Lender Assignment and recording of the information contained therein in the Register pursuant to Section 8.07(d), from and after the effective date specified in such Lender Assignment, the Administrative Agent shall make all payments hereunder and under the Notes in respect of the interest assigned thereby to the Lender assignee thereunder, and the parties to such Lender Assignment shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves. (b) The Borrower hereby authorizes each Lender, if and to the extent payment owed to such Lender is not made when due hereunder or under any Note held by such Lender, to charge from time to time against any or all of the Borrower's accounts with such Lender any amount so due. (c) All computations of interest based on the Alternate Base Rate and the Federal Funds Rate and of fees shall be made by the Administrative Agent on the basis of a year of 365 or 366 days, as the case may be, and all computations of interest based on the Eurodollar Rate shall be made by the Administrative Agent, and all computations of interest pursuant to Section 2.09 shall be made by a Lender, on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or fees are payable. Each determination by the Administrative Agent (or, in 26 the case of Section 2.09, by a Lender) of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error. (d) Whenever any payment hereunder or under the Notes shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fees, as the case may be; provided, however, that if such extension would cause payment of interest on or principal of Eurodollar Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. (e) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Lenders hereunder that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent that the Borrower shall not have so made such payment in full to the Administrative Agent, each Lender shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent, at the Federal Funds Rate. SECTION 2.16. Taxes. (A) Any and all payments by the Borrower hereunder and under the other Loan Documents shall be made, in accordance with Section 2.15, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and the Administrative Agent, taxes imposed on its overall net income and franchise taxes imposed on it by the jurisdiction under the laws of which such Lender or the Administrative Agent (as the case may be) is organized or any political subdivision thereof and, in the case of each Lender, taxes imposed on its overall net income and franchise taxes imposed on it by the jurisdiction of such Lender's Applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"); provided, however, that, notwithstanding the foregoing, Taxes shall not include any taxes otherwise required to be deducted by the Borrower pursuant to this subsection (a) as a result of activities of any Lender or the Administrative Agent in the State of Iowa (other than as a result, or in respect, of this Agreement). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any other Loan Document to any Lender or the Administrative Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.16) such Lender or the Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) In addition, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise 27 from any payment made hereunder or under any other Loan Document or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Document (hereinafter referred to as "Other Taxes"). (c) The Borrower will indemnify each Lender and the Administrative Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.16) paid by such Lender or the Administrative Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. This indemnification shall be made within 30 days from the date such Lender or the Administrative Agent (as the case may be) makes written demand therefor. Nothing herein shall preclude the right of the Borrower to contest any such Taxes or Other Taxes so paid, and the Lenders in question or the Administrative Agent (as the case may be) will, following notice from, and at the expense of, the Borrower, reasonably cooperate with the Borrower to preserve the Borrower's rights to contest such Taxes or Other Taxes. (d) Within 30 days after the date of any payment of Taxes, the Borrower will furnish to the Administrative Agent, at its address referred to in Section 8.02, the original or a certified copy of a receipt evidencing payment thereof. (e) Each Lender agrees that, on or prior to the date upon which it shall become a party hereto, and upon the reasonable request from time to time of the Borrower or the Administrative Agent, such Lender will deliver to the Borrower and the Administrative Agent either (i) a statement that it is organized under the laws of a jurisdiction within the United States or (ii) duly completed copies of such form or forms as may from time to time be prescribed by the United States Internal Revenue Service indicating that such Lender is entitled to receive payments without deduction or withholding of any United States federal income taxes, as permitted by the Internal Revenue Code of 1986, as amended from time to time. Each Lender that delivers to the Borrower and the Administrative Agent the form or forms referred to in the preceding sentence further undertakes to deliver to the Borrower and the Administrative Agent further copies of such form or forms, or successor applicable form or forms, as the case may be, as and when any previous form filed by it hereunder shall expire or shall become incomplete or inaccurate in any respect. Each Lender represents and warrants that each such form supplied by it to the Administrative Agent and the Borrower pursuant to this subsection (e), and not superseded by another form supplied by it, is or will be, as the case may be, complete and accurate. (f) Any Lender claiming any additional amounts payable pursuant to this Section 2.16 shall use its best efforts (consistent with its internal policy and legal and regulatory restrictions) to change the jurisdiction of its Applicable Lending Office if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts which may thereafter accrue and would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender. (g) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 2.16 shall survive the payment in full of principal and interest hereunder and under the Notes. 28 SECTION 2.17. Sharing of Payments, Etc. If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the A Advances made by it (other than pursuant to Section 2.08, 2.13, 2.16 or 8.04(b)) in excess of its ratable share of payments on account of the A Advances obtained by all the Lenders, such Lender shall forthwith purchase from the other Lenders such participations in the Advances made by them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery, together with an amount equal to such Lender's ratable share (according to the proportion of (i) the amount of such Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.17 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. SECTION 2.18. Extension of Termination Date. (A) At least 45 days but not more than 60 days prior to the then-current Termination Date, the Borrower may request that the Lenders, by written notice to the Administrative Agent (in substantially the form attached hereto as Exhibit 2.18(a)), consent to a 364-day extension of the Termination Date. Each Lender shall, in its sole discretion, determine whether to consent to such request and shall notify the Administrative Agent of its determination at least 20 days but not more than 30 days prior to the then-current Termination Date. The failure to respond by any Lender within such time period shall be deemed a denial of such request. The Administrative Agent shall deliver a notice to the Borrower and the Lenders at least 15 days prior to the then-current Termination Date of the identity of the Lenders that have consented to such extension and the Lenders that have declined such consent (the "Declining Lenders"). If Lenders holding in the aggregate more than 50% of the Commitments have not consented to the requested extension, the Termination Date shall not be extended, and the Commitments of all Lenders shall terminate on the then-current Termination Date. (b) If Lenders holding in the aggregate more than 50% of the Commitments have consented to the requested extension, the Termination Date shall be extended as to such consenting Lenders only (and not as to any Declining Lender) for a period of 364 days from the then-current Termination Date (for purposes of this Section 2.18, the "Extension Date"), and the Commitments of any Declining Lenders shall terminate on the Extension Date (as theretofore in effect) and all Advances of such Declining Lenders shall be repaid to them on such date. If the Borrower so requests, each Lender consenting to such request shall be given the opportunity at least seven days but not more than 15 days prior to the Extension Date, in each Lender's sole discretion, to commit to increase its Commitment by submission of a written notice setting forth the desired increase in such Lender's Commitment to the Administrative Agent in amounts such that the aggregate Commitments hereunder after giving effect to any such extension and increase in the Commitments shall not exceed the aggregate Commitment immediately prior to the Extension Date. If the Administrative Agent receives Commitments to increase the Commitments from the Lenders, which, when aggregated with the existing Commitments, 29 (A) are less than or equal to the Commitments immediately prior to the Extension Date, the Administrative Agent shall accept all such Commitments, (B) are greater than the Commitments on the date hereof, the Administrative Agent may determine, in its reasonable discretion, which Commitments to accept and the amounts by which each submitting Lender's Commitments shall be increased so that the aggregate Commitments after such Extension Date shall equal the aggregate Commitments immediately prior to such Extension Date (any Lender whose commitment to increase its Commitment hereunder is accepted by the Administrative Agent, an "Increasing Commitment Lender"). If Lenders do not consent to increase the aggregate Commitments to an amount equal to the Commitments immediately prior to such Extension Date, the Borrower may, at least two days but not more than seven days prior to such Extension Date, request that the Administrative Agent, in its sole discretion, accept the Commitment or Commitments of an Eligible Assignee or Eligible Assignees such that the aggregate Commitments hereunder after such Extension Date shall not be greater than Commitments hereunder immediately prior to such Extension Date. If the Administrative Agent shall accept the Commitment of any Increasing Commitment Lender or Eligible Assignee, the Commitments of the Declining Lenders shall terminate on such Extension Date, and any Advances made by such Declining Lenders shall be repaid on such date in accordance with this Agreement. (c) Each such accepted Eligible Assignee and each Increasing Commitment Lender shall deliver a signature page hereto indicating that it is bound by the terms hereof and setting forth its aggregate Commitment hereunder. Such new signature page shall constitute a part hereof upon acceptance by the Administrative Agent and, in the case of any signature page submitted by any Increasing Commitment Lender, shall replace such Increasing Commitment Lender's previously delivered signature page. Any such extension shall become effective upon the satisfaction of the conditions set forth in Section 3.04 hereof. Upon satisfaction of such conditions and the effectiveness of such extension, each new Lender and Increasing Commitment Lender shall make A Advances to the Borrower (i) in the case of each new Lender, equal to such Lender's ratable portion of the A Advances outstanding immediately prior to such Extension Date and (ii) in the case of each Increasing Commitment Lender, equal to such portion of such Lender's ratable portion of the A Advances (assuming that such Lender's Commitment consists only of the increased portion thereof) outstanding immediately prior to such Extension Date, in each case, without giving effect to any repayment of A Advances to Declining Lenders made on such Extension Date. ARTICLE III CONDITIONS OF LENDING SECTION 3.01. Conditions Precedent to Closing. The Commitments of the Lenders shall not become effective unless the following conditions precedent shall have been fulfilled on or prior to December 17, 1999 (or such later Business Day as the parties hereto may mutually agree): (a) The Administrative Agent shall have received the following, each dated the date of the Closing, in form and substance satisfactory to the Lenders and (except for the Notes) in sufficient copies for each Lender: 30 (i) this Agreement, duly executed by the Borrower, each Bank and the Administrative Agent; (ii) the A Notes payable to the order of the Lenders, respectively, duly completed and executed by the Borrower; (iii) the Fee Letter, duly executed by Citibank, Salomon Smith Barney Inc. and the Borrower; (iv) certified copies of the resolutions of the Board of Directors of the Borrower approving this Agreement, the Notes and the other Loan Documents to which it is, or is to be, a party, and of all documents evidencing other necessary corporate action with respect to this Agreement, the Notes and such Loan Documents; (v) a certificate of the Secretary or an Assistant Secretary of the Borrower certifying the names, true signatures and incumbency of the officers of the Borrower authorized to sign this Agreement, the Notes and the other Loan Documents to which it is, or is to be, a party; (vi) copies of the Restated Articles of Incorporation (or comparable charter document) and by-laws of the Borrower, together with all amendments thereto, certified by the Secretary or an Assistant Secretary of the Borrower; (vii) certified copies of all Governmental Approvals, if any, required in connection with the execution, delivery and performance of this Agreement and the other Loan Documents; (viii) favorable opinions of: (A) Sidley & Austin, counsel for the Borrower, in substantially the form of Exhibit 3.01(a)(viii)-1 and as to such other matters as the Majority Lenders, through the Administrative Agent, may reasonably request; (B) King & Spalding, counsel to the Administrative Agent, in substantially the form of Exhibit 3.01(a)(viii)-2 and as to such other matters as the Majority Lenders, through the Administrative Agent, may reasonably request; and (ix) such other approvals, opinions and documents as any Lender, through the Administrative Agent, may reasonably request. (b) The following statements shall be true and correct and the Administrative Agent shall have received a certificate of a duly authorized officer of the Borrower, dated the date of the Closing and in sufficient copies for each Lender, stating that: (i) the representations and warranties set forth in Section 4.01 of this Agreement are true and correct on and as of the date of the Closing as though made on and as of such date, and 31 (ii) no event has occurred and is continuing that constitutes an Unmatured Default or an Event of Default. (c) The Borrower shall have paid (i) all fees under or referenced in the Fee Letter and Section 2.04 hereof, to the extent then due and payable, and (ii) all costs and expenses of the Administrative Agent (including counsel fees and disbursements) incurred through (and for which statements have been provided prior to) the Closing. (d) The Borrower shall have paid in full all debt outstanding under the Existing Facility, and the commitments of all the lenders thereunder shall have been terminated. (e) The Borrower shall have executed and delivered the Other Credit Agreement and the "Loan Documents" referred to therein, and all conditions precedent set forth in Section 3.01 thereof shall have been satisfied. SECTION 3.02. Conditions Precedent to Each A Borrowing. The obligation of each Lender to make an A Advance on the occasion of each A Borrowing (including the initial A Borrowing) shall be subject to the conditions precedent that, on the date of such A Borrowing, (a) the following statements shall be true and correct (and each of the giving of the applicable Notice of A Borrowing and the acceptance by the Borrower of the proceeds therefrom shall constitute a representation and warranty by the Borrower that, on the date of such A Borrowing, such statements are true and correct): (i) the representations and warranties contained in Section 4.01 are true and correct in all material respects on and as of the date of such A Borrowing, before and after giving effect to the application of the proceeds therefrom, as though made on and as of such date; and (ii) no event has occurred and is continuing, or would result from such A Borrowing or from the application of the proceeds therefrom, which constitutes an Event of Default or an Unmatured Default; and (b) the Administrative Agent shall have received such other approvals, opinions, or documents as the Administrative Agent, or the Majority Lenders through the Administrative Agent, may reasonably request, and such approvals, opinions, and documents shall be satisfactory in form and substance to the Administrative Agent. SECTION 3.03. Conditions Precedent to Each B Borrowing. The obligation of each Lender to make a B Advance on the occasion of a B Borrowing (including the initial B Borrowing) shall be subject to the conditions precedent that (A) the Administrative Agent shall have received the written confirmatory Notice of B Borrowing with respect thereto; (B) on or before the date of such B Borrowing, but prior to such B Borrowing, the Administrative Agent shall have received a B Note payable to the order of such Lender for each of the one or more B Advances to be made by such Lender as part of such B Borrowing, in a principal amount equal to the principal amount of the B Advance to be evidenced thereby and otherwise on such terms as were agreed to for such B Advance in accordance with Section 2.03; (C) on the date of such B Borrowing the following statements shall be true and correct (and each of the giving of the 32 applicable Notice of B Borrowing and the acceptance by the Borrower of the proceeds therefrom shall constitute a representation and warranty by the Borrower that, on the date of such B Borrowing, such statements are true and correct): (i) the representations and warranties contained in Section 4.01 are true and correct in all material respects on and as of the date of such B Borrowing, before and after giving effect to such B Borrowing and to the application of the proceeds therefrom, as though made on and as of such date; and (ii) no event has occurred and is continuing, or would result from such B Borrowing or from the application of the proceeds therefrom, which constitutes an Event of Default or an Unmatured Default; and (d) the Administrative Agent shall have received such other approvals, opinions, or documents as the Administrative Agent, or the Majority Lenders through the Administrative Agent, may reasonably request, and such approvals, opinions, and documents shall be satisfactory in form and substance to the Administrative Agent. SECTION 3.04. Conditions Precedent to Each Extension of the Termination Date. In the event that the Borrower shall request an extension of the Termination Date pursuant to Section 2.18, such extension shall take effect only upon the satisfaction of the following conditions precedent, together with such other conditions precedent as the extending Lenders may require in connection with such extension: (a) The Administrative Agent shall have prepared and delivered to the Borrower and each Lender (including each new bank and other financial institution to which a non-extending Lender's Commitment has been assigned pursuant to Section 8.07 hereof) a revised Schedule I which reflects the Commitments, as applicable, of each Lender. (b) The Borrower shall have paid all fees under or referenced in Section 2.04 hereof, to the extent then due and payable. (c) The Administrative Agent shall have received (i) legal opinions in respect of any aspect or consequence of the transactions contemplated by Section 2.18 and (ii) such other documents as the Administrative Agent shall reasonably request, including, without limitation, copies of the resolutions, in form and substance satisfactory to the Administrative Agent, of the Board of Directors of the Borrower authorizing the extension of the then-current Termination Date. (d) The following statements shall be true on and as of the Extension Date: (i) The representations and warranties contained in Section 4.01 are correct, provided that the representation and warranty contained in Section 4.01(g) shall be true and correct in all material respects with respect to the financial statements most recently delivered to the Banks; and 33 (ii) No event has occurred and is continuing, or would result from such extension of the then-current Termination Date, that constitutes an Event of Default or an Unmatured Default. SECTION 3.05. Reliance on Certificates. The Lenders and the Administrative Agent shall be entitled to rely conclusively upon the certificates delivered from time to time by officers of the Borrower as to the names, incumbency, authority and signatures of the respective Persons named therein until such time as the Administrative Agent may receive a replacement certificate, in form acceptable to the Administrative Agent, from an officer of such Person identified to the Administrative Agent as having authority to deliver such certificate, setting forth the names and true signatures of the officers and other representatives of such Person thereafter authorized to act on behalf of such Person. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Borrower. The Borrower represents and warrants as follows: (a) The Borrower and each of its Significant Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and is duly qualified to do business in, and is in good standing in, all other jurisdictions where the nature of its business or the nature of property owned or used by it makes such qualification necessary (except where the failure to so qualify would not have a material adverse affect on the business, financial condition, operations, results of operations or prospects of the Borrower and its Subsidiaries, taken as a whole). (b) The execution, delivery and performance by the Borrower of this Agreement, the Notes and the other Loan Documents to which it is or will be a party are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, and do not and will not contravene (i) the Borrower's Restated Articles of Incorporation or by-laws, (ii) law or (iii) any legal or contractual restriction binding on or affecting the Borrower; and such execution, delivery and performance do not and will not result in or require the creation of any Lien upon or with respect to any of its properties. (c) No Governmental Approval is required in connection with the execution, delivery or performance of any Loan Document, except for the authorization issued by the Federal Energy Regulatory Commission to the Borrower dated December 15, 1998, which authorization is in full force and effect and not the subject of any pending or threatened appeal, stay or other challenge. The Borrower will have obtained and made, on or before each date on which this representation shall be made or reaffirmed, all necessary notices to or filings with the Federal Energy Regulatory Commission with respect to the transactions contemplated by this Agreement and the other Loan Documents, and all such notices and filings will have been duly made, and will be in full force and effect. 34 (d) There is no pending or threatened action or proceeding affecting the Borrower or any of its Subsidiaries or properties before any court, governmental agency or arbitrator, that might reasonably be expected to materially adversely affect (i) the business, condition (financial or otherwise) or results of operations of the Borrower and its Subsidiaries, taken as a whole, or (ii) the ability of the Borrower to perform its obligations under this Agreement or any other Loan Document to which the Borrower is or is to be a party. (e) Since June 30, 1999 or, in connection with any extension of the then- current Termination Date and for such extended period, the June 30 for which financial statements have been delivered to the Lenders in the same calendar year as an Extension Date, there has been no material adverse change in the business, condition (financial or otherwise) or results of operations of the Borrower and its Subsidiaries, taken as a whole, or in the Borrower's ability to perform its obligations under this Agreement or any other Loan Document to which it is or will be a party. (f) Neither this Agreement nor any other document, certificate or statement furnished to the Administrative Agent by the Borrower in connection herewith contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein, under the circumstances in which they were made, not misleading. (g) The consolidated balance sheets of the Borrower and its Consolidated Subsidiaries as at June 30, 1999, and the related consolidated statements of operations of the Borrower and its Consolidated Subsidiaries for the three months, six months and twelve months then ended, copies of each of which have been furnished to each Bank, fairly present (subject to year-end adjustments) the consolidated financial condition of the Borrower and its Consolidated Subsidiaries as at such dates and the consolidated results of operations of the Borrower and its Consolidated Subsidiaries for the periods ended on such date, all in accordance, in all material respects, with generally accepted accounting principles consistently applied (except for changes in such principles required by generally accepted accounting principles and noted in such financial statements). (h) No ERISA Event has occurred or is reasonably expected to occur with respect to any Plan of the Borrower or any of its ERISA Affiliates which would result in a liability of $25,000,000 or more to the Borrower. Since the most recent June 30 for which financial statements have been delivered to the Lenders in accordance with Section 5.01(i) hereof, there has been no material adverse change in the funding status of the Plans and no "prohibited transaction" has occurred with respect thereto which is in either event reasonably expected to result in a liability of $25,000,000 or more to the Borrower. (i) The Borrower has filed all tax returns (Federal, state and local) required to be filed and paid all taxes shown thereon to be due, including interest and penalties, or, to the extent the Borrower is contesting in good faith an assertion of liability based on such returns, has provided adequate reserves for payment thereof in accordance with generally accepted accounting principles. 35 (j) This Agreement is, and each other Loan Document to which the Borrower will be a party when executed and delivered hereunder will be, legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms, subject to the qualifications, however, that the enforcement of the rights and remedies herein and therein is subject to bankruptcy and other similar laws of general application affecting rights and remedies of creditors and that the remedy of specific performance or of injunctive relief is subject to the discretion of the court before which any proceedings therefor may be brought. (k) Following application of the proceeds of each Advance, not more than 25 percent of the value of the assets of the Borrower and its Subsidiaries on a consolidated basis will be margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System). (l) The Borrower is not an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. (m) The Borrower is a "holding company" within the meaning of PUHCA, but the Borrower and its Subsidiaries are exempt from the provisions of that Act, except Section 9(a)(2) thereof, by virtue of an order issued by the Securities and Exchange Commission on June 30, 1948. Such exemption is in full force and effect and, except for proceedings in connection with the transactions contemplated by the Unicom/PECO Merger Agreement, the Borrower is not aware of any existing or proposed proceedings contemplating the revocation or modification of such exemption. (n) The Borrower has made a reasonable assessment of its Year 2000 Issues and has a realistic and achievable Year 2000 Program. Based on such assessment and on its Year 2000 Program, the Borrower does not reasonably anticipate that Year 2000 Issues will have a Material Adverse Effect. ARTICLE V COVENANTS OF THE BORROWER SECTION 5.01. Affirmative Covenants. So long as any amount in respect of any Note shall remain unpaid or any Lender shall have any Commitment, the Borrower will, unless the Majority Lenders shall otherwise consent in writing: (a) Preservation of Existence, Etc. Preserve and maintain, and cause each of its Significant Subsidiaries to preserve and maintain, its corporate existence, material rights (statutory and otherwise) and franchises; provided, however, that neither the Borrower nor any of its Significant Subsidiaries shall be required to preserve and maintain any such right or franchise, and no such Significant Subsidiary shall be required to preserve and maintain its corporate existence, unless the failure to do so would have a material adverse effect on the business, condition (financial or otherwise) or results of operations of the Borrower and its Subsidiaries, taken as a whole, or on the Borrower's ability to perform its obligations under this Agreement or any other Loan Document to which it is or will be a party. 36 (b) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to comply, with the requirements of all applicable laws, rules, regulations and orders of any governmental authority, including without limitation any such laws, rules, regulations and orders relating to zoning, environmental protection, use and disposal of Hazardous Substances, land use, ERISA, construction and building restrictions, and employee safety and health matters relating to business operations, the non-compliance with which would have a material adverse effect on the business, condition (financial or otherwise) or results of operations of the Borrower and its Subsidiaries, taken as a whole, or on the Borrower's ability to perform its obligations under this Agreement or any other Loan Document to which it is or will be a party. (c) Payment of Taxes, Etc. Pay and discharge, and cause each of its Significant Subsidiaries to pay and discharge, before the same shall become delinquent, all taxes, assessments and governmental charges, royalties or levies imposed upon it or upon its property, except to the extent the Borrower or such Significant Subsidiary is contesting the same in good faith and by appropriate proceedings and has set aside adequate reserves for the payment thereof in accordance with generally accepted accounting principles. (d) Payment of Material Obligations. Pay, and cause each Significant Subsidiary to pay, promptly as the same shall become due each material obligation of the Borrower or such Significant Subsidiary, except to the extent that the Borrower or such Significant Subsidiary is contesting the same in good faith and by appropriate proceedings and has set aside adequate reserves for the payment thereof in accordance with generally accepted accounting principles. (e) Inspection Rights. At any reasonable time and from time to time upon reasonable notice, permit or arrange for the Administrative Agent, the Lenders and their respective agents and representatives to examine and make copies of and abstracts from the records and books of account of, and, to the extent permitted by applicable law, permit an examination of the properties of, the Borrower and each of its Subsidiaries, and to discuss the affairs, finances and accounts of the Borrower and its Subsidiaries with the Borrower and its Subsidiaries and their respective officers and directors and, following the occurrence and during the continuance of an Event of Default, their respective accountants; provided, however, that, prior to the disclosure of any information or materials of the Borrower or its Subsidiaries relating to wholesale transactions, customers, pricing methods or formulae, transmission and distribution system utilization or pricing, or proprietary methods or processes, the Borrower may require the Lender seeking to inspect the same to enter into a confidentiality and nondisclosure agreement with respect to the use and disclosure of such information or materials in form and substance reasonably satisfactory to the Borrower and such Lender and otherwise containing customary terms. (f) Keeping of Books. Keep, and cause its Subsidiaries to keep, proper records and books of account, in which full and correct entries shall be made of all financial transactions of the Borrower and its Subsidiaries and the assets and business of the Borrower and its Subsidiaries, in accordance with generally accepted accounting principles. (g) Maintenance of Properties, Etc. Maintain, and cause each of its Subsidiaries to maintain, good and marketable title to, and preserve and maintain in good working order and condition (ordinary wear and tear excepted), and operate in substantial conformity with all laws 37 and material contractual obligations, all of its properties which are used or useful in the conduct of its business, except where the failure to do so would not have a material adverse effect on the business, condition (financial or otherwise) or results of operations of the Borrower and its Subsidiaries, taken as a whole, or on the Borrower's ability to perform its obligations under this Agreement or any other Loan Document to which it is or will be a party. (h) Maintenance of Insurance. Maintain, or cause to be maintained, insurance covering the Borrower and each of its Subsidiaries and their respective properties in effect at all times as may be required by law and such other insurance in such amounts and covering such risks as is usually carried by companies similarly situated. (i) Reporting Requirements. Furnish to each Lender: (i) as soon as possible and in any event within five Business Days after the occurrence of each Unmatured Default or Event of Default continuing on the date of such statement, a statement of a Senior Financial Officer setting forth details of such Unmatured Default or Event of Default and the action that the Borrower proposes to take with respect thereto; (ii) as soon as available and in any event within 60 days after the end of each of the first three quarters of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as at the end of such quarter and statements of income, consolidated operations, consolidated retained earnings and consolidated cash flows of the Borrower and its Consolidated Subsidiaries for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, all in reasonable detail and duly certified (subject to year-end audit adjustments) by a Senior Financial Officer as having been prepared in accordance (in all material respects) with generally accepted accounting principles together with a certificate of said officer stating that no Unmatured Default or Event of Default has occurred and is continuing or, if an Unmatured Default or Event of Default has occurred and is continuing, a statement as to the nature thereof and the action that the Borrower proposes to take with respect thereto; provided that delivery of a copy of the Borrower's Quarterly Report on Form 10-Q for such quarter shall be deemed to satisfy such financial statement delivery requirements; (iii) as soon as available and in any event within 120 days after the end of each fiscal year of the Borrower, a copy of the consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as at the end of such fiscal year and statements of consolidated operations, consolidated retained earnings and consolidated cash flows of the Borrower and its Consolidated Subsidiaries for such fiscal year, in each case in reasonable detail and duly certified by a Senior Financial Officer as having been prepared in accordance (in all material respects) with generally accepted accounting principles, together with a certificate of a Senior Financial Officer stating that no Unmatured Default or Event of Default has occurred and is continuing or, if an Unmatured Default or Event of Default has occurred and is continuing, a statement as to the nature thereof and the action that the Borrower proposes to take with respect thereto; provided that delivery of a copy of the Borrower's Annual Report on Form 10-K (containing such statements) or 38 Current Report on Form 8-K (containing such statements) for such year shall be deemed to satisfy such financial statement delivery requirements; (iv) as soon as possible and in any event (A) within 30 days after any ERISA Event described in clause (i) of the definition of ERISA Event with respect to any Plan of the Borrower or any ERISA Affiliate of the Borrower has occurred and (B) within 10 days after any other ERISA Event with respect to any Plan of the Borrower or any ERISA Affiliate of the Borrower has occurred, a statement of a Senior Financial Officer describing such ERISA Event and the action, if any, which the Borrower or such ERISA Affiliate proposes to take with respect thereto; (v) promptly after receipt thereof by the Borrower or any of its ERISA Affiliates from the PBGC, copies of each notice received by the Borrower or such ERISA Affiliate of the PBGC's intention to terminate any Plan of the Borrower or such ERISA Affiliate or to have a trustee appointed to administer any such Plan; (vi) promptly after receipt thereof by the Borrower or any ERISA Affiliate of the Borrower from a Multiemployer Plan sponsor, a copy of each notice received by the Borrower or such ERISA Affiliate concerning the imposition or amount of withdrawal liability in an aggregate principal amount of at least $25,000,000 pursuant to Section 4202 of ERISA in respect of which the Borrower or such ERISA Affiliate is reasonably expected to be liable; (vii) promptly after the Borrower becomes aware of the occurrence thereof, notice of all actions, suits, proceedings or other events of (A) of the type described in Section 4.01(d) or (B) for which the Administrative Agent and the Lenders will be entitled to indemnity under Section 8.04(c); (viii) promptly after the sending or filing thereof, copies of all such information statements, financial statements, and reports which the Borrower sends to its public security holders (if any), and copies of all regular, periodic and special reports, and all registration statements (other than registration statements related to employee benefits plans) and periodic or special reports, if any, which the Borrower files with the Securities and Exchange Commission or any governmental authority which may be substituted therefor, or with any national securities exchange; (ix) such information concerning the Borrower's Year 2000 Programs as the Administrative Agent may reasonably request; and (x) promptly after requested, such other information respecting the business, properties, results of operations, prospects, revenues, condition or operations, financial or otherwise, of the Borrower or any of its Subsidiaries (including, but not limited to, copies of each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) filed with the Internal Revenue Service) as the Administrative Agent or any Lender through the Administrative Agent may from time to time reasonably request. 39 (j) Use of Proceeds. Use the proceeds of the initial Advances and any other Advances hereunder as a commercial paper backstop and solely for the Borrower's general corporate purposes. (k) Debt to Capitalization. Maintain at all times a ratio of Consolidated Debt to Consolidated Capital of not more than 65%. (l) Further Assurances. At the expense of the Borrower, promptly execute and deliver, or cause to be promptly executed and delivered, all further instruments and documents, and take and cause to be taken all further actions, that may be necessary or that the Majority Lenders through the Administrative Agent may reasonably request to enable the Lenders and the Administrative Agent to enforce the terms and provisions of this Agreement and to exercise their rights and remedies hereunder or under any other Loan Document. In addition, the Borrower will use all reasonable efforts to duly obtain Governmental Approvals required in connection with the Loan Documents from time to time on or prior to such date as the same may become legally required, and thereafter to maintain all such Governmental Approvals in full force and effect. (m) Year 2000. Take all such actions as are reasonably necessary to successfully implement its Year 2000 Program and to assure that Year 2000 Issues will not have a Material Adverse Effect. At the request of the Administrative Agent, the Borrower will provide a description of its Year 2000 Program, together with any updates or progress reports with respect thereto. SECTION 5.02. Negative Covenants. So long as any amount in respect of any Note shall remain unpaid or any Lender shall have any Commitment, the Borrower will not, without the written consent of the Majority Lenders: (a) Liens, Etc. Create, incur, assume, or suffer to exist, or permit any of its Significant Subsidiaries to create, incur, assume, or suffer to exist, any lien, security interest, or other charge or encumbrance (including the lien or retained security title of a conditional vendor) of any kind, or any other type of arrangement intended or having the effect of conferring upon a creditor a preferential interest upon or with respect to any of its properties of any character, in each case to secure or provide for the payment of any Debt of any Person (any of the foregoing being referred to herein as a "Lien"), excluding, however, from the operation of the foregoing restrictions the Liens created under the Loan Documents and the following: (i) Liens for taxes, assessments or governmental charges or levies to the extent not past due or contested in good faith by appropriate proceedings, with adequate reserves set aside for the payment thereof in accordance with generally accepted accounting principles; (ii) Liens imposed by law, such as materialmen's, mechanics', carriers', workmen's, repairmen's, warehousemen's and landlord's liens and other similar Liens arising in the ordinary course of business securing obligations which are not overdue or which are being contested in good faith by appropriate proceedings, with adequate 40 reserves set aside for the payment thereof in accordance with generally accepted accounting principles; (iii) pledges or deposits to secure obligations under workmen's compensation laws or similar legislation, to secure obligations individually or in the aggregate equal to or less than $25,000,000 referred to in clause (vi) of the definition of Debt, to secure public or statutory obligations of the Borrower or such Significant Subsidiary, or to secure the utility obligations and power purchase commitments of the Borrower or any such Significant Subsidiary incurred in the ordinary course of business; (iv) (A) purchase money Liens upon or in property now owned or hereafter acquired by the Borrower or any of its Significant Subsidiaries in the ordinary course of business (consistent with present practices) to secure (1) the purchase price of such property or (2) Debt incurred solely for the purpose of financing the acquisition, construction or improvement of any such property to be subject to such Liens, or (B) Liens existing on any such property at the time of acquisition, or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount, provided that no such Lien shall extend to or cover any property other than the property being acquired, constructed or improved and replacements, modifications and proceeds of such property, and no such extension, renewal or replacement shall extend to or cover any property not theretofore subject to the Lien being extended, renewed or replaced; (v) attachment, judgment or other similar Liens arising in connection with court proceedings, provided that, with respect to any Lien involving an amount of $25,000,000 or more, the execution or other enforcement of such Liens is effectively stayed and the claims secured thereby are being actively contested in good faith by appropriate proceedings or the payment of which is covered in full (subject to customary deductible amounts) by insurance maintained with responsible insurance companies and the applicable insurance company has acknowledged its liability therefor in writing; (vi) Liens arising under the Mortgage dated July 1, 1923, as supplemented and amended by a Supplemental Indenture dated August 1, 1944 and other supplemental indentures, from the Borrower, as mortgagor, to Harris Trust and Savings Bank and D.G. Donovan, as trustees, pursuant to which the Borrower has issued, and may hereafter issue, its mortgage bonds; (vii) Liens, if any, arising in connection with (A) the sale or sale/leaseback of nuclear fuel to the extent permitted in clause (w) of the proviso to Section 5.02(d) hereof, but only to the extent that the Liens so arising are placed upon the nuclear fuel so sold or sold/leased back, or (B) the sale, pledge or other disposition of accounts receivable to the extent permitted by clause (x) of the proviso of Section 5.02(d) hereof, but only to the extent that the Liens so arising are placed upon the accounts receivable so sold, pledged or otherwise disposed of, or (C) the issuance of Transitional Funding Instruments to the extent permitted by clause (y) of the proviso of Section 5.02(d) hereof; (viii) Liens, if any, arising in connection with Capitalized Lease Obligations, but only on the equipment or property subject to such Capitalized Lease Obligations; 41 (ix) Liens on the capital stock of or any other equity interest in any of the Borrower's Subsidiaries (which are not Significant Subsidiaries) or any such Subsidiary's assets to secure the payment and performance of Debt obligations in connection with any project financing for such Subsidiary (provided that the obligee of such obligations shall have no recourse to the Borrower to satisfy such obligations, other than pursuant to any such Liens on the Borrower's equity interests in such Subsidiary); (x) Liens on the assets and/or rights to receive income of any Person that exist at the time that such Person becomes a Significant Subsidiary and the continuation of such Liens in connection with any refinancing or restructuring of the obligations secured by such Liens; and (xi) other Liens which, taken together with the Liens arising pursuant to the foregoing clauses or individually, do not have a Material Adverse Effect. (b) Compliance with ERISA. (i) Permit to exist any "accumulated funding deficiency" (as defined in Section 412(a) of the Internal Revenue Code of 1986, as amended from time to time) (unless such deficiency exists with respect to a Multiple Employer Plan or Multiemployer Plan and the Borrower has no control over the reduction or elimination of such deficiency), (ii) terminate, or permit any ERISA Affiliate of the Borrower to terminate, any Plan of the Borrower or such ERISA Affiliate so as to result in a liability of $25,000,000 or more of the Borrower to the PBGC, or (iii) permit to exist any occurrence of any Reportable Event (as defined in Title IV of ERISA), other than a Reportable Event for which the 30-day notice requirement with respect thereto has been waived by the PBGC or any other event or condition, which presents a material (in the reasonable opinion of the Majority Lenders) risk of such a termination by the PBGC of any Plan of the Borrower or such ERISA Affiliate and such a liability to the Borrower. (c) Transactions with Affiliates. Enter into, or permit any of its Subsidiaries to enter into, any transaction with an Affiliate of the Borrower, unless (i) such transaction is on terms no less favorable to the Borrower or such Subsidiary, as the case may be, than if the transaction had been negotiated in good faith on an arm's length basis with a Person which was not an Affiliate of the Borrower or (ii) such transaction is conducted pursuant to the Affiliated Interests Agreement dated as of December 4, 1995 among the Borrower, Unicom Corporation and the other entities named therein, as it may be amended or modified from time to time or replaced by an agreement regarding such transactions approved by the Illinois Commerce Commission or the Securities and Exchange Commission. Notwithstanding the forgoing, the terms of this Section 5.02(c) shall not apply to (i) the transactions contemplated by the Asset Sale Agreement, dated as of May 11, 1999, between the Borrower and Unicom Investment Inc. relating to the sale of the Borrower's fossil generation assets, (ii) the transfer by the Borrower to Unicom Technology Development Inc. of up to $275,000,000 of notes receivable from Unicom Investment Inc. under said Asset Sale Agreement along with an obligation in respect of an equivalent amount of the Borrower's contingent obligation to pay post-retirement health care benefits, and (iii) the transactions associated with a transfer of the Borrower's nuclear generating stations to an Affiliate as permitted by clause (v) of Section 5.02(d). 42 (d) Mergers, Etc. Merge or consolidate with or into any Person, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions, and whether in a sale/leaseback transaction or otherwise) more than 10% of its assets (whether now owned or hereafter acquired), unless, in the case of a merger, immediately after giving effect thereto, (i) no event shall occur and be continuing that constitutes an Unmatured Default or an Event of Default, (ii) the Borrower is the surviving corporation, and (iii) the Borrower shall not be liable with respect to any Debt or allow its property to be subject to any Lien which it could not become liable with respect to or allow its property to become subject to under this Agreement on the date of such transaction; provided, however, that so long as no Unmatured Default or Event of Default has occurred and is continuing or would result from such transaction, (v) the Borrower may transfer its nuclear generating assets to an Affiliate, (w) the Borrower may engage in sale or sale/leaseback transactions with respect to nuclear fuel, (x) the Borrower may sell, pledge or otherwise dispose of its accounts receivable, (y) the Borrower may engage in transactions involving the issuance of Transitional Funding Instruments, and (z) the Borrower may sell its electric generating assets in one or a series of arms-length transactions for not less than the fair market value of such assets. (e) Maintenance of Ownership of Significant Subsidiaries. Sell, assign, transfer, pledge or otherwise dispose of any shares of capital stock of any of its Significant Subsidiaries or any warrants, rights or options to acquire such capital stock, or permit any of its Significant Subsidiaries to issue, sell or otherwise dispose of any shares of such Significant Subsidiary's capital stock, except (and only to the extent) as may be necessary to give effect to a transaction permitted by subsection (d) above. ARTICLE VI EVENTS OF DEFAULT SECTION 6.01. Events of Default. If any of the following events (each an "Event of Default") shall occur and be continuing after the applicable grace period and notice requirement (if any): (a) The Borrower shall fail to pay any principal of any Note when the same becomes due and payable; or (b) The Borrower shall fail to pay any interest on any Note or any other amount due under this Agreement for three Business Days after the same becomes due; or (c) The Borrower or any of its Subsidiaries shall fail to pay any principal of or premium or interest on any Debt of the Borrower that is outstanding in a principal amount of $25,000,000 or more in the aggregate (but excluding (i) Debt evidenced by the Notes and (ii) Nonrecourse Debt) when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or 43 (d) The Borrower or any of its Subsidiaries shall fail to observe any term or covenant on its part to be performed or observed and the effect of such failure is to accelerate or permit acceleration of any Debt of the Borrower that is outstanding in a principal amount of $25,000,000 or more in the aggregate (but excluding (i) Debt evidenced by the Notes and (ii) Nonrecourse Debt); or (e) Any representation or warranty made by or on behalf of the Borrower in any Loan Document or in any certificate or other writing delivered pursuant thereto shall prove to have been incorrect in any material respect when made or deemed made; or (f) The Borrower shall fail to perform or observe any term or covenant on its part to be performed or observed contained in Section 5.01(k) or 5.02 (other than subsection (c) thereof); or (g) The Borrower shall fail to perform or observe any other term or covenant on its part to be performed or observed contained in Section 5.01 or in any other Loan Document, and any such failure shall remain unremedied, after written notice thereof shall have been given to the Borrower by the Administrative Agent, for a period of 30 days; or (h) Any judgment or order for the payment of money in excess of $25,000,000 shall be rendered against the Borrower or any of its Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of ten consecutive Business Days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (i) The Borrower shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make an assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Borrower seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of its debts under any law relating to bankruptcy, insolvency, or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property and, in the case of a proceeding instituted against the Borrower, either such proceeding shall remain undismissed or unstayed for a period of 60 days or any of the actions sought in such proceeding (including without limitation the entry of an order for relief against the Borrower or the appointment of a receiver, trustee, custodian or other similar official for the Borrower or any of its property) shall occur; or the Borrower shall take any corporate or other action to authorize any of the actions set forth above in this subsection (i); or (j) Any Governmental Approval required in connection with the execution, delivery and performance of the Loan Documents shall be rescinded, revoked, otherwise terminated, or amended or modified in any manner which is materially adverse to the interests of the Lenders and the Administrative Agent; or (k) Any ERISA Event shall have occurred with respect to a Plan which could reasonably be expected to result in a liability of $25,000,000 or more to the Borrower, and, 30 44 days after notice thereof shall have been given to the Borrower by the Administrative Agent or any Lender, such ERISA Event shall still exist; or (l) An "event of default" (as defined therein) shall occur and be continuing under the Other Credit Agreement; then, and in any such event, the Administrative Agent (i) shall at the request, or may with the consent, of the Majority Lenders or, if no A Advances are then outstanding, Banks having greater than 50% of the Commitments (without giving effect to any B Reduction), by notice to the Borrower, declare the obligation of each Lender to make Advances to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of the Majority Lenders or, if no A Advances are then outstanding, Lenders having greater than 50% of the Commitments, by notice to the Borrower, declare the Notes (if any), all interest thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Notes, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided, however, that in the event of an actual or deemed entry of an order for relief with respect to the Borrower under the Federal Bankruptcy Code, (A) the Commitments and the obligation of each Lender to make Advances shall automatically be terminated and (B) the Notes, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower. ARTICLE VII THE ADMINISTRATIVE AGENT SECTION 7.01. Authorization and Action. Each Lender hereby appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent by the terms hereof, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement or any other Loan Document (including, without limitation, enforcement or collection of the Notes), the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Lenders, and such instructions shall be binding upon all Lenders and all holders of Notes; provided, however, that the Administrative Agent shall not be required to take any action which exposes the Administrative Agent to personal liability or which is contrary to this Agreement or applicable law. The Administrative Agent agrees to give to each Lender prompt notice of each notice given to it by the Borrower pursuant to the terms of this Agreement. The Administrative Agent shall be deemed to have exercised reasonable care in the administration and enforcement of this Agreement and the other Loan Documents if it undertakes such administration and enforcement in a manner substantially equal to that which the Administrative Agent accords credit facilities similar to the credit facility hereunder for which it is the sole lender. 45 SECTION 7.02. Administrative Agent's Reliance, Etc. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement or any other Loan Document, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Administrative Agent: (i) may treat the payee of any Note as the holder thereof until the Administrative Agent receives and accepts a Lender Assignment entered into by the Lender which is the payee of such Note, as assignor, and an Eligible Assignee, as assignee, as provided in Section 8.07; (ii) may consult with legal counsel (including counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (iii) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations (whether written or oral) made in or in connection with this Agreement or any other Loan Document; (iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or any other Loan Document on the part of the Borrower or to inspect the property (including the books and records) of the Borrower; (v) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, any other Loan Document or any other instrument or document furnished pursuant hereto or thereto; and (vi) shall incur no liability under or in respect of this Agreement or any other Loan Document by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopier, telegram, cable or telex) believed by it to be genuine and signed or sent by the proper party or parties. SECTION 7.03. Citibank, N.A. and Affiliates. With respect to its Commitment, the Advances made by it and the Notes issued to it, Citibank, N.A. shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Administrative Agent; and the term "Bank" or "Banks" and "Lender" or "Lenders" shall, unless otherwise expressly indicated, include Citibank, N.A. in its individual capacity. Citibank, N.A. and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Borrower, any of its Subsidiaries or Affiliates and any Person who may do business with or own securities of the Borrower or any such Subsidiary or Affiliate, all as if Citibank, N.A. were not the Administrative Agent and without any duty to account therefor to the Lenders. SECTION 7.04. Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. SECTION 7.05. Indemnification. The Lenders agree to indemnify the Administrative Agent (to the extent not reimbursed by the Borrower), ratably according to (a) on or before the Termination Date, the respective principal amounts of the A Notes then held by each of them (or if no A Notes are at the time outstanding or if any A Notes are held by Persons which are not 46 Lenders, ratably according to the respective Percentages of the Lenders), or (b) after the Termination Date, the respective principal amounts of the Notes then held by each of them (or if no Notes are at the time outstanding or if any Notes are held by Persons which are not Lenders, ratably according to the respective unpaid principal amounts of the Advances made by each Lender), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Administrative Agent in any way relating to or arising out of this Agreement or any action taken or omitted by the Administrative Agent under this Agreement, provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Administrative Agent's gross negligence or willful misconduct. Without limitation of the foregoing, each Lender agrees to reimburse the Administrative Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including counsel fees) incurred by the Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, to the extent that the Administrative Agent is not reimbursed for such expenses by the Borrower. SECTION 7.06. Successor Administrative Agent. The Administrative Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower and may be removed at any time with or without cause by the Majority Lenders, with any such resignation or removal to become effective only upon the appointment of a successor Administrative Agent pursuant to this Section 7.06. Upon any such resignation or removal, the Majority Lenders shall have the right to appoint a successor Administrative Agent, which shall be a Lender or shall be another commercial bank or trust company reasonably acceptable to the Borrower organized under the laws of the United States or of any State thereof. If no successor Administrative Agent shall have been so appointed by the Majority Lenders, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent's giving of notice of resignation or the Majority Lenders' removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent, which shall be a Lender or shall be another commercial bank or trust company organized under the laws of the United States or any State thereof and reasonably acceptable to the Borrower. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Article VII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. ARTICLE VIII MISCELLANEOUS SECTION 8.01. Amendments, Etc. No amendment or waiver of any provision of any Loan Document, nor consent to any departure by the Borrower therefrom, shall in any event be 47 effective unless the same shall be in writing and signed by the Majority Lenders and, in the case of any amendment, the Borrower, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by all the Lenders, do any of the following: (a) waive, modify or eliminate any of the conditions specified in Section 3.01 or 3.02, (b) increase the Commitments of the Lenders, change or extend the Termination Date (except as provided in Section 2.18) or subject the Lenders to any additional obligations, (c) reduce the principal of, or interest on, the A Notes, any Applicable Margin or any fees or other amounts payable hereunder, (d) postpone any date fixed for any payment of principal of, or interest on, the A Notes or any fees or other amounts payable hereunder, (e) change the percentage of the Commitments or of the aggregate unpaid principal amount of the A Notes, or the number of Lenders, which shall be required for the Lenders or any of them to take any action hereunder or (f) amend this Section 8.01; and provided, further, that no amendment, waiver or consent shall, unless in writing and signed by the Lenders making or maintaining such B Advances, do any of the following: (a) waive, modify or eliminate any of the conditions to any B Advance specified in Section 3.03, (b) reduce the principal of, or interest on, any B Note or other amounts payable in respect thereof, (c) postpone any date fixed for any payment of principal of, or interest on, any B Note or any other amounts payable in respect thereof; and provided, further, that no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above to take such action, affect the rights or duties of the Administrative Agent under this Agreement or any Note. SECTION 8.02. Notices, Etc. All notices and other communications provided for hereunder and under the other Loan Documents shall be in writing (including telecopier, telegraphic, telex or cable communication) and mailed, telecopied, telegraphed, telexed, cabled or delivered, if to the Borrower, at its address at Bank One Plaza- 37th Floor, 10 South Dearborn Street, Chicago, Illinois 60603 (or P.O. Box 767, Chicago, Illinois 60690-0767, if mailed), Attention: Treasurer (telephone: 312-394-5767; and telecopier: 312-394-3110), with a copy to the same address, attention: Associate General Counsel-Corporate and Commercial (telephone: 312-394-3179; and telecopier: 312-394-3950); if to any Bank, at its Domestic Lending Office specified opposite its name on Schedule I hereto; if to any other Lender, at its Domestic Lending Office specified in the Lender Assignment pursuant to which it became a Lender; and if to the Administrative Agent, at its address at Two Pennsway, Ste. 200, New Castle, Delaware 19720, Attention: Bank Loan Syndications; or, as to each party, at such other address as shall be designated by such party in a written notice to the other parties. All such notices and communications shall, when mailed, telecopied, telegraphed, telexed or cabled, be effective five days after being deposited in the mails, or when delivered to the telegraph company, telecopied, confirmed by telex answerback or delivered to the cable company, respectively, except that notices and communications to the Administrative Agent pursuant to Article II or VII shall not be effective until received by the Administrative Agent. SECTION 8.03. No Waiver; Remedies. No failure on the part of any Lender or the Administrative Agent to exercise, and no delay in exercising, any right hereunder or under any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. 48 SECTION 8.04. Costs, Expenses, Taxes and Indemnification. (A) The Borrower agrees to pay on demand all costs and expenses of the Administrative Agent in connection with the preparation (including, without limitation, printing costs), negotiation, execution, delivery, modification and amendment of this Agreement and the other Loan Documents, and the other documents and instruments to be delivered hereunder and thereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Administrative Agent with respect thereto and with respect to the administration of, and advising the Administrative Agent as to its rights and responsibilities under, this Agreement and the other Loan Documents. The Borrower further agrees to pay on demand all costs and expenses, if any (including, without limitation, reasonable counsel fees and expenses), in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Agreement and the other Loan Documents and the other documents and instruments to be delivered hereunder and thereunder, including, without limitation, reasonable counsel fees and expenses in connection with the enforcement of rights under this Section 8.04(a). In addition, the Borrower shall pay any and all stamp and other taxes payable or determined to be payable in connection with the execution and delivery of this Agreement and the other Loan Documents, and the other documents and instruments to be delivered hereunder and thereunder, and agrees to save the Administrative Agent and each Lender harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes. (b) If any payment of principal of, or Conversion of, any Eurodollar Rate Advance or B Advance is made other than on the last day of the Interest Period for such A Advance or other than on the maturity date of such B Advance, as a result of a payment or Conversion pursuant to Section 2.10, 2.11, 2.12 or 2.14 or acceleration of the maturity of the Notes pursuant to Section 6.01 or for any other reason, the Borrower shall, upon demand by any Lender (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, costs or expenses which it may reasonably incur as a result of such payment or Conversion, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Advance. (c) The Borrower hereby agrees to indemnify and hold each Lender, the Administrative Agent and their respective officers, directors, employees, professional advisors and affiliates (each, an "Indemnified Person") harmless from and against any and all claims, damages, losses, liabilities, costs or expenses (including reasonable attorney's fees and expenses, whether or not such Indemnified Person is named as a party to any proceeding or is otherwise subjected to judicial or legal process arising from any such proceeding) which any of them may incur or which may be claimed against any of them by any Person (except for such claims, damages, losses, liabilities, costs and expenses resulting from such Indemnified Person's gross negligence or willful misconduct): (i) by reason of or in connection with the execution, delivery or performance of any of the Loan Documents or any transaction contemplated thereby, or the use by the Borrower of the proceeds of any Extension of Credit; 49 (ii) in connection with any documentary taxes, assessments or charges made by any governmental authority by reason of the execution and delivery of any of the Loan Documents; or (iii) in connection with or resulting from the utilization, storage, disposal, treatment, generation, transportation, release or ownership of any Hazardous Substance (i) at, upon, or under any property of the Borrower or any of its Affiliates or (ii) by or on behalf of the Borrower or any of its Affiliates at any time and in any place. (d) The Borrower's obligations under this Section 8.04 shall survive the repayment of all amounts owing to the Lenders under the Notes and the termination of the Commitments. If and to the extent that the obligations of the Borrower under this Section 8.04 are unenforceable for any reason, the Borrower agrees to make the maximum contribution to the payment and satisfaction thereof which is permissible under applicable law. SECTION 8.05. Right of Set-off. (A) Upon (i) the occurrence and during the continuance of any Event of Default and (ii) the making of the request or the granting of the consent by the Majority Lenders specified by Section 6.01 to authorize the Administrative Agent to declare the Notes due and payable pursuant to the provisions of Section 6.01, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under any Loan Document and any Note held by such Lender, irrespective of whether or not such Lender shall have made any demand under such Loan Document or such Note and although such obligations may be unmatured. Each Lender agrees promptly to notify the Borrower after any such set-off and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such set- off and application. The rights of each Lender under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which such Lender may have. (b) The Borrower agrees that it shall have no right of set-off, deduction or counterclaim in respect of its obligations hereunder, and that the obligations of the Lenders hereunder are several and not joint. Nothing contained herein shall constitute a relinquishment or waiver of the Borrower's rights to any independent claim that the Borrower may have against the Administrative Agent or any Lender for the Administrative Agent's or such Lender's, as the case may be, gross negligence or willful misconduct, but no Lender shall be liable for the conduct of the Administrative Agent or any other Lender, and the Administrative Agent shall not be liable for the conduct of any Lender. SECTION 8.06. Binding Effect. This Agreement shall become effective when it shall have been executed by the Borrower and the Administrative Agent and when the Administrative Agent shall have been notified in writing by each Bank that such Bank has executed it and thereafter shall be binding upon and inure to the benefit of the Borrower, the Administrative Agent and each Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lenders. 50 SECTION 8.07. Assignments and Participations. (A) Each Lender may, upon the written consent of the Administrative Agent and the Borrower (such consent not to be unreasonably withheld and, in the case of the Borrower, not to be required if an Event of Default exists), assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment, the Advances owing to it and the Note or Notes held by it); provided, however, that (i) each such assignment shall be of a constant, and not a varying, percentage of all of the assigning Lender's rights and obligations under this Agreement, (ii) the amount of the Commitment of the assigning Lender being assigned pursuant to each such assignment (determined as of the date of the Lender Assignment with respect to such assignment) shall in no event be less than the lesser of the amount of such Lender's then remaining Commitment and $15,000,000 (except in the case of assignments between Lenders at the time already parties hereto), and (iii) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, a Lender Assignment, together with any Note or Notes subject to such assignment and a processing and recordation fee of $3,000. Promptly following its receipt of such Lender Assignment, Note or Notes and fee, the Administrative Agent shall accept and record such Lender Assignment in the Register. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Lender Assignment, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Lender Assignment, have the rights and obligations of a Lender hereunder and (y) the Lender assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Lender Assignment, relinquish its rights and be released from its obligations under this Agreement (and, in the case of a Lender Assignment covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto). Notwithstanding anything to the contrary contained in this Agreement, any Lender may at any time assign all or any portion of the Advances owing to it to any Affiliate of such Lender. No such assignment, other than to an Eligible Assignee, shall release the assigning Lender from its obligations hereunder. (b) By executing and delivering a Lender Assignment, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Lender Assignment, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with any Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of any Loan Document or any other instrument or document furnished pursuant thereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under any Loan Document or any other instrument or document furnished pursuant thereto; (iii) such assignee confirms that it has received a copy of each Loan Document, together with such documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Lender Assignment; (iv) such assignee will, independently and without reliance upon the Administrative Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee 51 appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under the Loan Documents as are delegated to the Administrative Agent by the terms thereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender. (c) The Administrative Agent shall maintain at its address referred to in Section 8.02 a copy of each Lender Assignment delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Advances owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of a Lender Assignment executed by an assigning Lender and an assignee representing that it is an Eligible Assignee, together with any Note or Notes subject to such assignment, the Administrative Agent shall, with the consent of the Borrower (such consent not to be unreasonably withheld), and provided that such Lender Assignment has been completed and is in substantially the form of Exhibit 8.07 hereto, (i) accept such Lender Assignment, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower. Within 10 Business Days after its receipt of such notice, the Borrower, at its own expense, shall execute and deliver to the Administrative Agent in exchange for the surrendered Note or Notes a new Note to the order of such Eligible Assignee in an amount equal to the Commitment assumed by it pursuant to such Lender Assignment and, if the assigning Lender has retained a Commitment hereunder, a new Note to the order of the assigning Lender in an amount equal to the Commitment retained by it hereunder. Such new Note or Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note or Notes, shall be dated the effective date of such Lender Assignment and shall otherwise be in substantially the form of Exhibit 1.01A-1 hereto. (e) Each Lender may sell participations to one or more banks, financial institutions or other entities in all or a portion of its rights and obligations under the Loan Documents (including, without limitation, all or a portion of its Commitment, the Advances owing to it and the Note or Notes held by it); provided, however, that (i) such Lender's obligations under this Agreement (including, without limitation, its Commitment to the Borrower hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any such Note for all purposes of this Agreement, and (iv) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. (f) Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 8.07, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrower furnished to such Lender by or on behalf of the Borrower; provided that, prior to any such disclosure, the assignee 52 or participant or proposed assignee or participant shall agree, in accordance with the terms of Section 8.08, to preserve the confidentiality of any Confidential Information relating to the Borrower received by it from such Lender. (g) If any Lender (or any bank, financial institution, or other entity to which such Lender has sold a participation) shall (i) make any demand for payment under Section 2.08, 2.13 or 2.16, (ii) give notice to the Administrative Agent pursuant to Section 2.14, (iii) either (A) not have outstanding unsecured long-term indebtedness rated at or above "investment grade" by each of Moody's and S&P, or (B) not have outstanding short-term unsecured indebtedness rated at or above A-2 or P-2 by each of Moody's and S&P or (iv) determine not to extend the Termination Date in response to any request by the Borrower pursuant to Section 2.18, then (1) in the case of any demand made under clause (i) above, or the occurrence of the event described in clause (ii) above, within 30 days after any such demand or occurrence (if, but only if, in the case of any demanded payment described in clause (i), such demanded payment has been made by the Borrower), and (2) in the case of the occurrence of the event described in clause (iii) or (iv) above, at any time prior to the then-scheduled Termination Date, the Borrower may, with the approval of the Administrative Agent (which approval shall not be unreasonably withheld), and provided that no Event of Default or Unmatured Default shall then have occurred and be continuing, demand that such Lender assign in accordance with this Section 8.07 (provided the Borrower shall pay the $3,000 administrative fee specified in 8.07(a)) to one or more Eligible Assignees designated by the Borrower all (but not less than all) of such Lender's Commitment and the Advances owing to it within the period ending on the latest to occur of (x) the last day in the period described in clause (1) or (2) above, as applicable, (y) the last day of the longest of the then current Interest Periods for such Advances, and (z) the latest maturity date of any B Advances owing to such Lender. If any such Eligible Assignee designated by the Borrower shall fail to consummate such assignment on terms acceptable to such Lender, or if the Borrower shall fail to designate any such Eligible Assignees for all or part of such Lender's Commitment or Advances, then such demand by the Borrower shall become ineffective; it being understood for purposes of this subsection (g) that such assignment shall be conclusively deemed to be on terms acceptable to such Lender, and such Lender shall be compelled to consummate such assignment to an Eligible Assignee designated by the Borrower, if such Eligible Assignee (x) shall agree to such assignment by entering into a Lender Assignment with such Lender and (y) shall offer compensation to such Lender in an amount equal to all amounts then owing by the Borrower to such Lender hereunder and under the Note made by the Borrower to such Lender, whether for principal, interest, fees, costs or expenses (other than the demanded payment referred to above and payable by the Borrower as a condition to the Borrower's right to demand such assignment), or otherwise. (h) Anything in this Section 8.07 to the contrary notwithstanding, any Lender may assign and pledge all or any portion of its Commitment and the Advances owing to it (i) with notice to the Borrower and the Agent, to any of its affiliates and (ii) without the consent of the Borrower or the Agent, to any Federal Reserve Bank (and its transferees) as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Lender from its obligations hereunder. 53 SECTION 8.08. Confidentiality. In connection with the negotiation and administration of this Agreement and the other Loan Documents, the Borrower has furnished and will from time to time furnish to the Administrative Agent and the Lenders (each, a "Recipient") written information which is identified to the Recipient in writing when delivered as confidential (such information, other than any such information which (i) is publicly available, or otherwise known to the Recipient, at the time of disclosure, (ii) subsequently becomes publicly available other than through any act or omission by the Recipient or (iii) otherwise subsequently becomes known to the Recipient other than through a Person whom the Recipient knows to be acting in violation of his or its obligations to the Borrower, being hereinafter referred to as "Confidential Information"). The Recipient will maintain the confidentiality of any Confidential Information in accordance with such procedures as the Recipient applies generally to information of that nature. It is understood, however, that the foregoing will not restrict the Recipient's ability to freely exchange such Confidential Information with current or prospective participants in or assignees of the Recipient's position herein or an Affiliate of such Lender, but the Recipient's ability to so exchange Confidential Information shall be conditioned upon any such prospective participant's or assignee's or Affiliate's entering into an understanding as to confidentiality similar to this provision. It is further understood that the foregoing will not prohibit the disclosure of any or all Confidential Information if and to the extent that such disclosure may be required (i) by a regulatory agency or otherwise in connection with an examination of the Recipient's records by appropriate authorities, (ii) pursuant to court order, subpoena or other legal process or in connection with any pending or threatened litigation, (iii) otherwise as required by law, or (iv) in order to protect its interests or its rights or remedies hereunder or under the other Loan Documents; in the event of any required disclosure under clause (ii) or (iii) above, the Recipient agrees to use reasonable efforts to inform the Borrower as promptly as practicable. SECTION 8.09. Waiver of Jury Trial. THE ADMINISTRATIVE AGENT, THE LENDERS AND THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE ADMINISTRATIVE AGENT, SUCH LENDERS OR THE BORROWER. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE ADMINISTRATIVE AGENT AND THE LENDERS ENTERING INTO THIS AGREEMENT. SECTION 8.10. Governing Law. This Agreement and the other Loan Documents shall be governed by, and construed in accordance with, the laws of the State of New York. Each of the Borrower, each Lender, and the Administrative Agent (i) irrevocably submits to the non-exclusive jurisdiction of any New York State court or Federal court sitting in New York City in any action arising out of any Loan Document, (ii) agrees that all claims in such action may be decided in such court, (iii) waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum and (iv) consents to the service of process by mail return receipt requested to the address and Person identified for delivery of notice pursuant to Section 8.02. A final judgment in any such action shall be conclusive and may be enforced in other jurisdictions. 54 Nothing herein shall affect the right of any party to serve legal process in any manner permitted by law or affect its right to bring any action in any other court. SECTION 8.11. Relation of the Parties; No Beneficiary. No term, provision or requirement, whether express or implied, of any Loan Document, or actions taken or to be taken by any party thereunder, shall be construed to create a partnership, association, or joint venture between such parties or any of them. No term or provision of the Loan Documents shall be construed to confer a benefit upon, or grant a right or privilege to, any Person other than the parties thereto. SECTION 8.12. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. COMMONWEALTH EDISON COMPANY By: ____________________________________ Name: Patricia L. Kampling Title: Treasurer Administrative Agent -------------------- CITIBANK, N.A., as Administrative Agent and as Bank By: ____________________________________ Name: Title: SCHEDULE I COMMONWEALTH EDISON COMPANY 3-Year Credit Agreement, dated as of December 17, 1999, among Commonwealth Edison Company, the Banks named therein and Citibank, N.A., as Administrative Agent
Name of Bank Commitment Domestic Lending Office Eurodollar Lending Office - ------------ ---------- ----------------------- ------------------------- Citibank, N.A. $ 40,500,000 Two Pennsway, Ste. 200 Same as Domestic Lending New Castle, Delaware 19720 Office Attention: Bank Loan Syndications Bank of New York $ 39,750,000 One Wall Street, 19/th/ Floor Same as Domestic Lending New York, New York 10286 Office Attention: Lisa Williams Morgan Guaranty $ 39,750,000 60 Wall Street Morgan Guaranty Trust New York, New York 10260 Nassau Bahamas Office Attention: Andrew Lipsett c/o J.P. Morgan Services, Inc. 500 Stanton-Christiana Rd. Newark, DE 19713 Attention: Andrew Lipsett Chase Manhattan $ 33,750,000 1 Chase Manhattan Plaza, 8/th/ Floor Same as Domestic Lending New York, NY 10018 Office Attention: Lynette Lang ABN AMRO $ 28,125,000 208 South LaSalle Street, Suite 1500 Same as Domestic Lending Chicago, Illinois 60604 Office Attention: Loan Administration Bank of America $ 28,125,000 100 North Tryon Street, 16/th/ Floor Same as Domestic Lending Charlotte, North Carolina 28255 Office Attention: Gretchen Burud Bank of Montreal $ 28,125,000 115 S. LaSalle Street, 11/th/ Floor Same as Domestic Lending Chicago, IL 60603 Office Attention: Keiko Kuze Bayerisch Landesbank $ 18,750,000 560 Lexington Avenue, 17/th/ Floor Same as Domestic Lending New York, New York 10022 Office Attention: Sean O' Sullivan Northern Trust $ 15,000,000 50 S. LaSalle Street Same as Domestic Lending Chicago, Illinois 60675 Office Attention: Nicole Boehm Barclays $ 18,750,000 222 Broadway Same as Domestic Lending New York, New York 10038 Office Attention: Marsha Hamlette Industrial Bank of Japan $ 9,375,000 Credit Administration #1 Department Same as Domestic Lending 1251 Avenue of the Americas Office New York, NY 10020 Attn: Agnes Aberin
EX-4.23 3 CREDIT AGREEMENT DATED 12/17/99 $500,000,000 Exhibit (4)-23 Commonwealth Edison Company Form 10-K File No. 1-1839 ______________________________________________________________________________ $500,000,000 364-DAY CREDIT AGREEMENT Dated as of December 17, 1999 Among COMMONWEALTH EDISON COMPANY as Borrower and THE BANKS NAMED HEREIN as Banks and CITIBANK, N.A. as Administrative Agent ______________________________________________________________________________ TABLE OF CONTENTS
Section Page ARTICLE I DEFINITIONS AND ACCOUNTING TERMS Section 1.01. Certain Defined Terms................................................ 1 Section 1.02. Computation of Time Periods.......................................... 14 Section 1.03. Computations of Outstandings......................................... 14 Section 1.04. Accounting Terms..................................................... 14 ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES Section 2.01. The A Advances....................................................... 14 Section 2.02. Making the A Advances................................................ 15 Section 2.03. The B Advances....................................................... 16 Section 2.04. Fees................................................................. 19 Section 2.05. Reduction of the Commitments......................................... 19 Section 2.06. Repayment of A Advances.............................................. 20 Section 2.07. Interest on A Advances............................................... 20 Section 2.08. Additional Interest on Eurodollar Rate Advances...................... 20 Section 2.09. Interest Rate Determination.......................................... 21 Section 2.10. Voluntary Conversion of A Advances................................... 22 Section 2.11. Optional Prepayments of A Advances................................... 23 Section 2.12. Mandatory Prepayments................................................ 23 Section 2.13. Increased Costs...................................................... 23 Section 2.14. Illegality........................................................... 24 Section 2.15. Payments and Computations............................................ 25 Section 2.16. Taxes................................................................ 26 Section 2.17. Sharing of Payments, Etc............................................. 27 Section 2.18. Extension of Termination Date........................................ 28 ARTICLE III CONDITIONS OF LENDING Section 3.01. Conditions Precedent to Closing...................................... 29 Section 3.02. Conditions Precedent to Each A Borrowing............................. 31 Section 3.03. Conditions Precedent to Each B Borrowing............................. 31 Section 3.04. Conditions Precedent to Each Extension of the Termination Date....... 32 Section 3.05. Reliance on Certificates............................................. 32
i ARTICLE IV REPRESENTATIONS AND WARRANTIES Section 4.01. Representations and Warranties of the Borrower....................... 33 ARTICLE V COVENANTS OF THE BORROWER Section 5.01. Affirmative Covenants................................................ 35 Section 5.02. Negative Covenants................................................... 39 ARTICLE VI EVENTS OF DEFAULT Section 6.01. Events of Default.................................................... 43 ARTICLE VII THE ADMINISTRATIVE AGENT Section 7.01. Authorization and Action............................................. 45 Section 7.02. Administrative Agent's Reliance, Etc................................. 45 Section 7.03. Citibank, N.A. and Affiliates........................................ 45 Section 7.04. Lender Credit Decision............................................... 46 Section 7.05. Indemnification...................................................... 46 Section 7.06. Successor Administrative Agent....................................... 46 ARTICLE VIII MISCELLANEOUS Section 8.01. Amendments, Etc...................................................... 47 Section 8.02. Notices, Etc......................................................... 47 Section 8.03. No Waiver; Remedies.................................................. 48 Section 8.04. Costs, Expenses, Taxes and Indemnification........................... 48 Section 8.05. Right of Set-off..................................................... 49 Section 8.06. Binding Effect....................................................... 50 Section 8.07. Assignments and Participations....................................... 50 Section 8.08. Confidentiality...................................................... 53 Section 8.09. Waiver of Jury Trial................................................. 53 Section 8.11. Governing Law........................................................ 54 Section 8.12. Relation of the Parties; No Beneficiary.............................. 54 Section 8.13. Execution in Counterparts............................................ 54
ii SCHEDULES --------- Schedule I: Commitment Allocations EXHIBITS -------- Exhibit 1.01A-1: Form of A Note Exhibit 1.01A-2: Form of B Note Exhibit 2.02(a): Form of Notice of A Borrowing Exhibit 2.03(a)(i): Form of Notice of B Borrowing Exhibit 2.10: Form of Notice of Conversion Exhibit 2.18(a): Form of Request for Extension of the Termination Date Exhibit 3.01(a)(viii)-1: Form of Opinion of Counsel to the Borrower Exhibit 3.01(a)(viii)-2: Form of Opinion of Counsel to the Agent Exhibit 8.07: Form of Lender Assignment iii CREDIT AGREEMENT Dated as of December 17, 1999 THIS 364-DAY CREDIT AGREEMENT (this "Agreement") is made by and among: (i) COMMONWEALTH EDISON COMPANY, an Illinois corporation (the "Borrower"), (ii) the banks (the "Banks") listed on the signature pages hereof and the other Lenders (as hereinafter defined) from time to time party hereto, and (iii) CITIBANK, N.A. ("Citibank"), as agent (the "Administrative Agent") for the Lenders hereunder. ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "A Advance" means an advance by a Lender to the Borrower as part of an A Borrowing and refers to a Base Rate Advance or a Eurodollar Rate Advance, each of which shall be a "Type" of A Advance. "A Borrowing" means a borrowing consisting of simultaneous A Advances of the same Type, having the same Interest Period and ratably made or Converted on the same day by each of the Lenders pursuant to Section 2.02 or 2.10, as the case may be. All Advances of the same Type, having the same Interest Period and made or Converted on the same day shall be deemed a single Borrowing hereunder until repaid or next Converted. "A Note" means a promissory note of the Borrower payable to the order of any Lender, in substantially the form of Exhibit 1.01A-1 hereto, evidencing the aggregate indebtedness of the Borrower to such Lender resulting from the A Advances made by such Lender. "Advance" means an A Advance or a B Advance. "Affiliate" means, with respect to any Person, any other Person directly or indirectly controlling (including but not limited to all directors and any officer who possesses the power described in the next sentence), controlled by, or under direct or indirect common control with such Person. A Person shall be deemed to control another entity if such Person possesses, directly or indirectly, the power to direct or cause the 2 direction of the management and policies of such entity, whether through the ownership of voting securities, by contract, or otherwise. "Alternate Base Rate" means a fluctuating interest rate per annum as shall be in effect from time to time which rate per annum shall at all times be equal to the higher of: (i) the rate of interest announced publicly by Citibank, N.A. in New York, New York, from time to time, as Citibank, N.A.'s base rate; and (ii) for the period from the date of the Closing through (and including) January 31, 2000, a rate equal to 2% per annum above the Federal Funds Rate, and thereafter, 1/2 of one percent per annum above the Federal Funds Rate. Each change in the Alternate Base Rate shall take effect concurrently with any change in such base rate or the Federal Funds Rate. "Applicable Lending Office" means, with respect to each Lender, such Lender's Domestic Lending Office in the case of a Base Rate Advance and such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate Advance and, in the case of a B Advance, the office of such Lender notified by such Lender to the Administrative Agent as its Applicable Lending Office with respect to such B Advance. "Applicable Margin" means, on any date, for a Eurodollar Rate Advance or Base Rate Advance, the number of basis points set forth below in the columns identified as Level 1, Level 2, Level 3, Level 4 and Level 5, as determined by reference to the lower of the ratings issued by S&P or Moody's, by reference to the chart below, for non-credit-enhanced long-term senior secured debt of the Borrower (the "Reference Ratings") and in effect on such date.
