ComEd 2013 Annual Report Download - page 247

(Debentures), ofConstellation between January30,2008andSeptember 16, 2008, andwhoacquiredDebenturesinanoffering
completedinJune 2008. Thesecuritiesclass actionsgenerallyallegethat Constellation,anumber ofitsformer officersor directors,
andtheunderwritersviolatedthesecuritieslaws by issuingafalseand misleadingregistration statement andprospectusin
connection withConstellation’s June 27, 2008offeringoftheDebentures. Thesecuritiesclass actionsalso allegethat Constellation
issuedfalseormisleadingstatementsor wasaware ofmaterial undisclosedinformation which contradictedpublic statements,
includinginconnection withitsannouncementsoffinancial resultsfor 2007, thefourthquarter of2007, thefirstquarter of2008and
thesecondquarter of2008andthefilingofitsfirstquarter 2008Form10-Q. Thesecuritiesclass actionssought,amongother things,
certification ofthecasesasclass actions, compensatorydamages, reasonable costsandexpenses, includingcounsel fees, and
rescission damages.
TheSouthern DistrictofNewYorkgrantedthedefendants’ motion to transfer thetwosecuritiesclass actionsfiledinMarylandto the
DistrictofMaryland, andtheactionshavesincebeen transferredfor coordination withthesecuritiesclass action filedthere.On
May9,2013,thefederal court inMarylandpreliminarilyapprovedthesettlement ofConstellation’s 2008SecuritiesClass Action for a
payment of$4million, which will bepaid by Constellation’s insurer.Noticeofthesettlement wasprovidedto class membersinJune
2013 andthecourt approvedthefinal settlement on November 4, 2013. This settlement will resolve all ofConstellation’s litigation
arisingfromthe 2008SecuritiesClass Action lawsuit.
Fund Transfer Restrictions
Under applicable law, Exelon mayborrowor receiveanextension ofcreditfromitssubsidiaries. Under the terms ofExelon’s
intercompanymoneypool agreement,Exelon can lendto,but not borrowfromthemoneypool.
TheFederal Power Actdeclaresittobe unlawful for anyofficer or director ofanypublic utility“to participate inthemakingor paying
ofany dividends ofsuch public utilityfromanyfunds properlyincludedincapital account.” What constitutes“funds properlyincluded
incapital account”isundefinedintheFederal Power Actorthe relatedregulations; however,FERChasconsistentlyinterpretedthe
provision to allow dividends to bepaid aslongas: (1)thesourceofthedividends is clearly disclosed; (2)thedividendisnot
excessive;and(3)there is no self-dealingon the part ofcorporate officials. While theserestrictionsmaylimittheabsolute amount of
dividends that a particular subsidiarymaypay, Exelon doesnot believetheselimitationsare materiallylimitingbecause,under these
limitations, thesubsidiariesare allowedto pay dividends sufficient to meet Exelon’s actual cash needs.
Under Illinois law, ComEd maynot payany dividendon itsstock unless, amongother things, “[its] earnings andearnedsurplusare
sufficient to declare andpaysameafter provision is madefor reasonable andproper reserves,” or unless ithasspecific authorization
fromtheICC. ComEd hasalsoagreedinconnection withfinancings arrangedthrough ComEd Financing III that itwill not declare
dividends on anysharesofitscapital stock intheevent that:(1)itexercisesitsrighttoextendtheinterestpayment periods on the
subordinateddebtsecurities issuedto ComEd Financing III; (2)itdefaultson itsguarantee ofthepayment of distributionson the
preferredtrustsecuritiesofComEd Financing III; or (3)an event ofdefault occursunder theIndenture under which thesubordinated
debtsecuritiesare issued.
PECO’s ArticlesofIncorporation prohibitpayment ofany dividendon,or other distribution to theholdersof, common stock if, after
givingeffectthereto,thecapital of PECO representedbyitscommon stock together withitsretainedearnings is, intheaggregate,
less than theinvoluntaryliquidatingvalue ofitsthen outstandingpreferredsecurities. OnMay1,2013, PECO redeemedall
outstandingpreferredsecurities. Asaresult,theabove ratiocalculation is no longer applicable.Additionally, PECO maynot declare
dividends on anysharesofitscapital stock intheevent that:(1)itexercisesitsrighttoextendtheinterestpayment periods on the
subordinateddebentures, which were issuedto PEC L.P. or PECO TrustIV; (2)itdefaultson itsguarantee ofthepayment of
distributionson theSeriesDPreferredSecuritiesof PEC L.P. or the preferredtrustsecuritiesof PECO TrustIV; or (3)an event of
default occursunder theIndenture under which thesubordinateddebenturesare issued.
BGE pays dividends on itscommon stock after itsboardofdirectorsdeclaresthem. However, BGE is subjecttocertaindividend
restrictionsestablishedbytheMDPSC. First, BGE is prohibitedfrompayingadividendon itscommon sharesthrough theendof
2014. Second, BGE is prohibitedfrompayingadividendon itscommon sharesif(a)after thedividendpayment, BGE’s equityratio
wouldbebelow 48% ascalculatedpursuant to theMDPSC’s ratemakingprecedentsor (b) BGE’s senior unsecuredcredit ratingis
ratedbytwoofthethree major credit ratingagenciesbelowinvestment grade.Finally, BGE must notify theMDPSC that itintends to
declare a dividendon itscommon sharesat least30days before such adividendispaid. There are no other limitationson BGE
payingcommon stock dividends unless: (1) BGE electsto defer interestpaymentson the6.20%Deferrable InterestSubordinated
Debenturesdue 2043,andanydeferredinterestremainsunpaid; or (2)any dividends (andanyredemption payments) due on BGE’s
preferencestock have not been paid.
241