-------------------------------------------------------------------------------------------- Level 1 Level 2 Level 3 Level 4 Level 5 S&P ------- ------- ------- ------- ------- A- or better BBB+ BBB BBB- Lower than Moody's and and and and Level 4 or A3 or better Baa1 Baa2 Baa3 unrated -------------------------------------------------------------------------------------------- Basis Points Per Annum -------------------------------------------------------------------------------------------- Eurodollar Rate Advance 40.00 62.50 72.50 80.00 162.50 -------------------------------------------------------------------------------------------- Base Rate Advance 0 0 0 0 0 --------------------------------------------------------------------------------------------
The Applicable Margin shall increase (a)(i) by 12.50 basis points for any Reference Rating designated as Level 1, Level 2 or Level 3, (ii) by 25.00 basis points for any Reference Rating designated as Level 4 and (iii) by 50.00 basis points for any Reference Rating designated as Level 5, in each case, at any time that more than 50% of the Commitments are utilized, and (b) by 50.00 basis points at any time any Advance is outstanding during the period from the date of the Closing through (and including) January 31, 2000. 3 Any change in the Reference Ratings shall effect an immediate change in the Applicable Margin. "Applicable Rate" means: (i) in the case of each Base Rate Advance, a rate per annum equal at all times to the sum of the Alternate Base Rate in effect from time to time plus the Applicable Margin in effect from time to time; and (ii) in the case of each Eurodollar Rate Advance comprising part of the same A Borrowing, a rate per annum during each Interest Period equal at all times to the sum of the Eurodollar Rate for such Interest Period plus the Applicable Margin in effect from time to time during such Interest Period. "Available Commitment" means, for each Lender at any time on any day, the unused portion of such Lender's Commitment, computed after giving effect to all Extensions of Credit made or to be made on such day, the application of proceeds therefrom and all prepayments and repayments of Advances made on such day. "Available Commitments" means the aggregate of the Lenders' Available Commitments hereunder. "B Advance" means an advance by a Lender to the Borrower as part of a B Borrowing resulting from the auction bidding procedure described in Section 2.03. "B Borrowing" means a borrowing consisting of simultaneous B Advances from each of the Lenders whose offer to make one or more B Advances as part of such borrowing has been accepted by the Borrower under the auction bidding procedure described in Section 2.03. "B Note" means a promissory note of the Borrower payable to the order of any Lender, in substantially the form of Exhibit 1.01A-2 hereto, evidencing the aggregate indebtedness of the Borrower to such Lender resulting from a B Advance made by such Lender. "B Reduction" has the meaning assigned to that term in Section 2.01. "Base Rate Advance" means an A Advance that bears interest as provided in Section 2.07(a). "Borrowing" means an A Borrowing or a B Borrowing. Any A Borrowing consisting of A Advances of a particular Type may be referred to as being an A Borrowing of such "Type". 4 "Business Day" means a day of the year on which banks are not required or authorized to close in New York City or Chicago, Illinois, and, if the applicable Business Day relates to any Eurodollar Rate Advance, on which dealings are carried on in the London interbank market. "Capitalized Lease Obligations" means obligations to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real and/or personal property which obligation is required to be classified and accounted for as a capital lease on a balance sheet prepared in accordance with GAAP, and for purposes hereof the amount of such obligations shall be the capitalized amount determined in accordance with GAAP. "Change of Control" means the occurrence, after the date of this Agreement, of (i) any Person or two or more Persons acting in concert acquiring beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended), directly or indirectly, of securities of the Borrower (or other securities convertible into such securities) representing 50% or more of the combined voting power of all securities of the Borrower entitled to vote in the election of directors; or (ii) commencing after the date of this Agreement, individuals who as of the date of this Agreement were directors ceasing for any reason to constitute a majority of the Board of Directors of the Borrower unless the Persons replacing such individuals were nominated by the stockholders or the Board of Directors of the Borrower in accordance with the Borrower's Bylaws; or (iii) any Person or two or more Persons acting in concert acquiring by contract or otherwise, or entering into a contract or arrangement which upon consummation will result in its or their acquisition of, or control over, securities of the Borrower (or other securities convertible into such securities) representing 50% or more of the combined voting power of all securities of the Borrower entitled to vote in the election of directors, provided that in the case of this clause (iii) any such occurrence shall represent a Change of Control only 90 days after entering into such arrangement; provided, however, that the proposed merger or consolidation of Unicom Corporation into and with Newholdco Corporation. pursuant to the terms and conditions of the Unicom/PECO Merger Agreement shall not constitute a Change of Control. "Closing" means the day upon which each of the applicable conditions precedent enumerated in Section 3.01 shall be fulfilled to the satisfaction of, or waived with the consent of, the Lenders, the Administrative Agent and the Borrower. All transactions contemplated by the Closing shall take place on a Business Day on or prior to December 17, 1999, at the offices of King & Spalding, 1185 Avenue of the Americas, New York, New York 10036, at 10:00 a.m., or such later Business Day as the parties hereto may mutually agree . "Commitment" means, for each Lender, the obligation of such Lender to make Advances to the Borrower in an amount no greater than the amount set forth on Schedule I hereto or, if such Lender has entered into one or more Lender Assignments, set forth for such Lender in the Register maintained by the Administrative Agent pursuant to Section 8.07(c), in each such case as such amount may be reduced from time to time pursuant to 5 Section 2.05. "Commitments" means the total of the Lenders' Commitments hereunder. The Commitments shall in no event exceed $500,000,000. "Consolidated Capital" means, with respect to any Person, at any date of determination, the sum of (a) Consolidated Debt of such Person, (b) consolidated equity of the common stockholders of such Person and its Consolidated Subsidiaries, (c) consolidated equity of the preference stockholders of such Person and its Consolidated Subsidiaries, (d) consolidated equity of the preferred stockholders of such Person and its Consolidated Subsidiaries, in each case determined at such date in accordance with GAAP and (e) the aggregate principal amount of Subordinated Deferrable Interest Securities of such Person and its Consolidated Subsidiaries. "Consolidated Debt" means, with respect to any Person, at any date of determination, the aggregate Debt of such Person and its Consolidated Subsidiaries determined on a consolidated basis in accordance with GAAP, but shall not include (i) Nonrecourse Debt of any Subsidiary of the Borrower, (ii) the aggregate principal amount of Subordinated Deferrable Interest Securities of such Person and its Consolidated Subsidiaries and (iii) the aggregate principal amount of Transitional Funding Instruments of such Person and its Consolidated Subsidiaries. "Consolidated Subsidiary" means, with respect to any Person, any Subsidiary of such Person whose accounts are or are required to be consolidated with the accounts of such Person in accordance with generally accepted accounting principles. "Convert", "Conversion" and "Converted" each refers to a conversion of Advances of one Type into Advances of another Type, or to the selection of a new, or the renewal of the same, Interest Period for Advances, as the case may be, pursuant to Section 2.09 or 2.10. "Debt" means, for any Person, any and all indebtedness, liabilities and other monetary obligations of such Person (i) for borrowed money or evidenced by bonds, debentures, notes or other similar instruments, (ii) to pay the deferred purchase price of property or services (except trade accounts payable arising and repaid in the ordinary course of business), (iii) Capitalized Lease Obligations, (iv) under reimbursement or similar agreements with respect to letters of credit (other than trade letters of credit) issued to support indebtedness or obligations of such Person or of others of the kinds referred to in clauses (i) through (iii) above and clause (v) below, (v) reasonably quantifiable obligations under direct guaranties or indemnities, or under support agreements, in respect of, and reasonably quantifiable obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, or to assure an obligee against failure to make payment in respect of, indebtedness or obligations of others of the kinds referred to in clauses (i) through (iv) above, and (vi) in respect of unfunded vested benefits under Plans. In determining Debt for any Person, (A) there shall be included accrued interest on the principal amount thereof to the extent such interest has accrued for more than six months and (B) in the 6 cases of clauses (iv) and (v), such obligation shall be excluded to the extent that the primary obligation has been included under the preceding clauses. "Default Rate" means (i) with respect to the unpaid principal of or interest on any Advance, the greater of (A) 2% per annum above the Applicable Rate in effect from time to time for such Advance and (B) 2% per annum above the Applicable Rate in effect from time to time for Base Rate Advances and (ii) with respect to any other unpaid amount hereunder, 2% per annum above the Applicable Rate in effect from time to time for Base Rate Advances. "Dollars" and the sign "$" each means lawful money of the United States. "Domestic Lending Office" means, with respect to any Lender, the office or affiliate of such Lender specified as its "Domestic Lending Office" opposite its name on Schedule I hereto or in the Lender Assignment pursuant to which it became a Lender, or such other office or affiliate of such Lender as such Lender may from time to time specify in writing to the Borrower and the Administrative Agent. "Eligible Assignee" means (a) a commercial bank or trust company organized under the laws of the United States, or any State thereof; (b) a commercial bank organized under the laws of any other country that is a member of the OECD, or a political subdivision of any such country, provided that such bank is acting through a branch or agency located in the United States; (c) the central bank of any country that is a member of the OECD; and (d) any other commercial bank or other financial institution engaged generally in the business of extending credit or purchasing debt instruments; provided, however, that (A) any such Person shall also (i) have outstanding unsecured long-term indebtedness that is rated A- or better by S&P or A3 or better by Moody's (or an equivalent rating by another nationally-recognized credit rating agency of similar standing if neither of such corporations is then in the business of rating unsecured indebtedness of entities engaged in such businesses) or (ii) have combined capital and surplus (as established in its most recent report of condition to its primary regulator) of not less than $250,000,000 (or its equivalent in foreign currency), (B) any Person described in clause (a), (b), (c) or (d) above, shall, on the date on which it is to become a Lender hereunder, (i) be entitled to receive payments hereunder without deduction or withholding of any United States Federal income taxes (as contemplated by Section 2.16) and (ii) not be incurring any losses, costs or expenses of the type for which such Person could demand payment under Section 2.13, and (C) any Person described in clause (a), (b), (c) or (d) above shall, in addition, be reasonably acceptable to the Administrative Agent and, so long as no Event of Default exists, the Borrower. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" means, with respect to any Person, any trade or business (whether or not incorporated) which is a member of a group of which such Person is a 7 member and which is under common control within the meaning of the regulations under Section 414(b) or (c) of the Internal Revenue Code of 1986, as amended from time to time. "ERISA Event" means (i) the occurrence of a reportable event, within the meaning of Section 4043 of ERISA, unless the 30-day notice requirement with respect thereto has been waived by the PBGC; (ii) the provision by the administrator of any Plan of notice of intent to terminate such Plan, pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); (iii) the cessation of operations at a facility in the circumstances described in Section 4062(e) of ERISA; (iv) the withdrawal by the Borrower or an ERISA Affiliate of the Borrower from a Multiple Employer Plan during a plan year for which it was a "substantial employer", as defined in Section 4001(a)(2) of ERISA; (v) the failure by the Borrower or an ERISA Affiliate of the Borrower to make a payment to a Plan required under Section 302(f)(1) of ERISA, which failure results in the imposition of a lien for failure to make required payments; (vi) the adoption of an amendment to a Plan requiring the provision of security to such Plan, pursuant to Section 307 of ERISA; (vii) the institution by the PBGC of proceedings to terminate a Plan, pursuant to Section 4042 of ERISA, or the occurrence of any event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, a Plan; or (viii) any withdrawal liability under Section 4201 of ERISA. "Eurocurrency Liabilities" has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Eurodollar Lending Office" means, with respect to any Lender, the office or affiliate of such Lender specified as its "Eurodollar Lending Office" opposite its name on Schedule I hereto or in the Lender Assignment pursuant to which it became a Lender (or, if no such office is specified, its Domestic Lending Office), or such other office or affiliate of such Lender as such Lender may from time to time specify in writing to the Borrower and the Administrative Agent. "Eurodollar Rate" means, for each Interest Period for each Eurodollar Rate Advance made as part of the same A Borrowing, an interest rate per annum equal to the average (rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such average is not such a multiple) of the rate per annum at which deposits in Dollars are offered by the principal office of each of the Reference Banks in London, England to prime banks in the London interbank market at 11:00 a.m. (London time) two Business Days before the first day of such Interest Period in an amount substantially equal to such Reference Bank's Eurodollar Rate Advance made as part of such A Borrowing and for a period equal to such Interest Period, plus, for any Interest Period that begins on or prior to December 31, 1999, 150 basis points. The Eurodollar Rate for the Interest Period for each Eurodollar Rate Advance made as part of the same A Borrowing shall be determined by the Administrative Agent on the basis of applicable rates furnished to and 8 received by the Administrative Agent from the Reference Banks two Business Days before the first day of such Interest Period, subject, however, to the provisions of Section 2.09. "Eurodollar Rate Advance" means an A Advance that bears interest as provided in Section 2.07(b). "Eurodollar Reserve Percentage" of any Lender for each Interest Period for each Eurodollar Rate Advance means the reserve percentage applicable to such Lender during such Interest Period (or if more than one such percentage shall be so applicable, the daily average of such percentages for those days in such Interest Period during which any such percentage shall be so applicable) under Regulation D or other regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) then applicable to such Lender with respect to liabilities or assets consisting of or including Eurocurrency Liabilities having a term equal to such Interest Period. "Events of Default" has the meaning assigned to that term in Section 6.01. "Existing Facility" means the Credit Agreement, dated as of September 22, 1999, among the Borrower, the Administrative Agent and certain lenders party thereto, as amended or modified as of the date hereof. "Extension Date" has the meaning assigned to that term in Section 2.18(b). "Extension of Credit" means the making of a Borrowing. For purposes of this Agreement, a Conversion shall not constitute an Extension of Credit. "Facility Fee" means a fee which shall be payable on the aggregate amount of the Commitments, irrespective of usage, to the Lenders pro rata on the amounts of their respective Commitments at the rate (expressed in basis points per annum) set forth below in the columns identified as Level 1, Level 2, Level 3, Level 4 and Level 5, as determined by reference to the lower of the ratings issued by S&P or Moody's, by reference to the chart below, for non-credit-enhanced long-term senior secured debt of the Borrower.
--------------------------------------------------------------------------------- Level 1 Level 2 Level 3 Level 4 Level 5 ------- ------- ------- ------- ------- S&P A- or better BBB+ BBB BBB- Lower than and and and and Level 4 or Moody's A3 or better Baa1 Baa2 Baa3 unrated --------------------------------------------------------------------------------- Basis Points 10.00 12.50 15.00 20.00 37.50 ---------------------------------------------------------------------------------
The Facility Fee will be based upon the level corresponding to the Reference Ratings at the time of determination. Any change in the Reference Ratings shall effect an immediate change in the Facility Fee. 9 "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Fee Letter" means that certain Fee Letter, dated November 16, 1999, among the Borrower, Salomon Smith Barney Inc. and Citibank. "GAAP" means generally accepted accounting principles in effect from time to time, consistent with the principles used in preparing the most recent June 30 financial statements that have been delivered to the Lenders in accordance with Section 5.01(i) (provided that, prior to the first delivery under said Section, such financial statements shall be the financial statements referred to in Section 4.01(g) hereof). "Governmental Approval" means any authorization, consent, approval, license, franchise, lease, ruling, tariff, rate, permit, certificate, exemption of, or filing or registration with, any governmental authority or other legal or regulatory body. "Hazardous Substance" means any waste, substance, or material identified as hazardous, dangerous or toxic by any office, agency, department, commission, board, bureau, or instrumentality of the United States or of the State or locality in which the same is located having or exercising jurisdiction over such waste, substance or material. "Interest Period" means, for each A Advance made as part of the same A Borrowing, the period commencing on the date of such A Advance or the date of the Conversion of any A Advance into such an A Advance and ending on the last day of the period selected by the Borrower pursuant to the provisions below and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Borrower pursuant to the provisions below. The duration of each such Interest Period shall be 1, 2, 3 or 6 months in the case of a Eurodollar Rate Advance, in each case as the Borrower may, upon notice received by the Administrative Agent not later than 12:00 noon (New York City time) on the third Business Day prior to the first day of such Interest Period in the case of a Eurodollar Rate Advance, select; provided, however, that: (i) the Borrower may not select any Interest Period that ends after the Termination Date; (ii) Interest Periods commencing on the same date for A Advances comprising part of the same A Borrowing shall be of the same duration; and 10 (iii) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided, in the case of any Interest Period for a Eurodollar Rate Advance, that if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day. "Lenders" means the Banks listed on the signature pages hereof and each Eligible Assignee that shall become a party hereto pursuant to Section 8.07. "Lender Assignment" means an assignment and acceptance agreement entered into by a Lender and an Eligible Assignee, and accepted by the Administrative Agent, in substantially the form of Exhibit 8.07. "Lien" has the meaning assigned to that term in Section 5.02(a). "Loan Documents" means this Agreement, the Notes, the Fee Letter and all other agreements, instruments and documents now or hereafter executed and/or delivered pursuant hereto or thereto. "Majority Lenders" means, on any date of determination, Lenders that, collectively, on such date (i) hold greater than 50% of the then aggregate unpaid principal amount of the A Advances owing to Lenders and (ii) if no A Advances are then outstanding, have Percentages in the aggregate greater than 50%. Any determination of those Lenders constituting the Majority Lenders shall be made by the Administrative Agent and shall be conclusive and binding on all parties absent manifest error. "Material Adverse Effect" means, relative to any occurrence of whatever nature (including, without limitation, any adverse determination in any litigation, arbitration or governmental investigation or proceedings), a material adverse effect on: (a) the consolidated business, assets, revenues, financial condition, results of operations, operations or prospects of the Borrower and its Subsidiaries; or (b) the ability of the Borrower to make any payment when due under this Agreement or to perform any of its other obligations under the Loan Documents. "Moody's" means Moody's Investors Service, Inc. or any successor thereto. "Multiemployer Plan" means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, which is subject to Title IV of ERISA and to which the Borrower or any ERISA Affiliate of the Borrower is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an 11 obligation to make contributions, such plan being maintained pursuant to one or more collective bargaining agreements. "Multiple Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, which is subject to Title IV of ERISA and which (i) is maintained for employees of the Borrower or an ERISA Affiliate of the Borrower and at least one Person other than the Borrower and its ERISA Affiliates or (ii) was so maintained and in respect of which the Borrower or an ERISA Affiliate of the Borrower could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "Nonrecourse Debt" means any Debt that finances the acquisition, development, ownership or operation of an asset in respect of which the Person to which such Debt is owed has no recourse whatsoever to the Borrower or any of its Affiliates other than: (i) recourse to the named obligor with respect to such Debt (the "Debtor") for amounts limited to the cash flow or net cash flow (other than historic cash flow) from the asset; and (ii) recourse to the Debtor for the purpose only of enabling amounts to be claimed in respect of such Debt in an enforcement of any security interest or lien given by the Debtor over the asset or the income, cash flow or other proceeds deriving from the asset (or given by any shareholder or the like in the Debtor over its shares or like interest in the capital of the Debtor) to secure the Debt, but only if: (A) the extent of the recourse to the Debtor is limited solely to the amount of any recoveries made on any such enforcement; and (B) the Person to which such Debt is owed is not entitled, by virtue of any right or claim arising out of or in connection with such Debt, to commence proceedings for the winding up or dissolution of the Debtor or to appoint or procure the appointment of any receiver, trustee, or similar Person or officer in respect of the Debtor or any of its assets (other than the assets subject to the security interest or lien referred to above); and (iii) recourse to the Debtor generally or indirectly to any Affiliate of the Debtor, under any form of assurance, undertaking or support, which recourse is limited to a claim for damages (other than liquidated damages and damages required to be calculated in a specified way) for a breach of an obligation (other than a payment obligation or an obligation to comply or to procure compliance by another with any financial ratios or other tests of financial condition) by the Person against which such recourse is available. "Note" means an A Note or a B Note. 12 "Notice of A Borrowing" has the meaning assigned to that term in Section 2.02(a). "Notice of B Borrowing" has the meaning assigned to that term in Section 2.03(a). "Notice of Conversion" has the meaning assigned to that term in Section 2.10. "Other Credit Agreement" means the 3-Year Credit Agreement, dated as of December 17, 1999, among the Borrower, the lenders from time to time parties thereto and Citibank, N.A., as agent for such lenders. "PBGC" means the Pension Benefit Guaranty Corporation (or any successor entity) established under ERISA. "Percentage" means, for any Lender on any date of determination, the percentage obtained by dividing such Lender's Commitment on such day by the total of the Commitments on such date, and multiplying the quotient so obtained by 100%. "Person" means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. "Plan" means a Single Employer Plan or a Multiple Employer Plan. "PUHCA" means the Public Utility Holding Company Act of 1935, as amended from time to time. "Reference Banks" means Citibank, N.A., and any additional or substitute Lenders as may be selected from time to time to act as Reference Banks hereunder by the Administrative Agent, the Majority Lenders and the Borrower. "Register" has the meaning assigned to that term in Section 8.07(c). "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., or any successor thereto. "Senior Financial Officer" means the President, the Chief Executive Officer, the Chief Financial Officer or the Treasurer of the Borrower. "Significant Subsidiary" means any direct or indirect Subsidiary of the Borrower that, on a consolidated basis with any of its Subsidiaries as of any date of determination, accounts for more than 20% of the consolidated assets (valued at book value) of the Borrower and its Subsidiaries; but shall not include any Subsidiary set up for the sole purpose of facilitating the issuance of Transitional Funding Instruments. 13 "Single Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, which is subject to Title IV of ERISA and which (i) is maintained for employees of the Borrower or an ERISA Affiliate of the Borrower and no Person other than the Borrower and its ERISA Affiliates, or (ii) was so maintained and in respect of which the Borrower or an ERISA Affiliate of the Borrower could have liability under Section 4069 of ERISA in the event such plan has been or were to be terminated. "Subordinated Deferrable Interest Securities" means all obligations of the Borrower and its Subsidiaries in respect of "ComEd-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts", as set forth from time to time in the consolidated balance sheets of the Borrower and its Consolidated Subsidiaries delivered pursuant to Section 5.01(i). "Subsidiary" means, with respect to any Person, any corporation or unincorporated entity of which more than 50% of the outstanding capital stock (or comparable interest) having ordinary voting power (irrespective of whether at the time capital stock (or comparable interest) of any other class or classes of such corporation or entity shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned by said Person (whether directly or through one of more other Subsidiaries). In the case of an unincorporated entity, a Person shall be deemed to have more than 50% of interests having ordinary voting power only if such Person's vote in respect of such interests comprises more than 50% of the total voting power of all such interests in the unincorporated entity. "Termination Date" means the earlier to occur of (i) the date 364 days from the date hereof (or such later date as the Lenders may from time to time agree pursuant to Section 2.18(a)) and (ii) the date of termination or reduction in whole of the Commitments pursuant to Section 2.05 or 6.01. "Transitional Funding Instruments" means any instruments, pass-through certificates, notes, debentures, certificates of participation, bonds, certificates of beneficial interest or other evidences of indebtedness or instruments evidencing a beneficial interest which (i) are issued pursuant to a "transitional funding order" (as such term is defined in Section 18- 102 of the Illinois Public Utilities Act, as amended) issued by the Illinois Commerce Commission at the request of an electric utility and (ii) are secured by or otherwise payable from non-bypassable cent per kilowatt hour charges authorized pursuant to such order to be applied and invoiced to customers of such utility. The instrument funding charges so applied and invoiced must be deducted and stated separately from the other charges invoiced by such utility against its customers. "Type" has the meaning assigned to that term (i) in the definition of "A Advance" when used in such context and (ii) in the definition of "Borrowing" when used in such context. 14 "Unicom/PECO Merger Agreement" means the Agreement and Plan of Exchange and Merger dated as of September 22, 1999 among PECO Energy Company, Newholdco Corporation and Unicom Corporation. "Unmatured Default" means an event that, with the giving of notice or lapse of time, or both, would constitute an Event of Default. "Year 2000 Issues" means, in respect of a person or entity, anticipated costs, problems and uncertainties associated with the inability of certain computer applications to effectively handle data including dates on and after January 1, 2000, as such inability affects the business, operations and financial condition of such person or entity. "Year 2000 Program" means, in respect of a person or entity, a program for remediating on a timely basis any Year 2000 Issues of or relating to such person or entity that if not remediated on a timely basis, could reasonably be expected to result in a Material Adverse Effect on such person or entity. SECTION 1.02. Computation of Time Periods. Unless otherwise indicated, each reference in this Agreement to a specific time of day is a reference to New York City time. In the computation of periods of time under this Agreement, any period of a specified number of days or months shall be computed by including the first day or month occurring during such period and excluding the last such day or month. In the case of a period of time "from" a specified date "to" or "until" a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding". SECTION 1.03. Computations of Outstandings. Whenever reference is made in this Agreement to the "principal amount outstanding" on any date under this Agreement, such reference shall refer to the aggregate principal amount of all Advances outstanding on such date after giving effect to all Extensions of Credit to be made on such date and the application of the proceeds thereof. SECTION 1.04. Accounting Terms. Except as otherwise provided herein, all accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles. ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01. The A Advances. (a) Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make A Advances to the Borrower from time to time on any Business Day during the period from the Closing until the Termination Date in an aggregate outstanding amount not to exceed at any time such Lender's Available Commitment, provided that the aggregate amount of the Commitments of the Lenders shall be deemed used from time to time to the extent of the aggregate amount of the B Advances then outstanding and such deemed use of the aggregate amount of the Commitments shall be applied to the Lenders ratably according to their respective Percentages (such deemed use of the aggregate amount of the 15 Commitments being a "B Reduction"). Each A Borrowing shall be in an aggregate amount not less than $10,000,000 (or, if lower, the amount of the Available Commitments) or an integral multiple of $1,000,000 in excess thereof and shall consist of A Advances of the same Type made on the same day by the Lenders ratably according to their respective Percentages. Within the limits of each Lender's Commitment and as hereinabove and hereinafter provided, the Borrower may request Extensions of Credit hereunder, and repay or prepay Advances pursuant to Section 2.11 and utilize the resulting increase in the Available Commitments for further Extensions of Credit in accordance with the terms hereof. (b) In no event shall the Borrower be entitled to request or receive any Extensions of Credit that would cause the principal amount outstanding hereunder to exceed the Commitments. SECTION 2.02. Making the A Advances. (A) Each A Borrowing shall be made on notice, given not later than 12:00 noon (i) on the third Business Day prior to the date of the proposed A Borrowing, in the case of an A Borrowing comprised of Eurodollar Rate Advances, and (ii) on the date of the proposed A Borrowing, in the case of an A Borrowing comprised of Base Rate Advances, in each case by the Borrower to the Administrative Agent, which shall give to each Lender prompt notice thereof by telecopier, telex or cable. Each such notice of an A Borrowing (a "Notice of A Borrowing") shall be by telecopier, telex or cable, in substantially the form of Exhibit 2.02(a) hereto, specifying therein the requested (A) date of such A Borrowing, (B) Type of A Advances comprising such A Borrowing, (C) aggregate amount of such A Borrowing and (D) in the case of an A Borrowing comprised of Eurodollar Rate Advances, initial Interest Period for each such A Advance. Each Lender shall, before (x) 12:00 noon on the date of such A Borrowing, in the case of an A Borrowing comprised of Eurodollar Rate Advances, and (y) 1:00 p.m. on the date of such A Borrowing, in the case of an A Borrowing comprised of Base Rate Advances, make available for the account of its Applicable Lending Office to the Administrative Agent at its address referred to in Section 8.02, in same day funds, such Lender's ratable portion of such A Borrowing. After the Administrative Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Administrative Agent will promptly make such funds available to the Borrower at the Administrative Agent's aforesaid address. (b) Each Notice of A Borrowing shall be irrevocable and binding on the Borrower. In the case of any A Borrowing which the related Notice of A Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrower shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in such Notice of A Borrowing for such A Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the A Advance to be made by such Lender as part of such A Borrowing when such A Advance, as a result of such failure, is not made on such date. (c) Unless the Administrative Agent shall have received notice from a Lender prior to the date of any A Borrowing that such Lender will not make available to the Administrative Agent such Lender's A Advance as part of such A Borrowing, the Administrative Agent may assume that such Lender has made such A Advance available to the Administrative Agent on the date of such A Borrowing in accordance with subsection (a) of this Section 2.02 and the 16 Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such A Advance available to the Administrative Agent, such Lender and the Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount, together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent, at (i) in the case of the Borrower, the interest rate applicable at the time to A Advances comprising such A Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Lender's A Advance as part of such A Borrowing for purposes of this Agreement. (d) The failure of any Lender to make the A Advance to be made by it as part of any A Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its A Advance on the date of such A Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the A Advance to be made by such other Lender on the date of any A Borrowing. SECTION 2.03. The B Advances. (A) Each Lender severally agrees that the Borrower may request B Borrowings under this Section 2.03 from time to time on any Business Day during the period from the date hereof until the date occurring 30 days prior to the Termination Date in the manner, and subject to the terms and conditions, set forth below. The rates of interest offered by the Lenders and accepted by the Borrower for each B Borrowing shall be fixed rates per annum or LIBOR based bids. (i) The Borrower may request a B Borrowing under this Section 2.03 by delivering to the Administrative Agent, by telecopier, telex or cable, a notice of a B Borrowing (a "Notice of B Borrowing"), in substantially the form of Exhibit 2.03(a)(i) hereto, specifying the date and aggregate amount of the proposed B Borrowing, the maturity date for repayment of each B Advance to be made as part of such B Borrowing (which maturity date may not be earlier than the date occurring 30 days after the date of such B Borrowing nor later than the earlier to occur of the then-scheduled Termination Date and the date occurring 180 days following the date of such B Borrowing), the interest payment date or dates relating thereto, the interest rate basis to be used by the Lenders and any other terms to be applicable to such B Borrowing, not later than 3:00 p.m. at least one Business Day prior to the date of the proposed B Borrowing for fixed rate bids and not later than 3:00 p.m. at least four Business Days prior to the date of the proposed B Borrowing for LIBOR based bids. The Administrative Agent shall in turn promptly notify each Lender of each request for a B Borrowing received by it from the Borrower by sending such Lender a copy of the related Notice of B Borrowing. (ii) Each Lender may, if, in its sole discretion, it elects to do so, irrevocably offer to make one or more B Advances to the Borrower as part of such proposed B Borrowing at a rate or rates of interest specified by such Lender in its sole discretion, by notifying the Administrative Agent (which shall give prompt notice thereof to the Borrower), before 11:00 a.m., on the date of such proposed B Borrowing, of the minimum amount and maximum amount of each B Advance which such Lender would be willing to make 17 as part of such proposed B Borrowing (which amounts may, subject to the limitation contained in subsection (d) below, exceed such Lender's Commitment), the rate or rates of interest therefor and such Lender's Applicable Lending Office with respect to such B Advance; provided that if the Administrative Agent in its capacity as a Lender shall, in its sole discretion, elect to make any such offer, it shall notify the Borrower of such offer before 10:30 a.m. on the date on which notice of such election is to be given to the Administrative Agent by the other Lenders. If any Lender shall elect not to make such an offer, such Lender shall so notify the Administrative Agent before 11:00 a.m. on the date on which notice of such election is to be given to the Administrative Agent by the other Lenders, and such Lender shall not be obligated to, and shall not, make any B Advance as part of such B Borrowing; provided that the failure by any Lender to give such notice shall not cause such Lender to be obligated to make any B Advance as part of such proposed B Borrowing. (iii) The Borrower shall, in turn, before 12:00 noon on the date of such proposed B Borrowing either (x) cancel such B Borrowing by either giving the Administrative Agent notice to that effect or failing to accept one or more offers as provided in clause (y) below, or (y) accept one or more of the offers, in its sole discretion, made by any Lender or Lenders pursuant to paragraph (ii) above, in order of the lowest to the highest rates of interest, with pro rata allocation of any matching rates of interest, by giving written notice to the Administrative Agent of the amount of each B Advance (which amount shall be equal to or greater than the minimum amount, and equal to or less than the maximum amount, notified to the Borrower by the Administrative Agent on behalf of such Lender for such B Advance pursuant to paragraph (ii) above) to be made by each Lender as part of such B Borrowing, and reject any remaining offers made by Lenders pursuant to paragraph (ii) above, by giving the Administrative Agent written notice to that effect. (iv) If the Borrower cancels such B Borrowing pursuant to paragraph (iii)(x) above, the Administrative Agent shall give prompt notice thereof to the Lenders and such B Borrowing shall not be made. (v) If the Borrower accepts one or more of the offers made by any Lender or Lenders pursuant to paragraph (iii)(y) above, such acceptance shall be irrevocable and binding on the Borrower and, subject to the satisfaction of the applicable conditions set forth in Article III, on such Lender or Lenders. The Borrower shall indemnify each such Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill, on or before the date specified in the notice provided pursuant to paragraph (vii)(A) below, the applicable conditions set forth in Article III, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the B Advance to be made by such Lender as part of such B Borrowing when such B Advance, as a result of such failure, is not made on such date. 18 (vi) Unless the Administrative Agent shall have received notice from a Lender prior to the date of any B Borrowing in which such Lender is required to participate that such Lender will not make available to the Administrative Agent such Lender's B Advance as part of such B Borrowing, the Administrative Agent may assume that such Lender has made such B Advance available to the Administrative Agent on the date of such B Borrowing in accordance with paragraph (vii) below, and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such B Advance available to the Administrative Agent, such Lender and the Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent, at (i) in the case of the Borrower, the interest rate applicable to such B Advance and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Lender's B Advance as part of such B Borrowing for purposes of this Agreement. (vii) If the Borrower accepts one or more of the offers made by any Lender or Lenders pursuant to paragraph (iii)(y) above, the Administrative Agent shall in turn promptly notify (A) each Lender that has made an offer as described in paragraph (ii) above, of the date and aggregate amount of such B Borrowing and whether or not any offer or offers made by such Lender pursuant to paragraph (ii) above, have been accepted by the Borrower, (B) each Lender that is to make a B Advance as part of such B Borrowing of the amount of the B Advance to be made by such Lender as part of such B Borrowing and (C) each Lender that is to make a B Advance as part of such B Borrowing, upon receipt, that the Administrative Agent has received forms of documents appearing to fulfill the applicable conditions set forth in Article III. Each Lender that is to make a B Advance as part of such B Borrowing shall, before 1:00 p.m. on the date of such B Borrowing specified in the notice received from the Administrative Agent pursuant to clause (A) of the preceding sentence or any later time when such Lender shall have received notice from the Administrative Agent pursuant to clause (C) of the preceding sentence, make available for the account of its Applicable Lending Office to the Administrative Agent at its address referred to in Section 8.02 such Lender's B Advance, in same day funds. Upon fulfillment of the applicable conditions set forth in Article III and after receipt by the Administrative Agent of such funds, the Administrative Agent will promptly make such funds available to the Borrower at the Administrative Agent's aforesaid address. Promptly after each B Borrowing the Administrative Agent will notify each Lender of the amount of the B Borrowing, the consequent B Reduction and the dates upon which such B Reduction commenced and will terminate. (b) Each B Borrowing shall be in an aggregate amount not less than $10,000,000 or an integral multiple of $1,000,000 in excess thereof. (c) Within the limits and on the conditions set forth in this Section 2.03, the Borrower may from time to time borrow under this Section 2.03, repay pursuant to subsection (e) below 19 and reborrow under this Section 2.03, provided that a B Borrowing shall not be made within three Business Days of the date of any other B Borrowing. (d) In no event shall the Borrower be entitled to request or receive any B Advances that would cause the principal amount outstanding hereunder to exceed the Commitments. (e) The Borrower shall repay to the Administrative Agent for the account of each Lender which has made a B Advance, or each other holder of a B Note, on the maturity date of each B Advance (such maturity date being that specified by the Borrower for repayment of such B Advance in the related Notice of B Borrowing delivered pursuant to subsection (a)(i) above, and provided in the B Note evidencing such B Advance), the then unpaid principal amount of such B Advance. (f) The Borrower shall pay interest on the unpaid principal amount of each B Advance from the date of such B Advance to the date the principal amount of such B Advance is repaid in full, at the rate of interest for such B Advance specified by the Lender making such B Advance in its notice with respect thereto delivered pursuant to subsection (a)(ii) above, payable on the interest payment date or dates specified by the Borrower for such B Advance in the related Notice of B Borrowing delivered pursuant to subsection (a)(i) above, as provided in the B Note evidencing such B Advance, provided, however, that upon the occurrence and during the continuance of any Event of Default, each B Advance shall bear interest at the Default Rate. (g) The indebtedness of the Borrower resulting from each B Advance made to the Borrower as part of a B Borrowing shall be evidenced by a separate B Note of the Borrower payable to the order of the Lender making such B Advance. SECTION 2.04. Fees. (A) The Borrower agrees to pay to the Administrative Agent for the account of each Lender the Facility Fee from the date hereof, in the case of each Bank, and from the effective date specified in the Lender Assignment pursuant to which it became a Lender, in the case of each other Lender, until the Termination Date, payable quarterly in arrears on the last day of each December, March, June and September during the term of such Lender's Commitment, commencing December 31, 1999, and on the Termination Date. (b) In addition to the fee provided for in subsection (a) above, the Borrower shall pay to the Administrative Agent, for the account of the Administrative Agent, such fees as are provided for in the Fee Letter. SECTION 2.05. Reduction of the Commitments. (A) The Borrower shall have the right, upon at least three Business Days' notice to the Administrative Agent, to terminate in whole or reduce ratably in part the unused portions of the respective Commitments of the Lenders; provided that the aggregate amount of the Commitments of the Lenders shall not be reduced to an amount which is less than the aggregate principal amount of the A and B Advances then outstanding; and provided, further, that each partial reduction shall be in a minimum amount of $10,000,000 or any whole multiple of $1,000,000 in excess thereof. Any termination or reduction of the Commitments shall be irrevocable, and the Commitments shall not thereafter be reinstated. 20 (b) On the Termination Date, or upon the occurrence of a Change of Control, the Commitments of the Lenders shall be reduced to zero. SECTION 2.06. Repayment of A Advances. The Borrower shall repay the principal amount of each A Advance made by each Lender in accordance with the A Note to the order of such Lender. SECTION 2.07. Interest on A Advances. The Borrower shall pay interest on the unpaid principal amount of each A Advance owing to each Lender from the date of such A Advance until such principal amount shall be paid in full, at the Applicable Rate for such A Advance (except as otherwise provided in this Section 2.07), payable as follows: (a) Base Rate Advances. If such A Advance is a Base Rate Advance, interest thereon shall be payable quarterly in arrears on the last day of each March, June, September and December on the date of any Conversion of such Base Rate Advance and on the date such Base Rate Advance shall become due and payable or shall otherwise be paid in full; provided that at any time an Event of Default shall have occurred and be continuing, thereafter each Base Rate Advance shall bear interest payable on demand, at a rate per annum equal at all times to the Default Rate. (b) Eurodollar Rate Advances. If such A Advance is a Eurodollar Rate Advance, interest thereon shall be payable on the last day of such Interest Period and, if the Interest Period for such A Advance has duration of more than three months, on that day of each third month during such Interest Period that corresponds to the first day of such Interest Period (or, if any such month does not have a corresponding day, then on the last day of such month); provided that at any time an Event of Default shall have occurred and be continuing, thereafter each Eurodollar Rate Advance shall bear interest payable on demand, at a rate per annum equal at all times to the Default Rate. SECTION 2.08. Additional Interest on Eurodollar Rate Advances. The Borrower shall pay to Administrative Agent for the account of each Lender any costs actually incurred by such Lender with respect to Eurodollar Rate Advances which are attributable to such Lender's compliance with regulations of the Board of Governors of the Federal Reserve System requiring the maintenance of reserves with respect to liabilities or assets consisting of or including Eurocurrency Liabilities. Such costs shall be paid to the Administrative Agent for the account of such Lender in the form of additional interest on the unpaid principal amount of each Eurodollar Rate Advance of such Lender, from the date of such A Advance until such principal amount is paid in full, at an interest rate per annum equal at all times to the remainder obtained by subtracting (i) the Eurodollar Rate for the Interest Period for such A Advance from (ii) the rate obtained by dividing such Eurodollar Rate by a percentage equal to 100% minus the Eurodollar Reserve Percentage of such Lender for such Interest Period, payable on each date on which interest is payable on such A Advance. Such additional interest shall be determined by such Lender and notified to the Borrower through the Administrative Agent. A certificate as to the amount of such additional interest, submitted to the Borrower and the Administrative Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error, provided that the determination thereof shall have been made by such Lender in good faith. 21 SECTION 2.09. Interest Rate Determination. (A) Each Reference Bank agrees to furnish to the Administrative Agent timely information for the purpose of determining each Eurodollar Rate. If any one or more of the Reference Banks shall not furnish such timely information to the Administrative Agent for the purpose of determining any such interest rate, the Administrative Agent shall determine such interest rate on the basis of timely information furnished by the remaining Reference Banks. (b) The Administrative Agent shall give prompt notice to the Borrower and the Lenders of the applicable interest rate determined by the Administrative Agent for purposes of Section 2.07(a) or (b), and the applicable rate, if any, furnished by each Reference Bank for the purpose of determining the applicable interest rate under Section 2.07(b). (c) If no Reference Bank furnishes timely information to the Administrative Agent for determining the Eurodollar Rate for any Eurodollar Rate Advances, due to the unavailability of funds to such Reference Banks in the relevant financial markets: (i) the Administrative Agent shall forthwith notify the Borrower and the Lenders that the interest rate cannot be determined for such Eurodollar Rate Advances; (ii) each such Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance (or if such Advance is then a Base Rate Advance, will continue as a Base Rate Advance); and (iii) the obligation of the Lenders to make, or to Convert A Advances into, Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist. (d) If, with respect to any Eurodollar Rate Advances, the Majority Lenders notify the Administrative Agent that the Eurodollar Rate for any Interest Period for such Advances will not adequately reflect the cost to such Majority Lenders of making, funding or maintaining their respective Eurodollar Rate Advances for such Interest Period, the Administrative Agent shall forthwith so notify the Borrower and the Lenders, whereupon: (i) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance; and (ii) the obligation of the Lenders to make, or to Convert A Advances into, Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist. (e) If the Borrower shall fail to (i) select the duration of any Interest Period for any Eurodollar Rate Advances in accordance with the provisions contained in the definition of "Interest Period" in Section 1.01, (ii) provide a Notice of Conversion with respect to any Eurodollar Rate Advances on or prior to 12:00 noon on the third Business Day prior to the last day of the Interest Period applicable thereto, in the case of a Conversion to or in respect of Eurodollar Rate Advances, or (iii) satisfy the applicable conditions precedent set forth in Section 22 3.02 with respect to the Conversion to or in respect of any Eurodollar Rate Advances, the Administrative Agent will forthwith so notify the Borrower and the Lenders and such Advances will automatically, on the last day of the then existing Interest Period therefor, Convert into Base Rate Advances; provided, however, that if, in the case of any failure by the Borrower pursuant to clause (iii) above, the Majority Lenders do not notify the Borrower within 30 days after such Conversion into Base Rate Advances that they have agreed to waive, or have decided not to waive, the applicable conditions precedent set forth in Section 3.02 that the Borrower failed to satisfy, the Majority Lenders shall be deemed to have waived such conditions precedent solely with respect to the Advances so Converted, and the Borrower shall, at any time after such 30-day period, be permitted to Convert such Advances into Eurodollar Rate Advances; and provided further, however, that such deemed waiver shall be of no further force or effect if, at any time after such 30-day period, the Majority Lenders notify the Borrower that they no longer agree to waive such conditions precedent, in which case any such Advances so Converted into Eurodollar Rate Advances shall automatically Convert into Base Rate Advances on the last day of the then existing Interest Period therefor. (f) On the date on which the aggregate unpaid principal amount of A Advances comprising any A Borrowing shall be reduced, by payment or prepayment or otherwise, to less than the product of (i) $1,000,000 and (ii) the number of Lenders on such date, such A Advances shall, if they are Advances of a Type other than Base Rate Advances, automatically Convert into Base Rate Advances, and on and after such date the right of the Borrower to Convert such A Advances into Advances of a Type other than Base Rate Advances shall terminate; provided, however, that if and so long as each such A Advance shall be of the same Type and have the same Interest Period as A Advances comprising another A Borrowing or other A Borrowings, and the aggregate unpaid principal amount of all such A Advances shall equal or exceed the product of (i) $1,000,000 and (ii) the number of Lenders on such date, the Borrower shall have the right to continue all such A Advances as, or to Convert all such A Advances into, Advances of such Type having such Interest Period. (g) Upon the occurrence and during the continuance of any Event of Default, each outstanding Eurodollar Rate Advance shall automatically Convert to a Base Rate Advance at the end of the Interest Period then in effect for such Eurodollar Rate Advance. SECTION 2.10. Voluntary Conversion of A Advances. Subject to the applicable conditions set forth in Section 3.02, the Borrower may on any Business Day, by delivering a notice of Conversion (a "Notice of Conversion") to the Administrative Agent not later than 12:00 noon (i) on the third Business Day prior to the date of the proposed Conversion, in the case of a Conversion to or in respect of Eurodollar Rate Advances and (ii) on the date of the proposed Conversion, in the case of a Conversion to or in respect of Base Rate Advances, and subject to the provisions of Sections 2.09 and 2.13, Convert all A Advances of one Type comprising the same A Borrowing into Advances of another Type; provided, however, that, in the case of any Conversion of any Eurodollar Rate Advances into Advances of another Type on a day other than the last day of an Interest Period for such Eurodollar Rate Advances, the Borrower shall be obligated to reimburse the Lenders in respect thereof pursuant to Section 8.04(b). Each such Notice of Conversion shall be in substantially the form of Exhibit 2.10 and shall, within the restrictions specified above, specify (A) the date of such Conversion, (B) the A Advances to be Converted, (C) if such Conversion is into Eurodollar Rate Advances, the duration of the Interest 23 Period for each such A Advance, and (D) the aggregate amount of A Advances proposed to be Converted. SECTION 2.11. Optional Prepayments of A Advances. The Borrower may, upon at least three Business Days notice to the Administrative Agent stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given the Borrower shall, prepay the outstanding principal amounts of the A Advances comprising part of the same Borrowing in whole or ratably in part, together with accrued interest to the date of such prepayment on the principal amount prepaid; provided, however, that each partial prepayment shall be in an aggregate principal amount not less than $10,000,000 (or, if lower, the principal amount outstanding hereunder on the date of such prepayment) or an integral multiple of $1,000,000 in excess thereof. In the case of any such prepayment of a Eurodollar Rate Advance, the Borrower shall be obligated to reimburse the Lender(s) in respect thereof pursuant to Section 8.04(b). Except as provided in this Section 2.11, the Borrower shall have no right to prepay any principal amount of any Advances. The Borrower shall have no right to optionally prepay any principal amount of any B Advances. SECTION 2.12. Mandatory Prepayments. (A) On the date of any termination or reduction of the Commitments pursuant to Section 2.05, the Borrower shall pay or prepay for the ratable accounts of the Lenders so much of the principal amount outstanding under this Agreement as shall be necessary in order that the principal amount outstanding (after giving effect to such prepayment) will not exceed the amount of Commitments following such termination or reduction, together with (A) accrued interest to the date of such prepayment on the principal amount repaid or prepaid and (B) in the case of prepayments of Eurodollar Rate Advances or B Advances, any amount payable to the Lenders pursuant to Section 8.04(b). (b) The Borrower shall pay or prepay for the ratable account of the Lenders the aggregate principal amount outstanding hereunder such that, for a period of at least one day during any 364-day period, the principal amount outstanding hereunder shall be zero. (c) All prepayments required to be made pursuant to this Section 2.12 shall be applied by the Administrative Agent as follows: (i) first, to the prepayment of the A Advances (without reference to minimum dollar requirements), applied to outstanding Base Rate Advances up to the full amount thereof before they are applied to the ratable prepayment of Eurodollar Rate Advances; and (ii) second, to the prepayment of the B Advances (without reference to minimum dollar requirements), applied ratably among all the Lenders holding B Advances. SECTION 2.13. Increased Costs. (A) If, due to either (i) the introduction of or any change (other than any change by way of imposition or increase of reserve requirements included in the Eurodollar Rate Reserve Percentage) in or in the interpretation of any law or regulation or (ii) the compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to any Lender of agreeing to make or making, funding or maintaining Eurodollar Rate Advances, then 24 the Borrower shall from time to time, upon demand by such Lender (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost. A certificate as to the amount of such increased cost, submitted to the Borrower and the Administrative Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error, provided that the determination thereof shall have been made by such Lender in good faith. (b) If any Lender determines that compliance with any law or regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender and that the amount of such capital is increased by or based upon the existence of such Lender's commitment to lend hereunder and other commitments of this type, then, upon demand by such Lender (with a copy of such demand to the Administrative Agent), the Borrower shall immediately pay to the Administrative Agent for the account of such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender or such corporation in the light of such circumstances, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender's Commitment. A certificate as to such amounts submitted to the Borrower and the Administrative Agent by such Lender, describing in reasonable detail the manner in which such amounts have been calculated, shall be conclusive and binding for all purposes, absent manifest error, provided that the determination and allocation thereof shall have been made by such Lender in good faith. (c) Notwithstanding the provisions of subsection (a) or (b) to the contrary, no Lender shall be entitled to demand compensation or be compensated hereunder to the extent that such compensation relates to any period of time more than 180 days prior to the date upon which such Lender first notified the Borrower of the occurrence of the event entitling such Lender to such compensation (unless, and to the extent that, any such compensation so demanded shall relate to the retroactive application of any event so notified to the Borrower). SECTION 2.14. Illegality. Notwithstanding any other provision of this Agreement to the contrary, if any Lender (the "Affected Lender") shall notify the Administrative Agent and the Borrower that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for the Affected Lender or its Eurodollar Lending Office to perform its obligations hereunder to make Eurodollar Rate Advances or to fund or maintain Eurodollar Rate Advances hereunder, (i) all Eurodollar Rate Advances of the Affected Lender shall, on the fifth Business Day following such notice from the Affected Lender, automatically be Converted into a like number of Base Rate Advances, each in the amount of the corresponding Eurodollar Rate Advance of the Affected Lender being so Converted (each such Advance, as so Converted, being an "Affected Lender Advance"), and the obligation of the Affected Lender to make, maintain, or Convert A Advances into Eurodollar Rate Advances shall thereupon be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist, or the Affected Lender has been replaced pursuant to Section 8.07(g), and (ii) in the event that, on the last day of each of the then-current Interest Periods for each Eurodollar Rate Advance (each such Advance being an "Unaffected Lender Advance") of each of the other Lenders (each such Lender being an "Unaffected Lender"), the Administrative 25 Agent shall have yet to notify the Borrower and the Lenders that the circumstances causing such suspension of the Affected Lender's obligations as aforesaid no longer exist, or the Affected Lender has not yet been replaced pursuant to Section 8.07(g), such Unaffected Lender Advance shall be Converted by the Borrower in accordance with Section 2.10 into an Advance of another Type (or, in the event that the Borrower shall fail to duly deliver a Notice of Conversion with respect thereto, into a Base Rate Advance), and the obligation of such Unaffected Lender to make, maintain, or Convert A Advances into Eurodollar Rate Advances shall be suspended until the Administrative Agent shall so notify the Borrower and the Lenders, or the Affected Lender shall be so replaced. For purposes of any prepayment under this Agreement, each Affected Lender Advance shall be deemed to continue to be part of the same Borrowing as the Unaffected Lender Advance to which it corresponded at the time of the Conversion of such Affected Lender Advance pursuant to clause (i) above. SECTION 2.15. Payments and Computations. (A) The Borrower shall make each payment hereunder and under the Notes not later than 1:00 p.m. on the day when due in Dollars to the Administrative Agent at its address referred to in Section 8.02 in same day funds. The Administrative Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest or fees ratably (other than amounts payable pursuant to Section 2.03, 2.08, 2.12(b)(iii), 2.16 or 8.04(b)) to the Lenders for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. Upon its acceptance of a Lender Assignment and recording of the information contained therein in the Register pursuant to Section 8.07(d), from and after the effective date specified in such Lender Assignment, the Administrative Agent shall make all payments hereunder and under the Notes in respect of the interest assigned thereby to the Lender assignee thereunder, and the parties to such Lender Assignment shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves. (b) The Borrower hereby authorizes each Lender, if and to the extent payment owed to such Lender is not made when due hereunder or under any Note held by such Lender, to charge from time to time against any or all of the Borrower's accounts with such Lender any amount so due. (c) All computations of interest based on the Alternate Base Rate and the Federal Funds Rate and of fees shall be made by the Administrative Agent on the basis of a year of 365 or 366 days, as the case may be, and all computations of interest based on the Eurodollar Rate shall be made by the Administrative Agent, and all computations of interest pursuant to Section 2.09 shall be made by a Lender, on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or fees are payable. Each determination by the Administrative Agent (or, in the case of Section 2.09, by a Lender) of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error. (d) Whenever any payment hereunder or under the Notes shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of 26 interest or fees, as the case may be; provided, however, that if such extension would cause payment of interest on or principal of Eurodollar Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. (e) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Lenders hereunder that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent that the Borrower shall not have so made such payment in full to the Administrative Agent, each Lender shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent, at the Federal Funds Rate. SECTION 2.16. Taxes. (A) Any and all payments by the Borrower hereunder and under the other Loan Documents shall be made, in accordance with Section 2.15, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and the Administrative Agent, taxes imposed on its overall net income and franchise taxes imposed on it by the jurisdiction under the laws of which such Lender or the Administrative Agent (as the case may be) is organized or any political subdivision thereof and, in the case of each Lender, taxes imposed on its overall net income and franchise taxes imposed on it by the jurisdiction of such Lender's Applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"); provided, however, that, notwithstanding the foregoing, Taxes shall not include any taxes otherwise required to be deducted by the Borrower pursuant to this subsection (a) as a result of activities of any Lender or the Administrative Agent in the State of Iowa (other than as a result, or in respect, of this Agreement). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any other Loan Document to any Lender or the Administrative Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.16) such Lender or the Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) In addition, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under any other Loan Document or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Document (hereinafter referred to as "Other Taxes"). (c) The Borrower will indemnify each Lender and the Administrative Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes 27 imposed by any jurisdiction on amounts payable under this Section 2.16) paid by such Lender or the Administrative Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. This indemnification shall be made within 30 days from the date such Lender or the Administrative Agent (as the case may be) makes written demand therefor. Nothing herein shall preclude the right of the Borrower to contest any such Taxes or Other Taxes so paid, and the Lenders in question or the Administrative Agent (as the case may be) will, following notice from, and at the expense of, the Borrower, reasonably cooperate with the Borrower to preserve the Borrower's rights to contest such Taxes or Other Taxes. (d) Within 30 days after the date of any payment of Taxes, the Borrower will furnish to the Administrative Agent, at its address referred to in Section 8.02, the original or a certified copy of a receipt evidencing payment thereof. (e) Each Lender agrees that, on or prior to the date upon which it shall become a party hereto, and upon the reasonable request from time to time of the Borrower or the Administrative Agent, such Lender will deliver to the Borrower and the Administrative Agent either (i) a statement that it is organized under the laws of a jurisdiction within the United States or (ii) duly completed copies of such form or forms as may from time to time be prescribed by the United States Internal Revenue Service indicating that such Lender is entitled to receive payments without deduction or withholding of any United States federal income taxes, as permitted by the Internal Revenue Code of 1986, as amended from time to time. Each Lender that delivers to the Borrower and the Administrative Agent the form or forms referred to in the preceding sentence further undertakes to deliver to the Borrower and the Administrative Agent further copies of such form or forms, or successor applicable form or forms, as the case may be, as and when any previous form filed by it hereunder shall expire or shall become incomplete or inaccurate in any respect. Each Lender represents and warrants that each such form supplied by it to the Administrative Agent and the Borrower pursuant to this subsection (e), and not superseded by another form supplied by it, is or will be, as the case may be, complete and accurate. (f) Any Lender claiming any additional amounts payable pursuant to this Section 2.16 shall use its best efforts (consistent with its internal policy and legal and regulatory restrictions) to change the jurisdiction of its Applicable Lending Office if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts which may thereafter accrue and would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender. (g) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 2.16 shall survive the payment in full of principal and interest hereunder and under the Notes. SECTION 2.17. Sharing of Payments, Etc. If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the A Advances made by it (other than pursuant to Section 2.08, 2.13, 2.16 or 8.04(b)) in excess of its ratable share of payments on account of the A Advances obtained by all the Lenders, such Lender shall forthwith purchase from the other Lenders such participations in the 28 Advances made by them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery, together with an amount equal to such Lender's ratable share (according to the proportion of (i) the amount of such Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.17 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. SECTION 2.18. Extension of Termination Date. (A) At least 45 days but not more than 60 days prior to the then-current Termination Date, the Borrower may request that the Lenders, by written notice to the Administrative Agent (in substantially the form attached hereto as Exhibit 2.18(a)), consent to a 364-day extension of the Termination Date. Each Lender shall, in its sole discretion, determine whether to consent to such request and shall notify the Administrative Agent of its determination at least 20 days but not more than 30 days prior to the then-current Termination Date. The failure to respond by any Lender within such time period shall be deemed a denial of such request. The Administrative Agent shall deliver a notice to the Borrower and the Lenders at least 15 days prior to the then-current Termination Date of the identity of the Lenders that have consented to such extension and the Lenders that have declined such consent (the "Declining Lenders"). If Lenders holding in the aggregate more than 50% of the Commitments have not consented to the requested extension, the Termination Date shall not be extended, and the Commitments of all Lenders shall terminate on the then-current Termination Date. (b) If Lenders holding in the aggregate more than 50% of the Commitments have consented to the requested extension, the Termination Date shall be extended as to such consenting Lenders only (and not as to any Declining Lender) for a period of 364 days from the then-current Termination Date (for purposes of this Section 2.18, the "Extension Date"), and the Commitments of any Declining Lenders shall terminate on the Extension Date (as theretofore in effect) and all Advances of such Declining Lenders shall be repaid to them on such date. If the Borrower so requests, each Lender consenting to such request shall be given the opportunity at least seven days but not more than 15 days prior to the Extension Date, in each Lender's sole discretion, to commit to increase its Commitment by submission of a written notice setting forth the desired increase in such Lender's Commitment to the Administrative Agent in amounts such that the aggregate Commitments hereunder after giving effect to any such extension and increase in the Commitments shall not exceed the aggregate Commitment immediately prior to the Extension Date. If the Administrative Agent receives Commitments to increase the Commitments from the Lenders, which, when aggregated with the existing Commitments, (A) are less than or equal to the Commitments immediately prior to the Extension Date, the Administrative Agent shall accept all such Commitments, (B) are greater than the Commitments on the date hereof, the Administrative Agent may determine, in its reasonable discretion, which Commitments to accept and the amounts by which each submitting Lender's Commitments shall be increased so that the aggregate Commitments after such Extension Date shall equal the 29 aggregate Commitments immediately prior to such Extension Date (any Lender whose commitment to increase its Commitment hereunder is accepted by the Administrative Agent, an "Increasing Commitment Lender"). If Lenders do not consent to increase the aggregate Commitments to an amount equal to the Commitments immediately prior to such Extension Date, the Borrower may, at least two days but not more than seven days prior to such Extension Date, request that the Administrative Agent, in its sole discretion, accept the Commitment or Commitments of an Eligible Assignee or Eligible Assignees such that the aggregate Commitments hereunder after such Extension Date shall not be greater than Commitments hereunder immediately prior to such Extension Date. If the Administrative Agent shall accept the Commitment of any Increasing Commitment Lender or Eligible Assignee, the Commitments of the Declining Lenders shall terminate on such Extension Date, and any Advances made by such Declining Lenders shall be repaid on such date in accordance with this Agreement. (c) Each such accepted Eligible Assignee and each Increasing Commitment Lender shall deliver a signature page hereto indicating that it is bound by the terms hereof and setting forth its aggregate Commitment hereunder. Such new signature page shall constitute a part hereof upon acceptance by the Administrative Agent and, in the case of any signature page submitted by any Increasing Commitment Lender, shall replace such Increasing Commitment Lender's previously delivered signature page. Any such extension shall become effective upon the satisfaction of the conditions set forth in Section 3.04 hereof. Upon satisfaction of such conditions and the effectiveness of such extension, each new Lender and Increasing Commitment Lender shall make A Advances to the Borrower (i) in the case of each new Lender, equal to such Lender's ratable portion of the A Advances outstanding immediately prior to such Extension Date and (ii) in the case of each Increasing Commitment Lender, equal to such portion of such Lender's ratable portion of the A Advances (assuming that such Lender's Commitment consists only of the increased portion thereof) outstanding immediately prior to such Extension Date, in each case, without giving effect to any repayment of A Advances to Declining Lenders made on such Extension Date. ARTICLE III CONDITIONS OF LENDING SECTION 3.01. Conditions Precedent to Closing. The Commitments of the Lenders shall not become effective unless the following conditions precedent shall have been fulfilled on or prior to December 17, 1999 (or such later Business Day as the parties hereto may mutually agree): (a) The Administrative Agent shall have received the following, each dated the date of the Closing, in form and substance satisfactory to the Lenders and (except for the Notes) in sufficient copies for each Lender: (i) this Agreement, duly executed by the Borrower, each Bank and the Administrative Agent; (ii) the A Notes payable to the order of the Lenders, respectively, duly completed and executed by the Borrower; 30 (iii) the Fee Letter, duly executed by Citibank, Salomon Smith Barney Inc. and the Borrower; (iv) certified copies of the resolutions of the Board of Directors of the Borrower approving this Agreement, the Notes and the other Loan Documents to which it is, or is to be, a party, and of all documents evidencing other necessary corporate action with respect to this Agreement, the Notes and such Loan Documents; (v) a certificate of the Secretary or an Assistant Secretary of the Borrower certifying the names, true signatures and incumbency of the officers of the Borrower authorized to sign this Agreement, the Notes and the other Loan Documents to which it is, or is to be, a party; (vi) copies of the Restated Articles of Incorporation (or comparable charter document) and by-laws of the Borrower, together with all amendments thereto, certified by the Secretary or an Assistant Secretary of the Borrower; (vii) certified copies of all Governmental Approvals, if any, required in connection with the execution, delivery and performance of this Agreement and the other Loan Documents; (viii) favorable opinions of: (A) Sidley & Austin, counsel for the Borrower, in substantially the form of Exhibit 3.01(a)(viii)-1 and as to such other matters as the Majority Lenders, through the Administrative Agent, may reasonably request; (B) King & Spalding, counsel to the Administrative Agent, in substantially the form of Exhibit 3.01(a)(viii)-2 and as to such other matters as the Majority Lenders, through the Administrative Agent, may reasonably request; and (ix) such other approvals, opinions and documents as any Lender, through the Administrative Agent, may reasonably request. (b) The following statements shall be true and correct and the Administrative Agent shall have received a certificate of a duly authorized officer of the Borrower, dated the date of the Closing and in sufficient copies for each Lender, stating that: (i) the representations and warranties set forth in Section 4.01 of this Agreement are true and correct on and as of the date of the Closing as though made on and as of such date, and (ii) no event has occurred and is continuing that constitutes an Unmatured Default or an Event of Default. (c) The Borrower shall have paid (i) all fees under or referenced in the Fee Letter and Section 2.04 hereof, to the extent then due and payable, and (ii) all costs and expenses of the Administrative Agent (including counsel fees and disbursements) incurred through (and for which statements have been provided prior to) the Closing. (d) The Borrower shall have paid in full all debt outstanding under the Existing Facility and the commitments of all the lenders thereunder shall have been terminated. (e) The Borrower shall have executed and delivered the Other Credit Agreement and the "Loan Documents" referred to therein, and all conditions precedent set forth in Section 3.01 thereof shall have been satisfied. SECTION 3.02. Conditions Precedent to Each A Borrowing. The obligation of each Lender to make an A Advance on the occasion of each A Borrowing (including the initial A Borrowing) shall be subject to the conditions precedent that, on the date of such A Borrowing, (a) the following statements shall be true and correct (and each of the giving of the applicable Notice of A Borrowing and the acceptance by the Borrower of the proceeds therefrom shall constitute a representation and warranty by the Borrower that, on the date of such A Borrowing, such statements are true and correct): (i) the representations and warranties contained in Section 4.01 are true and correct in all material respects on and as of the date of such A Borrowing, before and after giving effect to the application of the proceeds therefrom, as though made on and as of such date; and (ii) no event has occurred and is continuing, or would result from such A Borrowing or from the application of the proceeds therefrom, which constitutes an Event of Default or an Unmatured Default; and (b) the Administrative Agent shall have received such other approvals, opinions, or documents as the Administrative Agent, or the Majority Lenders through the Administrative Agent, may reasonably request, and such approvals, opinions, and documents shall be satisfactory in form and substance to the Administrative Agent. SECTION 3.03. Conditions Precedent to Each B Borrowing. The obligation of each Lender to make a B Advance on the occasion of a B Borrowing (including the initial B Borrowing) shall be subject to the conditions precedent that (A) the Administrative Agent shall have received the written confirmatory Notice of B Borrowing with respect thereto; (B) on or before the date of such B Borrowing, but prior to such B Borrowing, the Administrative Agent shall have received a B Note payable to the order of such Lender for each of the one or more B Advances to be made by such Lender as part of such B Borrowing, in a principal amount equal to the principal amount of the B Advance to be evidenced thereby and otherwise on such terms as were agreed to for such B Advance in accordance with Section 2.03; (C) on the date of such B Borrowing the following statements shall be true and correct (and each of the giving of the applicable Notice of B Borrowing and the acceptance by the Borrower of the proceeds therefrom shall constitute a representation and warranty by the Borrower that, on the date of such B Borrowing, such statements are true and correct): (i) the representations and warranties contained in Section 4.01 are true and correct in all material respects on and as of the date of such B Borrowing, before and after giving effect to such B Borrowing and to the application of the proceeds therefrom, as though made on and as of such date; and (ii) no event has occurred and is continuing, or would result from such B Borrowing or from the application of the proceeds therefrom, which constitutes an Event of Default or an Unmatured Default; and (d) the Administrative Agent shall have received such other approvals, opinions, or documents as the Administrative Agent, or the Majority Lenders through the Administrative Agent, may reasonably request, and such approvals, opinions, and documents shall be satisfactory in form and substance to the Administrative Agent. SECTION 3.04. Conditions Precedent to Each Extension of the Termination Date. In the event that the Borrower shall request an extension of the Termination Date pursuant to Section 2.18, such extension shall take effect only upon the satisfaction of the following conditions precedent, together with such other conditions precedent as the extending Lenders may require in connection with such extension: (a) The Administrative Agent shall have prepared and delivered to the Borrower and each Lender (including each new bank and other financial institution to which a non-extending Lender's Commitment has been assigned pursuant to Section 8.07 hereof) a revised Schedule I which reflects the Commitments, as applicable, of each Lender. (b) The Borrower shall have paid all fees under or referenced in Section 2.04 hereof, to the extent then due and payable. (c) The Administrative Agent shall have received (i) legal opinions in respect of any aspect or consequence of the transactions contemplated by Section 2.18 and (ii) such other documents as the Administrative Agent shall reasonably request, including, without limitation, copies of the resolutions, in form and substance satisfactory to the Administrative Agent, of the Board of Directors of the Borrower authorizing the extension of the then-current Termination Date. (d) The following statements shall be true on and as of the Extension Date: (i) The representations and warranties contained in Section 4.01 are correct, provided that the representation and warranty contained in Section 4.01(g) shall be true and correct in all material respects with respect to the financial statements most recently delivered to the Banks; and (ii) No event has occurred and is continuing, or would result from such extension of the then-current Termination Date, that constitutes an Event of Default or an Unmatured Default. SECTION 3.05. Reliance on Certificates. The Lenders and the Administrative Agent shall be entitled to rely conclusively upon the certificates delivered from time to time by officers of the Borrower as to the names, incumbency, authority and signatures of the respective Persons named therein until such time as the Administrative Agent may receive a replacement certificate, in form acceptable to the Administrative Agent, from an officer of such Person identified to the Administrative Agent as having authority to deliver such certificate, setting forth the names and true signatures of the officers and other representatives of such Person thereafter authorized to act on behalf of such Person. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Borrower. The Borrower represents and warrants as follows: (a) The Borrower and each of its Significant Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and is duly qualified to do business in, and is in good standing in, all other jurisdictions where the nature of its business or the nature of property owned or used by it makes such qualification necessary (except where the failure to so qualify would not have a material adverse affect on the business, financial condition, operations, results of operations or prospects of the Borrower and its Subsidiaries, taken as a whole). (b) The execution, delivery and performance by the Borrower of this Agreement, the Notes and the other Loan Documents to which it is or will be a party are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, and do not and will not contravene (i) the Borrower's Restated Articles of Incorporation or by-laws, (ii) law or (iii) any legal or contractual restriction binding on or affecting the Borrower; and such execution, delivery and performance do not and will not result in or require the creation of any Lien upon or with respect to any of its properties. (c) No Governmental Approval is required in connection with the execution, delivery or performance of any Loan Document, except for the authorization issued by the Federal Energy Regulatory Commission to the Borrower dated December 15, 1998, which authorization is in full force and effect and not the subject of any pending or threatened appeal, stay or other challenge. The Borrower will have obtained and made, on or before each date on which this representation shall be made or reaffirmed, all necessary notices to or filings with the Federal Energy Regulatory Commission with respect to the transactions contemplated by this Agreement and the other Loan Documents, and all such notices and filings will have been duly made, and will be in full force and effect. (d) There is no pending or threatened action or proceeding affecting the Borrower or any of its Subsidiaries or properties before any court, governmental agency or arbitrator, that might reasonably be expected to materially adversely affect (i) the business, condition (financial or otherwise) or results of operations of the Borrower and its Subsidiaries, taken as a whole, or (ii) the ability of the Borrower to perform its obligations under this Agreement or any other Loan Document to which the Borrower is or is to be a party. (e) Since June 30, 1999 or, in connection with any extension of the then- current Termination Date and for such extended period, the June 30 for which financial statements have been delivered to the Lenders in same calendar year as an Extension Date, there has been no material adverse change in the business, condition (financial or otherwise) or results of operations of the Borrower and its Subsidiaries, taken as a whole, or in the Borrower's ability to perform its obligations under this Agreement or any other Loan Document to which it is or will be a party. (f) Neither this Agreement nor any other document, certificate or statement furnished to the Administrative Agent by the Borrower in connection herewith contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein, under the circumstances in which they were made, not misleading. (g) The consolidated balance sheets of the Borrower and its Consolidated Subsidiaries as at June 30, 1999, and the related consolidated statements of operations of the Borrower and its Consolidated Subsidiaries for the three months, six months and twelve months then ended, copies of each of which have been furnished to each Bank, fairly present (subject to year-end adjustments) the consolidated financial condition of the Borrower and its Consolidated Subsidiaries as at such dates and the consolidated results of operations of the Borrower and its Consolidated Subsidiaries for the periods ended on such date, all in accordance, in all material respects, with generally accepted accounting principles consistently applied (except for changes in such principles required by generally accepted accounting principles and noted in such financial statements). (h) No ERISA Event has occurred or is reasonably expected to occur with respect to any Plan of the Borrower or any of its ERISA Affiliates which would result in a liability of $25,000,000 or more to the Borrower. Since the most recent June 30 for which financial statements have been delivered to the Lenders in accordance with Section 5.01(i) hereof, there has been no material adverse change in the funding status of the Plans and no "prohibited transaction" has occurred with respect thereto which is in either event reasonably expected to result in a liability of $25,000,000 or more to the Borrower. (i) The Borrower has filed all tax returns (Federal, state and local) required to be filed and paid all taxes shown thereon to be due, including interest and penalties, or, to the extent the Borrower is contesting in good faith an assertion of liability based on such returns, has provided adequate reserves for payment thereof in accordance with generally accepted accounting principles. (j) This Agreement is, and each other Loan Document to which the Borrower will be a party when executed and delivered hereunder will be, legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms, subject to the qualifications, however, that the enforcement of the rights and remedies herein and therein is subject to bankruptcy and other similar laws of general application affecting rights and remedies of creditors and that the remedy of specific performance or of injunctive relief is subject to the discretion of the court before which any proceedings therefor may be brought. (k) Following application of the proceeds of each Advance, not more than 25 percent of the value of the assets of the Borrower and its Subsidiaries on a consolidated basis will be margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System). (l) The Borrower is not an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. (m) The Borrower is a "holding company" within the meaning of PUHCA, but the Borrower and its Subsidiaries are exempt from the provisions of that Act, except Section 9(a)(2) thereof, by virtue of an order issued by the Securities and Exchange Commission on June 30, 1948. Such exemption is in full force and effect and, except for proceedings in connection with the transactions contemplated by the Unicom/PECO Merger Agreement, the Borrower is not aware of any existing or proposed proceedings contemplating the revocation or modification of such exemption. (n) The Borrower has made a reasonable assessment of its Year 2000 Issues and has a realistic and achievable Year 2000 Program. Based on such assessment and on its Year 2000 Program, the Borrower does not reasonably anticipate that Year 2000 Issues will have a Material Adverse Effect. ARTICLE V COVENANTS OF THE BORROWER SECTION 5.01. Affirmative Covenants. So long as any amount in respect of any Note shall remain unpaid or any Lender shall have any Commitment, the Borrower will, unless the Majority Lenders shall otherwise consent in writing: (a) Preservation of Existence, Etc. Preserve and maintain, and cause each of its Significant Subsidiaries to preserve and maintain, its corporate existence, material rights (statutory and otherwise) and franchises; provided, however, that neither the Borrower nor any of its Significant Subsidiaries shall be required to preserve and maintain any such right or franchise, and no such Significant Subsidiary shall be required to preserve and maintain its corporate existence, unless the failure to do so would have a material adverse effect on the business, condition (financial or otherwise) or results of operations of the Borrower and its Subsidiaries, taken as a whole, or on the Borrower's ability to perform its obligations under this Agreement or any other Loan Document to which it is or will be a party. (b) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to comply, with the requirements of all applicable laws, rules, regulations and orders of any governmental authority, including without limitation any such laws, rules, regulations and orders relating to zoning, environmental protection, use and disposal of Hazardous Substances, land use, ERISA, construction and building restrictions, and employee safety and health matters relating to business operations, the non-compliance with which would have a material adverse effect on the business, condition (financial or otherwise) or results of operations of the Borrower and its Subsidiaries, taken as a whole, or on the Borrower's ability to perform its obligations under this Agreement or any other Loan Document to which it is or will be a party. (c) Payment of Taxes, Etc. Pay and discharge, and cause each of its Significant Subsidiaries to pay and discharge, before the same shall become delinquent, all taxes, assessments and governmental charges, royalties or levies imposed upon it or upon its property, except to the extent the Borrower or such Significant Subsidiary is contesting the same in good faith and by appropriate proceedings and has set aside adequate reserves for the payment thereof in accordance with generally accepted accounting principles. (d) Payment of Material Obligations. Pay, and cause each Significant Subsidiary to pay, promptly as the same shall become due each material obligation of the Borrower or such Significant Subsidiary, except to the extent that the Borrower or such Significant Subsidiary is contesting the same in good faith and by appropriate proceedings and has set aside adequate reserves for the payment thereof in accordance with generally accepted accounting principles. (e) Inspection Rights. At any reasonable time and from time to time upon reasonable notice, permit or arrange for the Administrative Agent, the Lenders and their respective agents and representatives to examine and make copies of and abstracts from the records and books of account of, and, to the extent permitted by applicable law, permit an examination of the properties of, the Borrower and each of its Subsidiaries, and to discuss the affairs, finances and accounts of the Borrower and its Subsidiaries with the Borrower and its Subsidiaries and their respective officers and directors and, following the occurrence and during the continuance of an Event of Default, their respective accountants; provided, however, that, prior to the disclosure of any information or materials of the Borrower or its Subsidiaries relating to wholesale transactions, customers, pricing methods or formulae, transmission and distribution system utilization or pricing, or proprietary methods or processes, the Borrower may require the Lender seeking to inspect the same to enter into a confidentiality and nondisclosure agreement with respect to the use and disclosure of such information or materials in form and substance reasonably satisfactory to the Borrower and such Lender and otherwise containing customary terms. (f) Keeping of Books. Keep, and cause its Subsidiaries to keep, proper records and books of account, in which full and correct entries shall be made of all financial transactions of the Borrower and its Subsidiaries and the assets and business of the Borrower and its Subsidiaries, in accordance with generally accepted accounting principles. (g) Maintenance of Properties, Etc. Maintain, and cause each of its Subsidiaries to maintain, good and marketable title to, and preserve and maintain in good working order and condition (ordinary wear and tear excepted), and operate in substantial conformity with all laws and material contractual obligations, all of its properties which are used or useful in the conduct of its business except where the failure to do so would not have a material adverse effect on the business, condition (financial or otherwise) or results of operations of the Borrower and its Subsidiaries, taken as a whole, or on the Borrower's ability to perform its obligations under this Agreement or any other Loan Document to which it is or will be a party. (h) Maintenance of Insurance. Maintain, or cause to be maintained, insurance covering the Borrower and each of its Subsidiaries and their respective properties in effect at all times as may be required by law and such other insurance in such amounts and covering such risks as is usually carried by companies similarly situated. (i) Reporting Requirements. Furnish to each Lender: (i) as soon as possible and in any event within five Business Days after the occurrence of each Unmatured Default or Event of Default continuing on the date of such statement, a statement of a Senior Financial Officer setting forth details of such Unmatured Default or Event of Default and the action that the Borrower proposes to take with respect thereto; (ii) as soon as available and in any event within 60 days after the end of each of the first three quarters of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as at the end of such quarter and statements of income, consolidated operations, consolidated retained earnings and consolidated cash flows of the Borrower and its Consolidated Subsidiaries for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, all in reasonable detail and duly certified (subject to year-end audit adjustments) by a Senior Financial Officer as having been prepared in accordance (in all material respects) with generally accepted accounting principles together with a certificate of said officer stating that no Unmatured Default or Event of Default has occurred and is continuing or, if an Unmatured Default or Event of Default has occurred and is continuing, a statement as to the nature thereof and the action that the Borrower proposes to take with respect thereto; provided that delivery of a copy of the Borrower's Quarterly Report on Form 10-Q for such quarter shall be deemed to satisfy such financial statement delivery requirements; (iii) as soon as available and in any event within 120 days after the end of each fiscal year of the Borrower, a copy of the consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as at the end of such fiscal year and statements of consolidated operations, consolidated retained earnings and consolidated cash flows of the Borrower and its Consolidated Subsidiaries for such fiscal year, in each case in reasonable detail and duly certified by a Senior Financial Officer as having been prepared in accordance (in all material respects) with generally accepted accounting principles, together with a certificate of a Senior Financial Officer stating that no Unmatured Default or Event of Default has occurred and is continuing or, if an Unmatured Default or Event of Default has occurred and is continuing, a statement as to the nature thereof and the action that the Borrower proposes to take with respect thereto; provided that delivery of a copy of the Borrower's Annual Report on Form 10-K (containing such statements) or Current Report on Form 8-K (containing such statements) for such year shall be deemed to satisfy such financial statement delivery requirements; (iv) as soon as possible and in any event (A) within 30 days after any ERISA Event described in clause (i) of the definition of ERISA Event with respect to any Plan of the Borrower or any ERISA Affiliate of the Borrower has occurred and (B) within 10 days after any other ERISA Event with respect to any Plan of the Borrower or any ERISA Affiliate of the Borrower has occurred, a statement of a Senior Financial Officer describing such ERISA Event and the action, if any, which the Borrower or such ERISA Affiliate proposes to take with respect thereto; (v) promptly after receipt thereof by the Borrower or any of its ERISA Affiliates from the PBGC, copies of each notice received by the Borrower or such ERISA Affiliate of the PBGC's intention to terminate any Plan of the Borrower or such ERISA Affiliate or to have a trustee appointed to administer any such Plan; (vi) promptly after receipt thereof by the Borrower or any ERISA Affiliate of the Borrower from a Multiemployer Plan sponsor, a copy of each notice received by the Borrower or such ERISA Affiliate concerning the imposition or amount of withdrawal liability in an aggregate principal amount of at least $25,000,000 pursuant to Section 4202 of ERISA in respect of which the Borrower or such ERISA Affiliate is reasonably expected to be liable; (vii) promptly after the Borrower becomes aware of the occurrence thereof, notice of all actions, suits, proceedings or other events of (A) of the type described in Section 4.01(d) or (B) for which the Administrative Agent and the Lenders will be entitled to indemnity under Section 8.04(c); (viii) promptly after the sending or filing thereof, copies of all such information statements, financial statements, and reports which the Borrower sends to its public security holders (if any), and copies of all regular, periodic and special reports, and all registration statements (other than registration statements related to employee benefits plans) and periodic or special reports, if any, which the Borrower files with the Securities and Exchange Commission or any governmental authority which may be substituted therefor, or with any national securities exchange; (ix) such information concerning the Borrower's Year 2000 Programs as the Administrative Agent may reasonably request; and (x) promptly after requested, such other information respecting the business, properties, results of operations, prospects, revenues, condition or operations, financial or otherwise, of the Borrower or any of its Subsidiaries (including, but not limited to, copies of each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) filed with the Internal Revenue Service) as the Administrative Agent or any Lender through the Administrative Agent may from time to time reasonably request. (j) Use of Proceeds. Use the proceeds of the initial Advances and any other Advances hereunder as a commercial paper backstop and solely for the Borrower's general corporate purposes. (k) Debt to Capitalization. Maintain at all times a ratio of Consolidated Debt to Consolidated Capital of not more than 65%. 39 (l) Further Assurances. At the expense of the Borrower, promptly execute and deliver, or cause to be promptly executed and delivered, all further instruments and documents, and take and cause to be taken all further actions, that may be necessary or that the Majority Lenders through the Administrative Agent may reasonably request to enable the Lenders and the Administrative Agent to enforce the terms and provisions of this Agreement and to exercise their rights and remedies hereunder or under any other Loan Document. In addition, the Borrower will use all reasonable efforts to duly obtain Governmental Approvals required in connection with the Loan Documents from time to time on or prior to such date as the same may become legally required, and thereafter to maintain all such Governmental Approvals in full force and effect. (m) Year 2000. Take all such actions as are reasonably necessary to successfully implement its Year 2000 Program and to assure that Year 2000 Issues will not have a Material Adverse Effect. At the request of the Administrative Agent, the Borrower will provide a description of its Year 2000 Program, together with any updates or progress reports with respect thereto. SECTION 5.02. Negative Covenants. So long as any amount in respect of any Note shall remain unpaid or any Lender shall have any Commitment, the Borrower will not, without the written consent of the Majority Lenders: (a) Liens, Etc. Create, incur, assume, or suffer to exist, or permit any of its Significant Subsidiaries to create, incur, assume, or suffer to exist, any lien, security interest, or other charge or encumbrance (including the lien or retained security title of a conditional vendor) of any kind, or any other type of arrangement intended or having the effect of conferring upon a creditor a preferential interest upon or with respect to any of its properties of any character, in each case to secure or provide for the payment of any Debt of any Person (any of the foregoing being referred to herein as a "Lien"), excluding, however, from the operation of the foregoing restrictions the Liens created under the Loan Documents and the following: (i) Liens for taxes, assessments or governmental charges or levies to the extent not past due or contested in good faith by appropriate proceedings, with adequate reserves set aside for the payment thereof in accordance with generally accepted accounting principles; (ii) Liens imposed by law, such as materialmen's, mechanics', carriers', workmen's, repairmen's, warehousemen's and landlord's liens and other similar Liens arising in the ordinary course of business securing obligations which are not overdue or which are being contested in good faith by appropriate proceedings, with adequate reserves set aside for the payment thereof in accordance with generally accepted accounting principles; (iii) pledges or deposits to secure obligations under workmen's compensation laws or similar legislation, to secure obligations individually or in the aggregate equal to or less than $25,000,000 referred to in clause (vi) of the definition of Debt, to secure public or statutory obligations of the Borrower or such Significant Subsidiary, or to secure the utility obligations and power purchase commitments of the Borrower or any such Significant Subsidiary incurred in the ordinary course of business; (iv) (A) purchase money Liens upon or in property now owned or hereafter acquired by the Borrower or any of its Significant Subsidiaries in the ordinary course of business (consistent with present practices) to secure (1) the purchase price of such property or (2) Debt incurred solely for the purpose of financing the acquisition, construction or improvement of any such property to be subject to such Liens, or (B) Liens existing on any such property at the time of acquisition, or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount, provided that no such Lien shall extend to or cover any property other than the property being acquired, constructed or improved and replacements, modifications and proceeds of such property, and no such extension, renewal or replacement shall extend to or cover any property not theretofore subject to the Lien being extended, renewed or replaced; (v) attachment, judgment or other similar Liens arising in connection with court proceedings, provided that, with respect to any Lien involving an amount of $25,000,000 or more, the execution or other enforcement of such Liens is effectively stayed and the claims secured thereby are being actively contested in good faith by appropriate proceedings or the payment of which is covered in full (subject to customary deductible amounts) by insurance maintained with responsible insurance companies and the applicable insurance company has acknowledged its liability therefor in writing; (vi) Liens arising under the Mortgage dated July 1, 1923, as supplemented and amended by a Supplemental Indenture dated August 1, 1944 and other supplemental indentures, from the Borrower, as mortgagor, to Harris Trust and Savings Bank and D.G. Donovan, as trustees, pursuant to which the Borrower has issued, and may hereafter issue, its mortgage bonds; (vii) Liens, if any, arising in connection with (A) the sale or sale/leaseback of nuclear fuel to the extent permitted in clause (w) of the proviso to Section 5.02(d) hereof, but only to the extent that the Liens so arising are placed upon the nuclear fuel so sold or sold/leased back, or (B) the sale, pledge or other disposition of accounts receivable to the extent permitted by clause (x) of the proviso of Section 5.02(d) hereof, but only to the extent that the Liens so arising are placed upon the accounts receivable so sold, pledged or otherwise disposed of, or (C) the issuance of Transitional Funding Instruments to the extent permitted by clause (y) of the proviso of Section 5.02(d) hereof; (viii) Liens, if any, arising in connection with Capitalized Lease Obligations, but only on the equipment or property subject to such Capitalized Lease Obligations; (ix) Liens on the capital stock of or any other equity interest in any of the Borrower's Subsidiaries (which are not Significant Subsidiaries) or any such Subsidiary's assets to secure the payment and performance of Debt obligations in connection with any project financing for such Subsidiary (provided that the obligee of such obligations shall have no recourse to the Borrower to satisfy such obligations, other than pursuant to any such Liens on the Borrower's equity interests in such Subsidiary); (x) Liens on the assets and/or rights to receive income of any Person that exist at the time that such Person becomes a Significant Subsidiary and the continuation of such Liens in connection with any refinancing or restructuring of the obligations secured by such Liens; and (xi) other Liens which, taken together with the Liens arising pursuant to the foregoing clauses or individually, do not have a Material Adverse Effect. (b) Compliance with ERISA. (i) Permit to exist any "accumulated funding deficiency" (as defined in Section 412(a) of the Internal Revenue Code of 1986, as amended from time to time) (unless such deficiency exists with respect to a Multiple Employer Plan or Multiemployer Plan and the Borrower has no control over the reduction or elimination of such deficiency), (ii) terminate, or permit any ERISA Affiliate of the Borrower to terminate, any Plan of the Borrower or such ERISA Affiliate so as to result in a liability of $25,000,000 or more of the Borrower to the PBGC, or (iii) permit to exist any occurrence of any Reportable Event (as defined in Title IV of ERISA), other than a Reportable Event for which the 30-day notice requirement with respect thereto has been waived by the PBGC or any other event or condition, which presents a material (in the reasonable opinion of the Majority Lenders) risk of such a termination by the PBGC of any Plan of the Borrower or such ERISA Affiliate and such a liability to the Borrower. (c) Transactions with Affiliates. Enter into, or permit any of its Subsidiaries to enter into, any transaction with an Affiliate of the Borrower, unless (i) such transaction is on terms no less favorable to the Borrower or such Subsidiary, as the case may be, than if the transaction had been negotiated in good faith on an arm's length basis with a Person which was not an Affiliate of the Borrower or (ii) such transaction is conducted pursuant to the Affiliated Interests Agreement dated as of December 4, 1995 among the Borrower, Unicom Corporation and the other entities named therein, as it may be amended or modified from time to time or replaced by an agreement regarding such transactions approved by the Illinois Commerce Commission or the Securities and Exchange Commission. Notwithstanding the foregoing, the terms of this Section 5.02(c) shall not apply to (i) the transactions contemplated by the Asset Sale Agreement dated as of May 11, 1999 between the Borrower and Unicom Investment Inc. relating to the sale of the Borrower's fossil generation assets, (ii) the transfer by the Borrower to Unicom Technology Development Inc. of up to $275,000,000 of notes receivable from Unicom Investment Inc. under said Asset Sale Agreement along with an obligation in respect of an equivalent amount of the Borrower's contingent obligation to pay post-retirement health care benefits, and (iii) the transactions associated with a transfer of the Borrower's nuclear generating stations to an Affiliate as permitted by clause (v) of Section 5.02(d). (d) Mergers, Etc. Merge or consolidate with or into any Person, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions, and whether in a sale/leaseback transaction or otherwise) more than 10% of its assets (whether now owned or hereafter acquired), unless, in the case of a merger, immediately after giving effect thereto, (i) no event shall occur and be continuing that constitutes an Unmatured Default or an Event of Default, (ii) the Borrower is the surviving corporation, and (iii) the Borrower shall not be liable with respect to any Debt or allow its property to be subject to any Lien which it could not become liable with respect to or allow its property to become subject to under this Agreement on the date of such transaction; provided, however, that so long as no Unmatured Default or Event of Default has occurred and is continuing or would result from such transaction, (v) the Borrower may transfer its nuclear generating assets to an Affiliate, (w) the Borrower may engage in sale or sale/leaseback transactions with respect to nuclear fuel, (x) the Borrower may sell, pledge or otherwise dispose of its accounts receivable, (y) the Borrower may engage in transactions involving the issuance of Transitional Funding Instruments, and (z) the Borrower may sell its electric generating assets in one or a series of arms-length transactions for not less than the fair market value of such assets. (e) Maintenance of Ownership of Significant Subsidiaries. Sell, assign, transfer, pledge or otherwise dispose of any shares of capital stock of any of its Significant Subsidiaries or any warrants, rights or options to acquire such capital stock, or permit any of its Significant Subsidiaries to issue, sell or otherwise dispose of any shares of such Significant Subsidiary's capital stock, except (and only to the extent) as may be necessary to give effect to a transaction permitted by subsection (d) above. ARTICLE VI EVENTS OF DEFAULT SECTION 6.01. Events of Default. If any of the following events (each an "Event of Default") shall occur and be continuing after the applicable grace period and notice requirement (if any): (a) The Borrower shall fail to pay any principal of any Note when the same becomes due and payable; or (b) The Borrower shall fail to pay any interest on any Note or any other amount due under this Agreement for three Business Days after the same becomes due; or (c) The Borrower or any of its Subsidiaries shall fail to pay any principal of or premium or interest on any Debt of the Borrower that is outstanding in a principal amount of $25,000,000 or more in the aggregate (but excluding (i) Debt evidenced by the Notes and (ii) Nonrecourse Debt) when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or (d) The Borrower or any of its Subsidiaries shall fail to observe any term or covenant on its part to be performed or observed and the effect of such failure is to accelerate or permit acceleration of any Debt of the Borrower that is outstanding in a principal amount of $25,000,000 or more in the aggregate (but excluding (i) Debt evidenced by the Notes and (ii) Nonrecourse Debt); or (e) Any representation or warranty made by or on behalf of the Borrower in any Loan Document or in any certificate or other writing delivered pursuant thereto shall prove to have been incorrect in any material respect when made or deemed made; or (f) The Borrower shall fail to perform or observe any term or covenant on its part to be performed or observed contained in Section 5.01(k) or 5.02 (other than subsection (c) thereof); or (g) The Borrower shall fail to perform or observe any other term or covenant on its part to be performed or observed contained in Section 5.01 or in any other Loan Document, and any such failure shall remain unremedied, after written notice thereof shall have been given to the Borrower by the Administrative Agent, for a period of 30 days; or (h) Any judgment or order for the payment of money in excess of $25,000,000 shall be rendered against the Borrower or any of its Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of ten consecutive Business Days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or 44 (i) The Borrower shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make an assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Borrower seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of its debts under any law relating to bankruptcy, insolvency, or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property and, in the case of a proceeding instituted against the Borrower, either such proceeding shall remain undismissed or unstayed for a period of 60 days or any of the actions sought in such proceeding (including without limitation the entry of an order for relief against the Borrower or the appointment of a receiver, trustee, custodian or other similar official for the Borrower or any of its property) shall occur; or the Borrower shall take any corporate or other action to authorize any of the actions set forth above in this subsection (i); or (j) Any Governmental Approval required in connection with the execution, delivery and performance of the Loan Documents shall be rescinded, revoked, otherwise terminated, or amended or modified in any manner which is materially adverse to the interests of the Lenders and the Administrative Agent; or (k) Any ERISA Event shall have occurred with respect to a Plan which could reasonably be expected to result in a liability of $25,000,000 or more to the Borrower, and, 30 days after notice thereof shall have been given to the Borrower by the Administrative Agent or any Lender, such ERISA Event shall still exist; or (l) An "event of default" (as defined therein) shall occur and be continuing under the Other Credit Agreement; then, and in any such event, the Administrative Agent (i) shall at the request, or may with the consent, of the Majority Lenders or, if no A Advances are then outstanding, Banks having greater than 50% of the Commitments (without giving effect to any B Reduction), by notice to the Borrower, declare the obligation of each Lender to make Advances to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of the Majority Lenders or, if no A Advances are then outstanding, Lenders having greater than 50% of the Commitments, by notice to the Borrower, declare the Notes (if any), all interest thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Notes, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided, however, that in the event of an actual or deemed entry of an order for relief with respect to the Borrower under the Federal Bankruptcy Code, (A) the Commitments and the obligation of each Lender to make Advances shall automatically be terminated and (B) the Notes, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower. ARTICLE VII THE ADMINISTRATIVE AGENT SECTION 7.01. Authorization and Action. Each Lender hereby appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent by the terms hereof, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement or any other Loan Document (including, without limitation, enforcement or collection of the Notes), the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Lenders, and such instructions shall be binding upon all Lenders and all holders of Notes; provided, however, that the Administrative Agent shall not be required to take any action which exposes the Administrative Agent to personal liability or which is contrary to this Agreement or applicable law. The Administrative Agent agrees to give to each Lender prompt notice of each notice given to it by the Borrower pursuant to the terms of this Agreement. The Administrative Agent shall be deemed to have exercised reasonable care in the administration and enforcement of this Agreement and the other Loan Documents if it undertakes such administration and enforcement in a manner substantially equal to that which the Administrative Agent accords credit facilities similar to the credit facility hereunder for which it is the sole lender. SECTION 7.02. Administrative Agent's Reliance, Etc. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement or any other Loan Document, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Administrative Agent: (i) may treat the payee of any Note as the holder thereof until the Administrative Agent receives and accepts a Lender Assignment entered into by the Lender which is the payee of such Note, as assignor, and an Eligible Assignee, as assignee, as provided in Section 8.07; (ii) may consult with legal counsel (including counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (iii) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations (whether written or oral) made in or in connection with this Agreement or any other Loan Document; (iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or any other Loan Document on the part of the Borrower or to inspect the property (including the books and records) of the Borrower; (v) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, any other Loan Document or any other instrument or document furnished pursuant hereto or thereto; and (vi) shall incur no liability under or in respect of this Agreement or any other Loan Document by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopier, telegram, cable or telex) believed by it to be genuine and signed or sent by the proper party or parties. SECTION 7.03. Citibank, N.A. and Affiliates. With respect to its Commitment, the Advances made by it and the Notes issued to it, Citibank, N.A. shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Administrative Agent; and the term "Bank" or "Banks" and "Lender" or "Lenders" shall, 46 unless otherwise expressly indicated, include Citibank, N.A. in its individual capacity. Citibank, N.A. and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Borrower, any of its Subsidiaries or Affiliates and any Person who may do business with or own securities of the Borrower or any such Subsidiary or Affiliate, all as if Citibank, N.A. were not the Administrative Agent and without any duty to account therefor to the Lenders. SECTION 7.04. Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. SECTION 7.05. Indemnification. The Lenders agree to indemnify the Administrative Agent (to the extent not reimbursed by the Borrower), ratably according to (a) on or before the Termination Date, the respective principal amounts of the A Notes then held by each of them (or if no A Notes are at the time outstanding or if any A Notes are held by Persons which are not Lenders, ratably according to the respective Percentages of the Lenders), or (b) after the Termination Date, the respective principal amounts of the Notes then held by each of them (or if no Notes are at the time outstanding or if any Notes are held by Persons which are not Lenders, ratably according to the respective unpaid principal amounts of the Advances made by each Lender), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Administrative Agent in any way relating to or arising out of this Agreement or any action taken or omitted by the Administrative Agent under this Agreement, provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Administrative Agent's gross negligence or willful misconduct. Without limitation of the foregoing, each Lender agrees to reimburse the Administrative Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including counsel fees) incurred by the Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, to the extent that the Administrative Agent is not reimbursed for such expenses by the Borrower. SECTION 7.06. Successor Administrative Agent. The Administrative Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower and may be removed at any time with or without cause by the Majority Lenders, with any such resignation or removal to become effective only upon the appointment of a successor Administrative Agent pursuant to this Section 7.06. Upon any such resignation or removal, the Majority Lenders shall have the right to appoint a successor Administrative Agent, which shall be a Lender or shall be another commercial bank or trust company reasonably acceptable to the Borrower organized under the laws of the United States or of any State thereof. If no successor Administrative Agent shall have been so appointed by the Majority Lenders, and shall have accepted such appointment, 47 within 30 days after the retiring Administrative Agent's giving of notice of resignation or the Majority Lenders' removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent, which shall be a Lender or shall be another commercial bank or trust company organized under the laws of the United States or any State thereof and reasonably acceptable to the Borrower. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Article VII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. ARTICLE VIII MISCELLANEOUS SECTION 8.01. Amendments, Etc. No amendment or waiver of any provision of any Loan Document, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Majority Lenders and, in the case of any amendment, the Borrower, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by all the Lenders, do any of the following: (a) waive, modify or eliminate any of the conditions specified in Section 3.01 or 3.02, (b) increase the Commitments of the Lenders, change or extend the Termination Date (except as provided in Section 2.18) or subject the Lenders to any additional obligations, (c) reduce the principal of, or interest on, the A Notes, any Applicable Margin or any fees or other amounts payable hereunder, (d) postpone any date fixed for any payment of principal of, or interest on, the A Notes or any fees or other amounts payable hereunder, (e) change the percentage of the Commitments or of the aggregate unpaid principal amount of the A Notes, or the number of Lenders, which shall be required for the Lenders or any of them to take any action hereunder or (f) amend this Section 8.01; and provided, further, that no amendment, waiver or consent shall, unless in writing and signed by the Lenders making or maintaining such B Advances, do any of the following: (a) waive, modify or eliminate any of the conditions to any B Advance specified in Section 3.03, (b) reduce the principal of, or interest on, any B Note or other amounts payable in respect thereof, (c) postpone any date fixed for any payment of principal of, or interest on, any B Note or any other amounts payable in respect thereof; and provided, further, that no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above to take such action, affect the rights or duties of the Administrative Agent under this Agreement or any Note. SECTION 8.02. Notices, Etc. All notices and other communications provided for hereunder and under the other Loan Documents shall be in writing (including telecopier, telegraphic, telex or cable communication) and mailed, telecopied, telegraphed, telexed, cabled or delivered, if to the Borrower, at its address at Bank One Plaza- 37th Floor, 10 South Dearborn Street, Chicago, Illinois 60603 (or P.O. Box 767, Chicago, Illinois 60690-0767, if mailed), Attention: Treasurer (telephone: 312-394-5767; and telecopier: 312-394-3110), with a copy to 48 the same address, attention: Associate General Counsel-Corporate and Commercial (telephone: 312-394-3179; and telecopier: 312-394-3950); if to any Bank, at its Domestic Lending Office specified opposite its name on Schedule I hereto; if to any other Lender, at its Domestic Lending Office specified in the Lender Assignment pursuant to which it became a Lender; and if to the Administrative Agent, at its address at Two Pennsway, Ste. 200, New Castle, Delaware 19720, Attention: Bank Loan Syndications; or, as to each party, at such other address as shall be designated by such party in a written notice to the other parties. All such notices and communications shall, when mailed, telecopied, telegraphed, telexed or cabled, be effective five days after being deposited in the mails, or when delivered to the telegraph company, telecopied, confirmed by telex answerback or delivered to the cable company, respectively, except that notices and communications to the Administrative Agent pursuant to Article II or VII shall not be effective until received by the Administrative Agent. SECTION 8.03. No Waiver; Remedies. No failure on the part of any Lender or the Administrative Agent to exercise, and no delay in exercising, any right hereunder or under any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 8.04. Costs, Expenses, Taxes and Indemnification. (A) The Borrower agrees to pay on demand all costs and expenses of the Administrative Agent in connection with the preparation (including, without limitation, printing costs), negotiation, execution, delivery, modification and amendment of this Agreement and the other Loan Documents, and the other documents and instruments to be delivered hereunder and thereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Administrative Agent with respect thereto and with respect to the administration of, and advising the Administrative Agent as to its rights and responsibilities under, this Agreement and the other Loan Documents. The Borrower further agrees to pay on demand all costs and expenses, if any (including, without limitation, reasonable counsel fees and expenses), in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Agreement and the other Loan Documents and the other documents and instruments to be delivered hereunder and thereunder, including, without limitation, reasonable counsel fees and expenses in connection with the enforcement of rights under this Section 8.04(a). In addition, the Borrower shall pay any and all stamp and other taxes payable or determined to be payable in connection with the execution and delivery of this Agreement and the other Loan Documents, and the other documents and instruments to be delivered hereunder and thereunder, and agrees to save the Administrative Agent and each Lender harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes. (b) If any payment of principal of, or Conversion of, any Eurodollar Rate Advance or B Advance is made other than on the last day of the Interest Period for such A Advance or other than on the maturity date of such B Advance, as a result of a payment or Conversion pursuant to Section 2.10, 2.11, 2.12 or 2.14 or acceleration of the maturity of the Notes pursuant to Section 6.01 or for any other reason, the Borrower shall, upon demand by any Lender (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, costs or expenses which it may reasonably incur as a result of such payment or Conversion, including, 49 without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Advance. (c) The Borrower hereby agrees to indemnify and hold each Lender, the Administrative Agent and their respective officers, directors, employees, professional advisors and affiliates (each, an "Indemnified Person") harmless from and against any and all claims, damages, losses, liabilities, costs or expenses (including reasonable attorney's fees and expenses, whether or not such Indemnified Person is named as a party to any proceeding or is otherwise subjected to judicial or legal process arising from any such proceeding) which any of them may incur or which may be claimed against any of them by any Person (except for such claims, damages, losses, liabilities, costs and expenses resulting from such Indemnified Person's gross negligence or willful misconduct): (i) by reason of or in connection with the execution, delivery or performance of any of the Loan Documents or any transaction contemplated thereby, or the use by the Borrower of the proceeds of any Extension of Credit; (ii) in connection with any documentary taxes, assessments or charges made by any governmental authority by reason of the execution and delivery of any of the Loan Documents; or (iii) in connection with or resulting from the utilization, storage, disposal, treatment, generation, transportation, release or ownership of any Hazardous Substance (i) at, upon, or under any property of the Borrower or any of its Affiliates or (ii) by or on behalf of the Borrower or any of its Affiliates at any time and in any place. (d) The Borrower's obligations under this Section 8.04 shall survive the repayment of all amounts owing to the Lenders under the Notes and the termination of the Commitments. If and to the extent that the obligations of the Borrower under this Section 8.04 are unenforceable for any reason, the Borrower agrees to make the maximum contribution to the payment and satisfaction thereof which is permissible under applicable law. SECTION 8.05. Right of Set-off. (A) Upon (i) the occurrence and during the continuance of any Event of Default and (ii) the making of the request or the granting of the consent by the Majority Lenders specified by Section 6.01 to authorize the Administrative Agent to declare the Notes due and payable pursuant to the provisions of Section 6.01, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under any Loan Document and any Note held by such Lender, irrespective of whether or not such Lender shall have made any demand under such Loan Document or such Note and although such obligations may be unmatured. Each Lender agrees promptly to notify the Borrower after any such set-off and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such set- off and application. The rights of each 50 Lender under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which such Lender may have. (b) The Borrower agrees that it shall have no right of set-off, deduction or counterclaim in respect of its obligations hereunder, and that the obligations of the Lenders hereunder are several and not joint. Nothing contained herein shall constitute a relinquishment or waiver of the Borrower's rights to any independent claim that the Borrower may have against the Administrative Agent or any Lender for the Administrative Agent's or such Lender's, as the case may be, gross negligence or willful misconduct, but no Lender shall be liable for the conduct of the Administrative Agent or any other Lender, and the Administrative Agent shall not be liable for the conduct of any Lender. SECTION 8.06. Binding Effect. This Agreement shall become effective when it shall have been executed by the Borrower and the Administrative Agent and when the Administrative Agent shall have been notified in writing by each Bank that such Bank has executed it and thereafter shall be binding upon and inure to the benefit of the Borrower, the Administrative Agent and each Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lenders. SECTION 8.07. Assignments and Participations. (A) Each Lender may, upon the written consent of the Administrative Agent and the Borrower (such consent not to be unreasonably withheld and, in the case of the Borrower, not to be required if an Event of Default exists), assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment, the Advances owing to it and the Note or Notes held by it); provided, however, that (i) each such assignment shall be of a constant, and not a varying, percentage of all of the assigning Lender's rights and obligations under this Agreement, (ii) the amount of the Commitment of the assigning Lender being assigned pursuant to each such assignment (determined as of the date of the Lender Assignment with respect to such assignment) shall in no event be less than the lesser of the amount of such Lender's then remaining Commitment and $15,000,000 (except in the case of assignments between Lenders at the time already parties hereto), and (iii) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, a Lender Assignment, together with any Note or Notes subject to such assignment and a processing and recordation fee of $3,000. Promptly following its receipt of such Lender Assignment, Note or Notes and fee, the Administrative Agent shall accept and record such Lender Assignment in the Register. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Lender Assignment, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Lender Assignment, have the rights and obligations of a Lender hereunder and (y) the Lender assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Lender Assignment, relinquish its rights and be released from its obligations under this Agreement (and, in the case of a Lender Assignment covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto). Notwithstanding anything to the contrary contained in this Agreement, any Lender may at any time assign all or any portion of the Advances owing to it to any Affiliate of such Lender. No 51 such assignment, other than to an Eligible Assignee, shall release the assigning Lender from its obligations hereunder. (b) By executing and delivering a Lender Assignment, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Lender Assignment, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with any Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of any Loan Document or any other instrument or document furnished pursuant thereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under any Loan Document or any other instrument or document furnished pursuant thereto; (iii) such assignee confirms that it has received a copy of each Loan Document, together with such documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Lender Assignment; (iv) such assignee will, independently and without reliance upon the Administrative Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under the Loan Documents as are delegated to the Administrative Agent by the terms thereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender. (c) The Administrative Agent shall maintain at its address referred to in Section 8.02 a copy of each Lender Assignment delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Advances owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of a Lender Assignment executed by an assigning Lender and an assignee representing that it is an Eligible Assignee, together with any Note or Notes subject to such assignment, the Administrative Agent shall, with the consent of the Borrower (such consent not to be unreasonably withheld), and provided that such Lender Assignment has been completed and is in substantially the form of Exhibit 8.07 hereto, (i) accept such Lender Assignment, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower. Within 10 Business Days after its receipt of such notice, the Borrower, at its own expense, shall execute and deliver to the Administrative Agent in exchange for the surrendered Note or Notes a new Note to the order of such Eligible Assignee in an amount equal to the Commitment assumed by it pursuant to such Lender Assignment and, if the assigning Lender has retained a Commitment hereunder, a new Note to the order of the assigning Lender in an amount 52 equal to the Commitment retained by it hereunder. Such new Note or Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note or Notes, shall be dated the effective date of such Lender Assignment and shall otherwise be in substantially the form of Exhibit 1.01A-1 hereto. (e) Each Lender may sell participations to one or more banks, financial institutions or other entities in all or a portion of its rights and obligations under the Loan Documents (including, without limitation, all or a portion of its Commitment, the Advances owing to it and the Note or Notes held by it); provided, however, that (i) such Lender's obligations under this Agreement (including, without limitation, its Commitment to the Borrower hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any such Note for all purposes of this Agreement, and (iv) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. (f) Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 8.07, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrower furnished to such Lender by or on behalf of the Borrower; provided that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree, in accordance with the terms of Section 8.08, to preserve the confidentiality of any Confidential Information relating to the Borrower received by it from such Lender. (g) If any Lender (or any bank, financial institution, or other entity to which such Lender has sold a participation) shall (i) make any demand for payment under Section 2.08, 2.13 or 2.16, (ii) give notice to the Administrative Agent pursuant to Section 2.14, (iii) either (A) not have outstanding unsecured long-term indebtedness rated at or above "investment grade" by each of Moody's and S&P, or (B) not have outstanding short-term unsecured indebtedness rated at or above A-2 or P-2 by each of Moody's and S&P or (iv) determine not to extend the Termination Date in response to any request by the Borrower pursuant to Section 2.18, then (1) in the case of any demand made under clause (i) above, or the occurrence of the event described in clause (ii) above, within 30 days after any such demand or occurrence (if, but only if, in the case of any demanded payment described in clause (i), such demanded payment has been made by the Borrower), and (2) in the case of the occurrence of the event described in clause (iii) or (iv) above, at any time prior to the then-scheduled Termination Date, the Borrower may, with the approval of the Administrative Agent (which approval shall not be unreasonably withheld), and provided that no Event of Default or Unmatured Default shall then have occurred and be continuing, demand that such Lender assign in accordance with this Section 8.07 (provided the Borrower shall pay the $3,000 administrative fee specified in 8.07(a)) to one or more Eligible Assignees designated by the Borrower all (but not less than all) of such Lender's Commitment and the Advances owing to it within the period ending on the latest to occur of (x) the last day in the period described in clause (1) or (2) above, as applicable, (y) the last day of the longest of the then current Interest Periods for such Advances, and (z) the latest maturity date of any B Advances owing to such Lender. If any such Eligible Assignee designated by the Borrower shall fail to consummate such assignment on terms acceptable to such Lender, or if the Borrower shall fail to designate any such Eligible Assignees for all or part of such Lender's Commitment or 53 Advances, then such demand by the Borrower shall become ineffective; it being understood for purposes of this subsection (g) that such assignment shall be conclusively deemed to be on terms acceptable to such Lender, and such Lender shall be compelled to consummate such assignment to an Eligible Assignee designated by the Borrower, if such Eligible Assignee (x) shall agree to such assignment by entering into a Lender Assignment with such Lender and (y) shall offer compensation to such Lender in an amount equal to all amounts then owing by the Borrower to such Lender hereunder and under the Note made by the Borrower to such Lender, whether for principal, interest, fees, costs or expenses (other than the demanded payment referred to above and payable by the Borrower as a condition to the Borrower's right to demand such assignment), or otherwise. (h) Anything in this Section 8.07 to the contrary notwithstanding, any Lender may assign and pledge all or any portion of its Commitment and the Advances owing to it (i) with notice to the Borrower and the Agent, to any of its affiliates and (ii) without the consent of the Borrower or the Agent, to any Federal Reserve Bank (and its transferees) as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Lender from its obligations hereunder. SECTION 8.08. Confidentiality. In connection with the negotiation and administration of this Agreement and the other Loan Documents, the Borrower has furnished and will from time to time furnish to the Administrative Agent and the Lenders (each, a "Recipient") written information which is identified to the Recipient in writing when delivered as confidential (such information, other than any such information which (i) is publicly available, or otherwise known to the Recipient, at the time of disclosure, (ii) subsequently becomes publicly available other than through any act or omission by the Recipient or (iii) otherwise subsequently becomes known to the Recipient other than through a Person whom the Recipient knows to be acting in violation of his or its obligations to the Borrower, being hereinafter referred to as "Confidential Information"). The Recipient will maintain the confidentiality of any Confidential Information in accordance with such procedures as the Recipient applies generally to information of that nature. It is understood, however, that the foregoing will not restrict the Recipient's ability to freely exchange such Confidential Information with current or prospective participants in or assignees of the Recipient's position herein or an Affiliate of such Lender, but the Recipient's ability to so exchange Confidential Information shall be conditioned upon any such prospective participant's or assignee's or Affiliate's entering into an understanding as to confidentiality similar to this provision. It is further understood that the foregoing will not prohibit the disclosure of any or all Confidential Information if and to the extent that such disclosure may be required (i) by a regulatory agency or otherwise in connection with an examination of the Recipient's records by appropriate authorities, (ii) pursuant to court order, subpoena or other legal process or in connection with any pending or threatened litigation, (iii) otherwise as required by law, or (iv) in order to protect its interests or its rights or remedies hereunder or under the other Loan Documents; in the event of any required disclosure under clause (ii) or (iii) above, the Recipient agrees to use reasonable efforts to inform the Borrower as promptly as practicable. SECTION 8.09. Waiver of Jury Trial. THE ADMINISTRATIVE AGENT, THE LENDERS AND THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND 54 INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE ADMINISTRATIVE AGENT, SUCH LENDERS OR THE BORROWER. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE ADMINISTRATIVE AGENT AND THE LENDERS ENTERING INTO THIS AGREEMENT. SECTION 8.10. Governing Law. This Agreement and the other Loan Documents shall be governed by, and construed in accordance with, the laws of the State of New York. Each of the Borrower, each Lender, and the Administrative Agent (i) irrevocably submits to the non-exclusive jurisdiction of any New York State court or Federal court sitting in New York City in any action arising out of any Loan Document, (ii) agrees that all claims in such action may be decided in such court, (iii) waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum and (iv) consents to the service of process by mail return receipt requested to the address and Person identified for delivery of notice pursuant to Section 8.02. A final judgment in any such action shall be conclusive and may be enforced in other jurisdictions. Nothing herein shall affect the right of any party to serve legal process in any manner permitted by law or affect its right to bring any action in any other court. SECTION 8.11. Relation of the Parties; No Beneficiary. No term, provision or requirement, whether express or implied, of any Loan Document, or actions taken or to be taken by any party thereunder, shall be construed to create a partnership, association, or joint venture between such parties or any of them. No term or provision of the Loan Documents shall be construed to confer a benefit upon, or grant a right or privilege to, any Person other than the parties thereto. SECTION 8.12. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. S-1 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. COMMONWEALTH EDISON COMPANY By: ______________________________ Patricia L. Kampling Treasurer Signature Page to 364-Day Credit Agreement S-2 Administrative Agent -------------------- CITIBANK, N.A., as Administrative Agent and as Bank By: _________________________________ Name: Title: Signature Page to 364-Day Credit Agreement SCHEDULE I COMMONWEALTH EDISON COMPANY 364-Day Credit Agreement, dated as of December 17, 1999, among Commonwealth Edison Company, the Banks named therein and Citibank, N.A., as Administrative Agent
Name of Bank Commitment Domestic Lending Office Eurodollar Lending Office - ------------ ---------- ----------------------- -------------------------- Citibank, N.A. $ 67,500,000 Two Pennsway, Ste. 200 Same as Domestic Lending Office New Castle, Delaware 19720 Attention: Bank Loan Syndications Bank of New York $ 66,250,000 One Wall Street, 19/th/Floor Same as Domestic Lending Office New York, New York 10286 Attention: Lisa Williams Morgan Guaranty $ 66,250,000 60 Wall Street Morgan Guaranty Trust New York, New York 10260 Nassau Bahamas Office Attn: Andrew Lipsett c/o J.P. Morgan Services, Inc. 500 Stanton-Christiana Rd. Newark, DE 19713 Attn: Andrew Lipsett Chase Manhattan $ 56,250,000 1 Chase Manhattan Plaza, 8/th/ Floor Same as Domestic Lending Office New York, NY 10018 Attention: Lynette Lang ABN AMRO $ 46,875,000 208 South LaSalle, Suite 1500 Same as Domestic Lending Office Chicago, IL 60604 Attention: Loan Administration Bank of America $ 46,875,000 100 North Tryon Street, 16/th/ Floor Same as Domestic Lending Office Charlotte, North Carolina 28255 Attention: Gretchen Burud Bank of Montreal $ 46,875,000 115 S. LaSalle St. 11/th/ Floor Same as Domestic Lending Office Chicago, IL 60603 Attention: Keiko Kuze Bayerisch Landesbank $ 31,250,000 560 Lexington Avenue, 17/th/ Floor Same as Domestic Lending Office New York, New York 10022 Attention: Sean O'Sullivan Northern Trust $ 25,000,000 50 S. LaSalle Street Same as Domestic Lending Office Chicago, Illinois 60675 Attention: Nicole Boehm Barclays $ 31,250,000 222 Broadway Same as Domestic Lending Office New York, New York 10038 Attention: Marsha Hamlette Industrial Bank of Japan $ 15,625,000 Credit Administration #1 Department Same as Domestic Lending Office 1251 Avenue of the Americas New York, NY 10020 Attn: Agnes Aberin
57 EX-4.24 4 CREDIT AGREEMENT DATED 12/17/99 UNICOM ENTERPRISES Exhibit (4)-24 Unicom Corporation Form 10-K File No. 1-11375 ------------------------------------------------------------------------------- CREDIT AGREEMENT DATED AS OF DECEMBER 17, 1999 AMONG UNICOM ENTERPRISES INC., AS BORROWER, THE LENDERS PARTY HERETO, BANK ONE, NA, AS ARRANGER AND ADMINISTRATIVE AGENT, THE CHASE MANHATTAN BANK, AS SYNDICATION AGENT, CITIBANK, N.A., AS DOCUMENTATION AGENT AND BANC ONE CAPITAL MARKETS, INC., AS LEAD ARRANGER AND SOLE BOOK RUNNER - -------------------------------------------------------------------------------- TABLE OF CONTENTS ARTICLE I DEFINITIONS ARTICLE II THE CREDIT EXTENSIONS SECTION 2.01. Commitment..................................................... 13 SECTION 2.02. Required Payments; Termination................................. 13 SECTION 2.03. Ratable Loans.................................................. 13 SECTION 2.04. Types of Advances.............................................. 13 SECTION 2.05. Commitment Fee; Reductions in Aggregate Commitment............. 13 SECTION 2.06. Minimum Amount of Each Advance................................. 13 SECTION 2.07. Optional Principal Payments.................................... 14 SECTION 2.08. Method of Selecting Types and Interest Periods for New Advances 14 SECTION 2.09. Conversion and Continuation of Outstanding Advances............ 14 SECTION 2.10. Changes in Interest Rate, etc.................................. 15 SECTION 2.11. Rates Applicable After Default................................. 15 SECTION 2.12. Method of Payment.............................................. 15 SECTION 2.13. Noteless Agreement; Evidence of Indebtedness................... 16 SECTION 2.14. Telephonic Notices............................................. 16 SECTION 2.15. Interest Payment Dates; Interest and Fee Basis................. 17 SECTION 2.16. Notification of Advances, Interest Rates, Prepayments, Modifications and Commitment Reductions........................ 17 SECTION 2.17. Lending Installations.......................................... 17 SECTION 2.18. Non-Receipt of Funds by the Agent.............................. 17 SECTION 2.19. Facility LCs................................................... 18 SECTION 2.20. Extension of Facility Termination Date......................... 22 SECTION 2.21. Replacement of Lender.......................................... 22 ARTICLE III YIELD PROTECTION; TAXES SECTION 3.01. Yield Protection............................................... 23 SECTION 3.02. Changes in Capital Adequacy Regulations........................ 24 SECTION 3.03. Availability of Types of Advances.............................. 25 SECTION 3.04. Funding Indemnification........................................ 25 SECTION 3.05. Taxes.......................................................... 25 SECTION 3.06. Lender Statements; Survival of Indemnity....................... 27 ARTICLE IV CONDITIONS PRECEDENT SECTION 4.01. Initial Credit Extension....................................... 27 SECTION 4.02. Each Credit Extension.......................................... 29 ARTICLE V REPRESENTATIONS AND WARRANTIES SECTION 5.01. Existence and Standing......................................... 29 SECTION 5.02. Authorization.................................................. 29 SECTION 5.03. Governmental Approval.......................................... 30
SECTION 5.04. Validity....................................................... 30 SECTION 5.05. Financial Statements........................................... 30 SECTION 5.06. Litigation..................................................... 30 SECTION 5.07. Exchange Act................................................... 30 SECTION 5.08. Regulation U................................................... 30 SECTION 5.09. Government Regulations......................................... 30 SECTION 5.10. Taxes.......................................................... 31 SECTION 5.11. ERISA.......................................................... 31 SECTION 5.12. Accuracy of Information........................................ 31 SECTION 5.13. Public Utility Holding Company Act; Investment Company Act..... 31 SECTION 5.14. Year 2000...................................................... 31 ARTICLE VI COVENANTS SECTION 6.01. Reporting Requirements......................................... 32 SECTION 6.02. Preservation of Corporate Existence, Etc....................... 34 SECTION 6.03. Compliance with Laws, Etc...................................... 34 SECTION 6.04. Maintenance of Insurance, Etc.................................. 34 SECTION 6.05. Inspection Rights.............................................. 34 SECTION 6.06. Maintaining of Books........................................... 34 SECTION 6.07. Maintenance of Properties...................................... 35 SECTION 6.08. Taxes and Liabilities.......................................... 35 SECTION 6.09. Use of Proceeds................................................ 35 SECTION 6.10. ERISA.......................................................... 35 SECTION 6.11. Year 2000...................................................... 35 SECTION 6.12. Borrower Stock................................................. 35 SECTION 6.13. Indebtedness................................................... 36 SECTION 6.14. Investments in Other Persons................................... 36 SECTION 6.15. Distributions.................................................. 36 SECTION 6.16. Liens, Etc..................................................... 36 SECTION 6.17. Mergers; Sale of Assets; Etc................................... 37 SECTION 6.18. Other Agreements............................................... 38 SECTION 6.19. Regulation U................................................... 38 SECTION 6.20. Transactions with Affiliates................................... 38 ARTICLE VII DEFAULTS ARTICLE VIII ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES SECTION 8.01. Acceleration; Facility LC Collateral Account................... 41 SECTION 8.02. Amendments..................................................... 43 SECTION 8.03. Preservation of Rights......................................... 43 ARTICLE IX GENERAL PROVISIONS SECTION 9.01. Survival of Representations.................................... 44 SECTION 9.02. Governmental Regulation........................................ 44 SECTION 9.03. Headings....................................................... 44
ii SECTION 9.04. Entire Agreement............................................... 44 SECTION 9.05. Several Obligations; Benefits of this Agreement................ 44 SECTION 9.06. Expenses; Indemnification...................................... 44 SECTION 9.07. Numbers of Documents........................................... 45 SECTION 9.08. Accounting..................................................... 45 SECTION 9.09. Severability of Provisions..................................... 45 SECTION 9.10. Nonliability of Lenders........................................ 45 SECTION 9.11. Confidentiality................................................ 46 SECTION 9.11. Confidentiality TC............................................. 46 SECTION 9.12. Nonreliance.................................................... 46 SECTION 9.13. Disclosure..................................................... 46 ARTICLE X THE AGENT SECTION 10.01. Appointment; Nature of Relationship............................ 46 SECTION 10.02. Powers......................................................... 47 SECTION 10.03. General Immunity............................................... 47 SECTION 10.04. No Responsibility for Loans, Recitals, Etc..................... 47 SECTION 10.05. Action on Instructions of Lenders.............................. 47 SECTION 10.06. Employment of Agents and Counsel............................... 47 SECTION 10.07. Reliance on Documents; Counsel................................. 48 SECTION 10.08. Agent's Reimbursement and Indemnification...................... 48 SECTION 10.09. Notice of Default.............................................. 48 SECTION 10.10. Rights as a Lender............................................. 48 SECTION 10.11. Lender Credit Decision......................................... 49 SECTION 10.12. Successor Agent................................................ 49 SECTION 10.13. Agent's Fee.................................................... 49 SECTION 10.14. Delegation to Affiliates....................................... 50 SECTION 10.15. Documentation Agent, Syndication Agent, Etc.................... 50 ARTICLE XI SETOFF; RATABLE PAYMENTS SECTION 11.01. Setoff........................................................ 50 SECTION 11.02. Ratable Payments.............................................. 50 ARTICLE XII BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS SECTION 12.01. Successors and Assigns........................................ 50 SECTION 12.02. Participations................................................ 51 SECTION 12.03. Assignments................................................... 52 SECTION 12.04. Dissemination of Information.................................. 53 SECTION 12.05. Tax Treatment................................................. 53 ARTICLE XIII NOTICES SECTION 13.01. Notices....................................................... 53 SECTION 13.02. Change of Address............................................. 53
iii ARTICLE XIV COUNTERPARTS ARTICLE XV CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL SECTION 15.01. CHOICE OF LAW................................................. 54 SECTION 15.02. CONSENT TO JURISDICTION....................................... 54 SECTION 15.03. WAIVER OF JURY TRIAL.......................................... 54
PRICING SCHEDULE SCHEDULE I - LIST OF COMMITMENTS EXHIBIT A - FORM OF OPINION EXHIBIT B - COMPLIANCE CERTIFICATE EXHIBIT C - ASSIGNMENT AGREEMENT EXHIBIT D - LOAN/CREDIT RELATED MONEY TRANSFER INSTRUCTION EXHIBIT E - NOTE EXHIBIT F - GUARANTY EXHIBIT G - TERMS OF SUBORDINATION iv CREDIT AGREEMENT This Agreement, dated as of December 17, 1999 is among Unicom Enterprises Inc., the Lenders and Bank One, NA, a national banking association having its principal office in Chicago, Illinois, as Agent. The parties hereto agree as follows: ARTICLE I DEFINITIONS As used in this Agreement: "Advance" means a borrowing hereunder, (i) made by the Lenders on the same Borrowing Date, or (ii) converted or continued by the Lenders on the same date of conversion or continuation, consisting, in either case, of the aggregate amount of the several Loans of the same Type and, in the case of Eurodollar Loans, for the same Interest Period. "Affiliate" means, with respect to any Person, any other Person directly or indirectly controlling (including but not limited to all directors and officers of such Person), controlled by, or under direct or indirect common control with such Person. A Person shall be deemed to control another entity if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such entity, whether through the ownership of voting securities, by contract, or otherwise. "Agent" means Bank One in its capacity as contractual representative of the Lenders pursuant to Article X, and not in its individual capacity as a Lender, and any successor Agent appointed pursuant to Article X. "Aggregate Commitment" means the aggregate of the Commitments of all the Lenders, as reduced from time to time pursuant to the terms hereof. "Aggregate Outstanding Amount" means, at any time, the aggregate of the Outstanding Credit Exposure of all the Lenders. "Agreement" means this credit agreement, as it may be amended or modified and in effect from time to time. "Alternate Base Rate" means, for any day, a rate of interest per annum equal to the higher of (i) the Corporate Base Rate for such day and (ii) the sum of the Federal Funds Effective Rate for such day plus 1/2% per annum. "Applicable Fee Rate" means, at any time, the percentage rate per annum at which the Commitment Fee or the LC Fee is accruing on the unused portion of the Aggregate Commitment or the undrawn stated amount of the Facility LCs (as the case may be) at such time as set forth in the Pricing Schedule. "Applicable Law" means, with respect to any matter or Person, any law, rule, regulation, order, decree, or other requirement having the force of law relating to such matter or Person and, where applicable, any interpretation thereof by any authority having jurisdiction with respect thereto or charged with the administration thereof. "Applicable Margin" means, for any Eurodollar Advance or any Floating Rate Advance, (i) on any date the Utilization Percentage equals or is less than 33-1/3%, the Eurodollar Rate or Floating Rate percentage per annum set forth on the Pricing Schedule in the columns identified as Level 1, Level 2, Level 3 and Level 4, and (ii) on any date the Utilization Percentage exceeds 33-1/3%, the Utilized Eurodollar Rate or Utilized Floating Rate percentage per annum set forth on the Pricing Schedule in the columns identified as Level 1, Level 2, Level 3 and Level 4. "Arranger" means Banc One Capital Markets, Inc., a Delaware corporation, and its successors, in its capacity as Lead Arranger and Book Runner. "Article" means an article of this Agreement unless another document is specifically referenced. "Authorized Officer" means any of the Chairman, the President, the Chief Financial Officer, the Treasurer or any Assistant Treasurer of the Borrower or Guarantor, acting singly. "Available Aggregate Commitment" means, at any time, the Aggregate Commitment then in effect minus the Aggregate Outstanding Amount at such time. "Bank One" means Bank One, NA, a national banking association having its principal office in Chicago, Illinois, in its individual capacity, and its successors. "Borrower" means Unicom Enterprises Inc., an Illinois corporation, and its successors and assigns. "Borrowing Date" means a date on which an Advance is made hereunder. "Borrowing Notice" is defined in Section 2.08. "Business Day" means (i) with respect to any borrowing, payment or rate selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago and New York for the conduct of substantially all of their commercial lending activities, interbank wire transfers can be made on the Fedwire system and dealings in United States dollars are carried on in the London interbank market and (ii) for all other purposes, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago and New York for the conduct of substantially all of their commercial lending activities and interbank wire transfers can be made on the Fedwire system. 2 "Capitalized Lease" means, with respect to any Person, any lease which, in accordance with GAAP, has been, or should be, recorded as a capitalized lease in such Person's financial statements. "Change of Control" is defined in Section 7.13. "Code" means the Internal Revenue Code of 1986, as amended, reformed or otherwise modified from time to time. "Collateral Shortfall Amount" is defined in Section 8.01. "Commitment" means, for each Lender, the obligation of such Lender to make Loans to, and participate in Facility LCs issued upon the application of, the Borrower in an aggregate amount not exceeding the amount set forth on Schedule I hereto or as set forth in any assignment that has become effective pursuant to Section 12.03(b), as such amount may be modified from time to time pursuant to the terms hereof. "Commitment Fee" is defined in Section 2.05. "Commonwealth" means Commonwealth Edison Company, an Illinois corporation. "Contingent Obligation" means, as to any Person, the undrawn face amount of any letters of credit issued for the account of such Person and shall also mean any monetary obligation of such Person guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends, letters of credit, or other obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property, securities, or services primarily for the purpose of assuring the obligee under any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (d) otherwise to assure or hold harmless the obligee under such primary obligation against loss in respect thereof; provided, however, that the term Contingent Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation or, where such Contingent Obligation is specifically limited to a portion of any such primary obligation, that portion to which it is limited or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith. For purposes of computing the consolidated Indebtedness of any Person, the amount of any primary obligation of any Subsidiary of such Person and the amount of any Contingent Obligation of such Person 3 corresponding to such primary obligation shall only be counted once (i.e., without duplication). "Conversion/Continuation Notice" is defined in Section 2.09. "Controlled Group" means all members of a controlled group of corporations or other business entities and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any of its Subsidiaries, are treated as a single employer under Section 414 of the Code. "Corporate Base Rate" means a rate per annum equal to the corporate base rate or prime rate of interest announced by Bank One or by its parent, Bank One Corporation, from time to time, changing when and as said corporate base rate or prime rate changes. "Credit Extension" means the making of an Advance or the issuance of a Facility LC hereunder. "Credit Extension Date" means the Borrowing Date for an Advance or the issuance date for a Facility LC or the effective date of any Modification to any Facility LC that extends the stated termination date or increases the face amount of such Facility LC. "Default" means an event described in Article VII. "Environmental Laws" means any federal, state or local laws, ordinances or codes, rules, orders, or regulations relating to pollution or protection of the environment, including, without limitation, laws relating to Hazardous Substances, laws relating to reclamation of land and waterways and laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollution, contaminants, chemicals, industrial or toxic wastes or other Hazardous Substances. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any rule or regulation issued thereunder. "ERISA Affiliate" means, with respect to any Person, any trade or business (whether or not incorporated) which is a member of a group of which such Person is a member and which is under common control within the meaning of the regulations under Section 414(b) or (c) of the Internal Revenue Code of 1986, as amended from time to time. "ERISA Event" means (i) the occurrence of a reportable event, within the meaning of Section 4043 of ERISA, unless the 30-day notice requirement with respect thereto has been waived by the PBGC; (ii) the provision by the administrator of any Plan of notice of intent to terminate such Plan, pursuant to Section 4041(a)(2) of ERISA 4 (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); (iii) the cessation of operations at a facility in the circumstances described in Section 4062(e) of ERISA; (iv) the withdrawal by the Borrower or an ERISA Affiliate of the Borrower from a Multiple Employer Plan during a plan year for which it was a "substantial employer", as defined in Section 4001(a)(2) of ERISA; (v) the failure by the Borrower or an ERISA Affiliate of the Borrower to make a payment to a Plan required under Section 302(f)(1) of ERISA, which failure results in the imposition of a lien for failure to make required payments; (vi) the adoption of an amendment to a Plan requiring the provision of security to such Plan, pursuant to Section 307 of ERISA; (vii) the institution by the PBGC of proceedings to terminate a Plan, pursuant to Section 4042 of ERISA, or the occurrence of any event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, a Plan; or (viii) any withdrawal liability under Section 4201 of ERISA. "Eurodollar Advance" means an Advance which, except as otherwise provided in Section 2.11, bears interest at the applicable Eurodollar Rate. "Eurodollar Base Rate" means, with respect to a Eurodollar Advance for the relevant Interest Period, the rate at which Bank One offers to place deposits in U.S. dollars with first-class banks in the London interbank market at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, in the approximate amount of the Bank One's Eurodollar Loan and having a maturity equal to such Interest Period. "Eurodollar Loan" means a Loan which, except as otherwise provided in Section 2.11, bears interest at the applicable Eurodollar Rate. "Eurodollar Rate" means, with respect to a Eurodollar Advance for the relevant Interest Period, the sum of (i) the quotient of (a) the Eurodollar Base Rate applicable to such Interest Period, divided by (b) one minus the Reserve Requirement (expressed as a decimal) applicable to such Interest Period, plus (ii) the Applicable Margin. "Exchange Act" means the Securities Exchange Act of 1934, and the regulations promulgated thereunder, in each case as amended from time to time. "Excluded Taxes" means, in the case of each Lender or applicable Lending Installation and the Agent, taxes imposed on its overall net income, and franchise taxes imposed on it, by (i) the jurisdiction under the laws of which such Lender or the Agent is incorporated or organized or (ii) the jurisdiction in which such Lender's principal executive office or such Lender's applicable Lending Installation is located. "Exhibit" refers to an exhibit to this Agreement, unless another document is specifically referenced. 5 "Existing Facility" means the Amended and Restated Credit Agreement, dated as of November 15, 1996, as amended, among the Borrower, the banks named therein and Citibank, N.A., as agent. "Extension Request" is defined in Section 2.20. "Facility LC" is defined in Section 2.19(b). "Facility LC Application" is defined in Section 2.19(d). "Facility LC Collateral Account" is defined in Section 2.19(l). "Facility Termination Date" means the 364th calendar day following the date hereof or any later date as may be specified as the Facility Termination Date in accordance with Section 2.20 or any earlier date on which the Aggregate Commitment is reduced to zero or otherwise terminated pursuant to the terms hereof. "Federal Funds Effective Rate" means, for any day, an interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations at approximately 9:30 a.m. (Chicago time) on such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by the Agent in its sole discretion. "Floating Rate" means, for any day, a rate per annum equal to (i) the Alternate Base Rate for such day plus (ii) the Applicable Margin, in each case changing when and as the Alternate Base Rate or the Applicable Margin changes. "Floating Rate Advance" means an Advance which, except as otherwise provided in Section 2.11, bears interest at the Floating Rate. "GAAP" means generally accepted accounting principles in the United States in effect from time to time. "Governmental Approval" means any authorization, consent, approval, license, franchise, lease, ruling, tariff, rate, permit, certificate, exemption of, or filing or registration with, any governmental authority or other legal or regulatory body required in connection with any Loan Party's execution, delivery or performance of any Loan Document. "Guarantor" means Unicom Corporation, an Illinois corporation. "Guaranty" means that certain Guaranty executed by the Guarantor, in substantially the form of Exhibit F, as it may be amended or modified and in effect from time to time. 6 "Hazardous Substance" means any waste, substance, or material identified as hazardous, dangerous or toxic by any office, agency, department, commission, board, bureau, or instrumentality of the United States or of the State or locality in which the same is located having or exercising jurisdiction over such waste, substance or material. "Indebtedness" of a Person means (without duplication) (i) indebtedness of such Person for borrowed money, (ii) obligations of such Person evidenced by bonds, debentures, notes, or other similar instruments, (iii) obligations of such Person to pay the deferred purchase price of property or services (except trade accounts payable arising and repaid in the ordinary course of business), (iv) obligations of such Person as lessee under Capitalized Leases, (v) indebtedness of such Person consisting of unpaid reimbursement obligations in respect of all drafts drawn or demands for payment made under letters of credit issued for the account of such Person issued to support indebtedness or obligations of such Person or of others of the kinds referred to in clauses (i) through (iv) above and clause (vi) below, but excluding trade letters of credit, (vi) all Contingent Obligations of such Person, (vii) liabilities of such Person in respect of unfunded vested benefits under Pension Plans covered by Title IV of ERISA (other than Multiemployer Plans), and (viii) withdrawal liability of such Person incurred under ERISA to any Multiemployer Plan (including, without limitation, with respect to each of the foregoing clauses (i) through (vi), any such indebtedness, obligations, or liabilities that is non-recourse to the credit of such Person but is secured by assets of such Person, and otherwise excluding any such indebtedness, obligations or liabilities that is non-recourse to the credit of such Person); provided, however, that Indebtedness of the Borrower shall not include any Contingent Obligations of the Borrower that constitute Nonrecourse Indebtedness and are secured only by Liens permitted by Section 6.16; provided further, that Indebtedness of the Borrower or any Affiliate of the Borrower shall not include any Indebtedness of the Borrower or such Affiliate, including Contingent Liabilities of the Borrower, that are incurred, directly or indirectly, in connection with the acquisition of the Replacement Property or incurred, directly or indirectly, under the terms of the Replacement Property Contracts, as those terms are defined under those certain Qualified Intermediary Exchange Agreements, dated as of December 15, 1999, among Unicom Investments, Inc. and State Street Bank and Trust Company of Connecticut, National Association. "Interest Period" means, with respect to a Eurodollar Advance, a period of one, two, three or six months commencing on a Business Day selected by the Borrower pursuant to this Agreement. Such Interest Period shall end on the day which corresponds numerically to such date one, two, three or six months thereafter, provided, however, that if there is no such numerically corresponding day in such next, second, third or sixth succeeding month, such Interest Period shall end on the last Business Day of such next, second, third or sixth succeeding month. If an Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next succeeding Business Day, provided, however, that if said next succeeding Business Day falls in a new calendar month, such Interest Period shall end on the immediately preceding Business Day. "LC Fee" is defined in Section 2.19(e). 7 "LC Issuer" means a Lender designated by the Borrower, and acceptable to the Agent, in accordance with Section 2.19(a) as the issuer of a Facility LC. "LC Obligations" means, at any time, the sum, without duplication, of (i) the aggregate undrawn stated amount under all Facility LCs outstanding at such time plus (ii) the aggregate unpaid amount at such time of all Reimbursement Obligations. "LC Payment Date" is defined in Section 2.19(f). "Lenders" means the lending institutions listed on the signature pages of this Agreement and their respective successors and assigns. "Lending Installation" means, with respect to a Lender or the Agent, the office, branch, subsidiary or affiliate of such Lender or the Agent listed on the signature pages hereof or on a Schedule or otherwise selected by such Lender or the Agent pursuant to Section 2.17. "Lien" is defined in Section 6.16. "Loan" means, with respect to a Lender, such Lender's loan made pursuant to Article II (or any conversion or continuation thereof). "Loan Documents" means this Agreement, the Facility LC Applications, any Notes issued pursuant to Section 2.13 and the Guaranty. "Loan Party" means the Borrower and the Guarantor. "Material Adverse Effect" means a material adverse effect on (i) the financial condition, results of operations, business or Property of the Borrower and its Subsidiaries taken as a whole or the Guarantor and its Subsidiaries taken as a whole, (ii) the ability of any Loan Party to perform its obligations under the Loan Documents to which it is a party, or (iii) the validity or enforceability against any Loan Party of any of the Loan Documents to which such Loan Party is a party or the rights or remedies of the Agent, the LC Issuer or the Lenders thereunder. "Merger Approvals" is defined in Section 5.03. "Modify" or "Modification" are defined in Section 2.19(b). "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, which is subject to Title IV of ERISA and to which the Borrower or any ERISA Affiliate of the Borrower is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions, such plan being maintained pursuant to one or more collective bargaining agreements. 8 "Multiple Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, which is subject to Title IV of ERISA and which (i) is maintained for employees of the Borrower or an ERISA Affiliate of the Borrower and at least one Person other than the Borrower and its ERISA Affiliates or (ii) was so maintained and in respect of which the Borrower or an ERISA Affiliate of the Borrower could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "Nonrecourse Indebtedness" means any Indebtedness that finances the acquisition, development, ownership or operation of an asset in respect of which the Person to which such Indebtedness is owed has no recourse whatsoever to the Borrower or any of its Affiliates other than: (i) recourse to the named obligor with respect to such Indebtedness (the "Debtor") for amounts limited to the cash flow or net cash flow (other than historic cash flow) from the asset; and (ii) recourse to the Debtor for the purpose only of enabling amounts to be claimed in respect of such Indebtedness in an enforcement of any security interest or lien given by the Debtor over the asset or the income, cash flow or other proceeds deriving from the asset (or given by any shareholder or the like in the Debtor over its shares or like interest in the capital of the Debtor) to secure the Indebtedness, but only if: (A) the extent of the recourse to the Debtor is limited solely to the amount of any recoveries made on any such enforcement; and (B) the Person to which such Indebtedness is owed is not entitled, by virtue of any right or claim arising out of or in connection with such Indebtedness, to commence proceedings for the winding up or dissolution of the Debtor or to appoint or procure the appointment of any receiver, trustee, or similar Person or officer in respect of the Debtor or any of its assets (other than the assets subject to the security interest or lien referred to above); and (iii) recourse to the Debtor generally or indirectly to any Affiliate of the Debtor, under any form of assurance, undertaking or support, which recourse is limited to a claim for damages (other than liquidated damages and damages required to be calculated in a specified way) for a breach of an obligation (other than a payment obligation or an obligation to comply or to procure compliance by another with any financial ratios or other tests of financial condition) by the Person against which such recourse is available. "Note" means any promissory note issued at the request of a Lender pursuant to Section 2.13 in the form of Exhibit E. 9 "Obligations" means all unpaid principal of and accrued and unpaid interest on the Loans, all Reimbursement Obligations, all accrued and unpaid fees and all expenses, reimbursements, indemnities and other obligations of the Borrower to the Lenders or to any Lender, the Agent, the LC Issuer or any indemnified party arising under the Loan Documents. "Other Taxes" is defined in Section 3.05(ii). "Outstanding Credit Exposure" means, as to any Lender at any time, the sum of (i) the aggregate principal amount of its Loans outstanding at such time, plus (ii) an amount equal to its Pro Rata Share of the LC Obligations at such time. "Participants" is defined in Section 12.02(a). "Payment Date" means the last day of each March, June, September and December. "PBGC" means the Pension Benefit Guaranty Corporation (or any successor entity) established under ERISA. "Person" means any natural person, corporation, firm, joint venture, partnership, limited liability company, association, enterprise, trust or other entity or organization, or any government or political subdivision or any agency, department or instrumentality thereof. "Plan" means a Single Employer Plan or a Multiple Employer Plan. "Pricing Schedule" means the Schedule attached hereto identified as such. "Property" of a Person means any and all property, whether real, personal, tangible, intangible, or mixed, of such Person, or other assets owned, leased or operated by such Person. "Pro Rata Share" means, with respect to a Lender, a portion equal to a fraction the numerator of which is such Lender's Commitment and the denominator of which is the Aggregate Commitment. "Purchasers" is defined in Section 12.03(a). "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor thereto or other regulation or official interpretation of said Board of Governors relating to reserve requirements applicable to member banks of the Federal Reserve System. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by 10 banks for the purpose of purchasing or carrying margin stocks applicable to member banks of the Federal Reserve System. "Reimbursement Obligations" means, at any time, the aggregate of all obligations of the Borrower then outstanding under Section 2.19 to reimburse the LC Issuer for amounts paid by the LC Issuer in respect of any one or more drawings under Facility LCs. "Replacement Property" is defined in the Qualified Intermediary Exchange Agreements, dated as of December 15, 1999. "Replacement Property Contracts" is defined in the Qualified Intermediary Exchange Agreements, dated as of December 15, 1999. "Required Lenders" means Lenders in the aggregate having at least 66- 2/3% of the Aggregate Commitment or, if the Aggregate Commitment has been terminated, Lenders in the aggregate holding at least 66-2/3% of the Aggregate Outstanding Amount. "Reserve Requirement" means, with respect to an Interest Period, the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) which is imposed under Regulation D on Eurocurrency liabilities. "Response Date" is defined in Section 2.20. "S&P" means Standard and Poor's Ratings Services, a division of The McGraw Hill Companies, Inc. "Schedule" refers to a specific schedule to this Agreement, unless another document is specifically referenced. "Section" means a numbered section of this Agreement, unless another document is specifically referenced. "Significant Subsidiary" means UT Holdings Inc., a Delaware corporation and any other Subsidiary of the Borrower that, on a consolidated basis with any of its Subsidiaries as of any date of determination, accounts for more than 20% of the consolidated assets (valued at book value) of the Borrower and its Subsidiaries. "Single Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, which is subject to Title IV of ERISA and which (i) is maintained for employees of the Borrower or an ERISA Affiliate of the Borrower and no Person other than the Borrower and its ERISA Affiliates, or (ii) was so maintained and in respect of which the Borrower or an ERISA Affiliate of the Borrower could have liability under Section 4069 of ERISA in the event such plan has been or were to be terminated. "Subsidiary" of a Person means (i) any corporation more than 50% of the outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries 11 or by such Person and one or more of its Subsidiaries, or (ii) any partnership, limited liability company, association, joint venture or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. Unless otherwise expressly provided, all references herein to a "Subsidiary" shall mean a Subsidiary of the Borrower. "Taxes" means any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings, and any and all liabilities with respect to the foregoing, but excluding Excluded Taxes and Other Taxes. "Transferee" is defined in Section 12.04. "Type" means, with respect to any Advance, its nature as a Floating Rate Advance or a Eurodollar Advance. "Unmatured Default" means an event which but for the lapse of time or the giving of notice, or both, would constitute a Default. "Unicom/PECO Merger" means the merger of the Guarantor to be effected into and with Newholdco Corporation pursuant to the Agreement and Plan of Exchange and Merger, dated as of September 22, 1999 among PECO Energy Company, Newholdco Corporation and the Guarantor. "Unicom Investment Inc. Debt" means the Indebtedness not exceeding $4,813,121,000 in the aggregate principal amount owed by Unicom Investment Inc., an Illinois corporation, to Commonwealth in connection with the consummation of the sale of Commonwealth's fossil generation assets and any guaranty of such Indebtedness by the Guarantor. "Utilization Percentage" means, as of any time for the determination thereof, the percentage obtained by dividing the aggregate Outstanding Credit Exposure by the Aggregate Commitment then in effect. "Year 2000 Issues" means, in respect of any Person, anticipated costs, problems and uncertainties associated with the inability of certain computer applications to effectively handle data including dates on and after January 1, 2000, as such inability affects the business, operations and financial condition of such Person. "Year 2000 Program" is defined in Section 5.14. The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms. 12 ARTICLE II THE CREDIT EXTENSIONS SECTION 2.01. Commitment. From and including the date of this Agreement and prior to the Facility Termination Date, each Lender severally agrees, on the terms and conditions set forth in this Agreement, to (i) make Loans to the Borrower and (ii) participate in Facility LCs issued upon the request of the Borrower, provided that, after giving effect to the making of each such Loan and the issuance of each such Facility LC, such Lender's Outstanding Credit Exposure shall not exceed its Commitment. Subject to the terms of this Agreement, the Borrower may borrow, repay and reborrow at any time prior to the Facility Termination Date. The Commitments to extend credit hereunder shall expire on the Facility Termination Date. The LC Issuer will issue Facility LCs hereunder on the terms and conditions set forth in Section 2.19. SECTION 2.02. Required Payments; Termination. The Aggregate Outstanding Amount and all other unpaid Obligations shall be paid in full by the Borrower on the Facility Termination Date, except with respect to Facility LCs referred to in the last sentence of Section 2.19(b). SECTION 2.03. Ratable Loans. Each Advance hereunder shall consist of Loans made from the several Lenders ratably according to their Pro Rata Shares. SECTION 2.04. Types of Advances. The Advances may be Floating Rate Advances or Eurodollar Advances, or a combination thereof, selected by the Borrower in accordance with Sections 2.08 and 2.09. SECTION 2.05. Commitment Fee; Reductions in Aggregate Commitment. The Borrower agrees to pay to the Agent for the account of each Lender according to its Pro Rata Share a commitment fee (the "Commitment Fee") at a per annum rate equal to the Applicable Fee Rate on the average daily Available Aggregate Commitment from the date hereof to and including the Facility Termination Date, payable on each Payment Date hereafter and on the Facility Termination Date. The Borrower may permanently reduce the Aggregate Commitment in whole, or in part ratably among the Lenders in minimum amounts of $5,000,000 and integral multiples of $1,000,000 in excess thereof, upon at least five Business Days' written notice to the Agent, which notice shall specify the amount of any such reduction, provided, however, that the amount of the Aggregate Commitment may not be reduced below the Aggregate Outstanding Amount. The accrued Commitment Fee shall be payable on the effective date of any termination of the obligations of the Lenders to make Credit Extensions hereunder. SECTION 2.06. Minimum Amount of Each Advance. Each Eurodollar Advance shall be in the minimum amount of $5,000,000 (and in multiples of $1,000,000 if in excess thereof), and each Floating Rate Advance shall be in the minimum amount of $5,000,000 (and in multiples of $1,000,000 if in excess thereof), provided, however, that any Floating Rate Advance may be in the amount of the Available Aggregate Commitment, provided further, that any Floating Rate Advance made to satisfy any Reimbursement Obligation pursuant to the last sentence of 2.19(g) may be in the amount of such Reimbursement Obligation. 13 SECTION 2.07. Optional Principal Payments. The Borrower may from time to time pay, without penalty or premium, all outstanding Floating Rate Advances, or, in a minimum aggregate amount of $5,000,000 or any integral multiple of $1,000,000 in excess thereof, any portion of the outstanding Floating Rate Advances upon two Business Days' prior notice to the Agent. The Borrower may from time to time pay, subject to the payment of any funding indemnification amounts required by Section 3.04 but without penalty or premium, all outstanding Eurodollar Advances, or, in a minimum aggregate amount of $5,000,000 or any integral multiple of $1,000,000 in excess thereof, any portion of the outstanding Eurodollar Advances upon three Business Days' prior notice to the Agent. SECTION 2.08. Method of Selecting Types and Interest Periods for New Advances. The Borrower shall select the Type of Advance and, in the case of each Eurodollar Advance, the Interest Period applicable thereto from time to time. The Borrower shall give the Agent irrevocable notice (a "Borrowing Notice") not later than 9:30 a.m. (Chicago time) on the Borrowing Date of each Floating Rate Advance and three Business Days before the Borrowing Date for each Eurodollar Advance, specifying: (i) the Borrowing Date, which shall be a Business Day, of such Advance, (ii) the aggregate amount of such Advance, (iii) the Type of Advance selected, and (iv) in the case of each Eurodollar Advance, the Interest Period applicable thereto. Not later than noon (Chicago time) on each Borrowing Date, each Lender shall make available its Loan or Loans in funds immediately available in Chicago to the Agent at its address specified pursuant to Article XIII. The Agent will make the funds so received from the Lenders available to the Borrower at the Agent's aforesaid address. SECTION 2.09. Conversion and Continuation of Outstanding Advances. Floating Rate Advances shall continue as Floating Rate Advances unless and until such Floating Rate Advances are converted into Eurodollar Advances pursuant to this Section 2.09 or are repaid in accordance with Section 2.07. Each Eurodollar Advance shall continue as a Eurodollar Advance until the end of the then applicable Interest Period therefor, at which time such Eurodollar Advance shall be automatically converted into a Floating Rate Advance unless (x) such Eurodollar Advance is or was repaid in accordance with Section 2.07 or (y) the Borrower shall have given the Agent a Conversion/Continuation Notice (as defined below) requesting that, at the end of such Interest Period, such Eurodollar Advance continue as a Eurodollar Advance for the same or another Interest Period. Subject to the terms of Section 2.06, the Borrower may elect from time to time to convert all or any part of a Floating Rate Advance into a Eurodollar Advance. The Borrower shall give the Agent irrevocable notice (a "Conversion/Continuation Notice") of each conversion of a Floating Rate Advance into a Eurodollar Advance or continuation of a Eurodollar Advance not later than 10:00 a.m. (Chicago time) at least three Business Days prior to the date of the requested conversion or continuation, specifying: 14 (i) the requested date, which shall be a Business Day, of such conversion or continuation, (ii) the aggregate amount and Type of the Advance which is to be converted or continued, and (iii) the amount of such Advance which is to be converted into or continued as a Eurodollar Advance and the duration of the Interest Period applicable thereto. SECTION 2.10. Changes in Interest Rate, etc. Each Floating Rate Advance shall bear interest on the outstanding principal amount thereof, for each day from and including the date such Advance is made or is automatically converted from a Eurodollar Advance into a Floating Rate Advance pursuant to Section 2.09, to but excluding the date it is paid or is converted into a Eurodollar Advance pursuant to Section 2.09 hereof, at a rate per annum equal to the Floating Rate for such day. Changes in the rate of interest on that portion of any Advance maintained as a Floating Rate Advance will take effect simultaneously with each change in the Alternate Base Rate. Each Eurodollar Advance shall bear interest on the outstanding principal amount thereof from and including the first day of the Interest Period applicable thereto to, but excluding the last day of such Interest Period at the interest rate determined by the Agent as applicable to such Eurodollar Advance based upon the Borrower's selections under Sections 2.08 and 2.09 and otherwise in accordance with the terms hereof. No Interest Period may end after the Facility Termination Date. SECTION 2.11. Rates Applicable After Default. Notwithstanding anything to the contrary contained in Section 2.08 or 2.09, during the continuance of a Default or Unmatured Default the Required Lenders may, at their option, by notice to the Borrower (which notice may be revoked at the option of the Required Lenders notwithstanding any provision of Section 8.02 requiring unanimous consent of the Lenders to changes in interest rates), declare that no Advance may be made as, converted into or continued as a Eurodollar Advance. During the continuance of a Default, the Required Lenders may, at their option, by notice to the Borrower (which notice may be revoked at the option of the Required Lenders notwithstanding any provision of Section 8.02 requiring unanimous consent of the Lenders to changes in interest rates), declare that (i) each Eurodollar Advance shall bear interest for the remainder of the applicable Interest Period at the rate otherwise applicable to such Interest Period plus 2% per annum, (ii) each Floating Rate Advance shall bear interest at a rate per annum equal to the Floating Rate in effect from time to time plus 2% per annum and (iii) the LC Fee and the Commitment Fee shall be increased by 2% per annum, provided, that during the continuance of a Default under Section 7.08 or 7.09, the interest rates set forth in clauses (i) and (ii) above and the increase in the LC Fee set forth in clause (iii) above shall be applicable to all Credit Extensions without any election or action on the part of the Agent or any Lender. SECTION 2.12. Method of Payment. All payments of the Obligations hereunder shall be made, without setoff, deduction, or counterclaim, in immediately available funds to the Agent at the Agent's address specified pursuant to Article XIII, or at any other Lending Installation of the Agent specified in writing by the Agent to the Borrower, by noon (Chicago time) on the date when due and shall (except in the case of Reimbursement Obligations for which the LC Issuer has not been fully indemnified by the Lenders, or as otherwise specifically required hereunder) 15 be applied ratably by the Agent among the Lenders. Each payment delivered to the Agent for the account of any Lender shall be delivered promptly by the Agent to such Lender in the same type of funds that the Agent received at its address specified pursuant to Article XIII or at any Lending Installation specified in a notice received by the Agent from such Lender. The Agent is hereby authorized to charge the account of the Borrower maintained with Bank One for each payment of principal, interest, Reimbursement Obligations and fees as it becomes due hereunder. Each reference to the Agent in this Section shall also be deemed to refer, and shall apply equally, to the LC Issuer, in the case of payments required to be made by the Borrower to the LC Issuer pursuant to Section 2.19(g). SECTION 2.13. Noteless Agreement; Evidence of Indebtedness. (i) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (ii) The Agent shall also maintain accounts in which it will record (a) the amount of each Loan made hereunder, the Type thereof and the Interest Period with respect thereto, (b) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder, (c) the original stated amount of each Facility LC and the amount of LC Obligations outstanding at any time, and (d) the amount of any sum received by the Agent hereunder from the Borrower and each Lender's share thereof. (iii) The entries maintained in the accounts maintained pursuant to paragraphs (i) and (ii) above shall be prima facie evidence of the existence and amounts of the Obligations therein recorded; provided, however, that the failure of the Agent or any Lender to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Obligations in accordance with their terms. (iv) Any Lender may request that its Loans be evidenced by a promissory note (a "Note"). In such event, the Borrower shall prepare, execute and deliver to such Lender a Note payable to the order of such Lender. Thereafter, the Loans evidenced by such Note and interest thereon shall at all times (including after any assignment pursuant to Section 12.03) be represented by one or more Notes payable to the order of the payee named therein or any assignee pursuant to Section 12.03, except to the extent that any such Lender or assignee subsequently returns any such Note for cancellation and requests that such Loans once again be evidenced as described in paragraphs (i) and (ii) above. SECTION 2.14. Telephonic Notices. The Borrower hereby authorizes the Lenders and the Agent to extend, convert or continue Advances, effect selections of Types of Advances and to transfer funds based on telephonic notices made by any person or persons the Agent or any Lender in good faith believes to be acting on behalf of the Borrower, it being understood that the foregoing authorization is specifically intended to allow Borrowing Notices and Conversion/Continuation Notices to be given telephonically. The Borrower agrees to deliver promptly to the Agent a written confirmation, if such confirmation is requested by the Agent or any Lender, of each telephonic notice signed by an Authorized Officer. If the written 16 confirmation differs in any material respect from the action taken by the Agent and the Lenders, the records of the Agent and the Lenders shall govern absent manifest error. SECTION 2.15. Interest Payment Dates; Interest and Fee Basis. Interest accrued on each Floating Rate Advance shall be payable on each Payment Date, commencing with the first such date to occur after the date hereof, on any date on which the Floating Rate Advance is prepaid, whether due to acceleration or otherwise, and at maturity. Interest accrued on that portion of the outstanding principal amount of any Floating Rate Advance converted into a Eurodollar Advance on a day other than a Payment Date shall be payable on the date of conversion. Interest accrued on each Eurodollar Advance shall be payable on the last day of its applicable Interest Period, on any date on which the Eurodollar Advance is prepaid, whether by acceleration or otherwise, and at maturity. Interest accrued on each Eurodollar Advance having an Interest Period longer than three months shall also be payable on the last day of each three-month interval during such Interest Period. Interest, the Commitment Fee and LC Fees shall be calculated for actual days elapsed on the basis of a 360-day year. Interest shall be payable for the day an Advance is made but not for the day of any payment on the amount paid if payment is received prior to noon (Chicago time) at the place of payment. If any payment of principal of or interest on an Advance shall become due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and, in the case of a principal payment, such extension of time shall be included in computing interest in connection with such payment. SECTION 2.16. Notification of Advances, Interest Rates, Prepayments, Modifications and Commitment Reductions. Promptly after receipt thereof, the Agent will notify each Lender of the contents of each Aggregate Commitment reduction notice, Borrowing Notice, Conversion/Continuation Notice, and repayment notice received by it hereunder. Promptly after notice from the LC Issuer, the Agent will notify each Lender of the contents of each request for issuance of a Facility LC hereunder and each Modification notice. The Agent will notify each Lender of the interest rate applicable to each Eurodollar Advance promptly upon determination of such interest rate and will give each Lender prompt notice of each change in the Alternate Base Rate. SECTION 2.17. Lending Installations. Each Lender may book its Loans and its participation in any LC Obligations and the LC Issuer may book the Facility LCs at any Lending Installation selected by such Lender or the LC Issuer, as the case may be, and may change its Lending Installation from time to time. All terms of this Agreement shall apply to any such Lending Installation and the Loans, Facility LCs, participations in LC Obligations and any Notes issued hereunder shall be deemed held by each Lender or the LC Issuer, as the case may be, for the benefit of any such Lending Installation. Each Lender and the LC Issuer may, by written notice to the Agent and the Borrower in accordance with Article XIII, designate replacement or additional Lending Installations through which Loans will be made by it or Facility LCs will be issued by it and for whose account Loan payments or payments with respect to Facility LCs are to be made. SECTION 2.18. Non-Receipt of Funds by the Agent. Unless the Borrower or a Lender, as the case may be, notifies the Agent prior to the date on which it is scheduled to make payment to the Agent of (i) in the case of a Lender, the proceeds of a Loan or (ii) in the case of the Borrower, a payment of principal, interest or fees to the Agent for the account of the Lenders, 17 that it does not intend to make such payment, the Agent may assume that such payment has been made. The Agent may, but shall not be obligated to, make the amount of such payment available to the intended recipient in reliance upon such assumption. If such Lender or the Borrower, as the case may be, has not in fact made such payment to the Agent, the recipient of such payment shall, on demand by the Agent, repay to the Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by the Agent until the date the Agent recovers such amount at a rate per annum equal to (x) in the case of payment by a Lender, the Federal Funds Effective Rate for such day for the first three days and, thereafter, the interest rate applicable to the relevant Loan or (y) in the case of payment by the Borrower, the interest rate applicable to the relevant Loan. SECTION 2.19. Facility LCs. (a) LC Issuer. Subject to the terms and conditions hereof, the Borrower may from time to time arrange for one or more Lenders to act as an LC Issuer hereunder. Any such designation by the Borrower shall be notified to the Agent at least five Business Days prior to the first date upon which the Borrower proposes that such LC Issuer issue its first Facility LC, so as to provide adequate time for such proposed Facility LC to be approved by the Agent hereunder; provided, that nothing contained herein shall be deemed to require any Lender to agree to act as an LC Issuer, if it does not so desire. Within two Business Days following the receipt of any such designation of a proposed LC Issuer together with the proposed form of such Facility LC, the Agent shall notify the Borrower as to whether such Facility LC complies with the requirements specified therefor in this Agreement. (b) Issuance. The LC Issuer hereby agrees, on the terms and conditions set forth in this Agreement, to issue standby letters of credit (each, a "Facility LC") and to renew, extend, increase, decrease or otherwise modify each Facility LC ("Modify", and each such action a "Modification"), from time to time from and including the date of this Agreement and prior to the Facility Termination Date upon the request of the Borrower; provided that immediately after each such Facility LC is issued or Modified, (i) the aggregate amount of the outstanding LC Obligations shall not exceed $100,000,000 and (ii) the Aggregate Outstanding Amount shall not exceed the Aggregate Commitment. No Facility LC shall have an expiry date later than the earlier of (x) the date which is one year after the Facility Termination Date and (y) one year after the date of issuance (or Modification). (c) Participations. Upon the issuance or Modification by the LC Issuer of a Facility LC in accordance with this Section, the LC Issuer shall be deemed, without further action by any party hereto, to have unconditionally and irrevocably sold to each Lender, and each Lender shall be deemed, without further action by any party hereto, to have unconditionally and irrevocably purchased from the LC Issuer, a participation in such Facility LC (and each Modification thereof) and the related LC Obligations in proportion to its Pro Rata Share. (d) Notice. Subject to Section 2.19(b), the Borrower shall give the LC Issuer notice prior to 10:00 a.m. (Chicago time) at least five Business Days prior to the proposed date of issuance or Modification of each Facility LC, specifying the beneficiary, the proposed date of issuance (or Modification) and the expiry date of such Facility LC, and describing the proposed terms of such Facility LC and the nature of the transactions proposed to be supported thereby. 18 Upon receipt of such notice, the LC Issuer shall promptly notify the Agent, and the Agent shall promptly notify each Lender, of the contents thereof and of the amount of such Lender's participation in such proposed Facility LC. The issuance or Modification by the LC Issuer of any Facility LC shall, in addition to the conditions precedent set forth in Article IV (the satisfaction of which the LC Issuer shall have no duty to ascertain), be subject to the conditions precedent that such Facility LC shall be satisfactory to the LC Issuer and that the Borrower shall have executed and delivered such application agreement and/or such other instruments and agreements relating to such Facility LC as the LC Issuer shall have reasonably requested (each, a "Facility LC Application"). In the event of any conflict between the terms of this Agreement and the terms of any Facility LC Application, the terms of this Agreement shall control. (e) LC Fees. The Borrower shall pay to the Agent, for the account of the Lenders ratably in accordance with their respective Pro Rata Shares, with respect to each Facility LC, a letter of credit fee at a per annum rate equal to the Applicable Fee Rate on the average daily undrawn stated amount under such Facility LC, such fee to be payable in arrears on each Payment Date (the "LC Fee"). The Borrower shall also pay to the LC Issuer for its own account (x) at the time of issuance of each Facility LC, a fronting fee in an amount to be agreed upon between the LC Issuer and the Borrower, and (y) documentary and processing charges in connection with the issuance or Modification of and draws under Facility LCs in accordance with the LC Issuer's standard schedule for such charges as in effect from time to time. (f) Administration; Reimbursement by Lenders. Upon receipt from the beneficiary of any Facility LC of any demand for payment under such Facility LC, the LC Issuer shall notify the Agent and the Agent shall promptly notify the Borrower and each other Lender as to the amount to be paid by the LC Issuer as a result of such demand and the proposed payment date (the "LC Payment Date"). The responsibility of the LC Issuer to the Borrower and each Lender shall be only to determine that the documents (including each demand for payment) delivered under each Facility LC in connection with such presentment shall be in conformity in all material respects with such Facility LC. The LC Issuer shall endeavor to exercise the same care in the issuance and administration of the Facility LCs as it does with respect to letters of credit in which no participations are granted, it being understood that in the absence of any gross negligence or willful misconduct by the LC Issuer, each Lender shall be unconditionally and irrevocably liable without regard to the occurrence of any Default or any condition precedent whatsoever, to reimburse the LC Issuer on demand for (i) such Lender's Pro Rata Share of the amount of each payment made by the LC Issuer under each Facility LC to the extent such amount is not reimbursed by the Borrower pursuant to Section 2.19(g) below, plus (ii) interest on the foregoing amount to be reimbursed by such Lender, for each day from the date of the LC Issuer's demand for such reimbursement (or, if such demand is made after 11:00 a.m. (Chicago time) on such date, from the next succeeding Business Day) to the date on which such Lender pays the amount to be reimbursed by it, at a rate of interest per annum equal to the Federal Funds Effective Rate for the first three days and, thereafter, at a rate of interest equal to the rate applicable to Floating Rate Advances. (g) Reimbursement by Borrower. The Borrower shall be irrevocably and unconditionally obligated to reimburse the LC Issuer on or before the applicable LC Payment Date for any amounts to be paid by the LC Issuer upon any drawing under any Facility LC, 19 without presentment, demand, protest or other formalities of any kind; provided that neither the Borrower nor any Lender shall hereby be precluded from asserting any claim for direct (but not consequential) damages suffered by the Borrower or such Lender to the extent, but only to the extent, caused by (i) the willful misconduct or gross negligence of the LC Issuer in determining whether a request presented under any Facility LC issued by it complied with the terms of such Facility LC or (ii) the LC Issuer's failure to pay under any Facility LC issued by it after the presentation to it of a request strictly complying with the terms and conditions of such Facility LC. All such amounts paid by the LC Issuer and remaining unpaid by the Borrower shall bear interest, payable on demand, for each day until paid at a rate per annum equal to (x) the rate applicable to Floating Rate Advances for such day if such day falls on or before the applicable LC Payment Date and (y) the sum of 2% plus the rate applicable to Floating Rate Advances for such day if such day falls after such LC Payment Date. The LC Issuer will pay to each Lender ratably in accordance with its Pro Rata Share all amounts received by it from the Borrower for application in payment, in whole or in part, of the Reimbursement Obligation in respect of any Facility LC issued by the LC Issuer, but only to the extent such Lender has made payment to the LC Issuer in respect of such Facility LC pursuant to Section 2.19(f). Subject to the terms and conditions of this Agreement (including without limitation the submission of a Borrowing Notice in compliance with Section 2.08 and the satisfaction of the applicable conditions precedent set forth in Article IV), the Borrower may request an Advance hereunder for the purpose of satisfying any Reimbursement Obligation. (h) Obligations Absolute. The Borrower's obligations under this Section shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which the Borrower may have or have had against the LC Issuer, any Lender or any beneficiary of a Facility LC. The Borrower further agrees with the LC Issuer and the Lenders that the LC Issuer and the Lenders shall not be responsible for, and the Borrower's Reimbursement Obligation in respect of any Facility LC shall not be affected by, among other things, the validity or genuineness of documents or of any endorsements thereon, even if such documents should in fact prove to be in any or all respects invalid, fraudulent or forged, or any dispute between or among the Borrower, any of its Affiliates, the beneficiary of any Facility LC or any financing institution or other party to whom any Facility LC may be transferred or any claims or defenses whatsoever of the Borrower or of any of its Affiliates against the beneficiary of any Facility LC or any such transferee. The LC Issuer shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Facility LC. The Borrower agrees that any action taken or omitted by the LC Issuer or any Lender under or in connection with each Facility LC and the related drafts and documents, if done without gross negligence or willful misconduct, shall be binding upon the Borrower and shall not put the LC Issuer or any Lender under any liability to the Borrower. Nothing in this Section is intended to limit the right of the Borrower to make a claim against the LC Issuer for damages as contemplated by the proviso to the first sentence of Section 2.19.(g). (i) Actions of LC Issuer. The LC Issuer shall be entitled to rely, and shall be fully protected in relying, upon any Facility LC, draft, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document believed by it to be genuine and correct and to have been signed, sent or made 20 by the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by the LC Issuer. The LC Issuer shall be fully justified in failing or refusing to take any action under this Agreement unless it shall first have received such advice or concurrence of the Required Lenders as it reasonably deems appropriate or it shall first be indemnified to its reasonable satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Notwithstanding any other provision of this Section, the LC Issuer shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement in accordance with a request of the Required Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon the Lenders and any future holders of a participation in any Facility LC. (j) Indemnification. The Borrower hereby agrees to indemnify and hold harmless each Lender, the LC Issuer and the Agent, and their respective directors, officers, agents and employees from and against any and all claims and damages, losses, liabilities, costs or expenses which such Lender, the LC Issuer or the Agent may incur (or which may be claimed against such Lender, the LC Issuer or the Agent by any Person whatsoever) by reason of or in connection with the issuance, execution and delivery or transfer of or payment or failure to pay under any Facility LC or any actual or proposed use of any Facility LC, including, without limitation, any claims, damages, losses, liabilities, costs or expenses which the LC Issuer may incur by reason of or in connection with (i) the failure of any other Lender to fulfill or comply with its obligations to the LC Issuer hereunder (but nothing herein contained shall affect any rights the Borrower may have against any defaulting Lender) or (ii) by reason of or on account of the LC Issuer issuing any Facility LC which specifies that the term "Beneficiary" included therein includes any successor by operation of law of the named Beneficiary, but which Facility LC does not require that any drawing by any such successor Beneficiary be accompanied by a copy of a legal document, satisfactory to the LC Issuer, evidencing the appointment of such successor Beneficiary; provided that the Borrower shall not be required to indemnify any Lender, the LC Issuer or the Agent for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, caused by (x) the willful misconduct or gross negligence of the LC Issuer in determining whether a request presented under any Facility LC complied with the terms of such Facility LC or (y) the LC Issuer's failure to pay under any Facility LC after the presentation to it of a request strictly complying with the terms and conditions of such Facility LC. Nothing in this Section is intended to limit the obligations of the Borrower under any other provision of this Agreement. (k) Lenders' Indemnification. Each Lender shall, ratably in accordance with its Pro Rata Share, indemnify the LC Issuer, its affiliates and their respective directors, officers, agents and employees (to the extent not reimbursed by the Borrower) against any cost, expense (including reasonable counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such indemnitees' gross negligence or willful misconduct or the LC Issuer's failure to pay under any Facility LC after the presentation to it of a request strictly complying with the terms and conditions of the Facility LC) that such indemnitees may suffer or incur in connection with this Section or any action taken or omitted by such indemnitees hereunder. 21 (l) Facility LC Collateral Account. The Borrower agrees that it will, during the continuance of any Unmatured Default, Default, or after the Facility Termination Date, upon the request of the Agent or the Required Lenders and until the final expiration date of any Facility LC and thereafter as long as any amount is payable to the LC Issuer or the Lenders in respect of any Facility LC, maintain a special collateral account pursuant to arrangements satisfactory to the Agent (the "Facility LC Collateral Account") at the Agent's office at the address specified pursuant to Article XIII, in the name of such Borrower but under the sole dominion and control of the Agent, for the benefit of the Lenders and in which such Borrower shall have no interest other than as set forth in Section 8.01. The Borrower hereby pledges, assigns and grants to the Agent, on behalf of and for the ratable benefit of the Lenders and the LC Issuer, a security interest in all of the Borrower's right, title and interest in and to all funds which may from time to time be on deposit in the Facility LC Collateral Account to secure the prompt and complete payment and performance of the Obligations. The Agent will invest any funds on deposit from time to time in the Facility LC Collateral Account in certificates of deposit of Bank One having a maturity not exceeding 30 days. Nothing in this Section shall either obligate the Agent to require the Borrower to deposit any funds in the Facility LC Collateral Account or limit the right of the Agent to release any funds held in the Facility LC Collateral Account in each case other than as required by Section 8.01. (m) Rights as a Lender. In its capacity as a Lender, the LC Issuer shall have the same rights and obligations as any other Lender. SECTION 2.20. Extension of Facility Termination Date. The Borrower may request an extension of the Facility Termination Date by submitting a request for an extension to the Agent (an "Extension Request") no more than 60 days prior to the Facility Termination Date. The Extension Request must specify the new Facility Termination Date requested by the Borrower and the date (which must be at least 30 days after the Extension Request is delivered to the Agent) as of which the Lenders must respond to the Extension Request (the "Response Date"). The new Facility Termination Date shall be no more than 364 days after the Facility Termination Date in effect at the time the Extension Request is received, including the Facility Termination Date as one of the days in the calculation of the days elapsed. Promptly upon receipt of an Extension Request, the Agent shall notify each Lender of the contents thereof and shall request each Lender to approve the Extension Request. Each Lender approving the Extension Request shall deliver its written consent no later than the Response Date. Any Lender not so consenting by the Response Date shall be deemed to not have consented to such Extension Request. If the consent of each of the Lenders is received by the Agent (or if less than all the Lenders consent thereto, one or more other banks and financial institutions acceptable to the Borrower and the Agent, agree to assume and assume all of the Commitments and Outstanding Credit Exposure of the non-consenting Lenders), the Facility Termination Date specified in the Extension Request shall become effective on the existing Facility Termination Date and the Agent shall promptly notify the Borrower and each Lender of the new Facility Termination Date. SECTION 2.21. Replacement of Lender. If the Borrower is required pursuant to Section 3.01, 3.02 or 3.05 to make any additional payment to any Lender or if any Lender's obligation to make or continue, or to convert Floating Rate Advances into, Eurodollar Advances shall be suspended pursuant to Section 3.03 (any Lender so affected an "Affected Lender"), the Borrower may elect, if such amounts continue to be charged or such suspension is still effective, 22 to replace such Affected Lender as a Lender party to this Agreement, provided that no Default or Unmatured Default shall have occurred and be continuing at the time of such replacement, and provided further that, concurrently with such replacement, (i) another bank or other entity which is reasonably satisfactory to the Borrower and the Agent shall agree, as of such date, to purchase for cash the Advances and other Obligations due to the Affected Lender pursuant to an assignment substantially in the form of Exhibit C and to become a Lender for all purposes under this Agreement and to assume all obligations of the Affected Lender to be terminated as of such date and to comply with the requirements of Section 12.03 applicable to assignments, and (ii) the Borrower shall pay to such Affected Lender in same day funds on the day of such replacement (A) all interest, fees and other amounts then accrued but unpaid to such Affected Lender by the Borrower hereunder to and including the date of termination, including without limitation payments due to such Affected Lender under Sections 3.01, 3.02 and 3.05 (it being understood that such payment shall be given credit in calculating any subsequent payments under Sections 2.05, 2.15, 2.19(e), 3.01, 3.02 or 3.05), and (B) an amount, if any, equal to the payment which would have been due to such Lender on the day of such replacement under Section 3.04 had the Loans of such Affected Lender been prepaid on such date rather than sold to the replacement Lender. ARTICLE III YIELD PROTECTION; TAXES SECTION 3.01. Yield Protection. If, on or after the date of this Agreement, the adoption of any law or any governmental or quasi-governmental rule, regulation, policy, guideline or directive (whether or not having the force of law), or any change in the interpretation or administration thereof by any governmental or quasi-governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender or applicable Lending Installation or the LC Issuer with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency: (i) subjects any Lender or any applicable Lending Installation or the LC Issuer to any Taxes, or changes the basis of taxation of payments (other than with respect to Excluded Taxes) to any Lender or the LC Issuer in respect of its Eurodollar Loans, Facility LCs or participations therein, or (ii) imposes or increases or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender or any applicable Lending Installation or the LC Issuer (other than reserves and assessments taken into account in determining the interest rate applicable to Eurodollar Advances), or (iii) imposes any other condition the result of which is to increase the cost to any Lender or any applicable Lending Installation or the LC Issuer of making, funding or maintaining its Eurodollar Loans, or of issuing or participating in Facility LCs, or reduces any amount receivable by any Lender or any applicable Lending Installation or the LC Issuer in connection with its Eurodollar Loans, Facility LCs 23 or participations therein, or requires any Lender or any applicable Lending Installation or the LC Issuer to make any payment calculated by reference to the amount of Eurodollar Loans, Facility LCs or participations therein held or interest or LC Fees received by it, by an amount deemed material by such Lender or the LC Issuer as the case may be, and the result of any of the foregoing is to increase the cost to such Lender or applicable Lending Installation or the LC Issuer, as the case may be, of making or maintaining its Eurodollar Loans or Commitment or of issuing or participating in Facility LCs or to reduce the return received by such Lender or applicable Lending Installation or the LC Issuer, as the case may be, in connection with such Eurodollar Loans, Commitment, Facility LCs or participations therein, then, within 15 days of demand by such Lender or the LC Issuer, as the case may be, the Borrower shall pay such Lender or the LC Issuer, as the case may be, such additional amount or amounts as will compensate such Lender or the LC Issuer, as the case may be, for such increased cost or reduction in amount received, provided, however, that no Lender or LC Issuer shall be entitled to receive any such increased costs to the extent incurred more than 180 days prior to the date that such Lender or LC Issuer makes such a demand, provided, further, that if a change in law giving rise to such increased cost is retroactive, then the 180 day period referred to above shall be extended to include the period of retroactive effect thereof. SECTION 3.02. Changes in Capital Adequacy Regulations. If a Lender or the LC Issuer determines the amount of capital required or expected to be maintained by such Lender or the LC Issuer, any Lending Installation of such Lender or the LC Issuer, or any corporation controlling such Lender or the LC Issuer is increased as a result of a Change, then, within 15 days of demand by such Lender or the LC Issuer, the Borrower shall pay such Lender or the LC Issuer the amount necessary to compensate for any shortfall in the rate of return on the portion of such increased capital which such Lender or the LC Issuer determines is attributable to this Agreement, its Outstanding Credit Exposure or its Commitment to make Loans and issue or participate in Facility LCs, as the case may be, hereunder (after taking into account such Lender's or the LC Issuer's policies as to capital adequacy) provided, however, that no Lender or LC Issuer shall be entitled to receive any such increased costs to the extent incurred more than 180 days prior to the date that such Lender or LC Issuer makes such a demand, provided further, that if a Change giving rise to such increased cost is retroactive then the 180 day period referred to above shall be extended to include the period of retroactive effect thereof. "Change" means (i) any change after the date of this Agreement in the Risk-Based Capital Guidelines or (ii) any adoption of or change in any other law, governmental or quasi-governmental rule, regulation, policy, guideline, interpretation, or directive (whether or not having the force of law) after the date of this Agreement which affects the amount of capital required or expected to be maintained by any Lender or the LC Issuer or any Lending Installation or any corporation controlling any Lender or the LC Issuer. "Risk-Based Capital Guidelines" means (i) the risk-based capital guidelines in effect in the United States on the date of this Agreement, including transition rules, and (ii) the corresponding capital regulations promulgated by regulatory authorities outside the United States implementing the July 1988 report of the Basle Committee on Banking Regulation and Supervisory Practices Entitled "International Convergence of Capital Measurements and Capital Standards," including transition rules, and any amendments to such regulations adopted prior to the date of this Agreement. 24 SECTION 3.03. Availability of Types of Advances. If any Lender determines that maintenance of its Eurodollar Loans at a suitable Lending Installation would violate any applicable law, rule, regulation, or directive, whether or not having the force of law, or if the Required Lenders determine that (i) deposits of a type and maturity appropriate to match fund Eurodollar Advances are not available or (ii) the interest rate applicable to Eurodollar Advances does not accurately reflect the cost of making or maintaining Eurodollar Advances, then the Agent shall suspend the availability of Eurodollar Advances and require any affected Eurodollar Advances to be repaid or converted to Floating Rate Advances, subject to the payment of any funding indemnification amounts required by Section 3.04 until such time as any Affected Lender is replaced in accordance with Section 2.21, or until such time as the Required Lenders shall determine such conditions no longer exist. SECTION 3.04. Funding Indemnification. If any payment of a Eurodollar Advance occurs on a date which is not the last day of the applicable Interest Period, whether because of acceleration, prepayment or otherwise, or a Eurodollar Advance is not made on the date specified by the Borrower for any reason other than default by the Lenders, the Borrower will indemnify each Lender for any loss or cost incurred by it resulting therefrom, including, without limitation, any loss or cost in liquidating or employing deposits acquired to fund or maintain such Eurodollar Advance. SECTION 3.05. Taxes. (i) All payments by the Borrower to or for the account of any Lender, the LC Issuer or the Agent hereunder or under any Note or Facility LC Application shall be made free and clear of and without deduction for any and all Taxes. If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to any Lender, the LC Issuer or the Agent, (a) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) such Lender, the LC Issuer or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (b) the Borrower shall make such deductions, (c) the Borrower shall pay the full amount deducted to the relevant authority in accordance with applicable law and (d) the Borrower shall furnish to the Agent the original or a certified copy of a receipt evidencing payment thereof within 30 days after such payment is made. (ii) In addition, the Borrower hereby agrees to pay any present or future stamp or documentary taxes and any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under any Note or Facility LC Application or from the execution or delivery of, or otherwise with respect to, this Agreement or any Note or Facility LC Application ("Other Taxes"). (iii) The Borrower hereby agrees to indemnify the Agent, the LC Issuer and each Lender for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed on amounts payable under this Section) paid by the Agent, the LC Issuer or such Lender and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. Payments due under this indemnification shall be made within 30 days of the date the Agent, the LC Issuer or such Lender makes demand therefor pursuant to Section 3.05. 25 (iv) Each Lender that is not incorporated under the laws of the United States of America or a state thereof (each a "Non-U.S. Lender") agrees that it will, not less than ten Business Days after the date of this Agreement, (i) deliver to each of the Borrower and the Agent two duly completed copies of United States Internal Revenue Service Form 1001 or 4224 (or, alternatively, the applicable form from the W-8 family of forms), certifying in any case that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, and (ii) deliver to each of the Borrower and the Agent a United States Internal Revenue Form W-8 or W-9, as the case may be, and certify that it is entitled to an exemption from United States backup withholding tax. Each Non-U.S. Lender further undertakes to deliver to each of the Borrower and the Agent (x) renewals or additional copies of such form (or any successor form) on or before the date that such form expires or becomes obsolete, and (y) after the occurrence of any event requiring a change in the most recent forms so delivered by it, such additional forms or amendments thereto as may be reasonably requested by the Borrower or the Agent. All forms or amendments described in the preceding sentence shall certify that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, unless an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form or amendment with respect to it and such Lender advises the Borrower and the Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax. (v) For any period during which a Non-U.S. Lender has failed to provide the Borrower with an appropriate form pursuant to clause (iv), above (unless such failure is due to a change in treaty, law or regulation, or any change in the interpretation or administration thereof by any governmental authority, occurring subsequent to the date on which a form originally was required to be provided), such Non-U.S. Lender shall not be entitled to indemnification under this Section with respect to Taxes imposed by the United States; provided that, should a Non-U.S. Lender which is otherwise exempt from or subject to a reduced rate of withholding tax become subject to Taxes because of its failure to deliver a form required under clause (iv), above, the Borrower shall take such steps as such Non-U.S. Lender shall reasonably request to assist such Non-U.S. Lender to recover such Taxes. (vi) Any Lender that is entitled to an exemption from or reduction of withholding tax with respect to payments under this Agreement or any Note pursuant to the law of any relevant jurisdiction or any treaty shall deliver to the Borrower (with a copy to the Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate. (vii) If the U.S. Internal Revenue Service or any other governmental authority of the United States or any other country or any political subdivision thereof asserts a claim that the Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered or properly completed, because such Lender failed to notify the Agent of a change in circumstances which rendered its exemption from 26 withholding ineffective, or for any other reason), such Lender shall indemnify the Agent fully for all amounts paid, directly or indirectly, by the Agent as tax, withholding therefor, or otherwise, including penalties and interest, and including taxes imposed by any jurisdiction on amounts payable to the Agent under this subsection, together with all costs and expenses related thereto (including attorneys fees and time charges of attorneys for the Agent, which attorneys may be employees of the Agent). The obligations of the Lenders under this Section shall survive the payment of the Obligations and termination of this Agreement. SECTION 3.06. Lender Statements; Survival of Indemnity. To the extent reasonably possible, each Lender shall designate an alternate Lending Installation with respect to its Eurodollar Loans to reduce any liability of the Borrower to such Lender under Sections 3.01, 3.02 and 3.05 or to avoid the unavailability of Eurodollar Advances under Section 3.03, so long as such designation is not, in the judgment of such Lender, disadvantageous to such Lender. Each Lender shall deliver a written statement of such Lender to the Borrower (with a copy to the Agent) as to the amount due, if any, under Section 3.01, 3.02, 3.04 or 3.05. Such written statement shall set forth in reasonable detail the calculations upon which such Lender determined such amount and shall be final, conclusive and binding on the Borrower in the absence of manifest error. Determination of amounts payable under such Sections in connection with a Eurodollar Loan shall be calculated as though each Lender funded its Eurodollar Loan through the purchase of a deposit of the type and maturity corresponding to the deposit used as a reference in determining the Eurodollar Rate applicable to such Loan, whether in fact that is the case or not. Unless otherwise provided herein, the amount specified in the written statement of any Lender shall be payable on demand after receipt by the Borrower of such written statement. The obligations of the Borrower under Sections 3.01, 3.02, 3.04 and 3.05 shall survive payment of the Obligations and termination of this Agreement. ARTICLE IV CONDITIONS PRECEDENT SECTION 4.01. Initial Credit Extension. The Lenders shall not be required to make the initial Credit Extension hereunder unless and until the following conditions precedent shall have been satisfied: (a) the Borrower has paid all fees hereunder to the extent then due and payable and all costs and expenses of the Agent (including reasonable counsel fees and disbursements) incurred through the date hereof. (b) The Borrower has furnished to the Agent with sufficient copies for the Lenders: (i) Copies of the articles or certificate of incorporation of each Loan Party, together with all amendments, and a certificate of good standing, each certified by the appropriate governmental officer in its jurisdiction of incorporation. (ii) Copies, certified by the Secretary or Assistant Secretary of each Loan Party, of its by-laws and of its Board of Directors' resolutions and of Governmental 27 Approvals or resolutions or actions of any other body, if any, authorizing the execution of the Loan Documents to which such Loan Party is a party. (iii) An incumbency certificate, executed by the Secretary or Assistant Secretary of each Loan Party, which shall identify by name and title and bear the signatures of the Authorized Officers and any other officers of such Loan Party authorized to sign the Loan Documents to which such Loan Party is a party, upon which certificate the Agent and the Lenders shall be entitled to rely until informed of any change in writing by such Loan Party. (iv) A certificate, signed by the chief financial officer or the Treasurer of the Borrower, stating that on the date of the initial Credit Extension (A) the representations and warranties contained in Article V of this Agreement are true and correct and (B) no Default or Unmatured Default has occurred and is continuing. (v) A certificate, signed by the chief financial officer or the Treasurer of the Guarantor, stating that on the date of the initial Credit Extension (A) the representations and warranties contained in Section 6 of the Guaranty are true and correct and (B) no Default or Unmatured Default has occurred and is continuing. (vi) A written opinion of the counsel to the Loan Parties, addressed to the Lenders in substantially the form of Exhibit A. (vii) Any Notes requested by a Lender pursuant to Section 2.13 payable to the order of each such requesting Lender. (viii) Written money transfer instructions, in substantially the form of Exhibit D, addressed to the Agent and signed by an Authorized Officer, together with such other related money transfer authorizations as the Agent may have reasonably requested. (ix) Information satisfactory to the Agent and the Required Lenders regarding the Loan Parties' Year 2000 Program. (x) The Guaranty, duly executed by the Guarantor. (xi) Evidence satisfactory to the Agent that the Existing Facility, and all amounts accrued and outstanding thereunder (whether for principal, interest, fees or other amounts) shall have been paid in full. (xii) Such other documents as any Lender or its counsel may have reasonably requested. (xiii) If the initial Credit Extension will be the issuance of a Facility LC, a properly completed Facility LC Application. 28 SECTION 4.02. Each Credit Extension. The Lenders shall not be required to make any Credit Extension unless on the applicable Credit Extension Date: (i) There exists no Default or Unmatured Default. (ii) The representations and warranties contained in Article V and Section 6 of the Guaranty are true and correct in all material respects as of such Credit Extension Date (other than, in the case of any Credit Extension that does not increase the aggregate Outstanding Credit Exposure of the Lenders, the representations contained in the second sentence of Section 5.05 hereof and the second sentence of Section 6(g) of the Guaranty) except to the extent any such representation or warranty is stated to relate solely to an earlier date, in which case such representation or warranty shall have been true and correct on and as of such earlier date. (iii) All legal matters incident to the making of such Credit Extension shall be satisfactory to the Lenders and their counsel. Each Borrowing Notice or request for issuance of a Facility LC with respect to each such Credit Extension shall constitute a representation and warranty by each Loan Party that the conditions contained in Sections 4.02(i) and (ii) have been satisfied. Any Lender, through the Agent, may require a duly completed compliance certificate in substantially the form of Exhibit B as a condition to making a Credit Extension. ARTICLE V REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants to the Lenders that: SECTION 5.01. Existence and Standing. Each Loan Party is a corporation duly organized, validly existing and in good standing under the laws of the State of Illinois, and is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the nature of the business conducted or the property owned, operated or leased by it requires such qualification and where the failure to so qualify might have a Material Adverse Effect, and has full power and authority to own and hold under lease its property and to conduct its business substantially as presently conducted by it. SECTION 5.02. Authorization. The execution, delivery and performance by each Loan Party of the Loan Documents to which it is a party are within such Loan Party's corporate powers, have been duly authorized by all necessary corporate action and do not, and will not, (i) contravene such Loan Party's Articles of Incorporation (or other comparable charter document) or By-laws, law or any contractual or legal restriction binding on or affecting such Loan Party or its properties, (ii) result in a breach of, or constitute a default under, any indenture or loan or credit agreement or any other agreement, lease or instrument to which such Loan Party is a party or by which it or its properties may be bound or affected, or (iii) result in or require the creation 29 of any Lien upon or with respect to any of its properties (except as contemplated in Section 2.19(l) with respect to any Facility LC Collateral Account). SECTION 5.03. Governmental Approval. No Governmental Approval is required for the due execution, delivery and performance by any Loan Party of any Loan Document to which it is a party, other than such approvals as may be required in order for the Unicom/PECO Merger to be consummated (the "Merger Approvals"). The Merger Approvals are and shall be in full force and effect on and after the effective date of the Unicom/PECO Merger. SECTION 5.04. Validity. This Agreement has been duly executed and delivered by the Borrower and is, and the Notes and the other Loan Documents to which the Borrower is a party when delivered hereunder will be, legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms. The Guaranty has been duly executed and delivered by the Guarantor and is the legal, valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms. SECTION 5.05. Financial Statements. The balance sheets of the Borrower and its Subsidiaries as at September 30, 1999, and the related statement of income, cash flows and retained earnings of the Borrower and its Subsidiaries for the periods then ended, copies of each of which have been furnished to each Lender, fairly present the financial condition of the Borrower and its Subsidiaries as at such date and the results of the operations of the Borrower and its Subsidiaries for the period ended on such date, all in accordance with GAAP. Since September 30, 1998, there has been no material adverse change in the financial condition, results of operations, operations, business or Property of the Borrower and its Subsidiaries, taken as a whole, or in the Borrower's ability to perform any of its obligations under this Agreement, the Notes and the other Loan Documents to which it is a party. SECTION 5.06. Litigation. There is no pending or threatened action or proceeding affecting the Borrower, the Guarantor or any of their respective Subsidiaries before any court, governmental agency or arbitrator that might reasonably be expected to result in a Material Adverse Effect, or that relates to this Agreement or the other Loan Documents or any transaction contemplated hereby or thereby. SECTION 5.07. Exchange Act. No proceeds of any Credit Extension will be used to acquire any equity security of a class which is registered pursuant to Section 12 of the Exchange Act or in any transaction subject to the requirements of Section 13 or 14 of the Exchange Act. SECTION 5.08. Regulation U. The Borrower is not engaged in the business of extending credit for the purpose of buying or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System), and no proceeds of any Advance and no Facility LC will be used to buy or carry any margin stock or to extend credit to others for the purpose of buying or carrying any margin stock. SECTION 5.09. Government Regulations. No Loan Party nor any Subsidiary of any Loan Party is in violation of any law or governmental regulation or court decree or order which might reasonably be expected to result in a Material Adverse Effect. 30 SECTION 5.10. Taxes. Each Loan Party and its Subsidiaries has filed all tax returns and reports required by law to have been filed by it and has paid all taxes and governmental charges thereby shown to be owing, except any such taxes or charges which are being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books. No tax Liens (other than Liens for taxes not yet due and payable or being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books) have been filed with respect to any Loan Party or any of its Subsidiaries and, to the knowledge of the Borrower, no claims with respect to any such taxes or charges are being asserted which, individually or in the aggregate, could result in a Material Adverse Effect. SECTION 5.11. ERISA. No ERISA Event has occurred or is reasonably expected to occur with respect to any Plan of the Borrower or any of its ERISA Affiliates which would result in a liability of $25,000,000 or more to the Borrower. Since the most recent September 30 for which financial statements have been delivered to the Lenders in accordance with Section 6.01 hereof, there has been no material adverse change in the funding status of the Plans and no "prohibited transaction" has occurred with respect thereto which is in either event reasonably expected to result in a liability of $25,000,000 or more to the Borrower. SECTION 5.12. Accuracy of Information. All factual information heretofore or contemporaneously furnished by or on behalf of the Loan Parties in writing to any Lender or the Agent for purposes of or in connection with this Agreement, any other Loan Document or any transaction contemplated hereby is, and all other such factual information hereafter furnished by or on behalf of the Loan Parties to the Agent or any Lender will be, true and accurate in every material respect on the date as of which such information is dated or certified, and not incomplete by omitting to state any material fact necessary to make such information not misleading. SECTION 5.13. Public Utility Holding Company Act; Investment Company Act. The Borrower is not a "public utility holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended; and neither Loan Party is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or an "investment advisor" within the meaning of the Investment Advisors Act of 1940, as amended. The Guarantor is a "public utility holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended, but is exempt from the provisions thereof (other than Section 9(a) thereof) by virtue of an order issued by the Securities and Exchange Commission on July 22, 1994. Such exemption is in full force and effect and, except for proceedings in connection with the transactions contemplated by the Unicom/PECO Merger Agreement, the Guarantor is not aware of any existing or proposed proceedings contemplating the revocation or modification of such exemption. SECTION 5.14. Year 2000. Each Loan Party has made a full and complete assessment of the Year 2000 Issues and has a realistic and achievable program for remediating the Year 2000 Issues on a timely basis (the "Year 2000 Program"). Based on such assessment and on the Year 2000 Program, the Borrower does not reasonably anticipate that Year 2000 Issues will have a Material Adverse Effect. 31 ARTICLE VI COVENANTS During the term of this Agreement, unless the Required Lenders shall otherwise consent in writing: SECTION 6.01. Reporting Requirements. The Borrower will furnish to each Lender: (i) as soon as available and in any event within 60 days after the end of each of the first three quarters of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such quarter and consolidated statements of income, retained earnings and cash flows of the Borrower and its Subsidiaries for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, all in reasonable detail and duly certified (subject to year-end audit adjustments) by the chief financial officer or the Treasurer of the Borrower as having been prepared in accordance (in all material respects) with GAAP consistently applied, except for (A) the absence of notes thereto and (B) changes in accounting principles required by GAAP; (ii) as soon as available and in any event within 120 days after the end of each fiscal year of the Borrower and its Subsidiaries, a consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal year and consolidated statements of income, retained earnings and cash flows of the Borrower and its Subsidiaries for such fiscal year, certified in a manner acceptable to the Agent by Arthur Andersen LLP or another nationally-recognized independent public accounting firm selected by the Borrower and acceptable to the Agent; (iii) concurrently with the financial statements for each quarterly accounting period and for each fiscal year of the Borrower furnished pursuant to paragraphs (i) and (ii) above, (A) a certificate of the chief financial officer, any vice president responsible for financial or accounting matters, or the Treasurer of the Borrower stating that (1) the Borrower has performed and observed all of, and the Borrower is not in default in the performance or observance of any of, the terms, covenants, agreements and conditions of this Agreement or any other Loan Document or, if the Borrower shall be in default, specifying all such defaults and the nature thereof, of which the signer of such certificate may have knowledge, and (2) the signer has obtained no knowledge of any Unmatured Default or Default except as specified in such certificate, and (B) an analysis prepared and certified by the chief financial officer, any vice president responsible for financial or accounting matters, or the Treasurer of the Borrower of the covenant contained in Section 6.13 containing all information necessary for determining compliance by the Borrower with such covenant; (iv) as soon as available and in any event within 120 days after the end of each fiscal year of the Borrower and concurrently with the financial statements furnished pursuant to paragraph (ii), above, a written statement of the independent public accountants that certified such financial statements stating that, in making the 32 examination necessary for their certification of such financial statements, they have obtained no knowledge of any Unmatured Default or Default by the Borrower in the observance of any of the covenants contained in Sections 6.12, 6.13, 6.14, 6.15, 6.16, 6.17, 6.18, 6.19 and 6.20 or, if such accountants shall have obtained knowledge of any such Unmatured Default or Default, specifying all such Unmatured Defaults and Defaults and the nature thereof, it being understood that they shall not be liable directly or indirectly for any failure to obtain knowledge of any Unmatured Default or Default; (v) as soon as possible and in any event within five days after the Guarantor becomes aware of the commencement of litigation against the Guarantor or any of its Subsidiaries that may result in a Material Adverse Effect or that questions the validity or enforceability of any Loan Document against the Borrower or the Guarantor, notice of such litigation describing in reasonable detail the facts and circumstances concerning such litigation and the Guarantor's, or such Subsidiary's, as the case may be, proposed actions in connection therewith; provided, that delivery of a copy of the Guarantor's current report on Form 8-K describing any such litigation shall be deemed to satisfy such requirement unless the Agent, or any Lender acting through the Agent, shall request any additional information relating to such litigation; (vi) if the Borrower has any class of securities registered under the Exchange Act, then promptly after the sending or filing thereof, copies of all reports which the Borrower sends to any of its security holders, and copies of all reports and registration statements (other than registration statements related to employee benefits plans) which the Borrower or any of its Subsidiaries files with the Securities and Exchange Commission or any national securities exchange; (vii) as soon as possible and in any event (A) within 30 days after any ERISA Event described in clause (i) of the definition of ERISA Event with respect to any Plan of the Borrower or any ERISA Affiliate of the Borrower has occurred and (B) within 10 days after any other ERISA Event with respect to any Plan of the Borrower or any ERISA Affiliate of the Borrower has occurred, a statement of a Senior Financial Officer describing such ERISA Event and the action, if any, which the Borrower or such ERISA Affiliate proposes to take with respect thereto; (viii) promptly after receipt thereof by the Borrower or any of its ERISA Affiliates from the PBGC, copies of each notice received by the Borrower or such ERISA Affiliate of the PBGC's intention to terminate any Plan of the Borrower or such ERISA Affiliate or to have a trustee appointed to administer any such Plan; (ix) promptly after receipt thereof by the Borrower or any ERISA Affiliate of the Borrower from a Multiemployer Plan sponsor, a copy of each notice received by the Borrower or such ERISA Affiliate concerning the imposition or amount of withdrawal liability in an aggregate principal amount of at least $25,000,000 pursuant to Section 4202 of ERISA in respect of which the Borrower or such ERISA Affiliate is reasonably expected to be liable; 33 (x) as soon as possible and in any event within ten days after the Borrower knows or should have reason to know of the occurrence of each Unmatured Default or Default continuing on the date of such statement, a statement of the chief financial officer, any vice president responsible for financial or accounting matters, or the Treasurer of the Borrower setting forth details of such Unmatured Default or Default and the action that the Borrower has taken and proposes to take with respect thereto; and (xi) such other information respecting the business, assets, revenues, financial condition, results of operations, operations, business, Property or prospects of the Borrower or any of its Subsidiaries as the Agent or any Lender, through the Agent, may from time to time reasonably request. SECTION 6.02. Preservation of Corporate Existence, Etc. The Borrower will preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its legal existence in the jurisdiction of its organization and qualify and remain qualified as a foreign organization in each jurisdiction in which such qualification is reasonably necessary in view of its business and operations or the ownership of its properties, and preserve, renew and keep in full force and effect the rights, privileges and franchises necessary or desirable in the normal conduct of its business; provided, however, that neither the Borrower nor any such Subsidiary shall be required to preserve and maintain any such right, privilege or franchise, and no Subsidiary shall be required to preserve and maintain its corporate existence, unless the failure to do so would have a Material Adverse Effect. SECTION 6.03. Compliance with Laws, Etc. The Borrower will comply, and cause each of its Subsidiaries to comply, in all material respects with all Applicable Laws, such compliance to include compliance with ERISA and Environmental Laws. SECTION 6.04. Maintenance of Insurance, Etc. The Borrower will maintain, and cause each of its Subsidiaries to maintain, such insurance as may be required by law and such other insurance, to the extent and against such hazards and liabilities, as is customarily maintained by companies similarly situated. SECTION 6.05. Inspection Rights. The Borrower will at any reasonable time and from time to time as the Agent or any Lender may reasonably request, permit the Agent, each Lender or any agents or representatives thereof to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, the Borrower and any of its Subsidiaries, and to discuss the affairs, finances and accounts of the Borrower and any of its Subsidiaries with any of their respective officers or directors; provided, however, that prior to the disclosure of any information or materials of the Borrower or its Subsidiaries relating to customers, pricing methods or formulae, or proprietary methods or processes, the Borrower may require the Lender seeking to inspect the same to enter into a confidentiality and nondisclosure agreement with respect to the use and disclosure of such information or materials in form and substance reasonably satisfactory to the Borrower and such Lender and containing other customary terms. SECTION 6.06. Maintaining of Books. The Borrower will maintain, and cause each of its Subsidiaries to maintain, complete and accurate books of record and account in which 34 entries shall be made of all financial transactions and the assets and business of the Borrower and each of its Subsidiaries in accordance with GAAP. SECTION 6.07. Maintenance of Properties. The Borrower will cause all properties used or useful in the conduct of the business of the Borrower or any of its Subsidiaries to be maintained and kept in reasonable condition, repair and working order, and cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Borrower may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; except where the failure to do so would not have a Material Adverse Effect. SECTION 6.08. Taxes and Liabilities. The Borrower will pay, and cause each of its Subsidiaries to pay, when due all taxes, assessments, governmental charges and other liabilities imposed upon it or its property, except to the extent contested in good faith and by appropriate proceedings and in respect of which adequate reserves for the payment thereof have been set aside by the Borrower or such Subsidiary, as the case may be, in accordance with GAAP. SECTION 6.09. Use of Proceeds. The Borrower will use the proceeds of each Credit Extension hereunder for general corporate purposes, including, without limitation, financing investments in non-public utility-regulated generation, energy supply and energy-service-related businesses and projects, commercial paper back-up and intercompany advances to the Guarantor in an aggregate amount not to exceed $25,000,000 at any one time outstanding. SECTION 6.10. ERISA. (i) Permit to exist any "accumulated funding deficiency" (as defined in Section 412(a) of the Internal Revenue Code of 1986, as amended from time to time) (unless such deficiency exists with respect to a Multiple Employer Plan or Multiemployer Plan and the Borrower has no control over the reduction or elimination of such deficiency), (ii) terminate, or permit any ERISA Affiliate of the Borrower to terminate, any Plan of the Borrower or such ERISA Affiliate so as to result in a liability of $25,000,000 or more of the Borrower to the PBGC, or (iii) permit to exist any occurrence of any Reportable Event (as defined in Title IV of ERISA), other than a Reportable Event for which the 30-day notice requirement with respect thereto has been waived by the PBGC or any other event or condition, which presents a material (in the reasonable opinion of the Required Lenders) risk of such a termination by the PBGC of any Plan of the Borrower or such ERISA Affiliate and such a liability to the Borrower. SECTION 6.11. Year 2000. The Borrower will take and will cause each of its Subsidiaries to take all such actions as are reasonably necessary to successfully implement the Year 2000 Program and to assure that Year 2000 Issues will not have a Material Adverse Effect. At the request of the Agent, the Borrower will provide a description of the Year 2000 Program, together with any updates or progress reports with respect thereto. SECTION 6.12. Borrower Stock. The Borrower will not permit any of its Subsidiaries to purchase, redeem, retire, or otherwise acquire for value any shares of capital stock of the Borrower, or any warrants, rights, or options to acquire any such shares, now or hereafter outstanding. 35 SECTION 6.13. Indebtedness. The Borrower will not create, incur, assume or suffer to exist any Indebtedness, other than (without duplication) (i) Indebtedness hereunder and under the Notes and the other Loan Documents, (ii) unsecured Contingent Obligations (other than in respect of Letters of Credit issued pursuant to Section 2.19 hereof) in an aggregate amount at any one time outstanding not to exceed the excess of (A) $700,000,000 over (B) the amount of Contingent Obligations incurred by the Guarantor pursuant to Section 8(d)(iii) of the Guaranty, and (iii) unsecured intercompany advances from the Guarantor subordinated in all respects to any and all Indebtedness hereunder and under the Notes upon the terms set forth in Exhibit G hereto; provided, however, that, notwithstanding the foregoing, the aggregate amount of Indebtedness of the Borrower and its Subsidiaries and of the Guarantor at any one time outstanding shall not exceed $900,000,000; provided further, that for purposes of this Section, the term "Indebtedness" shall not include the Unicom Investment Inc. Debt. SECTION 6.14. Investments in Other Persons. The Borrower will not make, or permit any of its Subsidiaries to make, any loan or advance to any Person or purchase or otherwise acquire any capital stock, obligations or other securities of, make any capital contribution to, or otherwise invest in, any Person, except that (i) so long as no Unmatured Default or Default has occurred and is continuing, (A) the Borrower may make capital contributions and intercompany advances to any of its Subsidiaries, and (B) the Borrower or any of its Subsidiaries may make loans or advances to or other investments in any other Person to the extent that foreclosure upon any such equity investment or the stock or assets of the Person to which any such loan or advance was made would not have a Material Adverse Effect and (ii) the Borrower may make intercompany advances to the Guarantor in an aggregate amount not to exceed $25,000,000 at any one time outstanding. SECTION 6.15. Distributions. The Borrower will not upon the occurrence and during the continuance of a Default, declare or pay, directly or indirectly, any dividend, payment or other distribution of assets, properties, cash, rights, obligations or securities on account of any share of any class of capital stock of the Borrower, or purchase, redeem, retire, or otherwise acquire for value any shares of any class of capital stock of the Borrower or any warrants, rights, or options to acquire any such shares, now or hereafter outstanding, or make any distribution of assets to any of its shareholders. SECTION 6.16. Liens, Etc. The Borrower will not create or suffer to exist, or permit any of its Subsidiaries to create or suffer to exist, any lien, security interest, or other charge or encumbrance, or any other type of preferential arrangement, upon or with respect to any of its properties (including, without limitation, the capital stock of or any other equity interest in any of its Subsidiaries except to the extent such lien is created to secure obligations in respect of Nonrecourse Indebtedness), whether now owned or hereafter acquired, or assign, or permit any of its Subsidiaries to assign, any right to receive income, in each case to secure or provide for the payment of any Indebtedness of any Person (any of the foregoing being referred to herein as a "Lien"), other than (i) Liens imposed by law, such as carriers', warehousemen's and mechanics' Liens and other similar Liens arising in the ordinary course of business, (ii) Liens on the capital stock of or any other equity interest in any of the Borrower's Subsidiaries or any such Subsidiary's assets to secure the payment and performance of Indebtedness obligations in connection with any project financing for such Subsidiary (provided that the obligee of such obligations shall have no recourse to the Borrower to satisfy such obligations, other than 36 pursuant to any such Liens on the Borrower's equity interests in its Subsidiaries), (iii) Liens created in connection with the acquisition by Subsidiaries of assets and the continuation of such Liens in connection with any refinancing of the Indebtedness secured by such Liens, provided such Liens are limited to the assets so acquired, (iv) Liens on the assets and/or rights to receive income of any Person that exist at the time such Person becomes a Subsidiary and the continuation of such Liens in connection with any refinancing or restructuring of the obligations secured by such Liens, (v) Liens created in connection with the incurrence by Subsidiaries from time to time of an amount not to exceed $375,000,000 of Indebtedness at any one time outstanding and the continuation of such Liens in connection with any refinancing of such Indebtedness, (vi) Liens on the capital stock or other equity interest evidencing an investment permitted under Section 6.14(i)(B), provided such Liens are created in connection with the financing of the business of such Person, (vii) Liens for taxes, assessments or governmental charges or levies to the extent not past due or contested in good faith by appropriate proceedings, with adequate reserves set aside for the payment thereof in accordance with GAAP, (viii) pledges or deposits to secure obligations of Subsidiaries to energy suppliers incurred in the ordinary course of business, (ix) Liens granted hereunder to the Lenders and the LC Issuer in respect of the Facility LC Collateral Account, (x) Liens, if any, arising in connection with Capitalized Leases only on the equipment or property subject to such Capitalized Lease, (xi) attachment, judgment or similar Liens arising in connection with court proceedings, provided, that with respect to any Lien against the Guarantor involving an amount of $10,000,000 or more, and against the Borrower and its Subsidiaries involving an amount of $5,000,000 or more, the execution or other enforcement of such Lien is effectively stayed and the claims secured thereby are being actively contested in good faith by appropriate proceedings or the payment of which is covered in full (subject to customary deductible amounts) by insurance maintained with responsible insurance companies and the applicable insurance company has acknowledged its liability therefor in writing, and (xii) Liens of the Borrower or an Affiliate created, directly or indirectly, in connection with the acquisition of the Replacement Property or created, directly or indirectly, in connection with the Replacement Property Contracts. SECTION 6.17. Mergers; Sale of Assets; Etc. The Borrower will not (i) merge or consolidate with or into any Person, or (ii) convey, transfer, lease or otherwise dispose of, or permit any of its Subsidiaries to convey, transfer, lease or otherwise dispose of, whether in one transaction or in a series of transactions, and whether in a sale/leaseback transaction or otherwise, any assets of the Borrower and its Subsidiaries (measured on a consolidated basis) (whether now owned or hereafter acquired), unless (A) in the case of a merger involving the Borrower, immediately after giving effect thereto, (1) no event shall occur and be continuing that constitutes an Unmatured Default or a Default, (2) the Borrower is the surviving corporation, and (3) the Borrower and its Subsidiaries shall not be liable with respect to any Indebtedness or allow their respective properties to be subject to any Lien which the Borrower or any such Subsidiary could not become liable with respect to or allow its property to become subject to under this Agreement on the date of such transaction, or (B) in the case of any disposition of assets or any sale/leaseback transaction, immediately after giving effect thereto, no event shall have occurred and be continuing that constitutes an Unmatured Default or a Default (including, without limitation, any Unmatured Default or Default that would result from a breach by the Guarantor of Section 7(i) of the Guaranty). 37 SECTION 6.18. Other Agreements. The Borrower will not enter into, or permit any of its Subsidiaries to enter into, any agreement containing any provision that would be violated or breached by the performance of its obligations hereunder or under any instrument or document delivered or to be delivered by the Borrower hereunder or in connection herewith. SECTION 6.19. Regulation U. The Borrower will not use or permit any Facility LC or any proceeds of any Advance to be used, whether directly or indirectly, for the purpose, whether immediate, incidental, or ultimate, of "buying or carrying any margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System. SECTION 6.20. Transactions with Affiliates. The Borrower will not enter into, or permit any of its Subsidiaries to enter into, any transaction with an Affiliate of the Borrower, unless (i) such transaction is on terms no less favorable to the Borrower or such Subsidiary, as the case may be, than if the transaction had been negotiated in good faith on an arm's length basis with a Person that was not an Affiliate of the Borrower or (ii) such transaction is conducted pursuant to the Affiliated Interests Agreement, dated as of December 4, 1995, among Commonwealth, the Guarantor and the other entities named therein, as it may be amended or modified from time to time; provided, the foregoing shall not apply to (x) the transactions contemplated by the Asset Sale Agreement, dated as of May 11, 1999, between Commonwealth and Unicom Investment Inc. relating to the sale of Commonwealth's fossil generation assets and the incurrence of the Unicom Investment Inc. Debt, (y) the transfer by Commonwealth to Unicom Technology Development Inc., an Illinois corporation, of up to $275,000,000 of the notes representing the Unicom Investment Inc. Debt under said Asset Sale Agreement along with an obligation in respect of an equivalent amount of Commonwealth's contingent obligation to pay post-retirement health care benefits, and (z) transactions associated with a transfer of Commonwealth's nuclear generating stations to a Subsidiary of the Guarantor. ARTICLE VII DEFAULTS The occurrence of any one or more of the following events shall constitute a Default: SECTION 7.01. The Borrower shall fail to pay any principal of any Note, or any reimbursement obligation in respect of any drawing under any Facility LC, when the same becomes due and payable; or SECTION 7.02. The Borrower shall fail to pay any interest on any Note, any fees or any other amount due under this Agreement for two Business Days after the same becomes due and payable; or SECTION 7.03. Any representation or warranty made or deemed made by the Borrower herein or in any of the other Loan Documents or by the Borrower (or any of its officers) in connection with this Agreement or any of the Loan Documents, or any representation or warranty made or deemed made by the Guarantor in the Guaranty or by the Guarantor (or any of its officers) in connection with the Guaranty, shall prove to have been incorrect in any material respect when made or deemed made; or 38 SECTION 7.04. (i) the Borrower shall fail to perform or observe any term, covenant, or agreement contained in Section 6.01(v), 6.09, 6.12, 6.13, 6.14, 6.15, 6.16, 6.17, 6.18, 6.19 or 6.20; (ii) the Guarantor shall fail to perform or observe any term, covenant or agreement contained in Section 2, 7(i), 7(j), 7(k) or 8 of the Guaranty; (iii) the Borrower shall fail to perform or observe any other term, covenant, or agreement contained in this Agreement or in any other Loan Document on its part to be performed or observed (and not constituting a Default under any of the other provisions of this Section) if such failure shall remain unremedied for 30 days after written notice thereof shall have been given to the Borrower by the Agent; or (iv) the Guarantor shall fail to perform or observe any other term, covenant, or agreement contained in the Guaranty on its part to be performed or observed (and not constituting a Default under any of the other provisions of this Section) if such failure shall remain unremedied for 30 days after written notice thereof shall have been given to the Guarantor by the Agent; or SECTION 7.05. Commonwealth shall fail to pay any principal of or premium or interest on any of its Indebtedness (other than any Nonrecourse Indebtedness) which is outstanding in a principal amount of at least $25,000,000 in the aggregate, when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Indebtedness and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Indebtedness; or any such Indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; or SECTION 7.06. The Guarantor shall fail to pay any principal of or premium or interest on any of its Indebtedness (other than any Nonrecourse Indebtedness) which is outstanding in a principal amount of at least $10,000,000 in the aggregate, when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Indebtedness and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Indebtedness; or any such Indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; or SECTION 7.07. The Borrower or any of its Subsidiaries shall fail to pay any principal of or premium or interest on any of its Indebtedness (other than Nonrecourse Indebtedness) which is outstanding in a principal amount of at least $5,000,000 in the aggregate, when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Indebtedness and shall continue after the applicable grace period, if any, specified in such 39 agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Indebtedness; or any such Indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; or SECTION 7.08. Either (i) the Guarantor, Commonwealth, the Borrower or any Significant Subsidiary shall generally fail to pay, or admit in writing its inability to pay, its debts as they become due, or shall voluntarily commence any proceeding or file any petition under any bankruptcy, insolvency, or similar law seeking dissolution, liquidation, or reorganization or the appointment of a receiver, trustee, custodian, or liquidator for itself or its property, assets, or business, or to effect a plan or other arrangement with its creditors, or shall file any answer admitting the jurisdiction of the court and the material allegations of any involuntary petition filed against it in any bankruptcy, insolvency, or similar proceeding, or shall be adjudicated bankrupt, or shall make a general assignment for the benefit of creditors, or shall consent to, or acquiesce in the appointment of, a receiver, trustee, custodian, or liquidator for itself or its property, assets, or business, or (ii) corporate action shall be taken by the Guarantor, Commonwealth, the Borrower or any Significant Subsidiary for the purpose of effectuating any of the foregoing; or SECTION 7.09. Involuntary proceedings or an involuntary petition shall be commenced or filed against the Guarantor, Commonwealth, the Borrower or any Significant Subsidiary under any bankruptcy, insolvency, or similar law or seeking the dissolution, liquidation, or reorganization of the Guarantor, Commonwealth, the Borrower or such Significant Subsidiary (as the case may be) or the appointment of a receiver, trustee, custodian, or liquidator for the Guarantor, Commonwealth, the Borrower or such Significant Subsidiary (as the case may be) or of a substantial part of the property, assets, or business of the Guarantor, Commonwealth, the Borrower or such Significant Subsidiary (as the case may be), or any writ, judgment, warrant of attachment, execution, or similar process shall be issued or levied against a substantial part of the property, assets, or business of the Guarantor, Commonwealth, the Borrower or any Significant Subsidiary, and such proceedings or petition shall not be dismissed, or such writ, judgment, warrant of attachment, execution, or similar process shall not be released, vacated, or fully bonded, within 60 days after commencement, filing, or levy, as the case may be; or SECTION 7.10. Any judgment or order for the payment of money in excess of (i) $10,000,000 shall be rendered against the Guarantor or any of its properties, or (ii) $5,000,000 shall be rendered against the Borrower or any Subsidiary of the Borrower or any of their respective properties, or (iii) $25,000,000 shall be rendered against Commonwealth or any of its properties, and, in any case either (A) enforcement proceedings shall have been commenced by any creditor upon such judgment or order, or (B) there shall be any period during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or SECTION 7.11. Any ERISA Event shall have occurred with respect to a Plan which could reasonably be expected to result in a liability of $25,000,000 or more to the Borrower, and, 30 days after notice thereof shall have been given to the Borrower by the Administrative Agent or any Lender, such ERISA Event shall still exist; or 40 SECTION 7.12. The Borrower or any of its Subsidiaries shall default in the payment when due, or in the performance or observance of, any Indebtedness described in clause (iii), (vii), or (viii) of the definition of "Indebtedness" or any obligation of, or condition agreed to by, the Borrower or such Subsidiary with respect to any purchase or lease of goods or services (subject to any applicable grace period and except as waived or to the extent that the existence of any such default is being contested in good faith by appropriate proceedings and reserves therefor are being maintained in accordance with GAAP) and such default might reasonably be expected to result in a Material Adverse Effect; or SECTION 7.13. The Guarantor shall fail to own directly 100% of the issued and outstanding shares of capital stock of the Borrower or the Guarantor shall fail to own directly at least 80% of the issued and outstanding shares of voting capital stock of Commonwealth (in either case, a "Change of Control"); provided, however, that the Unicom/PECO Merger shall not constitute a Change of Control. SECTION 7.14. Any provision of the Guaranty or any of the subordination provisions of any Indebtedness incurred by the Borrower pursuant to Section 6.13(iii) shall for any reason (except pursuant to the terms thereof) cease to be valid and binding on the Guarantor or the Guarantor shall so assert in writing; or SECTION 7.15. Any provision of any Loan Document to which the Borrower is a party shall for any reason (except pursuant to the terms thereof) cease to be valid and binding on the Borrower or the Borrower shall so assert in writing; or SECTION 7.16. At any time the LC Issuer shall have been served with or otherwise subjected to a court order, injunction, or other process or decree issued or granted at the instance of the Borrower restraining or seeking to restrain the LC Issuer from paying any amount under any Facility LC issued by it and either (i) there has been a drawing under such Facility LC which the LC Issuer would otherwise be obligated to pay or (ii) the stated expiration date or any reduction of the stated amount of such Facility LC has occurred but the right of the beneficiary to draw thereunder has been extended in connection with the pendency of the related court action or proceeding; or SECTION 7.17. The Guarantor shall receive cash dividends from its Subsidiaries in any two consecutive fiscal quarters of the Guarantor in an aggregate amount less than $120,000,000. ARTICLE VIII ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES SECTION 8.01. Acceleration; Facility LC Collateral Account. (i) If any Default described in Section 7.08 or 7.09 occurs with respect to the Borrower, the obligations of the Lenders to make Loans hereunder and the obligation and power of the LC Issuer to issue Facility LCs shall automatically terminate and the Obligations shall immediately become due and payable without any election or action on the part of the Agent, the LC Issuer or any Lender and the Borrower will be and become thereby unconditionally obligated, without any further notice, 41 act or demand, to pay to the Agent an amount in immediately available funds, which funds shall be held in the Facility LC Collateral Account, equal to the difference of (x) the amount of LC Obligations at such time, less (y) the amount on deposit in the Facility LC Collateral Account at such time which is free and clear of all rights and claims of third parties and has not been applied against the Obligations (such difference, the "Collateral Shortfall Amount"). If any other Default occurs, the Required Lenders (or the Agent with the consent of the Required Lenders) may during the continuance of such Default (a) terminate or suspend the obligations of the Lenders to make Loans hereunder and the obligation and power of the LC Issuer to issue Facility LCs, or declare the Obligations to be due and payable, or both, whereupon the Obligations shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which the Borrower hereby expressly waives, and (b) upon notice to the Borrower and in addition to the continuing right to demand payment of all amounts payable under this Agreement, make demand on the Borrower to pay, and the Borrower will, forthwith upon such demand and without any further notice or act, pay to the Agent the Collateral Shortfall Amount, which funds shall be deposited in the Facility LC Collateral Account. (ii) If at any time while any Default is continuing, the Agent determines that the Collateral Shortfall Amount at such time is greater than zero, the Agent may make demand on the Borrower to pay, and the Borrower will, forthwith upon such demand and without any further notice or act, pay to the Agent the Collateral Shortfall Amount, which funds shall be deposited in the Facility LC Collateral Account. (iii) The Agent may at any time or from time to time after funds are deposited in the Facility LC Collateral Account, apply such funds to the payment of the Obligations and any other amounts as shall from time to time have become due and payable by the Borrower to the Lenders or the LC Issuer under the Loan Documents. (iv) At any time while any Default is continuing, neither the Borrower nor any Person claiming on behalf of or through the Borrower shall have any right to withdraw any of the funds held in the Facility LC Collateral Account. After all of the Obligations have been indefeasibly paid in full and the Aggregate Commitment has been terminated, any funds remaining in the Facility LC Collateral Account shall be returned by the Agent to the Borrower or paid to whomever may be legally entitled thereto at such time. (v) If, within 30 days after acceleration of the maturity of the Obligations or termination of the obligations of the Lenders to make Loans and the obligation and power of the LC Issuer to issue Facility LCs hereunder as a result of any Default (other than any Default as described in Section 7.08 or 7.09 with respect to the Borrower) and before any judgment or decree for the payment of the Obligations due shall have been obtained or entered, the Required Lenders (in their sole discretion) shall so direct, the Agent shall, by notice to the Borrower, rescind and annul such acceleration and/or termination. 42 SECTION 8.02. Amendments. Subject to the provisions of this Article VIII, the Required Lenders (or the Agent with the consent in writing of the Required Lenders) and the Borrower may enter into agreements supplemental hereto for the purpose of adding or modifying any provisions to the Loan Documents or changing in any manner the rights of the Lenders or the Borrower hereunder or waiving any Default hereunder; provided, however, that no such supplemental agreement shall, without the consent of all of the Lenders: (i) (A) Extend the final maturity of any Loan, or (B) extend the expiry date of any Facility LC to a date after the earlier of (x) the date which is one year after the Facility Termination Date and (y) one year after the date of its issuance (or Modification), or (C) forgive all or any portion of the principal amount of any Loan or any Reimbursement Obligation related thereto, or (D) reduce the rate or extend the time of payment of interest or fees or Reimbursement Obligations. (ii) Reduce the percentage specified in the definition of Required Lenders. (iii) Extend the Facility Termination Date, or reduce the amount or extend the payment date for, the mandatory payments required under Section 2.02, or increase the amount of the Aggregate Commitment, the Commitment of any Lender hereunder or the commitment to issue Facility LCs, or permit the Borrower to assign its rights under this Agreement. (iv) Amend this Section. (v) Release the Guarantor of its obligations under the Guaranty. (vi) Amend Section 2.03 or 11.02. (vii) Release any of the collateral under the Facility LC Collateral Account. No amendment of any provision of this Agreement relating to the Agent shall be effective without the written consent of the Agent, and no amendment of any provision relating to the LC Issuer shall be effective without the written consent of the LC Issuer. The Agent may waive payment of the fee required under Section 12.03(b) without obtaining the consent of any other party to this Agreement. SECTION 8.03. Preservation of Rights. No delay or omission of the Lenders, the LC Issuer or the Agent to exercise any right under the Loan Documents shall impair such right or be construed to be a waiver of any Default or an acquiescence therein, and the making of a Credit Extension notwithstanding the existence of a Default or the inability of the Borrower to satisfy the conditions precedent to such Credit Extension shall not constitute any waiver or acquiescence. Any single or partial exercise of any such right shall not preclude other or further exercise thereof or the exercise of any other right, and no waiver, amendment or other variation of the terms, conditions or provisions of the Loan Documents whatsoever shall be valid unless in writing signed by the Lenders required pursuant to Section 8.02, and then only to the extent in such writing specifically set forth. All remedies contained in the Loan Documents or by law afforded shall be cumulative and all shall be available to the Agent, the LC Issuer and the Lenders until the Obligations have been paid in full. 43 ARTICLE IX GENERAL PROVISIONS SECTION 9.01. Survival of Representations. All representations and warranties of the Borrower contained in this Agreement shall survive the making of the Loans herein contemplated. SECTION 9.02. Governmental Regulation. Anything contained in this Agreement to the contrary notwithstanding, no Lender shall be obligated to extend credit to the Borrower in violation of any limitation or prohibition provided by any applicable statute or regulation. SECTION 9.03. Headings. Section headings in the Loan Documents are for convenience of reference only, and shall not govern the interpretation of any of the provisions of the Loan Documents. SECTION 9.04. Entire Agreement. The Loan Documents embody the entire agreement and understanding among the Borrower, the Agent and the Lenders and supersede all prior agreements and understandings among the Borrower, the Agent and the Lenders relating to the subject matter thereof other than the fee letter described in Section 10.13. SECTION 9.05. Several Obligations; Benefits of this Agreement. The respective obligations of the Lenders hereunder are several and not joint and no Lender shall be the partner or agent of any other (except to the extent to which the Agent is authorized to act as such). The failure of any Lender to perform any of its obligations hereunder shall not relieve any other Lender from any of its obligations hereunder. This Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and assigns, provided, however, that the parties hereto expressly agree that the Arranger shall enjoy the benefits of the provisions of Sections 9.06, 9.10 and 10.11 to the extent specifically set forth therein and shall have the right to enforce such provisions on its own behalf and in its own name to the same extent as if it were a party to this Agreement. SECTION 9.06. Expenses; Indemnification. (i) The Borrower shall reimburse the Agent and the Arranger for any costs, internal charges and out-of-pocket expenses (including attorneys' fees and time charges of attorneys for the Agent, which attorneys may be employees of the Agent) paid or incurred by the Agent or the Arranger in connection with the preparation, negotiation, execution, delivery, syndication, review, amendment, modification, and administration of the Loan Documents. The Borrower also agrees to reimburse the Agent, the Arranger and the Lenders for any costs, internal charges and out-of-pocket expenses (including attorneys' fees and time charges of attorneys for the Agent, the Arranger and the Lenders, which attorneys may be employees of the Agent, the Arranger or the Lenders) paid or incurred by the Agent, the Arranger or any Lender in connection with the collection, enforcement or any workout or restructuring of the Loan Documents. Expenses being reimbursed by the Borrower under this Section include, without limitation, costs and expenses incurred in connection with the Reports described in the following sentence. The Borrower acknowledges that from time to time Bank One may prepare and may distribute to the Lenders (but shall have no obligation or duty to prepare or to distribute to the Lenders) certain audit reports (the "Reports") pertaining to the 44 Borrower's assets for internal use by Bank One from information furnished to it by or on behalf of the Borrower, after Bank One has exercised its rights of inspection pursuant to this Agreement. (ii) The Borrower hereby further agrees to indemnify the Agent, the Arranger, each Lender, their respective affiliates, and each of their directors, officers and employees against all losses, claims, damages, penalties, judgments, liabilities and expenses (including, without limitation, attorneys' fees and time charges of attorneys for the Agent, the Arranger and the Lenders, which attorneys may be employees of the Agent, the Arranger or the Lenders, and all expenses of litigation or preparation therefor whether or not the Agent, the Arranger, any Lender or any affiliate is a party thereto) which any of them may pay or incur arising out of or relating to this Agreement, the other Loan Documents, the transactions contemplated hereby or the direct or indirect application or proposed application of the proceeds of any Loan hereunder except to the extent that they are determined in a final non-appealable judgment by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the party seeking indemnification. The obligations of the Borrower under this Section shall survive the termination of this Agreement. SECTION 9.07. Numbers of Documents. All statements, notices, closing documents, and requests hereunder shall be furnished to the Agent with sufficient copies so that the Agent may furnish one to each of the Lenders. SECTION 9.08. Accounting. Except as provided to the contrary herein, all accounting terms used herein shall be interpreted and all accounting determinations hereunder shall be made in accordance with GAAP. SECTION 9.09. Severability of Provisions. Any provision in any Loan Document that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of all Loan Documents are declared to be severable. SECTION 9.10. Nonliability of Lenders. The relationship between the Borrower on the one hand and the Lenders and the Agent on the other hand shall be solely that of borrower and lender. Neither the Agent, the Arranger nor any Lender shall have any fiduciary responsibilities to the Borrower. Neither the Agent, the Arranger nor any Lender undertakes any responsibility to the Borrower to review or inform the Borrower of any matter in connection with any phase of the Borrower's business or operations. The Borrower agrees that neither the Agent, the Arranger nor any Lender shall have liability to the Borrower (whether sounding in tort, contract or otherwise) for losses suffered by the Borrower in connection with, arising out of, or in any way related to, the transactions contemplated and the relationship established by the Loan Documents, or any act, omission or event occurring in connection therewith, unless it is determined in a final non-appealable judgment by a court of competent jurisdiction that such losses resulted from the gross negligence or willful misconduct of the party from which recovery is sought. Neither the Agent, the Arranger nor any Lender shall have any liability with respect to, and the Borrower hereby waives, releases and agrees not to sue for, any special, indirect or 45 consequential damages suffered by the Borrower in connection with, arising out of, or in any way related to the Loan Documents or the transactions contemplated thereby. SECTION 9.11. Confidentiality. Each Lender agrees to hold any confidential information which it may receive from the Borrower pursuant to this Agreement in confidence, except for disclosure (i) to its Affiliates and to other Lenders and their respective Affiliates, (ii) to legal counsel, accountants, and other professional advisors to such Lender or to a Transferee, (iii) to regulatory officials, (iv) to any Person as required by law, regulation, or legal process, (v) to any Person in connection with any legal proceeding to which such Lender is a party, (vi) to such Lender's direct or indirect contractual counterparties in swap agreements or to legal counsel, accountants and other professional advisors to such counterparties, and (vii) permitted by Section 12.04. SECTION 9.12. Nonreliance. Each Lender hereby represents that it is not relying on or looking to any margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System) for the repayment of the Loans provided for herein. SECTION 9.13. Disclosure. The Borrower and each Lender hereby (i) acknowledge and agree that Bank One and/or its Affiliates from time to time may hold investments in, make other loans to or have other relationships with the Borrower and its Affiliates, and (ii) waive any liability of Bank One or such Affiliate of Bank One to the Borrower or any Lender, respectively, arising out of or resulting from such investments, loans or relationships other than liabilities arising out of the gross negligence or willful misconduct of Bank One or its Affiliates. ARTICLE X THE AGENT SECTION 10.01. Appointment; Nature of Relationship. Bank One is hereby appointed by each of the Lenders as its contractual representative (herein referred to as the "Agent") hereunder and under each other Loan Document, and each of the Lenders irrevocably authorizes the Agent to act as the contractual representative of such Lender with the rights and duties expressly set forth herein and in the other Loan Documents. The Agent agrees to act as such contractual representative upon the express conditions contained in this Article X. Notwithstanding the use of the defined term "Agent," it is expressly understood and agreed that the Agent shall not have any fiduciary responsibilities to any Lender by reason of this Agreement or any other Loan Document and that the Agent is merely acting as the contractual representative of the Lenders with only those duties as are expressly set forth in this Agreement and the other Loan Documents. In its capacity as the Lenders' contractual representative, the Agent (i) does not hereby assume any fiduciary duties to any of the Lenders, (ii) is a "representative" of the Lenders within the meaning of Section 9-105 of the Uniform Commercial Code and (iii) is acting as an independent contractor, the rights and duties of which are limited to those expressly set forth in this Agreement and the other Loan Documents. Each of the Lenders hereby agrees to assert no claim against the Agent on any agency theory or any other theory of liability for breach of fiduciary duty, all of which claims each Lender hereby waives. 46 SECTION 10.02. Powers. The Agent shall have and may exercise such powers under the Loan Documents as are specifically delegated to the Agent by the terms of each thereof, together with such powers as are reasonably incidental thereto. The Agent shall have no implied duties to the Lenders, or any obligation to the Lenders to take any action thereunder except any action specifically provided by the Loan Documents to be taken by the Agent. SECTION 10.03. General Immunity. Neither the Agent nor any of its directors, officers, agents or employees shall be liable to the Borrower, the Lenders or any Lender for any action taken or omitted to be taken by it or them hereunder or under any other Loan Document or in connection herewith or therewith except to the extent such action or inaction is determined in a final non-appealable judgment by a court of competent jurisdiction to have arisen from the gross negligence or willful misconduct of such Person. SECTION 10.04. No Responsibility for Loans, Recitals, Etc. Neither the Agent nor any of its directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into, or verify (a) any statement, warranty or representation made in connection with any Loan Document or any borrowing hereunder; (b) the performance or observance of any of the covenants or agreements of any obligor under any Loan Document, including, without limitation, any agreement by an obligor to furnish information directly to each Lender; (c) the satisfaction of any condition specified in Article IV, except receipt of items required to be delivered solely to the Agent; (d) the existence or possible existence of any Default or Unmatured Default; (e) the validity, enforceability, effectiveness, sufficiency or genuineness of any Loan Document or any other instrument or writing furnished in connection therewith; (f) the value, sufficiency, creation, perfection or priority of any Lien in any collateral security; or (g) the financial condition of the Borrower or any guarantor of any of the Obligations or of any of the Borrower's or any such guarantor's respective Subsidiaries. The Agent shall have no duty to disclose to the Lenders information that is not required to be furnished by the Borrower to the Agent at such time, but is voluntarily furnished by the Borrower to the Agent (either in its capacity as Agent or in its individual capacity). SECTION 10.05. Action on Instructions of Lenders. The Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder and under any other Loan Document in accordance with written instructions signed by the Required Lenders, and such instructions and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders. The Lenders hereby acknowledge that the Agent shall be under no duty to take any discretionary action permitted to be taken by it pursuant to the provisions of this Agreement or any other Loan Document unless it shall be requested in writing to do so by the Required Lenders. The Agent shall be fully justified in failing or refusing to take any action hereunder and under any other Loan Document unless it shall first be indemnified to its satisfaction by the Lenders pro rata against any and all liability, cost and expense that it may incur by reason of taking or continuing to take any such action. SECTION 10.06. Employment of Agents and Counsel. The Agent may execute any of its duties as Agent hereunder and under any other Loan Document by or through employees, agents, and attorneys-in-fact and shall not be answerable to the Lenders, except as to money or securities received by it or its authorized agents, for the default or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. The Agent shall be entitled to advice of 47 counsel concerning the contractual arrangement between the Agent and the Lenders and all matters pertaining to the Agent's duties hereunder and under any other Loan Document. SECTION 10.07. Reliance on Documents; Counsel. The Agent shall be entitled to rely upon any Note, notice, consent, certificate, affidavit, letter, telegram, statement, paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and, in respect to legal matters, upon the opinion of counsel selected by the Agent, which counsel may be employees of the Agent. SECTION 10.08. Agent's Reimbursement and Indemnification. The Lenders agree to reimburse and indemnify the Agent ratably in proportion to their respective Commitments (or, if the Commitments have been terminated, in proportion to their Commitments immediately prior to such termination) (i) for any amounts not reimbursed by the Borrower for which the Agent is entitled to reimbursement by the Borrower under the Loan Documents, (ii) for any other expenses incurred by the Agent on behalf of the Lenders, in connection with the preparation, execution, delivery, administration and enforcement of the Loan Documents (including, without limitation, for any expenses incurred by the Agent in connection with any dispute between the Agent and any Lender or between two or more of the Lenders) and (iii) for any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of the Loan Documents or any other document delivered in connection therewith or the transactions contemplated thereby (including, without limitation, for any such amounts incurred by or asserted against the Agent in connection with any dispute between the Agent and any Lender or between two or more of the Lenders), or the enforcement of any of the terms of the Loan Documents or of any such other documents, provided that (i) no Lender shall be liable for any of the foregoing to the extent any of the foregoing is found in a final non-appealable judgment by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the Agent and (ii) any indemnification required pursuant to Section 3.05(vii) shall, notwithstanding the provisions of this Section, be paid by the relevant Lender in accordance with the provisions thereof. The obligations of the Lenders under this Section shall survive payment of the Obligations and termination of this Agreement. SECTION 10.09. Notice of Default. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Unmatured Default hereunder unless the Agent has received written notice from a Lender or the Borrower referring to this Agreement describing such Default or Unmatured Default and stating that such notice is a "notice of default". In the event that the Agent receives such a notice, the Agent shall give prompt notice thereof to the Lenders. SECTION 10.10. Rights as a Lender. In the event the Agent is a Lender, the Agent shall have the same rights and powers hereunder and under any other Loan Document with respect to its Commitment and its Loans as any Lender and may exercise the same as though it were not the Agent, and the term "Lender" or "Lenders" shall, at any time when the Agent is a Lender, unless the context otherwise indicates, include the Agent in its individual capacity. The Agent and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of trust, debt, equity or other transaction, in addition to those contemplated by this 48 Agreement or any other Loan Document, with the Borrower or any of its Subsidiaries in which the Borrower or such Subsidiary is not restricted hereby from engaging with any other Person. The Agent, in its individual capacity, is not obligated to remain a Lender. SECTION 10.11. Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Agent, the Arranger or any other Lender and based on the financial statements prepared by the Borrower and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Loan Documents. Each Lender also acknowledges that it will, independently and without reliance upon the Agent, the Arranger or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents. SECTION 10.12. Successor Agent. The Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower, such resignation to be effective upon the appointment of a successor Agent or, if no successor Agent has been appointed, forty-five days after the retiring Agent gives notice of its intention to resign. The Agent may be removed at any time with or without cause by written notice received by the Agent from the Required Lenders, such removal to be effective on the date specified by the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint, on behalf of the Borrower and the Lenders, a successor Agent. If no successor Agent shall have been so appointed by the Required Lenders within thirty days after the resigning Agent's giving notice of its intention to resign, then the resigning Agent may appoint, on behalf of the Borrower and the Lenders, a successor Agent. Notwithstanding the previous sentence, the Agent may at any time without the consent of the Borrower or any Lender, appoint any of its Affiliates which is a commercial bank as a successor Agent hereunder. If the Agent has resigned or been removed and no successor Agent has been appointed, the Lenders may perform all the duties of the Agent hereunder and the Borrower shall make all payments in respect of the Obligations to the applicable Lender and for all other purposes shall deal directly with the Lenders. No successor Agent shall be deemed to be appointed hereunder until such successor Agent has accepted the appointment. Any such successor Agent shall be a commercial bank having capital and retained earnings of at least $100,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the resigning or removed Agent. Upon the effectiveness of the resignation or removal of the Agent, the resigning or removed Agent shall be discharged from its duties and obligations hereunder and under the Loan Documents. After the effectiveness of the resignation or removal of an Agent, the provisions of this Article X shall continue in effect for the benefit of such Agent in respect of any actions taken or omitted to be taken by it while it was acting as the Agent hereunder and under the other Loan Documents. In the event that there is a successor to the Agent by merger, or the Agent assigns its duties and obligations to an Affiliate pursuant to this Section, then the term "Corporate Base Rate" as used in this Agreement shall mean the prime rate, base rate or other analogous rate of the new Agent. SECTION 10.13. Agent's Fee. The Borrower agrees to pay to the Agent, for its own account, the fees agreed to by the Borrower and the Agent pursuant to that certain letter agreement dated November 12, 1999, or as otherwise agreed from time to time. 49 SECTION 10.14. Delegation to Affiliates. The Borrower and the Lenders agree that the Agent may delegate any of its duties under this Agreement to any of its Affiliates. Any such Affiliate (and such Affiliate's directors, officers, agents and employees) which performs duties in connection with this Agreement shall be entitled to the same benefits of the indemnification, waiver and other protective provisions to which the Agent is entitled under Articles IX and X. SECTION 10.15. Documentation Agent, Syndication Agent, Etc. Neither of the Lenders identified in this Agreement as Documentation Agent or the Syndication Agent shall have any right, power, obligation, liability, responsibility or duty under this Agreement other than those applicable to all Lenders as such. Without limiting the foregoing, none of such Lenders shall have or be deemed to have a fiduciary relationship with any Lender. Each Lender hereby makes the same acknowledgments with respect to such Lenders as it makes with respect to the Agent in Section 10.11. ARTICLE XI SETOFF; RATABLE PAYMENTS SECTION 11.01. Setoff. In addition to, and without limitation of, any rights of the Lenders under applicable law, if the Borrower becomes insolvent, however evidenced, or any Default occurs, any and all deposits (including all account balances, whether provisional or final and whether or not collected or available) and any other Indebtedness at any time held or owing by any Lender or any Affiliate of any Lender to or for the credit or account of the Borrower may be offset and applied toward the payment of the Obligations owing to such Lender, whether or not the Obligations, or any part thereof, shall then be due. SECTION 11.02. Ratable Payments. If any Lender, whether by setoff or otherwise, has payment made to it of the Obligations (other than payments received pursuant to Section 3.01, 3.02, 3.04 or 3.05) in a greater proportion than that received by any other Lender, such Lender agrees, promptly upon demand, to purchase a portion of the Obligations held by the other Lenders so that after such purchase each Lender will hold its ratable proportion of the Obligations. If any Lender, whether in connection with setoff or amounts which might be subject to setoff or otherwise, receives collateral or other protection for the Obligations or such amounts which may be subject to setoff, such Lender agrees, promptly upon demand, to take such action necessary such that all Lenders share in the benefits of such collateral ratably in proportion to the Obligations. In case any such payment is disturbed by legal process, or otherwise, appropriate further adjustments shall be made. If an amount to be setoff is to be applied to Indebtedness of the Borrower to a Lender other than Indebtedness comprised of Loans made by such Lender, such amount shall be applied ratably to such other Indebtedness and to the Indebtedness comprised of the Obligations. ARTICLE XII BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS SECTION 12.01. Successors and Assigns. The terms and provisions of the Loan Documents shall be binding upon and inure to the benefit of the Borrower and the Lenders and 50 their respective successors and assigns, except that (i) the Borrower shall not have the right to assign its rights or obligations under the Loan Documents and (ii) any assignment by any Lender must be made in compliance with Section 12.03. The parties to this Agreement acknowledge that clause (ii) of this Section relates only to absolute assignments and does not prohibit assignments creating security interests, including, without limitation, any pledge or assignment by any Lender of all or any portion of its rights under this Agreement and any Note to a Federal Reserve Bank; provided, however, that no such pledge or assignment creating a security interest shall release the transferor Lender from its obligations hereunder unless and until the parties thereto have complied with the provisions of Section 12.03. The Agent may treat the Person which made any Loan or which holds any Note as the owner thereof for all purposes hereof unless and until such Person complies with Section 12.03; provided, however, that the Agent may in its discretion (but shall not be required to) follow instructions from the Person which made any Loan or which holds any Note to direct payments relating to such Loan or Note to another Person. Any assignee of the rights to any Loan or any Note agrees by acceptance of such assignment to be bound by all the terms and provisions of the Loan Documents. Any request, authority or consent of any Person, who at the time of making such request or giving such authority or consent is the owner of the rights to any Loan (whether or not a Note has been issued in evidence thereof), shall be conclusive and binding on any subsequent holder or assignee of the rights to such Loan. SECTION 12.02. Participations. (a) Permitted Participants; Effect. Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time sell to one or more banks or other entities ("Participants") participating interests in any Loan owing to such Lender, any Note held by such Lender, any Commitment of such Lender or any other interest of such Lender under the Loan Documents. In the event of any such sale by a Lender of participating interests to a Participant, such Lender's obligations under the Loan Documents shall remain unchanged, such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, such Lender shall remain the owner of its Loans and the holder of any Note issued to it in evidence thereof for all purposes under the Loan Documents, all amounts payable by the Borrower under this Agreement shall be determined as if such Lender had not sold such participating interests, and the Borrower and the Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under the Loan Documents. (b) Voting Rights Each Lender shall retain the sole right to approve, without the consent of any Participant, any amendment, modification or waiver of any provision of the Loan Documents other than any amendment, modification or waiver with respect to any Loan or Commitment in which such Participant has an interest which forgives principal, interest or fees or reduces the interest rate or fees payable with respect to any such Loan, Reimbursement Obligation or Commitment, extends the Facility Termination Date, postpones any date fixed for any regularly-scheduled payment of principal of, or interest or fees on, any such Loan, Reimbursement Obligation or Commitment, releases any guarantor of any such Credit Extension or releases any collateral held in the Facility LC Collateral Account (except in accordance with the terms hereof) or all or substantially all of the collateral, if any, securing any such Credit Extension. 51 (c) Benefit of Setoff and Certain Other Rights. The Borrower agrees that each Participant shall be deemed to have the right of setoff provided in Section 11.01 and the other rights of the Lenders under Sections 3.01, 3.02, 3.04 and 3.05 in respect of its participating interest in amounts owing under the Loan Documents to the same extent as if the amount of its participating interest were owing directly to it as a Lender under the Loan Documents, provided that each Lender shall retain the right of setoff provided in Section 11.01 with respect to the amount of participating interests sold to each Participant. The Lenders agree to share with each Participant, and each Participant, by exercising the right of setoff provided in Section 11.01, agrees to share with each Lender, any amount received pursuant to the exercise of its right of setoff, such amounts to be shared in accordance with Section 11.02 as if each Participant were a Lender. SECTION 12.03. Assignments. (a) Permitted Assignments. Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time assign to one or more banks or other entities ("Purchasers") all or any part of its rights and obligations under the Loan Documents. Such assignment shall be substantially in the form of Exhibit C or in such other form as may be agreed to by the parties thereto. The consent of the Borrower and the Agent shall be required prior to an assignment becoming effective with respect to a Purchaser which is not a Lender or an Affiliate thereof; provided, however, that if a Default has occurred and is continuing, the consent of the Borrower shall not be required. Such consent shall not be unreasonably withheld or delayed. Each such assignment with respect to a Purchaser which is not a Lender or an Affiliate thereof shall (unless each of the Borrower and the Agent otherwise consents) be in an amount not less than the lesser of (i) $10,000,000 or (ii) the remaining amount of the assigning Lender's Commitment (calculated as at the date of such assignment) or outstanding Loans (if the applicable Commitment has been terminated). After giving effect to any partial assignment, the Commitment of each of the assignor and assignee shall be at least $10,000,000 (unless each of the Borrower and the Agent otherwise consents). (b) Effect; Effective Date. Upon (i) delivery to the Agent of an assignment, together with any consents required by Section 12.03(a), and (ii) payment of a $4,000 fee to the Agent for processing such assignment (unless such fee is waived by the Agent), such assignment shall become effective on the effective date specified in such assignment. The assignment shall contain a representation by the Purchaser to the effect that none of the consideration used to make the purchase of the Commitment and Loans under the applicable assignment agreement constitutes "plan assets" as defined under ERISA and that the rights and interests of the Purchaser in and under the Loan Documents will not be "plan assets" under ERISA. On and after the effective date of such assignment, such Purchaser shall for all purposes be a Lender party to this Agreement and any other Loan Document executed by or on behalf of the Lenders and shall have all the rights and obligations of a Lender under the Loan Documents, to the same extent as if it were an original party hereto, provided, however, such Purchaser shall not be entitled to make an immediate demand under Article III, and no further consent or action by the Borrower, the Lenders or the Agent shall be required to release the transferor Lender with respect to the percentage of the Aggregate Commitment and Loans assigned to such Purchaser. Upon the consummation of any assignment to a Purchaser pursuant to this Section, the transferor 52 Lender, the Agent and the Borrower shall, if the transferor Lender or the Purchaser desires that its Loans be evidenced by Notes, make appropriate arrangements so that new Notes or, as appropriate, replacement Notes are issued to such transferor Lender and new Notes or, as appropriate, replacement Notes, are issued to such Purchaser, in each case in principal amounts reflecting their respective Commitments, as adjusted pursuant to such assignment. SECTION 12.04. Dissemination of Information. The Borrower authorizes each Lender to disclose to any Participant or Purchaser or any other Person acquiring an interest in the Loan Documents by operation of law (each a "Transferee") and any prospective Transferee any and all information in such Lender's possession concerning the creditworthiness of the Borrower and its Subsidiaries, including without limitation any information contained in any Reports; provided that each Transferee and prospective Transferee agrees to be bound by Section 9.11 of this Agreement. SECTION 12.05. Tax Treatment. If any interest in any Loan Document is transferred to any Transferee which is organized under the laws of any jurisdiction other than the United States or any State thereof, the transferor Lender shall cause such Transferee, concurrently with the effectiveness of such transfer, to comply with the provisions of Section 3.05(iv). ARTICLE XIII NOTICES SECTION 13.01. Notices. Except as otherwise permitted by Section 2.14 with respect to borrowing notices, all notices, requests and other communications to any party hereunder shall be in writing (including electronic transmission, facsimile transmission or similar writing) and shall be given to such party: (x) in the case of the Borrower or the Agent, at its address or facsimile number set forth on the signature pages hereto, (y) in the case of any Lender, at its address or facsimile number set forth below its signature hereto or (z) in the case of any party, at such other address or facsimile number as such party may hereafter specify for the purpose by notice to the Agent and the Borrower in accordance with the provisions of this Section. Each such notice, request or other communication shall be effective (i) if given by facsimile transmission, when transmitted to the facsimile number specified in this Section and confirmation of receipt is received, (ii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid, or (iii) if given by any other means, when delivered (or, in the case of electronic transmission, received) at the address specified in this Section; provided that notices to the Agent under Article II shall not be effective until received. SECTION 13.02. Change of Address. The Borrower, the Agent and any Lender may each change the address for service of notice upon it by a notice in writing to the other parties hereto. 53 ARTICLE XIV COUNTERPARTS This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Agreement by signing any such counterpart. This Agreement shall be effective when it has been executed by the Borrower, the Agent and the Lenders and each party has notified the Agent by facsimile transmission or telephone that it has taken such action. ARTICLE XV CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL SECTION 15.01. CHOICE OF LAW. THE LOAN DOCUMENTS SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SECTION 15.02. CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN NEW YORK CITY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN NEW YORK CITY. SECTION 15.03. WAIVER OF JURY TRIAL. THE BORROWER, THE AGENT AND EACH LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER. 54 UNICOM ENTERPRISES INC. By /s/ Patricia L. Kampling ------------------------- Patricia L. Kampling Treasurer BANK ONE, NA (Main Branch - Chicago) By /s/ Robert Bussa ------------------------- Robert Bussa 1/st/ Vice President 2 ABN AMRO BANK N.V. By /s/ Philip J. Leigh ------------------------- Philip J. Leigh Vice President By /s/ Robert E. Lee IV ------------------------- Robert E. Lee IV Assistant Vice President 3 BANK OF AMERICA, N.A. By /s/ Gretchen P. Burud ------------------------- Gretchen P. Burud Principal 4 BANK OF MONTREAL By /s/ Kresten M. Bjornsson ------------------------- Kresten M. Bjornsson Director 5 THE BANK OF NEW YORK By /s/ Nathan S. Howard ------------------------- Nathan S. Howard Vice President 6 BARCLAYS BANK PLC By /s/ Sydney G. Dennis ------------------------- Sydney G. Dennis Director 7 BAYERISCHE LANDESBANK GIROZENTRALE, CAYMAN ISLANDS BRANCH By /s/ Hereward Drummond By /s/ Sean O'Sullivan ------------------------- ------------------------- Hereward Drummond Sean O'Sullivan Senior Vice President Vice President 8 THE CHASE MANHATTAN BANK By /s/ Paul V. Farrell ------------------------- Paul V. Farrell Vice President 9 CIBC INC. By /s/ Denis P. O'Meara ------------------------- Denis P. O'Meara Executive Director 10 CITIBANK, N.A. By /s/ J. Nicholas McKee ------------------------- J. Nicholas McKee Vice President 11 CREDIT LYONNAIS, CHICAGO BRANCH By /s/ Lee E. Greve ------------------------- Lee E. Greve First Vice President 12 THE DAI-ICHI KANGYO BANK, LTD. By /s/ Nobuyasu Fukatsu ------------------------- Nobuyasu Fukatsu General Manager 13 THE FUJI BANK, LIMITED By /s/ Peter L. Chinnici ------------------------- Peter L. Chinnici Senior Vice President & Group Head 14 THE INDUSTRIAL BANK OF JAPAN, LTD. By /s/ Walter R. Wolff ------------------------- Walter R. Wolff Joint General Manager 15 MELLON BANK, N.A. By /s/ Richard A. Matthews ------------------------- Richard A. Matthews Vice President 16 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By /s/ Robert Bottamedi ------------------------- Robert Bottamedi Vice President 17 NATIONAL CITY BANK OF MICHIGAN/ILLINOIS By /s/ Mark R. Long ------------------------- Mark R. Long Vice President 18 THE NORTHERN TRUST COMPANY By /s/ Joseph A. Wemhoff ------------------------- Joseph A. Wemhoff Vice President 19 THE SAKURA BANK, LIMITED By /s/ Yoshikazu Nagura ------------------------- Yoshikazu Nagura Senior Vice President 20 UNION BANK OF CALIFORNIA, N.A. By /s/ Jason P. DiNapoli ------------------------- Jason P. DiNapoli Vice President 21 PRICING SCHEDULE
APPLICABLE LEVEL I LEVEL II LEVEL III LEVEL IV MARGIN STATUS STATUS STATUS STATUS - ----------------------------------------------------------------------------------------------------------- Eurodollar Rate 0.875% 1.000% 1.125% 2.000% - ----------------------------------------------------------------------------------------------------------- Floating Rate 0.000% 0.000% 0.000% 0.500% - ----------------------------------------------------------------------------------------------------------- Utilized Eurodollar Rate 1.000% 1.125% 1.375% 2.500% - ----------------------------------------------------------------------------------------------------------- Utilized Floating Rate 0.125% 0.125% 0.250% 1.000% ===========================================================================================================
APPLICABLE LEVEL I LEVEL II LEVEL III LEVEL IV FEE RATE STATUS STATUS STATUS STATUS - ----------------------------------------------------------------------------------------------------------- LC Fee 0.875% 1.000% 1.125% 2.000% - ----------------------------------------------------------------------------------------------------------- Commitment Fee 0.150% 0.175% 0.225% 0.375% ===========================================================================================================
For the purposes of this Schedule, the following terms have the following meanings, subject to the final paragraph of this Schedule: "Level I Status" exists at any date if, on such date, the Guarantor's Moody's Rating is Baa1 or better and the Guarantor's S&P Rating is BBB+ or better. "Level II Status" exists at any date if, on such date, (i) the Guarantor has not qualified for Level I Status and (ii) the Guarantor's Moody's Rating is Baa2 or better and the Guarantor's S&P Rating is BBB or better. "Level III Status" exists at any date if, on such date, (i) the Guarantor has not qualified for Level I Status or Level II Status and (ii) the Guarantor's Moody's Rating is Baa3 or better and the Guarantor's S&P Rating is BBB- or better. "Level IV Status" exists at any date if, on such date, the Guarantor has not qualified for Level I Status, Level II Status or Level III Status. "Moody's Rating" means, at any time, the rating issued by Moody's and then in effect with respect to the Guarantor's senior unsecured long-term debt securities without third-party credit enhancement. "S&P Rating" means, at any time, the rating issued by S&P and then in effect with respect to the Guarantor's senior unsecured long-term debt securities without third-party credit enhancement. "Status" means either Level I Status, Level II Status, Level III Status or Level IV Status. The Applicable Margin and Applicable Fee Rate shall be determined in accordance with the foregoing table based on the Guarantor's Status as determined from its then-current Moody's and S&P Ratings. The credit rating in effect on any date for the purposes of this Schedule is that in effect at the close of business on such date. If at any time the Guarantor has no Moody's Rating or no S&P Rating, Level IV Status shall exist. If the Guarantor is split-rated and the ratings differential is one level, the rating with the greater margin will apply. If the Guarantor is split-rated and the ratings differential is two levels or more, the intermediate rating at the midpoint will apply. If there is no midpoint, the intermediate rating with the greater margin will apply. 2 EXHIBIT B COMPLIANCE CERTIFICATE To: The Lenders parties to the Credit Agreement Described Below This Compliance Certificate is furnished pursuant to that certain Credit Agreement, dated as of December 17, 1999 (as amended, modified, renewed or extended from time to time, the "Agreement") among Unicom Enterprises Inc. (the "Borrower"), the lenders party thereto and Bank One, NA, as Agent for the Lenders. Unless otherwise defined herein, capitalized terms used in this Compliance Certificate have the meanings ascribed thereto in the Agreement. THE UNDERSIGNED HEREBY CERTIFIES THAT: 1. I am the duly elected __________________ of the Borrower; 2. I have reviewed the terms of the Agreement and I have made, or have caused to be made under my supervision, a detailed review of the transactions and conditions of the Guarantor, the Borrower and its Subsidiaries during the accounting period covered by the attached financial statements; 3. The examinations described in paragraph 2 did not disclose, and I have no knowledge of, the existence of any condition or event which constitutes a Default or Unmatured Default during or at the end of the accounting period covered by the attached financial statements or as of the date of this Certificate, except as set forth below, 4. Schedule I attached hereto sets forth financial data and computations evidencing the Borrower's compliance with certain covenants of the Agreement, all of which data and computations are true, complete and correct; and 5. Schedule II attached hereto sets forth financial data and computations evidencing the Guarantor's compliance with certain covenants of the Guaranty, all of which data and computation are true and correct. Described below are the exceptions, if any, to paragraph 3 by listing, in detail, the nature of the condition or event, the period during which it has existed and the action which the Borrower has taken, is taking, or proposes to take with respect to each such condition or event: i ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ The foregoing certifications, together with the computations set forth in Schedule I and Schedule II hereto and the financial statements delivered with this Certificate in support hereof, are made and delivered this ___ day of _________, ____. ______________________________ ii SCHEDULE I TO COMPLIANCE CERTIFICATE Compliance as of _________, ____ with Provisions of and of the Agreement 1 SCHEDULE II TO COMPLIANCE CERTIFICATE Compliance as of _________, ____ with Provisions of and of the Guaranty 1 EXHIBIT C ASSIGNMENT AGREEMENT This Assignment Agreement (this "Assignment Agreement") between _____________________ (the "Assignor") and ________________________ (the "Assignee") is dated as of ________________, 19__/20__. The parties hereto agree as follows: 1. Preliminary Statement. The Assignor is a party to a Credit Agreement (which, as it may be amended, modified, renewed or extended from time to time is herein called the "Credit Agreement") described in Item 1 of Schedule 1 attached hereto ("Schedule 1"). Capitalized terms used herein and not otherwise defined herein shall have the meanings attributed to them in the Credit Agreement. 2. Assignment And Assumption. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, an interest in and to the Assignor's rights and obligations under the Credit Agreement and the other Loan Documents, such that after giving effect to such assignment the Assignee shall have purchased pursuant to this Assignment Agreement the percentage interest specified in Item 3 of Schedule 1 of all outstanding rights and obligations under the Credit Agreement. The aggregate Commitment (or Loans, if the applicable Commitment has been terminated) purchased by the Assignee hereunder is set forth in Item 4 of Schedule 1. 3. Effective Date. The effective date of this Assignment Agreement (the "Effective Date") shall be the later of the date specified in Item 5 of Schedule 1 or two Business Days (or such shorter period agreed to by the Agent) after this Assignment Agreement, together with any consents required under the Credit Agreement, are delivered to the Agent. In no event will the Effective Date occur if the payments required to be made by the Assignee to the Assignor on the Effective Date are not made on the proposed Effective Date. 4. Payment Obligations. In consideration for the sale and assignment of Advances hereunder, the Assignee shall pay the Assignor, on the Effective Date, the amount agreed to by the Assignor and the Assignee. On and after the Effective Date, the Assignee shall be entitled to receive from the Agent all payments of principal, interest and fees with respect to the interest assigned hereby. The Assignee will promptly remit to the Assignor any interest on Advances and fees received from the Agent which relate to the portion of the Commitment or Advances assigned to the Assignee hereunder for periods prior to the Effective Date and not previously paid by the Assignee to the Assignor. In the event that either party hereto receives any payment to which the other party hereto is entitled under this Assignment Agreement, then the party receiving such amount shall promptly remit it to the other party hereto. 5. Recordation Fee. The Assignor and Assignee each agree to pay one-half of the recordation fee required to be paid to the Agent in connection with this Assignment Agreement unless otherwise specified in Item 6 of Schedule 1. 6. Representations Of The Assignor; Limitations On The Assignor's Liability. The Assignor represents and warrants that (i) it is the legal and beneficial owner of the interest being assigned by it hereunder, (ii) such interest is free and clear of any adverse claim created by the Assignor and (iii) the execution and delivery of this Assignment Agreement by the Assignor is duly authorized. It is understood and agreed that the assignment and assumption hereunder are made without recourse to the Assignor and that the Assignor makes no other representation or warranty of any kind to the Assignee. Neither the Assignor nor any of its officers, directors, employees, agents or attorneys shall be responsible for (i) the due execution, legality, validity, enforceability, genuineness, sufficiency or collectability of any Loan Document, including without limitation, documents granting the Assignor and the other Lenders a security interest in assets of the Borrower or the Guarantor, (ii) any representation, warranty or statement made in or in connection with any of the Loan Documents, (iii) the financial condition or creditworthiness of the Borrower or the Guarantor, (iv) the performance of or compliance with any of the terms or provisions of any of the Loan Documents, (v) inspecting any of the property, books or records of the Borrower, (vi) the validity, enforceability, perfection, priority, condition, value or sufficiency of any collateral securing or purporting to secure the Loans or (vii) any mistake, error of judgment, or action taken or omitted to be taken in connection with the Loans or the Loan Documents. 7. Representations And Undertakings Of The Assignee. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements requested by the Assignee and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment Agreement, (ii) agrees that it will, independently and without reliance upon the Agent, the Assignor or any other Lender and based on such documents and information at it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, (iii) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Loan Documents as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto, (iv) confirms that the execution and delivery of this Assignment Agreement by the Assignee is duly authorized, (v) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender, (vi) agrees that its payment instructions and notice instructions are as set forth in the attachment to Schedule 1, (vii) confirms that none of the funds, monies, assets or other consideration being used to make the purchase and assumption hereunder are "plan assets" as defined under ERISA and that its rights, benefits and interests in and under the Loan Documents will not be "plan assets" under ERISA, (viii) agrees to indemnify and hold the Assignor harmless against all losses, costs and expenses (including, without limitation, reasonable attorneys' fees) and liabilities incurred by the Assignor in connection with or arising in any manner from the Assignee's non- performance of the obligations assumed under this Assignment Agreement, and (ix) if applicable, attaches the forms prescribed by the Internal Revenue Service of the United States certifying that the Assignee is entitled to receive payments under the Loan Documents without deduction or withholding of any United States federal income taxes. 8. Governing Law. This Assignment Agreement shall be governed by the internal law, and not the law of conflicts, of the State of New York. 9. Notices. Notices shall be given under this Assignment Agreement in the manner set forth in the Credit Agreement. For the purpose hereof, the addresses of the parties hereto (until notice of a change is delivered) shall be the address set forth in the attachment to Schedule 1. 10. Counterparts; Delivery By Facsimile. This Assignment Agreement may be executed in counterparts. Transmission by facsimile of an executed counterpart of this Assignment Agreement shall be deemed to constitute due and sufficient delivery of such counterpart and such facsimile shall be deemed to be an original counterpart of this Assignment Agreement. IN WITNESS WHEREOF, the duly authorized officers of the parties hereto have executed this Assignment Agreement by executing Schedule 1 hereto as of the date first above written. SCHEDULE 1 to Assignment Agreement 1. Credit Agreement, dated as of December 17, 1999, among Unicom Enterprises Inc., the Lenders party thereto, Bank One, NA, as Agent and Banc One Capital Markets, Inc., as Lead Arranger and Sole Book Runner (the "Credit Agreement"): 2. Date of Assignment Agreement: , 19__/20__ 3. Assignee's percentage of the Facility purchased under the Assignment Agreement* ____% 4. Assignee's Commitment (or Loans with respect to terminated Commitments) purchased hereunder: $___________________ 5. Proposed Effective Date: ____________________ 6. Non-standard Recordation Fee Arrangement N/A** [Assignor/Assignee to pay 100% of fee] [Fee waived by Agent] Accepted and Agreed: [NAME OF ASSIGNOR] [NAME OF ASSIGNEE] By:__________________________________ By:__________________________________ Title: ______________________________ Title: ______________________________ ACCEPTED AND CONSENTED TO BY ACCEPTED AND CONSENTED TO BY UNICOM ENTERPRISES INC. BANK ONE, N.A. By:__________________________________ By:__________________________________ Title: ______________________________ Title: ______________________________ * Percentage taken to 10 decimal places ** If fee is split 50-50, pick N/A as option Attachment to SCHEDULE 1 to ASSIGNMENT AGREEMENT ADMINISTRATIVE INFORMATION SHEET -------------------------------- Attach Assignor's Administrative Information Sheet, which must include notice addresses for the Assignor and the Assignee (Sample form shown below) ASSIGNOR INFORMATION -------------------- Contact: - ------- Name: _____________________________ Telephone No.: _________________________ Fax No: ___________________________ Telex No.: _____________________________ Answerback: ____________________________ Payment Information: - ------------------- Name & ABA # of Destination Bank:______________________________________________ ______________________________________________ Account Name & Number for Wire Transfer:_______________________________________ _______________________________________ Other Instructions:____________________________________________________________ _______________________________________________________________________________ Address for Notices for Assignor:______________________________________________ - -------------------------------- ______________________________________________ ______________________________________________ ASSIGNEE INFORMATION -------------------- Credit Contact: - -------------- Name: ______________________________ Telephone No.: _________________________ Fax No: ____________________________ Telex No.: _____________________________ Answerback: ____________________________ Key Operations Contacts: - ----------------------- Booking Installation: _______________ Booking Installation: __________________ Name: _______________________________ Name: __________________________________ Telephone No.: ______________________ Telephone No.: _________________________ Fax No: _____________________________ Fax No: ________________________________ Telex No.:____________________________ Telex No.:_______________________________ Answerback: _________________________ Answerback: ____________________________ Payment Information: - ------------------- Name & ABA # of Destination Bank:_______________________________________________ _______________________________________________ Account Name & Number for Wire Transfer:________________________________________ ________________________________________ Other Instructions:_____________________________________________________________ ________________________________________________________________________________ Address for Notices for Assignee:_______________________________________________ _______________________________________________ _______________________________________________ ii BANK ONE INFORMATION -------------------- Assignee will be called promptly upon receipt of the signed agreement. Initial Funding Contact: Subsequent Operations Contact: - ----------------------- ----------------------------- Name:__________________________ Name:___________________________ Telephone No.: (312)__________ Telephone No.: (312)___________ Fax No.: (312)________________ Fax No.: (312)_________________ Bank One Telex No.: 190201 (Answerback: FNBC UT) Initial Funding Standards: - ------------------------- LIBOR - Fund 2 days after rates are set. Bank One Wire Instructions: Bank One, NA, ABA # 071000013 - -------------------------- LS2 Incoming Account # 481152860000 Ref:________________ Address for Notices for Bank One: 1 Bank One Plaza, Chicago, IL 60670 - -------------------------------- Attn: Agency Compliance Division, Suite IL1-0353 Fax No. (312) 732-2038 or (312) 732-4339 iii EXHIBIT D LOAN/CREDIT RELATED MONEY TRANSFER INSTRUCTION To Bank One, NA, as Agent (the "Agent") under the Credit Agreement Described Below. Re: Credit Agreement, dated as of December 17, 1999 (as the same may be amended or modified, the "Credit Agreement"), among Unicom Enterprises Inc. (the "Borrower"), the Lenders named therein and the Agent. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned thereto in the Credit Agreement. The Agent is specifically authorized and directed to act upon the following standing money transfer instructions with respect to the proceeds of Advances or other extensions of credit from time to time until receipt by the Agent of a specific written revocation of such instructions by the Borrower, provided, however, that the Agent may otherwise transfer funds as hereafter directed in writing by the Borrower in accordance with Section 13.01 of the Credit Agreement or based on any telephonic notice made in accordance with Section 2.14 of the Credit Agreement. Facility Identification Number(s)_______________________________________________ Customer/Account Name___________________________________________________________ Transfer Funds To_______________________________________________________________ _______________________________________________________________ For Account No._________________________________________________________________ Authorized Officer (Customer Representative) Date____________________________ - -------------------------------------------------------------------------------- ____________________________________ _____________________________________ (Please Print) Signature - -------------------------------------------------------------------------------- Bank Officer Name___________________ Date_________________________________ - -------------------------------------------------------------------------------- ____________________________________ _____________________________________ (Please Print) Signature - -------------------------------------------------------------------------------- (Deliver Completed Form to Credit Support Staff For Immediate Processing) EXHIBIT E NOTE December 17, 1999 UNICOM ENTERPRISES INC., an Illinois corporation (the "Borrower"), promises to pay to the order of ____________________________________ (the "Lender") its portion of the Aggregate Outstanding Amount pursuant to Article II of the Agreement (as hereinafter defined), in immediately available funds at the main office of Bank One, NA in Chicago, Illinois, as Agent, together with interest on the unpaid principal amount hereof at the rates and on the dates set forth in the Agreement. The Borrower shall pay the principal of and accrued and unpaid interest on the Lender's portion of the Aggregate Outstanding Amount, except with respect to Facility LCs referred to in the last sentence of Section 2.19(b), on the Facility Termination Date. The Lender shall, and is hereby authorized to, record on the schedule attached hereto, or to otherwise record in accordance with its usual practice, the date and amount of each Loan and the date and amount of each principal payment hereunder. This Note is one of the Notes issued pursuant to, and is entitled to the benefits of, the Credit Agreement dated as of December 17, 1999 (which, as it may be amended or modified and in effect from time to time, is herein called the "Agreement"), among the Borrower, the Lenders named therein, and Bank One, NA, as Agent, to which Agreement reference is hereby made for a statement of the terms and conditions governing this Note, including the terms and conditions under which this Note may be prepaid or its maturity date accelerated. This Note is guaranteed pursuant to the Guaranty, all as more specifically described in the Agreement, and reference is made thereto for a statement of the terms and provisions thereof. Capitalized terms used herein and not otherwise defined herein are used with the meanings attributed to them in the Agreement. THIS NOTE SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. UNICOM ENTERPRISES INC. By --------------------------------- Name: Title: SCHEDULE OF LOANS AND PAYMENTS OF PRINCIPAL TO NOTE OF _________________________, DATED DECEMBER 17, 1999,
Principal Maturity Principal Amount of of Interest Amount Unpaid Date Loan Period Paid Balance - ---- --------- ----------- --------- -------
EX-4.25 5 GURANTY DATED 12/17/99 Exhibit (4)-25 Unicom Corporation Form 10-K File No. 1-11375 GUARANTY GUARANTY, dated as of December 17, 1999, made by UNICOM CORPORATION, a corporation organized and existing under the laws of the State of Illinois (the "Guarantor"), in favor of the Lenders (the "Lenders"), the LC Issuer identified hereunder and Bank One, NA, as agent (in such capacity, the "Agent") for the Lenders. PRELIMINARY STATEMENTS (1) The Lenders and the Agent have entered into a Credit Agreement, dated as of the date hereof (said Agreement, as it may hereafter be amended or otherwise modified from time to time, being the "Credit Agreement", the terms defined therein and not otherwise defined herein being used herein as therein defined), with Unicom Enterprises Inc., a corporation organized and existing under the laws of the State of Illinois (the "Borrower"). The Guarantor will derive substantial direct and indirect benefit from the transactions contemplated by the Credit Agreement and the other Loan Documents. (2) The Borrower is a wholly-owned Subsidiary of the Guarantor. (3) It is a condition precedent to the making of Advances by the Lenders under the Credit Agreement and the issuance of Facility LCs by the LC Issuer pursuant to the Credit Agreement that the Guarantor shall have executed and delivered this Guaranty. NOW, THEREFORE, in consideration of the premises and in order to induce the Lenders to make Advances and the LC Issuer to issue Facility LCs under the Credit Agreement, the Guarantor hereby agrees as follows: SECTION 1. Certain Defined Terms. As used in this Guaranty, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Consolidated Capitalization" means, with respect to any Person, at any date of determination, the sum of (a) Consolidated Indebtedness of such Person, (b) consolidated equity of the common stockholders of such Person and its Consolidated Subsidiaries, (c) consolidated equity of the preference stockholders of such Person and its Consolidated Subsidiaries, (d) consolidated equity of the preferred stockholders of such Person and its Consolidated Subsidiaries and (e) the aggregate principal amount of Subordinated Deferrable Interest Securities of such Person and its Consolidated Subsidiaries, in each case determined at such date in accordance with GAAP. "Consolidated Indebtedness" means, with respect to any Person, at any date of determination, the aggregate Indebtedness of such Person and its Consolidated Subsidiaries determined on a consolidated basis in accordance with GAAP, but shall not include (i) Nonrecourse Indebtedness of any Subsidiary of the Guarantor, (ii) the aggregate principal amount of Subordinated Deferrable Interest Securities of such Person and its Consolidated Subsidiaries and (iii) the aggregate principal amount of Transitional Funding Instruments of such Person and its Consolidated Subsidiaries. "Consolidated Subsidiary" means, as to any Person, any Subsidiary of such Person whose accounts are or are required to be consolidated with the accounts of such Person in accordance with GAAP. "Consolidated Tangible Net Worth" means, at any time of determination, with respect to any Person and its Consolidated Subsidiaries, the excess of such Person's and such Person's Consolidated Subsidiaries' total assets over its total liabilities, with total assets and total liabilities each to be determined in accordance with GAAP consistently applied, excluding, however, from the determination of total assets (i) goodwill, organizational expenses, research and development expenses, trademarks, trade names, copyrights, patents, patent applications, licenses and rights in any thereof, and other similar intangibles, (ii) all prepaid expenses, deferred charges or unamortized indebtedness discount and expense, (iii) all reserves carried and not deducted from assets, (iv) securities that are not readily marketable, (v) cash held in a sinking or other analogous fund established for the purpose of redemption, retirement or prepayment of capital stock or Indebtedness, (vi) any write-up in the book value of any asset resulting from a revaluation thereof subsequent to September 30, 1994, and (vii) any items not included in clauses (i) through (vi), above, that are treated as intangibles in conformity with GAAP. "Contingent Obligation" means, as to any Person, the undrawn face amount of any letters of credit issued for the account of such Person and shall also mean any monetary obligation of such Person guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends, letters of credit, or other obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property, securities, or services primarily for the purpose of assuring the obligee under any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (d) otherwise to assure or hold harmless the obligee under such primary obligation against loss in respect thereof; provided, however, that the term Contingent Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation or, where such Contingent Obligation is specifically limited to a portion of any such primary obligation, that portion to which it is limited or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith. For purposes of computing the Consolidated Indebtedness of any Person, the amount of any primary obligation of any Subsidiary of such Person and the amount of any Contingent Obligation of such Person or any Subsidiary of such Person corresponding to such primary obligation shall only be counted once (i.e., without duplication). "Subordinated Deferrable Interest Securities" means all obligations of the Guarantor and its Subsidiaries in respect of "ComEd- Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts", as set forth from time to time in the consolidated balance sheets of the Guarantor and its Consolidated Subsidiaries delivered pursuant to Section 7(a) hereof. "Transitional Funding Instruments" means any instruments, pass-through certificates, notes, debentures, certificates of participation, bonds, certificates of beneficial interest or other evidences of indebtedness or instruments evidencing a beneficial interest which (i) are issued pursuant to a "transitional funding order" (as such term is defined in Section 18- 102 of the Illinois Public Utilities Act, as amended) issued by the Illinois Commerce Commission at the request of an electric utility and (ii) are secured by or otherwise payable from non-bypassable cent per kilowatt hour charges authorized pursuant to such order to be applied and invoiced to customers of such utility. The instrument funding charges so applied and invoiced must be deducted and stated separately from the other charges invoiced by such utility against its customers. SECTION 2. Guaranty. The Guarantor hereby absolutely, unconditionally and irrevocably guaranties the punctual payment when due, without setoff, counterclaim or other deduction, whether at stated maturity, by acceleration or otherwise, of all obligations of the Borrower now or hereafter existing under the Credit Agreement, the Notes and any other Loan Documents, whether for principal, reimbursement obligations, interest, fees, expenses or otherwise (all such obligations being the "Obligations"), and agrees to pay any and all expenses (including counsel fees and expenses) incurred by the Agent, the LC Issuer or the Lenders in enforcing any rights under this Guaranty. Without limiting the generality of the foregoing, the Guarantor's liability shall extend to all amounts that constitute part of the Obligations and would be owed by the Borrower to the Agent, the LC Issuer or the Lenders under the Credit Agreement, the Notes and the other Loan Documents but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Borrower. SECTION 3. Guaranty Absolute. The Guarantor guarantees that the Obligations will be paid strictly in accordance with the terms of the Credit Agreement, the Notes and the other Loan Documents, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Agent, the LC Issuer or the Lenders with respect thereto. The obligations of the Guarantor under this Guaranty are independent of the Obligations, and a separate action or actions may be brought and prosecuted against the Guarantor to enforce this Guaranty, irrespective of whether any action is brought against the Borrower or whether the Borrower is joined in any such action or actions. The liability of the Guarantor under this Guaranty shall be absolute, unconditional and irrevocable irrespective of: (i) any lack of validity or enforceability of the Credit Agreement, the Notes, any other Loan Document, any Advance, or any other agreement or instrument relating thereto; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of, or any consent to departure from, the Credit Agreement, the Notes or any other Loan Document, including, without limitation, any increase in the Obligations resulting from the extension of additional credit to the Borrower or otherwise and any extension of the Facility Termination Date; (iii) any manner of application of collateral, or proceeds thereof, to all or any of the Obligations, or any manner of sale or other disposition of, any release or impairment of, or any failure to perfect, any lien on or security interest in any collateral for all or any of the Obligations or any other assets of the Borrower or any of its Subsidiaries, or any release or discharge of any Person liable for any or all of the Obligations; (iv) any change, restructuring or termination of the corporate structure or existence of the Borrower or any of its Subsidiaries or any bankruptcy, insolvency, liquidation or similar proceeding instituted by or against the Borrower or any of its Subsidiaries; or (v) any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrower or a guarantor. As against the Guarantor, this Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Obligations is rescinded or must otherwise be returned by the Agent, any LC Issuer or any Lender upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise, all as though such payment had not been made. SECTION 4. Waiver. The Guarantor hereby waives promptness, diligence, presentment, protest, notice of protest, notice of dishonor, notice of acceptance and any other notice with respect to any of the Obligations and this Guaranty and any requirement that the Agent, any LC Issuer or any Lender protect, secure, perfect or insure any security interest or lien on any property subject thereto or exhaust any right or take any action against the Borrower or any other person or entity or any collateral. SECTION 5. Waiver of Rights of Subrogation. The Guarantor hereby expressly and irrevocably waives with respect to the Borrower and its successors and assigns and any other Person, any and all rights at law or in equity, by agreement or otherwise, to subrogation, reimbursement, exoneration, contribution, setoff, share in any collateral or any other rights that could accrue to a surety against a principal, to a guarantor against a maker or obligor, to an accommodation party against the party accommodated, or to a holder or transferee against a maker, and that the Guarantor may have or hereafter acquire against the Borrower, any of its Affiliates, or any other Person in connection with or as a result of the Guarantor's execution, delivery or performance hereunder. In furtherance of the foregoing, the Guarantor agrees that any payment by the Guarantor to the Agent, the LC Issuer or the Lenders pursuant to this Guaranty shall be deemed a contribution to the capital of the Borrower, and no such payment shall constitute the Guarantor a creditor of the Borrower. The Guarantor hereby acknowledges and agrees that the foregoing waivers are intended to benefit the Borrower, the Agent, the LC Issuer and the Lenders and shall not limit or otherwise affect the Guarantor's liability hereunder or the enforceability hereof. If, notwithstanding the foregoing, any amount shall be paid to the Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by the Guarantor in trust for the Agent, the LC Issuer and the Lenders, segregated from other funds of the Guarantor, and shall, forthwith upon receipt by the Guarantor, be turned over to the Agent in the exact form received by the Guarantor (duly endorsed by the Guarantor to the Agent), to be applied against the Obligations, whether matured or unmatured, in such order as the Agent may determine. SECTION 6. Representations and Warranties. The Guarantor hereby represents and warrants as follows: (a) Corporate Existence and Power. It is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Illinois, or, following the consummation of the Unicom/PECO Merger, the laws of the Commonwealth of Pennsylvania, is duly qualified to do business as a foreign corporation in, and is in good standing under the laws of, each state in which the ownership of its properties or the conduct of its business makes such qualification necessary, except where the failure to be so qualified would not have a Material Adverse Effect, and has all corporate powers and all governmental licenses, authorizations, consents and approvals required to own or lease its property and to carry on its business as now conducted. (b) Corporate Authorization. The execution, delivery and performance by it of this Guaranty have been duly authorized by all necessary corporate action on its part and do not, and will not, require the consent or approval of its shareholders, or any trustee or holder of any Indebtedness or other obligation of the Guarantor. (c) No Violation, Etc. The execution and delivery by the Guarantor of this Guaranty, and the performance by the Guarantor of its obligations hereunder, (i) are within the Guarantor's corporate powers, (ii) have been duly authorized by all necessary corporate action and (iii) do not and will not (A) violate any provision of the charter or by-laws of the Guarantor or of law, (B) violate any legal restriction binding on or affecting the Guarantor, (C) result in a breach of, or constitute a default under, any indenture or loan or credit agreement or any other agreement, lease or instrument to which the Guarantor is a party or by which it or its properties may be bound or affected, or (D) result in or require the creation of any lien or security interest upon or with respect to any of its properties. (d) Governmental Actions. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Guarantor of this Guaranty, other than the Merger Approvals, which are required for the performance by the Guarantor of this Guaranty at all times on and after the date of the Unicom/PECO Merger. The Merger Approvals are and shall be in full force and effect on and after the effective date of the Unicom/PECO Merger. (e) Execution and Delivery. This Guaranty has been duly executed and delivered by the Guarantor, and is the legal, valid and binding obligation of the Guarantor enforceable against it in accordance with its terms, subject, however, to the application by a court of general principles of equity and to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally. (f) Litigation. There is no pending or threatened action or proceeding (including, without limitation, any proceeding relating to, or arising out of, any Environmental Laws) affecting it or any of its Subsidiaries before any court, governmental agency or arbitrator, that might reasonably be expected to result in a Material Adverse Effect, or that questions the validity or enforceability of this Guaranty or any other Loan Document against the Guarantor or the Borrower. (g) Financial Statements; Material Adverse Change. The consolidated balance sheet of the Guarantor and its Consolidated Subsidiaries as at September 30, 1999 and the related consolidated statement of income, retained earnings and cash flows for the period then ended, together with the report thereon of Arthur Andersen LLP included in the Guarantor's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1999, copies of which have been furnished to each Lender, fairly present the financial condition of the Guarantor and its Consolidated Subsidiaries as at such date and the results of operations of the Guarantor and its Consolidated Subsidiaries for the period ended on such date, all in accordance with GAAP. Since September 30, 1999, there has been no material adverse change in the financial condition, results of operations, operations, business or Property of the Guarantor and its Subsidiaries, taken as a whole, or the Borrower and its Subsidiaries, taken as a whole (other than operating losses resulting from start-up operations of Subsidiaries of the Borrower), or in the Guarantor's ability to perform any of its obligations hereunder. (h) ERISA. No ERISA Event has occurred or is reasonably expected to occur with respect to any Plan of the Guarantor or any of its ERISA Affiliates which would result in a liability of $25,000,000 or more to the Guarantor. Since the most recent September 30 for which financial statements have been delivered to the Lenders in accordance with Section 7(a) hereof, there has been no material adverse change in the funding status of the Plans and no "prohibited transaction" has occurred with respect thereto which is in either event reasonably expected to result in a liability of $25,000,000 or more to the Guarantor. (i) Taxes. The Guarantor and each of its Subsidiaries have filed all tax returns (federal, state and local) required to be filed and paid all taxes shown thereon to be due, including interest and penalties, or provided adequate reserves for payment thereof other than such taxes that the Guarantor or such Subsidiary is contesting in good faith by appropriate legal proceedings and in respect of which the Guarantor or such Subsidiary, as the case may be, has established adequate reserves in conformity with GAAP. (j) Violation of Law. Neither the Guarantor nor any of its Subsidiaries is in violation of any law or governmental regulation or court decree or order which might reasonably be expected to result in a Material Adverse Effect. (k) Investment Company. The Guarantor is not an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or an "investment advisor" within the meaning of the Investment Advisers Act of 1940, as amended. (l) Holding Company. The Guarantor is a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended, but the Guarantor and its Subsidiaries are exempt from the provisions of that Act, except Section 9(a)(2) thereof, by virtue of an order issued by the Securities and Exchange Commission on July 22, 1994. Such exemption is in full force and effect and, except for proceedings in connection with the transactions contemplated by the Unicom/PECO Merger Agreement, the Guarantor is not aware of any existing or proposed proceedings contemplating the revocation or modification of such exemption. (m) Information. All factual information heretofore or contemporaneously furnished by or on behalf of the Guarantor in writing to the Agent or any Lender for purposes of or in connection with this Guaranty or any transaction contemplated hereby, and all other such factual information hereafter furnished by or on behalf of the Guarantor to the Agent, any LC Bank or any Lender will be, true and accurate in every material respect on the date as of which such information is dated or certified, and not incomplete by omitting to state any material fact necessary to make such information not misleading. (n) No Conditions Precedent. There are no conditions precedent to the effectiveness of this Guaranty that have not been satisfied or waived. (o) Reliance. The Guarantor has, independently and without reliance upon the Borrower and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Guaranty. (p) Year 2000. The Guarantor has made a full and complete assessment of the Year 2000 Issues and has a realistic and achievable Year 2000 Program. Based on such assessment and on the Year 2000 Program, the Guarantor does not reasonably anticipate that Year 2000 Issues will have a Material Adverse Effect. SECTION 7. Affirmative Covenants. The Guarantor covenants and agrees that, so long as any part of the Obligations shall remain unpaid or any Lender shall have any Commitment, the Guarantor will: (a) Reporting Requirements. Furnish to each Lender: (i) as soon as available and in any event within 60 days after the end of each of the first three quarters of each fiscal year of the Guarantor, a consolidated balance sheet of the Guarantor and its Consolidated Subsidiaries as of the end of such quarter and consolidated statements of income, retained earnings and cash flows of the Guarantor and its Consolidated Subsidiaries for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, all in reasonable detail and duly certified (subject to year-end audit adjustments) by the chief financial officer or the Treasurer of the Guarantor as having been prepared in accordance (in all material respects) with GAAP consistently applied, except for (A) the absence of notes thereto and (B) changes in accounting principles required by GAAP; provided, that delivery of a copy of the Guarantor's Quarterly Report on Form 10-Q for such quarter shall be deemed to satisfy the foregoing requirement; (ii) as soon as available and in any event within 120 days after the end of each fiscal year of the Guarantor and its Consolidated Subsidiaries, a copy of the Annual Report for such year for the Guarantor and its Consolidated Subsidiaries, containing a consolidated balance sheet of the Guarantor and its Consolidated Subsidiaries as at the end of such fiscal year and consolidated statements of income, retained earnings and cash flows of the Guarantor and its Consolidated Subsidiaries for such fiscal year, certified in a manner acceptable to the Agent by Arthur Andersen LLP or another nationally-recognized independent public accounting firm selected by the Guarantor and acceptable to the Agent; provided, that delivery of a copy of the Guarantor's Annual Report on Form 10-K (containing such statements) or Current Report on Form 8-K (containing such statements) for such year shall be deemed to satisfy the foregoing requirement; (iii) concurrently with the financial statements for each quarterly accounting period and for each fiscal year of the Guarantor furnished pursuant to paragraphs (i) and (ii), above, (A) a certificate of the chief financial officer, any vice president responsible for financial or accounting matters, or the Treasurer of the Guarantor stating that (1) the Guarantor has performed and observed all of, and the Guarantor is not in default in the performance or observance of any of, the terms, covenants, agreements and conditions of this Guaranty or, if the Guarantor shall be in default, specifying all such defaults and the nature thereof, of which the signer of such certificate may have knowledge, and (2) the signer has obtained no knowledge of any Unmatured Default or Event of Default except as specified in such certificate, and (B) an analysis prepared and certified by the chief financial officer, any vice president responsible for financial or accounting matters, or the Treasurer of the Guarantor of the covenants contained in Sections 7(i) and (j), containing all information necessary for determining compliance by the Guarantor with such covenants; (iv) as soon as available and in any event within 120 days after the end of each fiscal year of the Guarantor and concurrently with the financial statements furnished pursuant to paragraph (ii), above, a written statement of the independent public accountants that certified such financial statements stating that, in making the examination necessary for their certification of such financial statements, they have obtained no knowledge of any default by the Guarantor in the observance of any of the covenants contained in Section 7(i) or (j) or, if such accountants shall have obtained knowledge of any such default, specifying all such defaults and the nature thereof, it being understood that they shall not be liable directly or indirectly for any failure to obtain knowledge of any default; (v) as soon as possible and in any event within five days after the Guarantor becomes aware of the commencement of litigation against the Guarantor, the Borrower, or any of their respective Subsidiaries that could reasonably be expected to have a Material Adverse Effect, or that questions the validity or enforceability of any of the Loan Documents against the Guarantor or the Borrower, notice of such litigation describing in reasonable detail the facts and circumstances concerning such litigation and the Guarantor's, the Borrower's or such Subsidiary's, as the case may be, proposed actions in connection therewith; provided, that delivery of a copy of the Guarantor's Current Report on Form 8-K describing any such litigation shall be deemed to satisfy such requirement unless the Agent, or any Lender acting through the Agent, shall request any additional information relating to such litigation; (vi) promptly after the sending or filing thereof, copies of all reports which the Guarantor sends to any of its security holders, and copies of all reports and registration statements (other than registration statements relating to (A) the offering of indebtedness or preferred/preference stock equity securities and (B) employee benefit plans) which the Guarantor or any of its Subsidiaries files with the Securities and Exchange Commission or any national securities exchange; (vii) as soon as possible and in any event (A) within 30 days after any ERISA Event described in clause (i) of the definition of ERISA Event with respect to any Plan of the Guarantor or any ERISA Affiliate of the Guarantor has occurred and (B) within 10 days after any other ERISA Event with respect to any Plan of the Guarantor or any ERISA Affiliate of the Guarantor has occurred, a statement of the chief financial officer, any vice president responsible for financial or accounting matters, or the Treasurer of the Guarantor describing such ERISA Event and the action, if any, which the Guarantor or such ERISA Affiliate proposes to take with respect thereto; (viii) promptly after receipt thereof by the Guarantor or any of its ERISA Affiliates from the PBGC copies of each notice received by the Guarantor or such ERISA Affiliate of the PBGC's intention to terminate any Plan of the Guarantor or such ERISA Affiliate or to have a trustee appointed to administer any such Plan; (ix) promptly after receipt thereof by the Guarantor or any ERISA Affiliate of the Guarantor from a Multiemployer Plan sponsor, a copy of each notice received by the Guarantor or such ERISA Affiliate concerning the imposition or amount of withdrawal liability in an aggregate principal amount of at least $25,000,000 pursuant to Section 4202 of ERISA in respect of which the Guarantor or such ERISA Affiliate is reasonably expected to be liable; (x) as soon as possible and in any event within ten days after the Guarantor knows or should have reason to know of the occurrence of each Unmatured Default or Event of Default continuing on the date of such statement, a statement of the chief financial officer, any vice president responsible for financial or accounting matters, or the Treasurer of the Guarantor setting forth details of such Unmatured Default or Event of Default and the action that the Guarantor or the Borrower has taken and proposes to take with respect thereto; and (xi) such other information (other than proprietary customer information) respecting the business, assets, revenues, financial condition, results of operations, operations or prospects of the Guarantor, the Borrower, or any of their respective Subsidiaries as the Agent or any Lender may from time to time reasonably request. (b) Preservation of Corporate Existence, Etc. Preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its legal existence in the jurisdiction of its organization and qualify and remain qualified as a foreign organization in each jurisdiction in which such qualification is reasonably necessary in view of its business and operations or the ownership of its properties, and preserve, renew and keep in full force and effect the rights, privileges and franchises necessary or desirable in the normal conduct of its business; provided however, that neither the Guarantor nor any such Subsidiary shall be required to preserve and maintain any such right, privilege or franchise, and no Subsidiary shall be required to preserve and maintain its corporate existence, unless the failure to do so would have a Material Adverse Effect. (c) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to in all material respects with all Applicable Laws, such compliance to include compliance with ERISA and Environmental Laws. (d) Maintenance of Insurance, Etc. Maintain, and cause each of its Subsidiaries to maintain, such insurance as may be required by law and such other insurance, to the extent and against such hazards and liabilities, as is customarily maintained by companies similarly situated. (e) Inspection Rights. At any reasonable time and from time to time as the Agent or any Lender may reasonably request, permit the Agent, each Lender or any agents or representatives thereof to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, the Guarantor and any of its Subsidiaries (except in the case of Commonwealth, as may be restricted by law), and to discuss the affairs, finances and accounts of the Guarantor and any of its Subsidiaries with any of their respective officers or directors; provided, however, that, prior to the disclosure of any information or materials of the Guarantor or its Subsidiaries relating to customers, pricing methods or formulae or proprietary methods or processes, the Guarantor may require the Lender seeking to inspect the same to enter into a confidentiality and nondisclosure agreement with respect to the use and disclosure of such information or materials in form and substance reasonably satisfactory to the Guarantor and such Lender and containing customary terms. (f) Maintaining of Books. Maintain, and cause each of its Subsidiaries to maintain, complete and accurate books of record and account in which entries shall be made of all financial transactions and the assets and business of the Guarantor and each of its Subsidiaries in accordance with GAAP. (g) Maintenance of Properties. Cause all properties used or useful in the conduct of the business of the Guarantor or any of its Subsidiaries to be maintained and kept in reasonable condition, repair and working order, and cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Guarantor may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; except where the failure to do so would not have a Material Adverse Effect. (h) Taxes and Liabilities. Pay, and cause each of its Subsidiaries to pay, when due all taxes, assessments, governmental charges and other liabilities imposed upon it or its property, except to the extent contested in good faith and by appropriate proceedings and in respect of which adequate reserves for the payment thereof have been set aside by the Guarantor or such Subsidiary, as the case may be, in accordance with GAAP. (i) Maintenance of Minimum Consolidated Tangible Net Worth. Maintain at all times a Consolidated Tangible Net Worth of at least $3,500,000,000. (j) Consolidated Leverage Ratio. Maintain, on the last day of each fiscal quarter, a ratio of (i) Consolidated Indebtedness to (ii) Consolidated Capitalization of not greater than 0.65 to 1. (k) Ownership of Subsidiaries. Maintain direct ownership of 100% of the capital stock of the Borrower and maintain direct ownership of at least 80% of the voting capital stock of Commonwealth (in either case, a "Change in Control"); provided, however, that the proposed Unicom/PECO Merger shall not constitute a Change of Control. (l) Year 2000. Take all such actions as is reasonably necessary to successfully implement the Year 2000 Program and to assure that Year 2000 Issues will not have a Material Adverse Effect. At the request of the Agent, the Guarantor will provide a description of the Year 2000 Program, together with any updates or progress reports with respect thereto. SECTION 8. Negative Covenants. The Guarantor covenants and agrees that, so long as any part of the Obligations shall remain unpaid or any Lender shall have any Commitment, the Guarantor will not: (a) Liens, Etc. Create or suffer to exist, or permit any of its Subsidiaries to create or suffer to exist, any lien, security interest, or other charge or encumbrance, or any other type of preferential arrangement, upon or with respect to any of its properties (including, without limitation, the capital stock of or any other equity interest in any of its Subsidiaries, except as provided below), whether now owned or hereafter acquired, or assign, or permit any of its Subsidiaries to assign, any right to receive income, in each case to secure or provide for the payment of any Indebtedness of any Person (any of the foregoing being referred to herein as a "Lien"), other than (i) Liens imposed by law, such as carriers', warehousemen's and mechanics' Liens and other similar Liens arising in the ordinary course of business; (ii) with respect to any Subsidiary of the Guarantor, other Liens of the types described in Section 6.16 of the Credit Agreement; (iii) Liens on the capital stock of or any other equity interest in any of the Guarantor's Subsidiaries or any such Subsidiary's assets to secure Nonrecourse Indebtedness, (iv) Liens created in connection with the acquisition by Subsidiaries of assets and the continuation of such Liens in connection with any refinancing of the Indebtedness secured by such Liens, provided such Liens are limited to the assets so acquired; (v) Liens on the assets and/or rights to receive income of any Person that exist at the time such Person becomes a Subsidiary and the continuation of such Liens in connection with any refinancing or restructuring of the obligations secured by such Liens; and (vi) Liens arising under the Mortgage, dated July 1, 1923, as amended and supplemented by supplemental indentures, including the Supplemental Indenture, dated August 1, 1944, from Commonwealth to Harris Trust and Savings Bank and D.G. Donovan, as trustees, and "permitted liens" as defined in said Mortgage; provided however, that, notwithstanding the foregoing, if both before and after giving effect thereto no Unmatured Default or Event of Default shall have occurred and be continuing, Commonwealth may sell, pledge or otherwise dispose of its accounts receivable. (b) Compliance with ERISA. (i) Permit to exist any "accumulated funding deficiency" (as defined in Section 412(a) of the Internal Revenue Code of 1986, as amended from time to time) (unless such deficiency exists with respect to a Multiple Employer Plan or Multiemployer Plan and the Guarantor has no control over the reduction or elimination of such deficiency), (ii) terminate, or permit any ERISA Affiliate of the Guarantor to terminate, any Plan of the Guarantor or such ERISA Affiliate so as to result in a liability of $25,000,000 or more of the Guarantor to the PBGC, or (iii) permit to exist any occurrence of any Reportable Event (as defined in Title IV of ERISA), other than a Reportable Event for which the 30-day notice requirement with respect thereto has been waived by the PBGC or any other event or condition, which presents a material (in the reasonable opinion of the Required Lenders) risk of such a termination by the PBGC of any Plan of the Guarantor or such ERISA Affiliate and such a liability to the Guarantor. (c) Mergers, Etc. Merge or consolidate with or into any Person, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of related or unrelated transactions, and whether in a sale/leaseback transaction or otherwise) more than 10% of its assets (whether now owned or hereafter acquired), unless, in the case of a merger, immediately after giving effect thereto, (i) no event shall occur and be continuing that constitutes an Unmatured Default or an Event of Default, (ii) the Guarantor is the surviving corporation, (iii) the Guarantor's Consolidated Tangible Net Worth shall be equal to or greater than its Consolidated Tangible Net Worth immediately prior to such merger and (iv) the Guarantor shall not be liable with respect to any Indebtedness or allow its property to be subject to any Lien which it could not become liable with respect to or allow its property to become subject to under this Guaranty on the date of such transaction, provided, however, nothing in this Section shall prohibit the proposed Unicom/PECO Merger. (d) Indebtedness. Create, incur, assume or suffer to exist any Indebtedness, other than (without duplication) (i) Indebtedness to the Borrower in an amount not to exceed $25,000,000 in the aggregate at any one time outstanding, (ii) Indebtedness hereunder, (iii) unsecured Contingent Obligations (other than in respect of this Guaranty) in an aggregate amount at any one time outstanding not to exceed the excess of (A) $700,000,000 over (B) the amount of Contingent Obligations incurred by the Borrower pursuant to Section 6.13(ii) of the Credit Agreement, (iv) other unsecured Indebtedness and (v) secured Indebtedness in connection with investments in partnership or limited liability company entities that invest, directly or indirectly, in residential apartment complexes qualifying for low income housing tax credits under Section 42 of the Code in an aggregate amount not to exceed $75,000,000; provided, however, that, notwithstanding the foregoing, the aggregate amount of Indebtedness of the Guarantor, the Borrower and Subsidiaries of the Borrower at any one time outstanding shall not exceed $900,000,000, provided, further, that for purposes of this Section the term "Indebtedness" shall not include the Unicom Investment Inc. Debt. (e) Guarantor and Subsidiaries' Stock. Permit any of its Subsidiaries to purchase or otherwise acquire any shares of capital stock of the Guarantor; or take any action, or permit any such Subsidiary to take any action, that would result in a material decrease in the percentage of the outstanding shares of capital stock of any "Significant Subsidiary" of the Guarantor (within the meaning of Rule 1-02 of the Regulation S-X of the Securities and Exchange Commission) owned by the Guarantor and its other Subsidiaries; provided, however, that the Guarantor or Commonwealth may take any such action with respect to the capital stock of Commonwealth, provided that, after giving effect to any such action, the Guarantor is in compliance with Section 7(k) hereof. (f) Other Agreements. Enter into any agreement containing any provision that would be violated or breached by the performance of its obligations hereunder or under any instrument or document delivered or to be delivered by the Guarantor hereunder or in connection herewith. (g) Transactions with Affiliates. Enter into, or permit any of its Subsidiaries to enter into, any transaction with an Affiliate of the Guarantor, unless (i) such transaction is on terms no less favorable to the Guarantor or such Subsidiary, as the case may be, than if the transaction had been negotiated in good faith on an arm's length basis with a Person that was not an Affiliate of the Guarantor or (ii) such transaction is conducted pursuant to the Affiliated Interests Agreement, dated as of December 4, 1995, among Commonwealth, the Guarantor and the other entities named therein, as it may be amended or modified from time to time or replaced by an agreement regarding such transactions approved by the Illinois Commerce Commission or the Securities and Exchange Commission; provided, the foregoing shall not apply to (x) the transactions contemplated by the Asset Sale Agreement, dated as of May 11, 1999, between Commonwealth and Unicom Investment Inc. relating to the sale of Commonwealth's fossil generation assets and the incurrence of the Unicom Investment Inc. Debt; (y) the transfer by Commonwealth to Unicom Technology Development Inc., an Illinois corporation, of up to $275,000,000 of the notes representing the Unicom Investment Inc. Debt under said Asset Sale Agreement along with an obligation in respect of an equivalent amount of Commonwealth's contingent obligation to pay post-retirement health care benefits; and (z) transactions associated with a transfer of Commonwealth's nuclear generating stations to a Subsidiary of the Guarantor. (h) Distributions. Upon the occurrence and during the continuance of an Event of Default, declare or pay, directly or indirectly, any dividend, payment or other distribution of assets, properties, cash, rights, obligations or securities on account of any share of any class of capital stock of the Guarantor, or purchase, redeem, retire, or otherwise acquire for value, or permit any of its Subsidiaries to purchase, redeem, retire, or otherwise acquire for value, any shares of any class of capital stock of the Guarantor or any warrants, rights, or options to acquire any such shares, now or hereafter outstanding, or make any distribution of assets to any of its shareholders; provided, however, that, notwithstanding the foregoing, the Guarantor may, to the extent that it is legally required to do so, pay any such dividend, payment or other distribution after the Guarantor has declared such dividend, payment or other distribution. SECTION 9. Amendments, Etc. No amendment or waiver of any provision of this Guaranty, and no consent to any departure by the Guarantor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Agent and the Required Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given, provided, however, that no amendment, waiver or consent shall, unless in writing and signed by all of the Lenders, (i) limit the liability of, or release, the Guarantor hereunder, (ii) postpone any date fixed for payment hereunder, or (iii) change the number of Lenders required to take any action hereunder. SECTION 10. Addresses for Notices. All notices and other communications provided for hereunder shall be in writing (including telecopier, telegraphic or cable communication) and mailed, telecopied, telegraphed, cabled or delivered to it, (i) if to the Guarantor, at its address at P.O. Box A-3005, 10 South Dearborn Street, 37th Floor, Chicago, Illinois 60690-3005, Attention: Treasurer, Telecopy: (312) 394-4082, with a copy of the same address, attention: Associate General Counsel-Corporate and Commercial, telecopy: (312) 394-3950, and (ii) if to the Agent, the LC Issuer or any Lender, at its address specified in the Credit Agreement or, as to any party, at such other address as shall be designated by such party in a written notice to each other party. All such notices and other communications shall, when mailed, telecopied, telegraphed or cabled, be effective when deposited in the mails, telecopied, delivered to the telegraph company or delivered to the cable company, respectively. SECTION 11. No Waiver; Remedies. No failure on the part of the Agent, the LC Issuer or any Lender to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 12. Right of Set-off. Upon the occurrence and during the continuance of any Default, the LC Issuer and each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits of the Guarantor (general or special, time or demand, provisional or final). The LC Issuer and each Lender agrees promptly to notify the Agent and the Guarantor after any such set-off and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the LC Issuer and each Lender under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) that the LC Issuer or such Lender may have. SECTION 13. Continuing Guaranty; Assignments under Credit Agreement. This Guaranty is a continuing guaranty and shall (i) subject to the last sentence of Section 3, remain in full force and effect until the later to occur of (A) the payment in full of the Obligations and all other amounts payable under this Guaranty and (B) the expiration or termination of the Commitments, (ii) be binding upon the Guarantor, its successors and assigns (provided, that the Guarantor may not assign any of its rights or obligations hereunder without the prior written consent of the Lenders), and (iii) inure to the benefit of, and be enforceable by, the Agent, the LC Issuer, the Lenders and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (iii), any Lender may assign or otherwise transfer all or any portion of its rights and obligations under the Credit Agreement (including, without limitation, all or any portion of its Commitment, the Advances owing to it and any Note held by it) to any other person or entity pursuant to Section 12.03 thereof, and such other person or entity shall thereupon become vested with all the benefits in respect thereof granted to such Lender herein or otherwise, subject, however, to the provisions of Article X (concerning the Agent) of the Credit Agreement. SECTION 14. Governing Law. THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 15. Consent to Jurisdiction; Waiver of Jury Trial. (a) The Guarantor hereby irrevocably (i) submits to the non-exclusive jurisdiction of any New York State or Federal court sitting in New York City and any appellate court from any thereof in any action or proceeding arising out of or relating to this Guaranty or any other Loan Document and (ii) agrees that all claims in respect of such action or proceeding may be heard and determined in such New York State court or in such Federal court. The Guarantor hereby irrevocably waives the defense of an inconvenient forum to the maintenance of such action or proceeding and any objection to venue in connection therewith. The Guarantor also irrevocably consents to the service of any and all process in any such action or proceeding by the mailing by certified mail of copies of such process to the Guarantor at its address specified in Section 10. The Guarantor agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. (b) THE GUARANTOR HEREBY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS GUARANTY, ANY OTHER LOAN DOCUMENT, OR ANY OTHER INSTRUMENT OR DOCUMENT DELIVERED HEREUNDER OR THEREUNDER. SECTION 16. Execution in Counterparts. This Guaranty may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which counterparts when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. SECTION 17. Severability. Any provision of this Guaranty or any other Loan Document that is prohibited, unenforceable or invalid in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition, unenforceability or invalidity without invalidating the remaining provisions hereof or thereof or affecting the validity, enforceability or legality of such provision in any other jurisdiction. SECTION 18. Headings. Article and Section headings used herein are for convenience of reference only, are not part of this Guaranty and are not to affect the construction of, or to be taken into consideration in interpreting, this Guaranty. SECTION 19. Entire Agreement. This Guaranty constitutes the entire agreement and understanding among the Guarantor, the Lenders, the LC Issuer and the Agent relative to the subject matter hereof. Any previous agreement by or among such parties with respect to the subject matter hereof is superseded by this Guaranty. Nothing in this Guaranty, expressed or implied, is intended to confer upon any party other than the Lenders, the LC Issuer and the Agent any rights, remedies, obligations, or liabilities under or by reason of this Guaranty. IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. UNICOM CORPORATION By /s/ Patricia L. Kampling ----------------------------------- Patricia L. Kampling Treasurer EX-10.5 6 1999 LONG-TERM PERFORMANCE EXHIBIT (10)-5 Unicom Corporation and Commonwealth Edison Company Form 10-K File No. 1-11375 and 1-1839 Unicom Corporation 1999 Long-Term Performance Unit Award Payable in 2002 under the Unicom Corporation Long-Term Incentive Plan, as amended Unicom Corporation, an Illinois corporation (the "Company"), hereby grants to each individual described in Section 1 hereof as of January 1, 1999 (the "Grant Date"), in accordance with the provisions of the Unicom Corporation Long-Term Incentive Plan, as amended (the "Plan"), a performance unit award (each, an "Award") expressed as a number of performance units, in the amount and upon and subject to the restrictions, terms and conditions set forth below. Capitalized terms not defined herein shall have the meanings specified in the Plan. 1. Participation: -------------- (a) The following individuals shall be participants eligible to receive an Award hereunder ("Participants"): any regular non-temporary employee of the Company or its affiliates (including, but not limited to Commonwealth Edison Company ("ComEd") and collectively referred to herein as the "Employers") who, on the Grant Date and for at least 180 days of the Performance Period, is a member of one of the following groups of eligible employees: (i) an officer; (ii) classified as an Executive Level or its equivalent, or (iii) classified as a Key Management Level or its equivalent and who has been designated by the Company as eligible to participate hereunder. (b) An individual who becomes an officer, Executive Level, designated Key Management Level or is hired after the Grant Date but prior to June 30, 2001 into one of the groups of eligible employees described above (each, a "New Employee") shall also be a Participant; provided, however, that such individual must be an eligible employee through either actual or deemed employment for at least 180 days of the Performance Period in order to be eligible to receive an Award. For purposes of the above, eligible employees' pay classifications shall be those used by the Company or ComEd or, if a Participant's Employer maintains a system of pay classification different from those described above, a classification mutually determined by such employer and the Company to be comparable to the Company's eligible classifications. Notwithstanding the preceding, an eligible employee described above who participates in another long term performance award program ("Other Program") sponsored by an Employer will not be eligible to participate in this Award. If such individual is no longer eligible to participate in an Other Program, then he or she may be deemed eligible to be a Participant and any Award payable to such individual shall be prorated using the proration formula provided in Section 6.2. Similarly, if a Participant becomes eligible to participate in an Other Program, then such individual will cease to be a Participant hereunder and any Award payable to such individual will be prorated using the proration formula provided in Section 6.1. 2. Base Unit. The number of performance units (rounded to the nearest one --------- hundredth) granted for each Participant's Award (the "Base Unit") shall equal (a) the product of (i) the Participant's Salary (as defined below), multiplied by (ii) the applicable Target Award Opportunity percentage (set forth below), (b) divided by the average of the closing prices of a share of Common Stock as reported in The Wall Street Journal as New York Stock Exchange Composite Transactions during the calendar quarter ending on December 31, 1998 (appropriately adjusted for any stock-split, stock dividend, or other similar event): Target Award Opportunities -------------- Target ------------------------------------------------------------- Chairman & CEO 50% ------------------------------------------------------------- Executive Vice President (Line) 45% ------------------------------------------------------------- Executive Vice President (Staff) 40% ------------------------------------------------------------- Senior Vice President 35% ------------------------------------------------------------- Vice President (Officers) 25% ------------------------------------------------------------- Other Executives 20% ------------------------------------------------------------- Designated Key Managementl 15% ------------------------------------------------------------- For purposes hereof, "Salary" shall mean, with respect to any Participant, such Participant's annual scheduled rate of pay as of March 29, 1999, together with the annual income from any deferred compensation units previously granted to the Participant, if applicable; provided, however, that with respect to a Participant who is a New Employee, Salary shall mean such New Employee's annual scheduled rate of pay as of the date such individual becomes a New Employee (the "Start Date"). 3. Performance Period. The Performance Period shall commence on January 1, ------------------ 1999 and end on December 31, 2001. 4. Payment Amount. The amount payable in connection with any Award (a "Payment -------------- Amount") shall be a dollar amount equal to the product of (i) the Employee's Base Value (as defined below), multiplied by (ii) the applicable Component Weights (as indicated below) for each of the three year goals (the "Goals") established specifically for this Program, multiplied by, (iii) the composite of the achieved percentage of each applicable Goal, as determined by the Committee, expressed as a percentage of target ranging from 50% to 200% ; provided the initial threshold is met. (a) "Base Value" means the product of (i) each Participant's Base Unit multiplied by, (ii) the average of the closing prices of a share of Common Stock as reported in The Wall Street Journal as New York Stock Exchange Composite Transactions during the calendar quarter ending on the last day of the Performance Period (appropriately adjusted for any stock-split, stock dividend or other similar event). (b) "Component Weights" are those set forth below: ---------------------------------- Component Weight ---------------------------------- Participant Corporate Business Unit - -------------------------------------------------------------------------------- Line Business Units Business Unit Head 50% 50% ------------------------------------------------------- All Others 25% 75% - -------------------------------------------------------------------------------- Corporate Staff Business Units Officers 100% 0% ------------------------------------------------------- Non-Officers 100% 0% - -------------------------------------------------------------------------------- Page 2 of 5 (c) The "Goals" shall mean: (1) Corporate Measures: Cumulative three-year Corporate Shareholder Value Added (SVA) and Overall Customer Satisfaction Index (2001 Index). (ii) Business Unit Measures: Three-year strategic/financial goals set for each Business Unit, as approved by the Committee. 5. Settlement of Awards. The Payment Amount shall become payable upon the last -------------------- day of the Performance Period and shall be paid by the Company within 90 days thereafter. The Payment Amount shall be paid 50% in cash and 50% in shares of Common Stock; provided, however, that, if a Participant elects under the Unicom Corporation Stock Bonus Deferral Plan to defer up to 100% of the Payment Amount, the amount so deferred shall be paid in shares of Common Stock; and provided further, that shares that may become payable to a Participant hereunder shall not be issued if the aggregate number of shares payable to such Participant does not exceed 25 (and, in such case, cash shall be paid in an amount equal to the value of the shares that would have been issued but for this proviso). Fractional shares of Common Stock that may become payable to a Participant hereunder shall be issued if the shares issuable to such Participant exceed 25 and are held in non-certificated, book-entry or electronic form; otherwise, any such fractional shares shall be paid in cash. For purposes of determining the number of shares of Common Stock payable pursuant to this Section, a share of Common Stock shall be valued at the average of the closing prices of a share of Common Stock as reported in The Wall Street Journal as New York Stock Exchange Composite Transactions during the calendar quarter ending on the last day of the Performance Period (appropriately adjusted for any stock-split, stock dividend or other similar event). 6. Employment for Less than Full Performance Period. ------------------------------------------------ 6.1. Termination of Employment. Except as provided in the immediately ------------------------- following sentence, if a Participant's employment with an Employer is terminated prior to the last day of the Performance Period for any reason, the Participant shall forfeit his or her Award and no amount shall be payable hereunder. If a Participant's employment with an Employer is terminated prior to the last day of the Performance Period due to such Participant's (i) termination as a result of the sale, permanent closure or other disposition of any generation facility, the sale or other disposition of any business unit or functional group (or portion thereof) that includes such Participant or the Company's decision to have a third party provide the services performed by the functional group that includes such Participant (in any such case, a "Permitted Termination"), (ii) retirement under the pension plan of any of the Employers, (iii) death, or (iv) acceptance of severance pay under a voluntary separation plan or entitlement to payment under any other severance plan or arrangement that provides for an Award, and such individual was a Participant for at least 180 days of the Performance Period, then the Payment Amount for such Participant shall be amount equal to the Payment Amount calculated in accordance with Section 4 hereof multiplied by a fraction, the numerator of which is the number of days in the Performance Period that have elapsed between the commencement of the Performance Period (in the case of a Participant described in Section 1(a)), or the Start Date (in the case of a New Employee), and the date of such Permitted Termination, retirement or death (as the case may be) and the denominator of which is the total number of days in the Performance Period. Any Payment Amount calculated in accordance with the immediately preceding sentence shall be paid as provided in Section 5 hereof within 90 days after the last day of the Performance Period. Page 3 of 5 6.2. New Employees. The Payment Amount for any Participant who is a New ------------- Employee and whose Start Date was on or before June 30, 2001, who remains employed through the last day of the Performance Period and who was a Participant for at least 180 days of the Performance Period shall be an amount equal to the Payment Amount calculated in accordance with Section 4 hereof multiplied by a fraction, the numerator of which is the number of days in the Performance Period that have elapsed between the New Employee's Start Date and the end of the Performance Period and the denominator of which is the total number of days in the Performance Period. Any Payment Amount calculated in accordance with the immediately preceding sentence shall be paid as provided in Section 5 hereof within 90 days after the last day of the Performance Period. 6.3. Promotions and Demotions. ------------------------ (a) If a Participant's pay classification changes during the Performance Period to a pay classification that remains included within the groups of eligible employees set forth in Section 1(a), then such individual shall be entitled to an Award in an amount equal to the Payment Amount calculated in accordance with Section 4 hereof, but based upon the sum of the products of (i) the Base Unit applicable to each pay classification held by such Participant during the Performance Period, multiplied by (ii) a fraction the numerator of which is the number of days during the Performance Period that each such pay classification was held and the denominator of which is the total number of days in the Performance Period. (b) If a Participant is demoted during the Performance Period to a pay classification below those included within the groups of eligible employees set forth in Section 1(a) and such individual was a Participant for at least 180 days of the Performance Period, then such individual shall be entitled to an Award in an amount equal to the Payment Amount calculated in accordance with Section 4 hereof multiplied by a fraction the numerator of which is the number of days in the Performance Period that such individual was an eligible employee and the denominator of which is the total number of days in the Performance Period. (c) If an individual who was not, as of the Grant Date, eligible to participate hereunder is promoted on or before June 2001 to a pay classification that is included within the groups of eligible employees set forth in Section 1(a) and such individual is a Participant for at least 180 days of the Performance Period, then such individual shall be entitled to an Award in an amount equal to the Payment Amount calculated in accordance with Section 4 hereof multiplied by a fraction the numerator of which is the number of days in the Performance Period that such individual was an eligible employee and the denominator of which is the total number of days in the Performance Period. 6.4. Reduction of Payment Amount in Certain Circumstances. In the event ---------------------------------------------------- that a Participant takes a voluntary leave of absence or a leave of absence for long-term disability during all or any portion of the Performance Period and such individual was a Participant for at least 180 days of the Performance Period, the Payment Amount for such Participant's Award shall be prorated by multiplying it by a fraction, the numerator of which is the number of days during the Performance Period that the Participant was actively at work for an Employer (or Employers) and the denominator of which is the total number of days in the Performance Period. 6.5. Transfer from One Business Unit to Another Business Unit. If a -------------------------------------------------------- Participant is transferred from one business unit to another business unit and such individual was a Participant for at least 180 days of the Performance Period, the Participant's Payment Amount will be the sum of prorations with respect to Page 4 of 5 each business unit. Each proration will equal (i) the Payment Amount, multiplied by (ii) a fraction, the numerator of which is the number of days the Participant was in the applicable business unit and the denominator of which is the total number of days in the Performance Period. 7. Rights as a Stockholder. No Participant shall have any rights as a ----------------------- stockholder of the Company with respect to any shares of Common Stock that may be payable hereunder unless and until such shares have been issued to such Participant or otherwise credited to an account for the benefit of such Participant. 8. Additional Terms and Conditions of Award. ---------------------------------------- 8.1. Nontransferability of Award. In accordance with Section 13.5 of the --------------------------- Plan, no Award or other related benefit may, except as otherwise specifically provided by the Plan or by law, be transferable in any manner other than by will or the laws of descent and distribution, and any attempt to transfer any such Award or other benefit shall be void; provided, however, that the foregoing shall not restrict the ability of any Participant to transfer any cash or Common Stock received as part of the Payment Amount. In accordance with Section 13.5 of the Plan, Awards or other benefits payable under Awards shall not in any manner be subject to the debts, contracts, liabilities, engagements or torts of any person who shall be entitled to such Award or benefits, nor shall they be subject to attachment or legal process for or against such person. 8.2. Withholding Taxes. As a condition precedent to the delivery to the ----------------- Participant of cash or Common Stock hereunder and in accordance with Section 13.4 of the Plan, the Company may deduct from any amount (including any Payment Amount) payable then or thereafter payable by the Company or any of its subsidiaries to the Participant, or may request the Participant to pay to the Company in cash, such amount as the Company or any of its subsidiaries may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over with respect to the Award. 8.3. Compliance with Applicable Law. Each Award is subject to the ------------------------------ condition that if the listing, registration or qualification of the shares of Common Stock subject to the Award upon any securities exchange or under any law, or the consent or approval of any governmental body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the vesting or delivery of such shares hereunder, such shares may not be delivered, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained. 8.4 Award Subject to the Plan. This Award is subject to the provisions of ------------------------- the Plan, and shall be interpreted in accordance therewith. 8.5. Administration. Senior management administers the Program and has the -------------- authority to interpret, administer, and implement it, and to approve goal determinations and performance achievement. Senior management and the Compensation Committee of the Board of Directors may, in its sole discretion, make adjustments to Program performance measures in order to take into account changes in accounting rules, principles or methods, or the occurrence of extraordinary events. The Company reserves the right to revise or terminate the Program at any time with no advance notice. Page 5 of 5 EX-10.9 7 1999 ANNUAL INCENTIVE AWARD FOR MANAGEMENT Exhibit (10)-9 Unicom Corporation and Commonwealth Edison Company Form 10-K File Nos. 1-11375and 1-1839 Unicom Corporation 1999 Annual Incentive Award for Management Employees Under the Unicom Corporation Long-Term Incentive Plan Unicom Corporation, an Illinois corporation (the "Company"), hereby grants to each Employee (as hereinafter defined), as of January 1, 1999 or, if later, the date of the commencement of such Employee's employment with an Employer (as hereinafter defined) (the later of such dates being referred to herein as the "Grant Date"), in accordance with the provisions of the Unicom Corporation Long-Term Incentive Plan (as in effect from time to time, the "Plan"), an incentive award (each, an "Award") in the amount and upon and subject to the restrictions, terms and conditions set forth below. Capitalized terms not defined herein shall have the meanings specified in the Plan. 1. Recipients of Awards. Subject in all respects to the provisions -------------------- hereof, recipients of Awards hereunder shall consist of: (a) each employee of Commonwealth Edison Company ("ComEd") (other than (i) the Chairman and Chief Executive Officer, and (ii) any temporary employee) who is on the management or executive payroll during calendar year 1999, provided such employee is placed on such payroll prior to November 1, 1999; and (b) each employee of any other Subsidiary/1/ selected from time to time by the Committee/2/ to receive an Award hereunder. Each such employee is referred to herein as an "Employee," and the term "Employer" shall mean the employer of an Employee. 2. Award Amount. ------------ __________________________ /1/ A "Subsidiary" is defined in the Plan as being 51% or more owned. /2/ "Committee" means the Corporate Governance and Compensation Committee of the Board of Directors. Page 1 of 7 (a) The total amount payable to each Employee in connection with an Award (the "Total Award Amount") shall be determined in accordance with the following formula: Individual Total Employee's Payout Performance Performance Award = Salary X Opportunity X Payout X Payout Amount Percentage Percentage Percentage "Employee's Salary" shall mean: (i) if an Employee's position is in salary grade level 5 or above, or equivalent, and the position or the Employee is classified as working standard hours of 40 hours per week, the sum of (a) the product of an Employee's monthly scheduled rate of pay, determined as of the close of November 1, 1999 (or such earlier date during 1999 in which the Employee's employment terminates or the Employee ceases to be in a position in salary grade level 5 or above, or equivalent), multiplied by 12, plus (b) the quarterly income from such Employee's Deferred Compensation Units, if any (whether such Units were granted by the Company or by ComEd), multiplied by 4; and (ii) if an Employee's position is in salary grade level 5 or above, or equivalent, and the position or the Employee is not classified as working standard hours of 40 hours per week, the sum of (a) the product of an Employee's hourly scheduled rate of pay, determined as of the close of November 1, 1999 (or such earlier date during 1999 in which the Employee's employment terminates or the Employee ceases to be in a position in salary grade level 5 or above, or equivalent), multiplied by 2080, plus (b) the quarterly income from such Employee's Deferred Compensation Units, if any (whether such Units were granted by the Company or by ComEd), multiplied by 4; and (iii) if an Employee's position is in salary grade level entry through 4, or equivalent, the sum of such payroll earnings as have been determined by the Plan Administrator to be applicable for purposes of an Award hereunder. Page 2 of 7 "Payout Opportunity Percentage" shall mean the percentage indicated on the following table, based upon grade level and level of achievement of the applicable goal:
==================================================================================================================== Threshold Payout Target Payout Maximum Payout Grade Level Percentage Percentage Percentage ==================================================================================================================== Rated - Grades Entry - 9 3.75 7.5 15.0 - -------------------------------------------------------------------------------------------------------------------- Rated - Grades 10 -11 6.25 12.5 25.0 - -------------------------------------------------------------------------------------------------------------------- Group -- Grade 12 10.0 20.0 40.0 - -------------------------------------------------------------------------------------------------------------------- Group -- Grades 13 - 14 12.5 25.0 50.0 - -------------------------------------------------------------------------------------------------------------------- Executive -- Grades 15 - 17 15.0 30.0 60.0 - -------------------------------------------------------------------------------------------------------------------- Executive -- Grade 18 20.0 40.0 80.0 - -------------------------------------------------------------------------------------------------------------------- Executive -- Grade 19 22.5 45.0 90.0 - -------------------------------------------------------------------------------------------------------------------- Executive -- Grade 20 25.0 50.0 100.0 - -------------------------------------------------------------------------------------------------------------------- Executive - Grade 21 27.5 55.0 110.0 - -------------------------------------------------------------------------------------------------------------------- Executive -- Grade 23 35.0 70.0 140.0 ====================================================================================================================
Percentage deviation from the Target Payout Percentage shall be used in determining the applicable Payout Opportunity Percentage for goal achievement between zero and the Maximum Payout Percentage level. With respect to any Employee described in Section 1(b), the Payout Opportunity Percentage shall mean such percentage(s) as may be established by the Committee at the time of such Employee's selection by the Committee to receive an Award hereunder. "Performance Payout Percentage" shall mean for each Employee, the sum of the weighted payout percentages for each assigned goal, as determined by the Committee, based on the relative achievement of such goals. "Individual Performance Payout Percentage" shall mean (i) in the case of an Employee who is rated as performing in the "A" category, 120%, 115%, or 110%, as determined by the Employee's supervisor, department head and/or business unit leader, (ii) in the case of an Employee who is rated as having performed in the "B" category," 100%, and (iii) in the case of an Employee who is rated as performing in the "C" category, 0%. The Total Award Amount determined for any Employee shall be subject to adjustment as provided in Sections 3, 4, and 5 (as so adjusted, the "Adjusted Total Award Amount"). (b) Subject to Section 7, the Adjusted Total Award Amount for any Employee shall be paid (i) in the case of an Employee whose position is in salary grade level entry to 11, or equivalent, 100% in cash after the Page 3 of 7 application of Section 9.2, and (ii) in the case of all other Employees, 25% in shares of Common Stock (the amount payable in shares of Common Stock being referred to herein as the "Stock Payment Amount") and the remainder in cash, after the application of Section 9.2. 3. Reduction of Total Award Amount in Certain Instances. ---------------------------------------------------- 3.1 Partial Year of Employment. In the event that: -------------------------- (a) during 1999, an Employee (i) is first placed on the management or executive payroll after January 1/st/ and prior to November 1/st/, (ii) is on a voluntary leave of absence or long-term disability, (iii) retires under the pension plan of any Employer, or (iv) dies; or (b) an Employee's employment with the Employers is terminated during 1999 as a result of (i) the sale, permanent closure or other disposition of any generation facility, (ii) the sale or other disposition of any business unit or functional group (or portion thereof) that includes such Employee, (iii) the Employer's decision to have a third party provide the services provided by the functional group that includes such Employee; or (c) an Employee accepts severance pay under a voluntary separation plan or is entitled to payment under any other severance plan or arrangement that provides for an Award, then the Total Award Amount shall be determined as follows: (i) with respect to an Employee whose position is in salary grade level 5 or above, or equivalent, the Total Award Amount will be prorated by multiplying it by a fraction, the numerator of which is the number of days during 1999 the Employee was employed by an Employer (or Employers) in a position in salary grade level 5 or above, or equivalent, and the denominator of which is 365; and (ii) with respect to an Employee whose position is in salary grade level entry through 4, or equivalent, the Total Award Amount will be based on the sum of such payroll earnings as have been determined by the Plan Administrator to be applicable for purposes of an Award hereunder, for the period during 1999 in which the Employee was employed by an Employer (or Employers) in a position in salary grade level entry through 4, or equivalent. 3.2 Other Incentive Plans. In the event that during 1999, an ---------------------- Employee participates in or becomes eligible to participate in, any sales or Page 4 of 7 group incentive plan that precludes receipt of an Award hereunder (such incentive plans collectively referred to herein as "Other Incentive Plans"), then the Total Award Amount shall be determined as follows: (a) with respect to an Employee whose position is in salary grade level 5 or above, or equivalent, the Total Award Amount will be prorated (after any adjustment required by Section 3.1) by multiplying it by a fraction, the numerator of which is the total number of days during 1999 that the Employee was employed by an Employer (or Employers) in a position in salary grade level 5 or above, or equivalent, and was not a participant in, or eligible to participate in, an Other Incentive Plan, and the denominator of which is 365; and (b) with respect to an Employee whose position is in salary grade level entry through 4, or equivalent, the Total Award Amount will be based on the sum of such payroll earnings as have been determined by the Plan Administrator to be applicable for purposes of an Award hereunder (after any adjustment required by Section 3.1), for the period during 1999 in which the Employee was employed by an Employer (or Employers) in a position in salary grade level entry through 4, or equivalent, and was not a participant in, or eligible to participate in, an Other Incentive Plan. 4. Part-Time Employees. For an Employee who is a part-time ------------------- Employee (as determined in accordance with his or her Employer's personnel practices), the Total Award Amount shall be determined as follows: (a) with respect to an Employee whose position is in salary grade level 5 or above, or equivalent, the Total Award Amount will be prorated by multiplying it by a fraction, the numerator of which is the number of hours the Employee was scheduled to work for an Employer (or Employers) during 1999 and the denominator of which is 2080; and (b) with respect to an Employee whose position is in salary grade level entry through 4, or equivalent, the Total Award Amount will be based on the sum of such payroll earnings which have been determined by the Plan Administrator to be applicable for purposes of an Award hereunder (after any adjustment required by Section 3.1), for the period during 1999 in which the Employee was employed by an Employer (or Employers) in a position in salary grade level entry through 4, or equivalent. This Section 4 shall be applied prior to the application of Section 3.1 for any Employee who is described therein. Page 5 of 7 5. Transfer of Employee from One Business Unit or Production --------------------------------------------------------- Facility to Another Business Unit or Production Facility. In the event that an - -------------------------------------------------------- Employee is transferred from one business unit to another business unit or production facility prior to November 1, 1999, the Total Award Amount for such Employee will equal the sum of the Award amounts determined on a prorated basis with respect to each business unit. With respect to an Employee who transfers from one business unit to another on or after November 1, 1999, the Award amount for the remainder of the year will be determined entirely based upon the goals of the business unit from which the Employee transferred. 6. Settlement of Awards. Payment of the Adjusted Total Award -------------------- Amount, if any, will be made to an Employee as soon as practicable after the Company's audited financial results are available for calendar year 1999. The number of shares of Common Stock payable as part of any Stock Payment Amount to an Employee shall be computed by dividing the Stock Payment Amount by the value of one share of Common Stock; provided, however, that shares that may become payable to an Employee hereunder shall not be issued if the aggregate number of shares payable to such Employee does not exceed 25 (and, in such case, cash shall be paid in an amount equal to the value of the shares that would have been issued but for this proviso). Fractional shares of Common Stock that may become payable to an Employee hereunder shall be awarded if the shares awarded to such Employee exceed 25 and are held in non-certificated, book-entry or electronic form; otherwise, any such fractional shares shall be paid in cash. For purposes of this Section, the value of a share of Common Stock shall be the average of the closing prices of a share of Common Stock as reported in The Wall Street Journal as New York Stock Exchange Composite Transactions during the last calendar quarter of 1999 (appropriately adjusted for any stock-split, stock dividend or other similar event). 7. Termination of Employment. An Employee whose employment with all ------------------------- Employers terminates on or prior to December 31, 1999 for any reason other than those described in Section 3.1 shall not be entitled to payment of any Award hereunder. 8. Rights as a Stockholder. No Employee shall have any rights as a ----------------------- stockholder of the Company with respect to any shares of Common Stock that may be payable hereunder unless and until such shares shall have been issued to such Employee or otherwise credited to an account for the benefit of such Employee. Page 6 of 7 9. Additional Terms and Conditions of Award. ---------------------------------------- 9.1. Non-Transferability of Award. In accordance with Section 13.5 of ---------------------------- the Plan, except as otherwise specifically provided by the Plan or by law, no Award may be transferable in any manner other than by will or the laws of descent and distribution, and any attempt to transfer any such Award shall be void; provided, however, that the foregoing shall not restrict the ability of any Employee to transfer any cash or Common Stock received as part of the payment of the Adjusted Total Award Amount. In accordance with Section 13.5 of the Plan, Awards shall not in any manner be subject to the debts, contracts, liabilities, engagements or torts of any person who shall be entitled to such Award nor shall they be subject to attachment or legal process for or against such person. 9.2. Withholding Taxes. As a condition precedent to the delivery to ----------------- the Employee of cash or Common Stock hereunder and in accordance with Section 13.4 of the Plan, the Company may deduct from any amount (including any payment of the Adjusted Total Award Amount) payable then or thereafter payable by the Company to the Employee, or may request the Employee to pay to the Company in cash, such amount as the Company may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over with respect to the Award. 9.3. Compliance with Applicable Law. Each Award is subject to the ------------------------------ condition that if the listing, registration or qualification of the shares of Common Stock subject to the Award upon any securities exchange or under any law, or the consent or approval of any governmental body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the vesting or delivery of such shares hereunder, such shares may not be delivered, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained. 9.4. Award Subject to the Plan. This Award is subject to the ------------------------- provisions of the Plan, and shall be interpreted in accordance therewith. Page 7 of 7 EX-10.38 8 AMENDED AND RESTATED KEY MANAGEMENT PLAN 3/8/99 Exhibit (10)-38 Unicom Corporation and Commonwealth Edison Company Form 10-K File No. 1-11375 and 1-1839 UNICOM CORPORATION KEY MANAGEMENT SEVERANCE PLAN As Amended and Restated, effective March 8, 1999 UNICOM CORPORATION KEY MANAGEMENT SEVERANCE PLAN 1. AMENDMENT AND RESTATEMENT; PURPOSE OF THE PLAN ---------------------------------------------- The Unicom Corporation Key Management Severance Plan (the "Plan") was established, effective June 15, 1998, by Unicom Corporation ("Unicom") to provide certain key employees of Commonwealth Edison Company ("ComEd") and other subsidiaries of Unicom (jointly and severally referred to herein as the "Company") certain severance benefits in the event the employment of such employees terminates under the circumstances described herein. The Plan was amended and restated, effective March 8, 1999, to reflect a policy approved by the Board of Directors of the Company which provides benefits in the event a key employee's employment is terminated by the Company other than for Cause or the employee resigns for Good Reason within 24 months following a Change in Control of the Company. This document serves as both the Plan document and the summary plan description which is required to be provided to participants under the Employee Retirement Income Security Act of 1974 (ERISA). 2. ELIGIBILITY ----------- Each individual who is on the executive payroll of ComEd or on the equivalent payroll of any other subsidiary of Unicom (an "Executive") shall be eligible for benefits hereunder in the event such Executive has a Termination of Employment. 3. PARTICIPATION ------------- Each eligible Executive shall become a participant in the Plan ("Participant") upon his or her execution of an agreement with the Company in such form as the Company, in its sole discretion, shall require or permit (the "Severance Agreement"). Except with respect to a Termination of Employment within 24 months following a Change in Control, as described in Section 5, each Severance Agreement shall include covenants not to compete which are substantially in the form attached hereto and made a part hereof as Exhibit I, and each Executive shall also be required to execute, no later than the date of the Participant's Termination of Employment or, if later, such date indicated by the Plan Administrator which shall be no less than 21 days after the date the Executive is provided with a copy of a Severance Agreement, a waiver and release of claims against the Company ("Waiver and Release"). 4. BENEFITS -------- Except as provided in Section 5 with respect to a Termination of Employment on account of a Change in Control, benefits under the Plan shall be those described in this Section 4; provided, however, that if, under the terms of an offer of employment or employment agreement with the Company, a Participant would be entitled to benefits which exceed the level of benefits under the Plan, the terms of such offer of employment or other agreement shall control. 4.1 Severance Pay. Each Participant shall receive severance pay at a monthly rate equal to 1/12 of the sum of the Participant's annual base salary in effect as of the date of Termination of Employment (plus Deferred Compensation Units, if any) plus the Severance Incentive (as defined in Paragraph 7.5). Payment shall be made biweekly for the duration of the applicable Salary Continuation Period, as indicated below, commencing no later than the second paydate which occurs after the date of the Participant's Termination of Employment, but in no event earlier than the date which is eight days after the date the Participant returns an executed Waiver and Release to the Plan Administrator. Payment will be made in accordance with the Company's normal payroll practices, net of applicable taxes and other deductions. Participant Title Salary Continuation Period ----------------- -------------------------- Senior Vice President and above 24 months Other Officers 18 months Executives (non-officers) 12 months 4.2 Incentive Programs. A Participant's Annual Incentive Award and Long Term Performance Unit Awards made or payable under the Unicom Corporation Long Term Incentive Plan (the "LTIP"), or any other annual incentive award and/or long term performance awards to which a Participant is entitled under the terms of a similar plan or arrangement(s) with respect to the calendar year in which occurs the Participant's Termination of Employment shall be prorated by multiplying the amount of such Awards, determined as described below, by a fraction the numerator of which is the number of days of the Participant's active employment during such calendar year and the denominator of which is 365. The amount of any such Awards shall be determined based upon achievement of applicable performance goals, in accordance with the terms of the applicable incentive program for such calendar year; provided, however, that a Long Term Performance Unit Award shall be payable hereunder with respect to any Participant (other than a Participant who is or who, as of the last day of his or her Salary Continuation Period would be, eligible to begin receiving retirement benefits under the Commonwealth Edison Company Service Annuity System (the "Pension Plan") or, if applicable, under the Commonwealth Edison Supplemental Management Retirement Plan (the "SERP")) only if such Participant was an active employee for at least 24 months of the performance period with respect to such Award. Payment of Awards under this Section 4.2 shall be made in a lump sum net of applicable taxes and other deductions at such time as the Awards for such calendar year are payable to active employees. 4.3 Stock Options. No Participant shall be entitled to participate in any grants of stock options under the LTIP made after such Participant's Termination of Employment. Except as provided below, any stock options granted to a Participant prior to such Participant's Termination of Employment shall be exercisable only to the extent such options are exercisable as of the date of such Termination of Employment and shall thereafter be exercised in accordance with the provisions of the LTIP. Stock options which remain unexercisable as of the date of a Participant's Termination of Employment shall be forfeited. Notwithstanding the preceding, with respect to any Participant who, as of the date of such Participant's Termination of Employment (or, if later, the last day of such Participant's Salary Continuation Period) is eligible to begin receiving retirement benefits under the Pension Plan or the SERP, as applicable, any stock options granted to such Participant which have not become exercisable prior to the date of the Termination of Employment shall become fully exercisable on such date, and shall remain exercisable until the expiration of the option term(s). 4.4 Health Care Coverage. Each Participant shall continue to participate in the health care plans sponsored by ComEd during the Salary Continuation Period. The premium for such coverage shall be the premium level in effect for active employees during such period. Coverage under this Paragraph 4.4 shall be provided for the duration of the Salary Continuation Period in lieu of continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) for the same period. At the end of the Salary Continuation Period, COBRA continuation coverage may be elected for the remaining balance of the statutory coverage period, if any; provided, however that a Participant who, as of the last day of the Salary Continuation Period has attained at least age 50 (but not age 55) and completed at least 10 years of service under the terms of the Pension Plan (or who, pursuant to the terms of an offer of employment or employment agreement, is credited with a number of additional years of age and/or service that would enable such Participant to satisfy the above eligibility requirements) shall be entitled to elect retiree health coverage under the ComEd health care plans on the same terms and subject to the same conditions as active employees who have attained age 55 and are eligible to begin receiving early retirement benefits under the Pension Plan. 4.5 Retirement Plans. During the Salary Continuation Period, each Participant shall accrue credited service under the SERP. The amount of any payment made under Section 4.1 to the Participant during such period shall be taken into account for purposes of the SERP, and each 2 Participant may also elect to participate in the Commonwealth Edison Excess Benefit Savings Plan during the Salary Continuation Period with respect to the portion of any such payment which is attributable to base salary. A Participant in the Plan shall not accrue service or otherwise actively participate in any tax-qualified retirement or savings plan sponsored by ComEd or the Company during the Salary Continuation Period, and shall not be entitled to commence to receive benefits under any such plan until after the expiration of the Salary Continuation Period. 4.6 Life Insurance and Disability Coverage. Continued coverage under the life insurance and long term disability plans sponsored by the Company shall be extended to each Participant through the last day of the Salary Continuation Period applicable to such Participant on the same terms and subject to the same conditions as are applicable to active employees. 4.7 Deferred Compensation Plans. The elections, if any, made by an Executive under any deferred compensation plan sponsored by the Company shall remain in effect through the last day of such participant's Salary Continuation Period, but such individual shall not be entitled to make any additional elections during such period. 4.8 Executive Perquisites. Executive perquisites shall terminate effective as of the date of a Participant's Termination of Employment, and any Company-owned property shall be required to be returned to the Company no later than such date; provided, however, that each Participant who is an officer of the Company shall be entitled to financial counseling services for a period of 24 months following the date of such Participant's Termination of Employment. 4.9 Outplacement Services. Each Participant shall be entitled to outplacement services at the expense of the Company for such period and subject to such terms and conditions as the Plan Administrator, in its sole discretion, determines are appropriate. 5. CHANGE IN CONTROL BENEFITS -------------------------- Notwithstanding the provisions of Section 4, if, within 24 months following a Change in Control, an Executive below the level of senior vice president has a Termination of Employment, the Company's obligations to such Executive shall be as follows: 5.1 Severance Pay. Each Executive shall receive, in a single cash lump sum within five business days following his Termination of Employment and net of applicable taxes, a severance payment equal to the product of (i) the Executive's then-current annual base salary, (ii) the Severance Incentive (as defined in Section 7.5), or, if greater, the target award under the annual incentive award program in which the Executive participates for the year in which the Termination of Employment occurs, and (iii) the multiplier indicated below: Participant Title Multiplier ----------------- ---------- Officers 2 Other Executives 1.5 5.2 Incentive Compensation. - --- ---------------------- (a) Each Executive shall receive in a cash lump sum, as soon as practicable following his Termination of Employment and net of applicable taxes, an amount equal to the target award under the annual incentive award program in which the Executive participates for the calendar year (or other performance period, if applicable) in which such Termination of Employment occurs, multiplied by a fraction the numerator of which is the number of days of the Participant's active employment during such calendar year and the denominator of which is 365. (b) Each of the Executive's stock options granted under the LTIP, any successor plan or otherwise that is exercisable on the date of the Executive's Termination of Employment, shall remain exercisable until the applicable option expiration 3 date. (c) On the date of the Executive's Termination of Employment (1) the Executive shall become fully vested in, and may thereupon and until the applicable expiration date of such stock incentive awards exercise in whole or in part, any and all stock incentive awards granted to the Executive under the LTIP, any successor plan or otherwise which have not become exercisable as of such date, and (2) the Executive shall become fully vested at the target level in any cash incentive awards granted under the LTIP, a successor plan or otherwise which have not, as of such date, become fully vested. (d) All forfeiture conditions that as of the date of the Executive's Termination of Employment are applicable to any deferred stock unit, restricted stock or restricted share units awarded to the Executive by the Company pursuant to the LTIP, a successor plan or otherwise shall lapse immediately. 5.3 Deferred Compensation. The Executive shall receive immediate payment of all amounts previously deferred by or accrued to the benefit of the Executive under any nonqualified deferred compensation plan sponsored by the Company, excluding the SERP, together with any accrued earnings thereon, which are unpaid as of the date of the Executive's Termination of Employment. The Company agrees to secure the lump sum actuarial present value of any benefits payable with respect to the Executive under the SERP by obtaining an irrevocable bank letter of credit issued by a bank that is a member of the Federal Reserve system until such benefits become payable to the Executive under the terms of the SERP. 5.4 Health Care Coverage. During the Severance Period (or until such later date as any welfare benefit plan program or policy of the Company may specify), the Company shall continue to provide to the Executive and the Executive's family welfare benefits (including, without limitation, medical, prescription, dental, vision and hearing care, long term care, disability, individual life and group life insurance benefits) which are at least as favorable as those provided under the most favorable welfare plans of the Company applicable (i) with respect to the Executive and his family during the 90-day period immediately preceding the date of the Executive's Termination of Employment, or (ii) with respect to other peer executives and their families during the Severance Period. In determining benefits under such welfare plans, the Executive's annual compensation attributable to base salary and incentives for any plan year or calendar year, as applicable, shall be deemed to be not less than the Executive's annual base salary and target annual incentive award for the calendar year or plan year, as applicable. The cost of the welfare benefits provided under this Section 5.4 shall not exceed the cost of such benefits to the Executive immediately before the date of the Executive's Termination of Employment. Notwithstanding the foregoing, if the Executive obtains comparable coverage under any welfare plans sponsored by another employer, then the amount of coverage required to be provided by the Company hereunder shall be reduced by the amount of coverage provided by such other employer's welfare plans. The Executive's rights under this Section shall be in addition to, and not in lieu of, any post-termination continuation coverage or conversion rights the Executive may have pursuant to applicable law, including without limitation, COBRA continuation coverage. For purposes of determining eligibility for (but not the time of commencement of) retiree benefits under any welfare plans of the Company, the Executive shall be considered (i) to have remained employed until the last day of the Severance Period and to have retired on the last day of such period, and (ii) to have attained the age the Executive would have attained on the last day of the Severance Period. 5.5 Retirement Plans. The amount payable under Section 5.1 shall be taken into account for purposes of determining the amount of benefits to which the Executive is entitled under the SERP; provided that such amount shall be taken into account as though it was earned equally over the Severance Period, and further provided that the Executive shall be deemed to have attained the age he or she would have attained as of the last day of the Severance Period, and completed the number of years of service he or she would have completed as of the last day of the Severance Period. To the extent that the Executive, under the terms of an employment contract or offer of employment with ComEd or the Company has received a grant of years of 4 service for purposes of the SERP and the Executive either (i) has, as of the date of his Termination of Employment, completed the number of years of service required in order to be entitled to benefits under the SERP, or (ii) would, taking into account the Severance Period, satisfy the service requirement for such benefits, the Severance Period shall be taken into account for purposes of determining the amount of and eligibility to begin to receive benefits under the SERP. 5.6 Outplacement Services. The Company shall, at its sole expense as incurred, pay on behalf of the Executive all fees and costs charged by a nationally recognized outplacement firm selected by the Executive to provide outplacement service. 5.7 Adjustments to Change in Control Benefits. (a) Excise Tax Gross-Up. If it is determined by the Company's independent auditors that any benefit received or deemed received by an Executive who is an officer below the level of senior vice president, pursuant to the Plan or otherwise, whether or not in connection with a Change in Control (the "Potential Parachute Payments") is or will become subject to any excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or any similar tax payable under any United States federal, state, local or other law (collectively, "Excise Taxes"), then the Company shall, subject to subsection (b)(i), pay the Executive an amount (the "Gross-up Payment") to compensate the Executive for all Excise Taxes payable by the Executive with respect to the Potential Parachute Payment and any federal, state, local or other income or other taxes or Excise Taxes payable by the Executive with respect to the Gross-up Payment. (b) Limitations on Payments. (i) Notwithstanding any other provision of this Section 5, if the aggregate After-Tax Amount (as defined below) of the Potential Parachute Payments and Gross-up Payments (both terms as defined in subsection (a)) that, but for this subsection (b)(i) would be payable to an Executive who is an officer below the level of senior vice president, does not exceed 110% of the After-Tax Floor Amount (as defined below), then no Gross-up Payment shall be made to such Executive, and the aggregate amount of Potential Parachute Payments payable to the Executive shall be reduced (but not below the Floor Amount) to the largest amount which would both (A) not cause any Excise Taxes to be payable by the Executive and (B) not cause any Potential Parachute Payments to become nondeductible by the Company by reason of Section 280G of the Code (or any successor provision). (ii) Further notwithstanding any other provision of this Section 5, if it is determined by the Company's independent auditors that any Potential Parachute Payments received or deemed received by an Executive who is not an officer is or will become subject to any Excise Taxes, then the aggregate amount of Potential Parachute Payments payable to such Executive shall be reduced (but not below the Floor Amount) to the largest amount which would both (A) not cause any Excise Taxes to be payable by the Executive and (B) not cause any Potential Parachute Payments to become nondeductible by the Company by reason of Section 280G of the Code (or any successor provision). For purposes of this subsection (b), the Executive shall be deemed to be subject to the highest effective after-tax marginal rate of federal and Illinois taxes. 5 (c) Definitions. For purposes of this Section 5.7: (i) "After-Tax Amount" means the portion of a specified amount that would remain after payment of all federal, state and local income or other taxes and Excise Taxes paid or payable by an Executive in respect of such specified amount; (ii) "Floor Amount" means the greatest pre-tax amount of Potential Parachute Payments that could be paid to an Executive without causing him to become liable for any Excise Taxes in connection therewith; and (iii) "After-Tax Floor Amount" means the After-Tax Amount of the Floor Amount. 5.8 Pooling of Interests Contingency. Any benefits provided to an Executive under this Section 5 may be reduced or eliminated to the extent necessary, in the reasonable judgment of the Board of Directors of Unicom which is supported by a written certificate of the Company's independent auditors, to enable the Company to account for a merger, consolidation or similar transaction as a pooling of interests, provided that the Unicom Board shall have exercised such judgment and given the Executive written notice thereof prior to the effective date of any Change in Control. 6. TERMINATION OF PARTICIPATION; CESSATION OF BENEFITS --------------------------------------------------- A Participant's benefits under Section 4 of the Plan shall terminate on the last day of the Participant's Salary Continuation Period or, if earlier, on such date as the Company discovers that the Participant has breached any of the restrictive covenants contained in the Severance Agreement between the Executive and the Company which is a condition precedent to the payment of benefits under Section 4 hereof. In the event of any such breach, the Company may require the repayment of amounts paid prior to such breach in accordance with Paragraph 4.1, and shall discontinue the payment of any additional amounts under Section 4 of the Plan. A Participant's benefits under Section 5 of the Plan shall terminate on the last day of the Participant's Severance Period or, if later, on the date all benefits to which the Participant is entitled have been paid from the Plan. 7. DEFINITIONS ----------- In addition to terms previously defined, when used in the Plan, the following capitalized terms shall have the following meanings unless the context clearly indicates otherwise: 7.1 "Cause" means, with respect to any Executive: (a) the Executive's willful commission of acts(s) or omissions(s) which have, have had, or are likely to have a material adverse effect on the business, operations, financial condition or reputation of the Company or any of its affiliates; (b) the Executive's conviction (including a plea of guilty or nolo contendere) of a felony or any crime of fraud, theft, dishonesty or moral turpitude; or, (c) the Executive's material violation of any statutory or common law duty of loyalty to the Company or any of its affiliates. 7.2 "Change in Control" means: 6 (a) The acquisition by any individual, entity or group (within the meaning of Section 13 (d) (3) or 14 (d) (2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then-outstanding shares of common stock of Unicom (the "Outstanding Company Common Stock"), or (ii) the combined voting power of the then-outstanding voting securities of Unicom entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (A) any acquisition directly from Unicom (excluding any acquisition resulting from the exercise of an exercise, conversion or exchange privilege unless the security being so exercised, converted or exchanged was acquired directly from Unicom), (B) any acquisition by Unicom, (C) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by Unicom or any corporation controlled by Unicom (a "Company Plan"), or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this definition; provided further, that for purposes of clause (B), if any Person (other than Unicom or any Company Plan) shall become the beneficial owner of 20% or more of the Outstanding Unicom Common Stock or 20% or more of the Outstanding Unicom Voting Securities by reason of an acquisition by Unicom, and such Person shall, after such acquisition by Unicom, become the beneficial owner of any additional shares of the Outstanding Unicom Common Stock or any additional Outstanding Unicom Voting Securities (other than pursuant to any dividend reinvestment plan or arrangement maintained by Unicom) and such beneficial ownership is publicly announced, such additional beneficial ownership shall constitute a Change in Control; or (b) Individuals who, as of the date hereof, constitute the Board of Directors of Unicom (for purposes of this Section 7.2, the "Incumbent Board") cease for any reason to constitute at least a majority of the Incumbent Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by Unicom shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest (as such terms are used in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors of Unicom; or (c) Approval by the shareholders of the Company of a reorganization, merger or consolidation, or the sale or other disposition of more than 50% of the operating assets of Unicom (determined on a consolidated basis), other than in connection with a sale-leaseback or other arrangement resulting in the continued utilization of such assets (or the operating products of such assets) by the Company (such sale or other disposition, a "Corporate Transaction"); excluding, however, a Corporate Transaction pursuant to which: (i) all or substantially all of the individuals and entities who are the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Corporate Transaction beneficially own, directly or indirectly, more than 60% of, respectively, the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, 7 of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation which, as a result of such transaction, owns the Company or all or substantially all of the assets of the Company either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Corporate Transaction of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; (ii) no Person (other than Unicom, any Company Plan or related trust of the Company, the corporation resulting from such Corporate Transaction, and any Person which beneficially owned, immediately prior to such Corporate Transaction, directly or indirectly, 20% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) will beneficially own, directly or indirectly, 20% or more of, respectively, the then-outstanding common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the outstanding voting securities of such corporation; and (iii) individuals who were members of the Incumbent Board will constitute at least a majority of the members of the board of directors of the corporation resulting from such Corporate Transaction; or (d) Approval by the shareholders of the Unicom of a plan of complete liquidation or dissolution of Unicom or ComEd, other than a plan of liquidation or dissolution which results in the acquisition of all or substantially all of the assets of ComEd by Unicom or an affiliated company. 7.3 "Good Reason" means a material reduction of an Executive's salary, incentive compensation or benefits, unless such reduction is part of a policy, program or arrangement applicable to peer executives of the Company and of any successor entity; or a material reduction or material adverse alteration in the nature of the Executive's position, duties, function, responsibilities or authority; provided, however, that for purposes of Section 5, "Good Reason" shall also mean: (a) the failure to maintain the Executive in the office or position, or in a substantially equivalent office or position, held by the Executive immediately prior to the Change in Control; (b) a determination by the Executive, made in good faith, that, as a result of the Change in Control, the Executive is substantially unable to perform, or that there has been a material reduction in, any of the Executive's duties, functions responsibilities or authority; (c) the failure of any successor to the Company to assume the Plan, or a material breach of the obligations hereunder by the Company or its successor; (d) a relocation of more than 50 miles of (i) the Executive's workplace, or (ii) the principal offices of the Company (if such offices are the Executive's workplace), in each case without the consent of the Executive; or (e) a requirement of at least 20% more business travel than was required of the Executive prior to the Change in Control. 7.4 "Salary Continuation Period" means the period indicated in Section 4.1 during which benefits are payable under the Plan. 8 7.5 "Severance Incentive" means the average of the annual incentive awards paid to a Participant under the LTIP (or such other annual incentive plan or arrangement under which the Participant is entitled to such awards), a successor plan or otherwise with respect to each of the two calendar years preceding the year in which occurs the Participant's Termination of Employment. 7.6 "Severance Period" means, with respect to an officer below the level of senior vice president, two years and, with respect to any other Executive who is not an officer, 18 months. 7.7 "Termination of Employment" means: (a) a termination of the Executive's employment by the Company or any subsidiary for reasons other than for Cause; or (b) a resignation by the Executive for Good Reason. A termination of employment for Cause or an Executive's resignation other than for Good Reason shall not be a Termination of Employment for purposes of the Plan. Any dispute regarding whether an Executive's Termination of Employment for purposes of Section 5 is based on Good Reason shall be submitted to binding arbitration. 8. FUNDING ------- Nothing in the Plan shall be interpreted as requiring Unicom to set aside any of its assets for the purpose of funding its obligations under the Plan. No person entitled to benefits under the Plan shall have any right, title or claim in or to any specific assets of Unicom, but shall have the right only as a general creditor of Unicom to receive benefits from Unicom on the terms and conditions provided in the Plan. 9. ADMINISTRATION OF THE PLAN -------------------------- Unicom is the "administrator" and a "named fiduciary" of the Plan for purposes of the Employee Retirement Income Security Act of 1974, as amended (ERISA). The Plan shall be administered on a day-to-day basis by the Director of Compensation Planning of ComEd (the "Plan Administrator"). The Plan Administrator has the sole and absolute power and authority to interpret and apply the provisions of this Plan to a particular circumstance, make all factual and legal determinations, construe uncertain or disputed terms and make eligibility and benefit determinations in such manner and to such extent as the Plan Administrator in his or her sole discretion may determine. The Plan Administrator shall promulgate any rules and regulations necessary to carry out the purposes of the Plan or to interpret the terms and conditions of the Plan; provided, however, that no rule, regulation or interpretation shall be contrary to the provisions of the Plan. The rules, regulations and interpretations made by the Plan Administrator shall be applied on a uniform basis and shall be final and binding on any Executive or former Executive of the Company or any successor in interest of either. The Plan Administrator may delegate any administrative duties, including, without limitation, duties with respect to the processing, review, investigation, approval and payment of severance pay and provision of severance benefits, to designated individuals or committees. 10. CLAIMS PROCEDURE ---------------- 9 The Plan Administrator shall determine the rights of any Executive or former Executive of the Company to any severance pay or benefits hereunder. Any Executive or former Executive of the Company who believes that he or she is entitled to receive severance pay or benefits under the Plan, including severance pay or benefits other than those initially determined by the Plan Administrator, may file a claim in writing with the Plan Administrator. No later than 90 days after the receipt of the claim the Plan Administrator shall either allow or deny the claim in writing. A denial of a claim, in whole or in part, shall be written in a manner calculated to be understood by the claimant and shall include the specific reason or reasons for the denial; specific reference to pertinent Plan provisions on which the denial is based; a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and an explanation of the claims review procedure. A claimant whose claim is denied (or his or her duly authorized representative), may, within 60 days after receipt of the denial of his or her claim, request a review upon written application to an officer designated by Unicom and specified in the claim denial; review pertinent documents; and submit issues and comments in writing. The designated officer shall notify the claimant of his or her decision on review within 60 days after receipt of a request for review unless special circumstances require an extension of time for processing, in which case a decision shall be rendered as soon as possible, but not later than 120 days after receipt of a request for review. Notice of the decision on review shall be in writing. The officer's decision on review shall be final and binding on any claimant or any successor in interest. 11. AMENDMENT OR TERMINATION OF PLAN -------------------------------- Notwithstanding anything in the Plan to the contrary, Unicom's Senior Vice President Corporate Resources or another designated officer of the Company may amend, modify or terminate the Plan at any time by written instrument; provided, however, that no amendment, modification or termination shall deprive any Participant of any payment or benefit that the Plan Administrator previously has determined is payable under the Plan. 12. MISCELLANEOUS ------------- 12.1 Limitation on Rights. Participation in the Plan is limited to the individuals described in Sections 2 and 3, and the Plan shall not apply to any voluntary or involuntary termination of employment that is not a Termination of Employment occurring on or after the effective date of the Plan. 12.2 No Mitigation. The Executive shall not have any duty to mitigate the amounts payable by the Company under this Agreement by seeking new employment following termination. Except as specifically otherwise provided in this Agreement, all amounts payable pursuant to this Agreement shall be paid without reduction regardless of any amounts of salary, compensation or other amounts which may be paid or payable to the Executive as the result of the Executive's employment by another employer. 12.3 Headings. Headings of sections in this document are for convenience only, and do not constitute any part of the Plan. 12.4 Severability. If any provision of this Plan or the rules and regulations made pursuant to the Plan are held to be invalid or illegal for any reason, such illegality or invalidity shall not affect the 10 remaining portions of this Plan. 12.5 Governing Law. The Plan shall be construed and enforced in accordance with ERISA and the laws of the State of Illinois to the extent such laws are not preempted by ERISA. 12.6 Successors and Assigns. This Plan shall be binding upon and inure to the benefit of Unicom and its successors and assigns and shall be binding upon and inure to the benefit of a Participant and his or her legal representatives, heirs and assigns. Before or upon the consummation of any Change in Control, the Company shall obtain from each individual, entity or group that becomes a successor of the Company by reason of the Change in Control, the unconditional written agreement of such individual, entity or group to assume this Plan and to perform all of the obligations of the Company under Section 5 hereof. No rights, obligations or liabilities of a Participant hereunder shall be assignable without the prior written consent of Unicom. In the event of the death of a Participant, prior to receipt of severance pay or benefits to which he or she is entitled hereunder (and, with respect to benefits under Section 4, after he or she has signed the Waiver and Release), the severance pay described in Section 4.1 or 5.1, as applicable, shall be paid to his or her estate, and the Participant's dependents who are covered under the ComEd health care plans shall be entitled to continued rights under Section 4.4 or Section 5.4, as applicable; provided that in the case of benefits provided under Section 4, the estate or other successor of the Participant has not revoked such Waiver and Release. 13. ADMINISTRATIVE INFORMATION -------------------------- Plan Sponsor: Unicom Corporation Addres: 227 West Monroe Street, 12th Floor Chicago, Illinois 60606 Employer Identification Number: 36-3961038 Plan Administrator: Compensation Planning Vice President Address and Telephone: Commonwealth Edison Company PO Box 767 Chicago, Illinois 60690-0767 (312) 394-4015 Agent for Service of Legal Process: Compensation Planning Vice President Commonwealth Edison Company PO Box 767 Chicago, Illinois 60690-0767 Plan Number: 501 Type of Plan: severance benefit plan (welfare) Plan Year: calendar year 14. ERISA RIGHTS ------------ As a Participant in the Plan, you are entitled to certain rights and protections under ERISA. ERISA provides that all plan participants shall be entitled to: 11 Examine, without charge, at the Plan Administrator's office at 10 S. Dearborn Street, Chicago, Illinois 60603 all Plan documents and copies of all documents filed by the Plan with the U.S. Department of Labor; and Obtain copies of all Plan documents and other Plan information upon written request to the Plan Administrator. The Plan Administrator may make a reasonable charge for the copies. In addition to creating rights for Participants, ERISA imposes duties upon the people who are responsible for the operation of the Plan. The people who operate the Plan, called "fiduciaries" of the Plan, have a duty to act prudently and in the interest of you and other Participants and beneficiaries. No one, including your employer, your union, or any other person, may fire you or otherwise discriminate against you in any way to prevent you from obtaining your interest in the Plan or from exercising your rights under ERISA. If your claim for a benefit from the Plan is denied in whole or in part, you must receive a written explanation of the reason for the denial. You have the right to have your claim reviewed and reconsidered. Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request materials from the Plan and do not receive them within 30 days, you may file suit in a federal court. In such a case, the court may require the Plan Administrator to provide the materials and pay you up to $110 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the Plan Administrator. If you have a claim for benefits which is denied or ignored, in whole or in part, you may file suit in a state or federal court. If it should happen that Plan fiduciaries misuse the Plan's money, or if you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a federal court. The court will decide who should pay court costs and legal fees. If you are successful, the court may order the person you have sued to pay these costs and fees. If you lose and the court finds your claim to be frivolous, the court may order you to pay these costs and fees. If you have any questions about the Plan, you should contact the Plan Administrator. If you have any questions about this statement or about your rights under ERISA, you should contact the nearest Area Office of the U.S. Labor-Management Services Administration, Department of Labor. March 8, 1999 12 EXHIBIT I --------- NON-COMPETITION COVENANTS ------------------------- 1. Confidential Information Defined. For the purposes hereof, the term "Confidential Information" shall mean any information not generally known in the relevant trade or industry, which was obtained from Unicom Corporation, Commonwealth Edison Company or any affiliate thereof (the "Company"), or which was learned, discovered, developed, conceived, originated or prepared during or as result of your performance of any services on behalf of the Company and which falls within the following general categories: (a) information relating to trade secrets of the Company or any customer or supplier of the Company; (b) information relating to existing or contemplated products, services, technology, designs, processes, formulae, algorithms, research or product developments of the Company or any customer or supplier of the Company; (c) information relating to business plans or strategies, sales or marketing methods, methods of doing business, customer lists, customer usages and/or requirements, supplier information of the Company or any customer or supplier of the Company; (d) information subject to protection under the Uniform Trade Secrets Act, as adopted by the State of Illinois, or to any comparable protection afforded by applicable laws; and (e) any other confidential information which either the Company or any customer or supplier of the Company may reasonably have the right to protect by patent, copyright or by keeping it secret and confidential. 2. Nondisclosure of Confidential Information. You agree that you will not use for your own benefit, in any manner, or disclose any Confidential Information obtained during your employment with the Company at any time, to any other person, firm or corporation without the Company's prior written consent, except as may be required by the lawful order of a court or agency of competent jurisdiction. You agree to take all reasonable steps to safeguard such Confidential Information and to protect such information against disclosure, misuse, loss and theft. Your obligations under this paragraph with respect to any specific Confidential Information shall cease when that specific portion of Confidential Information becomes publicly known. 3. Non-Competition. (a) You agree that for a period of two years beginning on the date of termination of employment, without the prior written approval of the Company you will not, directly or indirectly, in any capacity, engage or participate in, become employed by, serve as a director of, or render advisory or consulting or other services in connection with, any Competitive Business (as defined below). (b) You agree that for a period of two years beginning on the date of termination of employment, without the prior written consent of the Company, you will not at any time make any financial investment, whether in the form of equity or debt, or own any interest, directly or indirectly, in any Competitive Business. Nothing in this subsection shall, however, restrict you from making an investment in any Competitive Business if such investment does not represent more than 1% of market value of the outstanding capital stock or debt (as applicable) of such Competitive Business. "Competitive Business" means, as of any date, any individual or entity (and any branch, office or operation thereof) which engages in, or proposes to engage in (i) the production, transmission, distribution, marketing or sale of electricity or (ii) any other business engaged in by the Company prior to the separation date which represents for any calendar year or is projected by the Company (as reflected in a business plan adopted by the Company before the separation date) to yield during any year during the first three-fiscal year period commencing on or after the separation date, more than 5% of the gross revenue of the Company, and which is located (i) anywhere in the United States, or (ii) anywhere outside of the United States where the Company is then engaged in, or proposes to engage in, any of such activities. 4. Non-Solicitation. You agree that for a period of two years beginning on the date of termination of employment, you will not, directly or indirectly: (a) encourage any employee to terminate his or her employment; (b) employ, engage as a consultant or adviser, or solicit the employment or engagement as a consultant or adviser of, any employee or cause any individual or entity to do any of the foregoing; (c) establish a business with, or encourage others to establish a business with, any employee; or (d) interfere with the relationship of the Company with, or endeavor to entice away from the Company any individual or entity who or which at any time during the period commencing one year prior to the date of termination of employment was a material customer or material supplier of, or maintained a material business relationship with, the Company. 5. Reasonableness of Restrictive Covenants. 2 You acknowledge that the covenants contained in Sections 2, 3 and 4 are reasonable in the scope of the activities restricted, the geographic area covered by the restrictions, and the duration of the restrictions, and that such covenants are reasonably necessary to protect the Company's legitimate interests in its Confidential Information and in its relationships with employees, customers and suppliers. You further acknowledge such covenants are essential elements of this [A]greement and that, but for such covenants, the Company would not have entered into this [A]greement. You further acknowledge that you have consulted with legal counsel and have been advised concerning the reasonableness and propriety of such covenants. You acknowledge that your observance of the covenants contained in Sections 2, 3 and 4 will not deprive you of the ability to earn a livelihood or to support your dependents. 6. Right to Injunction; Survival of Undertakings. (a) In recognition of the confidential nature of the Confidential Information, and in recognition of the necessity of the limited restrictions imposed by Sections 2, 3 and 4, the parties agree that it would be impossible to measure solely in money the damages which the Company would suffer you were to breach any of your obligations under such paragraphs. You acknowledge that any breach of any provision of such paragraphs would irreparably injure the Company. Accordingly, you agree that if you breach any of the provisions of such paragraphs, the Company shall be entitled, in addition to any other remedies to which the Company may be entitled under this letter agreement or otherwise, to an injunction to be issued by a court of competent jurisdiction, to restrain any breach, or threatened breach, of such provisions, and you hereby waive any right to assert any claim or defense that the Company has an adequate remedy at law for any such breach. (b) If a court determines that any of the covenants included in Sections 2, 3 and 4 is unenforceable in whole or in part because of such covenant's duration or geographical or other scope, such court shall have the power to reduce the duration or scope of such provision, as the case may be, so as to cause such covenant to be thereafter enforceable. 3 EX-12 9 STATEMENT RE: COMPUTATION OF RATIOS Exhibit (12) Commonwealth Edison Company Form 8-K File No. 1-1839 Commonwealth Edison Company and Subsidiary Companies Consolidated ------------------------------------------------------------------ Computation of Ratios of Earnings to Fixed Charges and Ratios of Earnings to Fixed Charges and Preferred and Preference Stock Dividend Requirements ---------------------------------------------------- (Thousands of Dollars)
Twelve Months Ended --------------------------- Line December 31, December 31, No. 1999 1998 - ---- ------------ ------------ 1 Net income before extraordinary items $ 650,308 $ 594,206 ---------- ---------- 2 Net provisions for income taxes and 3 investment tax credits deferred 4 charged to- 5 Operations $ 353,477 $ 355,667 6 Other income (25,544) (4,741) ---------- ---------- 7 $ 327,933 $ 350,926 ---------- ---------- 8 Fixed charges- 9 Interest on debt $ 567,567 $ 478,404 10 Estimated interest component of nuclear 11 fuel and other lease payments, rentals 12 and other interest 65,705 74,568 13 Amortization of debt discount, premium and 14 expense 10,083 10,369 15 Company-obligated mandatorily redeemable 16 preferred securities dividend requirements 17 of subsidiary trusts holding solely the 18 Company's subordinated debt securities 29,710 29,710 ---------- ---------- 19 $ 673,065 $ 593,051 ---------- ---------- 20 Preferred and preference stock dividend 21 requirements- 22 Provisions for preferred and preference 23 stock dividends $ 23,756 $ 56,884 24 Taxes on income required to meet provisions for preferred and preference stock dividends 15,543 37,232 ---------- ---------- 25 $ 39,299 $ 94,116 ---------- ---------- 26 Fixed charges and preferred and preference 27 stock dividend requirements $ 712,364 $ 687,167 ---------- ---------- 28 Earnings for fixed charges and preferred 29 and preference stock dividend requirements $1,651,306 $1,538,183 ---------- ---------- 30 Ratios of earnings to fixed charges (line 29 divided by line 19) 2.45 2.59 ========== ========== 31 Ratios of earnings to fixed charges and 32 preferred and preference 33 stock dividend requirements 34 (line 29 divided by line 27) 2.32 2.24 ========== ==========
EX-21.1 10 SUBSIDIARIES OF UNICOM Exhibit (21)-1 Unicom Corporation Form 10-K File No. 1-11375 Unicom Corporation Subsidiaries of the Company ---------------------------
State or Jurisdiction in Which Incorporated Name or Organized - ------------------------------------------- ------------ Commonwealth Edison Company Illinois Commonwealth Edison Company of Indiana, Inc. Indiana ComEd Financing I (Subsidiary Trust) Delaware ComEd Financing II (Subsidiary Trust) Delaware ComEd Funding, LLC Delaware ComEd Transitional Funding Trust Delaware Commonwealth Research Corporation Illinois Concomber Ltd. Bermuda Edison Development Company Delaware Edison Development Canada Inc. Canada Edison Finance Partnership Canada Unicom Assurance Company Ltd. Bermuda Unicom Enterprises Inc. Illinois Unicom Energy Services Inc. Illinois Unicom Energy Inc. Delaware Unicom Energy Ohio, Inc. Delaware Unicom Investment Inc. Illinois Unicom Mechanical Services Inc. Delaware V. A. Smith Company Illinois Hoekstra Building Automation, Inc. Illinois Access Systems, Inc. Illinois UMS Acquisition Corp. Delaware KHB Inc. Illinois MMCD, Inc. Illinois MMSD, Inc. Illinois Unicom Power Holdings Inc. Delaware Unicom Power Marketing Inc. Delaware Unicom Healthcare Management Inc. Illinois UT Holdings Inc. Delaware Northwind Chicago LLC Delaware Unicom Thermal Development Inc. Delaware Unicom Thermal Technologies Inc. Illinois Unicom Thermal Technologies Boston Inc. Delaware Unicom Thermal Technologies Houston Inc. Delaware Unicom Thermal Technologies North America Inc. Delaware Northwind Thermal Technologies Canada Inc. New Brunswick Unicom Thermal Technologies Inc. New Brunswick UTT National Power Inc. Illinois UTT Nevada Inc. Nevada UTT Phoenix, Inc. Delaware Unicom Resources Inc. Illinois
EX-21.2 11 SUBSIDIARIES OF COM ED Exhibit (21)-2 Commonwealth Edison Company Form 10-K File No. 1-1839 Commonwealth Edison Subsidiaries of the Company ---------------------------
State or Jurisdiction in Which Incorporated Name or Organized - ------------------------------------------------ ------------ Commonwealth Edison Company Illinois Commonwealth Edison Company of Indiana, Inc. Indiana ComEd Financing I (Subsidiary Trust) Delaware ComEd Financing II (Subsidiary Trust) Delaware ComEd Funding, LLC Delaware ComEd Transitional Funding Trust Delaware Commonwealth Research Corporation Illinois Concomber Ltd. Bermuda Edison Development Company Delaware Edison Development Canada Inc. Canada Edison Finance Partnership Canada
EX-23.1 12 CONSENT OF EXPERTS FOR UNICOM Exhibit (23)-1 Unicom Corporation Form 10-K File No. 1-11375 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------- As independent public accountants, we hereby consent to the incorporation by reference into Unicom Corporation's previously filed prospectuses dated March 18, 1994, constituting part of Form S-4 Registration Statement File No. 33-52109, as amended (relating to Common Stock of Unicom Corporation), as further amended by Post-Effective Amendment No. 1 on Form S-8 (relating to Commonwealth Edison Company's Employee Savings and Investment Plan) and Post- Effective Amendment No. 2 on Form S-8 (relating to Unicom Corporation's Employee Stock Purchase Plan), Form S-8 Registration Statement File No. 33-56991 (relating to Unicom Corporation's Long-Term Incentive Plan), Form S-4 Registration Statement File No. 333-01003 (relating to the common stock of Unicom Corporation), Form S-8 Registration Statement File No. 333-04749 (relating to Unicom Corporation's 1996 Directors' Fee Plan), Form S-8 Registration Statement File Nos. 333-10613 and 333-26779 (relating to Commonwealth Edison Company's Employee Savings and Investment Plan) and Form S-8 Registration Statement File No. 333-39677 (relating to the Unicom Corporation Management Deferred Compensation Plan ARTHUR ANDERSEN LLP Chicago, Illinois March 30, 2000 EX-23.2 13 CONSENT OF EXPERTS OF COMED Exhibit (23)-2 Commonwealth Edison Company Form 10-K File No. 1-1839 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------- As independent public accountants, we hereby consent to the incorporation by reference in this Form 10-K of our report dated January 31, 2000, on Commonwealth Edison Company and Subsidiary Companies' consolidated financial statements as of and for the year ended December 31, 1999, included in Commonwealth Edison Company's Current Report on Form 8-K dated January 31, 2000, to the inclusion in this Form 10-K of our report dated January 31, 2000, on the supplemental schedule of Commonwealth Edison Company as of and for the year ended December 31, 1999, and to the incorporation of such reports into Commonwealth Edison Company's previously filed prospectuses as follows: (1) prospectus dated August 21, 1986, constituting part of Form S-3 Registration Statement File No. 33-6879, as amended (relating to the Company's Debt Securities and Common Stock); (2) prospectus dated January 7, 1994, constituting part of Form S-3 Registration Statement File No. 33-51379 (relating to the Company's Debt Securities and Cumulative Preference Stock); (3) prospectus dated September 19, 1995, constituting part of Amendment No. 1 to Form S-3 Registration Statement File No. 33-61343, as amended (relating to Company- Obligated Mandatorily Redeemable Preferred Securities of ComEd Financing I); (4) prospectus dated June 13, 1997, constituting part of Form S-4 Registration Statement File No. 333-28369 (relating to Company-Obligated Mandatorily Redeemable Preferred Securities of ComEd Financing II); and (5) Form S-8 Registration Statement File No. 333-33847 (relating to the Commonwealth Edison Company Excess Benefit Savings Plan). ARTHUR ANDERSEN LLP Chicago, Illinois March 29, 2000 EX-24.1 14 POWERS OF ATTORNEY OF DIRECTORS Exhibit (24)-1 Unicom Corporation and Commonwealth Edison Company Form 10-K File Nos. 1-11375 and 1-1839 POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS: That the undersigned, a Director of Unicom Corporation and Commonwealth Edison Company, each an Illinois corporation, does hereby constitute and appoint JOHN W. ROWE, RUTH ANN M. GILLIS and JOHN P. MCGARRITY, and each of them, his true and lawful attorneys and agents, each with full power and authority (acting alone and without the others) to execute in the name and on behalf of the undersigned as such Director, the Annual Report on Form 10-K for the fiscal year ended December 31, 1999 for Unicom Corporation and Commonwealth Edison Company, to be filed with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or any of them, may do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, I have hereunto set my hand this 17th day of March, 2000. /s/ Edward A. Brennan -------------------------- Edward A. Brennan STATE OF ILLINOIS ) ) SS COUNTY OF COOK ) I, Mary L. Kwilos, a Notary Public in and for said County, in the State aforesaid, DO HEREBY CERTIFY that EDWARD A. BRENNAN, personally known to me to be the same person whose name is subscribed to the foregoing instrument, appeared before me this day in person, and acknowledged that he signed and delivered said instrument as his free and voluntary act, for the uses and purposes therein set forth. GIVEN under my hand and the notarial seal this 17th day of March, 2000. /s/ Mary L. Kwilos -------------------------- Mary L. Kwilos Notary Public POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS: That the undersigned, a Director of Unicom Corporation and Commonwealth Edison Company, each an Illinois corporation, does hereby constitute and appoint JOHN W. ROWE, RUTH ANN M. GILLIS and JOHN P. MCGARRITY, and each of them, his true and lawful attorneys and agents, each with full power and authority (acting alone and without the others) to execute in the name and on behalf of the undersigned as such Director, the Annual Report on Form 10-K for the fiscal year ended December 31, 1999 for Unicom Corporation and Commonwealth Edison Company, to be filed with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or any of them, may do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, I have hereunto set my hand this 17th day of March, 2000. /s/ Carlos H. Cantu -------------------------- Carlos H. Cantu STATE OF ILLINOIS ) ) SS COUNTY OF COOK ) I, Mary L. Kwilos, a Notary Public in and for said County, in the State aforesaid, DO HEREBY CERTIFY that CARLOS H. CANTU, personally known to me to be the same person whose name is subscribed to the foregoing instrument, appeared before me this day in person, and acknowledged that he signed and delivered said instrument as his free and voluntary act, for the uses and purposes therein set forth. GIVEN under my hand and the notarial seal this 17th day of March, 2000. /s/ Mary L. Kwilos -------------------------- Mary L. Kwilos Notary Public POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS: That the undersigned, a Director of Unicom Corporation and Commonwealth Edison Company, each an Illinois corporation, does hereby constitute and appoint JOHN W. ROWE, RUTH ANN M. GILLIS and JOHN P. MCGARRITY, and each of them, his true and lawful attorneys and agents, each with full power and authority (acting alone and without the others) to execute in the name and on behalf of the undersigned as such Director, the Annual Report on Form 10-K for the fiscal year ended December 31, 1999 for Unicom Corporation and Commonwealth Edison Company, to be filed with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or any of them, may do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, I have hereunto set my hand this 17th day of March, 2000. /s/ James W. Compton -------------------------- James W. Compton STATE OF ILLINOIS ) ) SS COUNTY OF COOK ) I, Mary L. Kwilos, a Notary Public in and for said County, in the State aforesaid, DO HEREBY CERTIFY that JAMES W. COMPTON, personally known to me to be the same person whose name is subscribed to the foregoing instrument, appeared before me this day in person, and acknowledged that he signed and delivered said instrument as his free and voluntary act, for the uses and purposes therein set forth. GIVEN under my hand and the notarial seal this 17th day of March, 2000. /s/ Mary L. Kwilos -------------------------- Mary L. Kwilos Notary Public POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS: That the undersigned, a Director of Unicom Corporation and Commonwealth Edison Company, each an Illinois corporation, does hereby constitute and appoint JOHN W. ROWE, RUTH ANN M. GILLIS and JOHN P. MCGARRITY, and each of them, his true and lawful attorneys and agents, each with full power and authority (acting alone and without the others) to execute in the name and on behalf of the undersigned as such Director, the Annual Report on Form 10-K for the fiscal year ended December 31, 1999 for Unicom Corporation and Commonwealth Edison Company, to be filed with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or any of them, may do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, I have hereunto set my hand this 17th day of March, 2000. /s/ Bruce DeMars -------------------------- Bruce DeMars STATE OF ILLINOIS ) ) SS COUNTY OF COOK ) I, Mary L. Kwilos, a Notary Public in and for said County, in the State aforesaid, DO HEREBY CERTIFY that BRUCE DEMARS, personally known to me to be the same person whose name is subscribed to the foregoing instrument, appeared before me this day in person, and acknowledged that he signed and delivered said instrument as his free and voluntary act, for the uses and purposes therein set forth. GIVEN under my hand and the notarial seal this 17th day of March, 2000. /s/ Mary L. Kwilos -------------------------- Mary L. Kwilos Notary Public POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS: That the undersigned, a Director of Unicom Corporation and Commonwealth Edison Company, each an Illinois corporation, does hereby constitute and appoint JOHN W. ROWE, RUTH ANN M. GILLIS and JOHN P. MCGARRITY, and each of them, his true and lawful attorneys and agents, each with full power and authority (acting alone and without the others) to execute in the name and on behalf of the undersigned as such Director, the Annual Report on Form 10-K for the fiscal year ended December 31, 1999 for Unicom Corporation and Commonwealth Edison Company, to be filed with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or any of them, may do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, I have hereunto set my hand this 17th day of March, 2000. /s/ Donald P. Jacobs -------------------------- Donald P. Jacobs STATE OF ILLINOIS ) ) SS COUNTY OF COOK ) I, Mary L. Kwilos, a Notary Public in and for said County, in the State aforesaid, DO HEREBY CERTIFY that DONALD P. JACOBS, personally known to me to be the same person whose name is subscribed to the foregoing instrument, appeared before me this day in person, and acknowledged that he signed and delivered said instrument as his free and voluntary act, for the uses and purposes therein set forth. GIVEN under my hand and the notarial seal this 17th day of March, 2000. /s/ Mary L. Kwilos -------------------------- Mary L. Kwilos Notary Public POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS: That the undersigned, a Director of Unicom Corporation and Commonwealth Edison Company, each an Illinois corporation, does hereby constitute and appoint JOHN W. ROWE, RUTH ANN M. GILLIS and JOHN P. MCGARRITY, and each of them, his true and lawful attorneys and agents, each with full power and authority (acting alone and without the others) to execute in the name and on behalf of the undersigned as such Director, the Annual Report on Form 10-K for the fiscal year ended December 31, 1999 for Unicom Corporation and Commonwealth Edison Company, to be filed with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or any of them, may do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, I have hereunto set my hand this 17th day of March, 2000. /s/ Edgar D. Jannotta -------------------------- Edgar D. Jannotta STATE OF ILLINOIS ) ) SS COUNTY OF COOK ) I, Mary L. Kwilos, a Notary Public in and for said County, in the State aforesaid, DO HEREBY CERTIFY that EDGAR D. JANNOTTA, personally known to me to be the same person whose name is subscribed to the foregoing instrument, appeared before me this day in person, and acknowledged that he signed and delivered said instrument as his free and voluntary act, for the uses and purposes therein set forth. GIVEN under my hand and the notarial seal this 17th day of March, 2000. /s/ Mary L. Kwilos -------------------------- Mary L. Kwilos Notary Public POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS: That the undersigned, a Director of Unicom Corporation and Commonwealth Edison Company, each an Illinois corporation, does hereby constitute and appoint JOHN W. ROWE, RUTH ANN M. GILLIS and JOHN P. MCGARRITY, and each of them, his true and lawful attorneys and agents, each with full power and authority (acting alone and without the others) to execute in the name and on behalf of the undersigned as such Director, the Annual Report on Form 10-K for the fiscal year ended December 31, 1999 for Unicom Corporation and Commonwealth Edison Company, to be filed with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or any of them, may do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, I have hereunto set my hand this 17th day of March, 2000. /s/ John W. Rogers, Jr. -------------------------- John W. Rogers, Jr. STATE OF ILLINOIS ) ) SS COUNTY OF COOK ) I, Mary L. Kwilos, a Notary Public in and for said County, in the State aforesaid, DO HEREBY CERTIFY that JOHN W. ROGERS, JR., personally known to me to be the same person whose name is subscribed to the foregoing instrument, appeared before me this day in person, and acknowledged that he signed and delivered said instrument as his free and voluntary act, for the uses and purposes therein set forth. GIVEN under my hand and the notarial seal this 17th day of March, 2000. /s/ Mary L. Kwilos -------------------------- Mary L. Kwilos Notary Public POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS: That the undersigned, a Director of Unicom Corporation and Commonwealth Edison Company, each an Illinois corporation, does hereby constitute and appoint JOHN W. ROWE, RUTH ANN M. GILLIS and JOHN P. MCGARRITY, and each of them, his true and lawful attorneys and agents, each with full power and authority (acting alone and without the others) to execute in the name and on behalf of the undersigned as such Director, the Annual Report on Form 10-K for the fiscal year ended December 31, 1999 for Unicom Corporation and Commonwealth Edison Company, to be filed with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or any of them, may do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, I have hereunto set my hand this 16th day of March, 2000. /s/ Richard L. Thomas -------------------------- Richard L. Thomas STATE OF ILLINOIS ) ) SS COUNTY OF COOK ) I, Mary L. Kwilos, a Notary Public in and for said County, in the State aforesaid, DO HEREBY CERTIFY that RICHARD L. THOMAS, personally known to me to be the same person whose name is subscribed to the foregoing instrument, appeared before me this day in person, and acknowledged that he signed and delivered said instrument as his free and voluntary act, for the uses and purposes therein set forth. GIVEN under my hand and the notarial seal this 16th day of March, 2000. /s/ Mary L. Kwilos -------------------------- Mary L. Kwilos Notary Public POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS: That the undersigned, a Director of Unicom Corporation and Commonwealth Edison Company, each an Illinois corporation, does hereby constitute and appoint JOHN W. ROWE, JOHN C. BUKOVSKI and JOHN P. MCGARRITY, and each of them, her true and lawful attorneys and agents, each with full power and authority (acting alone and without the others) to execute in the name and on behalf of the undersigned as such Director, the Annual Report on Form 10-K for the fiscal year ended December 31, 1999 for Unicom Corporation and Commonwealth Edison Company, to be filed with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or any of them, may do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, I have hereunto set my hand this 17th day of March, 2000. /s/ Sue L. Gin -------------------------- Sue L. Gin STATE OF ILLINOIS ) ) SS COUNTY OF COOK ) I, Mary L. Kwilos, a Notary Public in and for said County, in the State aforesaid, DO HEREBY CERTIFY that SUE L. GIN, personally known to me to be the same person whose name is subscribed to the foregoing instrument, appeared before me this day in person, and acknowledged that she signed and delivered said instrument as her free and voluntary act, for the uses and purposes therein set forth. GIVEN under my hand and the notarial seal this 17th day of March, 2000. /s/ Mary L. Kwilos -------------------------- Mary L. Kwilos Notary Public EX-27.2 15 FINANCIAL DATA SCHEDULE
UT This schedule contains summary financial information extracted from the Consolidated Balance Sheet and Statement of Consolidated Capitalization as of December 31, 1999 and related Statement of Consolidated Operations, Comprehensive Income, Retained Earnings and Cash Flows for the twelve months ended December 31, 1999 and is qualified in its entirety by reference to such financial statements. 0000918040 Unicom Corporation 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 PER-BOOK 12,122,138 3,067,805 6,328,720 0 1,887,370 23,406,033 4,971,618 0 363,621 5,332,611 0 1,790 7,129,906 0 0 0 737,615 69,475 161,611 108,349 9,864,676 23,406,033 6,847,947 333,370 5,328,137 5,661,507 1,186,440 (53,210) 1,133,230 563,564 569,666 0 569,666 347,783 0 1,360,045 2.62 2.61 This item is not disclosed as a separate line item on the Consolidated Balance Sheet. Includes $7,539 thousand for other comprehensive income and deductions of $72 thousand for preference stock expense of ComEd and $10,095 thousand for treasury stock. Preferred and preference stock of ComEd. $3,785,055 thousand of notes, guaranteed senior notes and transitional trust notes are included in LONG-TERM-DEBT-NET. Includes $350,000 thousand of ComEd-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely ComEd's subordinated debt securities. A $23,756 thousand provision for preferred and preference stock dividends of ComEd and $29,710 thousand provision for preferred securities dividends of subsidiary trusts holding solely ComEd's subordinated debt securities are included in OTHER-INCOME-NET. Includes an extraordinary loss of $27,579 thousand related to the early redemption of long-term debt for the year 1999. This item is not disclosed as a separate line item on the Statement of Consolidated Operations.
EX-99.1 16 COMED'S CURRENT REPORT ON FORM 8-K DATED 3/30/00 Exhibit (99) Commonwealth Edison Company Form 8-K File No. 1-1839 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 AND 1998 Commonwealth Edison Company and Subsidiary Companies Forward-Looking Information. Except for historical data, the information contained herein constitutes forward-looking statements. Forward-looking statements are inherently uncertain and subject to risks. Such statements should be viewed with caution. Actual results or experience could differ materially from the forward-looking statements as a result of many factors. Forward-looking statements in this report include, but are not limited to: (1) statements regarding expectations of revenue reductions and collections of future CTC revenues as a result of the 1997 Act in "Management's Discussion and Analysis of Financial Condition and Results of Operations," subcaption "Changes in the Electric Utility Industry--The 1997 Act," and in Notes 1 and 3 of Notes to Financial Statements, (2) statements regarding estimated capital expenditures in "Management's Discussion and Analysis of Financial Condition and Results of Operations," subcaptions "Liquidity and Capital Resources-- UTILITY OPERATIONS--Construction Program" and "Liquidity and Capital Resources--UNREGULATED OPERATIONS--Construction Program," and "Changes in the Electric Utility Industry--Response to Regulatory Changes," (3) statements regarding the costs of decommissioning nuclear generating stations in "Management's Discussion and Analysis of Financial Condition and Results of Operations," subcaption "Regulation--Nuclear Matters," and in Note 1 of Notes to Financial Statements, under "Depreciation, Amortization of Regulatory Assets and Liabilities, and Decommissioning," (4) statements regarding cleanup costs associated with MGPs and other remediation sites in Note 22 of Notes to Financial Statements, (5) statements regarding the estimated fair value of forward energy contracts in "Management's Discussion and Analysis of Financial Condition and Results of Operations," subcaption "Liquidity and Capital Resources--UTILITY OPERATIONS--Market Risks," (6) statements regarding the risks and uncertainties relating to Year 2000 issues set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations," subcaption "Liquidity and Capital Resources--UTILITY OPERATIONS-- Year 2000 Conversion," including ComEd's dependence upon the Year 2000 readiness of third parties with whom it has significant business relationships and the estimated costs for final project wrap-up activities, (7) statements regarding the use of fossil plant sale proceeds in "Management's Discussion and Analysis of Financial Condition and Results of Operations," subcaptions "Changes in the Electric Utility Industry--Fossil Plant Sale," "Liquidity and Capital Resources--UTILITY OPERATIONS--Construction Program," and "Liquidity and Capital Resources--UNREGULATED OPERATIONS--Capital Resources," and in Note 5 of Notes to Financial Statements, (8) statements regarding estimates of claims resulting from the summer of 1999 outages set forth in Note 22 of Notes to Financial Statements and (9) statements regarding the Merger Agreement in Note 2 of Notes to Financial Statements and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" subcaption "Changes in the Electric Utility Industry--Merger Agreement." Management cannot predict the course of future events or anticipate the interaction of multiple factors beyond management's control and their effect on revenues, project timing and costs. The statements regarding revenue reductions and collections of future CTC revenues are subject to unforeseen developments in the market for electricity in Illinois resulting from regulatory changes. The statements regarding estimated capital expenditures, decommissioning costs, cleanup costs and Year 2000 wrap-up costs are subject to changes in the scope of work and manner in which the work is performed and consequent changes in the timing and level of the projected expenditure, and are also subject to changes in laws and regulations or their interpretation or enforcement. The statements regarding expectations for Year 2000 readiness are also subject to the risk that Year 2000 remediation efforts of other parties with whom ComEd has significant business relationships are not successful. The statements regarding the fair value of forward energy contracts are subject to changes in generating capability and a reduction in the demand for electricity. The statement regarding the use of proceeds from the fossil plant sale is subject to the possibility that regulatory action might affect the amount and use of such proceeds and the possibility that, due to changing market conditions, Unicom and ComEd may determine that other uses of the proceeds may be in their best interest. The statements regarding estimates of claims resulting from the summer of 1999 outages are subject to the risk that the actual 1 amount of losses suffered by customers and restoration costs may exceed the estimated amounts. The statements regarding the Merger Agreement and the associated repurchase of shares are subject to the risk of a significant delay in the expected completion of, and unexpected consequences resulting from, the transactions contemplated by the Merger Agreement, including the inability to close the transaction, and to changes in the number of shares of outstanding common stock of Unicom and PECO for unforeseen reasons. Unicom and ComEd make no commitment to disclose any revisions to the forward-looking statements, or any facts, events or circumstances after the date hereof that may bear upon forward-looking statements. 2 INDEX
Page ----- Definitions.............................................................. 4 Summary of Selected Consolidated Financial Data.......................... 5 Cash Dividends Paid per Share of Common Stock............................ 5 1999 Consolidated Revenues and Sales..................................... 5 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 6-22 Report of Independent Public Accountants................................. 23 Consolidated Financial Statements-- Statements of Consolidated Operations for the years 1999, 1998 and 1997.................................................................. 24 Consolidated Balance Sheets as of December 31, 1999 and 1998........... 25-26 Statements of Consolidated Capitalization as of December 31, 1999 and 1998.................................................................. 27 Statements of Consolidated Retained Earnings (Deficit) for the years 1999, 1998 and 1997................................................... 28 Statements of Consolidated Comprehensive Income for the years 1999, 1998 and 1997......................................................... 28 Statements of Consolidated Cash Flows for the years 1999, 1998 and 1997.................................................................. 29 Notes to Financial Statements.......................................... 30-56
3 DEFINITIONS The following terms are used in this document with the following meanings:
Term Meaning ------------------- --------------------------------------------------------- 1997 Act Illinois Electric Service Customer Choice and Rate Relief Law of 1997, as amended AFUDC Allowance for funds used during construction APB Accounting Principles Board APX Automated Power Exchange Inc., a California company ARES Alternative Retail Electric Suppliers CERCLA Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended City City of Chicago ComEd Commonwealth Edison Company, a Unicom subsidiary ComEd Funding ComEd Funding, LLC, a ComEd subsidiary ComEd Funding Trust ComEd Transitional Funding Trust, a ComEd Funding subsidiary Congress U.S. Congress Cotter Cotter Corporation, a ComEd subsidiary CTC Non-bypassable "competitive transition charge" DOE U.S. Department of Energy Edison Development Edison Development Canada Inc., a ComEd subsidiary EME Edison Mission Energy, an Edison International subsidiary EPS Earnings/(Loss) per Common Share ESPP Employee Stock Purchase Plan FAC Fuel adjustment clause FASB Financial Accounting Standards Board FERC Federal Energy Regulatory Commission Fossil Plant ComEd's six coal-fired generating plants, an oil and gas- fired plant, and nine peaking unit sites GAAP Generally Accepted Accounting Principles ICC Illinois Commerce Commission IDR Illinois Department of Revenue Indiana Company Commonwealth Edison Company of Indiana, Inc., a ComEd subsidiary INPO Institute of Nuclear Power Operations ISO Independent System Operator MGP Manufactured gas plant NEIL Nuclear Electric Insurance Limited NRC Nuclear Regulatory Commission O&M Operation and maintenance PECO PECO Energy Company, a Pennsylvania company RES Retail Electric Supplier SEC Securities and Exchange Commission SFAS Statement of Financial Accounting Standards SPEs Special purpose entities S&P Standard & Poor's Trusts ComEd Financing I and ComEd Financing II, ComEd subsidiaries Trust Securities ComEd-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely ComEd's subordinated debt securities Unicom Unicom Corporation Unicom Investment Unicom Investment Inc., a Unicom Enterprises subsidiary U.S. EPA U.S. Environmental Protection Agency
4 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES Summary of Selected Consolidated Financial Data
1999 1998 1997 1996 1995 ------- ------- ------- ------- ------- (Millions Except per Share Data) Electric operating revenues.. $ 6,767 $ 7,089 $ 7,073 $ 6,935 $ 6,910 Net income (loss)............ $ 623(1) $ 594 $ (774)(2) $ 743 $ 717(3) Net income (loss) on common stock....................... $ 599(1) $ 537 $ (834)(2) $ 679 $ 647(3) Cash dividends declared per common share................ $ 1.60 $ 1.60 $ 1.60 $ 1.60 $ 1.60 Total assets (at end of year)....................... $23,160 $25,451 $22,458 $23,217 $23,119 Long-term obligations at end of year excluding current portion: Long-term debt, preference stock and preferred securities subject to mandatory redemption requirements............... $ 7,312 $ 8,097 $ 6,087 $ 6,376 $ 6,950 Accrued spent nuclear fuel disposal fee and related interest................... $ 763 $ 728 $ 693 $ 657 $ 624 Capital lease obligations... $ 162 $ 334 $ 438 $ 475 $ 374 Other long-term obligations. $ 3,185 $ 2,953 $ 3,177 $ 1,983 $ 1,819
- -------- (1) Includes an extraordinary loss related to the early redemption of long- term debt of $28 million (after-tax). Also, includes $12 million (after- tax), for premiums paid in connection with the redemption of preference stock. (2) Includes an extraordinary loss for the write-off of generation-related net regulatory assets of $810 million (after-tax), the loss on the early retirement of Zion nuclear generating station of $523 million (after-tax) and the positive impact of a one-time cumulative effect for a change in accounting principle for revenue recognition of $197 million (after-tax). (3) Includes an extraordinary loss related to the early redemption of long- term debt of $20 million (after-tax). Cash Dividends Paid per Share of Common Stock
1999 (by quarters) 1998 (by quarters) ------------------------- ------------------------- Fourth Third Second First Fourth Third Second First ------ ----- ------ ----- ------ ----- ------ ----- Cash dividends paid......... 40c 40c 40c 40c 40c 40c 40c 40c
1999 Consolidated Revenues and Sales
Electric % Increase/ % % Operating (Decrease) Kilowatthour Increase/ Increase/ Revenues Over Sales (Decrease) (Decrease) (Thousands) 1998 (Millions) Over 1998 Customers Over 1998 ----------- ----------- ------------ ---------- --------- ---------- Residential............. $2,205,066 (12.8)% 23,716 (0.9)% 3,145,712 0.4% Small commercial and industrial............. 2,196,069 0.4 29,125 7.9 309,828 1.9 Large commercial and industrial............. 1,290,926 (8.2) 22,474 (6.5) 1,783 (0.6) Public authorities...... 463,482 (9.2) 7,778 4.1 18,194 29.5 Electric railroads...... 20,317 (34.5) 408 (5.9) 2 -- ---------- ------- --------- Ultimate consumers..... $6,175,860 (7.3) 83,501 0.7 3,475,519 0.6 Sales for resale........ 490,938 40.3 19,487 58.9 58 (6.5) Other revenues.......... 100,094 36.4 -- -- -- -- ---------- ------- --------- Total.................. $6,766,892 (4.5) 102,988 8.2 3,475,577 0.6 ========== ======= =========
5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Changes in the Electric Utility Industry Unicom and its predominant business, electric energy generation, transmission and distribution, are in a period of fundamental change. These changes are attributable to changes in technology and regulation. Federal law and regulations have been amended to provide for open transmission system access, and various states, including Illinois, are considering, or have adopted, new regulatory structures to allow access by some or all customers to energy suppliers, in addition to the local utility. Electric Utility Industry. The electric utility industry historically has consisted of vertically integrated companies which combine generation, transmission and distribution assets; serve customers within relatively defined service territories; and operate under extensive regulation with respect to rates, operations and other matters. Utilities have operated under a regulatory compact with the state, with a statutory obligation to serve all of the electricity needs within their service territory in a nondiscriminatory manner. Historically, investment and operating decisions have been made based upon the utilities' respective assessment of the current and projected needs of their customers. In view of this obligation, regulation has focused on investment and operating costs, and rates have been based on recovery of some or all of such prudently incurred costs plus a return on invested capital. Such rate regulation, and the ability of utilities to recover investment and other costs through rates, have provided the basis for recording certain costs as regulatory assets. These assets represent costs which are allocated over future periods reflecting related regulatory treatment, rather than expensed in the current period. Federal Regulation. The Federal Energy Policy Act of 1992, among other things, empowered the FERC to introduce a greater level of competition into the wholesale marketplace for electric energy. Under FERC Order No. 888, utilities are required to file open access tariffs with regard to their transmission systems. These tariffs set forth the terms, including prices, under which other parties and the utility's wholesale marketing function may use the utility's transmission system. ComEd has an approved open access tariff with the FERC. A companion FERC rule, Order No. 889, requires the separation of the transmission operations and wholesale marketing functions so as to ensure that unaffiliated third parties have access to the same information as to system availability and other requirements. The FERC Order further requires utilities to operate an electronic bulletin board to make transmission price and access data available to all potential users. A key feature of FERC Order No. 888 is that it contemplates full recovery of a utility's costs "stranded" by competition. These costs are "stranded" or "strandable" to the extent market-based rates would be insufficient to allow for their full recovery. To recover stranded costs, the utility must show that it had a reasonable expectation that it would continue to serve the customer in question under its regulatory compact. In addition, some governmental entities, such as cities, may elect to "municipalize" a utility's distribution facilities through condemnation proceedings. Such municipalities would then be able to purchase electric power on a wholesale basis and resell it to customers over the newly acquired facilities. The FERC Order provides for the recovery of a utility's investment stranded by municipalization. The 1997 Act. In December 1997, the Governor of Illinois signed into law the 1997 Act, which established a phased process to introduce competition into the electric industry in Illinois under a less regulated structure. The 1997 Act was amended in June 1999. As a result of the 1997 Act and FERC rules, prices for the supply of electric energy are expected to change from cost-based, regulated rates to rates determined by competitive market forces. Accordingly, the 1997 Act provides for, among other things, gradual customer access to other electric suppliers or a power purchase option which allows the purchase of electric energy from ComEd at market based prices, and the collection of a CTC from customers who choose to purchase electric 6 energy from a RES or elect the power purchase option during a transition period that extends through 2006. Effective October 1, 1999, the CTC was established in accordance with a formula defined in the 1997 Act. The CTC, which is applied on a cents per kilowatthour basis, considers the revenue which would have been collected from a customer under tariffed rates, reduced by the revenue the utility will receive for providing delivery services to the customer, the market price for electricity and a defined mitigation factor, which represents the utility's opportunity to develop new revenue sources and achieve cost savings. The CTC allows ComEd to recover some of its costs which might otherwise be unrecoverable under market-based rates. Nonetheless, ComEd will need to take steps to address the portion of such costs which are not recoverable through the CTC. Such steps may include cost control efforts, developing new sources of revenue and asset dispositions. See "Response to Regulatory Changes" and "Fossil Plant Sale" below for additional information. On October 1, 1999, more than 41,000 non-residential customers became eligible to choose a new electric supplier or elect the purchase power option. The remainder of the non-residential customers will become eligible to choose an electric supplier or the purchase power option between June 1 and December 31, 2000. As of December 31, 1999, over 4,700 non-residential customers, representing approximately ten percent of ComEd's 1998 retail kilowatthour sales, elected to receive their electric energy from a RES or chose the purchase power option. As a result of the collection of CTC's from such customers, ComEd does not expect these elections to have a material effect on its results of operations in the near term. Utilities are required to continue to offer delivery services, including the transmission and distribution of electric energy, such that customers who select a RES can receive electric energy from that supplier using existing transmission and distribution facilities. Such services will continue to be offered under cost-based, regulated rates. The ICC issued orders in August and September approving, with modifications, ComEd's delivery service tariffs. The 1997 Act committed ComEd to spend at least $2 billion during the period 1999 through 2004 on transmission and distribution facilities outside of the City and to contribute $250 million to an environmental trust, as a result of the closing of the fossil plant sale. The 1997 Act also provides for a 15% residential base rate reduction which became effective August 1, 1998 and an additional 5% residential base rate reduction in October 2001. ComEd's operating revenues were reduced by approximately $170 million in 1998 due to the 15% residential base rate reduction. The 15% rate reduction further reduced ComEd's operating revenues by approximately $226 million in 1999, compared to 1998 rate levels. Notwithstanding the rate reductions and subject to certain earnings tests, a rate freeze will generally be in effect until at least January 1, 2005. During this period, utilities may reorganize, sell or assign assets, retire or remove plants from service, and accelerate depreciation or amortization of assets with limited ICC regulatory review. A utility may request a rate increase during the rate freeze period only when necessary to ensure the utility's financial viability, but not before January 1, 2000. Under the earnings provision of the 1997 Act, if the earned return on common equity of a utility during this period exceeds an established threshold, one-half of the excess earnings must be refunded to customers. The threshold rate of return on common equity for ComEd is based on the 30-Year Treasury Bond rate, plus 5.5% in the years 1998 and 1999, and plus 8.5% in the years 2000 through 2004. The utility's earned return on common equity and the threshold return on common equity are each calculated on a two-year average basis. The earnings sharing provision is applicable only to ComEd's earnings. In accordance with the provisions of the 1997 Act, increased amortization of regulatory assets may be recorded, thereby reducing the earned return on common equity, if earnings otherwise would have exceeded the maximum allowable rate of return. The potential for earnings sharing or increased amortization of regulatory assets could limit earnings in future periods. 7 The 1997 Act also allows a portion of ComEd's future revenues to be segregated and used to support the issuance of securities by ComEd or a SPE. The proceeds, net of transaction costs, from such security issuances must be used to refinance outstanding debt or equity or for certain other limited purposes. The total amount of such securities that may be issued is approximately $6.8 billion. In December 1998, ComEd initiated the issuance of $3.4 billion of transitional trust notes through its SPEs, ComEd Funding and ComEd Funding Trust. See "Liquidity and Capital Resources," subcaption "UTILITY OPERATIONS--Capital Resources" below, and Notes 3 and 7 of Notes to Financial Statements, for additional information regarding the redemptions and repurchases of debt and equity. The 1997 Act also requires utilities to establish or join an ISO that will independently manage and control utility transmission systems. Additionally, the 1997 Act includes the leveling of certain regulatory requirements to permit operational flexibility, the leveling of certain regulatory and tax provisions as applied to various electric suppliers and a new, more stringent, reliability requirement applicable to ComEd in the event of a major outage. See "Response to Regulatory Changes" below for additional information. See Notes 1, under "Regulatory Assets and Liabilities," and 3 of Notes to Financial Statements for the accounting effects related to the 1997 Act. Response to Regulatory Changes. Unicom has announced several business and operational objectives designed to focus efforts in responding to the energy market changes that are expected to develop from the 1997 Act. Among other things, these strategic objectives call for a focus on operations to: (1) provide a reliable supply of electricity as the competitive marketplace evolves, (2) become a top quartile operator of competitive nuclear plants, (3) deliver competitive earnings while restructuring the balance sheet to reflect the realities of the marketplace, (4) expand the offering of energy-related products and services, and (5) transform the corporate culture of Unicom. Under the 1997 Act, the role of electric utilities in the supply and delivery of energy is expected to change. Utilities, such as ComEd, traditionally have been responsible for providing both adequate supply and reliable delivery of electricity to customers within their service areas. In the future, ComEd will continue to be obligated to provide a reliable delivery system. However, ComEd will be obligated to supply electricity only to those customers that it continues to serve under tariffs for electricity, but not for those customers who choose to rely on the marketplace. Nonetheless, during the transition period to a competitive supply marketplace, ComEd must provide both an adequate supply and reliable delivery of electricity. Given the tight capacity situation in ComEd's market, ComEd will be working to maintain its available capacity, as well as working to assist in the development of a competitive supply marketplace in Illinois. ComEd has a significant commitment to, and investment in, nuclear generating capacity. ComEd has installed a management team responsible for improving nuclear operations. Such improvements are aimed at increasing levels of energy generation, or capacity factors, at ComEd's nuclear generating units while simultaneously improving ComEd's record of meeting NRC requirements and INPO performance standards. Increased capacity factors generally result in lower unit production costs and an improved opportunity to generate and sell electricity in a competitive marketplace. Efforts are also being made to control capital and operating costs through increased efficiencies, such as the reduction of downtime and expenses associated with generating unit maintenance and refueling outages. ComEd also evaluated the recoverability of its generating plant investment in 1998 as a result of the 1997 Act. See Note 1 of Notes to Financial Statements, under "Regulatory Assets and Liabilities," for additional information. Notwithstanding these efforts, there continues to be an ongoing analysis of the ability of ComEd's various nuclear plants to generate and deliver electric energy safely at 8 competitive prices in the competitive market for energy. Although short-term system reliability and capacity constraints are likely to support the continued operation of ComEd's nuclear units in the near term, expected longer term developments are likely to make decision-making a function of economic considerations. In the absence of short-term reliability and capacity constraints, if a generating plant cannot produce power safely at a cost below the competitive market price, it will be disposed of or closed. Plant impairment adjustments have reduced the carrying value of nuclear plants, and depreciation rates reflecting shortened estimated useful lives for certain stations will reduce the carrying value further during the next several years. However, closure of a plant could involve additional charges associated with the write-off of its then-current carrying value. In January 1998, Unicom and ComEd announced the decision to permanently cease nuclear generating operations at ComEd's Zion Station. The related retirement resulted in a charge in 1997 of $523 million (after-tax), reflecting both a write down of the plant's carrying value and a liability for future closing costs. A portion of Zion Station is used to provide voltage support in the transmission system that serves ComEd's northern region. See Note 5 of Notes to Financial Statements for additional information. ComEd joined with other Midwestern utilities to design the Midwest ISO in 1998. These utilities have agreed to place their transmission systems under the control of the Midwest ISO as soon as it achieves operational status in 2001. The Midwest ISO, a key element in accommodating the FERC-directed restructuring of the electric industry, is expected to promote enhanced reliability of the transmission system, equal access to the transmission system, and foster increased competition. The Midwest ISO will control the transmission system and will have authority to require modification in the operation of generators connected to that system during system emergencies. ComEd, like other utilities, will retain ownership of its transmission lines. The formation of the Midwest ISO was approved by the FERC in September 1998, subject to certain conditions. In December 1999, ComEd and other Midwestern utilities filed a request with the FERC for a Declaratory Order approving a different organizational template for the regional transmission grid. The request seeks approval for the creation of for-profit transmission companies, operating under the general oversight of the Midwest ISO, but fully separated from their previous vertically integrated utilities. The request was approved, in part, on February 24, 2000, subject to further development of its elements. In the absence of an ISO-related power exchange, ComEd has also agreed to cooperate with APX in the creation of the first electronic energy exchange in Illinois. Initial products may include hourly, daily and weekly electricity delivered to and from interconnection points on ComEd's transmission system, and a standard system of credit and trading interfaces. Unicom has made a $3 million venture capital investment in APX in order to help finance its expansion in Midwest. Neither ComEd nor Unicom will receive any voting rights. The power exchange will be independently owned and managed by APX and will allow wholesale and retail market participants to trade electricity anonymously through an internet-based computerized system. ComEd will be treated like any other market participant and will be an active participant in the power exchange which opened in Illinois in the fourth quarter of 1999. Merger Agreement. In September 1999, the Boards of Directors of Unicom and PECO Energy Company (PECO) approved a merger of equals that will create a new holding company, Exelon. The merger is conditioned, among other things, upon the approvals of the shareholders of both companies and by various regulatory bodies. The merger is currently expected to be completed in the latter half of 2000. Under the merger agreement, as amended and restated in January 2000, PECO and ComEd will become the principal utility subsidiaries of Exelon. This result will be achieved by a mandatory exchange of the outstanding common stock of PECO for common stock of Exelon, and a merger of Unicom with and into Exelon wherein holders of Unicom common stock will receive 0.875 shares of Exelon common stock plus $3.00 in cash for each of their shares of Unicom common stock. The merger transaction will be accounted for as a purchase of Unicom by PECO. 9 Prior to the consummation of the merger, Unicom expects to repurchase approximately $1.0 billion of its outstanding common shares. These share repurchases are in addition to the 26.3 million shares of Unicom common stock that Unicom repurchased in January 2000 upon settlement of certain forward purchase contracts. The $1.0 billion additional share repurchases will be funded from available funds, including funds resulting from the fossil plant sale. The Amended and Restated Agreement and Plan of Exchange and Merger, dated as of January 7, 2000, was filed on January 13, 2000 by Unicom with the SEC as an exhibit to a Form 8-K, and reference to that filing is made for more detailed information. Fossil Plant Sale. In December, 1999, ComEd completed the sale of its fossil generating assets to EME for a cash purchase price of $4.8 billion. The fossil plant assets represent an aggregate generating capacity of approximately 9,772 megawatts. Just prior to the consummation of the fossil plant sale, ComEd transferred these assets to an affiliate, Unicom Investment. In consideration for the transferred assets, Unicom Investment paid ComEd consideration totalling $4.8 billion in the form of a demand note in the amount of approximately $2.4 billion and an interest-bearing Note with a maturity of twelve years. Unicom Investment immediately sold the fossil plant assets to EME, in consideration of which Unicom Investment received $4.8 billion in cash from EME. Immediately after its receipt of the cash payment from EME, Unicom Investment paid the $2.4 billion aggregate principal due to ComEd under the demand note. Unicom Investment will use the remainder of the cash received from EME to fund other business opportunities, including the share repurchases. Of the cash received by ComEd, $1.8 billion is expected to be used to pay the costs and taxes associated with the fossil plant sale including ComEd's contribution of $250 million of the proceeds to an environmental trust as required by the 1997 Act. The remainder of the demand note proceeds will be available to ComEd to fund, among other things, transmission and distribution projects, nuclear generation station projects, and environmental and other initiatives. The sale produced an after-tax gain of approximately $1.6 billion, after recognizing commitments associated with certain coal contracts ($350 million), recognizing employee-related costs ($112 million) and contributing to the environmental trust. The coal contract costs include the amortization of the remaining balance of ComEd's regulatory asset for unrecovered coal reserves of $178 million and the recognition of $172 million of settlement payments related to the above-market portion of coal purchase commitments ComEd assigned to EME at market value upon completion of the fossil plant sale. The severance costs included pension and post-retirement welfare benefit curtailment and special termination benefit costs of $51 million and transition, separation and retention payments of $61 million. A total of 1,730 fossil station employee positions were eliminated upon completion of the fossil plant sale on December 15, 1999. As of December 31, 1999, 1,590 of the employees whose positions were eliminated had been terminated and 140 affected employees were in a transition program which generally extends 60 days from the date of the fossil plant sale. Consistent with the provisions of the 1997 Act, the (pre-tax) gain on the sale of $2.587 billion resulted in a regulatory liability, which was used to recover regulatory assets. Therefore, the gain on the sale, excluding $43 million of amortization of investment tax credits, was recorded as a regulatory liability in the amount of $2.544 billion and amortized in the fourth quarter of 1999. The amortization of the regulatory liability and additional regulatory asset amortization of $2.456 billion are reflected in depreciation and amortization expense on ComEd's Statement of Consolidated Operations and resulted in a net reduction to depreciation and amortization expense of $88 million. As part of the sale transaction, ComEd entered into transitional, limited term power purchase agreements with the buyer. Such purchase power agreements will increase ComEd's purchased power costs. 10 Liquidity and Capital Resources UTILITY OPERATIONS Construction Program. ComEd has a construction program for the year 2000 which consists principally of improvements to its existing nuclear production, transmission and distribution facilities. The program, as currently approved by ComEd, includes the following estimated expenditures (excluding nuclear fuel expenditures of approximately $260 million).
2000 ---- Nuclear................................................................ $215 Transmission and Distribution.......................................... 536 General................................................................ 146 ---- $897 ====
In response to several outages in the summer of 1999, ComEd conducted an extensive evaluation of the reliability of its transmission and distribution systems. The construction program above reflects a preliminary evaluation of improvements necessary to improve reliability of ComEd's transmission and distribution systems. ComEd is currently evaluating its construction program for the years 2000, 2001 and 2002. The final results of this planning process cannot be determined at this time. ComEd's forecasts of peak load for its traditional service territory indicate a need for additional resources to meet demand, through generating capacity, equivalent purchased power and/or the development of additional demand-side management resources, in 2000 and each year thereafter for the foreseeable future. ComEd believes that adequate resources, including cost- effective demand-side management resources, non-utility generation resources, power purchases and generation resources from ARES, can be obtained in sufficient quantities to meet such forecasted needs. See "Unregulated Operations," subcaption "Construction Program" below, for additional information. Purchase commitments for ComEd, principally related to construction, nuclear fuel and coal in support of certain power purchase agreements approximated $670 million at December 31, 1999. In addition, ComEd's estimated commitments for expected capacity payments and fixed charges related to certain power purchase agreements were as follows:
Commitments(1) Period ($Millions) ------ -------------- 2000............................................... $ 783 2001............................................... 698 2002............................................... 427 2003-2004.......................................... 540 2005-2012.......................................... 1,039 ------------ $3,487 ============
- -------- (1) Capacity payments may be adjusted based on certain conditions. No estimate of future cost escalation has been made. See "Changes in the Electric Utility Industry," subcaptions "The 1997 Act" and "Fossil Plant Sale" above, for additional information. Capital Resources. In December 1998, ComEd initiated the issuance of $3.4 billion of transitional trust notes through its SPEs, ComEd Funding and ComEd Funding Trust. The proceeds from the transitional trust notes, net of transaction costs, were, as required, used to redeem $1,101 million of long- term debt and $607 million of preference stock in 1999 and reduce ComEd's outstanding short-term debt by $500 million. In 1999, ComEd recorded an extraordinary loss related to the early redemptions of such long-term debt, which reduced net income on common stock by approximately 11 $28 million (after-tax). ComEd also recorded $12 million (after-tax) for premiums paid in connection with the redemption of such preference stock. As more fully described below, ComEd has repurchased approximately 26.3 million shares of ComEd common stock using $924 million of the proceeds. The remaining proceeds from the issuance of the transitional trust notes will be used for the payment of fees and additional common stock repurchases. In the fourth quarter of 1998, ComEd entered into a forward purchase arrangement with Unicom for the repurchase of $200 million of ComEd common stock. This contract, which was accounted for as an equity instrument as of December 31, 1998, was settled on a net cash basis in February 1999. During 1999, ComEd also entered into forward purchase arrangements with Unicom for the repurchase of approximately 26.3 million shares of ComEd common stock. The repurchase arrangements were settled in January 2000 on a physical basis. The terms of the repurchase arrangements between ComEd and Unicom are identical to the terms of Unicom's repurchase arrangements with financial institutions. The repurchase arrangements between ComEd and Unicom are expected to be settled on the same basis Unicom settles its repurchase arrangements with the financial institutions. Effective January 2000, the share repurchases will reduce ComEd's outstanding shares and common stock equity. Prior to settlement, the repurchase arrangements were recorded as a receivable on the Consolidated Balance Sheets based on the aggregate market value of the shares deliverable under the arrangements. In 1999, net unrealized losses of $44 million (after-tax) were recorded related to the arrangements. The settlement of the arrangements in January 2000 resulted in a gain of $113 million (after-tax). See Note 24 of Notes to Financial Statements for additional information. See Notes 3 and 7 of Notes to Financial Statements for additional information regarding the redemptions and repurchases of debt and equity. ComEd forecasts that internal sources will provide approximately three- fourths of the funds required for ComEd's 2000 construction program and other capital requirements, including nuclear fuel expenditures, contributions to nuclear decommissioning funds, sinking fund obligations and scheduled debt maturities. See Notes 10 and 12 of Notes to Financial Statements for the summaries of the annual sinking fund requirements and scheduled maturities for ComEd preference stock and long-term debt, respectively. See "Changes in the Electric Utility Industry," subcaption "Fossil Plant Sale" above, for a description of ComEd's planned uses of the fossil plant sale proceeds. The type and amount of external financing will depend on financial market conditions and the needs and capital structure of ComEd at the time of such financing. ComEd had total unused bank lines of credit of $800 million at December 31, 1999, which may be borrowed at various interest rates. Of that amount, $500 million expires on December 15, 2000 and $300 million expires on December 17, 2002. The interest rate is set at the time of a borrowing and is based on several floating rate bank indices plus a spread, which is dependent upon the credit ratings of ComEd's outstanding first mortgage bonds or on a prime interest rate. See Note 13 of Notes to Financial Statements for additional information concerning lines of credit. See the Statements of Consolidated Cash Flows for the construction expenditures and cash flow from operating activities for the years 1999, 1998 and 1997. Cash flows from operating activities were adversely affected in 1998 and positively affected in 1999 as a result of delayed billings related to the transition to a new customer information and billing system beginning in July 1998. See Note 1 of Notes to Financial Statements, under "Customer Receivables and Revenues", for additional information. As of January 31, 2000, ComEd has an effective "shelf" registration statement with the SEC for the future sale of up to an additional $280 million of debt securities and cumulative preference stock for general corporate purposes of ComEd, including the discharge or refund of other outstanding securities. 12 ComEd's securities and other securities guaranteed by ComEd are currently rated by three principal securities rating agencies as follows:
Standard Duff & Moody's & Poor's Phelps ------- -------- ------ First mortgage and secured pollution control bonds..... Baa1 BBB+ A- Publicly-held debentures and unsecured pollution con- trol obligations...................................... Baa2 BBB BBB+ Convertible preferred stock............................ baa3 BBB- BBB Preference stock....................................... Baa2 BBB- BBB Trust Securities....................................... baa3 BBB- BBB Commercial paper....................................... P-2 A-2 D-1
ComEd Funding Trust's securities are currently rated by three principal securities rating agencies as follows:
Standard Duff & Moody's & Poor's Phelps ------- -------- ------ Transitional trust notes.......................... Aaa AAA AAA
All three agencies raised their ratings for ComEd in 1999: Duff & Phelps in December; Moody's in September; and S&P in June. Capital Structure. ComEd's ratio of long-term debt to total capitalization has decreased to 55.2% at December 31, 1999 from 58.0% at December 31, 1998. As of December 31, 1999 and 1998, $852 million and $580 million, respectively, of retained earnings had been appropriated for ComEd's future dividend payments. Year 2000 Conversion. ComEd completed a successful transition to the Year 2000 as systems performed without interruption during the rollover from December 31, 1999 to January 1, 2000. All ComEd Year 2000 Command Centers were activated during the critical rollover period. In addition to 12/31/99, other key Year 2000 dates that ComEd has completed without Year 2000 problems are 1/1/99, 4/9/99 (99th day of 1999), 8/21/99 (Global Positioning System rollover) and 9/9/99. The ComEd Year 2000 Team will continue with minor preparations for one remaining Year 2000 critical date. The Year 2000 is a leap year; so the rollover from 2/28/00 to 2/29/00 is another transition ComEd prepared for in its Corporate-wide Year 2000 Program. ComEd depends upon third parties, including customers, suppliers, government agencies and financial institutions, to reliably deliver its products and services. ComEd completed an analysis of the Year 2000 readiness programs of its critical vendors and obtained Year 2000 warranties in certain new contracts and licenses. ComEd also has introduced protocols for assuring that software and embedded systems remain Year 2000 ready on a continuing basis. Even though mission critical products and services of the ComEd supply chain are Year 2000 ready, contingency plans were developed to prevent or mitigate interruptions caused by ComEd suppliers. As of December 31, 1999, approximately $37.4 million has been expended for external labor, hardware and software costs, and for the costs of ComEd employees who are dedicated full-time to the Year 2000 project. All of such costs were expensed as incurred. The foregoing amounts do not include the cost of new software applications installed as a result of strategic replacement projects. Such replacement projects were not accelerated because of Year 2000 issues. ComEd expects to incur minimal expenditures for final project wrap-up activities. ComEd's Year 2000 project focused on those facets of its business that are required to deliver reliable electric service. The project encompassed the computer systems that support core business functions, such as customer information and billing, finance, procurement, supply and personnel, as 13 well as the components of metering, transmission, distribution and generation support. The project also focused on embedded systems, instrumentation and control systems in facilities and plants. In accordance with business plans, ComEd has replaced certain of its financial, human resources and payroll and customer service and billing software with new software that is Year 2000 ready and that addresses ComEd's strategic needs as it enters a less regulated environment. Market Risks. ComEd is exposed to market risk due to changes in interest rates and the market price for electricity. Exposure for interest rate changes relates to its long-term debt and preferred equity obligations. Exposure to electricity market price risk relates to forward activities taken to manage effectively the supply of, and demand for, the electric generation capability of ComEd's generating plants. ComEd has implemented an integrated risk management framework to manage such risks. A corporate Risk Management Committee defines the Company's risk tolerance and establishes appropriate position limits, and corporate policies and procedures have been implemented to minimize the exposure to market risk. ComEd does not currently utilize derivative commodity or financial instruments for trading or speculative purposes. See "Energy Risk Management Contracts" in Note 1 of Notes to Financial Statements regarding the accounting for energy risk management contracts. Interest Rate Exposure. The table below provides the fair value and average interest or fixed dividend rates of ComEd's outstanding debt and preferred stock equity instruments as of December 31, 1999.
Expected Maturity Date Fair Value ComEd and Subsidiary --------------------------------------------- as of Companies (millions) 2000 2001 2002 2003 2004 Thereafter Total 12/31/99 - -------------------- ---- ---- ---- ---- ---- ---------- ------ ---------- Long-Term Debt-- Fixed Rate............. $ 382 $ 5 $ 305 $ 105 $ 237 $3,547 $4,581 $4,523 Average Interest Rate.. 6.72% 4.55% 7.92% 6.53% 7.52% 7.69% Variable Rate.......... $ 92 $ 92 $ 92 Average Interest Rate.. 5.49% Transitional Trust Notes................. $ 350 $ 340 $ 340 $ 340 $ 340 $1,360 $3,070 $2,894 Average Interest Rate.. 5.31% 5.32% 5.38% 5.42% 5.44% 5.66% Preferred and Preference Stock-- Subject to Mandatory Redemption............ $ 69 $ 69 $ 70 Average Dividend Rate.. 6.93% Not Subject to Manda- tory Redemption....... $ 2 $ 2 $ 1 Average Dividend Rate.. 4.48% Trust Securities........ $ 350 $ 350 $ 339 Average Dividend Rate.. 8.49%
Market Price Exposure. ComEd's energy purchases from other suppliers have increased as a result of reductions in owned generating capability and system load growth. The market price of energy is subject to price volatility associated with changes in supply and demand in the electric supply markets. In the normal course of business, ComEd utilizes contracts for the forward sale and purchase of energy to assure system reliability and manage effectively the utilization of its available generating capability. ComEd also utilizes put and call option contracts and energy swap arrangements to limit the market price risk associated with the forward commodity contracts. The estimated December 31, 1999 fair value of the forward contracts, including options, for the purchase and sale of energy for the years 2000 through 2007, was approximately $(70) million. The estimated fair value is based on the estimated net settlement value of the contracts derived from forward price curves and market quotes, discounted at a 10% rate. A 10% increase in the forward price of electricity would decrease the December 31, 1999 fair value of the forward energy contracts for the years 2000-2007 by approximately $120 million, of which approximately $65 million is for contracts for the period 2000-2002. Likewise, a 10% decrease would increase the fair value of the energy contracts by $120 million. Notwithstanding these price risk management activities, an unexpected loss of generating capability or reduction in demand could increase ComEd's exposure to market price risks and could have a material adverse effect on operating results. 14 Regulation ComEd and Indiana Company are subject to federal and state regulation in the conduct of their respective businesses, including the operations of Cotter. Such regulation includes rates, securities issuance, nuclear operations, environmental and other matters. Particularly in the cases of nuclear operations and environmental matters, such regulation can and does affect operational and capital expenditures. Rate Matters. See "Changes in the Electric Utility Industry," subcaption "The 1997 Act" above, for information regarding the effect of the 1997 Act on rate matters. Nuclear Matters. Nuclear operations have been, and remain, an important focus of ComEd. ComEd operates five nuclear plants--Braidwood, Byron, Dresden, LaSalle and Quad Cities Stations, and is committed to safe, reliable and efficient operation. See "Changes in the Electric Utility Industry," subcaption "Response to Regulatory Changes" above, for information regarding ComEd's permanent cessation of nuclear generation operations at its Zion Station. On May 6, 1999, ComEd's LaSalle Station was officially removed from the NRC's listing of plants that require increased regulatory scrutiny. LaSalle Station had been on this list since January 1997. Concurrent with the LaSalle Station action, the NRC announced the formal removal of the Quad Cities Station from its list of plants with declining performance trends. Quad Cities Station had been on the declining trend list since January 1998. With these actions, all of ComEd's nuclear plants are now placed in the NRC's "routine oversight" category. This represents the first time since 1990 that none of ComEd's nuclear generating units are under special NRC oversight. The NRC and representatives of ComEd's management have met, and will continue to meet periodically as part of the NRC's normal oversight process, to discuss the overall performance of the ComEd nuclear program. Based on ComEd's most recent study, decommissioning costs are estimated to be $5.7 billion in current-year (2000) dollars, including a contingency allowance. This estimate includes $617 million of non-radiological costs, which are included in ComEd's proposed rider for recovery, as discussed below. ComEd's decommissioning cost expenditures at the end of the units' operating lives are estimated to total approximately $13.8 billion. These expenditures are expected to occur primarily during the period from 2007 through 2034. All such costs are expected to be funded by the external decommissioning trusts, which ComEd established in compliance with Illinois law and into which ComEd has been making annual contributions. Future decommissioning cost estimates may be significantly affected by the adoption of or changes to NRC regulations, as well as changes in the assumptions used in making such estimates, including changes in technology, available alternatives for the disposal of nuclear waste and inflation. Since 1995, ComEd has collected decommissioning costs from its ratepayers in conjunction with a rider to its tariffs. The rider allows annual adjustments to decommissioning cost collections outside the context of a traditional rate proceeding and will continue under the 1997 Act. The current estimated decommissioning costs include a contingency allowance, but, except at Dresden Unit 1, exclude amounts for alternative spent fuel storage installations, which may be necessary to store spent fuel during the period beginning at the end of the NRC license lives of the plants to the date when the DOE accepts the spent fuel for permanent storage. Contingency allowances used in decommissioning cost estimates provide for currently unspecifiable costs that are likely to occur after decommissioning begins and generally range from 20% to 25% of the currently specifiable costs. Under its most recent annual rider, filed with the ICC on February 26, 1999, ComEd has proposed to increase its estimated annual decommissioning cost accrual from $84 million to $130 million. The proposed increase primarily reflects an increase in low-level waste disposal cost escalation, the inclusion of $219 million in current- 15 year (2000) dollars for safety-related costs of maintaining Zion Station in a mothballed condition until dismantlement begins, and the inclusion of non- radiological costs in the decommissioning cost estimates for recovery under the rider. See Note 1 of Notes to Financial Statements, under "Depreciation, Amortization of Regulatory Assets and Liabilities, and Decommissioning," for additional information regarding decommissioning costs. Environmental Matters. ComEd is involved in administrative and legal proceedings concerning air quality, water quality and other matters. The outcome of these proceedings may require increases in future construction expenditures and operating expenses and changes in operating procedures. See Note 22 of Notes to Financial Statements for additional information. Results of Operations ComEd's operating results for the years 1999, 1998 and 1997 were as follows:
1999 1998 1997 -------- -------- --------- (Thousands of Dollars) Net Income (Loss) before Extraordinary Item and Cumulative Effect of Change in Accounting Principle........................................ $650,308 $594,206 $(160,138) ======== ======== ========= Net Income (Loss) on Common Stock................. $598,973 $537,322 $(834,259) ======== ======== =========
On Common Stock for the Year 1999. The increase in ComEd's net income in 1999 reflects, among other factors, increased energy sales, the fossil plant sale, lower-than-expected closing costs for Zion nuclear station and improved nuclear performance which resulted in lower fuel and purchased power costs. Kilowatthour sales increased 8% for the year 1999, compared to 1998, driven largely by a 59% increase in sales for resale. See "Operating Revenues" below for additional information. Fuel and purchased power costs decreased 14% in 1999, compared to 1998, resulting from improved nuclear performance. See "Fuel Costs" and "Purchased Power" below for additional information. O&M expenses increased 3% for the year 1999, compared to the year 1998, as discussed in "Operation and Maintenance Expenses" below. Earnings for the year 1999 were positively impacted by the fossil plant sale. Consistent with the provisions of the 1997 Act, the after-tax gain on the fossil plant sale of $1.56 billion resulted in a regulatory liability. Increased regulatory asset amortization amounted to $2.46 billion, before-tax, as discussed in Note 5 of Notes to Financial Statements. A reduction in the estimated liability for closing costs related to the Zion Station also increased earnings by $16 million (after-tax). The earnings increase was also partially offset by a net unrealized loss of $44 million (after-tax), related to a forward share repurchase arrangements, a charge of $41 million (after- tax) for an increase in the estimated liability for the remediation of former MGP sites, extraordinary losses related to the early redemptions of long-term debt, which reduced net income on common stock by $28 million (after-tax), and premiums of $12 million (after-tax) paid in connection with the redemption of preference stock. ComEd's net income for the year 1999 represents the maximum return on average common equity allowable for the year before triggering the earnings sharings provision of the 1997 Act. 16 Net Income on Common Stock for the Year 1998. The increase in earnings for 1998 was primarily due to increased kilowatthour sales, which increased both operating revenues and energy costs, reduced O&M expenses, lower depreciation and amortization expenses, lower than expected Zion Station closing costs, gains on the sales of certain assets and a lower effective income tax rate. In December 1997, ComEd discontinued regulatory accounting practices for the generation portion of its business and recorded other non-recurring accounting charges as a result of the 1997 Act, which primarily contributed to the loss for 1997. The 1997 operating results also include the write-off for the closure of Zion nuclear generating station, partially offset by a cumulative one-time positive impact of $197 million (after-tax) for a change in accounting method for revenue recognition to record ComEd's revenues associated with service which has been provided to customers but has not yet been billed at the end of each accounting period, retroactive to January 1, 1997. Fuel and purchased power costs increased 10% in 1998, compared to the year 1997, reflecting increased demand for electricity, as well as the effects of higher purchased power prices. See "Purchased Power" below for additional information. O&M expenses decreased 7% for the year 1998, compared to the year 1997, as discussed in "Operation and Maintenance Expenses" below. The year 1998 includes a 6% decrease in depreciation and amortization expenses, as discussed in "Depreciation and Amortization" below, and a $15 million (after-tax) reduction in the estimated liability for closing costs related to the Zion nuclear generating station, both of which increased operating results. Also, 1998 operating results reflect realized gains on the sales of certain assets of $31 million (after-tax). The sold assets consisted principally of surplus inventory of emission allowances. Net Loss on Common Stock for the Year 1997. ComEd's kilowatthour sales, including sales to wholesale customers, increased 5% during 1997, compared to 1996, as discussed below. In 1997, O&M expenses increased 12%, as discussed below. Also, 1997 operating results were reduced by $336 million for increased fuel and purchased power costs, as discussed below. In addition, a 4% increase in depreciation expense, primarily due to an increase in certain nuclear plant depreciation, resulted in a charge of $23 million (after-tax). ComEd discontinued regulatory accounting practices for the generation portion of its business in the fourth quarter of 1997 due to the expected transition of electric generation services to market-based pricing as a result of the 1997 Act. Accordingly, ComEd's generation-related net regulatory assets, which represent assets and liabilities properly recorded under regulatory accounting practices but which would not be recorded under GAAP for non-regulated entities, were written off, resulting in an extraordinary charge in 1997 of $810 million (after-tax). In addition, pursuant to an option contained in the 1997 Act, ComEd filed a tariff in December 1997 to eliminate its FAC. Under ComEd's regulated rates, the FAC provided for the recovery of changes in fossil and nuclear fuel costs and the energy portion of purchased power costs, compared to the fuel and purchased energy costs included in ComEd's base rates. The 1997 Act provided that upon the elimination of the FAC, ComEd would be required to refund to customers the net FAC charges billed during the calendar year 1997. Net FAC charges billed by ComEd during the year 1997 were $25 million (after tax). These costs, as well as deferred, underrecovered energy costs of $19 million (after-tax) which ComEd would have been entitled to recover if the FAC had remained in effect, were recorded as a charge to operating results in the fourth quarter of 1997. Elimination of the FAC could increase volatility in future earnings due to changes in fuel and purchased power costs. 17 Additionally, the elimination of the FAC and the transition to market-based pricing for generation-related costs required ComEd to write-off its investment in uranium-related properties. An impairment study indicated the expected incremental costs of mining and milling uranium at those properties would exceed the expected market price for uranium. These costs, which were previously recoverable through the FAC, are not expected to be recoverable in a competitive market. A write-off of uranium-related properties to reflect market value resulted in a charge of $60 million (after-tax) in December 1997. Partially offsetting the charges to operations for 1997 was a change in the accounting method for revenue recognition to record ComEd's revenues associated with service which has been provided to customers but has not yet been billed at the end of each accounting period, retroactive to January 1, 1997. This change in accounting method had a one-time cumulative positive impact for years prior to 1997 of $197 million (after-tax). The year 1997 also included a charge of $523 million (after-tax) reflecting the write-off of the unrecoverable portion of the cost of ComEd's Zion Station plant and inventories, and a liability for future closing costs, resulting from the decision in January 1998 to permanently cease nuclear generation operations at Zion Station. Operating Revenues. ComEd's electric operating revenues reflect revenues from sales to ultimate consumers (including residential, commercial and industrial customers within its service territory) and revenues from sales for resale (i.e., sales to wholesale customers, principally other electric utilities). Operating revenues are affected by kilowatthour sales and rate levels. Kilowatthour sales, in turn, are affected by weather, the level of economic activity within ComEd's service area, and off-system or wholesale sales to other utilities. Off-system sales are affected by a number of factors, including nuclear generating station availability and performance. Revenues have also been reduced by a change in presentation for certain utility taxes. The 1997 Act changed the nature of several state and municipal taxes that are collected through customer billings. Before August 1998, the utility taxes were assessed against the utility. Effective August 1998, the utility taxes are assessed on the electric consumer rather than the utility. Accordingly, ComEd records the collections as liabilities and no longer records the taxes collected through billings as revenues and tax expense. The change in presentation for utility taxes did not have an effect on results of operations. See Note 1 of Notes to Financial Statements, under "Use of Estimates" and "Customer Receivables and Revenues", for additional information. Operating revenues decreased $322 million in 1999, compared to 1998, due in part to the approximately $226 million impact of the 15% residential base rate reduction that took effect August 1, 1998. Operating revenues for 1999 also were reduced by approximately $174 million, compared to 1998, due to the change in presentation for certain state and municipal taxes. Kilowatthour sales increased 8%, primarily due to sales for resale. In 1998, operating revenues increased $15 million, compared to the year 1997, primarily due to warmer summer weather experienced in 1998 and continued economic growth in ComEd's service territory, partially offset by a 15% residential rate reduction ($170 million) and reserves for various federal and state litigation matters ($35 million). Operating revenues for 1998 were reduced by approximately $110 million, compared to 1997, due to the change in presentation for certain state and municipal taxes. During 1997, electric operating revenues increased $139 million, primarily due to a 29% increase in kilowatthour sales to wholesale customers. Kilowatthour sales to ultimate consumers during 1997 increased 1%, compared to 1996, reflecting continued economic growth in ComEd's service territory. Operating revenues in 1997 were reduced by the provision for revenue refunds of $45 million, including revenue taxes, related to the elimination of the FAC. Fuel Costs. Changes in fuel expense for the years 1999, 1998 and 1997 primarily resulted from changes in the average cost of fuel consumed, changes in the mix of fuel sources of electric energy generated and changes in net generation of electric energy. Fuel mix is determined primarily by system load, the costs of fuel consumed and the availability of nuclear generating units. The cost of fuel 18 consumed, net generation of electric energy and fuel sources of kilowatthour generation were as follows:
1999 1998 1997 --------------- ----------------- ----------------- Cost Cost Cost Fuel per per per Costs KWh Fuel Costs KWh Fuel Costs KWh -------- ----- ---------- ----- ---------- ----- (000's) (000's) (000's) Cost of fuel consumed: Nuclear..................................... $380,489 0.52c $ 286,619 0.53c $ 263,163 0.54c Coal........................................ 525,896 2.26 626,442 2.51 810,144 2.44 Oil......................................... 7,854 5.43 20,822 6.26 17,829 5.50 Natural gas................................. 83,023 3.22 123,644 3.04 113,082 3.50 -------- ---------- ---------- Total/Average costs all fuels............... $997,262 1.00c $1,057,527 1.27c $1,204,218 1.40c ======== ========== ========== Net generation of electric energy (millions of kilowatthours)............................... 99,684 83,302 85,861 Fuel sources of kilowatthour generation: Nuclear..................................... 74% 65% 57% Coal........................................ 23 30 39 Oil......................................... -- -- -- Natural gas................................. 3 5 4 --- --- --- 100% 100% 100% === === ===
The increases in net generation of electric energy and nuclear generation for 1999, compared to the prior years, are primarily due to significant improvement in the performance of ComEd's nuclear fleet. The overall nuclear capacity factor was 89% for 1999, compared to 66% for 1998 and 49% for 1997. The decreases in the net generation of electric energy for 1998, compared to 1997, are primarily due to the sales of State Line and Kincaid Station in December 1997 and February 1998, respectively, and lower nuclear plant availability in 1997. The decrease in net generation of electric energy from 1997 to 1998 due to the sale of State Line Station was 2,378,413 megawatthours and the decrease from 1997 to 1998 due to the sale of Kincaid Station was 2,357,488 megawatthours. See "Regulation," subcaption "Nuclear Matters" above, for information regarding ComEd's nuclear generating stations. Purchased Power. Amounts of purchased power are primarily affected by system load, the availability of ComEd's generating units and the availability and cost of power from other utilities. Purchased power decreased $196 million and increased $348 million in 1999 and 1998, compared to 1998 and 1997, respectively. The decrease in 1999 was due to the improved nuclear and fossil operating performance which reduced the need to purchase power from other parties. The increase in purchased power costs in 1998 reflects the effects of an extraordinary combination of heat, storms and equipment problems experienced throughout the Midwest in late June 1998 which resulted in unprecedented purchased power price levels. See "Regulation," subcaption "Nuclear Matters" above, for information regarding ComEd's nuclear generating stations. For additional information concerning ComEd's purchased power commitments, see "Liquidity and Capital Resources," subcaption "UTILITY OPERATIONS--Construction Program," above and Note 22 of Notes to Financial Statements. The number and average cost of kilowatthours purchased were as follows:
1999 1998 1997 ------ ------ ------ Kilowatthours (millions)............................. 11,561 20,704 16,672 Cost per kilowatthour................................ 4.77c 3.84c 2.40c
The market price for electricity is subject to price volatility associated with changes in supply and demand in the electric supply markets. ComEd utilizes energy put and call option contracts and energy swap arrangements to limit market price risk associated with forward commodity contracts. See "Liquidity and Capital Resources," subcaption "UTILITY OPERATIONS--Market Risks" above, for additional information. 19 Operation and Maintenance Expenses. O&M expenses include the expenses associated with operating and maintaining ComEd's generation, transmission and distribution assets, as well as administrative overhead and support. Given the variety of expense categories covered, there are a number of factors which affect the level of such expenses within any given period. Two major components of such expenses, however, are the costs associated with operating and maintaining ComEd's generating facilities. Generating station expenses are affected by the cost of materials, regulatory requirements and expectations, the age of facilities and cost control efforts. During the three years presented in the financial statements, the aggregate level of O&M expenses increased 3% in 1999 compared to 1998, decreased 7% in 1998 compared to 1997, and increased 12% in 1997 compared to 1996. O&M expenses associated with nuclear generating stations decreased $75 million and $172 million and increased $122 million for the years 1999, 1998 and 1997, respectively. The decrease in 1999 was due to shorter refueling outages and fewer forced outages. The decrease in 1998 was principally due to the permanent cessation of nuclear generation operations at Zion Station. The increase in 1997 was a result of increased levels of activities associated with the repair, replacement and improvement of nuclear generating facility equipment. See "Changes in the Electric Utility Industry," subcaption "Response to Regulatory Changes" above, regarding the permanent cessation of nuclear operations at Zion Station. O&M expenses associated with fossil generating stations decreased $42 million, $5 million and increased $31 million for the years 1999, 1998 and 1997, respectively. The decrease in 1999 was primarily due to reductions in plant refurbishment and maintenance costs. The decrease related to fossil generating stations in 1998 was primarily due to the sales of State Line and Kincaid Stations in December 1997 and February 1998, respectively, ($25 million) partially offset by plant refurbishment costs ($19 million). O&M expenses associated with ComEd's transmission and distribution system increased $77 million, $32 million and $15 million, for the years 1999, 1998 and 1997, respectively. The increase in 1999 was primarily due to an increase in tree trimming expenses and the costs associated with ComEd's extensive evaluation of the reliability of its transmission and distribution system following outages which occurred during the summer of 1999. The increase also reflects restoration and other outage-related costs associated with the summer heat wave. The 1998 and 1997 increases are primarily due to increased emergency restoration of electric service, higher maintenance expenses and tree trimming costs. O&M expenses associated with customer-related activities increased $40 million, $19 million and $11 million for the years 1999, 1998 and 1997, respectively. The increase in 1999 was primarily due to the ongoing implementation of a new customer information and billing system. O&M expenses for the year 1999 reflect an increase of $68 million in the estimated environmental liability for the remediation of former manufactured gas plant sites. O&M expenses also include employee benefits expenses. Since 1995, ComEd has reduced the size of its workforce by offering incentives for employees to leave the company voluntarily. Such incentives included both current payments and earlier eligibility for postretirement health care benefits, in addition to certain other employee-related costs, resulting in charges of $10 million, $48 million and $39 million for the years 1999, 1998 and 1997, respectively. Other employee benefits expenses, excluding the effects of employee separation plans and certain other employee-related costs increased $16 million and $41 million and decreased $11 million for the years 1999, 1998 and 1997, respectively. The increase for the year 1999 was primarily due to higher accruals for incentive compensation. The increase in 1998 was primarily due to accruals for estimated incentive compensation recorded in 1998. The decrease in 1997 was primarily due to a reduction in medical costs for active employees. O&M expenses included a $25 million charge for the year 1999 as a result of a franchise related settlement agreement with the City. 20 O&M expenses associated with certain administrative and general costs decreased $7 million and $22 million and increased $35 million for the years 1999, 1998 and 1997, respectively. The 1999 decrease due to a variety of reasons, including reductions in nuclear insurance ($38 million), partially offset by increased charges for uncollectible accounts resulting from billing and collection delays experienced following the implementation of a new customer information system ($25 million). The decrease in 1998 reflects a reduction of $34 million in certain nuclear maintenance costs due to technological improvements, compared to 1997. The effects of inflation have also increased O&M expenses during the years and are also reflected in the increases and decreases discussed herein. Depreciation, Amortization and Decommissioning. Depreciation, amortization and decommissioning expense decreased $101 million and $63 million and increased $34 million for the year 1999, 1998 and 1997, respectively. The decrease in the year 1999 was primarily due to the fossil plant sale. Consistent with the provisions of the 1997 Act, the (pre-tax) gain on the sale of $2.587 billion resulted in a regulatory liability, which was used to recover regulatory assets. Therefore, the gain on the sale, excluding $43 million of amortization of investment tax credits, was recorded as a regulatory liability in the amount of $2.544 billion and amortized in the fourth quarter of 1999. The amortization of the regulatory liability and additional regulatory asset amortization of $2.456 billion are reflected in depreciation and amortization expense on ComEd's Statement of Consolidated Operations and resulted in a net reduction to depreciation and amortization expense of $88 million. Depreciation expense decreased $95 million and increased $36 million for the years 1998 and 1997, respectively. The decrease in 1998 reflects the retirement of Zion Station ($31 million), the reduction in depreciable plant due to the plant impairment recorded by ComEd in the second quarter of 1998 ($65 million), the sales of State Line and Kincaid ($4 million), lower depreciation of steam generators at Byron Unit 1 and Braidwood Unit 1 in 1998 compared to 1997 ($25 million), partially offset by plant additions ($16 million) and shortened depreciable lives for certain nuclear stations ($14 million). The $36 million increase in depreciation expense in 1997 is principally due to the early retirement of the steam generators at Byron Unit 1 and Braidwood Unit 1. See Note 1 of Notes to Financial Statements, under "Depreciation, Amortization of Regulatory Assets and Liabilities, and Decommissioning," for additional information. The staff of the SEC has questioned certain of the current accounting practices of the electric utility industry, including ComEd, regarding the recognition, measurement and classification of decommissioning costs for nuclear generating stations in the financial statements of electric utilities. In response to these questions, the FASB is reviewing the accounting for asset removal costs including those related to nuclear decommissioning. If current electric utility industry accounting practices for such decommissioning costs are changed, annual provisions for decommissioning could increase and the estimated costs of decommissioning could be recorded as a liability rather than as accumulated depreciation. Decommissioning costs of currently retired nuclear plants are recorded as a liability. Unicom and ComEd do not believe that such changes, if required, would have an adverse effect on their results of operations due to ComEd's ability to recover decommissioning costs through rates. Interest on Debt. Changes in interest on long-term debt and notes payable for the years 1999, 1998 and 1997 were due to changes in average interest rates and in the amounts of long-term debt and notes payable outstanding. Changes in interest on ComEd's long-term debt also reflected new issues of debt, the retirement and early redemption of debt, and the retirement and redemption of issues which were refinanced at generally lower rates of interest. See Notes 3 and 7 of Notes to Financial Statements for information regarding the redemptions and repurchases of debt and equity. The average amounts of ComEd's long-term debt and notes payable outstanding and average interest rates thereon were as follows:
1999 1998 1997 ------ ------ ------ Long-term debt outstanding: Average amount (millions).......................... $8,119 $6,099 $6,256 Average interest rate.............................. 6.76% 7.06% 7.65% Notes payable outstanding: Average amount (millions).......................... $ 320 $ 344 $ 153 Average interest rate.............................. 5.82% 5.68% 5.95%
21 Other Items. The amounts of AFUDC reflect changes in the average levels of investment subject to AFUDC and changes in the average annual capitalization rates as discussed in Note 1 of Notes to Financial Statements, under "AFUDC and Interest Capitalized." ComEd discontinued SFAS No. 71 regulatory accounting practices in December 1997 for the generation portion of its business, and as a result, began capitalizing interest in 1998. ComEd capitalized $22 million and $28 million for the years 1999 and 1998, respectively, of interest costs on its generation-related construction work in progress and nuclear fuel in process. AFUDC and interest capitalized do not contribute to the current cash flow of ComEd. ComEd's ratios of earnings to fixed charges for the years 1999, 1998 and 1997 were 2.45, 2.59 and 0.58, respectively. ComEd's ratios of earnings to fixed charges and preferred and preference stock dividend requirements for the years 1999, 1998 and 1997 were 2.32, 2.24 and 0.49, respectively. Business corporations, in general, have been adversely affected by inflation because amounts retained after the payment of all costs have been inadequate to replace, at increased costs, the productive assets consumed. Electric utilities, in particular, have been especially affected as a result of their capital intensive nature and regulation which limits capital recovery and prescribes installation or modification of facilities to comply with increasingly stringent safety and environmental requirements. Because the regulatory process limits the amount of depreciation expense included in ComEd's revenue allowance to the original cost of utility plant investment, the resulting cash flows are inadequate to provide for replacement of that investment in future years or preserve the purchasing power of common equity capital previously invested. 22 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Commonwealth Edison Company: We have audited the accompanying consolidated balance sheets and statements of consolidated capitalization of Commonwealth Edison Company (an Illinois corporation) and subsidiary companies as of December 31, 1999 and 1998, and the related statements of consolidated operations, retained earnings/(deficit), comprehensive income and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Commonwealth Edison Company and subsidiary companies as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles. As discussed in Note 4, effective January 1, 1997, the Company changed its method of accounting for revenue recognition. Arthur Andersen LLP Chicago, Illinois January 31, 2000 23 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED OPERATIONS The following Statements of Consolidated Operations for the year 1999, 1998 and 1997 reflect the results of past operations and are not intended as any representation as to results of operations for any future period. Future operations will necessarily be affected by various and diverse factors and developments, including changes in electric prices, regulation, population, business activity, asset dispositions, competition, taxes, environmental control, energy use, fuel, cost of labor, purchased power and other matters, the nature and effect of which cannot now be determined.
1999 1998 1997 ---------- ---------- ----------- (Thousands of Dollars) Electric Operating Revenues............... $6,766,892 $7,088,542 $ 7,073,088 ---------- ---------- ----------- Electric Operating Expenses and Taxes: Fuel.................................... $ 997,262 $1,057,527 $ 1,204,218 Purchased power......................... 551,575 748,017 400,055 Operation............................... 1,541,435 1,457,346 1,715,016 Maintenance............................. 774,310 789,262 689,729 Depreciation and amortization........... 836,145 937,604 1,001,149 Taxes (except income)................... 506,326 697,151 799,167 Income taxes-- Current--Federal...................... 1,466,994 287,865 214,168 --State................................ 315,713 52,233 65,248 Deferred--Federal--net................ (1,155,409) 30,761 56,111 --State--net........................... (247,993) 12,538 2,544 Investment tax credits deferred--net.... (25,828) (27,730) (31,015) ---------- ---------- ----------- $5,560,530 $6,042,574 $ 6,116,390 ---------- ---------- ----------- Electric Operating Income................. $1,206,362 $1,045,968 $ 956,698 ---------- ---------- ----------- Other Income and (Deductions): Interest on long-term debt, net of interest capitalized................... $ (526,750) $ (430,602) $ (478,530) Interest on notes payable............... (18,602) (19,560) (9,134) Allowance for funds used during construction........................... 21,812 16,464 42,325 Income taxes applicable to nonoperating activities............................. 27,083 4,974 11,010 Provision for dividends on company- obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely the Company's subordinated debt securities........... (29,710) (29,710) (28,860) Loss of nuclear plant closure........... -- -- (885,611) Income tax effect of nuclear plant closure................................ -- -- 362,952 Miscellaneous--net...................... (29,887) 6,672 (130,988) ---------- ---------- ----------- $ (556,054) $ (451,762) $(1,116,836) ---------- ---------- ----------- Net Income (Loss) before Extraordinary Item and Cumulative Effect of Change in Accounting Principle..................... $ 650,308 $ 594,206 $ (160,138) Extraordinary Loss, less Applicable Income Taxes.................................... (27,579) -- (810,335) Cumulative Effect of Change in Accounting Principle................................ -- -- 196,700 ---------- ---------- ----------- Net Income (Loss)......................... $ 622,729 $ 594,206 $ (773,773) Provision for Dividends on Preferred and Preference Stocks........................ 23,756 56,884 60,486 ---------- ---------- ----------- Net Income (Loss) on Common Stock......... $ 598,973 $ 537,322 $ (834,259) ========== ========== ===========
The accompanying Notes to Financial Statements are an integral part of the above statements. 24 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS
December 31 ------------------------ ASSETS 1999 1998 ------ ----------- ----------- (Thousands of Dollars) Utility Plant: Plant and equipment, at original cost (includes construction work in progress of $653 million and $857 million, respectively)....................... $25,007,637 $27,801,246 Less--Accumulated provision for depreciation....... 13,729,223 15,234,320 ----------- ----------- $11,278,414 $12,566,926 Nuclear fuel, at amortized cost.................... 843,724 874,979 ----------- ----------- $12,122,138 $13,441,905 ----------- ----------- Investments: Nuclear decommissioning funds...................... $ 2,546,540 $ 2,267,317 Subsidiary companies............................... 77,061 48,636 Other investments, at cost......................... 63,702 57,031 ----------- ----------- $ 2,687,303 $ 2,372,984 ----------- ----------- Current Assets: Cash and temporary cash investments................ $ 1,254,868 $ 27,154 Cash held for redemption of securities............. 285,056 3,062,816 Special deposits................................... 45,730 271 Receivables-- Customers........................................ 1,183,505 1,364,760 Forward share repurchase contract................ 813,046 -- Other............................................ 2,631,793 155,492 Provisions for uncollectible accounts............ (49,344) (48,008) Coal and fuel oil, at average cost................. 14,222 134,965 Materials and supplies, at average cost............ 220,398 229,532 Deferred income taxes related to current assets and liabilities....................................... 54,796 26,486 Prepayments and other.............................. 30,539 18,387 ----------- ----------- $ 6,484,609 $ 4,971,855 ----------- ----------- Deferred Charges and Other Noncurrent Assets: Regulatory assets.................................. $ 1,792,907 $ 4,578,427 Other.............................................. 73,308 85,406 ----------- ----------- $ 1,866,215 $ 4,663,833 ----------- ----------- $23,160,265 $25,450,577 =========== ===========
The accompanying Notes to Financial Statements are an integral part of the above statements. 25 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS
December 31 ----------------------- CAPITALIZATION AND LIABILITIES 1999 1998 ------------------------------ ----------- ----------- (Thousands of Dollars) Capitalization (see accompanying statements): Common stock equity.................................. $ 5,302,915 $ 5,055,854 Preferred and preference stocks without mandatory redemption requirements............................. 8,768 91,479 Preference stock subject to mandatory redemption requirements........................................ -- 69,475 Company-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely the Company's subordinated debt securities*............. 350,000 350,000 Long-term debt....................................... 6,962,448 7,677,219 ----------- ----------- $12,624,131 $13,244,027 ----------- ----------- Current Liabilities: Notes payable........................................ $ 4,750 $ 276,356 Current portion of long-term debt, redeemable preference stock and capitalized lease obligations.. 909,900 2,226,868 Accounts payable..................................... 545,329 605,712 Accrued interest..................................... 147,044 178,238 Accrued taxes........................................ 1,409,626 165,466 Dividends payable.................................... 92,656 104,022 Customer deposits.................................... 68,128 56,954 Accrued plant closing costs.......................... -- 78,430 Other................................................ 307,040 149,304 ----------- ----------- $ 3,484,473 $ 3,841,350 ----------- ----------- Deferred Credits and Other Noncurrent Liabilities: Deferred income taxes................................ $ 2,456,447 $ 3,787,978 Nuclear decommissioning liability for retired plants. 1,259,700 1,215,400 Accumulated deferred investment tax credits.......... 484,717 562,285 Accrued spent nuclear fuel disposal fee and related interest............................................ 763,427 728,413 Obligations under capital leases..................... 161,602 333,653 Regulatory liabilities............................... 596,157 595,005 Other................................................ 1,329,611 1,142,466 ----------- ----------- $ 7,051,661 $ 8,365,200 ----------- ----------- Commitments and Contingent Liabilities (Note 22) $23,160,265 $25,450,577 =========== ===========
*As described in Note 11 of Notes to Financial Statements, the sole asset of ComEd Financing I, a subsidiary trust of ComEd, is $206.2 million principal amount of ComEd's 8.48% subordinated deferrable interest notes due September 30, 2035. The sole asset of ComEd Financing II, also a subsidiary trust of ComEd, is $154.6 million principal amount of ComEd's 8.50% subordinated deferrable interest debentures due January 15, 2027. The accompanying Notes to Financial Statements are an integral part of the above statements. 26 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED CAPITALIZATION
December 31 ------------------------ 1999 1998 ----------- ----------- (Thousands of Dollars) Common Stock Equity: Common stock, $12.50 par value per share-- Outstanding--213,973,810 shares and 214,057,171 shares, respectively............................ $ 2,677,995 $ 2,677,969 Premium on common stock and other paid-in capital. 2,207,287 2,223,706 Capital stock and warrant expense................. (12,537) (15,664) Retained earnings................................. 433,001 176,643 Other comprehensive income........................ 7,539 -- Treasury stock--264,406 shares and 178,982 shares, respectively..................................... (10,370) (6,800) ----------- ----------- $ 5,302,915 $ 5,055,854 ----------- ----------- Preferred and Preference Stocks Without Mandatory Redemption Requirements: Preference stock, non-cumulative, without par val- ue-- Outstanding--1,120 shares and 2,600 shares, re- spectively....................................... $ 6,978 $ 16,991 Preference stock, cumulative, without par value-- Outstanding--No shares and 13,499,549 shares, respectively ................................... -- 504,957 Current redemption requirements for preference stock included in current liabilities............ -- (432,320) $1.425 convertible preferred stock, cumulative, without par value-- Outstanding--56,291 shares and 58,211 shares, re- spectively...................................... 1,790 1,851 ----------- ----------- $ 8,768 $ 91,479 ----------- ----------- Preference Stock Subject to Mandatory Redemption Re- quirements: Preference stock, cumulative, without par value-- Outstanding--700,000 shares and 1,720,345 shares, respectively.................................... $ 69,475 $ 171,348 Current redemption requirements for preference stock included in current liabilities............ (69,475) (101,873) ----------- ----------- $ -- $ 69,475 ----------- ----------- Company-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts Holding Solely the Company's Subordinated Debt Securities............. $ 350,000 $ 350,000 ----------- ----------- Long-Term Debt: First mortgage bonds: Maturing 2000 through 2004--6 3/8% to 9 3/8%.... $ 698,245 $ 1,080,000 Maturing 2005 through 2014--4.40% to 8 3/8%..... 1,299,400 1,485,400 Maturing 2015 through 2023--5.85% to 9 7/8%..... 1,589,443 1,981,000 ----------- ----------- $ 3,587,088 $ 4,546,400 Transitional trust notes, due 2000 through 2008-- 5.29% to 5.74%................................... 3,070,000 3,400,000 Sinking fund debentures, due 2001 through 2011--2 3/4% to 4 3/4%................................... 30,866 94,159 Pollution control obligations, due 2007 through 2014--5.3% to 5 7/8%............................. 139,200 140,700 Other long-term debt.............................. 916,351 1,056,346 Current maturities of long-term debt included in current liabilities.............................. (732,077) (1,497,706) Unamortized net debt discount and premium......... (48,980) (62,680) ----------- ----------- $ 6,962,448 $ 7,677,219 ----------- ----------- $12,624,131 $13,244,027 =========== ===========
The accompanying Notes to Financial Statements are an integral part of the above statements. 27 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED RETAINED EARNINGS/(DEFICIT)
1999 1998 1997 -------- -------- ---------- (Thousands of Dollars) Balance at Beginning of Period................. $176,643 $(19,172) $1,157,956 Add--Net income/(loss)......................... 622,729 594,206 (773,773) -------- -------- ---------- $799,372 $575,034 $ 384,183 -------- -------- ---------- Deduct-- Dividends declared on-- Common stock............................... $342,285 $342,776 $ 342,763 Preferred and preference stocks............ 8,532 55,320 60,159 Other capital stock transactions--net....... 15,554 295 433 -------- -------- ---------- $366,371 $398,391 $ 403,355 -------- -------- ---------- Balance at End of Period (Includes $852 million, $580 million and $384 million of appropriated retained earnings at December 31, 1999, 1998 and 1997, respectively)............ $433,001 $176,643 $ (19,172) ======== ======== ==========
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
1999 1998 1997 -------- -------- --------- (Thousands of Dollars) Net Income/(Loss) on Common Stock................. $598,973 $537,322 $(834,259) Other Comprehensive Income Unrealized gains on securities.................. 12,471 -- -- Income taxes on other comprehensive income...... (4,932) -- -- -------- -------- --------- Other comprehensive income, net of tax.......... 7,539 -- -- -------- -------- --------- Comprehensive Income/(Loss)....................... $606,512 $537,322 $(834,259) ======== ======== =========
The accompanying Notes to Financial Statements are an integral part of the above statements. 28 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED CASH FLOWS
1999 1998 1997 ----------- ----------- ----------- (Thousands of Dollars) Cash Flow from Operating Activities: Net income (loss)...................... $ 622,729 $ 594,206 $ (773,773) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........ 902,035 989,147 1,047,603 Deferred income taxes and investment tax credits--net.................... (1,451,910) 62,775 (348,889) Contribution to environmental trust.. (250,000) -- -- Recovery of coal reserve regulatory assets.............................. 197,974 108,372 82,441 Increase in MGP liability............ 68,078 -- -- Extraordinary loss related to write- off of certain net regulatory as- sets................................ -- -- 810,335 Cumulative effect of change in ac- counting principle.................. -- -- (196,700) Loss on nuclear plant closure........ -- -- 885,611 Write-down of uranium-related proper- ties................................ -- -- 64,387 Provisions/(payments) for revenue re- funds--net.......................... (22,603) (23,622) 45,470 Equity component of allowance for funds used during construction...... (7,789) (6,959) (23,770) Provisions/(payments) for liability for separation costs--net........... (62,396) 9,757 15,986 Net effect on cash flows of changes in: Receivables........................ (83,600) (485,833) 21,194 Note receivable from Unicom Invest- ment.............................. (2,208,956) -- -- Coal and fuel oil.................. 1,559 (14,301) 19,698 Materials and supplies............. (7,157) 22,519 41,659 Accounts payable excluding nuclear fuel lease principal payments and separation costs--net............. (57,618) 111,981 233,360 Accrued interest and taxes......... 1,240,975 (22,659) (6,465) Other changes in certain current assets and liabilities............ 124,425 141,942 38,873 Other--net........................... 1,837 64,916 117,013 ----------- ----------- ----------- $ (992,417) $ 1,552,241 $ 2,074,033 ----------- ----------- ----------- Cash Flow from Investing Activities: Construction expenditures.............. $(1,083,398) $ (928,365) $ (969,626) Nuclear fuel expenditures.............. (253,483) (166,168) (185,373) Sales of generating plants............. 4,885,720 177,454 60,791 Equity component of allowance for funds used during construction........ 7,789 6,959 23,770 Contributions to nuclear decommissioning funds................. (89,945) (136,771) (114,825) Other investments and special depos- its................................... (38,518) (681) (4,703) Plant removal costs--net............... (74,584) (86,988) (85,923) ----------- ----------- ----------- $ 3,353,581 $(1,134,560) $(1,275,889) ----------- ----------- ----------- Cash Flow from Financing Activities: Issuance of securities-- Transitional trust notes............. $ -- $ 3,382,629 $ -- Other long-term debt................. -- 222,068 297,663 Company-obligated mandatorily redeem- able preferred securities of subsidiary trusts holding solely the Company's subordinated debt securities.......................... -- -- 150,000 Capital stock........................ 60 244 288 Retirement and redemption of securi- ties-- Transitional trust notes............. (330,000) -- -- Other long-term debt................. (1,199,969) (498,192) (734,768) Capital stock........................ (649,355) (34,066) (44,111) Repurchase of common stock............. (813,046) (6,800) (9,500) Cash dividends paid on capital stock... (391,892) (429,867) (426,916) Proceeds from sale/leaseback of nu- clear fuel............................ -- 101,038 149,955 Nuclear fuel lease principal payments.. (255,402) (255,605) (166,411) Increase/(decrease) in short-term borrowings............................ (271,606) 118,206 29,400 ----------- ----------- ----------- $(3,911,210) $ 2,599,655 $ (754,400) ----------- ----------- ----------- Change in Net Cash Balance.............. $(1,550,046) $ 3,017,336 $ 43,744 Cash, Temporary Cash Investments and Cash Held for Redemption of Securities: Balance at Beginning of Period......... 3,089,970 72,634 28,890 ----------- ----------- ----------- Balance at End of Period............... $ 1,539,924 $ 3,089,970 $ 72,634 =========== =========== ===========
The accompanying Notes to Financial Statements are an integral part of the above statements. 29 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS (1) Summary of Significant Accounting Policies. Corporate Structure and Basis of Presentation. Unicom is the parent holding company of ComEd and other unregulated subsidiaries. ComEd, a regulated electric utility, is the principal subsidiary of Unicom. The consolidated financial statements include the accounts of ComEd, Indiana Company, Edison Development, the Trusts, ComEd Funding and ComEd Funding Trust. All significant intercompany transactions have been eliminated. Although the accounts of ComEd Funding and ComEd Funding Trust, which are SPEs, are included in the consolidated financial statements, as required by GAAP, ComEd Funding and ComEd Funding Trust are legally separated from Unicom and ComEd. The assets of the SPEs are not available to creditors of Unicom or ComEd and the transitional property held by the SPEs are not assets of Unicom or ComEd. Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Due to the transition to a new customer information and billing system, a larger portion of customer revenues and net receivables were based on estimates for the periods July 1998 through November 1999 than in previous periods. Regulation. ComEd is subject to regulation as to accounting and ratemaking policies and practices by the ICC and FERC. ComEd's accounting policies and the accompanying consolidated financial statements conform to GAAP applicable to rate-regulated enterprises for the non-generation portion of its business, including the effects of the ratemaking process in accordance with SFAS No. 71, Accounting for the Effects of Certain Types of Regulation. Such effects on the non-generation portion of its business concern mainly the time at which various items enter into the determination of operating results in order to follow the principle of matching costs with the applicable revenues collected from or returned to customers through future rates. See Note 3 for information regarding the write-off of generation-related regulatory assets and liabilities in December 1997. ComEd's investment in generation-related net utility plant, not subject to cost-based rate regulation, including construction work in progress and nuclear fuel, and excluding the decommissioning costs included in the accumulated provision for depreciation was $7.8 billion and $9.2 billion as of December 31, 1999 and 1998. See "Regulatory Assets and Liabilities" below regarding the plant impairment recorded by ComEd in the second quarter of 1998. 30 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued Regulatory Assets and Liabilities. Regulatory assets are incurred costs which have been deferred and are amortized for ratemaking and accounting purposes. Regulatory liabilities represent amounts to be settled with customers through future rates. Regulatory assets and liabilities reflected on the Consolidated Balance Sheets at December 31, 1999 and 1998 were as follows:
December 31 --------------------- 1999 1998 ---------- ---------- (Thousands of Dollars) Regulatory assets: Impaired production plant............................... $ 366,221 $2,955,154 Deferred income taxes (1)............................... 688,946 680,356 Nuclear decommissioning costs--Dresden Unit 1........... 202,308 255,031 Nuclear decommissioning costs--Zion Units 1 and 2....... 496,638 443,130 Coal reserves........................................... -- 197,975 Unamortized loss on reacquired debt (2)................. 38,794 46,781 ---------- ---------- $1,792,907 $4,578,427 ========== ========== Regulatory liabilities: Deferred income taxes (1)............................... $ 596,157 $ 595,005 ========== ==========
- -------- (1) Recorded in compliance with SFAS No. 109, Accounting for Income Taxes, for non-generation related temporary differences. (2) Amortized over the remaining lives of the non-generation related long-term debt issued to finance the reacquisition. See "Loss on Reacquired Debt" below for additional information. ComEd performed a SFAS No. 121 impairment analysis in 1998 which concluded that future revenues, excluding the collection of the CTC expected to be recovered from electric supply services, would be insufficient to cover the costs of certain of its generating assets. Because future regulated cash flows, which include the CTC, tariff revenues and gains from the disposition of assets, are expected to provide recovery of the impaired plant assets, a regulatory asset was recorded for the same amount. This regulatory asset is currently being amortized as it is recovered through regulated cash flows over a transition period that extends through 2006. Consistent with the provisions of the 1997 Act, the (pre-tax) gain on the sale of $2.587 billion resulted in a regulatory liability, which was used to recover regulatory assets. Therefore, the gain on the sale, excluding $43 million of amortization of investment tax credits, was recorded as a regulatory liability in the amount of $2.544 billion and amortized in the fourth quarter of 1999. The amortization of the regulatory liability and additional regulatory asset amortization of $2.456 billion are reflected in depreciation and amortization expense on ComEd's Statement of Consolidated Operations and resulted in a net reduction to depreciation and amortization expense of $88 million. See Note 3 for additional information regarding amortization of regulatory assets with respect to limits on ComEd's earnings due to statutory sharing provisions. See Note 5 for additional information regarding the fossil plant sale. The regulatory assets for Dresden Unit 1 and Zion Units 1 and 2 represent unrecovered nuclear decommissioning costs, which are expected to be recovered over the periods 2000-2011 and 2000-2013, respectively, through a separate rate recovery rider provided for by the 1997 Act. See "Depreciation, Amortization of Regulatory Assets and Liabilities, and Decommissioning" below for additional information. 31 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued Depreciation, Amortization of Regulatory Assets and Liabilities, and Decommissioning. Depreciation, amortization of regulatory assets and liabilities, and decommissioning for the years 1999, 1998 and 1997 were as follows:
1999 1998 1997 -------- -------- ---------- (Thousands of Dollars) Depreciation expense.................. $706,237 $782,373 $ 877,256 Amortization of regulatory assets and liabilities--net..................... 46,088 65,211 15,272 -------- -------- ---------- $752,325 $847,584 $ 892,528 Decommissioning expense............... 83,820 90,020 108,621 -------- -------- ---------- $836,145 $937,604 $1,001,149 ======== ======== ==========
Provisions for depreciation, including nuclear plant, were at average annual rates of average depreciable utility plant and equipment for the years 1999, 1998 and 1997 as follows:
1999 1998 1997 ---- ---- ---- Average annual depreciation rates............................. 2.66% 3.02% 3.36%
Depreciation is provided on a straight-line basis by amortizing the cost of depreciable plant and equipment over estimated service lives for each class of plant. The decrease in the average depreciation rates for the year in 1999, compared to 1998, relates primarily to a reduction in nuclear depreciation rates due to the partial impairment of production plant, which was recorded as a component of accumulated depreciation, partially offset by shortened depreciable lives for certain nuclear stations. See "Regulatory Assets and Liabilities" above for additional information on the partial impairment of production plant. Nuclear plant decommissioning costs generally are accrued over the current NRC license lives of the related nuclear generating units. The accrual is based on an annual levelized cost of the unrecovered portion of estimated decommissioning costs, which are escalated for expected inflation to the expected time of decommissioning and are net of expected earnings on the trust funds. See "Management's Discussion and Analysis of Financial Condition and Results of Operations," subcaption "Results of Operations--Depreciation, Amortization and Decommissioning," for a discussion of questions raised by the staff of the SEC and a FASB review regarding the electric utility industry's method of accounting for decommissioning costs. Dismantling is expected to occur relatively soon after the end of the current NRC license life of each generating station currently operating. The accrual for decommissioning is based on the prompt removal method authorized by NRC guidelines. ComEd's ten operating units have remaining current NRC license lives ranging from 7 to 28 years. ComEd's Zion Station and its first nuclear unit, Dresden Unit 1, are retired and are expected to be dismantled beginning in the years 2014 and 2011, respectively, which is consistent with the regulatory treatment for recovery of the related decommissioning costs. Based on ComEd's most recent study, decommissioning costs are estimated to be $5.7 billion in current-year (2000) dollars, including a contingency allowance. This estimate includes $617 million of non-radiological costs, which are included in ComEd's proposed rider for recovery, as discussed below. ComEd's decommissioning cost expenditures at the end of the units' operating lives are estimated to total approximately $13.8 billion. These expenditures are expected to occur primarily during the period from 2007 through 2034. All such costs are expected to be funded by the external decommissioning trusts, which ComEd established in compliance with Illinois law and into which ComEd has been making annual contributions. Future decommissioning cost estimates may be 32 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued significantly affected by the adoption of or changes to NRC regulations, as well as changes in the assumptions used in making such estimates, including changes in technology, available alternatives for the disposal of nuclear waste and inflation. Since 1995, ComEd has collected decommissioning costs from its ratepayers in conjunction with a rider to its tariffs. The rider allows annual adjustments to decommissioning cost collections outside the context of a traditional rate proceeding and will continue under the 1997 Act. The current estimated decommissioning costs include a contingency allowance, but, except at Dresden Unit 1, exclude amounts for alternative spent fuel storage installations, which may be necessary to store spent fuel during the period beginning at the end of the NRC license lives of the plants to the date when the DOE accepts the spent fuel for permanent storage. Contingency allowances used in decommissioning cost estimates provide for currently unspecifiable costs that are likely to occur after decommissioning begins and generally range from 20% to 25% of the currently specifiable costs. In February 1998, the ICC authorized a reduction in the annual decommissioning cost accrual from $109 million to $84 million. The reduction primarily reflected stronger than expected after-tax returns on the external trust funds and lower than expected escalation in low-level waste disposal costs, partially offset by the higher current-year cost estimates, including a contingency allowance. Under its most recent annual rider, filed with the ICC on February 26, 1999, ComEd has proposed to increase its estimated annual decommissioning cost accrual from $84 million to $130 million. The proposed increase primarily reflects an increase in low-level waste disposal cost escalation, the inclusion of $219 million in current-year (2000) dollars for safety-related costs of maintaining Zion Station in a mothballed condition until dismantlement begins, and the inclusion of non-radiological costs in the decommissioning cost estimates for recovery under the rider. The proposed annual decommissioning cost accrual of $130 million was determined using the following assumptions: the decommissioning cost estimate of $5.7 billion in current-year (2000) dollars, after-tax earnings on the tax- qualified and nontax-qualified decommissioning funds of 7.49% and 6.83%, respectively, and an escalation rate for future decommissioning costs of 4.84%. The proposed annual accrual provided over the current NRC license lives of the nuclear plants, coupled with the expected fund earnings and amounts previously recovered in rates, is expected to aggregate to approximately $13.8 billion. For the ten operating nuclear units, decommissioning cost accruals are recorded as portions of depreciation expense and accumulated provision for depreciation on the Statements of Consolidated Operations and the Consolidated Balance Sheets, respectively, as such costs are recovered through rates. As of December 31, 1999, the total decommissioning costs included in the accumulated provision for depreciation were $2.1 billion. For ComEd's retired nuclear units, the total estimated liability for nuclear decommissioning in current-year (2000) dollars is recorded as a noncurrent liability. The unrecovered portion of the liability is recorded as a regulatory asset. The nuclear decommissioning liability for retired plants as of December 31, 1999 was as follows:
Zion Dresden Units Unit 1 1 and 2 Total -------- -------- ---------- (Thousands of Dollars) Amounts recovered through rates and investment fund earnings.................................... $104,792 $455,962 $ 560,754 Unrecovered portion of the liability.............. 202,308 496,638 698,946 -------- -------- ---------- Nuclear decommissioning liability for retired plants.......................................... $307,100 $952,600 $1,259,700 ======== ======== ==========
33 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued Under Illinois law, decommissioning cost collections are required to be deposited into external trusts. Consequently, such collections do not add to the cash flows available for general corporate purposes. The ICC has approved ComEd's funding plan, which provides for annual contributions of current accruals and ratable contributions of past accruals over the remaining current NRC license lives of the nuclear plants. The fair value of funds accumulated in the external trusts at December 31, 1999 was $2,547 million, which includes pre-tax unrealized appreciation of $721 million. The earnings on the external trusts for operating plants accumulate in the fund balance and accumulated provision for depreciation. Nuclear decommissioning funding as of December 31, 1999 was as follows:
(Thousands of Dollars) Amounts recovered through rates and investment fund earnings for operating plants (included in the accumu- lated provision for depreciation)...................... $2,099,796 Amounts recovered through rates and investment fund earnings for retired plants............................ 560,754 Less past accruals not yet contributed to the trusts.... 114,010 ---------- Fair value of external trust funds..................... $2,546,540 ==========
Customer Receivables and Revenues. ComEd is engaged principally in the production, purchase, transmission, distribution and sale of electricity to a diverse base of residential, commercial, industrial and wholesale customers. ComEd's electric service territory has an area of approximately 11,300 square miles and an estimated population of approximately eight million as of December 31, 1999. It includes the City, an area of about 225 square miles with an estimated population of approximately three million from which ComEd derived approximately 30 percent of its ultimate consumer revenues in 1999. ComEd had approximately 3.5 million electric customers at December 31, 1999. Revenues are recognized as electric and delivery services are provided to customers. As a result of the implementation of a new customer billing and information system in July 1998, billing and collection delays have temporarily increased accounts receivable from customers. ComEd has recorded increased provisions for uncollectible accounts to recognize the estimated portion of the receivables that are not expected to be recoverable. Such provisions increased O&M expenses by $35 million and $10 million in 1999 and 1998, respectively, compared to normally expected levels. See "Use of Estimates" above for additional information regarding ComEd's revenues and net receivables. See Notes 3 and 19 for additional information. Nuclear Fuel. The cost of nuclear fuel is amortized to fuel expense based on the quantity of heat produced using the unit of production method. As authorized by the ICC, provisions for spent nuclear fuel disposal costs have been recorded at a level required to recover the fee payable on the current nuclear-generated and sold electricity and the current interest accrual on the one-time fee payable to the DOE for nuclear generation prior to April 7, 1983. The one-time fee and interest thereon have been recovered and the current fee and interest on the one-time fee are presently being recovered through base rates. See Note 14 for additional information concerning the disposal of spent nuclear fuel, one-time fee and interest accrual on the one-time fee. Nuclear fuel expenses, including leased fuel costs and provisions for spent nuclear fuel disposal costs, were $380 million, $325 million and $298 million for the years 1999, 1998 and 1997, respectively. Income Taxes. Deferred income taxes are provided for income and expense items recognized for financial accounting purposes in periods that differ from those for income tax purposes. Income taxes 34 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued deferred in prior years are charged or credited to income as the book/tax temporary differences reverse. Prior years' deferred investment tax credits are amortized through credits to income generally over the lives of the related property. Income tax credits resulting from interest charges applicable to nonoperating activities, principally construction, are classified as other income. AFUDC and Interest Capitalized. In accordance with the uniform systems of accounts prescribed by regulatory authorities, ComEd capitalizes AFUDC, compounded semiannually, which represents the estimated cost of funds used to finance its construction program for the non-generation portion of its business. The equity component of AFUDC is recorded on an after-tax basis and the borrowed funds component of AFUDC is recorded on a pre-tax basis. The average annual capitalization rates were 7.81%, 8.34% and 9.39% for the years 1999, 1998 and 1997, respectively. ComEd discontinued SFAS No. 71 regulatory accounting practices in December 1997 for the generation portion of its business, and as a result began capitalizing interest in 1998. ComEd capitalized $22 million and $28 million for the years 1999 and 1998, respectively, in interest costs on its generation-related construction work in progress and nuclear fuel in process. AFUDC and interest capitalized do not contribute to the current cash flow of Unicom or ComEd. Interest. Total interest costs incurred on debt, leases and other obligations were $622 million, $535 million and $588 million for the years 1999, 1998 and 1997, respectively. Debt Discount, Premium and Expense. Discount, premium and expense on long- term debt of ComEd are being amortized over the lives of the respective issues. Loss on Reacquired Debt. Consistent with regulatory treatment, the net loss from ComEd's reacquisition, in connection with the refinancing of first mortgage bonds, sinking fund debentures and pollution control obligations prior to their scheduled maturity dates, is deferred and amortized over the lives of the long-term debt issued to finance the reacquisition for non- generation related financings. See "Regulatory Assets and Liabilities" above and Note 3 for additional information. Stock Option Awards/Employee Stock Purchase Plan. ComEd has elected to adopt SFAS No. 123, Accounting for Stock-Based Compensation, for disclosure purposes only. ComEd accounts for its stock option awards and ESPP under APB Opinion No. 25, Accounting for Stock Issued to Employees. See Note 8 for additional information. Energy Risk Management Contracts. In the normal course of business, ComEd utilizes contracts for the forward sale and purchase of energy to manage effectively the utilization of its available generating capability. ComEd also utilizes put and call option contracts and energy swap arrangements to limit the market price risk associated with the forward commodity contracts. As ComEd does not currently utilize financial or commodity instruments for trading or speculative purposes, any gains or losses on forward commodity contracts are recognized when the underlying transactions affect earnings. Revenues and expenses associated with market price risk management contracts are amortized over the terms of such contracts. In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which establishes accounting and reporting standards requiring that every derivative instrument, including certain derivative instruments embedded in other contracts, be recorded on the Consolidated Balance Sheets as either an asset or liability measured at its fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings, unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains 35 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued and losses to offset related results on the hedged item on the Statements of Consolidated Operations, and requires ComEd to formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. The effective date of SFAS No. 133 has been delayed for one year, to fiscal years beginning after June 15, 2000. SFAS No. 133 may be implemented prior to June 15, 2000, but such implementation cannot be applied retroactively. SFAS No. 133 must be applied to (i) derivative instruments and (ii) certain derivative instruments embedded in hybrid contracts that were issued, acquired, or substantively modified after January 1, 1998 or January 1, 1999 at the Company's election. ComEd is in the process of reviewing its various contracts to determine which contracts meet the requirements of SFAS No. 133 and would need to be reflected as derivatives under the standard and accounted for at fair value. Among the contracts that are being reviewed are purchase power agreements, contracts related to electricity purchases and sales, normal purchase orders, securities issued and insurance contracts. ComEd has not yet quantified the effects on its financial statements of adopting SFAS No. 133. However, adoption of SFAS No. 133 could increase volatility in earnings and other comprehensive income. Reclassifications. Certain prior year amounts have been reclassified to conform with current period presentation. These reclassifications had no effect on operating results. Cash Held for Redemption of Securities. As of December 31, 1999, the cash held for redemption of securities reported on the Consolidated Balance Sheets includes $222 million in unused cash proceeds from the issuance of the transitional trust notes and $63 million of escrowed cash and pending instrument funding charges collected from ComEd customers to be applied to the principal and interest payment on the transitional trust notes. See Note 3 for additional information. Statements of Consolidated Cash Flows. For purposes of the Statements of Consolidated Cash Flows, temporary cash investments, generally investments maturing within three months at the time of purchase, and cash held for redemption of securities are considered to be cash equivalents. Supplemental cash flow information for the years 1999, 1998 and 1997 was as follows:
1999 1998 1997 -------- -------- -------- (Thousands of Dollars) Supplemental Cash Flow Information: Cash paid during the period for: Interest (net of amount capital- ized).............................. $588,402 $439,706 $502,260 Income taxes (net of refunds)....... $485,198 $302,289 $280,368 Supplemental Schedule of Non-Cash Investing and Financing Activities: Capital lease obligations incurred.... $ 1,744 $106,370 $158,412
(2) Merger Agreement. In September 1999, the Boards of Directors of Unicom and PECO approved a merger of equals that will create a new holding company, Exelon. The merger is conditioned, among other things, upon the approvals of the shareholders of both companies and by various regulatory bodies. The merger is currently expected to be completed in the latter half of 2000. Under the merger agreement, as amended and restated in January 2000, PECO and ComEd will become the principal utility subsidiaries of Exelon. This result will be achieved by a mandatory exchange of the outstanding common stock of PECO for common stock of Exelon, and a merger of 36 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued Unicom with and into Exelon wherein holders of Unicom common stock will receive 0.875 shares of Exelon common stock plus $3.00 in cash for each of their shares of Unicom common stock. The merger transaction will be accounted for as a purchase of Unicom by PECO. Prior to the consummation of the merger, Unicom expects to repurchase approximately $1.0 billion of its outstanding common shares. These share repurchases are in addition to the 26.3 million shares of Unicom common stock that Unicom repurchased in January 2000 upon settlement of certain forward purchase contracts. The $1.0 billion additional share repurchases will be funded from available funds, including funds resulting from the fossil plant sale. (3) Accounting Effects Related to the 1997 Act. In December 1997, the Governor of Illinois signed into law the 1997 Act, which established a phased process to introduce competition into the electric industry in Illinois under a less regulated structure. The 1997 Act was amended in June 1999. As a result of the 1997 Act and FERC rules, prices for the supply of electric energy are expected to transition from cost-based, regulated rates to rates determined by competitive market forces. Accordingly, the 1997 Act provides for, among other things, gradual customer access to other electric suppliers or a power purchase option which allows the purchase of electric energy from ComEd at market based prices, and the collection of a CTC from customers who choose to purchase electric energy from a RES or elect the power purchase option during a transition period that extends through 2006. Effective October 1, 1999, the CTC was established in accordance with a formula defined in the 1997 Act. The CTC, which is applied on a cents per kilowatthour basis, considers the revenue which would have been collected from a customer under tariffed rates, reduced by the revenue the utility will receive for providing delivery services to the customer, the market price for electricity and a defined mitigation factor, which represents the utility's opportunity to develop new revenue sources and achieve cost savings. The CTC allows ComEd to recover some of its costs which might otherwise be unrecoverable under market-based rates. Nonetheless, ComEd will need to take steps to address the portion of such costs which are not recoverable through the CTC. Such steps may include cost control efforts, developing new sources of revenue and asset dispositions. See Note 5 for additional information. On October 1, 1999, more than 41,000 non-residential customers became eligible to choose a new electric supplier or elect the purchase power option. The remainder of non-residential customers will become eligible to choose an electric supplier or the purchase power option between June 1 and December 31, 2000. As of December 31, 1999, over 4,700 non-residential customers, representing approximately ten percent of ComEd's 1998 retail kilowatthour sales, elected to receive their electric energy from a RES or chose the purchase power option. As a result of the collection of CTCs from such customers, ComEd does not expect these elections to have a material effect on its results of operations in the near term. Utilities are required to continue to offer delivery services, including the transmission and distribution of electric energy, such that customers who select a RES can receive electric energy from that supplier using existing transmission and distribution facilities. Such services will continue to be offered under cost-based, regulated rates. The ICC issued orders in August and September 1999 approving, with modifications, ComEd's delivery service tariffs. The 1997 Act also provides for a 15% residential base rate reduction which became effective August 1, 1998 and an additional 5% residential base rate reduction in October 2001. ComEd's 37 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued operating revenues were reduced by approximately $170 million in 1998 due to the 15% residential base rate reduction. The 15% rate reduction further reduced ComEd's operating revenues by approximately $226 million in 1999, compared to 1998 rate levels. Notwithstanding the rate reductions and subject to certain earnings tests, a rate freeze will generally be in effect until at least January 1, 2005. During this period, utilities may reorganize, sell or assign assets, retire or remove plants from service, and accelerate depreciation or amortization of assets with limited ICC regulatory review. A utility may request a rate increase during the rate freeze period only when necessary to ensure the utility's financial viability, but not before January 1, 2000. Under the earnings provision of the 1997 Act, if the earned return on common equity of a utility during this period exceeds an established threshold, one-half of the excess earnings must be refunded to customers. The threshold rate of return on common equity is based on the 30-Year Treasury Bond rate, plus 5.5% in the years 1998 and 1999, and plus 8.5% in the years 2000 through 2004. The utility's earned return on common equity and the threshold return on common equity for ComEd are each calculated on a two-year average basis. The earnings sharing provision is applicable only to ComEd's earnings. Consistent with provisions of the 1997 Act, increased amortization of regulatory assets may be recorded, thereby reducing the earned return on common equity, if earnings otherwise would have exceeded the maximum allowable rate of return. The potential for earnings sharing or increased amortization of regulatory assets could limit earnings in future periods. The 1997 Act also allows a portion of ComEd's future revenues to be segregated and used to support the issuance of securities by ComEd or a SPE. The proceeds, net of transaction costs, from such security issuances must be used to refinance outstanding debt or equity or for certain other limited purposes. The total amount of such securities that may be issued is approximately $6.8 billion. In December 1998, ComEd initiated the issuance of $3.4 billion of transitional trust notes through its SPEs, ComEd Funding and ComEd Funding Trust. The proceeds from the transitional trust notes, net of transaction costs, were, as required, used to redeem $1,101 million of long- term debt and $607 million of preference stock in 1999 and reduce ComEd's outstanding short-term debt by $500 million. During the year 1999, ComEd recorded an extraordinary loss related to the early redemptions of such long- term debt, which reduced net income on common stock by approximately $28 million (after-tax). ComEd also recorded $12 million (after-tax) for premiums paid in connection with the redemption of such preference stock. The preference stock premiums were included in the provision for dividends for preference stocks of ComEd on the Statements of Consolidated Operations. As more fully described in Note 7 of Notes to Financial Statements, ComEd has repurchased approximately 26.3 million shares of ComEd common stock using $924 million of proceeds. The remaining proceeds from the issuance of the transitional trust notes will be used for the payment of fees and additional common stock repurchases. See Note 7 for additional information regarding ComEd's share repurchases. Because the 1997 Act is expected ultimately to lead to market-based pricing of electric generation services, ComEd discontinued SFAS No. 71 regulatory accounting practices for the generation portion of its business in December 1997. ComEd evaluated the regulatory assets and liabilities related to the generation portion of its business and determined that it was not probable that such costs would be recovered through the cash flows from the regulated portion of its business. Accordingly, the generation-related regulatory assets and liabilities were written off in the fourth quarter of 1997, resulting in an extraordinary charge of $810 million (after-tax). The fourth quarter of 1997 also reflected charges totaling $44 million (after-tax) as a result of ComEd's elimination of its FAC pursuant to an option in the 1997 Act, and a charge of $60 million (after-tax) for a write down of ComEd's investment 38 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued in uranium-related properties to realizable value. Projections of the market price for uranium indicated that the expected incremental costs of mining and milling uranium at the properties would exceed the expected market price for uranium and such costs are not expected to be recoverable in a competitive market. The 1997 Act also requires utilities to establish or join an ISO that will independently manage and control utility transmission systems. Additionally, the 1997 Act includes the leveling of certain regulatory requirements to permit operational flexibility, the leveling of certain regulatory and tax provisions as applied to various electric suppliers and a new, more stringent, liability standard applicable to ComEd in the event of a major outage. (4) Cumulative Effect of a Change in Accounting Principle. In the fourth quarter of 1997, ComEd changed its accounting method for revenue recognition to record revenues associated with service which has been provided to customers but has not yet been billed at the end of each accounting period, retroactive to January 1, 1997. This change in accounting method increased operating results for the year 1997 to reflect the one-time cumulative effect of the change for years prior to 1997 by $197 million (after-tax). (5) Sale of Plants and Closure. In December 1999, ComEd completed the sale of its fossil generating assets to EME for a cash purchase price of $4.8 billion. The fossil generating assets represent an aggregate generating capacity of approximately 9,772 megawatts. Just prior to the consummation of the fossil plant sale, ComEd transferred these assets to an affiliate, Unicom Investment. In consideration for the transferred assets, Unicom Investment paid ComEd consideration totalling approximately $4.8 billion in the form of a demand note in the amount of approximately $2.4 billion and an interest-bearing Note with a maturity of twelve years. Unicom Investment immediately sold the fossil plant assets to EME, in consideration of which Unicom Investment received approximately $4.8 billion in cash from EME. Immediately after its receipt of the cash payment from EME, Unicom Investment paid the $2.4 billion aggregate principal due to ComEd under the demand note. Unicom Investment will use the remainder of the cash received from EME to fund other business opportunities, including the share repurchases. Of the cash received by ComEd, $1.8 billion is expected to be used to pay the costs and taxes associated with the fossil plant sale including ComEd's contribution of $250 million of the proceeds to an environmental trust as required by the 1997 Act. The remainder of the demand note proceeds will be available to ComEd to fund, among other things, transmission and distribution projects, nuclear generation station projects, and environmental and other initiatives. The sale produced an after-tax gain of approximately $1.6 billion, after recognizing commitments associated with certain coal contracts ($350 million), recognizing employee-related costs ($112 million) and contributing to the environmental trust. The coal contract costs include the amortization of the remaining balance of ComEd's regulatory asset for unrecovered coal reserves of $178 million and the recognition of $172 million of settlement payments related to the above-market portion of coal purchase commitments ComEd assigned to EME at market value upon completion of the fossil plant sale. The severance costs included pension and post-retirement welfare benefit curtailment and special termination benefit costs of $51 million and transition, separation and retention payments of $61 million. A total of 1,730 fossil station employee positions were eliminated upon completion of the fossil plant sale on December 15, 1999. As of December 31, 1999, 1,590 of the employees whose positions were eliminated had been terminated and 140 affected employees were in a transition 39 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued program which generally extends 60 days from the date of the fossil plant sale. Consistent with the provisions of the 1997 Act, the (pre-tax) gain on the sale of $2.587 billion resulted in a regulatory liability, which was used to recover regulatory assets. Therefore, the gain on the sale, excluding $43 million of amortization of investment tax credits, was recorded as a regulatory liability in the amount of $2.544 billion and amortized in the fourth quarter of 1999. The amortization of the regulatory liability and additional regulatory asset amortization of $2.456 billion are reflected in depreciation and amortization expense on ComEd's Statement of Consolidated Operations and resulted in a net reduction to depreciation and amortization expense of $88 million. See Note 1, under "Regulatory Assets and Liabilities," for additional information. In January 1998, the Boards of Directors of Unicom and ComEd authorized the permanent cessation of nuclear generation operations and retirement of facilities at ComEd's 2,080 megawatt Zion nuclear generating station. Such retirement resulted in a charge in the fourth quarter of 1997 of $523 million (after-tax). The charge included a liability for estimated future closing costs associated with the retirement of the station, excluding severance costs, resulting in a charge of $117 million (after-tax). ComEd has recorded reductions to the expected liability for future closing costs of $16 million (after-tax) and $15 million (after-tax) in 1999 and in 1998, respectively, to reflect employees being reassigned or removed from the payroll sooner than anticipated, and lower support costs and use of contractors. See Note 17 for information regarding costs of voluntary employee separation plans. ComEd completed the sale of its State Line and Kincaid coal-fired generating stations (representing 1,598 megawatts of generating capacity) in December 1997 and February 1998, respectively. The net proceeds of the sales, after income tax effects and closing costs, were approximately $190 million. The proceeds were used to retire or redeem existing debt in the first quarter of 1998. ComEd has entered into 15-year purchased power agreements for the output of the stations. (6) Authorized Shares, Voting Rights and Stock Rights of Capital Stock. At December 31, 1999, the authorized shares of capital stock were: common stock-- 250,000,000 shares; preference stock--7,510,451 shares; $1.425 convertible preferred stock--56,291 shares; and prior preferred stock--850,000 shares. The preference and prior preferred stocks are issuable in series and may be issued with or without mandatory redemption requirements. Holders of shares at any time outstanding, regardless of class, are entitled to one vote for each share held on each matter submitted to a vote of such shareholders, with the right to cumulate votes in all elections for directors. (7) Common Equity. In the fourth quarter of 1998, ComEd entered into a forward purchase arrangement with Unicom for the repurchase of $200 million of ComEd common stock. This contract, which was accounted for as an equity instrument as of December 31, 1998, was settled on a net cash basis in February 1999, resulting in a $16 million reduction to common stock equity on the Consolidated Balance Sheets. During 1999, ComEd also entered into forward purchase arrangements with Unicom for the repurchase of approximately 26.3 million shares of ComEd common stock. The repurchase arrangements were settled in January 2000 on a physical basis. The terms of the repurchase arrangements between ComEd and Unicom are identical to the terms of Unicom's repurchase arrangements with financial institutions. The repurchase arrangements between ComEd and Unicom are expected to be settled on the same basis Unicom settles its repurchase arrangements with the financial institutions. Effective January 2000, the share repurchases will reduce ComEd's outstanding shares and common stock equity. Prior to settlement, the repurchase arrangements were recorded as 40 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued a receivable on the Consolidated Balance Sheets based on the aggregate market value of the shares deliverable under the arrangements. In 1999, net unrealized losses of $44 million (after-tax) were recorded related to the arrangements. The settlement of the arrangements in January 2000 resulted in a gain of $113 million (after-tax). See Note 24 of Notes to Financial Statements for additional information. At December 31, 1999, shares of common stock were reserved for the following purposes: Conversion of $1.425 convertible preferred stock................... 57,416 Conversion of warrants............................................. 25,230 ------ 82,646 ======
Shares of common stock issued for the years 1999, 1998 and 1997 were as follows:
1999 1998 1997 ----- ----- ----- Conversion of $1.425 convertible preferred stock.............. 1,954 7,848 9,261 Conversion of warrants........................................ 109 228 362 ----- ----- ----- 2,063 8,076 9,623 ===== ===== =====
As of December 31, 1999 and 1998, 264,406 and 178,982 shares, respectively, of ComEd common stock were reacquired and held as treasury stock at a cost of $10 million and $7 million, respectively. At December 31, 1999 and 1998, 75,692 and 76,079, respectively, of ComEd common stock purchase warrants were outstanding. The warrants entitle the holders to convert such warrants into common stock of ComEd at a conversion rate of one share of common stock for three warrants. As of December 31, 1999 and 1998, $852 million and $580 million, respectively, of retained earnings had been appropriated for future dividend payments. (8) Stock Option Awards/Employee Stock Purchase Plan. Unicom has a nonqualified stock option awards program under its Long-Term Incentive Plan. The stock option awards program was adopted by Unicom in July 1996 to reward valued employees responsible for, or contributing to, the management, growth and profitability of Unicom and its subsidiaries. The stock options granted expire ten years from their grant date. One-third of the shares subject to the options vest on each of the first three anniversaries of the option grant date. In addition, the stock options will become fully vested immediately if the holder dies, retires, is terminated by the Company, other than for cause, or qualifies for long-term disability. Options granted before July 22, 1998 also vest in full upon a change in control, while options granted on or after July 22, 1998 vest in full if the option holder is terminated within 24 months after a change of control. 41 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued Stock option transactions for the years 1999, 1998 and 1997 are summarized as follows:
Number of Weighted Average Options Exercise Price --------- ---------------- Outstanding as of January 1, 1997................... 1,188,000 $25.500 Granted during the year............................. 1,339,350 22.313 Exercised during the year........................... (23,423) 25.500 Expired/cancelled during the year................... (212,549) 23.632 --------- Outstanding as of December 31, 1997................. 2,291,378 23.810 Granted during the year............................. 1,379,525 35.234 Exercised during the year........................... (404,082) 24.244 Expired/cancelled during the year................... (123,928) 25.715 --------- Outstanding as of December 31, 1998................. 3,142,893 28.694 Granted during the year............................. 1,848,050 35.750 Exercised during the year........................... (313,231) 24.102 Expired/cancelled during the year................... (179,076) 33.551 --------- Outstanding as of December 31, 1999................. 4,498,636 31.719 =========
Of the stock options outstanding at December 31, 1999, 1,676,854 had vested with a weighted average exercise price of $27. The fair value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
Stock Option Grant Date ----------------------- 1999 1998 1997 ------- ------- ------- Expected option life.................................. 7 years 7 years 7 years Dividend yield........................................ 4.50% 4.54% 7.20% Expected volatility................................... 23.02% 21.95% 22.29% Risk-free interest rate............................... 4.83% 5.58% 6.25%
The estimated weighted average fair value for each stock option granted in 1999, 1998 and 1997 was $6.48, $6.62 and $2.79, respectively. The ESPP allows employees to purchase Unicom common stock at a ten percent discount from market value. Substantially all of the employees of Unicom, ComEd and their subsidiaries are eligible to participate in the ESPP. Unicom issued 89,500, 94,270 and 196,003 shares of common stock for the years 1999, 1998 and 1997, respectively, under the ESPP at a weighted average annual purchase price of $33.58, $33.11 and $19.15, respectively. ComEd has adopted the disclosure-only provisions of SFAS No. 123. For financial reporting purposes, ComEd has adopted APB No. 25, and thus no compensation cost has been recognized for the stock option awards program or ESPP. If ComEd had recorded compensation expense for the stock options granted and the shares of common stock issued under the ESPP in accordance with SFAS No. 123 using the fair value based method of accounting, the additional charge to operations would have been $4 million (after-tax), $2 million (after-tax) and $2 million (after-tax) for the years 1999, 1998 and 1997, respectively. (9) Preferred and Preference Stocks Without Mandatory Redemption Requirements. During the year 1999, 13,449,549 shares of preferred or preference stock without mandatory redemption requirements were redeemed and no shares were issued. No shares of preferred or preference stocks 42 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued without mandatory redemption requirements were issued or redeemed during 1998 and 1997. All series other than Series $1.425 have been redeemed. The outstanding shares of $1.425 convertible preferred stock are convertible at the option of the holders thereof, at any time, into common stock at the rate of 1.02 shares of common stock for each share of convertible preferred stock, subject to future adjustment. The convertible preferred stock may be redeemed by ComEd at $42 per share, plus accrued and unpaid dividends, if any. The involuntary liquidation price of the $1.425 convertible preferred stock is $31.80 per share, plus accrued and unpaid dividends, if any. (10) Preference Stock Subject to Mandatory Redemption Requirements. During 1999, 1998 and 1997, no shares of preference stock subject to mandatory redemption requirements were issued. During 1999, 1998 and 1997, 1,020,345, 338,215 and 438,215 shares, respectively, of preference stock subject to mandatory redemption requirements were reacquired to meet sinking fund requirements or were part of the early redemption in 1999. There were 700,000 shares of Series $6.875 preference stock outstanding at December 31, 1999, at an aggregate stated value of $69 million. This series is non-callable and is required to be redeemed on May 1, 2000. The sinking fund price is $100 and the involuntary liquidation price is $99.25 per share, plus accrued and unpaid dividends, if any. The $69 million is included in current liabilities. (11) Company-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts Holding Solely Company's Subordinated Debt Securities. In September 1995, ComEd Financing I, a wholly-owned subsidiary trust of ComEd, issued 8,000,000 of its 8.48% ComEd-obligated mandatorily redeemable preferred securities. The sole asset of ComEd Financing I is $206.2 million principal amount of ComEd's 8.48% subordinated deferrable interest notes due September 30, 2035. In January 1997, ComEd Financing II, a wholly-owned subsidiary trust of ComEd, issued 150,000 of its 8.50% ComEd-obligated mandatorily redeemable capital securities. The sole asset of ComEd Financing II is $154.6 million principal amount of ComEd's 8.50% subordinated deferrable interest debentures due January 15, 2027. There is a full and unconditional guarantee by ComEd of the Trusts' obligations under the securities issued by the Trusts. However, ComEd's obligations are subordinate and junior in right of payment to certain other indebtedness of ComEd. ComEd has the right to defer payments of interest on the subordinated deferrable interest notes by extending the interest payment period, at any time, for up to 20 consecutive quarters. Similarly, ComEd has the right to defer payments of interest on the subordinated deferrable interest debentures by extending the interest payment period, at any time, for up to ten consecutive semi-annual periods. If interest payments on the subordinated deferrable interest notes or debentures are so deferred, distributions on the preferred securities will also be deferred. During any deferral, distributions will continue to accrue with interest thereon. In addition, during any such deferral, ComEd may not declare or pay any dividend or other distribution on, or redeem or purchase, any of its capital stock. The subordinated deferrable interest notes are redeemable by ComEd, in whole or in part, from time to time, on or after September 30, 2000, and with respect to the subordinated deferrable interest debentures, on or after January 15, 2007, or at any time in the event of certain income tax circumstances. If the subordinated deferrable interest notes or debentures are redeemed, the Trusts must redeem preferred securities having an aggregate liquidation amount equal to the aggregate principal amount of the subordinated deferrable interest notes or debentures so redeemed. In the event of the dissolution, winding up or termination of the Trusts, the holders of the preferred securities will be entitled to receive, for each preferred security, a liquidation amount of $25 for the securities of ComEd Financing I and $1,000 for the securities of ComEd Financing II, plus accrued and unpaid 43 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued distributions thereon, including interest thereon, to the date of payment, unless in connection with the dissolution, the subordinated deferrable interest notes or debentures are distributed to the holders of the preferred securities. (12) Long-Term Debt. ComEd initiated the issuance of $3.4 billion of transitional trust notes through its SPEs, ComEd Funding and ComEd Funding Trust, in the fourth quarter of 1998. The current amount outstanding is as follows:
Series Principal Amount ------------------------ ---------------------- (Thousands of Dollars) 5.38% due March 25, 2000........................... $ 94,967 5.29% due June 25, 2001............................ 425,033 5.34% due March 25, 2002........................... 258,861 5.39% due June 25, 2003............................ 421,139 5.44% due March 25, 2005........................... 598,511 5.63% due June 25, 2007............................ 761,489 5.74% due December 25, 2008........................ 510,000 ---------- $3,070,000 ==========
For accounting purposes, the liabilities of ComEd Funding Trust for the transitional trust notes are reflected as long-term debt on the Consolidated Balance Sheets of Unicom and ComEd. The proceeds, net of transaction costs, from the transitional trust notes have been used, as required, to redeem debt and equity. During 1999, ComEd redeemed or reacquired $1,121 million of long-term debt. Sinking fund requirements and scheduled maturities remaining through 2004 for ComEd's first mortgage bonds, transitional trust notes, sinking fund debentures and other long-term debt outstanding at December 31, 1999, after deducting deposits made for the retirement of sinking fund debentures, are summarized as follows: 2000--$732 million; 2001--$345 million; 2002--$645 million; 2003--$445 million; and 2004--$577 million. At December 31, 1999, ComEd's outstanding first mortgage bonds maturing through 2004 were as follows:
Principal Amount Series ---------------------- (Thousands of Dollars) 9 3/8% due February 15, 2000....................... $ 42,245 6 1/2% due April 15, 2000.......................... 230,000 6 3/8% due July 15, 2000........................... 100,000 7 3/8% due September 15, 2002...................... 200,000 6 5/8% due July 15, 2003........................... 100,000 5 3/10% due January 15, 2004....................... 26,000 -------- $698,245 ========
44 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued Other long-term debt outstanding at December 31, 1999 is summarized as follows:
Principal Debt Security Amount Interest Rate - -------------------------- ---------- ------------------------------------------ (Thousands of Dollars) Notes: Medium Term Notes, Series 3N due various dates through October 15, 2004 $156,000 Interest rates ranging from 9.17% to 9.20% Notes 50 Variable interest rate Notes due January 15, 2004 150,000 Interest rate of 7.375% Notes due October 15, 2005 235,000 Interest rate of 6.40% Notes due January 15, 2007 150,000 Interest rate of 7.625% Notes due July 15, 2018 225,000 Interest rate of 6.95% -------- $916,050 -------- Purchase Contract Obliga- tion due April 30, 2005 $ 301 Interest rate of 3.00% -------- $916,351 ========
Long-term debt maturing within one year has been included in current liabilities. ComEd's outstanding first mortgage bonds are secured by a lien on substantially all property and franchises, other than expressly excepted property, owned by ComEd. (13) Lines of Credit. ComEd had total unused bank lines of credit of $800 million at December 31, 1999. Of that amount, $500 million expires on December 15, 2000 and $300 million expires on December 17, 2002. The interest rate is set at the time of a borrowing and is based on several floating rate bank indices plus a spread which is dependent upon the credit rating of ComEd's outstanding first mortgage bonds or on a prime interest rate. ComEd is obligated to pay commitment and facility fees with respect to the line of credit. (14) Disposal of Spent Nuclear Fuel. Under the Nuclear Waste Policy Act of 1982, the DOE is responsible for the selection and development of repositories for, and the disposal of, spent nuclear fuel and high-level radioactive waste. ComEd, as required by that Act, has entered into a contract with the DOE to provide for the disposal of spent nuclear fuel and high-level radioactive waste from ComEd's nuclear generating stations. The contract with the DOE requires ComEd to pay the DOE a one-time fee applicable to nuclear generation through April 6, 1983 of $277 million, with interest to date of payment, and a fee payable quarterly equal to one mill per kilowatthour of nuclear-generated and sold electricity after April 6, 1983. Pursuant to the contract, ComEd has elected to pay the one-time fee, with interest, just prior to the first delivery of spent nuclear fuel to the DOE. The liability for the one-time fee and the related interest is reflected on the Consolidated Balance Sheets. The contract also provided for acceptance by the DOE of such materials to begin in January 1998; however, that date was not met by the DOE and is expected to be delayed significantly. The DOE's current estimate for opening a facility to accept such waste is 2010. This extended delay in spent nuclear fuel acceptance by the DOE has led to ComEd's consideration of additional dry storage alternatives. On July 30, 1998, ComEd filed a complaint against the United States in the United States Court of Federal Claims seeking to recover damages caused by the DOE's failure to honor its contractual obligation to begin disposing of spent nuclear fuel in January 1998. On November 5, 1999, ComEd's case was stayed pending the decision of the United States Court of Appeals for the Federal Circuit in several similar cases brought by other utilities. 45 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued (15) Fair Value of Financial Instruments. The following methods and assumptions were used to estimate the fair value of financial instruments either held, or issued and outstanding. The disclosure of such information does not purport to be a market valuation of ComEd and subsidiary companies as a whole. The impact of any realized or unrealized gains or losses related to such financial instruments on the financial position or results of operations of ComEd and subsidiary companies is primarily dependent on the treatment authorized under future ratemaking proceedings. Investments. Securities included in the nuclear decommissioning funds have been classified and accounted for as "available for sale" securities. The estimated fair value of the nuclear decommissioning funds, as determined by the trustee and based on published market data, as of December 31, 1999 and 1998 was as follows:
December 31, 1999 December 31, 1998 -------------------------------- -------------------------------- Unrealized Gains/ Unrealized Cost Basis (Losses) Fair Value Cost Basis Gains Fair Value ---------- ---------- ---------- ---------- ---------- ---------- (Thousands of Dollars) Short-term investments.. $ 41,362 $ 95 $ 41,457 $ 40,907 $ 42 $ 40,949 U.S. Government and Agency issues.......... 245,399 (1,993) 243,406 197,240 20,213 217,453 Municipal bonds......... 383,816 (940) 382,876 416,121 24,124 440,245 Corporate bonds......... 196,942 (5,699) 191,243 241,111 8,790 249,901 Common stock............ 832,802 732,893 1,565,695 740,956 565,630 1,306,586 Other................... 125,072 (3,209) 121,863 11,345 838 12,183 ---------- -------- ---------- ---------- -------- ---------- $1,825,393 $721,147 $2,546,540 $1,647,680 $619,637 $2,267,317 ========== ======== ========== ========== ======== ==========
At December 31, 1999, the debt securities held by the nuclear decommissioning funds had the following maturities:
Cost Basis Fair Value ---------- ---------- (Thousands of Dollars) Within 1 year....................................... $47,853 $48,421 1 through 5 years................................... 263,588 263,117 5 through 10 years.................................. 227,927 225,860 Over 10 years....................................... 409,823 400,358
The net earnings of the nuclear decommissioning funds, which are recorded in the accumulated provision for depreciation, for the years 1999, 1998 and 1997 were as follows:
1999 1998 1997 ---------- ---------- ---------- (Thousands of Dollars) Gross proceeds from sales of securities....... $1,765,000 $1,795,484 $2,163,522 Less cost based on specific identification.... 1,718,151 1,728,092 2,088,300 ---------- ---------- ---------- Realized gains on sales of securities......... $ 46,849 $ 67,392 $ 75,222 Other realized fund earnings, net of expenses. 62,927 40,374 39,123 ---------- ---------- ---------- Total realized net earnings of the funds...... $ 109,776 $ 107,766 $ 114,345 Unrealized gains.............................. 101,510 190,503 198,741 ---------- ---------- ---------- Total net earnings of the funds.............. $211,286 $ 298,269 $ 313,086 ========== ========== ==========
46 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued Securities held by certain trusts, which were established to provide for supplemental retirement benefits and executive medical claims, have been classified and accounted for as "available for sale." The estimated fair value of these securities, as determined by the trustee and based on published market data, as of December 31, 1999 was as follows:
Cost Unrealized Fair Basis Gain Value ------- ---------- ------- (Thousands of Dollars) Short-term investments.............................. $ 162 $ -- $ 162 Registered investment companies..................... 21,641 12,471 34,112 ------- ------- ------- $21,803 $12,471 $34,274 ======= ======= =======
Current Assets. Cash, temporary cash investments, cash held for redemption of securities and special deposits are stated at cost, which approximates their fair value because of the short maturity of these instruments. The securities included in these categories have been classified as "available for sale" securities. Capitalization. The estimated fair values of preferred and preference stocks, Company-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely Company's subordinated debt securities, transitional trust notes and long-term debt were obtained from an independent consultant. The estimated fair values, which include the current portions of redeemable preference stock and long-term debt but exclude accrued interest and dividends, as of December 31, 1999 and 1998 were as follows:
December 31, 1999 December 31, 1998 --------------------------------- -------------------------------- Unrealized Carrying Losses/ Carrying Unrealized Fair Value (Gains) Fair Value Value Losses Value ---------- ---------- ---------- ---------- ---------- ---------- (Thousands of Dollars) Preferred and preference stocks................. $ 71,265 $ 58 $ 71,323 $ 678,156 $ 11,500 $ 689,656 Company-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely Company's subordinated debt securities........ $ 350,000 $ (10,595) $ 339,405 $ 350,000 $ 20,678 $ 370,678 Transitional trust notes.................. $3,057,112 $(163,600) $2,893,512 $3,382,821 $ 67,168 $3,449,989 Long-term debt.......... $4,637,062 $ (22,237) $4,614,825 $5,791,757 $442,077 $6,233,834
Current Liabilities. The carrying value of notes payable, which consists of commercial paper and bank loans maturing within one year, approximates the fair value because of the short maturity of these instruments. See "Capitalization" above for a discussion of the fair value of the current portion of long-term debt and redeemable preference stock. Other Noncurrent Liabilities. The carrying value of accrued spent nuclear fuel disposal fee and related interest represents the settlement value as of December 31, 1999 and 1998; therefore, the carrying value is equal to the fair value. 47 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued (16) Pension and Postretirement Benefits. As of December 31, 1999, ComEd had a qualified non-contributory defined benefit pension plan which covers all regular employees of ComEd and certain of Unicom's subsidiaries. Benefits under this plan reflect each employee's compensation, years of service and age at retirement. Funding is based upon actuarially determined contributions that take into account the amount deductible for income tax purposes and the minimum contribution required under the Employee Retirement Income Security Act of 1974, as amended. The December 31, 1999 and 1998 pension liabilities and related data were determined using the January 1, 1999 actuarial valuation. Additionally, ComEd maintains a nonqualified supplemental retirement plan which covers any excess pension benefits that would be payable to management employees under the qualified plan but which are limited by the Internal Revenue Code. In 1998, Indiana Company's qualified defined benefit pension plan was merged into ComEd's pension plan as a result of the sale of Indiana Company's State Line Station and the transfer of its remaining employees to ComEd. ComEd provides certain postretirement medical, dental and vision care, and life insurance for retirees and their dependents and for the surviving dependents of eligible employees and retirees. Generally, the employees become eligible for postretirement benefits if they retire no earlier than age 55 with ten years of service. The liability for postretirement benefits is funded through trust funds based upon actuarially determined contributions that take into account the amount deductible for income tax purposes. The health care plans are contributory, funded jointly by the companies and the participating retirees. The December 31, 1999 and 1998 postretirement benefit liabilities and related data were determined using the January 1, 1999 actuarial valuations. Reconciliations of the beginning and ending balances of the projected pension benefit obligation and the accumulated postretirement benefit obligation, and the funded status of these plans for the years 1999 and 1998 were as follows:
Twelve Months Ended Twelve Months Ended December 31, 1999 December 31, 1998 -------------------------- -------------------------- Other Other Pension Postretirement Pension Postretirement Benefits Benefits Benefits Benefits ---------- -------------- ---------- -------------- (Thousands of Dollars) Change in benefit obligation - ----------------- Benefit obligation at beginning of period.... $4,326,000 $1,236,000 $4,010,000 $1,139,000 Service cost............ 120,000 41,000 115,000 38,000 Interest cost........... 285,000 82,000 273,000 78,000 Plan participants' con- tributions............. -- 4,000 -- 3,000 Actuarial loss/ (gain).. (458,000) (188,000) 165,000 25,000 Benefits paid........... (241,000) (51,000) (237,000) (47,000) Special termination ben- efits.................. 62,000 27,000 -- -- ---------- ---------- ---------- ---------- Benefit obligation at end of period......... $4,094,000 $1,151,000 $4,326,000 $1,236,000 ---------- ---------- ---------- ----------
48 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued
Twelve Months Ended Twelve Months Ended December 31, 1999 December 31, 1998 -------------------------- -------------------------- Other Other Pension Postretirement Pension Postretirement Benefits Benefits Benefits Benefits ---------- -------------- ---------- -------------- (Thousands of Dollars) Change in plan assets - --------------------- Fair value of plan as- sets at beginning of period................. $4,015,000 $ 865,000 $3,706,000 $ 767,000 Actual return on plan assets................. 492,000 105,000 535,000 122,000 Employer contribution... 3,000 24,000 11,000 20,000 Plan participants' con- tributions............. -- 4,000 -- 3,000 Benefits paid........... (241,000) (51,000) (237,000) (47,000) ---------- --------- ---------- --------- Fair value of plan as- sets at end of period. $4,269,000 $ 947,000 $4,015,000 $ 865,000 ---------- --------- ---------- --------- Plan assets greater/(less) than benefit obligation..... $ 175,000 $(204,000) $ (311,000) $(371,000) Unrecognized net actuar- ial loss/(gain)........ (523,000) (555,000) 36,000 (371,000) Unrecognized prior serv- ice cost/(asset)....... (51,000) 41,000 (60,000) 48,000 Unrecognized transition obligation/(asset)..... (79,000) 276,000 (101,000) 323,000 ---------- --------- ---------- --------- Accrued liability for benefits.............. $ (478,000) $(442,000) $ (436,000) $(371,000) ========== ========= ========== =========
The assumed discount rate used to determine the benefit obligation as of December 31, 1999 and 1998 was 7.75% and 6.75%, respectively. The fair value of plan assets excludes $25 million and $21 million held in grantor trust as of December 31, 1999 and 1998, respectively, for the payment of benefits under the supplemental plan and $9 million and $7 million held in a grantor trust as of December 31, 1999 and 1998, respectively, for the payment of postretirement medical benefits. The components of pension and other postretirement benefit costs, portions of which were recorded as components of construction costs, for the years 1999, 1998 and 1997 were as follows:
1999 1998 1997 -------- -------- -------- Pension Benefit Costs - --------------------- (Thousands of Dollars) Service cost..................................... $120,000 $115,000 $100,000 Interest cost on projected benefit obligation.... 285,000 273,000 261,000 Expected return on plan assets................... (362,000) (342,000) (310,000) Amortization of transition asset................. (13,000) (12,000) (13,000) Amortization of prior service asset.............. (4,000) (4,000) (4,000) Recognized loss.................................. 3,000 2,000 2,000 Curtailment (gain)/loss.......................... 16,000 -- (5,000) -------- -------- -------- Net periodic benefit cost....................... $ 45,000 $ 32,000 $ 31,000 ======== ======== ======== Other Postretirement Benefit Costs - ---------------------------------- Service cost..................................... $ 41,000 $ 38,000 $ 34,000 Interest cost on accumulated benefit obligation.. 82,000 78,000 76,000 Expected return on plan assets................... (76,000) (69,000) (61,000) Amortization of transition obligation............ 22,000 22,000 22,000 Amortization of prior service cost............... 4,000 4,000 4,000 Recognized gain.................................. (14,000) (14,000) (13,000) Severance plan cost.............................. 1,000 6,000 8,000 Curtailment loss................................. 35,000 -- -- -------- -------- -------- Net periodic benefit cost....................... $ 95,000 $ 65,000 $ 70,000 ======== ======== ========
49 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued In accounting for the pension costs and other postretirement benefit costs under the plans, the following weighted average actuarial assumptions were used for the periods during 1999, 1998 and 1997:
Other Pension Benefits Postretirement Benefits ----------------- ----------------------- 1999 1998 1997 1999 1998 1997 ----- ----- ----- ------- ------- ------- Annual discount rate................. 6.75% 7.00% 7.50% 6.75% 7.00% 7.50% Annual long-term rate of return on plan assets......................... 9.25% 9.50% 9.75% 8.97% 9.20% 9.40% Annual rate of increase in future compensation levels................. 4.00% 4.00% 4.00% -- -- --
The pension curtailment gain in December 1997 represents the recognition of prior service costs, the transition asset and the decrease in the projected benefit obligation related to the reduction in the number of employees due to Indiana Company's sale of State Line Station. The pension and other postretirement benefit curtailment losses in December 1999 represent the recognition of prior service costs and transition obligations and an increase in the benefit obligations resulting from special termination benefits related to the reduction in the number of employees due to the sale of the fossil stations. The health care cost trend rates used to measure the expected cost of the postretirement medical benefits are assumed to be 8.0% for pre-Medicare recipients and 6.0% for Medicare recipients for 1999. Those rates are assumed to decrease in 0.5% annual increments to 5% for the years 2005 and 2001, respectively, and to remain level thereafter. The health care cost trend rates, used to measure the expected cost of postretirement dental and vision benefits, are a level 3.5% and 2.0% per year, respectively. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one percentage point change in the assumed health care cost trend rates would have the following effects:
1 Percentage 1 Percentage Point Increase Point Decrease -------------- -------------- (Thousands of Dollars) Effect on total 1999 service and interest cost components...................................... $ 26,000 $ (20,000) Effect on postretirement benefit obligation...... 190,000 (151,000)
In addition, an employee savings and investment plan is available to eligible employees of ComEd and certain of its subsidiaries. Under the plan, each participating employee may contribute up to 20% of such employee's base pay and the participating companies match the first 6% of such contribution equal to 100% of the first 2% of contributed base salary, 70% of the next 3% of contributed base salary and 25% of the next 1% of contributed base salary. The participating companies' contributions were $32 million, $32 million and $33 million for each of the years 1999, 1998 and 1997, respectively. (17) Separation Plan Costs. O&M expenses included $10 million, $48 million and $39 million for the years 1999, 1998 and 1997, respectively, for costs related to voluntary separation offers to certain employees of ComEd and Indiana Company, as well as certain other employee-related costs. Such costs resulted in charges of $6 million (after-tax), $29 million (after-tax), and $24 million (after-tax) for the years 1999, 1998 and 1997, respectively. See Note 5 of Notes to Financial Statements regarding employee separation costs related to the fossil plant sale. 50 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued (18) Income Taxes. The components of the net deferred income tax liability at December 31, 1999 and December 31, 1998 were as follows:
December 31, December 31, 1999 1998 ------------ ------------ (Thousands of Dollars) Deferred income tax liabilities: Accelerated cost recovery and liberalized deprecia- tion, net of removal costs......................... $2,781,601 $4,007,681 Overheads capitalized............................... 159,836 140,922 Repair allowance.................................... 221,502 233,861 Regulatory assets recoverable through future rates.. 688,946 680,356 Deferred income tax assets: Postretirement benefits............................. (376,207) (331,566) Unamortized investment tax credits.................. (161,756) (191,135) Regulatory liabilities to be settled through future rates.............................................. (596,157) (595,005) Nuclear plant closure............................... (5,456) (38,354) Other--net.......................................... (310,658) (145,268) ---------- ---------- Net deferred income tax liability.................... $2,401,651 $3,761,492 ========== ==========
The $1,360 million decrease in the net deferred income tax liability from December 31, 1998 to December 31, 1999 is comprised of a $1,378 million credit to net deferred income tax expense pertaining primarily to the fossil plant sale, a $7 million increase in regulatory assets net of regulatory liabilities pertaining to income taxes for the period and $11 million related to other items. The amount of accelerated cost recovery and liberalized depreciation included in deferred income tax liabilities for both periods includes amounts related to the regulatory asset for impaired production plant. The amount of regulatory assets included in deferred income tax liabilities primarily relates to the equity component of AFUDC which is recorded on an after-tax basis, the borrowed funds component of AFUDC which was previously recorded net of tax and other temporary differences for which the related tax effects were not previously recorded. The amount of other regulatory liabilities included in deferred income tax assets primarily relates to deferred income taxes provided at rates in excess of the current statutory rate. The components of net income tax expense charged/(credited) to continuing operations for the years 1999, 1998 and 1997 were as follows:
1999 1998 1997 ----------- -------- --------- (Thousands of Dollars) Operating income: Current income taxes....................... $ 1,782,707 $340,098 $ 279,416 Deferred income taxes...................... (1,403,402) 43,299 58,655 Investment tax credits deferred--net....... (25,828) (27,730) (31,015) Other (income) and deductions: Current income taxes....................... 457 (51,816) 1,116 Deferred income taxes...................... 25,739 59,458 (385,994) Investment tax credits..................... (51,740) (12,107) (22,526) ----------- -------- --------- Net income taxes charged/(credited) to con- tinuing operations......................... $ 327,933 $351,202 $(100,348) =========== ======== =========
Provisions for current and deferred federal and state income taxes and amortization of investment tax credits resulted in the following effective income tax rates for the years 1999, 1998 and 1997:
1999 1998 1997 -------- -------- --------- Pre-tax book income (loss) (thousands)........... $978,241 $945,408 $(260,486) Effective income tax rate........................ 33.5% 37.1% 38.5%
51 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued The principal differences between net income taxes charged/(credited) to continuing operations and the amounts computed at the federal statutory rate of 35% for the years 1999, 1998 and 1997 were as follows:
1999 1998 1997 -------- -------- --------- (Thousands of Dollars) Federal income taxes computed at statutory rate. $342,384 $330,893 $ (91,170) Equity component of AFUDC which was excluded from taxable income............................ (436) (390) (8,320) Amortization of investment tax credits, net of deferred income taxes.......................... (48,216) (25,503) (53,541) State income taxes, net of federal income taxes. 48,062 43,699 3,470 Unrealized loss/(gain) on forward share repurchase contract............................ 15,390 -- -- Earnings on nontax-qualified decommissioning fund........................................... (8,915) -- -- Differences between book and tax accounting, primarily property-related deductions.......... (20,336) 2,503 49,213 -------- -------- --------- Net income taxes charged/(credited) to continuing operations.......................... $327,933 $351,202 $(100,348) ======== ======== =========
(19) Taxes, Except Income Taxes. Provisions for taxes, except income taxes, for the years 1999, 1998 and 1997 were as follows:
1999 1998 1997 -------- -------- -------- (Thousands of Dollars) Illinois public utility revenue............... $ 981 $114,981 $228,350 Illinois invested capital..................... -- -- 99,503 Illinois electricity distribution tax......... 114,241 110,025 -- Municipal utility gross receipts.............. 99,701 152,501 168,094 Real estate................................... 114,394 124,131 150,179 Municipal compensation........................ 73,349 89,210 78,286 Energy assistance and renewable energy charge. 34,423 32,736 -- Other--net.................................... 69,237 73,567 74,755 -------- -------- -------- $506,326 $697,151 $799,167 ======== ======== ========
Effective January 1, 1998, the Illinois invested capital tax was repealed and the Illinois electricity distribution tax was enacted as a replacement. The new tax is based on the kilowatthours delivered to ultimate consumers. The 1997 Act changed the nature of several state and municipal taxes that are collected through customer billings. Before August 1998, the utility taxes were assessed against the utility. Effective August 1998, the utility taxes are assessed on the electric consumer rather than the utility. Accordingly, ComEd records the collections as liabilities and no longer records the taxes collected through billings as revenues and tax expense. The reduction in operating revenues and taxes, except income taxes, due to the change in presentation for such taxes was approximately $174 million in 1999, compared to 1998, and $110 million in 1998, compared to 1997. This change in presentation for such taxes did not have an effect on operations. See Note 22 for additional information regarding Illinois invested capital taxes. (20) Lease Obligations of Subsidiary Companies. Under its nuclear fuel lease arrangement, ComEd may sell and lease back nuclear fuel from a lessor who may borrow an aggregate of $267 million, consisting of intermediate term notes, to finance the transactions. A commercial paper/bank borrowing portion expired on November 23, 1999. With respect to the intermediate term notes, $75 million expires on November 23, 2000, $115 million expires on November 23, 2001 and $77 million 52 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued expires on November 23, 2003. At December 31, 1999, ComEd's obligation to the lessor for leased nuclear fuel amounted to approximately $270 million. ComEd has agreed to make lease payments which cover the amortization of the nuclear fuel used in ComEd's reactors plus the lessor's related financing costs. ComEd has an obligation for spent nuclear fuel disposal costs of leased nuclear fuel. As of December 31, 1999, future minimum rental payments, net of executory costs, for capital leases are estimated to aggregate to $298 million, including $121 million in 2000, $96 million in 2001, $48 million in 2002 and $33 million in 2003. The estimated interest component of such rental payments aggregates $27 million. The estimated portions of obligations due within one year under capital leases of $108 million and $195 million at December 31, 1999 and 1998, respectively, were included in current liabilities on the Consolidated Balance Sheets. Future minimum rental payments at December 31, 1999 for operating leases are estimated to aggregate to $271 million, including $31 million in 2000, $24 million in 2001, $25 million in 2002, $22 million in 2003, $21 million in 2004 and $148 million in 2005-2043. (21) Joint Plant Ownership. ComEd has a 75% undivided ownership interest in the Quad Cities nuclear generating station. Further, ComEd is responsible for 75% of all costs which are charged to appropriate investment and O&M accounts, and provides its own financing. ComEd's net plant investment, including construction work in progress, in Quad Cities Station on the Consolidated Balance Sheets was $22 million at December 31, 1999, after reflecting the accounting impairment recorded in the second quarter of 1998. See Note 1, under "Regulatory Assets and Liabilities," for additional information. (22) Commitments and Contingent Liabilities. Purchase commitments, principally related to construction, nuclear fuel and coal in support of certain power purchase agreements, approximated $670 million at December 31, 1999. In addition, ComEd has substantial commitments for expected capacity payments and fixed charges related to certain power purchase agreements. Upon completion of the fossil plant sale with EME, ComEd entered into arrangements to assign or settle a substantial portion of its coal purchase commitments and entered into purchase power agreements with EME. See "Management's Discussion and Analysis of Financial Condition and Results of Operations," subcaption "Liquidity and Capital Resources--UTILITY OPERATIONS--Construction Program," for additional information regarding ComEd's purchase commitments. ComEd is a member of NEIL which provides insurance coverage against property damage and associated replacement power costs occurring at members' nuclear generating facilities. All companies insured with NEIL are subject to retrospective premium adjustments if losses exceed accumulated reserve funds. Capital has been accumulated in the reserve funds such that ComEd would not be liable for any single incident. However, ComEd could be subject to assessments in any policy year for each of three types of coverage provided. The maximum assessments are approximately $53 million for primary property damage, $73 million for excess property damage and $22 million for replacement power. The NRC's indemnity for public liability coverage under the Price-Anderson Act is supported by a mandatory industry-wide program under which owners of nuclear generating facilities could be assessed in the event of nuclear incidents. Based on the number of nuclear reactors with operating licenses, ComEd would currently be subject to a maximum assessment of $1,145 million in the event of an incident, limited to a maximum of $130 million in any calendar year. 53 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued In addition, ComEd participates in the American Nuclear Insurers Master Worker Program, which provides coverage for worker tort claims filed for bodily injury caused by the nuclear energy hazard. This program was modified, effective January 1, 1998, to provide coverage to all workers whose "nuclear- related employment" began on or after the commencement date of reactor operations. ComEd will not be liable for a retrospective assessment under this new policy. However, ComEd is still subject to a maximum retroactive assessment of up to $36 million in the event losses incurred under the small number of policies in the old program exceed accumulated reserves. Three of ComEd's wholesale municipal customers filed a complaint and request for refund with the FERC alleging that ComEd failed to properly adjust their rates, as provided for under the terms of their electric service contracts, to track certain refunds made to ComEd's retail customers in the years 1992 through 1994. In the third quarter of 1998, the FERC granted the complaint and directed that refunds be made, with interest. ComEd filed and was granted a request for rehearing for purposes of reconsideration with the FERC. If the order is upheld, ComEd must make refunds within 15 days of the resolution for rehearing. ComEd's management believes an adequate reserve has been established in connection with this case. During 1989 and 1991, actions were brought in federal and state courts in Colorado against ComEd and Cotter seeking unspecified damages and injunctive relief based on allegations that Cotter has permitted radioactive and other hazardous material to be released from its mill into areas owned or occupied by the plaintiffs resulting in property damage and potential adverse health effects. With respect to Cotter, in 1994 a federal jury returned nominal dollar verdicts against Cotter on eight plaintiffs' claims in the 1989 cases, which verdicts were upheld on appeal. The remaining claims in the 1989 actions have been settled and dismissed. On July 15, 1998, a jury verdict was rendered in Dodge v. Cotter (United States District Court for the District of Colorado, Civil Action No. 91-Z-1861), a case relating to 14 of the plaintiffs in the 1991 cases. The verdict against Cotter and in favor of the plaintiff, after an amended judgement was issued March 11, 1999, totaled approximately $6 million, including compensatory and punitive damages, interest, and medical monitoring. On February 11, 2000, the Tenth Circuit Court of Appeals agreed with Cotter, found that the trial judge had erred in critical rulings and reversed the jury verdict, remanding the case for new trial. A case involving the next group of plaintiffs is set for trial in federal district court in Denver on October 2, 2000. Although ComEd sold its investment in Cotter in February 2000, ComEd will continue to be liable for any court verdicts in favor of the plaintiffs. The other 1991 cases will necessarily involve the resolution of numerous contested issues of law and fact. It is Unicom and ComEd's assessment that these actions will not have a material impact on their financial position or results of operations. In August 1999, three class action lawsuits were filed against ComEd related to a series of service interruptions during the summer of 1999. The combined effect of these events resulted in over 100,000 customers losing service. On August 12, 1999, service was interrupted to ComEd customers on the near north and near west side of the City's central business district. While major commercial customers were affected, all service was restored on the same date. The class action complaints have been consolidated and seek to recover damages for personal injuries and property damage, as well as economic loss for these events. Further, ComEd initiated expedited claim settlements for those with primarily food spoilage claims. Conditional class certification has been approved by the Court for the sole purpose of exploring settlement talks. The lawsuits are pending in the Circuit Court of Cook County. ComEd has filed a motion challenging the legal sufficiency of the consolidated complaints. The plaintiff's response is due April 14, 2000 and any reply by ComEd is due May 12, 2000. The motion to dismiss is currently scheduled to be argued on May 23, 2000. ComEd's management believes adequate reserves have been established in connection with these cases. 54 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Continued Following the above-referenced series of service interruptions, the ICC opened a three-phase investigation of the design and reliability of ComEd's transmission and distribution system. At the conclusion of each phase of the investigation, the ICC will issue a report that will include specific recommendations for ComEd and a timetable for executing the recommendations. Hearings on Phase I of the investigation were held the week of January 3, 2000, which focused on the outages of July and August 1999. Reports on Phase II and Phase III, focusing on the transmission and distribution system generally, are anticipated in the second quarter of 2000. The final phase of the investigation is expected to conclude in early 2001. ComEd is involved in administrative and legal proceedings concerning air quality, water quality and other matters. The outcome of these proceedings may require increases in future construction expenditures and operating expenses and changes in operating procedures. ComEd and its subsidiaries are or are likely to become parties to proceedings initiated by the U.S. EPA, state agencies and/or other responsible parties under CERCLA with respect to a number of sites, including MGP sites, or may voluntarily undertake to investigate and remediate sites for which they may be liable under CERCLA. ComEd generally did not operate MGPs as a corporate entity but did, however, acquire MGP sites as part of the absorption of smaller utilities. Approximately half of these sites were transferred to then Northern Illinois Gas Company (Nicor Gas) as part of a general conveyance in 1954. ComEd also acquired former MGP sites as vacant real estate on which ComEd facilities have been constructed. To date, ComEd has identified 44 former MGP sites for which it may be liable for remediation. In the fourth quarter of 1999, ComEd re- evaluated its environmental remediation strategies. As a result of this re- evaluation, ComEd's current best estimate of its costs of former MGP site investigation and remediation is $93 million in current-year (2000) dollars (reflecting a discount rate of 6.5%). Such estimate, reflecting an estimated inflation rate of 3% and before the effects of discounting, is $182 million. It is expected that the costs associated with investigation and remediation of former MGP sites will be substantially incurred through 2012, however monitoring and certain other costs are expected to be incurred through 2042. ComEd's current best estimate of its costs of former MGP site investigation and remediation of $93 million has been included in other noncurrent liabilities on the Consolidated Balance Sheets as of December 31, 1999. The increase in ComEd's estimated costs of former MGP sites of $68 million in 1999 over 1998 was included in operation and maintenance expenses on ComEd's Statements of Consolidated Operations. In addition, as of December 31, 1999 and 1998, a reserve of $8 million has been included in other noncurrent liabilities on the Consolidated Balance Sheets, representing ComEd's estimate of the liability associated with cleanup costs of sites other than former MGP sites. These costs estimates are based on currently available information regarding the responsible parties likely to share in the costs of responding to site contamination, the extent of contamination at sites for which the investigation has not yet been completed and the cleanup levels to which sites are expected to have to be remediated. While ComEd may have rights of reimbursement under insurance policies, amounts that may be recoverable from other entities are not considered in establishing the estimated liability for the environmental remediation costs. The IDR has issued Notices of Tax Liability to ComEd alleging deficiencies in Illinois invested capital tax payments for the years 1988 through 1997. The alleged deficiencies, including interest and penalties, totaled approximately $52 million as of December 31, 1999. ComEd has protested the notices, and the matter is currently pending before the IDR's Office of Administrative Hearings. Interest will continue to accumulate on the alleged tax deficiencies. 55 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--Concluded On March 22, 1999, ComEd reached a settlement agreement with the City to end the arbitration proceeding between ComEd and the City regarding the January 1, 1992 franchise agreement and a supplemental agreement between them. Under the terms of the settlement agreement, the pending arbitration is to be dismissed with prejudice and the City is to release ComEd from all claims the City may have under the supplemental agreement. The settlement agreement was approved by the City Council on May 12, 1999. As part of the settlement agreement, ComEd and the City have agreed to a revised combination of ongoing work under the franchise agreement and new initiatives that will result in defined transmission and distribution expenditures by ComEd to improve electric service in the City. The settlement agreement provides that ComEd will be subject to liquidated damages if the projects are not completed by various dates, unless it is prevented from doing so by events beyond its reasonable control. ComEd's current construction budget considers these projects. In addition, ComEd and the City established an Energy Reliability and Capacity Account, into which ComEd deposited $25 million following the effectiveness of the settlement agreement and ComEd has conditionally agreed to deposit up to $25 million at the end of each of the years 2000, 2001 and 2002, to help ensure an adequate and reliable electric supply for the City. The 1997 Act also committed ComEd to spend at least $2 billion from 1999 through 2004 on transmission and distribution facilities outside of the City. (23) Quarterly Financial Information
Net Income Electric Electric on Operating Operating Net Common Three Months Ended Revenues Income Income Stock - ------------------ ---------- --------- -------- -------- --- (Thousands of Dollars) --- March 31, 1999....................... $1,528,800 $254,782 $ 94,401 $ 79,104 June 30, 1999........................ $1,678,983 $239,814 $129,985 $126,942 September 30, 1999................... $2,064,011 $435,777 $287,049 $285,219 December 31, 1999.................... $1,495,098 $275,989 $111,294 $107,708 March 31, 1998....................... $1,662,275 $196,169 $ 71,833 $ 57,286 June 30, 1998........................ $1,776,972 $220,452 $104,453 $ 89,991 September 30, 1998................... $2,089,547 $400,913 $286,071 $272,018 December 31, 1998.................... $1,559,748 $228,434 $131,849 $118,027
(24) Subsequent Event. In January 2000, ComEd physically settled the forward share repurchase arrangements it had with Unicom for the repurchase of 26.3 million ComEd common shares. Prior to settlement, the repurchase arrangements were recorded as a receivable on Consolidated Balance Sheets based on the aggregate market value of the shares under the arrangements. In 1999, net unrealized losses of $44 million (after-tax) were recorded related to the arrangements. The settlement of the arrangements in January 2000 resulted in a gain of $113 million (after-tax), which will be recorded in the first quarter of 2000. The settlement of the arrangements will also result in a reduction in ComEd's outstanding common shares and common stock equity, effective January 2000. 56 -----END PRIVACY-ENHANCED MESSAGE-----